<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ______________
Commission File Number 1-6098
DANIEL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 74-1547355
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<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
9753 Pine Lake Drive, Houston, Texas 77055
------------------------------------------
(Address of principal executive offices) (Zip Code)
713-467-6000
------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of Class Name of Each Exchange on Which Registered
-------------- -----------------------------------------
<S> <C>
Common Stock, $1.25 New York Stock Exchange
Rights to Purchase Preferred Shares New York Stock Exchange
</TABLE>
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. [ ]
At March 16, 1998, the aggregate market value of Common Stock, $1.25
par value, of the registrant held by non-affiliates of the registrant was
approximately $305.9 million. As of that date, there were outstanding 17,353,419
shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated by reference in Part III of this Annual Report on
Form 10-K the information contained under the headings "Election of Directors,"
"Executive Officers," "Executive Compensation," "Certain Relationships and
Related Transactions," "Ownership of Common Stock" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Registrant's Proxy Statement for the
Company's Annual Meeting of Stockholders to be held May 14, 1998, which Proxy
Statement will be filed within 120 days of the end of the registrant's fiscal
year.
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P A R T I
ITEM 1. BUSINESS
Background
Daniel Industries, Inc. was incorporated in Delaware in 1988 as the
successor to a business started in 1930. Unless the context indicates otherwise,
references to "Daniel" or the "Company" refer to Daniel Industries, Inc., its
subsidiaries and their predecessors.
Daniel is engaged in providing products and services used primarily by
producers, refiners and transporters of oil and natural gas. Daniel manufactures
a variety of measurement devices including orifice, turbine and ultrasonic
meters and a wide range of electronic instruments used in conjunction with flow
measurement products. Daniel also designs, fabricates and assembles automated
flow measurement systems to meet specific needs and applications. Daniel also
manufactures and sells valves, primarily for pipeline use.
As a result of the December 1996 acquisition of Bettis Corporation
("Bettis"), the Company also manufactures and sells valve actuators and control
systems, which are used to remotely and automatically open and close
quarter-turn and linear valves for any industry that uses pipes to transport
liquids and gases in supply, manufacture or distribution operations.
Also in December 1996, Daniel's Board of Directors approved a change in
fiscal year-end from September 30 to December 31. The Company filed a Transition
Report on Form 10-Q for the three month transition period ended December 31,
1996.
Products and Services
Measurement and Control
Since its inception in 1930, Daniel has manufactured products that
employ a method known as differential orifice measurement to measure fluids,
primarily natural gas. These orifice measurement products cause a decline in
pressure as fluid flows through the device. This decline in pressure is measured
and utilized to determine rates of flow and accumulated volumes of fluid. In
addition to the differential orifice measurement products, Daniel manufactures
flow measurement products using turbines whose frequency of rotation indicates
the rates of flow and accumulated volumes, and non-intrusive ultrasonic gas flow
meters for custody transfer and bi-directional check metering.
Daniel also manufactures a wide range of electronic instruments used in
conjunction with flow measurement products. Daniel's electronic flow computers
instantaneously compute and display the rate of flow and accumulated volumes of
fluid. Daniel's chromatographs are used for hydrocarbon analysis involving
measurement of natural gas to determine its BTU content and applications within
the hydrocarbon processing industry. In addition, Daniel designs and
manufactures electronic products for the automation of liquid petroleum loading
facilities. The Company has developed several software programs and has an
in-house programming capability to meet specific customer applications.
Daniel designs, fabricates and assembles flow measurement systems,
including specialized electronic and control systems for the automation of
liquid petroleum product loading systems. Typically, a system is mounted on one
or more skids for ease of installation and contains various mechanical
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equipment, electronic instrumentation, piping, supports and walkways. A system
can be operated manually or it may be completely automated through the use of
computers and other instrumentation supplied and programmed by Daniel. In the
process of supplying a flow measurement system, Daniel first determines the
total measurement requirements, and subsequently designs the system. Daniel then
fabricates or supplies the various mechanical and electronic components of the
system. Systems are assembled and tested at Daniel's Houston, Texas; Falkirk,
Scotland; or Malton, England plants. Daniel also has the capability to supervise
on-site installation and start-up operations of the system and to provide
servicing subsequent to the installation.
In competing for the sale of systems, Daniel may enter into contracts
which provide for the completion of the systems at specified prices and in
accordance with sometimes lengthy time schedules. These contracts may,
therefore, involve risks as a result of unforeseen increases in the prices of
raw materials and other costs. Daniel accounts for sales of systems using the
percentage-of-completion method, which requires recognition of revenues and
costs over the life of the contract, rather than solely at the time the contract
is completed.
Sales of all measurement products, electronic instruments and flow
measurement systems worldwide contributed 53%, 50%, 52% and 60% of Daniel's
revenues from core operations for the year ended December 31, 1997, the three
month period ended December 31, 1996, and the years ended September 30, 1996 and
1995, respectively.
Actuation
Daniel also manufactures and sells valve actuators and controls used to
remotely and automatically open or close quarter-turn or linear valves. The
market for valve actuators and controls includes any industry utilizing pipes to
transport liquids or gases in supply, manufacture and distribution operations.
For Daniel's customers, remote automatic operation of valves enhances
environmental safety, reduces personnel requirements and provides an accurate,
efficient and measurable means of controlling valve positioning in any
application. Worldwide sales of valve actuators contributed 35%, 38%, 29% and
29% of Daniel's revenues from core operations for the year ended December 31,
1997, the three month period ended December 31, 1996, and the years ended
September 30, 1996 and 1995, respectively.
Valves
Daniel is also engaged in the manufacture of gate valves and repair of
pipeline valves. The gate valves are fabricated from plate steel and also
manufactured from castings. Daniel offers both slab and expanding gate valves
with primary applications as pipeline block valves and for on/off service in
liquid and gas systems. The cast steel gate valves are also used for geothermal
wellhead and block valve service. In addition, Daniel manufactures surge relief
and flow control valves for liquid and gas pipeline applications. Sales of all
valve products worldwide contributed 12%, 12%, 19% and 11% of Daniel's revenues
from core operations for the year ended December 31, 1997, the three month
period ended December 31, 1996, and the years ended September 30, 1996 and 1995,
respectively.
Distribution
The geographic market for Daniel's products and systems is worldwide.
Daniel has sales offices in: twelve United States cities; Calgary, Canada;
Edmonton, Canada; Esjberg, Denmark; Villemomble, France; Fareham, England;
Malton, England; Falkirk, Scotland; Rheinberg, Germany; New Bombai, India;
Dubai, United Arab Emirates; Perth, Australia; Leiden, Holland; and Singapore.
In addition, sales are made domestically and in certain foreign countries
through a system of distributors and through sales
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representatives working on a commission basis. Sales are principally to
integrated oil companies, gas pipeline companies and other concerns engaged in
the production, transmission and marketing of oil and natural gas. However,
Daniel's products and systems have also been utilized in the water handling,
chemical, power generation, food and beverage, and pulp and paper industries.
Competition
Management believes that, in terms of revenues, Daniel is the largest
domestic producer of orifice measurement products used to measure natural gas
flows in custody transfer and of large diameter pipeline gate valves. Since the
merger with Bettis, management considers Daniel a major competitor in both the
domestic and international markets for valve actuators. In addition, management
believes that Daniel is a major international supplier of terminal automation
equipment for terminal petroleum product truck loading and of flow measurement
systems, which are used to measure crude oil flows. In general, Daniel has
numerous competitors, none of which it considers to be dominant overall. The
principal competitive factors affecting Daniel's business include, singularly or
in various combinations, price, the ability to meet strict delivery
requirements, design, service and efficiency.
Backlog
At December 31, 1997 and 1996, and September 30, 1996, Daniel's backlog
of orders was approximately $72,518,000, $62,041,000 and $51,021,000,
respectively. Daniel anticipates that substantially all of the backlog at
December 31, 1997, will be shipped prior to December 31, 1998.
Foreign Operations
Approximately 22% of Daniel's revenues for the year ended December 31,
1997 were attributable to sales of flow measurement products and systems
manufactured or assembled at Daniel's plants in the United Kingdom, France,
Denmark or Germany. The sale of the Company's products and systems for
installation or use outside the United States, inclusive of the operations in
the United Kingdom, France, Denmark and Germany, contributed approximately 59%,
57%, 58%, and 58% of Daniel's consolidated revenues from core operations for the
year ended December 31, 1997, the three month period ended December 31, 1996,
and the years ended September 30, 1996 and 1995, respectively. Daniel's
operations outside the United States are subject to the usual risks of such
operations, including changes in governmental policies, currency transfer
restrictions and devaluation. Daniel strives to minimize these risks through the
use of letters of credit, United States dollar-denominated contracts and hedging
of specific foreign currency commitments. Financial information about Daniel's
foreign and domestic operations and export sales by geographic area is presented
in Note 16 of Notes to Consolidated Financial Statements. Such information is
incorporated by reference here.
Business Combination and Dispositions
On December 12, 1996, Daniel completed a merger with Bettis under which
Bettis stockholders received .58 of a share of Daniel common stock ("Common
Stock") for each share of Bettis common stock for an aggregate of 4,920,392
shares of Common Stock. The transaction was accounted for as a pooling of
interests and as such, Daniel's financial statements have been restated to
include Bettis for all periods presented.
During 1997, the Company sold certain non-core assets including its
ball valve line, a linear actuator product line, a building owned by a
subsidiary of Bettis and the stock of a German subsidiary. See "Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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Customers
Daniel's customers are primarily major and independent oil and gas
companies, foreign national oil companies and others in the petroleum industry.
Daniel occasionally enters into contracts to design and assemble one or more
flow measurement systems for a single installation. While such systems can be of
material importance to the results of operations for a particular fiscal period,
Daniel is not dependent on a few customers on a continuing basis, and no single
customer accounted for more than 10% of Daniel's total revenues in 1997.
Patents and Research
The Company has followed a policy of seeking patent protection both
inside and outside the United States for products and methods that appear to
have commercial significance. The Company believes its patents and trademarks to
be adequate for the conduct of its business, and while it regards patent and
trademark protection as important to its business and future prospects, it
considers its established reputation, the reliability of its products and the
technical skills of its personnel to be more important.
Daniel is engaged in research activities related to the development of
new products as well as the improvement of existing products. The amounts
expended for research and product development activities for the year ended
December 31, 1997, the three month period ended December 31, 1996, and the years
ended September 30, 1996 and 1995, were $5,221,000, $1,088,000, $2,583,000 and
$3,287,000, respectively.
Employees
At December 31, 1997, Daniel employed approximately 1,800 people, none
of whom are subject to a collective bargaining agreement. Daniel considers its
employee relations to be satisfactory.
Environmental Compliance
Compliance with existing governmental regulations relating to the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, does not have, nor is it expected to have, a
material effect on Daniel.
Other Business Conditions and Regulations
Daniel's business is largely dependent, in the long-term, upon the
level and nature of activity in the worldwide oil and natural gas industries.
The level of such activity is influenced by numerous factors, including general
economic conditions, the demand for oil and/or natural gas, development of
alternative energy sources, taxation, price controls and other political and
economic conditions.
The business of Daniel is moderately seasonal to the extent that many
of its products and systems are installed and its services provided
out-of-doors. Consequently, sales attributable to these products and services
tend to increase somewhat during the summer months when the weather is more
favorable, and there are more daylight hours.
For a discussion of working capital, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
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ITEM 2. PROPERTIES
The principal offices and manufacturing facilities of Daniel are as
follows:
<TABLE>
<CAPTION>
Approx. Area
Location (Sq. Ft.) Tenure Utilization
-------- ------------- ------ -----------
<S> <C> <C> <C>
Houston, Texas 695,000 Owned Offices and manufacturing
(includes corporate headquarters)
Falkirk, Scotland 258,000 Owned Offices and manufacturing
Waller, Texas 145,698 Owned Offices and manufacturing
Edmonton, Canada 94,000 Owned Offices and manufacturing
Mansfield, Ohio 79,854 Owned Offices and manufacturing
Fareham, England 70,257 Leased Offices and manufacturing
Santa Fe, Texas 28,000 Owned Offices and manufacturing
Cincinnati, Ohio 27,200 Leased Offices and manufacturing
Calgary, Canada 26,000 Leased Offices and manufacturing
Malton, England 25,550 Owned Offices and manufacturing
Villemomble, France 19,874 Leased Offices and manufacturing
Pickering, England 17,730 Leased Offices and manufacturing
Esjberg, Denmark 9,802 Leased Offices and manufacturing
</TABLE>
Daniel believes that its manufacturing facilities will be suitable and
adequate to meet production demands for the foreseeable future. In addition to
its manufacturing plants, the Company leases sales offices for its operations in
the United States and internationally.
ITEM 3. LEGAL PROCEEDINGS
Daniel is involved in various legal proceedings and claims arising in
the ordinary course of business. In the opinion of management, the amounts of
ultimate liability, if any, with respect to these actions will not materially
affect the financial position or future results of operations of Daniel.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter during the quarter ended December 31, 1997 that was
submitted to a vote of security holders.
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P A R T II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Common Stock of Daniel is traded on the New York Stock Exchange
("NYSE") under the symbol DAN. At March 16, 1998, the approximate number of
holders of record of shares of Common Stock was 2,450. The following table sets
forth for the periods indicated (i) the high and low sale prices of a share of
Common Stock as reported on the NYSE and (ii) the amount of cash dividends paid
per share of Common Stock. Such dividends were declared and paid on a quarterly
basis.
<TABLE>
<CAPTION>
Price of Common Stock
---------------------- Dividends
High Low Paid
---- --- ----
<S> <C> <C> <C>
Fiscal 1997 Quarter Ended:
March 31, 1997............................................. $15 1/8 $11 1/2 $.045
June 30, 1997.............................................. 15 5/8 12 3/8 .045
September 30, 1997......................................... 19 3/4 15 1/8 .045
December 31, 1997.......................................... 21 15/16 17 1/2 .045
Three Month Period Ended:
December 31, 1996.......................................... $14 3/4 $12 5/8 $.045
Fiscal 1996 Quarter Ended:
December 31, 1995.......................................... $15 1/8 $13 $.045
March 31, 1996............................................. 15 3/8 12 1/2 .045
June 30, 1996.............................................. 16 5/8 13 3/8 .045
September 30, 1996......................................... 14 7/8 12 3/4 .045
</TABLE>
Daniel is authorized by its Certificate of Incorporation to issue up to
1,000,000 shares of serial preferred stock, $1.00 par value, but no shares of
serial preferred stock have been issued. Subject to the rights of holders of
serial preferred stock, the holders of shares of Common Stock are entitled to
receive dividends when and as declared by the Board of Directors.
Daniel has paid cash dividends on the Common Stock during each year
since 1948. Daniel's future dividend policy with respect to the Common Stock,
including the frequency, type and amount of dividends, if any, will be
determined by the Board of Directors in light of the Company's results of
operations, cash flow and anticipated capital requirements, possible future
issuances of serial preferred stock and any restrictions as to payment of
dividends contained in the Company's debt agreements.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months
Year Ended
Ended December 31, Year Ended September 30,
December 31, ----------------------- -------------------------------------------------------
1997 1996 1995 1996 (a) 1995 (b) 1994 (b) 1993 (b)
---- ---- ---- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ..................... $ 268,861 $ 53,764 $ 54,154 $ 233,611 $ 223,428 $ 255,370 $ 232,132
Net income (loss) ............ 10,574 (17,944)(c) 2,810 12,677(d) (10,512)(e) 3,391 8,762
Total assets ................. 233,954 233,575 205,534 248,769 210,344 231,962 217,346
Long-term debt ............... 37,283 30,233 15,613 34,702 18,470 24,096 15,213
Basic earnings (loss)
per share ................ .62 (1.05) .16 .74 (.62) .20 .52
Diluted earnings (loss)
per share ................ .61 (1.05) .16 .73 (.62) .20 .52
Cash dividends per
share ................... .18 .045 .045 .18 .18 .18 .18
Average shares
outstanding ............. 17,146 17,061 17,002 17,027 16,966 16,949 16,909
Average diluted shares
outstanding ............. 17,483 17,249 17,154 17,281 17,121 16,981 16,927
</TABLE>
(a) Includes Bettis' results for the nine months ended September 30, 1996 and
three months ended December 31, 1995.
(b) Reflects consolidated results of Daniel's years ended September 30 with
Bettis' years ended December 31. See Note 1 of Notes to Consolidated
Financial Statements.
(c) Net loss for the period was adversely affected by $16,663 in restructuring
and other charges. See Note 2 of Notes to Consolidated Financial
Statements.
(d) Net income for the year was positively affected by $3,267 in gains on sales
of non-core assets. See Note 3 of Notes to Consolidated Financial
Statements.
(e) Net loss for the year was adversely affected by $16,115 in restructuring
and inventory write-downs and by $11,958 in losses on divestitures of
non-core assets. See Notes 2 and 3 of Notes to Consolidated Financial
Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
Daniel designs and manufactures flow control and measurement products
and systems which are primarily used by both domestic and international
producers, refiners and transporters of oil and natural gas.
On December 12, 1996, Daniel completed a merger with Bettis under which
Bettis stockholders received .58 of a share of Common Stock for each share of
Bettis common stock for an aggregate of 4,920,392 shares of Common Stock. The
transaction was accounted for as a pooling of interests and as such, Daniel's
financial statements have been restated to include Bettis for all periods
presented.
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On December 12, 1996, the Board of Directors approved a change in the
Company's fiscal year end from September 30 to December 31. The change in fiscal
year resulted in a transition period from October 1, 1996 through December 31,
1996. Results of operations for the three month period are presented in the
Consolidated Financial Statements included in this Annual Report.
Year Ended December 31, 1997 versus Year Ended September 30, 1996
Daniel's consolidated revenues increased 15.1% during the year ended
December 31, 1997 when compared to the fiscal year ended September 30, 1996. The
increase is due to a 41.4% increase in net revenues from the sale of valve
actuators and controls and a 21.1% increase from the sale of flow measurement
and control products and services. These increases in revenues were partially
offset by decreased revenues attributable to the absence of large orders for
slab gate valves which contributed to the valve operation's strong performance
in fiscal 1996.
The gross margin percentage in 1997 was 36.7%, up slightly from 36.1%
in fiscal 1996. The gross margin in 1997 was favorably affected by increased
margins on the sale of flow measurement and control products, while the margins
on the sale of valves and valve actuators were relatively flat from year to
year.
Selling, engineering and administrative expenses in 1997 were up 20.5%
when compared to fiscal 1996 and increased as a percentage of sales from 26.0%
to 27.2%. This increase was due largely to the expenses of companies acquired in
1996 being included for the full year. Research and development expenses
increased from $2,583,000 to $5,221,000 primarily due to the May 1996
acquisition of Spectra-Tek International Limited, coupled with increased
spending on electronic product development.
During 1997, the Company sold certain non-core assets, a building owned
by a subsidiary of Bettis and the stock in a German subsidiary with no
significant gain or loss recognized. Certain of these assets had been written
down in prior periods.
The effective tax rate for the year ended December 31, 1997 was
substantially unchanged at 39.5% compared to 39.3% for the fiscal year ended
September 30, 1996.
Three Months Ended December 31, 1996 vs. Three Months Ended December 31, 1995
The Company recorded pretax charges in the three months ended December
31, 1996 of $16,663,000 resulting in a net loss of $17,944,000 for the period
compared to net income of $2,810,000 for the same period in 1995. Unusual
charges recorded in the 1996 period consist of the following (in thousands):
<TABLE>
<S> <C>
Downsizing of a German subsidiary............................................. $ 5,100
Expenses incurred in connection with the Bettis merger........................ 3,663
Re-organization costs, largely severance...................................... 3,000
Write-downs of long-lived assets.............................................. 2,600
Losses arising from the sales of product lines................................ 2,300
-------
Total .................................................................. $16,663
=======
</TABLE>
The unusual charges were a result of the Company's ongoing strategic
evaluation. The downsizing of the German operations resulted in charges for
asset impairments, inventory valuation adjustments and severance accruals.
Although not a part of the above total of unusual charges, the evaluations above
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resulted in the establishment of a deferred tax valuation allowance of
approximately $1,500,000 relative to the utilization of the German net operating
loss carryforward.
In addition to the German downsizing, during the period the Company
committed to disposing of certain insignificant, non-strategic product lines,
determined that certain long-lived assets were impaired, and provided accruals
for the severance costs of certain employees.
Revenues for the three months ended December 31, 1996 were $53,764,000,
compared to $54,154,000 for the same period in 1995. Revenues from businesses
acquired by both Daniel and Bettis in 1996 of $8,133,000 were more than offset
by a decline in revenues from sales of valve products due to the timing of
orders and by the inclusion in the prior year of revenues aggregating $4,815,000
from divested operations.
The gross margin for the three months ended December 31, 1996 declined
to 32.5% of revenues compared to 36.6% in the prior period. The decline was due
primarily to a change in the product mix of actuators sold and, to a lessor
extent the decrease in sales of valve products.
Selling, engineering and administrative expenses increased by
$3,288,000 to $18,033,000 in the 1996 period due primarily to expenses of
companies acquired in 1996. Research and development expenses increased by
$566,000 representing increased expenditures on certain electronic development
projects.
In the three months ended December 31, 1995, the Company sold a
non-manufacturing property in Germany resulting in a pretax gain of $1,185,000.
Interest expense increased $416,000 due primarily to increased
borrowings which were used to fund acquisitions by both Daniel and Bettis in
1996.
The effective tax rate in the 1996 period is different from the U.S.
statutory rate due primarily to losses of the German operations for which no tax
benefits were recognized and the non-deductibility of certain expenses
associated with the Bettis merger.
Year Ended September 30, 1996 versus Year Ended September 30, 1995
Consolidated revenues increased $10,183,000 in fiscal 1996 compared to
fiscal 1995. Excluding the revenues from divested operations of $4,815,000 and
$32,359,000 in fiscal 1996 and 1995, respectively, revenues increased
$37,727,000 from the prior year, as a result of increased sales of large
diameter gate valves and valve actuators and controls.
The gross profit margin for fiscal 1996 was 36.1% compared to 34.9% in
1995. Discounting the effect of divested operations in both periods and an
inventory write-down charge recorded in fiscal 1995, there was a slight
deterioration in margins. This decrease was due to a change in product mix
towards sales of valve products, which historically have earned lower margins
than Daniel's other products.
Selling, engineering and administrative expenses were down 2.1% to
$60,709,000 in fiscal 1996 when compared to 1995. The improvement in these
expenses as a percentage of revenues was the result of revenues increasing at a
higher rate than expenses.
Research and development expenses decreased 21.4% to $2,583,000 in
fiscal 1996 primarily due to completion of certain electronics projects.
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The effective tax rate in fiscal 1996 of approximately 39.3% was higher
than the U.S. statutory rate largely due to losses in Germany, for which no tax
benefits were recognized. In fiscal 1995, the Company realized a tax benefit of
27.8% due to the losses recognized on the restructuring and other charges and
divestiture of assets.
In fiscal 1996, Daniel sold certain non-manufacturing properties in
Germany and a non-core product line resulting in pretax gains of $3,267,000 and,
in fiscal 1995, recorded pretax losses aggregating $11,958,000 relating to the
divestitures of non-core assets.
Impact of Inflation
An effect of inflation is to increase the prices of labor and raw
materials used to manufacture Daniel's products, which may require periodic
increases in the prices for the products to maintain gross profit margins.
Management does not consider Daniel to have any unique difficulty in managing
the effects of inflation on its business.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of Daniel's liquidity during the year ended
December 31, 1997 were internally generated funds, cash available at the
beginning of the year, borrowings and the proceeds from the divestitures of
assets (See Note 3 of Notes to Consolidated Financial Statements). These funds
were used primarily for capital expenditures, payments of dividends and payments
on long-term and short-term debt.
At December 31, 1997, working capital increased by $22,678,000 to
$77,050,000 primarily due to an increase in receivables resulting from increased
sales volume in the three months ended December 31, 1997 compared to the three
months ended December 31, 1996. A decrease in short-term notes payable resulting
from the refinancing of certain notes outstanding as of December 31, 1996 also
contributed to the increase in working capital from December 31, 1996 to
December 31, 1997. Daniel considers its financial position to be strong with a
current ratio of 2.3 to 1.0. Working capital at December 31, 1997 included
$55,645,000 in inventories and deferred tax assets, which are not as liquid as
other current assets.
In November 1997, Daniel entered into a credit agreement with a group
of four banks, which provided for a $30,000,000 term loan and a $40,000,000
revolving credit facility. The proceeds of the term loan were used to refinance
the L.8,400,000 (approximately $13,000,000) note originally utilized in the
acquisition of Spectra-Tek in May 1996, as well as Bettis' term loan and a
portion of Bettis' revolving loan. Borrowings of $7,000,000 under the revolving
credit facility were used to refinance the balance of Bettis' revolving loan.
The remainder of the revolving credit facility is available for general
corporate purposes including the issuance of letters of credit.
The term loan had an outstanding balance of $28,929,000 at December 31,
1997, and matures on April 30, 2004. Principal in the amount of $1,071,428 is
payable quarterly. Also at December 31, 1997, there were loans outstanding
totaling $10,000,000 under the revolving credit facility. The revolving credit
facility matures on April 30, 2000.
Interest rates on the term loan and on the revolving credit facility
are, at Daniel's option, LIBOR plus a margin ranging from 0.5% to 1.0%,
depending upon Daniel's ratio of funded debt to earnings before interest, taxes,
depreciation and amortization, or a base rate which approximates the prime rate.
The margin is adjusted no later than 60 days after the end of each quarter and
95 days after the end of each fiscal year. Interest is due on the last day of
each calendar quarter for base rate loans and at the end of one,
11
<PAGE> 12
two or three months for LIBOR loans depending on the interest period selected
which also includes a six month option.
At December 31, 1997, the interest rate on the revolving credit
facility loans was 6.69%. By entering into a swap agreement, Daniel effectively
fixed the rate of interest for the life of the term loan at 6.02% plus the
margin described above. At December 31, 1997, the interest rate on the term loan
was 6.77%.
Daniel also pays a quarterly commitment fee of 3/16% per annum on the
unused portion of the revolving credit facility plus a fee of 5/8% for letters
of credit. The loans under the credit agreement are unsecured with a negative
pledge on Daniel's assets and are guaranteed by Daniel's material domestic
subsidiaries. The credit agreement contains financial covenants relating to,
among other things, maximum capital expenditures, minimum tangible net worth, a
minimum funded debt to earnings before interest, taxes, depreciation and
amortization ratio and a minimum debt service coverage ratio. The credit
agreement also contains covenants restricting, among other things, fundamental
corporate changes, creation of liens, further indebtedness, sales of assets,
redemptions of capital stock and certain investments.
At December 31, 1997, Daniel had various committed and uncommitted
short-term lines of credit aggregating approximately $38,400,000. These lines of
credit are available for short-term borrowings or issuance of letters of credit.
At December 31, 1997, borrowings under these lines were $8,000,000 with
approximately $10,400,000 available for short-term borrowings.
The Company believes that its working capital, cash generated from
operations and amounts available under its lines of credit will be sufficient to
meet its operating needs for the foreseeable future.
YEAR 2000
The "Year 2000" issue is the inability of computers and computing
technology to recognize correctly the change in date from 1999 to 2000. The
problem results from a long-standing practice by programmers to save memory
space by denoting years using two digits instead of four. Systems that are not
Year 2000 compliant may be unable to read dates correctly after the year 1999
and may return incorrect or unpredictable results. This could have a significant
effect on the Company's business/financial systems as well as products and
services if not corrected.
Daniel recognizes that the Year 2000 issue creates a significant
uncertainty to its business and that Year 2000 compliance to safeguard
operations and minimize business disruption is a key business obligation.
A program is underway in the Company to ensure that critical business
systems, products and services both in the United States and internationally are
Year 2000 compliant. The Company is also working with suppliers and customers
with regard to Year 2000 compliance. The focus in 1998 will be on completing the
detailed assessment of the extent of remedial action required and the design of
solutions. The main focus in 1999 will be on testing and implementation of
revised programs, products and services.
The assessment of existing products and services is incomplete and the
Company cannot as yet make a final conclusion as to whether all products and
services will be Year 2000 compliant. The Company does believe, based on the
assessments completed to date, that the critical Year 2000 problems can be
corrected. The Company has not completed an estimate of the cost of addressing
this issue but does not believe that the costs will be material. Costs incurred
in connection with Year 2000 compliance will be treated as period costs and
expensed as incurred.
12
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS
The financial statements required to be filed under this item are
presented elsewhere in this report. Such financial statements are incorporated
by reference under this Item 8. See the index to this information on page 15 of
this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
13
<PAGE> 14
P A R T III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is set forth in the Proxy Statement
of the Company for the Annual Meeting of Stockholders to be held May 14, 1998
(the "Proxy Statement"), under the sections entitled "Election of Directors",
"Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance", and is incorporated by reference here.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is set forth in the section entitled
"Executive Compensation" in the Proxy Statement and is incorporated by reference
here.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this item is set forth in the section entitled
"Ownership of Common Stock" in the Proxy Statement and is incorporated by
reference here.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth in the section entitled
"Certain Relationships and Related Transactions" in the Proxy Statement and is
incorporated by reference here.
14
<PAGE> 15
P A R T IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Documents Filed as a Part of this Report
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Financial Statements
Report of management............................................................... 20
Report of independent accountants.................................................. 21-22
Consolidated balance sheet at December 31, 1997 and 1996,
and September 30, 1996....................................................... 23
Consolidated statement of operations for the year ended
December 31, 1997, the three months ended December 31, 1996, and
the years ended September 30, 1996 and 1995.................................. 24
Consolidated statement of stockholders' equity for the years
ended September 30, 1995 and 1996, the three months ended
December 31, 1996, and the year ended December 31, 1997...................... 25
Consolidated statement of cash flows for the year ended
December 31, 1997, the three months ended December 31, 1996,
and the years ended September 30, 1996 and 1995.............................. 26
Notes to consolidated financial statements......................................... 27-46
</TABLE>
2. All financial statement schedules are omitted because
they are not applicable or the required information is
shown in the financial statements or related notes listed
above.
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
2.1 Plan and Agreement of Merger dated as of January 22,
1988, by and between Daniel Industries, Inc., a Texas
corporation ("Daniel Texas"), and Daniel Industries,
Inc., a Delaware corporation (the "Company"), filed
as Exhibit 2.1 to Daniel's Registration of Securities
of Certain Successor Issuers on Form 8-B dated May 5,
1988 and incorporated by reference here.
2.2 Agreement and Plan of Merger dated September 17, 1996
by and among Daniel, Blue Acquisition, Inc., and
Bettis Corporation, filed as Exhibit 2.1 to Daniel's
Registration Statement on Form S-4 (Reg. No.
333-14635) and incorporated by reference here.
3.1 Certificate of Incorporation of Daniel, filed as
Exhibit 3.1 to Daniel's Registration of Securities of
Certain Successor Issuers on Form 8-B dated May 5,
1988 and incorporated by reference here.
3.2 By-laws of Daniel, as amended through June 1, 1997,
filed as Exhibit 3.1 to Daniel's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997
and incorporated by reference here.
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
3.3 Certificate of Designation, Powers, Preferences and
Rights of Series A Junior Participating Preferred
Stock filed as Exhibit 3.3 to Daniel's Form 8
amending its Annual Report on Form 10-K for the year
ended September 30, 1990 and incorporated by
reference here.
4.1 Note Purchase Agreement dated as of December 5, 1988,
between Daniel and The Variable Annuity Life
Insurance Company, The Mutual Benefit Life Insurance
Company, MONY Life Insurance Company of America and
MONY Legacy Life Insurance Company (including the
form of Daniel's Senior Notes in the aggregate
principal amount of $20,000,000) filed as Exhibit 4.3
to Daniel's Annual Report on Form 10-K for the year
ended September 30, 1988 and incorporated by
reference here.
4.2 Rights Agreement dated as of May 31, 1990, between
Daniel and Wachovia Bank and Trust Company, N.A., as
Rights Agent, filed as Exhibit 1 to Daniel's
Registration of Certain Classes of Securities on Form
8-A filed June 5, 1990 and incorporated by reference
here.
10.1* 1977 Stock Option Plan, as amended and restated on
June 17, 1997.
10.2* 1981 Stock Option Plan, as amended and restated on
December 31, 1986, filed as Exhibit 19.2 to Daniel
Texas's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1986 and incorporated by reference
here.
10.3* Form of Director's Stock Option Agreements dated
October 9, 1986, between Daniel Texas and the several
non-employee directors, filed as Exhibit 19.1 to
Daniel Texas's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1987 and incorporated by
reference here.
10.4* Form of Change in Control Agreement dated as of March
15, 1995, between Daniel and each of W. C. Clingman
and M. R. Yellin, dated August 30, 1996 between
Daniel and J. M. Tidwell, dated February 6, 1997,
between Daniel and each of W. T. Bratton and W.M.
Krenek, filed as Exhibit 10.4 to Daniel's Annual
Report on Form 10-K for the year ended September 30,
1995 and incorporated by reference here.
10.5* Consulting Agreement between Daniel and W. A. Griffin
effective as of February 3, 1995, filed as Exhibit
10.7 to Daniel's Annual Report on Form 10-K for the
year ended September 30, 1996 and incorporated by
reference here.
10.6* Deferred Compensation Agreement dated March 6, 1996
between Daniel and Ronald C. Lassiter, filed as
Exhibit 10.10 to Daniel's Annual Report on Form 10-K
for the year ended September 30, 1996 and
incorporated by reference here.
10.7* Employment Agreement dated July 30, 1996 between
Daniel and James M. Tidwell, filed as Exhibit 10.11
to Daniel's Annual Report on Form 10-K for the year
ended September 30, 1996 and incorporated by
reference here.
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C>
10.8* 1995 Non-Employee Directors' Stock Option Plan, as
amended and restated on December 12, 1996, filed as
Exhibit 10.1 to Daniel's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996 and
incorporated by reference here.
10.9* Stock Award Plan dated as of December 8, 1995, filed
as Exhibit 10.11 to Daniel's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 and
incorporated by reference here.
10.10* Daniel Industries, Inc. 1997 Stock Option Plan, filed
as Exhibit 10.1 to Daniel's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 and
incorporated by reference here.
10.11* Daniel Industries, Inc. 1997 Non-Employee Director
Stock Option Plan, filed as Exhibit 10.2 to Daniel's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 and incorporated by reference
here.
10.12* Employment Agreement dated June 17, 1997 between
Daniel and Thomas A. Newton, Jr., filed as Exhibit
10.3 to Daniel's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997 and incorporated
by reference here.
10.13* Stock Award Agreement dated June 17, 1997 between
Daniel and Thomas A. Newton, Jr., filed as Exhibit
10.4 to Daniel's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997 and incorporated
by reference here.
10.14* Change in Control Agreement dated June 17, 1997
between Daniel and Thomas A. Newton, Jr., filed as
Exhibit 10.5 to Daniel's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 and
incorporated by reference here.
10.15* Change in Control Agreement dated June 17, 1997
between Daniel and Ronald C. Lassiter, filed as
Exhibit 10.6 to Daniel's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 and
incorporated by reference here.
10.16* Form of Change in Control Agreement between the
Company and each of Daniel J. Sarik, Katie-Pat Bowman
and Michael T. Atkins, filed as Exhibit 10.7 to
Daniel's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 and incorporated by
reference here.
10.17* Severance Agreement between Daniel and W.T. Batton
dated February 6, 1996.
10.18 Credit Agreement dated November 19, 1997 between
Daniel and Bank One, Texas N.A., Texas Commerce Bank
National Association, CIBC Inc., and Credit Lyonnais
New York Branch.
21 Significant Subsidiaries of Daniel.
23(a) Consent of Price Waterhouse LLP
23(b) Consent of Coopers & Lybrand L.L.P.
27 Financial data schedule.
</TABLE>
- - - - - - - -
* Management contract or compensatory plan or agreement.
17
<PAGE> 18
The Company will furnish a copy of any exhibit described above to any
beneficial holder of its securities upon receipt of a written request therefor,
provided that such request sets forth a good faith representation that as of
March 17, 1998, the record date for the Company's 1998 Annual Meeting of
Stockholders, such beneficial holder is entitled to vote at such meeting, and
provided further that such holder pays to the Company a fee compensating the
Company for its reasonable expenses in furnishing such exhibits.
(b) Reports on Form 8-K
Daniel did not file any report on Form 8-K during the quarter ended
December 31, 1997.
18
<PAGE> 19
SIGNATURES
As required by 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.
DANIEL INDUSTRIES, INC.
(REGISTRANT)
Date: March 20, 1998 By: /s/ RONALD C. LASSITER
--------------------------------
Ronald C. Lassiter
Chairman of the Board
and Chief Executive Officer
As required by the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RONALD C. LASSITER Chairman of the Board and March 20, 1998
- --------------------------------- Chief Executive Officer
(Ronald C. Lassiter) (Principal Executive Officer)
/s/ ALEX NEWTON President and Chief Operating Officer March 20, 1998
- ---------------------------------
(Alex Newton)
/s/ JAMES M. TIDWELL Executive Vice President and Chief Financial March 20, 1998
- --------------------------------- Officer (Principal Financial Officer)
(James M. Tidwell)
/s/ WILFRED M. KRENEK Vice President, Controller and March 20, 1998
- --------------------------------- Chief Accounting Officer
(Wilfred M. Krenek) (Principal Accounting Officer)
/s/ NATHAN AVERY Director March 20, 1998
- ---------------------------------
(Nathan Avery)
/s/ MICHAEL M. CARROLL Director March 20, 1998
- ---------------------------------
(Michael M. Carroll)
/s/ RALPH F. COX Director March 20, 1998
- ---------------------------------
(Ralph F. Cox)
/s/ GIBSON GAYLE, JR. Director March 20, 1998
- ---------------------------------
(Gibson Gayle, Jr.)
/s/ W. A. GRIFFIN Chairman Emeritus and a Director March 20, 1998
- ---------------------------------
(W. A. Griffin)
/s/ THOMAS J. KEEFE Director March 20, 1998
- ---------------------------------
(Thomas J. Keefe)
/s/ LEO E. LINBECK, JR. Director March 20, 1998
- ---------------------------------
(Leo E. Linbeck, Jr.)
/s/ BRIAN E. O'NEILL Director March 20, 1998
- ---------------------------------
(Brian E. O'Neill)
</TABLE>
19
<PAGE> 20
REPORT OF MANAGEMENT
The accompanying financial statements of Daniel Industries, Inc. and
its consolidated subsidiaries were prepared by management, which is responsible
for their integrity and objectivity. The statements were prepared in accordance
with generally accepted accounting principles and include amounts that are based
on management's judgment and estimates.
Daniel maintains a system of internal controls, including accounting
controls, and a program of internal auditing. The system of controls provides
for appropriate procedures that are consistent with high standards of accounting
and administration. Daniel believes that its system of internal controls
provides reasonable assurance that assets are safeguarded against losses from
unauthorized use or disposition and that financial records are reliable for use
in preparing financial statements.
Management also recognizes its responsibility for conducting the
Company's affairs according to the highest standards of personal and corporate
conduct. This responsibility is characterized and reflected in policy statements
regarding, among other things, conduct of the Company's business activities
within the laws of the countries in which the Company operates and avoidance of
potentially conflicting outside business interests by the Company's employees.
Daniel maintains a program to assess compliance with these policies.
/s/ RONALD C. LASSITER
- -------------------------
Ronald C. Lassiter
Chairman of the Board and Chief Executive Officer
/s/ JAMES M. TIDWELL
- ------------------------
James M. Tidwell
Executive Vice President and Chief Financial Officer
March 20, 1998
20
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
DANIEL INDUSTRIES, INC.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements listed in the index under Item 14(a)(1) of
this Annual Report on Form 10-K present fairly, in all material respects, the
financial position of Daniel Industries, Inc. and its subsidiaries at December
31, 1997 and 1996 and at September 30, 1996 and the results of their operations
and their cash flows for the year ended December 31, 1997, the three months
ended December 31, 1996 and each of the two years in the period ended September
30, 1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Bettis Corporation,
which statements reflect total assets of $45,876,000 at December 31, 1995 and
total revenues of $55,142,000 for the year ended December 31, 1995. Those
statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for Bettis Corporation, as described in Note 1 of Notes to the
Consolidated Financial Statements, at December 31, 1995 and for the year then
ended, is based solely on the report of the other auditors. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
February 27, 1998
21
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF BETTIS CORPORATION
We have audited the consolidated statements of operations and cash flows for the
year ended December 31, 1995 of Bettis Corporation and subsidiaries (not
presented separately herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of Bettis' operations and cash
flows for the year ended December 31, 1995 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
February 26, 1996
22
<PAGE> 23
DANIEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1996 1996
---- ---- ----
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 7,563 $ 5,423 $ 8,409
Receivables, net of reserve of $1,645, $1,252 and 1,029 .... 60,908 50,588 55,737
Costs and estimated earnings in excess of billings on
uncompleted contracts .................................. 6,635 3,671 3,132
Inventories ................................................ 49,688 52,006 57,814
Deferred tax asset ......................................... 5,957 8,807 7,440
Other ...................................................... 4,713 6,618 6,547
--------- --------- ---------
Total current assets ................................... 135,464 127,113 139,079
Property, plant and equipment, net .............................. 62,990 75,555 75,726
Intangibles and other assets .................................... 35,500 30,907 33,964
--------- --------- ---------
Total assets ........................................... $ 233,954 $ 233,575 $ 248,769
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable .............................................. $ 7,984 $ 18,287 $ 17,356
Current maturities of long-term debt ....................... 7,602 5,552 5,587
Accounts payable ........................................... 21,441 18,311 17,778
Accrued liabilities ........................................ 21,387 30,591 26,584
--------- --------- ---------
Total current liabilities .............................. 58,414 72,741 67,305
Long-term debt .................................................. 37,283 30,233 34,702
Deferred income taxes ........................................... 7,831 8,789 7,982
--------- --------- ---------
Total liabilities ...................................... 103,528 111,763 109,989
--------- --------- ---------
Commitments and contingencies (See Note 12) ..................... -- -- --
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000 shares authorized,
150 shares designated as Series A junior participating
preferred stock, no shares issued or outstanding............. -- -- --
Common stock, $1.25 par value, 40,000 shares
authorized, 17,321, 17,064 and 17,057 shares issued ......... 21,651 21,330 21,321
Capital in excess of par value ................................ 94,218 90,732 90,678
Cumulative translation adjustment ............................. (4,684) (2,006) (3,465)
Retained earnings ............................................. 19,241 11,756 30,246
--------- --------- ---------
Total stockholders' equity ............................... 130,426 121,812 138,780
--------- --------- ---------
Total liabilities and stockholders' equity ............... $ 233,954 $ 233,575 $ 248,769
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
23
<PAGE> 24
DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended September 30,
December 31, December 31, -------------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues ......................................... $ 268,861 $ 53,764 $ 233,611 $ 223,428
--------- --------- --------- ---------
Costs, expenses and other income:
Cost of sales ................................. 170,067 36,272 149,343 145,470
Selling, engineering, and
administrative expenses .................. 73,126 18,033 60,709 62,026
Research and development expenses ............. 5,221 1,088 2,583 3,287
Restructuring and other charges ............... -- 16,663 -- 12,330
(Gains) losses on divestitures of assets ...... -- -- (3,267) 11,958
Interest and other expenses ................... 2,971 1,152 3,365 2,909
--------- --------- --------- ---------
Total costs, expenses and other income ..... 251,385 73,208 212,733 237,980
--------- --------- --------- ---------
Income (loss) before income taxes ................ 17,476 (19,444) 20,878 (14,552)
Income tax expense (benefit) ..................... 6,902 (1,500) 8,201 (4,040)
--------- --------- --------- ---------
Net income (loss) ................................ $ 10,574 $ (17,944) $ 12,677 $ (10,512)
========= ========= ========= =========
Basic earnings (loss) per common share ........... $ .62 $ (1.05) $ .74 $ (.62)
========= ========= ========= =========
Diluted earnings (loss) per common
share ....................................... $ .61 $ (1.05) $ .73 $ (.62)
========= ========= ========= =========
Average shares outstanding ....................... 17,146 17,061 17,027 16,966
========= ========= ========= =========
Average diluted shares outstanding ............... 17,483 17,249 17,281 17,121
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
24
<PAGE> 25
DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Capital in Cumulative
------------------- Excess of Translation Retained
Shares Amount Par Value Adjustment Earnings Total
------ ------ --------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994, as
previously reported ...................... 12,032 $ 15,041 $ 89,675 $ (2,061) $ 19,225 $ 121,880
Pooling of interests with Bettis Corp. .. 4,919 6,148 (296) (1,232) 13,841 18,461
------ --------- --------- --------- --------- ---------
Balance at September 30, 1994 as restated ... 16,951 21,189 89,379 (3,293) 33,066 140,341
Net loss ................................ -- -- -- -- (10,512) (10,512)
Cash dividends .......................... -- -- -- -- (2,169) (2,169)
Exercise of options, net of tax ......... 51 63 572 -- -- 635
Aggregate translation adjustment ........ -- -- -- 1,834 -- 1,834
------ --------- --------- --------- --------- ---------
Balance at September 30, 1995 ............... 17,002 21,252 89,951 (1,459) 20,385 130,129
Net income .............................. -- -- -- -- 12,677 12,677
Cash dividends .......................... -- -- -- -- (2,181) (2,181)
Stock awards ............................ 20 25 250 -- -- 275
Exercise of options, net of tax ......... 5 6 38 -- -- 44
Continuation of service agreements ...... 30 38 439 -- -- 477
Aggregate translation adjustment ........ -- -- -- (2,006) -- (2,006)
Adjustment to conform year end .......... -- -- -- -- (635) (635)
------ --------- --------- --------- --------- ---------
Balance at September 30, 1996 ............... 17,057 21,321 90,678 (3,465) 30,246 138,780
Net loss ................................ -- -- -- -- (17,944) (17,944)
Cash dividends .......................... -- -- -- -- (546) (546)
Stock awards ............................ 3 4 34 -- -- 38
Exercise of options, net of tax ......... 4 5 20 -- -- 25
Aggregate translation adjustment ........ -- -- -- 1,459 -- 1,459
------ --------- --------- --------- --------- ---------
Balance at December 31, 1996 ................ 17,064 21,330 90,732 (2,006) 11,756 121,812
Net income .............................. -- -- -- -- 10,574 10,574
Cash dividends .......................... -- -- -- -- (3,089) (3,089)
Stock awards ............................ 70 87 843 -- -- 930
Exercise of options, net of tax ......... 157 196 2,204 -- -- 2,400
Continuation of service agreements ...... 30 38 439 -- -- 477
Aggregate translation adjustment ........ -- -- -- (2,678) -- (2,678)
------ --------- --------- --------- --------- ---------
Balance at December 31, 1997 ................ 17,321 $ 21,651 $ 94,218 $ (4,684) $ 19,241 $ 130,426
====== ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
25
<PAGE> 26
DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended September 30,
December 31, December 31, -------------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................... $ 10,574 $(17,944) $ 12,677 $(10,512)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Non-cash portion of restructuring and
other items .................................... -- 8,051 -- 11,124
Loss on divestitures of non-core
product lines .................................. -- -- -- 9,858
Depreciation and amortization .................... 9,701 3,042 9,511 9,968
Deferred income taxes ............................ 1,892 (560) 3,112 (8,160)
Adjustment to conform year end ................... -- -- 26 --
Changes in operating assets and liabilities:
Receivables ................................. (10,320) 5,149 2,124 (2,839)
Inventories ................................. (2,132) 1,998 (4,215) (11,174)
Costs and estimated profits in excess of
billings on uncompleted contracts ......... (2,694) (539) (2,191) 13,947
Accounts payable and accrued liabilities .... (4,247) 5,081 (6,711) (4,009)
Other assets/liabilities, net ............... 6,136 (1,867) (1,490) 1,254
-------- -------- -------- --------
Net cash provided by operating activities .................. 8,910 2,411 12,843 9,457
-------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures .................................... (11,656) (3,107) (6,910) (6,620)
Acquisitions and related costs .......................... -- -- (32,528) (4,177)
Proceeds from sales of investment securities ............ -- -- -- 2,039
Proceeds from sales of assets, including
disposals of non-core assets ........................ 9,258 1,116 15,949 2,950
-------- -------- -------- --------
Net cash used in investing activities ...................... (2,398) (1,991) (23,489) (5,808)
-------- -------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) on lines of credit ............ (14,860) 931 (10,977) 3,904
Net borrowings (payments) on long-term debt ............. 11,334 (4,504) 27,775 (5,985)
Cash dividends paid ..................................... (3,089) (546) (2,181) (2,169)
Activity under stock option plans ....................... 2,400 25 44 635
-------- -------- -------- --------
Net cash provided by (used in) financing activities ........ (4,215) (4,094) 14,661 (3,615)
-------- -------- -------- --------
Effect of exchange rate changes on cash
and cash equivalents ..................................... (157) 688 (302) (347)
-------- -------- -------- --------
Increase (decrease) in cash and cash equivalents ........... 2,140 (2,986) 3,713 (313)
Cash and cash equivalents, beginning of period ............. 5,423 8,409 4,696 5,009
-------- -------- -------- --------
Cash and cash equivalents, end of period ................... $ 7,563 $ 5,423 $ 8,409 $ 4,696
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
26
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Daniel is engaged in providing products and systems used primarily by
producers, refiners and transporters of oil and natural gas.
Principles of consolidation
The accompanying consolidated financial statements include the accounts
of Daniel Industries, Inc. and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Change in fiscal year end
On December 12, 1996, the Company changed its fiscal year end from a
twelve month period ending September 30 to a twelve month period ending December
31. The consolidated statements of operations and cash flows are presented for
the year ended December 31, 1997, the three months ended December 31, 1996, and
the years ended September 30, 1996 and September 30, 1995.
Pooling of interests
On December 12, 1996, Daniel issued 4,920,392 shares of its Common
Stock in exchange for all the outstanding common stock of Bettis Corporation
("Bettis"). The merger has been accounted for as a pooling of interests, and
accordingly the Company's financial statements have been restated to include the
operations of Bettis for all periods presented. The presentation of the year
ended September 30, 1995 reflects the consolidation of Daniel's year ended
September 30, 1995 with Bettis' year ended December 31, 1995. Thus, Bettis'
results for the quarter ended December 31, 1995 are included in both years ended
September 30, 1996 and 1995. For the quarter ended December 31, 1995, Bettis had
net income of $635,000 and cash flow of $26,000. These amounts have been
deducted from the opening balance of retained earnings at September 30, 1996 in
the consolidated statement of stockholders' equity and from the consolidated
statement of cash flows for the year ended September 30, 1996, respectively.
Use of estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts. These estimates are
based on information available as of the date of the financial statements.
Actual results could differ from these estimates.
Foreign currency translation
Amounts in foreign currencies are translated into U.S. dollars using
the translation procedures specified in Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation." When local functional
currency is translated to U.S. dollars, the effects are recorded as a separate
component of stockholders' equity. Exchange gains and losses resulting from
foreign currency
27
<PAGE> 28
translations where the U.S. dollar is the functional currency are generally
recognized in earnings. Net foreign currency transaction gains or losses are not
material in any of the periods presented.
Fair value of financial instruments
The carrying amount of cash and cash equivalents, trade receivables and
payables approximate fair values because of the short maturity of those
instruments. The carrying value of the Company's long-term debt is considered to
approximate the fair value of those instruments based on the borrowing rates
currently available to the Company for loans with similar terms and maturities.
Cash and cash equivalents
Daniel considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Accounts receivable
A substantial portion of Daniel's trade receivables is from customers
in the petroleum industry. The Company provides allowances for potential credit
losses when necessary. However, management considers such credit risk to be
limited.
Inventories
Inventories consisting of raw materials, work in progress and finished
goods are stated at the lower of cost or market. Cost is determined by the
last-in, first-out ("LIFO"), the first-in, first-out ("FIFO") or by the average
cost methods.
Property, plant and equipment
Property, plant and equipment is recorded at cost and depreciated over
the estimated useful lives of the various classes of assets using the
straight-line method. Maintenance and repairs are charged to expense. Renewals
and betterments are capitalized. On retirement or sale of assets, the cost of
such assets and accumulated depreciation are removed from the accounts and the
gain or loss, if any, is credited or charged to income.
Impairment of long-lived assets
In the second quarter of fiscal 1995, Daniel adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." SFAS No. 121 prescribes that an impairment loss is recognized
in the event facts and circumstances indicate that the carrying amount of an
asset may not be recoverable, and an estimate of future undiscounted cash flows
is less than the carrying amount of the asset. Impairment is recorded based on a
determination of fair market value as compared to carrying value.
Intangible assets
Goodwill, representing the excess cost of purchased subsidiaries over
the fair value of net assets acquired, and other intangible assets are amortized
using the straight-line method over 20 to 40 years.
28
<PAGE> 29
Revenue recognition
Sales and the cost of goods sold of major contracts are recorded using
the percentage-of-completion method, based on the ratio of costs incurred to
date to total estimated costs on each contract. Losses, if any, to be incurred
on contracts in progress are charged to income in full as soon as they become
apparent, and estimated warranty costs are accrued as revenues are recorded.
Sales and cost of goods sold of products are generally recorded when the
customer takes title to the products.
Income taxes
The provision for income taxes includes federal, state, and foreign
income taxes currently payable and deferred based on currently enacted tax laws.
Deferred income taxes are provided for the tax consequences of differences
between the financial statement and tax bases of assets and liabilities.
Daniel does not provide for United States income taxes on foreign
subsidiaries' undistributed earnings intended to be permanently reinvested in
foreign operations.
Stock-based compensation
The Company accounts for employee stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees." In 1997, Daniel adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost was recorded for stock-based
compensation plans in the accompanying financial statements.
Earnings (loss) per share
Daniel implemented SFAS No. 128, "Earnings per Share" effective with
its December 31, 1997 financial statements. In accordance with this statement,
earnings per share data have been restated for all periods presented. This
standard requires the presentation of both basic and diluted earnings per share
amounts. Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
is computed similarly, but also gives effect of the impact that convertible
securities, such as common stock options, if dilutive, would have on net income
and average common shares outstanding if converted at the beginning of the year.
For the year ended December 31, 1997, the three month period ended
December 31, 1996 and the years ended September 30, 1996 and 1995, average
shares outstanding were increased for stock options assumed exercised by
337,000, 188,000, 254,000 and 155,000, respectively, to arrive at weighted
average shares outstanding for purposes of calculating diluted earnings per
share. Net income remained the same in the calculation of basic and diluted
earnings per share for all the periods presented.
Recently issued accounting pronouncements
SFAS No. 130, "Reporting Comprehensive Income" is effective for fiscal
years beginning after December 15, 1997, although earlier application is
permitted. Daniel intends to adopt the requirements of this pronouncement in its
financial statements for the year ending December 31, 1998. SFAS No. 130
establishes standards of reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. SFAS No. 130
requires that all components of comprehensive income be reported in the
financial statements in the period in which they are recognized. Furthermore, a
29
<PAGE> 30
total amount for comprehensive income will be displayed in the financial
statement where the components of comprehensive income are reported.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" is effective for financial statements issued for periods beginning
after December 15, 1997. This Statement requires disclosures about segments an
enterprise is engaged in and the different economic environments in which it
operates. Daniel intends to adopt the requirements of this pronouncement in its
financial statements for the year ended December 31, 1998, as required by the
Statement.
Reclassifications
Certain reclassifications have been made to the prior year amounts in
order to conform to the current year classifications.
NOTE 2 - RESTRUCTURING AND OTHER CHARGES
In the three month period ended December 31, 1996, the Company recorded
pretax charges of $16,663,000 relating to restructuring and other charges as
follows (in thousands):
<TABLE>
<S> <C>
Downsizing of a German subsidiary............................................. $ 5,100
Expenses incurred in connection with the Bettis merger........................ 3,663
Re-organization costs, largely severance...................................... 3,000
Write-downs of long-lived assets.............................................. 2,600
Losses arising from the sales of product lines................................ 2,300
-------
Total .................................................................. $16,663
=======
</TABLE>
These charges were a result of the Company's ongoing strategic
evaluation. The related downsizing of the German subsidiary resulted in charges
for asset impairments, inventory valuation adjustments and severance accruals.
In 1997, the stock of the German subsidiary was sold with no resulting gain or
loss.
During fiscal 1995, Daniel recorded pretax charges of $16,115,000
relating to restructuring and other charges as follows (in thousands):
<TABLE>
<S> <C>
Employee terminations......................................................... $ 3,997
Impairments of property, plant and equipment and other assets................. 7,339
Expenses incurred in connection with an unsolicited merger proposal........... 600
Miscellaneous other charges................................................... 394
-------
Total recorded as restructuring and other charges....................... 12,330
Cost of sales adjustments: inventory write-downs.............................. 3,785
-------
Total charges........................................................... $16,115
=======
</TABLE>
Charges for asset impairments and write-downs were non-cash in nature.
30
<PAGE> 31
NOTE 3 - DIVESTITURES
In fiscal 1995, Daniel recorded pretax charges of $11,958,000
representing losses on the divestiture of non-core assets, primarily the
Company's fastener subsidiary, which was sold in fiscal 1996. Also in fiscal
1995, the Company sold the operating assets of its energy fabrication subsidiary
to the former president of the operation and a director of Daniel for
approximately book value of $1,500,000.
In fiscal 1996, the Company sold two non-manufacturing properties in
Germany and the operating assets of its positive displacement meter product line
for a total gain of $3,267,000.
In the three month period ended December 31, 1996, pretax restructuring
and other charges were recorded in the amount of $7,400,000 for the sale of
product lines, including the Company's ball valve line, and the downsizing of a
German subsidiary of the Company (see Note 2). These non-core assets and a
building owned by a subsidiary of Bettis, together with the stock of a German
subsidiary, were sold during 1997 with no further recognition of gain or loss.
NOTE 4 - COMBINATION AND ACQUISITIONS
On December 12, 1996, Daniel issued 4,920,392 shares of its Common
Stock in exchange for all of the outstanding common stock of Bettis. The merger
has been accounted for as a pooling of interests, and accordingly, the Company's
financial statements have been restated to include the operations of Bettis for
all periods presented. Merger costs of approximately $3,700,000 were charged to
expense during the three month period ended December 31, 1996. Daniel and Bettis
had no significant intercompany transactions prior to the merger.
Separate results of operations for Daniel and Bettis (see Note 1)
follow:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Revenues:
Daniel ................... $ 166,762 $ 168,286
Bettis ................... 66,849 55,142
--------- ---------
Combined ................. $ 233,611 $ 223,428
========= =========
Net Income (Loss):
Daniel ................... $ 9,798 $ (12,792)
Bettis ................... 2,879 2,280
--------- ---------
Combined ................. $ 12,677 $ (10,512)
========= =========
</TABLE>
In May 1996, Daniel acquired all the outstanding stock of Spectra-Tek
International Limited ("Spectra-Tek"), a supplier of data acquisition monitoring
and control systems for worldwide industrial markets. Spectra-Tek also
participates in the design, manufacture and project management phases of these
systems. The aggregate cash consideration paid for the shares approximated
$10,900,000, financed by bank borrowings. This acquisition was accounted for by
the purchase method, and accordingly, the purchase price was allocated to the
net assets acquired based on their fair market value. There was approximately
$7,422,000 excess of the purchase price over the estimated fair market value,
which was accounted for as goodwill and is being amortized over 20 years using
the straight-line method. The operations related to this acquisition are not
material to Daniel's results of operations.
31
<PAGE> 32
In February 1996, Daniel acquired all the outstanding stock of a valve
manufacturer and refurbisher. The cost of the acquisition, paid in cash, was
$2,733,000. The operations related to this acquisition, also accounted for by
the purchase method, are not material to Daniel's results of operations.
Bettis acquired all of the outstanding stock of the following
businesses in 1996: Shafer Valve Company, a manufacturer of gas hydraulic rotary
vane actuators and hydraulic power units, for $13,200,000 in cash; Prime
Actuator Control Systems, a manufacturer of hydraulic and pneumatic scotch
actuators, for $4,000,000 in cash; and Dantorque A/S, a manufacturer of helical
spline hydraulic double action and spring return actuators, for $3,000,000 also
in cash. These acquisitions were accounted for by the purchase method, and
accordingly, the purchase price was allocated to the net assets acquired based
on their fair market value. Any excess of the purchase price over the fair
market value was accounted for as goodwill and is being amortized over a 20 year
period. The operations related to these acquisitions are not material to
Daniel's results of operations.
NOTE 5 - CONTRACTS IN PROGRESS
Information with respect to contracts in progress accounted for under
the percentage-of-completion method is as follows:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1996 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Costs and estimated earnings on
uncompleted contracts ................................... $ 13,892 $ 11,534 $ 9,770
Less progress billings ..................................... 7,527 7,863 6,638
-------- -------- --------
Total contracts in progress ............................ $ 6,365 $ 3,671 $ 3,132
======== ======== ========
Presented in accompanying financial statements as:
Costs and estimated earnings in excess of billings
on uncompleted contracts ................................ $ 6,635 $ 3,671 $ 3,132
Billings in excess of costs and estimated earnings
on uncompleted contracts (included in
accrued liabilities) .................................... (270) -- --
-------- -------- --------
Total contracts in progress ............................ $ 6,365 $ 3,671 $ 3,132
======== ======== ========
</TABLE>
32
<PAGE> 33
NOTE 6 - INVENTORIES
Information with respect to inventories is as follows:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1996 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Inventories by valuation method are as follows:
Last-in, first-out (LIFO) ........................ $ 24,225 $ 23,350 $ 26,555
First-in, first-out (FIFO) ....................... 11,035 13,837 14,829
Average cost ..................................... 14,428 14,819 16,430
--------- --------- ---------
Total inventory ............................. $ 49,688 $ 52,006 $ 57,814
========= ========= =========
Major components of inventories include:
Raw materials .................................... $ 24,330 $ 26,036 $ 28,794
Work in process .................................. 13,329 12,809 13,581
Finished goods ................................... 19,097 19,803 21,865
--------- --------- ---------
Inventory before LIFO reserve ............... 56,756 58,648 64,240
Less LIFO reserve ................................ 7,068 6,642 6,426
--------- --------- ---------
Total inventory ............................. $ 49,688 $ 52,006 $ 57,814
========= ========= =========
</TABLE>
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and related accumulated depreciation are
summarized as follows:
<TABLE>
<CAPTION>
Estimated
December 31, December 31, September 30, Useful Life
1997 1996 1996 in Years
---- ---- ---- --------
(in thousands)
<S> <C> <C> <C> <C>
Land ........................................ $ 4,649 $ 6,627 $ 7,819
Buildings and improvements .................. 46,215 54,445 52,709 10 - 45
Machinery and equipment ..................... 70,921 74,714 74,064 3 - 12
Office furniture and equipment .............. 7,977 8,451 7,882 3 - 10
Automotive equipment ........................ 2,293 2,267 1,450 3 - 4
Other ....................................... 5,297 2,078 1,064 5 - 20
-------- -------- --------
Total property, plant and equipment .... 137,352 148,582 144,988
Less accumulated depreciation ............... 74,362 73,027 69,262
-------- -------- --------
Property, plant and equipment, net ..... $ 62,990 $ 75,555 $ 75,726
======== ======== ========
</TABLE>
33
<PAGE> 34
NOTE 8 - INTANGIBLES AND OTHER ASSETS
Intangibles and other assets are summarized as follows:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1996 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Goodwill, net of amortization of $2,300, $5,900
and $5,200....................................... $19,515 $21,029 $20,821
Notes receivable...................................... 6,448 7,005 8,606
Miscellaneous......................................... 9,537 2,873 4,537
------- ------- -------
Total intangibles and other assets............... $35,500 $30,907 $33,964
======= ======= =======
</TABLE>
NOTE 9 - ACCRUED LIABILITIES
Accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1996 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Other accrued liabilities............................. $14,796 $25,628 $21,215
Accrued salaries and wages............................ 4,273 2,684 3,485
Accrued taxes other than income....................... 2,318 2,279 1,884
------- ------- -------
Total accrued liabilities......................... $21,387 $30,591 $26,584
======= ======= =======
</TABLE>
34
<PAGE> 35
NOTE 10 - INCOME TAXES
Income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended September 30,
December 31, December 31, ------------------------
1997 1996 1996 1995
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Federal:
Current ............................ $ 3,627 $ (841) $ 2,940 $ 2,829
Deferred ........................... 2,555 (2,241) 1,920 (5,168)
Foreign:
Current ............................ 1,217 (179) 1,856 935
Deferred ........................... (203) 1,429 1,155 (2,872)
State and local ........................ (294) 332 330 236
------- ------- ------- -------
Income tax expense (benefit) ....... $ 6,902 $(1,500) $ 8,201 $(4,040)
======= ======= ======= =======
</TABLE>
The components of income (loss) before income taxes are:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended September 30,
December 31, December 31, ------------------------
1997 1996 1996 1995
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
United States ......................................... $ 16,656 $(11,660) $ 18,046 $ (8,669)
Foreign ............................................... 820 (7,784) 2,832 (5,883)
-------- -------- -------- --------
Income (loss) before income taxes .............. $ 17,476 $(19,444) $ 20,878 $(14,552)
======== ======== ======== ========
</TABLE>
The cumulative undistributed earnings of foreign subsidiaries, on which
United States taxes have not been provided, were approximately $26,600,000,
$24,000,000, $24,300,000 and $21,100,000 for the year ended December 31, 1997,
the period ended December 31, 1996, and the years ended September 30, 1996 and
1995, respectively. The United States income tax effect associated with the
repatriation of these earnings may be offset by foreign tax credits.
35
<PAGE> 36
Components of the difference between the income tax expense
(benefit) computed at the United States statutory income tax rate and the income
tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended September 30,
December 31, December 31, --------------------------
1997 1996 1996 1995
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Tax expense (benefit) of income (loss)
at 34% .................................. $ 5,941 $(6,611) $ 7,099 $(4,948)
Increase in valuation allowance ............. -- -- -- 765
Foreign Sales Corporation provisions ........ (513) (104) (492) (350)
Adjustment of prior years' taxes ............ -- -- (400) --
State income taxes .......................... (193) 219 218 156
Non-deductible expenses ..................... 280 60 99 103
Loss of foreign subsidiary with no tax
benefit ................................. 349 3,562 806 171
Foreign tax rates and other effects of
foreign operations ...................... 651 64 1,124 (455)
Goodwill amortization/charge off ............ 79 70 -- 667
Bettis merger expenses ...................... -- 1,164 -- --
Other, net .................................. 308 76 (253) (149)
------- ------- ------- -------
Income tax expense (benefit) ................ $ 6,902 $(1,500) $ 8,201 $(4,040)
======= ======= ======= =======
Effective tax expense (benefit) rate ........ 39.5% (7.7%) 39.3% (27.8%)
======= ======= ======= =======
</TABLE>
Deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1996 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Gross deferred tax assets:
Capital loss carryforward from sale of subsidiary ...... $ 5,067 $ -- $ --
Write-off of notes receivable related to sale
of subsidiary ....................................... 1,054 -- --
Restructuring and other charges and loss on ............
divestitures ........................................ 2,200 4,940 4,567
Operating loss carryforward from subsidiary ............ 284 8,737 5,690
Excess tax over book basis of inventories .............. 3,121 3,089 3,089
Inventory reserves ..................................... 704 1,706 1,701
Other .................................................. 4,002 4,372 3,953
-------- -------- --------
Total gross deferred tax assets ..................... 16,432 22,844 19,000
-------- -------- --------
Gross deferred tax liabilities:
Excess book over tax basis of property and
equipment ........................................... (9,489) (12,107) (12,936)
Other .................................................. (1,647) (1,217) (1,790)
-------- -------- --------
Total gross deferred tax liabilities ................ (11,136) (13,324) (14,726)
-------- -------- --------
Deferred tax asset valuation allowance ..................... (7,170) (9,502) (4,816)
-------- -------- --------
Net deferred tax assets (liabilities) ...................... $ (1,874) $ 18 $ (542)
======== ======== ========
</TABLE>
At December 31, 1997, the valuation allowance related primarily to
losses and write-offs resulting from the sale of a Germany subsidiary which are
not expected to be realized. At December 31, 1996 and
36
<PAGE> 37
September 30, 1996, the valuation allowance related primarily to the amount of
the German operating loss carryforward which is not expected to be realized.
Payments for income taxes for the year ended December 31, 1997, the
three month period ended December 31, 1996 and the years ended September 30,
1996 and 1995 were $3,426,000, $1,319,000, $3,408,000 and $6,802,000,
respectively.
NOTE 11 - DEBT
Long-term debt includes the following:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1996 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Term loan from banks (unsecured) 6.77%; interest
payable monthly; principal payable in quarterly
installments of $1,071 .................................. $28,929 $ -- $ --
Revolving credit facility (unsecured); 6.69% at
December 31, 1997; interest payable monthly ............. 10,000 -- --
Revolving credit facility (secured); interest at
prime rate (8.25% at December 31, 1996 and
September 30, 1996); interest payable quarterly ......... -- 21,100 22,100
Notes payable to bank (secured); 5.95%; principal
payable in quarterly installments of $500; interest
payable quarterly ....................................... -- 5,000 5,500
Term loan from bank (secured); interest at Canadian
prime rate (6.00% at December 31, 1997, 4.75% at
December 31, 1996 and 6.5% at September 30, 1996);
principal and interest payable monthly; payable
through August 31, 2001 ................................. 1,311 1,733 1,835
Payable to four insurance companies (unsecured);
11.5%; principal payable in annual installments
of $2,857; interest payable semi-annually ............... 2,857 5,715 8,572
Miscellaneous obligations .................................. 1,788 2,237 2,282
------- ------- -------
Total obligations ..................................... 44,885 35,785 40,289
Less portion due within one year ........................... 7,602 5,552 5,587
------- ------- -------
Long-term debt ........................................ $37,283 $30,233 $34,702
======= ======= =======
</TABLE>
In November 1997, Daniel entered into a credit agreement with a group
of four banks, which provided for a $30,000,000 term loan and a $40,000,000
revolving credit facility. The proceeds of the term loan were used to refinance
the L.8,400,000 (approximately $13,000,000) note originally utilized in the
acquisition of Spectra-Tek in May 1996, as well as Bettis' term loan and a
portion of Bettis' revolving loan. Borrowings of $7,000,000 under the revolving
credit facility were used to refinance the balance of Bettis' revolving loan.
The remainder of the revolving credit facility is available for general
corporate purposes including the issuance of letters of credit.
The term loan had an outstanding balance of $28,929,000 at December 31,
1997, and matures on April 30, 2004. Principal in the amount of $1,071,428 is
payable quarterly. Also at December 31, 1997, there were loans outstanding
totaling $10,000,000 under the revolving credit facility. The revolving credit
facility matures on April 30, 2000.
37
<PAGE> 38
Interest rates on the term loan and on the revolving credit facility
are, at Daniel's option, LIBOR plus a margin ranging from 0.5% to 1.0%,
depending upon Daniel's ratio of funded debt to earnings before interest, taxes,
depreciation and amortization, or a base rate which approximates the prime rate.
The margin is adjusted no later than 60 days after the end of each quarter and
95 days after the end of each fiscal year. Interest is due on the last day of
each calendar quarter for base rate loans and at the end of one, two or three
months for LIBOR loans depending on the interest period selected which also
includes a six month option.
At December 31, 1997, the interest rate on the revolving credit
facility loans was 6.69%. By entering into a swap agreement, Daniel effectively
fixed the rate of interest for the life of the term loan at 6.02% plus the
margin described above. At December 31, 1997, the interest rate on the term loan
was 6.77%.
Daniel also pays a quarterly commitment fee of 3/16% per annum on the
unused portion of the revolving credit facility plus a fee of 5/8% for letters
of credit. The loans under the credit agreement are unsecured with a negative
pledge on Daniel's assets and are guaranteed by Daniel's domestic material
subsidiaries. The credit agreement contains financial covenants relating to,
among other things, maximum capital expenditures, minimum tangible net worth, a
minimum funded debt to earnings before interest, taxes, depreciation and
amortization ratio and a minimum debt service coverage ratio. The credit
agreement also contains covenants restricting, among other things, fundamental
corporate changes, creation of liens, further indebtedness, sales of assets,
redemptions of capital stock and certain investments.
In December 1988, four insurance companies purchased an aggregate of
$20,000,000 of Daniel's unsecured 11.5% senior notes due 1998. Prepayment of
amounts in excess of scheduled maturities are subject to certain restrictions
and would be at a premium. The note purchase agreement related to the sale of
these notes requires maintenance of a specified current ratio and a specified
amount of net worth and also includes restrictive covenants relating to
additional indebtedness and leases, creation of liens, payment of dividends,
mergers and disposition of assets. The final installment of $2,857,000 is due
December 1998 and accordingly, at December 31, 1997, the amount remaining is
classified as current.
Payments for interest for the year ended December 31, 1997, the three
month period ended December 31, 1996 and the years ended September 30, 1996 and
1995 were $3,980,000, $1,447,000, $3,279,000 and $3,312,000, respectively.
At December 31, 1997, long-term debt matures as follows:
<TABLE>
<CAPTION>
Year Ending December 31 Amount
----------------------- ------
(in thousands)
<S> <C>
1998......................... $ 7,602
1999......................... 4,755
2000......................... 14,759
2001......................... 4,663
2002......................... 4,424
Thereafter................... 8,682
</TABLE>
At December 31, 1997, Daniel had various committed and uncommitted
short-term lines of credit aggregating approximately $38,400,000. These lines of
credit are available for short-term borrowings or issuance of letters of credit.
At December 31, 1997, December 31, 1996 and September 30, 1996,
38
<PAGE> 39
borrowings under these lines were $8,000,000, $18,300,000 and $17,400,000,
respectively, with approximately $10,400,000 available for short-term borrowings
at December 31, 1997.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Daniel is involved in various legal proceedings and claims arising in
the ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position or future results of operations of Daniel. Additionally, in
the ordinary course of business, Daniel has issued standby letters of credit and
bank guarantees as security for advances, progress payments and performance on
long-term contracts and, as a result, is contingently liable in the amount of
approximately $13,333,000 at December 31, 1997.
NOTE 13 - STOCK OPTIONS, STOCK AWARDS, PROFIT SHARING AND SAVINGS PLAN
AND POSTRETIREMENT BENEFITS
Employee stock option plans
Daniel maintains four stock option plans for employees: the 1997 plan,
the 1994 plan, which was converted from the Bettis stock option plan, the 1981
plan, and the 1977 plan. Under the 1997, 1994 and 1981 plans, the exercise price
of an option may not be less than the fair market value of Daniel's common stock
on the date of grant. Under the 1997, 1981 and 1977 plans, options that have
been granted are for a ten- year term and are exercisable either from the date
of grant, in total, or in one-third annual increments or in one-fifth annual
increments beginning at the end of the first year of the term. No portion of
options granted under the 1997 plan are exercisable before the date on which
stockholders of the Company have approved the plan. Such approval is anticipated
to be received in May 1998. Under the 1994 plan, options granted are also for a
ten-year term, but are exercisable in one-fifth increments, the first increment
occurring six months from the date of grant and the other increments occurring
on each of the first four anniversaries of the date of grant. There were 125,481
shares available for grants under the 1997 and 1977 plans as of December 31,
1997. Options outstanding and exercisable at December 31, 1997 were 613,836
ranging in price from $5.18 to $16.75 per share.
39
<PAGE> 40
A summary of stock option activity related to the plans is as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C> <C>
Options outstanding, September 30, 1994 579,309 $ 13.65
Cancelled ....................... (100,380) 15.16
Exercised ....................... (51,015) 11.32
Granted ......................... 644,000 11.71
---------
Options outstanding, September 30, 1995 1,071,914 12.45
Cancelled ....................... (14,604) 12.66
Exercised ....................... (5,163) 7.90
Granted ......................... 228,540 10.30
---------
Options outstanding, September 30, 1996 1,280,687 12.09
Cancelled ....................... (6,250) 12.42
Exercised ....................... (3,500) 7.00
Granted ......................... 15,200 13.13
---------
Options outstanding, December 31, 1996 1,286,137 12.12
Cancelled ....................... (172,203) 14.62
Exercised ....................... (149,492) 13.59
Granted ......................... 1,024,600* 14.52
---------
Options outstanding, December 31, 1997 1,989,042 13.02
=========
Exercisable, December 31, 1997 ........ 613,836 11.35
=========
</TABLE>
* Includes options for 624,858 shares granted under the 1997 plan,
which was adopted by the Board of Directors on June 17, 1997. The
1997 plan will not be effective, and the options granted will not
be exercisable, unless the Company's stockholders approve the 1997
plan by June 17, 1998. Management believes that the 1997 plan will
be approved by the stockholders at the annual meeting to be held in
May 1998.
Shares exercisable and the corresponding weighted average exercise
prices at December 31, 1996, September 30, 1996 and September 30, 1995, were
656,645 and $12.51, 629,119 and $12.86, and 400,459 and $13.48, respectively.
The weighted average fair values of options granted during the year ended
December 31, 1997, the three months ended December 31, 1996, and the years ended
September 30, 1996 and 1995 were $5.08, $4.73, $3.85 and $2.22, respectively.
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Shares Remaining Average Shares Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Life Price at 12/31/97 Price
--------------- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$5.18 - $10.00 415,976 7.3 $ 7.76 268,424 $ 7.39
$11.88 - $18.50 1,573,066 8.6 14.41 345,412 14.42
--------- -------
1,989,042 8.3 13.02 613,836 11.35
========= =======
</TABLE>
40
<PAGE> 41
Non-employee director stock option plans and agreements
Daniel maintains, for the benefit of its non-employee directors, a 1997
stock option plan, a 1995 stock option plan, a 1994 stock option plan converted
from Bettis' plan for two of its non-employee directors, and a stock option
agreement with one non-employee director. Under the agreement, the option is
exercisable for six years from the date of grant. Under the 1997 plan, an option
for 5,000 shares was granted to each non-employee director on the date the plan
was adopted, and another option for 5,000 shares was granted on January 1, 1998
(and will be granted on the first day of each subsequent fiscal year) to each
non-employee director serving on that date, such options to be immediately
exercisable and have a ten-year term. Under the 1995 plan, options are granted
for a ten-year term, and each non-employee director received an option for the
purchase of 15,000 shares of Common Stock, which option is exercisable in
one-third annual increments beginning at the end of the first year of the term.
There were 115,000 shares available for grants under the 1997 and 1995 plans at
December 31, 1997. Options outstanding and exercisable at December 31, 1997 were
77,400 ranging in price from $5.39 to $13.88 per share.
A summary of stock option activity related to the plans is as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Options outstanding, September 30, 1994 28,700 $11.15
Cancelled............................. (10,000) 12.75
Granted............................... 8,700 5.39
--------
Options outstanding, September 30, 1995 27,400 8.74
Granted............................... 143,700 13.62
-------
Options outstanding, September 30, 1996 171,100 12.84
Cancelled............................. (15,000) 13.88
Granted............................... 30,000 13.50
-------
Options outstanding, December 31, 1996 186,100 12.86
Exercised............................. (8,700) 8.19
Granted............................... 35,000 * 14.19
-------
Options outstanding December 31, 1997 212,400 13.27
=======
Exercisable, December 31, 1997 77,400 12.18
=======
</TABLE>
* Represents options granted under the 1997 Non-Employee Director
Stock Option Plan, which was adopted by the Company's Board of
Directors on June 17, 1997. While the options granted under the
plan are immediately exercisable, no option is exercisable until
the Company's stockholders have approved the plan. Management
believes that this plan will be approved by the stockholders at the
annual meeting to be held in May 1998.
Shares exercisable and the corresponding weighted average exercise
prices at December 31, 1996, September 30, 1996 and September 30, 1995, were
36,100 and $8.97, 18,700 and $9.53, and 13,480 and $10.61, respectively. The
weighted average fair values of options granted during the year ended December
31, 1997, the three months ended December 31, 1996, and the years ended
September 30, 1996 and 1995 were $4.96, $4.86, $5.09 and $1.02, respectively.
The following table summarizes information about stock options
outstanding at December 31, 1997:
41
<PAGE> 42
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Shares Remaining Average Shares Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Life Price at 12/31/97 Price
--------------- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 5.39 - $11.00 27,400 5.6 $ 9.22 27,400 $ 9.22
$12.75 - $14.19 185,000 8.5 13.87 50,000 13.87
------- ------
212,400 8.1 13.27 77,400 12.18
======= ======
</TABLE>
Proforma Reporting per SFAS No. 123
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, which established financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 encourages companies to
adopt a fair value based method of accounting for such plans, but continues to
allow use of the intrinsic value method prescribed by APB 25. Daniel has elected
to continue to account for stock-based compensation in accordance with APB 25.
Had the Company elected to recognize compensation cost based on the fair value
of the options granted at grant date as prescribed by SFAS No. 123, net income
(loss) and earnings (loss) per share would have been reduced to the proforma
amounts indicated in the table below:
<TABLE>
<CAPTION>
Ended Three Months Ended Ended
December 31, 1997 31, 1996 September 30, 1996
------------------------ -------------------------- ---------------------------
As Reported Proforma As Reported Proforma As Reported Proforma
----------- -------- ----------- -------- ----------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ......... $ 10,574 $ 9,653 $ (17,944) $ (18,029) $ 12,677 $ 12,512
Net income (loss) per share
Basic ................. $ .62 $ .57 $ (1.05) $ (1.05) $ .74 $ .73
Diluted ............... $ .61 $ .56 $ (1.05) $ (1.05) $ .73 $ .72
</TABLE>
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes model adjusted for the dilutive impact which the
conversion of the options will have on the Company's stock price, with the
following assumptions:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended
December 31, December 31, September 30,
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Expected stock price volatility......... 18.6% 17.8% 18.2%
Risk-free interest rate................. 5.8% 6.3% 6.7%
Expected life of options................ 7.6 years 7.6 years 7.6 years
Expected dividend yield................. 1.1% 1.3% 1.3%
</TABLE>
The Black-Scholes option valuation model and other existing models were
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of and are highly sensitive to subjective assumptions
including the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective
42
<PAGE> 43
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not provide a reliable single measure of the
fair value of its employee stock options. Additionally, the proforma disclosures
are not necessarily representative of the effects on reported income and
earnings per share for future years because the stock options generally vest
over three to five years and additional options may be granted in future years.
Stock award plan
In 1996, Daniel's stockholders approved the adoption of a stock award
plan that makes shares of Common Stock available for issuance as a part of the
incentive compensation paid to executive and operating officers. During 1997,
awards were granted for 70,000 shares and 1,557 shares were forfeited and became
available for future grants, leaving 8,378 shares available for issuance at
December 31, 1997. The stock awarded generally vests in one-third annual
increments beginning one year after the award, although one award of 50,000
shares granted in 1997 vests in one-fifth annual increments beginning one year
after the award.
Profit sharing and savings plan
Daniel and its domestic subsidiaries offer defined contribution plans
in which substantially all employees of adopting companies are eligible to
participate. Annual contributions to the profit sharing portion of the Daniel
Industries, Inc. Employees' Profit Sharing and Savings Plan (the "Plan") are
discretionary and determined by Daniel's Board of Directors. Contributions to
the savings portion of the Plan and to the plans of its subsidiaries were made
in amounts as required by the plans. Daniel's contributions to these plans,
which are expensed as incurred, were approximately $1,800,000, $481,000,
$1,040,000 and $1,314,000 for the year ended December 31, 1997, the three month
period ended December 31, 1996 and the years ended September 30, 1996 and 1995,
respectively. Effective January 1, 1998, the plans maintained by Daniel's
domestic subsidiaries were merged into the Plan.
Postretirement benefits
Daniel provides certain health insurance benefits to certain of Bettis'
retired employees and their eligible dependents at no cost to the retiree and at
a nominal cost for the eligible dependent. The postretirement health insurance
benefits costs and the related liabilities are not material for any period
presented.
NOTE 14 - PREFERRED STOCK
On May 31, 1990, the Board of Directors declared a dividend of one
Preferred Share Purchase Right (the "Right") for each outstanding share of
common stock. Under certain conditions, each Right may be exercised to purchase
one one-hundredth share of a new series of junior participating preferred stock
at an exercise price of $60, subject to adjustment. The Rights may only be
exercised 10 days following a public announcement that a third party has
acquired 20% or more of the outstanding common shares of Daniel or 10 days
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer, the consummation of which would result in the
beneficial ownership by a third party of 20% or more of the common shares. The
Rights, which do not have voting rights, expire May 31, 2000, and, at Daniel's
option, may be redeemed by Daniel prior to expiration for $.01 per Right. In the
event that Daniel is acquired in a merger or other business combination, or 50%
or more of its consolidated assets or earning power are sold, provision shall be
made so that each holder of a Right shall have the right to receive, upon
exercise thereof at the then current exercise price, that number of shares of
common stock of
43
<PAGE> 44
the surviving company which at the time of such transaction would have a market
value of two times the exercise price of the Right.
NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly financial data for the year
ended December 31, 1997, the three month period ended December 31, 1996 and the
fiscal year ended September 30, 1996:
<TABLE>
<CAPTION>
Basic Diluted
Earnings Earnings
Net Income (Loss) (Loss)
Revenues Gross Profit (Loss) Per Share Per Share
-------- ------------ ------ --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Fiscal 1997 Quarter Ended:
March 31, 1997................. $58,907 $20,796 $ 684 $ .04 $ .04
June 30, 1997.................. 67,229 24,333 2,511 .15 .15
September 30, 1997............. 71,334 26,646 3,600 .21 .21
December 31, 1997.............. 71,391 27,019 3,779 .22 .21
Three Month Period Ended:
December 31, 1996.............. $53,764 $17,492 $ (17,944)* $ (1.05) $ (1.05)
Fiscal 1996 Quarter Ended:
December 31, 1995.............. $54,154 $19,816 $ 2,810 $ .16 $ .16
March 31, 1996................. 55,807 20,234 3,378 .20 .20
June 30, 1996.................. 54,516 19,885 3,024 .18 .17
September 30, 1996............. 69,134 24,333 3,465 .20 .20
</TABLE>
* Includes restructuring and other charges and losses on divestitures of
non-core assets. (See Notes 2 and 3)
NOTE 16 - INDUSTRY SEGMENT
Daniel operates in one business segment, the manufacture and sale of
fluid measurement and flow control products and systems. Segment operating
income (loss) represents revenues less operating expenses and is not reduced for
interest expense, general corporate expenses and income taxes. Identifiable
assets are those tangible and intangible assets that are identified with the
operation of the industry segment or geographic area.
44
<PAGE> 45
INFORMATION ON INDUSTRY SEGMENT
(in thousands)
<TABLE>
<CAPTION>
Operating Capital Depreciation
Income Identifiable Expendi- and
Revenues (Loss) Assets tures Amortization
-------- ------ ------ ----- ------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
- ----------------------------
Fluid measurement and flow
control products and
systems .................. $268,861 $ 29,765 $215,001 $ 8,150 $ 9,434
Corporate ................... -- (9,318) 18,953 3,506 267
Other income and expense .... -- 1,339 -- -- --
Interest expense ............ -- (4,310) -- -- --
-------- -------- -------- -------- --------
Total ................ $268,861 $ 17,476 $233,954 $ 11,656 $ 9,701
======== ======== ======== ======== ========
Three Months Ended
December 31, 1996
- -----------------
Fluid measurement and flow
control products and
systems .................. $ 53,764 $ 179 $213,411 $ 2,109 $ 2,981
Corporate ................... -- (1,808) 20,164 998 61
Other charges and expense ... -- (16,660)(a) -- -- --
Interest expense ............ -- (1,155) -- -- --
-------- -------- -------- -------- --------
Total ................ $ 53,764 $(19,444) $233,575 $ 3,107 $ 3,042
======== ======== ======== ======== ========
Year Ended September 30, 1996
- -----------------------------
Fluid measurement and flow
control products and
systems .................. $228,796 $ 26,593 $227,449 $ 6,718 $ 9,305
Non-core businesses ......... 4,815 127 75 -- 4
-------- -------- -------- -------- --------
Subtotal .................... 233,611 26,720 227,524 6,718 9,309
Corporate ................... -- (5,744) 21,245 192 202
Other income and expense .... -- 3,447(b) -- -- --
Interest expense ............ -- (3,545) -- -- --
-------- -------- -------- -------- --------
Total ................ $233,611 $ 20,878 $248,769 $ 6,910 $ 9,511
======== ======== ======== ======== ========
Year Ended September 30, 1995
- -----------------------------
Fluid measurement and flow
control products and
systems .................. $191,069 $ 15,131 $180,230 $ 6,031 $ 9,010
Non-core businesses ......... 32,359 3,467 18,474 207 541
-------- -------- -------- -------- --------
Subtotal .................... 223,428 18,598 198,704 6,238 9,551
Corporate ................... -- (5,953) 11,640 382 417
Other charges and expense ... -- (24,075)(a) -- -- --
Interest expense ............ -- (3,122) -- -- --
-------- -------- -------- -------- --------
Total ................ $223,428 $(14,552) $210,344 $ 6,620 $ 9,968
======== ======== ======== ======== ========
</TABLE>
(a) Includes restructuring and other charges and losses on divestitures of
non-core assets. (See Notes 2 and 3)
(b) Includes gain from divestiture of non-core assets. (See Note 3)
45
<PAGE> 46
INFORMATION ON GEOGRAPHIC OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
United
States Europe Canada Consolidated
------ ------ ------ ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997
- ----------------------------
Revenues ........................... $179,104 $ 58,345 $ 31,412 $268,861
======== ======== ======== ========
Operating income (loss) ............ $ 23,064 $ (1,605) $ 8,306 $ 29,765
======== ======== ======== ========
Identifiable assets at
December 31, 1997 ............... $123,069 $ 71,115 $ 20,817 $215,001
======== ======== ======== ========
Three Months Ended December 31, 1996
- ------------------------------------
Revenues ........................... $ 36,749 $ 10,521 $ 6,494 $ 53,764
======== ======== ======== ========
Operating income (loss)(a) ......... $ 1,462 $ (2,769) $ 1,486 $ 179
======== ======== ======== ========
Identifiable assets at
December 31, 1996 ............... $120,668 $ 74,740 $ 18,003 $213,411
======== ======== ======== ========
Year Ended September 30, 1996
- -----------------------------
Revenues ........................... $163,764 $ 46,415 $ 23,432 $233,611
======== ======== ======== ========
Operating income ................... $ 20,980 $ 855 $ 4,885 $ 26,720
======== ======== ======== ========
Identifiable assets at
September 30, 1996 .............. $130,346 $ 80,224 $ 16,954 $227,524
======== ======== ======== ========
Year Ended September 30, 1995
- -----------------------------
Revenues ........................... $154,834 $ 42,484 $ 26,110 $223,428
======== ======== ======== ========
Operating income (loss)(a) ......... $ 13,331 $ (1,054) $ 6,321 $ 18,598
======== ======== ======== ========
Identifiable assets at
September 30, 1995 .............. $125,575 $ 55,042 $ 18,087 $198,704
======== ======== ======== ========
</TABLE>
(a) Includes restructuring and other charges. (See Note 2)
Included in United States revenues are export sales of $67,721,000,
$13,421,000, $62,818,000 and $42,649,000 in the year ended December 31, 1997,
the three month period ended December 31, 1996, and the years ended September
30, 1996 and 1995, respectively. These sales were primarily to Africa, the Far
East, the Middle East and South America. At December 31, 1997 and 1996 and
September 30, 1996 and 1995, Daniel's investment in consolidated foreign
subsidiaries, primarily its subsidiaries in the United Kingdom, approximated
$69,000,000, $54,600,000, $59,300,000 and $51,100,000.
Foreign currency transaction gains and losses included in the
Consolidated Statement of Operations were immaterial in all periods presented.
46
<PAGE> 47
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<S> <C>
2.1 Plan and Agreement of Merger dated as of January 22, 1988, by
and between Daniel Industries, Inc., a Texas corporation
("Daniel Texas"), and Daniel Industries, Inc., a Delaware
corporation (the "Company"), filed as Exhibit 2.1 to Daniel's
Registration of Securities of Certain Successor Issuers on Form
8-B dated May 5, 1988 and incorporated by reference here.
2.2 Agreement and Plan of Merger dated September 17, 1996 by and
among Daniel, Blue Acquisition, Inc., and Bettis Corporation,
filed as Exhibit 2.1 to Daniel's Registration Statement on Form
S-4 (Reg. No. 333-14635) and incorporated by reference here.
3.1 Certificate of Incorporation of Daniel, filed as Exhibit 3.1 to
Daniel's Registration of Securities of Certain Successor Issuers
on Form 8-B dated May 5, 1988 and incorporated by reference
here.
3.2 By-laws of Daniel, as amended through June 1, 1997, filed as
Exhibit 3.1 to Daniel's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 and incorporated by reference
here.
3.3 Certificate of Designation, Powers, Preferences and Rights of
Series A Junior Participating Preferred Stock filed as Exhibit
3.3 to Daniel's Form 8 amending its Annual Report on Form 10-K
for the year ended September 30, 1990 and incorporated by
reference here.
4.1 Note Purchase Agreement dated as of December 5, 1988, between
Daniel and The Variable Annuity Life Insurance Company, The
Mutual Benefit Life Insurance Company, MONY Life Insurance
Company of America and MONY Legacy Life Insurance Company
(including the form of Daniel's Senior Notes in the aggregate
principal amount of $20,000,000) filed as Exhibit 4.3 to
Daniel's Annual Report on Form 10-K for the year ended September
30, 1988 and incorporated by reference here.
4.2 Rights Agreement dated as of May 31, 1990, between Daniel and
Wachovia Bank and Trust Company, N.A., as Rights Agent, filed as
Exhibit 1 to Daniel's Registration of Certain Classes of
Securities on Form 8-A filed June 5, 1990 and incorporated by
reference here.
10.1 1977 Stock Option Plan, as amended and restated on June 17,
1997.
10.2 1981 Stock Option Plan, as amended and restated on December 31,
1986, filed as Exhibit 19.2 to Daniel Texas's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1986 and
incorporated by reference here.
</TABLE>
47
<PAGE> 48
<TABLE>
<S> <C>
10.3 Form of Director's Stock Option Agreements dated October 9,
1986, between Daniel Texas and the several non-employee
directors, filed as Exhibit 19.1 to Daniel Texas's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1987 and
incorporated by reference here.
10.4 Form of Change in Control Agreement dated as of March 15, 1995,
between Daniel and each of W. C. Clingman and M. R. Yellin,
dated August 30, 1996 between Daniel and J. M Tidwell, dated
February 6, 1997, between Daniel and each of W. T. Bratton and
W.M. Krenek, filed as Exhibit 10.4 to Daniel's Annual Report on
Form 10-K for the year ended September 30, 1995 and incorporated
by reference here.
10.5 Consulting Agreement between Daniel and W. A. Griffin effective
as of February 3, 1995, filed as Exhibit 10.7 to Daniel's Annual
Report on Form 10-K for the year ended September 30, 1996 and
incorporated by reference here.
10.6 Deferred Compensation Agreement dated March 6, 1996 between
Daniel and Ronald C. Lassiter, filed as Exhibit 10.10 to
Daniel's Annual Report on Form 10-K for the year ended September
30, 1996 and incorporated by reference here.
10.7 Employment Agreement dated July 30, 1996 between Daniel and
James M. Tidwell, filed as Exhibit 10.11 to Daniel's Annual
Report on Form 10-K for the year ended September 30, 1996 and
incorporated by reference here.
10.8 1995 Non-Employee Director's Stock Option Plan, as amended and
restated on December 12, 1996, filed as Exhibit 10.1 to Daniel's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1996 and incorporated by reference here.
10.9 Stock Award Plan dated as of December 8, 1995, filed as Exhibit
10.11 to Daniel's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 and incorporated by reference here.
10.10 Daniel Industries, Inc. 1997 Stock Option Plan, filed as Exhibit
10.1 to Daniel's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 and incorporated by reference here.
10.11 Daniel Industries, Inc. 1997 Non-Employee Director Stock Option
Plan, filed as Exhibit 10.2 to Daniel's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 and incorporated
by reference here.
10.12 Employment Agreement dated June 17, 1997 between Daniel and
Thomas A. Newton, Jr., filed as Exhibit 10.3 to Daniel's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1997 and incorporated by reference here.
10.13 StockAward Agreement dated June 17, 1997 between Daniel and
Thomas A. Newton, Jr., filed as Exhibit 10.4 to Daniel's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1997 and incorporated by reference here.
</TABLE>
48
<PAGE> 49
<TABLE>
<S> <C>
10.14 Change in Control Agreement dated June 17, 1997 between Daniel
and Thomas A. Newton, Jr., filed as Exhibit 10.5 to Daniel's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1997 and incorporated by reference here.
10.15 Change in Control Agreement dated June 17, 1997 between Daniel
and Ronald C. Lassiter, filed as Exhibit 10.6 to Daniel's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1997 and incorporated by reference here.
10.16 Form of Change in Control Agreement between the Company and each
of Daniel J. Sarik, Katie-Pat Bowman and Michael T. Atkins,
filed as Exhibit 10.7 to Daniel's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 and incorporated by
reference here.
10.17 Severance Agreement between Daniel and W.T. Batton dated
February 6, 1996.
10.18 Credit Agreement dated November 19, 1997 between Daniel and Bank
One, Texas N.A., Texas Commerce Bank National Association, CIBC
Inc., and Credit Lyonnais New York Branch.
21 Significant Subsidiaries of Daniel.
23(a) Consent of Price Waterhouse LLP
23(b) Consent of Coopers & Lybrand L.L.P.
27 Financial data schedule.
</TABLE>
49
<PAGE> 1
EXHIBIT 10.1
DANIEL INDUSTRIES, INC.
1977 STOCK OPTION PLAN
(As Amended and Restated on June 17, 1997)
1. Purpose. This 1977 Stock Option Plan (this "Plan") of
Daniel Industries, Inc. (the "Company"), for executive officers and other key
employees of the Company, is intended to advance the best interests of the
Company by providing those individuals who have substantial responsibility for
its management and growth with additional incentive and by increasing their
proprietary interest in the success of the Company, thereby encouraging them to
remain in its employ.
2. Administration. This Plan shall be administered by a
committee (the "Committee") designated by the Board of Directors of the Company
in accordance with the provisions of Article III of the by-laws of the Company.
The Committee shall consist of not less than three directors of the Company,
each of whom shall be a disinterested person.
For purposes of this Paragraph 2, "disinterested person" means
a person who is not, at any time during such person's service as a member of
the Committee or at any time during one year prior to such service, granted
Options (as hereinafter defined) or granted or awarded other equity securities
pursuant to any other plan of the Company or any of its affiliates.
All actions by the Committee shall be taken in accordance with
the provisions of Article III of the by-laws of the Company. The Committee
shall designate a chairman from among its members, who shall preside at all of
its meetings, and shall designate a secretary, without regard to whether that
person is a member of the Committee, who shall keep the minutes of the
proceedings of the Committee and all records, documents and data pertaining to
the administration of this Plan.
All questions of interpretation and application of this Plan,
or of options granted or to be granted hereunder ("Options"), shall be subject
to the determination, which shall be final, binding and conclusive, of the
Committee.
3. Option Shares. Subject to the provisions of Paragraph
17 hereof, the shares of stock issuable upon the exercise of Options shall be
shares of Common Stock, $1.25 par value ("Stock"), of the Company. The
aggregate number of shares of Stock that may be issued upon the exercise of
Options shall not exceed 1,287,363, consisting of (i) 100,000 shares provided
for under this Plan on the date this Plan became effective, (ii) 250,000
additional shares provided for under this Plan on August 22, 1989, (iii)
400,000 additional shares provided for under this Plan on December 16, 1993,
(iv) 300,000 additional shares provided for under this Plan on December 8,
1995, and (v) 237,363 shares that, after the date the Plan became effective but
prior to December 9, 1995, became available for issuance upon the exercise of
Options by reason of Paragraph 17 hereof. 215,908 shares have been issued in
accordance with the terms of the Plan after the date the Plan became effective
but prior to December 9, 1995, such that 1,071,455 of
<PAGE> 2
such aggregate number of shares, and the class thereof, shall be subject to
adjustment in accordance with the provisions of Paragraph 17 hereof in respect
of any event referred to in Paragraph 17 hereof that occurs on or after
December 9, 1995. Such shares of Stock may be treasury shares or authorized
but unissued shares.
In the event that any outstanding Option for any reason shall
expire or terminate or be forfeited or canceled, whether by reason of the death
or severance of employment of the individual to whom such Option was granted,
the relinquishment of such Option, or any other cause, the shares of Stock
allocable to the unexercised portion of such Option may be made the subject of
one or more other Options granted on or after the date of the expiration,
termination, forfeiture or cancellation of such first-mentioned Option.
4. Authority to Grant Options. The Committee may grant
from time to time to such eligible individuals as it shall from time to time
determine one or more Options to purchase a stated number of shares of Stock
subject to the terms and conditions of this Plan and the terms and conditions
of the agreement evidencing such Options. The number of shares of Stock
issuable upon the exercise of any Option shall be determined by the Committee
at the time such Option is granted, provided that such number of shares of
Stock shall be subject to adjustment in accordance with the provisions of
Paragraph 17 hereof.
5. Eligibility. The individuals who shall be eligible to
be granted Options shall be those executive officers and other key employees
(including officers who may be directors of the Company, but excluding any
officer or other key employee who shall have been designated by the Board of
Directors of the Company as ineligible for the grant of Options) of the
Company, or of any parent or subsidiary corporation of the Company, as the
Committee shall determine from time to time.
6. Option Price. The price at which shares of Stock may
be purchased upon the exercise of an Option (the "Option Price") shall be
determined by the Committee at the time such Option is granted and shall be
expressed in United States dollars. The Option Price with respect to any
Option may be less than, equal to, or greater than the fair market value on the
date such Option is granted of the shares of Stock that may be purchased upon
the exercise of such Option. In no event, however, shall the Option Price with
respect to any Option be less than the greater of (i) 50% of the fair market
value on the date such Option is granted of the shares of Stock that may be
purchased upon the exercise of such Option or (ii) the aggregate par value of
the shares of Stock that may be purchased upon the exercise of such Option.
7. Duration of Options. The Committee, in its
discretion, may provide that an Option shall be exercisable during any period
of time from the date such Option is granted, provided that no Option may be
exercised until the expiration of six months following the date such Option was
granted.
8. Amount Exercisable. Each outstanding Option may be
exercised, either with respect to all or less than all of the number of shares
of Stock subject to such Option, subject to such conditions as the Committee,
in its discretion, may provide in the agreement evidencing such Option.
<PAGE> 3
9. Exercise of Options. The individual to whom an
Option is granted (an "Optionee") may exercise such Option by delivering to the
Company a written notice stating (i) that such Optionee wishes to exercise such
Option on the date such notice is so delivered, (ii) the number of shares of
Stock with respect to which such Option is to be exercised and (iii) the
address to which the certificate representing such shares of Stock should be
mailed.
In order to be effective, such written notice shall be
accompanied by (i) payment of the Option Price of such shares of Stock and (ii)
payment of an amount of money necessary to satisfy any withholding tax
liability that may result from the exercise of such Option. Each such payment
shall be made to the Company in United States dollars.
In its discretion, the Committee may require, as an additional
condition to the issuance of shares of Stock upon the exercise of an Option,
that the Optionee to whom such Option was granted execute and deliver to the
Company a stock purchase agreement, in such form as may be required by the
Committee, within three business days after such form of agreement is presented
to such Optionee.
As promptly as practicable after the receipt by the Company of
(i) such written notice from the Optionee, (ii) payment, in the form required
by the foregoing provisions of this Paragraph 9, of the Option Price of the
shares of Stock with respect to which such Option is to be exercised, (iii)
payment, in the form required by the foregoing provisions of this Paragraph 9,
of an amount of money necessary to satisfy any withholding tax liability that
may result from the exercise of such Option, and (iv) an executed stock
purchase agreement in the form required by the Committee, if any is so
required, the Company shall cause to be delivered to such Optionee (or to a
specified escrow agent, if so required under the terms of such stock purchase
agreement) a certificate representing the number of shares of Stock with
respect to which such Option has been so exercised, such certificate to be
registered in the name of such Optionee, provided that such delivery shall be
considered to have been made when such certificate shall have been mailed,
postage prepaid, to such Optionee at the address specified for such purpose in
such written notice from the Optionee to the Company.
10. Transferability of Options. An option shall not be
transferable by the Optionee to whom such Option was granted otherwise than by
will or under the laws of descent and distribution or pursuant to a qualified
domestic relations order, as defined by the Internal Revenue Code of 1986, as
amended, or Title I of the Employee Retirement Income Security Act, or the
rules thereunder. The designation by an Optionee of a beneficiary shall not
constitute a transfer of an Option for purposes of this Plan.
11. Termination of Employment or Death of Optionee. All
Options granted to an Optionee shall terminate immediately upon 30 days after
the severance of the employment relationship between the Company and such
Optionee for any reason, for or without cause, other
3
<PAGE> 4
than death. Whether authorized leave of absence, or absence on military or
government service, shall constitute severance of the employment relationship
between the Company and any Optionee shall be determined by the Committee at
the time thereof.
In the event of the death of an Optionee while in the employ
of the Company and before the date of expiration of any Option granted to such
Optionee, such Option shall terminate on the earlier of such date of expiration
or one year following the date of such Optionee's death. After the death of
such Optionee, the Optionee's executors or administrators, or the person to
whom such Optionee's Option shall have been transferred by will or under the
laws of descent and distribution, shall have the right, at any time prior to
such termination, to exercise such Option, as a whole (without regard to any
limitations set forth in or imposed pursuant to the first sentence of Paragraph
8 hereof) or in part.
For the purpose of determining the employment relationship
between the Company and an Optionee, employment by any parent or subsidiary
corporation of the Company shall be considered employment by the Company.
12. Requirements of Law. The Company shall not be
required to issue any shares of Stock upon the exercise of any Option if the
issuance of such shares of Stock would constitute or result in a violation by
the Company, or by the Optionee to whom such Option was granted, of any
provision of any applicable law, statute or regulation of any governmental
authority.
Upon the exercise of any Option, the Company shall not be
required to issue any shares of Stock unless the Committee shall have received
evidence satisfactory to it that the Optionee to whom such Option was granted
will not transfer such shares of Stock until a registration statement with
respect to such shares of Stock shall have become effective under the
Securities Act of 1933 or until an opinion of counsel satisfactory to the
Company shall have been received by the Company to the effect that such
registration is not required. Any determination in this connection by the
Committee shall be final, binding and conclusive.
The Company may, but shall in no event be obligated to,
register under the Securities Act of 1933, or register or otherwise qualify for
sale under the securities laws of any state, the shares of Stock issuable upon
the exercise of one or more Options. In the event that any shares of Stock
issuable upon the exercise of an Option are not registered under the Securities
Act of 1933, the Company may imprint on the certificates representing such
shares of Stock the following legend or any other legend that counsel for the
Company considers necessary or advisable to comply with the Securities Act of
1933:
The shares of stock represented by this certificate have
not been registered under the Securities Act of 1933 or
under the securities laws of any state and may not be sold
or transferred except upon such
4
<PAGE> 5
registration or upon receipt by the Corporation of an
opinion of counsel satisfactory to the Corporation, in
form and substance satisfactory to the Corporation, that
registration is not required for such sale or transfer.
The Company shall not be obligated to take any other
affirmative action to cause the exercise of any Option, or the issuance of
shares of Stock upon the exercise of any Option, to comply with any law,
statute or regulation of any governmental authority.
13. No Rights as Shareholder. No Optionee shall have any
right as a shareholder with respect to any shares of Stock issuable upon the
exercise of any Option granted to such Optionee until the date of issuance to
such Optionee of a certificate representing such shares of Stock. Except as
otherwise provided in Paragraph 17 hereof, no adjustment for dividends, or
otherwise, shall be made if the record date therefor is prior to the date of
issuance of such certificate.
14. Employment Obligation. The granting of any Option
shall not impose upon the Company, or upon any parent or subsidiary corporation
of the Company, any obligation to employ or continue to employ any Optionee.
The right of the Company, or of any parent or subsidiary corporation of the
Company, to terminate the employment of any person shall not be diminished or
otherwise affected by reason of the fact that an Option has been granted to
him.
15. Forfeiture for Competition. If the Committee finds
that the holder of any outstanding Option, at any time following the date upon
which such Option was granted, directly or indirectly owned, operated, managed
or controlled, or participated in the ownership, management, operation or
control of, or was employed or was paid as a consultant or as an independent
contractor by, a business that competed at any time after that date with the
Company or with any parent or subsidiary corporation of the Company, then such
holder shall thereupon forfeit all outstanding Options granted to him, provided
that such holder shall not forfeit any outstanding Option solely on account of
such holder's ownership of shares or other securities issued by any corporation
so long as such ownership does not result in the direct or indirect control by
such holder of such corporation.
16. Forfeiture for Dishonesty. If the Committee finds
that an Optionee has engaged in fraud, embezzlement, theft, commission of a
felony, or proven dishonesty in the course of such Optionee's employment by the
Company or by any parent or subsidiary corporation of the Company and that such
action has damaged the Company or such parent or subsidiary corporation, or if
the Committee finds that an Optionee has disclosed trade secrets of the Company
or of any parent or subsidiary corporation of the Company, then such Optionee
shall thereupon forfeit all outstanding Options granted to such Optionee.
17. Changes in the Capital Structure of the Company. The
existence of outstanding Options shall not affect in any manner the right of
the Company (i) to make any
5
<PAGE> 6
change in the Company's capital structure or its business, (ii) to effect any
merger or consolidation of the Company, (iii) to issue any bonds, debentures or
other evidences of indebtedness, (iv) to issue any preferred stock or any other
securities affecting the Stock or the rights of the holders thereof, (v) to
cause the dissolution of the Company or any sale or transfer of all or any part
of the assets or business of the Company, or (vi) to take any other corporate
action or proceeding, whether of a similar character or otherwise.
If the Company shall effect a reclassification of shares of
Stock, the payment of a stock dividend to holders of shares of Stock, or some
other increase or reduction in the number of shares of Stock outstanding
without receiving compensation therefor in money, services or property, then
(i) the number, class and per share price of shares of Stock issuable upon the
exercise of any outstanding Option shall be appropriately adjusted so that the
Optionee to whom such Option was granted shall be entitled upon the exercise of
such Option to receive, for the same aggregate consideration, the same number
and class of shares that such Optionee would have received had such Optionee
exercised such Option immediately prior to the occurrence of the event
requiring such adjustment and (ii) the aggregate number of shares of Stock, and
the class thereof, that may be issued upon the exercise of Options that are not
at the time outstanding shall be adjusted by substituting for such number and
class that number and class of shares that would have been received by the
holder of record of any equal number of outstanding shares of Stock as the
result of the occurrence of the event requiring such adjustments.
After a merger of one or more corporations into the Company,
or after a consolidation of the Company and one or more corporations under
circumstances in which the Company is the surviving corporation, each holder of
an outstanding Option shall be entitled upon the exercise of such Option to
receive (subject to any required action by shareholders), in lieu of the number
of shares of Stock issuable upon the exercise of such Option, the number and
class of shares or other securities to which such holder would have been
entitled pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of record of a number of shares of Stock equal to the number of shares
of Stock issuable upon the exercise of such Option.
If the Company is merged into or consolidated with another
corporation under circumstances in which the Company is not the surviving
corporation, or if the Company dissolves, (i) subject to the provisions of
Clause (iii) of this grammatical paragraph, after the effective date of such
merger or consolidation, as the case may be, each holder of an outstanding
Option shall be entitled upon the exercise of such Option to receive, in lieu
of shares of Stock, such shares or other securities as the holders of shares of
Stock received pursuant to the terms of such merger or consolidation; (ii) the
Board of Directors of the Company, in its discretion, may waive any limitations
set forth in or imposed pursuant to the first sentence of Paragraph 8 hereof so
that all outstanding Options shall be exercisable in full from and after a date
prior to the effective date of such merger, consolidation or dissolution, as
the case may be; and (iii) all outstanding Options may be canceled by the Board
of Directors as of the effective date of such merger, consolidation or
dissolution, provided that (x) notice of such cancellation shall be given
6
<PAGE> 7
to each holder of an outstanding Option and (y) such holder shall have the
right to exercise such Option in full (without regard to any limitations set
forth in or imposed pursuant to the first sentence of Paragraph 8 hereof)
during the 30-day period immediately preceding the effective date of such
merger, consolidation or dissolution.
Except as in this Paragraph 17 expressly provided, the issue
by the Company of shares of any class, or securities convertible into shares
of any class, for money or services or property, either upon direct sale or
upon the exercise of rights or warrants to subscribe therefor or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number, class or Option Price of any shares
issuable upon the exercise of any outstanding Option.
18. Substitute Options. Options may be granted from time
to time in substitution for options held by employees of other corporations who
concurrently become employees of the Company as the result of a merger or
consolidation of such other corporation with or into the Company, the
acquisition by the Company of assets of such other corporation, or the
acquisition by the Company of stock of such other corporation. The terms and
conditions of such substitute Options may vary from the terms and conditions
set forth herein to such extent as the Board of Directors of the Company may
deem appropriate to conform, in whole or in part, to the provisions of the
options in substitution for which such substitute Options are granted.
19. Amendment or Termination of Plan. The Board of
Directors of the Company may modify, revise or terminate this Plan at any time
and from time to time, provided that without the further approval of the
holders of a majority of the outstanding shares of Stock, the Board of
Directors of the Company may not(i) materially increase the benefits accruing
to participants under this Plan, (ii) change the aggregate number of shares of
Stock that may be issued upon the exercise of Options (except to the extent
that the actions of the Board of Directors may require adjustment of such
number pursuant to the provisions of Paragraph 17), or (iii) change the class
of employees to whom Options may be granted.
20. Option Agreements. Each Option shall be evidenced by
a written agreement that shall be subject to the terms and conditions of this
Plan and shall be executed by the Optionee to whom such Option is granted and
by the Company. Each such agreement shall contain such other provisions as the
Committee, in its discretion, shall deem advisable.
21. Effective Date of Plan. This Plan shall become
effective and shall be deemed to have been adopted on January 1, 1977, subject
only to approval by the holders of a majority of the outstanding shares of
Stock within 12 months after such date. This Plan shall terminate (i) when the
total number of shares of Stock with respect to which Options may be granted
shall have been issued upon the exercise of Options or (ii) by action of the
Board of Directors of the Company pursuant to Paragraph 19 hereof.
7
<PAGE> 1
EXHIBIT 10.17
SEVERANCE AGREEMENT
This Agreement effective as of this 6th day of February, 1997 by and between W.
Todd Bratton and Daniel Industries, Inc.
1. In consideration of W. Todd Bratton accepting employment with
Daniel Industries, Inc, if W. Todd Bratton's employment is terminated for any
reason other than criminal misconduct, he shall be paid upon termination, one
year's salary less required withholding taxes. Daniel Industries, Inc. will
pay the cost of continuation of Mr. Bratton's present medical insurance
program for one year from the date of termination.
- -----------------------------------
W. Todd Bratton
DANIEL INDUSTRIES
- -----------------------------------
James M. Tidwell
<PAGE> 1
EXHIBIT 10.18
================================================================================
$70,000,000
CREDIT AGREEMENT
Dated as of
November 19, 1997
Between
DANIEL INDUSTRIES, INC., AS BORROWER
BANK ONE, TEXAS, NA, AS AGENT AND LENDER,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, AS CO-AGENT AND LENDER,
CIBC INC., AS LENDER
AND
CREDIT LYONNAIS NEW YORK BRANCH, AS LENDER
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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SECTION 1. DEFINITIONS; INTERPRETATION............................................................................ 1
Section 1.1. Definitions............................................................................. 1
Section 1.2. Interpretation.......................................................................... 12
SECTION 2. THE CREDIT FACILITIES.................................................................................. 12
Section 2.1. Loans................................................................................... 12
Section 2.2. Letters of Credit....................................................................... 13
Section 2.3. Types of Loans and Minimum Borrowing Amounts............................................ 16
Section 2.4. Manner of Borrowing..................................................................... 16
Section 2.5. Interest Periods........................................................................ 18
Section 2.6. Interest Payments....................................................................... 18
Section 2.7. Default Rates........................................................................... 19
Section 2.8. Amortization and Maturity of Term Loans................................................. 20
Section 2.9. Optional Prepayments.................................................................... 20
Section 2.10. Mandatory Prepayments of Loans.......................................................... 20
Section 2.11. The Notes............................................................................... 21
Section 2.12. Breakage Fees........................................................................... 21
Section 2.13. Commitment Terminations................................................................. 22
SECTION 3. FEES AND PAYMENTS...................................................................................... 22
Section 3.1. Fees.................................................................................... 22
Section 3.2. Place and Application of Payments....................................................... 22
Section 3.3. Withholding Taxes....................................................................... 23
SECTION 4. CONDITIONS PRECEDENT................................................................................... 24
Section 4.1. Conditions Precedent to Initial Borrowing............................................... 24
Section 4.2. Conditions Precedent to all Borrowings.................................................. 25
SECTION 5. REPRESENTATIONS AND WARRANTIES......................................................................... 27
Section 5.1. Corporate Organization.................................................................. 27
Section 5.2. Corporate Power and Authority; Validity................................................. 27
Section 5.3. No Violation............................................................................ 27
Section 5.4. Litigation.............................................................................. 27
Section 5.5. Use of Proceeds; Margin Regulations..................................................... 28
Section 5.6. Investment Company Act.................................................................. 28
Section 5.7. Public Utility Holding Company Act...................................................... 28
Section 5.8. True and Complete Disclosure............................................................ 28
Section 5.9. Financial Statements.................................................................... 28
Section 5.10. No Material Adverse Change.............................................................. 29
Section 5.11. Labor Controversies..................................................................... 29
Section 5.12. Taxes................................................................................... 29
Section 5.13. ERISA................................................................................... 29
Section 5.14. Consents................................................................................ 29
Section 5.15. Capitalization.......................................................................... 29
Section 5.16. Ownership of Property................................................................... 29
Section 5.17. Compliance with Statutes................................................................ 30
Section 5.18. Environmental Matters................................................................... 30
Section 5.19. Dividend Restrictions................................................................... 30
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 6. COVENANTS.............................................................................................. 30
Section 6.1. Corporate Existence..................................................................... 30
Section 6.2. Maintenance............................................................................. 31
Section 6.3. Taxes................................................................................... 31
Section 6.4. ERISA................................................................................... 31
Section 6.5. Insurance............................................................................... 31
Section 6.6. Financial Reports and Other Information................................................. 31
Section 6.7. Lenders' Inspection Rights.............................................................. 33
Section 6.8. Conduct of Business..................................................................... 33
Section 6.9. New Subsidiaries........................................................................ 33
Section 6.10. Restrictions on Redemption; Dividends................................................... 34
Section 6.11. Restrictions on Fundamental Changes..................................................... 34
Section 6.12. Environmental Laws...................................................................... 35
Section 6.13. Liens................................................................................... 35
Section 6.14. Indebtedness............................................................................ 37
Section 6.15. Loans, Advances and Investments......................................................... 38
Section 6.16. Transfer of Assets...................................................................... 38
Section 6.17. Transactions with Affiliates............................................................ 39
Section 6.18. Compliance with Laws.................................................................... 39
Section 6.19. Negative Pledges........................................................................ 39
Section 6.20. Maximum Capital Expenditures............................................................ 39
Section 6.21. Minimum Tangible Net Worth.............................................................. 39
Section 6.22. Maximum Funded Debt to EBITDA Ratio..................................................... 40
Section 6.23. Minimum Debt Service Coverage Ratio..................................................... 40
SECTION 7. EVENTS OF DEFAULT AND REMEDIES......................................................................... 40
Section 7.1. Events of Default....................................................................... 40
Section 7.2. Non-Bankruptcy Defaults................................................................. 42
Section 7.3. Bankruptcy Defaults..................................................................... 42
Section 7.4. Collateral for Undrawn Letters of Credit................................................ 42
Section 7.5. Notice of Default....................................................................... 43
Section 7.6. Expenses................................................................................ 43
SECTION 8. CHANGE IN CIRCUMSTANCES................................................................................ 43
Section 8.1. Change of Law........................................................................... 43
Section 8.2. Unavailability of Deposits or Inability to Ascertain LIBOR Rate......................... 43
Section 8.3. Increased Cost and Reduced Return....................................................... 44
Section 8.4. Lending Offices......................................................................... 46
Section 8.5. Discretion of Lender as to Manner of Funding............................................ 46
SECTION 9. THE AGENTS............................................................................................. 46
Section 9.1. Appointment and Authorization of Agent and Co-Agent..................................... 46
Section 9.2. Rights and Powers....................................................................... 46
Section 9.3. Action by Agent and Co-Agent............................................................ 47
Section 9.4. Consultation with Experts............................................................... 47
Section 9.5. Indemnification Provisions; Credit Decision............................................. 47
Section 9.6. Indemnity............................................................................... 48
Section 9.7. Resignation of Agent and Successor Agent................................................ 48
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 10. MISCELLANEOUS......................................................................................... 49
Section 10.1. No Waiver............................................................................... 49
Section 10.2. Non-Business Day........................................................................ 49
Section 10.3. Documentary Taxes....................................................................... 49
Section 10.4. Survival of Representations............................................................. 49
Section 10.5. Survival of Indemnities................................................................. 49
Section 10.6. Setoff.................................................................................. 49
Section 10.7. Notices................................................................................. 50
Section 10.8. Counterparts............................................................................ 50
Section 10.9. Successors and Assigns.................................................................. 50
Section 10.10. Sales and Transfers of Borrowings and Notes; Participations in Borrowings and
Notes................................................................................... 51
Section 10.11. Amendments, Waivers and Consents........................................................ 53
Section 10.12. Headings................................................................................ 54
Section 10.13. Legal Fees, Other Costs and Indemnification............................................. 54
Section 10.14. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial......................... 54
Section 10.15. Confidentiality......................................................................... 56
Section 10.16. Effectiveness........................................................................... 56
Section 10.17. Severability............................................................................ 56
Section 10.18. Change in Accounting Principles or Tax Laws............................................. 56
Section 10.19. Entire Agreement........................................................................ 56
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit 2.2A Form of Borrowing Request
Exhibit 2.2B Form of Application
Exhibit 2.11A Form of Revolving Note
Exhibit 2.11B Form of Term Note
Exhibit 4.1 Form of Subsidiary Guaranty
Exhibit 6.6 Form of Compliance Certificate
Exhibit 10.10 Form of Assignment Agreement
SCHEDULES
Schedule 5.1 List of Subsidiaries
Schedule 5.4 List of Litigation
Schedule 6.14 List of Existing Indebtedness
Schedule 6.15 List of Existing Investments
</TABLE>
iii
<PAGE> 5
CREDIT AGREEMENT, dated as of November 19, 1997, between Daniel Industries,
Inc., a Delaware corporation (the "Borrower"), Bank One, Texas, NA ("Bank One"),
Texas Commerce Bank National Association ("TCB"), CIBC Inc., Credit Lyonnais New
York Branch, and the other lenders from time to time parties hereto (each a
"Lender" and collectively, the "Lenders"), Bank One, as administrative agent for
the Lenders (in such capacity, the "Agent") and TCB, as co-agent for the Lenders
(in such capacity, the "Co-Agent").
WITNESSETH:
WHEREAS, the Borrower desires to obtain commitments from the Lenders to
make loans to the Borrower and to participate in letters of credit for the
account of the Borrower; and
WHEREAS, the Lenders are willing to extend such commitments to the Borrower
on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION.
Section 1.1. Definitions. Unless otherwise defined herein, the following
terms shall have the following meanings:
"Acquisition" means a direct or indirect purchase by the Borrower or any of
its Subsidiaries after the date hereof for cash, stock or other securities or
other property, whether in one or more related transactions, of all or
substantially all of the assets or voting securities or other equity interests
of a Person or a business unit, division or group of a Person.
"Adjusted LIBOR Rate" means, for any Borrowing of LIBOR Loans, a rate per
annum determined in accordance with the following formula:
Adjusted LIBOR Rate = LIBOR Rate
----------------
1.00 - Eurodollar Reserve Percentage
"Affiliate" means, for any Person, (i) any other Person that directly or
indirectly through one or more intermediaries controls, or is under common
control with, or is controlled by, such Person, and (ii) any other Person owning
beneficially or controlling ten percent (10%) or more of the equity interests in
such Person. As used in this definition, "control" means the power, directly or
indirectly, to direct or cause the direction of management or policies of a
Person (through ownership of voting securities or other equity interests, by
contract or otherwise).
"Agent" means Bank One acting in its capacity as agent for the Lenders, and
any successor agent appointed hereunder pursuant to Section 9.7.
"Agreement" means this Credit Agreement, as amended, restated or
supplemented from time to time.
<PAGE> 6
"Applicable Margin" means, for LIBOR Loans, the percentage per annum set
forth opposite the relevant Funded Debt to EBITDA Ratio for the relevant fiscal
quarter as follows:
<TABLE>
<CAPTION>
Funded Debt to EBITDA
Ratio LIBOR Loans
-------------------- -----------
<S> <C>
Equal to or less than 1.25 to 1.0 0.50%
Greater than 1.25 to 1.0 but less 0.625%
than 2.01 to 1.0
Equal to or greater than 2.01 to 1.0 but less 0.75%
than 2.51 to 1.0
Equal to or greater than 2.51 to 1.0 but less 0.875%
than 3.01 to 1.0
Equal to or greater than 3.01 to 1.0 1.00%
</TABLE>
For the period from the Effective Date through the earlier of the date the
Borrower is to provide the Agent with the financial statements for the fiscal
quarter ended December 31, 1997, as required by Section 6.6(a)(ii) or the date
such financial statements are provided to the Agent, the Applicable Margin shall
be based upon the Funded Debt to EBITDA Ratio as of September 30, 1997, or 0.75%
per annum. Thereafter, the Applicable Margin shall be set by the Agent upon its
receipt of the applicable financial statements and Compliance Certificate as
required by Section 6.6(a)(i) or (ii) and Section 6.6(b) from the Borrower to be
effective as of the date one (1) Business Day after the earlier of the date such
financial statements are required to be provided or the date such financial
statements are provided to the Agent.
"Application" means an application for a Letter of Credit as defined in
Section 2.2(b).
"Assignment Agreement" means an agreement in substantially the form of
Exhibit 10.10 whereby a Lender conveys part or all of its Commitments, Loans and
participations in Letters of Credit to another Person that is, or thereupon
becomes, a Lender, or increases its Commitments, outstanding Loans and
outstanding participations in Letters of Credit pursuant to Section 10.10.
"Authorized Officer" means any officer or other employee of the Borrower or
the Guarantor, as applicable, authorized from time to time to execute and
deliver a Credit Document under this Agreement.
"Base Rate" means, for any day, the greater of:
(i) the fluctuating commercial loan rate announced by the Agent from
time to time as its base rate for Dollar loans in the United States of America
in effect on such day (which base rate may not be the lowest rate charged by the
Agent on loans to any of its customers), with any change in the Base Rate
resulting from a change in such announced rate to be effective on the date of
the relevant change; and
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<PAGE> 7
(ii) the sum of (x) the Federal Funds Rate plus (y) one-half of one
percent (0.50%) per annum.
"Base Rate Loan" means a Loan bearing interest prior to maturity at the
Base Rate.
"Borrower" means Daniel Industries, Inc., a Delaware corporation.
"Borrowing" means any extension of credit made by the Lenders by way of
Loans or Letters of Credit, including any Borrowings advanced, continued or
converted. A Borrowing is "advanced" on the day the Lenders advance funds
comprising such Borrowing to the Borrower or a Letter of Credit is issued, is
"continued" (in the case of LIBOR Loans) on the date a new Interest Period
commences for such Borrowing and is "converted" when such Borrowing is changed
from one type of Loan to the other, all as requested by the Borrower pursuant to
Section 2.4(a).
"Borrowing Request" means a request for a Borrowing as defined in Section
2.2(b).
"Business Day" means any day other than a Saturday, Sunday or other day on
which banks are authorized or required to close in Houston, Texas, and, if the
applicable Business Day relates to the advance or continuation of, conversion
into or payment on a LIBOR Loan, on which banks are dealing in Dollar deposits
in the interbank eurocurrency market in London, England.
"Capital Expenditures" shall mean, for any period, all expenditures of the
Borrower and its Subsidiaries for fixed or capital assets incurred during such
period which, in accordance with GAAP, would be classified as capital
expenditures, excluding any amounts paid in connection with an Acquisition.
"Capitalized Lease Obligations" means, for any Person, the amount of such
Person's liabilities under all leases of real or personal property (or any
interest therein) which is required to be capitalized on the balance sheet of
such Person as determined in accordance with GAAP.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof having maturities of not more than twelve (12) months
from the date of acquisition, (ii) time deposits and certificates of deposits
maturing within one (1) year from the date of acquisition thereof or overnight
investments that are either fully insured by the Federal Deposit Insurance
Corporation or with a Lender or any financial institutions in the United States
of America having capital, surplus and undivided profits aggregating at least
$100,000,000 whose long-term unsecured debt rating is A- or above by S&P or A3
or above by Moody's, (iii) commercial paper or taxable or tax exempt instruments
issued by any Person incorporated in the United States of America with a rating
of at least A-1 by S&P or at least P-1 by Moody's with maturities of not more
than twelve (12) months from the date of acquisition, (iv) repurchase
obligations entered into with any Lender or any commercial bank which is secured
by a fully perfected security interest in any obligation of the type described
in clause (i) above, (v) long-term instruments of any Person incorporated in the
United States having a feature that provides for a "put" back to such Person and
that provides for the resetting of the interest rate applicable thereto not less
often than annually and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's, and (vi) money market
funds which have
3
<PAGE> 8
at least $1,000,000,000 in assets and which invest primarily in securities of
the types described in clauses (i) through (v) above.
"Co-Agent" shall mean TCB in its capacity as co-agent for the Lenders, and
any successor co-agent appointed pursuant to Section 9.7.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Account" means the cash collateral account for outstanding
undrawn Letters of Credit as defined in Section 7.4(b).
"Commitment" means relative to any Lender, such Lender's obligations to
make Loans and participate in Letters of Credit pursuant to Sections 2.1 and 2.2
in the percentages set forth opposite its signature hereto or pursuant to
Section 10.10, as such commitments may be reduced from time to time pursuant to
this Agreement.
"Compliance Certificate" means a certificate substantially in the form of
Exhibit 6.6.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Borrower and its Subsidiaries on a consolidated basis for such
period in connection with Indebtedness, determined in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income (or loss),
after provision for taxes, of the Borrower and its Subsidiaries on a
consolidated basis for such period, determined in accordance with GAAP.
"Consolidated Net Worth" means, as of any date of determination, the
Borrower's consolidated stockholders equity determined in accordance with GAAP.
"Credit Documents" means this Agreement, the Notes, the Subsidiary
Guaranties, the Borrowing Requests, the Applications and any other documents or
instruments executed by the Borrower or any of the Guarantors in connection with
this Agreement.
"Debt Service Coverage Ratio" means, as of any date of determination, the
ratio of (i) the sum of, without duplication, (a) EBITDA, minus (b) cash taxes,
minus (c) cash dividends, distributions or payments made in respect of the
capital stock of the Borrower as permitted hereunder; to (ii) the sum of,
without duplication, (a) the current portion of long-term Funded Debt at the
date of determination, plus (b) Consolidated Interest Expense, all calculated
(other than the current portion of long-term Funded Debt) on a historic four
fiscal quarter rolling basis on a consolidated basis for the Borrower and its
Subsidiaries and as determined in accordance with GAAP. Upon the consummation of
any Acquisition, the Debt Service Coverage Ratio shall be determined including
the historical financial results of the acquired business (on a historic four
fiscal quarter pro forma basis).
"Default" means any event or condition the occurrence of which would, with
the passage of time or the giving of notice, or both, constitute an Event of
Default.
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<PAGE> 9
"Dollar" and "U.S. Dollar" and the sign "$" means lawful money of the
United States of America.
"EBITDA" means, as of any date of determination, the sum of (i)
Consolidated Net Income (excluding the effects of extraordinary gains or losses,
together with any related provisions for taxes) plus each of the following to
the extent actually deducted in determining Consolidated Net Income (a)
Consolidated Interest Expense, and (b) provisions for taxes based on income or
revenues, plus (ii) the amount of all depreciation, amortization expense and
other non-cash charges (excluding the effects of any accruals made in the
ordinary course of business) deducted in determining Consolidated Net Income,
all calculated on a consolidated basis for the Borrower and its Subsidiaries and
as determined in accordance with GAAP. Upon the consummation of any Acquisition,
EBITDA shall be adjusted to include the historical financial results of the
acquired business (on a historic four fiscal quarter pro forma basis).
"Effective Date" means the date this Agreement shall become effective as
defined in Section 10.16.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violations, investigations or proceedings relating to any
Environmental Law ("Claims") or any permit issued under any Environmental Law,
including, without limitation, (i) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and (ii)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to health
or safety in relation to the environment.
"Environmental Law" means any federal, state or local statute, law, rule,
regulation, ordinance, code, written policy or rule of common law now or
hereafter in effect, including any judicial or administrative order, consent,
decree or judgment relating to (i) the environment, (ii) health or safety in
relation to the environment or (iii) Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eurodollar Reserve Percentage" means, with respect to each Interest Period
for a LIBOR Loan, a percentage (expressed as a decimal) equal to the daily
average during such Interest Period of the percentages in effect on each day of
such Interest Period, if any, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor thereto), for determining the maximum
reserve requirements (including, without limitation, any supplemental, marginal
and emergency reserves) applicable to "Eurocurrency Liabilities" pursuant to
Regulation D of the Board of Governors of the Federal Reserve System or any
other then applicable regulation of the Board of Governors which prescribes
reserve requirements applicable to "Eurocurrency Liabilities" as presently
defined in Regulation D.
"Event of Default" means any of the events or circumstances specified in
Section 7.1.
5
<PAGE> 10
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/16th of 1%) equal to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the next Business Day,
provided that (A) if such day is not a Business Day, the rate on such
transactions on the immediately preceding Business Day as so published on the
next Business Day shall apply, and (B) if no such rate is published on such next
Business Day, the rate for such day shall be the average of the offered rates
quoted to the Agent by two (2) federal funds brokers of recognized standing on
such day for such transactions as selected by the Agent.
"Funded Debt" means, as of any date of determination, the sum, without
duplication, of the following for the Borrower and its Subsidiaries: (i)
Indebtedness for borrowed money, all obligations evidenced by bonds, debentures,
notes or similar instruments, and purchase money obligations which in accordance
with GAAP would be shown on the consolidated balance sheet of the Borrower as a
liability, (ii) all reimbursement obligations relative to the amount drawn on
letters of credit issued for the account of the Borrower or any of its
Subsidiaries, and (iii) all Capitalized Lease Obligations.
"Funded Debt to EBITDA Ratio" means, as of any date of determination, the
ratio of Funded Debt to EBITDA, calculated using Funded Debt at the date of
determination and EBITDA on a historic four fiscal quarter rolling basis.
"GAAP" means generally accepted accounting principles from time to time in
effect as set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the statements and pronouncements of the Financial Accounting Standards Board or
in such other statements, opinions and pronouncements by such other entity as
may be approved by a significant segment of the U.S. accounting profession.
"Guarantor" means each of Daniel Measurement and Control, Inc., a Delaware
corporation, Daniel Valve Company, a Delaware corporation, Bettis Corporation, a
Delaware corporation, and Shafer Valve Company, an Ohio corporation, and any
other domestic Material Subsidiary of the Borrower required to become a
Guarantor pursuant to Section 6.9.
"Guaranty" by any Person means all obligations (other than endorsements in
the ordinary course of business of negotiable instruments for deposit or
collection) of such Person guarantying or in effect guarantying any
Indebtedness, dividend or other obligation (including, without limitation,
obligations in connection with sales of any property) of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation, or
to purchase any property or assets constituting security therefor, primarily for
the purpose of assuring the owner of such Indebtedness or obligations of the
ability of the primary obligor to make payment of the Indebtedness or
obligation; or (ii) to advance or supply funds (x) for the purchase or payment
of such Indebtedness or obligation, or (y) to maintain working capital or other
balance sheet condition, or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness or obligation, in each case primarily
for the purpose of assuring the owner of such Indebtedness or obligation of the
ability of the primary
6
<PAGE> 11
obligor to make payment of the Indebtedness or obligation; or (iii) to lease
property or to purchase securities or other property or services of the primary
obligor primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of the primary obligor to make payment of the
Indebtedness or obligation; or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purpose of all computations made under this Agreement, the
amount of a Guaranty in respect of any obligation shall be deemed to be equal to
the amount that would apply if such obligation were the direct obligation of
such Person rather than the primary obligor or, if less, the maximum aggregate
potential liability of such Person under the terms of the Guaranty.
"Hazardous Material" shall have the meaning assigned to that term in the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Acts of 1986, and shall
include any substance defined as "hazardous" or "toxic" or words used in place
thereof under any Environmental Law applicable to the Borrower or any of its
Subsidiaries.
"Highest Lawful Rate" means the maximum nonusurious interest rate, if any,
that at any time or from time to time may be contracted for, taken, reserved,
charged or received on the Loans or the Reimbursement Obligations, or under laws
applicable to the Lenders, which are presently in effect or, to the extent
allowed by applicable law, under such laws which may hereafter be in effect and
which allow a higher maximum nonusurious interest rate than applicable laws now
allow. Determination of the rate of interest for the purpose of determining
whether the Loans or the Reimbursement Obligations represented hereby are
usurious under all applicable laws shall be made by amortizing or spreading
using the actuarial method during the stated term of the Loans or the
Reimbursement Obligations, all interest at any time contracted for, taken,
reserved, charged or received from the Borrower in connection with the Loans or
the Reimbursement Obligations, as applicable.
"Indebtedness" means, for any Person, the following obligations of such
Person, without duplication: (i) obligations of such Person for borrowed money;
(ii) obligations of such Person representing the deferred purchase price of
property or services other than accounts payable arising in the ordinary course
of business and other than amounts which are being contested in good faith and
for which reserves in conformity with GAAP have been provided; (iii) obligations
of such Person evidenced by bonds, notes, bankers acceptances, debentures or
other similar instruments of such Person or reimbursement obligations or other
obligations with respect to letters of credit issued for such Person's account
or letters of credit issued pursuant to such Person's application therefor; (iv)
obligations of other Persons, whether or not assumed, secured by Liens upon
property or payable out of the proceeds or production from property now or
hereafter owned or acquired by such Person, but only to the extent of such
property's fair market value; (v) Capitalized Lease Obligations of such Person;
(vi) obligations under hedge, swap, exchange, forward, future, collar or cap
agreements, fixed price agreements and all other agreements or arrangements
designed to protect against fluctuations in interest rates, commodity prices,
and currency exchange rates; and (vii) obligations of such Person pursuant to a
Guaranty of any of the foregoing of another Person. For purposes of this
Agreement, the Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture to which such Person is a party, to the extent such
Indebtedness has recourse to such Person.
7
<PAGE> 12
"Initial Borrowing Date" means the date on which all conditions precedent
set forth herein to the initial Borrowings are satisfied or waived in writing
and the initial Borrowing hereunder occurs, which date shall be no later than
November 24, 1997.
"Intangible Assets" means patents, patent applications, copyrights,
trademarks, trade names, service marks, brand names, franchises, goodwill,
experimental expenses and other similar intangibles, and all other property
which would be considered to be intangible under GAAP, all calculated on a
consolidated basis for the Borrower and its Subsidiaries.
"Interest Payment Date" means (i) for a Base Rate Loan, the last Business
Day of each calendar quarter such Loan is outstanding commencing December 31,
1997, and (ii) for a LIBOR Loan, the last Business Day of each Interest Period
for such Loan and, during any Interest Period of six (6) months, the Business
Day occurring three (3) months after the commencement of such Interest Period.
"Interest Period" means the period commencing on the date that a Borrowing
of LIBOR Loans is advanced, continued or created by conversion and, subject to
Section 2.5, ending on the date one (1), two (2), three (3) or six (6) months
thereafter as selected by the Borrower pursuant to the terms of this Agreement,
or with respect to the initial Borrowing hereunder as otherwise agreed by the
Borrower and all Lenders.
"L/C Documents" means this Agreement, the Letters of Credit and any
Applications with respect thereto and any draft or other document presented in
connection with a drawing thereunder.
"L/C Obligations" means the undrawn face amounts of all outstanding Letters
of Credit and all unpaid Reimbursement Obligations with respect to Letters of
Credit.
"Lenders" is defined in the preamble.
"Letter of Credit" means any of the letters of credit issued by the Lenders
for the account of the Borrower pursuant to Section 2.2(a).
"LIBOR Loan" means a Loan bearing interest prior to maturity at the
Adjusted LIBOR Rate plus the Applicable Margin.
"LIBOR Rate" means, relative to any Interest Period for each LIBOR Loan
comprising part of the same Borrowing, a rate of interest per annum (rounded
upwards, if necessary, to the nearest whole multiple of 1/16 of 1%), equal to
the arithmetic mean of the "LIBOR" rates of interest per annum appearing on
Telerate Page 3750 (or any successor publication) for the applicable currency
two (2) Business Days before the commencement of such Interest Period for
delivery on the first day of such Interest Period, at or about 11:00 a.m.
(London, England time) for a period approximately equal to such Interest Period.
If the foregoing Telerate rate is unavailable for any reason, then such rate
shall be determined by the Agent from the Reuters Screen LIBOR page, or if such
rate is also unavailable on such service, on any other interest rate reporting
service of recognized standing selected by the Agent after consultation with the
Borrower.
"Lien" means any interest in any property or asset in favor of a Person
other than the owner of the property or asset and securing an obligation owed to
such Person, whether such interest is
8
<PAGE> 13
based on the common law, statute or contract, including, but not limited to, the
security interest lien arising from a mortgage, encumbrance, pledge, conditional
sale, security agreement or trust receipt, or a lease, consignment or bailment
for security purposes.
"Loan" mean a Base Rate Loan or a LIBOR Loan, each of which is a "type" of
Loan hereunder, and includes both the Revolving Loans and the Term Loans.
"Majority Lenders" means, at any time, Lenders then holding in the
aggregate at least sixty-six and two/thirds percent (66 2/3%) of the Total
Commitment Amount, or if the Revolving Credit Commitments have terminated, the
aggregate Obligations. The percentage set forth opposite each Lender's name on
the signature page hereto reflects the initial voting percentage of each Lender
hereunder.
"Material Adverse Effect" means an effect that results in a material
adverse change in (i) the business, properties, assets, financial condition or
prospects of the Borrower and its Subsidiaries taken as a whole, or (ii) the
ability of the Borrower or any of the Guarantors to perform its Obligations
under the Credit Documents to which it is a party.
"Material Subsidiary" means (i) each of Daniel Measurement and Control,
Inc., Daniel Valve Company, Bettis Corporation and Shafer Valve Company; (ii)
for each domestic Subsidiary acquired after the Effective Date, each domestic
Subsidiary having an acquisition cost of at least $1,000,000 so long as the
execution of the Guaranty by such Subsidiary required pursuant to Section 6.9
shall not violate any existing agreements of such Subsidiary at the time of such
acquisition; and (iii) each domestic Subsidiary of the Borrower (whether
existing or formed or acquired after the Effective Date) that has total assets
(excluding assets that would be eliminated in consolidation with the Borrower
and its Subsidiaries) which equates to at least five percent (5%) of the
Borrower's Total Assets as of the end of the most recently completed fiscal year
of the Borrower or that had net income (determined in accordance with GAAP but
excluding revenues and expenses that would be eliminated in consolidation with
the Borrower and its Subsidiaries) during the most recently completed fiscal
year of the Borrower in excess of the greater of (a) $1,000,000 and (b) fifteen
percent (15%) of Consolidated Net Income during such fiscal year of the
Borrower; provided, that with respect to any domestic Subsidiary acquired after
the Effective Date, the Borrower's Total Assets and Consolidated Net Income
shall be computed on a pro forma basis after giving effect to any Acquisitions
occurring after such fiscal year end.
"Maturity Date" means (i) in the case of the Revolving Loans, April 30,
2000, and (ii) in the case of the Term Loans, April 30, 2004, or such earlier
date as a result of any prepayment of the Term Loans.
"Moody's" means Moody's Investors Service, Inc. or any successor thereto.
"Net Cash Proceeds" means, for any Transfer, the cash proceeds (including
any cash payments actually received as a deferred payment of principal pursuant
to a note, installment receivable, purchase price adjustment receivable or
otherwise) of such Transfer net of (i) all legal fees, accountant fees,
investment banking fees, brokerage fees, finders fees, survey costs, title
insurance premiums, required debt payments (other than of Obligations) and other
customary fees, costs and expenses actually incurred, paid or made in connection
therewith, (ii) taxes or other
9
<PAGE> 14
governmental fees or charges paid or payable as a result thereof and (iii)
reasonable reserves for purchase price adjustments.
"Notes" shall mean the promissory notes of the Borrower as defined in
Section 2.11.
"Obligations" means all obligations of the Borrower and the Guarantors to
pay fees, costs and expenses hereunder, to pay principal or interest on Loans,
to pay Reimbursement Obligations and to pay any other obligations to the Lenders
arising under or in relation to any Credit Document.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Percentage" means, for each Lender, the percentage of the Commitments
represented by such Lender's Commitment; provided, that, if the Commitments are
terminated, each Lender's Percentage shall be calculated based on its Commitment
in effect immediately before such termination, subject to any assignments by
such Lender of Obligations pursuant to Section 10.10.
"Permitted Business" means any business described in Section 6.8.
"Permitted Liens" means the Liens described in Section 6.13.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization or any other entity or
organization, including a government or any agency or political subdivision
thereof.
"Plan" means an employee pension benefit plan covered by Title IV of ERISA
or subject to the minimum funding standards under Section 412 of the Code that
is either (i) maintained by the Borrower or any of its Subsidiaries, or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
the Borrower or any of its Subsidiaries is then making or accruing an obligation
to make contributions or has within the preceding five (5) plan years made or
had an obligation to make contributions.
"Purchasing Lender" has the meaning given such term in Section 10.10(b).
"Reimbursement Obligation" means the obligations of the Borrower to
reimburse the Agent and the Lenders for each drawing under a Letter of Credit as
described in Section 2.2(c).
"Reuters Screen" means, when used in connection with any designated page
and the "LIBOR" rate, the display page so designated on the Reuter Money 2000
Service (or such other page as may replace that page on that service or on any
replacement Reuter Service for the purpose of displaying rates comparable to the
"LIBOR" rate).
"Revolving Credit" means the credit facility for making Revolving Loans and
issuing Letters of Credit described in Sections 2.1 and 2.2.
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<PAGE> 15
"Revolving Credit Commitment" means, relative to any Lender, such Lender's
obligations to make Revolving Loans and participate in Letters of Credit
pursuant to Sections 2.1 and 2.2.
"Revolving Credit Commitment Amount" means an amount equal to $40,000,000,
as such amount may be reduced from time to time pursuant to the terms of this
Agreement.
"Revolving Credit Commitment Termination Date" means the earliest of (i)
April 30, 2000; (ii) the date on which the Revolving Credit Commitment is
terminated in full or reduced to zero pursuant to Section 2.13; or (iii) the
occurrence of any Event of Default described in Section 7.1(f) or (g) with
respect to the Borrower or the occurrence and continuance of any other Event of
Default and either (x) the declaration of the Revolving Loans to be due and
payable pursuant to Section 7.2, or (y) in the absence of such declaration, the
giving of written notice by the Agent to the Borrower pursuant to Section 7.2
that the Revolving Credit Commitment has been terminated.
"Revolving Loans" shall have the meaning ascribed to such term in Section
2.1(a).
"Revolving Notes" means certain promissory notes of the Borrower as defined
in Section 2.11.
"Revolving Obligations" means the sum of the principal amount of all
Revolving Loans and L/C Obligations outstanding.
"SEC" means the Securities and Exchange Commission.
"S&P" means Standard & Poor's Ratings Group or any successor thereto.
"Subsidiary" means, for any Person, any corporation or other entity of
which more than fifty percent (50%) of the outstanding stock or comparable
equity interests having ordinary voting power for the election of the board of
directors of such corporation, any managers of such limited liability company or
similar governing body (irrespective of whether or not, at the time, stock or
other equity interests of any other class or classes of such corporation or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned by such Person, as
applicable, or by one or more of its Subsidiaries.
"Subsidiary Guaranty" means each Guaranty of the Material Subsidiaries in
substantially the form of Exhibit 4.1.
"Tangible Net Worth" means, as of any date of determination, Consolidated
Net Worth minus Intangible Assets, determined in accordance with GAAP.
"Taxes" shall have the meaning ascribed to such term in Section 5.12.
"Telerate" means, when used in connection with any designated page and the
"LIBOR" rate, the display page so designated on the Dow Jones Telerate Service
(or such other page as may replace that page on that service or on any
replacement Dow Jones Service for the purpose of displaying rates comparable to
the "LIBOR" rate).
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"Term Loans" shall have the meaning ascribed to such term in Section
2.1(b).
"Term Loan Commitment Amount" means an amount equal to $30,000,000, as such
amount may be reduced from time to time pursuant to the terms of this Agreement.
"Term Notes" means certain promissory notes of the Borrower as defined in
Section 2.11.
"Total Assets" means, as of any date of determination, the aggregate book
value of the assets of the Borrower and its Subsidiaries determined on a
consolidated basis in accordance with GAAP as of such date.
"Total Commitment Amount" means the sum of the Revolving Credit Commitment
Amount plus the Term Loan Commitment Amount.
"Transfer" means a sale, transfer, conveyance, assignment or other
disposition (or a series of related dispositions), including, without
limitation, any transfer pursuant to an option to purchase, any sale or
assignment (with or without recourse) of any accounts receivable and any sale
and leaseback of assets, of an asset having a net book value as established in
accordance with GAAP in excess of $50,000, but excluding any involuntary
transfer by operation of law and any transfers of an asset pursuant to any
casualty or theft with respect to such asset.
"Unfunded Vested Liabilities" means, for any Plan at any time, the amount
by which the present value of all vested nonforfeitable accrued benefits under
such Plan exceeds the fair market value of all Plan assets allocable to such
benefits, determined as of the then most recent valuation date for such Plan,
but only to the extent that such excess represents a potential liability of the
Borrower or any of its Subsidiaries to the PBGC or such Plan.
Section 1.2. Interpretation. The foregoing definitions shall be equally
applicable to the singular and plural forms of the terms defined. All references
to times of day in this Agreement shall be references to Houston, Texas time
unless otherwise specifically provided.
SECTION 2. THE CREDIT FACILITIES.
Section 2.1. Loans. (a) Revolving Loans. Subject to the terms and
conditions hereof, each Lender severally and not jointly agrees to make one or
more loans (each, a "Revolving Loan") to the Borrower from time to time before
the Revolving Credit Commitment Termination Date on a revolving basis in an
aggregate amount not to exceed at any time outstanding an amount equal to its
Percentage of the Revolving Credit Commitment Amount (for each Lender its
"Revolving Credit Commitment"), subject to any reductions thereof pursuant to
the terms of this Agreement. The Revolving Loans shall be made ratably from the
Lenders in proportion to their respective Percentages. No Lender shall be
required to make any Revolving Loan if, after giving effect thereto, the
aggregate principal amount of (i) all Revolving Loans of all Lenders and the L/C
Obligations outstanding of the Borrower would thereby exceed the Revolving
Credit Commitment Amount then in effect or (ii) all Revolving Loans of such
Lender and its participating interest in all Letters of Credit would thereby
exceed the Percentage of such Lender of the Revolving Credit Commitment Amount
then in effect. Revolving Loans may be repaid, in whole or in part, and all
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or any portion of the principal amount thereof reborrowed, before the Revolving
Credit Commitment Termination Date, subject to the terms and conditions hereof.
(b) Term Loans. Subject to the terms and conditions hereof, each Lender
severally and not jointly agrees to make a loan (each a "Term Loan") to the
Borrower on the Initial Borrowing Date in an aggregate amount not to exceed its
Percentage of the Term Loan Commitment Amount (for each Lender, its "Term Credit
Commitment"). The Term Loans shall be made ratably from the Lenders in
proportion to their respective Percentages. No Lender shall be required to make
any Term Loan if, after giving effect thereto, the aggregate principal amount of
(i) all Term Loans of all Lenders would thereby exceed the Term Loan Commitment
Amount, or (ii) the Term Loans of such Lender would exceed the Percentage of
such Lender of the Term Loan Commitment Amount. Any portion of the Term Loan
Commitments not borrowed on the Initial Borrowing Date shall terminate and not
be available for borrowing.
Section 2.2. Letters of Credit. (a) Issuance of Letters of Credit. Subject
to the terms and conditions hereof, the Agent agrees to issue, from time to time
prior to the Revolving Credit Commitment Termination Date, at the request of the
Borrower and on behalf of the Lenders and in reliance on their obligations under
this Section 2.2, one or more letters of credit (each a "Letter of Credit") for
the Borrower's account, all such Letters of Credit to be in an aggregate undrawn
face amounts at any time outstanding not to exceed $10,000,000; provided that
the Agent shall not issue a Letter of Credit, and the Lenders shall have no
obligation to purchase a participation interest in a Letter of Credit pursuant
to Section 2.2(d), if after giving effect thereto, the aggregate principal
amount of the Revolving Loans and the L/C Obligations outstanding of the
Borrower would thereby exceed the Revolving Credit Commitment Amount then in
effect; and provided further that the Agent shall have no obligation to issue
and the Lenders shall have no obligation to purchase a participation interest in
a Letter of Credit if the issuance of such Letter of Credit would violate any
legal or regulatory restriction then applicable to the Agent or such Lender as
notified by such Lender to the Agent before the date of issuance of such Letter
of Credit.
(b) Issuance Procedure. To request that the Agent issue a Letter of Credit,
the Borrower shall deliver to the Agent a duly executed Borrowing Request from
an Authorized Officer in substantially the form of Exhibit 2.2A (each, a
"Borrowing Request"), together with a duly executed application for the relevant
Letter of Credit substantially in the form of Exhibit 2.2B (each, an
"Application"), or such other computerized issuance or application procedure,
instituted from time to time by the Agent and agreed to by the Borrower,
completed to the reasonable satisfaction of the Agent, and such other
documentation and information as the Agent may reasonably request. In the event
of any irreconcilable difference or inconsistency between this Agreement and an
Application, the provisions of this Agreement shall govern. Upon receipt of a
properly completed and executed Borrowing Request and Application and any other
reasonably requested documents or information at least two (2) Business Days
prior to any requested issuance date, the Agent will process such Borrowing
Request and Application in accordance with its customary procedures and issue
the requested Letter of Credit on the requested issuance date. The Borrower may
cancel any requested issuance of a Letter of Credit prior to the issuance
thereof. The Agent will notify each Lender of the amount and expiration date of
each Letter of Credit it issues promptly upon issuance thereof. Each Letter of
Credit shall have an expiration date no later than 180 days after the scheduled
Maturity Date for Revolving Loans unless all the Lenders shall otherwise
approve. If the Agent issues any Letters of Credit with expiration dates that
automatically extend unless the
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Agent gives notice that the expiration date will not so extend, the Agent will
give such notice of non-renewal before the time necessary to prevent such
automatic extension if (and will not give such notice of non-renewal before such
time unless) before such required notice date (i) the expiration date of such
Letter of Credit if so extended would be later than 180 days after the scheduled
Maturity Date for Revolving Loans, (ii) the Revolving Credit Commitment
Termination Date shall have occurred, (iii) a Default or an Event of Default
exists and the Majority Lenders have given the Agent instructions not to so
permit the expiration date of such Letter of Credit to be extended, or (iv) the
Agent is so directed by the Borrower. The Agent agrees to issue amendments to
any Letter of Credit increasing its amount, or extending its expiration date, at
the request of the Borrower subject to the conditions precedent for all Loans of
Section 4.2 and the other terms and conditions of this Section 2.2.
(c) The Borrower's Reimbursement Obligations.
(i) The Borrower hereby irrevocably and unconditionally agrees to
reimburse the Agent, for the ratable benefit of the Lenders, for each payment or
disbursement made by the Agent to settle its obligations under any draft drawn
under a Letter of Credit (each, a "Reimbursement Obligation") within two (2)
Business Days from when such draft is paid with either funds not borrowed
hereunder or with a Borrowing subject to Section 2.4 and the other terms and
conditions contained in this Agreement. The Reimbursement Obligation shall bear
interest (which the Borrower hereby promises to pay) from and after the date
such draft is paid until (but excluding the date) the Reimbursement Obligation
is paid at the lesser of the Highest Lawful Rate or the Base Rate so long as the
Reimbursement Obligation shall not be past due, and thereafter at the default
rate per annum as set forth in Section 2.7. If any such payment or disbursement
is reimbursed to the Agent on the date such payment or disbursement is made by
the Agent, interest shall be paid on the reimbursable amount for one (1) day
unless such reimbursement is made by 1:30 p.m. on such payment date. The Agent
shall give the Borrower notice of any drawing on a Letter of Credit within one
(1) Business Day after such drawing is paid.
(ii) The Borrower agrees for the benefit of the Agent and each Lender
that, notwithstanding any provision of any Application, the obligations of the
Borrower under this Section 2.2(c) and each applicable Application shall be
absolute, unconditional and irrevocable (subject to Section 2.2(b)) and shall be
performed strictly in accordance with the terms of this Agreement and each
applicable Application under all circumstances whatsoever INCLUDING, BUT NOT
LIMITED TO, ANY DEFENSE BASED UPON THE AGENT'S OR ANY LENDER'S OWN SIMPLE OR
CONTRIBUTORY NEGLIGENCE (other than the defense of payment in accordance with
this Agreement or a defense based on the gross negligence or willful misconduct
of the Agent or any Lender), including, without limitation, the following
circumstances:
(1) any lack of validity or enforceability of any of the L/C
Documents;
(2) the existence of any claim, setoff, defense or other right
the Borrower or any Subsidiary may have at any time against a
beneficiary of a Letter of Credit (or any Person for whom a
beneficiary may be acting), the Agent, any Lender or any other Person,
whether in connection with this Agreement, another L/C Document or any
unrelated transaction;
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(3) any statement or any other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect, provided that the Agent's determination
that documents presented under the Letter of Credit comply with the
terms thereof did not constitute gross negligence or willful
misconduct of the Agent;
(4) payment by the Agent under a Letter of Credit against
presentation to the Agent of a draft or certificate that does not
comply with the terms of the Letter of Credit, provided that the
Agent's determination that documents presented under the Letter of
Credit comply with the terms thereof did not constitute gross
negligence or willful misconduct of the Agent; or
(5) any other act or omission to act or delay of any kind by
the Agent, any Lender or any other Person or any other event or
circumstance whatsoever that might, but for the provisions of this
Section 2.2(c), constitute a legal or equitable discharge of the
Borrower's obligations hereunder or under any L/C Document, provided
that such act or omission of the Agent or any Lender did not
constitute gross negligence or willful misconduct of the Agent or any
Lender.
(d) The Participating Interests. Each Lender severally and not jointly
agrees to purchase from the Agent, and the Agent hereby agrees to sell to each
Lender, an undivided percentage participating interest, to the extent of its
Percentage, in each Letter of Credit issued by, and Reimbursement Obligation
owed to, the Agent in connection with a Letter of Credit. Upon any failure by
the Borrower to pay any Reimbursement Obligation in connection with a Letter of
Credit at the time required in Sections 2.2(c) and 2.4(c), or if the Agent is
required at any time to return to the Borrower or to a trustee, receiver,
liquidator, custodian or other Person any portion of any payment by the Borrower
of any Reimbursement Obligation in connection with a Letter of Credit, the Agent
shall promptly give notice of same to each Lender, and the Agent shall have the
right to require each Lender to fund its participation in such Reimbursement
Obligation. Each Lender (except the Agent to the extent it is also a Lender)
shall pay to the Agent an amount equal to such Lender's Percentage of such
unpaid or recaptured Reimbursement Obligation not later than the Business Day it
receives notice from the Agent to such effect, if such notice is received before
12:00 p.m., or not later than the following Business Day if such notice is
received after such time. If a Lender fails to pay timely such amount to the
Agent, it shall also pay to the Agent interest on such amount accrued from the
date payment of such amount was made by the Agent to the date of such payment by
the Lender at a rate per annum equal to the Federal Funds Rate for a period of
three (3) days and thereafter the Base Rate in effect for each such day and only
after such payment shall such Lender be entitled to receive its Percentage of
each payment received on the relevant Reimbursement Obligation and of interest
paid thereon. The several obligations of the Lenders to the Agent under this
Section 2.2(d) shall be absolute, irrevocable and unconditional under any and
all circumstances whatsoever and shall not be subject to any set-off,
counterclaim or defense to payment any Lender may have or have had against the
Borrower, the Agent, any other Lender or any other Person whatsoever including,
but not limited to, any defense based on the failure of the demand for payment
under the Letter of Credit to conform to the terms of such Letter of Credit or
the legality, validity, regularity or enforceability of such Letter of Credit
and INCLUDING, BUT NOT LIMITED TO, THOSE RESULTING FROM THE AGENT'S OWN SIMPLE
OR CONTRIBUTORY NEGLIGENCE. Without limiting the generality of the foregoing,
such
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obligations shall not be affected by any Default or Event of Default or by any
subsequent reduction or termination of any Commitment of a Lender, and each
payment by a Lender under Section 2.2 shall be made without any offset,
abatement, withholding or reduction whatsoever.
Section 2.3. Types of Loans and Minimum Borrowing Amounts. Borrowings of
Loans may be outstanding as either Base Rate Loans or LIBOR Loans, as selected
by the Borrower pursuant to Section 2.4. All Borrowings advanced on the Initial
Borrowing Date shall be advanced as Base Rate Loans unless the requisite notice
for a LIBOR Loan has been given pursuant to Section 2.4(a). Each Borrowing of
Base Rate Loans shall be in an amount of not less than $500,000 and each
Borrowing of LIBOR Loans shall be in an amount of not less than $1,000,000.
Section 2.4. Manner of Borrowing.
(a) Notice to the Agent. The Borrower shall give notice to the Agent by no
later than 12:00 p.m. (i) at least three (3) Business Days before the date on
which the Borrower requests the Lenders to advance a Borrowing of LIBOR Loans,
and (ii) on the date the Borrower requests the Lenders to advance a Borrowing of
Base Rate Loans pursuant to a duly executed Borrowing Request from an Authorized
Officer, provided that the Borrower may give telephonic notice of such request
so long as a duly executed Borrowing Request is promptly thereafter delivered or
telecopied to the Agent. The Loans included in each Borrowing shall bear
interest initially at the type of rate specified in the Borrowing Request with
respect to such Borrowing. Thereafter, the Borrower may from time to time elect
to change or continue the type of interest rate borne by each Borrowing or,
subject to Section 2.3's minimum amount requirement for each outstanding
Borrowing, a portion thereof, as follows: (i) if such Borrowing is of LIBOR
Loans, the Borrower may continue part or all of such Borrowing as LIBOR Loans
for an Interest Period specified by the Borrower or convert part or all of such
Borrowing into Base Rate Loans on the last day of the Interest Period applicable
thereto, or the Borrower may earlier convert part or all of such Borrowing into
Base Rate Loans so long as it pays the breakage fees and funding losses provided
in Section 2.12; and (ii) if such Borrowing is of Base Rate Loans, the Borrower
may convert all or part of such Borrowing into LIBOR Loans for an Interest
Period specified by the Borrower on any Business Day. The Borrower may select
multiple Interest Periods for the Revolving Loans constituting any particular
Borrowing, provided that at no time shall the number of different Interest
Periods for outstanding LIBOR Loans exceed five (5) (it being understood for
such purposes that (x) Interest Periods of the same duration, but commencing on
different dates, shall be counted as different Interest Periods and (y) all
Interest Periods commencing on the same date and of the same duration shall be
counted as one Interest Period regardless of the number of Borrowings or Loans
involved). Notices of the continuation of a Borrowing of LIBOR Loans for an
additional Interest Period or of the conversion of part or all of a Borrowing of
LIBOR Loans into Base Rate Loans or of Base Rate Loans into LIBOR Loans must be
given by no later than 12:00 p.m. at least three (3) Business Days with respect
to continued or new LIBOR Loans before the date of the requested continuation or
conversion. The Borrower shall give such notices concerning the advance,
continuation, or conversion of a Borrowing by telephone or facsimile (which
notice shall be irrevocable once given and, if by telephone, shall be promptly
confirmed in writing) pursuant to a Borrowing Request which shall specify the
date of the requested advance, continuation or conversion (which shall be a
Business Day), the amount of the requested Borrowing, the type of Loans to
comprise such new, continued or converted Borrowing and, if such Borrowing is to
be comprised of LIBOR Loans, the Interest Period applicable thereto. The
Borrower agrees that the Agent may rely on any such
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telephonic or facsimile notice given by any person it in good faith believes is
an Authorized Officer without the necessity of independent investigation and
that, if any such notice by telephone conflicts with any written confirmation,
such telephonic notice shall govern if the Agent has acted in reliance thereon.
(b) Notice to the Lenders. The Agent shall give prompt telephonic, telex or
facsimile notice to each Lender of any notice received pursuant to Section
2.4(a) relating to a Borrowing. The Agent shall give notice to the Borrower and
each Lender by like means of the interest rate applicable to each Borrowing of
LIBOR Loans (but, if such notice is given by telephone, the Agent shall confirm
such rate in writing) promptly after the Agent has made such determination.
(c) Borrower's Failure to Notify. If the Borrower fails to give notice
pursuant to Section 2.4(a) of (i) the continuation or conversion of any
outstanding principal amount of a Borrowing by way of LIBOR Loans or of (ii) a
Borrowing by way of Loans to pay outstanding Reimbursement Obligations, and has
not notified the Agent by 12:00 p.m. at least three (3) Business Days before the
last day of the Interest Period for any Borrowing of LIBOR Loans or by the day
such Reimbursement Obligation becomes due, that it intends to repay such
Borrowing or such Reimbursement Obligation with funds not borrowed hereunder,
the Borrower shall be deemed to have requested, as applicable, (x) the
continuation of such Borrowing as a LIBOR Loan with an Interest Period of one
(1) month or (y) the advance of a new Borrowing of Base Rate Loans under the
Revolving Credit on such day in the amount of the Reimbursement Obligation then
due, which Borrowing pursuant to this sub-clause (y) shall be deemed to have
been funded on such date by the Lenders in accordance with Section 2.1(a) and to
have been applied on such day to pay the Reimbursement Obligation then due, in
each case so long as no Event of Default shall have occurred and be continuing
or would occur as a result of such Borrowing but otherwise disregarding the
conditions to Borrowings set forth in Section 4.2. Upon the occurrence and
during the continuance of any Event of Default, (i) each LIBOR Loan will
automatically, on the last day of the then existing Interest Period therefor,
convert into a Base Rate Loan and (ii) the obligation of the Lenders to make,
continue or convert Loans into, LIBOR Loans shall be suspended.
(d) Disbursement of Loans. Not later than 12:00 p.m. with respect to LIBOR
Loans and 1:00 p.m. with respect to Base Rate Loans on the date of any requested
advance of a new Borrowing of Loans, each Lender, subject to all other
provisions hereof, shall make available its Loan comprising its ratable share of
such Borrowing in funds immediately available in Houston, Texas for the benefit
of the Agent and according to the disbursement instructions of the Agent. The
Agent shall make the proceeds of each such Borrowing available in immediately
available funds to the Borrower (or as directed in writing by Borrower) on such
date. In the event that any Lender does not make such amounts available to the
Agent by the time prescribed above, but such amount is received later that day,
such amount may be credited to the Borrower in the manner described in the
preceding sentence on the next Business Day (with interest on such amount to
begin accruing hereunder on such next Business Day) provided that acceptance by
the Borrower of any such late amount shall not be deemed a waiver by the
Borrower of any rights it may have against such Lender. No Lender shall be
responsible to the Borrower for any failure by another Lender to fund its
portion of a Borrowing, and no such failure by a Lender shall relieve any other
Lender from its obligation, if any, to fund its portion of a Borrowing.
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(e) Agent Reliance on Lender Funding. Unless the Agent shall have been
notified by a Lender before the date on which such Lender is scheduled to make
payment to the Agent of the proceeds of a Loan (which notice shall be effective
upon receipt) that such Lender does not intend to make such payment, the Agent
may assume that such Lender has made such payment when due and in reliance upon
such assumption may (but shall not be required to) make available to the
Borrower the proceeds of the Loan to be made by such Lender and, if any Lender
has not in fact made such payment to the Agent, such Lender shall, on demand,
pay to the Agent the amount made available to the Borrower attributable to such
Lender together with interest thereon for each day during the period commencing
on the date such amount was made available to the Borrower and ending on (but
excluding) the date such Lender pays such amount to the Agent at a rate per
annum equal to the Agent's cost of funds. If such amount is not received from
such Lender by the Agent immediately upon demand, the Borrower will, on demand,
repay to the Agent the proceeds of the Loan attributable to such Lender with
interest thereon at a rate per annum equal to the interest rate applicable to
the relevant Loan. Nothing in this subsection shall be deemed to relieve any
Lender from its obligation to fund its Commitments hereunder or to prejudice any
rights which the Borrower may have against any Lender as a result of any default
by such Lender hereunder.
Section 2.5. Interest Periods. As provided in Section 2.4(a), at the time
of each request for the advance or continuation of, or conversion into, a
Borrowing of LIBOR Loans, the Borrower shall select an Interest Period
applicable to such LIBOR Loans from among the available options subject to the
limitations in Section 2.4(a); provided, however, that:
(i) the Borrower may not select an Interest Period for a
Borrowing of LIBOR Loans that extends beyond the applicable Maturity Date;
(ii) whenever the last day of any Interest Period would
otherwise be a day that is not a Business Day, the last day of such Interest
Period shall be extended to the next succeeding Business Day; and
(iii) for purposes of determining an Interest Period, a month
means a period starting on one day in a calendar month and ending on the
numerically corresponding day in the next calendar month; provided, however,
that if there is no such numerically corresponding day in the month in which an
Interest Period is to end or if such Interest Period begins on the last Business
Day of a calendar month, then such Interest Period shall end on the last
Business Day of the calendar month in which such Interest Period is to end.
Section 2.6. Interest Payments.
(a) Base Rate Loans. Each Base Rate Loan shall bear interest (computed on
the basis of a 365/366-day year and actual days elapsed, excluding the date of
repayment) on the unpaid principal amount thereof from the date such Loan is
made until maturity (whether by acceleration or otherwise) or conversion to a
LIBOR Loan in accordance with Section 2.4(a) hereof, at a rate per annum equal
to the lesser of (i) the Highest Lawful Rate, or (ii) the Base Rate from time to
time in effect, payable in arrears on each Interest Payment Date for such Loan
and at maturity (whether by acceleration or otherwise) or conversion to a LIBOR
Loan in accordance with Section 2.4(a).
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(b) LIBOR Loans. Each LIBOR Loan shall bear interest (computed on the basis
of a 360-day year and actual days elapsed, excluding the date of repayment) on
the unpaid principal amount thereof from the date such Loan is made until
maturity (whether by acceleration or otherwise) or conversion to a Base Rate
Loan in accordance with Section 2.4(a) hereof, at a rate per annum equal to the
lesser of (i) the Highest Lawful Rate, or (ii) the sum of the Adjusted LIBOR
Rate plus the Applicable Margin, payable in arrears on each Interest Payment
Date for such Loan and at maturity (whether by acceleration or otherwise) or
conversion to a Base Rate Loan in accordance with Section 2.4(a).
(c) Rate Determinations. The Agent shall determine each interest rate
applicable to the Loans and Reimbursement Obligations hereunder and such
determination shall be conclusive and binding except in the case of the Agent's
manifest error or willful misconduct. The Agent shall give prompt telephonic,
telex or facsimile notice to the Borrower and each Lender of the interest rate
applicable to each Loan or Reimbursement Obligation (but, if such notice is
given by telephone, the Agent shall confirm such rate in writing) promptly after
the Agent has made such determination.
Section 2.7. Default Rates. If any payment of principal, interest or fees
is not paid when due after the expiration of the grace period therefor provided
in Section 7.1 (whether by acceleration or otherwise), such amount shall bear
interest (computed on the basis of a year of 360 days for LIBOR Loans or
interest thereon and 365 or 366 days for unpaid fees, Base Rate Loans or
interest thereon and actual days elapsed) from the date such payment was due
until such amount then due is paid in full, payable on demand, at a rate per
annum equal to the lesser of (i) the Highest Lawful Rate, or (ii) the sum of two
percent (2%) per annum plus the Base Rate from time to time in effect (but not
less than the Base Rate in effect at maturity). It is the intention of the Agent
and the Lenders to conform strictly to usury laws applicable to them.
Accordingly, if the transactions contemplated hereby or the Loans would be
usurious as to any of the Lenders under laws applicable to it (including the
laws of the United States of America and the State of Texas or any other
jurisdiction whose laws may be mandatorily applicable to such Lender
notwithstanding the other provisions of this Agreement, the Notes or any other
Credit Document), then, in that event, notwithstanding anything to the contrary
in this Agreement, the Notes or any other Credit Document, it is agreed as
follows: (i) the aggregate of all consideration which constitutes interest under
laws applicable to such Lender that is contracted for, taken, reserved, charged
or received by such Lender under this Agreement, the Notes or any other Credit
Document or otherwise shall under no circumstances exceed the Highest Lawful
Rate, and any excess shall be credited by such Lender on the principal amount of
the Notes or to the Reimbursement Obligations (or, if the principal amount of
the Notes and all Reimbursement Obligations shall have been paid in full,
refunded by such Lender to the Borrower); (ii) in the event that the maturity of
the Notes is accelerated by reason of an election of the holder or holders
thereof resulting from any Event of Default hereunder or otherwise, or in the
event of any required or permitted prepayment, then such consideration that
constitutes interest under laws applicable to such Lender may never include more
than the Highest Lawful Rate, and excess interest, if any, provided for in this
Agreement, the Notes, any other Credit Document or otherwise shall be
automatically canceled by such Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by such Lender on the
principal amount of the Notes or to the Reimbursement Obligations (or if the
principal amount of the Notes and all Reimbursement Obligations shall have been
paid in full, refunded by such Lender to the Borrower); and (iii) if at any time
the interest provided under the
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Notes or the Credit Agreement, together with any other fees payable pursuant to
the Notes, the Credit Agreement or any other Credit Document and deemed interest
under applicable law, exceeds the amount that would have accrued at the Highest
Lawful Rate, the amount of interest and any such fees to accrue to such Lender
hereunder and thereunder shall be limited to the amount which would have accrued
at the Highest Lawful Rate, but any subsequent reductions shall not reduce the
interest to accrue to such Lender hereunder and thereunder below the Highest
Lawful Rate until the total amount of interest accrued pursuant hereto and
thereto and such fees deemed to be interest equals the amount of interest which
would have accrued to such Lender if a varying rate per annum equal to the
interest hereunder had at all times been in effect plus the amount of fees which
would have been received but for the effect hereof; and in each case, to the
extent permitted by applicable law, such Lender shall not be subject to any of
the penalties provided by law for contracting for, taking, reserving, charging
or receiving interest in excess of the Highest Lawful Rate. The Agent and the
Lenders hereby elect to determine the applicable rate ceiling under the Texas
Credit Title Act, 75th Leg., R.S. Ch. 1396, 1997 Tex. Sess. Law Serv. 5202
(Vernon) (to be codified at Tex. Rev. Civ. Stat. Ann. art. 5069-1B.001 et seq.)
by the weekly rate ceiling from time to time in effect, subject to the Agent and
the Lenders' right subsequently to change such method in accordance with
applicable law. The provisions of Chapter 346 of Tex. Finance Code Ann. (Vernon
1998), regulating certain revolving credit accounts and open-end accounts, shall
not apply to this Agreement or any of the Notes.
Section 2.8. Amortization and Maturity of Term Loans. The outstanding
principal balance of the Term Loans shall be paid in equal quarterly
installments commencing December 31, 1997, and quarterly thereafter in an amount
necessary to amortize in full the original principal amount thereof over a seven
(7) year period. All remaining principal outstanding under the Term Loans,
together with accrued and unpaid interest and all other fees then due and owing
under any Credit Document, shall mature and become due and payable on the
applicable Maturity Date therefor.
Section 2.9. Optional Prepayments. The Borrower shall have the privilege of
prepaying the Loans (including as the result of a Transfer of assets pursuant to
Section 6.16(e)) without premium or penalty in whole or in part at any time,
provided that any prepayment of Base Rate Loans shall be in increments of
$250,000 and any prepayment of LIBOR Loans shall be in increments of $500,000
or, if less, the total outstanding principal amount of such Loans. Optional
prepayments of the Term Loans shall be applied to the remaining installments
thereof in inverse order of maturity. If the Borrower is prepaying LIBOR Loans,
it shall give to the Agent notice of such prepayment no later than 11:00 a.m. at
least three (3) Business Days before the proposed prepayment date. All
prepayments of LIBOR Loans shall be accompanied by accrued interest thereon,
together with any applicable breakage fees and funding losses pursuant to
Section 2.12. The Borrower may direct the application of any optional prepayment
hereunder to the Base Rate Loans or LIBOR Loans outstanding.
Section 2.10. Mandatory Prepayments of Loans. If the aggregate principal
amount of outstanding Revolving Loans and L/C Obligations shall at any time for
any reason exceed the Revolving Credit Commitment Amount then in effect, the
Borrower shall, immediately and without notice or demand, pay the amount of such
excess to the Agent for the ratable benefit of the Lenders as a prepayment of
the Revolving Loans and, if all Revolving Loans have been paid, a pre-funding of
Letters of Credit pursuant to the provisions of Section 7.4. If the aggregate
principal amount
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of outstanding Term Loans shall at any time for any reason exceed the Term Loan
Commitment Amount then in effect, the Borrower shall, immediately and without
notice or demand, pay the amount of such excess to the Lenders as a prepayment
of the Term Loans. Any mandatory prepayment of Loans pursuant hereto shall not
be limited by the notice provision for prepayments set forth in Section 2.9, but
immediately upon determining the need to make any such prepayment, the Borrower
shall notify the Lenders of such required prepayment. Each such prepayment shall
be accompanied by a payment of all accrued and unpaid interest on the Loans
prepaid and any applicable breakage fees and funding losses pursuant to Section
2.12.
Section 2.11. The Notes. The Revolving Loans outstanding to the Borrower
from the Lenders shall be evidenced by promissory notes of the Borrower payable
to each Lender in the form of Exhibit 2.11A (each such promissory note, together
with any replacements thereof, a "Revolving Note"). The Term Loans outstanding
to the Borrower from the Lenders shall be evidenced by promissory notes of the
Borrower payable to each Lender in the form of Exhibit 2.11B (each such
promissory note, together with any replacements thereof, a "Term Note"). Each
holder of the Notes shall record on its books and records or on a schedule to
the Notes the amount of each Loan outstanding from it to the Borrower, all
payments of principal and interest and the principal balance from time to time
outstanding thereon, the type of such Loan and, if a LIBOR Loan, the Interest
Period and interest rate applicable thereto. Such record, whether shown on the
books and records of a holder of a Note or on a schedule to its Note, shall be
prima facie evidence as to all such matters; provided, however, that the failure
of any holder to record any of the foregoing or any error in any such record
shall not limit or otherwise affect the obligation of the Borrower to repay all
Loans outstanding to it hereunder, together with accrued interest thereon.
Section 2.12. Breakage Fees. If any Lender incurs any loss, cost or expense
(including, without limitation, any loss of profit and loss, cost, expense or
premium reasonably incurred by reason of the liquidation or re-employment of
deposits or other funds acquired by such Lender to fund or maintain any LIBOR
Loan or the relending or reinvesting of such deposits or amounts paid or prepaid
to the Lenders) as a result of any of the following events other than any such
occurrence as a result of a change of circumstance described in Sections 8.1 or
8.2:
(i) any payment, prepayment or conversion of a LIBOR Loan on a date
other than the last day of its Interest Period (whether by acceleration,
prepayment or otherwise);
(ii) any failure to make a principal payment of a LIBOR Loan on the
due date therefor; or
(iii) any failure by the Borrower to borrow, continue, prepay or
convert to a LIBOR Loan on the date specified in a notice given pursuant to
Section 2.4(a),
then the Borrower shall pay to such Lender such amount as will reimburse such
Lender for such loss, cost or expense. If any Lender makes such a claim for
compensation, it shall provide to the Borrower a certificate executed by an
officer of such Lender setting forth the amount of such loss, cost or expense in
reasonable detail (including an explanation of the basis for and the computation
of such loss, cost or expense), and the amounts shown on such certificate shall
be conclusive and binding absent manifest error. Within ten (10) days of receipt
of such certificate, the Borrower
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shall pay to such Lender the amount for such loss, cost or expense as documented
in such certificate.
Section 2.13. Commitment Terminations. The Borrower shall have the right at
any time and from time to time, upon three (3) Business Days' prior and
irrevocable written notice to the Agent, to terminate or reduce the Revolving
Credit Commitments without premium or penalty, in whole or in part, any partial
termination to be (i) in an amount not less than $1,000,000 as determined by the
Borrower and in integral multiples of $1,000,000, and (ii) allocated ratably
among the Lenders in proportion to their respective Revolving Credit
Commitments; provided, that the Revolving Credit Commitment Amount may not be
reduced to an amount less than the sum of the aggregate principal amount of
outstanding Revolving Loans plus the aggregate undrawn face amount of
outstanding Letters of Credit plus any unpaid Reimbursement Obligations with
respect to Letters of Credit. The Agent shall give prompt notice to each Lender
of any such termination or reduction of the Revolving Credit Commitments. Any
termination of Revolving Credit Commitments pursuant to this Section 2.13 is
permanent and may not be reinstated.
SECTION 3. FEES AND PAYMENTS.
Section 3.1. Fees. (a) Commitment Fees. For the period from the Effective
Date to and including the Revolving Credit Commitment Termination Date, the
Borrower shall pay to the Agent, for the ratable account of the Lenders, a
commitment fee of 0.1875% per annum (computed on a basis of a 365/366-day year
and actual days elapsed) on an amount equal to the average daily difference
between the Revolving Credit Commitment Amount and the aggregate outstanding
Revolving Loans and L/C Obligations. Such fee shall be payable in arrears
commencing on December 31, 1997, and on the last Business Day of each calendar
quarter thereafter and on April 30, 2000, unless the Revolving Credit Commitment
is terminated in whole on an earlier date, in which event the commitment fees
for the period to but not including the date of termination shall be paid in
whole on the date of such termination.
(b) Letter of Credit Fees. Commencing upon the date of issuance or
extension of any Letter of Credit and on the first Business Day of each calendar
quarter thereafter, the Borrower shall pay to the Agent, for the ratable benefit
of the Lenders, quarterly in advance (pro rated, if necessary for any portion of
such quarter), a non-refundable fee equal to the face amount of such Letter of
Credit times 0.625% per annum, calculated in each case on the basis of a
365/366-day year and actual days in the period and based on the then scheduled
expiry date of the Letter of Credit; provided that the minimum fee for any
Letter of Credit shall be $250. In addition, the Borrower shall pay to the
Agent, solely for the Agent's account, reasonable administrative and amendment
fees and expenses for Letters of Credit established by the Agent, solely for the
Agent's account, from time to time in accordance with its customary practices
and as agreed between the Agent, solely for the Agent's account, and the
Borrower.
(c) Agent Fees. The Borrower shall pay to the Agent the fees from time to
time agreed to by the Borrower and the Agent.
Section 3.2. Place and Application of Payments. All payments of principal
of and interest on the Loans and the Reimbursement Obligations and all other
amounts payable by the Borrower under the Credit Documents shall be made by the
Borrower to the Agent by no later than 1:30 p.m.
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on the due date thereof at the office of the Agent in Houston, Texas (or such
other location as the Agent may designate to the Borrower). Any payments
received by the Agent from the Borrower after 1:30 p.m. shall be deemed to have
been received on the next Business Day. The Agent will, on the same day each
payment is received or deemed to have been received in accordance with this
Section 3.2, cause to be distributed like funds in like currency to each Lender
owed an Obligation for which such payment was received, pro rata based on the
respective amounts of such type of Obligation then owing to each Lender. In
calculating the amount of Obligations owing each Lender other than for principal
and interest on Loans and Reimbursement Obligations and fees under Section 3.1,
the Agent shall only be required to include such other Obligations that Lenders
have certified to the Agent in writing are due to such Lenders.
Section 3.3. Withholding Taxes. (a) Subject to the terms hereof and
provided that the Lender has complied with its obligations under Section 3.3(b),
if at any time any applicable law, regulation or regulatory requirement or any
governmental authority, monetary agency or central bank enacted afted the
Effective Date requires the Borrower to make any deduction or withholding in
respect of excise, stamp or other taxes (excluding taxes imposed or based on, or
otherwise measured by, any Lender's income or receipts levied by any
jurisdiction in which such Lender is incorporated or maintains its principal
place of business or lending office or otherwise by reason of or in connection
between the taxing jurisdiction and the Lender (other than a connection
resulting from the transactions contemplated by this Agreement)), fees, duties,
assessments or charges of whatever nature now or hereafter imposed by any
governmental authority or any political subdivision or taxing authority thereof,
together with interest and penalties thereon (collectively, "Withholding Taxes")
from any payment due under this Agreement for the account of the Lender, the sum
due from the Borrower in respect of such payment shall be increased to the
extent necessary to ensure that, after the making of such deduction or
withholding, the Lender receives on the due date for such payment a net sum
equal to the sum which it would have received had no such deduction or
withholding been required to be made, and the Borrower shall indemnify the
Lender against any losses or costs incurred by the Lender by reason of any
failure of the Borrower to make any such deduction or withholding or by reason
of any increased payment not being made on the due date for such payment, except
to the extent the same arise by reason of a transfer, sale, or assignment of any
Note. The Borrower shall promptly deliver to the Lender any receipts,
certificates or other proof evidencing the amounts (if any) paid or payable in
respect of any deduction or withholding as aforesaid. If the Lender should, in
connection with any payment made by the Borrower pursuant to this Section
3.3(a), receive any offsetting tax credit or obtain any similar tax benefit
which may reasonably be applied to the benefit of the Borrower, the Lender will
in a timely manner reimburse the Borrower an amount equal to the amount of such
credit or benefit after deducting any expenses reasonably and properly
attributable thereto.
(b) Each Lender that is not a United States person (as such term is defined
in Section 7701(a)(30) of the Code) shall submit to the Borrower and the Agent
on or before the Initial Borrowing Date, two duly completed and signed copies of
either Form 1001 (entitling such Lender to a complete exemption from withholding
under the Code on all amounts to be received by such Lender, including fees,
pursuant to the Credit Documents) and IRS Form W-8 or Form 4224 (including such
Lender's certification that it is entitled to receive payments under this
Agreement without deduction or withholding for U.S. federal income taxes) of the
United States Internal Revenue Service. Thereafter and from time to time, each
such Lender shall submit to the Borrower and the Agent such additional duly
completed and signed copies of one or the other of such forms
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(or such successor forms as shall be adopted from time to time by the relevant
United States taxing authorities) as may be (i) notified by the Borrower,
directly or through the Agent, to such Lender, and (ii) required under
then-current United States law, treaty or regulations to avoid United States
withholding taxes on payments in respect of all amounts to be received by such
Lender, including fees, pursuant to the Credit Documents. Upon the request of
the Borrower, each Lender that is a United States person shall submit to the
Borrower a certificate to the effect that it is such a United States person.
Each Person that shall become a Lender or purchases a participation pursuant to
Section 10.10 shall, upon the effectiveness of the related transfer, be required
to provide all of the forms and statements required pursuant to this subsection,
provided that in the case of any such participant, such participant shall
furnish all such required forms and statements to the Lender from which the
related participation shall have been purchased. If the Internal Revenue Service
or any authority of the United States of America or other jurisdiction asserts a
claim that the Borrower did not properly withhold tax from amounts paid to or
for the account of the Lender (because the appropriate form was not delivered,
was not properly completed, executed, or because the Lender failed to notify the
Borrower of a change in circumstances which rendered the exemption from
withholding tax ineffective), the Lender shall indemnify the Borrower fully for
all amounts paid, directly or indirectly, by the Borrower, as tax or otherwise,
including penalties and interest, together with all out of pocket costs and
expenses and reasonable attorneys' fees.
(c) If any Lender or the Agent receives a refund of any Withholding Tax or
any tax referred to in Section 10.3 with respect to which the Borrower has paid
any amount pursuant to this Section 3.3 or Section 10.3, such Lender or the
Agent shall pay the amount of such refund (including any interest received with
respect thereto) to the Borrower.
SECTION 4. CONDITIONS PRECEDENT.
Section 4.1. Conditions Precedent to Initial Borrowing. The obligations of
the Lenders to advance any Loans hereunder, of the Agent to issue any Letter of
Credit on the Initial Borrowing Date and of the Lenders to participate in any
Letter of Credit on the Initial Borrowing Date are subject to the following
conditions precedent, all in form and substance satisfactory to the Agent and
the Lenders and executed, to the extent applicable, by an Authorized Officer of
the Borrower or the Guarantors:
(a) The Agent shall have received:
(i) Notes. The duly executed Notes of the Borrower;
(ii) Guaranties. The duly executed Guaranties of each of the
Guarantors in substantially the form of Exhibit 4.1;
(iii) Certificate of Officers of Borrower and Guarantors. A
certificate of the Secretary or Assistant Secretary and the President or Vice
President of each of the Borrower and the Guarantors containing specimen
signatures of the persons authorized to execute Credit Documents on such
Person's behalf or any other documents provided for herein, together with (x)
copies of resolutions of the Board of Directors of such Person authorizing the
execution and delivery of the Credit Documents and of all other legal documents
or proceedings taken by such Person in connection with the execution and
delivery of the Credit Documents, (y) copies of such
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Person's Certificate or Articles of Incorporation, certified by the Secretary of
State of such Person's jurisdiction of organization, and Bylaws and (z) a
certificate of existence and good standing from the appropriate governing agency
of such Person's jurisdiction of organization and, to the extent applicable, a
certificate of qualification as a foreign corporation and of good standing from
the State of Texas;
(iv) Fees. Payment of a nonrefundable arrangement fee of
$100,000 and all other expenses reasonably incurred through the date hereof then
due and owing to the Agent and the Lenders pursuant to the terms of this
Agreement;
(v) Compliance Certificate. A duly executed Compliance
Certificate as of September 30, 1997;
(vi) Insurance Certificate. An insurance certificate
describing in reasonable detail the insurance maintained by the Borrower and its
Subsidiaries as required by the Credit Documents;
(vii) Certificate of Financial Condition. A certificate of the
Chief Financial Officer or the Treasurer of the Borrower documenting the
solvency of the Borrower and its Subsidiaries on a consolidated basis, after
giving effect to the Borrowings on the Initial Borrowing Date hereunder;
(viii) Lien Searches. The results of recent lien searches and
Uniform Commercial Code searches showing no Liens on any of the property or
assets of any of the Borrower or its Subsidiaries other than Permitted Liens, or
evidence that any such Liens other than Permitted Liens have been terminated or
will be terminated concurrently with the Initial Borrowing Date;
(ix) Consents. Certified copies of all documents evidencing
any necessary consents and governmental approvals taken or obtained by the
Borrower and the Guarantors with respect to the Credit Documents;
(x) Opinion of Counsel. The opinion of Fulbright & Jaworski
L.L.P., legal counsel to the Borrower and the Guarantors covering such matters
as the Agent may reasonably require; and
(xi) Other Documents. Such other documents as the Agent may
reasonably request.
(b) All legal matters incident to the execution and delivery of the Credit
Documents shall be satisfactory to the Agent.
Section 4.2. Conditions Precedent to all Borrowings. In the case of each
advance of a Borrowing hereunder (including the issuance of, increase in the
amount of, or extension of the expiry date of, a Letter of Credit and including
the initial Borrowing hereunder):
(a) Notices. In the case of a Borrowing, the Agent shall have received the
Borrowing Request required by Section 2.4, and in the case of the issuance,
extension or increase of Letter of Credit, the Agent shall have received a duly
completed Borrowing Request and Application for such Letter of Credit meeting
the requirements of Section 2.2;
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(b) Representations and Warranties True and Correct. Each of the
representations and warranties of the Borrower and its Subsidiaries set forth
herein and in the other Credit Documents shall be true and correct in all
material respects as of the time of such new Borrowing, except as a result of
the transactions expressly permitted hereunder or thereunder and except to the
extent that any such representation or warranty relates solely to an earlier
date, in which case it shall have been true and correct in all material respects
as of such earlier date;
(c) No Default. No Default or Event of Default shall have occurred and be
continuing or would occur as a result of such Borrowing;
(d) New Litigation and Changes in Pending Litigation. Since the Effective
Date, no new litigation (including, without limitation, derivative or injunctive
actions), arbitration proceedings or governmental proceedings shall be pending
or known to be threatened against the Borrower or any of its Subsidiaries which
is reasonably expected to have a Material Adverse Effect; and no material
development (whether or not disclosed) shall have occurred in any litigation
(including, without limitation, derivative or injunctive actions), arbitration
proceedings or governmental proceedings previously disclosed, which is
reasonably expected to have a Material Adverse Effect;
(e) Regulation U; Other Laws. The Borrowings to be made by the Borrower
shall not result in either the Borrower or the Lenders being in non-compliance
with or in violation of Regulation U of the Board of Governors of the Federal
Reserve System and shall not be prohibited by any other legal requirement
(including Regulations G, T and X of the Board of Governors of the Federal
Reserve System) imposed by the banking laws of the United States of America, and
shall not otherwise subject the Lenders to a penalty or other onerous conditions
under or pursuant to any legal requirement; and
(f) Material Adverse Effect. There has occurred no event or effect that has
had or is reasonably expected to have a Material Adverse Effect.
Each request for the advance of a Borrowing and each request for the issuance
of, increase in the amount of, or extension of the expiry date of, a Letter of
Credit shall be deemed to be a representation and warranty by the Borrower on
the date of such Borrowing, or issuance of, increase in the amount of, or
extension of the expiry date of, such Letter of Credit that all conditions
precedent to such Borrowing have been satisfied or fulfilled unless the Borrower
gives to the Lenders written notice to the contrary, in which case the Lenders
shall not be required to fund such advances and the Lenders shall not be
required to issue, increase the amount of or extend the expiry date of such
Letter of Credit unless the Lenders shall have previously waived in writing such
non-compliance. In the event that any of the conditions specified in Section
4.2(c) are not satisfied, the Borrower may not convert any Base Rate Loan into a
LIBOR Loan or continue any LIBOR Loan and may only convert or continue any LIBOR
Loan into or as a Base Rate Loan in accordance with Section 2.4(a) hereof and
subject to the applicability of the provisions of Section 2.8 regarding default
rates of interest. Further, in such case, any LIBOR Loan which has not been
accelerated pursuant to the terms hereof shall automatically convert into a Base
Rate Loan at the end of the applicable Interest Period unless prior to such
time, the conditions specified in Section 4.2(c) shall have been satisfied or
waived pursuant to the terms hereof.
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SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lenders and the Agent as
follows:
Section 5.1. Corporate Organization. (a) The Borrower and each of its
Subsidiaries (i) is a duly incorporated and existing corporation (or other
Person) in good standing under the laws of the jurisdiction of its organization,
(ii) has all necessary corporate power (or comparable power, in the case of a
Subsidiary that is not a corporation) to own the property and assets it uses in
its business and otherwise to carry on its business, and (iii) is duly licensed
or qualified and in good standing in each jurisdiction in which the nature of
the business transacted by it or the nature of the property owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified is not reasonably expected to have a Material
Adverse Effect.
(b) As of the date hereof, the Borrower has no Subsidiaries other than as
listed in Schedule 5.1.
Section 5.2. Corporate Power and Authority; Validity. Each of the Borrower
and the Guarantors has the corporate power and authority to execute, deliver and
carry out the terms and provisions of the Credit Documents to which it is a
party and has taken all necessary corporate action to authorize the execution,
delivery and performance of the Credit Documents to which it is a party. Each of
the Borrower and the Guarantors has duly executed and delivered each such Credit
Document and each such Credit Document constitutes the legal, valid and binding
obligation of such Person enforceable in accordance with its terms, subject as
to enforcement only to bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity, regardless of whether in a proceeding in equity
or at law.
Section 5.3. No Violation. Neither the execution, delivery nor performance
by the Borrower or any of the Guarantors of the Credit Documents to which it is
a party nor compliance by any of such Persons with the terms and provisions
thereof, nor the consummation by it of the transactions contemplated herein or
therein, will (i) contravene any applicable provision of any law, statute, rule
or regulation, or any applicable order, writ, injunction or decree of any court
or governmental instrumentality, except where such contravention is not
reasonably expected to have a Material Adverse Effect, (ii) conflict with or
result in any breach of any term, covenant, condition or other provision of, or
constitute a default under (except where such conflict, breach or default is not
reasonably expected to have a Material Adverse Effect), or result in the
creation or imposition of (or the obligation to create or impose) any Lien other
than any Permitted Lien upon any of the property or assets of the Borrower or
any of its Subsidiaries under the terms of any contractual obligation to which
the Borrower or any of its Subsidiaries is a party or by which it or any of its
properties or assets are bound or to which it may be subject, or (iii) violate
or conflict with any provision of the Certificate or Articles of Incorporation
or Bylaws of such Person.
Section 5.4. Litigation. There are no lawsuits (including, without
limitation, derivative or injunctive actions), arbitration proceedings or
governmental proceedings pending or, to the best knowledge of the Borrower,
threatened, involving the Borrower or any of its Subsidiaries except
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as disclosed in Schedule 5.4 and except for such lawsuits or other proceedings
which are not reasonably expected to have a Material Adverse Effect.
Section 5.5. Use of Proceeds; Margin Regulations. The proceeds of the
Revolving Loans may only be used to provide working capital and for general
corporate purposes (including the issuance of Letters of Credit), to refinance
existing Funded Debt of the Borrower or its Subsidiaries and for Acquisitions.
The proceeds of the Term Loans may only be used to refinance existing Funded
Debt. Neither the Borrower nor any of its Subsidiaries are engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock. No proceeds of any Loan will be used to purchase or carry any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System), to extend credit for the purpose of purchasing or carrying any
"margin stock," or for a purpose which violates Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System.
Section 5.6. Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 5.7. Public Utility Holding Company Act. Neither the Borrower nor
any of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
Section 5.8. True and Complete Disclosure. All factual information
heretofore or contemporaneously furnished by the Borrower or any of its
Subsidiaries in writing to the Agent or any of the Lenders in connection with
any Credit Document or any transaction contemplated therein is, and all other
such factual information hereafter furnished by any such Persons in writing to
the Lenders in connection herewith, any of the other Credit Documents or the
Loans will be, true and accurate in all material respects, taken as a whole, on
the date of such information and not incomplete by omitting to state any
material fact necessary to make the information therein not misleading at such
time in light of the circumstances under which such information was provided.
Section 5.9. Financial Statements. The financial statements heretofore
delivered to the Lenders for the Borrower's fiscal year ended September 30,
1996, for the Borrower's short fiscal year ended December 31, 1996, and for the
Borrower's fiscal quarters ended March 31, June 30 and September 30, 1997, have
been prepared in accordance with GAAP, applied on a basis consistent, except as
otherwise noted therein, with the Borrower's financial statements for the
previous fiscal year. Each of such annual and quarterly financial statements
fairly presents on a consolidated basis the financial position of the Borrower,
as of the dates thereof, and the results of operations for the periods covered
thereby, subject in the case of interim financial statements, to normal year-end
adjustments and omission of certain footnotes as permitted by the SEC. As of the
Effective Date, the Borrower and its Subsidiaries, considered as a whole, have
no material contingent liabilities or material Indebtedness required under GAAP
to be disclosed in a consolidated balance sheet of the Borrower that were not
disclosed in the financial statements referred to in this Section 5.9 or in the
notes thereto or disclosed in writing to the Agent.
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Section 5.10. No Material Adverse Change. There has occurred no event or
effect since September 30, 1997, that has had, or to the best knowledge of the
Borrower is reasonably expected to have, a Material Adverse Effect.
Section 5.11. Labor Controversies. There are no labor strikes, lock-outs,
slow downs, work stoppages or similar events pending or, to the best knowledge
of the Borrower, threatened against the Borrower or any of its Subsidiaries that
is reasonably expected to have a Material Adverse Effect.
Section 5.12. Taxes. The Borrower and its Subsidiaries have filed all
federal tax returns and all other material tax returns required to be filed, and
have paid all governmental taxes, rates, assessments, fees, charges and levies
(collectively, "Taxes") except such Taxes, if any, as are being contested in
good faith and for which reserves have been provided in accordance with GAAP and
except where the failure to pay such Taxes is not reasonably expected to have a
Material Adverse Effect. No tax liens have been filed and no claims are being
asserted for Taxes except to the extent that such liens or claims, in the
aggregate, are not reasonably expected to have a Material Adverse Effect. The
charges, accruals and reserves on the books of the Borrower and its Subsidiaries
for Taxes and other governmental charges have been determined in accordance with
GAAP.
Section 5.13. ERISA. With respect to each Plan, the Borrower and its
Subsidiaries have fulfilled their obligations under the minimum funding
standards of, and are in compliance in all material respects with, ERISA and
with the Code to the extent applicable to it, and have not incurred any
liability under Title IV of ERISA to the PBGC or a Plan other than a liability
to the PBGC for premiums under Section 4007 of ERISA, except where such
liability is not reasonably expected to have a Material Adverse Effect. Neither
the Borrower nor any of its Subsidiaries has any contingent liability with
respect to any post-retirement benefits under a welfare plan as defined in ERISA
other than liability for continuation coverage described in Part 6 of Title I of
ERISA, except where such liability is not reasonably expected to have a Material
Adverse Effect.
Section 5.14. Consents. All consents and approvals of, and filings and
registrations with, and all other actions of, all governmental agencies,
authorities or instrumentalities required to consummate the Borrowings
hereunder, on the date of each such Borrowing, have been obtained or made and
are or will be in full force and effect.
Section 5.15. Capitalization. All outstanding shares of the Borrower and
its Subsidiaries have been duly and validly issued, and are fully paid and
nonassessable.
Section 5.16. Ownership of Property. The Borrower and its Subsidiaries have
good and marketable title to or a valid leasehold interest in all of their
respective property except to the extent, in the aggregate, no Material Adverse
Effect is reasonably expected to result from the failure to have such title or
interest, free and clear of any Liens except Permitted Liens. The Borrower and
its Subsidiaries own or hold valid licenses to use all the material patents,
trademarks, permits, service marks and trade names, free of any burdensome
restrictions, that are necessary to the operation of the business of the
Borrower and its Subsidiaries as presently conducted, except where the failure
to own or hold such licenses is not reasonably expected to have a Material
Adverse Effect.
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Section 5.17. Compliance with Statutes. The Borrower and its Subsidiaries
are in compliance in all material respects with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies and have all necessary permits, licenses and other necessary
authorizations with respect to the conduct of their businesses and the ownership
and operation of their properties except where the failure to so comply or hold
such permits, licenses or other authorizations is not reasonably expected to
have a Material Adverse Effect.
Section 5.18. Environmental Matters.
(a) The Borrower and its Subsidiaries are in compliance with, and on the
date of each Borrowing will be in compliance with, all applicable Environmental
Laws and the requirements of any permits issued under such Environmental Laws
except where failure to so comply is not reasonably expected to have a Material
Adverse Effect. To the best knowledge of the Borrower, there are no pending,
past or threatened Environmental Claims against the Borrower or any of its
Subsidiaries or any property owned or operated by the Borrower or any of its
Subsidiaries which are reasonably expected to have a Material Adverse Effect. To
the best knowledge of the Borrower, there are no conditions or occurrences on
any property owned or operated by the Borrower or any of its Subsidiaries that
are reasonably expected (i) to form the basis of an Environmental Claim against
the Borrower or any of its Subsidiaries or any property owned or operated by the
Borrower or any of its Subsidiaries, or (ii) to cause any property owned or
operated by the Borrower or any of its Subsidiaries to be subject to any
material restrictions on the ownership, occupancy, use or transferability of
such property by the Borrower or any of its Subsidiaries under any applicable
Environmental Law except for any such condition or occurrence described in
clauses (i) or (ii) which is not reasonably expected to have a Material Adverse
Effect.
(b) To the best knowledge of the Borrower (i) Hazardous Materials have not
at any time been generated, used, treated or stored on, or transported to or
from, any property owned or operated by the Borrower or any of its Subsidiaries
in a manner that has violated or is reasonably expected to violate any
Environmental Law, except for such violation which is not reasonably expected to
have a Material Adverse Effect, and (ii) Hazardous Materials have not at any
time been released on or from any property owned or operated by the Borrower or
any of its Subsidiaries in a matter that has violated or is reasonably expected
to violate any Environmental Law, except for such violation which is not
reasonably expected to have a Material Adverse Effect.
Section 5.19. Dividend Restrictions. None of the domestic Subsidiaries of
the Borrower is party to or subject to any agreement or understanding
restricting or limiting the payment of any dividends or other distributions on
its capital stock by any such Subsidiary.
SECTION 6. COVENANTS.
The Borrower covenants and agrees that, so long as any Note, Letter of
Credit, Reimbursement Obligation or any other Obligation is outstanding or any
Commitment is outstanding hereunder:
Section 6.1. Corporate Existence. The Borrower and its Subsidiaries will
preserve and maintain their existence except (i) for the dissolution of any
Subsidiaries whose assets are transferred to the Borrower or any of its
Subsidiaries, (ii) to the extent such failure to maintain a
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Subsidiary (other than a Guarantor) is not reasonably expected to have a
Material Adverse Effect, and (iii) as otherwise expressly permitted herein.
Section 6.2. Maintenance. The Borrower and its Subsidiaries will maintain,
preserve and keep their material plants, properties and equipment necessary to
the proper conduct of their businesses in reasonably good repair, working order
and condition (normal wear and tear excepted) and will from time to time make
all reasonably necessary repairs, renewals, replacements, additions and
betterments thereto so that at all times such plants, properties and equipment
are reasonably preserved and maintained; provided, however, that nothing in this
Section 6.2 shall prevent the Borrower or any of its Subsidiaries from
discontinuing the operation or maintenance of any such plants, properties or
equipment if such discontinuance is, in the judgment of the Borrower or any such
Subsidiary, as applicable, desirable in the conduct of its business and not
materially disadvantageous to the Lenders.
Section 6.3. Taxes. The Borrower and its Subsidiaries will duly pay and
discharge all Taxes upon or against them or their properties before payment is
delinquent and before penalties accrue thereon, unless and to the extent that
the same is being contested in good faith and by appropriate proceedings and
reserves have been established in conformity with GAAP.
Section 6.4. ERISA. The Borrower and its Subsidiaries will promptly pay and
discharge all of their obligations and liabilities arising under ERISA or
otherwise with respect to each Plan and any other obligation which if unpaid or
unperformed might result in the imposition of a material Lien against any
properties or assets of the Borrower or any of its Subsidiaries and will
promptly notify the Agent of (i) the occurrence of any reportable event (as
defined in ERISA) relating to a Plan with respect to which the Borrower or a
Subsidiary is required to notify the PBGC; (ii) receipt of any notice from the
PBGC of its intention to seek termination of any Plan or appointment of a
trustee therefor; and (iii) the Borrower's or any of its Subsidiary's
termination of or withdrawal from any Plan. The Borrower shall furnish to the
Agent any additional information as may be reasonably requested by the Lenders
concerning welfare plans (as defined in ERISA) maintained by the Borrower or a
Subsidiary.
Section 6.5. Insurance. The Borrower and its Subsidiaries will maintain or
cause to be maintained with responsible insurance companies, insurance against
any loss or damage to all material insurable property and assets owned by them,
such insurance to be of a character and in or in excess of such amounts as are
customarily maintained by companies similarly situated and operating like
property or assets. The Borrower and each of its Subsidiaries will also insure
employers' and public and product liability risks with responsible insurance
companies. The Borrower will on or before January 31st of each calendar year and
upon the request of the Agent, furnish a certificate from the Borrower's
insurance agent(s) setting forth the nature and extent of the insurance
maintained pursuant to this Section 6.5 and providing that such agent will
provide thirty (30) days' advance written notice to the Agent prior to
cancellation of any such insurance.
Section 6.6. Financial Reports and Other Information.
(a) The Borrower and its Subsidiaries will maintain a system of accounting
in such manner as will enable preparation of financial statements in accordance
with GAAP and will furnish to the Lenders and their authorized representatives
such information about the business and financial
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condition of the Borrower and its Subsidiaries as the Lenders may reasonably
request; and, without any request, will furnish to the Lenders:
(i) within sixty (60) days after the end of each fiscal
quarter of each fiscal year of the Borrower (excluding the fourth fiscal
quarter), the consolidated balance sheet of the Borrower and its Subsidiaries as
at the end of such fiscal quarter and the related consolidated and, if requested
by the Agent, consolidating statements of income and retained earnings and of
cash flows for such fiscal quarter and for the portion of the fiscal year ended
with the last day of such fiscal quarter, all of which shall be in reasonable
detail or in the form filed with the SEC and certified by the Chief Financial
Officer of the Borrower that they fairly present the financial condition of the
Borrower and its Subsidiaries as of the dates indicated and the results of their
operations and changes in their cash flows for the periods indicated and that
they have been prepared in accordance with GAAP, in each case, subject to normal
year-end adjustments and the omission of any footnotes as permitted by the SEC
(delivery to the Agent of a copy of the Borrower's Form 10-Q filed with the SEC
(without exhibits) in any event will satisfy the requirements of this subsection
subject to Section 6.6(b)); and
(ii) within ninety-five (95) days after the end of each fiscal
year of the Borrower, the consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as at the end of such fiscal year and the related
consolidated and, if requested by the Agent, consolidating statements of income
and retained earnings and of cash flows for such fiscal year and setting forth
consolidated comparative figures as of the end of and for the preceding fiscal
year, audited by an independent nationally-recognized accounting firm and in the
form filed with the SEC (delivery to the Agent of a copy of the Borrower's Form
10-K filed with the SEC (without exhibits) in any event will satisfy the
requirements of this subsection subject to Section 6.6(b));
(iii) commencing with fiscal year 1998, to the extent actually
prepared and approved by the Borrower's board of directors, a projection of
Borrower's consolidated balance sheet and consolidated income, retained earnings
and cash flows for its then current fiscal year showing such projected budget
for each fiscal quarter of the Borrower ending during such year; and
(iv) within ten (10) days after the sending or filing thereof,
copies of all financial statements, reports, notices and proxy statements that
the Borrower sends to its stockholders generally or files with the SEC that are
publicly available (other than registration statements registering shares of
Borrower's common stock issued under employee benefit plans).
(b) Each financial statement furnished to the Lenders pursuant to
subsections (i) and (ii) of Section 6.6(a) shall be accompanied by (i) a written
certificate signed by the Borrower's Chief Financial Officer to the effect that
(x) no Default or Event of Default has occurred during the period covered by
such statements or, if any such Default or Event of Default has occurred during
such period, setting forth a description of such Default or Event of Default and
specifying the action, if any, taken by the Borrower to remedy the same, and (y)
the representations and warranties contained herein are true and correct in all
material respects as though made on the date of such certificate, except to the
extent that any such representation or warranty relates solely to an earlier
date, in which case it was true and correct as of such earlier date and except
as otherwise described therein, as a result of the transactions expressly
permitted hereunder or as previously
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disclosed to the Lenders, and (ii) a Compliance Certificate in the form of
Exhibit 6.6 showing the Borrower's compliance with the financial covenants set
forth herein.
(c) Promptly after obtaining knowledge of any of the following, the
Borrower will provide the Agent with written notice in reasonable detail of: (i)
any pending or threatened Environmental Claim against the Borrower or any of its
Subsidiaries or any property owned or operated by the Borrower or any of its
Subsidiaries that if adversely determined is reasonably expected to have a
Material Adverse Effect; (ii) any condition or occurrence on any property owned
or operated by the Borrower or any of its Subsidiaries that results in material
noncompliance by the Borrower or any of its Subsidiaries with any Environmental
Law; and (iii) the taking of any material removal or remedial action in response
to the actual or alleged presence of any Hazardous Material on any property
owned or operated by the Borrower or any of its Subsidiaries.
(d) The Borrower will promptly and in any event, within five (5) days after
an officer of the Borrower has knowledge thereof, give written notice to the
Agent of: (i) any pending or threatened litigation or proceeding against the
Borrower or any of its Subsidiaries asserting any claim or claims against any of
same that is reasonably expected to have a Material Adverse Effect (provided
that the Borrower shall not be required to provide the Agent with any
information that would result in a waiver of the attorney-client privilege of
the Borrower or any of its Subsidiaries with respect to such litigation); (ii)
the occurrence of any Default or Event of Default; (iii) any circumstance that
is reasonably expected to have a Material Adverse Effect; and (iv) any event
which is reasonably expected to result in a breach of, Sections 6.21, 6.22 or
6.23.
(e) The Agent will forward promptly to the Lenders the information provided
by the Borrower pursuant to this Section 6.6.
Section 6.7. Lenders' Inspection Rights. Upon reasonable notice from any of
the Lenders, the Borrower will permit the Agent or any of the Lenders (and such
Persons as the Agent or any Lender may designate), at such Lender's expense
(unless an Event of Default has occurred and is continuing, in which case it
shall be at the Borrower's expense), during normal business hours following
reasonable notice to visit and inspect any of the properties of the Borrower or
any of its Subsidiaries, to examine all of their books and records, to make
copies and extracts therefrom, and to discuss their respective affairs, finances
and accounts with their respective officers, employees and independent public
accountants (and by this provision, the Borrower authorizes such accountants to
discuss with the Agent and the Lenders, and such Persons as the Agent or any
Lender may designate, the affairs, finances and accounts of the Borrower and its
Subsidiaries provided that the Borrower has the opportunity to be present at
such discussions), all at such reasonable times and as often as may be
reasonably requested.
Section 6.8. Conduct of Business. The Borrower and its Subsidiaries will
not make any material change in the nature of the business of the Borrower and
its Subsidiaries, taken as a whole, described in the Borrower's most recently
filed Form 10-K with the SEC (a "Permitted Business").
Section 6.9. New Subsidiaries. The Borrower shall cause any direct or
indirect domestic Material Subsidiary which is formed or acquired after the
Effective Date and any direct or indirect domestic Subsidiary which becomes a
Material Subsidiary after the Effective Date to become a Guarantor with respect
to, and jointly and severally liable with all other Guarantors for, all of the
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Obligations under this Agreement and the Notes within fifteen (15) days
following such formation or acquisition or after such Subsidiary becomes a
Material Subsidiary, as the case may be, pursuant to a Guaranty substantially in
the form of Exhibit 4.1.
Section 6.10. Restrictions on Redemption; Dividends.
(a) Neither the Borrower nor any of its Subsidiaries shall, directly or
indirectly, create or otherwise permit to exist or become effective any
restriction on the ability of any domestic Subsidiary of the Borrower to (i) pay
dividends or make any other distributions on its capital stock or any other
interest or participation in its profits owed by the Borrower or to pay any
Indebtedness owed to the Borrower, or (ii) make loans or advances to the
Borrower or any of its Subsidiaries, except in either case for restrictions
existing under or by reason of applicable law, this Agreement and the other
Credit Documents.
(b) The Borrower may only redeem, purchase or otherwise acquire any shares
of its capital stock if capital stock of the Borrower is purchased or otherwise
acquired (or the purchase thereof funded) for or in connection with any odd-lot
buyback up to the maximum aggregate purchase price of $1,500,000 or any Code
Section 401(k) plan, Code Section 423 plan or other employee benefit plan of the
Borrower or any of its Subsidiaries and so long as no Default or Event of
Default shall have occurred and be continuing or would occur as a result of such
redemption, purchase or acquisition.
Section 6.11. Restrictions on Fundamental Changes. Neither the Borrower nor
any of its Subsidiaries shall be a party to any merger into or consolidation
with, make an Acquisition or otherwise purchase or acquire all or substantially
all of the assets or stock of, any other Person, or sell all or substantially
all of its assets or stock, except:
(a) the Borrower or any of its Subsidiaries may merge into or consolidate
with, make an Acquisition or otherwise purchase or acquire all or substantially
all of the assets or stock of any other Person if upon the consummation of any
such merger, consolidation, purchase or Acquisition, (i) the Borrower or such
Subsidiary is the surviving corporation to any such merger or consolidation (or
the other Person will thereby become a Subsidiary); (ii) the nature of the
business of such acquired Person is a Permitted Business; (iii) the Borrower
shall have delivered to the Lenders within ten (10) Business Days prior to the
consummation of an Acquisition a report signed by the Chief Financial Officer of
the Borrower which shall contain calculations demonstrating the Borrower's
compliance with Sections 6.21, 6.22 and 6.23 (on a historic four fiscal quarter
pro forma basis), such calculations to use historical financial results of the
acquired business; (iv) the maximum cash purchase price paid and Funded Debt
incurred by the Borrower or any of its Subsidiaries (excluding any part of the
purchase price paid with the cash proceeds from an equity offering) in
connection with (x) any single Acquisition shall not exceed 15.0% of the
Borrower's Consolidated Net Worth as of the end of the immediately preceding
fiscal quarter or (y) in the aggregate for all Acquisitions during any rolling
four (4) fiscal quarters shall not exceed 25.0% of the Borrower's Consolidated
Net Worth as of the end of the immediately preceding fiscal quarter; and (v) no
Default or Event of Default shall have occurred and be continuing or would
otherwise be existing as a result of such merger, consolidation, purchase or
Acquisition;
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(b) the Borrower may purchase or otherwise acquire all or substantially
all of the stock or assets of, or otherwise acquire by merger or consolidation,
any of its Subsidiaries, and any such Subsidiary may merge into, or consolidate
with, or purchase or otherwise acquire all or substantially all of the assets or
stock of or sell all or substantially all of its assets or stock to, any other
Subsidiary of the Borrower or the Borrower, in each case so long as the Borrower
shall be the surviving entity to any such merger or consolidation if the
transaction is with the Borrower;
(c) the Borrower or any of its Subsidiaries may form new Subsidiaries;
(d) the Borrower and its Subsidiaries may issue additional capital
stock or ownership interests so long as there is no scheduled mandatory
redemption or scheduled liquidating distribution of any such stock or interest
before the scheduled Maturity Date of the Term Loans; and
(e) any domestic Subsidiary that is not a Material Subsidiary and any
foreign Subsidiary which, if it were a domestic subsidiary, would not be a
Material Subsidiary, may sell all or substantially all of its assets, provided
such sale would not be prohibited by any other provision of, or otherwise cause
a Default under, this Agreement and provided that the net proceeds of any such
sale shall either be applied as a prepayment of the Term Loans in the order
provided in Section 2.9 or reinvested in the operation of a Permitted Business.
The Borrower shall not sell or dispose of any capital stock of or its ownership
interest in any of its Subsidiaries except for the capital stock of or ownership
interest in any domestic Subsidiary which is not a Material Subsidiary or in a
foreign Subsidiary, which, if it were a domestic Subsidiary, would not be a
Material Subsidiary and except as otherwise permitted in this Section 6.11.
Section 6.12. Environmental Laws. The Borrower and its Subsidiaries shall
comply with all Environmental Laws (including, without limitation, obtaining and
maintaining all necessary permits, licenses and other necessary authorizations)
applicable to or affecting the properties or business operations of the Borrower
or any of its Subsidiaries except where the failure to so comply is not
reasonably expected to have a Material Adverse Effect.
Section 6.13. Liens. The Borrower and its Subsidiaries shall not create,
incur, assume or suffer to exist any Lien of any kind on any of their properties
or assets of any kind except the following (collectively, the "Permitted
Liens"):
(a) Liens arising in the ordinary course of business by operation of law in
connection with workers' compensation, unemployment insurance, old age benefits,
social security obligations, taxes, assessments, statutory obligations or other
similar charges, good faith deposits, pledges or other Liens in connection with
(or to obtain letters of credit in connection with) bids, performance bonds,
contracts or leases to which the Borrower or its Subsidiaries are a party or
other deposits required to be made in the ordinary course of business; provided
that in each case the obligation secured is not for Indebtedness and is not
overdue or, if overdue, is being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP have been provided therefor;
(b) mechanics', workmen, materialmen, landlords', carriers' or other
similar Liens arising in the ordinary course of business (or deposits to obtain
the release of such Liens) related
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to obligations not due or, if due, that are being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP have been provided
therefor;
(c) inchoate Liens under ERISA and Liens for Taxes not yet due or which are
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP have been provided therefor;
(d) Liens arising out of judgments or awards against the Borrower or any of
its Subsidiaries, or in connection with surety or appeal bonds or the like in
connection with bonding such judgments or awards, the time for appeal from which
or petition for rehearing of which shall not have expired or for which the
Borrower or such Subsidiary shall be prosecuting on appeal or proceeding for
review and for which it shall have obtained a stay of execution or the like
pending such appeal or proceeding for review; provided that the aggregate amount
of uninsured or underinsured liabilities (including interest, costs, fees and
penalties, if any) of the Borrower and its Subsidiaries secured by such Liens
shall not exceed $5,000,000 at any one time outstanding and provided further
there is adequate assurance, in the reasonable opinion of the Lenders, that the
insurance proceeds, if any, attributable thereto shall be paid promptly upon the
expiry of such time period or resolution of such proceeding if necessary to
remove such Liens;
(e) rights of a common owner of any interest in property held by a Person
and such common owner as tenants in common or through other common ownership;
(f) encumbrances (other than to secure the payment of Indebtedness),
easements, restrictions, servitudes, permits, conditions, covenants, exceptions
or reservations in any property or rights-of-way of a Person for the purpose of
roads, pipelines, transmission lines, transportation lines, distribution lines,
removal of gas, oil, coal, metals, steam, minerals, timber or other natural
resources, and other like purposes, or for the joint or common use of real
property, rights-of-way, facilities or equipment, or defects, irregularity and
deficiencies in title of any property or rights-of-way;
(g) financing statements filed by lessors of property (but only with
respect to the property so leased) and Liens under any conditional sale or title
retention agreements entered into in the ordinary course of business;
(h) rights of lessees of equipment owned by the Borrower or any of its
Subsidiaries;
(i) Liens securing Indebtedness permitted by Section 6.14(c) on any assets
acquired, any Liens listed on Schedule 6.14 in connection with Indebtedness
permitted under Section 6.14(i) and any other existing Liens until the Initial
Borrowing Date; and
(j) any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part of any Lien referred to in the
foregoing subsections (a) through (i), provided, however, that the principal
amount of Indebtedness secured thereby does not exceed the principal amount
secured at the time of such extension, renewal or replacement, and that such
extension, renewal or replacement is limited to the property already subject to
the Lien so extended, renewed or replaced.
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Section 6.14. Indebtedness. After the Initial Borrowing Date, the Borrower
and its Subsidiaries shall not contract, assume or suffer to exist any
Indebtedness (including, without limitation, any Guaranties), except:
(a) Indebtedness under the Credit Documents;
(b) unsecured intercompany loans and advances from the Borrower to any of
its Subsidiaries and unsecured intercompany loans and advances from any of such
Subsidiaries to the Borrower or any other Subsidiaries of the Borrower;
provided, however, the aggregate amount of such loans or advances to any foreign
Subsidiary of the Borrower from the Borrower or any domestic Subsidiary of the
Borrower shall be no greater than $11,000,000 at any one time (excluding any
sales transactions between such parties in the ordinary course of business);
(c) Capitalized Lease Obligations and purchase money Indebtedness on assets
acquired in an aggregate amount not to exceed $1,000,000 on an annual basis;
(d) Indebtedness under unsecured interest rate hedge, swap, exchange,
forward, future collar or cap agreements, fixed price agreements or any other
agreements or arrangements designed to protect the Borrower against fluctuations
in interest rates and not for speculative purposes;
(e) Indebtedness under unsecured foreign exchange futures agreements,
arrangements or options designed to protect the Borrower against fluctuations in
currency exchange rates and not for speculative purposes;
(f) Indebtedness of any foreign Subsidiaries of the Borrower not otherwise
permitted by this Section 6.14 under Capitalized Lease Obligations, letters of
credit issued in the ordinary course of business, overdraft lines of credit or
for working capital purposes in foreign countries with financial institutions on
terms no more favorable to the lenders thereunder than under this Agreement and
Indebtedness arising from the honoring by a bank or other Person of a check,
draft or similar instrument inadvertently drawing against insufficient funds not
to exceed $15,000,000 (excluding Indebtedness under undrawn letters of credit
issued for the account of any such foreign Subsidiary in the ordinary course of
its business but including Indebtedness listed on Schedule 6.14, to the extent
applicable) in the aggregate at any time outstanding;
(g) unsecured Indebtedness of the Borrower or any of its domestic
Subsidiaries to any Lender (or to any other financial institution which has
issued a letter of credit for the account of the Borrower as of the Effective
Date) in an aggregate amount of up to $15,000,000 (including Indebtedness listed
on Schedule 6.14, to the extent applicable) at any time outstanding with a
maturity of no longer than one (1) year (provided that letters of credit may be
issued thereunder for the account of the Borrower or any of its domestic
Subsidiaries in the ordinary course of its business with expiry dates in excess
of one (1) year from the date of issuance), pari passu in all respects to the
Obligations and containing covenants no more restrictive than under this
Agreement;
(h) any Guaranty (including any existing Guaranty) by the Borrower or any
domestic Subsidiary of the Borrower of (i) any Funded Debt of any foreign
Subsidiary of the Borrower in an aggregate amount of up to $5,000,000 at any
time outstanding or (ii) any undrawn letters of credit issued for the account of
any foreign Subsidiary of the Borrower in the ordinary course of its business in
an aggregate amount of up to $15,000,000 at any time outstanding; and
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(i) Indebtedness outstanding on the Effective Date and listed on Schedule
6.14 hereto.
Section 6.15. Loans, Advances and Investments. The Borrower and its
Subsidiaries shall not purchase or acquire any stock, indebtedness, obligations
or securities of, or any other interest in, or make any capital contribution to,
any Person (any of the foregoing, an "Investment") or lend money or make
advances to any Person except:
(a) as permitted by Section 6.11(a), (b) or (c) or Section 6.14(b);
(b) Investments outstanding as of the Effective Date and listed on Schedule
6.15 hereto;
(c) loans to employees of the Borrower or any of its Subsidiaries;
(d) receivables owing to the Borrower or its Subsidiaries created or
acquired in the ordinary course of business and payable on customary trade terms
of the Borrower or such Subsidiary and in compliance with the arms-length
requirements of Section 6.17;
(e) other advances or loans to, or Investments in, any Person, provided
that the aggregate amount of such other loans and advances outstanding and
Investments shall not exceed $5,000,000 at any one time outstanding; and
(f) Investments in Cash Equivalents.
Section 6.16. Transfer of Assets. The Borrower and its Subsidiaries shall
not permit any Transfer of any material asset of the Borrower or any of its
Subsidiaries except:
(a) Transfers of inventory, equipment and other assets in the ordinary
course of business;
(b) the retirement or replacement of assets (with assets of equal or
greater value) in the ordinary course of business or the Transfer of assets that
are obsolete, worn out or no longer useful in the business of the Borrower and
its Subsidiaries;
(c) Transfers of any assets among the Borrower and any of its Subsidiaries,
except the Borrower or a domestic Subsidiary may not Transfer any assets to a
foreign Subsidiary, except for (i) any obsolete assets or assets not used by
such domestic Subsidiary and which assets shall be used by the foreign
Subsidiary in the ordinary course of its business, or (ii) any assets to be used
by such foreign Subsidiary in the ordinary course of its business and as
advisable to perform a contract or services in a particular geographical area;
(d) any Transfers permitted by Sections 6.11;
(e) the Transfer of any assets acquired in an Acquisition which are not
necessary for the operation of the business of the Borrower and its
Subsidiaries, provided that the Net Cash Proceeds thereof are made as either a
prepayment of the Term Loans pursuant to the provisions of Section 2.9 or
reinvested by the Borrower and its Subsidiaries in the operation of a Permitted
Business; and
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(f) the Transfers of any assets not otherwise covered by this Section 6.16
(including the sale and leaseback of assets) generating Net Cash Proceeds of up
to an aggregate of $2,000,000 per fiscal year.
Section 6.17. Transactions with Affiliates. Except as otherwise
specifically permitted herein, the Borrower and its Subsidiaries shall not enter
into or be a party to any material transaction or arrangement or series of
related transactions or arrangements which in the aggregate would be material
with any Affiliate of such Person, including without limitation, the purchase
from, sale to or exchange of property with or the rendering of any service by or
for, any Affiliate, except pursuant to the reasonable requirements of such
entity's business and upon fair and reasonable terms no less favorable to such
entity than would be able to be obtained in a comparable arm's-length
transaction with a Person other than an Affiliate.
Section 6.18. Compliance with Laws. The Borrower and its Subsidiaries shall
conduct their businesses and otherwise be in compliance in all material respects
with all applicable laws, regulations, ordinances and orders of all
governmental, judicial and arbitral authorities applicable to them and shall
obtain and maintain all necessary permits, licenses and other authorizations
necessary to conduct their businesses and own and operate their properties
except where the failure to comply or have such permits, licenses or other
authorizations is not reasonably expected to have a Material Adverse Effect.
Section 6.19. Negative Pledges. Neither the Borrower nor any of its
Subsidiaries shall enter into any agreement creating or assuming any Lien upon
its properties, revenues or assets, whether now owned or hereafter acquired
other than as permitted hereunder. Neither the Borrower nor any of its
Subsidiaries shall enter into any agreement other than this Agreement and the
Credit Documents prohibiting the creation or assumption of any Lien upon its
properties, revenues or assets, whether now owned or hereafter acquired, or
prohibiting or restricting the ability of the Borrower or any of its
Subsidiaries to amend or otherwise modify this Agreement or any Credit Document.
Section 6.20. Maximum Capital Expenditures. Neither the Borrower nor any of
its Subsidiaries shall make or commit to make Capital Expenditures in excess of
the aggregate of $12,500,000 during any calendar year.
Section 6.21. Minimum Tangible Net Worth. The Borrower will maintain a
minimum Tangible Net Worth of not less than the sum of (i) $85,000,000, plus
(ii) for each fiscal year ended prior to (but not on) such date of
determination, commencing December 31, 1997, the sum of an amount equal to fifty
percent (50%) of Consolidated Net Income for such fiscal year, if positive,
minus all cash dividends paid to shareholders of the Borrower during such year
permitted under this Agreement, such sum to be determined upon receipt of the
financial statements provided in Section 6.6(a)(ii) but to be effective as of
the first day of the next fiscal year, plus (iii) without duplication, for each
fiscal year ended prior to (but not on) such date of determination, commencing
December 31, 1997, an amount equal to the sum of 85% of the amount of net
proceeds to the Borrower from any equity issuance by the Borrower, including a
secondary offering or where equity is used to acquire another entity in an
Acquisition, and 85% of the stockholders equity of any entity acquired in an
Acquisition for which the Borrower uses the pooling of interest method of
accounting in accordance with GAAP.
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Section 6.22. Maximum Funded Debt to EBITDA Ratio. The Borrower will have a
maximum Funded Debt to EBITDA Ratio of not greater than (i) 3.5 to 1.0 as of
December 31, 1997, and (ii) 3.25 to 1.0 as of the last day of each fiscal
quarter thereafter.
Section 6.23. Minimum Debt Service Coverage Ratio. As of December 31, 1997,
and as of the last day of each fiscal quarter thereafter, the Borrower will have
a Debt Service Coverage Ratio of at least 1.5 to 1.0.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES.
Section 7.1. Events of Default. Any one or more of the following shall
constitute an Event of Default:
(a) default by the Borrower in the payment of the principal amount of any
Loan, any Reimbursement Obligation or any interest thereon or any fees payable
hereunder within three (3) days of the date such payment is due;
(b) default by the Borrower in the observance or performance of any
covenant set forth in Sections 6.6(d), 6.10(b), 6.11 or 6.16;
(c) default by the Borrower in the observance or performance of any
provision hereof or of any other Credit Document not mentioned in (a) or (b)
above, which is not remedied within thirty (30) days after the earlier of (i)
such default or event of default first becoming known to any officer of the
Borrower, or (ii) notice to the Borrower by the Agent of the occurrence of such
default or event of default;
(d) any representation or warranty or other written statement made or
deemed made herein, in any other Credit Document or in any financial or other
report or document furnished in compliance herewith or therewith by the Borrower
or any of its Subsidiaries proves untrue in any material respect as of the date
of the issuance or making, or deemed issuance or making thereof;
(e) default occurs or the occurrence of an event or condition the effect of
which after the passage of any applicable grace period would result in a default
in the payment when due of Indebtedness in an aggregate principal amount of
$5,000,000 or more of the Borrower or any of its Subsidiaries, and such default
continues for a period of time sufficient to permit the holder or beneficiary of
such Indebtedness, or a trustee therefor, to cause the acceleration of the
maturity of any such Indebtedness or any mandatory unscheduled prepayment,
purchase, or other early funding thereof;
(f) the Borrower or any of its Subsidiaries (i) has entered involuntarily
against it an order for relief under the United States Bankruptcy Code or a
comparable action is taken under any bankruptcy or insolvency law of another
country or political subdivision of such country, (ii) generally does not pay,
or admits its inability generally to pay, its debts as they become due, (iii)
makes a general assignment for the benefit of creditors, (iv) applies for,
seeks, consents to, or acquiesces in, the appointment of a receiver, custodian,
trustee, examiner, liquidator or similar official for it or any substantial part
of its property, (v) institutes any proceeding seeking to have entered against
it an order for relief under the United States Bankruptcy Code or any comparable
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law, to adjudicate it insolvent, or seeking dissolution, winding up,
liquidation, reorganization, arrangement, adjustment or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors or fails to file an answer or other pleading denying the
material allegations of any such proceeding filed against it, (vi) makes any
board of directors resolution in direct furtherance of any matter described in
clauses (i)-(v) above, or (vii) fails to contest in good faith any appointment
or proceeding described in Section 7.1(f);
(g) a custodian, receiver, trustee, examiner, liquidator or similar
official is appointed for the Borrower or any of its Subsidiaries or any
substantial part of its property, or a proceeding described in Section 7.1(f)(v)
is instituted against the Borrower or any of its Subsidiaries, and such
appointment continues undischarged or such proceeding continues undismissed or
unstayed for a period of sixty (60) days, except with respect to a foreign
Subsidiary where such event is not reasonably expected to have a Material
Adverse Effect;
(h) the Borrower or any of its Subsidiaries fails within thirty (30) days
(or such earlier date as any steps to execute on such judgment or order take
place) to pay, bond or otherwise discharge, or to obtain an indemnity against on
terms and conditions satisfactory to the Lenders in their sole discretion, any
judgment or order for the payment of money in excess of $5,000,000 which is
uninsured or underinsured by at least such amount (provided that there is
adequate assurance, in the sole discretion of the Lenders, that the insurance
proceeds attributable thereto shall be paid promptly upon the expiration of such
time period or resolution of such proceeding), which is not stayed on appeal or
otherwise being appropriately contested in good faith in a manner that stays
execution;
(i) the Borrower or any of its Subsidiaries fails to pay when due an amount
aggregating in excess of $1,000,000 that it is liable to pay to the PBGC or to a
Plan under Title IV of ERISA; or a notice of intent to terminate a Plan having
Unfunded Vested Liabilities of any of the Borrower or any of its Subsidiaries in
excess of $1,000,000 (a "Material Plan") is filed under Title IV of ERISA in a
distress termination pursuant to Section 4041(c) of ERISA; or the PBGC
institutes proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any Material Plan; or a proceeding is
instituted by a fiduciary of any Material Plan against the Borrower or any of
its Subsidiaries to collect any liability under Section 515 or 4219(c)(5) of
ERISA and such proceeding is not dismissed within thirty (30) days thereafter;
or a condition exists by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated;
(j) the Borrower, any Person acting on behalf of the Borrower, or any
governmental, judicial or arbitral authority challenges the validity of any
Credit Document or the Borrower's obligations thereunder, or any Credit Document
ceases to be in full force and effect in all material respects or ceases to give
to the Lenders the rights and powers purported to be granted in its favor
thereby in all material respects; or
(k) any Person or two or more Persons acting in concert shall acquire
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934), directly or indirectly, of securities of the Borrower (or
other securities convertible into such securities) representing fifty percent
(50%) or more of the combined voting power of all outstanding securities of the
Borrower entitled to vote in the election of directors.
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Section 7.2. Non-Bankruptcy Defaults. When any Event of Default other than
those described in subsections (f) or (g) of Section 7.1 has occurred and is
continuing, the Agent shall, if so directed by the Majority Lenders, by notice
to the Borrower: (a) terminate the remaining Commitments and all other
obligations of the Lenders hereunder on the date stated in such notice (which
may be the date thereof); (b) declare the outstanding principal of and the
accrued interest on the Notes to be forthwith due and payable and thereupon the
Notes, including both principal and interest thereon, shall be and become
immediately due and payable together with all other amounts payable under the
Credit Documents without further demand, presentment, protest or notice of any
kind, including, but not limited to, notice of intent to accelerate and notice
of acceleration, each of which is expressly waived by the Borrower; and (c)
demand that the Borrower immediately pay to the Agent (to be held by the Agent
pursuant to Section 7.4) the full amount then available for drawing under each
or any outstanding Letter of Credit, and the Borrower agrees to immediately make
such payment and acknowledges and agrees that the Lenders would not have an
adequate remedy at law for failure by the Borrower to honor any such demand and
that the Agent, for the benefit of the Lenders, shall have the right to require
the Borrower to specifically perform such undertaking whether or not any
drawings or other demands for payment have been made under any Letter of Credit.
The Agent, after giving notice to the Borrower pursuant to this Section 7.2,
shall also promptly send a copy of such notice to the other Lenders, but the
failure to do so shall not impair or annul the effect of such notice.
Section 7.3. Bankruptcy Defaults. When any Event of Default described in
subsections (f) or (g) of Section 7.1 has occurred and is continuing with
respect to the Borrower, then (i) the outstanding Notes shall immediately become
due and payable together with all other amounts payable under the Credit
Documents without presentment, demand, protest or notice of any kind, each of
which is expressly waived by the Borrower, (ii) and all obligations of the
Lenders to extend further credit pursuant to any of the terms hereof shall
immediately terminate, and (iii) the Borrower shall immediately pay to the Agent
(to be held by the Agent pursuant to Section 7.4) the full amount then available
for drawing under all outstanding Letters of Credit, the Borrower acknowledging
and agreeing that the Lenders and the Agent would not have an adequate remedy at
law for failure by the Borrower to honor this provision and that the Lenders and
the Agent shall have the right to require the Borrower to specifically perform
such undertaking whether or not any drawings or other demands for payment have
been made under any of the Letters of Credit.
Section 7.4. Collateral for Undrawn Letters of Credit. (a) If the
prepayment of the amount available for drawing under any or all outstanding
Letters of Credit is required under Section 2.10, 7.2 or 7.3, the Borrower shall
forthwith pay the amount required to be so prepaid, to be held by the Agent as
provided in subsection (b) below.
(b) All amounts prepaid pursuant to subsection (a) above shall be held by
the Agent in a separate collateral account (such account, and the credit
balances, properties and any investments from time to time held therein, and any
substitutions for such account, any certificate of deposit or other instrument
evidencing any of the foregoing and all proceeds of and earnings on any of the
foregoing being collectively called the "Collateral Account") as security for,
and for application by the Agent (to the extent available) to, the reimbursement
of any drawing under any Letter of Credit then or thereafter paid by the Agent
(collectively, the "Collateralized Obligations"). The Collateral Account shall
be held in the name of and subject to the exclusive dominion and control of the
Agent, for the benefit of the Agent and the Lenders, as pledgee hereunder. If
and when requested
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by the Borrower, the Agent shall invest and reinvest funds held in the
Collateral Account from time to time in Cash Equivalents specified from time to
time by the Borrower, provided that the Agent is irrevocably authorized to sell
investments held in the Collateral Account when and as required to make payments
out of the Collateral Account for application to Collateralized Obligations due
and owing from the Borrower to the Agent or the Lenders. When and if (A) (i) the
Borrower shall have made payment of all Collateralized Obligations then due and
payable, (ii) all relevant preference or other disgorgement periods relating to
the receipt of such payments have passed, and (iii) no Letters of Credit remain
outstanding and no Reimbursement Obligations remain outstanding and due and
payable hereunder, or (B) no Default or Event of Default shall be continuing,
the Agent shall repay to the Borrower any remaining amounts and assets held in
the Collateral Account.
Section 7.5. Notice of Default. If an Event of Default shall have occurred
and be continuing, the Agent shall give notice to the Borrower under Section 7.2
promptly upon being requested to do so by the Majority Lenders and shall
thereupon notify all the Lenders thereof.
Section 7.6. Expenses. The Borrower agrees to pay to the Agent and each
Lender all reasonable out-of-pocket expenses incurred or paid by the Agent or
such Lender, including reasonable attorneys' fees and court costs, in connection
with any Event of Default by the Borrower hereunder or in connection with the
enforcement of any of the Credit Documents.
SECTION 8. CHANGE IN CIRCUMSTANCES.
Section 8.1. Change of Law. (a) Notwithstanding any other provisions of
this Agreement or any Note, if at any time after the date hereof (or, if later,
after the date the Agent, any Co-Agent or a Lender becomes the Agent, a Co-Agent
or a Lender), any change in applicable law or regulation or in the
interpretation thereof makes it unlawful for any Lender to make or continue to
maintain LIBOR Loans, such Lender shall promptly give written notice thereof and
of the basis therefor in reasonable detail to the Borrower and such Lender's
obligations to make, continue or convert Loans into LIBOR Loans under this
Agreement shall thereupon be suspended until it is no longer unlawful for such
Lender to make or maintain LIBOR Loans.
(b) Upon the giving of the notice to Borrower referred to in subsection (a)
above, (i) any outstanding LIBOR Loan of such Lender shall be automatically
converted to a Base Rate Loan in Dollars on the last day of the Interest Period
then applicable thereto or on such earlier date as required by law, and (ii)
such Lender shall make an advance as part of any requested Borrowing of LIBOR
Loans as a Base Rate Loan, which Base Rate Loan shall, for all other purposes,
be considered part of such Borrowing.
(c) Any Lender that has given any notice pursuant to Section 8.1(a) shall,
upon determining that it would no longer be unlawful for it to make LIBOR Loans,
give prompt written notice thereof to the Borrower and the Agent, and upon
giving such notice, its obligation to make, allow conversions into and maintain
LIBOR Loans shall be reinstated.
Section 8.2. Unavailability of Deposits or Inability to Ascertain LIBOR
Rate. If on or before the first day of any Interest Period for any Borrowing of
LIBOR Loans, the Agent determines in good faith (after consultation with the
other Lenders) that, due to changes in circumstances since the date hereof,
adequate and fair means do not exist for determining the
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Adjusted LIBOR Rate or such rate will not accurately reflect the cost to the
Majority Lenders of funding LIBOR Loans for such Interest Period, the Agent
shall give written notice (in reasonable detail) of such determination and of
the basis therefor to the Borrower and the Lenders, whereupon until the Agent
notifies the Borrower and Lenders that the circumstances giving rise to such
suspension no longer exist (which the Agent shall do promptly after they do not
exist), (i) the obligations of the Lenders to make, continue or convert Loans
into LIBOR Loans, or to convert Base Rate Loans into LIBOR Loans, shall be
suspended and (ii) each LIBOR Loan will automatically on the last day of the
then existing Interest Period therefor, convert into a Base Rate Loan in
Dollars.
Section 8.3. Increased Cost and Reduced Return. (a) If, on or after the
date hereof, the adoption of or any change in any applicable law, rule or
regulation, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
lending office), including the Agent in its capacity as the issuer of Letters of
Credit, with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency exercising control over
banks or financial institutions generally issued after the date hereof (or, if
later, after the date the Agent, a Co-Agent or Lender becomes the Agent, a
Co-Agent or Lender):
(i) subjects any Lender (or its lending office) to any tax, duty
or other charge related to any LIBOR Loans, Letter of Credit or Reimbursement
Obligation, or its participation in any thereof, or shall change the basis of
taxation of payments to any Lender (or its Lending Office) of the principal of
or interest on its LIBOR Loans, Letters of Credit, or participations therein, or
any other amounts due under this Agreement related to its LIBOR Loans, Letters
of Credit, Reimbursement Obligations or participations therein, or its
obligation to make LIBOR Loans, issue Letters of Credit, or acquire
participations therein (except for changes with respect to income or franchise
taxes excluded from indemnification pursuant to Section 3.3); or
(ii) imposes, modifies or deems applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System, but
excluding for any LIBOR Loan any such requirement included in an applicable
Eurodollar Reserve Percentage) against assets of, deposits with or for the
account of, or credit extended by, any Lender (or its lending office) or imposes
on any Lender (or its lending office) or on the interbank market any other
condition affecting its LIBOR Loans, its Letters of Credit, any Reimbursement
Obligation owed to it, or its participation in any thereof, or its obligation to
advance or maintain LIBOR Loans, issue Letters of Credit or participate in any
thereof;
and the result of any of the foregoing is to increase the cost to such Lender
(or its lending office) of advancing or maintaining any Loan, issuing or
maintaining a Letter of Credit or participating therein, or to reduce the amount
of any sum received or receivable by such Lender (or its lending office) in
connection therewith under this Agreement or its Note(s), by an amount deemed by
such Lender to be material, then, subject to Section 8.3(c), from time to time,
within thirty (30) days after receipt of a certificate from such Lender (with a
copy to the Agent) pursuant to subsection (c) below setting forth in reasonable
detail such determination and the basis thereof, the Borrower shall
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be obligated to pay to such Lender such additional amount or amounts as will
compensate such Lender for such increased cost or reduction.
(b) If, after the date hereof, the Agent or any Lender shall have
reasonably determined that the adoption after the date hereof of any applicable
law, rule or regulation regarding capital adequacy, or any change therein
(including, without limitation, any revision in the Final Risk-Based Capital
Guidelines of the Board of Governors of the Federal Reserve System (12 CFR Part
208, Appendix A; 12 CFR Part 225, Appendix A) or of the Office of the
Comptroller of the Currency (12 CFR Part 3, Appendix A), or in any other
applicable capital adequacy rules heretofore adopted and issued by any
governmental authority), or any change after the date hereof in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Agent or any Lender (or its lending office) with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such Lender's capital,
or on the capital of any corporation controlling such Lender, as a consequence
of its obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or its controlling corporation's policies with respect to capital
adequacy in effect immediately before such adoption, change or compliance) by an
amount reasonably deemed by such Lender to be material, then, subject to Section
8.3(c), from time to time, within thirty (30) days after its receipt of a
certificate from such Lender (with a copy to the Agent) pursuant to subsection
(c) below setting forth in reasonable detail such determination and the basis
thereof, the Borrower shall pay to such Lender such additional amount or amounts
as will compensate such Lender for such reduction to the extent such additional
amount is as a consequence of LIBOR Loans.
(c) The Agent and each Lender that determines to seek compensation under
this Section 8.3 shall give written notice to the Borrower and, in the case of a
Lender other than the Agent, the Agent of the circumstances that entitle the
Agent or such Lender to such compensation. The Agent and each Lender shall use
reasonable efforts to avoid the need for, or to reduce the amount of, such
compensation and any payment under Section 3.3, including, without limitation,
the designation of a different lending office, if such action or designation
will not, in the sole judgment of the Agent or such Lender made in good faith,
be otherwise disadvantageous to it; provided that no Lender shall be obligated
to make its LIBOR Loans hereunder at any office located in the United States of
America. A certificate of the Agent or any Lender, as applicable, claiming
compensation under this Section 8.3 and setting forth the additional amount or
amounts to be paid to it hereunder and accompanied by a statement prepared by
the Agent or such Lender, as applicable, describing in reasonable detail the
calculations thereof shall be rebuttable presumptive evidence thereof in the
absence of manifest error. In determining such amount, such Lender may use any
reasonable averaging and attribution methods. No failure by any Lender or the
Agent to demand, and no delay in demanding, compensation for any increased cost
shall constitute a waiver of its right to demand such compensation at any time;
provided that such Lender or the Agent shall only be entitled to such
compensation with respect to costs incurred, without duplication (a) on or after
the date such Lender or the Agent, as the case may be, notified the Borrower of
the adoption or change in law, rule, or regulation or change in interpretation
or administration ("Regulatory Change") giving rise thereto, (b) ninety (90)
days prior to such date, and (c) in the event that such Regulatory Change
imposed costs on such Lender or the Agent retroactively, during the period
commencing such
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number of days after the applicable retroactive date therefor as shall equal the
number of days, in excess of ninety (90), from the date of such Regulatory
Change to the date such Lender or the Agent, as the case may be, shall have
notified the Borrower thereof.
(d) In the event any Lender, either for itself or on behalf of any
participant to which such Lender has sold a participation pursuant to Section
10.10(a), shall seek compensation pursuant to this Section 8.3, the Borrower
may, so long as no Default or Event of Default shall have occurred and be
continuing, replace such Lender with a commercial banking institution reasonably
acceptable to the Agent by giving notice to such Lender (with a copy to the
Agent) that it wishes to replace such Lender by having the replacement Lender
which shall become a Purchasing Lender hereunder assume the Commitment of such
Lender and purchase such Lender's outstanding LIBOR Loans, participations in
Letters of Credit, Reimbursement Obligations, Notes and all of its other rights
and obligations under this Agreement and the other Credit Documents. Each Lender
requesting compensation pursuant to this Section 8.3 agrees if so requested by
the Borrower to sell its Commitment, LIBOR Loans, participations in Letters of
Credit, Reimbursement Obligations, Notes and all of its other rights and
obligations under this Agreement and the other Credit Documents pursuant to
Section 10.10(b) to any such Purchasing Lender pursuant to an Assignment
Agreement as therein provided.
Section 8.4. Lending Offices. The Agent and each Lender may, at its option,
elect to make its Loans hereunder at the lending office specified on the
appropriate signature page hereof for each type of Loan available hereunder or
at such other of its branches, offices or affiliates as it may from time to time
elect and designate in a written notice to the Borrower and the Agent, provided
that, except in the case of any such transfer to another of its branches,
offices or affiliates made at the request of the Borrower, the Borrower shall
not be responsible for the costs arising under Section 3.3 or 8.3 resulting from
any such transfer to the extent not otherwise applicable to such Lender prior to
such transfer.
Section 8.5. Discretion of Lender as to Manner of Funding. Subject to the
other provisions of this Agreement, each Lender shall be entitled to fund and
maintain its funding of all or any part of its Loans in any manner it sees fit.
SECTION 9. THE AGENTS.
Section 9.1. Appointment and Authorization of Agent and Co-Agent. Each
Lender hereby appoints Bank One as the Agent and TCB as the Co-Agent under the
Credit Documents and hereby authorizes the Agent and the Co-Agent to take such
action as Agent and Co-Agent on each of its behalf and to exercise such powers
under the Credit Documents as are delegated to the Agent and the Co-Agent,
respectively, by the terms thereof, together with such powers as are reasonably
incidental thereto.
Section 9.2. Rights and Powers. The Agent and the Co-Agent shall have the
same rights and powers under the Credit Documents as any other Lender and may
exercise or refrain from exercising such rights and powers as though it were not
an Agent or a Co-Agent, and the Agent and the Co-Agent and their respective
Affiliates may accept deposits from, lend money to, and generally engage in any
kind of business with the Borrower or any of its Subsidiaries or Affiliates as
if it were not an Agent or a Co-Agent under the Credit Documents. The term
Lender as used
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in all Credit Documents, unless the context otherwise clearly requires, includes
the Agent or the Co-Agent in their respective individual capacities as a Lender.
Section 9.3. Action by Agent and Co-Agent. The obligations of the Agent and
the Co-Agent under the Credit Documents are only those expressly set forth
therein. Without limiting the generality of the foregoing, the Agent shall not
be required to take any action concerning any Default or Event of Default,
except as expressly provided in Sections 7.2 and 7.5. Unless and until the
Majority Lenders give such direction the Agent may, except as otherwise
expressly provided herein or therein, take or refrain from taking such actions
as it deems appropriate and in the best interest of all the Lenders. In no
event, however, shall the Agent or any Co-Agent be required to take any action
in violation of applicable law or of any provision of any Credit Document, and
each of the Agent and the Co-Agent shall in all cases be fully justified in
failing or refusing to act hereunder or under any other Credit Document unless
it first receives any further assurances of its indemnification from the Lenders
that it may require, including prepayment of any related expenses and any other
protection it requires against any and all costs, expenses, and liabilities it
may incur in taking or continuing to take any such action. The Agent shall be
entitled to assume that no Default or Event of Default exists unless notified in
writing to the contrary by a Lender or the Borrower. In all cases in which the
Credit Documents do not require the Agent or any Co-Agent to take specific
action, the Agent and the Co-Agent shall be fully justified in using its
discretion in failing to take or in taking any action thereunder. Any
instructions of the Majority Lenders, or of any other group of Lenders called
for under specific provisions of the Credit Documents, shall be binding on all
the Lenders and holders of Notes.
Section 9.4. Consultation with Experts. Each of the Agent and the Co-Agent
may consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
Section 9.5. Indemnification Provisions; Credit Decision. Neither the
Agent, the Co-Agent nor any of their directors, officers, agents, or employees
shall be liable for any action taken or not taken by them in connection with the
Credit Documents (i) with the consent or at the request of the Majority Lenders
or (ii) in the absence of their own gross negligence or willful misconduct.
Neither the Agent, the Co-Agent nor any of their directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or representation made in connection with
this Agreement, any other Credit Document or any Borrowing; (ii) the performance
or observance of any of the covenants or agreements of the Borrower or any
Subsidiary contained herein or in any other Credit Document; (iii) the
satisfaction of any condition specified in Section 4, except receipt of items
required to be delivered to the Agent; or (iv) the validity, effectiveness,
genuineness, enforceability, value, worth or collectability hereof or of any
other Credit Document or of any other documents or writing furnished in
connection with any Credit Document; and the Agent and the Co-Agent make no
representation of any kind or character with respect to any such matters
mentioned in this sentence. The Agent and the Co-Agent may execute any of their
duties under any of the Credit Documents by or through employees, agents, and
attorneys-in-fact and shall not be answerable to the Lenders or any other Person
for the default or misconduct of any such agents or attorneys-in-fact selected
with reasonable care. The Agent and the Co-Agent shall not incur any liability
by acting in reliance upon any notice, consent, certificate, other document or
statement (whether written or oral) believed by it
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to be genuine or to be sent by the proper party or parties. In particular and
without limiting any of the foregoing, the Agent and the Co-Agent shall have no
responsibility for confirming the accuracy of any Compliance Certificate or
other document or instrument received by any of them under the Credit Documents.
The Agent and the Co-Agent may treat the payee of any Note as the holder thereof
until written notice of transfer shall have been filed with such Agent signed by
such owner in form satisfactory to such agent. Each Lender acknowledges that it
has independently and without reliance on the Agent or the Co-Agent or any other
Lender obtained such information and made such investigations and inquiries
regarding the Borrower and its Subsidiaries as it deems appropriate, and based
upon such information, investigations and inquiries, made its own credit
analysis and decision to extend credit to the Borrower in the manner set forth
in the Credit Documents. It shall be the responsibility of each Lender to keep
itself informed about the creditworthiness and business, properties, assets,
liabilities, condition (financial or otherwise) and prospects of the Borrower
and its Subsidiaries, and the Agent and the Co-Agent shall have no liability
whatsoever to any Lender for such matters. The Agent and the Co-Agent shall have
no duty to disclose to the Lenders information that is not required by any
Credit Document to be furnished by the Borrower or any Subsidiaries to such
agent at such time, but is voluntarily furnished to such agent (either in their
respective capacity as Agent or the Co-Agent or in their individual capacity).
Section 9.6. Indemnity. The Lenders shall ratably, in accordance with their
Percentages, indemnify and hold the Agent, the Co-Agent, and their directors,
officers, employees, agents and representatives harmless from and against any
liabilities, losses, costs or expenses suffered or incurred by it or by any
security trustee under any Credit Document or in connection with the
transactions contemplated thereby, regardless of when asserted or arising,
except to the extent they are promptly reimbursed for the same by the Borrower
and except to the extent that any event giving rise to a claim was caused by the
gross negligence or willful misconduct of the party seeking to be indemnified.
The obligations of the Lenders under this Section 9.6 shall survive termination
of this Agreement.
Section 9.7. Resignation of Agent and Successor Agent. The Agent and any
Co-Agent may resign at any time upon at least thirty (30) days' prior written
notice to the Lenders and the Borrower. Upon any such resignation of the Agent
or any Co-Agent, the Majority Lenders, with the consent of the Borrower, which
consent shall not be unreasonably withheld, shall have the right to appoint a
successor Agent or Co-Agent, as the case may be. If no successor Agent or
Co-Agent, as the case may be, shall have been so appointed by the Majority
Lenders and shall have accepted such appointment within thirty (30) days after
the retiring Agent's or Co-Agent's giving of notice of resignation, then the
retiring Agent or Co-Agent, as the case may be, may, on behalf of the Lenders
and with the consent of the Borrower, which consent shall not be unreasonably
withheld or delayed, appoint a successor Agent or Co-Agent, as the case may be,
which shall be any Lender hereunder or any commercial bank organized under the
laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $1,000,000,000. Upon the acceptance of
its appointment as the Agent or any Co-Agent hereunder, such successor Agent or
Co-Agent, as the case may be, shall thereupon succeed to and become vested with
all the rights and duties of the retiring Agent or Co-Agent, as the case may be,
under the Credit Documents, and the retiring Agent or any Co-Agent shall be
discharged from its duties and obligations thereunder. After any retiring
Agent's or Co-Agent's resignation hereunder as Agent or Co-Agent, as the case
may be, the provisions of this Section 9 and all protective provisions of the
other Credit Documents
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shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent or Co-Agent, as the case may be.
SECTION 10. MISCELLANEOUS.
Section 10.1. No Waiver. No delay or failure on the part of the Agent or
any Lender, or on the part of the holder or holders of any Notes, in the
exercise of any power, right or remedy under any Credit Document shall operate
as a waiver thereof or as an acquiescence in any default, nor shall any single
or partial exercise thereof preclude any other or further exercise of any other
power, right or remedy. To the fullest extent permitted by applicable law, the
powers, rights and remedies under the Credit Documents of the Agent, the Lenders
and the holder or holders of any Notes are cumulative to, and not exclusive of,
any powers, rights or remedies any of them would otherwise have.
Section 10.2. Non-Business Day. Subject to Section 2.5, if any payment of
principal or interest on any Loan, any Reimbursement Obligation or of any other
Obligation shall fall due on a day which is not a Business Day, interest or fees
(as applicable) at the rate, if any, such Loan, Reimbursement Obligation or
other Obligation bears for the period prior to maturity shall continue to accrue
in the manner set forth herein on such Obligation from the stated due date
thereof to the next succeeding Business Day, on which the same shall instead be
payable.
Section 10.3. Documentary Taxes. The Borrower agrees that it will pay any
documentary, stamp or similar taxes payable with respect to any Credit Document,
including interest and penalties, in the event any such taxes are assessed
irrespective of when such assessment is made, other than any such taxes imposed
as a result of any transfer of an interest in a Credit Document.
Section 10.4. Survival of Representations. All representations and
warranties made herein or in certificates given pursuant hereto shall survive
the execution and delivery of this Agreement and the other Credit Documents, and
shall continue in full force and effect with respect to the date as of which
they were made as long as the Borrower has any Obligation hereunder or any
Commitment hereunder is in effect.
Section 10.5. Survival of Indemnities. All indemnities and all provisions
relative to reimbursement to the Lenders of amounts sufficient to protect the
yield of the Lenders with respect to the Loans and the L/C Obligations,
including, but not limited to, Section 2.12, Section 3.3, Section 7.6, Section
8.3 and Section 10.13 hereof, shall survive the termination of this Agreement
and the other Credit Documents and the payment of the Loans and all other
Obligations.
Section 10.6. Setoff. In addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon the
occurrence of, and throughout the continuance of, any Event of Default, each
Lender and each subsequent holder of any Note is hereby authorized by the
Borrower at any time or from time to time, without notice to the Borrower or any
other Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, including,
but not limited to, Indebtedness evidenced by certificates of deposit, whether
matured or unmatured, but not including trust accounts, and in whatever currency
denominated) and any other Indebtedness at any time owing by that Lender or that
subsequent holder to or for the credit or the account of the Borrower,
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whether or not matured, against and on account of the due and unpaid obligations
and liabilities of the Borrower to that Lender or that subsequent holder under
the Credit Documents, irrespective of whether or not that Lender or that
subsequent holder shall have made any demand hereunder. Each Lender shall
promptly give notice to the Borrower of any action taken by it under this
Section 10.6, provided that any failure of such Lender to give such notice to
the Borrower shall not affect the validity of such setoff. Each Lender agrees
with each other Lender a party hereto that if such Lender receives and retains
any payment, whether by setoff or application of deposit balances or otherwise,
on any of the Loans or L/C Obligations in excess of its ratable share of
payments on all such Obligations then owed to the Lenders hereunder, then such
Lender shall purchase for cash at face value, but without recourse, ratably from
each of the other Lenders such amount of the Loans or L/C Obligations, or
participations therein, held by each such other Lender as shall be necessary to
cause such Lender to share such excess payment ratably with all the other
Lenders; provided, however, that if any such purchase is made by any Lender, and
if such excess payment or part thereof is thereafter recovered from such
purchasing Lender, the related purchases from the other Lenders shall be
rescinded ratably and the purchase price restored as to the portion of such
excess payment so recovered, but without interest.
Section 10.7. Notices. Except as otherwise specified herein, all notices
under the Credit Documents shall be in writing (including cable, telecopy or
telex) and shall be given to a party hereunder at its address, telecopier number
or telex number set forth on the signature pages hereof or such other address,
telecopier number or telex number as such party may hereafter specify by notice
to the Agent and the Borrower, given by courier, by United States certified or
registered mail, by telegram or by other telecommunication device capable of
creating a written record of such notice and its receipt. Each such notice,
request or other communication shall be effective (i) if given by telecopier,
when such telecopy is transmitted to the telecopier number specified herein or
pursuant to Section 10.10 and a confirmation of receipt of such telecopy has
been received by the sender, (ii) if given by telex, when such telex is
transmitted to the telex number specified herein or pursuant to Section 10.10
and the answerback is received by sender, (iii) if given by courier, when
delivered, (iv) if given by U.S. mail, five (5) days after such communication is
deposited in the U.S. mail, certified or registered with return receipt
requested, or (v) if given by any other means, when delivered at the addresses
specified herein or pursuant to Section 10.10; provided that any notice given
pursuant to Section 2 shall be effective only upon receipt and, provided,
further, that any notice that but for this proviso would be effective after the
close of business on a Business Day or on a day that is not a Business Day shall
be effective at the opening of business on the next Business Day.
Section 10.8. Counterparts. This Agreement may be executed in any number of
counterparts, and by the different parties on different counterpart signature
pages, each of which when executed shall be deemed an original, but all such
counterparts taken together shall constitute one and the same Agreement.
Section 10.9. Successors and Assigns. This Agreement shall be binding upon
the Borrower, each of the Lenders, the Agent, the Co-Agent, and their respective
successors and assigns, and shall inure to the benefit of the Borrower, each of
the Lenders, the Agent, the Co-Agent, and their respective successors and
assigns, including any subsequent holder of any Note; provided, however, the
Borrower may not assign any of its rights or obligations under this Agreement or
any other Credit Document without the written consent of all Lenders, the Agent
and the Co-Agent, and the
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Agent and the Co-Agent may not assign any of their respective rights or
obligations under this Agreement or any Credit Document except in accordance
with Section 9 and no Lender may assign any of its rights or obligations under
this Agreement or any other Credit Document except in accordance with Section
10.10. Any Lender may at any time pledge or assign all or any portion of its
rights under this Agreement and the Notes issued to it to a Federal Reserve Bank
to secure extensions of credit by such Federal Reserve Bank to such Lender;
provided that no such pledge or assignment shall release a Lender from any of
its obligations hereunder or substitute any such Federal Reserve Bank for such
Lender as a party hereto.
Section 10.10. Sales and Transfers of Borrowings and Notes; Participations
in Borrowings and Notes
(a) Any Lender may at any time sell to one or more commercial banking
institutions ("Participants") participating interests in any Borrowing owing to
such Lender, any Note held by such Lender, any Commitment of such Lender or any
other interest of such Lender hereunder, provided that no Lender may sell any
participating interests in any such Borrowing, Note, Commitment or other
interest hereunder without also selling to such Participant the appropriate pro
rata share of all its Borrowings, Notes, Commitments and other interests
hereunder, and provided further that no Lender shall transfer, grant or assign
any participation under which the Participant shall have rights to vote upon or
to consent to any matter to be decided by the Lenders or the Majority Lenders
hereunder or under any other Credit Document or to approve any amendment to or
waiver of this Agreement or any other Credit Document except to the extent such
amendment or waiver would (i) increase the amount of such Lender's Commitment
and such increase would affect such Participant, (ii) reduce the principal of,
or interest on, any of such Lender's Borrowings, or any fees or other amounts
payable to such Lender hereunder and such reduction would affect such
Participant, (iii) postpone any date fixed for any scheduled payment of
principal of, or interest on, any of such Lender's Borrowings, or any fees or
other amounts payable to such Lender hereunder and such postponement would
affect such Participant, or (iv) release any guaranty or other collateral
security for any Obligation, except as otherwise specifically provided in any
Credit Document. In the event of any such sale by a Lender of participating
interests to a Participant, such Lender's obligations under this Agreement to
the other parties to this Agreement shall remain unchanged, such Lender shall
remain solely responsible for the performance thereof, such Lender shall remain
the holder of any such Note for all purposes under this Agreement, the Borrower
and the Agent shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
such Lender shall retain the sole right to enforce the obligations of the
Borrower under any Credit Document. The Borrower agrees that if amounts
outstanding under this Agreement and the Notes shall have been declared or shall
have become due and payable in accordance with Section 7.2 or 7.3 upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of setoff in respect of its participating interest in amounts owing under
this Agreement and any Note to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement or any Note, provided that such right of setoff shall be subject to
the obligation of such Participant to share with the Lenders, and the Lenders
agree to share with such Participant, as provided in Section 10.6. The Borrower
also agrees that each Participant shall be entitled to the benefits of Sections
2.12, 3.3 and 8.3 with respect to its participation in the Commitments and the
Borrowings outstanding from time to time, provided that no Participant shall be
entitled to receive any greater
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amount pursuant to such Sections than the transferor Lender would have been
entitled to receive in respect of the amount of the participation transferred if
no participation had been transferred.
(b) Any Lender may at any time sell to (i) any other Lender or any
Affiliate thereof that is a commercial banking institution and, (ii) with the
prior written consent of the Agent and the Borrower (which shall not be
unreasonably withheld or delayed), to one or more commercial banking
institutions (any of (i) or (ii), a "Purchasing Lender"), all or any part of its
rights and obligations under this Agreement and the other Credit Documents,
pursuant to an Assignment Agreement in the form attached as Exhibit 10.10,
executed by such Purchasing Lender and such transferor Lender (and, in the case
of a Purchasing Lender which is not then a Lender or an Affiliate thereof, by
the Borrower and the Agent) and delivered to the Agent; provided that each such
sale to a Purchasing Lender shall be in an amount of $5,000,000 or more, or if
in a lesser amount or if as a result of such sale the sum of the unfunded
Commitment of such Lender plus the aggregate principal amount of such Lender's
Loans and participations in Letters of Credits would be less than $5,000,000,
such sale shall be of all of such Lender's rights and obligations under this
Agreement and all of the other Credit Documents payable to it to one Purchasing
Lender. Notwithstanding the requirement of the Borrower's consent set forth
above, but subject to all of the other terms and conditions of this Section
10.10(b), any Lender may sell to one or more commercial banking institutions,
all or any part of their rights and obligations under this Agreement and the
other Credit Documents with only the consent of the Agent (which shall not be
unreasonably withheld or delayed) if an Event of Default shall have occurred and
be continuing. No Lender may sell any Loans to a Purchasing Lender without also
selling to such Purchasing Lender the appropriate pro rata share of its
Borrowings, Notes, Commitments and other interests hereunder, including
participations in Letters of Credit hereunder. Upon such execution, delivery and
acceptance, from and after the effective date of the transfer determined
pursuant to such Assignment Agreement, (x) the Purchasing Lender thereunder
shall be a party hereto and, to the extent provided in such Assignment
Agreement, have the rights and obligations of a Lender hereunder with a
Commitment as set forth herein and (y) the transferor Lender thereunder shall,
to the extent provided in such Assignment Agreement, be released from its
obligations under this Agreement (and, in the case of an Assignment Agreement
covering all or the remaining portion of a transferor Lender's rights and
obligations under this Agreement, such transferor Lender shall cease to be a
party hereto). Such Assignment Agreement shall be deemed to amend this Agreement
to the extent, and only to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment of Commitments and Percentages
arising from the purchase by such Purchasing Lender of all or a portion of the
rights and obligations of such transferor Lender under this Agreement, the Notes
and the other Credit Documents. On or prior to the effective date of the
transfer determined pursuant to such Assignment Agreement, the Borrower, at its
own expense, shall execute and deliver to the Agent in exchange for any
surrendered Note, a new Note as appropriate to the order of such Purchasing
Lender in an amount equal to the Commitments assumed by it pursuant to such
Assignment Agreement, and, if the transferor Lender has retained a Commitment or
Borrowing hereunder, a new Note to the order of the transferor Lender in an
amount equal to the Commitments or Borrowings retained by it hereunder. Such new
Notes shall be dated the Initial Borrowing Date and shall otherwise be in the
form of the Notes replaced thereby. The Notes surrendered by the transferor
Lender shall be returned by the Agent to the Borrower marked "renewed."
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(c) Upon its receipt of an Assignment Agreement executed by a transferor
Lender, a Purchasing Lender and the Agent (and, in the case of a Purchasing
Lender that is not then a Lender or an Affiliate thereof, by the Borrower),
together with payment by the transferor Lender to the Agent hereunder of a
registration and processing fee of $3,500 the Agent shall (i) promptly accept
such Assignment Agreement, and (ii) on the effective date of the transfer
determined pursuant thereto give notice of such acceptance and recordation to
the Lenders and the Borrower. The Borrower shall not be responsible for such
registration and processing fee or any costs or expenses incurred by any Lender,
any Purchasing Lender or the Agent in connection with such assignment except as
provided above.
(d) If, pursuant to this Section 10.10 any interest in this Agreement or
any Note is transferred to a Purchasing Lender which is organized under the laws
of any jurisdiction other than the United States of America or any State
thereof, the transferor Lender shall cause such Purchasing Lender, concurrently
with the effectiveness of such transfer, (i) to represent to the transferor
Lender (for the benefit of the transferor Lender, the Agent and the Borrower)
that under applicable law and treaties no taxes will be required to be withheld
by the Agent, the Borrower or the transferor Lender with respect to any payments
to be made to such transferee in respect of the Loans or the L/C Obligations,
(ii) to furnish to the transferor Lender (and, in the case of any Purchasing
Lender, the Agent and the Borrower) two duly completed and signed copies of
either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service
Form 1001 or such successor forms as shall be adopted from time to time by the
relevant United States taxing authorities (wherein such Purchasing Lender claims
entitlement to complete exemption from U.S. federal withholding tax on all
interest payments hereunder), and (iii) to agree (for the benefit of the
transferor Lender, the Agent and the Borrower) to provide the transferor Lender
(and, in the case of any Purchasing Lender, the Agent and the Borrower) new
forms as contemplated by Section 3.3(b) upon the expiration or obsolescence of
any previously delivered form and comparable statements in accordance with
applicable U.S. laws and regulations and amendments duly executed and completed
by such transferee, and to comply from time to time with all applicable U.S.
laws and regulations with regard to such withholding tax exemption.
Section 10.11 Any provision of the Credit Documents may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed by
(a) the Borrower, (b) the Majority Lenders, and (c) if the rights or duties of
the Agent or the Co-Agent are affected thereby, the Agent or the Co-Agent, as
the case may be, provided that:
(i) no amendment or waiver shall (A) increase the Revolving Credit
Commitment Amount or the Term Loan Commitment Amount without the consent of all
Lenders or increase any Commitment of any Lender without the consent of such
Lender, (B) postpone any Maturity Date without the consent of all Lenders or
reduce the amount of or postpone the date for any scheduled payment of any
principal of or interest on any Loan or Reimbursement Obligation or of any fee
payable hereunder without the consent of each Lender owed any such Obligation,
or (C) release or modify any collateral for any Obligation (including, without
limitation, any Guaranty) without the consent of all Lenders; and
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(ii) no amendment or waiver shall, unless signed by each Lender,
change the provisions of this Section 10.11 or the definition of Majority
Lenders or the number of Lenders required to take any action under any other
provision of the Credit Documents.
Section 10.12 Headings Section headings used in this Agreement are for
reference only and shall not affect the construction of this Agreement.
Section 10.13 Legal Fees, Other Costs and Indemnification. The Borrower,
upon demand by the Agent or any Lender, agrees to pay the reasonable fees and
disbursements of legal counsel to the Agent and any Lender in connection with
the preparation and execution of the Credit Documents, any amendment, waiver or
consent related thereto, whether or not the transactions contemplated therein
are consummated and any enforcement of any Credit Document or collection of any
Obligations; provided that the Borrower shall only have to pay the reasonable
fees and disbursements of one law firm in connection therewith unless the Agent,
the Co-Agent, any Lender or their counsel is of the reasonable opinion that
representation by one law firm would not be feasible or that a conflict of
interest would exist. The Borrower further agrees to indemnify each Lender, the
Agent, the Co-Agent and their respective directors, officers, employees and
attorneys (collectively, the "Indemnified Parties"), against all losses, claims,
damages, penalties, judgments, liabilities and expenses (including, without
limitation, all reasonable attorneys' fees and other reasonable expenses of
investigating, defending against claims, litigation or preparation therefor,
whether or not such Indemnified Party is a party thereto) which any of them may
pay or incur arising out of or relating to (a) any action, suit or proceeding by
any third party or governmental authority against such Indemnified Party and
relating to any Credit Document, the Loans, any Letter of Credit or the
application or proposed application by the Borrower of the proceeds of any Loan,
REGARDLESS OF WHETHER SUCH CLAIMS OR ACTIONS ARE FOUNDED IN WHOLE OR IN PART
UPON THE ALLEGED SIMPLE OR CONTRIBUTORY NEGLIGENCE OF ANY OF THE INDEMNIFIED
PARTIES AND/OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR
ATTORNEYS, (b) any investigation of any third party or any governmental
authority involving any Lender, the Agent or the Co-Agent and related to any use
made or proposed to be made by the Borrower of the proceeds of the Borrowings,
or any transaction financed or to be financed in whole or in part, directly or
indirectly with the proceeds of any Borrowing, and (c) any investigation of any
third party or any governmental authority, litigation or proceeding involving
any Lender, the Agent or the Co-Agent by virtue of the Credit Documents and
related to any environmental cleanup, audit, compliance or other matter relating
to any Environmental Law or the presence of any Hazardous Material (including,
without limitation, any losses, liabilities, damages, injuries, costs, expenses
or claims asserted or arising under any Environmental Law) with respect to the
Borrower, regardless of whether caused by, or within the control of, the
Borrower; provided, however, that the Borrower shall not be obligated to
indemnify any Indemnified Party for any of the foregoing arising out of such
Indemnified Party's or the Lender's, Agent's or Co-Agent's, as the case may be,
gross negligence or willful misconduct or the gross negligence or wilful
misconduct of any other Indemnified Party with respect to the same Lender, Agent
or Co-Agent.
Section 10.14. Governing Law; Submission to Jurisdiction; Waiver of Jury
Trial.
(A) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS, AND THE RIGHTS AND
DUTIES OF THE PARTIES HERETO AND THERETO, SHALL BE
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CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
TEXAS.
(B) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO
AGREE THAT ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
THE LENDERS OR THE BORROWER MAY BE BROUGHT AND MAINTAINED IN THE COURTS OF THE
STATE OF TEXAS SITTING IN HARRIS COUNTY OR THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF TEXAS. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, EACH OF THE BORROWER, THE LENDERS, THE AGENT AND THE CO-AGENT HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE
OF TEXAS AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS
FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES
TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE BORROWER, THE
LENDERS, THE AGENT AND THE CO-AGENT FURTHER IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS, BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN
OR WITHOUT THE STATE OF TEXAS. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, EACH OF THE BORROWER, THE LENDERS, THE AGENT AND THE CO-AGENT HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER, ANY LENDER, THE AGENT OR
THE CO-AGENT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, SUCH PERSON HEREBY IRREVOCABLY WAIVES TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS
UNDER THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS.
(C) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR
DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
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Section 10.15. Confidentiality. The Agent, the Co-Agent and each Lender
agrees it will not disclose without the Borrower's consent (other than to its
employees, auditors, counsel or other professional advisors or to its
Affiliates) any information concerning the Borrower or any of its Subsidiaries
furnished pursuant to any of the Credit Documents; provided that the Lenders may
disclose any such information (i) that has become generally available to the
public other than through the Lenders, (ii) if required in any examination or
audit or any report, statement or testimony submitted to any federal or state
regulatory body having or claiming to have jurisdiction over the Lenders, (iii)
if required in response to any summons or subpoena or in connection with any
litigation, (iv) in order to comply with any law, order, regulation or ruling
applicable to the Lenders, (v) to any prospective or actual permitted transferee
in connection with any contemplated or actual permitted transfer of any interest
in the Notes by the Lenders, and (vi) in connection with the exercise of any
remedies by the Lenders; provided that such actual or prospective transferee
executes an agreement with the Lenders containing provisions substantially
identical to those contained in this Section 10.15 prior to such transferee's
receipt of any such information.
Section 10.16. Effectiveness. This Agreement shall become effective on the
date (the "Effective Date") on which the Borrower, the Agent, the Co-Agent and
each Lender has signed and delivered to the Agent a counterpart signature page
hereto or, in the case of a Lender, the Agent has received telex or facsimile
notice that such a counterpart has been signed and mailed to the Agent.
Section 10.17. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 10.18. Change in Accounting Principles or Tax Laws. If (i) any
change in accounting principles from those used in the preparation of the
financial statements of the Borrower referred to in Section 5.9 is hereafter
occasioned by the promulgation of rules, regulations, pronouncements and
opinions by or required by the Financial Accounting Standards Board or the
American Institute of Certified Public Accountants (or successors thereto or
agencies with similar functions) and such change materially affects the
calculation of any component of any financial covenant, standard or term found
in this Agreement, or (ii) there is a material change in federal or foreign tax
laws which materially affects the Borrower's ability to comply with the
financial covenants, standards or terms found in this Agreement, the Borrower
and the Lenders agree to enter into negotiations in order to amend such
provisions so as to equitably reflect such changes with the desired result that
the criteria for evaluating any of the Borrower's and its Subsidiaries'
consolidated financial condition shall be the same after such changes as if such
changes had not been made. Unless and until such provisions have been so
amended, the provisions of this Agreement shall govern.
Section 10.19. Entire Agreement. The Credit Documents constitute the entire
understanding among the Borrower, the Lenders, the Agent and the Co-Agent and
supersede all earlier or contemporaneous agreements, whether written or oral,
concerning the subject matter of the Credit Documents. THIS WRITTEN AGREEMENT
TOGETHER WITH THE OTHER CREDIT DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND
56
<PAGE> 61
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the day and
year first above written.
ADDRESS: BORROWER:
9753 Pine Lake Drive DANIEL INDUSTRIES, INC.
Houston, Texas 77055
Attention: Chief Financial Officer By: /s/ JAMES M. TIDWELL
Copy to: General Counsel --------------------------------
Telephone No.: 713/827-3836 Name: James M. Tidwell
Fax No.: 713/827-4805 ------------------------------
Title: Executive Vice President
-----------------------------
and Chief Financial Officer
-----------------------------
57
<PAGE> 62
PERCENTAGE: LENDERS:
42.857142857% BANK ONE, TEXAS, NA, AS AGENT AND
LENDER
Address for Notices:
By: /s/ B. A. KELLY
Bank One, Texas, NA ----------------------------
910 Travis, 7th Floor Name: Barry A. Kelly
Houston, Texas 77002 ----------------------------
Attention: Barry Kelly Title: SVP
Telephone No.: 713/751-3831 ----------------------------
Fax No.: 713/751-6199
Payment Instructions:
Name of Credit Bank: Bank One, Texas, NA
City, State: Houston, Texas
ABA No.: 111000614
Method of Payment: Wire Transfer
For Credit To: Daniel Industries
Account No.: 0749905618
Reference: Payment or Advance
Attention: Patricia Williams
Lending Office:
Bank One Texas, NA
910 Travis, 7th Floor
Houston, Texas 77002
Attention: Barry Kelly
Telephone No.: 713/751-3831
Fax No.: 713/751-6199
58
<PAGE> 63
PERCENTAGE: TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, AS CO-AGENT AND LENDER
28.571428571%
ADDRESS:
Texas Commerce Bank National By: /s/ DARL PETTY
Association --------------------------------
707 Travis, 5th Floor Name: Darl Petty
Houston, Texas 77002 ------------------------------
Attention: Mona Foch Title: Vice President
Telephone: 713/216-5911 -----------------------------
Fax No.: 713/216-4227
Payment Instructions:
Name of Credit Bank: Texas Commerce Bank National Association
City, State: Houston, Texas
ABA No.: 113-000-609
Method of Payment:
For Credit To: Commercial Loan Account
Account No.: 0010-038-1673
Reference: Daniel Industries, Inc.
Attention: Debra Harris (713) 216-5733
Lending Office:
Texas Commerce Bank National
Association
707 Travis, 5th Floor
Houston, Texas 77002
Attention: Debra Harris
Telephone: 713/216-5733
Fax No.: 713/216-4117 or 713/216-4227
59
<PAGE> 64
PERCENTAGE: CIBC INC., AS LENDER
14.285714285%
ADDRESS: By: /s/ ALEKSANDRA K. DYMANUS
------------------------------
Two Paces West, Suite 1200 Name: Aleksandra K. Dymanus
2727 Paces Ferry Road ----------------------------
Atlanta, Georgia 30339 Title: Authorized Signatory
-----------------------------
Payment Instructions:
Name of Credit Bank: Bank of New York
City, State: New York, New York
ABA No.: 021 000 018
Method of Payment: Federal Reserve
For Credit To: CIBC Inc. New York
Account No.: 890 0331 046
Reference: Daniel Industries
Attention: Credit Operations, Atlanta
Lending Office:
Two Paces West, Suite 1200
2727 Paces Ferry Road
Atlanta, Georgia 30339
60
<PAGE> 65
PERCENTAGE: CREDIT LYONNAIS NEW YORK BRANCH,
AS LENDER
14.285714285%
By: /s/ PASCAL ROURELLE
--------------------------------
Name: Pascal Rourelle
------------------------------
Title: Executive Vice President
-----------------------------
ADDRESS:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019 By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Payment Instructions:
Name of Credit Bank: Credit Lyonnais New York
City, State: New York, New York
ABA No.: 026008073
Method of Payment: Federal Funds
For Credit To: Loan Servicing
Account No.: 01-88179-3701-00-179
Reference: Daniel Industries
Attention:
Lending Office:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
61
<PAGE> 66
EXHIBIT 2.11A
FORM OF REVOLVING NOTE
<PAGE> 67
REVOLVING NOTE
$_______________ November 19, 1997
FOR VALUE RECEIVED, the undersigned unconditionally promises to pay to
the order of _________________________________ (the "Lender"), at the payment
office of the Agent (as hereinafter defined) located in Houston, Texas, on or
before April 30, 2000, or such later date as the Maturity Date (as defined in
the Credit Agreement hereinafter defined) may be extended, the principal sum of
_______________________________ ($___________) or, if less, the aggregate unpaid
principal amount of all Revolving Loans (as defined in the Credit Agreement)
made in United States Dollars by the Lender to the undersigned pursuant to the
Credit Agreement, as shown, at the Lender's option, either on the grid schedule
attached hereto (and any continuation thereof) or in the records of the Lender.
The undersigned also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement; provided,
however, that in no event shall such interest exceed the Highest Lawful Rate (as
hereinafter defined).
All payments of principal and interest hereunder shall be made in
lawful money of the United States of America in freely transferable United
States Dollars.
"Highest Lawful Rate" shall mean the maximum nonusurious interest rate,
if any, that any time or from time to time may be contracted for, taken,
reserved, charged or received on this Note under laws applicable to the Lender
which are presently in effect or, to the extent allowed by applicable law, under
such laws which may hereafter be in effect and which allow a higher maximum
nonusurious interest rate than applicable laws now allow. Determination of the
rate of interest for the purpose of determining whether the Loans represented
hereby are usurious under all applicable laws shall be made by amortizing or
spreading using the actuarial method during the stated terms of the Loans (as
defined in the Credit Agreement), all interest at any time contracted for,
charged or received from the undersigned in connection with such Loans.
It is the intention of the Lender to conform strictly to usury laws
applicable to it. Accordingly, if the transactions contemplated hereby or the
Loans would be usurious as to the Lender under laws applicable to it (including
the laws of the United States of America and the State of Texas or any other
jurisdiction whose laws may be mandatorily applicable to such Lender
notwithstanding the other provisions of this Note, the Term Notes (as defined in
the Credit Agreement) or the Credit Agreement), then, in that event,
notwithstanding anything to the contrary in this Note, the Term Notes, the
Credit Agreement or any other instrument or agreement entered into in connection
with this Note, it is agreed as follows: (i) the aggregate of all consideration
which constitutes interest under laws applicable to the Lender that is
PAGE 1
<PAGE> 68
contracted for, taken, reserved, charged or received by the Lender under this
Note, the Term Notes, the Credit Agreement or under any of the aforesaid
agreements or instruments entered into in connection with this Note or otherwise
shall under no circumstances exceed the Highest Lawful Rate, and any excess
shall be credited by the Lender on the principal amount of this Note, all
Reimbursement Obligations or the Term Notes (each term as defined in the Credit
Agreement) (or, if the principal amount of this Note, the Reimbursement
Obligations and the Term Notes shall have been paid in full, refunded by the
Lender to the undersigned); (ii) in the event that the maturity of this Note is
accelerated by reason of an election of the holder or holders hereof resulting
from any Event of Default under the Credit Agreement or otherwise, or in the
event of any required or permitted prepayment, then such consideration that
constitutes interest under laws applicable to the Lender may never include more
than the Highest Lawful Rate, and excess interest, if any, provided for in this
Note, the Term Notes, the Credit Agreement or otherwise shall be automatically
canceled by the Lender as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited by the Lender on the principal amount of
this Note, the Reimbursement Obligations or the Term Notes (or if the principal
amount of this Note, all Reimbursement Obligations and the Term Notes shall have
been paid in full, refunded by the Lender to the undersigned); and (iii) if at
any time the interest provided under this Note, the Term Notes or the Credit
Agreement, together with any other fees payable pursuant to this Note, the Term
Notes, the Credit Agreement or any other Credit Document and deemed interest
under applicable law, exceeds the amount that would have accrued at the Highest
Lawful Rate, the amount of interest and any such fees to accrue to the Lender
hereunder and thereunder shall be limited to the amount which would have accrued
at the Highest Lawful Rate, but any subsequent reductions shall not reduce the
interest to accrue to the Lender hereunder and thereunder below the Highest
Lawful Rate until the total amount of interest accrued pursuant hereto and
thereto and such fees deemed to be interest equals the amount of interest which
would have accrued to the Lender if a varying rate per annum equal to the
interest hereunder had at all times been in effect plus the amount of fees which
would have been received but for the effect hereof; and in each case, to the
extent permitted by applicable law, the Lender shall not be subject to any of
the penalties provided by law for contracting for, taking, reserving, charging
or receiving interest in excess of the Highest Lawful Rate. The Lender hereby
elects to determine the applicable rate ceiling under the Texas Credit Title
Act, 75th Leg., R.S. Ch. 1396, 1997 Tex. Sess. Law Serv. 5202 (Vernon) (to be
codified at Tex. Rev. Civ. Stat. Ann. art. 5069-1B.001 et seq.) by the weekly
rate ceiling from time to time in effect, subject to the Lender's right
subsequently to change such method in accordance with applicable law. The
provisions of Chapter 346 of Tex. Finance Code Ann. (Vernon 1998) regulating
certain revolving credit accounts and open-end accounts shall not apply to this
Note.
This Note is one of the Revolving Notes referred to in and is entitled
to the benefits of that certain Credit Agreement dated as of November 19, 1997
(as the same may be amended, modified, supplemented, extended, rearranged and/or
restated from time to time, the "Credit Agreement"), entered into by and among
the undersigned, certain financial institutions from time to time parties
thereto (collectively, the "Lenders"), Bank One, Texas, NA, as Agent for the
Lenders, and Texas Commerce Bank National Association, as Co-Agent for the
Lenders. Reference is hereby made to the Credit Agreement for a statement of the
prepayment rights and obligations of the undersigned and for a statement of the
terms and conditions under which the
PAGE 2
<PAGE> 69
due date of this Note may be accelerated. Upon the occurrence of any Event of
Default as specified in the Credit Agreement, the principal balance hereof and
the interest accrued hereon may be declared to be forthwith due and payable in
accordance with the Credit Agreement, and any and all deposits and any other
Indebtedness (as defined in the Credit Agreement) of the holder hereof to the
undersigned may be appropriated and applied hereon.
In addition to and not in limitation of the foregoing, the undersigned
further agrees, subject only to any limitation imposed by applicable laws, to
pay all reasonable expenses, including reasonable attorneys' fees and legal
expenses, incurred by the holder of this Note in endeavoring to collect any
amounts payable hereunder which are not paid when due, subject to any applicable
grace period in the Credit Agreement whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsees, or otherwise,
severally waive presentment for payment, demand, protest, notice of intent to
accelerate, notice of acceleration, notice of dishonor and all other notices
whatsoever.
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE
STATE OF TEXAS AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
DANIEL INDUSTRIES, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
PAGE 3
<PAGE> 70
EXHIBIT 2.11B
FORM OF TERM NOTE
<PAGE> 71
TERM NOTE
$___________________ November 19, 1997
FOR VALUE RECEIVED, the undersigned unconditionally promises to pay to
the order of _______________________________ (the "Lender"), at the payment
office of the Agent (as hereinafter defined) located in Houston, Texas on or
before April 30, 2004, the principal sum of ______________________________
($________________), or, if less, the aggregate unpaid principal amount of the
Term Loan (as defined in the Credit Agreement hereinafter defined) made in
United States Dollars by the Lender to the undersigned pursuant to the Credit
Agreement, as shown, at the Lender's option, either on the grid schedule
attached hereto (and any continuation thereof) or in the records of the Lender.
The undersigned also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement; provided,
however, that in no event shall such interest exceed the Highest Lawful Rate (as
hereinafter defined).
All payments of principal and interest hereunder shall be made in
lawful money of the United States of America in freely transferable United
States Dollars.
"Highest Lawful Rate" shall mean the maximum nonusurious interest rate,
if any, that any time or from time to time may be contracted for, taken,
reserved, charged or received on this Note under laws applicable to the Lender
which are presently in effect or, to the extent allowed by applicable law, under
such laws which may hereafter be in effect and which allow a higher maximum
nonusurious interest rate than applicable laws now allow. Determination of the
rate of interest for the purpose of determining whether the Loans represented
hereby are usurious under all applicable laws shall be made by amortizing or
spreading using the actuarial method during the stated terms of the Loans (as
defined in the Credit Agreement), all interest at any time contracted for,
charged or received from the undersigned in connection with such Loans.
It is the intention of the Lender to conform strictly to usury laws
applicable to it. Accordingly, if the transactions contemplated hereby or the
Loans would be usurious as to the Lender under laws applicable to it (including
the laws of the United States of America and the State of Texas or any other
jurisdiction whose laws may be mandatorily applicable to such Lender
notwithstanding the other provisions of this Note, the Revolving Notes (as
defined in the Credit Agreement) or the Credit Agreement), then, in that event,
notwithstanding anything to the contrary in this Note, the Revolving Notes, the
Credit Agreement or any other instrument or agreement entered into in connection
with this Note, it is agreed as follows: (i) the aggregate of all consideration
which constitutes interest under laws applicable to the Lender that is
contracted for, taken, reserved, charged or received by the Lender under this
Note, the
PAGE 1
<PAGE> 72
Revolving Notes, the Credit Agreement, or under any of the aforesaid
agreements or instruments entered into in connection with this Note or otherwise
shall under no circumstances exceed the Highest Lawful Rate, and any excess
shall be credited by the Lender on the principal amount of this Note, all
Reimbursement Obligations or the Revolving Notes (each term as defined in the
Credit Agreement) (or, if the principal amount of this Note, the Reimbursement
Obligations and the Revolving Notes shall have been paid in full, refunded by
the Lender to the undersigned); (ii) in the event that the maturity of this Note
is accelerated by reason of an election of the holder or holders hereof
resulting from any Event of Default under the Credit Agreement or otherwise, or
in the event of any required or permitted prepayment, then such consideration
that constitutes interest under laws applicable to the Lender may never include
more than the Highest Lawful Rate, and excess interest, if any, provided for in
this Note, the Revolving Notes, the Credit Agreement or otherwise shall be
automatically canceled by the Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by the Lender on the
principal amount of this Note, the Reimbursement Obligations or the Revolving
Notes (or if the principal amount of this Note, all Reimbursement Obligations
and the Revolving Notes shall have been paid in full, refunded by the Lender to
the undersigned); and (iii) if at any time the interest provided under this
Note, the Revolving Notes or the Credit Agreement, together with any other fees
payable pursuant to this Note, the Revolving Notes, the Credit Agreement or any
other Credit Document and deemed interest under applicable law, exceeds the
amount that would have accrued at the Highest Lawful Rate, the amount of
interest and any such fees to accrue to the Lender hereunder and thereunder
shall be limited to the amount which would have accrued at the Highest Lawful
Rate, but any subsequent reductions shall not reduce the interest to accrue to
the Lender hereunder and thereunder below the Highest Lawful Rate until the
total amount of interest accrued pursuant hereto and thereto and such fees
deemed to be interest equals the amount of interest which would have accrued to
the Lender if a varying rate per annum equal to the interest hereunder had at
all times been in effect plus the amount of fees which would have been received
but for the effect hereof; and in each case, to the extent permitted by
applicable law, the Lender shall not be subject to any of the penalties provided
by law for contracting for, taking, reserving, charging or receiving interest in
excess of the Highest Lawful Rate. The Lender hereby elects to determine the
applicable rate ceiling under the Texas Credit Title Act, 75th Leg., R.S. Ch.
1396, 1997 Tex. Sess. Law Serv. 5202 (Vernon) (to be codified at Tex. Rev. Civ.
Stat. Ann. art. 5069-1B.001 et seq.) by the weekly rate ceiling from time to
time in effect, subject to the Lender's right subsequently to change such method
in accordance with applicable law. The provisions of Chapter 346 of Tex. Finance
Code Ann. (Vernon 1998) regulating certain revolving credit accounts and
open-end accounts shall not apply to this Note.
This Note is one of the Term Notes referred to in and is entitled to
the benefits of that certain Credit Agreement dated as of November 19, 1997 (as
the same may be amended, modified, supplemented, extended, rearranged and/or
restated from time to time, the "Credit Agreement"), entered into by and among
the undersigned, certain financial institutions from time to time parties
thereto (collectively, the "Lenders"), Bank One, Texas, NA, as Agent for the
Lenders, and Texas Commerce Bank National Association, as Co-Agent for the
Lenders. Reference is hereby made to the Credit Agreement for a statement of the
prepayment rights and obligations of the undersigned and for a statement of the
terms and conditions under which the due date of this Note may be accelerated.
Upon the occurrence of any Event of Default as
PAGE 2
<PAGE> 73
specified in the Credit Agreement, the principal balance hereof and the interest
accrued hereon may be declared to be forthwith due and payable in accordance
with the Credit Agreement, and any and all deposits and any other Indebtedness
(as defined in the Credit Agreement) of the holder hereof to the undersigned may
be appropriated and applied hereon.
In addition to and not in limitation of the foregoing, the undersigned
further agrees, subject only to any limitation imposed by applicable laws, to
pay all reasonable expenses, including reasonable attorneys' fees and legal
expenses, incurred by the holder of this Note in endeavoring to collect any
amounts payable hereunder which are not paid when due, subject to any applicable
grace period in the Credit Agreement whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsees, or otherwise,
severally waive presentment for payment, demand, protest, notice of intent to
accelerate, notice of acceleration, notice of dishonor and all other notices
whatsoever.
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE
STATE OF TEXAS AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
DANIEL INDUSTRIES, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
PAGE 3
<PAGE> 1
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES OF DANIEL
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY* JURISDICTION OF INCORPORATION
- ------------------- -----------------------------
<S> <C>
Daniel Measurement and Control, Inc. Delaware
Daniel Flow Products Ltd. Canada
Daniel Industries Foreign Sales Corporation Virgin Islands
Daniel Valve Company Delaware
Oilfield Fabricating & Machine, Inc. Texas
Bettis Corporation Delaware
Bettis Holdings, Ltd. United Kingdom
Bettis UK Ltd. United Kingdom
Prime Actuator Control Systems UK Ltd. United Kingdom
Bettis Canada Ltd. Canada
Bettis GmbH Germany
Bettis France SARL France
Dantorque A/S Denmark
Shafer Valve Company Ohio
Bettis Electric Actuator Corporation Delaware
Bettis Foreign Sales Corp. Barbados
Bettis Controls Pvt. Ltd. (50%) India
Daniel International Ltd. United Kingdom
Daniel Europe Ltd. United Kingdom
Spectra-Tek International Ltd. United Kingdom
Daniel Asia Pacific Ltd. Singapore
Spectra-Tek Holdings Ltd. United Kingdom
Advanced Spectra-Tek Private Ltd. (40%) India
</TABLE>
*Ownership at 100% unless otherwise specified.
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in (i) the Registration
Statement on Form S-8 (SEC File No. 2-65288), (ii) the Registration Statement
on Form S-8 (SEC File No. 2-79399), (iii) the Registration Statement on Form
S-8 (SEC File No. 2-79660), (iv) the Registration Statement on Form S-8 (SEC
File No. 33-000162), (v) the Registration Statement on Form S-8 (SEC File No.
33-63063), (vi) the Registration Statement on Form S-8 (SEC File No.
333-01903), (vii) the Registration Statement on Form S-8 (SEC File No.
333-01905), (viii) the Registration Statement on Form S-8 (SEC File No.
333-01907) and (ix) the Registration Statement on Form S-8 (SEC File No.
333-18925) of Daniel Industries, Inc. of our report dated February 27, 1998,
appearing on page 21 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Houston, Texas
March 20, 1998
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in (i) the Registration Statement
on Form S-8 (SEC File No. 2-65288), (ii) the Registration Statement on Form S-8
(SEC File No. 2-79399), (iii) the Registration Statement on Form S-8 (SEC File
No. 2-79660, (iv) the Registration Statement on Form S-8 (SEC File No.
33-000162), (v) the Registration Statement on Form S-8 (SEC File No. 33-63063),
(vi) the Registration Statement on Form S-8 (SEC File No. 333-18925), (vii) the
Registration Statement on Form S-8 (SEC File No. 333-01907, (viii) the
Registration Statement on Form S-8 (SEC File No. 333-01905), and the
Registration Statement on Form S-8 (SEC File No. 333-01903) of Daniel
Industries, Inc., of our report dated February 26, 1996, on our audit of the
consolidated statements of operations and cash flows of Bettis Corporation and
Subsidiaries for the year ended December 31, 1995, which report is included in
this Annual Report on Form 10-K for the year ending December 31, 1997.
COOPERS & LYBRAND L.L.P
Houston, Texas
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,563
<SECURITIES> 0
<RECEIVABLES> 62,553
<ALLOWANCES> 1,645
<INVENTORY> 49,688
<CURRENT-ASSETS> 135,464
<PP&E> 62,990
<DEPRECIATION> 0
<TOTAL-ASSETS> 233,954
<CURRENT-LIABILITIES> 58,414
<BONDS> 0
0
0
<COMMON> 21,651
<OTHER-SE> 108,775
<TOTAL-LIABILITY-AND-EQUITY> 233,954
<SALES> 268,861
<TOTAL-REVENUES> 268,861
<CGS> 170,067
<TOTAL-COSTS> 170,067
<OTHER-EXPENSES> 78,347
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,971
<INCOME-PRETAX> 17,476
<INCOME-TAX> 6,902
<INCOME-CONTINUING> 10,574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,574
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.61
</TABLE>
