<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended September 30, 1996 Commission File No. 0-7916
----------------------------------- --------
HARMON INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Missouri 44-0657800
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 Jefferson Court, Blue Springs, Missouri 64015
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 816-229-3345
----------------------
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
------ ------
The number of shares of Registrant's common stock outstanding as of September
30, 1996 was 6,823,273.
----------
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Consolidated Statements of Earnings, Consolidated Balance Sheets and
Consolidated Statements of Cash Flows are unaudited, but reflect, in the opinion
of management, all adjustments necessary, all of which are considered normal and
recurring, to present fairly the financial position of the Company at September
30, 1996 and December 31, 1995 as well as the results of its operations for the
interim periods ended September 30, 1996 and September 30, 1995.
-2-
<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
IN THOUSANDS OF U.S. DOLLARS (EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Sept. 30 Nine months ended Sept.30
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 41,957 $ 38,026 $ 119,465 $ 100,296
Cost of sales 29,721 26,954 83,086 70,254
Research and development expenditures 1,492 1,503 4,675 3,761
------------ ------------ ------------ ------------
Gross profit 10,744 9,569 31,703 26,281
Selling, general and
administrative expenses 6,491 5,464 19,216 17,067
Amortization of cost in
excess of fair value of
net assets acquired 154 144 428 410
Miscellaneous (income) expense-net (14) (13) (45) (45)
------------ ------------ ------------ ------------
Operating income 4,113 3,974 12,104 8,849
Interest expense (123) (197) (612) (534)
Investment income 28 4 226 80
------------ ------------ ------------ ------------
Earnings before income taxes 4,018 3,781 11,718 6,395
Income tax expense (benefit):
Current 1,554 1,524 4,561 3,473
Deferred (24) (23) (64) (122)
------------ ------------ ------------ ------------
1,530 1,501 4,497 3,351
------------ ------------ ------------ ------------
Net earnings $ 2,488 $ 2,280 $ 7,221 $ 5,044
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net earnings per common share $ 0.36 $ 0.33 $ 1.06 $ 0.74
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average outstanding shares 6,843,881 5,637,112 6,837,743 6,825,182
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
-3-
<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS OF U.S. DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents -- --
Trade receivables, less allowance for doubtful accounts of $387,000 in 1996
and $382,000 in 1995 29,390 25,317
Costs and estimated earnings in excess of billings on uncompleted contracts 1,832 4,053
Inventories:
Work in process 4,685 4,583
Raw materials and supplies 24,067 21,262
------------- ------------
26,952 25,845
Income tax receivable 98 434
Deferred tax asset 584 584
Prepaid expenses and other current assets 953 908
------------- ------------
Total current assets 61,801 56,641
------------- ------------
Property, plant and equipment at cost:
Land 356 356
Buildings 8,727 5,602
Machinery and equipment 14,250 12,628
Office furniture and equipment 16,685 14,589
Transportation equipment 1,213 1,036
Leasehold improvements 2,343 2,268
------------- ------------
43,574 38,891
Less accumulated depreciation and amortization 24,384 22,714
------------- ------------
Net property, plant and equipment 17,190 14,177
Deferred tax asset 685 621
Cost in excess of fair value of net assets acquired, net of accumulated
amortization of $2,320,000 in 1996 and $1,892,000 in 1995 7,765 7,674
Deferred compensation asset 5,758 6,575
Other assets 1,472 1,957
------------- ------------
$94,669 $88,845
------------- ------------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 626 $ 678
Current debt installments 1,025 337
Accounts payable 11,546 11,022
Accrued payroll, bonus and employee benefit plan contributions 9,326 6,648
Billings in excess of costs and estimated earnings on uncompleted contracts 3,893 1,279
Federal and state income taxes payable -- --
Other accrued liabilities 2,558 1,825
------------- ------------
Total current liabilities 28,985 21,827
------------- ------------
Deferred compensation liability 3,964 3,694
Long-term debt 5,639 12,094
------------- ------------
Total liabilities 36,568 37,613
Stockholders' equity
Common stock of $.25 par value; authorized 20,000,000 shares, Issued
6,823,273 in 1996 and 6,805,626 in 1995 1,706 1,702
Additional paid-in capital 23,149 23,003
Foreign currency translation adjustments 6 --
Retained earnings 31,238 24,527
------------- ------------
Total stockholders' equity 56,101 49,232
------------- ------------
$94,669 $88,845
------------- ------------
</TABLE>
4
<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1996 AND 1995
IN THOUSANDS OF U.S. DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings...................................... $ 7,221 $5,044
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 3,638 2,825
(Gain)/loss on sale of property, plant and
equipment.................................... 10 (21)
Deferred tax expense (benefit)................ (64) (122)
Changes in assets and liabilities (net of effects
of businesses acquired):
Trade receivables............................. (3,474) (4,596)
Inventories................................... (2,791) (5,439)
Estimated cost, earnings and billings on
contracts.................................... 5,181 (1,353)
Income tax receivable......................... 423 667
Prepaid expenses.............................. (327) 75
Accounts payable.............................. 250 2,881
Accrued payroll and benefits.................. 2,435 (700)
Current income taxes.......................... -- 399
Other liabilities............................. 322 (83)
Other deferred liabilities.................... 288 78
------------- ----------
Total adjustments........................... 5,871 (5,609)
------------- ----------
Net cash provided by (used in) operating
activities............................... 13,092 (565)
------------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (4,393) (3,462)
Proceeds from sale of property, plant and
equipment....................................... -- 58
Deferred compensation contributions............... (181) (442)
Other investing activities........................ 485 118
Acquisition of businesses......................... (2,056) (1,150)
------------- ----------
Net cash used in investing activities..... (6,145) (4,880)
------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............ -- 292
Proceeds from issuance of long-term debt.......... -- --
Borrowings under line of credit agreements........ 30,224 15,050
Repayments under line of credit agreements........ (38,332) (8,650)
Principal payments of long-term debt.............. (281) (321)
Bank overdraft.................................... (56) --
Cash dividends paid............................... (510) (509)
------------- ----------
Net cash provided by (used in) financing
activities............................... (6,955) 5,862
------------- ----------
------------- ----------
Effect of foreign currency exchange rate changes
on cash......................................... 8 --
------------- ----------
Net increase (decrease) in cash and cash
equivalents..................................... 0 417
Cash and cash equivalents at beginning of year.... 0 250
------------- ---------
Cash and cash equivalents at end of period........ $ 0 $ 667
------------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest...................................... $ 573 $ 442
Income taxes.................................. $ 4,288 $2,317
</TABLE>
5
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's sales for the third quarter ended September 30, 1996 were $42.0
million representing a 10.3% increase over the same quarter one year ago.
Gross profit for the 1996 third quarter of $10.7 million represented a 12.3%
increase over the 1995 third quarter. The quarterly sales increase resulted
principally from strong asset management services, train control systems,
signal systems, and train inspection systems business in the freight rail
market as well as the additional sales contributed by Vaughan Harmon
Systems, Ltd. ("Vaughan"), the Company's recent acquisition in the United
Kingdom discussed below. These sales strengths were somewhat offset by lower
sales for systems for the rail transit market, lower printed circuit board sales
and lower repair services. Expenditures for research and development for the
third quarter decreased slightly by 0.7% in 1996 and decreased as a
percentage of sales from 4.0% in 1995 to 3.6%. This decrease represents a
shift of engineering resources from research and development activities to
application engineering projects. As a percentage of sales, gross profit for
the three months ended September 30, 1996 increased to 25.6% from 25.2% for
the same period last year. This increase is the result of the absence in the
1996 third quarter of integration costs of the acquired hot box detector line
which were incurred in 1995 and lower research and development expenditures.
This increase was partially offset by the higher proportion of asset
management services and systems sales which provide a lower gross profit
margin than sales of the Company's manufactured products.
Sales for the nine months ended September 30, 1996 increased 19.1% over last
year to $119.5 million. The sales increase reflects strong sales from the
freight rail market of train control systems, carborne equipment, asset
management services, train inspection systems, signal hardware products and
the additional Vaughan business. Partially offsetting the increase was lower
sales of transit systems, repair services and printed circuit boards. Year
to date expenditures for research and development increased 24.3% for the
first nine months of 1996 compared to the same period a year ago. As a
percentage of sales for the same period, research and development increased
to 3.9% in 1996 from 3.7% in 1995. This increase for the first nine months
of 1996 is due to the addition of engineering resources and the shift of
engineering resources from application engineering projects to research and
development activities primarily for the development of the Incremental Train
Control System described in the Company's 1995 10-K. Gross profit for the
nine month period increased 20.6% to $31.7 million in 1996 and increased
slightly as a percentage of sales to 26.5% in 1996 from 26.2% last year. The
increase in margins resulting from the absence of integration costs of the
acquired hot box detector line which were incurred in 1995 was partially
offset by the increased research and development expenditures and the higher
proportion of lower margin asset management services and systems sales.
Selling, general and administrative expenses (SG&A), increased 18.8% for the
three months ended September 30, 1996 compared to the same period last year. As
a percentage of sales for the same period, SG&A increased to 15.5% from 14.4%.
The increased SG&A expenses in the third quarter of 1996 was primarily higher
selling expenses commensurate with higher sales (approximately $283 thousand),
increased incentive based compensation expenses which vary with the earnings of
the Company (approximately $834 thousand), higher
-6-
<PAGE>
depreciation expenses (approximately $90 thousand) and general inflation.
The increase in SG&A was partially offset by lower fringe benefit expenses
(approximately $164 thousand) and lower professional fees (approximately $71
thousand). For the nine month period ended September 30, 1996, SG&A
increased 12.6% over last year but decreased as a percentage of sales to
16.1% in 1996 from 17.0% in 1995. The increased SG&A expenses for the nine
months was primarily due to higher selling expenses (approximately $624
thousand), higher incentive based compensation (approximately $1.1 million),
higher depreciation (approximately $283 thousand), higher investor relation
costs (approximately $100 thousand) and general inflation. Decreased
professional fees (approximately $485 thousand) partially offset this
increase in SG&A. The decrease in SG&A as a percentage of sales for the
first nine months of 1996 reflects the leveraging of costs over higher sales
volumes.
Orders for the Company's products and services more than doubled from $28.0
million in 1995 to $57.0 million in 1996 for the third quarter and increased
from $98.9 million in 1995 to $128.1 million in 1996 for the nine months
ended September 30. The third quarter increase primarily reflects growth in
the freight rail market broadly across most of the Company's product lines,
particularly for train control systems and asset management services, as well
as the additional orders from Vaughan. Third quarter 1996 orders include the
largest contract in the Company's history from the freight rail market for a
complete turn key train control and crossing warning system and $8.4 million
of orders received by Vaughan. The increase in orders for the first nine
months of 1996 compared to 1995 reflects strong growth in the freight rail
market for train control systems, signal systems, asset management services,
signal hardware products and the additional Vaughan business. This increase
in orders was partially offset by decreased orders for train control systems
from the rail transit market and decreased orders for carborne equipment and
printed wiring boards. The order backlog at September 30, 1996 was $50.7
million, up from $49.1 million at December 31, 1995 and $44.5 million one
year ago. The backlog increase reflects the high order volume in the third
quarter of 1996.
Interest expense decreased from $197 thousand to $123 thousand for the three
months ended September 30, 1996 compared to the same period last year. This
decrease reflects reduced borrowings for the third quarter of 1996 compared
to 1995. Year to date interest expense through September 30, 1996 increased
to $612 thousand from $534 thousand in 1995. The increased interest expense
year to date resulted from increased interest bearing debt throughout the
first half of 1996 compared to last year due to increased working capital
needs.
The effective tax rate decreased from 39.7% in 1995 to 38.1% in 1996 for the
three months and decreased from 39.9% in 1995 to 38.4% in 1996 for the nine
months ended September 30, 1996. This decrease reflects a combination of
lower non-deductible expenses and lower state income taxes in 1996.
The Company's liquidity and capital resources remain strong. The Company has
approximately $29 million available under existing bank lines of credit at
the end of the third quarter of 1996, up from approximately $6 million at
December 31, 1995 and up from approximately $11 million one year ago. The
increase reflects the increased line of credit facilities obtained by the
Company during the third quarter of 1996 discussed below.
On August 15, 1996 the Company signed a restated and amended credit agreement
pursuant to which two financial institutions agreed to lend the Company up to
$35.0 million. Of the $35.0 million, $15.0 million is in the form of a
secured reducing revolving line of credit which bears interest at the prime
rate. The remaining $20.0 million is an unsecured revolving line of credit
which bears interest at the prime rate. The Company has the option to
convert borrowings under either loan to an interest rate that is a function
of LIBOR. Under both
-7-
<PAGE>
loans, the Company is required to meet certain covenants including minimum
net worth, interest coverage ratios, funded debt ratios, etc. At September 30,
1996 the Company was in compliance with these debt covenants. The complete
Restated and Amended Credit Agreement is attached hereto as Exhibit
(Reference) No. 10A.
The Company acquired Vaughan Systems, Ltd. on July 1, 1996. Vaughan
Systems, Ltd., located in the United Kingdom, was renamed Vaughan Harmon
Systems, Ltd. and operates independently as a wholly-owned subsidiary. Vaughan
is a market leader in the manufacture of train describers, passenger information
and modular railway control systems. This acquisition will enhance the
Company's product offerings and strategically assist the Company's
international expansion efforts.
The Company acquired two engineering companies located in Jacksonville,
Florida during the third quarter of 1996. On August 30, 1996 the Company
acquired Omaha Railway Signal, Inc. and on September 26, 1996 the Company
acquired First Coast Signal Engineering, Inc., both of which are engineering
companies in the railroad service industry. These acquisitions expand the
Company's engineering and design expertise and capabilities and will enhance
its ability to better serve customers in the southeastern United States
region. Both companies are expected to move into the Company's existing
facility in Jacksonville, Florida.
-8-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
No Form 8-K was required to be filed during the most recent quarter.
EXHIBIT TABLE
REFERENCE #
-------------
Restated and amended credit agreement 10A
Computation of earnings per share 11A
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARMON INDUSTRIES, INC.
Date: November 8, 1996 /s/Bjorn E. Olsson
----------------------------------------
Bjorn E. Olsson,
President
Date: November 8, 1996 /s/Charles M. Foudree
----------------------------------------
Charles M. Foudree,
Executive Vice President-Finance
Date: November 8, 1996 /s/Stephen L. Schmitz
----------------------------------------
Stephen L. Schmitz,
Vice President-Controller
-10-
<PAGE>
EXHIBIT 10A
$35,000,000
RESTATED AND AMENDED
CREDIT AGREEMENT
DATED AS OF AUGUST 15, 1996
EXTENDING
A) A $15,000,000 REDUCING REVOLVING LINE OF CREDIT AND
B) A $20,000,000 REVOLVING LINE OF CREDIT
TO
HARMON INDUSTRIES, INC.
HARMON ELECTRONICS, INC.
ELECTRO PNEUMATIC CORPORATION, AND
CONSOLIDATED ASSET MANAGEMENT COMPANY, INC
FROM
BOATMEN'S FIRST NATIONAL BANK OF KANSAS CITY
AND
HARRIS TRUST AND SAVINGS BANK
<PAGE>
TABLE OF CONTENTS
RECITALS . . . . . . . . . . . . . . . . . 1
SECTION 1. DEFINITIONS, ACCOUNTING MATTERS AND GENERAL RULES
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. CERTAIN DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 ACCOUNTING TERMS; STATEMENTS OF VARIATION. . . . . . . . . . . . 14
1.3. GENERAL RULES . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2. THE COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1. LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.2. BORROWINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.3. REDUCTIONS AND CHANGES OF COMMITMENTS . . . . . . . . . . . . . . 16
2.4. LENDING OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.5. SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT . . . . . . . . . . . . 17
2.6. NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.7. CONVERSION OR CONTINUATION OF LOANS . . . . . . . . . . . . . . . 18
2.8. REPAYMENT OF LOANS; REQUEST FOR EXTENSION OF MATURITY OF REVOLVING
CREDIT LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.9. INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.10. OPTIONAL PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . 20
2.11. MANDATORY PREPAYMENTS. . . . . . . . . . . . . . . . . . . . . . 20
2.12. PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.13. PRO RATA TREATMENT . . . . . . . . . . . . . . . . . . . . . . . 21
2.14. MINIMUM AMOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . 21
2.15. CERTAIN NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . 22
2.16. NON-RECEIPT OF FUNDS BY THE AGENT. . . . . . . . . . . . . . . . 23
2.17. BALANCES; SHARING OF PAYMENTS. . . . . . . . . . . . . . . . . . 23
2.18. COMPUTATION OF INTEREST. . . . . . . . . . . . . . . . . . . . . 24
2.19. SECURITY.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.20. ADVANCES AFTER DEFAULT . . . . . . . . . . . . . . . . . . . . . 24
2.21. LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3. FEES; YIELD PROTECTION. . . . . . . . . . . . . . . . . . . . . . 26
3.1. FACILITY FEES . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.2. ADDITIONAL EURODOLLAR LOAN COSTS. . . . . . . . . . . . . . . . . 26
3.3. LIMITATION ON TYPES OF LOANS. . . . . . . . . . . . . . . . . . . 27
3.4. ILLEGALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.5. CERTAIN CONVERSIONS PURSUANT TO SUBSECTIONS 3.3 AND 3.4 . . . . . 27
3.6. COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . 28
4.1. CONDITIONS PRECEDENT TO THE LOANS . . . . . . . . . . . . . . . . 28
4.2. SUBSEQUENT LOANS AND ADVANCES . . . . . . . . . . . . . . . . . . 30
SECTION 5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . 30
5.1. CORPORATE EXISTENCE AND STRUCTURE . . . . . . . . . . . . . . . . 30
<PAGE>
5.2. FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . 30
5.3. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.4. NO BREACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.5. CORPORATE ACTION; BINDING EFFECT. . . . . . . . . . . . . . . . . 31
5.6. APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.7. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.8. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.9. INVESTMENT COMPANY ACT. . . . . . . . . . . . . . . . . . . . . . 32
5.10. PUBLIC UTILITY HOLDING COMPANY ACT . . . . . . . . . . . . . . . 32
5.11. ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . 32
5.12. CAPITALIZATION OF THE BORROWERS. . . . . . . . . . . . . . . . . 33
5.13. ASSETS OF THE BORROWERS. . . . . . . . . . . . . . . . . . . . . 34
5.14. MATERIAL CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . 34
5.15. SOLVENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.16. SECURITY DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . 34
5.17. MARGIN REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . 34
5.18. COPYRIGHTS. PATENTS AND OTHER RIGHTS . . . . . . . . . . . . . . 35
5.19. DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.20. LABOR MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.21. NO EVENT OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 35
5.22. USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . 35
5.23. BENEFIT TO ALL BORROWERS . . . . . . . . . . . . . . . . . . . . 35
SECTION 6. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.1. INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.2 LITIGATION, ETC . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.3. COMPLIANCE, INSPECTION, ETC.. . . . . . . . . . . . . . . . . . . 38
6.4. USE OF PROCEEDS.. . . . . . . . . . . . . . . . . . . . . . . . . 39
6.5. CURRENT RATIO . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.6. MINIMUM TANGIBLE NET WORTH. . . . . . . . . . . . . . . . . . . . 39
6.7. FUNDED DEBT RATIO . . . . . . . . . . . . . . . . . . . . . . . . 39
6.8. LEVERAGE RATIO. . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.9. FIXED CHARGES COVERAGE RATIO. . . . . . . . . . . . . . . . . . . 39
6.10. INTEREST COVERAGE RATIO. . . . . . . . . . . . . . . . . . . . . 39
6.11. INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.12. MERGERS, ACQUISITIONS, SALE OF ASSETS, ETC.. . . . . . . . . . . 40
6.13. DIVIDENDS AND DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . 40
6.14. ISSUANCE OF CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . 41
6.15. SALE AND LEASE-BACK TRANSACTIONS . . . . . . . . . . . . . . . . 41
6.16. INVESTMENTS AND JOINT VENTURES . . . . . . . . . . . . . . . . . 41
6.17. LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.18. ADDITIONAL SECURITY DOCUMENTS. . . . . . . . . . . . . . . . . . 42
6.19. TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . 42
6.20. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.21. MAINTENANCE OF PROPERTIES. . . . . . . . . . . . . . . . . . . . 43
6.22. ENVIRONMENTAL LAWS; INDEMNIFICATION. . . . . . . . . . . . . . . 43
6.23. FURTHER ASSURANCES; SECURITY INTERESTS . . . . . . . . . . . . . 44
6.24. NATURE OF BUSINESS; LIMITATIONS ON FUNDAMENTAL CHANGES . . . . . 45
6.25. MARKETING VEHICLES . . . . . . . . . . . . . . . . . . . . . . . 45
<PAGE>
6.26 CONFIRMATION OF SECURITY DOCUMENTS. . . . . . . . . . . . . . . . 46
SECTION 7. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.1. APPOINTMENT, POWERS AND IMMUNITIES. . . . . . . . . . . . . . . . 48
8.2. RELIANCE BY AGENT . . . . . . . . . . . . . . . . . . . . . . . . 49
8.3. DEFAULTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.4. RIGHTS AS A BANK. . . . . . . . . . . . . . . . . . . . . . . . . 49
8.5. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.6. NON-RELIANCE ON AGENT AND OTHER BANKS . . . . . . . . . . . . . . 50
8.7. FAILURE TO ACT. . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.8. RESIGNATION OR REMOVAL OF AGENT . . . . . . . . . . . . . . . . . 50
SECTION 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.1. WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.2. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.3. EXPENSES, INDEMNIFICATION, ETC. . . . . . . . . . . . . . . . . . 51
9.4. AMENDMENTS. ETC . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.5. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . 52
9.6. ASSIGNMENTS AND PARTICIPATIONS. . . . . . . . . . . . . . . . . . 52
9.7. SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.8. CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.9. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.10. SURVIVAL OF AGREEMENTS . . . . . . . . . . . . . . . . . . . . . 53
9.11. INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.12 INTEGRATION; SEVERABILITY. . . . . . . . . . . . . . . . . . . . 54
9.13. CONTROLLING DOCUMENT . . . . . . . . . . . . . . . . . . . . . . 54
9.14. JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.15. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.16. WAIVER OF TRIAL BY JURY. . . . . . . . . . . . . . . . . . . . . 55
9.17. UNENFORCEABILITY OF ORAL AGREEMENTS: FINAL WRITTEN AGREEMENT . . 55
Exhibit A - Commitments
Exhibit B - Form of Reducing Revolving Credit Note
Exhibit C - Form of Revolving Credit Note
Exhibit D - Form of Borrowing Notice
Schedule 1.1 - Existing Liens
Schedule 5.2 - Contingent Liabilities
Schedule 5.3 - Litigation
Schedule 5.8 - Taxes
Schedule 5.11 - Environmental Matters
Schedule 5.12 - Existing Subsidiaries
Schedule 5.14 - Material Contracts
Schedule 6.9 - 1995 Deferred Capital Expenditures
Schedule 6.11 - Existing Indebtedness
Schedule 6.16 - Existing Investments
<PAGE>
THIS RESTATED AND AMENDED CREDIT AGREEMENT (as the same may be amended,
modified, supplemented or replaced from time to time, the "Agreement'') is
entered into as of August ___, 1996 by and among HARMON INDUSTRIES, INC., a
Missouri corporation ("HII"), HARMON ELECTRONICS, INC., a Missouri
corporation ("HEI"), ELECTRO PNEUMATIC CORPORATION, a California corporation
("EPC"), and CONSOLIDATED ASSET MANAGEMENT COMPANY, INC., a Missouri
corporation ("CAMCO"), jointly and severally (individually a "BORROWER" and
collectively the "BORROWERS"); BOATMEN'S FIRST NATIONAL BANK OF KANSAS CITY,
a national banking association, and HARRIS TRUST AND SAVINGS BANK, an
Illinois banking corporation (individually a "Bank" and collectively the
"Banks"); BOATMEN'S FIRST NATIONAL BANK OF KANSAS CITY, a national banking
association, as the issuing Bank of letters of credit (in such capacity, the
"Issuing Bank"); and BOATMEN'S FIRST NATIONAL BANK OF KANSAS CITY, a national
banking association, as Agent for the Banks (in such capacity, together with
its successors in such capacity, the "Agent").
This Agreement restates and amends that certain Credit Agreement between
Borrowers, Banks, Agent and Issuing Bank dated as of June 28, 1993, as amended
by Amendment No. 1 to Credit Agreement dated as of December 19, 1994 and
Amendment No. 2 to Credit Agreement dated as of July 10, 1995.
To induce the Banks to extend credit and financial accommodations to the
Borrowers and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS, ACCOUNTING MATTERS AND GENERAL RULES
1.1. CERTAIN DEFINED TERMS. As used herein, the following terms shall
have the following meanings (all terms defined in this Section 1 or in other
provisions of this Agreement in the singular to have the same meanings when
used in the plural and vice versa):
"ACQUISITION" shall mean any transaction, or any series of related
transactions, consummated after the date of this Agreement, by which any of
the Borrowers or any of their respective Subsidiaries (in one transaction
or as the most recent transaction in a series of transactions) (i) acquires
any going business or all or substantially all of the assets of any Person
(including, in the case of a corporation, any division thereof), whether
through purchase of assets, merger or otherwise, (ii) directly or
indirectly acquires control of at least a majority (in number of votes) of
the securities of a corporation which have ordinary voting power for the
election of directors, or (iii) directly or indirectly acquires control of
a majority ownership interest in any partnership or joint venture, except
for Investments in Marketing Vehicles specifically permitted by
Section 6.16(e) hereof.
"ADDITIONAL EURODOLLAR LOAN COSTS" shall mean any costs resulting from
any Regulatory Change which imposes, modifies or deems applicable any
reserve, special deposit, minimum capital, capital ratio or similar
requirements (other than the Reserve Requirement utilized in the
determination of LIBOR Reserve Adjusted Rate for any Eurodollar Loan)
relating to any extensions of credit or other assets of, or any deposits
with or other liabilities
1
<PAGE>
of, any Bank (including any of the Eurodollar Loans), or any Commitment of
any Bank, and which, in each case, are attributable to such Bank's making
or maintaining any Eurodollar Loans or its obligation to make any
Eurodollar Loans hereunder, or any reduction in any amount receivable by
such Bank hereunder in respect of any of such Eurodollar Loans or such
obligation.
"AFFILIATE" shall mean, with respect to any Person, any other Person
or group of affiliated Persons directly or indirectly controlling
(including without limitation all directors and executive officers of such
Person), controlled by or under direct or indirect common control with such
Person. For purposes of this definition, a Person shall be deemed to
control another Person if such first Person possesses, directly or
indirectly, the power (i) to vote fifteen percent (15%) or more of the
securities having ordinary voting power for the election of directors of
such other Person, or (ii) to direct or cause the direction of the
management or policies of such other Person.
"AIRCRAFT SECURITY AGREEMENT" shall mean the aircraft security
agreement and chattel mortgage executed by HII and the Agent, dated as of
June 28, 1993, as the same may have been or hereafter be amended, modified,
supplemented or replaced from time to time.
"BORROWING DATE" shall mean the date of each borrowing under
Subsection 2.2 hereof.
"BUSINESS DAY" shall mean any day on which commercial banks are not
authorized or required to close in Kansas City, Missouri or Chicago,
Illinois; provided, however, that when used in connection with a Eurodollar
Loan, the term "Business Day" shall also exclude any day on which banks are
not open for dealing in Dollar deposits in the London interbank market.
"CAPITAL EXPENDITURES" shall mean, without duplication,
(i) expenditures (whether paid in cash or accrued as a liability) for fixed
assets, tooling, plant and equipment (including without limitation the
incurrence of Capital Lease Obligations), and (ii) any other expenditures
that would be classified as capital expenditures under GAAP. Capital
Expenditures shall not include the amount of consideration paid and/or any
monetary obligation incurred in respect of the purchase price for any
Acquisition permitted under this Agreement.
"CAPITAL LEASE OBLIGATIONS" shall mean, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of
(or other agreement conveying the right to use) real and/or personal
property which obligations are required to be classified and accounted for
as a capital lease on a balance sheet of such Person under GAAP and, for
purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.
"CERTIFICATION DATE" shall mean 45 days after the end of each fiscal
quarter.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
2
<PAGE>
"COLLATERAL" shall mean the properties and assets described in the
Security Documents, and all other properties and assets which may be
pledged or mortgaged hereafter by any Person to secure the payment and/or
performance of any Obligations.
"COMMITMENTS" shall mean, collectively, the Revolving Credit
Commitments and the Reducing Revolving Credit Commitments.
"COMPUTATION DATE" shall mean the last day of any fiscal quarter of
the Borrowers.
"CONSOLIDATED NET INCOME" shall mean, for any period, the net income
and net losses of the Borrowers and their Subsidiaries on a consolidated
basis as defined according to GAAP.
"CONSOLIDATED NET WORTH" shall mean, at any date, the amount shown as
"total shareholders' equity" (or any like caption) on a consolidated
balance sheet of the Borrowers and their Subsidiaries.
"CONTINUE," "CONTINUATION" and "CONTINUED" shall refer to the
continuation of a Eurodollar Loan of one type as a Eurodollar Loan of the
same type from one Interest Period to the next Interest Period.
"CONVERT," "CONVERSION," and "CONVERTED" shall refer to a conversion
pursuant to Subsection 2.7 hereof of Loans of one type into Loans of the
other type.
"CORPORATE BASE RATE" shall mean the rate of interest from time to
time announced by Boatmen's First National Bank of Kansas City as its
"corporate base rate," with the understanding that such "corporate base
rate" serves as a basis on which effective rates of interest are from time
to time calculated for loans making reference thereto, and may not be the
lowest, best or most favored of the interest rates offered by Boatmen's
First National Bank of Kansas City.
"CORPORATE BASE RATE LOANS" shall mean Loans which, at the time,
pursuant to the terms of this Agreement, bear interest at rates based on
the Corporate Base Rate.
"CREDIT DOCUMENTS" shall mean, collectively, this Agreement, the
Notes, the Security Documents, all Letters of Credit, all Reimbursement
Agreements, and all other documents executed in connection herewith or as
security for the Notes, as any or all of the foregoing may be renewed,
extended, amended, modified, supplemented, replaced, or rearranged from
time to time.
"CURRENT ASSETS" shall mean, at any date, the current assets of the
Borrowers and their Subsidiaries determined on a consolidated basis as of
such date.
"CURRENT LIABILITIES" shall mean, at any date, the current liabilities
of the Borrowers and their Subsidiaries determined on a consolidated basis
as of such date.
3
<PAGE>
"CURRENT RATIO" shall mean, at any date, the ratio of Current Assets
to Current Liabilities.
"DEFAULT" shall mean an Event of Default or an event which with notice
or lapse of time or both would become an Event of Default.
"DEFAULT RATE" shall mean, in respect of any principal of any Loan or
any other amount whatsoever payable by the Borrowers under this Agreement
or any Note which is not paid when due (whether at stated maturity, by
acceleration or otherwise), a rate per annum during the period commencing
on and including the due date of such amount to, but not including, the
date such amount is paid in full, equal to 3% per annum above the Corporate
Base Rate from time to time.
"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"EBIT" shall mean, for any period, consolidated net income before
taxes, extraordinary items and other unusual items (including changes in
accounting principles), non recurring, restructuring or other special items
which do not occur in the ordinary course of business, less non-operating
income, plus non-operating expenses (which include, among other items,
interest expenses) for such period, determined on a consolidated basis for
the Borrowers and their Subsidiaries.
"EBITDA" shall mean, for any period, EBIT for such period plus
depreciation, depletion and amortization and other non-cash expenses for
such period to the extent such amounts were taken into account in computing
such EBIT.
"ENVIRONMENTAL LAWS" shall mean any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees or requirements of any Governmental Authority regulating, relating
to or imposing liability or standards of conduct concerning any Hazardous
Material or Petroleum Product or environmental protection or health and
safety, as now or may at any time hereafter be in effect, including without
limitation, the Clean Water Act also known as the Federal Water Pollution
Control Act ("FWPCA"), 33 U.S.C. Section 1251, ET SEQ., the Clean Air Act
("CAA"), 42 U.S.C. Sections 7401 ET SEQ., the Federal Insecticide,
Fungicide and Rodenticide Act ("FIFRA"), 7 U.S.C. Sections 136 ET SEQ.,
the Surface Mining Control and Reclamation Act Sections 1200 ET SEQ.
("SMCRA"), 30 U.S.C. Sections 1201 ET SEQ., the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601
ET SEQ., the Superfund Amendments and Reauthorization Act of 1986 ("SARA"),
Public Law 99-499, 100 Stat. 1613, the Emergency Planning and Community
Right to-Know Act ("EPCRA"), 42 O.S.C. Section 1101 ET SEQ., the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 ET SEQ., and
the Occupational Safety and Health Act as amended ("OSHA"), 29 U.S.C.
Section 655 and Section 657, in each case, with any amendment thereto, and
the regulations adopted and publications promulgated thereunder and all
substitutions thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
4
<PAGE>
"ERISA AFFILIATE" shall mean any corporation or trade or business
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as any of the Borrowers or is under
common control (within the meaning of Section 414(c) of the Code) with any
of the Borrowers.
"EURODOLLAR LOANS" shall mean Loans the interest rates of which are,
at the time, determined on the basis of rates referred to in the definition
of "LIBOR" in this Subsection 1.1.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in
Section 7 hereof.
"FISCAL PERIOD" shall mean the period of four consecutive fiscal
quarters ending on a Computation Date.
"FIXED CHARGES" shall mean, for any Fiscal Period, the sum of (i) all
interest accrued on Indebtedness (including imputed interest on Capital
Lease Obligations) of the Borrowers and their Subsidiaries determined on a
consolidated basis during such period, (ii) current maturities of
Indebtedness (excluding advances under the Revolving Credit Loans) as of
the last day of such period, (iii) current maturities of Capital Lease
Obligations as of the last day of such period, and (iv) the aggregate
amount of Capital Expenditures made by the Borrowers and their Subsidiaries
determined on a consolidated basis during such period.
"FIXED CHARGES COVERAGE RATIO" shall mean, for any Fiscal Period, the
ratio of EBITDA to Fixed Charges for such Fiscal Period.
"FUNDED DEBT" shall mean, as to the Borrowers and their Subsidiaries
determined on a consolidated basis, without duplication, all long term
Indebtedness (including Capital Lease Obligations and Guaranties of
Indebtedness of others) excluding (i) all principal payments in respect
thereof required to be made within one year from the date as of which
Funded Debt is being determined, (ii) reserves for income taxes, and
(iii) deferred compensation obligations.
"FUNDED DEBT RATIO" shall mean, at any date, the ratio (expressed as a
percentage) of (i) the aggregate outstanding principal amount of Funded
Debt to (ii) Total Capitalization on such date.
"GAAP" shall mean generally accepted accounting principles in the
United States of America, as in effect from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any
state or other political subdivision thereof, and any branch, department,
or agency thereof, or any other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to a
government.
"GUARANTEE" shall mean, in respect of any Person, any obligation,
contingent or otherwise, of such Person directly or indirectly guaranteeing
any Indebtedness of another
5
<PAGE>
Person, including without limitation by means of an agreement to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or to maintain financial covenants, or to assure the payment
of such Indebtedness by an agreement to make payments in respect of goods
or services regardless of whether delivered, or otherwise, provided, that
the term "Guarantee" shall not include endorsements for deposit or
collection in the ordinary course of business; and such term when used as a
verb shall have a correlative meaning.
"HAZARDOUS MATERIALS" shall mean any flammable materials, explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous or
toxic substances, or similar materials defined as such in any applicable
Environmental Law.
"INACTIVE SUBSIDIARIES" shall mean, for so long as they do not conduct
any active business or acquire any assets, Cedrite Technologies, Inc. and
Phoenix Data, Inc., both of which are Wholly Owned Subsidiaries of HII.
"INDEBTEDNESS" shall mean, as to any Person, on a consolidated basis
with such Person's Subsidiaries, without duplication: (i) all obligations
of such Person for borrowed money or evidenced by bonds, debentures, notes
or similar instruments, (ii) all obligations of such Person for the
deferred purchase price of property or services, except trade accounts
payable and accrued liabilities arising in the ordinary course of business
which are not overdue by more than 60 days or which are being contested in
good faith by appropriate proceedings, (iii) all Capital Lease Obligations
of such Person, (iv) all Indebtedness of others secured by a Lien on any
properties, assets or revenues of such Person to the extent of the value of
the property subject to such Lien, (v) all Indebtedness of others
Guaranteed by such Person and (vi) all obligations of such Person,
contingent or otherwise, in respect of any letters of credit or bankers'
acceptances.
"INTEREST COVERAGE RATIO" shall mean, for any Fiscal Period, the ratio
of EBIT plus non operating income that is not the result of an
extraordinary or non-recurring item, to Interest Expense.
"INTEREST EXPENSE" shall mean, for any period, all interest on
Indebtedness (including imputed interest on Capital Lease Obligations) of
the Borrowers and their Subsidiaries during such period; provided, however,
that there shall be added to "Interest Expense" any fees or commissions or
net losses amortized during such period under any Interest Rate Protection
Agreement and any fees or commissions payable in connection with any
letters of credit during such period and there shall be subtracted from
"Interest Expense" any net gains under any Interest Rate Protection
Agreement during such period.
"INTEREST PERIOD" shall mean, with respect to any Eurodollar Loan,
each period commencing on the date such Loan is made or is Converted from a
Loan of the other type or the last day of the next preceding Interest
Period for such Loan, and ending on the numerically corresponding day in
the first, second, third or sixth calendar month thereafter, as the
Borrowers may select, except that each Interest Period which commences on
the last Business Day of a calendar month (or on any day for which there is
no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last
6
<PAGE>
Business Day of the appropriate subsequent calendar month. Notwithstanding
the foregoing: (i) any Interest Period for any Loan which would otherwise
extend beyond the Termination Date applicable to such Loan shall end on
such Termination Date; (ii) each Interest Period that would otherwise end
on a day which is not a Business Day shall end on the immediately
succeeding Business Day (or, if such next succeeding Business Day falls in
the next succeeding calendar Month, on the immediately preceding Business
Day); and (iii) the Borrowers shall select the duration of Interest Periods
in such a way so that, notwithstanding clauses (i) and (ii) above, no
Interest Period shall have a duration of less than one month (and, if any
Eurodollar Loans would otherwise have an Interest Period of a shorter
duration, they shall be Corporate Base Rate Loans for the relevant period).
"INTEREST RATE PROTECTION AGREEMENT" shall mean any interest rate
swap, cap, collar agreement or similar agreement or arrangement designed to
protect the Borrowers against fluctuations in interest rates.
"INVESTMENT" by any Person in any other Person shall mean:
(i) the amount paid or committed to be paid, or the value of property
or services contributed or committed to be contributed, by such first
Person for or in connection with any stock, bonds, notes, debentures,
partnership or other ownership interests or other securities of such other
Person or as a capital contribution to such other Person; and
(ii) the principal amount of any advance, loan or extension of credit
by such first Person to such other Person (other than any such advance,
loan or extension of credit having a stated term not exceeding 60 days made
by such first Person to its trade customers in the ordinary course of its
business) and (without duplication) any amount committed to be advanced,
loaned or extended by such first Person to such other Person.
"LC EXPOSURE" shall mean, at any time, the sum of (i) the aggregate
face amount of all Letters of Credit then outstanding, plus (ii) the
aggregate amount of all payments made by the Issuing Bank under or in
connection with any Letter of Credit for which the Issuing Bank has not
been reimbursed.
"LETTERS OF CREDIT" shall mean letters of credit issued by the Issuing
Bank for the account of any of the Borrowers pursuant to Subsection 2.21
hereof.
"LEVERAGE RATIO" shall mean, at any date, the ratio of (i) the
aggregate outstanding principal amount of the sum of Funded Debt plus
Current Liabilities of the Borrowers and their Subsidiaries determined on a
consolidated basis, to (ii) Tangible Net Worth on such date.
"LIBOR" shall mean, with respect to any Eurodollar Loan for any
Interest Period therefor, the arithmetic mean, as determined by the Agent,
of the rates per annum (rounded, if necessary, to the nearest l/16 of 1%)
quoted by each of the Reference Banks and notified to the Agent at
approximately 11:00 a.m. London time (or as soon thereafter as practicable)
on the date two Business Days prior to the first day of such Interest
Period for the offering by such Reference Bank to leading banks in the
London interbank market of Dollar deposits
7
<PAGE>
having a term comparable to such Interest Period and in an amount
comparable to the aggregate principal amount of the Eurodollar Loans to be
held by such Reference Bank for such Interest Period. If any Reference
Bank does not timely furnish such information for determination of any
rate, the Agent shall determine such rate on the basis of information
timely furnished by the remaining Reference Banks.
"LIBOR RESERVE ADJUSTED RATE" shall mean, for any Eurodollar Loan for
any Interest Period therefor, a rate per annum (rounded, if necessary, to
the nearest l/100 of 1%) determined by the Agent to be equal to the sum of
(i) LIBOR for such Loan for such Interest Period divided by (ii) l minus
the Reserve Requirements for such Loan for such Interest Period.
"LIEN" shall mean any mortgage, lien, pledge, claim, charge, security
interest or encumbrance of any kind, including without limitation the
interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement, or any agreement to
create or grant any of the foregoing or prohibiting the Borrowers or any of
their Subsidiaries from granting Liens on their respective assets for the
benefit of the Banks.
"LOANS" shall mean, collectively, the Reducing Revolving Credit Loans
and the Revolving Credit Loans.
"MAJORITY BANKS" shall mean, at any time, one or more Banks holding at
least 51% of the aggregate principal amount of Loans or, if no Loans are at
the time outstanding, Banks having at least 51% of the Commitments;
provided, however, that if Boatmen's First National Bank of Kansas City
does not hold at least 51% of the aggregate principal amount of Loans or
Commitments, as the case may be, then "Majority Banks" must include Harris
Trust and Savings Bank, so long as it remains a Bank hereunder.
"MANDATORY PREPAYMENTS" shall mean the prepayments of the Loans
required by Subsection 2.11 hereof.
"MARKETING VEHICLE" shall mean a partnership, joint venture,
corporation or other entity, in each case which (i) has an existence or
duration limited to the period of time reasonably necessary to complete the
project for which it was formed, (ii) has outstanding voting stock or other
ownership interests that are owned directly or indirectly by any Borrower
and others, and (iii) is operated or established for the purpose of
permitting such Borrower to market or sell its products through one or more
contracts or purchase orders.
"MULTIEMPLOYER PLAN" shall mean a Plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the
Borrowers or any ERISA Affiliate and which is covered by Title IV of ERISA.
"NEGATIVE PLEDGE AGREEMENT" shall mean the negative pledge agreement
executed by Borrowers dated of even date herewith, as the same may be
amended, modified, supplemented or replaced from time to time.
8
<PAGE>
"NOTES" shall mean, collectively, the Reducing Revolving Credit Notes
and the Revolving Credit Notes.
"OBLIGATIONS" shall mean, collectively, (i) all indebtedness,
liabilities and obligations whatsoever of the Borrowers to the Banks
whether now existing or hereafter arising under or in connection with this
Agreement and/or any of the other Credit Documents, including without
limitation, the principal of, and interest on, the Loans, all future
advances thereunder, and all other amounts now or hereafter owing to the
Banks under this Agreement, the Notes, the Letters of Credit, the
Reimbursement Agreements or any of the other Credit Documents, and (ii) any
and all other indebtedness, liabilities and obligations whatsoever of the
Borrowers to the Banks, whether direct or indirect, absolute or contingent,
due or to become due, and whether now existing or hereafter arising, and
howsoever evidenced or acquired, whether joint or several.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PERMITTED LIENS" shall mean:
(i) pledges or deposits by the Borrowers under worker's compensation
laws, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for the
payment of Indebtedness of the Borrowers), or leases to which the Borrowers
are parties, deposits to secure public or statutory obligations of the
Borrowers, deposits of cash or U.S. Government bonds to secure surety or
appeal bonds or performance bonds to which the Borrowers are parties or
which are issued for their account, or deposits for the payment of rent
(provided that such deposits as security for the payment of rent are
required in the ordinary course of business);
(ii) Liens imposed by law, such as carriers', warehousemen's,
materialmen's and mechanics' liens, and Liens arising out of judgments or
awards against the Borrowers, provided that with respect to all such Liens,
the relevant Borrower shall currently be contesting such Liens by
prosecuting an appeal or proceeding for review in good faith and by proper
procedure, and that such Liens shall be bonded against to the satisfaction
of the Majority Banks;
(iii) Liens for taxes not yet subject to penalties for non-payment,
the payment of which is being contested in good faith by appropriate
proceedings, and Liens for taxes which are not yet overdue;
(iv) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, rights of way, highways and
railroad crossings, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions as to the use
of real properties or other Liens incidental to the conduct of the business
of the Borrowers or to the ownership of their property which were not
incurred in connection with Indebtedness of the Borrowers, and which Liens
do not materially detract from the value of said properties or materially
impair the operation of the business of the Borrowers;
9
<PAGE>
(v) Liens created in connection with Capital Lease Obligations,
provided that such Liens do not encumber any property other than the
property financed by the capital lease under which such Capital Lease
Obligations exist;
(vi) Liens existing on any assets acquired by the Borrowers after the
date of this Agreement or created at the time of acquisition of such assets
by the Borrowers after the date of this Agreement to secure purchase money
Indebtedness; provided that any such acquisition or incurrence of
Indebtedness must be permitted by all other applicable provisions of this
Agreement, that the Lien must not extend to any assets other than those
being acquired, that the purchase money Indebtedness not exceed 90% of the
value of the asset so acquired, and that the aggregate amount of purchase
money Indebtedness secured by all such Liens (excluding the aggregate
amount of purchase money Indebtedness incurred pursuant to an Acquisition
that is permitted by the terms of this Agreement) shall not exceed
$3,000,000.
(vii) existing Liens in respect of property, assets or revenues the
Borrowers listed on Schedule 1.1 hereto;
(viii) Liens created pursuant to the Security Documents; and
(ix) extensions, renewals, refinancings or replacements of any
Permitted Liens referred to above, provided that the principal amount of
the obligation secured thereby is not increased and that any such
extension, renewal, refinancing or replacement is limited to the property
originally encumbered thereby.
"PERSON" shall mean any individual, corporation, partnership, trust,
joint venture, unincorporated association or other enterprise or any
Governmental Authority.
"PETROLEUM PRODUCTS" shall mean, collectively, gasoline, diesel fuel,
motor oil, waste or used oil, heating oil, kerosene and any other petroleum
products.
"PLAN" shall mean an employee benefit plan established or maintained
by the Borrowers or any ERISA Affiliate and which is covered by Title IV of
ERISA, other than a Multiemployer Plan.
"QUARTERLY DATE" shall mean the last day of each March, June,
September and December, the first of which shall be the first such day
after the date of this Agreement, provided that, if any such date is not a
Business Day, the relevant Quarterly Date shall be the next preceding
Business Day.
"QUARTERLY REDUCTION DATE" shall mean each Quarterly Date on which the
Reducing Revolving Credit Commitments are automatically reduced as set
forth in Section 2.3 hereof.
"REDUCING REVOLVING CREDIT APPLICABLE MARGIN" shall mean (i) 0% with
respect to Corporate Base Rate loans, and (ii) with respect to Eurodollar
Loans, the higher of the two percentages in Columns 2 and 4 set opposite
the ranges of Funded Debt Ratio and Fixed
10
<PAGE>
Charges Coverage Ratio calculated as of the end of any fiscal quarter of
the Borrowers, as set forth below:
(Column 1) (Column 2) (Column 3) (Column 4)
APPLICABLE APPLICABLE
MARGIN FOR FIXED CHARGES MARGIN FOR
FUNDED DEBT RATIO EURODOLLAR LOANS COVERAGE RATIO EURODOLLAR LOANS
----------------- ---------------- -------------- ----------------
- No more than No less than 1.50
55% but 1.50% to 1.00, but not 1.50%
greater than greater than 2.00
40% to 1.00
- No more than No less than 2.00
40% but 1.35% to 1.00, but not 1.35%
greater than greater than 2.25
30% to 1.00
- Less than or 1.20% Greater than or 1.20%
equal to 30% equal to 2.25
to 1.00
In the event the percentage set forth in Columns 2 and 4 opposite the
applicable ranges of Fixed Charges Coverage Ratio and Funded Debt Ratio are
the same, then such percentage shall be the Reducing Revolving Credit
Applicable Margin.
"REDUCING REVOLVING CREDIT COMMITMENT" shall mean, as to each Bank,
the obligation of such Bank to make Reducing Revolving Credit Loans under
Subsection 2.1(a) hereof up to an aggregate principal amount at any one
time outstanding equal to the amount set forth opposite the name of such
Bank in Exhibit A hereto under the heading "Reducing Revolving Credit
Commitment" (as the same may be reduced from time to time pursuant to
Subsection 2.3 hereof).
"REDUCING REVOLVING CREDIT LOAN" shall have the meaning assigned to
such term in Subsection 2.1(a) hereof.
"REDUCING REVOLVING CREDIT NOTES" shall mean the promissory notes
defined as such in Subsection 2.6 hereof.
"REDUCING REVOLVING CREDIT TERMINATION DATE" shall mean August 15,
2001; provided, however, that if such date would otherwise fall on a date
which is not a Business Day, the Reducing Revolving Credit Termination Date
shall be the next preceding Business Day.
11
<PAGE>
"REFERENCE BANKS" shall mean The Bank of Tokyo, Ltd., Barclays
Bank PLC, and National Westminster Bank PLC.
"REGULATION D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System (or any successor thereto), as the same may be
amended or supplemented from time to time.
"REGULATORY CHANGE" shall mean, with respect to either Bank, any
change after the date of this Agreement in United States Federal or state
law or regulations, or the entry, adoption, or making after such date of
any order, interpretation, directive, or request of or under any United
States Federal or state law or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof, applying to a class of banks
including such Bank.
"REIMBURSEMENT AGREEMENT" shall mean any application and/or
reimbursement agreement pursuant to which a Letter of Credit has been
issued, as the same may be amended, modified, supplemented or replaced from
time to time.
"REQUIREMENT OF LAW" shall mean for any Person any law, treaty,
regulation, rule, order, judgment or decree, or any other determination or
requirement of any Governmental Authority or arbitrator applicable to or
binding on such Person or any of its property or to which such Person or
any of its property is subject.
"RESERVE REQUIREMENT" shall mean, for any Eurodollar Loan for any
Interest Period therefor, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are required
to be maintained during such Interest Period under Regulation D by any Bank
against "Eurocurrency liabilities" (as such term is used in Regulation D),
which shall be determined without benefit of or credit for exemptions,
prorations or offsets. Without limiting the effect of the foregoing, the
Reserve Requirement shall reflect any other reserves required to be
maintained by such Bank by reason of any Regulatory Change against (a) any
category of liabilities which includes deposits by reference to which LIBOR
is to be determined as provided in the definition of "LIBOR" in this
Subsection 1.l or (b) any category of extension of credit or other assets
which includes the Eurodollar Loans.
"RESTRICTED PAYMENTS" shall have the meaning set forth in
Subsection 6.13 hereof.
"REVOLVING CREDIT APPLICABLE MARGIN" shall mean (i) 0% with respect to
Corporate Base Rate Loans, and (ii) with respect to Eurodollar Loans, the
higher of the two percentages in Columns 2 and 4 set opposite the ranges of
Funded Debt Ratio and Fixed Charges Coverage Ratio calculated as of the end
of any fiscal quarter of the Borrowers, as set forth below:
12
<PAGE>
(Column 1) (Column 2) (Column 3) (Column 4)
Applicable Applicable
Margin for Fixed Charges Margin for
Funded Debt Ratio Eurodollar Loans Coverage Ratio Eurodollar Loans
----------------- ---------------- -------------- ----------------
- No more than No less than 1.50
55% but 1.40% to 1.00, but not 1.40%
greater than greater than 2.00
40% to 1.00
- No more than No less than 2.00
40% but 1.25% to 1.00, but not 1.25%
greater than greater than 2.25
30% to 1.00
- Less than or Greater than or
equal to 30% 1.15% equal to 2.25 to 1.15%
1.00
In the event the percentage set forth in Columns 2 and 4 opposite the
applicable ranges of Fixed Charges Coverage Ratio and Funded Debt Ratio are
the same, then such percentage shall be the Revolving Credit Applicable
Margin.
"REVOLVING CREDIT COMMITMENT" shall mean, as to each Bank, the
obligation of such Bank to make Revolving Credit Loans under Subsection
2.1(b) hereof up to an aggregate principal amount at any one time
outstanding equal to the amount set forth opposite the name of such Bank on
Exhibit A hereto under the heading "Revolving Credit Commitment" (as the
same may be reduced from time to time pursuant to Subsection 2.3 hereof),
minus (without duplication) the amount, if any, of such Bank's LC Exposure
as of the date on which any determination of such Bank's Revolving Credit
Commitment is being made.
"REVOLVING CREDIT LOAN" shall have the meaning assigned to such term
in Subsection 2.1(b) hereof.
"REVOLVING CREDIT NOTES" shall mean the promissory notes defined as
such in Subsection 2.6 hereof.
"REVOLVING CREDIT TERMINATION DATE" shall mean August 15, 1999, as
the same may be extended pursuant to any subsequent mutual agreement of the
Borrowers and the Banks; provided, however, that if such date would
otherwise fall on a date which is not a Business Day, the Revolving Credit
Termination Date shall be the next preceding Business Day.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
13
<PAGE>
"SECURITY AGREEMENT" shall mean the security agreement executed by the
Borrowers and the Agent, dated as of June 28, 1993, as the same may have
been or hereafter be amended, modified, supplemented or replaced from time
to time.
"SECURITY DOCUMENTS" shall mean, collectively, the Security Agreement,
the Aircraft Security Agreement, the Reimbursement Agreements and all other
documents executed as security for the Obligations to the extent set forth
therein, as any or all of the foregoing may be renewed, extended, amended,
modified, supplemented or replaced from time to time.
"SUBSIDIARY" shall mean, with respect to any Person, any corporation
or other entity of which at least a majority of the outstanding securities
or other ownership interests having by the terms thereof ordinary voting
power to elect a majority of the board of directors or other persons
performing similar functions (irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or
more of its Subsidiaries or by such Person and one or more of its
Subsidiaries; provided, however, that the foregoing shall not include any
Marketing Vehicle unless GAAP requires (or permits, and the Borrower so
elects) such Marketing Vehicle to be consolidated with any Borrower for
financial reporting purposes, in which case such Marketing Vehicle shall be
a Subsidiary for purposes of this Agreement.
"TANGIBLE NET WORTH" shall mean, at any date, Consolidated Net Worth
minus any amount included in the determination thereof which would be
attributable to goodwill and any other intangible item.
"TERMINATION DATES" shall mean the Revolving Credit Termination Date
and the Reducing Revolving Credit Termination Date.
"TOTAL CAPITALIZATION" shall mean, at any date, the sum of (i) Funded
Debt, plus (ii) Tangible Net Worth.
"WHOLLY-OWNED SUBSIDIARY" shall mean, with respect to any Person, any
Subsidiary of such Person all of the shares of capital stock (and all
rights and options to purchase such shares) of which, other than directors'
qualifying shares, are owned, beneficially and of record, by such Person or
another Wholly-Owned Subsidiary of such Person.
Additional definitions may be found in the preamble and throughout this
Agreement.
1.2 ACCOUNTING TERMS; STATEMENTS OF VARIATION.
(a) All accounting terms used herein shall (except as Otherwise expressly
provided herein) be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Agent, the
Banks or the Issuing Bank hereunder shall be prepared, in accordance with GAAP
applied on a basis consistent with the accounting principles used in the
preparation of the audited financial statements of the Borrowers on a
consolidated basis referred to in Subsection 5.2 hereof.
14
<PAGE>
(b) The Borrowers shall deliver to the Banks at the same time as the
delivery of any annual or quarterly financial statement under Subsection 6.1
hereof, notice of any material variation between the application of accounting
principles employed in the preparation of such statement and the application of
accounting principles employed in the preparation of the immediately preceding
annual or quarterly financial statements, as the case may be.
(c) Except as otherwise provided herein, if any changes in accounting
principles from those used in the preparation of the audited financial
statements referred to in Subsection 5.2 hereof are hereafter required or
permitted by the rules, regulations, pronouncements and opinions of the
Financial Accounting Standards Board or the American Institute of Certified
Public Accountants (or successors thereto or agencies with similar functions)
and are adopted by the Borrowers with the agreement of their independent
certified public accountants and such changes result in a change in the method
of calculation of any of the financial covenants, standards or terms in or
relating to Section 6 hereof, the parties hereto agree to enter into discussions
with a view to amending such provisions so as to equitably reflect such changes
with the desired result that the criteria for evaluating the financial condition
of the Borrowers on a consolidated basis shall be the same after such changes as
if such changes had not been made, provided that no change in GAAP that would
affect the method of calculation of any of said financial covenants, standards
or terms shall be given effect in such calculations until such provisions are
amended, in a manner satisfactory to the Majority Banks, to so reflect such
change in accounting principles.
(d) The Borrowers shall maintain their respective accounts on the basis
of a fiscal year ending December 31 of each year.
(e) Unless a Marketing Vehicle becomes a Subsidiary of a Borrower for
purposes of this Agreement, then such Marketing Vehicle (as an entity) shall
not be consolidated with such Borrower for the purpose of calculating the
financial covenants at Subsections 6.5, 6.6, 6.7, 6.8, 6.9, and 6.10 hereof.
Nothing in the preceding sentence shall be construed, however, as excluding
such Borrower's Investment in, or Indebtedness incurred in connection with,
such Marketing Vehicle in determining such Borrower's financial condition or
compliance with any of the provisions of this Agreement.
1.3. GENERAL RULES. For the purposes of this Agreement, the words "herein,"
"hereof," "hereunder" and words of similar import refer to this Agreement as a
whole and not to a particular section, paragraph or other subdivision.
SECTION 2. THE COMMITMENTS
2.1. LOANS.
(a) Each Bank severally agrees, on and subject to the terms and
conditions of this Agreement, to make loans to the Borrowers from time to
time on any Business Day during the period from and including the initial
Borrowing Date to but excluding the Reducing Revolving Credit Termination
Date in an aggregate principal amount at any one time outstanding up to but
not exceeding the amount of such Bank's Reducing Revolving Credit Commitment
as then in effect. Subject to the terms and conditions of this Agreement,
during such period the Borrowers may
15
<PAGE>
borrow, repay and reborrow the amount of the Reducing Revolving Credit
Commitments. Loans made pursuant to this Subsection 2.1(a) are herein called
"Reducing Revolving Credit Loans".
(b) Each Bank severally agrees, on and subject to the terms and conditions
of this Agreement and provided that the full principal amount of the then
effective Reducing Revolving Credit Commitment is then outstanding, to make
loans to the Borrowers from time to time on any Business Day during the period
from and including the initial Borrowing Date to but excluding the Revolving
Credit Termination Date in an aggregate principal amount at any one time
outstanding up to but not exceeding the amount of such Bank's Revolving Credit
Commitment as then in effect. Subject to the terms and conditions of this
Agreement, during such period the Borrowers may borrow, repay and reborrow the
amount of the Revolving Credit Commitments. Loans made pursuant to this
Subsection 2.1(b) are herein called "Revolving Credit Loans".
(c) The Loans made on each Borrowing Date may, on and subject to the terms
and conditions of this Agreement, be Corporate Base Rate Loans or Eurodollar
Loans (each being referred to in this Agreement as a "type" of Loan) as
specified in the relevant notice of borrowing referred to in Subsection 2.2(a)
hereof; provided that (i) no more than four Loans constituting Eurodollar Loans
may be outstanding from each Bank at any one time and (ii) subject to clause
(i) above, the Borrowers may Convert Loans of one type into Loans of the other
type or Continue Loans of one type as Loans of the same type, all as hereinafter
provided.
2.2. BORROWINGS.
(a) The Borrowers shall give the Agent notice (which shall promptly notify
the Banks by telephone, confirmed promptly in writing) of each borrowing
hereunder as provided in Subsection 2.15 hereof.
(b) Not later than 2:00 p.m. Kansas City time on the date specified for
each borrowing hereunder, each Bank shall make available to the Agent the amount
of the Loan to be made by it on such date, at such account maintained by the
Agent as the Agent shall specify, in immediately available funds, for the
account of the Borrowers. The amount so received by the Agent shall, subject to
the terms and conditions of this Agreement, promptly be made available to the
Borrowers by depositing the same, in immediately available funds, in one or more
accounts of one or more Borrowers maintained with Boatmen's First National Bank
of Kansas City.
2.3. REDUCTIONS AND CHANGES OF COMMITMENTS.
(a) The Reducing Revolving Credit Commitments shall automatically be
reduced in the aggregate amount of $536,000 on each Quarterly Date commencing on
September 30, 1996 with each Bank's Reducing Revolving Credit Commitment
reducing on a pro rata basis.
(b) The Borrowers shall have the right to terminate or reduce the unused
amount of the Reducing Revolving Credit Commitments on the yearly anniversary of
the date of this Agreement provided that each partial reduction of the Reducing
Revolving Credit Commitments shall be in an aggregate amount at least equal to
$536,000.
16
<PAGE>
(c) The Borrowers shall have the right, on or before December 31, 1996
to reduce, in a single one-time reduction, the unused amount of the Reducing
Revolving Credit Commitments, provided that such reduction of the Reducing
Revolving Credit Commitments shall be in an aggregate amount at least equal
to $536,000.
(d) The Borrowers shall have the right to terminate or reduce the
unused amount of the Revolving Credit Commitments on the yearly anniversary
of the date of this Agreement, provided that each partial reduction of the
Revolving Credit Commitments shall be in an aggregate amount at least equal
to $536,000.
(e) The Revolving Credit Commitments shall automatically be reduced in
the aggregate amount equal to the aggregate amount of the Banks' LC Exposure,
at any point in time, with each Bank's Revolving Credit Commitment reducing
on a pro rata basis, effective immediately at the time of such reduction.
(f) Commitments once terminated or reduced in accordance with
paragraphs (a) through (d), inclusive, of this Subsection 2.3 may not be
reinstated, unless each Bank shall agree to the reinstatement of such
Commitments upon the request of the Borrowers; provided, however, that any
Bank may decline any such request for reinstatement, in its sole discretion.
2.4. LENDING OFFICES. The Loans of each type made by each Bank shall be
made and maintained at such Bank's applicable lending office for Loans of
such type.
2.5. SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT. The failure of any Bank
to make any Loan to be made by it on the date specified therefor shall not
relieve any other Bank of its obligation to make its Loan on such date, and
neither any Bank nor the Agent shall be responsible for the failure of any
other Bank to make a Loan to be made by such other Bank. In the event any
Bank so fails to make a Loan when required to do so under this Agreement,
then the Borrowers may request the other Banks hereunder to assume in full
the Commitments of such Bank (the "REPLACEABLE BANK") then in effect and to
purchase the Notes issued to the Replaceable Bank at a price equal to the
outstanding principal amount of such Notes plus any accrued and unpaid
interest on such Notes, and accrued and unpaid fees and expenses owed to such
Replaceable Bank. If any Bank or Banks in their sole discretion agree to so
assume in full the Commitments of the Replaceable Bank (each an "ASSUMING
BANK"), then such assumption shall take place on a date acceptable to the
Borrowers, the Replaceable Bank, and the Assuming Bank, and such assumption
shall take place through the execution of such instruments and documents as
shall, in the opinion of the Agent, be reasonably necessary or appropriate
for the Assuming Bank to assume in full the Commitments of the Replaceable
Bank (including, without limitation, the issuance of new or replacement
Notes) and through the execution by the Assuming Bank and the Replaceable
Bank of such agreements or instruments of assignments between themselves as
they deem necessary, provided that such assignment is made without recourse
and without any representation or warranty with respect to the execution,
legality, validity, enforceability, genuineness, sufficiency, or value of
this Agreement or any other instrument or documents furnished pursuant hereto
or with respect to the financial condition of the Borrowers or the
performance or observance by the Borrowers of any of their obligations under
this Agreement or any other instrument or document furnished pursuant hereto
or of any collateral security or guaranties for the Obligations or any other
instrument or document furnished pursuant thereto.
17
<PAGE>
The amounts payable by the Borrowers at any time hereunder and under the
Notes to each Bank shall be a separate and independent debt and each Bank
shall be entitled to protect and enforce its rights arising out of this
Agreement and its Notes, and it shall not be necessary for any other Bank or
the Agent to consent to, or be joined as an additional party in, any
proceedings for such purposes; provided, however, that this Subsection 2.5
shall not be construed to permit acceleration of any obligation hereunder, or
cancellation by any Bank of its Commitments hereunder, other than in
accordance with Section 7 hereof or as otherwise expressly permitted by the
terms of this Agreement.
2.6. NOTES. The Reducing Revolving Credit Loans made by each Bank under
its Reducing Revolving Credit Commitment shall be evidenced by a single
promissory note of the Borrowers in substantially the form of Exhibit B
hereof, and the Revolving Credit Loans made by each Bank under its Revolving
Credit Commitment shall be evidenced by a single promissory note of the
Borrowers in substantially the form of Exhibit C hereto. Each Note shall be
dated the initial Borrowing Date, payable to the order of such Bank in a
principal amount equal to the amount of such Commitment as then in effect and
otherwise duly completed. Each Loan made by each Bank under its Commitments,
and all payments and prepayments made on account of the principal thereof,
shall be recorded by such Bank on its books and records.
2.7. CONVERSION OR CONTINUATION OF LOANS. Subject to Section 4 hereof,
the Borrowers shall have the right to Convert Loans of one type into Loans of
the other type or Continue Loans of one type as Loans of the same type, at
any time or from time to time, provided that Eurodollar Loans may be
Converted only on the last day of an Interest Period for such Loans.
2.8. REPAYMENT OF LOANS; REQUEST FOR EXTENSION OF MATURITY OF REVOLVING
CREDIT LOANS.
(a) The Borrowers shall pay to the Agent for the pro rata account of
the Banks the full outstanding principal amount of such Bank's Reducing
Revolving Credit Loans made under its Reducing Revolving Credit Commitment
(and all accrued interest thereon in accordance with Subsection 2.9) on the
Reducing Revolving Credit Termination Date, or such earlier date as may be
herein provided.
(b) The Borrowers shall pay to the Agent for the account of each Bank
the full outstanding principal amount of such Bank's Revolving Credit Loans
made under its Revolving Credit Commitment (and all accrued interest thereon
in accordance with Subsection 2.9) on the Revolving Credit Termination Date,
or such earlier date as may be herein provided.
(c) The Borrowers may, but shall have no obligation to, request a
maximum of two, separate one-year extensions of the Revolving Credit
Termination Date by giving written notice to the Agent, requesting a one-year
extension of the Revolving Credit Termination Date, at least 60 days but no
more than 120 days prior to the date that is one year before the then current
Revolving Credit Termination Date. The Agent shall promptly advise the Banks
of such request. The Banks may, but shall have no obligation to, consent to
such request, or may make any such consent subject to such terms and
conditions as the Banks may, in their sole discretion, require. If the
Borrowers make any such request, the Banks agree to notify the Borrowers
within 30 days of their response to such request, whether declining such
request, consenting to such request, or consenting to such request
18
<PAGE>
subject to specified terms and conditions, but if the Banks fail to give such
notification they shall be deemed to have declined such request. Under no
circumstances shall the Revolving Credit Termination Date, if extended, be
later than the Reducing Revolving Credit Termination Date.
2.9. INTEREST.
(a) The Borrowers shall pay to the Agent for the pro rata account of
each Bank interest on the unpaid principal amount of each Reducing Revolving
Credit Loan of such Bank for the period commencing on and including the date
of such Reducing Revolving Credit Loan to but excluding the date such
Reducing Revolving Credit Loan is paid in full, at the following rates per
annum:
(i) during any period while such Reducing Revolving Credit Loan is a
Corporate Base Rate Loan, the Corporate Base Rate (as in effect from time
to time) plus the Reducing Revolving Credit Applicable Margin in effect on
the Borrowing Date, the date of Conversion or Continuation, as adjusted as
provided in this Agreement; and
(ii) during any period while such Reducing Revolving Credit Loan is a
Eurodollar Loan, for each Interest Period relating thereto, the LIBOR
Reserve Adjusted Rate for such Reducing Revolving Credit Loan for such
Interest Period plus the Reducing Revolving Credit Applicable Margin in
effect on the Borrowing Date, the date of Conversion or Continuation, as
adjusted as provided in this Agreement.
The Reducing Revolving Credit Applicable Margin may change (upward or
downward) at the end of each fiscal quarter as provided herein, and the
interest payable with respect to each outstanding Reducing Revolving Credit
Loan shall change effective as of the third day following the next
Certification Date.
(b) The Borrowers shall pay to the Agent for the account of each Bank
interest on the unpaid principal amount of each Revolving Credit Loan of such
Bank for the period commencing on and including the date of such Revolving
Credit Loan to but excluding the date such Revolving Credit Loan is paid in
full, at the following rates per annum:
(i) during any period while such Revolving Credit Loan is a Corporate
Base Rate Loan, the Corporate Base Rate (as in effect from time to time)
plus the Revolving Credit Applicable Margin in effect on the Borrowing
Date, the date of Conversion or Continuation, as adjusted as provided in
this Agreement, and
(ii) during any period while such Revolving Credit Loan is a
Eurodollar Loan, for each Interest Period relating thereto, the LIBOR
Reserve Adjusted Rate for such Revolving Credit Loan for such Interest
Period plus the Revolving Credit Applicable Margin in effect on the
Borrowing Date, the date of Conversion or Continuation, as adjusted as
provided in this Agreement.
The Revolving Credit Applicable Margin may change (upward or downward)
at the end of each fiscal quarter as provided herein, and the interest
payable with respect to each outstanding Revolving Credit Loan shall change
effective as of the third day following the next Certification Date.
19
<PAGE>
(c) Notwithstanding the provisions of clauses (a) and (b) above, the
Borrowers shall pay to the Agent for the account of each Bank interest at the
applicable Default Rate on any principal of any Loan of such Bank, and on any
interest or other amount payable by the Borrowers hereunder or under any Note
held by such Bank, which is not paid in full when due (whether at stated
maturity, by acceleration or otherwise), for the period commencing on and
including the due date thereof until the same is paid in full.
(d) Accrued interest on each Loan shall be payable (i) in the case of a
Corporate Base Rate Loan, on each Quarterly Date, and (ii) in the case of a
Eurodollar Loan, on the last day of each Interest Period therefor and, if
such Interest Period is longer than three months, at three-month intervals
following the first day of such Interest Period; provided that interest
payable at the Default Rate shall be payable from time to time on demand of
the Agent.
(e) Promptly after the determination of any interest rate provided for
herein or any change therein, the Agent shall notify the Banks and the
Borrowers thereof.
2.10. OPTIONAL PREPAYMENTS. The Borrowers shall have the right to prepay
the Loans in whole or in part at any time without premium or penalty, subject
to giving the Agent prior notice in accordance with the provisions of
Subsection 2.15 hereof, provided that (i) each such partial prepayment shall
be in the aggregate principal amount of not less than $100, 000, and (ii) any
prepayment of a Eurodollar Loan may be made only on the last day of the
Interest Period therefor. Amounts prepaid in respect of Loans under this
Subsection 2.10 may be reborrowed on and subject to the terms and conditions
hereof.
2.11. MANDATORY PREPAYMENTS.
(a) In the event of the receipt by any Borrower or its Subsidiary of
the proceeds of any property or casualty insurance in connection with damage
to or a loss of the Collateral (excluding, however, any business interruption
insurance), the Borrowers shall prepay the principal of the Loans in an
amount equal to such proceeds, if at the time such proceeds are received by
such Borrower or Subsidiary a Default shall have occurred and be continuing.
(b) On each Quarterly Reduction Date, the Borrowers shall repay (which,
for purposes of this Agreement, shall be deemed to be a prepayment) the
principal of the Reducing Revolving Credit Loans to the extent the then
outstanding principal balance thereof exceeds the Reducing Revolving Credit
Commitments as so reduced on such Quarterly Reduction Date.
2.12. PAYMENTS.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrowers under this
Agreement and the Notes shall be made in Dollars, in immediately available
funds, to the Agent at such account maintained by the Agent with Boatmen's
First National Bank of Kansas City not later than 1:00 p.m. Kansas City time
on the date on which such payment shall become due (each such payment made
after such time on such due date to be deemed to have been made on the next
succeeding Business Day).
20
<PAGE>
(b) The Borrowers shall, at the time of making each payment under this
Agreement or any Note, specify to the Agent the Loans or other amounts
payable by the Borrowers hereunder to which such payment is to be applied
(and in the event that it fails to so specify, or if any Default has occurred
and is continuing, the Agent may distribute such payment to the Bank in such
manner as it may determine to be appropriate, subject to Subsection 2.13
hereof).
(c) Each payment received by the Agent under this Agreement or any Note
for the account of a Bank shall be paid by the Agent promptly to such Bank,
in immediately available funds, for the account of such Bank's applicable
lending office for the Loan in respect of which such payment is made; and the
Agent shall promptly notify each Bank of the Agent's receipt of such
payments.
(d) All payments by the Borrowers hereunder shall be made without
deduction, set-off or counterclaim.
(e) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day which is not a Business Day, such date shall
(unless otherwise expressly provided herein) be extended to the immediately
succeeding Business Day and interest shall be payable for any principal so
extended for the period of such extension.
2.13. PRO RATA TREATMENT. Except to the extent otherwise expressly
provided herein:
(a) Each borrowing hereunder shall be made from the Banks, each payment
of commitment fee shall be made for the account of the Banks, and each
termination or reduction of the amount of the Reducing Revolving Credit
Commitments or the Revolving Credit Commitments shall be applied to such
Commitments of the Banks, pro rata according to the amounts of their
respective unused Commitments;
(b) The making, Conversion and Continuation of Loans of a particular
type (except as otherwise provided in Section 3 hereof) shall be pro rata
among the Banks according to the amounts of their respective Commitments; and
(c) Each payment and prepayment by the Borrowers of principal of or
interest on the Loans of a particular type shall be made to the Agent for the
account of the Banks holding Loans of such type pro rata in accordance with
the respective unpaid principal amounts thereof.
2.14. MINIMUM AMOUNTS. Each borrowing, Conversion or Continuation of
Corporate Base Rate Loans shall be in an amount of at least $100,000 and each
borrowing, Conversion or Continuation of Eurodollar Loans shall be in an
amount of $1,000,000 or a multiple of $100,000, in excess thereof
(borrowings, Conversions or Continuations of or into Loans of different types
or, in the case of Eurodollar Loans, having different Interest Periods at the
same time hereunder to be deemed separate borrowings or Conversions for
purposes of the foregoing, one for each type or Interest Period). Anything in
this Agreement to the contrary notwithstanding, the aggregate principal
amount of Eurodollar Loans having the same Interest Period shall be at least
equal to $1,000,000 and, if any Eurodollar Loans would otherwise be in a
lesser principal amount for any period, such Loans shall be Corporate Base
Rate Loans during such period.
21
<PAGE>
2.15. CERTAIN NOTICES. The Borrowers shall give notices to the Agent of
all borrowings, terminations, or reductions of Commitments, Conversions,
Continuations or prepayments of Loans, and of the duration of Interest
periods, such notices to be substantially in the form of EXHIBIT D hereto.
Each such notice shall be irrevocable and shall be effective only if received
by the Agent not later than 1:00 p.m. Kansas City time on the number of
Business Days prior to the value date of the relevant termination, reduction,
Conversion, Continuation or prepayment or the first day of such Interest
Period specified below:
Number of Business
Notice Days Prior
------ ------------------
Termination or reduction of
Commitments 1
Borrowing or prepayments of,
or Conversion into, Corporate Same Day
Base Rate Loans
Borrowing or prepayment of,
Conversion into, Continuation 3
as, or duration of Interest
Period for, Eurodollar Loans
For purposes of calculating the number of Business Days in the foregoing
table, the date the notice is received shall be included if received not
later than 1:00 p.m. Kansas City time, and excluded if received after 1:00
p.m. Kansas City time. Each such notice of termination or reduction shall
specify whether it relates to the Reducing Revolving Credit Commitments or
the Revolving Credit Commitments and the aggregate amount of the relevant
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the aggregate amount of
Loans to be borrowed, Converted, Continued or prepaid and the amount, the
type of Loans to be borrowed, Converted, Continued or prepaid (and, in the
case of a Conversion, the type of Loans to result from such Conversion) and
the date of borrowing, Conversion, Continuation or prepayment (which shall be
a Business Day). Each such notice of the duration of an Interest Period shall
specify the Loans to which such Interest Period is to relate. The Agent shall
promptly notify the Banks of the contents of each such notice. In the event
that the Borrowers fail to select the type of Loan, or the duration of any
Interest Period, for any Eurodollar Loan within the time period and otherwise
as provided in this Subsection 2.15, such Loan (if outstanding as a
Eurodollar Loan) will be automatically Converted into a Corporate Base Rate
Loan on the last day of the then current Interest Period for such Loan or (if
outstanding as a Corporate Base Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Corporate Base Rate Loan.
2.16. NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall have been
notified by a Bank or the Borrowers prior to the date on which it is scheduled
to make payment to the Agent of (in the case of a Bank) the proceeds of a Loan
to be made by it hereunder or (in the case of the Borrowers) a payment to the
Agent for the account of one or more of the Banks hereunder (such payment being
herein called the "REQUIRED PAYMENT"), which notice shall be effective upon
receipt by the Agent, that it does not intend to make the Required Payment to
the Agent, the Agent may;
22
<PAGE>
assume that the Required Payment has been made and may, in reliance on such
assumption (but shall not be required to), make the amount thereof available
to the intended recipient(s) on such date and, if such Bank has not, or the
Borrowers (as the case may be) have not, in fact made the Required Payment to
the Agent by the close of business on the date due, the recipient(s) of such
payment shall, on demand, repay to the Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on and including the date such amount was so made available by the
Agent until the date the Agent recovers such amount at a rate per annum equal
to (i) in the case of the Borrowers, the Corporate Base Rate, and (ii) in the
case of a Bank, the Agent's cost of overnight funds, in each case for each
day such amount was made available by the Agent.
2.17. BALANCES; SHARING OF PAYMENTS.
(a) The Borrowers agree that, in addition to (and without limitation
of) any right of set-off, banker's lien or counterclaim a Bank may otherwise
have, each Bank shall be entitled, at its option, to set off and apply
balances held by it for the account of any of the Borrowers at any of its
offices or affiliates, in Dollars or in any other currency, whether or not
matured, against any principal of or interest on any of such Bank's Loans, or
any other amount payable to such Bank hereunder, which is not paid when due
in accordance with the terms hereof (regardless of whether such balances are
then due to any of the Borrowers), in which case it shall promptly notify the
Borrowers and the Agent thereof, provided that such Bank's failure to give
such notice shall not affect the validity of any such set off.
(b) If any Bank shall obtain payment of any principal of or interest on
any Loan through the exercise of any right of set-off, banker's lien or
counterclaim or similar right or otherwise, and, as a result of such payment,
such Bank shall have received a greater percentage of the principal or
interest then due hereunder by the Borrowers to such Bank than its pro rata
share thereof, it shall promptly purchase from such other Banks
participations in (or, if and to the extent specified by such Bank, direct
interests in) the Loans made by such other Banks (or in interest due thereon,
as the case may be) in such amounts, and make such other adjustments from
time to time as shall be equitable, to the end that all the Banks shall share
the benefit of such excess payment (net of any expenses which may be incurred
by such Bank in obtaining or preserving such excess payment) pro rata in
accordance with the unpaid principal and/or interest on the Loans held by
each of the Banks. To such end all the Banks shall make appropriate
adjustments among themselves (by the resale of participations sold or
otherwise) if such payment is rescinded or must otherwise be restored. The
Borrowers agree that any Bank so purchasing a participation (or direct
interest) in the Loans made by other Banks (or in interest due thereon, as
the case may be) may exercise any and all rights of set-off, bankers' lien,
counterclaim or similar rights with respect to such participation as fully as
if such Bank were a direct holder of Loans in the amount of such
participation. Nothing in this Agreement shall require any Bank to exercise
any such right or shall affect the right of any Bank to exercise, and retain
the benefits of exercising, any such right with respect to any other
indebtedness or obligation of any of the Borrowers. If under any applicable
bankruptcy, insolvency or other similar law, any Bank receives a secured
claim in lieu of a set-off to which this Subsection 2.17 applies, such Bank
shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Banks entitled
under this Subsection 2.17 to share in the benefits of any recovery on such
secured claim.
23
<PAGE>
2.18. COMPUTATION OF INTEREST. Interest on the principal amount of the
Loans from time to time outstanding, the fees payable under Subsection 3.1,
and any other amount due hereunder shall be computed on the basis of a year
of 360 days and paid for the actual number of days elapsed. Each payment of
interest shall be computed on the basis of the principal amount outstanding
during each day of the term of each Loan and the interest rate applicable to
each such day.
2.19. SECURITY. Payment and/or performance of the Obligations shall be
secured, directly or indirectly, by a first priority perfected security
interest, mortgage, pledge, assignment or Lien, as the case may be, in and on
the property and assets described in the Security Documents to the extent set
forth therein.
2.20. ADVANCES AFTER DEFAULT. Notwithstanding anything to the contrary
herein, but subject, nevertheless, to Subsection 9.4 hereof, the Majority
Banks may, but shall have no obligation of any kind whatsoever to, extend any
credit or make any loan or advance to the Borrowers under this Agreement, the
Notes or any of the other Credit Documents so long as any Default or Event of
Default shall have occurred and be continuing.
2.21. LETTERS OF CREDIT.
(a) From time to time after the date hereof, until the Revolving Credit
Termination Date, the Borrowers may apply to the Issuing Bank for the Issuing
Bank to issue and deliver or to extend the expiry date of one or more letters
of credit for the account of any Borrower ("LETTERS OF CREDIT"), each of
which (i) is to be for an aggregate, undrawn amount at any one time
outstanding which, together with the aggregate undrawn amount at such time
outstanding of all Letters of Credit, does not exceed $5,000,000 (ii) is to
be in a form approved in writing by the Borrower and the Issuing Bank, (iii)
is to be issued pursuant to the Issuing Bank's then-current standard form of
application and reimbursement agreement, for the purpose of funding the self
insured portion of worker's compensation, property and casualty insurance,
bonds required in connection with lawsuits, environmental matters or other
purposes that are, in each case, in the ordinary course of business and
approved by the Issuing Bank, such approval not to be unreasonably withheld,
(iv) shall, by its terms, expire not later than the earlier of (A) the first
anniversary of the date of issuance or extension (subject to extension for
additional one-year periods by the Issuing Bank, in its discretion, and any
automatic renewal clause requested in such Letter of Credit shall require
notice of non-renewal to be given no more than 90 days from the stated expiry
date), and (B) the Revolving Credit Termination Date; (v) shall require
payment by the Borrowers of an issuance fee of 1% per annum of the maximum
face amount of the Letter of Credit (with a minimum of $250), payable in
advance, annually and (vi) shall conform to all terms and conditions required
by the Issuing Bank as set forth in the applicable Reimbursement Agreement,
including, but not limited to, the condition that the Letter of Credit shall
be governed by the Uniform Customs and Practice for Documentary Credits (1993
Revision), ICC Publication No. 500, as amended.
(b) The Issuing Bank shall be under no obligation to issue any Letter
of Credit for which an application is made pursuant to Subsection 2.21(a)
above, but in the event that the Issuing Bank, in its sole discretion,
complies with such Borrower's request and issues a Letter of Credit, the
Issuing Bank shall give notice thereof to the Agent, which shall in turn give
to each Bank, prompt written or telecopy advice of the issuance of such
Letter of Credit; provided, however, that the Issuing Bank
24
<PAGE>
shall not issue or extend the expiry of any Letter of Credit if, immediately
after giving effect to such issuance or extension, the Banks' aggregate LC
Exposure plus the aggregate principal amount of Revolving Credit Loans then
outstanding at such time would exceed the Banks' aggregate Revolving Credit
Commitments.
(c) By the issuance of a Letter of Credit, and without any further
action on the part of the Issuing Bank or the Banks in respect thereof, the
Issuing Bank hereby grants to each Bank, and each Bank hereby acquires from
the Issuing Bank, a participation in each such Letter of Credit equal to such
Bank's pro rata percentage, based on the Revolving Credit Commitments in
effect at the time of any issuance of such Letter of Credit, of the maximum
face amount of such Letter of Credit, effective upon the issuance of such
Letter of Credit and pursuant to any other terms and conditions as the
Issuing Bank and the Banks may hereafter mutually agree in writing with
respect to such participations. In consideration and in furtherance of the
foregoing, each Bank hereby absolutely and unconditionally agrees to pay to
the Issuing Bank, in accordance with Subsection 2.21(d) below, such Bank's
pro rata percentage, based on its Revolving Credit Commitment, of each
un-reimbursed disbursement made by the Issuing Bank in connection with each
Letter of Credit; provided, however, that the Bank shall not be obligated to
make any such payment with respect to any disbursement made under any Letter
of Credit as a result of the gross negligence or willful misconduct of the
Issuing Bank. Each Bank acknowledges and agrees that its acquisition of
participations pursuant to this paragraph in respect of Letters of Credit is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including the occurrence and continuance of any Default or Event
of Default hereunder, and that each such payment shall be made without any
offset, abatement, withholding, or reduction whatsoever.
(d) Promptly after it shall have ascertained that any draft and any
accompanying documents presented under a Letter of Credit appear to be in
conformity with the terms and conditions of such Letter of Credit, the
Issuing Bank shall give written or telecopy notice to the Borrower, the
Agent, and the Banks of the receipt and amount of such draft and the date on
which payment thereon will be made. If the Issuing Bank shall not have
received from the Borrower the payment required pursuant to Subsection 2.21
(e) below by 12:00 noon, Kansas City time, one Business Day after the date on
which payment of a draft presented under any Letter of Credit has been made,
the Issuing Bank shall promptly so notify the Agent and each Bank, specifying
in the notice to each Bank such Bank's pro rata percentage, based on the
Revolving Credit Commitments on the date of issuance, of such disbursement.
Each Bank shall pay to the Agent, not later than 2:00 p.m. Kansas City time,
on such date, such Bank's percentage of such disbursement, which the Agent
shall promptly pay to the Issuing Bank. The Issuing Bank shall promptly remit
to each Bank such Bank's percentage of any amount subsequently received by
the Issuing Bank from the Borrower in respect of any such disbursement.
(e) If the Issuing Bank shall pay any draft presented under a Letter of
Credit under circumstances entitling it to reimbursement under the applicable
Reimbursement Agreement, the Borrowers shall promptly pay to the Issuing Bank
the amount of any such draft, and shall make all other payments required by,
and comply with all other terms and conditions of, the applicable
Reimbursement Agreement. With respect to any such payment which becomes due
under the terms of this Subsection 2.21(e), the Borrowers authorize the
Agent, at its option and upon the request of
25
<PAGE>
the Issuing Bank and the Majority Banks, to cause such payment to be made
when due by charging such payment as an advance under the Revolving Credit
Loans.
(f) Upon the occurrence of an Event of Default, or the occurrence of
any Default described in Subsections 7(f), 7(g) or 7(h), an amount equal to
the amount of the then aggregate LC Exposure shall without demand upon or
notice to any Borrower or any other Person, be deemed (as between the Issuing
Bank and each Borrower) to have been paid by the Issuing Bank under the then
outstanding Letters of Credit (notwithstanding that such amount may not in
fact have been so paid), and each Borrower shall be immediately obligated to
reimburse the Issuing Bank for the amount deemed to have been so paid. Any
amounts so received by the Issuing Bank pursuant to the provisions of the
foregoing sentence shall be deposited to a restricted deposit account (the
"ASSIGNEE DEPOSIT ACCOUNT") maintained by the Agent as collateral security
for the repayment of the Obligations. Neither any Borrower nor any other
Person shall have any right to withdraw funds deposited in the Assignee
Deposit Account, which right shall be vested solely in the Agent, on behalf
of the Banks. The funds deposited in the Assignee Deposit Account pursuant to
this Subsection 2.21(f) shall be applied at any time to the Obligations
whether or not then due in such order of application as the Majority Banks
may determine in their sole and absolute discretion.
SECTION 3. FEES; YIELD PROTECTION
3.1. FACILITY FEES. The Borrower shall pay to the Agent for the account
of each Bank a facility fee at a rate equal to (i) 1/10 of 1% per annum on
such Bank's proportionate share of the daily average amount of all of the
Banks' Reducing Revolving Credit Commitments as set forth in EXHIBIT A, for
the period from and including the date hereof to but excluding the earlier of
the date the Reducing Revolving Credit Commitments are terminated or the
Reducing Revolving Credit Termination Date; and (ii) 1/10 of 1% per annum on
the daily average amount of such Bank's Revolving Credit Commitment as set
forth in EXHIBIT A, for the period from and including the date hereof to but
excluding the earlier of the date Revolving Credit Commitments are terminated
or the Revolving Credit Termination Date. Accrued facility fees shall be
payable on each Quarterly Date and on the dates referred to in the
immediately preceding sentence.
3.2. ADDITIONAL EURODOLLAR LOAN COSTS.
(a) The Borrowers shall pay to the Agent for the account of each Bank
from time to time such amounts as such Bank may determine to be necessary to
compensate it for any Additional Eurodollar Loan Costs.
(b) Each Bank will notify the Borrowers of any event occurring after
the date of this Agreement which will entitle such Bank to compensation
pursuant to this Subsection 3.2 as promptly as practicable after it obtains
knowledge thereof and determines to request such compensation (which
determination such Bank will endeavor to make with reasonable promptness).
Each Bank will furnish the Borrowers with a certificate setting forth in
reasonable detail the basis and amount of each request by the Bank for
compensation under this Subsection 3.2.
26
<PAGE>
(c) Determinations and allocations by any Bank for purposes of this
Subsection 3.2 of the effect of any Regulatory Change on its costs or rate of
return of maintaining the Eurodollar Loans or its obligation to make
Eurodollar Loans, or on amounts receivable by it in respect of the Eurodollar
Loans, and of the amounts required to compensate such Bank under this
Subsection 3.2, shall be conclusive, provided that such determinations and
allocations are made on a reasonable basis and are set forth in reasonable
detail in the certificates referred to herein.
3.3. LIMITATION ON TYPES OF LOANS. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any Eurodollar Rate
for any Interest Period the Agent determines (which determination shall be
conclusive) that quotations of interest rates for the relevant deposits
referred to in the definition of "LIBOR" in Subsection 1.1 hereof are not
being provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for Eurodollar Loans as provided
herein, then the Agent shall give the Borrowers and each Bank prompt notice
thereof, and so long as such condition remains in effect, the Banks shall be
under no obligation to make additional Loans of such type, to Continue Loans
of such type or to Convert Loans of any other type into Loans of such type
and the Borrowers shall, on the last day(s) of the then current Interest
Period(s) for the outstanding Loans of such type, either prepay such Loans or
Convert such Loans into another type of Loan.
3.4. ILLEGALITY. Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Bank to honor its obligation to
make or maintain Eurodollar Loans hereunder, then such Bank shall promptly
notify the Borrowers thereof (with a copy to the Agent) and such Bank's
obligation to make or Continue Eurodollar Loans, or Convert Loans into
Eurodollar Loans, shall be suspended until such time as such Bank may again
make and maintain Eurodollar Loans and such Bank's outstanding Eurodollar
Loans shall be Converted into Corporate Base Rate Loans in accordance with
Subsection 3.5 hereof.
3.5. CERTAIN CONVERSIONS PURSUANT TO SUBSECTIONS 3.3 AND 3.4. If the
Eurodollar Loans of any Bank (such Loans being herein called "AFFECTED
LOANS") are to be Converted pursuant to Subsection 3.3 or 3.4 hereof, such
Bank's Affected Loans shall be automatically Converted into Corporate Base
Rate Loans on the last day(s) of the then current Interest Period(s) for the
Affected Loans (or on such earlier date as such Bank may specify to the
Borrowers with a copy to the Agent) and, unless and until such Bank gives
notice as provided below that the circumstances specified in Subsection 3.3
or 3.4 hereof which gave rise to such Conversion no longer exist:
(a) to the extent that such Bank's Affected Loans have been so
Converted, all payments and prepayments of principal which would otherwise be
applied to such Bank's Affected Loans shall be applied instead to its
Corporate Base Rate Loans; and
(b) all Loans which would otherwise be made or Continued by such Bank
as Eurodollar Loans shall be made or Continued instead as Corporate Base Rate
Loans and all Loans of such Bank which would otherwise be Converted into
Eurodollar Loans shall be Converted instead into (or shall remain as)
Corporate Base Rate Loans.
If such Bank gives notice to the Borrowers (with a copy to the Agent) that
the circumstances specified in Subsection 3.3 or 3.4 hereof which gave rise
to the Conversion or non-Continuation of
27
<PAGE>
such Bank's Affected Loans pursuant to this Subsection 3.5 no longer exist
(which such Bank agrees to do promptly upon such circumstances ceasing to
exist) at a time when Eurodollar Loans are outstanding, such Bank's Corporate
Base Rate Loans shall be automatically Converted, on the first day(s) of the
next succeeding Interest Period(s) for such outstanding Eurodollar Loans, to
the extent necessary so that, after giving effect thereto, all Loans held by
the Banks holding Eurodollar Loans and by such Bank are held pro rata (as to
principal amounts and Interest Periods) in accordance with their respective
Commitments.
3.6. COMPENSATION. The Borrowers shall pay to the Agent for the account
of each Bank, upon the request of such Bank through the Agent, such amount or
amounts as shall be sufficient (in the reasonable opinion of such Bank) to
compensate it for any loss, cost or expense which such Bank incurs
(including, without limitation, any loss, cost or expense incurred by reason
of the liquidation or re-employment of deposits, but excluding loss of
anticipated profits) and determines is attributable to:
(a) any payment, prepayment or Conversion of a Eurodollar Loan made by
such Bank for any reason (including, without limitation, pursuant to
Subsection 2.11 hereof or by reason of the acceleration of the Loans pursuant
to Section 7 hereof) on a date other than the last day of an Interest Period
for such Loan; or
(b) any failure by the Borrowers for any reason (including, without
limitation, the failure of any of the conditions precedent specified in
Section 4 hereof to be satisfied) to borrow a Eurodollar Loan from such Bank
on the date for such borrowing specified in the relevant notice of borrowing
given pursuant to Subsection 2.15 hereof.
SECTION 4. CONDITIONS PRECEDENT
4.1. CONDITIONS PRECEDENT TO THE LOANS. The obligation of any Bank to
make any Loans hereunder on the initial Borrowing Date is subject to each of
the following conditions precedent:
(a) The Agent shall have received the following, each of which shall be
in form and substance satisfactory to the Agent:
(i) the Notes, duly executed and delivered by the Borrowers;
(ii) this Agreement, duly executed and delivered by the Borrowers;
(iii) the Security Agreement, the Aircraft Security Agreement, Negative
Pledge Agreement, and all other Credit Documents duly executed by the
Borrowers, together with all documents and other items, the delivery of
which is set forth in any Credit Document as a condition precedent to the
making of any Loan hereunder;
(iv) Certified copies of the Certificate of Incorporation and Bylaws (or
equivalent documents) of each of the Borrowers and of resolutions of their
respective Boards of Directors
28
<PAGE>
authorizing the making and performance by each of the Borrowers of
this Agreement, the Notes, all other Credit Documents, and the
transactions contemplated hereby and thereby;
(v) A certificate of appropriate officers of each of the Borrowers in
respect of each of its officers (A) who is authorized to execute and
deliver, as the case may be, this Agreement, the Notes, and all other
Credit Documents, and (B) who will, until replaced by another officer or
officers duly authorized for that purpose, act as its representative for
the purpose of signing documents and giving notices and other
communications in connection with this Agreement and the other Credit
Documents and the transactions contemplated hereby and thereby (and the
Agent and the Banks may conclusively rely on such certificate until it
receives notice in writing from such Borrower to the contrary);
(vi) Copies of duly completed and executed Uniform Commercial Code
Financing Statements with respect to the property subject to the Liens
created under the Security Agreement, together with evidence satisfactory
to the Agent that such Financing Statements have been duly filed in all
jurisdictions in which such filing is necessary or appropriate, and with
the results of Uniform Commercial Code, tax, and judgment searches, as may
be requested by the Agent;
(vii) Evidence satisfactory to the Agent that the Security Documents
create valid, first priority and perfected Liens on the property covered
thereby, subject to no other Liens (except Permitted Liens), which
evidence shall include, but not be limited to, the legal opinions
referred to in subparagraph (ix) below and such Uniform Commercial Code
termination statements and landlords' lien waivers and consents as the
Agent may require;
(viii) Certificates of all insurance policies required by this Agreement
and the other Credit Documents together with loss payable endorsements in
favor of the Agent to all such insurance policies;
(ix) An opinion of Morrison & Hecker, counsel to the Borrowers, addressing
such matters and in such form as the Agent may reasonably require; and
(x) Such other documents as the Agent may reasonably request.
(b) No material adverse change in the assets, prospects, business,
operations, financial condition, liabilities or capitalization of any
Borrower shall have occurred since December 31, 1995.
(c) No litigation or similar proceeding shall exist or be threatened
with respect to the making of the Loans or consummation of the transactions
contemplated hereby, and no Requirement of Law shall have been proposed,
promulgated or deemed applicable which is likely to have a material adverse
effect on the assets, liabilities, operations, business, prospects, financial
condition or capitalization of any Borrower, on the timely payment of the
principal of or interest on the Loans, or the enforceability of this
Agreement, the Notes or any of the other Credit Documents, or the Banks'
rights and remedies hereunder or thereunder.
29
<PAGE>
(d) All representations and warranties made by any Borrower herein or
in any of the other Credit Documents, or in any certificate or statement
furnished in connection with the Loans or otherwise, are true and correct in
all material respects as of the date of each Loan as if made on and as of
such date.
(e) No Default or Event of Default shall have occurred and be
continuing as of the date of any Loan or after giving effect to any Loan.
(f) The Loans, the use of the proceeds thereof, the other transactions
contemplated by this Agreement and the other Credit Documents, and the
performance thereof by the Borrowers and/or the Banks shall not violate,
contravene, or conflict with, any Requirement of Law.
4.2. SUBSEQUENT LOANS AND ADVANCES. Each borrowing hereunder and each
issuance of a Letter of Credit is subject to each condition precedent set
forth in Subsection 4.1 above. In addition, in the case of each borrowing
hereunder and each issuance of a Letter of Credit, such borrowing or request
for a Letter of Credit to be issued and the related notice thereof by the
Borrowers hereunder shall constitute a certification by the Borrowers, as of
the date of such borrowing or request for a Letter of Credit to be issued,
and after giving effect thereto, that (i) all representations and warranties
made by the Borrowers herein (except those regarding Subsidiaries and
Material Contracts made at Subsections 5.12 and 5.14 hereof that are
identified as being made "as of the date hereof") or in any of the other
Credit Documents, or in any certificate or statement furnished in connection
with the Loans or otherwise, are true and correct in all material respects as
if made on and of such date, and (ii) no Default or Event of Default shall
have occurred and be continuing.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers
represents and warrants, as to itself, to the Agent and the Banks as follows:
5.1. CORPORATE EXISTENCE AND STRUCTURE. Each of the Borrowers and its
Subsidiaries is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its organization; has all
requisite corporate power; has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry
on its business as now being or as proposed to be conducted; and is qualified
to do business in all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary and where failure to so
qualify would have a material adverse effect on the assets, prospects,
business, operations, financial condition, liabilities or capitalization of
any such Borrower.
5.2. FINANCIAL CONDITION. The audited consolidated balance sheet of the
Borrowers as at December 31, 1995, and the related consolidated statements of
earnings and changes in financial position of the Borrowers for the fiscal
year ended on said date, with the opinion thereon of KPMG Peat Marwick,
heretofore furnished to each of the Banks, fairly present the consolidated
financial condition of the Borrowers as at said date and the consolidated
results of their operations for the period covered thereby, all in accordance
with GAAP applied on a consistent basis. Except as disclosed on SCHEDULE 5.2
hereto, no Borrower had on said date any material (on a consolidated basis
for all Borrowers) contingent liabilities, material (on a consolidated basis
for all Borrowers) liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said
balance sheet or
30
<PAGE>
the notes thereto as at said date. Since December 31, 1995, there has been no
material adverse change in the assets, prospects, business, operations,
financial condition, liabilities (direct or contingent) or capitalization of
the Borrowers from that set forth in said financial statements as at said
date.
5.3. LITIGATION. Except as disclosed on SCHEDULE 5.3 hereto, there are
no legal or arbitration proceedings or any proceedings by or before any
Governmental Authority now pending, or (to any Borrower's knowledge)
threatened, against any Borrower.
5.4. NO BREACH. None of the execution and delivery of this Agreement,
the Notes, or any of the other Credit Documents, the consummation of the
transactions herein and therein contemplated, or the performance or
compliance with the terms and provisions hereof or thereof will conflict with
or result in a breach of, or require any consent or prepayment under: (i) the
charter or bylaws of any Borrower, or (ii) any order, writ, injunction or
decree of any court or other Governmental Authority or any arbitration board
applicable to or binding on any Borrower, or (iii) any material agreement or
instrument to which any Borrower is a party or by which it is bound, or
constitute a default under any such agreement or instrument, or result in the
creation or imposition of any Lien (other than Permitted Liens) on any of the
properties, assets or revenues of any Borrower pursuant to the terms of any
such agreement or instrument.
5.5. CORPORATE ACTION; BINDING EFFECT. Each Borrower has all necessary
corporate power and authority to make and perform this Agreement, the Notes,
the Reimbursement Agreements, and each of the other Credit Documents, and the
making and performance by each Borrower of this Agreement, the Notes, the
Reimbursement Agreements, and each of the other Credit Documents, and the
consummation of the transactions contemplated hereby and thereby, have been
duly authorized by all necessary corporate action on its part. This Agreement
constitutes, each of the Notes when executed and delivered for value will
constitute, and each of the other Credit Documents executed or to be executed
by any Borrower, constitutes, the legal, valid and binding obligation of such
Borrower, enforceable in accordance with its terms, except to the extent that
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally, and by general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law).
5.6. APPROVALS. No authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority or any other Person
are necessary for the making or performance by any Borrower of this
Agreement, the Notes, the Letters of Credit, or any of the other Credit
Documents, or the validity or enforceability thereof.
5.7. ERISA. Each Borrower and each of its ERISA Affiliates have fulfilled
their respective obligations under the minimum funding standards of ERISA and
the Code with respect to each Plan and are in compliance in all material
respects with the presently applicable provisions of ERISA and the Code, and
have not incurred any material liability to the PBGC or any Plan or
Multiemployer Plan, other than an obligation to fund or make contributions to
any such Plan in accordance with its terms and in the ordinary course.
5.8. TAXES. Except as disclosed on SCHEDULE 5.8 hereto, the Borrowers
and all of their respective Subsidiaries have filed all United States Federal
income tax returns and all other material
31
<PAGE>
tax returns which are required to be filed by them and have paid all taxes
shown to be due pursuant to such returns or pursuant to any assessment
received by such Borrower or such Subsidiary, except those taxes being
contested in good faith by proper proceedings and (except in the case of
Inactive Subsidiaries) for which adequate reserves are being maintained.
5.9. INVESTMENT COMPANY ACT. None of the Borrowers is an "investment
company" or a company "controlled" by an"investment company" within the
meaning of the Investment Company Act of 1940, as amended.
5.10. PUBLIC UTILITY HOLDING COMPANY ACT. None of the Borrowers 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.
5.11. ENVIRONMENTAL MATTERS.
(a) Each of the Borrowers and each of their respective Subsidiaries has
obtained all applicable permits, licenses and other authorizations which are
required under all Environmental Laws, including laws relating to emissions,
discharges, releases or threatened releases of Hazardous Materials into the
environment (including, without limitation, ambient air, surface water,
ground water or land) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, except to the extent failure to have any such permit,
license or authorization does not have, and will not have, a material adverse
effect on the assets, prospects, business, operations, financial condition,
liabilities or capitalization of such Borrower. Except as set forth in
SCHEDULE 5.11 hereto, each of the Borrowers and each of their respective
Subsidiaries is in compliance with all applicable Environmental Laws and with
all terms and conditions of all permits, licenses and authorizations required
to be obtained by it, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in applicable Environmental Laws or
contained in any regulations, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, except to the extent that failure to so comply does not have, and
will not have, a material adverse effect on the assets, prospects, business,
operations, financial condition, liabilities or capitalization of such
Borrower or Subsidiary.
(b) Except as set forth on SCHEDULE 5.11 hereto, (i) none of the
Borrowers or any of their respective Subsidiaries has used, stored, treated,
transported, manufactured, refined, handled, produced or disposed of any
Hazardous Materials or Petroleum Products on, under, at, from, or otherwise
affecting any of their properties or assets, in any manner which at the time
of the action in question materially violated any applicable Environmental
Law governing the use, storage, treatment, transportation, manufacture,
refinement, handling, production or disposal of such Hazardous Materials or
Petroleum Products, and (ii) to the best of each Borrower's knowledge, no
prior owner of such property or asset or any past or present tenant,
subtenant, or other occupant or user thereof has used Hazardous Materials or
Petroleum Products on, at, under, from or affecting such property or asset,
in any manner which at the time of the action in question materially violated
any applicable Environmental Law governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or disposal of
Hazardous Materials or Petroleum Products.
32
<PAGE>
(c) Except as set forth on SCHEDULE 5.11 hereto, none of the Borrowers
or any of their respective Subsidiaries has any obligations or liabilities
under any applicable Environmental Law which could reasonably be expected to
have a material adverse effect on the business, prospects, assets, financial
condition, operations, liabilities or capitalization of such Borrower or
Subsidiary, and none of the Borrowers or any of their respective Subsidiaries
has received notice of any claims against it, and no presently outstanding
citations or notices have been issued against or received by it which could
reasonably be expected to have a material adverse effect on the business,
prospects, assets, operations, financial condition, liabilities or
capitalization of such Borrower or Subsidiary which in any case have been or
are imposed by reason of or based on any applicable Environmental Law.
5.12. CAPITALIZATION OF THE BORROWERS.
(a) The authorized capital stock of HII consists of 20,000,000 shares
of common stock, par value $0.25 per share (the "HII Capital Stock"), of
which 6,805,626 shares are issued and outstanding on the date hereof. All
such outstanding shares of HII Capital Stock are fully paid and
nonassessable. HEI, EPC, and CAMCO is each a Wholly-Owned Subsidiary of HII,
and HII owns and has good title to (free and clear of all Liens), and has the
unencumbered right to vote all the outstanding shares of capital stock of
each such Wholly-Owned Subsidiary. As of the date hereof, HII has only the
Subsidiaries listed on SCHEDULE 5.12 hereto. Except as disclosed on SCHEDULE
5.12 hereto, there are no outstanding subscriptions, options, warrants,
calls, rights (including preemptive rights) or other agreements or
commitments of any nature relating to any of the HII Capital Stock.
(b) The authorized capital stock of HEI consists of 30,000 shares of
common stock, par value $10 per share (the "HEI Capital Stock"), of which 100
shares are issued and outstanding on the date hereof. All such outstanding
shares of HEI Capital Stock are fully paid and nonassessable and are owned
beneficially and of record by HII, free and clear of all Liens and
encumbrances whatsoever. As of the date hereof, HEI has no Subsidiaries.
There are no outstanding subscriptions, options, warrants, calls, rights
(including preemptive rights) or other agreements or commitments of any
nature relating to any of the HEI Capital Stock.
(c) The authorized capital stock of EPC consists of 1,000 shares of
common stock, no par value per share (the "EPC Capital Stock"), of which
1,000 shares are issued and outstanding on the date hereof. All such
outstanding shares of EPC Capital Stock are fully paid and nonassessable and
are owned beneficially and of record by HII, free and clear of all Liens and
encumbrances whatsoever. As of the date hereof, EPC has no Subsidiaries.
There are no outstanding subscriptions, options, warrants, calls, rights
(including preemptive rights) or other agreements or commitments of any
nature relating to any of the EPC Capital Stock.
(d) The authorized capital stock of CAMCO consists of 30,000 shares of
common stock, par value $1 per share (the "CAMCO Capital Stock"), of which
100 shares are issued and outstanding on the date hereof. All such
outstanding shares of CAMCO Capital Stock are fully paid and nonassessable
and are owned beneficially and of record by HII, free and clear of all Liens
and encumbrances whatsoever. As of the date hereof, CAMCO has no
Subsidiaries. There are no outstanding subscriptions, options, warrants,
calls, rights (including preemptive rights) or other agreements or
commitments of any nature relating to any of the CAMCO Capital Stock.
33
<PAGE>
5.13. ASSETS OF THE BORROWERS. Each of the Borrowers has good and
marketable title to all of its properties and assets, free and clear of all
Liens (except Permitted Liens).
5.14. MATERIAL CONTRACTS.
(a) Any agreement or instrument that has or is likely to have a
material effect on the assets, prospects, business, operations, financial
condition, liabilities or capitalization of any Borrower is referred to in
this Subsection 5.14 as a "MATERIAL CONTRACT". As of the date hereof, all of
the Borrowers Material Contracts are listed on SCHEDULE 5.14 hereto.
(b) None of the Borrowers is in default under any Material Contract in
any manner that could materially and adversely affect the assets, prospects,
business, operations, financial condition, liabilities or capitalization of
any such Borrower, or in any manner that could jeopardize the Borrower's
right to require the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Material Contract.
5.15. SOLVENCY.
(a) The fair saleable value of the total assets of the Borrowers (on a
consolidated basis) exceeds and will, immediately following the making of the
Loans, exceed the amount that will be required to be paid on or in respect of
the existing debts and other liabilities (including contingent liabilities)
of such Borrowers as they mature.
(b) None of the Borrowers intends to, or believes that it will, incur
debts beyond its ability to pay such debts as they mature.
5.16. SECURITY DOCUMENTS. On and after the date hereof, the Security
Documents create, as security for the Obligations purported to be secured
thereby, a valid, enforceable and perfected security interest in and Lien on
all of the properties covered thereby in favor of the Bank, superior to and
prior to the rights of all third Persons and subject to no other Liens (other
than Permitted Liens). The respective pledgor, assignor or mortgagor, as the
case may be, has good and marketable title to all such properties free and
clear of all Liens (other than Permitted Liens). No filings or recordings are
required in order to perfect the security interests created under, and/or the
Liens granted by, the Security Documents, except for filings or recordings
with respect to the Liens created by the Security Documents required or
contemplated hereby.
5.17. MARGIN REGULATIONS. Neither the making of the Loans hereunder, nor
the use of the proceeds thereof, will violate or be inconsistent with the
provisions of Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System. No part of the proceeds of any Loan will be used,
whether directly or indirectly, and whether immediately, incidentally or
ultimately, to purchase or to extend credit to others for the purpose of
purchasing or carrying Margin Stock (as defined in said Regulation U).
5.18. COPYRIGHTS, PATENTS AND OTHER RIGHTS. Each of the Borrowers
possesses all patents, patent rights or patent licenses, trademark rights,
trade names, trade name rights and copyrights and all other intellectual
property rights which are required to conduct its business as presently
conducted,
34
<PAGE>
and, to the best of such Borrower's knowledge, such rights do not
infringe on or conflict with the rights of any other Person.
5.19. DISCLOSURE. Neither this Agreement, nor any of the other Credit
Documents, nor any certificate or statement furnished to the Agent or any
Bank in connection herewith or otherwise, at the time it was executed,
delivered and/or furnished, contained any untrue statement of a material
fact, or omitted to state a material fact which was necessary in order to
make the statements contained herein or therein not materially misleading. At
the date hereof, there is no fact known to any Borrower which materially and
adversely affects, or in the future may reasonably be expected to materially
and adversely affect, the business, assets, prospects, operations, financial
condition, liabilities or capitalization of any Borrower.
5.20. LABOR MATTERS. For at least the last 5 years, none of the
Borrowers has experienced any strike, labor dispute, slowdown or work
stoppage due to labor disagreement, and to the best of each Borrower's
knowledge, there is no strike, dispute, slowdown or work stoppage threatened
against any Borrower or any of their respective Subsidiaries.
5.21. NO EVENT OF DEFAULT. No Default or Event of Default has occurred
and is continuing.
5.22. USE OF PROCEEDS. The proceeds of the Loans will be used by the
Borrowers for working capital for general corporate operating purposes,
including but not limited to Acquisitions that are permitted by the terms of
this Agreement. All Loans are and shall be (i) business loans, loans to a
corporation as provided in Mo. Rev. Stat. Section 408.035, (ii) business
loans within the meaning of the Depository Institutions Deregulation and
Monetary Control Act of 1980, as amended, and (iii) for business, commercial,
investment or other similar purpose and not primarily for personal, family,
household or agricultural use (as such terms are used or defined in
Regulation Z promulgated by the Board of Governors of the Federal Reserve
System and Title I and V of the Consumer Credit Protection Act, as amended).
5.23. BENEFIT TO ALL BORROWERS. Because the operations and business
activities of the Borrowers are highly integrated and interdependent, at any
particular time it is impractical to determine which of the Borrowers will
directly receive the proceeds of a specific advance under the Loans. From time
to time, the Borrowers shall jointly and severally receive the proceeds of the
Loans and the Borrowers represent and warrant that the subsequent receipt and
use of such proceeds by any particular Borrower inures to the economic benefit
directly or indirectly of all other Borrowers. Each Borrower hereby designates,
appoints, authorizes and directs each of the officers designated in the
certified resolution of the board of directors of that Borrower delivered to the
Agent on the date hereof (the "AUTHORIZED OFFICER") to act on behalf of that
Borrower for purposes of giving notice to the Agent of requests for Loans under
Subsection 2.2 hereof and for otherwise giving notices under this Agreement or
the other Credit Documents. The Agent and the Banks are entitled to rely and act
on the instructions of the Authorized Officer on behalf of each Borrower. Each
Borrower covenants and agrees to assume liability for and to protect, indemnify
and hold harmless the Agent and the Banks from any and all liabilities,
obligations, damages, penalties, claims, causes of action, costs, charges and
expenses (including without limitation, attorneys' fees), which may be incurred
by, imposed or asserted against the Agent or any Bank howsoever arising or
incurred because of, out of or in connection with the Agent or any Bank dealing
with the Authorized Officer on behalf of such
35
<PAGE>
Borrower, other than those liabilities, obligations, damages, penalties,
claims, causes of action, costs, charges and expenses incurred by reason of
the gross negligence or willful misconduct of such Agent or Bank, as the case
may be.
SECTION 6. COVENANTS. Until payment in full of the principal of and
interest on the Loans and all other amounts payable by the Borrowers hereunder
or under any of the other Credit Documents and until the expiration of the
Commitments:
6.1. INFORMATION. The Borrowers shall deliver to the Agent, with copies for
each of the Banks:
(a) as soon as available and in any event within 45 days after the
end of each of the first 3 fiscal quarters, and within 120 days after the end
of the last fiscal quarter, in each fiscal year of the Borrowers (commencing
with the first whole or partial fiscal quarter after the date hereof),
consolidated statements of operations and statements of cash flows of the
Borrowers and their Subsidiaries, and a separate income statement for each
Borrower, for such quarter and for the period from the beginning of the
respective fiscal year to the end of such quarter, and the related
consolidated balance sheet and statements of stockholders' equity, and a
separate balance sheet for each Borrower, as at the end of such quarter,
setting forth in each case in comparative form the corresponding figures for
the corresponding period in the preceding fiscal year, accompanied by a
certificate of a principal financial officer of the Borrowers, which
certificate shall state that said financial statements fairly present the
consolidated or separate, as the case may be, financial condition and results
of operations of the Borrowers in accordance with GAAP consistently applied,
as at the end of, and for, such period (subject to normal year-end audit
adjustments and to the absence of footnote disclosures); provided, however,
that the separate income statements and balance sheets for each Borrower as
incorporated in the consolidated income statements and balance sheets may
contain deviations from GAAP that, in the context of the consolidated income
statements and balance sheets, are not material.
(b) as soon as available, and in any event within 120 days after
the end of each fiscal year of the Borrowers, consolidated and consolidating
statements of operations and consolidated statements of cash flows of the
Borrowers and their Subsidiaries for such year and the related consolidated
and consolidating balance sheet and consolidated statement of stockholders'
equity as at the end of such year, setting forth in the case of each
consolidated statement and balance sheet in comparative form the
corresponding figures for the preceding fiscal year, and accompanied by an
unqualified opinion thereon, or an unqualified opinion with explanatory
language added to the auditors' standard report, of independent certified
public accountants satisfactory to the Agent, which opinion shall state that
said consolidated financial statements fairly present the consolidated
financial condition and results of operations of the Borrowers as at the end
of, and for, such fiscal year, and a certificate of such accountants stating
that, in making the examination necessary for their opinion, they obtained no
knowledge, except as specifically stated, of any Default or Event of Default
continuing as of the date of such certificate;
(c) promptly upon their becoming available, copies of all
registration statements and annual, periodic or other regular reports, final
proxy statements and such other similar
36
<PAGE>
information as shall be filed by any Borrower with the SEC, any national
securities exchange or (to the extent not duplicative) any other similar
Governmental Authority;
(d) promptly upon the mailing thereof to the shareholders of any
Borrower generally, copies of all notices, financial statements, reports and
proxy statements so mailed;
(e) as soon as possible, and in any event within ten days after
any Borrower knows that any "reportable event" as defined in ERISA or notice
of termination with respect to any Plan or Multiemployer Plan have occurred
or exist, a statement signed by a senior officer of the Borrower setting
forth details respecting such event or condition and the action, if any,
which any Borrower or its ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed with or
given to PBGC by any Borrower or an ERISA Affiliate with respect to such
event or condition);
(f) not less than 10 Business Days prior to the formation of any
Subsidiary or to any Acquisition that, upon the consummation of that
Acquisition, will result in any Person becoming a Subsidiary of any Borrower,
notice thereof describing such transaction or event and the expected proceeds
to be received therefrom, in detail satisfactory to the Majority Banks;
(g) promptly upon receipt by any Borrower, a copy of any
management letter sent by the such Borrower's independent certified public
accountants (which shall deliver the opinion on the Borrowers' financial
statements pursuant to clause (b) above), and promptly upon completion of any
response report, a copy of such response report;
(h) promptly after any Borrower knows that any Default has
occurred, notice of such Default, describing the same in reasonable detail
and describing the steps being taken to remedy the same;
(i) promptly from time to time such other information regarding
(i) the business, affairs, operations or condition (financial or otherwise)
of the Borrowers, (ii) compliance by the Borrowers with their obligations
contained herein or in any of the other Credit Documents, and (iii) the
transactions contemplated hereby, in each case in such form and in such
detail as the Majority Banks may reasonably request;
(j) promptly after obtaining knowledge thereof, any material
adverse change in the business, prospects, assets, financial condition,
liabilities or capitalization of any Borrower or any Marketing Vehicle, to
the extent not reported pursuant to any other provision hereof.
On or before each Certification Date, the Borrowers will furnish to the
Agent, with copies for each Bank, a certificate of a principal financial
officer of the Borrowers (i) to the effect that no Default has occurred and
is continuing, (ii) setting forth in reasonable detail the computations
necessary to determine whether the Borrowers are in compliance with the
financial covenants hereof as of the end of the respective fiscal quarter or
fiscal year, including the aggregate amount payable by the Borrowers in
respect of income taxes during the most recent fiscal quarter, (iii) to the
effect that all representations and warranties made by the Borrowers in this
Agreement (except those regarding Subsidiaries and Material Contracts made at
Subsections 5.12 and 5.14 hereof that are identified as
37
<PAGE>
being made "as of the date hereof") or in any of the other Credit Documents
are true and correct in all material respects as of the date of such
certificate with the same force and effect as if made on such date, and (iv)
containing such other information as the Agent or any Bank (through the
Agent) may from time to time reasonably request to be included in such
certificate.
6.2 LITIGATION, ETC. The Borrowers shall promptly give to the Agent, with
copies for each of the Banks, notice of:
(a) all legal or arbitration proceedings, and of all proceedings
by or before any Governmental Authority affecting any Borrower or its
Subsidiary which, if adversely determined, might result in a monetary loss
(regardless of whether any portion of such loss is covered by insurance) to
the Borrowers in an amount in excess of $500,000 individually or in excess of
$1,000,000 in the aggregate for all such proceedings; and
(b) the issuance by any Governmental Authority of any injunction,
order or other restraint prohibiting, or having the effect of prohibiting or
delaying, any action on the part of any Borrower or its Subsidiary, or the
institution of any litigation or similar proceedings seeking any such
injunction, order or other restraint.
6.3. COMPLIANCE, INSPECTION, ETC. Each Borrower shall, and shall cause each
of its Subsidiaries to:
(a) comply with all applicable Requirements of Law if failure to
so comply would materially and adversely affect the assets, prospects,
business, operations, financial condition, liabilities or capitalization of
any Borrower, or any of their respective Subsidiaries, or the timely payment
of the principal of or interest on the Loans, or the enforceability of this
Agreement, the Notes or any of the other Credit Documents or the rights and
remedies of the Agent or the Banks hereunder or thereunder;
(b) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of its
property prior to the date on which penalties attach thereto, except for any
such tax, assessment, charge or levy the payment of which is being contested
in good faith and by proper proceedings and against which adequate reserves
are being maintained or which are (except in the case of Inactive
Subsidiaries) bonded against to the satisfaction of the Majority Banks;
(c) permit representatives of the Agent and the Banks, during
normal business hours, to examine, copy and make extracts from its books and
records, to inspect its properties, and to discuss its business and affairs
with its officers, all to the extent reasonably requested by the Agent or any
Bank, which shall include, but not be limited to, conducting field audits of
the Borrowers' assets; provided however, that the expenses of such field
audits for which the Borrowers will be responsible under Subsection 9.3
hereof will be limited to the lower of $3,500 per audit per quarter or $500
per day per audit per quarter, plus in each case reasonable out of pocket
expenses of such field auditors; provided further, that the Agent and the
Banks agree to keep confidential any proprietary or confidential information
so disclosed to the Agent or the Banks by any Borrower, including but not
limited to confidential or proprietary information consisting of product
trade secrets,
38
<PAGE>
marketing plans, non-public financial information and business
plans, subject to the right of the Agent and the Banks to (i) use such
information internally for evaluation purposes and (ii) use or disclose such
information in accordance with regulatory requirements or in any legal
proceeding relating to this Agreement; and
(d) as soon as possible and in any event within 10 days after any
Borrower has received any notice or other communication from any Governmental
Authority to the effect that the Borrower, any such Borrower or any of its
Subsidiaries is not in compliance with any Environmental Law or any permit,
license or authorization referred to in Subsection 5.11 hereof (in accordance
with the provisions thereof), a notice of such circumstance describing the
same in reasonable detail.
6.4. USE OF PROCEEDS. The proceeds of the Loans shall be used solely for
working capital and general corporate purposes of the Borrowers, including
but not limited to both prior and future Acquisitions permitted by the terms
of this Agreement, and in accordance with Subsections 5.17 and 5.22 hereof.
6.5. CURRENT RATIO. The Borrowers shall not permit the Current Ratio to
be less than 1.40 to 1.00 at any time.
6.6. MINIMUM TANGIBLE NET WORTH. The Borrowers shall not permit
Tangible Net Worth on any date during the term of this Agreement to be less
than $37,000,000.00.
6.7. FUNDED DEBT RATIO. The Borrowers shall not permit the Funded Debt
Ratio at any time during the term of this Agreement to exceed 55%.
6.8. LEVERAGE RATIO. The Borrowers shall not permit the Leverage Ratio
at any time to exceed 2.00 to 1.00.
6.9. FIXED CHARGES COVERAGE RATIO. The Borrowers shall not permit the
Fixed Charges Coverage Ratio for any Fiscal Period ending during the term of
this Agreement to be less than 1.50, provided, however, the Borrowers'
planned Capital Expenditures permitted by the Credit Agreement dated as of
June 28, 1993, as amended, for calendar year 1995, which were deferred from
calendar year 1995 and listed in SCHEDULE 6.9, and which are made in calendar
year 1996, need not be included in the calculation of the Fixed Charges
Coverage Ratio during such Fiscal Periods; provided, further, that the
Borrowers shall not permit the Fixed Charges Coverage Ratio (calculated
without giving effect to the exclusion in the preceding clause) to be less
than 1.00 to 1.00 for any such Fiscal Periods.
6.10. INTEREST COVERAGE RATIO. The Borrowers shall not permit the
Interest Coverage Ratio for any Fiscal Period ending during the term of this
Agreement to be less than 2.25 to 1.00.
6.11. INDEBTEDNESS. No Borrower shall, nor shall it permit any of its
Subsidiaries to, create, assume, incur or suffer to exist any Indebtedness
except:
(a) Indebtedness of the Borrowers under this Agreement, the Notes,
the Reimbursement Agreements and the other Credit Documents;
39
<PAGE>
(b) Existing Indebtedness of the Borrowers listed in SCHEDULE 6.11
hereto; and
(c) Indebtedness of the Borrowers and their respective
Subsidiaries (other than Indebtedness permitted under clauses (a) and (b) of
this Subsection 6.11) not exceeding an aggregate principal amount of
$5,000,000 at any time outstanding.
6.12. MERGERS, ACQUISITIONS, SALE OF ASSETS, ETC. No Borrower shall, nor
shall it permit any Subsidiary to, consolidate or merge with any other
Person, or sell, lease, assign, transfer or otherwise dispose of all or any
part of its business or assets to any other Person, or be a party to any
Acquisition of any other Person or all or substantially all of such Person's
assets, other than:
(a) sales of inventory in the ordinary course of business;
(b) the disposition of obsolete or worn-out fixed assets, plant,
equipment or other property no longer required by or useful to any Borrower
or its Subsidiary in connection with the operation of its business;
(c) sales, assignments, transfers or other dispositions of assets
(other than stock) for cash consideration, but only so long as the aggregate
fair market value of the assets so disposed of by any Borrower does not
exceed 10% of the fair market value of such Borrower's total assets in the
aggregate as at the end of the preceding fiscal year of such Borrower (and if
any such assets shall be subject to a Lien under one of the Security
Documents the Agent shall, at such Borrower's expense, release and terminate
such Lien at the time of such sale, but only as to such assets);
(d) any Acquisition so long as not less than sixty (60) days prior
to the consummation of such Acquisition, Borrower shall provide each Bank the
following information: (i) a pro forma balance sheet for the Borrowers and
Subsidiaries both on an individual basis and a consolidated basis after
giving effect to the Acquisition, (ii) a pro forma income statement for the
Borrowers and Subsidiaries on both an individual basis and a consolidated
basis after giving effect to the Acquisition, (iii) a pro forma compliance
certificate after giving effect to the Acquisition, and (iv) a pro forma
statement of sources and uses of cash in connection with the Acquisition; and
(e) any merger, consolidation or sale or other transfer of assets
among the Borrowers, if after giving effect thereto, no Default or Event of
Default has occurred and is continuing and provided that one of the Borrowers
is the surviving corporation thereof.
6.13. DIVIDENDS AND DISTRIBUTIONS. No Borrower shall, nor shall it
permit any Subsidiary to, declare or pay, directly or indirectly, any
dividend or make any other distribution (by reduction of capital or
otherwise), whether in cash, property, securities or a combination thereof,
with respect to any shares of its capital stock or directly or indirectly
redeem, purchase, retire or otherwise acquire for value any shares of any
class of its capital stock or set aside any amount for any such purpose (the
foregoing transactions being collectively called "RESTRICTED PAYMENTS");
provided that (a) any Borrower may declare and pay dividends payable solely
in shares of its common stock, (b) any Borrower or Subsidiary may make
Restricted Payments to another Borrower, and (c) so long as immediately after
giving effect to any such proposed action no Default shall have occurred and
be continuing, HII may make Restricted Payments in respect of its common
stock either in cash or
40
<PAGE>
securities of HII if the aggregate amount or fair market value thereof shall
not exceed the sum of (i) 50% of Consolidated Net Income (net of cumulative
losses) for the period (taken as a single accounting period) beginning
January 1, 1996 and ending on the last day of the most recent fiscal quarter
for which financial statements shall have been delivered pursuant to
Subsection 6.1 hereof.
6.14. ISSUANCE OF CAPITAL STOCK. Without the prior written consent of
the Majority Banks, the Borrowers shall not issue any shares of capital stock
or any options, warrants or other rights therefor other than (i) shares of
HII Capital Stock that are subject to options outstanding as of the date
hereof and granted from time to time hereafter pursuant to HII's incentive
stock ownership, director option, employee service award or officers' bonus
plans and (ii) as a dividend or in connection with any Acquisition permitted
by this Agreement.
6.15. SALE AND LEASE-BACK TRANSACTIONS. No Borrower shall, nor shall it
permit any Subsidiary to, enter into any arrangement, directly or indirectly,
with any Person whereby it shall sell or transfer any property, real or
personal, whether now owned or hereafter acquired, and thereafter rent or
lease such property or other property which it intends to use for
substantially the same purpose or purposes as the property being sold or
transferred (a "SALE AND LEASE-BACK TRANSACTION"); provided that a Borrower
or a Subsidiary may enter into any Sale and Lease-Back Transaction if (a) at
the time of such Transaction no Default shall have occurred and be
continuing, (b) the proceeds from the sale of the subject property shall be
at least equal to its fair market value and (c) the property that is the
subject of such Transaction shall have been acquired by such Borrower or
Subsidiary after the date of this Agreement and shall have been held by it
for not more than one year.
6.16. INVESTMENTS AND JOINT VENTURES. The Borrowers shall not, and shall
not permit any Subsidiary to, make or permit to remain outstanding any
Investment in any Person or enter into any joint venture, except:
(a) Investments in short-term obligations issued or fully
guaranteed by the U.S. Government;
(b) certificates of deposit and other time deposits with, and any
other Investment purchased through any Bank;
(c) commercial paper rated A-1 by Standard & Poor's Corporation or
P-1 by Moody's Investors Service, Inc.;
(d) existing Investments of the Borrowers and their respective
Subsidiaries listed on SCHEDULE 6.16 hereto;
(e) Investments of the Borrowers in, and entering into, any
Marketing Vehicle for the purpose of marketing the Borrowers' products or
services on a specific project; provided that (i) all the parties to such
Marketing Vehicle would be required to supply goods or services with respect
to that project and (ii) the amount of all such Investments by the Borrowers
is not more in the aggregate than ten percent (10%) of the Tangible Net Worth
as of the date of the Investment; and
41
<PAGE>
(f) Investments in the form of extensions of credit having a stated
term exceeding 60 days and leases which are categorized as financing leases, in
each case arising from the sale of Borrower's products in the ordinary course of
business; provided, however, that such Investments shall not at any time exceed
$2,500,000 in the aggregate.
6.17. LIENS. The Borrowers shall not, and shall not permit any of their
Subsidiaries to, create, incur or permit to exist any Lien on or in respect of
its properties, assets or revenues, now or-hereafter acquired, except for
Permitted Liens.
6.18. ADDITIONAL SECURITY DOCUMENTS. Promptly upon any Person becoming
a Subsidiary of any Borrower, such Borrower shall, if requested by the Majority
Banks, (i) cause such Person to execute and deliver to the Banks and the Agent
an instrument in form and substance satisfactory to the Majority Banks either
becoming a co-borrower with respect to, or unconditionally guaranteeing the
payment and/or performance of all Obligations, as the Majority Banks may
require, and (ii) cause such Person to execute and deliver a security agreement
and/or mortgage in form and substance satisfactory to the Majority Banks
granting Liens on the property of such Person as additional security for the
Obligations, to the extent set forth in the then current Security Documents.
Such Borrower agrees to cause such Person to execute and deliver such other
documentation as the Majority Banks may reasonably require, including without
limitation favorable opinions of counsel to such Person (which shall cover,
among other things, the legality, validity, binding effect and enforceability of
the documentation referred to above, subject to customary exceptions).
6.19. TRANSACTIONS WITH AFFILIATES. Except as provided in Subsection
6.12(e) or with the prior written consent of the Banks, the Borrowers shall not,
and shall not permit any Subsidiary to, directly or indirectly, (a) make any
Investment in an Affiliate other than investments in Marketing Vehicles
permitted by Section 6.16(e) hereof, (b) transfer, sell, lease, assign or
otherwise dispose of any assets to an Affiliate, (c) merge or consolidate with
or purchase or acquire any assets from an Affiliate, (d) Guarantee or assume any
obligations of an Affiliate, or (e) enter into any other transaction directly or
indirectly with or for the benefit of an Affiliate; provided that (i) any
Affiliate who is an individual may serve as a director, officer or employee of
the Borrowers, or any of their respective Subsidiaries and receive compensation
or indemnification in connection with his services in such capacity, and (ii)
the Borrowers may enter into any sale, lease or similar transaction with an
Affiliate (including but not limited to a Marketing Vehicle) in the ordinary
course of business if the monetary or business consideration arising therefrom
would be not materially less advantageous to such Borrower as the monetary or
business consideration which would obtain in a comparable arm's length
transaction with a similarly situated Person not an Affiliate. The Banks
expressly consent to a Guarantee by HII of up to $4,000,000.00 of Indebtedness
of Vaughan Harmon Systems, LTD., and to no other Guarantee.
6.20. INSURANCE. Each of the Borrowers shall, and shall cause its
Subsidiaries to:
(a) keep its assets which are of an insurable character insured (to
the extent and for time periods consistent with normal industry practices) by
financially sound and reputable insurers against loss or damage by fire,
explosion, theft or other hazards which are included under extended coverage in
amounts sufficient to prevent the Borrower from becoming a co-insurer, and in
amounts
42
<PAGE>
not less than the insurable value of the property insured or such lesser
amounts as are consistent with normal industry practices and such Borrower's
past practices;
(b) maintain with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property to the
extent and in the manner customary for Persons in similar businesses; provided
however, that worker's compensation insurance or similar coverage may be
effected through self-insurance consistent with normal industry practices and
such Borrower's past practices or with respect to its operations in any
particular state or other jurisdiction through an insurance fund operated by
such state or jurisdiction; and
(c) cause all such above-described insurance (excluding worker's
compensation insurance) to (i) provide that 30 days' prior written notice of
suspension, cancellation, termination, modification, non-renewal or lapse or
material change of coverage shall be given to the Agent, (ii) name the Agent as
the loss payee (except for third-party liability insurance) to the extent of any
loss or any loss in excess of $25,000 with respect to the Collateral and (iii)
to the extent the Agent shall not be liable for premiums or calls, name the
Agent as an additional insured for the benefit of the Banks.
6.21. MAINTENANCE OF PROPERTIES. Each of the Borrowers shall, and shall
cause each of its Subsidiaries to, keep its properties which are material to its
business in good repair, working order and condition consistent with industry
practice, ordinary wear and tear excepted, and, from time to time (i) make all
necessary and proper repairs, renewals, replacements, additions and improvements
thereto and (ii) comply at all times with the provisions of all Material
Contracts and all applicable Requirements of Law, so as to prevent any loss or
forfeiture thereof or thereunder.
6.22. ENVIRONMENTAL LAWS; INDEMNIFICATION. (a) Each Borrower shall, and
shall cause its Subsidiaries to:
(i) promptly notify the Agent of any violation or non-compliance
with, or liability under any applicable Environmental Law which, when
taken together with all other pending violations or alone, could
reasonably be expected to have a material adverse effect on the
business, prospects, operations, assets, financial condition,
liabilities or capitalization of the Borrower and promptly furnish to
the Agent all notices of any nature which the Borrower may receive
from any Governmental Authority or other Person with respect to any
violation, or potential violation or non-compliance with, or liability
or potential liability under any applicable Environmental Law which,
in any case or when taken together with all such other notices, could
reasonably be expected to have a material adverse effect on the
business, prospects, assets, financial condition, liabilities or
capitalization of any Borrower;
(ii) comply in all material respects with, and use its reasonable
efforts to ensure compliance in all material respects by all tenants,
subtenants and other occupants and users with, all applicable
Environmental Laws, and obtain and comply in all material respects
with, and maintain and use its reasonable efforts to ensure that all
tenants, subtenants and other occupants and users obtain and comply in
all material respects with and maintain, any and all licenses,
approvals, registrations or permits
43
<PAGE>
required by applicable Environmental Laws; PROVIDED, HOWEVER, that
compliance with such requirements shall not be required if such
compliance is being contested in good faith by appropriate
proceedings;
(iii) conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions
required under all applicable Environmental Laws and promptly comply
in all material respects with all lawful orders and directives of all
Governmental Authorities; PROVIDED, HOWEVER, that compliance with such
orders or demands is not required if such compliance is being
contested in good faith by appropriate proceedings; and
(iv) the Borrowers shall defend, indemnify and hold harmless each
of the Agent and the Banks and its employees, agents, officers,
directors and Affiliates (each of whom is sometimes referred to herein
as an "INDEMNIFIED PARTY"), from and against any and all claims,
demands, penalties, fines, liabilities, settlements, damages, costs
and expenses of whatever kind or nature, known or unknown, contingent
or otherwise, arising out of, or in any way related to the violation
of or non-compliance by any Borrower or its Subsidiary with any
applicable Environmental Laws, or any orders, requirements or demands
of any Governmental Authority relating thereto, including, without
limitation, reasonable attorney's and consultant fees, investigation
and laboratory fees, court costs and litigation expenses, but
excluding therefrom all claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses arising out of
or resulting from the gross negligence or willful misconduct of any
Indemnified Party.
(b) No Borrower shall cause or permit any of its Subsidiaries'
properties or assets to be used to generate, manufacture, refine, transport,
treat, store, handle, dispose, transfer, produce or process Hazardous Materials
or Petroleum Products, in non-compliance with applicable Environmental Laws, nor
release, discharge, dispose of, or permit or suffer any release or disposal by
any other Person of, Hazardous Materials or Petroleum Products onto any of its
properties or assets in violation of any applicable Environmental Law, except
such non-compliance or violation as in the aggregate could not reasonably be
expected to have a material adverse effect on such Borrower.
6.23. FURTHER ASSURANCES; SECURITY INTERESTS. Each of the Borrowers
shall:
(a) upon the request of the Agent duly execute and deliver, or cause
to by duly executed and delivered, at the cost and expense of the Borrowers,
such further instruments as may be necessary or proper, in the reasonable
judgment of the Agent, to provide the Agent, on behalf of the Banks, perfected
Liens on or security interests in the Collateral and to carry out the provisions
and purposes of this Agreement and the other Credit Documents;
(b) upon the request of the Agent promptly perform or cause to be
performed any and all acts and execute or cause to be executed any and all
documents (including, without limitation, the execution, amendment or
supplementation of any financing statement and continuation statement or other
statement) for filing under the provisions of the Uniform Commercial Code and
the rules and
44
<PAGE>
regulations thereunder, or any other statute, rule or regulation of any
applicable foreign, federal, state or local jurisdiction, which are necessary
or advisable, from time to time, in order to grant and maintain in favor of
the Agent, on behalf of the Banks, the security interests in and Liens on the
Collateral contemplated by the Security Documents; and
(c) promptly undertake to deliver or cause to be delivered to the
Agent from time to time such other documentation, consents, authorizations,
approvals and orders in form and substance satisfactory to the Agent, as the
Agent shall deem necessary or advisable to perfect or maintain the Liens and/or
security interests of the Agent on behalf of the Banks.
6.24. NATURE OF BUSINESS; LIMITATIONS ON FUNDAMENTAL CHANGES. Except as
provided in subsection 6.12(e), each of the Borrowers shall not, and shall not
permit any of their respective Subsidiaries to, (i) engage in any business other
than that in which it is presently engaged or is directly related thereto, (ii)
change in any material respect its methods of operation or manner of doing
business, (iii) carry on its business at any location or locations other than
those presently in existence except upon 30 days prior notice to the Agent, (iv)
change its name, its identity or its structure, or (v) liquidate, wind-up or
dissolve itself; provided, however, that HII may liquidate, wind-up and dissolve
Cedrite Technologies, Inc. and Phoenix Data, Inc.
6.25. MARKETING VEHICLES. The Borrowers shall:
(a) deliver to the Agent, with copies for each of the Banks, as soon
as possible, and in any event prior to the date on which any Borrower enters
into or makes any Investment in any Marketing Vehicle, a report signed by a
senior officer of the Borrower summarizing the details respecting any Marketing
Vehicle that any Borrower intends to enter into or make an Investment in,
including but not limited to a description of the nature of the project for
which the Marketing Vehicle will be formed, all partners, joint venturers or
shareholders thereof, as the case may be, and their respective ownership
interests, shares of profits and losses, Investments, expected sales of goods or
services in connection with the project and indemnification agreements, the
projected sources and uses of funds for the Marketing Vehicle, the approximate
dates of receipt and disbursement of such funds, and whether or not such
Marketing Vehicle will be a Subsidiary for purposes of this Agreement.
Thereafter, such Borrower shall promptly notify the Agent of the substantial
completion of the project for which such Marketing Vehicle was formed and of any
significant changes in any information provided in any prior report; and
(b) cause any Marketing Vehicle that is not a Subsidiary of any
Borrower to comply with the covenants set forth in Subsection 6.11
(Indebtedness) and Subsection 6.22 (Environmental Laws) as if such Marketing
Vehicle were a Subsidiary of a Borrower for purposes of this Agreement. The
Borrowers acknowledge that the failure of any Marketing Vehicle to comply with
said Subsections 6.11 or 6.22 shall constitute a Default and/or an Event of
Default for purposes of this Agreement, even though Borrowers may not control
such Marketing Vehicle.
6.26 CONFIRMATION OF SECURITY DOCUMENTS. Each of the Borrowers
hereby confirms its obligations pursuant to each of the Security Documents to
which it is a party upon the execution of this Agreement and acknowledges and
agrees that it is the intent of the parties that the Security
45
<PAGE>
Documents continue in full force and effect following the execution of this
Agreement. Without in any manner limited the foregoing:
(a) HII hereby expressly represents, acknowledges and agrees that as of
the date of this Agreement (i) each reference in the Aircraft Security
Agreement to "Credit Agreement" shall be deemed to refer to this
Agreement, (ii) each representation, warranty and covenant set forth
in the Aircraft Security Agreement is true, correct and enforceable as
of the date of this Agreement, and (iii) each Exhibit to the Aircraft
Security Agreement is accurate and complete as of the date of this
Agreement.
(b) Borrowers hereby expressly represent, acknowledge and agree that as of
the date of this Agreement, (i) each reference in the Security
Agreement to "Credit Agreement" shall be deemed to refer to this
Agreement, (ii) each representation and warranty set forth in the
Security Agreement is true, correct and enforceable as of the date of
this Agreement, and (iii) each Exhibit to the Security Agreement is
accurate and complete as of the date of this Agreement, except that
Exhibit A to the Security Agreement only lists Equipment as of the
date set forth on such Exhibit.
SECTION 7. EVENTS OF DEFAULT. If one or more of the following events
(herein called "Events of Default") shall occur and be continuing:
(a) The Borrowers shall fail to pay or prepay any principal or
interest on any Loan or any fee or other amount payable by them hereunder, under
the Notes, or under any of the other Credit Documents within (2) Business Days
of the date due; or
(b) Any representation, warranty or certification made or deemed made
in this Agreement or in any other Credit Document by any Borrower, or in any
certificate furnished to the Bank pursuant to the provisions hereof or thereof,
shall prove to have been false or misleading as of the time made or furnished in
any material respect; or
(c) The Borrowers or any Borrower shall fail to keep, observe or
perform (i) any of their or its obligations under Subsections 6.2, 6.3, 6.11,
6.12, 6.13, 6.14, 6.15, 6.16., 6.17, 6.19, 6.20, 6.21, 6.22 or 6.23 of this
Agreement and such Default shall continue unremedied for a period of 10 days
after any Borrower becomes aware of any such Default, or (ii) any of their or
its obligations under any other Section of Section 6 hereof or any of their or
its other obligations under this Agreement or any of the other Credit Documents;
or
(d) Any Borrower or Subsidiary shall default in the payment when due
of any principal of or interest on any Indebtedness aggregating $500,000 or
more, or any other event specified in any note, agreement, indenture, or other
document evidencing or relating to such Indebtedness shall occur, if the effect
of such event is to cause, or if the holder (or any agent or trustee on behalf
of such holder) of such Indebtedness exercises any right to cause, such
Indebtedness to become due prior to its stated maturity; or
(e) Any Borrower or Subsidiary (other than an Inactive Subsidiary)
shall admit in writing its inability to, or be generally unable to, pay its
debts as such debts become due; or
46
<PAGE>
(f) Any Borrower or Subsidiary (other than an Inactive Subsidiary)
shall (i) apply for or consent in writing to the appointment of, or the taking
of possession by, a receiver, custodian, trustee or liquidator of itself or of
all or a substantial part of its property, (ii) make a general assignment for
the benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to
take advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or readjustment of debts, (v) fail to
controvert in a timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Bankruptcy Code (as
now or hereafter in effect), or (vi) take any action for the purpose of
effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application
or consent of any Borrower or Subsidiary (other than an Inactive Subsidiary), in
any court of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or readjustment of
its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or
the like of such Borrower or Subsidiary or of all or any substantial part of its
assets, or (iii) similar relief in respect of such Borrower under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or composition
or adjustment of debts, and such proceeding or case shall continue undismissed,
or an order, judgment or decree approving or ordering any of the foregoing shall
be entered and continue unstayed and in effect, for a period of sixty (60) days;
or
(h) An order for relief against any Borrower or Subsidiary (other
than an Inactive Subsidiary) shall be entered in an involuntary case under the
Bankruptcy Code (as now or hereafter in effect); or
(i) A final judgment or judgments for the payment of money in excess
of $500,000 in the aggregate shall be rendered by a court or courts against any
Borrower or Subsidiary (other than an Inactive Subsidiary) and the same shall
not be discharged (or provision shall not be made for such discharge), or a stay
of execution thereof shall not be procured, within thirty (30) days from the
date of entry thereof and such Borrower or Subsidiary shall not, within said
period of thirty (30) days, or such longer period during which execution of the
same shall have been stayed, appeal therefrom and cause the execution thereof to
be stayed during such appeal; or
(j) An event or condition specified in Subsection 6.1(e) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a result
of such event or condition, together with all other such events or conditions,
any Borrower or any ERISA Affiliate shall incur a liability to a Plan, a
Multiemployer Plan or PBGC (or any combination of the foregoing), and the same
shall not be discharged within ten (10) days after any Borrower becomes aware of
any such liability; or
(k) One or more of the Security Documents shall cease to be in full
force and effect, or shall cease to give the Agent the Liens, rights, powers and
privileges purported to be created thereby (including without limitation a first
priority perfected security interest in and Lien on all of the properties
covered thereby, in favor of the Agent for the benefit of the Banks, subject to
no Liens other than Permitted Liens) and the same shall continue unremedied for
a period of ten (10) days after any Borrower becomes aware of any such Default;
or
47
<PAGE>
(1) Any substantial impairment of value, loss, damage or
destruction (not covered by insurance) of the Collateral occurs and the same
shall continue unremedied for a period of ten (10) days after any Borrower
becomes aware of any such Default; or
(m) Any material adverse change occurs in the assets, business,
properties, operations, financial condition, liabilities (direct or
contingent) or capitalization of the Borrowers, on a consolidated basis and
the same shall continue unremedied for a period of ten (10) days after any
Borrower becomes aware of any such Default;
THEREUPON: (i) in the case of an Event of Default other than an Event of
Default referred to in clause (f), (g), or (h) of this Section 7, the Agent
shall, upon request of the Majority Banks, cancel the Commitments and/or declare
the principal amount then outstanding of, and all accrued unpaid interest on,
the Loans and all other amounts payable by the Borrowers under this Agreement
and the other Credit Documents to be forthwith due and payable, whereupon such
amounts shall be immediately due and payable without presentment, demand,
protest, notice of protest, notice of dishonor, or other notice or formality of
any kind, all of which are hereby expressly waived by the Borrowers; and (ii) in
the case of the occurrence of an Event of Default referred to in clause (f),
(g), or (h) of this Section 7, the Commitments forthwith shall be automatically
canceled and the principal amount then outstanding of, and all accrued unpaid
interest on, the Loans and all other amounts payable by the Borrowers under this
Agreement and the other Credit Documents shall become automatically immediately
due and payable without presentment, demand, protest, notice of protest, notice
of dishonor, or other notice or formality of any kind, all of which are hereby
expressly waived by the Borrowers.
SECTION 8. THE AGENT
8.1. APPOINTMENT. POWERS AND IMMUNITIES. Each Bank hereby irrevocably
appoints and authorizes the Agent to act as its agent hereunder and under the
other Credit Documents with such powers as are specifically delegated to the
Agent by the terms hereof and thereof, together with such other powers as are
reasonably incidental thereto. The Agent (which term as used in this sentence
and in Subsection 8.5 hereof shall include reference to its Affiliates and
its own and its Affiliates' officers, directors, employees and agents): (a)
shall have no duties or responsibilities except those expressly set forth in
this Agreement or in any of the Credit Documents, and shall not by reason of
this Agreement be a trustee for any Bank; (b) shall not be responsible to the
Banks for any recitals, statements, representations or warranties contained
in this Agreement or any of the other documents in any certificate or any of
the other Credit Documents or received by any of them under, this Agreement
or any of the other Credit Documents, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement,
any Note or any of the other Credit Documents or for any failure by the
Borrowers or any other Person to perform any of its obligations hereunder or
thereunder, or for the satisfaction of any condition precedent specified in
Section 4 hereof; (c) shall not be required to initiate or conduct any
litigation or collection proceedings hereunder; and (d) shall not be
responsible for any action taken or omitted to be taken by it hereunder or
under any of the other Credit Documents, except for its own gross negligence
or willful misconduct. Without limiting the generality of the foregoing, the
Agent shall be conclusively entitled to assume that the conditions precedent
set forth in Subsection 4.1 hereof have been satisfied unless the Agent has
received notice from a Bank referring to the relevant Section and stating
that the
48
<PAGE>
relevant condition has not been satisfied or unless the certificate furnished
by the Borrowers pursuant thereto so indicates. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good
faith. The Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof shall have been filed with the Agent.
8.2. RELIANCE BY AGENT. The Agent shall be entitled to rely on any
certification, notice or other communication (including any thereof by
telephone, telex, telegram, telecopy (fax) or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and on advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any of the Credit
Documents, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder (as the case may be) in
accordance with instructions signed by the Majority Banks, and such
instructions of the Majority Banks and any action taken or failure to act
pursuant thereto shall be binding on all of the Banks. If the Agent shall
seek the consent or approval of the Majority Banks to the taking or
refraining from taking of any action hereunder or under any of the Credit
Documents, the Agent shall give notice thereof to each Bank and as soon as
practicable notify each Bank at any time that the Majority Banks have
instructed the Agent to act or refrain from acting hereunder or thereunder
(as the case may be).
8.3. DEFAULTS. The Agent shall not be deemed to have knowledge of the
occurrence of a Default or an Event of Default (other than the non-payment of
principal of or interest on Loans or of commitment fees) unless the Agent has
received notice from a Bank or the Borrowers specifying such Default or Event
of Default and stating that such notice is a "Notice of Default". In the
event that the Agent receives such a notice of the occurrence of a Default or
Event of Default, the Agent shall give prompt notice thereof to the Banks
(and shall give each Bank prompt notice of each such nonpayment). The Agent
shall take such action with respect to such Default as shall be directed by
the Majority Banks, provided that, unless and until the Agent shall have
received such directions, the Agent may (but shall not be obligated to) take
such action or refrain from taking such action with respect to such default
as it shall deem advisable in the best interest of the Banks.
8.4. RIGHTS AS A BANK. With respect to its Commitment and the Loans made
by it, Boatmen's First National Bank of Kansas City (and any successor acting
as Agent), in its capacity as a Bank hereunder, shall have the same rights
and powers hereunder as any other Bank and may exercise the same as though it
were not acting as the Agent, and the term "Bank" or "Banks" shall, unless
the context otherwise indicates, include the Agent in its individual
capacity. Boatmen's First National Bank of Kansas City (and any successor
acting as Agent) and its Affiliates may (without having to account therefor
to any Bank) accept deposits from, lend money to and generally engage in any
kind of banking, trust or other business with the Borrowers (and any of their
respective Affiliates) as if it were not acting as the Agent, and Boatmen's
First National Bank of Kansas City and its Affiliates may accept fees and
other consideration from the Borrowers and their Affiliates for services in
connection with this Agreement or otherwise without having to account for
the same to the Banks.
49
<PAGE>
8.5. INDEMNIFICATION. The Banks indemnify the Agent (to the extent not
reimbursed under Subsection 9.3 hereof, but without limiting the obligations
of the Borrowers under said Subsection 9.3), ratably in accordance with the
aggregate principal amount of the Loans made by the Banks (or, if no Loans
are at the time outstanding, ratably in accordance with their respective
Commitments in effect from time to time), for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of this Agreement or any of the other Credit Documents or the
transactions contemplated hereby (including, without limitation, the costs
and expenses which the Borrowers are obligated to pay under Subsection 9.3
hereof but excluding, unless a Default or Event of Default has occurred and
is continuing, normal administrative costs and expenses incident to the
performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or of any such other Credit Documents, provided that no Bank
shall be liable for any of the foregoing to the extent they arise from the
gross negligence or willful misconduct of the party to be indemnified.
8.6. NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank agrees that it
has, independently and without reliance on the Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made
its own credit analysis and evaluation of the Borrowers and their respective
Subsidiaries and its own decision to enter into this Agreement and that it
will, independently and without reliance on the Agent or any other Bank, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own analysis and decisions in taking or not taking
action under this Agreement. The Agent shall not be required to keep itself
informed as to the performance or observance by the Borrowers or any other
Person of this Agreement or any other Credit Document or in respect of the
properties or books of the Borrowers or any other their respective
Subsidiaries or any other Person. Except for notices, reports and other
documents and information expressly required to be furnished to the Banks by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the affairs,
financial condition or business of the Borrowers (or any of their respective
Subsidiaries or other Affiliates) which may come into the possession of the
Agent or any of its Affiliates.
8.7. FAILURE TO ACT. Except for action expressly required of the Agent
hereunder or under any of the Credit Documents, the Agent shall in all cases
be fully justified in failing or refusing to act hereunder or thereunder (as
the case may be) unless it shall be indemnified to its satisfaction by the
Banks against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action.
8.8. RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving notice thereof to the Banks and the Borrowers and the
Agent may be removed at any time with or without cause by the Majority Banks.
Upon any such resignation or removal, the Majority Banks shall have the right
to appoint a successor Agent. If no such successor Agent shall have been so
appointed by the Majority Banks and shall have accepted such appointment
within 30 days after the retiring Agent's giving of notice of resignation or
the Majority Banks' removal of the retiring Agent, then the retiring Agent
may, on behalf of the Banks, appoint a successor Agent. Upon the acceptance
or any appointment as Agent hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and
50
<PAGE>
become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation or removal
hereunder as Agent, the provisions of this Subsection 8.8 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken
by it while it was acting as the Agent.
SECTION 9. MISCELLANEOUS
9.1. WAIVER. No failure on the part of the Agent or any Bank to exercise
and no delay in exercising, and no course of dealing with respect to, any
right, power or privilege under this Agreement or any of the other Credit
Documents shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under this Agreement or any of the
other Credit Documents preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies provided herein
and in the other Credit Documents are cumulative and not exclusive of any
remedies provided at law or in equity.
9.2. Notices. All notices and other communications provided for herein
(including, without limitation, any waivers or consents under this Agreement)
shall be given or made by telex, telecopy, telegraph, cable or otherwise in
writing (each communication given by any of such means to be deemed to be "in
writing" for purposes of this Agreement) and telexed, telecopied,
telegraphed, cabled, mailed or delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof,
or, as to any party, at such other address as shall be designated by such
party in a written notice to the other parties hereto. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have
been duly given when transmitted by telex or telecopier, delivered to the
telegraph or cable office or personally delivered or, in the case of a mailed
notice, upon deposit with the United States Postal Service, certified mail,
return receipt requested, with postage prepaid, in each case given or
addressed as aforesaid, and in the case of notices to any Borrower, with a
copy given in any such manner to Morrison & Hecker, 2600 Grand Avenue, Kansas
City, Missouri 64108, Attention, James 0. Selzer, Esq., Telecopier No. (816)
474-4208, Telephone No. (816) 691-2748.
9.3. EXPENSES, INDEMNIFICATION, ETC. The Borrowers agree (a) to pay or
reimburse the Agent and the Banks on demand for their reasonable out-of-pocket
costs and expenses (including without limitation the reasonable fees and
expenses of counsel to the Banks, and other counsel to the Agent and the Banks),
in connection with (i) the negotiation, preparation, execution and delivery of
this Agreement and the other Credit Documents and the making of the Loans
hereunder, provided, however, that the counsel fees charged to Borrowers
pursuant to this Subsection 9.3(a)(i) shall not exceed $10,000, plus out of
pocket expenses, without the prior approval of Borrowers, such approval not to
be unreasonably withheld and (ii) any amendment, modification, waiver or
extension of any of the terms of this Agreement or any of the other Credit
Documents, (b) to pay or reimburse the Agent and the Banks for all reasonable
out-of-pocket costs and expenses of the Agent and the Banks (including
reasonable counsels' fees and expenses) in connection with (i) the enforcement
of this Agreement and any of the other Credit Documents and (ii) all transfer,
stamp, documentary or other similar taxes, assessments or charges levied by any
Governmental Authority in respect of this Agreement, any of the Notes, or any of
the other Credit Documents, and (c) to pay filing and recording fees relating
to, and taxes and other charges incurred in connection with, perfecting,
51
<PAGE>
maintaining and protecting, the Liens created or contemplated to be created
pursuant to the Security Documents. The Borrowers hereby indemnify the Agent
and each Bank and their respective directors, officers, employees, agents and
Affiliates (each of which is sometimes referred to herein as an "INDEMNIFIED
PARTY") and agrees to hold each Indemnified Party harmless against, any and
all out of pocket losses, claims, damages, liabilities or actions or other
proceedings commenced or threatened in respect hereof, and all reasonable
expenses (including but not limited to expenses that appear on any service
charge schedule maintained from time to time by the Agent or any Bank) that
arise out of or in any way relate to or result from the making of Loans
hereunder or the other transactions contemplated hereby, including, without
limitation, any investigation or litigation or other proceedings (whether or
not such Indemnified Party is a party to any action or proceeding out of
which any of the foregoing arise), other than any of the foregoing to the
extent incurred by reason of the gross negligence or willful misconduct of
such Indemnified Party. Neither the Agent nor any Bank nor any other
Indemnified Party shall be responsible or liable to any Borrower for any
consequential damages which may be alleged.
9.4. AMENDMENTS, ETC. This Agreement, any of the other Credit Documents,
or any provision hereof or thereof may be amended only by an instrument in
writing signed by each Borrower, the Agent, and the Majority Banks, and any
provisions of this Agreement may be waived by the Agent and the Majority
Banks; provided that (i) any amendment or waiver extending the date fixed for
the payment of principal or interest on the Loans or any fee or reimbursement
obligation, (ii) reducing the amount of any such payment or any commitment
fee, (iii) changing the definition of "Revolving Credit Termination Date,"
"Reducing Revolving Credit Termination Date," "Majority Banks," "Fixed
Charges," "Fixed Charges Coverage Ratio" or "Interest Coverage Ratio," (iv)
reducing the Fixed Charges Coverage Ratio below 1.1 to 1.0, (v) reducing the
Interest Coverage Ratio below 1.25 to 1.0, (vi) amending this Subsection 9.4,
(vii) increasing the amount of any Bank's Commitment, or (viii) releasing all
or substantially all of the Collateral, shall require an instrument in
writing signed by, or the consent of, all of the Banks.
9.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on and
inure to the benefit of the parties hereto and their respective legal
representatives, successors and permitted assigns.
9.6. ASSIGNMENTS AND PARTICIPATIONS.
(a) No Borrower may assign its rights or obligations hereunder or
under any of the other Credit Documents without the prior written consent of
the Majority Banks. The Banks may assign all or any part of the Loans, the
Notes or any of the other Credit Documents to another Bank or, with the
Borrowers' consent, which consent shall not be unreasonably withheld, to
another financial institution. Upon such assignment, the assignee shall
succeed to the obligations, rights and benefits of the Bank to the extent
provided in such assignment, and the Bank shall be released to the extent of
such assignment.
(b) The Borrowers expressly recognize and agree that the Banks may
sell to other financial institutions participations in the Loans incurred by
the Borrowers pursuant hereto (the "PARTICIPANTS"), and, therefore, as
security for the due payment and performance of all indebtedness and other
liabilities of the Borrowers to the Banks under this Agreement, the Notes,
the Security Documents, the other Credit Documents and any other obligation
of the Borrowers to the Banks,
52
<PAGE>
whether now existing or hereafter arising, and to the Participants by reason
of such participation, the Borrowers hereby grant to the Banks and to the
Participants, a lien on and security interest in any and all deposits or
other sums at any time credited by or due from the Banks and the
Participants, or either or any of them, to the Borrowers, whether in regular
or special depository accounts or otherwise, and any and all money,
securities and other property of the Borrowers and the proceeds thereof now
or hereafter held or received by or in transit to the Banks and the
Participants, or either or any of them, from or for the Borrowers, whether
for safekeeping, custody, pledge, transmission, collection or otherwise and
any such deposits, sums, money, securities and other property at any time may
be set off, appropriated and applied by the Bank and by the Participants, or
either or any of them, against any indebtedness, liabilities or other
obligations, whether now existing or hereafter arising of the Borrowers to
the Banks and to the Participants, or either or any of them, against any
indebtedness, liabilities or other obligations whether now existing or
hereafter arising of the Borrowers to the Banks and to the Participants, or
either or any of them, under this Agreement, the Note, the Security
Documents, the other Credit Documents or otherwise, whether or not such
indebtedness, liabilities or other obligations are then due or secured by any
collateral or if such is so secured, whether or not such collateral held by
the Banks or the Participants is considered to be adequate.
(c) The Banks may furnish, from time to time, any information
concerning the Borrowers to assignees and participants (including prospective
assignees and participants).
9.7. SURVIVAL. The obligations of the Borrowers under Subsections 3.5,
6.22 and 9.3 hereof shall survive the repayment of the Loans and the
termination of the Commitments.
9.8. CAPTIONS. Captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
9.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
9.10. SURVIVAL OF AGREEMENTS. All agreements, covenants,
representations and warranties made herein shall survive the execution and
delivery of this Agreement, the Notes, the other Credit Documents, the making of
the Loans, and any and all renewals, extensions, modifications and
rearrangements thereof.
9.11. INTEREST. It is the intention of the parties hereto to comply with
applicable usury laws; accordingly, it is agreed that notwithstanding any
provisions to the contrary in this Agreement, the Notes, the Reimbursement
Agreements or any of the other Credit Documents, in no event shall any such
agreement or instrument, require the payment or permit the collection of
interest, as defined under applicable usury laws, in excess of the maximum
amount permitted by such laws. If any such excess of interest is contracted
for, charged or received under this Agreement, the Notes, the Reimbursement
Agreements or any of the other Credit Documents, or if the maturity of the
Loans is accelerated in whole or in part, or in the event that all or part of
the principal of or interest on the Loans shall be prepaid, so that under any
of such circumstances the amount of interest contracted for,
53
<PAGE>
charged or received under this Agreement, the Notes, the Reimbursement
Agreements or any of the other Credit Documents, on the amount of principal
actually outstanding from time to time under the Notes shall exceed the
maximum amount of interest permitted by applicable usury laws, then in any
such event (i) the provisions of this Section shall govern and control, (ii)
neither the Borrowers nor any other Person now or hereafter liable under this
Agreement or the Credit Documents for the payment of all or any part of the
Loans shall be obligated to pay the amount of such interest to the extent
that it is in excess of the maximum amount of interest permitted to be
contracted for by, charged to or received from the Person obligated thereon
under applicable usury laws, (iii) any such excess which may have been
collected either shall be applied as a credit against the then unpaid
principal amount of such Loans or refunded to the Person paying the same, at
the Borrowers' option, and (iv) the effective rate of interest shall be
automatically reduced to the maximum lawful rate of interest permitted under
applicable usury laws as now or hereafter construed by the courts having
jurisdiction thereof. It is further agreed that, without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged
or received under this Agreement, the Notes, the Reimbursement Agreements or
any of the other Credit Documents which are made for the purpose of
determining whether such rate exceeds the maximum lawful rate of interest
shall be made, to the extent permitted by applicable usury laws, by
amortizing, prorating, allocating and spreading in equal parts during the
period of the full stated term of the Loans, all interest at any time
contracted for, charged or received from the Borrowers, or otherwise by any
Bank in connection with the Notes, this Agreement, the Reimbursement
Agreements or any of the other Credit Documents.
9.12 INTEGRATION; SEVERABILITY. This Agreement, together with all the
other Credit Documents, represents the entire agreement of the parties
thereto, and supersedes all prior agreements and understandings, both written
and oral. There are no contemporaneous oral agreements or understandings of
the parties hereto or to the other Credit Documents. No course of dealing
between the parties, no course of performance, no usage of trade, and no
parol evidence of any nature shall be used to supplement or modify any of the
terms, provisions, covenants or conditions of this Agreement or any of the
other Credit Documents. If any provision of this Agreement or any of the
other Credit Documents shall be held illegal or invalid by any court having
jurisdiction, the illegality or invalidity of such provision shall not affect
any of the other provisions of this Agreement or any of the other Credit
Documents. The illegal or invalid provision shall be modified to the maximum
extent possible to confer on the Bank the rights, powers, remedies or other
privileges intended thereby, and such provision as modified, together with
the remaining provisions of this Agreement or any of the other Credit
Documents, shall be construed and enforced to such effect as if the illegal
or invalid provision or portion thereof had not been contained herein or in
any of the other Credit Documents, to the maximum extent possible.
9.13. CONTROLLING DOCUMENT. In the event of actual conflict in the
terms and provisions of this Agreement, the Notes or any of the other Credit
Documents, the terms and provisions of this Agreement will control.
9.14. JURISDICTION. EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY MISSOURI STATE OR UNITED STATES FEDERAL COURT SITTING IN
KANSAS CITY, MISSOURI OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS, AND EACH
BORROWER HEREBY IRREVOCABLY AGREES THAT ALL
54
<PAGE>
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH MISSOURI STATE OR FEDERAL COURT. AS AN ALTERNATIVE METHOD TO SERVICE,
EACH BORROWER ALSO IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS
IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO
EACH BORROWER AT ITS ADDRESS SET FORTH BENEATH ITS SIGNATURE HERETO. EACH
BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL
BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. EACH BORROWER FURTHER WAIVES
ANY OBJECTION TO VENUE IN MISSOURI AND ANY OBJECTION TO ANY ACTION OR
PROCEEDING IN MISSOURI ON THE BASIS OF FORUM NON CONVENIENS. NOTHING IN THIS
SECTION 9.14 SHALL AFFECT THE RIGHT OF THE AGENT OR ANY BANK TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE AGENT
OR ANY BANK TO BRING ANY ACTION OR PROCEEDING AGAINST ANY BORROWER OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS.
9.15. GOVERNING LAW. THIS AGREEMENT AND EACH OF THE OTHER CREDIT
DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF
THE STATE OF MISSOURI, WITHOUT GIVING EFFECT TO CHOICE OF LAW OR CONFLICT OF
LAW PRINCIPLES.
9.16. WAIVER OF TRIAL BY JURY. EACH BORROWER WAIVES TRIAL BY JURY IN ANY
ACTION, PROCEEDING, LAWSUIT, CROSS-CLAIM OR COUNTERCLAIM ARISING OUT OF OR IN
ANY WAY RELATING TO THIS AGREEMENT, ANY OTHER CREDIT DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
9.17. UNENFORCEABILITY OF ORAL AGREEMENTS: FINAL WRITTEN AGREEMENT.
ORAL AGREEMENTS OR COVENANTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM
ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT
ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND US (THE AGENT AND THE
BANKS) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH, TOGETHER WITH ALL
OTHER WRITTEN AGREEMENTS BETWEEN US, IS THE COMPLETE AND EXCLUSIVE STATEMENT
OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO
MODIFY IT.
55
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE BORROWERS:
HARMON INDUSTRIES, INC. HARMON ELECTRONICS, INC.
By:________________________________ By:________________________________
Name:______________________________ Name:______________________________
Title:_____________________________ Title:_____________________________
Address for Notices: Address for Notices:
1300 Jefferson Court c/o Harmon Industries, Inc.
Blue Springs, MO 64015 1300 Jefferson Court
Attention: Charles M. Foudree Blue Springs, MO 64015
Telecopier No: (816) 229-3345 Attention: Charles M. Foudree
Telephone No: (816) 229-3348 Telecopier No: (816) 229-3345
Telephone No: (816) 229-3348
CONSOLIDATED ASSET MANAGEMENT ELECTRO PNEUMATIC CORPORATION
COMPANY, INC.
By:________________________________ By:________________________________
Name:______________________________ Name:______________________________
Title:_____________________________ Title:_____________________________
Address for Notices: Address for Notices:
c/o Harmon Industries, Inc. c/o Harmon Industries, Inc.
1300 Jefferson Court 1300 Jefferson Court
Blue Springs, MO 64015 Blue Springs, MO 64015
Attention: Charles M. Foudree Attention: Charles M. Foudree
Telecopier No: (816) 229-3345 Telecopier No: (816) 229-3345
Telephone No: (816) 229-3348 Telephone No: (816) 229-3348
56
<PAGE>
THE BANKS:
BOATMEN'S FIRST NATIONAL BANK HARRIS TRUST AND SAVINGS BANK
OF KANSAS CITY
By:________________________________ By:________________________________
Name:______________________________ Name:______________________________
Title:_____________________________ Title:_____________________________
Address for Notices: Address for Notices:
10th and Baltimore 111 West Monroe
Post Office Box 419038 Post Office Box 755
Kansas City, Missouri 64183 Chicago, Illinois 60690
Attention: Bruce Easterly Attention: Len E. Meyer
Telecopier No: (816) 691-7561 Telecopier No: (312) 461-2591
Telephone No: (816) 221-2800 Telephone No: (312) 461-7611
THE AGENT: THE ISSUING BANK:
BOATMEN'S FIRST NATIONAL BANK BOATMEN'S FIRST NATIONAL BANK
OF KANSAS CITY OF KANSAS CITY
By:________________________________ By:________________________________
Name:______________________________ Name:______________________________
Title:_____________________________ Title:_____________________________
Address for Notices: Address for Notices:
10th and Baltimore 10th and Baltimore
Post Office Box 419038 Post Office Box 419038
Kansas City, Missouri 64183 Kansas City, Missouri 64183
Attention: Bruce Easterly Attention: Bruce Easterly
Telecopier No: (816) 691-7561 Telecopier No: (816) 691-7561
Telephone No: (816) 221-2800 Telephone No: (816) 221-2800
57
<PAGE>
EXHIBIT A
COMMITMENTS
Reducing Revolving Revolving
Bank Credit Commitment Credit Commitment
- ---- ------------------ -----------------
Boatmen's First National
Bank of Kansas City $10,000,000 $13,333,333
Harris Trust and Savings
Bank 5,000,000 6,666,667
------------------ -----------------
TOTAL $15,000,000 $20,000,000
58
<PAGE>
EXHIBIT B
[Form of Reducing Revolving Credit Note]
PROMISSORY NOTE
$___________________ ___________, 1996
Kansas City, Missouri
FOR VALUE RECEIVED, HARMON INDUSTRIES, INC., a Missouri corporation, HARMON
ELECTRONICS, INC., a Missouri corporation, ELECTRO PNEUMATIC CORPORATION, a
California corporation, and CONSOLIDATED ASSET MANAGEMENT COMPANY, INC., a
Missouri corporation (individually a "Borrower" and collectively the
"Borrowers"), jointly and severally, hereby promise to pay
to____________________ (the "Bank"), at _____________________________________
(or at such other place as may be expressly provided for in the Credit Agreement
referred to below) the principal sum of _____________________ Dollars
($___________ ) (or such lesser amount as shall equal the aggregate unpaid
principal amount of the Reducing Revolving Credit Loans made by the Bank to the
Borrowers under the Credit Agreement), in lawful money of the United States of
America and in immediately available funds, in installments on the Quarterly
Reduction Dates as set forth in Section 2.3. of the Credit Agreement and in full
on the Reducing Revolving Credit Termination Date, and to pay interest on the
unpaid principal amount of each such Reducing Revolving Credit Loan, at such
office (or such other place as aforesaid), in like money and funds, for the
period commencing on the date of such Reducing Revolving Credit Loan until such
Reducing Revolving Credit Loan shall be paid in full, at the rates per annum and
on the dates provided in the Credit Agreement.
The amount and type of, the rate of interest on, and the duration of each
Interest Period for, each Reducing Revolving Credit Loan made by the Bank to the
Borrowers under the Credit Agreement, the date such Reducing Revolving Credit
Loan is made or Converted from a Loan of the other type, and the amount of each
payment or prepayment made on account of the principal thereof, shall be
recorded by the Bank on its books and records, and such records shall be prima
facie evidence of the existence and amounts of the obligations of the Borrower
to which such entries relate; provided that any failure by the Bank to make any
such record shall not affect the obligations of the Borrowers under this Note.
This Note is one of the Reducing Revolving Credit Notes referred to in the
Credit Agreement (as the same may be amended, modified, supplemented or replaced
from time to time, the "Credit Agreement") dated as of ___________, 1996, among
the Borrowers, the Banks named therein (including the Bank), Boatmen's First
National Bank of Kansas City, as Agent, and Boatmen's First National Bank of
Kansas City, as Issuing Bank, and evidences Reducing Revolving Credit Loans made
by the Bank under its Reducing Revolving Credit Commitment thereunder.
Capitalized terms used in this Note have the respective meanings assigned to
them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of this
Note upon the occurrence of certain events and for prepayments of Reducing
Revolving Credit Loans upon the terms and conditions specified therein.
59
<PAGE>
Each Borrower and any and all sureties, guarantors and endorsers of this
Note and all other parties now or hereafter liable hereon, severally waive
grace, demand, presentment for payment, protest, notice of any kind (including,
but not limited to, notice of dishonor, notice of protest, notice of intention
to accelerate and notice of acceleration) and diligence in collecting and
bringing suit against any party hereto, and agree (a) to all extensions and
partial payments, with or without notice, before or after maturity, (b) to any
substitution, exchange or release of any security now or hereafter given for
this Note, (c) to the release of any party primarily or secondarily liable
hereon, and (d) that it will not be necessary for the Bank, in order to enforce
payment of this Note, to first institute or exhaust the Bank's remedies against
any Borrower or any other party liable therefor or against any security for this
Note.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW
OF THE STATE OF MISSOURI, WITHOUT GIVING EFFECT TO CHOICE OF LAW OR CONFLICT OF
LAW PRINCIPLES.
HARMON INDUSTRIES, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
HARMON ELECTRONICS, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
ELECTRO PNEUMATIC CORPORATION
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
CONSOLIDATED ASSET MANAGEMENT COMPANY, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
60
<PAGE>
EXHIBIT C
[Form of Revolving Credit Note]
PROMISSORY NOTE
$_________________ ___________, 1996
Kansas City, Missouri
FOR VALUE RECEIVED, HARMON INDUSTRIES, INC., a Missouri corporation, HARMON
ELECTRONICS, INC., a Missouri corporation, ELECTRO PNEUMATIC CORPORATION, a
California corporation, and CONSOLIDATED ASSET MANAGEMENT COMPANY, INC., a
Missouri corporation (individually a "Borrower" and collectively the
"Borrowers"), jointly and severally, hereby promise to pay to
___________________________ (the "Bank"),
at________________________________________ (or at such other place as may be
expressly provided for in the Credit Agreement referred to below) the principal
sum of ______________________ Dollars ($______________ ) (or such lesser amount
as shall equal the aggregate unpaid principal amount of the Revolving Credit
Loans made by the Bank to the Borrowers under the Credit Agreement), in lawful
money of the United States of America and in immediately available funds, on the
Revolving Credit Termination Date, and to pay interest on the unpaid principal
amount of each such Revolving Credit Loan, at such office (or such other place
as aforesaid), in like money and funds, for the period commencing on the date of
such Revolving Credit Loan until such Revolving Credit Loan shall be paid in
full, at the rates per annum and on the dates provided in the Credit Agreement.
The amount and type of, the rate of interest on, and the duration of each
Interest Period for, each Revolving Credit Loan made by the Bank to the
Borrowers under the Credit Agreement, the date such Revolving Credit Loan is
made or Converted from a Loan of the other type, and the amount of each payment
or prepayment made on account of the principal thereof, shall be recorded by the
Bank on its books and records, and such records shall be prima facie evidence of
the existence and amounts of the obligations of the Borrower to which such
entries relate; provided that any failure by the Bank to make any such record
shall not affect the obligations of the Borrowers under this Note.
This Note is one of the Revolving Credit Notes referred to in the Credit
Agreement (as the same may be amended, modified, supplemented or replaced from
time to time, the "Credit Agreement") dated as of __________, 1996, among the
Borrowers, the Banks named therein (including the Bank), Boatmen's First
National Bank of Kansas City, as Agent, and Boatmen's First National Bank of
Kansas City, as Issuing Bank, and evidences Revolving Credit Loans made by the
Bank under its Revolving Credit Commitment thereunder. Capitalized terms used in
this Note have the respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of this
Note upon the occurrence of certain events and for prepayments of Revolving
Credit Loans upon the terms and conditions specified therein.
61
<PAGE>
Each Borrower and any and all sureties, guarantors and endorsers of this
Note and all other parties now or hereafter liable hereon, severally waive
grace, demand, presentment for payment, protest, notice of any kind (including,
but not limited to, notice of dishonor, notice of protest, notice of intention
to accelerate and notice of acceleration) and diligence in collecting and
bringing suit against any party hereto, and agree (a) to all extensions and
partial payments, with or without notice, before or after maturity, (b) to any
substitution, exchange or release of any security now or hereafter given for
this Note, (c) to the release of any party primarily or secondarily liable
hereon, and (d) that it will not be necessary for the Bank, in order to enforce
payment of this Note, to first institute or exhaust the Bank's remedies against
any Borrower or any other party liable therefor or against any
security for this Note.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW
OF THE STATE OF MISSOURI, WITHOUT GIVING EFFECT TO CHOICE OF LAW OR CONFLICT OF
LAW PRINCIPLES.
HARMON INDUSTRIES, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
HARMON ELECTRONICS, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
ELECTRO PNEUMATIC CORPORATION
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
CONSOLIDATED ASSET MANAGEMENT COMPANY, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
62
<PAGE>
EXHIBIT D
[FORM OF NOTICE OF BORROWING, TERMINATION,
REDUCTION OF COMMITMENT, CONVERSIONS,
CONTINUATIONS, OR PREPAYMENTS OF LOANS]
NOTICE OF [BORROWING]
This Notice of [Borrowing] is submitted pursuant to Subsection 2.15 of the
Credit Agreement dated as of ____________, 1996 (the "Credit Agreement"), by and
among HARMON INDUSTRIES, INC., a Missouri corporation ("HII"), HARMON
ELECTRONICS, INC., a Missouri corporation ("HEI"), ELECTRO PNEUMATIC
CORPORATION, a California corporation ("EPC"), and CONSOLIDATED ASSET MANAGEMENT
COMPANY, INC., a Missouri corporation ("CAMCO"), jointly and severally
(individually a " Borrower" and collectively the "Borrowers"); BOATMEN'S FIRST
NATIONAL BANK OF KANSAS CITY, a national banking association, and HARRIS TRUST
AND SAVINGS BANK, an Illinois banking corporation (individually a "Bank" and
collectively the "Banks"); BOATMEN'S FIRST NATIONAL BANK OF KANSAS CITY, a
national banking association, as the issuing Bank of letters of credit (in such
capacity, the "Issuing Bank"); and BOATMEN'S FIRST NATIONAL BANK OF KANSAS CITY,
a national banking association, as Agent for the Banks (in such capacity,
together with its successors in such capacity, the "Agent").
Unless otherwise defined herein, capitalized terms used in the Credit
Agreement are used herein as defined in the Credit Agreement.
[1. Each of the Borrowers hereby requests the Banks to make available to
the Borrowers Loans in the aggregate amount set forth below, pursuant to the
terms and conditions of the Credit Agreement, as follows:
(a) Aggregate amount of
Loans requested $
--------------------------------
(b) Type of Loans (Corporate
Base Rate Loan or
Eurodollar Loan)
--------------------------------
(c) Borrowing Date
--------------------------------
(d) Interest Period
--------------------------------
(e) The Loan Proceeds should
be deposited in the
following account(s)
of the following
Borrower(s):
--------------------------------
63
<PAGE>
(f) (If applicable) Loan
proceeds are to be
withdrawn from the
above-referenced
account(s) and wire
transferred as follows:]
--------------------------------
--------------------------------
--------------------------------
2. All representations and warranties made by the Borrowers in the Credit
Agreement (except those regarding Subsidiaries and Material Contracts made at
Subsections 5.12 and 5.14 thereof that are identified as being made "as of the
date hereof," and which were true as of the date of the Credit Agreement) or in
any of the other Credit Documents, or in any certificate or statement furnished
in connection with the Loans or otherwise, are true and correct in all material
respects as if made on and as of the date hereof.
3. No Default or Event of Default has occurred and is continuing.
4. All conditions precedent set forth in Subsection 4.1 of the Credit
Agreement have been satisfied.
This Notice of [Borrowing] is submitted as of ________________ a.m. Kansas
City time on ________________________________, 19_____.
THE BORROWERS:
HARMON INDUSTRIES, INC. HARMON ELECTRONICS, INC.
By: By:
------------------------------ ---------------------------------
Name: Name:
------------------------------ ---------------------------------
Title: Title:
------------------------------ ---------------------------------
CONSOLIDATED ASSET MANAGEMENT ELECTRO PNEUMATIC CORPORATION
COMPANY, INC.
By: By:
------------------------------ ---------------------------------
Name: Name:
------------------------------ ---------------------------------
Title: Title:
------------------------------ ---------------------------------
64
<PAGE>
SCHEDULE 1.1
EXISTING LIENS
1. CAMCO-telephone system in Blue Springs
2. $1,400,000, Industrial Development Authority of the City of Grain Valley,
Missouri Industrial Revenue Bonds, Series 1984 (SAB Harmon Industries, Inc.
Project).
65
<PAGE>
SCHEDULE 5.2
CONTINGENT LIABILITIES
1. Litigation matters discussed in SCHEDULE 5.3.
2. Taxes disclosed in SCHEDULE 5.8.
3. Environmental matters disclosed in SCHEDULE 5.11.
4. Potential liquidated damage exposure (maximum $800, 000. 00) relating to
the Norfolk Southern -- Greenville Control System project.
66
<PAGE>
SCHEDULE 5.3
LITIGATION
I. PRODUCT LIABILITY
A. PENDING
The current product liability insurance coverage is limited to $1
million for each occurrence and annual aggregate in coverage with $10
million for each occurrence and annual aggregate in excess coverage, and a
$250,000 deductible on each occurrence.
1. GIBSON CASE
During the fourth quarter, 1992, the Company was named as Defendant in
GIBSON. ET AL. V. NORFORK SOUTHERN CORPORATION. ET AL., Civil Action No.
CV92-G-1894-S (N.D. Alabama). This lawsuit relates to a railroad crossing
accident involving an auto-train collision between a Norfork Southern Train
and Eugene Gibson. Mr. Gibson was killed in the accident. Plaintiffs seek
judgment against Defendants in the amount of $5,000,000. Defendants include
owners and operators of the train and equipment vendor at the railroad
crossing. Equipment design, manufactured and sold by the Company was
alleged to have been involved. The Company has answered the complaint but
has not completed its preliminary investigation into the matter. To date,
limited discovery in the case has been undertaken by the Company.
Management intends to vigorously defend this lawsuit. The lawsuit has been
reported to the appropriate product liability insurers, who are expected to
undertake the defense on behalf of the Company.
Craig O'Dear at Bryan Cave is Harmon's counsel in this matter. Craig
indicated that preliminary investigation indicates that car driven by the
17/18 year old driver was hit by a Norfolk Southern train; and the driver
was killed. State police report indicates 40 feet of skid marks into the
crossing by the victim's car. Plaintiff's counsel contends that this is a
"false activation" case and also contends that the lights and crossing
protection had been continuously activated for a period of between 24 hours
and 48 hours prior to the accident.
2. DAVENPORT AND VIRGIN CASES
On April 19, 1993, the Company received service of process in John
Davenport. et al. v. Kansas City Southern Railway Company, Civil Action No.
A-142387 in the District Court of Jefferson County, Texas, 58th Judicial
District. Plaintiff's Second Amended Original Petition names Harmon
Electronics, Inc. in connection with a railroad crossing accident in
Greenville, Hunt County, Texas, on March 27, 1991. The allegations against
Harmon Electronics involve negligence and strict liability claims in the
design and manufacture of signals and protective devices at the subject
crossing. The Petition also includes an allegation based in strict tort
liability alleging that HEI knew or should have known that "the warning
system in question was antiquated and subject to failure." On May 26, 1993,
the Company received service of process in JAMES RAY VIRGIN ET AL. V.
KANSAS CITY SOUTHERN RAILWAY
67
<PAGE>
COMPANY ET AL; Case No. B-142, 099 in the District Court of Jefferson
County, Texas, 60th District. This case arises from the same accident as
the Davenport case and has substantially similar allegations.
The lawsuit has been reported to the appropriate liability insurer.
Management intends to vigorously defend this lawsuit. It appears that HEI
may have been added late in the proceeding as a settlement strategy.
Preliminary investigation indicates that Harmon has received no notice from
the railroad of the March 27, 1991 accident and no request has been made of
Harmon to investigate or repair any alleged defect in the signaling or
warning devices. Accordingly, it would appear that the signaling and
warning devices present at the accident site remain in service at the
location. Additionally, preliminary investigation indicates that the driver
of the vehicle, in which two passengers were killed was intoxicated and
drove his vehicle into the side of the second locomotive.
II. ENVIRONMENTAL
A. PENDING
1. GRAIN VALLEY MATTER
During the first quarter of 1988, officials of Harmon Electronics,
Inc. discovered ground contamination for solvents classified as hazardous
materials at the Grain Valley, Missouri production facility. A voluntary
report was made to the Department of Natural Resources of the State of
Missouri ("MDNR"), and negotiations are underway regarding the extent of
remedial or cleanup actions and monitoring requirements. Harmon
Electronics, Inc. and MDNR have entered into a Closure/Post Closure Plan
which sets forth the remediation obligations and long-term care obligations
at this Site. To date, the exact extent of and cost of the remedial action
or monitoring which may be mandated by the Department of Natural Resources
have not been finally determined. Management has reserved $376,000
($195,000 in Trust Fund established by agreement with MDNR) for a portion
of the remaining estimated costs to the Company of implementing the
corrective action plan. Management intends to continue its attempt to
negotiate full resolution of its corrective action obligations.
On September 30, 1991, the United States Environmental Protection
Agency ("EPA") issued a Complaint against the Company alleging violations
of the Resource Conservation and Recovery Act ("RCRA") and RCRA regulations
in the disposal of solvents at the Company's Grain Valley, Missouri plant.
The Complaint seeks penalties in the amount of $2,777,000 and proposes
certain compliance actions.
The Company is vigorously defending the EPA Complaint and related
proposed penalties under RCRA. Management believes that all of the
allegations are for technical violations. Legal counsel has advised that
the penalties sought by EPA in this case are consistent with its applicable
penalty guidelines which were adopted by the EPA in October, 1990. Based on
the Company's cooperation with MDNR (which has original jurisdiction in the
matters covered by the EPA Complaint), in voluntary disclosing the alleged
violations, and in promptly undertaking all remedial actions specified by
the MDNR, the penalties appear to
68
<PAGE>
the Company's legal counsel to be excessive. However, because so few
cases have been disposed of by settlement, or by administrative or
judicial proceedings since the new penalty guidelines were adopted,
legal counsel cannot express an opinion as to the ultimate amount, if
any, of the Company's liability. Since the amount of the Company's
exposure for these penalties cannot be reasonably determined at this
time, no estimate is included in this section or in the financial
statements.
2. DIAZ MATTER
During the third quarter of 1988, Harmon Electronics, Inc. was
notified of a threatened claim of environmental cleanup costs relating to
the Diaz Refinery in Diaz, Arkansas. Harmon Electronics, Inc. and its
predecessor, Harmon Industries, Inc., have in the past entered into
transactions involving the disposal of hazardous materials with the Diaz
Refinery, as a licensed, regulated waste disposal facility. The threatened
claim results from potential actions by federal, state and local
environmental agencies for the cleanup of the Diaz Refinery site resulting
from improper waste management practices of the operator of the site. Since
the operator of the site is now defunct, it is believed likely that the
remedial costs will be borne by all waste generators including Harmon
Electronics, Inc. and/or Harmon Industries, Inc. Harmon Electronics, Inc.
has joined a group of generators (the "PRP Group") who is negotiating a
remediation plan for the site with governmental authorities. The PRP Group
will also allocate financial responsibility for the costs associated with
the remediation plan and will seek contribution from other waste generators
who have not joined the PRP Group. To date, the exact extent and cost of
the Company's portion of the remediation costs are unknown since neither
the cost of the remediation plan, the allocation among members of the PRP
Group nor the contribution of non-member generators have been identified.
To date, no litigation or court action has been filed against any Harmon
affiliate with respect to the Diaz Refinery, although the PRP Group has
entered into an Administrative Order on Consent relative to the Diaz site.
B. THREATENED
1. NONE
III. MISCELLANEOUS PROCEEDINGS
A. PENDING
1. HOLSTON
On November 17, 1987, the Company filed a claim for damages against
Mr. John Holston, one of the sellers of Modern Industries, Inc. The lawsuit
was filed in the U.S. District Court, Western District of Missouri, Western
Division, Case No. 87-0999-CV-W6. The jury returned a verdict in favor of
the Company for $500,000 on one of the theories during the fourth quarter
of 1989. Through his counsel, Mr. Holston filed an additional lawsuit
against Harmon's wholly-owned subsidiary, Modern Industries, Inc., seeking
indemnification for the damages awarded the Company in the original lawsuit
filed by the
69
<PAGE>
Company. This case was filed in Circuit Court 10, Jefferson County,
Kentucky, on February 6, 1990 and is identified as HOLSTON V. MODERN
INDUSTRIES INC., Case No. 90 CI 00672. On December 31, 1990, Modern
Industries, Inc. was merged into Harmon Electronics, Inc., and
consequently, Harmon Electronics, Inc. assumed the position of Modern
Industries, Inc. in this case by operation of law. During the fourth
quarter of 1991, this lawsuit was dismissed by the Court on motion by
Harmon Electronics, Inc. for summary judgment. On April 16, 1993, the
Court of Appeals of the Commonwealth of Kentucky reversed and remanded
the summary judgment dismissal of this case. The Appellate Court
overruled the District Court finding that facts were in dispute and
ordered that the matter be reset for trial.
2. MURRAY/STACEY CASE
In BONNIE J. MURRAY AND MARIA E. STACEY V. ELECTRO PNEUMATIC
CORPORATION, NOEL SMITH AND BOB RANCOURT, is a lawsuit alleging wrongful
discharge claims against the Company's wholly-owned subsidiary, Electro
Pneumatic Corporation, and certain of its officers. The case is brought in
State Court in California. Recovery is sought on four causes of action,
including the following: breach of implied contract; breach of good faith
and fair dealing; employment discrimination based on gender and age
discrimination. These causes of action are all predicated on wrongful
discharge in connection with the reduction in force effected on April 30,
1991. Claims include back pay and reinstatement, attorneys' fees,
compensatory damages and punitive damages, but in unspecified amounts.
Although an answer has been filed, there has been little discovery to date
in this case which was filed on July 2, 1992. Depositions of Bonnie Murray
and Maria Stacey have been very favorable to defendants on the gender and
age discrimination counts of the case. Defendants intend to file a motion
for summary judgment upon completion of discovery. Management intends to
vigorously defend these claims.
3. ZAMAITIS EEOC CLAIM
Zamaitis was an employee of Harmon Industries, Inc. who has MS.
Zamaitis was discharged from his job in the accounting department of Harmon
Industries as a result of poor performance and his inability to complete
his work assignments. He has filed separate claims with the Department of
Labor and the Missouri Commission of Human Rights. The claims allege
discriminatory discharge. He seeks reinstatement, back pay and benefits.
B. THREATENED
1. LODIGIANI CLAIM
In April 1992, Cedrite Technologies, Inc. was negotiating with the
Oxford Group for the sale of the Cedrite assets. The price was based on
estimated liquidation value and was structured to include a cash payment
plus assumption of Cedrite lease and real estate obligations. While Cedrite
attempted to finalize its negotiations with the Oxford Group, a new
purchaser emerged, Lodigiani USA, Ltd., the American subsidiary of an
Italian construction conglomerate. In April 1992, Lodigiani tendered an
offer for the Cedrite assets which included a $250,000 non-refundable
deposit and written confirmation of its willingness to
70
<PAGE>
assume Cedrite's lease and real estate obligations with 45 days. The
offer appeared to be designed to supersede an outstanding offer by the
Oxford Group which had not been accepted by Cedrite. Cedrite accepted
the Lodigiani offer. Lodigiani failed to assume the lease within the
agreed upon period and Cedrite notified Lodigiani of its breach.
Lodigiani has threatened litigation to recover its $250,000 deposit for
the equipment which was later sold to a liquidator for $100,000. To
date, no litigation has been filed.
71
<PAGE>
SCHEDULE 5.8
TAXES
Cedrite Technologies, Inc. ("Cedrite") has been notified of a potential
personal property tax liability of approximately $460,000 (exclusive of interest
and penalties) by representatives of taxing authorities in Wyandotte County,
Kansas and Kansas City, Kansas. No assessment or formal notification of
underpayment has been delivered to Cedrite. More than a year and a half has
passed since the investigative meeting between representatives of Cedrite and
representatives of the taxing authorities.
72
<PAGE>
SCHEDULE 5.11
ENVIRONMENTAL MATTERS
1. See disclosure on SCHEDULE 5.3 under the subheading "Environmental".
2. Cedrite Technologies, Inc. ("Cedrite") utilized Hazardous Materials in its
reprocessing of used railroad ties (previously treated with creosote
compounds). Additionally, prior owners of the Cedrite manufacturing site
(10 Berger Avenue, Kansas City, Kansas) apparently illegally disposed of
Hazardous Materials on the site prior to occupancy by Cedrite. Cedrite was
an equitable owner of a portion of the site and lessee on another portion.
Cedrite and Harmon are obligated to the landlord on certain environmental
indemnities for potential claims for contamination by Hazardous Materials
attributable to Cedrite's operations on the leased site. To date, no claims
have been made to Cedrite or Harmon regarding the indemnity obligations.
Harmon and Cedrite have an indemnification agreement from Union Pacific
Corporation (a prior owner) as to contamination prior to Cedrite's
ownership or lease interests on both sites. No claims or notices have been
received by Harmon or Cedrite as to alleged liability for contamination
from Hazardous Materials attributable to Cedrite's operations.
3. During 1990, 1991 and 1992 Harmon Electronics, Inc. ("HEI") has received
notices from the local POTW that wastewater discharges from HEI's plant in
Warrensburg, Missouri may have exceeded permissible discharge limits and
may have violated its permit (NPDES) limits. The dispute relates to
concentrations of heavy metals, particularly copper, which might have
remained in the wastewater after treatment at HEI's facility. No formal
claim or notice of assessed penalty has to date been received and none is
currently expected. The POTW has alleged that wastewater concentrations of
contaminant at levels in excess of HEI's discharge limits may have resulted
in a bacterial kill at the POTW treatment facility. The POTW may also be
exposed for EPA or MDNR fines for its improper treatment and discharges
following the bacterial kill. HEI does not believe that its discharges were
above its permissible discharge limits or were responsible for the
bacterial kill. Throughout the period from initial notification to date,
HEI has cooperated with the POTW in investigating and implementing
solutions to the alleged problem. HEI has in 1992 installed additional
wastewater treatment equipment to minimize the likelihood of future
incidents.
73
<PAGE>
SCHEDULE 5.12
EXISTING SUBSIDIARIES
HARMON INDUSTRIES. INC.
Harmon Electronics, Inc. (Missouri)
Electro Pneumatic Corporation (California)
Consolidated Asset Management Company, Inc. (Missouri)
Cedrite Technologies, Inc. (Kansas) (Inactive)
Phoenix Data, Inc. (Delaware) (Inactive)
HARMON ELECTRONICS INC.
None
ELECTRO PNEUMATIC CORPORATION
None
CONSOLIDATED ASSET MANAGEMENT COMPANY INC.
None
COMMITMENTS OR AGREEMENTS RELATING TO HII COMMON STOCK
1. Options granted pursuant to the HII incentive stock option plan.
2. Options granted pursuant to the 1988 Non-Qualified Directors Option Plan as
amended.
3. Lock-up Agreement between Piper Jaffray, Inc. (George K. Baum Corp.) and
HII, it's officers and directors prohibiting sales or issuances of stock
for 180 days after the closing date for the Successful Equity Offering.
4. Stock awards pursuant to the existing Officers Bonus Plan.
5. Plan providing for service awards to employees based -on longevity with the
company usually in the form of common stock.
6. Indemnification obligations for underwriters in connection with the
Purchase Agreement executed in connection with the Successful Equity
Offering.
7. Indemnification obligation to H.B. Oppenheimer & Company (the Company's
Investment Adviser) in connection with the Successful Equity Offering.
74
<PAGE>
8. Indemnification obligations to HII Employee Stock Ownership Plan in
connection with the Successful Equity Offering.
75
<PAGE>
SCHEDULE 5. 14
EXISTING MATERIAL CONTRACTS
1. Purchase Agreement among Piper Jaffray Inc., George K. Baum & Company, the
Company and the Selling Stockholders in connection with Successful Equity
Offering.
2. Lease Agreement for Assembly Storage and Distribution Facility in Griffin,
Georgia.
3. Lease Agreement for lease of the design and manufacturing facility in
Jacksonville, Florida.
4. Lease Agreement for lease of the assembly, storage and distribution
facility in Marion, Iowa.
5. Standard Industrial Lease Agreement for lease of Building No. 1 used by
Electro Pneumatic Corporation in Riverside, California.
6. Standard Industrial Lease Agreement for lease of Building No. 2 used by
Electro Pneumatic Corporation in Riverside, California.
7. Standard Industrial Lease Agreement for lease of Building No. 3 used by
Electro Pneumatic Corporation in Riverside, California.
8. Lease for the corporate headquarters in Blue Springs, Missouri.
9. Lease for engineering facilities located in Grain Valley, Missouri.
10. 1990 Employee Incentive Stock Option Plan of the Company (incorporated by
reference to Annex A to the Company's Proxy Statement dated April 1, 1991).
11. Non-Qualified 1988 Director Option Plan for the members of the Board of
Directors of the Company.
12. Form of Indemnification Agreement entered into between the Company and each
of the members of its Board of Directors.
13. Form of Directors and Officers Liability Insurance Policy.
14. Employment Agreement entered into between the Company and Mr. Harmon, Chief
Executive Officer of the Company.
15. Employment Agreement entered into between the Company and Mr. Olsson,
President and Chief Operating Officer of the Company.
16. Employment Agreement entered into between the Company and Mr. Foudree,
Executive Vice President-Finance, Treasurer and Secretary of the Company.
76
<PAGE>
17. Employment Agreement entered into between the Company and Mr. Heggestad,
Vice President-Technology of the Company.
18. Employment Agreement entered into between the Company and Mr. Smith,
President of wholly-owned subsidiary of the Company.
19. Deferred Compensation Agreement executed by the Company for the benefit of
certain of its officers, as amended.
20. Closure/Post Closure Plan for MDNR dated February 25, 1992 (incorporated by
reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992).
21. Consent Decree for State of Missouri, Webster and MDNR v. Harmon
Electronics, Inc. (incorporated by reference to Exhibit 10.2 of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
22. Numerous Sales orders for each of the Borrowers relating to the sale of
products of the Borrowers entered into in the ordinary course of business.
23. Environmental indemnification of Union Pacific Corporation referred to in
SCHEDULE 5.11(2).
24. Environmental indemnification by Harmon and Cedrite for Cedrite
Technologies, Inc. operational contamination as described in
SCHEDULE 5.11(2).
77
<PAGE>
Schedule 6.9
Deferred Capital Expenditures
The following Capital Expenditures permitted by the June 28, 1993 Credit
Agreement, as previously amended, were deferred from calendar year 1995:
DESCRIPTION OF CAPITAL EXPENDITURES AMOUNT
78
<PAGE>
Schedule 6.11
Existing Indebtedness
(1) IRB's referred to in SCHEDULE 1.1.
(2) Telephone contract for CAMCO referred to in SCHEDULE 1.1.
(3) Letters of Credit aggregating approximately $375,000 issued to the Missouri
Department of Workers' Compensation.
(4) $50,000 Note to Union Pacific for crossover track obligation.
79
<PAGE>
SCHEDULE 6.16
EXISTING INVESTMENT
1. Investment in Vale-Harmon Enterprises, LTD. in Saint-Laurent, Quebec,
Canada representing 25% ownership currently valued on HII's books at
$100,100.
2. Investment in Henkes-Harmon Industries, PTUY. LTD. in Mooroolbark,
Victoria, Australia representing 20% ownership currently valued on HII's
books at $3,150.
3. 7,500 shares of redeemable, 8% Cumulative, $100 par value preferred stock
of KineticSystems Corp. currently valued on HII's books at $612,000.
4. Note receivable from Halear Corp. in the initial principal balance of
$113,236 relating to sale of its Interface Product Line (PDI), current
balance is approximately $53,000.
80
<PAGE>
EXHIBIT 11A
HARMON INDUSTRIES, INC.
FORM 10-Q
SEPTEMBER 30, 1996
Computation of earnings per share (Instruction H(g))
Computation of the average number of shares of Common Stock outstanding for the
three months ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
(4)
AVERAGE NUMBER OF
SHARES OUTSTANDING
AS SHOWN ON
(1) (2) CONSOLIDATED STATEMENTS
SHARES OF NUMBER (3) OF OPERATIONS (3)
COMMON OF DAYS SHARE DAYS DIVIDED BY NUMBER
STOCK OUTSTANDING (2 X 1) OF DAYS IN PERIOD
--------- ----------- ----------- -----------------------
<S> <C> <C> <C> <C>
1996
July 1 - September 30 6,805,626 92 628,117,592
Stock issued in acquisition 17,647 3 52,941
Equivalent shares under the Company's
option plans 37,680 92 3,466,560
-----------
629,637,093 6,843,881
----------- ----------
----------- ----------
1995
July 1 - September 30 6,802,411 92 625,821,812
Equivalent shares under the Company's
bonus plan 2,061 92 189,622
Options exercised 3,215 44 141,460
Equivalent shares under the Company's
option plans 31,102 92 2,861,384
-----------
629,014,278 6,837,112
----------- ----------
----------- ----------
</TABLE>
1
<PAGE>
Computation of the average number of shares of Common Stock outstanding for the
nine months ended September 30, 1996 and 1995.
<TABLE>
<S> <C> <C> <C>
1996
Quarter 1 weighted average 6,828,883
Quarter 2 weighted average 6,834,674
Quarter 3 weighted average 6,837,743
Divided by
20,501,300 3 quarters = 6,633,767
---------
---------
1995
Quarter 1 weighted average 6,814,783
Quarter 2 weighted average 6,823,650
Quarter 3 weighted average 6,837,112
Divided by
20,475,545 3 quarters = 6,825,182
---------
---------
</TABLE>
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENT OF HARMON INDUSTRIES, INC. AT SEPTEMBER 30,
1996 AND FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINACIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 29,697
<ALLOWANCES> (307)
<INVENTORY> 28,952
<CURRENT-ASSETS> 61,801
<PP&E> 43,574
<DEPRECIATION> (26,384)
<TOTAL-ASSETS> 94,699
<CURRENT-LIABILITIES> 28,965
<BONDS> 6,664
1,706
0
<COMMON> 0
<OTHER-SE> 54,395
<TOTAL-LIABILITY-AND-EQUITY> 94,669
<SALES> 119,465
<TOTAL-REVENUES> 119,465
<CGS> 87,762
<TOTAL-COSTS> 87,762
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 612
<INCOME-PRETAX> 11,718
<INCOME-TAX> 4,497
<INCOME-CONTINUING> 7,221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,221
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
</TABLE>
