<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended: September 30, 1998
------------------
Commission File Number: 0-7916
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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.)
1600 NE Coronado Drive, Blue Springs, Missouri 64014
- ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
816-229-3345
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(Registrant's telephone number, including area code)
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
---- ----
Number of shares of Registrant's common stock outstanding as of
September 30, 1998: 10,553,274
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PART I. FINANCIAL INFORMATION
-------------------------------
ITEM 1. FINANCIAL STATEMENTS
The Consolidated Statements of Earnings, Consolidated Balance Sheets,
Consolidated Statements of Cash Flows and Consolidated Statements of
Stockholders' Equity 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, 1998 and December 31, 1997 as well as the results of its
operations for the interim periods ended September 30, 1998 and September 30,
1997. The Consolidated Balance Sheet as of December 31, 1997 is derived from
the audited Consolidated Balance Sheet as of that date.
2
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HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
AMOUNTS IN THOUSANDS (EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------- -----------------------------------
1998 1997 1998 1997
--------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $57,754 $56,125 $192,017 $139,734
Cost of sales 43,749 41,512 145,087 101,316
Research and development expenditures 2,103 1,758 6,586 5,168
------------ ----------- ----------- ------------
Gross profit 11,902 12,855 40,344 33,250
Selling, general and
administrative expenses 7,783 8,228 23,750 20,763
Amortization of cost in
excess of fair value of
net assets acquired 234 178 668 505
Equity in net loss of affiliate -- -- -- 330
Miscellaneous (income) expense-net (188) (4) (206) (76)
------------ ------------ ------------- -------------
Operating income 4,073 4,453 16,132 11,728
Interest expense (304) (333) (961) (884)
Investment income 98 67 209 381
------------ ------------ ------------- -------------
Earnings before income taxes 3,867 4,187 15,380 11,225
Income tax expense 1,399 1,548 5,498 4,152
------------ ------------ ------------- -------------
Net earnings $2,468 $2,639 $9,882 $7,073
============ ============ ============= =============
Net earnings per common share:
Basic $0.23 $0.26 $0.94 $0.69
Diluted $0.23 $0.25 $0.93 $0.68
Shares used for computation:
Basic 10,532 10,322 10,512 10,292
Diluted 10,666 10,392 10,653 10,344
</TABLE>
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HARMON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
--------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $6,638 $6,748
Trade receivables, less allowance for doubtful accounts
of $304 in 1998 and $318 in 1997 37,234 45,001
Costs and estimated earnings in excess of billings on
uncompleted contracts 7,806 2,850
Inventories:
Work in process 7,473 6,171
Raw materials and supplies 33,538 32,894
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41,011 39,065
Deferred tax asset 2,215 2,215
Prepaid expenses and other current assets 1,856 473
---------- -------------
Total current assets 96,760 96,352
---------- -------------
Property, plant and equipment, at cost:
Land 465 465
Buildings 12,179 11,363
Machinery and equipment 18,177 16,319
Office furniture and equipment 23,064 20,671
Transportation equipment 1,396 1,393
Leasehold improvements 3,559 3,120
---------- -------------
58,840 53,331
Less accumulated depreciation and amortization 33,672 29,302
---------- -------------
Net property, plant and equipment 25,168 24,029
Deferred tax asset 414 414
Cost in excess of fair value of net assets acquired,
net of accumulated amortization of
$3,848 in 1998 and $3,180 in 1997 9,440 8,766
Deferred compensation asset 6,387 5,807
Other assets 1,576 401
========== =============
$139,745 $135,769
========== =============
SEPTEMBER 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt installments $357 $1,162
Accounts payable 11,919 21,554
Accrued payroll, bonus and employee benefit plan
contributions 12,283 11,893
Billings in excess of costs and estimated earnings
on uncompleted contracts 9,614 5,677
Federal and state income taxes payable -- 566
Other accrued liabilities 4,477 5,177
------------ ----------
Total current liabilities 38,650 46,029
------------ ----------
Deferred compensation liability 5,046 4,522
Long-term debt 15,194 15,456
------------ ----------
Total liabilities 58,890 66,007
Stockholders' equity
Common stock of $.25 par value; authorized
50,000,000 shares, issued 10,553,274 in 1998
and 10,437,369 in 1997 2,638 2,609
Additional paid-in capital 26,186 24,514
Foreign currency translation 264 104
Unearned compensation (294) (224)
Retained earnings 52,061 42,759
------------ ------------
Total stockholders' equity 80,855 69,762
============ ============
$139,745 $135,769
============ ============
</TABLE>
4
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HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
IN THOUSANDS OF DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $9,882 $7,073
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 5,182 3,978
Equity in net loss of affiliate -- 330
(Gain) loss on sale of property, plant and equipment 18 --
Changes in assets and liabilities:
Trade receivables 8,373 (933)
Inventories (1,948) (10,927)
Estimated costs, earnings and billings on contracts (1,020) 783
Income tax receivable (142) (1,421)
Prepaid expenses (1,257) 2,160
Other assets (675) --
Accounts payable (9,635) (2,646)
Accrued payroll and benefits 390 (1,872)
Current income taxes (566) 347
Other accrued liabilities (701) (1,438)
Deferred compensation liability 524 213
------------- -------------
Total adjustments (1,457) (11,426)
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Net cash provided by (used in) operating activities 8,425 (4,353)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,868) (7,064)
Proceeds from sale of property, plant and equipment 13 19
Deferred compensation contributions (650) (394)
Acquisition of business -- (167)
Other investing activities (411) 26
------------- -------------
Net cash used in investing activities (6,916) (7,580)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 543 553
Proceeds from issuance of long-term debt -- 15,045
Borrowings under line of credit agreements 43,906 29,934
Repayments under line of credit agreements (44,478) (29,953)
Principal payments of long-term debt (1,101) (610)
Cash dividends paid (580) (515)
------------- -------------
Net cash (used in) provided by financing activities (1,710) 14,454
------------- -------------
Foreign currency translation adjustment 91 (171)
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Net increase (decrease) in cash and cash equivalents (110) 2,350
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Cash and cash equivalents at beginning of period 6,748 --
------------- -------------
Cash and cash equivalents at end of period $6,638 $2,350
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $1,395 $673
Income taxes $9,053 $5,135
Acquisition of business financed by issuance of common stock $1,158 --
</TABLE>
5
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HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
IN THOUSANDS OF DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Foreign Total
Common Paid-in Currency Unearned Retained Stockholders' Comprehensive
Stock Capital Translation Compensation Earnings Equity Income
- ----------------------------------- ------------------------------------------------------------------------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $2,561 $22,340 $203 -- $32,835 $57,939
- ----------------------------------- ------------------------------------------------------------------------------
Net earnings 1,447 1,447 $1,447
Common stock issued:
Stock options and other 12 159 171
Foreign currency translation (107) (107) (107)
-----------
Comprehensive income $1,340
- ----------------------------------- ------------------------------------------------------------------------------ ===========
Balance at March 31, 1997 2,573 22,499 96 -- 34,282 59,450
- ----------------------------------- ------------------------------------------------------------------------------
Net earnings 2,987 2,987 $2,987
Cash dividends paid (515) (515)
Common stock issued:
Stock options and other 5 239 244
Foreign currency translation 58 58 58
----------
Comprehensive income $3,045
- ----------------------------------- ------------------------------------------------------------------------------ ===========
Balance at June 30, 1997 2,578 22,738 154 -- 36,754 62,224
- ----------------------------------- ------------------------------------------------------------------------------
Net earnings 2,639 2,639 $2,639
Common stock issued:
Deferred compensation 5 267 (163) 109
Stock options and other 1 31 32
Foreign currency translation (122) (122) (122)
----------
Comprehensive income $2,517
- ----------------------------------- ------------------------------------------------------------------------------ ==========
Balance at September 30, 1997 2,584 23,036 32 (163) 39,393 64,882
- ----------------------------------- ------------------------------------------------------------------------------
Net earnings 3,888 3,888 $3,888
Cash dividends paid (522) (522)
Common stock issued:
Acquisition of businesses 23 1,337 1,360
Deferred compensation 1 88 (61) 28
Stock options and other 1 53 54
Foreign currency translation 72 72 72
----------
Comprehensive income $3,960
- ----------------------------------- ------------------------------------------------------------------------------ ==========
Balance at December 31, 1997 2,609 24,514 104 (224) 42,759 69,762
- ----------------------------------- ------------------------------------------------------------------------------
Net earnings 2,812 2,812 $2,812
Common stock issued:
Acquisition of businesses 20 1,138 1,158
Stock options and other 1 36 37
Foreign currency translation 149 149 149
----------
Comprehensive income $2,961
- ----------------------------------- ------------------------------------------------------------------------------ ==========
Balance at March 31, 1998 $2,630 $25,688 $253 ($224) $45,571 $73,918
- ----------------------------------- ------------------------------------------------------------------------------
Net earnings 4,602 4,602 $4,602
Cash dividends paid (580) (580)
Common stock issued:
Deferred compensation 7 7
Stock options and other 5 291 296
Foreign currency translation (115) (115) (115)
----------
Comprehensive income $4,487
- ----------------------------------- ------------------------------------------------------------------------------ ==========
Balance at June 30, 1998 $2,635 $25,986 $138 ($224) $49,593 $78,128
- ---------------------------------- ------------------------------------------------------------------------------
Net earnings 2,468 2,468 $2,468
Common stock issued:
Deferred compensation 2 176 (70) 108
Stock options and other 1 24 25
Foreign currency translation 126 126 126
----------
Comprehensive income $2,594
- ----------------------------------- ------------------------------------------------------------------------------ ===========
Balance at September 30, 1998 $2,638 $26,186 $264 ($294) $52,061 $80,855
- ----------------------------------- -=============================================================================
</TABLE>
6
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS: THREE MONTHS ENDED SEPTEMBER 30, 1998
Net sales for the quarter were $57.8 million, an increase of $1.6 million, or
2.9%, from the third quarter of 1997.
Gross profit for the quarter decreased by 7.4% to $11.9 million in 1998 from
$12.9 million in 1997. This decrease in gross profit is the result of lower
gross profit margins which decreased to 20.6% from 22.9% in the prior year
quarter. The decline in gross profit margin is primarily the result of an
increase in the sales mix toward services, systems and pass-through sales.
Research and development expenditures (R&D) for the quarter increased to $2.1
million from $1.8 million in the same quarter one year ago as the Company
continues to increase its efforts to develop new products and enhance
existing products. As a result, R&D as a percent of net sales increased to
3.6% in the third quarter of 1998 from 3.1% in the third quarter of 1997.
Selling, general and administrative expenses (SG&A) were $7.8 million during
the 1998 quarter compared with $8.2 million during the prior year quarter.
Much of the decline in SG&A was represented by decreased expenses for freight
and outside services. SG&A as a percent of net sales decreased from 14.7%
during the 1997 quarter to 13.5% during the 1998 quarter.
Amortization expense increased to $234 thousand from $178 thousand in the
same quarter one year ago. This increase is attributable to the increase in
goodwill resulting from acquisitions during the twelve months ended
September 30, 1998.
Net interest expense (interest expense less investment income) for the quarter
decreased to $206 thousand from $266 thousand for the prior year quarter as a
result of lower borrowings and higher invested balances.
The effective tax rate for the quarter decreased to 36.2% in 1998 from 37.0% in
1997. This decrease is due to a reduced effective income tax rate in Missouri
resulting from the receipt of tax refunds arising under recent legislation and
increased tax benefits from the Company's foreign sales corporation.
Net income decreased 6.5% to $2.5 million from $2.6 million in the prior year
quarter. Diluted earnings per common share decreased 8.0% to $0.23 from $0.25.
Orders for the Company's products and services during the quarter ended
September 30, 1998 decreased to $43.4 million from $70.0 million during the
1997 quarter. This decrease was primarily in the transit and international
markets. In the transit market, many bids are scheduled for the fourth
7
<PAGE>
quarter with awards anticipated in late 1998 or early 1999. In the
international market, the Company's largest customer in the United Kingdom
has temporarily delayed some purchases. The Company's order backlog was
$60.5 million at September 30, 1998, compared with $74.5 million at
December 31, 1997 and $88.9 million one year ago.
RESULTS OF OPERATIONS: NINE MONTHS ENDED SEPTEMBER 30, 1998
Net sales for the nine months ended September 30, 1998 were $192.0 million, an
increase of $52.3 million, or 37.4%, from the same period in 1997. This
increase is the result of continued strong demand for the Company's goods and
services and substantial shipments on two large projects.
Gross profit for the nine month period increased by 21.3% to $40.3 million in
1998 from $33.3 million in 1997. This increase in gross profit is the result
of the sales increase previously discussed. Gross profit margin for the
period decreased to 21.0% from 23.8% in the prior year period. As discussed
above, this decline in gross profit margin is primarily the result of an
increase in the sales mix toward services, systems and pass-through sales.
R&D for the period increased to $6.6 million from $5.2 million in the same
period one year ago. As a result of the increase in net sales, R&D as a
percent of net sales decreased from 3.7% in the nine months ended
September 30, 1997 to 3.4% in the same period of 1998.
SG&A increased to $23.8 million during the 1998 period from $20.8 million during
the prior year period. Much of the increase in SG&A was represented by labor
and benefit expenses resulting from an increase in full-time employees during
1997. SG&A as a percent of net sales decreased from 14.9% during the 1997
period to 12.4% during the 1998 period.
Amortization expense increased to $668 thousand from $505 thousand in the same
period one year ago. This increase is attributable to the increase in goodwill
resulting from acquisitions during the twelve months ended September 30, 1998.
As a result of higher borrowings to support increased working capital during the
first and second quarters of 1998 and a private debt placement in the first
quarter of 1997, net interest expense for the first nine months of 1998
increased to $752 thousand from $503 thousand for the prior year period.
The effective tax rate for the nine months ended September 30, 1998 decreased to
35.8% from 37.0% for the comparable period of 1997. As discussed above, this
decrease is due to a reduced effective income tax rate in Missouri resulting
from the receipt of tax refunds arising under recent legislation and increased
tax benefits from the Company's foreign sales corporation.
Net income increased 39.7% to $9.9 million from $7.1 million in the prior year
period. Diluted earnings per common share increased 36.8% to $0.93 from $0.68.
FINANCIAL CONDITION AT SEPTEMBER 30, 1998
At September 30, 1998, the Company had $80.6 million in liquidity. This
consisted of $6.7 million
8
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in cash and cash equivalents plus $73.9 million available under bank lines of
credit. On September 29, 1998, the Company replaced its existing credit
agreement with a five-year, $75 million credit agreement. The current ratio
at September 30, 1998 was 2.50 to 1 compared to 2.09 to 1 at December 31,
1997 and 2.34 to 1 at September 30, 1997. The increase in the current ratio
from December 31, 1997 to September 30, 1998 is primarily the result of
decreases in accounts payable from year-end levels. Cash provided by
operating activities for the nine months ended September 30, 1998 was $8.4
million compared to cash used in operating activities of $4.4 million for the
same period one year ago. Cash provided by operating activities in 1998 is
attributable primarily to net earnings, depreciation and amortization and a
decrease in trade receivables since December 31, 1997 partially off-set by a
decrease in trade accounts payable since December 31, 1997. The primary
reason for the use of cash in operating activities during the prior year
period was an increase in inventories from December 31, 1996 to September 30,
1997.
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. The adjustment to
stockholders' equity as a result of the cumulative foreign currency translation
adjustment is included in comprehensive income as presented in the Consolidated
Statements of Stockholders' Equity.
SUBSEQUENT EVENTS
On October 16, 1998, the Company acquired 100% of the capital stock of two
companies; SES Co., Inc. and Seaboard Systems, Inc. SES Co., Inc. provides
communication, security and dispatching systems primarily to the transit
industry and recorded 1997 revenues of approximately $12 million.
Consideration paid for SES Co. was $10.2 million in cash and 95,026 shares of
the Company's common stock, subject to resale restrictions. Seaboard
Systems, Inc. provides systems installation services to the transit industry
and recorded 1997 revenues of approximately $4 million. Seaboard Systems,
Inc. was purchased for $1.8 million in cash. These acquisitions were funded
with cash on hand and borrowings under the Company's bank credit agreement.
YEAR 2000 ISSUE
'Year 2000 Issue' or 'Y2k' refers to the practice in many existing computer
programs that uses only the last two digits when designating a year. Therefore,
these programs cannot distinguish a year that begins with 19 from a year that
begins with 20. If not corrected, many computer applications could fail or
create erroneous results beginning January 1, 2000.
BACKGROUND
In 1997, the Company's Management Information Systems Steering Team developed
a long-range plan to consolidate substantially all of its domestic operations
onto a single computer operating system. The software vendor chosen was the
one that currently supplies the largest of the Company's three primary
operating systems. The benefits of this consolidation are increased
efficiency and uniformity throughout the Company, particularly in the areas
of manufacturing, accounting and human resources, as well as achieving Y2k
compliance.
9
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READINESS
OPERATING SYSTEMS: To complete the consolidation discussed above, the Company
will complete one systems upgrade and two systems conversions. The upgrade,
which effects the largest portion of the Company's business, was successfully
completed at the end of the third quarter 1998. The conversions of the
remaining two systems are scheduled for the second and fourth quarters of 1999,
respectively. An inventory of workstation hardware identified approximately 100
personal computers that require Y2k compliant systems boards. These boards will
be installed in 1999. A small number of workstations remain to be reviewed for
Y2k readiness.
CUSTOMERS: A review by the Company of the products it sells identified two
potential areas of Y2k non-compliance. The first area involves a
vendor-supplied operating system. The Company is currently awaiting a
proposed solution from the manufacturer. An installed base of fewer than ten
is affected by this issue. All customers have been informed of this problem
and are being kept up-to-date with the progress. The second potential issue
involves a clock chip that the Company has been informed is not Yk2
compliant. The Company is conducting a review to determine if and when this
component may have been used in any of its products. The Company believes
that none of the Y2k issues described above, if not corrected, would
jeopardize the safety of any of its customers or the public at large. While
final action plans are not yet complete, the Company does not believe the
costs necessary to achieve Y2k compliance for its products will be material
to the Company's financial statements on a consolidated basis.
VENDORS: The Company is presently surveying all significant vendors to determine
if the Company's operations could be materially impacted by the failure of key
vendors to achieve Y2k compliance. This review is not complete and no material
exposures have yet been identified.
MISCELLANEOUS: The Company is presently surveying manufacturing and production
equipment, telephone systems, security systems, and other peripheral devices
associated with the Company's facilities for Y2k compliance. This review is not
complete and no material exposures have yet been identified.
COSTS
As discussed above, Y2k compliance is one of two benefits achieved by the
Company's upgrade and conversion efforts. While the Company is monitoring the
costs of these projects against established budgets, it is not possible to
allocate these costs between the two objectives; the benefits of a common
operating system and the requirement for Y2k compliance. The Company expects to
spend approximately $1.1 million in 1998 and has budgeted $1.1 million in 1999.
These costs will be funded by cash flow from operations.
RISKS
The Company's primary Y2k risks are in the timing of the conversions planned for
1999 and the failure of key vendors to achieve Y2k compliance. Operations of
the Company's Lee's Summit, MO and Riverside, CA locations could be impacted if
those conversions are not completed by the time it is necessary to enter dates
beyond December 31, 1999. The Company believes the impact of Y2k non-compliance
at these locations would be limited to decreased productivity and the
substitution of manual processes for certain automated ordering and planning
processes. The evaluation of the
10
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Company's exposure resulting from non-compliance by key vendors is in process
and the impact, if any, is therefore not yet known.
CONTINGENCY PLANS
The Company is preparing contingency plans with respect to the conversion of
its Riverside, CA location. Several key reporting functions have been
changed to accommodate Y2k. Several additional changes would be required in
the areas of purchase orders and manufacturing resource planning if this
conversion is not completed on schedule.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page(s)
-------- ----------------------------------------------- ---------
<S> <C> <C>
10 Credit Agreement dated as of September 29, 1998 13-45
between Harmon Industries, Inc. and NationsBank,
n.a.
11 Computation of per share earnings 46
27 Financial Data Schedule 47
</TABLE>
(b) Reports on Form 8-K:
There were no reports on Form 8-K for the quarter ended September 30, 1998.
11
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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 12, 1998 /s/Bjorn E. Olsson
--------------------------------------
Bjorn E. Olsson,
President and Chief Executive Officer
Date: November 12, 1998 /s/Charles M. Foudree
--------------------------------------
Charles M. Foudree,
Executive Vice President-Finance
Date: November 12, 1998 /s/Stephen L. Schmitz
--------------------------------------
Stephen L. Schmitz,
Vice President-Controller
12
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of the 29th day of September, 1998, by
and between HARMON INDUSTRIES, INC., a Missouri corporation ("BORROWER"), and
NATIONSBANK, N.A., a national banking association (the "BANK").
WHEREAS, Borrower has applied to the Bank for a five-year unsecured
revolving line of credit in the amount of $40,000,000, and Borrower intends
to use the proceeds thereof to provide working capital and refinance certain
existing indebtedness; and
WHEREAS, Borrower has applied to the Bank for a five-year unsecured
reducing revolving line of credit in the amount of $35,000,000, and Borrower
intends to use the proceeds thereof to provide financing for acquisitions; and
WHEREAS, Borrower has applied to the Bank to make available, on the
request of Borrower, letters of credit in the maximum aggregate amount
outstanding at any time of $5,000,000 to be applied against the amount
available under the revolving line of credit; and
WHEREAS, the Bank has agreed to make such credit and loans available to
Borrower upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties agree as follows:
ARTICLE 1
DEFINITIONS
Certain terms used in this Agreement are defined herein. Certain other
terms are defined in Exhibit 1 attached hereto and incorporated herein by
this reference.
ARTICLE 2
REVOLVING LINE OF CREDIT
1.1 Agreement to Lend.
(1) The Bank agrees, on the terms and subject to the conditions
set forth in this Agreement, to make loans (each a "REVOLVING LOAN") to
Borrower from time to time beginning on the Closing Date and ending on the
Revolving Credit Termination Date, in such amounts as Borrower shall request
as provided in Section 5.8 hereof; provided, however, that the Bank shall
have no obligation to make a requested Revolving Loan if, after the making of
such Revolving Loan,
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(i) the aggregate unpaid principal balance of all Revolving Loans, together
with the aggregate undrawn amount under all outstanding Letters of Credit,
would exceed the Revolving Credit Commitment, or (ii) a Default or Event of
Default has occurred and is continuing. Borrower may terminate or reduce the
unused portion of the Revolving Credit Commitment at any time by giving
notice to the Bank as provided in Section 5.8 below, provided that any
partial reduction shall be in an amount of at least $1,000,000.
(2) If the aggregate indebtedness of Borrower under the Revolving
Note (as defined below), plus the aggregate undrawn amount under all
outstanding Letters of Credit, at any time exceeds the Revolving Credit
Commitment, Borrower shall immediately, without demand or notice, pay
principal under the Revolving Note so that the aggregate principal amount
outstanding thereunder, plus the aggregate undrawn amount under all
outstanding Letters of Credit, does not exceed the Revolving Credit
Commitment.
1.2 Revolving Note. The Revolving Loans shall be evidenced by and
repaid in accordance with a Revolving Credit Promissory Note executed by
Borrower, in the form of Exhibit 2.2 hereto, dated as of the Closing Date,
and payable to the order of the Bank. Such note and any and all amendments,
extensions, modifications, renewals, reaffirmations, restatements,
replacements and substitutions thereof and therefor are herein referred to as
the "REVOLVING NOTE." Interest shall accrue on the unpaid principal balance
of the Revolving Note outstanding from time to time at a rate or rates
determined as provided in Section 5.3 below. The Revolving Note shall be
paid in full on the Revolving Credit Termination Date.
ARTICLE 3
REDUCING REVOLVING LINE OF CREDIT
1.3 Agreement to Lend.
(1) The Bank agrees, on the terms and subject to the conditions set
forth in this Agreement, to make loans (each a "REDUCING CREDIT LOAN" or a "RRC
LOAN") to Borrower, from time to time during the period beginning on the Closing
Date and ending on the Revolving Credit Termination Date in such amounts as
Borrower shall request as provided in Section 5.8 hereof; provided, however,
that, no RRC Loan shall be made if, after making such RRC Loan, the unpaid
principal balance of all RRC Loans would exceed the RRC Commitment or if a
Default or an Event of Default has occurred and is continuing. Borrower may
terminate or reduce the unused portion of the RRC Commitment by giving notice to
the Bank as provided in Section 5.8 below, provided that any partial reduction
shall be in an amount of at least $1,000,000.
(2) The RRC Loans shall be expended solely for Acquisitions by
Borrower or any Guarantor as permitted under Section 11.4(d) of this Agreement
or for loans to or other Investments in any subsidiary acquired by Borrower or a
Guarantor in an Acquisition in an amount not exceeding 5% of the purchase price
of the Acquisition and made within six (6) months after the closing of the
Acquisition or for any other purpose approved by the Bank.
14
<PAGE>
(3) The Bank's initial commitment of $35,000,000 with respect to
RRC Loans as provided herein shall be reduced by $1,750,000 on the last day
of each quarter beginning December 31, 2000 (such commitment, as so reduced
from time to time, is the "RRC COMMITMENT"). If the aggregate indebtedness
of Borrower under the RRC Note (as defined below) at any time exceeds the RRC
Commitment, Borrower shall immediately, without demand or notice, pay
principal under the RRC Note, so that the aggregate principal amount
outstanding thereunder does not exceed the RRC Commitment.
1.4 Reducing Revolving Credit Note. The RRC Loans shall be evidenced
by and repaid in accordance with a Reducing Revolving Credit Note executed by
Borrower, in the form of Exhibit 3.2 hereto, dated as of the Closing Date,
and payable to the order of the Bank. Such note and any and all amendments,
extensions, modifications, renewals, reaffirmations, restatements,
replacements and substitutions thereof and therefor are herein referred to as
the "RRC NOTE." Interest shall accrue on the unpaid principal balance of the
RRC Note outstanding from time to time at a rate or rates determined as
provided in Section 5.3 below. The RRC Note shall be paid in full on the
Revolving Credit Termination Date.
ARTICLE 4
OTHER CREDIT FACILITIES
1.5 Letters of Credit. From time to time after the date hereof until the
Revolving Credit Termination Date, Borrower may apply to the Bank to issue or
extend the expiration date of one or more letters of credit for the account of
Borrower (together with all letters of credit issued by the Bank for the account
of Borrower outstanding on the date of this Agreement and all renewals and
extensions thereof, "LETTERS OF CREDIT"), each of which:
(1) shall be for a stated amount which, together with the
aggregate undrawn amount then outstanding under all Letters of Credit, does
not exceed $5,000,000 and which, together with the principal amount then
outstanding of all Revolving Loans and the aggregate undrawn amount then
outstanding under all Letters of Credit, does not exceed the Revolving Credit
Commitment;
(2) shall, by its terms, expire not later than the Revolving
Credit Termination Date;
(3) shall require payment by Borrower of fees as described in
Section 6.2 hereof (such fees are not, however, applicable to Letters of
Credit outstanding on the date of this Agreement but they are applicable to
any renewals or extensions thereof); and
(4) shall be issued pursuant to the Bank's then-current standard
forms of application and reimbursement agreement for letters of credit, which
shall set forth the repayment terms for amounts owed by Borrower to the Bank
for any draws on such Letter of Credit, the interest rate thereon and any
other terms and conditions relating thereto.
15
<PAGE>
Borrower authorizes the Bank to, at its option, cause the repayment of each
such draw under the Letters of Credit to be made when due by charging such
repayment against the Revolving Credit Note as a Revolving Credit Loan.
1.6 Conversion of Reducing Credit Loans. Borrower may convert all or
any portion of the outstanding RRC Loans to a loan with a fixed rate of
interest pursuant to an interest rate swap agreement or other similar
agreement that has terms and conditions acceptable to the Bank.
ARTICLE 5
TYPES OF LOANS; DISBURSEMENTS; INTEREST; PAYMENTS
1.7 Types of Loans. The Loans made on each Disbursement Date may,
subject to the terms and conditions of this Agreement, be Base Rate Loans or
LIBOR Rate Loans (each being referred to as a "type" of Loan) as specified in
the applicable request for borrowing referred to in Section 5.8 hereof, and
Borrower may 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 if any LIBOR Rate Loan is converted on any day
other than the last day of the Interest Period for such Loan, Borrower shall
pay all applicable fees and amounts described in Section 6.3 below.
1.8 Loan Disbursement Procedures.
(1) Loans shall be disbursed by the Bank upon request by Borrower
from time to time on or after the Closing Date, in such amounts as Borrower
may request as provided in Section 5.8 below, subject to the limitations on
the Bank's obligations to make Loans as set forth in Sections 2.1 and 3.1
hereof. Subject to the terms of this Agreement, Borrower may borrow, repay
and reborrow Revolving Loans and RRC Loans at any time prior to the Revolving
Credit Termination Date.
Each request for a Loan shall be delivered to the Bank in writing or by
telex or facsimile transmission in the manner provided in Section 13.1
hereof, or as otherwise agreed by the Bank, not later than 2:00 p.m., Kansas
City, Missouri time, on the date on which the Borrower desires disbursement
of the Loan, which date shall be a Business Day and shall be specified in the
request (a "DISBURSEMENT DATE"). The Bank may rely and act upon any such
request which is received from a person believed by the Bank in good faith to
be authorized to make such request on behalf of Borrower. The Bank shall
record in its records all Loans made by the Bank to Borrower pursuant to this
Agreement and all payments made on the Loans.
1.9 Interest.
(1) The Borrower shall pay to the Bank interest on the unpaid
principal amount of each Revolving Credit Loan and each RRC Loan for the
period commencing on and including
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<PAGE>
the date of such Loan to but excluding the date such Loan is paid in full, at
the following rates per annum:
(i) during any period while such Loan is a Base Rate Loan, the
Base Rate (as in effect from time to time) less 1/2%; and
(ii) during any period while such Loan is a LIBOR Rate Loan,
for each Interest Period relating thereto, the LIBOR Rate for such
Interest Period plus the Applicable Margin in effect on the
Disbursement Date, the date of conversion or the date of continuation,
as applicable and as adjusted as provided in this Agreement. The
Applicable Margin will be calculated and adjusted, as shown below, on
the first day of the month following the receipt by the Bank of each
quarterly Compliance Certificate; any change in the Applicable Margin
shall be effective with respect to Interest Periods beginning on or
after each such date; the interest payable with respect to each
outstanding LIBOR Rate Loan shall not change during any Interest
Period. The Applicable Margin will be as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------
CONSOLIDATED
FUNDED DEBT / EBITDA APPLICABLE MARGIN
RATIO
<S> <C>
GREATER THAN = 2.0x 1.000%
---------------------------------------------------------------
GREATER THAN = 1.5x and LESS THAN 2.00x .875%
---------------------------------------------------------------
GREATER THAN = 1.0x and LESS THAN 1.5x .75%
---------------------------------------------------------------
GREATER THAN = .50x and LESS THAN 1.0 .60%
---------------------------------------------------------------
LESS THAN.50% .50%
---------------------------------------------------------------
</TABLE>
(2) Notwithstanding the provisions of paragraph (a) above,
Borrower shall pay interest at the applicable Default Rate on any principal
of any Loan and on any interest or other amount payable by Borrower
hereunder or under any Note (i) that is not paid in full when due (whether at
maturity, by acceleration or otherwise), for the period commencing on and
including the due date thereof until the same is paid in full and (ii) upon
and after any failure to comply with or violation of any of the financial
covenants set forth in Article 10 of this Agreement.
(3) Accrued interest on each Loan shall be payable (i) in the case
of a Base Rate Loan, on the last Business Day of each calendar quarter, and
(ii) in the case of a LIBOR Rate Loan, on the last day of each Interest
Period therefor and, if such Interest Period is longer than three months, on
the last day of each three-month interval during such Interest Period;
provided that interest payable at the Default Rate shall be payable, to the
extent applicable, from time to time on demand of the Bank.
(4) The Bank shall notify Borrower promptly of any change in the
Base Rate and, on the request of Borrower, of the LIBOR Rate or Rates then in
effect.
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(5) In the event that Borrower fails to select the type of Loan or
the duration of any Interest Period for any LIBOR Rate Loan within the time
period and otherwise as provided in Section 5.8, such Loan (if outstanding as
a LIBOR Rate Loan) will be automatically converted into a Base Rate Loan on
the last day of the then current Interest Period for such Loan or (if
outstanding as a Base Rate Loan) will remain as, or will be made as, a Base
Rate Loan.
1.10 Optional Payments. Borrower shall have the right to prepay the
Loans in whole or in part at any time without premium or penalty, subject to
giving the Bank prior notice in accordance with the provisions of Section 5.8
hereof, provided that (i) each such partial prepayment shall be in the
aggregate principal amount of not less than $100,000 with respect to Base
Rate Loans and $500,000 with respect to LIBOR Rate Loans, and (ii) if any
prepayment of a LIBOR Rate Loan is made on any day other than the last day of
the Interest Period therefor, it may be prepaid only upon three (3) Business
Days prior notice to the Bank and Borrower shall pay to the Bank any
applicable fees and amounts described in Section 6.3(a) below. Amounts
prepaid in respect of Loans under this Section 5.4 may be reborrowed subject
to the terms and conditions hereof.
1.11 Mandatory Prepayments. On the last day of each quarter beginning
December 31, 2000, Borrower shall repay (which, for purposes of this
Agreement, shall be deemed to be a prepayment) the principal of the RRC Note
to the extent the then outstanding principal balance thereof exceeds the RRC
Commitment as so reduced on such date.
1.12 Payments. Except as otherwise provided herein, all payments of
principal, interest, Fees, taxes, charges, expenses and other items payable
by Borrower hereunder and under the Notes shall be made in U.S. dollars and
shall be credited on the date of receipt by the Bank if received by the Bank
at its principal office in Kansas City, Missouri, in immediately available
funds, prior to 1:00 p.m., Kansas City, Missouri time, on a Business Day.
Payments made in funds which are not immediately available shall be credited
only when the funds are collected by the Bank, and payments received (whether
from Borrower in immediately available funds or through the collection of
funds which were not immediately available at the time payment was tendered
by Borrower) after 1:00 p.m. will be credited on the next Business Day. The
Bank reserves the right to apply all payments received by it from Borrower
and designated or authorized to be applied to a Note first to any Fees and
other charges then due to the Bank, then to accrued interest on such Note and
then to reduction of the principal balance of such Note, or such other order
as the Bank may determine in its sole discretion. The Bank shall also record
in its records, in accordance with customary accounting practice, all
interest, Fees, taxes, charges, expenses and other items properly chargeable
to Borrower with respect to the Loans, all payments received by the Bank for
application to the Obligations, and all other appropriate debits and credits.
The Bank's records shall constitute prima facie evidence of the amount of
Obligations outstanding from time to time.
Borrower authorizes and directs the Bank to make payment of all amounts
due under the Notes and all other Obligations, including fees described in
Section 6.2 and fees, amounts and costs described in Section 6.3, by charging
such amounts against one or more of Borrower's depository accounts with the
Bank.
1.13 Minimum Amounts. Each borrowing or conversion of Base Rate Loans
shall be in an amount of at least $100,000 and each borrowing, conversion
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<PAGE>
or continuation of LIBOR Rate Loans shall be in an amount of $500,000 or a
multiple of $100,000 in excess thereof. Anything in this Agreement to the
contrary notwithstanding, the aggregate principal amount of LIBOR Rate Loans
having the same Interest Period shall be at least equal to $1,000,000 and, if
any LIBOR Rate Loans would otherwise be in a lesser principal amount for any
period, such Loans shall be Base Rate Loans during such period.
1.14 Certain Requests and Notices. Borrower will request borrowings and
give notice to the Bank of all terminations or reductions of Commitments,
conversions, continuations and prepayments of Loans and the duration of
Interest Periods, such requests and notices to be substantially in the form
of Exhibits 5.8-A and 5.8-B hereto. Each such notice shall be irrevocable
and shall be effective only if received by the Bank not later than 2:00 p.m.
Kansas City time (i) on the Business Day prior to the effective date of the
requested termination or reduction of a Commitment, (ii) on the same date if
it is a notice of a borrowing or prepayment of a Base Rate Loan (except that
if such date is not a Business Date, then on the next Business Day), or (iii)
three (3) Business Days prior to the requested effective date for a borrowing
or prepayment of, conversion into or continuation as a LIBOR Rate Loan or any
selection of Interest Period for a LIBOR Rate Loan.
For purposes of calculating the number of Business Days, the date the
notice is received shall be included if received not later than 2:00 p.m.
Kansas City time and excluded if received after 2:00 p.m. Kansas City time.
ARTICLE 6
GUARANTY; FEES; PAYMENTS
1.15 Guaranties. In order to ensure that Borrower and its Subsidiaries
will have available funds and sufficient credit with which to operate their
businesses, Borrower may at any time cause one or more Subsidiaries to become
Guarantors by causing each such Subsidiary to deliver to the Bank (i) a
Guaranty Agreement executed by the Subsidiary in substantially the form
attached hereto as Exhibit 6.1-A with such additional matters included
therein as may be required by the Bank (each, a "LOAN GUARANTY"), (ii) an
opinion of such Subsidiary's counsel, satisfactory in form and substance to
the Bank, as to the enforceability of such Loan Guaranty and other matters
required by the Bank; such opinion shall be in substantially the form
attached hereto as Exhibit 6.2-B, with such additional matters included
therein as may be required by the Bank and shall include, if requested by the
Bank, the opinion of counsel from the Subsidiary's jurisdictions of
organization and operation, and (iii) copies of such Subsidiary's charter
documents, certified by the appropriate public official, and of its bylaws,
certified by its secretary. EBIDTA of Guarantors and Investments in and to
Guarantors shall be included for purposes of certain financial covenants set
forth in Article 10 of this Agreement.
1.16 Structuring, Unused Commitment and Letter of Credit Fees. Borrower
agrees to pay a structuring fee of $75,000 on the Closing Date. Borrower
also agrees to pay quarterly unused commitment fees with respect to the
unused Revolving Credit Commitment and the unused RRC Commitment in the
amount determined as set forth in the chart below. Such fees shall be
calculated
19
<PAGE>
daily and shall be equal to the applicable per annum percentage times the
amount of the unused Commitments; in making such calculations, the unused
Revolving Credit Commitment shall be reduced by the undrawn amount of each
outstanding Letter of Credit. Borrower shall pay the unused Commitment fees
with respect to each quarter within 15 days after the end of such quarter,
based on the Consolidated Funded Debt/EBITDA Ratio as shown in the most
recent Compliance Certificate; such fees shall be adjusted as appropriate
upon receipt of the Compliance Certificate respecting the immediately
preceding quarter. Borrower also agrees to pay an annual fee, in an amount
determined as set forth below, with respect to any standby Letters of Credit
issued pursuant to Section 4.1 hereof. The Letter of Credit fee shall be
equal to the applicable per annum percentage times the aggregate undrawn
amount of such Letter of Credit on the date of payment. Borrower shall pay
the fee with respect to each Letter of Credit on or prior to the date of
issuance thereof and on each anniversary of the date of issuance.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CONSOLIDATED UNUSED COMMITMENT FEE STANDBY LETTER OF CREDIT FEE
FUNDED DEBT / EBITDA RATIO (% TIMES UNUSED COMMITMENT) (% TIMES STATED AMOUNT)
- -------------------------------------------------------------------------------------
<S> <C> <C>
GREATER THAN =2.00 0.30% per annum 1.00% per annum
- --------------------------------------------------------------------------------------
GREATER THAN = 1.50 and LESS THAN 2.00 0.25% per annum .875% per annum
- --------------------------------------------------------------------------------------
GREATER THAN = 1.00 and LESS THAN 1.50 0.20% per annum .75% per annum
- --------------------------------------------------------------------------------------
GREATER THAN = .50 and LESS THAN 1.00 0.20% per annum .60% per annum
- --------------------------------------------------------------------------------------
LESS THAN .50% 0.20% per annum .50% per annum
- --------------------------------------------------------------------------------------
</TABLE>
The Borrower also agrees to pay a fee for any direct-pay commercial
Letter of Credit issued pursuant to Section 4.1 hereof in accordance with the
Bank's then current standard pricing schedule.
1.17 Additional LIBOR Rate Loan Costs.
(1) Borrower shall pay to the Bank from time to time, upon request
of the Bank, such amounts as the Bank may determine to be necessary to
compensate it for any Additional LIBOR Rate Loan Costs respecting Regulatory
Changes and for any loss, cost or expense which the 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) that is attributable to (i) any payment, prepayment or conversion of
a LIBOR Rate Loan made by Borrower for any reason on a date other than the
last day of an Interest Period for such Loan or (ii) any failure by Borrower
for any reason (including, without limitation, the failure of any condition
specified in Article 7 hereof to be satisfied) to borrow, continue or convert
a LIBOR Rate Loan on the date therefor specified in the request for borrowing
or notice given pursuant to Section 5.8 hereof. Such compensation may
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the amount so prepaid, or not so borrowed,
converted or continued, for the
20
<PAGE>
period from the date of such prepayment or of such failure to borrow, convert
or continue to the last day of the applicable Interest Period (or, in the
case of a failure to borrow, convert or continue, the Interest Period that
would have commenced on the date of such failure) in each case at the
applicable rate of interest for such Loans provided for herein (excluding,
however, the Applicable Margin included therein, if any) over (ii) the amount
of interest (as reasonably determined by the Bank) which would have accrued
to the Bank on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank Eurodollar market. The covenants
of the Borrower set forth in this Section 6.3 shall survive the termination
of this Agreement and the payment of the Loans and all other amounts payable
hereunder. The Bank will notify Borrower of any event which will entitle the
Bank to compensation pursuant to this Section 6.3 as promptly as practicable
after the Bank determines to require such compensation and will furnish
Borrower with a certificate setting forth in reasonable detail the basis and
amount of such compensation.
(2) Determinations by the Bank of the effect of any Regulatory
Change on its rate of return or cost of maintaining the LIBOR Rate Loans, on
its obligation to make LIBOR Rate Loans or on amounts receivable by it in
respect of the LIBOR Rate Loans and determinations of the amounts required to
compensate such Bank under this Section 6.3 shall be conclusive, provided
that such determinations are made on a reasonable basis and are set forth in
reasonable detail in the certificates referred to in Section 6.3(a) above.
(3) Anything herein to the contrary notwithstanding, if it becomes
unlawful for the Bank to honor its obligation to make or maintain LIBOR Rate
Loans hereunder or if, on or prior to the determination of any LIBOR Rate for
any Interest Period, the Bank determines (which determination shall be
conclusive) that quotations of interest rates for the relevant deposits
referred to in the definition of "LIBOR Rate" in Exhibit 1 hereto are not
being provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for LIBOR Rate Loans, then the Bank
shall give Borrower prompt notice thereof, and, so long as such condition
remains in effect, the Bank shall be under no obligation to make additional
LIBOR Rate Loans, to continue LIBOR Rate Loans or to convert Base Rate Loans
into LIBOR Rate Loans, and Borrower shall, on the last day(s) of the then
current Interest Period(s) for the outstanding LIBOR Rate Loans, either
prepay such Loans or convert such Loans into Base Rate Loans.
21
<PAGE>
ARTICLE 7
CONDITIONS TO MAKING LOANS
The Bank's obligation hereunder to make the Loans, extend credit and enter
into transactions referred to in Article 4 shall be subject to the satisfaction
of the following conditions on or prior to the Closing Date and, in the case of
the conditions set forth in Sections 7.4, 7.5, 7.6, 7.7 and 7.8, as of each
Disbursement Date and each date a Letter of Credit is issued, renewed or
extended:
1.18 Delivery of Loan Documents. Borrower shall have executed the Loan
Documents, which shall be in form and substance satisfactory to the Bank and its
counsel, and delivered them to the Bank.
1.19 Proper Proceedings; Charter Documents. Borrower shall have taken all
corporate proceedings necessary to authorize the Loan Documents and the
transactions contemplated hereby and shall have delivered to the Bank a
certificate, dated the Closing Date and signed by its Secretary, satisfactory to
the Bank, respecting such proceedings and the incumbency of the officers
executing the Loan Documents. Borrower shall have delivered to the Bank copies
of its charter documents, including all amendments thereto, certified by the
appropriate officer, and copies of its bylaws, including all amendments thereto,
certified by the appropriate officer.
1.20 Legal Opinions. The Bank shall have received from Borrower's
counsel an opinion, dated as of the Closing Date, satisfactory to the Bank.
1.21 No Adverse Changes; Representations; No Default. Since the date
hereof, there shall have been no material adverse change in the business,
operations, financial condition or prospects of Borrower or any Subsidiary.
The representations and warranties contained in Article 8 hereof with respect
to Borrower and its Subsidiaries (including entities becoming Subsidiaries on
a Distribution Date as a result of an Acquisition) shall be true and correct
as though made on and as of the Closing Date or such Disbursement Date or
such date of issuance, renewal or extension of a Letter of Credit, as the
case may be, except that the representations and warranties set forth in the
first sentence of Section 8.4(b), the third sentence of Section 8.5, Section
8.7, Section 8.8, the second sentence of Section 8.9 and the second sentence
of Section 8.11 (which relate to disclosure schedules 8.4, 8.5, 8.7, 8.8, 8.9
and 8.11, respectively) are not required by this Section 7.4 to be made as
of any Disbursement Date or date of issuance, renewal or extension of a
Letter of Credit. No Default or Event of Default shall have occurred and be
continuing. The Bank shall have received certifications of Borrower in form
satisfactory to the Bank and dated the Closing Date or the date of the
request for borrowing or for issuing, renewing or extending a Letter of
Credit, as applicable, certifying as to each matter set forth in this Section
7.4, which certifications may be included in the notice of borrowing
described in Section 5.8 hereof.
1.22 No Material Impairment. The Bank shall have determined that the
prospect of payment of the Loans has not been materially impaired.
22
<PAGE>
1.23 Required Consents and Approvals. All consents, approvals and
authorizations of any Governmental Authority or any other Person with respect
to the execution and performance of the Loan Documents, the consummation of
the transactions contemplated hereby or the making of the Loans hereunder
shall have been obtained and shall be in full force and effect.
1.24 Legality. The making of any Loan shall not subject the Bank to any
penalty or special tax, shall not be prohibited by any law or governmental
order or regulations applicable to the Bank or to Borrower and shall not
violate any voluntary credit restraint program of the executive branch of the
government of the United States or any other Governmental Authority, and all
necessary consents, approvals and authorizations of any Governmental
Authority to or of such Loan shall have been obtained.
1.25 General. All instruments and legal and corporate proceedings in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Bank and its counsel, and the Bank
shall have received copies of all other documents, including records of
corporate proceedings and opinions of counsel, which the Bank may have
requested in connection therewith, such documents where appropriate to be
certified by proper corporate or governmental authorities, and such other
conditions shall have been fulfilled as may have been requested by the Bank.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Bank that:
1.26 Corporate Existence and Standing. Each of Borrower and its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite authority to own its property and to carry on its business in each
jurisdiction where the failure to so qualify would have a material adverse
effect on its business, properties, assets, operations or condition
(financial or otherwise).
1.27 Authorization and Validity. Each of Borrower and the Guarantors,
if any, has the corporate power and authority and legal right to execute and
deliver the Loan Documents to which it is a party and to perform its
obligations thereunder. Such execution and delivery have been duly
authorized by proper proceedings, and the Loan Documents constitute the
legal, valid and binding obligations of Borrower and the Guarantors, if any,
enforceable against them in accordance with their respective terms.
1.28 No Conflict; Governmental Consent. The execution, delivery and
performance of the Loan Documents will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Borrower or any
Guarantors, any provision of their respective articles or certificate of
incorporation, by-laws or other charter document, or the provisions of any
indenture, instrument or other written or oral agreement to which Borrower or
any Guarantor is a party or is subject or by which Borrower or any Guarantor
or any of their property is bound, or conflict therewith or constitute a
default thereunder, or result in the creation or imposition of any Lien in,
of or on any of their property pursuant to the terms of any such indenture,
instrument or agreement. No
23
<PAGE>
order, consent, approval, license, authorization or validation of, or filing,
recording or registration with, or exemption by, any Governmental Authority
is required to authorize or is required in connection with the execution,
delivery and performance of or the enforceability of any of the Loan
Documents.
1.29 Compliance with Laws; Environmental and Safety Matters.
(1) Each of Borrower and its Subsidiaries has complied with all
applicable statutes, rules, regulations, orders and restrictions of any
domestic or foreign government or Governmental Authority having jurisdiction
over the conduct of its businesses or the ownership of its respective
properties except to the extent that such non-compliance will not have a
material adverse effect on its financial condition or business operations.
(2) Except as disclosed in SCHEDULE 8.4 hereto, Borrower and its
Subsidiaries have complied with all federal, national, state, local and other
statutes, ordinances, orders, judgments, rulings and regulations relating to
environmental pollution, environmental regulation or control, or employee
health or safety, except to the extent that such non-compliance will not have
a material adverse effect on their respective financial conditions or
business operations; they have not received any written notice of any failure
so to comply except as disclosed in SCHEDULE 8.4 hereto; and their facilities
do not treat, store or dispose of any hazardous wastes, hazardous substances,
hazardous materials, toxic substances, toxic pollutants or substances
("HAZARDOUS MATERIALS") similarly denominated, as those terms or similar
terms are used in RCRA, CERCLA, the Hazardous Materials Transportation Act,
the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, the
Occupational Safety and Health Act or any other state, local or federal
applicable law, ordinance, rule or regulation relating to environmental
pollution, environmental regulation or control or employee health and safety
("ENVIRONMENTAL LAWS") in a quantity or manner that requires a permit,
registration, or another notification or authorization from a Governmental
Authority except for the treatment, storage, or disposal of Hazardous
Materials in a quantity or manner which, if in non-compliance with
Environmental Laws, would not have a material adverse effect on their
respective financial conditions or business operations except as disclosed in
SCHEDULE 8.4 hereto. The conduct of the business and the condition of the
property of Borrower and each of its Subsidiaries do not violate any
Environmental Laws or any judicial interpretation thereof relating primarily
to the environment or Hazardous Materials. Borrower is aware of no events,
conditions or circumstances involving environmental pollution or
contamination or employee health or safety that could reasonably be expected
to result in material liability on the part of Borrower or any of its
Subsidiaries.
1.30 Financial Statements. Borrower has heretofore furnished to the
Bank its (a) consolidated balance sheet and related consolidated statements
of earnings and cash flows audited as of and for the fiscal year ended
December 31, 1997, with the opinion thereon of KPMG Peat Marwick, independent
public accountants, and (b) an unaudited consolidated balance sheet and
unaudited statements of earnings and cash flows as of and for quarters ended
March 31 and June 30, 1998. Such financial statements fairly state the
consolidated financial condition and results of operations of Borrower and
the Subsidiaries as of such dates and for such periods. Except as disclosed
on SCHEDULE 8.5 hereto, neither Borrower nor any of the Subsidiaries had on
said date any material (on a consolidated basis) contingent liabilities,
24
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material (on a consolidated basis) 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 the notes thereto as at said date. Such financial
statements were prepared in accordance with GAAP applied on a consistent
basis. Since December 31, 1997, no material adverse change has occurred in
the business, properties, financial condition, prospects or results of
operations of Borrower or any of the Subsidiaries.
1.31 Ownership of Properties; Collateral Liens. Each of Borrower and
its Subsidiaries has good title, free and clear of all Liens (other than
those permitted by Section 11.2 hereof), to all of the properties and assets
reflected in its financial statements as owned by it, and its interest in all
other properties and assets in or to which it has an interest as a lessee,
licensee or otherwise is free and clear of all Liens (other than those
permitted under Section 11.2 hereof).
1.32 Subsidiaries. Neither Borrower nor any of its Subsidiaries has any
subsidiaries except as disclosed in SCHEDULE 8.7. Except as described in
Schedule 8.7, all of the issued and outstanding shares of capital stock or
other ownership interests of each Subsidiary of Borrower are described in
SCHEDULE 8.7, have been duly authorized and issued to Borrower or to a
Subsidiary of Borrower and are fully paid and non-assessable, free and clear
of all liens, restrictions and rights.
1.33 Litigation. Except as disclosed in SCHEDULE 8.8, there is no
litigation, arbitration, governmental investigation, proceeding or inquiry
before any Governmental Authority, arbitrator or mediator that is pending or,
to the knowledge of any of its officers, threatened against or affecting
Borrower or any Subsidiary of Borrower.
1.34 Material Agreements; Labor Matters. Any agreement or instrument of
Borrower or any Subsidiary that has or is likely to have a material effect on
the assets, prospects, business, operations, financial condition, liabilities
or capitalization of Borrower as a separate company or on a consolidated
basis is referred to in this SECTION 8.9 as a "MATERIAL CONTRACT." As of the
date hereof, all of the Material Contracts are listed on SCHEDULE 8.9 hereto.
Neither Borrower nor any Subsidiary of Borrower is in default under any
Material Contract in any manner that could materially and adversely affect
its assets, prospects, business, operations, financial condition, liabilities
or capitalization of or in any manner that could jeopardize its right to
require the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any Material Contract. There are no
strikes or walkouts relating to any labor contracts with Borrower or any
Subsidiary of Borrower pending or threatened, and no labor contracts are
scheduled to expire during the term of this Agreement, and no efforts are
being made by any employees to form a union or collectively bargain with
Borrower or any Subsidiary of Borrower.
1.35 Investment Company Act; Public Utility Holding Company Act.
Neither Borrower nor any Subsidiary of Borrower is an "investment company" or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," 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.
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1.36 Taxes. Each of Borrower and the Subsidiaries has filed all United
States federal tax returns and all other tax returns which are required to be
filed and has paid all taxes due pursuant to said returns or pursuant to any
assessment received by it, including without limitation all federal and state
withholding taxes and all taxes required to be paid pursuant to applicable
law, except such taxes, if any, as are being contested in good faith, by
appropriate proceedings and as to which adequate reserves have been set
aside. No tax Liens have been filed, and no claims are being asserted with
respect to any such taxes, except as disclosed in SCHEDULE 8.11 hereto. The
charges, accruals and reserves on the books of Borrower and each Guarantor in
respect of any taxes or other governmental charges are adequate.
1.37 Accuracy of Information. No information, exhibit or report
furnished by Borrower or any Subsidiary to the Bank in connection with the
negotiation of the Loan Documents contained any material misstatement of fact
or omitted to state a material fact or any fact necessary to make the
statements contained therein not misleading.
1.38 Employee Benefit Plans. Neither Borrower nor any Subsidiary of
Borrower maintains, sponsors or contributes to any Plan.
1.39 No Undisclosed Dividend Restrictions. Except for limitations on the
payment of dividends under applicable corporate statutes, neither Borrower
nor any of its Subsidiaries is subject to any agreement, covenant or
understanding that limits or restricts its ability to declare or pay
dividends.
1.40 Absence of Default or Event of Default. No Default and no Event of
Default has occurred and is continuing.
1.41 Disclosure. The pro forma financial information contained in
financial statements delivered to the Bank will be based upon good faith
estimates and assumptions believed by Borrower to be reasonable at the time
made. There is no fact known to Borrower (other than matters of a general
economic nature) that has had or could reasonably be expected to have a
material adverse effect and that has not been disclosed herein or in such
other documents, certificates and statements furnished to the Bank for use in
connection with the transactions contemplated by this Agreement.
1.42 Solvency. Based upon its financial and accounting records, each of
Borrower and its Subsidiaries has assets of a value that exceeds the amount
of its liabilities (excluding, for purposes of this representation, all
intercompany loans from liabilities). Borrower reasonably anticipates that
it and each of its Subsidiaries will be able to meet their respective debts
as they mature. Each of Borrower and its Subsidiaries has adequate capital
to conduct the business in which it is engaged.
1.43 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).
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1.44 Copyrights, Patents and Other Rights. Each of Borrower and its
Subsidiaries possesses all licenses, patents, patent rights and patent
licenses, trademarks, trademark rights and licenses, trade names, copyrights
and all other intellectual property rights which are required or desirable to
conduct its business as presently conducted; to the best of Borrower's
knowledge, such rights do not infringe on or conflict with the rights of any
other Person; and each of Borrower and its Subsidiaries has and possesses,
and is current and in good standing with respect to, all governmental
approvals, permits and certificates required to conduct its businesses as
heretofore conducted.
1.45 Year 2000 Compliance. Borrower has (a) initiated a review and
assessment of all areas within its and each of its Subsidiaries' business and
operations (including those affected by material suppliers and vendors) that
could be adversely affected by the risk that computer applications used by
Borrower or any of its Subsidiaries or any of such suppliers and vendors may
be unable to recognize and properly perform date-sensitive functions
involving certain dates prior to and any date after December 31, 1999 (the
"YEAR 2000 PROBLEM"), (b) developed a plan and time line for addressing the
Year 2000 Problem on a timely basis, and (c) implemented that plan in
accordance with that timetable. Borrower reasonably believes that all
computer applications (including those of its suppliers and vendors) that are
material to its or any of its Subsidiaries' business and operations will on a
timely basis be able to perform properly date-sensitive functions for all
dates before and after January 1, 2000 (that is, be "YEAR 2000 COMPLIANT"),
except to the extent that a failure to do so could not reasonably be expected
to have material adverse effect on the financial condition or operations of
Borrower or any of its Subsidiaries.
ARTICLE 9
AFFIRMATIVE COVENANTS
Unless the Bank shall otherwise consent in writing, Borrower agrees that
it will and will cause each of its Subsidiaries to:
1.46 Conduct of Business and Maintenance of Properties. Carry on and
conduct its business in substantially the same manner and in substantially
the same fields of enterprise as it is presently conducted and do all things
necessary to remain duly incorporated, validly existing and in good standing
in its jurisdiction of organization and maintain all requisite authority to
conduct its business in each jurisdiction in which its business is conducted;
maintain, preserve, protect and keep its properties in good repair, working
order and condition; and comply in all material respects with all agreements
and instruments to which it is a party.
1.47 Insurance. Maintain with financially sound and reputable insurance
companies insurance on all its property, covering such liabilities and such
risks (including business interruption risks) and in such amounts as is
consistent with sound business practice and satisfactory to the Bank and
furnish to the Bank upon request full information as to the insurance carried.
1.48 Compliance with Laws and Taxes. Comply with any and all laws,
statutes, rules, regulations orders, judgments, decrees and awards, a
violation of which, in any respect, may
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materially and adversely affect its business, assets, operations or
condition, financial or otherwise, including, without limitation, those
regarding the collection, payment and deposit of employees' income,
unemployment, and Social Security taxes and those regarding environmental
matters; pay when due all taxes, assessments and governmental charges and
levies upon it or its income, profits or property, except those which are
being contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been set aside; make a timely payment or deposit
of all FICA payments and withholding taxes required of it under applicable
law; and, upon request, furnish to the Bank evidence satisfactory to the Bank
that such payments have been made.
1.49 Financial Statements, Reports, etc. Maintain a system of
accounting established and administered in accordance with GAAP and furnish
to the Bank:
(1) Annual Financial Statements. Within 120 days after the close
of its fiscal year, audited consolidated financial statements, prepared in
accordance with GAAP, including consolidated balance sheets and statements of
stockholders' equity, earnings and cash flows, setting forth 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 Bank, which opinion shall state that
the financial statements fairly present the consolidated financial condition
and results of operations and cash flows of Borrower and its consolidated
Subsidiaries as of the end and for such fiscal year in conformity with GAAP,
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.
(2) Quarterly Reporting. Within 45 days after the end of each of
the first three fiscal quarters and within 120 days after the end of the last
fiscal quarter, (i) consolidated financial statements for Borrower and its
consolidated Subsidiaries for the quarter or fiscal year, as applicable, then
ended, including consolidated balance sheets and statements of stockholders'
equity, earnings and cash flows for such quarter and for the period from the
beginning of the respective fiscal year to 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, and (ii) balance sheets
and statements of earnings for such quarter for Borrower and each Subsidiary
on an unconsolidated basis, accompanied by (iii) a certificate of the chief
financial officer of Borrower stating that said financial statements fairly
present the financial condition and results of operations of Borrower and its
consolidated Subsidiaries in accordance with, as to the financial statements
referred to in clause (i) above, GAAP consistently applied, as of the end of,
and for, such period (subject to normal year-end audit adjustments and to the
absence of footnote disclosures) and that, to the best of such officer's
knowledge, no Default or Event of Default has occurred under this Agreement,
or if any Default or Event of Default exists, stating the nature and status
thereof.
(3) Compliance Certificate. Together with each set of financial
statements required under paragraphs (a) and (b) of this Section 9.4, a
compliance certificate of Borrower in substantially the form of Exhibit 9.4
(a "COMPLIANCE CERTIFICATE"), signed on its behalf by the chief
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financial officer of Borrower, showing the calculations necessary to
determine compliance with all financial covenants contained in Article 10 of
this Agreement and stating that all of the representations and warranties set
forth in Article 8 hereof (including those referring to the Schedules to the
Agreement) with respect to Borrower and its Subsidiaries, including
Subsidiaries that are Acquired Companies, shall be true and correct as though
made on and as of the date of the Compliance Certificate, except for matters
specifically updated or described in the Compliance Certificate, and (ii)
that no Default or Event of Default exists or, if any Default or Event of
Default exists, stating the nature and status thereof.
(4) SEC and Other Filings. Promptly upon their becoming publicly
available, copies of all registration statements and annual, periodic or
other regular reports, final proxy statements and such other similar
information as shall be filed by Borrower or any Subsidiary of Borrower with
the Securities and Exchange Commission (the "SEC"), any national securities
exchange or (to the extent not duplicative) any other similar U.S. or foreign
Governmental Authority and, promptly upon the mailing thereof to the
shareholders of Borrower generally, copies of all notices, financial
statements, reports and proxy statements so mailed.
(5) Litigation. Prompt notice of all legal, arbitration or
mediation proceedings and of all proceedings by or before any Governmental
Authority affecting any Borrower or any of its Subsidiaries which, if
adversely determined, might result in a monetary loss (regardless of whether
any portion of such loss is covered by insurance) in an amount in excess of
$500,000 individually or in excess of $1,000,000 in the aggregate for all
such proceedings and of 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 any of its
Subsidiaries, or the institution of any proceedings seeking any such
injunction, order or other restraint.
(6) Management Letters. Promptly upon receipt by Borrower, a copy
of any management letter sent by Borrower's independent certified public
accountants, and promptly upon completion of any response report, a copy of
such response report.
(7) Reportable Events. If at any time after the Closing Date,
Borrower or any Subsidiary adopts, sponsors or contributes to any Plan, as
soon as possible and in any event within ten (10) days after Borrower or a
Subsidiary knows that any Reportable Event has occurred with respect to any
such Plan, a statement, signed by an authorized officer of Borrower,
describing said Reportable Event and the action which Borrower or such
Subsidiary proposes to take with respect thereto.
(8) Environmental Notices. As soon as possible and in any event
within 10 days after receipt, a copy of (i) any notice or claim to the effect
that Borrower or any Subsidiary of Borrower is or may be liable to any person
as a result of the release by Borrower, such Subsidiary or any other person
of any toxic or hazardous waste or substance into the environment or that all
or any of its properties is subject to an Environmental Lien and (ii) any
notice alleging any violation of any federal, state or local environmental,
health or safety law or regulation by Borrower or any Subsidiary of Borrower
received after the Closing Date.
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(9) Other Information. Such other information (including
consolidating financial reports and other financial information) as the Bank
may from time to time reasonably request.
On request of the Bank, Borrower shall deliver a letter to Borrower's
accountants (i) authorizing them to comply with the provisions of this
paragraph, (ii) directing them to send to the Bank true, correct, and exact
copies of any and all financial statements and reports which are prepared as
a result of any audit or other review of operations, finances or internal
controls of Borrower or any Subsidiary (specifically including any reports
dealing with improper accounting or financial practices, defalcation,
financial irregularities, financial reporting errors or misstatements or
fraud), and (iii) authorizing the Bank to rely on financial statements of
Borrower issued by such accountants, which letter shall be acknowledged and
consented to in writing by such accountants.
1.50 Other Notices. Give prompt notice in writing to the Bank of the
occurrence of any Default or Event of Default and of any other development,
financial or otherwise, which might materially and adversely affect its
business, properties or affairs of the Borrower or any of its Subsidiaries or
the ability of Borrower to repay the Obligations.
1.51 Access to Properties and Inspections. Permit the Bank to make
reasonable inspections of the properties, corporate books and financial
records of Borrower and each of its Subsidiaries, to make reasonable
examinations and copies of their respective books of account and other
financial records and to discuss their respective affairs, finances and
accounts with, and to be advised as to the same by, their officers, auditors,
accountants and attorneys at such reasonable times and intervals as the Bank
may designate. All of the Bank's reasonable expenses incurred for travel in
connection with such audits and inspections shall be paid for by Borrower.
1.52 Use of Proceeds. Use the proceeds of the Revolving Loans to
provide working capital, to refinance existing indebtedness to the Bank and
for general corporate purposes and use the proceeds of the RRC Loans solely
to provide financing for Acquisitions and as otherwise permitted under
Section 3.1(b) above.
1.53 Primary Depository. So long as the Bank is providing depository
banking services reasonably satisfactory to Borrower, maintain the primary
depository accounts of Borrower and the Subsidiaries of Borrower with the
Bank, except that this Section 9.8 is not applicable to any Subsidiary of
Borrower that has its principal place of business outside the United States
of America and except that each Acquired Company shall maintain such accounts
with the Bank as soon as practical after its operations have been integrated
with those of Borrower.
1.54 Year 2000 Compliance. Promptly notify the Bank in the event that it
discovers or determines that any computer application (including those of any
of its suppliers or vendors that could affect the business or operations of
Borrower or any of its Subsidiaries) will not be Year 2000 Compliant (as
defined in Section 8.21 above) on a timely basis, except to the extent that
such failure could not reasonably be expected to have a material adverse
effect on the financial condition or operations of Borrower or any of its
Subsidiaries.
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1.55 Payment of Dividends. Take actions necessary to cause each of
Borrower's Subsidiaries to pay all available cash to Borrower as dividends,
except to the extent that such Subsidiary has a reasonable need for such cash
in its business or operations; provided, however, that this exception shall
not apply if and to the extent that Borrower needs such cash to pay any
Obligations when due.
ARTICLE 10
FINANCIAL COVENANTS
Borrower will, so long as this Agreement shall remain in effect or any
Obligations shall be unpaid:
1.56 Minimum Tangible Net Worth. Maintain as of the last day of each
fiscal quarter a Tangible Net Worth equal to or greater than $30,000,000 plus
(i) an amount equal to 100% of the cash and non-cash proceeds resulting from
each issuance of any equity securities by Borrower after the date of this
Agreement, plus (ii) an amount equal to 75% of Net Income of Borrower after
September 30, 1998. "TANGIBLE NET WORTH" shall mean, as of any date, with
respect to Borrower and its consolidated Subsidiaries, the sum of
stockholders' equity on such date plus Subordinated Debt on such date,
computed and consolidated in accordance with GAAP, minus (i) the book amount
of all such assets which would be treated as intangibles under GAAP,
including, without limitation, all such items as goodwill, trademarks,
trademark rights, trade names, trade name rights, brands, organizational
expenses, copyrights, patents, patent rights, licenses, deferred charges and
unamortized debt discount and expense, minus (ii) all investments in foreign
Affiliates and nonconsolidated domestic Affiliates, and minus (iii) all loans
and advances to and other Investments in Subsidiaries of Borrower which are
not Guarantors (but only to the extent such Investments are included in net
worth as determined in accordance with GAAP).
1.57 Minimum Book Net Worth. Maintain as of the last day of each fiscal
quarter a Book Net Worth equal to or greater than 90% of Book Net Worth as of
September 30, 1998, plus (i) an amount equal to 100% of the cash and non-cash
proceeds resulting from issuance of any equity securities by Borrower after
the date of this Agreement, plus (ii) an amount equal to 75% of Net Income of
Borrower after September 30, 1998.
"BOOK NET WORTH" shall mean, as of any date, of Borrower's
stockholders' equity on such date, determined on a consolidated basis in
accordance with GAAP.
1.58 Funded Debt/EBITDA Ratio. Maintain as of the last day of each
fiscal quarter a Consolidated Funded Debt/EBITDA Ratio no greater than 4.00
to 1.00 and a Borrower/Guarantor Funded Debt/EBITDA Ratio no greater than
4.00 to 1.00, determined in accordance with GAAP.
"CONSOLIDATED FUNDED DEBT/EBITDA RATIO" means the ratio of (i) the
aggregate outstanding principal amount of Funded Debt of Borrower and its
consolidated Subsidiaries as of the last day of the fiscal quarter date to
(ii) EBITDA of Borrower and its consolidated Subsidiaries for the four
quarters ending on such date.
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"BORROWER/GUARANTOR FUNDED DEBT/EBITDA RATIO" means the ratio of (i) the
aggregate outstanding principal amount of Funded Debt of Borrower (on an
unconsolidated basis) and all Guarantors as of the last day of the fiscal
quarter to (ii) EBITDA of Borrower (on an unconsolidated basis) and all
Guarantors for the four quarters ending on such date.
"FUNDED DEBT" means, 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, (iii) deferred compensation
obligations, and (iv) undrawn amounts under outstanding Letters of Credit.
"EBITDA" means, for any period, the earnings before interest, taxes,
depreciation, amortization, and 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 for
such period.
1.59 Debt Service Coverage Ratio. Maintain as of the last day of each
fiscal quarter a Debt Service Coverage Ratio of at least 1.50 to 1.00 on a
consolidated basis for Borrower and each Subsidiary that is a Guarantor,
determined in accordance with GAAP.
"DEBT SERVICE COVERAGE RATIO" means, as of the last day of any fiscal
quarter, the ratio of (i) EBITDA for the four fiscal quarters ending on such day
minus taxes paid in cash during such period, to (ii) the sum of cash interest
plus scheduled principal payments plus dividends paid during such period.
1.60 Minimum EBITDA. Maintain as of the last day of each fiscal quarter
EBITDA (as defined in Section 10.3 above) of $15,000,000 for the four quarters
ending on such date, determined on a consolidated basis in accordance with GAAP.
1.61 Funded Debt /Total Capitalization Ratio. Maintain as of the last day
of each fiscal quarter a Funded Debt/Total Capitalization Ratio no greater than
.50 to 1.00.
"FUNDED DEBT/TOTAL CAPITALIZATION RATIO" means, at any date, the ratio
(expressed as a percentage) of (i) the aggregate outstanding principal amount of
Funded Debt (as defined in Section 10.3 above) determined on a consolidated
basis to (ii) Total Capitalization on such date, determined in accordance with
GAAP.
"TOTAL CAPITALIZATION" means, as of any date, the sum of the Funded Debt
determined on a consolidated basis, plus Book Net Worth (as defined in Section
10.2 above.)
1.62 Maximum Capital Expenditures. Not make or commit to make, and will
not permit any Subsidiary to make or commit to make, any Capital Expenditure
unless such Capital
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Expenditure, together with all other Capital Expenditures made or committed
to be made by Borrower and the Subsidiaries in any fiscal year (without
double counting any Capital Expenditure committed to be made with the same
when actually made) does not exceed $20,000,000 with respect to fiscal years
ending December 31, 1998 and 1999; $22,500,000 with respect to fiscal year
ending December 31, 2000; $25,000,000 with respect to fiscal year ending
December 31, 2001; and $27,500,000 with respect to fiscal year ending
December 31, 2002.
ARTICLE 11
NEGATIVE COVENANTS
So long as this Agreement shall remain in effect or any of the
Obligations shall be unpaid, unless the Bank shall otherwise consent in
writing, Borrower agrees that it will and will cause each of its Subsidiaries
to:
1.63 Indebtedness. Not incur, create or suffer to exist any
Indebtedness (other than to the Bank), except (a) trade payables incurred in
the ordinary course of business; (b) Indebtedness existing on the date of
this Agreement and disclosed in SCHEDULE 11.1 hereto; (c) Indebtedness in a
principal amount not to exceed $15,000,000 to one or more of the purchasers
of those certain Senior Notes of Borrower issued pursuant to the Note
Purchase Agreement dated January 24, 1997 and on terms substantially the same
as those set forth in said Note Purchase Agreement; and (d) Indebtedness on a
consolidated basis not exceeding an aggregate principal amount of $5,000,000
at any time outstanding.
1.64 Liens. Not create, incur, or suffer to exist any other Lien in, of
or on any of their respective properties (now owned or hereafter acquired) or
on any income or revenues or rights in respect of any thereof, except:
(1) Liens in favor of the Bank;
(2) Liens for taxes, assessments or governmental charges or
levies, if the same shall not at the time be delinquent or thereafter can be
paid without penalty, or are being contested in good faith and by appropriate
proceedings;
(3) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar Liens arising in the ordinary course of
business, that secure payment of obligations not more than 60 days past due
except for such Liens as are being contested in good faith by appropriate
proceedings;
(4) Liens arising out of pledges or deposits under laws relating
to worker's compensation, unemployment insurance, old age pensions, or other
social security or retirement benefits, or under similar laws;
(5) Liens existing on the date of this Agreement and disclosed in
SCHEDULE 11.2 hereto;
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(f) Purchase money liens on equipment securing Indebtedness
permitted in Section 11.1(d) above; and
(g) Options to purchase stock of Borrower under stock-based
compensation plans or arrangements in favor of employees of Borrower and its
Subsidiaries and non-employee directors of Borrower.
1.65 Sale and Lease-Back Transactions. Not enter into any arrangement,
directly or indirectly, with any person whereby it shall sell or transfer any
property, real or personal, used or useful in its business, 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, provided that Borrower or
any Subsidiary of Borrower may enter into any sale and lease-back transaction
if (a) at the time of such transaction no Default or Event of 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
subject property shall have been acquired by Borrower or such Subsidiary
after the date of this Agreement and held by it for not more than one year.
1.66 Mergers, Transfers of Assets, Acquisitions. Not merge into or
consolidate with any other person, or permit any other person to merge into
or consolidate with it; sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) any assets or any capital stock
of any Subsidiary or be a party to any Acquisition of another Person or of
all of substantially all another 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 or other
property no longer required by or useful to it in connection with the
operation of its business;
(c) sales, assignments, transfers or other dispositions of assets
(other than stock of Subsidiaries) for cash consideration, but only so long
as the aggregate fair market value of the assets so disposed of does not
exceed 10% of the fair market value of Borrower's total assets in the
aggregate as at the end of the preceding fiscal year of Borrower;
(d) any Acquisition by Borrower or a Guarantor so long as not less
than 15 days prior to the consummation of any Acquisition after the date of
this Agreement with a purchase price of $10,000,000 or more, Borrower shall
provide to the Bank, if the Bank so requests, the following information: pro
forma financial statements and projections and a pro forma Compliance
Certificate, demonstrating that Borrower will be, after giving effect to the
Acquisition, in compliance with each of the financial covenants set forth in
Article 10 of this Agreement. For purposes of such pro forma financial
statements and pro forma compliance certificate, to
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calculate the Borrower's compliance with the Consolidated Funded Debt/EBITDA
Ratio and the Debt Service Coverage Ratio after an acquisition of 100% of the
stock or assets of a company (an "ACQUIRED COMPANY") and, if the Acquired
Company is becoming a Guarantor, to calculate Borrower's compliance with the
Borrower/Guarantor Funded Debt/EBIDTA Ratio, the EBITDA of the Acquired
Company, based upon audited numbers, if available, from its last four rolling
quarters may be included and may reflect cash flow from assets transferred to
Borrower as a result of the acquisition of the Acquired Company, with
adjustments for any transactions not in the ordinary course of business;
(e) any merger or consolidation of Borrower and any Subsidiary of
Borrower, provided that Borrower is the surviving corporation thereof, or of
any Subsidiary with another Subsidiary or any sale or other transfer of
assets by a Subsidiary to Borrower.
1.67 Transactions with Affiliates. Not sell or transfer any property or
assets to, or purchase or acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates (other than any
Subsidiary as provided in Section 11.4 above), except that Borrower or a
Subsidiary may engage in any of the foregoing transactions in the ordinary
course of business at prices and on terms and conditions not less favorable
to Borrower than could be obtained on an arm's-length basis from unrelated
third parties.
1.68 Subsidiary Dividend Restrictions. Not permit any Subsidiary to be
bound by or enter into any agreement, amendment, covenant, understanding or
revision to any agreement which prohibits or restricts the ability of any
Subsidiary to declare and pay dividends or make any other distribution to
Borrower.
1.69 Use of Proceeds. Not use any of the proceeds of the Loans (a) for
any purpose that entails a violation of, or that is inconsistent with, the
provisions of the regulations of the Board of Governors of the Federal
Reserve System, including without limitation Regulations G, T, U and X or (b)
to make any acquisition for which the board of directors of the target
company has not given its consent or approval.
1.70 Loans, Advances and Investments. Not make any loans, advances or
extensions of credit to, or investments (whether acquisitions of stock or
securities or otherwise) in, or acquire any assets of, any Persons,
including, without limitation, any of Borrower's Affiliates, partners,
shareholders, officers or employees (collectively, "INVESTMENTS"), other
than:
(a) expenses advanced in the ordinary course of business.
(b) investments in short-term obligations issued or fully
guaranteed by the U.S. Government and funds comprised of such obligations;
(c) certificates of deposit and other time deposits with, and any
other Investment purchased through any Bank;
35
<PAGE>
(d) commercial paper rated A-1 by Standard & Poor's Corporation or
P-1 by Moody's Investors Service, Inc.;
(e) existing Investments listed on SCHEDULE 11.8 hereto;
(f) Investments made to acquire Acquisitions permitted under
Section 11.4(d) above;
(g) Investments of Borrower in or to any Subsidiary; or
(h) 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 or services in the ordinary course of
business; provided, however, that such Investments shall not at any time
exceed $2,500,000 in the aggregate.
1.71 Dividends and Distributions. Not declare or pay any dividend or
return any capital to its shareholders; authorize or make any other
distribution, payment or delivery of property or cash to its shareholders;
redeem, retire, purchase or otherwise acquire for value, directly or
indirectly, any shares of their capital stock now or hereafter outstanding;
or set aside any funds for any of the foregoing purposes (the foregoing
transactions being collectively called "RESTRICTED PAYMENTS"); provided that
(a) Borrower may declare and pay dividends payable in cash or in shares of
its common stock, and (b) any Subsidiary may make Restricted Payments to
Borrower.
1.72 Negative Pledge. Not permit or allow any Subsidiary to permit, to
exist any Lien on any of its property, except as permitted under Section 11.2
above; on the request of the Bank, Borrower will and will cause each
Subsidiary to execute acknowledgments or other forms of notice of such
negative pledge, and the Bank may record or file the same in the appropriate
filing offices by the Bank.
1.73 Liquidation or Change in Business. Not liquidate, dissolve,
discontinue business or materially change its general business purpose or
take any action with a view towards the same, except that this Section 11.11
shall apply only to Subsidiaries that are Guarantors.
1.74 Change in Management. Not undergo a change in management in which
the employment of either Bj_rn E. Olsson or Charles M. Foudree is terminated.
ARTICLE 12
EVENTS OF DEFAULT
1.75 Events of Default. Each of the following events shall constitute an
Event of Default under this Agreement:
36
<PAGE>
(1) Misrepresentation. Any representation or warranty made or
deemed made by or on behalf of Borrower or any Subsidiary to the Bank under
or in connection with this Agreement, any Loan, or any certificate or
information delivered in connection with this Agreement or any other Loan
Document shall be materially false on the date as of which made;
(2) Nonpayment. Borrower shall fail to pay any principal of any
Note, any interest upon any Note, any reimbursement obligation respecting any
Letter of Credit or any Fee or other Obligations within five (5) days after
the receipt of written notice from the Bank;
(3) Non-Performance of Other Covenants. Borrower shall fail to
perform or comply with any of the terms or provisions of Article 9 of this
Agreement and such failure is not cured within fifteen (15) days after the
date written notice of such failure is sent to Borrower by the Bank or
Borrower fails to perform or comply with or violates any covenant set forth
in Article 10, Article 11 or any other covenant, term or provision hereof;
(4) Other Indebtedness. The failure of Borrower or any Subsidiary
to make any payment of principal or interest when due on any Indebtedness to
the Bank (other than Indebtedness relating to the Loans) or with respect to
any Indebtedness in an aggregate amount of $500,000 or more, to any other
Person or Persons and such Indebtedness shall be declared to be due and
payable or required to be prepaid (other than by a regularly scheduled
payment) prior to the stated termination thereof, or any default occurs under
any agreement which evidences, secures or relates to, any such Indebtedness;
(5) Insolvency. Borrower or any Subsidiary shall (i) have an
order for relief entered with respect to it under the federal Bankruptcy
Code, (ii) not pay, or admit in writing its inability to pay, its debts
generally as they become due, (iii) make an assignment for the benefit of
creditors, (iv) apply for, seek, consent to, or acquiesce in, the appointment
of a receiver, custodian, trustee, examiner, liquidator or similar official
for it or any substantial part of its property, (v) institute any proceeding
seeking an order for relief under the federal Bankruptcy Code or under any
other laws relating to bankruptcy, insolvency, dissolution, winding up,
liquidation or reorganization or relief of debtors, (vi) take any corporate
action to authorize or effect any of the foregoing actions set forth in this
paragraph (e), or (vii) fail to contest in good faith any appointment or
proceeding described in paragraph (f) of this Article 12;
(6) Appointment of Receivers. Without the application, approval
or consent of Borrower or the applicable Subsidiary, a receiver, trustee,
examiner, liquidator or similar official shall be appointed for Borrower or
any Subsidiary or any substantial part of its property, or a proceeding
described in clause (v) of paragraph (e) of this Article 12 shall be
instituted against Borrower or any Subsidiary;
(7) Judgment. Borrower or any Subsidiary shall fail within 45
days to pay, bond or otherwise discharge any judgment or order for the
payment of money in excess of $500,000 that is not stayed on appeal or
otherwise being appropriately contested in good faith;
(8) ERISA. Any Reportable Event shall occur in connection with
any Plan adopted or sponsored by Borrower or any Subsidiary or to which
Borrower or any Subsidiary makes
37
<PAGE>
contributions, which occurrence may have a materially adverse effect on
Borrower's business or financial condition; or
(9) Material Adverse Change. Upon the occurrence of any event or
condition which the Bank, in its sole discretion, determines is a material
adverse change in the business or financial condition of Borrower on an
unconsolidated or on a consolidated basis or which materially and adversely
affects the ability of Borrower to perform its obligations to Bank.
1.76 Rights and Remedies. Upon the occurrence of each and every Event
of Default (other than an event with respect to Borrower or any Subsidiary
described in paragraph (e) or (f) of this Article 12), and at any time
thereafter during the continuance of such event, the Bank may, by notice to
Borrower, take either or both of the following actions, at the same or
different times: (i) terminate forthwith the Commitments and (ii) declare the
Loans then outstanding to be forthwith due and payable in whole or in part,
whereupon the principal of the Loans so declared to be due and payable,
together with all accrued interest thereon and all other Obligations shall
become forthwith due and payable, without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived by
Borrower, anything contained herein or in any other Loan Document to the
contrary notwithstanding; and in any event with respect to Borrower or any
Subsidiary described in paragraph (e) or (f) of this Article 12, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with all accrued interest thereon and all other
Obligations shall automatically become due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by Borrower, anything contained herein or in any other Loan
Document to the contrary notwithstanding.
Upon the occurrence and during the continuance of any Event of Default,
the Bank may also exercise any or all of its rights and remedies, whether
existing under this Agreement, other Loan Documents, applicable law or
otherwise.
ARTICLE 13
MISCELLANEOUS
1.77 Notices. Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telecopy or other telegraphic communications
equipment of the sending party, as follows:
(1) if to Borrower or a Subsidiary, to it at 1300 Jefferson Court,
Blue Springs, Missouri 64015, Attention: Charles M. Foudree (Facsimile No.
(816) 229-0556), with a required copy to James O. Selzer, Esq., Morrison &
Hecker, L.L.P., 2600 Grand Avenue, Kansas City, Missouri 64108 (Facsimile No.
(816) 474-4208);
(2) if to the Bank, to it at 10th & Baltimore, P. O. Box 419038,
Kansas City, Missouri 64183, Attention: Charles Hunter (Facsimile No. (816)
979-7561) (if by hand delivery or overnight courier service then the post
office box is eliminated and the zip code is 64105) with a required copy to
Steven H. Graham, Lathrop & Gage L.C., 2345 Grand Boulevard, Kansas City,
Missouri 64108 (Facsimile No. (816) 292-2001);
38
<PAGE>
or to such other address or telecopy number as any party may direct by notice
given as provided in this Section 13.1. All notices and other communications
given to any party hereto in accordance with the provisions of this Agreement
shall be deemed to have been given on the date of receipt if delivered by
hand or overnight courier service or sent by telecopy or other telegraphic
communications equipment of the sender, if received on or before 5:00 p.m.,
local time of the recipient, on a Business Day, or on the next Business Day
if received after 5:00 p.m. on a Business Day or on a day that is not a
Business Day, or on the date five (5) Business Days after dispatch by
certified or registered mail if mailed, in each case delivered, sent or
mailed (properly addressed) to such party as provided in this Section 13.1 or
in accordance with the latest unrevoked direction from such party given in
accordance with this Section 13.1.
1.78 Survival of Agreement. All covenants, agreements, representations
and warranties made by Borrower herein and in the certificates or other
instruments prepared or delivered in connection with or pursuant to this
Agreement or any other Loan Document shall be considered to have been relied
upon by the Bank and shall survive the making by the Bank of the Loans and
the execution and delivery to the Bank of the Notes, regardless of any
investigation made by the Bank or on its behalf, and shall continue in full
force and effect as long as the principal of or any accrued interest on any
Loan or any other Obligations are outstanding.
1.79 Binding Effect; Confidentiality. This Agreement shall become
effective when it shall have been executed by Borrower and the Bank and
thereafter shall be binding upon and inure to the benefit of Borrower, the
Bank and their respective successors and assigns, except that Borrower shall
not have the right to assign or delegate any of its rights or duties
hereunder or any interest herein without the prior consent of the Bank.
1.80 Successors and Assigns; Participations. Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and permitted assigns of such party. The Bank may
assign or delegate to one or more persons all or a portion of its interests,
rights and obligations under this Agreement (including all or a portion of
the Loans and the Notes). The Bank may sell participations to one or more
persons in all or a portion of its rights and obligations under this
Agreement (including all or a portion of the Loans and the Notes). The Bank
may, in connection with any assignment or participation or proposed
assignment or participation pursuant to this Section 13.4, disclose to the
assignee or participant or proposed assignee or participant any information
relating to Borrower and its Subsidiaries furnished to the Bank by or on
behalf of Borrower or any of its Subsidiaries.
1.81 Expenses; Indemnity.
39
<PAGE>
(1) Borrower agrees to pay all out-of-pocket expenses incurred by
the Bank in connection with the preparation of this Agreement and the other
Loan Documents or in connection with any amendments, modifications or waivers
of the provisions hereof or thereof (whether or not the transactions hereby
contemplated shall be consummated) or incurred by the Bank in connection with
the enforcement or protection of its rights in connection with this Agreement
and the other Loan Documents or in connection with the Loans made or the
Notes issued hereunder, including, but not limited to, all appraisal fees
(equipment or otherwise), filing fees and search fees, the fees, charges and
disbursements of Lathrop & Gage L.C., counsel for the Bank, and, in
connection with any such amendment, modification or waiver or any such
enforcement or protection, the fees, charges and disbursements of any other
counsel for the Bank. Borrower further agrees that it shall indemnify the
Bank from and hold it harmless against any documentary taxes, assessments or
charges made by any Governmental Authority by reason of the Loans or this
Agreement or any of the other Loan Documents.
(2) Borrower agrees to indemnify the Bank and its directors,
officers, employees and agents (each such person being called an
"INDEMNITEE") against, and to hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including
reasonable counsel fees, charges and disbursements, incurred by or asserted
against any Indemnitee arising out of, in any way connected with, or as a
result of (i) the execution or delivery of this Agreement or any other Loan
Document or any agreement or instrument contemplated thereby, the performance
by the parties thereto of their respective obligations thereunder or the
consummation of the transactions contemplated thereby, (ii) the making of any
loans or the use of the proceeds of the Loans or (iii) any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not
any Indemnitee is a party thereto; provided that such indemnity shall not, as
to any Indemnitee, be available to the extent that such losses, claims,
damages, liabilities or related expenses (i) are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted
from the negligence or wilful misconduct of such Indemnitee and (ii) have
not, in whole or in part, arisen out of or resulted from any act, or omission
to act, of Borrower or any of its Affiliates.
(3) The provisions of this Section 13.5 shall remain operative and
in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term
or provision of this Agreement or any other Loan Document or any
investigation made by or on behalf of the Bank. All amounts due under this
Section 13.5 shall be payable on written demand therefor.
1.82 Right of Setoff. If an Event of Default shall have occurred and be
continuing, the Bank is hereby authorized at any time and from time to time,
to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by the Bank to or for the
credit or the account of Borrower against any and all of the Obligations,
irrespective of whether or not the Bank shall have made any demand under this
Agreement or such other Loan Document and notwithstanding that such
Obligations may be unmatured. The rights of the Bank under this Section 13.6
are in addition to other rights and remedies (including other rights of
setoff) which the Bank may have.
40
<PAGE>
1.83 Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL
BE GOVERNED BY AND CONSTRUED AND ENFORCED UNDER AND IN ACCORDANCE WITH THE
LAWS OF THE STATE OF MISSOURI APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED WHOLLY WITHIN SAID STATE, WITHOUT GIVING EFFECT TO CHOICE OF LAW OR
CONFLICT OF LAW PRINCIPLES.
1.84 Waivers; Amendment. No failure or delay of the Bank in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Bank hereunder and under the other Loan Documents
are cumulative and are not exclusive of any rights or remedies which they
would otherwise have. No waiver of any provision of this Agreement or any
other Loan Document or consent to any departure by Borrower therefrom shall
in any event be effective unless the same shall be contained in a written
instrument signed by the Bank, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
No notice or demand on Borrower in any case shall entitle Borrower or any
Subsidiary to any other or further notice or demand in similar or other
circumstances.
1.85 Interest Rate Limitation. Notwithstanding anything herein or in
the Notes to the contrary, if at any time the applicable interest rate,
together with all fees and charges which are treated as interest under
applicable law (collectively the "CHARGES"), as provided for herein or in any
other document executed in connection herewith, or otherwise contracted for,
charged, received, taken or reserved by the Bank, shall exceed the maximum
lawful rate (the "MAXIMUM RATE") which may be contracted for, charged, taken,
received or reserved by the Bank in accordance with applicable law, the rate
of interest payable under the Notes, together with all Charges payable to the
Bank, shall be limited to the Maximum Rate.
1.86 Entire Agreement. This Agreement and the other Loan Documents
constitute the entire contract between the parties relative to the subject
matter hereof. Any previous agreement among the parties with respect to the
subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents,
expressed or implied, is intended to confer upon any party other than the
parties hereto and thereto any rights, remedies, obligations or liabilities
under or by reason of this Agreement or the other Loan Documents.
1.87 Severability. In the event any one or more of the provisions
contained in this Agreement or in any other Loan Document should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby. The parties shall endeavor
in good faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close
as possible to that of the invalid, illegal or unenforceable provisions.
41
<PAGE>
1.88 Counterparts. This Agreement may be executed in two or more
counterparts, all of which when taken together shall constitute but one
contract, and shall become effective as provided in Section 13.3.
1.89 Headings. Section headings and the Table of Contents used herein
are for convenience of reference only, are not part of this Agreement and are
not to affect the construction of, or to be taken into consideration in
interpreting, this Agreement.
1.90 Jurisdiction; Consent to Service of Process.
(1) Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any Missouri
state court or the federal court for the Western District of Missouri, any
appellate court from any thereof, in any action or proceeding arising out of
or relating to this Agreement or the other Loan Documents or for recognition
or enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such Missouri state or,
to the extent permitted by law, in such federal court. Each of the parties
hereto 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. Nothing in this Agreement shall
affect any right that the Bank may otherwise have to bring any action or
proceeding relating to this Agreement or the other Loan Documents against
Borrower or its properties in the courts of any jurisdiction.
(2) Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this agreement or the other Loan
Documents in any Missouri state court or federal court for the Western
District of Missouri. Each of the parties hereto hereby irrevocably waives,
to the fullest extent permitted by law, the defense of an inconvenient forum
to the maintenance of such action or proceeding in any such court.
(3) Each party to this Agreement irrevocably consents to service
of process in the manner provided for notices in Section 13.1. Nothing in
this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
1.91 Terms Generally. The definitions contained in this Agreement and
in Exhibit 1 hereto shall apply equally to both the singular and plural forms
of the terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words
"INCLUDE," "INCLUDES" and "INCLUDING" shall be deemed to be followed by the
phrase "WITHOUT LIMITATION." All references herein to Articles, Sections,
Exhibits and Schedules shall be deemed references to Articles and Sections
of, and Exhibits and Schedules to, this Agreement unless the context shall
otherwise require. Except as otherwise expressly provided herein, all terms
of an accounting or financial nature shall be construed in accordance with
GAAP, as in effect from time to time, provided, however, that, for purposes
of determining compliance with any covenant set forth in Article 10, such
terms shall be construed in accordance with GAAP as in effect on the date of
this Agreement applied on a basis consistent with the application used in
preparing the Borrower's audited financial statements referred to in
Article 10.
42
<PAGE>
1.92 ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
ARISING FROM AN ALLEGED TORT SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE
ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S. AND ANY SUCCESSOR THEREOF
("J.A.M.S.") AND THE "SPECIAL RULES" SET FORTH BELOW.
IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT
UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.
ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR
EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO
WHICH THIS AGREEMENT APPLIES.
THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF KANSAS CITY, MISSOURI AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS
UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
NOTHING IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT SHALL BE DEEMED TO (i)
LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (ii) BE A WAVIER BY
THE BANK OF THE PROTECTION AFFORDED TO IT BY 12. U.S.C. SEC 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (iii) LIMIT THE RIGHT OF THE BANK (A)
TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT
LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A
RECEIVER.
THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT.
NEITHER THIS EXERCISE OR SELF HELP REMEDIES FOR THE INSTITUTION OR
MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAVIER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT
IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM
OCCASIONING RESORT TO SUCH REMEDIES.
43
<PAGE>
ORAL AGREEMENTS OR COMMITMENTS 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) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT,
ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS
WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO
MODIFY IT.
THIS DOCUMENT, TOGETHER WITH OTHER WRITTEN AGREEMENTS BETWEEN HARMON
INDUSTRIES, INC. AND NATIONSBANK, N.A., IS THE FINAL EXPRESSION OF THE
CREDIT AGREEMENT BETWEEN SUCH PARTIES. THIS DOCUMENT MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR OR CONTEMPORANEOUS ORAL CREDIT
AGREEMENTS OR PRIOR WRITTEN CREDIT AGREEMENTS BETWEEN SUCH PARTIES
RELATING TO THE SUBJECT MATTER HEREOF. ANY ADDITIONAL TERMS OF THE
CREDIT AGREEMENT BETWEEN SUCH PARTIES ARE SET FORTH BELOW.
THERE ARE NO SUCH ORAL AGREEMENTS BETWEEN SUCH PARTIES.
44
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, by their
duly authorized officers, as of the day and year first above written.
HARMON INDUSTRIES, INC.,
a Missouri corporation
[SEAL] By:
------------------------------------
Charles M. Foudree
Executive Vice President - Finance
ATTEST:
By: ____________________________
NATIONSBANK, N.A., a national
____________, Assistant Secretary banking association
By: ___________________________________
Charles W. Hunter
Senior Vice President
45
<PAGE>
Exhibit 11
HARMON INDUSTRIES, INC.
FORM 10-Q
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1998 1997
------- ------
<S> <C> <C>
Basic:
Net earnings $ 2,468 $ 2,639
-------- -------
-------- -------
Weighted average shares outstanding 10,546 10,332
Shares representing unearned compensation (14) (10)
-------- -------
Total 10,532 10,322
-------- -------
-------- -------
Basic earnings per share $ 0.23 $ 0.26
-------- -------
-------- -------
Diluted:
Net earnings $ 2,468 $ 2,639
-------- -------
-------- -------
Weighted average shares outstanding 10,546 10,332
Shares representing unearned compensation (14) (10)
Equivalent shares under option plans 134 70
-------- -------
Total 10,666 10,392
-------- -------
-------- -------
Diluted earnings per share $ 0.23 $ 0.25
-------- -------
-------- -------
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
-------- -------
<S> <C> <C>
Basic:
Net earnings $ 9,882 $ 7,073
-------- -------
-------- -------
Weighted average shares outstanding 10,524 10,295
Shares representing unearned compensation (12) (3)
-------- -------
Total 10,512 10,292
-------- -------
-------- -------
Basic earnings per share $ 0.94 $ 0.69
-------- -------
-------- -------
Diluted:
Net earnings $ 9,882 $ 7,073
-------- -------
-------- -------
Weighted average shares outstanding 10,524 10,295
Shares representing unearned compensation (12) (3)
Equivalent shares under option plans 141 52
-------- -------
Total 10,653 10,344
-------- -------
-------- -------
Diluted earnings per share $ 0.93 $ 0.68
-------- -------
-------- -------
</TABLE>
46
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,638
<SECURITIES> 0
<RECEIVABLES> 37,538
<ALLOWANCES> (304)
<INVENTORY> 41,011
<CURRENT-ASSETS> 96,760
<PP&E> 58,840
<DEPRECIATION> (33,672)
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0
0
<COMMON> 2,638
<OTHER-SE> 78,217
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<SALES> 192,017
<TOTAL-REVENUES> 192,017
<CGS> 151,673
<TOTAL-COSTS> 151,673
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<INCOME-TAX> 5,498
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<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-PRIMARY> 0.94
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</TABLE>
