<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1999 Commission file number 1-5838
-------------- ------
NCH CORPORATION
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-0457200
---------------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P.O. Box 152170
2727 Chemsearch Boulevard
Irving, Texas 75015
---------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972)438-0211
-------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -----------------
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Approximate Aggregate
Market Value* Total Shares
of Shares Held by Outstanding
Class Non-affiliates at June 21, 1999
-------------------------- -------------- ----------------
COMMON STOCK, $1 PAR VALUE $ 134,128,600 5,408,294
-------------------------- -------------- ----------------
*The approximate aggregate market value of the common stock held by
non-affiliates is based on the closing price of these shares on the New
York Stock Exchange on June 21, 1999.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's 1999 Annual Report to the Shareholders and
definitive Proxy Statement relating to the Registrant's 1999 Annual
Shareholders Meeting are incorporated by reference in Parts II and III
of this Form 10-K.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
PART II
Item 5 - Market for the Registrant's Page 40 of the 1999
Common Equity and Related Shareholder Annual Report.
Matters.
Item 6 - Selected Financial Data. Page 18 of the 1999
Annual Report.
Item 7 - Management's Discussion and Pages 18-23 of the 1999
Analysis of Financial Condition and Annual Report.
Results of Operations.
Item 8 - Financial Statements and Pages 24-40 of the 1999
Supplementary Data. Annual Report.
PART III
Item 10 - Directors and Executive Pages 2-4 and 9-10 of the
Officers of the Registrant. Company's Proxy Statement
dated June 22, 1999, in
connection with its Annual
Meeting to be held on July
22, 1999.
Item 11 - Executive Compensation. Pages 4-7 of the Company's
Proxy Statement dated June
22, 1999, in connection with
its Annual Meeting to be held
on July 22, 1999.
Item 12 - Security Ownership of Certain Pages 9-10 of the Company's
Beneficial Owners and Management. Proxy Statement dated June 22,
1999, in connection with its
Annual Meeting to be held on
July 22, 1999.
Item 13 - Certain Relationships and Pages 2-3 and 10 of the
Related Transactions. Company's Proxy Statement dated
June 22, 1999, in connection
with its Annual Meeting to be
held on July 22, 1999.
<PAGE>
PART I
Item 1. Business
--------
NCH Corporation, a Delaware corporation, and its subsidiaries (herein
collectively referred to as the "Company" or "NCH" unless the context
requires differently) markets an extensive line of maintenance, repair and
supply products to customers throughout the world. Products include
specialty chemicals, fasteners, welding supplies, and plumbing and
electronic parts. These products are marketed principally through the
Company's own sales force. There have been no significant changes in the
kind of products produced or marketed by the Company since the beginning
of the last fiscal year, although individual products are continually added
to and deleted from the product line. Sales are generally consistent
throughout the year, with no significant seasonal fluctuations.
Competitive conditions in the industry involved are severe and the
Company believes that no one enterprise or group of enterprises has a
dominant or preeminent position in the market. Further, the Company
believes that no enterprise has a significant percentage of the market.
No informative statement can be made as to the Company's rank in its
industry. Not only do other concerns compete in the broad general range
of maintenance, repair or supply products, but there are also many
competitors who produce one or more products which compete with specific
products sold by the Company. Competition in the industry is primarily
on the basis of price, service and product performance. The Company's
main emphasis is on service and product performance rather than price.
Sales of Company products are not dependent upon a limited number of
customers, and no particular customer accounts for more than 3% of net
sales.
Qualified sales representatives are crucial to the Company's
operations. In addition to industry competition, the Company competes
with the entire business community for qualified sales representatives.
This competition has been, and remains, severe. The Company has a required
formal training program for its sales representatives consisting of in-house
and field training. Based on the Company's experience in the last three
years, turnover of new sales representatives in the first year is estimated
to be 81%. The annual cost of recruiting and training sales representatives
over the past three years has averaged approximately $37 million per year.
Patents, franchises and concessions have not played an important role
in the Company's business. Trademarks are extensively used on products, and
are useful but not of paramount importance.
<PAGE>
As of the end of its last fiscal year the Company employed 10,093
persons. The Company employs 83 professional or technical persons on
its laboratory staff ranging from Ph.D's to nongraduate chemical
technicians. Although the laboratory staff spends time on research
activities relating to the development of new products or services and
the improvement of existing products or services, the staff is also engaged
in quality control and customer service activities. Costs cannot be broken
down between these various activities. The approximate amounts spent on
laboratory operations in the years ended April 30, 1999, 1998 and 1997,
were $5.3 million, $5.5 million and $5.0 million, respectively. All
laboratory costs, including research and development, are expensed as
incurred.
Incorporated herein by reference is the footnote entitled "Segment
and Geographic Information" of the Consolidated Financial Statements in
the NCH Corporation Annual Report for the year ended April 30, 1999 (1999
Annual Report), filed as an exhibit to this report. NCH has six segments:
Chemical Specialties, Plumbmaster Group, Resource Electronics,
Partsmaster Group, Landmark Direct, and Other Product Lines.
International sales, primarily for Chemical Specialties and Partsmaster
Group, are conducted through subsidiaries in Europe, Canada, Latin America,
Australia and the Far East. In the Company's experience, other than
currency fluctuations, the overall risk of international operations has not
been appreciably higher than domestic operations, although the risk of
operations in any one country may be greater than in the United States.
The Company is subject to the risks inherent in operating in foreign
countries, including government regulation, currency restrictions and other
restraints, risk of expropriation and burdensome taxes.
The products that the Company markets in each of its segments are
readily available from numerous sources. The Company buys raw materials and
finished products from a large number of suppliers, none of whom would
materially impact the sales or earnings of the Company should they cease
to be a source of supply. In some foreign countries, licensees manufacture
specialty chemical products for marketing by the Company's subsidiaries.
In each of its operating segments, the Company is subject to various
federal, state and local laws and regulations affecting businesses in
general, including environmental laws and regulations. Complying with all
laws and regulations has not materially affected the Company's competitive
position, earnings or capital expenditures. All laws and regulations are
subject to change and the Company cannot predict what effect, if any,
changes might have on its business.
Item 2. Properties
----------
The Company owns its world headquarters and domestic administrative
center complex in Irving, Texas, containing approximately 319,000 square
feet.
<PAGE>
The Company owns and operates 19 manufacturing facilities in 7 states
and 11 foreign countries, located in Canada, Europe, Latin America and the
Far East, containing approximately 1,118,000 square feet. These facilities
also include related office and warehouse space.
The Company owns and occupies a total of 17 office or office/warehouse
combinations in 3 states and 6 foreign countries, located in Europe and
Latin America, containing approximately 773,000 square feet.
In addition, the Company leases additional warehouse space,
manufacturing plants, and office space at various locations in the United
States and abroad, none of which is material in relation to the Company's
overall assets.
During the last fiscal year the Company made investments, net of
dispositions, of $11,714,000 ($12,748,000 gross) in property, plant and
equipment.
The plants and properties owned and operated by the Company are
maintained in good condition and are believed to be suitable and adequate
for the next several years.
Item 3. Legal Proceedings
-----------------
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any
of its subsidiaries is a party or of which any of their property is subject.
From time to time, the Company is named as a potentially responsible
party in proceedings involving compliance with environmental laws and
regulations. Currently, there are no such proceedings involving primarily a
claim for damages or monetary sanctions pending against the Company, which
singularly or in the aggregate, involves an amount in excess of 10% of the
current assets of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
<PAGE>
Executive Officers of the Registrant
------------------------------------
The following are the executive officers of the Company as of
June 1, 1999:
Name Office Age
---- ------ ---
Lester A. Levy Chairman of the Board; Director 76
Milton P. Levy, Jr. Chairman of the Executive Committee;
Director 73
Irvin L. Levy President; Director 70
Joe Cleveland Vice President and Secretary 65
Tom Hetzer Vice President - Finance 62
Glen Scivally Vice President and Treasurer 58
Messrs. Lester A. Levy, Milton P. Levy, Jr. and Irvin L. Levy are brothers.
Each of the Company's executive officers has been an executive officer of
the registrant for more than five years as his principal employment.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
-----------------------------------------------------------------
Matters
-------
Market and Dividend Information, appearing on page 40 of the 1999
Annual Report, is incorporated by reference herein.
Item 6. Selected Financial Data
-----------------------
Selected Financial Data, appearing on page 18 of the 1999 Annual
Report, is incorporated by reference herein.
Item 7. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results
of Operations, appearing on pages 18-23 of the 1999 Annual Report, is
incorporated by reference herein.
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company, through its foreign subsidiaries, manufactures and
distributes products worldwide. As a result, the Company is from time to
time exposed to market risk relating to the impact of foreign currency
exchange rates; however, this exposure has not been significant in the
past and is not expected to be significant in the future.
In addition, the Company maintains a portfolio of marketable
securities, the majority of which are debt securities. As a result,
the Company is exposed to market risk relating to interest rate movements;
however, a hypothetical 10% adverse movement in interest rates would have
no material impact on net income of the Company.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The Financial Statements and Supplementary Data, appearing on pages
24-40 of the 1999 Annual Report, is incorporated by reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosure
------------------------
Not applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Information on directors of the registrant, found on pages 2-4 of
the Company's Proxy Statement dated June 22, 1999, in connection with its
Annual Meeting to be held July 22, 1999, is incorporated by reference
herein.
Information on executive officers of the registrant, found on pages
9-10 of the Company's Proxy Statement dated June 22, 1999, is incorporated
by reference herein.
Item 11. Executive Compensation
----------------------
Information on executive compensation and transactions, found on pages
4-7 of the Company's Proxy Statement dated June 22, 1999, in connection with
its Annual Meeting to be held July 22, 1999, is incorporated by reference
herein.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Information on security ownership of principal stockholders and
management, found on pages 9-10 of the Company's Proxy Statement dated
June 22, 1999, in connection with its Annual Meeting to be held on July 22,
1999, is incorporated by reference herein.
During fiscal 1999, Milton P. Levy, Jr. failed to report on a Form 4
in June 1998 one transaction in NCH securities that occurred on May 26,
1998. However, such transaction was reported by NCH on a Current Report
on Form 8-K filed with the SEC on June 3, 1998, and in NCH's Proxy
Statement for the 1998 Annual Meeting of Stockholders. The failure to
report was inadvertent and was corrected on Milton P. Levy, Jr.'s Form
5 filed for June 1999.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Information on certain relationships and related transactions, found
on pages 2-3 and 10 of the Company's Proxy Statement dated June 22, 1999,
in connection with its Annual Meeting to be held on July 22, 1999, is
incorporated by reference herein.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a)(1) and (2): The response to this portion of Item 14 is submitted as a
separate section of this report on pages 16-17. The information set forth
on pages 16-17 of this report is incorporated by reference. The
consolidated financial statements set forth on page 16 of this report are
filed as part of this Form 10-K by incorporation by reference to pages
24-40 of the 1999 Annual Report.
(a)(3) and (c): Exhibits. For a list of the exhibits filed as a part of
this report, see the Index to Exhibits on pages 20-21 of this report,
which is incorporated by reference.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended April 30, 1999. The Company filed form 8-K on June 3, 1998
announcing that its board of directors authorized the repurchase of an
aggregate of 1,266,176 shares of NCH Common Stock from Milton P. Levy, Jr.,
certain members of his family, including his children, their spouses and
his grandchildren and trusts for the benefit of his family members.
(d) Not applicable.
<PAGE>
SIGNATURES
The Issuer
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, NCH Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Irving, and the State of Texas, on this 4th day of
June, 1999.
NCH CORPORATION, Registrant
By /s/ Irvin L. Levy
---------------------------
Irvin L. Levy, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
NCH Corporation and in the capacities and on the date indicated.
Signature Capacity at Registrant Date
/s/ Lester A. Levy Chairman of the Board; June 4, 1999
------------------------ Director
Lester A. Levy
/s/ Milton P. Levy, Jr. Chairman of the Executive June 4, 1999
------------------------ Committee; Director
Milton P. Levy, Jr.
/s/ Irvin L. Levy President; Director June 4, 1999
------------------------ (Principal Executive Officer)
Irvin L. Levy
/s/ Tom Hetzer Vice President - Finance June 4, 1999
------------------------ (Principal Accounting Officer)
/s/ Robert L. Blumenthal Director June 4, 1999
------------------------
Robert L. Blumenthal
/s/ Rawles Fulgham Director June 4, 1999
------------------------
Rawles Fulgham
/s/Jerrold M. Trim Director June 4, 1999
------------------------
Jerrold M. Trim
/s/Thomas B. Walker Jr. Director June 4, 1999
------------------------
Thomas B. Walker Jr.
<PAGE>
NCH CORPORATION
AND SUBSIDIARY COMPANIES
FORM 10-K
ITEMS 8, 14(a)(1) and (2) and (a)(3) and (c)
INDEX OF FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
The following consolidated financial statements are filed as part of
this Form 10-K by incorporation by reference to pages 24-40 of the 1999
Annual Report.
Consolidated Financial Statements:
Statements of Income, Years Ended April 30, 1999, 1998 and 1997
Balance Sheets, April 30, 1999 and 1998
Statements of Cash Flows, Years Ended April 30, 1999, 1998 and 1997
Statements of Stockholders' Equity, Years Ended April 30, 1999, 1998
and 1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
Selected Unaudited Quarterly Data, Years Ended April 30, 1999 and 1998
The following consolidated financial statement schedule of the
registrant and its subsidiaries is included in Item 14(a)(2):
Page
----
Consolidated Financial Statement Schedule
Independent Auditors' Report 18
II - Valuation and Qualifying Accounts 19
Schedules other than those listed above are omitted because they are
not required or are not applicable, the information required is immaterial
in relation to the registrant's consolidated financial statements, or the
required information is shown in the consolidated financial statements or
notes thereto. Columns omitted from schedules filed have been omitted
because the information is not applicable.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
NCH Corporation:
Under date of June 1, 1999, we reported on the consolidated balance
sheets of NCH Corporation and subsidiaries as of April 30, 1999 and 1998,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the years in the three-year period ended April 30,
1999, as contained in the 1999 Annual Report to Shareholders. These
consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year ended April 30,
1999. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule as listed in the accompanying index. This consolidated
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
/s/ KPMG LLP
Dallas, Texas
June 1, 1999
<PAGE>
<TABLE>
NCH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<CAPTION>
Balance at Charged to Foreign Deductions-- Balance
Beginning Costs and Currency Accounts at End of
Description of Period Expenses Translation Written-Off Period
------------------------- --------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Reserves Deducted in the Balance
Sheet from Assets to Which They
Apply
Allowances for Doubtful Accounts
Year Ended April 30, 1999 $15,653 $5,941 $ (126) $4,196 $17,272
======= ====== ======= ====== =======
Year Ended April 30, 1998 $15,624 $5,483 $ (770) $4,684 $15,653
======= ====== ======= ====== =======
Year Ended April 30, 1997 $16,259 $6,939 $(1,311) $6,263 $15,624
======= ====== ======= ====== =======
</TABLE>
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit Sequentially
Number Exhibit Numbered Page
------ ------- -------------
Exhibit 3.1 (1) Restated Certificate of Incorporation
Exhibit 3.2 (1) Bylaws, as amended
Exhibit 10.1 (1)(3) Form of 1980 Non-Qualified Stock Option
Plan, as amended
Exhibit 10.1.1 (7) Stock Purchase Agreement among Jackson
Acquisition, Inc., NCH Corporation,
American Allsafe Company and Silencio/
Safety Direct, Inc. dated as of
March 30, 1998
Exhibit 10.1.2 (2) Credit Agreement among NCH Corporation
as Borrower, Chase Bank of Texas,
National Association, as Agent, and
the Lenders Named herein, dated
August 7, 1998
Exhibit 10.1.3 (2) First Amendment to Credit Agreement
among NCH Corporation as Borrower,
Chase Bank of Texas, National Association,
as Agent, dated May 28,1999
Exhibit 10.2 (1)(3) Form of Non-Qualified Stock Option
Agreement
Exhibit 10.5 (1)(3) Forms of Deferred Compensation
Agreements with Messrs. Irvin, Lester,
and Milton Levy
Exhibit 10.7 (3)(4) Fourth and Fifth Amendments to Deferred
Compensation Agreements with Messrs. Irvin,
Lester, and Milton Levy
Exhibit 10.8 (3)(5) Executive Committee Incentive Bonus Plan
Exhibit 10.9 (3)(6) Fourth, Fifth and Sixth Amendments to Deferred
Compensation Agreements with Messrs. Irvin, Lester,
and Milton Levy
Exhibit 13 (2) Annual Report for the year ended April 30, 1999
for information only and not filed
Exhibit 21 (2) Subsidiaries of the Registrant
Exhibit 23 (2) Independent Auditors' Consent
Exhibit 27 (2) Financial Data Schedule
<PAGE>
Exhibit 99 (2) Definitive Proxy Statement regarding
the Company's 1999 Annual Meeting of
Stockholders
(1) Incorporated herein by reference to the exhibits with the same
exhibit number and designation in the Registrant's report on Form
10-K for the fiscal year ended April 30, 1987, filed with the
Securities and Exchange Commission.
(2) Filed herewith.
(3) Management contract or compensatory plan or arrangement required to
be filed as an exhibit to this report pursuant to Item 14(c) of
Form 10-K.
(4) Incorporated herein by reference to the exhibit with the same
exhibit number and designation in the Registrant's report on Form
10-K for the fiscal year ended April 30, 1995, filed with the
Securities and Exchange Commission.
(5) Incorporated herein by reference to the exhibit with the same
exhibit number and designation in the Registrant's report on Form
10-K for the fiscal year ended April 30, 1994, filed with the
Securities and Exchange Commission.
(6) Incorporated herein by reference to the exhibit with the same
exhibit number and designation in the Registrant's report on Form
10-K for the fiscal year ended April 30, 1997, filed with the
Securities and Exchange Commission.
(7) Incorporated herein by reference to the exhibit with the same
exhibit number and designation in the Registrant's report on Form
10-K for the fiscal year ended April 30, 1998, filed with the
Securities and Exchange Commission.
<PAGE>
NCH CORPORATION AND SUBSIDIARIES
EXHIBIT 10.1.2 CREDIT AGREEMENT AMONG NCH CORPORATION AS BORROWER,
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, AS AGENT, AND THE LENDERS
NAMED HEREIN
CREDIT AGREEMENT
among
NCH CORPORATION
as Borrower,
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION,
as Agent,
and
the lenders named herein
7 August 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 - Definitions 1
Section 1.1 Definitions 1
Section 1.2 Other Definitional Provisions 10
Section 1.3 Accounting Terms and Determinations 10
Section 1.4 Time of Day 11
ARTICLE 2 - Revolving Credit Facility 11
Section 2.1 Revolving Commitments 11
Section 2.2 Revolving Notes 11
Section 2.3 Repayment of Loans 11
Section 2.4 Use of Proceeds 11
Section 2.5 Revolving Commitment Fee 11
Section 2.6 Reduction or Termination of Revolving
Commitments 12
ARTICLE 3 - Interest and Fees 12
Section 3.1 Interest Rate 12
Section 3.2 Determinations of Margins and Fees 12
Section 3.3 Payment Dates 13
Section 3.4 Default Interest 13
Section 3.5 Conversions and Continuations of Accounts 13
Section 3.6 Computations 14
ARTICLE 4 - Administrative Matters 14
Section 4.1 Borrowing Procedure 14
Section 4.2 Minimum Amounts 14
Section 4.3 Certain Notices 14
Section 4.4 Prepayments 15
Section 4.5 Method of Payment 15
Section 4.6 Pro Rata Treatment 16
Section 4.7 Sharing of Payments 16
Section 4.8 Non-Receipt of Funds by the Agent 16
Section 4.9 Withholding Taxes 17
Section 4.10 Withholding Tax Exemption 17
ARTICLE 5 - Yield Protection and Illegality 18
Section 5.1 Additional Costs 18
Section 5.2 Limitation on Eurodollar Accounts 19
Section 5.3 Illegality 20
Section 5.4 Treatment of Affected Loans 20
Section 5.5 Compensation 20
Section 5.6 Capital Adequacy 21
<PAGE>
ARTICLE 6 - Conditions Precedent 21
Section 6.1 Initial Loan 21
(a) Resolutions 21
(b) Incumbency Certificate 21
(c) Articles of Incorporation 22
(d) Bylaws 22
(e) Governmental Certificates 22
(f) Revolving Notes 22
(g) Guaranty 22
(h) Insurance Policies 22
(i) Opinion of Counsel 22
(j) Attorneys' Fees and Expenses 22
Section 6.2 All Loans 22
(a) No Default 22
(b) Representations and Warranties 22
(c) Additional Documentation 22
ARTICLE 7 - Representations and Warranties 23
Section 7.1 Corporate Existence 23
Section 7.2 Financial Statements 23
Section 7.3 Corporate Action; No Breach 23
Section 7.4 Operation of Business 24
Section 7.5 Litigation and Judgments 24
Section 7.6 Rights in Properties; Liens 24
Section 7.7 Enforceability 24
Section 7.8 Approvals 24
Section 7.9 Taxes 24
Section 7.10 Margin Securities 24
Section 7.11 Employee Plans 25
(a) ERISA 25
(b) Non-U.S. Employee Plans 25
Section 7.12 Disclosure 25
Section 7.13 Subsidiaries; Capitalization 25
Section 7.14 Agreements 26
Section 7.15 Compliance with Laws 26
Section 7.16 Investment Company Act 26
Section 7.17 Public Utility Holding Company Act 26
Section 7.18 Environmental Matters 26
Section 7.19 Solvency 27
Section 7.20 Benefit Received 27
<PAGE>
ARTICLE 8 - Positive Covenants 27
Section 8.1 Reporting Requirements 27
(a) Annual Financial Statements 28
(b) Quarterly Financial Statements 28
(c) Compliance Certificate 28
(d) Management Letters 28
(e) Notice of Litigation 28
(f) Notice of Default 28
(g) ERISA Reports 28
(h) Reports to Other Creditors 29
(i) Notice of Material Adverse Effect 29
(j) Proxy Statements, Etc. 29
(k) General Information 29
Section 8.2 Maintenance of Existence; Conduct of
Business 29
Section 8.3 Maintenance of Properties 29
Section 8.4 Taxes and Claims 29
Section 8.5 Insurance 30
Section 8.6 Inspection Rights 30
Section 8.7 Keeping Books and Records 30
Section 8.8 Compliance with Laws 30
Section 8.9 Compliance with Agreements 30
Section 8.10 ERISA 30
Section 8.11 Further Assurance; Material Subsidiary
Guaranty 30
ARTICLE 9 - Negative Covenants 31
Section 9.1 Limitation on Liens and Restrictions on
Subsidiaries 31
Section 9.2 Mergers, Etc 32
Section 9.3 Investments 33
Section 9.4 Transactions With Affiliates 34
Section 9.5 Disposition of Assets 34
ARTICLE 10 - Financial Covenants 34
Section 10.1 Consolidated Net Worth 34
Section 10.2 Total Debt to EBITDA 35
ARTICLE 11 - Default 36
Section 11.1 Events of Default 36
Section 11.2 Remedies 39
(a) Acceleration 39
(b) Termination of Commitments 39
(c) Judgment 39
(d) Rights 39
Section 11.3 Performance by the Agent 39
Section 11.4 Setoff 39
Section 11.5 Continuance of Default 40
ARTICLE 12 - The Agent 40
Section 12.1 Appointment, Powers and Immunities 40
Section 12.2 Rights of Agent as a Bank 40
Section 12.3 Defaults 41
Section 12.4 Indemnification 41
Section 12.5 Independent Credit Decisions 42
Section 12.6 Several Commitments 42
Section 12.7 Successor Agent 42
<PAGE>
ARTICLE 13 - Miscellaneous 43
Section 13.1 Expenses 43
Section 13.2 Indemnification 43
Section 13.3 Limitation of Liability 44
Section 13.4 No Duty 44
Section 13.5 No Fiduciary Relationship 44
Section 13.6 Equitable Relief 44
Section 13.7 No Waiver; Cumulative Remedies 44
Section 13.8 Successors and Assigns 44
(a) Binding Effect 44
(b) Participations 44
(c) Assignments 45
(d) Information 46
(e) Pledge to Federal Reserve 46
Section 13.9 Survival 46
Section 13.10 Entire Agreement 46
Section 13.11 Amendments 47
Section 13.12 Maximum Interest Rate 47
Section 13.13 Notices 48
Section 13.14 Governing Law; Venue; Service of Process 48
Section 13.15 Counterparts 48
Section 13.16 Severability 48
Section 13.17 Headings 48
Section 13.18 Non-Application of Chapter 346 of the
Finance Code of Texas 49
Section 13.19 Construction 49
Section 13.20 Independence of Covenants 49
Section 13.21 Waiver of Jury Trial 49
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit Description of Exhibit
------- ----------------------
"A" Revolving Note
"B" Compliance Certificate
"C" Guaranty
"D" Assignment and Acceptance
"E" Subsidiary Joinder Agreement
INDEX TO SCHEDULES
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Schedule Description of Schedule
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1.1(a) Initial Allocation of Revolving
Commitments
7.14 List of Subsidiaries and
Capitalization
9.1 Existing Liens
9.3 Existing Investments
<PAGE>
CREDIT AGREEMENT
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THIS CREDIT AGREEMENT (the "Agreement"), dated as of August 7, 1998, is
between NCH CORPORATION, a corporation duly organized and validly existing
under the laws of the State of Delaware ("Borrower"), each of the banks or
other lending institutions which is or which may from time to time become a
signatory hereto or any successor or assignee thereof (individually, a
"Bank" and, collectively, the "Banks"), and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, individually as a Bank and as agent for itself and the other
Banks (in its capacity as agent, together with its successors in such
capacity, the "Agent").
R E C I T A L S:
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Borrower has requested that the Banks extend credit to Borrower in the
form of a revolving credit facility. The Banks are willing to extend such
credit to Borrower upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE 1
Definitions
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Section 1.1 Definitions. As used in this Agreement, the following
terms have the following meanings:
"Account" means either a Base Rate Account or a Eurodollar Account.
"Additional Costs" has the meaning specified in Section 5.1.
"Adjusted Eurodollar Rate" means, for any Eurodollar Account for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary,
to the nearest 1/16 of 1%) determined by the Agent to be equal to the
Eurodollar Rate for such Eurodollar Account for such Interest Period divided
by 1 minus the Reserve Requirement for such Eurodollar Account for such
Interest Period.
"Affiliate" means, as to any Person, any other Person (a) that directly
or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person; (b) that
directly or indirectly beneficially owns or holds five percent (5%) or more
of any class of voting stock of such Person; or (c) five percent (5%) or
more of the voting stock of which is directly or indirectly beneficially
owned or held by the Person in question. The term "control" means the
possession, directly or indirectly, of the power to direct or cause
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise; provided,
however, in no event shall the Agent or any Bank be deemed an Affiliate
of Borrower or any Subsidiaries.
<PAGE>
"Agreement" has the meaning set forth in the introductory paragraph of
this Agreement.
"Applicable Lending Office" means for each Bank and each Type of Account,
the lending office of such Bank (or of an Affiliate of such Bank)
designated for such Account below its name on the signature pages hereof or
such other office of such Bank (or of an Affiliate of such Bank) as such
Bank may from time to time specify to Borrower and the Agent as the office
by which its Loans subject to Accounts of such Type are to be made and
maintained.
"Applicable Rate" has the meaning set forth in Section 3.1.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Bank and its assignee and accepted by the Agent pursuant to
Section 13.8, in substantially the form of Exhibit "D" hereto.
"Base Rate" means, for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greater of (a) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1% or (b) the Prime
Rate in effect on such day. For purposes hereof, "Prime Rate" shall mean
the rate of interest per annum then most recently publicly announced from
time to time by Chase as its prime rate in effect at its Principal Office;
each change in the Prime Rate shall be effective on the date such change is
publicly announced as effective. "Federal Funds Effective Rate" shall mean,
for any day, the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as released on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so released for
any day which is a Business Day, the arithmetic average (rounded upwards to
the next 1/100th of 1%), as determined by the Agent, of the quotations for
the day of such transactions received by the Agent from three federal funds
brokers of recognized standing selected by it. If for any reason the Agent
shall have determined (which determination shall be conclusive absent
manifest error) that it is unable to ascertain the Federal Funds Effective
Rate for any reason, including the inability of the Agent to obtain
sufficient quotations in accordance with the terms thereof, the Base Rate
shall be determined without regard to clause (a) of the first sentence of
this definition until the circumstances giving rise to such inability no
longer exist. Any change in the Base Rate due to a change in the Prime Rate
or the Federal Funds Effective Rate shall be effective on the effective date
of such change in the Prime Rate or the Federal Funds Effective Rate,
respectively. The Base Rate may not be any Bank's best or favored rate and
the Banks may make other Loans to other Persons at rates lower than the
Base Rate.
"Base Rate Account" means a portion of a Loan that bears interest at a
rate based upon the Base Rate.
"Borrower" has the meaning set forth in the introductory paragraph of
this Agreement.
<PAGE>
"Business Day" means (a) any day excluding Saturday, Sunday, and any day
which either is a legal holiday under the laws of the State of Texas or is a
day on which banking institutions located in the State of Texas are closed,
and (b), with respect to all borrowings, payments, Conversions,
Continuations, Interest Periods, and notices in connection with Loans
subject to Eurodollar Accounts, any day which is a Business Day described
in clause (a) above and which is also a day on which dealings in Dollar
(with respect to Eurodollar Accounts) deposits are carried out in the
interbank eurodollar market.
"Capital Lease Obligations" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other
agreement conveying the right to use) real and/or personal property, which
obligations are required to be classified and accounted for as a capital
lease on a balance sheet of such Person under GAAP. For purposes of this
Agreement, the amount of such Capital Lease Obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.
"Chase" means Chase Bank of Texas, National Association, in its
individual capacity and not as Agent.
"Closing Date" means the first date when all conditions set out in
Section 6.1 have been satisfied and the initial advance of funds is
made hereunder.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Commitment Fee Rate" has the meaning specified in Section 3.2.
"Commitment Percentage" means, as to any Bank, the percentage
equivalent of a fraction the numerator of which is the Revolving Commitment
of such Bank and the denominator of which is the aggregate amount of the
Revolving Commitments of all of the Banks.
"Compliance Certificate" means a certificate in substantially the form
of Exhibit "B" properly completed and executed by the chief financial
officer of Borrower.
"Consolidated Net Worth" has the meaning specified in Section 10.1.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 3.5 of a Eurodollar Account as a
Eurodollar Account from one Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 3.5 or Article 5 of one Type of Account into another
Type of Account.
<PAGE>
"Debt" means as to any Person at any time (without duplication): (a) all
obligations of such Person for borrowed money; (b) all obligations of such
Person evidenced by bonds, notes, debentures, or other similar instruments;
(c) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable of such Person arising
in the ordinary course of business that are not past due by more than ninety
(90) days; (d) all Capital Lease Obligations of such Person; (e) all Debt
or other obligations of others Guaranteed by such Person; (f) all
obligations secured by a Lien existing on property owned by such Person,
whether or not the obligations secured thereby have been assumed by such
Person or are non-recourse to the credit of such Person; (g) all
reimbursement obligations of such Person (whether contingent or otherwise)
in respect of letters of credit, bankers' acceptances, surety or other
bonds, and similar instruments; (h) all liabilities of such Person in
respect of all unfunded post-settlement and post-employment benefits
including but not limited to unfunded vested benefits under any Plan or
Non-US. Employee Plan; (i) indebtedness in respect of mandatory redemption
or mandatory dividend rights on capital stock (or other equity) but
excluding dividends payable solely in shares of stock; (j) all obligations
of such Person, contingent or otherwise, for the payment of money under any
noncompete, consulting or similar agreement entered into with the seller of
an acquired company (whether by stock or asset acquisition) or any other
similar arrangements providing for the deferred payment of the purchase
price for an acquisition permitted hereby or an acquisition consummated
prior to the date hereof; (k) all obligations of such Person under any
interest rate or currency swap, cap, collar or similar hedge agreement or
under any currency hedging arraignment; and (l) all other amounts (other
than accruals) which are required to be included as liabilities on a
consolidated balance sheet of such Person.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event
of Default.
"Default Rate" means, in respect of any principal of any Loan, or any
other amount payable by Borrower under any Loan Document which is not paid
when due (whether at stated maturity, by acceleration, or otherwise), a
rate per annum during the period commencing on the due date until such
amount is paid in full equal to the sum of two percent (2%) plus the
Applicable Rate for Base Rate Accounts as in effect from time to time
(provided, that if such amount in default is principal of a Loan subject to
a Eurodollar Account and the due date is a day other than the last day of
an Interest Period therefor, the "Default Rate" for such principal shall be,
for the period from and including the due date and to but excluding the
last day of the Interest Period therefor, two percent (2%) plus the
interest rate for such Loan for such Interest Period as provided in Section
3.1 hereof, and, thereafter, the rate provided for above in this
definition).
"Dollars" and "$" mean lawful money of the United States of America.
"Domestic Subsidiary" means any Subsidiary wholly and directly owned by
Borrower which is organized under the laws of the United States or one of
the States thereof.
<PAGE>
"Eligible Assignee" means one or more commercial bank, savings and loan
association, savings bank, finance company, insurance company, pension fund,
mutual fund, or other financial institution (whether a corporation,
partnership, or other entity) which is qualified to make Loans hereunder,
has a combined capital and surplus of at least One Hundred Million Dollars
($100,000,000).
"Environmental Laws" means any and all federal, state, foreign and local
laws, regulations, and requirements pertaining to health, safety, or the
environment, as such laws, regulations, and requirements may be amended or
supplemented from time to time.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs, and expenses,
(including, without limitation, all reasonable fees, disbursements and
expenses of counsel, expert and consulting fees and costs of investigation
and feasibility studies), fines, penalties, sanctions, and interest incurred
as a result of any claim or demand, by any Person, whether based in
contract, tort, implied or express warranty, strict liability, criminal or
civil statute, including any Environmental Law, permit, order, or agreement
with any Governmental Authority or other Person, arising from environmental,
health, or safety conditions or the Release or threatened Release of a
Hazardous Material into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with Borrower.
"Eurodollar Account" means a portion of a Loan that bears interest at a
rate based upon the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Account for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) offered to Chase or one of its Affiliates at
approximately 11:00 a.m. London time (or as soon thereafter as
practicable) two Business Days prior to the first day of such Interest
Period by leading banks in the eurodollar interbank market of Dollar
deposits in immediately available funds having a term comparable to such
Interest Period and in an amount comparable to the principal amount of the
Eurodollar Account applicable to Chase to which such Interest Period
relates. If Chase is not participating in a Eurodollar Account during any
Interest Period therefor (pursuant to Section 5.4 or for any other reason),
the Eurodollar Rate for such Account for such Interest Period shall be
determined by reference to the amount of the Account which Chase would have
been allocated if it had been participating in such Account.
"Eurodollar Rate Margin" has the meaning specified in Section 3.2
"Event of Default" has the meaning specified in Section 11.1.
<PAGE>
"Federal Funds Effective Rate" has the meaning set forth in the
definition of Base Rate.
"Fiscal Quarters" means the four (4) periods falling in each Fiscal Year,
each such period three calendar months in duration with the first such
period in any Fiscal Year beginning on the first day of May and the last
such period in any Fiscal Year ending on the last day of April.
"Fiscal Year" means twelve (12) month period beginning on the first day
of May and ending on the last day of April of each year.
"Foreign Subsidiary" means any Subsidiary which is organized under the
laws of a country or province other than the United States or a State
thereof.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board and/or their
respective successors and which are applicable in the circumstances as of
the date in question. Accounting principles are applied on a "consistent
basis" when the accounting principles applied in a current period are
comparable in all material respects to those accounting principles applied
in a preceding period.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (b) entered into for the
purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect the obligee against loss in
respect thereof (in whole or in part), provided that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has a corresponding
meaning.
"Guaranty" means the guaranty of the Material Subsidiaries in favor of
the Agent and the Banks, in substantially the form of Exhibit "C", as the
same may be amended or otherwise modified from time to time.
"Hazardous Material" means any substance, product, waste, pollutant,
material, chemical, contaminant, constituent, or other material which is or
becomes listed, regulated, or addressed under any Environmental Law.
<PAGE>
"Interest Period" means with respect to any Eurodollar Accounts, each
period commencing on the date such Account is established or Converted from
a Base Rate Account or the last day of the next preceding Interest Period
with respect to such Account, and ending on the numerically corresponding
day in the first, second, third or sixth calendar month thereafter, as
Borrower may select as provided in Section 3.5 or 4.1, except that each such
Interest Period which commences on the last Business Day of a calendar
month (or on any day for which there is no numerically corresponding day in
the appropriate subsequent calendar month) shall end on the last Business
Day of the appropriate subsequent calendar month. Notwithstanding the
foregoing: (a) each Interest Period which would otherwise end on a day
which is not a Business Day shall end on the next succeeding Business Day
(or if such succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day); (b) any Interest Period in
existence under a Loan which would otherwise extend beyond the Revolving
Termination Date shall end on the Revolving Termination Date; (c) no
Interest Period shall have a duration of less than one (1) month and, if
the Interest Period would otherwise be a shorter period, the related Account
shall not be available hereunder; (d) no more than six (6) Interest Periods
shall be in effect with respect to Eurodollar Accounts at the same time; and
(e) no Interest Period may commence before and end after any principal
repayment date unless, after giving effect thereto, the aggregate principal
amount of the Eurodollar Accounts having Interest Periods that end after
such principal payment date shall be equal to or less than the amount of
the Loans scheduled to be outstanding hereunder after such principal
payment date.
"Lien" means any lien, mortgage, security interest, tax lien, financing
statement, pledge, charge, hypothecation, assignment, preference, priority,
or other encumbrance of any kind or nature whatsoever (including, without
limitation, any conditional sale or title retention agreement), whether
arising by contract, operation of law, or otherwise.
"Loan Documents" means this Agreement, the Revolving Notes, the
Guaranty, and all other promissory notes, guaranties, and other instruments,
agreements, and other documentation executed and delivered pursuant to or
in connection with this Agreement, as such instruments, agreements, and
other documentation may be amended or otherwise modified.
"Loans" means the advances made pursuant to Section 2.1.
<PAGE>
"Material Adverse Effect" means (a) a material adverse effect on the
business, condition (financial or otherwise), operations, prospects, or
properties of Borrower and the Subsidiaries taken as a whole or (b) a
material adverse effect on the validity, perfection, priority, or ability of
the Agent or any Bank to enforce a material provision of the Loan Documents.
In determining whether any individual event could reasonably be expected to
result in a Material Adverse Effect, notwithstanding that such event does
not itself have such effect, a Material Adverse Effect shall be deemed to
have occurred if the cumulative effect of such event and all other then
existing events could reasonably be expected to result in a Material Adverse
Effect. Also, in determining whether any individual event could reasonably
be expected to result in a Material Adverse Effect, a Material Adverse
Effect shall be deemed to have occurred if such event results or could
reasonably be expected to result in an expense or other liability of the
Borrower or one of the Subsidiaries in an amount equal to or in excess of
Five Million Dollars ($5,000,000); provided that an event which results or
could reasonably be expected to result in an expense or other liability of
the Borrower or one of the Subsidiaries in an amount less than Five Million
Dollars ($5,000,000) could result in a Material Adverse Effect if other
factors support such determination.
"Material Subsidiary" means Plumbmaster, Inc., Resource Electronics,
Inc., LSP Products Group, Inc., and Cornerstone Direct Corporation and any
other Domestic Subsidiary whose total assets (determined in accordance with
GAAP) increase, after the date hereof, to an amount equal to or in excess
of ten percent (10%) of the total assets of the Borrower and the
Subsidiaries determined on a consolidated basis in accordance with GAAP.
"Maturity Date" has the meaning specified in Subsection 2.3(a).
"Maximum Rate" means, at any time and with respect to any Bank, the
maximum rate of nonusurious interest under applicable law that such Bank
may charge Borrower. The Maximum Rate shall be calculated in a manner
that takes into account any and all fees, payments, and other charges
contracted for, charged, or received in connection with the Loan Documents
that constitute interest under applicable law. Each change in any interest
rate provided for herein based upon the Maximum Rate resulting from a
change in the Maximum Rate shall take effect without notice to Borrower at
the time of such change in the Maximum Rate. For purposes of determining
the Maximum Rate under Texas law, the applicable rate ceiling shall be the
weekly ceiling described in, and computed in accordance with, Article 5069,
Vernon's Texas Civil Statutes.
"Multiemployer Plan" means a Multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by Borrower or
any ERISA Affiliate and which is covered by Title IV of ERISA.
"Non-U.S. Employee Plans" means all employee pension benefit and welfare
benefit plans or policies of Borrower or any Subsidiary which are governed
by laws other than the laws of the United States and which are applicable
to or cover current or former employees or directors of Borrower or any
Subsidiary.
"Obligated Party" means the Material Subsidiaries or any other Person
(exclusive of Borrower) who is or becomes party to any agreement that
guarantees or secures payment and performance of the Obligations or any
part thereof.
<PAGE>
"Obligation" means all obligations, indebtedness, and liabilities of
Borrower to the Agent and the Banks, or any of them, arising pursuant to
any of the Loan Documents, pursuant to any interest rate swap, interest
rate caps, interest rate collars, or other similar agreements entered into
by Agent or any Bank with Borrower or any Subsidiary enabling Borrower or a
Subsidiary to fix or limit its interest expense or pursuant to any foreign
exchange, currency hedging, commodity hedging, or other agreement entered
into by Agent or any Bank with Borrower or any Subsidiary enabling Borrower
or a Subsidiary to limit the market risk of holding currency in either the
cash or futures markets, whether now existing or hereafter arising, whether
direct, indirect, related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several, or joint and several, including, without
limitation, the obligation of Borrower to repay the Loans, interest on the
Loans, and all fees, costs, and expenses (including attorneys' fees and
expenses) provided for in the Loan Documents or such agreements enabling
Borrower to fix or limit its interest expense or limit its market risk of
holding currency.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Permitted Holder" has the meaning set forth in Section 11.1 (l).
"Person" means any individual, corporation, business trust, association,
company, partnership, joint venture, Governmental Authority, or other
entity.
"Plan" means any employee benefit plan that is established or maintained
by Borrower or any ERISA Affiliate and covered by Title IV of ERISA.
"Principal Office" means the principal office of the Agent, located at
1111 Fannin, Houston, Texas.
"Prohibited Transaction" means any transaction set forth in Section
406 or 407 of ERISA or Section 4975(c)(1) of the Code for which there does
not exist a statutory or administrative exemption.
"Purchase Price" has the meaning set forth in Section 9.2 (d).
"Quarterly Payment Date" means the last Business Day of March, June,
September, and December of each year, the first of which shall be September
30, 1998.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time
to time.
"Regulatory Change" means, with respect to any Bank, any change after
the date of this Agreement in United States federal, state, or foreign laws
or regulations (including Regulation D) or the adoption or making after such
date of any interpretations, directives, or requests applying to a class of
banks including such Bank of or under any United States federal or state,
or any foreign, laws or regulations (whether or not having the force of law)
by any Governmental Authority or monetary authority charged with the
interpretation or administration thereof.
<PAGE>
"Release" means, as to any Person, any release, spill, emission, leaking,
pumping, injection, deposit, disposal, disbursement, leaching, or migration
of Hazardous Materials into the indoor or outdoor environment or into or
out of property owned by such Person, including, without limitation, the
movement of Hazardous Materials through or in the air, soil, surface water,
ground water, or property in violation of Environmental Laws.
"Remedial Action" means all actions required to (a) cleanup, remove,
treat, or otherwise address Hazardous Materials in the indoor or outdoor
environment, (b) prevent the Release or threat of Release or minimize the
further Release of Hazardous Materials so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, or (c) perform pre-remedial studies and investigations
and post-remedial monitoring and care.
"Required Banks" means Banks having (a) fifty-one percent (51%) or more
of the Revolving Commitments or (b) if all Revolving Commitments have
terminated, fifty-one percent (51%) or more of the outstanding principal
amount of the Loans.
"Reportable Event" means any of the events set forth in Section 4043 of
ERISA.
"Reserve Requirement" means, for any Eurodollar Account for any Interest
Period therefor, the average maximum rate at which reserves (including any
marginal, supplemental, or emergency reserves) are required to be maintained
during such Interest Period under Regulation D by member banks of the
Federal Reserve System in New York City with deposits exceeding one billion
Dollars against "Eurocurrency Liabilities" as such term is used in
Regulation D. Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by
such member banks by reason of any Regulatory Change against any category
of liabilities which includes deposits by reference to which the Adjusted
Eurodollar Rate is to be determined or any category of extensions of credit
or other assets which include Eurodollar Accounts.
"Revolving Commitment" means, as to each Bank, the obligation of such
Bank to make advances of funds in an aggregate principal amount at any one
time outstanding up to but not exceeding the amount either set forth
opposite the name of such Bank on Schedule 1.1(a) or set forth in the most
recent duly executed Assignment and Acceptance entered into by such Bank,
as the same may be reduced or terminated pursuant to Sections 2.6, 11.2 or
13.8. The aggregate amount of the Revolving Commitments of all Banks equals
Fifty Million Dollars ($50,000,000).
"Revolving Notes" means the promissory notes provided for by Section 2.2
and all amendments or other modifications thereof.
"Revolving Termination Date" means August 7, 2001, or such earlier date
on which the Revolving Commitments terminate as provided in this Agreement.
<PAGE>
"Subsidiary" means any corporation (or other entity) of which at least a
majority of the outstanding shares of stock (or other ownership interests)
having by the terms thereof ordinary voting power to elect a majority of
the board of directors (or similar governing body) of such corporation (or
other entity) (irrespective of whether or not at the time stock (or other
ownership interests) of any other class or classes of such corporation
(or other entity) shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned
or controlled by Borrower or one or more of the Subsidiaries or by Borrower
and one or more of the Subsidiaries.
"Subsidiary Joinder Agreement" means an agreement which has been or
will be executed by a Material Subsidiary adding it as a party to the
Guaranty, in substantially the form of Exhibit "E" hereto, as the same may
be amended or otherwise modified.
"Total Debt to EBITDA Ratio" has the meaning specified in Section 10.2.
"Type" means any one of the types of Account (i.e., either a Base Rate
Account or Eurodollar Account).
"UCC" means the Uniform Commercial Code as in effect in the State of
Texas.
"United States" means the United States of America.
Section 1.2 Other Definitional Provisions. All definitions contained
in this Agreement are equally applicable to the singular and plural forms
of the terms defined. The words "hereof", "herein", and "hereunder" and
words of similar import referring to this Agreement refer to this Agreement
as a whole and not to any particular provision of this Agreement. Unless
otherwise specified, all Article and Section references pertain to this
Agreement. Terms used herein that are defined in the UCC, unless otherwise
defined herein, shall have the meanings specified in the UCC.
<PAGE>
Section 1.3 Accounting Terms and Determinations. Except as otherwise
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as
to financial matters required to be delivered to the Agent and the Banks
hereunder shall be prepared, in accordance with GAAP, on a basis consistent
with those used in the preparation of the financial statements referred to
in Section 7.2 hereof. All calculations made for the purposes of
determining compliance with the provisions of this Agreement shall be made
by application of GAAP, on a basis consistent with those used in the
preparation of the financial statements referred to in Section 7.2 hereof.
To enable the ready and consistent determination of compliance by Borrower
with its obligations under this Agreement, Borrower will not change the
manner in which either the last day of its Fiscal Year or the last days of
the first three Fiscal Quarters of its Fiscal Year is calculated. In the
event any changes in accounting principles required by GAAP or recommended
by Borrower's certified public accountants and implemented by Borrower
occur and such changes result in a change in the method of the calculation
of financial covenants, standards, or terms under this Agreement, then
Borrower, the Agent, and the Banks agree to enter into negotiations in
order to amend such provisions of this Agreement so as to equitably reflect
such changes with the desired result that the criteria for evaluating such
covenants, standards, or terms shall be the same after such changes as if
such changes had not been made. Until such time as such an amendment shall
have been executed and delivered by the Agent, Borrower and the Required
Banks, all financial covenants, standards, and terms in this Agreement
shall continue to be calculated or construed as if such changes had not
occurred.
Section 1.4 Time of Day. Unless otherwise indicated, all references in
this Agreement to times of day shall be references to Texas time.
ARTICLE 2
Revolving Credit Facility
Section 2.1 Revolving Commitments. Subject to the terms and conditions
of this Agreement, each Bank severally agrees to make one or more advances
to Borrower from time to time from and including the Closing Date to but
excluding the Revolving Termination Date in an aggregate principal amount at
any time outstanding up to but not exceeding the amount of such Bank's
Revolving Commitment as then in effect; provided, however, the aggregate
outstanding amount of such advances owed to all Banks shall not exceed the
aggregate Revolving Commitments. Subject to the foregoing limitations, and
the other terms and provisions of this Agreement, Borrower may borrow,
prepay, and reborrow hereunder the amount of the Revolving Commitments and
may establish Base Rate Accounts and Eurodollar Accounts thereunder.
Accounts of each Type made by each Bank shall be established and maintained
at such Bank's Applicable Lending Office for Accounts of such Type.
Section 2.2 Revolving Notes. The Loans made by a Bank shall be
evidenced by a single promissory note of Borrower in substantially the form
of Exhibit "A" hereto, dated the date hereof, payable to the order of such
Bank and otherwise duly completed.
<PAGE>
Section 2.3 Repayment of Loans. Borrower shall pay to the Agent for the
account of the Banks the principal amount of the Loans outstanding on the
Revolving Termination Date in installments as follows:
(a) On each of the first eleven (11) Quarterly Payment Dates
following the Revolving Termination Date, an amount equal to the quotient
obtained by dividing the aggregate amount of the Loans outstanding as of the
Revolving Termination Date by twelve (12); and
(b) On the twelfth (12th) Quarterly Payment Date following the
Revolving Termination Date (the "Maturity Date"), an amount equal to the
remaining aggregate unpaid principal amount of the Loans.
Section 2.4 Use of Proceeds. The proceeds of the Loans shall be
used by Borrower for its and the Subsidiaries working capital in the
ordinary course of business and for its and the Subsidiaries other
general corporate purposes.
Section 2.5 Revolving Commitment Fee. Borrower agrees to pay to the
Agent for the account of each Bank a commitment fee on the daily average
unused amount of such Bank's Revolving Commitment for the period from and
including the Closing Date to and including the Revolving Termination Date,
at a rate equal to the Commitment Fee Rate. For the purpose of calculating
the commitment fee hereunder, the Revolving Commitments shall be deemed
utilized by the amount of all outstanding Loans. Accrued commitment fees
under this Section 2.5 shall be in arrears on each Quarterly Payment Date
and on the Revolving Termination Date.
Section 2.6 Reduction or Termination of Revolving Commitments. Borrower
shall have the right to terminate or reduce in part the unused portion of
the Revolving Commitments at any time and from time to time, provided that:
(a) Borrower shall give notice of each such termination or reduction as
provided in Section 4.3; and (b) each partial reduction shall be in an
aggregate amount at least equal to One Million Dollars ($1,000,000). The
Revolving Commitments may not be reinstated after they have been terminated
or reduced.
ARTICLE 3
Interest and Fees
Section 3.1 Interest Rate. Subject to Section 13.12, Borrower shall pay
to the Agent for the account of each Bank interest on the unpaid principal
amount of each Loan made by such Bank for the period commencing on the date
of such Loan to but excluding the date such Loan is due, at a fluctuating
rate per annum equal to the Applicable Rate. The term "Applicable Rate"
means (i) during the period that a Loan or portions thereof is subject to a
Base Rate Account, the Base Rate and (ii) during the period that such Loans
or portions thereof is subject to a Eurodollar Account, the sum of Adjusted
Eurodollar Rate plus the Eurodollar Rate Margin.
Section 3.2 Determinations of Margins and Fees. The margins identified
in Section 3.1 and the fees payable under Section 2.5 shall be defined and
determined as follows:
<PAGE>
(a) "Commitment Fee Rate" shall mean (i) during the period commencing
on the Closing Date and ending on but not including the first Adjustment
Date, one-fourth of one percent (0.25%) per annum and (ii) during each
period, from and including one Adjustment Date to but excluding the next
Adjustment Date (herein a "Calculation Period"), the percent per annum set
forth in the table below under the heading "Commitment Fee" opposite the
Total Debt to EBITDA Ratio which corresponds to the Total Debt to EBITDA
Ratio set forth in, and as calculated in accordance with, the applicable
Compliance Certificate.
(b) "Eurodollar Rate Margin" shall mean (i) during the period
commencing on the Closing Date and ending on but not including the first
Adjustment Date, five-eighths of one percent (0.625%) per annum and (ii)
during each Calculation Period, the percent per annum set forth in the
table below under the applicable heading for Eurodollar Margin (i.e., as
applicable prior to or on or after the Revolving Termination Date) opposite
the Total Debt to EBITDA Ratio which corresponds to the Total Debt to EBITDA
Ratio set forth in, and as calculated in accordance with, the applicable
Compliance Certificate. The change in the Eurodollar Rate Margin
contemplated as of the Revolving Termination Date shall occur automatically
on the Revolving Termination Date (even if in the middle of a Calculation
Period) based on the most recent calculation of the Total Debt to EBITDA
Ratio and the table set forth below.
Total Debt to Eurodollar Margin Eurodollar Margin Commitment Fee
EBITDA Ratio (prior to Revolving (on and after
Termination Date) Revolving
Termination Date)
Greater than
or equal to
1.50 1.25% 1.30% 0.35%
Greater than
or equal to
1.00 but less
than 1.50 1.00% 1.05% 0.30%
Greater than
or equal to
0.50 but less
than 1.00 0.75% 0.80% 0.275%
Less than 0.50 0.625% 0.63% 0.25%
<PAGE>
Upon delivery of the Compliance Certificate pursuant to subsection 8.1(c)
in connection with the financial statements of Borrower and the Subsidiaries
required to be delivered pursuant to Section 8.1(b) at the end of each
Fiscal Quarter commencing with such Compliance Certificate delivered at the
end of the Fiscal Quarter ending on July 31, 1998, the Eurodollar Rate
Margin (for Interest Periods commencing after the applicable Adjustment
Date) and the Commitment Fee Rate shall automatically be adjusted in
accordance with the Total Debt to EBITDA Ratio set forth therein and the
table set forth above, such automatic adjustment to take effect as of the
first Business Day after the receipt by the Agent of the related Compliance
Certificate pursuant to Section 8.1(c) (each such Business Day when such
margins or fees change pursuant to this sentence or the next following
sentence, herein an "Adjustment Date"). If Borrower fails to deliver such
Compliance Certificate which so sets forth the Total Debt to EBITDA Ratio
within the time period required by subsection 8.1(c) and the Agent gives
the Borrower written notice thereof, then (i) the Eurodollar Rate Margin
(for Interest Periods commencing after the applicable Adjustment Date) shall
automatically be adjusted to the highest Eurodollar Rate Margin set forth
in the table above; and (ii) the Commitment Fee Rate shall automatically be
adjusted to one-fourth of one percent (0.25%) per annum, such automatic
adjustments to take effect ten (10) days after Agent shall have given the
notice required hereby and to remain in effect until subsequently adjusted
in accordance herewith upon the delivery of a Compliance Certificate.
Section 3.3 Payment Dates. Accrued interest on the Loans shall be due
and payable as follows: (i) in the case of Loans subject to Base Rate
Accounts, in Dollars and on each Quarterly Payment Date; and (ii) in the
case of Loans subject to Eurodollar Accounts and with respect to each such
Account, in Dollars and on the last day of the Interest Period with respect
thereto and, in the case of an Interest Period that is six (6) months long,
on the date three months after the first day of such Interest Period.
Section 3.4 Default Interest. Notwithstanding the foregoing, Borrower
will pay to the Agent for the account of each Bank interest at the
applicable Default Rate on any principal of any Loan made by such Bank and
(to the fullest extent permitted by law) any other amount payable by
Borrower under any Loan Document to or for the account of the Agent or such
Bank, that is not paid in full when due (whether at stated maturity, by
acceleration, or otherwise), for the period from and including the due date
thereof to but excluding the date the same is paid in full. Interest
payable at the Default Rate shall be payable from time to time on demand.
Interest accrued under this Section 3.4 shall be paid in Dollars.
Section 3.5 Conversions and Continuations of Accounts. Subject to
Section 4.2, Borrower shall have the right from time to time to (i) Convert
all or part of any Base Rate Account into a Eurodollar Account; (ii) Convert
all or part of a Eurodollar Account into a Base Rate Account; or (iii)
Continue a Eurodollar Account as a Eurodollar Account, provided that: (a)
Borrower shall give the Agent notice of each such Conversion or Continuation
as provided in Section 4.3; (b) Eurodollar Accounts may only be Converted
on the last day of the Interest Period therefor; and (c) except for
Conversions into Base Rate Accounts, no Conversions or Continuations shall
be made while a Default exists.
<PAGE>
Section 3.6 Computations. Interest and fees payable by Borrower
hereunder and under the other Loan Documents shall be computed as follows:
(i) with respect to Eurodollar Accounts on the basis of a year of 360 days
and the actual number of days elapsed (including the first day but excluding
the last day) occurring in the period for which payable unless such
calculation would result in a usurious rate, in which case interest shall
be calculated on the basis of a year of 365 or 366 days, as the case may
be; (ii) with respect to Base Rate Accounts (A) if based on the Prime Rate,
on the basis of a year of 365/366 days and the actual number of days elapsed
(including the first day but excluding the last day) occurring in the period
for which payable or (B) if based on the Federal Funds Effective Rate, on
the basis of a year of 360 days and the actual number of days elapsed
(including the first day but excluding the last day) occurring in the period
for which payable unless such calculation would result in a usurious rate,
in which case interest shall be calculated on the basis of a year of 365 or
366 days, as the case may be.
ARTICLE 4
Administrative Matters
Section 4.1 Borrowing Procedure. Borrower shall give the Agent, and the
Agent shall give the Banks, notice of each borrowing under the Revolving
Commitments in accordance with Section 4.3. Not later than 1:00 p.m. on the
date specified for each borrowing under the Revolving Commitment each Bank
will make available to the Agent the amount of the Loan to be made by it on
such date, at the Principal Office, in immediately available funds, for the
account of Borrower. The amount so received by the Agent shall, subject to
the terms and conditions of this Agreement, be made available to Borrower by
(a) depositing the same, in immediately available funds, in an account of
Borrower (designated by Borrower) maintained with the Agent at the Principal
Office or (b) wire transferring such funds to a Person or Persons designated
by Borrower in writing.
Section 4.2 Minimum Amounts. Except for prepayments pursuant to Article
5, each borrowing under a Loan and each prepayment of principal of a Loan
shall be in a minimum principal amount of One Million Dollars ($1,000,000)
or any larger amount in increments of Five Hundred Thousand Dollars
($500,000). Except for Conversions pursuant to Article 5, each Eurodollar
Account shall be in a minimum principal amount of One Million Dollars
($1,000,000) or any larger amount in increments of Five Hundred Thousand
Dollars ($500,000).
Section 4.3 Certain Notices. Notices by Borrower to the Agent of
terminations or reductions of Revolving Commitments, of borrowings and
prepayments of Loans, and of Conversions and Continuations of Accounts shall
be in writing or verbal (which verbal notice shall be confirmed in writing),
shall be irrevocable and shall be effective only if received by the Agent
not later than 10:00 a.m. (a) on the Business Day of the borrowing,
prepayment or repayment of Loans subject to Base Rate Accounts or of the
Conversion into Base Rate Accounts and (b) with respect to any other
repayments, terminations, reductions, borrowings, Conversions,
Continuations, or prepayments, on the Business Day which is the number of
Business Days prior to the day of the relevant action specified below:
<PAGE>
Number of Business Days
Action Prior to Action
Termination or reduction of Revolving
Commitments 5
Borrowing or prepayment of Loans subject
to Eurodollar Accounts and Conversions
into or Continuations as Eurodollar Accounts 3
Any notices of the type described in this Section 4.3 which are received
by the Agent after 10:00 a.m. on a Business Day shall be deemed to be
received and shall be effective on the next Business Day. Each such
notice of termination or reduction shall specify the amount of the Revolving
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation, or prepayment shall: (a) specify the Loans to be
borrowed or prepaid or the Accounts to be Converted or Continued; (b) the
amount (subject to Section 4.2 hereof) to be borrowed, Converted,
Continued, or prepaid; (c) in the case of a Conversion, the Type of Account
to result from such Conversion; (d) in the case of a borrowing, the Type of
Account or Accounts to be applicable to such borrowing and the amounts
thereof; (e) in the event a Eurodollar Account is selected, the duration
of the Interest Period therefor; and (f) the date of borrowing,
Conversion, Continuation, or prepayment (which shall be a Business Day).
The Agent shall notify the Banks of the contents of each such notice on the
date of its receipt of same or, if received on or after 10:00 a.m. on a
Business Day, on the next Business Day. In the event Borrower fails to
select the Type of Account applicable to a Loan, or the duration of any
Interest Period for any Eurodollar Account, within the time period and
otherwise as provided in this Section 4.3, such Account (if outstanding
as a Eurodollar Account) will be automatically Converted into a Base
Rate Account on the last day of the preceding Interest Period for such
Account or (if not outstanding) will be made as, a Base Rate Account.
Borrower may not borrow any Loans subject to a Eurodollar Account, Convert
any Base Rate Accounts into Eurodollar Accounts, or Continue any Eurodollar
Account if the Applicable Rate for such Accounts would exceed the Maximum
Rate or if a Default exists.
Section 4.4 Prepayments. Subject to Section 4.2 and the provisions of
this Section 4.4, Borrower may, at any time and from time to time without
premium or penalty upon prior notice to the Agent as specified in Section
4.3, prepay or repay any Loan in full or in part; provided that Loans
subject to a Eurodollar Account may be prepaid or repaid only on the last
day of the Interest Period applicable thereto unless Borrower pays to the
Agent for the account of the applicable Banks any amounts due under
Section 5.4 as a result of such prepayment or repayment.
<PAGE>
Section 4.5 Method of Payment. Except as otherwise expressly
provided herein, all payments of principal, interest, and other amounts
to be made by Borrower or any Obligated Party under the Loan Documents
shall be made to the Agent at the Principal Office for the account of
each Bank's Applicable Lending Office in Dollars and in immediately
available funds, without setoff, deduction, or counterclaim, not later
than 1:00 p.m. on the date on which such payment shall become due (each
such payment made after such time on such due date to be deemed to have
been made on the next succeeding Business Day). Borrower and each
Obligated Party shall, at the time of making each such payment, specify
to the Agent the sums payable under the Loan Documents to which such
payment is to be applied (and in the event that Borrower fails to so
specify, or if an Event of Default exists, the Agent may apply such payment
to the Obligations in such order and manner as it may elect in its sole
discretion, subject to Section 4.6 hereof). Each payment received by the
Agent under any Loan Document for the account of a Bank shall be paid
to such Bank by 3:00 p.m. on the date the payment is deemed made to the
Agent in immediately available funds in the currency received, for the
account of such Bank's Applicable Lending Office. Whenever any payment
under any Loan Document shall be stated to be due on a day that is not
a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included
in the computation of the payment of interest and commitment fee, as
the case may be.
Section 4.6 Pro Rata Treatment. Except to the extent otherwise
provided herein: (a) each Loan shall be made by the Banks, each payment
of commitment fees under Section 2.5 shall be made for the account of the
Banks, and each termination or reduction of the Revolving Commitments
shall be applied to the Revolving Commitments of the Banks, pro rata
according to their respective Commitment Percentages; (b) the making,
Conversion and Continuation of Accounts of a particular Type shall be
made pro rata among the Banks holding Accounts of such Type according
to their respective Commitment Percentages; and (c) each payment and
prepayment of principal of or interest on Loans by Borrower shall be made
to the Agent for the account of the Agent or the Banks holding such Loans
pro rata in accordance with the respective unpaid principal amounts of
such Loans (except as otherwise may be required as a result of the
operation of Section 5.4). If at any time payment, in whole or in part,
of any amount distributed by the Agent hereunder is rescinded or must
otherwise be restored or returned by Agent as a preference, fraudulent
conveyance, or otherwise under any bankruptcy, insolvency, or similar
law, then each Person receiving any portion of such amount agrees, upon
demand, to return the portion of such amount it has received to the Agent.
<PAGE>
Section 4.7 Sharing of Payments. If a Bank shall obtain payment of
any principal of or interest on any of the Obligations due to such Bank
hereunder directly (and not through the Agent) through the exercise of any
right of set-off, banker's lien, counterclaim, or similar right, or
otherwise, it shall promptly purchase from the other Banks participations
in the Obligations held by the other Banks in such amounts, and make such
other adjustments from time to time as shall be equitable to the end that
all the Banks shall share the benefit of such payment pro rata in accordance
with the unpaid principal of and interest on the Obligations then due to
each of them. To such end, all of the Banks shall make appropriate
adjustments among themselves (by the resale of participations sold or
otherwise) if all or any portion of such excess payment is thereafter
rescinded or must otherwise be restored. Borrower agrees, to the fullest
extent it may effectively do so under applicable law, that any Bank so
purchasing a participation in the Obligations held by the other Banks
may exercise all rights of set-off, banker's lien, counterclaim, or similar
rights with respect to such participation as fully as if such Bank were a
direct holder of Obligations in the amount of such participation. Nothing
contained herein shall require any Bank to exercise any such right or shall
affect the right of any Bank to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness or
obligation of Borrower.
Section 4.8 Non-Receipt of Funds by the Agent. Unless the Agent shall
have been notified by a Bank or Borrower (the "Payor") prior to the date on
which such Bank is to make payment to the Agent hereunder or Borrower is to
make a payment to the Agent for the account of one or more of the Banks, as
the case may be (such payment being herein called the "Required Payment"),
which notice shall be effective upon receipt, that the Payor does not intend
to make the Required Payment to the Agent, the Agent may assume that the
Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient on such date and, if the Payor has not in fact made the
Required Payment to the Agent, (a) the recipient of such payment shall, on
demand, pay to the Agent the amount made available to it together with
interest thereon in respect of the period commencing on the date such amount
was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to the Federal Funds Effective Rate for
such period and (b) the Agent shall be entitled to offset against any and
all sums to be paid to such recipient, the amount calculated in accordance
with the foregoing clause (a).
<PAGE>
Section 4.9 Withholding Taxes. All payments by Borrower of amounts
payable under any Loan Document shall be payable without deduction for or
on account of any present or future taxes, duties, or other charges levied
or imposed by the United States or by the government of any jurisdiction
outside the United States or by any political subdivision or taxing
authority of or in any of the foregoing through withholding or deduction
with respect to any such payments (but excluding any tax imposed on or
measured by the net income or profit of a Bank pursuant to the laws of the
jurisdiction in which it is organized or in which the principal office or
Applicable Lending Office of such Bank is located or any subdivision thereof
or therein). If any such taxes, duties, or other charges are so levied or
imposed, Borrower will make additional payments in such amounts so that
every net payment of amounts payable by it under any Loan Document, after
withholding or deduction for or on account of any such present or future
taxes, duties, or other charges, will not be less than the amount provided
for herein or therein, provided that Borrower may withhold to the extent
required by law and shall have no obligation to pay such additional amounts
to any Bank to the extent that such taxes, duties, or other charges are
levied or imposed by reason of the failure or inability of such Bank to
comply with the provisions of Section 4.10. Borrower shall furnish promptly
to the Agent for distribution to each affected Bank, as the case may be,
official receipts evidencing any such withholding or reduction.
Section 4.10 Withholding Tax Exemption. Each Bank that is not
incorporated under the laws of the United States or a state thereof agrees
that it will deliver to Borrower and the Agent two duly completed copies of
United States Internal Revenue Service Form 1001 or 4224 (or a successor
form), certifying in either case that such Bank is entitled to receive
payments from Borrower under any Loan Document without deduction or
withholding of any income taxes. Each Bank which so delivers a Form 1001
or 4224 further undertakes to deliver to Borrower and the Agent two (2)
additional copies of such form (or a successor form) on or before the
date such form expires or becomes obsolete or after the occurrence of any
event requiring a change in the most recent form so delivered by it, and
such amendments thereto or extensions or renewals thereof as may be
reasonably requested by Borrower or the Agent, in each case certifying that
such Bank is entitled to receive payments from Borrower under any Loan
Document without deduction or withholding of any United States federal
income taxes, unless an event (including without limitation any change
in treaty, law, or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Bank from duly completing and
delivering any such form with respect to it and such Bank advises Borrower
and the Agent that it is not capable of receiving such payments without
any deduction or withholding of United States federal income tax.
<PAGE>
ARTICLE 5
Yield Protection and Illegality
Section 5.1 Additional Costs.
(a) Borrower shall pay directly to the Agent for distribution to the
applicable Bank from time to time such amounts as such Bank may determine
to be necessary to compensate it for any reasonable costs incurred by such
Bank which such Bank determines are attributable to its making or
maintaining of any Eurodollar Accounts hereunder or its obligation to make
Loans subject Eurodollar Accounts hereunder, or any reduction in any amount
receivable by such Bank hereunder in respect of any such Accounts or such
obligation (such increases in costs and reductions in amounts receivable
being herein called "Additional Costs"), resulting from any Regulatory
Change which:
(i) changes the basis of taxation of any amounts payable to such
Bank under this Agreement or its Revolving Note in respect of any of
such Accounts (other than franchise taxes and taxes imposed on the
overall net income of such Bank or its Applicable Lending Office for
any of such Accounts by the United States or the jurisdiction in
which such Bank has its Principal Office or such Applicable Lending
Office);
(ii) imposes or modifies any reserve, special deposit, minimum
capital, capital ratio, or similar requirement relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities or commitments of, such Bank (including any of such Loans
or any deposits referred to in the definitions of "Eurodollar Rate"
in Section 1.1 hereof); or
(iii) imposes any other condition affecting this Agreement or
the Revolving Notes or any of such extensions of credit or liabilities
or commitments.
Each Bank will notify the Agent (and Agent will promptly forward such
notice to the Borrower) of any event occurring after the date of this
Agreement which will entitle such Bank to compensation pursuant to this
Subsection 5.1(a) as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation, and will designate a
different Applicable Lending Office for the Accounts affected by such event
if such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Bank, violate any
law, rule, or regulation or be in any way disadvantageous to such Bank.
Each Bank will furnish Agent with a certificate setting forth the basis
and the amount of each request of such Bank for compensation under this
Subsection 5.1(a). If any Bank requests compensation from Borrower under
this Subsection 5.1(a), Borrower may, by notice to such Bank (with a copy
to the Agent) suspend the obligation of such Bank to make or to Continue
Eurodollar Accounts of the Type in question or to Convert Base Rate
Accounts into Eurodollar Accounts (if Eurodollar Accounts are the Type in
question) until the Regulatory Change giving rise to such request ceases
to be in effect (in which case the provisions of Section 5.4 hereof shall
be applicable).
<PAGE>
(b) Without limiting the effect of the foregoing provisions of this
Section 5.1, in the event that, by reason of any Regulatory Change, any
Bank either (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such Bank which includes deposits by reference to which the
interest rate on a Eurodollar Account is determined as provided in this
Agreement or a category of extensions of credit or other assets of such Bank
which includes a Eurodollar Account or (ii) becomes subject to restrictions
on the amount of such a category of liabilities or assets which it may hold,
then, if such Bank so elects by notice to Agent (which notice Agent agrees
to promptly forward to the Borrower), the obligation of such Bank to make
or to Continue Loans subject to the affected Eurodollar Account or to
Convert Base Rate Accounts into Eurodollar Accounts (if a Eurodollar Account
is the Type of Account affected) shall be suspended until the Regulatory
Change giving rise to such request ceases to be in effect (in which case
the provisions of Section 5.4 hereof shall be applicable).
(c) Determinations and allocations by any Bank for purposes of this
Section 5.1 of the effect of any Regulatory Change on its costs of
maintaining its obligation to make Loans subject to Eurodollar Accounts or
of making or maintaining Loans subject to Eurodollar Accounts or on amounts
receivable by it in respect of such Loans and of the additional amounts
required to compensate such Bank in respect of any Additional Costs, shall,
absent manifest error, be conclusive, provided that such determinations and
allocations are made on a reasonable basis.
Section 5.2 Limitation on Eurodollar Accounts. Anything herein to the
contrary notwithstanding, if with respect to any Eurodollar Accounts for any
Interest Period therefor:
(a) The Agent determines (which determination shall be conclusive)
that quotations of interest rates for the relevant deposits referred to
in the definitions of "Eurodollar Rate" in Section 1.1 hereof are not
being provided in the relative amounts or for the relative maturities
for purposes of determining the rate of interest for the Loans subject
to Eurodollar Accounts as provided in this Agreement; or
(b) Required Banks determine (which determination shall be conclusive)
and notify the Agent that the relevant rates of interest referred to in
the definitions of "Adjusted Eurodollar Rate" in Section 1.1 hereof on
the basis of which the rate of interest for such Loans for such Interest
Period is to be determined do not accurately reflect the cost to the
Banks of making or maintaining such Loans for such Interest Period;
then the Agent shall give Borrower prompt notice thereof specifying the
relevant Account and the relevant amounts or periods, and so long as such
condition remains in effect, the Banks shall be under no obligation to make
additional Loans subject to the Account of the affected Type or, if a
Eurodollar Account is the affected Type, to Convert Base Rate Accounts into
Eurodollar Accounts and Borrower shall, on the last day(s) of the then
current Interest Period(s) for the outstanding affected Eurodollar Accounts,
either prepay the Loans subject to such Accounts or Convert such Accounts
into Base Rate Accounts in accordance with the terms of this Agreement.
Determinations made under this Section 5.2 shall be made on a reasonable
basis.
<PAGE>
Section 5.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its
Applicable Lending Office to (a) honor its obligation to make Loans subject
to a Eurodollar Account or (b) maintain Loans subject to a Eurodollar
Account, then such Bank shall promptly notify Agent thereof (and Agent
shall promptly forward such notice to the Borrower) and such Bank's
obligation to make or maintain Loans subject to the Eurodollar Account in
question and, to Convert Base Rate Accounts into Eurodollar Accounts, shall
be suspended until such time as such Bank may again make and maintain Loans
subject to such Account (in which case the provisions of Section 5.4 shall
be applicable).
Section 5.4 Treatment of Affected Loans. If the obligation of a Bank
to make or to Continue a Eurodollar Account is suspended under the terms of
Section 5.1 or 5.3 hereof (hereinafter such Eurodollar Accounts called
"Affected Accounts"), the Bank's Affected Accounts shall be automatically
Converted into Base Rate Accounts on the last day(s) of the then current
Interest Period(s) (or, in the case of Affected Accounts subject to
Subsection 5.1(b) or Section 5.3 hereof, on such earlier date as such
Bank may specify to Borrower with a copy to the Agent). Unless and until
such Bank gives notice as provided below that the circumstances specified
in Section 5.1 or 5.3 hereof no longer exist: (a) to the extent that such
Bank's Affected Accounts have been so Converted or repaid, all payments and
prepayments of principal which would otherwise be applied to such Bank's
Affected Accounts shall be applied instead to its Base Rate Accounts; and
(b) all Accounts which would otherwise be established or Continued by such
Bank as Accounts of the affected Type shall be made as or, in the case of
Eurodollar Accounts only, Converted into Base Rate Accounts. If such Bank
gives notice to the Agent that the circumstances specified in Section 5.1
or 5.3 hereof which gave rise to such Bank's Affected Accounts no longer
exist (which such Bank agrees to do promptly upon such circumstances ceasing
to exist) at a time when Eurodollar Accounts are outstanding, such Bank's
Base Rate Accounts shall be automatically Converted, on the first day(s) of
the next succeeding Interest Period(s) for such outstanding Eurodollar
Accounts to the extent necessary so that, after giving effect thereto,
all Accounts held by the Banks holding Eurodollar Accounts and by such Bank
are held pro rata (as to principal amounts and Interest Periods) in
accordance with their respective Commitment Percentages.
Section 5.5 Compensation. Borrower shall pay to the Agent for the
account of each Bank, upon the request of such Bank made through the Agent,
such amount or amounts as shall be sufficient (in the reasonable opinion of
such Bank) to compensate it for any loss, cost, or expense incurred by it
as a result of:
(a) Any payment or prepayment of a Loan subject to a Eurodollar
Account or Conversion of a Eurodollar Account for any reason (including,
without limitation, the acceleration of the outstanding Loans pursuant to
Subsection 11.2(a)) on a date other than the last day of an Interest
Period for the applicable Account; or
(b) Any failure by Borrower for any reason (including, without
limitation, the failure of any conditions precedent specified in Article
6 to be satisfied) to borrow or prepay a Loan subject to a Eurodollar
Account, or Convert a Base Rate Account to a Eurodollar Account on the
date for such borrowing, Conversion, or prepayment specified in the
relevant notice of borrowing, prepayment, or Conversion under this
Agreement.
<PAGE>
Without limiting the effect of the preceding sentence, such compensation
shall include an amount equal to the excess, if any, of (i) the amount of
interest which otherwise would have accrued on the principal amount so paid
or Converted or not borrowed for the period from the date of such payment,
Conversion, or failure to borrow to the last day of the Interest Period for
such Account (or, in the case of a failure to borrow, the Interest Period
for such Account which would have commenced on the date specified for such
borrowing) at the applicable rate of interest for such Account provided for
herein over (ii) the interest component of the amount such Bank would have
bid in the interbank eurodollar market for such deposits of leading banks in
amounts comparable to such principal amount and with maturities comparable
to such period.
Section 5.6 Capital Adequacy. If after the date hereof, any Bank shall
have determined that any Regulatory Change has or would have the effect of
reducing the rate of return on such Bank's (or its parent's) capital as a
consequence of its obligations hereunder or the transactions contemplated
hereby to a level below that which such Bank (or its parent) could have
achieved but for such adoption, implementation, change, or compliance
(taking into consideration such Bank's policies with respect to capital
adequacy) by an amount deemed by such Bank to be material, then from time
to time, within ten (10) Business Days after demand by such Bank made to
the Agent (which Agent agrees to promptly forward to the Borrower), Borrower
shall pay to the Agent for the account of the applicable Bank such
additional amount or amounts as will compensate such Bank (or its parent)
for such reduction. A certificate of such Bank claiming compensation under
this Section 5.6 and setting forth the additional amount or amounts to be
paid to it hereunder shall be conclusive, provided that the determination
thereof is made on a reasonable basis. In determining such amount or
amounts, such Bank may use any reasonable averaging and attribution methods.
ARTICLE 6
Conditions Precedent
Section 6.1 Initial Loan. The obligation of each Bank to make its
initial Loan on or after the Closing Date are subject to the condition
precedent that the Agent shall have received on or before the day of any
such Loan all of the following, each dated (unless otherwise indicated) the
date hereof, in form and substance satisfactory to the Agent:
(a) Resolutions. Resolutions of the Board of Directors (or other
similar authorizing documents) of Borrower and each Material Subsidiary
certified by its Secretary or an Assistant Secretary (or other similar
officer) which authorize its execution, delivery, and performance of the
Loan Documents to which it is or is to be a party.
(b) Incumbency Certificate. A certificate of incumbency certified by
the Secretary or an Assistant Secretary (or similar officer) of Borrower
and each Material Subsidiary certifying the name of each of its officers
(i) who are authorized to sign the Loan Documents to which it is or is to
be a party (including the certificates contemplated herein) together with
specimen signatures of each such officers and (ii) who will, until
replaced by other officers duly authorized for that purpose, act as its
representative for the purposes of signing documentation and giving
notices and other communications in connection with the Loan Documents.
<PAGE>
(c) Articles of Incorporation. The articles of incorporation (or
similar governing document) of Borrower and each Material Subsidiary
(certified by the Secretary of State of the state of its incorporation
(or the other appropriate governmental officials of its jurisdiction of
organization) and dated a current date.
(d) Bylaws. The bylaws (or similar governing document) of Borrower
and each Material Subsidiary certified by its Secretary or an Assistant
Secretary.
(e) Governmental Certificates. Certificates of the appropriate
government officials of the state of incorporation (or the other
appropriate governmental officials of its jurisdiction of organization)
of Borrower and each Material Subsidiary as to its existence and good
standing and certificates of the appropriate government officials of
Texas (if Borrower or a Material Subsidiary is not a Texas corporation),
as to Borrower's and each such Subsidiary's qualification to do business
and good standing in Texas, all dated a current date.
(f) Revolving Notes. A Revolving Note payable to each Bank executed
by Borrower.
(g) Guaranty. The Guaranty executed by each of the Material
Subsidiaries.
(h) Insurance Policies. Certificates of insurance summarizing the
insurance policies of Borrower and the Subsidiaries required by this
Agreement and reflecting the Agent as additional insured under such
policies.
(i) Opinion of Counsel. Favorable opinions of legal counsel to
Borrower and the Material Subsidiaries, as to such matters as the Agent
may reasonably request.
(j) Attorneys' Fees and Expenses. Evidence that the costs and
expenses (including attorneys' fees) referred to in Section 13.1, to
the extent incurred, shall have been paid in full by Borrower.
Section 6.2 All Loans. The obligation of each Bank to make any Loan
(including the initial Loan) on or after the Closing Date is subject to the
following additional conditions precedent:
(a) No Default. No Default shall have occurred and be continuing, or
would result from such Loan;
(b) Representations and Warranties. All of the representations and
warranties contained in Article 7 hereof and in the other Loan Documents
shall be true and correct on and as of the date of such Loan with the
same force and effect as if such representations and warranties had been
made on and as of such date except to the extent that such
representations and warranties relate specifically to another date; and
(c) Additional Documentation. The Agent shall have received such
additional approvals, opinions, or documents as the Agent may reasonably
request.
<PAGE>
Each notice of borrowing by Borrower hereunder shall constitute a
representation and warranty by Borrower that the conditions precedent set
forth in Subsections 6.2(a) and (b) have been satisfied (both as of the
date of such notice and, unless Borrower otherwise notifies the Agent prior
to the date of such borrowing, as of the date of such borrowing).
ARTICLE 7
Representations and Warranties
To induce the Agent and the Banks to enter into this Agreement, Borrower
represents and warrants to the Agent and the Banks that:
Section 7.1 Corporate Existence. Borrower and each Subsidiary (a) is a
corporation or other entity (as reflected on Schedule 7.14) duly organized,
validly existing, and in good standing under the laws of the jurisdiction
of its incorporation or organization, (b) has all requisite power and
authority to own its assets and carry on its business as now being or as
proposed to be conducted, and (c) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a Material Adverse
Effect. Borrower and each Subsidiary has the corporate power and authority
to execute, deliver, and perform their respective obligations under the
Loan Documents to which it is or may become a party.
Section 7.2 Financial Statements. Borrower has delivered to the Agent
and the Banks audited consolidated financial statements of Borrower and the
Subsidiaries as at and for the Fiscal Year ended April 30, 1998. Such
financial statements, have been prepared in accordance with GAAP, and
present fairly, on a consolidated basis, the financial condition of
Borrower and the Subsidiaries as of the respective dates indicated therein
and the results of operations for the respective periods indicated therein.
Neither Borrower nor any of the Subsidiaries has any material contingent
liabilities, liabilities for taxes, unusual forward or long-term
commitments, or unrealized or anticipated losses from any unfavorable
commitments except as referred to or reflected in such financial
statements. There has been no material adverse change in the business,
condition (financial or otherwise), operations, prospects, or properties of
Borrower and the Subsidiaries taken as a whole since the effective date of
the most recent financial statements referred to in this Section.
Section 7.3 Corporate Action; No Breach. The execution, delivery, and
performance by Borrower and each Subsidiary of the Loan Documents to which
each is or may become a party and compliance with the terms and provisions
hereof and thereof have been duly authorized by all requisite action on the
part of Borrower and each Subsidiary and do not and will not (a) violate or
conflict with, or result in a breach of, or require any consent under (i)
the articles of incorporation, bylaws or other governing documents of
Borrower or any of the Subsidiaries, (ii) any applicable law, rule, or
regulation or any order, writ, injunction, or decree of any Governmental
Authority or arbitrator or (iii) any material agreement to which Borrower or
any Subsidiary is a party or by which any of them or any of their property
is bound or subject, or (b) constitute a default under any such agreement,
or result in the creation or imposition of any Lien (except as provided
herein) upon any of the assets of Borrower or any Subsidiary.
<PAGE>
Section 7.4 Operation of Business. Borrower and each of the
Subsidiaries possess all licenses, permits, franchises, patents, copyrights,
trademarks, and trade names, or rights thereto, necessary to conduct their
respective businesses substantially as now conducted and as presently
proposed to be conducted except those that the failure to so possess could
not reasonably be expected to have a Material Adverse Effect, and Borrower
and each of the Subsidiaries are not in violation of any valid rights of
others with respect to any of the foregoing except violations that could
not reasonably be expected to have a Material Adverse Effect.
Section 7.5 Litigation and Judgments. There is no action, suit,
investigation, or proceeding before or by any Governmental Authority or
arbitrator pending, or to the knowledge of Borrower, threatened against or
affecting Borrower or any Subsidiary, that would, if adversely determined,
have a Material Adverse Effect. There are no outstanding judgments against
Borrower or any Subsidiary.
Section 7.6 Rights in Properties; Liens. Borrower and each Subsidiary
have good title to or valid leasehold interests in their respective
properties and assets, real and personal, that are material to the
operation of their respective businesses, including the properties, assets,
and leasehold interests reflected in the financial statements described in
Section 7.2, and none of the properties, assets, or leasehold interests of
Borrower or any Subsidiary is subject to any Lien, except as permitted by
Section 9.1.
Section 7.7 Enforceability. The Loan Documents to which Borrower or
any Subsidiary is a party, when delivered, shall constitute the legal,
valid, and binding obligations of Borrower or the Subsidiary, as applicable,
enforceable against Borrower or the applicable Subsidiary in accordance with
their respective terms, except as limited by bankruptcy, insolvency, or
other laws of general application relating to the enforcement of creditors'
rights and general principles of equity.
Section 7.8 Approvals. All authorizations, approvals, and consents of,
and all filings or registrations with, any Governmental Authority or third
party necessary for the execution, delivery, or performance by Borrower or
any Subsidiary of the Loan Documents to which each is or may become a party
or for the validity or enforceability thereof have been obtained or made.
Section 7.9 Taxes. Borrower and each Subsidiary have filed all material
tax returns (federal, state, and local) required to be filed, including all
income, franchise, employment, property, and sales tax returns, and have
paid all of their respective liabilities for taxes, assessments,
governmental charges, and other levies that are due and payable other than
those being contested in good faith by appropriate proceedings diligently
pursued for which adequate reserves have been established. Borrower knows
of no pending investigation of Borrower or any Subsidiary by any taxing
authority or of any pending but unassessed tax liability of Borrower or any
Subsidiary which, in any such case, could have a Material Adverse Effect.
Section 7.10 Margin Securities. Neither Borrower nor any Subsidiary is
engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulations T, U, or X of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of any Loan will be
used to purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying margin stock.
<PAGE>
Section 7.11 Employee Plans.
(a) ERISA. Borrower and each Subsidiary are in compliance with all
applicable provisions of ERISA except for such events of noncompliance
that will not have a Material Adverse Effect. Neither a Reportable
Event nor a Prohibited Transaction has occurred and is continuing with
respect to any Plan. No notice of intent to terminate a Plan has been
filed, nor has any Plan been terminated. No circumstances exist which
constitute grounds entitling the PBGC to institute proceedings to
terminate, or appoint a trustee to administer a Plan, nor has the PBGC
instituted any such proceedings. Neither Borrower nor any ERISA
Affiliate has completely or partially withdrawn from a Multiemployer
Plan. Borrower and each ERISA Affiliate have met their minimum funding
requirements under ERISA with respect to all of their Plans except for
those instances of noncompliance with such requirements that will not
have a Material Adverse Effect. The present value of all vested benefits
under each Plan do not exceed the fair market value of all Plan assets
allocable to such benefits, as determined on the most recent valuation
date of the Plan and in accordance with ERISA, by an amount that will
have a Material Adverse Effect. Neither Borrower nor any ERISA Affiliate
has incurred any liability to the PBGC under ERISA.
(b) Non-U.S. Employee Plans. With regard to Non-U.S. Employee Plans
for which assets are not required to be or have not been set aside in a
separate fund or trust, the reserves on the balance sheet of each
Subsidiary, respectively, equal or exceed the present value of all
accrued benefits under such Non-U.S. Employee Plans or the amount by
which such reserves are less than the present value of all such accrued
benefits would not have a Material Adverse Effect. The aggregate fair
market value of the assets of Non-U.S. Employee Plans which are required
to be funded by applicable law, or are funded to any extent (although not
required to be funded), is at least equal to the sum of the accrued
benefits and all other accrued liabilities provided for under such Non-
U.S. Employee Plans, or if such value is not at least equal to such sum,
the fact that, and the amount by which, the value is less than such sum
would not have a Material Adverse Effect. Borrower, the Subsidiaries and
their Non-U.S. Employee Plans are in compliance in all material respects
with all applicable laws, regulations and reserve and/or funding
requirements, except where the failure to so comply would not have a
Material Adverse Effect.
Section 7.12 Disclosure. All factual information furnished by or on
behalf of Borrower in writing to the Agent or any Bank (including, without
limitation, all information contained in the Loan Documents) for purposes of
or in connection with the Loan Documents, and all other such factual
information hereafter furnished by or on behalf of Borrower to the Agent or
any Bank, will be true and accurate in all material respects on the date as
of which such information is dated or certified and not incomplete by
omitting to state any fact necessary to make such information not misleading
in any material respect at such time in light of the circumstances under
which such information was provided.
<PAGE>
Section 7.13 Subsidiaries; Capitalization. Schedule 7.14 sets forth the
type of each Material Subsidiary listed thereon, the jurisdiction of
incorporation or organization of each such Material Subsidiary, the
percentage of Borrower's ownership of the outstanding voting stock (or
other ownership interests) of each such Material Subsidiary and with respect
to each such Material Subsidiary and Borrower, the authorized, issued, and
outstanding capital stock (or other equity interests) of each such Person.
All of the outstanding capital stock (or other equity interests) of each
Material Subsidiary and Borrower listed on Schedule 7.14 has been validly
issued, is fully paid, and is nonassessable. There are no outstanding
subscriptions, options, warrants, calls, or rights (including preemptive
rights) to acquire, and no outstanding securities or instruments
convertible into, capital stock of any Material Subsidiary or Borrower. As
of the Closing Date, Schedule 7.14 identifies all Permitted Holders who
own, as of the Closing Date, Borrower's capital stock, either directly
or indirectly.
Section 7.14 Agreements. Neither Borrower nor any Subsidiary is a
party to any indenture, loan, or credit agreement, or to any lease or other
agreement or instrument, or subject to any charter or corporate restriction
that could reasonably be expected to have a Material Adverse Effect.
Neither Borrower nor any Subsidiary is in default in any respect in the
performance, observance, or fulfillment of any of the obligations,
covenants, or conditions contained in any agreement or instrument to which
it is a party other than defaults which will not have a Material Adverse
Effect.
Section 7.15 Compliance with Laws. Neither Borrower nor any Subsidiary
is in violation of any law, rule, regulation, order, or decree of any
Governmental Authority or arbitrator in any material respect.
Section 7.16 Investment Company Act. Neither Borrower nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 7.17 Public Utility Holding Company Act. Neither Borrower nor
any Subsidiary is a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" or a "public
utility" within the meaning of the Public Utility Holding Company Act of
1935, as amended.
Section 7.18 Environmental Matters. Except for those matters which
will not have a Material Adverse Effect:
(a) Borrower, each Subsidiary, and all of their respective properties,
assets, and operations are in full compliance with all Environmental Laws.
Borrower is not aware of, nor has Borrower received written notice of, any
past, present, or future conditions, events, activities, practices, or
incidents which may interfere with or prevent the compliance or continued
compliance of Borrower and the Subsidiaries with all Environmental Laws;
(b) Borrower and each Subsidiary have obtained all permits, licenses,
and authorizations that are required under applicable Environmental Laws,
and all such permits are in good standing and Borrower and the Subsidiaries
are in compliance with all of the terms and conditions of such permits;
<PAGE>
(c) No Hazardous Materials have been used, generated, stored,
transported, disposed of on, or Released from any of the properties or
assets of Borrower or any Subsidiary, and to the knowledge of Borrower, no
Hazardous Materials are present at such properties, except in compliance
with Environmental Laws. The use which Borrower and the Subsidiaries make
and intend to make of their respective properties and assets will not
result in the use, generation, storage, transportation, accumulation,
disposal, or Release of any Hazardous Material on, in, or from any of their
properties or assets except in compliance with Environmental Laws;
(d) Neither Borrower nor any of the Subsidiaries nor any of their
respective currently or previously owned or leased properties or operations
is subject to any outstanding or, to the best of its knowledge, threatened
order from or agreement with any Governmental Authority or other Person or
subject to any judicial or administrative proceeding with respect to (i)
failure to comply with Environmental Laws, (ii) Remedial Action, or (iii)
any Environmental Liabilities arising from a Release or threatened Release;
(e) Neither Borrower nor any of the Subsidiaries is a treatment,
storage, or disposal facility requiring a permit under the Resource
Conservation and Recovery Act, 42 U.S.C. Sec. 6901 et seq., regulations
thereunder or any comparable provision of state law. Borrower and the
Subsidiaries are in compliance with all applicable financial responsibility
requirements of all Environmental Laws;
(f) Neither Borrower nor any of the Subsidiaries has filed or failed
to file any notice required under applicable Environmental Law reporting a
Release; and
(g) No Lien arising under any Environmental Law has attached to any
property or revenues of Borrower or the Subsidiaries.
Section 7.19 Solvency. Borrower and each Subsidiary, both individually
and on a consolidated basis: (a) own and will own assets the fair saleable
value of which are (i) greater than the total amount of its liabilities
(including contingent liabilities) and (ii) greater than the amount that
will be required to pay probable liabilities of then existing debts as they
become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to it; (b) has capital that is
not unreasonably small in relation to its business as presently conducted;
and (c) does not intend to incur and does not believe that it will incur
debts beyond its ability to pay such debts as they become due.
Section 7.20 Benefit Received. The Borrower and the Subsidiaries will
receive reasonably equivalent value in exchange for the obligations
incurred under the Loan Documents to which each is a party. The Borrower
and Subsidiaries will derive substantial benefit from the consummation of
the transaction contemplated hereby in an amount at least equal to its
obligations under the Loan Documents to which it is a party.
<PAGE>
ARTICLE 8
Positive Covenants
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Revolving Commitment
hereunder, Borrower will perform and observe the following covenants:
Section 8.1 Reporting Requirements. Borrower will furnish to the Agent
and each Bank:
(a) Annual Financial Statements. As soon as available, and in any
event within ninety (90) days after the end of each Fiscal Year, beginning
with the Fiscal Year ending on April 30, 1998 a copy of the annual audit
report of Borrower and the Subsidiaries for such Fiscal Year containing,
on a consolidated basis, balance sheets and statements of income, retained
earnings, and cash flow as at the end of such Fiscal Year and for the Fiscal
Year then ended, in each case setting forth in comparative form the figures
for the preceding Fiscal Year, all in reasonable detail and audited and
certified by independent certified public accountants of recognized standing
acceptable to the Agent, to the effect that such report has been prepared in
accordance with GAAP;
(b) Quarterly Financial Statements. As soon as available, and in any
event within forty-five (45) days after the end of each of the first 3
Fiscal Quarters of each Fiscal Year and concurrently with the delivery of
the financial statements identified in Subsection 8.1(a), a copy of an
unaudited financial report of Borrower and the Subsidiaries as of the end
of such period and for the Fiscal Quarter, and the portion of the Fiscal
Year then ended, containing, on a consolidated basis, balance sheets and
statements of income, retained earnings, and cash flow, in each case setting
forth in comparative form the figures for the corresponding Fiscal Quarter
of the preceding Fiscal Year, all in reasonable detail certified by the
chief financial officer of Borrower to have been prepared in accordance with
GAAP and to fairly present (subject to year-end audit adjustments) the
financial condition and results of operations of Borrower and the
Subsidiaries, on a consolidated basis, at the date and for the periods
indicated therein;
(c) Compliance Certificate. Within forty-five (45) days after the end
of each Fiscal Quarter, or with respect to the last Fiscal Quarter of each
Fiscal Year, within ninety (90) days of the end of such Fiscal Quarter, a
Compliance Certificate;
(d) Management Letters. Promptly upon receipt thereof, a copy of any
management letter or written report submitted to Borrower or any Subsidiary
by independent certified public accountants with respect to the business,
condition (financial or otherwise), operations, prospects, or properties of
Borrower or any Subsidiary;
(e) Notice of Litigation. Promptly after the commencement thereof,
notice of all actions, suits, and proceedings before any Governmental
Authority or arbitrator affecting Borrower or any Subsidiary which, if
determined adversely to Borrower or such Subsidiary, could reasonably be
expected to have a Material Adverse Effect;
<PAGE>
(f) Notice of Default. As soon as possible and in any event within
five (5) Business Days after an executive or financial officer of Borrower
has knowledge of the occurrence of each Default, a written notice setting
forth the details of such Default and the action that Borrower has taken
and proposes to take with respect thereto;
(g) ERISA Reports. If requested by the Agent, promptly after the
filing or receipt thereof, copies of all reports, including annual reports,
and notices which Borrower or any Subsidiary files with or receives from
the PBGC or the U.S. Department of Labor under ERISA or from any foreign
government with respect to any Non-U.S. Employee Plans; and as soon as
possible and in any event within five (5) Business Days after Borrower or
any Subsidiary knows or has reason to know that any Reportable Event or
Prohibited Transaction has occurred with respect to any Plan or that the
PBGC or Borrower or any Subsidiary has instituted or will institute
proceedings under Title IV of ERISA to terminate any Plan, a certificate
of the chief financial officer of Borrower setting forth the details as to
such Reportable Event or Prohibited Transaction or Plan termination and the
action that Borrower proposes to take with respect thereto;
(h) Reports to Other Creditors. Promptly after the furnishing
thereof, copies of any statement or report furnished to any other party
pursuant to the terms of any indenture, loan, or credit or similar agreement
and not otherwise required to be furnished to the Agent and the Banks
pursuant to any other clause of this Section;
(i) Notice of Material Adverse Effect. As soon as possible and in any
event within five (5) Business Days after an officer of Borrower has
knowledge of the occurrence thereof, written notice of any matter that
could reasonably be expected to have a Material Adverse Effect;
(j) Proxy Statements, Etc. As soon as available, one copy of each
financial statement, report, notice or proxy statement sent by Borrower or
any Subsidiary to its stockholders generally and one copy of each regular,
periodic, or special report, registration statement, or prospectus filed by
Borrower or any Subsidiary with any securities exchange or the Securities
and Exchange Commission or any successor agency; and
(k) General Information. Promptly, such other information concerning
Borrower or any Subsidiary as the Agent or any Bank may from time to time
reasonably request.
Section 8.2 Maintenance of Existence; Conduct of Business. Borrower
will, and will cause each Subsidiary to, preserve and maintain (i) its
corporate existence (except as permitted by Section 9.2) and (ii) all of
its leases, privileges, licenses, permits, franchises, qualifications, and
rights that are necessary or desirable in the ordinary conduct of its
business. Borrower will, and will cause each Subsidiary to, conduct its
business in an orderly and efficient manner in accordance with good
business practices.
Section 8.3 Maintenance of Properties. Borrower will, and will cause
each Subsidiary to, maintain, keep, and preserve all of its material
properties necessary in the conduct of its business in good working order
and condition (exclusive of ordinary wear and tear or casualty).
<PAGE>
Section 8.4 Taxes and Claims. Borrower will, and will cause each
Subsidiary to, pay or discharge at or before maturity or before becoming
delinquent (a) all taxes, levies, assessments, and governmental charges
imposed on it or its income or profits or any of its property, and (b)
all valid and lawful claims for labor, material, and supplies, which, if
unpaid, might become a Lien upon any of its property; provided, however,
that neither Borrower nor any Subsidiary shall be required to pay or
discharge any tax, levy, assessment, or governmental charge which is being
contested in good faith by appropriate proceedings diligently pursued, and
for which adequate reserves have been established in accordance with GAAP.
Section 8.5 Insurance. Borrower will, and will cause each Subsidiary
to, maintain insurance with financially sound and reputable insurance
companies in such amounts and covering such risks as are usually carried
by corporations engaged in similar businesses and owning similar properties
in the same general areas in which Borrower and the Subsidiaries operate,
provided that in any event Borrower will maintain and cause each Subsidiary
to maintain workmen's compensation insurance (or alternate comparable
coverage as required by law), property insurance, comprehensive general
liability insurance and products liability insurance reasonably satisfactory
to the Agent. Each general liability insurance policy shall name the Agent
as additional insured and shall provide that such policy will not be
canceled or materially changed without thirty (30) days prior written
notice to the Agent.
Section 8.6 Inspection Rights. At any reasonable time and from time to
time, Borrower will, and will cause each Subsidiary to, permit
representatives of the Agent and each Bank to examine, copy, and make
extracts from its books and records, to visit and inspect its properties,
and to discuss its business, operations, and financial condition with its
officers, employees, and independent certified public accountants.
Section 8.7 Keeping Books and Records. Borrower will, and will cause
each Subsidiary to, maintain proper books of record and account in which
full, true, and correct entries in conformity with GAAP shall be made of
all dealings and transactions in relation to its business and activities.
Section 8.8 Compliance with Laws. Borrower will, and will cause each
Subsidiary to, comply in all material respects with all applicable laws
(including, without limitation, all Environmental Laws), rules, regulations,
orders, and decrees of any Governmental Authority or arbitrator.
Section 8.9 Compliance with Agreements. Borrower will, and will cause
each Subsidiary to, comply with all agreements, contracts, and instruments
binding on it or affecting its properties or business other than such
noncompliance which is not reasonably expected to have a Material Adverse
Effect.
Section 8.10 ERISA. Borrower will, and will cause each Subsidiary to,
comply with all minimum funding requirements and all other requirements of
ERISA and any comparable regulations of foreign Governmental Authorities,
if applicable, so as not to give rise to any liability which will have a
Material Adverse Effect.
<PAGE>
Section 8.11 Further Assurance; Material Subsidiary Guaranty. The
Borrower will, and will cause each Material Subsidiary to, execute and
deliver such further documentation and take such further action as may
reasonably be requested by the Agent to carry out the provisions and
purposes of the Loan Documents. Without limiting the foregoing, upon the
creation or acquisition of any Material Subsidiary or if any Subsidiary's
total assets increases (or the Borrower's consolidated total assets
decreases) so that such Subsidiary becomes a Material Subsidiary, the
Borrower shall cause each such Material Subsidiary to execute and deliver a
Subsidiary Joinder Agreement and such other documentation as the Agent may
request to cause such Material Subsidiary to evidence or otherwise implement
the guaranty of the Obligations contemplated by Guaranty. No Subsidiary
organized in a jurisdiction outside the United States of America shall be
required to execute a Guaranty. If any Material Subsidiary is created or
acquired after the Closing Date, the Borrower shall execute and deliver to
the Agent an amendment to Schedule 7.14 to this Agreement (which only needs
the signature of the Agent to be effective if the only change is the
addition of the new Subsidiary).
ARTICLE 9
Negative Covenants
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Revolving Commitment
hereunder, Borrower will perform and observe the following covenants:
Section 9.1 Limitation on Liens and Restrictions on Subsidiaries.
Borrower will not, and will not permit any Subsidiary to, incur, create,
assume, or permit to exist any Lien upon any of its property, assets, or
revenues, whether now owned or hereafter acquired, except the following:
(a) Existing Liens disclosed on Schedule 9.1 hereto;
(b) Encumbrances consisting of minor easements, zoning restrictions,
or other restrictions on the use of real property that do not (individually
or in the aggregate) materially affect the value of the assets encumbered
thereby or materially impair the ability of Borrower or the Subsidiaries to
use such assets in their respective businesses, and none of which is
violated in any material respect by existing or proposed structures or
land use;
(c) Liens (other than Liens relating to Environmental Liabilities or
ERISA or comparable regulations from foreign Governmental Authorities) for
taxes, assessments, or other governmental charges that are not delinquent or
which are being contested in good faith and for which adequate reserves have
been established in accordance with GAAP;
(d) Liens of repairmen, mechanics, materialmen, warehousemen,
carriers, landlords, or other similar statutory Liens securing obligations
that are not yet due and are incurred in the ordinary course of business or
which are being contested in good faith and for which adequate reserves have
been established in accordance with GAAP;
<PAGE>
(e) Liens resulting from good faith deposits to secure payments of
workmen's compensation or other social security programs or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, and contracts (other than for payment of Debt);
(f) Liens securing purchase money obligations and Capital Lease
Obligations; provided that (i) any such Lien encumbers only the asset so
purchased and (ii) at no time shall the aggregate amount of the Debt secured
by such Liens exceed Five Million Dollars ($5,000,000);
(g) Liens related to any attachment or judgment not constituting an
Event of Default;
(h) Liens arising from filing UCC financing statements regarding
leases permitted by this Agreement; and
(i) Liens on fixed assets of a Person existing at the time such Person
becomes a Subsidiary (or such Person is merged into or consolidated with
Borrower or any Subsidiary) in accordance with the provisions of Section 9.2
hereof; provided, however, that such Liens were in existence prior to such
acquired Person becoming a Subsidiary (or prior to the contemplation of such
merger or consolidation), and (ii) do not cover any property other than the
property of such acquired Person which is subject to such Liens prior to
such acquired Person becoming a Subsidiary (or prior to the contemplation
of such merger or consolidation).
Neither Borrower nor any Subsidiary shall enter into or assume any
agreement (other than the Loan Documents) prohibiting the creation or
assumption of any Lien upon its properties or assets, whether now owned or
hereafter acquired; provided that, in connection with the creation of
purchase money Liens, Borrower or the Subsidiary may agree that it will not
permit any other Liens to encumber the asset subject to such purchase money
Lien. Except as provided herein, Borrower will not and will not permit any
Subsidiaries directly or indirectly to create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Subsidiary to: (1) pay dividends or make any
other distribution on any of such Subsidiary's capital stock or other equity
interest owned by Borrower or any Subsidiary; (2) subject to subordination
provisions, pay any Debt owed to Borrower or any other Subsidiary; (3) make
Loans or advances to Borrower or any other Subsidiary; or (4) transfer any
of its property or assets to Borrower or any other Subsidiary.
Section 9.2 Mergers, Etc. Borrower will not, and will not permit any
Subsidiary to, become a party to a merger or consolidation, or purchase or
otherwise acquire all or a substantial part of the business or assets of
any Person or any shares or other evidence of beneficial ownership of any
Person, or wind-up, dissolve, or liquidate itself; provided that,
(a) Borrower and the Subsidiaries may acquire assets or shares or
other evidence of beneficial ownership of a Person in accordance with the
restrictions set forth in Section 9.3;
<PAGE>
(b) any Subsidiary may merge into or consolidate with Borrower or any
other Subsidiary if the surviving Person assumes the obligations of the
applicable Subsidiary under the Loan Documents, if any, and is solvent as
contemplated under Section 7.19 hereunder after giving effect to such
merger or consolidation, except that a Domestic Subsidiary may not be
merged into or consolidated with a Foreign Subsidiary and a Foreign
Subsidiary may not be merged into a Domestic Subsidiary;
(c) Borrower or any Subsidiary (the "Acquiring Company") may acquire
all or substantially all of the assets of any Material Subsidiary (a
"Transferring Subsidiary") if the Acquiring Company assumes all the
Transferring Subsidiary's liabilities, including without limitation,
all liabilities of the Transferring Subsidiary under the Loan Documents
to which it is a party (and, following such assignment and assumption, such
Transferring Subsidiary may wind up, dissolve and liquidate) except that no
Domestic Subsidiary may acquire assets of a Foreign Subsidiary in such a
transaction and no Foreign Subsidiary may acquire assets of a Domestic
Subsidiary in such a transaction;
(d) If no Default exists or would result therefrom, Borrower and any
Subsidiary may acquire shares or other evidence of beneficial ownership of
any Person or all or a substantial part of a Person's assets, provided that
the aggregate Purchase Price for all such acquisitions consummated since
the Closing Date shall not exceed Twenty-Five Million Dollars ($25,000,000).
The term "Purchase Price" means, as of any date of determination and with
respect to any acquisition, the purchase price to be paid for the equity
interests issued by the Person to be acquired or the assets of such Person,
including all cash consideration paid (whether classified as purchase
price, noncompete payments, consulting payments or otherwise and without
regard to whether such amount is paid at closing or paid over time) and the
Dollar value of all other assets to be transferred by the purchaser in
connection with such acquisition to the seller all valued in accordance
with the applicable purchase agreements; and
(e) any Subsidiary that is not a Material Subsidiary may wind up,
dissolve and liquidate if any assets it may own are transferred to Borrower
or another Subsidiary.
Section 9.3 Investments. Borrower will not, and will not permit any
Subsidiary to, make or permit to remain outstanding any advance, loan, other
extension of credit, or capital contribution to or investment in any Person,
or purchase or own any stock, bonds, notes, debentures, or other securities
of any Person, or be or become a joint venturer with or partner of any
Person, except:
(a) readily marketable direct obligations of the United States or any
agency thereof with maturities of one year or less from the date of
acquisition and any other securities issued or guaranteed as to timely
payment by any governmental agency of the United States;
(b) fully insured certificates of deposit with maturities of one year
or less from the date of acquisition issued by any commercial bank operating
in the United States having capital and surplus in excess of Fifty Million
Dollars ($50,000,000);
<PAGE>
(c) commercial paper or bonds of a domestic issuer if at the time of
purchase such paper or bonds are rated in one of the three highest rating
categories of Standard and Poor's Corporation or Moody's Investors Service,
Inc.;
(d) Loans and advances to employees for business expenses incurred in
the ordinary course of business;
(e) existing investments described on Schedule 9.3 hereto;
(f) if no Default exists, Borrower and the Subsidiaries may make
additional capital contributions to or investments in or purchase any
stocks, bonds, or other equity securities of a wholly owned Subsidiary or a
newly created Person organized by Borrower or a Subsidiary that, immediately
after such investment or purchase, will be a wholly owned Subsidiary if the
aggregate amount of such contributions and investments made under the
permissions of this clause (f) does not exceed an amount equal to Twenty-
Five Million Dollars ($25,000,000) during the entire term of this
Agreement;
(g) investments by Foreign Subsidiaries which are held or made outside
the United States of the same or similar quality as the investments
described in clauses (a), (b) and (c) of this Section 9.3;
(h) Loans, advances and other extensions of credit to a Subsidiary;
provided that (i) the obligations of each obligor of the Debt arising as a
result of such loans, advances or other extensions of credit must be
unsecured and subordinated in right of payment to any liability such
obligor may have for the Obligations from and after such time as any
portion of the Obligations shall become due and payable (whether at stated
maturity, by acceleration or otherwise) and (ii) such Debt must be incurred
in the ordinary course of business and on terms customary for intercompany
borrowings among Borrower and the Subsidiaries or must be made on such
other terms and provisions as the Agent may reasonably require; and
(i) if no Default exists or would result therefrom, Borrower may
repurchase its own capital stock.
Section 9.4 Transactions With Affiliates. Borrower will not, and will
not permit any Subsidiary to, enter into any transaction, including, without
limitation, the purchase, sale, or exchange of property or the rendering of
any service, with any Affiliate of Borrower or such Subsidiary, except in
the ordinary course of and pursuant to the reasonable requirements of
Borrower's or such Subsidiary's business and upon fair and reasonable terms
no less favorable to Borrower or such Subsidiary than would be obtained in a
comparable arms-length transaction with a Person not an Affiliate of
Borrower or such Subsidiary.
Section 9.5 Disposition of Assets. Borrower will not, and will not
permit any Subsidiary to, sell, lease, assign, transfer, or otherwise
dispose of any of its assets, except (a) dispositions of inventory in the
ordinary course of business; (b) dispositions of unnecessary, obsolete
or worn out equipment and (c) other dispositions of assets in any Fiscal
Year if the aggregate book value of the assets disposed of in such Fiscal
Year does not exceed an amount equal to Twenty-Five Million Dollars
($25,000,000).
<PAGE>
ARTICLE 10
Financial Covenants
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Revolving Commitment
hereunder, Borrower will perform and observe the following financial
covenants:
Section 10.1 Consolidated Net Worth. Borrower will at all times on and
after October 31, 1998, maintain Consolidated Net Worth (as defined below)
in an amount not less than the sum of (a) ninety percent (90%) of the
Consolidated Net Worth as of October 31, 1998; plus (b) fifty percent (50%)
of Consolidated Net Income for the period from October 31,1998 through the
last Fiscal Quarter to have completely elapsed as of the date of
determination. If Consolidated Net Income for a Fiscal Quarter is zero or
less, no adjustment to the requisite level of Consolidated Net Worth shall
be made. As used in this Section 10.1, the following terms have the
following meanings:
"Consolidated Net Income" means, for any period, net income (or loss)
of Borrower determined on a consolidated basis in conformity with GAAP,
but excluding without duplication the following:
(a) the income of any other Person (other than its subsidiaries)
in which such Person or any of its subsidiaries has an ownership
interest, unless received by such Person or its subsidiary in a cash
distribution;
(b) any after-tax gains or losses attributable to asset
dispositions;
(c) the income or loss of any Foreign Subsidiary or of any foreign
Person (other than a Subsidiary) in which the Borrower or Subsidiary
has an ownership interest to the extent that the equivalent Dollar
income amount contains increases or decreases due to the fluctuation
of a foreign currency exchange rate after the Closing date; and
(d) to the extent not included in clauses (a), (b) and (c) above,
any after-tax extraordinary, non-cash or nonrecurring gains or losses.
<PAGE>
"Consolidated Net Worth" means, at any particular time, the sum of (i)
all amounts which, in conformity with GAAP, would be included as
stockholders' equity on a consolidated balance sheet of Borrower and the
Subsidiaries; minus (ii) the sum of the following (without duplication):
(a) the amount by which stockholders' equity has been increased by the
write-up of any asset of Borrower and the Subsidiaries after October 31,
1998; (b) the amount of deferred income tax assets (less adjustments
included in Consolidated Net Income after October 31, 1998); (c) any
capital stock or debt security which is not readily marketable; (d) any
cash held in a sinking fund or other analogous fund established for the
purpose of redemption, retirement or prepayment of capital stock or Debt;
(e) the cumulative foreign currency translation adjustment (less
adjustments included in Consolidated Net Income after October 31, 1998;
(f) the amount at which shares of capital stock of Borrower is contained
among the assets on the consolidated balance sheet of Borrower and the
Subsidiaries; and (g) the amount properly attributable to the minority
interests, if any, of other Persons in the stock, additional paid-in
capital, and retained earnings of the Subsidiaries.
Section 10.2 Total Debt to EBITDA. As of the last day of each Fiscal
Quarter beginning with the Fiscal Quarter ending July 31, 1998, Borrower
shall not permit the ratio of Total Debt outstanding as of such last day to
EBITDA for the four (4) Fiscal Quarters then ended (the "Total Debt to
EBITDA Ratio") to exceed 2.00 to 1.00. As used in this Section 10.2, the
following terms have the following meanings:
"EBITDA" means, for any period, the total of the following each
calculated for Borrower without duplication on a consolidated basis for
such period: (a) Consolidated Net Income (as defined in section 10.1);
plus (b) any provision for (or less any benefit from) income or franchise
taxes included in determining Consolidated Net Income; plus (c) interest
expense (including the interest portion of Capital Lease Obligations)
deducted in determining Consolidated Net Income; plus (d) amortization
and depreciation expense deducted in determining Consolidated Net Income.
"Total Debt" means, at the time of determination, the sum of the
following determined for Borrower on a consolidated (without duplication):
(a) all obligations for borrowed money; (b) all obligations of such Person
evidenced by bonds, notes, debentures, or other similar instruments; (c)
all Capital Lease Obligations; (d) all reimbursement obligations of such
Person (whether contingent or otherwise) in respect of letters of credit,
bankers' acceptances, surety or other bonds, and similar instruments; (e)
all liabilities in respect of all unfunded postsettlement and
postemployment benefits including but not limited to unfunded vested
benefits under any Plan or Non-US. Employee Plan; and (f) all obligations,
contingent or otherwise, for the payment of money under any noncompete,
consulting or similar agreement entered into with the seller of an
acquired company (whether by stock or asset acquisition) or any other
similar arrangements providing for the deferred payment of the purchase
price for an acquisition consummated prior to the date hereof.
<PAGE>
ARTICLE 11
Default
Section 11.1 Events of Default. Each of the following shall be deemed
an "Event of Default":
(a) Borrower shall fail to pay (i) when due any principal payable
under any Loan Document or any part thereof; (ii) within three (3)
Business Days of the date of Borrower's receipt of notice from the Agent,
any interest or fees due under the Loan Documents or any part thereof;
and (iii) within five (5) Business Days of the date of Borrower's
receipt of notice from the Agent, any other Obligation or any part
thereof due under the terms of the Loan Documents.
(b) Any representation, warranty, or certification made or deemed
made by Borrower or any Obligated Party (or any of their respective
officers) in any Loan Document or in any certificate, report, notice, or
financial statement furnished at any time in connection with any Loan
Document shall be false, misleading, or erroneous in any material
respect when made or deemed to have been made.
(c) Borrower shall fail to perform, observe, or comply with any
covenant, agreement, or term contained in Section 8.1, clause (i) of the
first sentence of Section 8.2, Sections 8.5 or 8.6, Article 9 or Article
10 of this Agreement and in the case of Section 8.1 only, the Agent shall
have provided the Borrower with notice thereof.
(d) Borrower or any Obligated Party shall fail to perform, observe, or
comply with any covenant, agreement, or term contained in any Loan
Document (other than covenants to pay the Obligations and the covenants
described in Subsection 11.1(c)) and such failure shall continue for a
period of thirty (30) Business Days after the earlier of (i) the date
the Agent or any Bank provides Borrower with notice thereof or (ii) the
date Borrower should have notified the Agent thereof in accordance with
Subsection 8.1(g).
(e) Borrower, any Obligated Party or any other Subsidiary shall (i)
apply for or consent to the appointment of, or the taking of possession
by, a receiver, custodian, trustee, examiner, liquidator, or the like of
itself or of all or a substantial part of its property, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a
voluntary case under the United States Bankruptcy Code (as now or
hereafter in effect, the "Bankruptcy Code"), (iv) institute any
proceeding or file a petition seeking to take advantage of any other
law relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, winding-up, or composition or readjustment of debts, (v)
fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under
the Bankruptcy Code, (vi) admit in writing its inability to, or be
generally unable to pay its debts as such debts become due, or (vii) take
any corporate action for the purpose of effecting any of the foregoing.
<PAGE>
(f) A proceeding or case shall be commenced, without the application,
approval, or consent of Borrower, any Obligated Party or any other
Subsidiary, in any court of competent jurisdiction, seeking (i) its
reorganization, liquidation, dissolution, arrangement, or winding-up, or
the composition or readjustment of its debts, (ii) the appointment of a
receiver, custodian, trustee, examiner, liquidator, or the like of
Borrower, any such Obligated Party or any such other Subsidiary or of
all or any substantial part of its property, or (iii) similar relief in
respect of Borrower, any such Obligated Party or any such other
Subsidiary under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of sixty (60)
or more days, or an order for relief against Borrower, any Obligated
Party or any other Subsidiary shall be entered in an involuntary case
under the Bankruptcy Code or similar foreign law.
(g) Borrower, any Obligated Party or any other Subsidiary shall fail
to discharge within a period of thirty (30) days after the commencement
thereof any attachment, sequestration, forfeiture, or similar proceeding
or proceedings involving an aggregate amount in excess of an amount equal
to Five Million Dollars ($5,000,000) against any of its assets or
properties.
(h) A final judgment or judgments for the payment of money in excess
of an amount equal to Five Million Dollars ($5,000,000) in the aggregate
shall be rendered by a court or courts against Borrower, any Obligated
Party or any other Subsidiary and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of execution
thereof shall not be procured, within thirty (30) days from the date of
entry thereof, and Borrower or the relevant Subsidiary or Obligated Party
shall not, within said period of thirty (30) days, or such longer period
during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such
appeal.
(i) Borrower, any Obligated Party or any other Subsidiary shall fail
to pay when due any principal of or interest on any Debt if the aggregate
principal amount of the affected Debt equals or exceeds an amount equal
to Five Million Dollars ($5,000,000) (other than the Obligations), or
the maturity of any such Debt shall have been accelerated, or any such
Debt shall have been required to be prepaid prior to the stated maturity
thereof or any event shall have occurred with respect to any Debt in the
aggregate principal amount equal to or in excess of an amount equal to
Five Million Dollars ($5,000,000) that permits (or, with the giving of
notice or lapse of time or both, would permit) any holder or holders of
such Debt or any Person acting on behalf of such holder or holders to
accelerate the maturity thereof or require any such prepayment.
(j) Any Loan Document shall cease to be in full force and effect or
shall be declared null and void or the validity or enforceability thereof
shall be contested or challenged by Borrower, any Obligated Party or any
other Subsidiary or Borrower or any Obligated Party shall deny that it
has any further liability or obligation under any of the Loan Documents.
<PAGE>
(k) Any of the following events shall occur or exist with respect to
Borrower or any ERISA Affiliate: (i) any Prohibited Transaction involving
any Plan; (ii) any Reportable Event with respect to any Plan; (iii) the
filing under Section 4041 of ERISA of a notice of intent to terminate any
Plan or the termination of any Plan; (iv) any event or circumstance that
might constitute grounds entitling the PBGC to institute proceedings
under Section 4042 of ERISA for the termination of, or for the
appointment of a trustee to administer, any Plan, or the institution by
the PBGC of any such proceedings; or (v) complete or partial withdrawal
under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the
reorganization, insolvency, or termination of any Multiemployer Plan;
and in each case above, such event or condition, together with all other
events or conditions, if any, have subjected or could in the reasonable
opinion of the Agent subject Borrower or any Subsidiary to any tax,
penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC,
or otherwise, including any liability under any Non-U.S. Employee Plans
(or any combination thereof) which in the aggregate exceed or could
reasonably be expected to exceed an amount equal to Five Million Dollars
($5,000,000).
(l) Any Person or group (as defined in Section 13(d)(3) or 14(d)(2)
of the Exchange Act) (other than the Permitted Holders) shall become the
direct or indirect beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of more than 40% of the total voting power of all classes
of capital stock then outstanding of Borrower entitled (without regard
to the occurrence of any contingency) to vote in elections of directors
of Borrower in any transaction. The term "Permitted Holders" means any
one or combination of the following Persons: (A) Lester A. Levy, Milton
P. Levy, Jr., or Irvin L. Levy; (B) any family member or lineal
descendant of Lester A. Levy, Milton P. Levy, Jr. or Irvin L. Levy; or
(C) any corporations, trusts or partnerships owned or controlled by or
operated for the benefit of any Person described in clauses (A) and (B)
of this definition.
(m) The Permitted Holders shall fail to collectively own and control
at least 35% of all classes of capital stock then outstanding of Borrower
entitled (without regard to the occurrence of any contingency) to vote
in elections of directors of Borrower.
Section 11.2 Remedies. If any Event of Default shall occur and be
continuing, the Agent may (and if directed by Required Banks, shall) do any
one or more of the following:
(a) Acceleration. By notice to Borrower, declare all outstanding
principal of and accrued and unpaid interest on the Revolving Notes and
all other amounts payable by Borrower under the Loan Documents
immediately due and payable, and the same shall thereupon become
immediately due and payable, without further notice, demand, presentment,
notice of dishonor, notice of acceleration, notice of intent to
accelerate, protest, or other formalities of any kind, all of which are
hereby expressly waived by Borrower.
(b) Termination of Commitments. Terminate the Revolving Commitments
without notice to Borrower.
(c) Judgment. Reduce any claim to judgment.
<PAGE>
(d) Rights. Exercise any and all rights and remedies afforded by
the laws of the State of Texas or any other jurisdiction, by any of the
Loan Documents, by equity, or otherwise.
Provided, however, that upon the occurrence of an Event of Default under
Section 11.1(e) or (f), the Revolving Commitments of all of the Banks shall
automatically terminate and the outstanding principal of and accrued and
unpaid interest on the Revolving Notes and all other amounts payable by
Borrower under the Loan Documents shall thereupon become immediately due
and payable without notice, demand, presentment, notice of dishonor, notice
of acceleration, notice of intent to accelerate, protest, or other
formalities of any kind, all of which are hereby expressly waived by
Borrower.
Section 11.3 Performance by the Agent. If Borrower or any Obligated
Party shall fail to perform any covenant or agreement in accordance with
the terms of the Loan Documents, the Agent may (and shall, at the direction
of Required Banks) perform or attempt to perform such covenant or agreement
on behalf of Borrower or applicable Obligated Party. In such event,
Borrower shall, at the request of the Agent, promptly pay any amount
expended by the Agent or the Banks in connection with such performance or
attempted performance to the Agent at the Principal Office, together with
interest thereon at the applicable Default Rate from and including the date
of such expenditure to but excluding the date such expenditure is paid in
full. Notwithstanding the foregoing, it is expressly agreed that neither
the Agent nor any Bank shall have any liability or responsibility for the
performance of any obligation of Borrower under any Loan Document.
Section 11.4 Setoff. If an Event of Default shall have occurred and
be continuing, each Bank is hereby authorized at any time and from time to
time, without notice to Borrower (any such notice being hereby expressly
waived by Borrower), to set off and apply any and all deposits (general,
time, demand, provisional, or final) at any time held and other
indebtedness at any time owing by such Bank to or for the credit or the
account of Borrower against any and all of the Obligations, irrespective
of whether or not the Agent or such Bank shall have made any demand under
such Loan Documents and although such Obligations may be unmatured. Each
Bank agrees promptly to notify Borrower (with a copy to the Agent) after
any such setoff and application; provided, that the failure to give such
notice shall not affect the validity of such setoff and application. The
rights and remedies of each Bank hereunder are in addition to other rights
and remedies (including, without limitation, other rights of setoff) which
such Bank may have.
Section 11.5 Continuance of Default. For purposes of all Loan
Documents, a Default shall be deemed to have continued and exist until the
Agent shall have actually received evidence satisfactory to the Agent that
such Default shall have been remedied.
<PAGE>
ARTICLE 12
The Agent
Section 11.6 Appointment, Powers and Immunities. Each Bank hereby
appoints and authorizes Chase to act as its agent hereunder and under the
other Loan Documents with such powers as are specifically delegated to the
Agent by the terms of the Loan Documents, together with such other powers
as are reasonably incidental thereto. Neither the Agent nor any of its
Affiliates, officers, directors, employees, attorneys, or agents shall be
liable for any action taken or omitted to be taken by any of them hereunder
or otherwise in connection with any Loan Document except for its or their
own gross negligence or willful misconduct. Without limiting the generality
of the preceding sentence, the Agent (i) may treat the payee of any
Revolving Note as the holder thereof until it receives written notice of
the assignment or transfer thereof signed by such payee and in form
satisfactory to the Agent; (ii) shall have no duties or responsibilities
except those expressly set forth in the Loan Documents, and shall not by
reason of any Loan Document be a trustee or fiduciary for any Bank;
(iii) shall not be required to initiate any litigation or collection
proceedings under any Loan Document except to the extent requested by
Required Banks; (iv) shall not be responsible to the Banks for any recitals,
statements, representations, or warranties contained in any Loan Document,
or any certificate or other documentation referred to or provided for in,
or received by any of them under, any Loan Document, or for the value,
validity, effectiveness, enforceability, or sufficiency of any Loan Document
or any other documentation referred to or provided for therein or for any
failure by any Person to perform any of its obligations thereunder; (v) may
consult with legal counsel (including counsel for Borrower), independent
public accountants, and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants, or experts; and
(vi) shall incur no liability under or in respect of any Loan Document by
acting upon any notice, consent, certificate, or other instrument or
writing believed by it to be genuine and signed or sent by the proper
party or parties. As to any matters not expressly provided for by any
Loan Document, the Agent shall in all cases be fully protected in acting,
or in refraining from acting, hereunder in accordance with instructions
signed by Required Banks, and such instructions of Required Banks and any
action taken or failure to act pursuant thereto shall be binding on all of
the Banks; provided, however, that the Agent shall not be required to take
any action which exposes it to personal liability or which is contrary to
any Loan Document or applicable law.
<PAGE>
Section 12.2 Rights of Agent as a Bank. With respect to its Revolving
Commitment, the Loans made by it and the Revolving Note issued to it, Chase
(and any successor acting as the Agent) in its capacity as a Bank hereunder
shall have the same rights and powers hereunder as any other Bank and may
exercise the same as though it were not acting as the Agent, and the term
"Bank" or "Banks" shall, unless the context otherwise indicates, include
the Agent in its individual capacity. The Agent and its Affiliates may
(without having to account therefor to any Bank) accept deposits from,
lend money to, act as trustee under indentures of, provide merchant banking
services to, and generally engage in any kind of banking, trust, or other
business with Borrower, any Obligated Party or any other Subsidiary, and
any other Person who may do business with or own securities of Borrower,
any Obligated Party or any other Subsidiary, all as if it were not acting
as the Agent and without any duty to account therefor to the Banks.
Section 12.3 Defaults. The Agent shall not be deemed to have knowledge
or notice of the occurrence of a Default (other than the non-payment of
principal of or interest on the Loans or of commitment fees) unless the
Agent has received notice from a Bank or Borrower specifying such Default
and stating that such notice is a "Notice of Default." In the event that
the Agent receives such a notice of the occurrence of a Default, the Agent
shall give prompt notice thereof to the Banks (and shall give each Bank
prompt notice of each such non-payment). The Agent shall (subject to
Section 12.1) take such action with respect to such Default as shall be
directed by Required Banks, provided that unless and until the Agent shall
have received such directions, the Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to
such Default as it shall deem advisable and in the best interest of the
Banks.
<PAGE>
Section 12.4 Indemnification. THE BANKS HEREBY AGREE TO INDEMNIFY THE
AGENT FROM AND HOLD THE AGENT HARMLESS AGAINST (TO THE EXTENT NOT
REIMBURSED UNDER SECTIONS 13.1 AND 13.2, BUT WITHOUT LIMITING THE
OBLIGATIONS OF BORROWER UNDER SECTIONS 13.1 AND 13.2), RATABLY IN
ACCORDANCE WITH THEIR RESPECTIVE COMMITMENT PERCENTAGES, ANY AND ALL
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES AND
EXPENSES), AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE
IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE AGENT IN ANY WAY RELATING
TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR
OMITTED TO BE TAKEN BY THE AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN
DOCUMENTS; PROVIDED, THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF THE
FOREGOING TO THE EXTENT CAUSED BY THE AGENT'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS THE EXPRESS
INTENTION OF THE BANKS THAT THE AGENT SHALL BE INDEMNIFIED HEREUNDER
FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS,
COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES AND EXPENSES), AND
DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT
OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE AGENT.
WITHOUT LIMITING ANY OTHER PROVISION OF THIS SECTION, EACH BANK AGREES TO
REIMBURSE THE AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED
ON THE BASIS OF THE COMMITMENTS PERCENTAGES) OF ANY AND ALL OUT-OF-POCKET
EXPENSES (INCLUDING ATTORNEYS' FEES AND EXPENSES) INCURRED BY THE AGENT IN
CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION,
MODIFICATION, AMENDMENT, OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS,
LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS
OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT THE AGENT
IS NOT REIMBURSED FOR SUCH EXPENSES BY BORROWER.
Section 12.5 Independent Credit Decisions. Each Bank agrees that it has
independently and without reliance on the Agent or any other Bank, and
based on such documentation and information as it has deemed appropriate,
made its own credit analysis of Borrower and decision to enter into any
Loan Document and that it will, independently and without reliance upon the
Agent or any other Bank, and based upon such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under any Loan Document. Except as
otherwise specifically set forth herein, the Agent shall not be required to
keep itself informed as to the performance or observance by Borrower or any
Obligated Party of any Loan Document or to inspect the properties or books
of Borrower or any Obligated Party. Except for notices, reports, and other
documents and information expressly required to be furnished to the Banks
by the Agent hereunder or under the other Loan Documents, the Agent shall
not have any duty or responsibility to provide any Bank with any credit
or other financial information concerning the affairs, financial condition,
or business of Borrower or any Obligated Party (or any of their Affiliates)
which may come into the possession of the Agent or any of its Affiliates.
<PAGE>
Section 12.6 Several Commitments. The Revolving Commitments and other
obligations of the Banks under any Loan Document are several. The default
by any Bank in making a Loan in accordance with its Revolving Commitment
shall not relieve the other Banks of their obligations under any Loan
Document. In the event of any default by any Bank in making any Loan, each
nondefaulting bank shall be obligated to make its Loan but shall not be
obligated to advance the amount which the defaulting Bank was required to
advance hereunder. No Bank shall be responsible for any act or omission
of any other Bank.
Section 12.7 Successor Agent. Subject to the appointment and acceptance
of a successor Agent as provided below, the Agent may resign at any time by
giving notice thereof to the Banks and Borrower, and the Agent may be
removed at any time by Required Banks if it has breached its obligations
under the Loan Documents. Upon any such resignation or removal, Required
Banks will have the right to appoint a successor Agent with Borrower's
consent, which shall not be unreasonably withheld; provided that the
Borrower's consent will not be required for the appointment of Bank One,
Texas, N.A. as successor Agent hereunder. If no successor Agent shall
have been so appointed by Required Banks and shall have accepted such
appointment within thirty (30) days after the retiring Agent's giving
of notice of resignation or the Required Banks' removal of the retiring
Agent, then the retiring Agent may, on behalf of the Banks, appoint a
successor Agent, which shall be a commercial bank organized under the laws
of the United States or any State thereof and having combined capital and
surplus of at least One Hundred Million Dollars ($100,000,000). Upon the
acceptance of its appointment as successor Agent, such successor Agent
shall thereupon succeed to and become vested with all rights, powers,
privileges, immunities, contractual obligations, and duties of the resigning
or removed Agent and the resigning or removed Agent shall be discharged
from its duties and obligations under the Loan Documents. After any Agent's
resignation or removal as Agent, the provisions of this Article 13 shall
continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was the Agent.
ARTICLE 13
Miscellaneous
Section 13.1 Expenses. Borrower hereby agrees to pay on demand: (a)
all costs and expenses of the Agent arising in connection with the
preparation, negotiation, execution, delivery, syndication or amendment or
other modification of any of the Loan Documents, including, without
limitation, the fees and expenses of legal counsel for the Agent; (b) all
costs and expenses of the Agent and the Banks in connection with any
Default and the enforcement of any Loan Document, including, without
limitation, the fees and expenses of legal counsel for the Agent and
the Banks; (c) all transfer, stamp, documentary, or other similar taxes,
assessments, or charges levied by any Governmental Authority in respect
of any Loan Document; and (d) all other costs and expenses incurred by
the Agent in connection with any Loan Document.
<PAGE>
Section 13.2 Indemnification. BORROWER SHALL INDEMNIFY THE AGENT AND
EACH BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF THEM
HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING
ATTORNEYS' FEES AND EXPENSES) TO WHICH ANY OF THEM MAY BECOME SUBJECT
WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION,
EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF ANY
OF LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY LOAN
DOCUMENTS, (C) ANY BREACH BY BORROWER OR ANY OBLIGATED PARTY OF ANY
REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY
OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE,
DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON,
ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF BORROWER
OR ANY SUBSIDIARY, OR (E) ANY INVESTIGATION, LITIGATION, OR OTHER
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION,
LITIGATION, OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING; PROVIDED
THAT THE PERSON ENTITLED TO BE INDEMNIFIED UNDER THIS SECTION SHALL NOT BE
INDEMNIFIED FROM OR HELD HARMLESS AGAINST ANY LOSSES, LIABILITIES, CLAIMS,
DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, OR EXPENSES ARISING
OUT OF OR RESULTING FROM ITS GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR ITS
VIOLATION OF THE TERMS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS.
WITHOUT LIMITING ANY PROVISION OF ANY LOAN DOCUMENT, IT IS THE EXPRESS
INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER
THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND
ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES AND EXPENSES)
ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF
SUCH PERSON TO THE EXTENT NOT RESULTING IN THE VIOLATION BY SUCH PARTY OF
THE TERMS OF ANY OF THE LOAN DOCUMENTS.
Section 13.3 Limitation of Liability. None of the Agent, any Bank, or
any Affiliate, officer, director, employee, attorney, or agent thereof
shall have any liability with respect to, and Borrower and, by the
execution of the Loan Documents to which it is a party each Obligated Party,
hereby waives, releases, and agrees not to sue any of them upon, any claim
for any special, indirect, incidental, consequential, or punitive damages
suffered or incurred by Borrower or any Obligated Party in connection with,
arising out of, or in any way related to any of the Loan Documents, or any
of the transactions contemplated by any of the Loan Documents.
Section 13.4 No Duty. All attorneys, accountants, appraisers, and other
professional Persons and consultants retained by the Agent or any Bank
shall have the right to act exclusively in the interest of the Agent and
the Banks and shall have no duty of disclosure, duty of loyalty, duty of
care, or other duty or obligation of any type or nature whatsoever to
Borrower or any of Borrower's shareholders or any other Person.
Section 13.5 No Fiduciary Relationship. The relationship between
Borrower and the Obligated Parties on the one hand and the Agent and each
Bank on the other is solely that of debtor and creditor, and neither the
Agent nor any Bank has any fiduciary or other special relationship with
Borrower or any Obligated Parties, and no term or condition of any of the
Loan Documents shall be construed so as to deem the relationship between
Borrower and the Obligated Parties on the one hand and the Agent and each
Bank on the other and any Bank to be other than that of debtor and creditor.
<PAGE>
Section 13.6 Equitable Relief. Borrower recognizes that in the event
Borrower or any Obligated Party fails to pay, perform, observe, or discharge
any or all of the obligations under the Loan Documents, any remedy at law
may prove to be inadequate relief to the Agent and the Banks. Borrower
therefore agrees that the Agent and the Banks, if the Agent or the Required
Banks so request, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
Section 13.7 No Waiver; Cumulative Remedies. No failure on the part of
the Agent or any Bank to exercise and no delay in exercising, and no course
of dealing with respect to, any right, power, or privilege under any Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power, or privilege under any Loan Document preclude
any other or further exercise thereof or the exercise of any other right,
power, or privilege. The rights and remedies provided for in the Loan
Documents are cumulative and not exclusive of any rights and remedies
provided by law.
Section 13.8 Successors and Assigns.
(a) Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns. Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Agent and
all of the Banks.
(b) Participations. Any Bank may sell participations to one or more
banks or other institutions in or to all or a portion of its rights and
obligations under the Loan Documents (including, without limitation, all or
a portion of its Revolving Commitment, the Loans owing to it); provided,
however, that (i) such Bank's obligations under the Loan Documents
(including, without limitation, its Revolving Commitment) shall remain
unchanged, (ii) such Bank shall remain solely responsible to Borrower for
the performance of such obligations, (iii) such Bank shall remain the holder
of its Revolving Note for all purposes of any Loan Document, (iv) Borrower
shall continue to deal solely and directly with such Bank in connection
with such Bank's rights and obligations under the Loan Documents, and
(v) such Bank shall not sell a participation that conveys to the participant
the right to vote or give or withhold consents under any Loan Document,
other than the right to vote upon or consent to (1) any increase of such
Bank's Revolving Commitment, (2) any reduction of the principal amount of,
or interest to be paid on, the Loans or other Obligations of such Bank,
(3) any reduction of any commitment fee, or other amount payable to such
Bank under any Loan Document, (4) any postponement of any date for the
payment of any amount payable in respect of the Loans or other Obligations
of such Bank, or (5) the release of Borrower or any Obligated Party.
<PAGE>
(c) Assignments. Borrower and each of the Banks agree that any Bank
(the "Assigning Bank") may at any time assign to an Eligible Assignee all,
or a proportionate part of all, of its rights and obligations under the
Loan Documents (including, without limitation, its Revolving Commitment,
Loans and participation interests) (each an "Assignee"); provided, however,
that (i) except in the case of an assignment of all of a Bank's rights and
obligations under the Loan Documents, the aggregate amount of the Revolving
Commitment of the Assigning Bank being assigned or if the Revolving
Commitments have terminated, the outstanding principal amount of the Loans
being assigned (determined as of the date of the Assignment and Acceptance
with respect to such assignment) shall in no event be less than an amount
equal to Five Million Dollars ($5,000,000), (ii) the parties to each such
assignment shall execute and deliver to the Agent for its acceptance and
recording in the Register (as defined below), an Assignment and Acceptance,
together with the Revolving Notes subject to such assignment, and a
processing and recordation fee of Three Thousand Dollars ($3,000) payable
by the assignor or assignee (and not Borrower); provided that such fee
shall not be payable to Agent if the Assigning Bank is making an assignment
to one of its Affiliates; and (iii) Borrower and the Agent must consent to
such assignment, which consent shall not be unreasonably withheld or
delayed, with such consents to be evidenced by Borrower's and the Agent's
execution of the Assignment and Acceptance; provided that Borrower's consent
will not be necessary if the Assigning Bank is making an assignment to one
of its Affiliates or if a Default exists. Upon such execution, delivery,
acceptance, and recording, from and after the effective date specified in
each Assignment and Acceptance, which effective date shall be at least five
(5) Business Days after the execution thereof, or, if so specified in such
Assignment and Acceptance, the date of acceptance thereof by the Agent,
(x) the assignee thereunder shall be a party hereto as a "Bank" and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and obligations
of a Bank hereunder and under the Loan Documents, and (y) the Bank that is
an assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations
under the Loan Documents (and, in the case of an Assignment and Acceptance
covering all or the remaining portion of a Bank's rights and obligations
under the Loan Documents, such Bank shall cease to be a party thereto). The
Agent shall maintain at its Principal Office a copy of each Assignment and
Acceptance delivered to and accepted by it and a register for the
recordation of the names and addresses of the Banks and the Revolving
Commitments of, and principal amount of the Loans owing to, each Bank from
time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and
Borrower, the Agent, and the Banks may treat each Person whose name is
recorded in the Register as a Bank hereunder for all purposes under the
Loan Documents. The Register shall be available for inspection by Borrower
or any Bank at any reasonable time and from time to time upon reasonable
prior notice. Upon its receipt of an Assignment and Acceptance executed
by an Assigning Bank and Assignee representing that it is an Eligible
Assignee, together with any Revolving Notes subject to such assignment,
the Agent shall, if such Assignment and Acceptance has been completed,
<PAGE>
(i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register, and (iii) give prompt written notice
thereof to Borrower. Within five (5) Business Days after its receipt of
such notice Borrower, at its expense, shall execute and deliver to the Agent
a new Revolving Note to the order of such Eligible Assignee (each such
promissory note shall constitute a "Revolving Note" for purposes of the
Loan Documents). Such new Revolving Note shall be dated the effective
date of such Assignment and Acceptance, and shall otherwise be in
substantially the form of the Exhibit "A" hereto.
(d) Information. Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section, disclose to the assignee or participant or proposed assignee or
participant, any information relating to Borrower or its Subsidiaries
furnished to such Bank by or on behalf of Borrower or its Subsidiaries.
(e) Pledge to Federal Reserve. Notwithstanding anything in this
Section 13.8 to the contrary, any Bank may, in the ordinary course of its
business, pledge its Revolving Note to any United States Federal Reserve
Bank to secure advances made by such Federal Reserve Bank to such Bank.
Section 13.9 Survival. All representations and warranties made in any
Loan Document or in any document, statement, or certificate furnished in
connection with any Loan Document shall survive the execution and delivery
of the Loan Documents and no investigation by the Agent or any Bank or any
closing shall affect the representations and warranties or the right of the
Agent or any Bank to rely upon them. Without prejudice to the survival of
any other obligation of Borrower hereunder, the obligations of Borrower
under Article 5 and Sections 13.1 and 13.2 shall survive repayment of the
Revolving Notes and termination of the Revolving Commitments.
Section 13.10 Entire Agreement. THIS AGREEMENT, THE REVOLVING NOTES,
AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE
AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.
<PAGE>
Section 13.11 Amendments. No amendment or waiver of any provision of
any Loan Document to which Borrower is a party, nor any consent to any
departure by Borrower therefrom, shall in any event be effective unless
the same shall be agreed or consented to by Required Banks and Borrower,
and each such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, that no
amendment, waiver, or consent shall, unless in writing and signed by all
of the Banks and Borrower, do any of the following: (a) increase Revolving
Commitments of the Banks; (b) reduce the principal of, or interest on, the
Revolving Notes or any fees or other amounts payable hereunder; (c) postpone
any date fixed for any payment of principal of, or interest on, the
Revolving Notes, or any fees or other amounts payable hereunder; (d) waive
or amend any of the conditions specified in Article 6; (e) change the
percentage of the Revolving Commitments or of the aggregate unpaid
principal amount of the Revolving Notes or the number of Banks which shall
be required for the Banks or any of them to take any action under any Loan
Document; (f) change any provision contained in this Section 13.11; or (g)
release Borrower or any Obligated Party from liability. Notwithstanding
anything to the contrary contained in this Section, no amendment waiver, or
consent shall be made with respect to Section 2.7 or Article 12 hereof
without the prior written consent of the Agent.
Section 13.12 Maximum Interest Rate.
(a) No interest rate specified in any Loan Document shall at any time
exceed the Maximum Rate. If at any time the interest rate (the "Contract
Rate") for any Obligation shall exceed the Maximum Rate, thereby causing
the interest accruing on such Obligation to be limited to the Maximum
Rate, then any subsequent reduction in the Contract Rate for such
Obligation shall not reduce the rate of interest on such Obligation below
the Maximum Rate until the aggregate amount of interest accrued on such
Obligation equals the aggregate amount of interest which would have
accrued on such Obligation if the Contract Rate for such Obligation had
at all times been in effect.
<PAGE>
(b) No provision of any Loan Document shall require the payment or
the collection of interest in excess of the maximum amount permitted by
applicable law. If any excess of interest in such respect is hereby
provided for, or shall be adjudicated to be so provided, in any Loan
Document or otherwise in connection with this loan transaction, the
provisions of this Section shall govern and prevail and neither Borrower
nor the sureties, guarantors, successors, or assigns of Borrower shall
be obligated to pay the excess amount of such interest or any other
excess sum paid for the use, forbearance, or detention of sums loaned
pursuant hereto. In the event any Bank ever receives, collects, or
applies as interest any such sum, such amount which would be in excess
of the maximum amount permitted by applicable law shall be applied as a
payment and reduction of the principal of the Obligations, and, if the
principal of the Obligations has been paid in full, any remaining excess
shall forthwith be paid to Borrower. In determining whether or not
the interest paid or payable exceeds the Maximum Rate, Borrower and
each Bank shall, to the extent permitted by applicable law, (a)
characterize any non-principal payment as an expense, fee, or premium
rather than as interest, (b) exclude voluntary prepayments and the
effects thereof, and (c) amortize, prorate, allocate, and spread in
equal or unequal parts the total amount of interest throughout the entire
contemplated term of the Obligations so that interest for the entire term
does not exceed the Maximum Rate.
Section 13.13 Notices. All notices and other communications provided
for in any Loan Document to which Borrower or any Obligated Party is a party
shall be given or made in writing and telecopied, mailed by certified mail
return receipt requested, or delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof
and, if to an Obligated Party, at the address for notices for Borrower, or,
as to any party, at such other address as shall be designated by such party
in a notice to each other party given in accordance with this Section.
Except as otherwise provided in any Loan Document, all such communications
shall be deemed to have been duly given when transmitted by telecopy,
subject to telephone confirmation of receipt, or when personally delivered
or, in the case of a mailed notice, three (3) Business Days after being
duly deposited in the mails, in each case given or addressed as aforesaid;
provided, however, notices to the Agent pursuant to Sections 2.7, 4.1 or 4.3
shall not be effective until received by the Agent.
<PAGE>
Section 13.14 Governing Law; Venue; Service of Process. This Agreement
shall be governed by and construed in accordance with the laws of the State
of Texas and the applicable laws of the United States. ANY ACTION OR
PROCEEDING AGAINST BORROWER UNDER OR IN CONNECTION WITH ANY LOAN DOCUMENT
MAY BE BROUGHT IN ANY STATE COURT LOCATED IN DALLAS, TEXAS OR ANY FEDERAL
COURT IN THE NORTHERN DISTRICT OF TEXAS. BORROWER HEREBY IRREVOCABLY (a)
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (b) WAIVES
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH
ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY
BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS
ADDRESS SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 13.13 OF THIS AGREEMENT. NOTHING IN THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT SHALL AFFECT THE RIGHT OF THE AGENT OR ANY BANK TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF
THE AGENT OR ANY BANK TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER
OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER JURISDICTION.
ANY ACTION OR PROCEEDING BY BORROWER AGAINST THE AGENT OR ANY BANK SHALL
BE BROUGHT ONLY IN A COURT LOCATED IN DALLAS, TEXAS.
Section 13.15 Counterparts. This Agreement may be executed in one or
more counterparts and on telecopy counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and
the same agreement.
Section 13.16 Severability. Any provision of any Loan Document held
by a court of competent jurisdiction to be invalid or unenforceable shall
not impair or invalidate the remainder of any Loan Document and the effect
thereof shall be confined to the provision held to be invalid or illegal.
Section 13.17 Headings. The headings, captions, and arrangements used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 13.18 Non-Application of Chapter 346 of the Finance Code of
Texas. The provisions of Chapter 346 of the Finance Code of Texas are
specifically declared by the parties hereto not to be applicable to any
Loan Documents or to the transactions contemplated thereby.
Section 13.19 Construction. Borrower, each Obligated Party (by its
execution of the Loan Documents to which its is a party), the Agent, and
each Bank acknowledges that each of them has had the benefit of legal
counsel of its own choice and has been afforded an opportunity to review
the Loan Documents with its legal counsel and that the Loan Documents shall
be construed as if jointly drafted by the parties thereto.
Section 13.20 Independence of Covenants. All covenants under the Loan
Documents shall be given independent effect so that if a particular action
or condition is not permitted by any of such covenants, the fact that it
would be permitted by an exception to, or be otherwise within the
limitations of, another covenant shall not avoid the occurrence of a
Default if such action is taken or such condition exists.
<PAGE>
Section 13.21 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT
OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREBY OR THE ACTIONS OF THE AGENT OR ANY BANK IN THE NEGOTIATION,
ADMINISTRATION, OR ENFORCEMENT THEREOF.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
BORROWER:
NCH CORPORATION
By: /s/ Tom Hetzer
------------------------
Name: Tom Hetzer
------------------------
Title: Vice President - Finance
------------------------
Address for Notices:
2727 Chemsearch Blvd.
Irving, Texas 75062
Fax No.: 972-438-0404
Telephone No.: 972-438-0504
Attention: Tom Hetzer
<PAGE>
AGENT:
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION,
individually as a Bank and as the Agent
By: /s/ Allen K. King
-----------------
Name: Allen K. King
-----------------
Title: Vice President
-----------------
Address for Notices:
1111 Fannin, 9th Floor, MS46
Houston, Texas 77002
Fax No.: 713 750-3810
Telephone No.: 713 750-2784
Attention: Loan Syndication Services
re: NCH Corporation
With a copy to:
P.O. Box 660197
2200 Ross Avenue
Dallas, Texas 75266-0197
Fax No.:214 965-2990
Telephone No.:214 965-2422
Attention: Corporate Banking Group
Lending Office for Base Rate Accounts,
and Eurodollar Accounts:
1111 Fannin
Houston, Texas 77002
<PAGE>
BANK ONE, TEXAS, N.A.
By: /s/ Fred Points
---------------
Name: Fred Points
---------------
Title: Vice President
---------------
Address for Notices:
1717 Main Street, Third Floor
Dallas, Texas 75201
Fax: 214-290-2367
Telephone: 214-290-2683
Attention: Fred Points
Lending Office for Base Rate Accounts and
Eurodollar Accounts:
1717 Main Street, Third Floor
Dallas, Texas 75201
<PAGE>
NCH CORPORATION AND SUBSIDIARIES
EXHIBIT 10.1.3 FIRST AMENDMENT TO CREDIT AGREEMENT AMONG NCH CORPORATION
AS BORROWER, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, AS AGENT
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment") dated as of
May 28, 1999 is among NCH CORPORATION, a corporation duly organized and
validly existing under the laws of the State of Delaware ("Borrower"), each
of the banks or other lending institutions which is a signatory hereto
(individually, a "Bank" and, collectively, the "Banks"), and CHASE BANK OF
TEXAS, NATIONAL ASSOCIATION, individually as a Bank and as agent for itself
and the other Banks (in its capacity as agent, the "Agent").
RECITALS:
Borrower, the Agent, and the Banks have entered into that certain Credit
Agreement dated as of August 7, 1998 (as the same may hereafter be amended
or otherwise modified, the "Agreement"). Borrower, Agent and the Banks now
desire to amend the Agreement as herein set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows, effective as
of the date hereof unless otherwise indicated:
ARTICLE 1.
Definitions
Section 1.1. Definitions. Capitalized terms used in this Amendment,
to the extent not otherwise defined herein, shall have the same meanings as
in the Agreement, as amended hereby.
ARTICLE 2.
Amendments
Section 2.1. Amendment to Article 9. Article 9 is amended to add a
new Section 9.6 to read in its entirety as follows:
Section 9.6 Limitation on Plan Debt. Borrower will not permit
the Plan Debt outstanding as of the last day of each Fiscal Quarter
to exceed an amount equal to Thirty-Five percent (35%) of the
Consolidated Total Assets as of such last day. As used herein, the
term "Plan Debt" means, at the time of determination, all liabilities
in respect of all unfunded postsettlement and postemployment
benefits, including but not limited to unfunded vested benefits under
any Plan or Non-US. Employee Plan, as determined for Borrower on a
consolidated basis. As used herein, the term "Consolidated Total
Assets" means, as of any date, the total assets of the Borrower and
the Subsidiaries as reflected on a consolidated balance sheet of the
Borrower prepared in accordance with GAAP as of such date.
Section 2.2. Amendment to Section 10.2 The definition of the term
"Total Debt" as set forth in Section 10. 2 is amended in its entirety to
read as follows:
"Total Debt" means, at the time of determination, the sum of the
following determined for Borrower on a consolidated (without
duplication): (a) all obligations for borrowed money; (b) all
obligations of such Person evidenced by bonds, notes, debentures,
or other similar instruments; (c) all Capital Lease Obligations;
(d) all reimbursement obligations of such Person (whether contingent
or otherwise) in respect of letters of credit, bankers' acceptances,
surety or other bonds, and similar instruments; and (e) all
obligations, contingent or otherwise, for the payment of money
under any noncompete, consulting or similar agreement entered into
with the seller of an acquired company (whether by stock or asset
acquisition) or any other similar arrangements providing for the
deferred payment of the purchase price for an acquisition
consummated prior to the date hereof.
Section 2.3. Amendment to Exhibit "B". Exhibit "B" is amended in
its entirety to read as set forth on Exhibit "B" hereto.
ARTICLE 3.
Miscellaneous
Section 3.1. Ratifications. The terms and provisions set forth in
this Amendment shall modify and supersede all inconsistent terms and
provisions set forth in the Agreement and except as expressly modified
and superseded by this Amendment, the terms and provisions of the Agreement
and the other Loan Documents are ratified and confirmed and shall continue
in full force and effect. Borrower, the Agent, and the Banks party hereto
agree that the Agreement as amended hereby and the other Loan Documents
shall continue to be legal, valid, binding and enforceable in accordance
with their respective terms.
Section 3.2. Representations and Warranties. Borrower hereby
represents and warrants to Agent and the Banks as follows: (a) after giving
effect to this Amendment, no Default has occurred and is continuing; and
(b) the representations and warranties set forth in the Loan Documents are
true and correct in all material respects on and as of the date hereof with
the same effect as though made on and as of such date except with respect
to any representations and warranties limited by their terms to a specific
date.
Section 3.3. Survival of Representations and Warranties. All
representations and warranties made in this Amendment shall survive the
execution and delivery of this Amendment, and no investigation by Agent or
any Bank or any closing shall affect the representations and warranties or
the right of Agent and the Banks to rely upon them.
Section 3.4. Reference to Agreement. Each of the Loan Documents,
including the Agreement, are hereby amended so that any reference in such
Loan Documents to the Agreement shall mean a reference to the Agreement as
amended hereby.
Section 3.5. Expenses of Bank. As provided in the Agreement, Borrower
agrees to pay on demand all costs and expenses incurred by Agent in
connection with the preparation, negotiation, and execution of this
Amendment, including without limitation, the costs and fees of Agent's
legal counsel.
Section 3.6. Severability. Any provision of this Amendment held by
a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Amendment and the effect thereof
shall be confined to the provision so held to be invalid or unenforceable.
Section 3.7. Applicable Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and the
applicable laws of the United States of America.
Section 3.8. Successors and Assigns. This Amendment is binding upon
and shall inure to the benefit of Agent, each Bank and Borrower and their
respective successors and assigns, except Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior
written consent of the Banks.
Section 3.9. Counterparts. This Amendment may be executed in one or
more counterparts and on telecopy counterparts, each of which when so
executed shall be deemed to be an original, but all of which when taken
together shall constitute one and the same agreement.
Section 3.10. Effect of Waiver. No consent or waiver, express or
implied, by Agent or any Bank to or for any breach of or deviation from
any covenant, condition or duty by Borrower or any Obligated Party shall
be deemed a consent or waiver to or of any other breach of the same or
any other covenant, condition or duty.
Section 3.11. Headings. The headings, captions, and arrangements
used in this Amendment are for convenience only and shall not affect
the interpretation of this Amendment.
Section 3.12. ENTIRE AGREEMENT. THIS AMENDMENT EMBODIES THE FINAL,
ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED
OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL
AGREEMENTS AMONG THE PARTIES HERETO.
Executed as of the date first written above.
NCH CORPORATION
By: /s/ Tom Hetzer
------------------------------------
Tom Hetzer, Vice President -Finance
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION,
individually as a Bank and as the Agent
By: /s/ Mike Lister
---------------------------
Mike Lister, Vice President
BANK ONE, TEXAS, N.A.
By: /s/ Thomas R. Freas
----------------------------------
Thomas R. Freas, Managing Director
Obligated Party Consent
Each of the undersigned Obligated Parties: (i) consent and agree to
this Amendment; and (ii) agree that the Guaranty shall remain in full force
and effect and shall continue to be the legal, valid and binding obligation
of such Obligated Party enforceable against it in accordance with their
respective terms.
OBLIGATED PARTIES:
PLUMBMASTER, INC.
RESOURCE ELECTRONICS, INC.
LSP PRODUCTS GROUP, INC.
CORNERSTONE DIRECT CORPORATION
By: /s/ Tom Hetzer
--------------------------
Tom Hetzer, Vice President
of each Obligated Party
<PAGE>
NCH CORPORATION AND SUBSIDIARIES
EXHIBIT 13
ANNUAL REPORT FOR THE YEAR ENDED APRIL 30, 1999
Selected Financial Data
NCH Corporation and Subsidiaries
(In Thousands Except Per Share Data)
Years Ended April 30,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Net Sales $786,693 $784,095 $766,761 $772,834 $735,098
Net Income $ 24,361 $ 35,695 $ 34,675 $ 36,307 $ 35,582
Earnings Per
Share
Basic $4.27 $4.98 $4.73 $4.51 $4.29
Diluted $4.25 $4.97 $4.73 $4.51 $4.27
Current Ratio 2.9 to 1 3.7 to 1 3.4 to 1 3.3 to 1 3.5 to 1
Total Assets $432,841 $519,704 $497,591 $514,404 $529,137
Long-Term Debt $ 1,104 $ 1,400 $ 112 $ 49 $ 4,761
Retirement and
Deferred
Compensation
Plans $115,162 $111,088 $107,057 $ 99,915 $ 92,157
Cash Dividends
Declared
Per Share $1.40 $1.35 $2.20 $2.20 $2.15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
Liquidity and Capital Resources
-------------------------------
In the fiscal year ended April 30, 1999, working capital decreased to
$201.1 million from $288.7 million at April 30, 1998. The current ratio was
2.9 to 1 at April 30, 1999, compared to 3.7 to 1 at April 30, 1998. The
total of cash, cash equivalents and marketable securities decreased by
$95.8 million to $23.0 million at April 30, 1999. Net cash flow from
operations totaled $34.9 million for fiscal 1999. Additional cash was
provided by the net redemptions of marketable securities of $98.3 million,
and the borrowing of cash surrender values of company-owned life insurance
policies on key employees of $2.0 million. Principal uses of cash
consisted of treasury stock purchases of $106.0 million, net capital
expenditures of $11.7 million, and payment of dividends of $7.8 million.
During the year, the Company purchased the assets of several small
domestic businesses for $2.8 million. Management expects that operating
cash flows will continue to generate sufficient funds to finance operating
needs, capital expenditures and the payment of dividends. Long-term and
short-term indebtedness has usually been limited to the borrowing of local
country currencies by the Company's international subsidiaries to finance
working capital requirements, although the Company has incurred debt
domestically related to domestic acquisitions or when financially
advantageous.
The Company's international subsidiaries operate on a fiscal year
ending on the last day of February. At February 28, 1999, the value of
the U.S. dollar had increased relative to most of the currencies in which
the Company's international subsidiaries operate. As a result, the
reported values of both assets and liabilities of the Company's
international subsidiaries decreased as a result of the change in the
Company's composite spot rate at February 28, 1999, compared to February 28,
1998. This is reflected by the foreign currency translation component of
accumulated other comprehensive loss, which increased $2.5 million to a
$36.3 million reduction of equity at April 30, 1999.
As reported on the Consolidated Balance Sheets, accounts receivable
increased by $5.5 million in the year ended April 30, 1999. The change
in accounts receivable presented in the Consolidated Statements of Cash
Flows excludes the effect of exchange rates on the reported asset values
and shows that accounts receivable, net of the provision for losses,
increased by $5.3 million compared to the end of the prior year. The
increase in accounts receivable was primarily due to increased sales in
certain of the Company's domestic operations during the current quarter.
<PAGE>
As reported on the Consolidated Balance Sheets, inventories decreased
by $.5 million in the year ended April 30, 1999. The change in inventories
presented in the Consolidated Statements of Cash Flows excludes the effect
of exchange rates on the reported asset values and shows that inventories
decreased slightly in the same period. Inventories decreased
internationally due to lower international sales, and this decrease was
partially offset by increased inventory levels domestically due to higher
domestic sales in the current year.
Accounts payable, accrued expenses and income taxes payable increased
by $1.8 million as reported on the Consolidated Balance Sheets. Income
taxes payable increased due to the timing of payments in the current year
as compared to the prior year. Accrued expenses increased due to increased
international marketing costs. Accounts payable decreased as a result of
normal business activity associated with timing of payments.
Net capital expenditures for property, plant and equipment were $11.7
million for the year ended April 30, 1999. These consisted of the
installation and update of worldwide computer systems and normal additions
of operating equipment. Capital expenditures for the upcoming year will
not vary significantly from the current year.
Deferred tax benefits represent future income tax deductions and,
therefore, impact future cash flows by reducing federal income taxes to be
paid in future years in which the temporary differences are expected to be
recovered or settled. Management believes the Company will have sufficient
future taxable income to make it more likely than not that the net deferred
tax assets will be realized.
Total bank indebtedness, comprised of long-term debt, current
maturities of long-term debt and notes payable, decreased $2.2 million as
reported on the Consolidated Balance Sheets. During the year, short-term
borrowings, primarily in Europe, were repaid. Of the $1.4 million in
long-term debt and current maturities, $1.3 million is a note payable
related to the purchase of a small domestic business. The remaining
long-term debt and current maturities and all $5.3 million of notes payable
consist of international subsidiary borrowings in local country currencies
used primarily to finance working capital requirements.
The retirement and deferred compensation plan liability on the
Consolidated Balance Sheets represents compensation deferred by employees
and accrued interest on such deferrals as well as accrued retirement
benefits under non-qualified retirement plans. Deferred compensation is
expensed as earned with a liability recorded for payment in future years.
During fiscal year 1999, cash dividends paid amounted to $7.8 million
($1.40 per share) compared to $9.3 million in 1998 ($1.40 per share). On
April 14, 1999, the directors of the Company declared a regular quarterly
cash dividend of $.35 per share of Common Stock to be paid June 15, 1999,
to shareholders of record June 1, 1999.
During the fiscal year, the Company repurchased a total of 1,769,387
shares of NCH Common Stock for an aggregate price of $106.0 million.
<PAGE>
In August 1998, the Company obtained a $50 million unsecured credit
facility from a group of banks which expires in August 2001, and is
available for acquisitions and general corporate purposes. During fiscal
1999, the Company did not borrow any amount under this credit facility.
Sales and Operating Income - Fiscal 1999 to Fiscal 1998
-------------------------------------------------------
Net Sales Operating Income
Years Ended April 30, Years Ended April 30,
1999 1998 1999 1998
-------- -------- -------- --------
Chemical Specialties $426,717 $427,126 $ 32,571 $ 36,883
Plumbmaster Group 120,553 106,584 3,254 843
Resource Electronics 63,468 68,629 (1,739) 1,159
Partsmaster Group 85,250 79,739 8,198 9,972
Landmark Direct 28,281 20,332 1,315 (659)
Other Product Lines 62,424 81,685 7,376 5,673
Unallocated Corporate
Expenses - - (2,469) (2,124)
-------- -------- -------- --------
Total $786,693 $784,095 $ 48,506 $ 51,747
======== ======== ======== ========
Net sales were $786.7 million in fiscal 1999 compared to $784.1 million
in fiscal 1998. Domestic net sales increased 1% from fiscal 1998 to 1999.
Toward the end of fiscal 1998, two domestic subsidiaries were sold. Net
sales in fiscal 1998 for these two subsidiaries amounted to $32.2 million.
For comparison purposes, total net sales increased 5% in fiscal 1999 and
domestic net sales increased 10% when the net sales for these two
subsidiaries are excluded from fiscal 1998. Net sales from total
international operations increased 2% from fiscal 1998 to 1999 when
measured on a local currency basis. Due to the strengthening of the U.S.
dollar, sales from international operations reflected a decrease of 1% from
fiscal 1998 to 1999 as reported in U.S. dollars. Fiscal 1999 international
sales are also lower due to the general economic downturn in Asia and in
South America due to weak economies in major markets. In the Chemical
Specialties segment, net sales decreased slightly from fiscal 1998 to
1999 due to a decrease in international sales, as measured in U.S. dollars,
which offset increased domestic sales. An estimated $8 million of the
decrease in international sales is attributable to the strength of the U.S.
dollar in fiscal 1999 compared to 1998. Net sales in the Plumbmaster Group
increased 13% from 1998 to 1999 as a result of increased domestic sales to
major home building supply centers. Resource Electronics had an 8% decrease
in net sales from 1998 to 1999 as a result of lower sales prices in the
electronics business due to competition in Far East markets. Net sales in
the Partsmaster Group increased 7% from 1998 to 1999, primarily due to
increased domestic sales. Net sales for Landmark Direct increased 39%
from 1998 to 1999 primarily due to the acquisition of a small company in
April 1998. Net sales for Landmark Direct increased 10% without the
acquisition. Net sales in the Other Product Lines decreased 24% primarily
as a result of the sale of two subsidiaries in April 1998, offset partially
by increased revenues from satellite broadcasting distribution agreements.
<PAGE>
Operating income decreased to $48.5 million in fiscal 1999 from $51.7
million in 1998. Excluding the results of the two subsidiaries sold in
April 1998, operating income for fiscal 1998 would have been $48.5 million.
Domestic operating margins improved slightly from fiscal 1998 to 1999 due
to decreased marketing costs, partially offset by increased cost of sales
and administrative expenses. Internationally, operating margins decreased
due to increased cost of sales and marketing costs in fiscal 1999 compared
to 1998. In the Chemical Specialties segment, operating income decreased
12%, due to decreases in international margins. Of this decrease,
approximately 3%, or one million dollars, is attributable to the strength
of the U.S. dollar in fiscal 1999 compared to 1998. Operating income for
the Plumbmaster Group increased $2.4 million due to increased domestic
sales and reductions in material costs for purchased goods. Resource
Electronics had a decrease in operating income of $2.9 million due to
lower margins from reduced sales prices as discussed above. Operating
income for Partsmaster Group decreased 18%, due to increased international
marketing costs. Operating income for Landmark Direct increased $2.0
million due to the acquisition of a small company and decreased expenses
related to printing and mailing catalogs. Operating income in the Other
Product Lines increased due to increased revenue related to satellite
broadcasting distribution agreements.
Sales and Operating Income - Fiscal 1998 to Fiscal 1997
-------------------------------------------------------
Net Sales Operating Income
Years Ended April 30, Years Ended April 30,
1998 1997 1998 1997
-------- -------- -------- --------
Chemical Specialties $427,126 $439,545 $ 36,883 $ 43,913
Plumbmaster Group 106,584 103,496 843 2,832
Resource Electronics 68,629 62,297 1,159 645
Partsmaster Group 79,739 79,659 9,972 10,097
Landmark Direct 20,332 18,348 (659) (1,438)
Other Product Lines 81,685 63,416 5,673 2,219
Unallocated Corporate
Expenses - - (2,124) (2,017)
-------- -------- -------- --------
Total $784,095 $766,761 $ 51,747 $ 56,251
======== ======== ======== ========
<PAGE>
Net sales of $784.1 million in fiscal 1998 were 2% higher than net
sales of $766.8 million in fiscal 1997. Domestic net sales increased 10%
from fiscal 1997 to 1998. Net sales from total international operations
increased 4% from fiscal 1997 to 1998 when measured on a local currency
basis. Due to the strengthening of the U.S. dollar, sales from
international operations reflected a decrease of 6% from fiscal 1997 to 1998
as reported in U.S. dollars. In the Chemical Specialties segment, net
sales decreased 3% from fiscal 1997 to 1998 mainly due to a decrease in
international sales, as measured in U.S. dollars. An estimated $35 million
decrease in reported international sales is attributable to the strength of
the U.S. dollar in fiscal 1998 compared to 1997. Net sales in the
Plumbmaster Group increased 3% from 1997 to 1998 as a result of increased
domestic sales. Resource Electronics had a 10% increase in net sales from
1997 to 1998 as a result of growth in the data communications market. Net
sales in the Partsmaster Group were flat from 1997 to 1998. Net sales
for Landmark Direct increased 11% from 1997 to 1998 due to increased
catalog sales of first aid supplies. Net sales in Other Product Lines
increased 29% primarily as a result of the acquisition of a business in
early 1998.
Operating income decreased to $51.7 million in fiscal 1998 compared to
$56.3 million in 1997, due to the strengthening of the U.S. dollar and
lower operating margins in the international operations. Domestic
operating margins improved slightly from fiscal 1997 to 1998 due to
decreased marketing and administrative costs, partially offset by
increased cost of sales. Internationally, operating margins decreased
due to increased marketing and administrative expenses in fiscal 1998
compared to 1997. In the Chemical Specialties segment, operating income
decreased 16%, due to decreases in both international and domestic
margins. Of this decrease, approximately 10%, or $4 million, is
attributable to the strength of the U.S. dollar in fiscal 1998 compared
to 1997. Operating income for the Plumbmaster Group decreased $2.0
million due to increased material costs in the domestic operations.
Resource Electronics had an increase in operating income of $.5 million
resulting from the increased sales noted above. Operating income for
Partsmaster Group decreased slightly, due to lower international
margins, and was partially offset by higher domestic margins. The
decrease in the operating loss for Landmark Direct is due to increased
sales of first aid supplies. Operating income in Other Product Lines
increased due to the acquisition of a business and also due to increases
from safety products, pet products, and revenues from satellite
broadcasting distribution agreements.
Other Operating Results - Fiscal Years 1999, 1998 and 1997
----------------------------------------------------------
In fiscal year 1999, the Company reported net interest expense of
$2.7 million compared to net interest expense of $.4 million in 1998.
This decrease is due to the reduction of marketable securities during
1999 as compared to 1998, which reduced interest income. The $.4
million in net interest expense in fiscal 1998 compared to net interest
income of $.8 million in 1997.
<PAGE>
Loss on revaluation of foreign currencies was $1.5 million in fiscal
1999 compared to $2.3 million in fiscal 1998. The current year loss is
primarily due to translation losses in hyper-inflationary countries. In
fiscal 1998, loss on currency revaluation was $2.3 million compared to a
loss of $2.4 million in 1997. The fiscal 1998 loss is attributable to
foreign exchange expense in certain European and Pacific subsidiaries and
translation losses in hyper-inflationary countries.
During April 1998, the Company sold two subsidiaries, resulting in a
gain of $11.0 million before taxes ($7.1 million after taxes). Sales for
these two subsidiaries were less than 5% of the Company's consolidated
annual sales, and therefore this transaction has not had a material
impact on the Company's operations. During fiscal year 1997, the
Company sold subsidiary assets, resulting in a gain of $3.5 million
before taxes ($2.3 million after taxes). This subsidiary's sales were
not a material portion of the Company's consolidated annual sales, and
therefore this transaction has not had a material impact on the Company's
operations.
The overall corporate tax rate for fiscal 1999 was 45.0% of pre-tax
income compared to 40.5% in 1998 and 40.4% in 1997. The increase in fiscal
year 1999 is due to the reduction of marketable securities during fiscal
1999, which reduced the amount of tax-exempt interest income. A
reconciliation of the effective tax rates to U.S. statutory rates is
contained in the Notes to Consolidated Financial Statements.
Net income in fiscal year 1999 decreased to $24.4 million from $35.7
million in 1998. Included in net income for the 1998 fiscal year are the
sales and income of two subsidiaries that were sold at the end of fiscal
1998. Net income for the two subsidiaries, including the gain on the sale
of the subsidiaries, amounted to $8.9 million for the 1998 fiscal year.
Basic earnings per share decreased to $4.27 per share in fiscal 1999, due
to the decrease in net income, and was partially offset by the decrease in
the weighted average number of common shares outstanding during the current
year. Diluted earnings per share also decreased to $4.25 per share in
fiscal 1999. Net income in fiscal 1998, including the gain on the sale of
subsidiaries, was 3% higher than the $34.7 million reported in 1997. Basic
earnings per share in fiscal 1998 were $4.98, a 5% increase from $4.73 in
1997, due to an increase in net income combined with a decrease in the
weighted average number of common shares outstanding during fiscal 1998.
Diluted earnings per share also increased 5% to $4.97 per share in fiscal
1998.
<PAGE>
Year 2000 Compliance
--------------------
The Company uses and relies on a wide variety of information
technologies, computer systems and scientific equipment containing computer-
related components. Some of the Company's older computer software programs
and equipment use two digit fields rather than four digit fields to define
the applicable year (i.e., "98" in the computer code refers to the year
"1998"). As a result, time-sensitive functions of those software programs
and equipment may misinterpret dates after January 1, 2000 to refer to the
twentieth century rather than to the twenty-first century (i.e., "02" could
be interpreted as "1902" rather than "2002"). This condition is commonly
referred to as the Year 2000 Issue. If the Year 2000 Issue is not resolved,
it could have a material adverse effect on the Company's business, financial
condition or results of operations.
The Company has addressed the potential exposures related to the Year
2000 Issue on its operations for the fiscal year 1999 and beyond. A review
of key financial, informational and operational systems has been completed.
All significant domestic and international systems have been replaced or
modified as necessary. Testing of these systems will be substantially
complete by August 1999. The Company believes that with these
modifications, the Year 2000 Issue will not have a material adverse effect
on its business, financial condition or results of operations. However,
there can be no assurance that these modifications will prevent a material
adverse effect on the Company's business, financial condition or results
of operations. The financial impact of any such material adverse effect
cannot be estimated at this time. The Company has contingency plans to
deal with major Year 2000 failures, and such plans are constantly being
monitored and will be revised as necessary.
In addition to risks associated with the Company's own computer
systems and equipment, the Company has relationships with, and is to
varying degrees dependent upon, a large number of third parties that provide
information, goods and services to the Company. These include corporate
partners, suppliers, vendors, financial institutions and governmental
entities. There can be no assurance that the systems of other organizations
on which the Company may rely will adequately address the Year 2000 Issue,
or that the failure of other organizations to address the Year 2000 Issue
will not have a material adverse effect on the Company's business, financial
condition or results of operations. However, most of the Company's
suppliers and customers have been contacted, and they have indicated that
they are Year 2000 compliant. There is not expected to be a disruption of
business due to suppliers' systems since the Company has numerous suppliers
for its products.
The total cost of systems' assessments and modifications related to
the Year 2000 Issue is funded through operating cash flows and has not been
material to date. The Company is expensing these costs as incurred. The
Company has identified resources to address the Year 2000 Issue. The
financial impact of making the required systems changes cannot be known
precisely at this time, but it is currently expected to be less than $2.0
million. The actual financial impact could, however, exceed this estimate.
<PAGE>
Euro Conversion
---------------
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies
("legacy currencies") and one common currency - the euro. The euro is now
trading on currency exchanges and can be used in business transactions.
Beginning in January 2002, new euro-denominated bills and coins will be
issued, and legacy currencies will be withdrawn from circulation. The
Company's operating subsidiaries affected by the euro conversion are
developing plans to address the systems and business issues affected by
the euro currency conversion. These issues include, among others, the
need to adapt computer and other business systems and equipment to
accommodate euro-denominated transactions. The Company does not expect
this conversion to have a material impact on its financial condition or
results of operations.
Forward-Looking Information
---------------------------
Management's Discussion and Analysis of Financial Condition and Results
of Operations and other sections of this Annual Report contain forward-
looking statements that are based on current expectations, estimates and
assumptions regarding the worldwide economy, technological innovation,
competitive activity, interest rates, pricing, and currency movements.
These statements are not guarantees of future results or events, and
involve certain risk and uncertainties which are difficult to predict
and many of which are beyond the control of the Company. Actual results
and events could differ materially from those anticipated by the
forward-looking statements.
<PAGE>
<TABLE>
Consolidated Statements of Income
NCH Corporation and Subsidiaries
(In Thousands Except Per Share Data)
Years Ended April 30,
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales $786,693 $784,095 $766,761
-------- -------- --------
Operating Expenses
Cost of sales, including
warehousing and commissions 434,628 427,304 403,317
Marketing and administrative
expenses 303,559 305,044 307,193
-------- -------- --------
738,187 732,348 710,510
Operating Income 48,506 51,747 56,251
Other (Expenses) Income
Revaluation of foreign
currencies (1,515) (2,318) (2,373)
Net interest (2,722) (434) 801
Gain on sale of subsidiaries - 10,972 3,536
-------- -------- --------
Income before Income Taxes 44,269 59,967 58,215
Provision for Income Taxes 19,908 24,272 23,540
-------- -------- --------
Net Income $ 24,361 $ 35,695 $ 34,675
======== ======== ========
Earnings Per Share
Basic $4.27 $4.98 $4.73
===== ===== =====
Diluted $4.25 $4.97 $4.73
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Consolidated Balance Sheets
NCH Corporation and Subsidiaries
(In Thousands Except Share Data)
As of April 30,
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 19,814 $ 17,139
Marketable securities 3,187 101,626
Accounts receivable (less allowance for
doubtful accounts of $17,272 and $15,653) 146,255 140,758
Inventories 107,995 108,478
Prepaid expenses 9,568 9,434
Deferred income taxes 21,454 19,099
-------- --------
Total Current Assets 308,273 396,534
-------- --------
Property, Plant and Equipment 195,315 191,514
Accumulated depreciation 118,590 112,353
-------- --------
76,725 79,161
-------- --------
Deferred Income Taxes 31,767 30,848
-------- --------
Other 16,076 13,161
-------- --------
Total $432,841 $519,704
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 5,318 $ 7,178
Current maturities of long-term debt 278 292
Accounts payable 46,351 49,083
Accrued expenses 29,545 28,019
Income taxes payable 23,776 20,736
Dividends payable 1,893 2,504
-------- --------
Total Current Liabilities 107,161 107,812
-------- --------
Long-Term Debt, less current maturities 1,104 1,400
-------- --------
Retirement and Deferred Compensation Plans 115,162 111,088
-------- --------
Stockholders' Equity
Common stock, par value $1 per share,
authorized 20,000,000 shares. Issued
11,769,304 shares 11,769 11,769
Additional paid-in-capital 12,714 12,289
Retained earnings 491,685 474,540
Accumulated other comprehensive loss (36,279) (33,675)
-------- --------
479,889 464,923
-------- --------
Less treasury stock
(6,361,010 and 4,615,605 shares) 270,475 165,519
-------- --------
209,414 299,404
-------- --------
Total $432,841 $519,704
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
NCH Corporation and Subsidiaries
(In Thousands)
Years Ended April 30,
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $24,361 $35,695 $34,675
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,053 14,992 15,092
Gain on sale of subsidiaries - (10,972) (3,536)
Provision for losses on accounts receivable 5,941 5,483 6,939
Deferred income taxes (3,170) (1,917) (3,723)
Retirement and deferred compensation plans 4,189 4,757 7,860
Other noncash items (469) 206 546
Change in assets and liabilities, excluding net assets
acquired in the purchase of businesses:
Accounts receivable (11,239) (8,883) (12,414)
Inventories 12 (6,459) (2,397)
Prepaid expenses (390) (3,240) (286)
Accounts payable, accrued expenses
and income taxes payable 2,360 (606) (381)
Other noncurrent assets (705) (1,308) (1,704)
-------- -------- --------
Net cash provided by operating activities 34,943 27,748 40,671
-------- -------- --------
Cash Flows from Investing Activities
Sales of property, plant and equipment 1,034 1,342 1,641
Purchases of property, plant and equipment (12,748) (13,935) (17,659)
Redemptions of marketable securities 104,221 36,589 45,927
Purchases of marketable securities (5,932) (68,407) (33,657)
Acquisition of businesses (2,773) (4,562) (246)
Sale of subsidiaries - 30,098 7,932
Other (1,005) (886) (1,012)
-------- -------- --------
Net cash provided by (used in) investing activities 82,797 (19,761) 2,926
-------- -------- --------
Cash Flows from Financing Activities
Proceeds from notes payable 2,346 5,172 2,296
Payments of notes payable (4,266) (427) (6,596)
Additional long-term debt - 98 114
Payments of long-term debt (310) (3,764) (24)
Borrowing of cash surrender values 2,023 1,930 1,914
Surrender of insurance contracts - - 6,452
Payments of dividends (7,827) (9,313) (15,999)
Purchases of treasury stock (105,963) (9,054) (30,052)
Proceeds from exercise of stock options 1,200 7,259 1,800
-------- -------- --------
Net cash used in financing activities (112,797) (8,099) (40,095)
-------- -------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (2,268) (4,022) (4,035)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 2,675 (4,134) (533)
Cash and Cash Equivalents at Beginning of Year 17,139 21,273 21,806
-------- -------- --------
Cash and Cash Equivalents at End of Year $19,814 $17,139 $21,273
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity
NCH Corporation and Subsidiaries
(In Thousands Except Per Share Data)
<CAPTION>
Accumulated
Common Treasury Common Treasury Additional Other
Stock Stock Stock Stock Paid-In Retained Comprehensive
Shares Shares Amount Amount Capital Earnings Loss Total
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1996 11,769 (4,105) $11,769 $(131,823) $7,912 $429,687 $(18,610) $298,935
Comprehensive income:
Net income 34,675 34,675
Foreign currency
translation adjustment (7,020) (7,020)
Unrealized losses on
investments (70) (70)
-------
Comprehensive income 27,585
-------
Cash dividends on common
stock, $1.90 per share (13,700) (13,700)
Dividend declared, but not
paid, $.30 per share (2,149) (2,149)
Treasury stock acquired (537) (30,052) (30,052)
Treasury stock issued under
stock plans 35 1,180 796 1,976
------- ------- ------- ------- ------- ------- ------- -------
Balance, April 30, 1997 11,769 (4,607) 11,769 (160,695) 8,708 448,513 (25,700) 282,595
------- ------- ------- ------- ------- ------- ------- -------
Comprehensive income:
Net income 35,695 35,695
Foreign currency
translation adjustment (8,046) (8,046)
Unrealized gains on
investments 71 71
-------
Comprehensive income 27,720
-------
Cash dividends on common
stock, $1.00 per share (7,164) (7,164)
Dividend declared, but not
paid, $.35 per share (2,504) (2,504)
Treasury stock acquired (137) (9,324) (9,324)
Treasury stock issued under
stock plans 128 4,500 3,581 8,081
------- ------- ------- ------- ------- ------- ------- -------
Balance, April 30, 1998 11,769 (4,616) 11,769 (165,519) 12,289 474,540 (33,675) 299,404
------- ------- ------- ------- ------- ------- ------- -------
Comprehensive income:
Net income 24,361 24,361
Foreign currency
translation adjustment (2,506) (2,506)
Unrealized losses on
investments (98) (98)
-------
Comprehensive income 21,757
-------
Cash dividends on common
stock, $1.05 per share (5,323) (5,323)
Dividend declared, but not
paid, $.35 per share (1,893) (1,893)
Treasury stock acquired (1,769) (105,963) (105,963)
Treasury stock issued under
stock plans 24 1,007 425 1,432
------- ------- ------- ------- ------- ------- ------- -------
Balance, April 30, 1999 11,769 (6,361) $11,769 $(270,475) $12,714 $491,685 $(36,279) $209,414
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Notes to Consolidated Financial Statements
NCH Corporation and Subsidiaries
Years Ended April 30, 1999, 1998, 1997
1. Summary of Significant Accounting Policies
Principles of consolidation - The consolidated financial statements
include the accounts of NCH Corporation and its majority owned subsidiaries
(the "Company"). Significant intercompany transactions and balances have
been eliminated. A February fiscal year-end is used for most international
subsidiaries in order to meet reporting requirements.
Nature of operations - The Company markets an extensive line of
maintenance, repair and supply products to customers throughout the world.
Products include specialty chemicals, fasteners, welding supplies, and
plumbing and electronic parts. These products are marketed principally
through the Company's own sales force.
Use of estimates in the financial statements - The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Foreign currency translation - With the exception of hyper-inflationary
countries, all assets and liabilities of operations outside the United
States are translated into U.S. dollars at period-end exchange rates, and
income and expenses are translated at average rates for the year. Gains and
losses resulting from translation are included in the foreign currency
translation adjustment component of accumulated other comprehensive loss.
The hyper-inflationary countries have been translated into U.S. dollar
equivalents as follows: current assets (except for inventories), current
liabilities, long-term debt and other liabilities at period-end exchange
rates; inventories, property, other assets, capital stock and retained
earnings at historical rates; income and expense items at average rates for
the year, except for cost of sales and depreciation expense, which are
translated at historical rates. Gains and losses resulting from
translation for hyper-inflationary countries are recognized in the income
statement as expense or income in the current period. Exchange adjustments
resulting from foreign currency transactions are recognized as expense or
income in the current period for all countries.
Cash and cash equivalents and marketable securities - Cash and cash
equivalents include cash on hand, cash in banks and all highly liquid
investments with a maturity of three months or less at the time of purchase.
Cash equivalents are stated at amortized cost plus accrued interest.
Marketable securities are stated at estimated fair value.
Inventories - Raw materials, sales supplies and purchased finished goods
are stated at a moving average cost, which approximates cost on a first-in,
first-out basis and is not in excess of market value. Manufactured finished
goods are stated at an amount approximating cost of manufacturing, which is
not in excess of net realizable value.
<PAGE>
Property, plant and equipment - These assets are recorded at cost. When
these assets are disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is included in
income during that year. The cost of maintenance and repairs is charged to
expense as incurred, whereas expenditures that substantially increase the
useful lives of plant or equipment are capitalized.
Depreciation - Depreciation on buildings and equipment is provided for
financial statement purposes using the straight-line method over the
estimated useful lives of the related assets. Depreciation on certain
buildings and equipment is provided for income tax purposes using
accelerated methods.
Intangible assets - Intangible assets are classified as other assets in
the consolidated financial statements and include patents, computer software
and trademarks. Intangible assets are amortized using the straight-line
method over their estimated useful lives, but not in excess of 40 years.
The unamortized cost of impaired intangible assets is charged to expense
when impairment occurs.
Research and development - Research and development costs, which are
included in the costs of laboratory operations, are charged to expense as
incurred. Research and development costs, however, cannot be separately
identified from the total laboratory costs. Total laboratory costs amounted
to approximately $5.3 million in 1999, $5.5 million in 1998 and $5.0 million
in 1997.
Income taxes - Deferred income taxes result from temporary differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. State income tax has been
included in the provision for income taxes and income taxes payable.
Treasury stock - Treasury stock is stated at cost.
Retirement plans - The Company's policy is to fund its qualified
retirement type plans as accrued. The cost of these retirement benefits for
past service has been fully funded. Non-qualified retirement plans are not
funded, but provision for the estimated liabilities arising from these plans
has been made in the consolidated financial statements.
Postretirement benefits other than pensions - The Company charges to
expense the estimated future costs of retiree health care benefits during
the years that employees render service. The postretirement health care
benefit plan is not funded.
Stock options - The Company issues shares from its treasury as options
are exercised. When an option is exercised, treasury stock is credited with
the average cost of the treasury shares issued, and additional paid-in
capital is charged or credited for the difference between the option price
and the average cost of the treasury shares. No charge to income is made
in connection with the stock option plan. The Company applies the
disclosure provisions of Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation". For the impact of the
fair value of employee stock options granted during fiscal years 1996
through 1999, see footnote 8, "Capital Stock and Options".
<PAGE>
Earnings per share - Basic earnings per share is computed by dividing
net income by the weighted-average number of shares outstanding. Diluted
earnings per share includes the dilutive effect of stock options.
Comprehensive income - Effective May 1, 1998, the Company adopted SFAS
No. 130, "Reporting Comprehensive Income". The adoption of this statement
had no impact on the Company's net income or stockholders' equity. SFAS No.
130 establishes new standards for the reporting and display of comprehensive
income and its components. SFAS No. 130 requires foreign currency
translation adjustments and unrealized gains or losses on the Company's
available-for-sale securities to be included in the measure of comprehensive
income and segregated in stockholders' equity as accumulated other
comprehensive income. Amounts in prior periods financial statements have
been reclassified to conform to SFAS No. 130.
Segment and geographic area information - In 1999, the Company adopted
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which changes the way the Company externally reports
information about its operating segments. The Company's operating segment
information for 1997 and 1998 has been restated from the prior years'
presentation in order to conform to the 1999 presentation.
2. Consolidated International Subsidiaries
At April 30, 1999 and 1998, the parent Company's investment in
consolidated international subsidiaries amounted to $47,342,000 and
$46,752,000. The current year consolidated financial statements include
international subsidiaries' assets of $146,321,000, liabilities of
$61,435,000 and net income of $4,516,000, after allocation of corporate
expenses and excluding intercompany sales and profits. For the prior
year, these subsidiaries had assets of $151,068,000, liabilities of
$63,579,000 and net income of $8,396,000.
<PAGE>
3. Income Taxes
The following are the components of the provision for income taxes (in
thousands of dollars):
Years Ended April 30,
-------------------------------
1999 1998 1997
------- ------- -------
U.S. Federal
Current $ 9,483 $10,754 $11,425
Deferred (2,713) (2,375) (3,888)
Foreign
Current 11,935 13,096 14,429
Deferred (457) 458 165
State 1,660 2,339 1,409
------- ------- -------
$19,908 $24,272 $23,540
======= ======= =======
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
The components of deferred tax assets and liabilities as of April 30 are
as follows (in thousands of dollars):
1999 1998
-------- --------
Deferred tax assets:
Allowance for doubtful accounts $ 3,605 $ 3,771
Inventory related 6,431 4,858
Insurance related 3,101 3,679
Accrued expenses 6,092 6,112
Retirement and deferred compensation plans 37,969 36,479
Marketable securities (7) (59)
Foreign operating loss carryforwards 2,327 1,092
Valuation allowance (36) (16)
-------- --------
59,482 55,916
-------- --------
Deferred tax liabilities:
Depreciation 4,537 4,455
Other 1,724 1,514
-------- --------
6,261 5,969
-------- --------
Net deferred tax asset $53,221 $49,947
======== ========
<PAGE>
A valuation allowance has been provided for certain foreign net
operating loss carryforwards which are estimated to expire before they are
utilized. The valuation allowance increased by $20,000 during the year
ended April 30, 1999. The valuation allowance decreased during the years
ended April 30, 1998 and 1997 by $39,000 each year.
The following is a reconciliation of the difference between the U.S.
statutory income tax rate and the effective tax rate:
Years Ended April 30,
------------------------------
1999 1998 1997
------ ------ ------
U.S statutory rate 35.0% 35.0% 35.0%
Tax exempt interest (.2) (1.7) (1.8)
Other 0.8 .8 .5
Effect of international operations 7.0 3.9 5.2
Effect of state income taxes 2.4 2.5 1.5
------ ------ ------
Effective tax rate 45.0% 40.5% 40.4%
====== ====== ======
The Company files a consolidated U.S. federal income tax return with
its domestic subsidiaries. International subsidiaries file tax returns in
countries of their incorporation. In addition, branches of certain U.S. and
international companies file tax returns in countries in which they conduct
business. Certain of these subsidiaries have operating loss carryforwards
totaling approximately $5,818,000, which will expire between 2000 and 2005.
The accumulated undistributed earnings of international subsidiaries not
included in the consolidated U.S. federal income tax return approximated
$78,157,000 at April 30, 1999, $74,146,000 at April 30, 1998 and $74,834,000
at April 30, 1997. No provision is made in the accompanying consolidated
financial statements for the estimated taxes that would result on
distribution of the accumulated undistributed earnings since the Company
intends to invest indefinitely in the operations of these subsidiaries.
Income from U.S. operations before income taxes was $23,051,000 in 1999,
$30,680,000 in 1998, and $24,175,000 in 1997. Income from foreign
operations before income taxes for the same three years was $21,218,000,
$29,287,000, and $34,040,000, respectively. For 1999, 1998 and 1997,
worldwide income tax payments amounted to $19,955,000, $24,227,000 and
$25,045,000, respectively.
4. Inventories
A summary of inventories at April 30 follows (in thousands of dollars):
1999 1998
-------- --------
Raw materials $ 13,772 $ 13,904
Finished goods 92,705 92,795
Sales supplies 1,518 1,779
-------- --------
$107,995 $108,478
-------- --------
<PAGE>
5. Property, Plant and Equipment
Property, plant and equipment at April 30 consists of the following
(in thousands of dollars):
1999 1998
-------- --------
Land $ 12,182 $ 12,605
Buildings 76,798 78,243
Equipment 106,335 100,666
-------- --------
$195,315 $191,514
-------- --------
Depreciation charged to income was $12,738,000, $13,633,000 and
$13,882,000 for each of the years ended April 30, 1999, 1998 and 1997,
respectively. The estimated useful life of buildings is 25 to 40 years;
equipment is 3 to 10 years.
6. Long-Term Debt
Long-term debt at April 30 consists of the following (in thousands
of dollars):
1999 1998
------ ------
Borrowed by domestic companies:
Note issued to individual in connection with
purchase of business, at 5.43%,
principal and interest payable
annually through 2005. $1,286 $1,500
Borrowed by international companies 96 192
------ ------
1,382 1,692
Less current maturities 278 292
------ ------
Long-term debt, less current maturities $1,104 $1,400
====== ======
Scheduled maturities of long-term debt for the years following April
30, 1999, are as follows:
2000 $ 278,000
2001 244,000
2002 216,000
2003 214,000
2004 214,000
Thereafter 216,000
----------
Total $1,382,000
----------
<PAGE>
In August 1998, the Company obtained a $50 million unsecured credit
facility from a group of banks which expires in August 2001, and is
available for acquisitions and general corporate purposes. Interest on
the credit facility is generally payable quarterly, and at the Company's
option of the Eurodollar rate plus 0.6%, or the federal funds rate plus
0.5% (which will not exceed the bank's prime rate). The credit facility
is governed by certain financial covenants, including minimum tangible net
worth and a maximum leverage ratio. During fiscal 1999, the Company did
not borrow any amount under this credit facility.
7. Employee Benefits
Retirement plans - The parent and its domestic subsidiaries have
various qualified retirement type plans covering substantially all
domestic employees. None of these plans have defined benefits.
Some of the international subsidiaries also have non-defined benefit
retirement plans. These plans are funded on a current basis, and the
cost of retirement benefits for past service has been fully funded. In
addition, the Company has non-qualified deferred compensation plans for the
primary purpose of providing retirement benefits. These plans are not
funded, but provision for the estimated liabilities arising from these
plans has been made in the consolidated financial statements.
Expenses for retirement plans, exclusive of interest expense, were
$8,872,000, $9,433,000 and $13,316,000 in the years ended April 30, 1999,
1998 and 1997, respectively.
Postretirement benefits other than pensions - The Company and several of
its domestic subsidiaries have a postretirement health care benefit plan
covering substantially all domestic employees. Eligible retirees receive a
specific contribution from the Company toward the cost of the health plan,
which is a supplement to Medicare. The amount of the contribution is based
on years of service with the Company at retirement. The plan is not funded;
retiree health benefits are paid as covered expenses are incurred.
Provision has been made in the accompanying consolidated financial
statements for the net postretirement benefit expense of this plan. Net
postretirement benefit expenses for the years ended April 30 are as
follows (in thousands of dollars):
1999 1998 1997
------ ------ ------
Service cost - benefits earned
during the year $179 $ 11 $ 23
Interest cost on accumulated
postretirement benefit obligation 262 244 226
Net amortization of prior service cost 176 176 176
------ ------ ------
Net postretirement benefit expense $ 617 $431 $425
====== ====== ======
<PAGE>
The reconciliation of changes in the benefit obligation is as follows
(in thousands of dollars):
1999 1998
------- -------
Postretirement benefit obligation,
beginning of period $ 3,502 $ 3,318
Service cost 179 11
Interest cost 262 244
Benefits paid (95) (71)
------- -------
Postretirement benefit obligation,
year-end $ 3,848 $ 3,502
======= =======
The reconciliation of the accumulated postretirement benefit
obligation to the recorded liability at April 30 is as follows (in thousands
of dollars):
1999 1998
------- -------
Accumulated postretirement benefit obligation $ 3,848 $ 3,502
Unrecognized prior service cost (763) (939)
------- -------
Accrued postretirement benefit liability $3,085 $2,563
======= =======
Measurement of the accumulated postretirement benefit obligation is
based on a 7% assumed discount rate for 1999 and 1998.
Certain of the Company's non-U.S. subsidiaries have health care plans
for retirees, although many retirees outside of the United States are
covered by government sponsored and administered programs. The provision
for the estimated liabilities arising from these plans was not significant.
8. Capital Stock and Options
None of the Company's authorized 500,000 shares of $1 par value
Preferred Stock has been issued.
On April 14, 1999, the directors of the Company declared a regular
quarterly cash dividend of $.35 per share of Common Stock to be paid
June 15, 1999, to shareholders of record June 1, 1999.
At April 30, 1999, the Company has a non-qualified stock option plan,
which is described below. The Company applies APB Opinion No. 25 and
related FASB Interpretations for its plan. No charge to income is made in
connection with the stock option plan. Had compensation cost for the
Company's stock option plan been determined consistent with SFAS No. 123,
the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below (in thousands except per share data):
<PAGE>
1999 1998 1997
-------- -------- --------
Net Income
As Reported $24,361 $35,695 $34,675
Pro Forma $24,188 $35,623 $34,642
Earnings per share
As Reported
Basic $ 4.27 $ 4.98 $ 4.73
Diluted $ 4.25 $ 4.97 $ 4.73
Pro Forma
Basic $ 4.24 $ 4.97 $ 4.73
Diluted $ 4.22 $ 4.96 $ 4.72
Pro forma net income reflects only options granted in fiscal years 1996
through 1998. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma net
income amounts presented above because compensation cost is reflected over
the options' vesting period and compensation cost for options granted prior
to May 1, 1995 is not considered.
Under the 1980 Non-Qualified Stock Option Plan, the Company may grant
options to its employees for up to 1.5 million shares of common stock. At
April 30, 1999, 1998 and 1997, 531,000, 552,000 and 677,000 shares of the
Company's Common Stock, respectively, were reserved for issuance under this
plan which grants options to key employees and officers. The purchase price
under the grant cannot be less than the market value at the date of grant.
The options under such plan are exercisable in equal amounts at the
beginning of the second, third and fourth year of their lives and expire
after five years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions:
1999 1998 1997
------ ------ ------
Annual dividend yield 2.7% 2.2% 3.8%
Expected volatility 20.8% 19.0% 19.6%
Risk-free interest rates 4.5% 5.3% 5.8%
Expected lives (years) 5 5 5
The annual dividend yield shown above is weighted over the expected
life of the options.
A summary of the status of the Company's stock option plan as of
April 30, 1999, 1998, and 1997, and changes during the years ended on those
dates is presented below:
<PAGE>
(In Thousands Except Per Share Data)
Years Ended April 30,
---------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
Average Average Average
Number Price Number Price Number Price
of Per of Per of Per
Shares Share Shares Share Shares Share
------ ------ ------ ------ ------ ------
Outstanding at beginning
of period 227 $58.97 284 $58.85 280 $58.81
Granted 125 52.25 81 62.50 78 57.25
Exercised (21) 55.87 (125) 60.14 (33) 55.23
Canceled or expired (14) 58.85 (13) 67.22 (41) 58.39
------ ------ ------ ------ ------ ------
Outstanding at end
of period 317 $56.54 227 $58.97 284 $58.85
====== ====== ====== ====== ====== ======
Options exercisable
at year-end 117 $58.44 70 $57.50 139 $60.53
====== ====== ====== ====== ====== ======
Stock options outstanding at April 30, 1999 had a range in exercise
prices of $52.25 to $62.50 and an average remaining contractual life of 3.8
years. The weighted average fair value of options, calculated using the
Black-Scholes option pricing model, granted during the years ended April 30,
1999, 1998 and 1997 was $4.15, $6.30 and $2.49, respectively. At April 30,
1999, 1998 and 1997, 19,000 shares of Treasury Stock were reserved for
issuance to employees under a stock participation plan.
9. Comprehensive Income
Accumulated other comprehensive loss consists of the following (in
thousands of dollars):
1999 1998 1997
-------- -------- --------
Unrealized gain
on available-for-sale
securities $ 13 $ 111 $ 40
Foreign currency translation
adjustment (36,292) (33,786) (25,740)
-------- -------- --------
Accumulated other comprehensive
loss $(36,279) $(33,675) $(25,700)
======== ======== ========
<PAGE>
A summary of the components of other comprehensive income for the years
ended April 30, 1999, 1998 and 1997 is as follows (in thousands of dollars):
Before-Tax Income After-Tax
Amount Tax Amount
-------- -------- --------
April 30, 1999
Unrealized loss on
available-for-sale
securities $ (151) $ 53 $ (98)
Net foreign currency
translation (2,506) - (2,506)
-------- -------- --------
Other comprehensive income $(2,657) $ 53 $(2,604)
======== ======== ========
Before-Tax Income After-Tax
Amount Tax Amount
-------- -------- --------
April 30, 1998
Unrealized gain on
available-for-sale
securities $ 109 $ (38) $ 71
Net foreign currency
translation (8,046) - (8,046)
-------- -------- --------
Other comprehensive income $(7,937) $ (38) $(7,975)
======== ======== ========
Before-Tax Income After-Tax
Amount Tax Amount
-------- -------- --------
April 30, 1997
Unrealized loss on
available-for-sale
securities $ (108) $ 38 $ (70)
Net foreign currency
translation (7,020) - (7,020)
-------- -------- --------
Other comprehensive income $(7,128) $ 38 $(7,090)
======== ======== ========
<PAGE>
10. Interest Costs
During the years ended April 30, 1999, 1998 and 1997, interest costs,
including interest expense on non-funded retirement plans, amounting to
$5,077,000, $5,319,000 and $4,383,000, respectively, were expensed as
incurred. For the same periods, interest payments were $3,664,000,
$3,067,000 and $2,480,000, respectively.
11. Leases
At April 30, 1999, the Company and its subsidiaries had a number of
noncancellable leases for various office and warehouse facilities. The
majority of these agreements expire at various times through 2002, and
substantially all include renewal provisions. The amount of other
obligations assumed, such as payment of property taxes and maintenance, is
nominal. Total rent expense for 1999, 1998 and 1997 (including operating
leases on data processing equipment, trucks and trailers, and office
equipment) was approximately $11,382,000, $11,275,000 and $11,393,000,
respectively. The minimum aggregate rentals under the terms of
noncancellable operating leases for future years are:
2000 $7,176,000
2001 4,836,000
2002 3,163,000
2003 2,523,000
Thereafter 3,527,000
` 12. Contingent Liabilities
The Company and its subsidiaries are engaged in a variety of legal
proceedings arising in the ordinary course of business, including some
concerning environmental matters. In the opinion of Management, the
ultimate liabilities resulting from these proceedings will not have a
material adverse effect on the Company's financial position or operating
results.
At April 30, 1999 and 1998, the Company had standby letters of credit
outstanding totaling $5,290,000 and $5,078,000, respectively, which
guarantee payment to certain insurance carriers.
13. Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, and notes payable to banks approximate fair value
because of the short maturities of these financial instruments. The
carrying amounts of marketable securities approximate fair value and are
based on quoted market prices obtained from an independent broker. The
carrying amounts of long-term debt approximate fair value as estimated
based on the discounted value of future cash flows using the Company's
current borrowing rate for loans of comparable terms and maturities.
<PAGE>
14. Marketable Securities
Marketable securities which do not meet the definition of cash
equivalents are classified as marketable securities available-for-sale.
These securities are reported at fair value with unrealized gains and losses
(net of deferred income taxes) being recognized on the balance sheet as a
component of accumulated other comprehensive loss. Values are based on
quoted market prices obtained from an independent broker. Realized gains
and losses are included in operating income and are immaterial. The cost
of securities sold is based on the specific identification method.
The following is a summary of available-for-sale marketable securities
as of April 30 (in thousands of dollars):
Government
Bonds, Treasury Certificates
Notes and Bills of Deposit Total
--------------- ------------ --------
1999
----
Cost $2,947 $220 $3,167
Gross Unrealized Gains 20 - 20
-------- ---- --------
Estimated Fair Value $2,967 $220 $3,187
======== ==== ========
1998
----
Cost $101,236 $220 $101,456
Gross Unrealized Losses (89) - (89)
Gross Unrealized Gains 259 - 259
-------- ---- --------
Estimated Fair Value $101,406 $220 $101,626
======== ==== ========
All of the marketable securities held at April 30, 1999 mature in
fiscal year 2000.
<PAGE>
15. Segment and Geographic Area Information
The Company's segments are based on the organization structure that is
used by management for making operating and investment decisions and for
assessing performance. Based on this management approach, the Company has
six segments: Chemical Specialties, Plumbmaster Group, Resource Electronics,
Partsmaster Group, Landmark Direct, and Other Product Lines. Chemical
Specialties manufacture and sell a broad line of chemical cleaning and
maintenance products, including water treatment and oil field production
chemicals, to industrial and institutional customers worldwide. The
Plumbmaster Group markets products for plumbing repair and replacement
parts as well as parts for new building construction. The majority of
these products are purchased finished goods, but the group also manufactures
various products. These products are primarily sold in the United States
to the plumbing trade, construction contractors, institutional and
industrial customers, as well as to major home building supply centers,
hardware stores and other retail outlets. Resource Electronics markets a
wide range of electronic parts, components and supplies to industrial and
institutional customers in the United States. The Partsmaster Group sells
fasteners, cutting tools, electrical products, and welding alloys to
industrial customers worldwide. Landmark Direct markets first-aid supplies
and business and industrial products, such as safety signs, identification
products and productivity tools to customers in the United States. Other
Product Lines consists of a variety of products that are not similar to
the other groups, such as pet products, apartment maintenance products,
and satellite broadcasting distribution agreements.
The accounting policies of the segments are the same as those described
in Note 1. The Company evaluates the performance of its segments primarily
based on operating profit. All intercompany transactions have been
eliminated, and intersegment revenues are not significant. In calculating
operating profit for individual segments, administrative expenses incurred
at the Company's corporate headquarters (Corporate) that are common to more
than one segment are allocated on a usage basis. Certain items are
maintained at Corporate and are not allocated to the segments. These are
primarily marketable securities, certain corporate costs, and other
corporate assets.
<PAGE>
Segment information is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Depreciation and
Net Sales Operating Profit Amortization
---------------------------- ---------------------------- -------------------------
Years Ended April 30, Years Ended April 30, Years Ended April 30,
---------------------------- ---------------------------- -------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chemical Specialties $426,717 $427,126 $439,545 $ 32,571 $ 36,883 $ 43,913 $ 8,402 $ 8,429 $ 8,638
Plumbmaster Group 120,553 106,584 103,496 3,254 843 2,832 2,681 2,504 2,200
Resource Electronics 63,468 68,629 62,297 (1,739) 1,159 645 425 535 540
Partsmaster Group 85,250 79,739 79,659 8,198 9,972 10,097 1,333 1,244 1,186
Landmark Direct 28,281 20,332 18,348 1,315 (659) (1,438) 367 255 494
Other Product Lines 62,424 81,685 63,416 7,376 5,673 2,219 845 2,025 2,034
-------- -------- -------- -------- -------- -------- ------- ------- -------
Total $786,693 $784,095 $766,761 $ 50,975 $ 53,871 $ 58,268 $14,053 $14,992 $15,092
======== ======== ======== ======== ======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Capital Expenditures Total Assets
---------------------------- ----------------------------
Years Ended April 30, As of April 30,
---------------------------- ----------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Chemical Specialties $ 8,965 $ 9,163 $ 9,084 $258,679 $260,113 $256,027
Plumbmaster Group 1,741 1,403 5,567 74,677 70,886 72,397
Resource Electronics 346 678 457 24,590 27,696 27,727
Partsmaster Group 886 1,291 983 29,487 28,499 27,423
Landmark Direct 403 165 139 9,060 7,501 6,384
Other Product Lines 610 1,587 1,472 23,111 20,946 33,659
-------- -------- -------- -------- -------- --------
Total $12,951 $14,287 $17,702 $419,604 $415,641 $423,617
======== ======== ======== ======== ======== ========
</TABLE>
A reconciliation of the segment information to the consolidated
financial statements is as follows (in thousands of dollars):
Years Ended April 30,
--------------------------------
1999 1998 1997
-------- -------- --------
Income before income taxes:
Total segment operating profit $ 50,975 $ 53,871 $ 58,268
Unallocated Corporate expenses (2,469) (2,124) (2,017)
Revaluation of foreign currencies (1,515) (2,318) (2,373)
Net interest (2,722) (434) 801
Gain on sale of subsidiaries - 10,972 3,536
-------- -------- --------
Consolidated income before taxes $ 44,269 $ 59,967 $ 58,215
======== ======== ========
As of April 30,
--------------------------------
1999 1998 1997
-------- -------- --------
Assets:
Total segment assets $419,604 $415,641 $423,617
Unallocated assets
Marketable securities 3,187 101,626 69,700
Other Corporate assets 10,050 2,437 4,274
-------- -------- --------
Consolidated total assets $432,841 $519,704 $497,591
======== ======== ========
With respect to capital expenditures, the difference between the
segment totals and the consolidated totals relates to assets acquired in
the purchases of businesses.
Geographic information is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Net Sales Long-lived Assets
------------------------------ ------------------------------
Years Ended April 30, As of April 30,
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
United States $463,177 $457,220 $417,411 $ 51,509 $ 52,049 $ 59,595
Europe 252,154 245,669 266,263 18,128 18,046 18,570
Pacific & Far East 24,977 30,738 34,313 2,377 2,398 3,229
Latin America & Canada 46,385 50,468 48,774 4,711 6,668 7,106
-------- -------- -------- -------- -------- --------
Total $786,693 $784,095 $766,761 $ 76,725 $ 79,161 $ 88,500
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
16. Earnings Per Share
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the years ended April 30, 1999, 1998, and 1997
(shares in thousands):
1999 1998 1997
------ ------ ------
Basic earnings per share $4.27 $4.98 $4.73
====== ====== ======
Average shares outstanding - basic 5,708 7,163 7,326
====== ====== ======
Potential shares exercisable under
stock option plan 220 228 184
Less: shares potentially repurchased
under treasury stock method (200) (205) (177)
------ ------ ------
Adjusted average shares
outstanding - diluted 5,728 7,186 7,333
====== ====== ======
Diluted earnings per share $4.25 $4.97 $4.73
====== ====== ======
Stock options are the Company's only potential dilutive securities and
are considered in the diluted earnings per share calculations if dilutive
for those periods. For the year ended April 30, 1999, options totaling
97,000 were excluded as their effect would have been antildilutive. For
the year ended April 30, 1998, all options were included as their effect
was dilutive. For the year ended April 30, 1997, options totaling 103,000
were excluded as their effect would have been antidilutive.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
NCH Corporation:
We have audited the accompanying consolidated balance sheets of NCH
Corporation and subsidiaries as of April 30, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended April 30, 1999.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NCH
Corporation and subsidiaries as of April 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in
the three-year period ended April 30, 1999, in conformity with generally
accepted accounting principles.
/S/ KPMG LLP
Dallas, Texas
June 1, 1999
<PAGE>
RESPONSIBILITY FOR FINANCIAL REPORTING
The management of the Company is responsible for the financial
information and representations contained in the financial statements and
other sections of the annual report. The financial statements have been
prepared in conformity with generally accepted accounting principles, and
therefore include informed estimates and judgments.
The Company's system of internal control is designed to provide
reasonable, but not absolute, assurance as to the integrity, objectivity
and reliability of the financial records and the safeguarding of assets.
Management believes that, within a cost-effective framework, the Company's
accounting controls provide reasonable assurance that material errors or
irregularities are prevented or would be detected within a relatively
short period of time. The possibility exists, however, that errors or
irregularities may occur and not be detected. The Company has a program
of internal audits and follow-up, covering separate Company operations and
functions in the U.S. and its international subsidiaries.
The Board of Directors pursues its review of the audit function,
internal controls and the financial statements largely through its Audit
Committee, which consists solely of directors who are not employees of the
Company. The Audit Committee periodically meets with management, the
independent auditors and internal auditors with regard to their respective
responsibilities. Both KPMG LLP and the internal auditors have full
access to the Audit Committee. They meet with the committee, without
management present, to discuss the scope and results of their examination,
including internal control and financial reporting matters.
Management also recognizes its responsibility for fostering a strong
ethical climate so that the Company's affairs are conducted according to
the highest standards of personal and corporate conduct. This
responsibility is characterized and reflected in the Company's code of
corporate conduct, which is publicized throughout the Company. The code
of conduct addresses, among other things, the necessity of ensuring open
communication within the Company; potential conflicts of interests;
compliance with all domestic and foreign laws, including those relating to
financial disclosure; and the confidentiality of proprietary information.
The Company maintains a systematic program to assess compliance with these
policies.
/s/ Irvin L. Levy /s/ Tom Hetzer
------------------ ---------------
Irvin L. Levy Tom Hetzer
Chief Executive Officer Chief Financial Officer
<PAGE>
Selected Unaudited Quarterly Data
(In Thousands Except Per Share Data)
Years Ended April 30,
Quarter
-------------------------------------------
First Second Third Fourth
-------- -------- -------- --------
1999
----
Net Sales $198,856 $191,152 $199,101 $197,584
Operating Income 12,045 13,560 11,729 11,172
Net Income 6,486 6,311 6,157 5,407
Earnings Per Share
Basic $1.07 $1.13 $1.10 $ .99
Diluted $1.07 $1.12 $1.10 $ .99
1998
----
Net Sales $197,996 $193,621 $195,659 $196,819
Operating Income 12,800 15,438 11,277 12,232
Net Income 7,207 8,586 6,263 13,639
Earnings Per Share
Basic $1.01 $1.20 $ .87 $1.91
Diluted $1.00 $1.19 $ .87 $1.90
Basic earnings per share for each period is calculated based on the
weighted average number of shares outstanding during the period. Diluted
earnings per share includes the dilutive effect of stock options.
Market and Dividend Information
NCH Corporation stock is traded on the New York Stock Exchange. The
high and low prices by quarter are shown for the past two years in the
schedule below.
Cash dividends paid during the fiscal year ended April 30, 1999,
amounted to $7.8 million compared to $9.3 million and $16.0 million in
fiscal years 1998 and 1997, respectively. On April 14, 1999, a dividend
of $.35 per share was declared, payable June 15, 1999. A summary of the
quarterly dividends per share for the past two years is set forth in the
schedule below.
<TABLE>
<CAPTION>
Common Stock Prices Dividends Per Share
------------------------------------------- -------------------------------
1999 1998 Declared Paid
------------------ ------------------ ------------- -------------
Quarter High Low High Low 1999 1998 1999 1998
------- ------- ------- ------- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First 73 7/8 60 7/8 65 3/4 61 5/16 $ .35 $ .30 $ .35 $ .30
Second 69 5/8 56 73 63 3/16 $ .35 $ .35 $ .35 $ .30
Third 69 51 15/16 70 1/4 61 - $ .35 $ .35 $ .35
Fourth 61 9/16 45 7/16 72 1/4 58 15/16 $ .70 $ .35 $ .35 $ .35
</TABLE>
As of June 1, 1999, there were 514 holders of record of the Company's
Common Stock, which includes several brokerage firms that hold shares of
the Company's stock for an estimated 2,000 investors.
<PAGE>
NCH CORPORATION AND SUBSIDIARIES
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NCH Corporation is the parent company of numerous wholly-owned
subsidiaries engaged in the business of marketing an extensive line of
maintenance, repair and supply products. At the close of the last fiscal
year, fifteen of these subsidiaries were operating domestically and 122 in
foreign countries. The Company is also the parent of several wholly-owned
subsidiaries that market various other products. All such subsidiaries
considered in the aggregate as a single subsidiary would not constitute a
significant subsidiary of NCH Corporation, and therefore are not listed
here.
As of the close of the last fiscal year, the following corporation was
not wholly-owned by NCH Corporation:
Immediate Parent and Jurisdiction
Name of Subsidiary Percentage of Ownership of Incorporation
------------------ ----------------------- ----------------
NCH Hua Yang Ltd. 51% NCH Corporation People's Republic
of China
<PAGE>
NCH CORPORATION AND SUBSIDIARIES
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
NCH Corporation:
We consent to incorporation by reference in the registration statement
(No. 33-65206) on Form S-8 of NCH Corporation of our reports dated
June 1, 1999, relating to the consolidated balance sheets of NCH
Corporation and subsidiaries as of April 30, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, and
cash flows and related schedule for each of the years in the three-year
period ended April 30, 1999, which reports appear in or are incorporated
by reference in the April 30, 1999 annual report on Form 10-K of NCH
Corporation.
/s/ KPMG LLP
Dallas, Texas
July 22, 1999
<PAGE>
NCH CORPORATION AND SUBSIDIARIES
EXHIBIT 99
DEFINITIVE PROXY STATEMENT
REGARDING THE COMPANY'S 1999 ANNUAL MEETING OF STOCKHOLDERS
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant [ X ]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use
of the Commission Only
(as permitted by Rule
14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NCH Corporation
---------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO]
2727 Chemsearch Boulevard
Irving, Texas 75062
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held July 22, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of NCH
Corporation will be held in the Gourmet Room II of the Crescent Club, 17th
Floor, 200 Crescent Court (at the corner of Pearl and Cedar Springs
Streets), Dallas, Texas, on Thursday, the 22nd day of July, 1999, at
10:00 a.m., Central Daylight Time, for the following purposes:
1. To elect three Class II directors of NCH to hold office until the next
annual election of Class II directors by stockholders or until their
respective successors are duly elected and qualified.
2. To ratify the appointment of KPMG Peat Marwick LLP, Certified Public
Accountants, to be the independent auditors of NCH for the fiscal year
ending April 30, 2000.
3. To transact such other business as may properly come before the meeting
or any adjournments of the meeting.
The Board of Directors has fixed the close of business on Tuesday,
June 1, 1999, as the record date for determining stockholders entitled to
vote at and to receive notice of the annual meeting.
Whether or not you expect to attend the meeting in person, you are urged
to complete, sign, and date the enclosed form of proxy and return it
promptly so that your shares of stock may be represented and voted at the
meeting. If you are present at the meeting, your proxy will be returned to
you if you so request.
Joe Cleveland,
Secretary
Dated: June 22, 1999
<PAGE>
[LOGO]
2727 Chemsearch Boulevard
Irving, Texas 75062
PROXY STATEMENT
For
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on July 22, 1999
Dated: June 22, 1999
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying proxy is solicited by the management of, and on behalf
of, NCH Corporation, a Delaware corporation ("NCH"), to be voted at the
Annual Meeting of the Stockholders of NCH, to be held Thursday, July 22,
1999 (the "Meeting"), at the time and place and for the purposes set forth
in the accompanying Notice of Annual Meeting. When properly executed
proxies in the accompanying form are received, the shares represented
thereby will be voted at the Meeting in accordance with the directions
noted on the proxies; if no direction is indicated, then such shares will
be voted for the election of the directors and in favor of the proposals
set forth in the Notice of Annual Meeting attached to this Proxy Statement.
The enclosed proxy confers discretionary authority to vote with respect
to any and all of the following matters that may come before the Meeting:
(1) matters that NCH's Board of Directors does not know a reasonable time
before the Meeting are to be presented at the Meeting; and (2) matters
incidental to the conduct of the Meeting. Management does not intend to
present any business for a vote at the Meeting other than the matters set
forth in the accompanying Notice of Annual Meeting, and it has no
information that others will do so. If other matters requiring the vote
of the stockholders properly come before the Meeting, then, subject to the
limitations set forth in the applicable regulations under the Securities
Exchange Act of 1934, it is the intention of the persons named in the
attached form of proxy to vote the proxies held by them in accordance with
their judgment on such matters.
Any stockholder giving a proxy has the power to revoke that proxy at any
time before it is voted. A proxy may be revoked by filing with the
Secretary of NCH either a written revocation or a duly executed proxy
bearing a date subsequent to the date of the proxy being revoked. Any
stockholder may attend the Meeting and vote in person, whether or not such
stockholder has previously submitted a proxy.
In addition to soliciting proxies by mail, officers and regular employees
of NCH may solicit the return of proxies. Brokerage houses and other
custodians, nominees, and fiduciaries may be requested to forward
solicitation material to the beneficial owners of stock.
This Proxy Statement and the accompanying proxy are first being sent or
given to NCH's stockholders on or about June 22, 1999.
<PAGE>
NCH will bear the cost of preparing, printing, assembling, and mailing
the Notice of Annual Meeting, this Proxy Statement, the enclosed proxy, and
any additional material, as well as the cost of forwarding solicitation
material to the beneficial owners of stock.
VOTING RIGHTS
The record date for determining stockholders entitled to notice of and to
vote at the Meeting is the close of business on June 1, 1999. On that date
there were 5,408,294 shares issued and outstanding of NCH's $1.00 par value
common stock ("Common Stock"), which is NCH's only class of voting
securities outstanding. Each share of NCH's Common Stock is entitled to one
vote in the matter of election of directors and in any other matter that may
be acted upon at the Meeting. Neither NCH's certificate of incorporation
nor its bylaws permits cumulative voting. The presence, in person or by
proxy, of the holders of a majority of the outstanding shares of Common
Stock entitled to vote at the Meeting is necessary to constitute a quorum
at the Meeting, but in no event will a quorum consist of less than one-third
of the shares entitled to vote at the Meeting. The affirmative vote of a
plurality of the shares of Common Stock represented at the Meeting and
entitled to vote is required to elect directors. All other matters to be
voted on will be decided by a majority of the shares of Common Stock
represented at the meeting and entitled to vote. Abstentions and broker
nonvotes are each included in determining the number of shares present at
the meeting for purposes of determining a quorum. Abstentions and broker
nonvotes have no effect on determining plurality, except to the extent that
they affect the total votes received by any particular candidate.
ELECTION OF DIRECTORS
NCH's Board of Directors consists of seven members, divided into three
classes: Class I (two directors), Class II (three directors), and Class III
(two directors). Only the Class II positions are due for nomination and
election at the Meeting. The Class III and Class I positions will be due
for nomination and election at the annual meetings of stockholders to be
held in 2000 and 2001, respectively.
The intention of the persons named in the enclosed proxy, unless such
proxy specifies otherwise, is to vote the shares represented by such proxy
for the election of Milton P. Levy, Jr., Thomas B. Walker, Jr., and Robert
L. Blumenthal as the Class II directors. Messrs. Milton P. Levy, Jr.,
Thomas B. Walker, Jr., and Robert L. Blumenthal have been nominated to stand
for re-election by the Board of Directors until their terms expire or until
their respective successors are duly elected and qualified. Messrs. Milton
P. Levy, Jr., Thomas B. Walker, Jr., and Robert L. Blumenthal are presently
directors of NCH. Messrs. Irvin, Lester, and Milton Levy are brothers.
Robert L. Blumenthal is a first cousin of Messrs. Irvin, Lester, and Milton
Levy. Certain information regarding each nominee and director is set forth
below. The number of shares beneficially owned by each nominee is listed
under "Security Ownership of Principal Stockholders and Management."
<PAGE>
Class I Directors
Rawles Fulgham, 71, has been a director of NCH since 1981. Mr. Fulgham
was an executive director of Merrill Lynch Private Capital Inc. from 1982
until 1989, and served as a Senior Advisor to Merrill Lynch & Co., Inc.
from 1989 until 1998. He is also a director, the Chairman of the Board and
the Chief Executive Officer of Global Industrial Technologies, Inc.,
located in Dallas, Texas. Mr. Fulgham also serves on the boards of BancTec,
Inc. and Dorchester Hugoton, Ltd., and from 1975 through October 1998 served
on the board of Dresser Industries, Inc. until it was merged with
Halliburton Company. Mr. Fulgham is a member of the Audit Committee and
the Compensation Committee.
Lester A. Levy, 76, has been a director and officer of NCH since 1947,
and since 1965 has served as Chairman of the Board of Directors of NCH. He
is either the president or a vice president of substantially all of NCH's
subsidiaries. Mr. Levy is a member of the Stock Option Committee and the
Executive Committee.
Class II Directors and Nominees
Robert L. Blumenthal, 68, has engaged in the practice of law since 1957.
He is a partner at the Dallas law firm of Carrington, Coleman, Sloman &
Blumenthal, L.L.P., which serves as NCH's legal counsel.
Thomas B. Walker, Jr., 75, has been a director of NCH since 1987. Mr.
Walker was a general partner of Goldman, Sachs & Co. from 1968 until 1984
and a limited partner of The Goldman Sachs Group, L.P. ("Goldman Sachs")
from 1984 through May 1999, when he assumed his current position as a
Senior Director to Goldman Sachs. Mr. Walker is also a director of
Sysco Corporation and Riviana Foods, Inc. He is a member of the Audit
Committee and the Compensation Committee.
Milton P. Levy, Jr., 73, has been a director and officer of NCH since
1947, and since 1965 has served as Chairman of the Executive Committee of
NCH. He is either the president or a vice president of substantially all
of NCH's subsidiaries. Mr. Levy is a member of the Stock Option Committee
and the Executive Committee.
If any of the above nominees for Class II directors should become
unavailable to serve as a director, then the shares represented by proxy
will be voted for such substitute nominees as may be nominated by the Board
of Directors. NCH has no reason to believe that any of the above nominees
are, or will be, unavailable to serve as a director.
Class III Directors
Jerrold M. Trim, 62, has been a director of NCH since 1980 and is the
president and majority shareholder of Windsor Association, Inc., which is
engaged primarily in investment consulting services. He is a member of
the Audit Committee and the Compensation Committee.
Irvin L. Levy, 70, has been a director and an officer of NCH since 1950,
and has served as NCH's President since 1965. He is either president or a
vice president of substantially all of NCH's subsidiaries. Mr. Levy is a
member of the Stock Option Committee and the Executive Committee.
<PAGE>
Meeting Attendance and Committees of the Board
NCH has audit, compensation, executive, and stock option committees of
the Board, whose members are noted above. During the last fiscal year,
the Board of Directors met on five occasions, the Compensation Committee
met once, the Audit Committee met once, the Executive Committee met at
least 25 times, and the Stock Option Committee met once. NCH does not
have a standing nominating committee of the Board. Nominees to the Board
are selected by the entire Board.
The Audit Committee of the Board reviews the scope of the independent
auditors' examinations and the scope of activities of NCH's internal
auditors. Additionally, it receives and reviews reports of NCH's
independent auditors and internal auditors. The Audit Committee also
meets (without management's presence, if the Audit Committee so desires)
with the independent auditors and members of the internal auditing staff,
receives recommendations or suggestions for change, and may initiate or
supervise any special investigations it may choose to undertake.
The Compensation Committee recommends to the Board of Directors the
salaries of Messrs. Irvin, Lester, and Milton Levy.
The Executive Committee possesses all of the powers of the Board of
Directors between meetings of the Board.
The Stock Option Committee of the Board determines those employees of
NCH and its subsidiaries who will receive stock options and the amount of
such options.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Director Compensation
Directors who are not executive officers of NCH receive compensation of
$25,000 per annum and $1,000 for each meeting of the Board of Directors or
Board committee attended. All other directors receive $1,000 for each such
meeting attended. Members of the Stock Option Committee and Executive
Committee are not compensated separately for their services on such
committees.
Report on Executive Compensation
<PAGE>
Responsibility for Executive Compensation
Three outside directors, as the Compensation Committee of NCH (Messrs.
Fulgham, Trim, and Walker), have primary responsibility for recommending to
the Board the executive compensation program for Messrs. Irvin, Lester,
and Milton Levy. The Compensation Committee recommends to the Board an
annual aggregate base compensation for the Office of the Executive
Committee and is responsible for administering and approving incentive
compensation for the Office of the Executive Committee. After Board
approval of the Compensation Committee's recommendation for aggregate
base compensation (with Messrs. Irvin, Lester, and Milton Levy
abstaining), the Messrs. Levy divide the compensation of the Executive
Committee among themselves. The Executive Committee is responsible for
setting the compensation for all other officers of NCH.
Executive Compensation Strategy
With respect to compensation of all key executives other than Messrs.
Irvin, Lester, and Milton Levy, NCH's strategy is generally as follows:
* Attract and retain key executives by delivering a market competitive
rate of base pay. Market competitive rates of pay are determined by
reviewing compensation data from other companies that resemble NCH in
terms of lines of business, size, scope, and complexity.
* Provide salary increases to key executives based on their individual
effort and performance. In addition to the individual's experience,
job duties, and performance, annual increases are influenced by NCH's
overall performance.
* Provide annual incentive opportunities based on objectives that NCH
feels are critical to its success during the year. Target incentive
levels are set on an individual basis and actual awards are made at
the Executive Committee's discretion.
* Provide long-term incentives to key employees so that employees are
focused on activities and decisions that promote NCH's long-term
financial and operational success. To meet this objective, NCH offers
stock options to certain key employees. Options are generally granted
for a period of five years at a price that is at least equal to the
fair market value of the Common Stock at the time of grant. Options
vest in equal increments over a three-year period from the time of grant.
Compensation of Messrs. Irvin, Lester, and Milton Levy
In 1994, the Compensation Committee, with assistance from an outside
consulting firm, determined the competitiveness of the compensation for
the Office of the Executive Committee. Based on survey and proxy analyses
performed by the consulting firm, the Compensation Committee adopted the
incentive bonus plan described below. All of the companies in the peer
group in NCH's performance graph on page 9 of this Proxy Statement, other
than Lilly Industries and Lubrizol Corporation, were included in the
analysis performed by the consulting firm.
<PAGE>
Although no formula or preset goal is used in setting the base salary
for the Office of the Executive Committee, performance in sales and
earnings as well as the current economic and competitive environment is
considered. The base salary for the Office of the Executive Committee for
fiscal 2000 is the same as the base salary for fiscal 1999.
NCH has adopted a separate strategy with respect to the incentive
compensation of the Office of the Executive Committee. Since these
individuals are very significant long-term stockholders of NCH, some of the
typical approaches to executive compensation that exist in the marketplace
are not necessarily relevant at NCH. Long-term incentive programs are
implemented for senior executives to create a link between the corporation's
performance and the executive's own personal wealth. In light of the
shareholding of Messrs. Irvin and Lester Levy, they are already
significantly impacted financially by NCH's overall performance. The
Compensation Committee generally feels that in this situation any long-term
incentive program should be tied to salary or bonus.
To qualify all compensation paid to the Executive Committee of the Board
of Directors as a deductible expense under Section 162 of the Internal
Revenue Code (the "Code"), on April 28, 1994, the Compensation Committee of
the Board of Directors adopted an incentive bonus plan (the "Bonus Plan"),
for the Office of the Executive Committee, which was approved by the
stockholders at the 1994 Annual Meeting.
The Bonus Plan provides a formula for determining the amounts of annual
bonuses to be paid to each member of the Executive Committee. Bonus
amounts will depend on the amount by which NCH's net income after taxes,
but before accrual for any bonus under the Bonus Plan, for a particular
fiscal year increases over its net income before accrual for any bonus
for the preceding fiscal year. An amendment to the original formula for
determining the amounts of annual bonuses was adopted by the Compensation
Committee on June 7, 1996, which was approved by the stockholders at the
1996 Annual Meeting, because the formula could have resulted in a member
receiving over $1 million in annual compensation, which amount in excess
of $1 million would not have been deductible by NCH under Section 162(m) of
the Code. As amended, the formula provides as follows. Increases from
10% to less than 15% will result in payment of a $225,000 bonus to each
member of the Executive Committee. Increases of 15% or greater will result
in payment of a $325,000 bonus to each Executive Committee member. For
fiscal 1999, no bonus was payable because NCH's net income did not
increase by 10% or more over its net income for fiscal 1998.
The Bonus Plan prohibits amendment of its terms to increase the cost
of the Bonus Plan to NCH or to change the persons to whom bonuses will be
paid under the Bonus Plan without a vote of NCH's stockholders.
<PAGE>
Conclusion
The Compensation Committee believes that current compensation
arrangements in place at NCH are reasonable and competitive given NCH's
size and status and the current regulatory environment surrounding
executive compensation. The base salary program allows NCH to attract
and retain management talent. In addition, for those employees who are
incentive eligible, such systems continue to provide the necessary link
between the attainment of NCH's performance objectives and the compensation
received by executives.
Executive Committee &
Compensation Committee Stock Option Committee
---------------------- ----------------------
Rawles Fulgham Irvin L. Levy
Jerrold M. Trim Lester A. Levy
Thomas B. Walker, Jr. Milton P. Levy, Jr.
The report on executive compensation will not be deemed to be
incorporated by reference into any filing by NCH under the Securities Act of
1933 or the Securities Exchange Act of 1934, except to the extent that
NCH specifically incorporates the above report by reference.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
Messrs. Irvin, Lester, and Milton Levy are members of the Executive
Committee of NCH's Board of Directors, which committee determines most
salaries and promotions with respect to officers of NCH and its
subsidiaries, and of the Stock Option Committee, which determines those
employees of NCH and its subsidiaries who will receive stock options and
the amount of such options. Messrs. Irvin, Lester, and Milton Levy are
executive officers and employees of NCH.
NCH's Board of Directors (with the subject members abstaining)
determines the salaries of Messrs. Irvin, Lester, and Milton Levy after
recommendation of the Compensation Committee, whose members are Rawles
Fulgham, Jerrold M. Trim, and Thomas B. Walker, Jr.
Executive Compensation
The following table summarizes the compensation paid to Messrs. Irvin,
Lester, and Milton Levy, who together hold the office of the Executive
Committee, and to NCH's two other most highly compensated executive
officers (whose compensation exceeded $100,000 in fiscal 1999) for services
rendered in all capacities to NCH during the fiscal years ended April 30,
1999, 1998, and 1997.
<PAGE>
SUMMARY COMPENSATION TABLE
Name and Annual Compensation(1)
Principal Fiscal ---------------------- All Other
Positions Year Salary(2) Bonus Compensation (3)
-------------- ----- --------- ------- ----------------
Irvin L. Levy,
President 1999 $913,106 $ - $4,000
1998 889,420 - 4,000
1997 862,282 - 3,700
Lester A. Levy,
Chairman
of the Board 1999 918,667 - 3,200
1998 894,087 - 3,200
1997 866,263 - 3,000
Milton P. Levy, Jr.,
Chairman of the
Executive
Committee 1999 920,636 - 3,200
1998 896,074 - 3,200
1997 867,598 - 3,000
Thomas F. Hetzer,
Vice President
- Finance 1999 235,995 11,000 4,000
1998 221,331 28,000 4,000
1997 205,883 - 3,700
Glen L. Scivally,
Vice President
and Treasurer 1999 205,765 6,000 4,000
1998 195,846 27,000 4,000
1997 182,357 - 3,700
----------------------
(1) Certain of NCH's executive officers receive personal benefits in
addition to annual salary and bonus. The aggregate amounts of the personal
benefits, however, do not exceed the lesser of $50,000 or 10% of the total
of the annual salary and bonus reported for the named executive officer.
(2) Includes compensation for services as a director (other than Mr. Hetzer
and Mr. Scivally).
(3) The amounts included in this column were contributed to the accounts of
the executives included in the table under NCH's qualified profit sharing
and savings plan.
<PAGE>
Retirement Agreements
NCH has entered into retirement agreements allowing retirement at any
time after age 59-1/2 with Messrs. Irvin, Lester, and Milton Levy that
provide for lifetime monthly payments and guarantee 120 monthly payments
beginning at death, retirement, or disability. Payment under these
agreements is $500,000 per year for each of Messrs. Irvin L. Levy, Lester
A. Levy and Mr. Milton P. Levy, Jr., subject to adjustment each year for
increases in the United States Consumer Price Index for the preceding year.
FIVE YEAR COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph presents NCH's cumulative stockholder return during
the period beginning April 30, 1994, and ending April 30, 1999. NCH is
compared to the S&P 500 and a peer group consisting of companies that
collectively represent lines of business in which NCH competes. The
companies included in the peer group index are Betz Laboratories, Inc.
("Betz"), The Dexter Corporation, Ecolab Inc., Lawson Products, Inc.,
Lilly Industries ("Lilly"), Lubrizol Corporation ("Lubrizol"), Nalco
Chemical Company, National Service Industries, Inc., Petrolite Corporation
("Petrolite"), Premier Industrial Corporation ("Premier"), Quaker Chemical
Corporation, Safety-Kleen Corp. ("Safety-Kleen"), and Snap-On Tools
Corporation. During fiscal year 1997, Premier was acquired by another
corporation. Since Premier's shareholder return is no longer available,
it was excluded from the peer group for performance after 1996. During
fiscal year 1998, Petrolite was acquired by another corporation and,
therefore, was excluded from the peer group for performance after 1997.
During fiscal year 1999, Betz was acquired by another corporation, and was
excluded from the peer group for performance after 1998. Due to these
acquisitions, Lilly and Lubrizol were added to the peer group. The
index that includes Lilly and Lubrizol is designated below as "New Peer
Group." For comparison purposes, the index without Lilly and Lubrizol
is included as "Former Peer Group." Each index assumes $100 invested at
the close of trading on April 30, 1994, and is calculated assuming
quarterly reinvestment of dividends and quarterly weighting by market
capitalization.
[STOCK PERFORMANCE GRAPH FILED UNDER COVER OF FORM S-E]
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
NCH Corporation 100 109 103 116 119 105
S&P 500 Index 100 117 153 191 270 329
Former Peer Group 100 106 127 161 198 200
New Peer Group 100 94 106 134 160 148
Data source: S&P Compustat, a division of McGraw-Hill, Inc.
<PAGE>
The stock price performance depicted in the graph above is not
necessarily indicative of future price performance. The graph will not
be deemed to be incorporated by reference in any filing by NCH under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to
the extent that NCH specifically incorporates the graph by reference.
SECURITY OWNERSHIP OF
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of NCH's Common Stock as of June 1, 1999, by: (i)
persons known to management to beneficially own more than 5% of NCH's Common
Stock; (ii) each director and nominee for director; (iii) the three persons
holding the office of the Executive Committee and NCH's two other most
highly compensated executive officers (whose compensation exceeded $100,000
in fiscal 1999); and (iv) all directors and executive officers of NCH as a
group. Except as noted below, each person included in the table has sole
voting and investment power with respect to the shares that the person
beneficially owns.
Name of Amount & Nature
Beneficial Owner of Beneficial Ownership Percent of Class
---------------- ----------------------- ----------------
Robert L. Blumenthal 2,683 *
Rawles Fulgham (1) 2,000 *
Thomas F. Hetzer 0 -
Irvin L. Levy (2)(3) 1,445,248 26.7%
Lester A. Levy (2)(4) 1,442,334 26.7%
Milton P. Levy, Jr. (2)(5) 44,000 *
Glen L. Scivally 0 -
Jerrold M. Trim (6) 0 -
Thomas B. Walker, Jr. 10,000 *
All directors and executive 2,895,778 53.5%
officers as a group (12 people)
Bank One Corp. (7) 490,820 9.1%
------------------------
* Less than 1% of class
(1) Of these shares, 700 are held by a Dallas bank in trust for the
retirement plan and benefit of Mr. Fulgham.
(2) The address of Messrs. Irvin, Lester, and Milton Levy is P.O. Box
152170, Irving, Texas 75015. The definition of beneficial ownership under
the rules and regulations of the Securities and Exchange Commission requires
inclusion of the same 29,000 shares held as cotrustees by Messrs. Irvin,
Lester, and Milton Levy for a family trust in the totals listed above for
each of Messrs. Irvin, Lester, and Milton Levy.
<PAGE>
(3) Irvin L. Levy owns a life estate interest in 1,000,000 shares included
in the table over which he has sole voting and investment power, and his
children own a remainder interest in such 1,000,000 shares. The table
includes 29,000 shares held as cotrustee with his brothers for a family
trust over which he shares voting and investment power, the beneficial
ownership of which Mr. Levy disclaims.
(4) Lester A. Levy owns a life estate interest in 625,194 shares included
in the table over which he has sole voting and investment power, and his
children own a remainder interest in such 625,194 shares. The table
includes 29,000 shares held as cotrustee with his brothers for a family
trust over which he shares voting and investment power, the beneficial
ownership of which Mr. Levy disclaims.
(5) The table includes 29,000 shares held by Milton P. Levy, Jr. as
cotrustee with his brothers for a family trust over which he shares voting
and investment power, the beneficial ownership of which Mr. Levy disclaims.
Effective May 26, 1998, NCH repurchased from Milton P. Levy, Jr. an
aggregate of 1,014,767 shares of NCH Common Stock for a purchase price of
$61,789,162, in addition to shares of NCH Common Stock from certain
members of his family and trusts for their benefit. See discussion in
"Certain Transactions" in this proxy.
(6) Windsor Association, Inc., of which Mr. Trim is president, has a
corporate policy against its employees owning any publicly traded
securities.
(7) The table sets forth Bank One Corp.'s stockholding based on its latest
Schedule 13G filed with the SEC dated as of February 1, 1999. Bank One
Corp. reports its address as One First National Plaza, Chicago, Illinois
60670. It has sole dispositive power over 490,820 shares, shared
dispositive power over 0 shares, sole voting power over 490,820 shares, and
shared voting power over 0 shares. The Schedule 13G was originally filed
by First Chicago NBD Corporation, which was merged with Banc One Corp.
effective October 2, 1998. Bank One Corp. is the surviving corporation in
the merger.
CERTAIN TRANSACTIONS
On May 26, 1998, the Board of Directors authorized the repurchase of an
aggregate of 1,266,176 shares of NCH Common Stock from Milton P. Levy, Jr.,
certain members of his family, including his children, their spouses and his
grandchildren, and trusts for the benefit of his family members. The
repurchases were consummated effective as of May 26, 1998, at a price of
$60.89 per share. The total received by Milton P. Levy, Jr. was $61,789,162
for 1,014,767 shares; by Marjorie K. Levy (Mr. Levy's wife) was $2,097,539
for 34,448 shares; and by Mr. Levy's three daughters (Nancy Levy Szor,
Sally Levy Rosen, and Kathy Levy Hornbach), their spouses and Mr. Levy's
grandchildren or trusts for their benefit $13,210,755 for 216,961 shares.
The closing trading price of NCH Common Stock on May 26, 1998, was $65.44.
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During fiscal 1999, Milton P. Levy, Jr. failed to report on a Form 4 in
June 1998 the transaction described in "Certain Transactions" above.
However, such transaction was reported by NCH on a Current Report on Form
8-K filed with the SEC on June 3, 1998, and in NCH's Proxy Statement for the
1998 Annual Meeting of Stockholders. The failure to report was inadvertant
and was corrected on Milton P. Levy, Jr.'s Form 5 filed for June 1999.
SELECTION OF AUDITORS
The Board of Directors has appointed KPMG Peat Marwick LLP, Certified
Public Accountants, to continue to be the principal independent auditors of
NCH, subject to stockholder ratification at the Meeting. A representative
of that firm has been requested to be present at the Meeting and will have
an opportunity to make a statement if the representative desires to do so
and to respond to appropriate questions.
PROPOSALS OF STOCKHOLDERS
Stockholders of NCH who intend to present a proposal for action at the
1999 Annual Meeting of Stockholders of NCH must notify NCH's management of
such intention by notice received at NCH's principal executive offices not
less than 120 days in advance of June 22, 2000, for such proposal to be
included in NCH's proxy statement and form of proxy relating to such
meeting.
ANNUAL REPORT
The Annual Report for the year ended April 30, 1999, is being mailed to
stockholders with this Proxy Statement. The Annual Report is not to be
regarded as proxy soliciting material. NCH will provide without charge to
each stockholder to whom this Proxy Statement and the accompanying form of
proxy are sent, on the written request of such person, a copy of NCH's
annual report on Form 10-K for the fiscal year ended April 30, 1999,
including the financial statements and the financial statement schedules,
required to be filed with the Securities and Exchange Commission. Requests
should be directed to NCH Corporation, Attention: Secretary, P. O. Box
152170, Irving, Texas 75015.
/s/ Irvin L. Levy
------------------
Irvin L. Levy,
President
Irving, Texas
Dated: June 22, 1999
<PAGE>
PROXY CARD
NCH CORPORATION
ANNUAL MEETING OF STOCKHOLDERS-JULY 22, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints James H. Stone,
Tom Hetzer, and Joe Cleveland, and any one or more of them, proxy or
proxies, with full power of substitution in each, and hereby authorizes
them to vote for the undersigned and in the undersigned's name, all shares
of common stock of NCH Corporation (the "Company") standing in the name of
the undersigned on June 1, 1999, as if the undersigned were personally
present and voting at the Company's annual meeting of stockholders to be
held on July 22, 1999, in Dallas, Texas, and at any adjournment thereof,
upon the matters set forth on the reverse side hereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THEN THIS
PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2, AND IN THE PROXIES' DISCRETION
ON ALL OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING,
INCLUDING MATTERS INCIDENT TO THE CONDUCT OF SUCH MEETING.
(Continued and to be signed on reverse side)
<PAGE>
FOR WITHHOLD AUTHORITY
1. Election of Directors / / / /
Nominees: Milton P. Levy, Jr., Thomas B. Walker, Jr., and
Robert L. Blumenthal
---------------------------------------------------------------------
Instruction: To withhold authority to vote for all nominees, mark the
Withhold Authority box. To withhold authority to vote for any individual
nominees, write the nominee's name on the line above.
2. Proposal to ratify the appointment of KPMG Peat Marwick LLP as
independent auditors of NCH Corporation.
FOR / / AGAINST / / ABSTAIN / /
3. In their discretion, the proxies are authorized to vote upon any other
matters that may properly come before the meeting or any adjournment
thereof, subject to the limitations set forth in the applicable regulations
under the Securities Exchange Act of 1934.
Dated: , 1999
-------------------------------------------
-------------------------------------------
Signature
-------------------------------------------
Signature if held jointly
NOTE: Please sign exactly as name appears hereon. Joint owner should each
sign. When signing as attorney, executor, administrator, trustee, guardian,
officer or partner, please indicate full title and capacity.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<EXCHANGE-RATE> 1.00000
<CASH> 19,814
<SECURITIES> 3,187
<RECEIVABLES> 163,527
<ALLOWANCES> 17,272
<INVENTORY> 107,995
<CURRENT-ASSETS> 308,273
<PP&E> 195,315
<DEPRECIATION> 118,597
<TOTAL-ASSETS> 432,841
<CURRENT-LIABILITIES> 107,161
<BONDS> 0
<COMMON> 11,769
0
0
<OTHER-SE> 197,645
<TOTAL-LIABILITY-AND-EQUITY> 432,841
<SALES> 786,693
<TOTAL-REVENUES> 786,693
<CGS> 434,628
<TOTAL-COSTS> 738,187
<OTHER-EXPENSES> 1,515
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,722
<INCOME-PRETAX> 44,269
<INCOME-TAX> 19,908
<INCOME-CONTINUING> 24,361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,361
<EPS-BASIC> 4.27
<EPS-DILUTED> 4.25
</TABLE>
