<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-12448
FLOW INTERNATIONAL CORPORATION
WASHINGTON 91-1104842
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
23500 - 64TH AVENUE SOUTH
KENT, WASHINGTON 98032
(253) 850-3500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value
Preferred Stock Purchase Rights
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 the Form 10-K or any amendment to this
Form 10-K. [ ]
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The aggregate market value of the voting stock held by non affiliates of the
registrant based upon the closing price reported by the National Association
of Securities Dealers' Automated Quotation System ("NASDAQ") as of June 17,
1999, was $152,000,000. The number of shares of common stock outstanding as
of June 17, 1999, was 14,276,292 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
- --------------------------------------------------------------------------------
PART I: None
PART II: None
PART III: All Items -- See Registrant's definitive proxy statement which
involves the election of directors and which will be filed with
the Commission within 120 days after the close of the fiscal year.
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial
Owners and Management
Item 13 Certain Relationships and Related Transactions
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PART I
ITEM 1. BUSINESS
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Flow International Corporation ("Flow" or the "Company") designs,
develops, manufactures, markets, and services ultrahigh-pressure ("UHP")
waterjet cutting and cleaning systems, and specialized robotics systems. Flow
provides technologically-advanced, environmentally-sound solutions to the
manufacturing, industrial and marine cleaning markets. The Company's waterjet
systems pressurize water from 30,000 to over 100,000 pounds per square inch
(psi) and are used to cut both metallic and nonmetallic materials in many
industry segments, including the aerospace, automotive, disposable products,
food, glass, job shop, sign, metal cutting, marble, tile and other stone
cutting, and paper industries. Additionally, the Company manufactures a
product line for use in industrial cleaning, surface preparation,
construction, nuclear decontamination, and petro-chemical and oil field
applications. The Company also manufactures the robotic articulation
equipment used in the cutting and cleaning processes which may also include
assembly, pick and place and load/unload operations.
In addition to UHP cutting and cleaning, the Company has begun to apply
UHP technology to food, also known as "Fresher Under Pressure"-TM-. By
exposing foods to pressures from 50,000 psi to over 100,000 psi for a short
time, typically 30 seconds to slightly more than 2 minutes, UHP achieves the
effects of pasteurization without heat. Not only are spoilage microorganisms
destroyed, the process also destroys harmful pathogens such as E. coli
bacteria, thus increasing shelf life while ensuring a safe, healthy product.
Unlike thermal treatment (pasteurization), UHP technology does not destroy or
alter the nutritional qualities, taste, texture and color of the food. Flow
has developed a technology which features a `continuous flow' concept whereby
pumpable foods such as juice, salsas, guacamole, liquid eggs and salad
dressings are pumped into the pressure chambers, pressurized and then pumped
into the next stage of the process, such as bottling. This continuous flow
process is fully automated and requires just a single operator. The Company
also has the ability to UHP process non-pumpable foods as a result of the
March 1999 acquisition of Flow Pressure Systems Vasteras AB ("Pressure
Systems"). Pressure Systems provides Flow the patented large batch system
vessel technology. Flow is the leader in both the continuous feed and batch
UHP food processing technology.
The Company was formed in 1974, incorporated in 1980, and completed its
initial public offering in March 1983. In 1991, the Company's founder
retired, and Ronald W. Tarrant was appointed President and Chief Executive
Officer. Since 1991, the Company has grown as a result of continued new
product development, expanded marketing strategies, and certain strategic
acquisitions.
On December 15, 1994, the Company purchased certain net assets of
Dynovation Machine Systems, Inc. ("Flow Automation"). Flow Automation designs
and manufactures
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robotic waterjet cutting cells and automated assembly systems for the
automotive and other industries.
On January 3, 1995, the Company purchased certain net assets of ASI
Robotics Systems, Inc. ("Flow Robotics"). Flow Robotics designs and
manufactures high accuracy gantry-type robots and related systems used in
waterjet and factory automation applications. This manufacturing facility
supplies product to the aerospace, automotive, job shop, marble and tile and
other industries.
In May 1995, the Company invested in a 51% majority interest in a joint
venture with Okura & Co., Ltd., its exclusive Japanese distributor. This
joint venture, Flow Japan, supplies UHP products in Japan and to Japanese
companies throughout Asia. During March 1998 the Company increased its
ownership interest in Flow Japan to 95%.
In May 1997 the Company purchased the stock of Foracon Maschinen und
Anlagenbau GmbH & CO.KG ("Foracon"). Foracon supplies UHP and related systems
to the European market and performs metal fabrication of Flow Europe's UHP
systems.
In September 1997 the Company re-focused on its core ultrahigh-pressure
technology and divested itself of its Access and Services business. The
Access business was comprised of Spider Staging Corporation ("Spider"), Power
Climber and affiliated companies, the Ark Systems division and Consortium
Europeen du Materiel ("CEM"). These companies were purchased at various times
between fiscal 1993 and fiscal 1995. The Services business represented the
HydroMilling-Registered Trademark- and HydroCleaning-TM- operations. The
Company recorded a $4.9 million restructuring charge during fiscal 1998 and
$9 million restructuring charge in fiscal 1997 associated with the
divestiture of these operations.
In April 1998 the Company purchased certain net assets of CIS Robotics
Inc. ("CIS") and acquired the stock of Robot Simulations Limited ("Flow
Software Technologies Ltd.") of the U.K. CIS provides robot programming
services, primarily to the automotive industry, while Flow Software
Technologies Ltd markets a PC software program for control systems and
off-line programming of pedestal robots.
In March 1999 the Company purchased the stock of Pressure Systems from
Asea Brown Boveri AB and acquired a 51% voting interest in a related U.S.
joint venture, Flow Autoclave Systems Inc. ("Flow Autoclave"). Pressure
Systems is the leading supplier of large, bulk ultrahigh-pressure systems to
the food industry and the world leader in isostatic press systems for the
aerospace and automotive industries. Flow Autoclave markets the Pressure
Systems product domestically.
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PRODUCTS AND SERVICES
The Company provides UHP waterjets and related products and services to
a wide variety of industries. The Company divides its UHP revenues into two
primary categories of product, `UHP Waterjet Systems' and `UHP Consumable
Parts and Services':
<TABLE>
<CAPTION>
(In thousands)
1999 % 1998 % 1997 %
-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UHP Waterjet Systems $ 94,040 63 $ 94,728 66 $ 71,658 64
UHP Consumable Parts and Services 54,162 37 47,904 34 40,774 36
-------------------------------------------------
Total UHP Revenue $148,202 100 $142,632 100 $112,432 100
-------------------------------------------------
-------------------------------------------------
</TABLE>
In addition to UHP revenue, the Company's fiscal 1998 and 1997
consolidated revenue also include the non-core Access and Services operations
which were sold in September 1997. These operations are represented below as
Access and Services. The following table presents consolidated revenues for
the year ended April 30:
<TABLE>
<CAPTION>
(In thousands)
1999 % 1998 % 1997 %
-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total UHP Revenues $148,202 100 $142,632 89 $112,432 67
Access and Services - - 16,850 11 55,761 33
-------------------------------------------------
Total Consolidated Revenues $148,202 100 $159,482 100 $168,193 100
-------------------------------------------------
-------------------------------------------------
</TABLE>
UHP WATERJET SYSTEMS, CONSUMABLE PARTS AND SERVICES
The Company offers a variety of UHP waterjet equipment system products
and accessories, including robotic articulation equipment. UHP pumps,
intensifier and direct-drive, are currently the core components of the
Company's product line. An intensifier pump pressurizes water to in excess of
100,000 psi and forces it through a small nozzle, generating a high-velocity
stream of water. The Company's unique direct-drive pressure-compensated pumps
pressurize water to in excess of 50,000 psi utilizing triplex piston
technology. In order to cut metallic and other hard materials, abrasive is
added to the waterjet stream creating an abrasivejet. The Company's
abrasivejet cuts with no heat, causes no metallurgical changes, and leaves a
high-quality edge that usually requires no secondary operation.
A UHP waterjet system consists of an ultrahigh-pressure intensifier or
direct drive pump, one or more waterjet cutting or cleaning heads with the
necessary robotics, motion control and automation systems. The Company has
placed UHP waterjet cutting systems worldwide and in
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many different industries, including the aerospace, automotive, disposable
products, food, glass, job shop, sign, metal cutting, marble, tile and other
stone cutting and paper industries. The Company's waterjet systems are also
used in industrial cleaning applications such as paint removal, surface
preparation, factory and industrial cleaning, ship hull preparation, oil
field services and heat exchanger cleaning. Additionally, the Company
manufactures systems which combine waterjet applications with other processes
such as pick and place operations, inspection, assembly, and other automated
processes. Sales of waterjet systems accounted for 63% of fiscal 1999
revenues.
Flow sells various tools and accessories which incorporate waterjet
technology, as well as aftermarket consumable parts and service for its
products. Consumables primarily represent parts used by the pump and cutting
head driving operation. Many of these parts are proprietary in nature. Sales
of consumable parts and service accounted for 37% of fiscal 1999 revenues.
The Company's products are considered productivity enhancing tools and
can be cost justified over traditional cutting methods. The Company's sales
will be affected by worldwide economic changes, however the Company should
continue to gain market share even in `down' economies due to the cost
savings generated by waterjet technology. Additionally, consumable parts
sales represent a base level of business that is not as greatly affected by
the capital goods sales cycle.
ACCESS SYSTEMS AND SERVICES
Prior to the divestiture of its Access business in September 1997, the
Company designed, manufactured, rented, sold, and serviced powered access
systems for use in industrial, structural and facade maintenance and
construction applications. The Company also provided as a service, the
removal of deteriorated concrete from bridges and parking garage surfaces.
Flow's Rampart subsidiary provided ultrahigh-pressure waterjets which were
used for the removal of rubber, paint and grout from airport runways.
MARKETING AND SALES
The Company markets and sells its products worldwide through its
headquarters in Kent, Washington (a suburb of Seattle) and through
subsidiaries, divisions and joint ventures in Birmingham, England; Bretton
and Darmstadt, Germany; Burlington and Windsor, Canada; Stockholm Sweden;
Columbus, Ohio; Detroit, Michigan; Hsinchu, Taiwan; Jeffersonville, Indiana;
Lafayette, Louisiana and Nagoya and Tokyo, Japan. The Company sells directly
to customers in North and South America, Europe, and Asia, and has
distributors or agents in most other countries. In the U.S., the Company uses
a select group of machine tool distributors for sales, distribution and
service of its Bengal product line.
No customer accounted for 10% or more of the Company's revenues during
any of the three years ended April 30, 1999.
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Marketing efforts are focused on various target industries,
applications, and markets. To enhance the effectiveness of sales efforts, the
marketing staff and sales force acquire detailed information on the
manufacturing applications and requirements in targeted market segments. This
information is used to develop standardized and customized solutions using
UHP waterjet and robotics technologies. The Company provides turnkey systems,
including system design, specification, hardware and software integration,
equipment testing and simulation, installation, start-up services, technical
training and service.
One of the Company's marketing techniques utilizes a telemarketing
program to identify and qualify sales leads, thus increasing the efficiency
of the direct sales staff. Market responses to these activities are carefully
screened to identify new areas of interest and new potential applications in
our target markets. The Company also attends trade shows for targeted market
segments and advertises in selected industry publications.
PATENTS AND LICENSES
The Company holds a large number of patents relating to waterjet
technology and related systems. Some of these patents are subject to
sub-licenses. In addition, the Company has been granted licenses with respect
to other patents used in the business.
While the Company believes the patents it uses are valid, it does not
consider its business dependent on patent protection. In addition, the
Company has over the years developed non-patented proprietary expertise and
know-how in waterjet applications, and in the manufacture of these systems,
which sets it technologically ahead.
The Company believes the patents it holds and has in process, along with
the proprietary application and manufacturing know-how, act as a barrier of
entry into the markets it serves.
BACKLOG
At April 30, 1999, the Company's backlog was $35.8 million, almost
double that of the prior year end backlog of $18.5 million. The nature of the
Company's business is that most products, exclusive of the Pressure Systems
product, can be shipped within a four to eight week period and thus backlog
and the changes in the Company's backlog are not necessarily indicative of
comparable variations in sales or earnings. The April 30, 1999 backlog
represented 24% of fiscal 1999 sales. Based upon the terms of the customer
contracts and the Company's manufacturing schedule, all of the revenue
backlog as of April 30, 1999 is expected to be realized during fiscal 2000.
The unit sales price for most of the Company's products and services is
relatively high (typically ranging from tens of thousands to millions of
dollars) and individual orders can involve the delivery of several hundred
thousand dollars of products or services at one time. Furthermore, some items
in backlog can be shipped more quickly than others, and some have higher
profit margins than others.
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COMPETITION
The major competitors for UHP waterjet systems are conventional cutting
and cleaning methods. These methods include saws, knives, shears, plasma,
lasers, abrasive wheels, grinders, routers, drills, dies, and abrasive
cleaning techniques. A UHP waterjet cutting system has many advantages over
conventional cutting systems, including no generation of heat or airborne
dust, easy adaptability to complex cutting programs, versatility in the
different types of product that can be cut, cutting speed and the ability to
leave clean-cut edges. These factors, in addition to elimination of secondary
processing in most circumstances, enhance manufacturing productivity.
Waterjet cleaning offers many advantages over other cleaning methods, such as
the ability to remove difficult coatings or deposits from a surface without
damaging underlying material. A UHP waterjet system is an
environmentally-friendly answer to many difficult cutting and cleaning
applications and can often be justified solely on the basis of hazardous
material containment or reduction of secondary operations in the production
process. The many advantages of a waterjet over traditional cutting and
cleaning methods have positioned it in the market as a productivity enhancing
tool.
The Company also competes with other waterjet cutting equipment
manufacturers in the United States, Europe and Asia. Certain of these
competitors have greater financial resources than the Company. The Company's
robotics acquisitions give Flow a competitive advantage as the only total
solution supplier of complete waterjet cutting systems. Although independent
market information is not generally available, based upon data assembled from
internal and external sources, Company management believes it is the largest
manufacturer of UHP waterjet cutting systems in the world.
Overall, the Company believes that its competitive position is enhanced
by (1) technically advanced, proprietary products that provide excellent
reliability, low operating costs, and user-friendly features, (2) a strong
application-oriented, problem-solving marketing and sales approach, (3) an
active research and development program that allows it to maintain
technological leadership, (4) the ability to provide complete turnkey
systems, (5) a strong position in key markets, such as in the U.S., Canada,
Japan, southeast Asia and Europe, (6) strong OEM customer ties, and (7)
efficient production facilities.
RESEARCH AND ENGINEERING
The Company has spent between 5% and 8% of revenues in research and
engineering during each of the three years ended April 30, 1999. Research and
engineering expenses were $12.4 million in 1999, $10.3 million in 1998, and
$8.7 million in 1997. The Company will continue a high level of research &
engineering spending to maintain its technological leadership position
through development of new products and applications as well as enhancing its
current product line.
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EMPLOYEES
As of April 30, 1999, the Company employed 945 full time and 11 part
time personnel. There are no material collective bargaining agreements to
which the Company is a party.
FOREIGN AND DOMESTIC OPERATIONS
See Note 15 of Notes to Consolidated Financial Statements for
information regarding foreign and domestic operations.
SAFE HARBOR STATEMENT
Statements in this report that are not strictly historical are "forward
looking" statements which should be considered as subject to the many
uncertainties that exist in the Company's operations and business
environment. Significant factors which may affect future Company performance
include the following:
The Company's growth depends, in part, on the successful development of
improvements to its equipment and on the introduction of new products and
technologies. Improvements in competing technologies could affect the
Company's ability to market its products.
The Company's financial performance could fall short of its goals if a
change in overall economic conditions results in a decrease in the purchase
of capital goods by its customers. Changes in the mix of products sold by the
Company can also affect the gross margin achieved.
The success of the Company's most recently announced technology,
"Fresher Under Pressure" will be dependent on consumer acceptance of the
technology as well as the Company's ability to conform the technology to any
food and beverage regulations.
The Company's financial performance could be negatively affected if the
Company's or its suppliers computer systems are not Year 2000 ready.
ITEM 2. PROPERTIES
- --------------------------------------------------------------------------------
The Company's headquarters and primary manufacturing facilities are
located in two leased facilities in Kent, Washington. The Company also
manufactures product in Bretton and Darmstadt, Germany; Burlington, Canada;
Stockholm, Sweden; Hsinchu, Taiwan and Jeffersonville, Indiana. The Company
sells product through all of these locations in addition to offices located
in Birmingham, England; Detroit, Michigan; Nagoya and Tokyo, Japan and
Windsor, Canada.
All facilities of the Company are leased with the exception of a
manufacturing facility in Jeffersonville, Indiana.
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The Company believes that its facilities are suitable for its current
operations and that expansion in the near term will not require additional
space. The Company further considers that its primary manufacturing facility
will be adequate to meet production requirements for the next three to five
years.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The Company is party to various legal actions incident to the normal
operation of its business, none of which is believed to be material to the
financial condition of the Company. See Notes 1 and 13 of Notes to
Consolidated Financial Statements for a description of the Company's product
liability insurance coverage and estimated exposure.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
- --------------------------------------------------------------------------------
See page 13
ITEM 6. SELECTED FINANCIAL DATA.
- --------------------------------------------------------------------------------
See page 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
- --------------------------------------------------------------------------------
See pages 14 through 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- --------------------------------------------------------------------------------
See pages 26 through 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
- --------------------------------------------------------------------------------
None.
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
The principal market for the Company's common stock is the over-the-counter
market. The Company's stock is traded on the NASDAQ National Market under the
symbol "FLOW." The range of high and low sales prices for the Company's common
stock for the last two fiscal years is set forth in the following table.
<TABLE>
<CAPTION>
Fiscal Year 1999 Fiscal Year 1998
High Low High Low
--------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $12.75 $10.69 $10.38 $7.88
Second Quarter 10.75 8.38 11.75 9.13
Third Quarter 12.06 9.13 11.25 9.13
Fourth Quarter 11.13 8.44 10.69 9.56
</TABLE>
There were 1,286 stockholders of record as of June 17, 1999.
The Company has not paid dividends to common stockholders in the past. The
Board of Directors intends to retain future earnings to finance development and
expansion of the Company's business and does not expect to declare dividends to
common stockholders in the near future.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Year Ended April 30,
-------------------------------------------------------------------------------------------------------------
1999* 1998* 1997* 1996 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue $148,202 $159,482 $168,193 $144,905 $110,010
Pretax Income 9,336 6,505 963 8,902 9,259
Net Income 6,722 4,803 725 7,085 7,728
Basic Earnings Per Share 0.46 0.33 0.05 0.49 0.55
Diluted Earnings Per Share 0.45 0.32 0.05 0.47 0.53
Balance Sheet Data:
Working Capital $79,993 $59,863 $68,126 $57,866 $44,592
Total Assets 179,152 121,181 133,466 126,493 105,484
Short-Term Debt 4,604 6,905 1,730 3,339 2,412
Long-Term Obligations 64,614 32,076 53,569 45,590 33,359
Stockholders' Equity 64,022 61,195 56,753 57,060 49,803
</TABLE>
* See Note 4 of the Consolidated Financial Statements which describes the
disposition of certain business units during fiscal 1998 and the related
restructuring provisions in fiscal 1998 and 1997.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
The Company provides ultrahigh-pressure ("UHP") waterjets and related
products and services to a wide variety of industries. Waterjet cutting is
recognized as a better alternative to traditional cutting methods such as
saws, plasma or laser systems. It is faster, has greater versatility in the
types of products it can cut and eliminates the need for secondary processing
operations. The Company divides its UHP revenues into two primary categories
of product, `UHP Waterjet Systems' and `UHP Consumable Parts and Services'.
CONSOLIDATED REVENUES BY MAJOR PRODUCT CATEGORIES
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
Revenue % Revenue % Revenue %
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UHP Waterjet Systems $94,040 63 $94,728 66 $71,658 64
UHP Consumable Parts and Services 54,162 37 47,904 34 40,774 36
----------------------------------------------------------------------
Total UHP Revenues $148,202 100 $142,632 100 $112,432 100
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
In addition to UHP revenue, the Company's fiscal 1998 and 1997 consolidated
revenues also include the non-core Access and Services operations that were sold
in September 1997. These operations included Spider Staging Corporation, Power
Climber and affiliated companies, the Ark Systems division, Consortium Europeen
du Materiel, the HydroMilling-Registered Trademark- division and Rampart
Waterblast, Inc..
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
Revenue % Revenue % Revenue %
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total UHP Revenues $148,202 100 $142,632 89 $112,432 67
Access and Services - 16,850 11 55,761 33
----------------------------------------------------------------------
Total Consolidated Revenues $148,202 100 $159,482 100 $168,193 100
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998
During the second quarter of fiscal 1998 the Company sold its non-core
Access and Services operations.
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The following pro forma table separates the Company's fiscal 1998
consolidated income statement into the ongoing operations (UHP) and the
divested operations (Access and Services). The Access and Services results
include an associated $4.9 million restructuring charge. This charge is
included as a separate component of operating expenses in the accompanying
Consolidated Statements of Income.
<TABLE>
<CAPTION>
(In thousands) Year Ended April 30, 1998
-------------------------
Access &
UHP Services Consolidated
---------------------------------------
<S> <C> <C> <C>
Revenue $142,632 $16,850 $159,482
Gross profit 58,958 5,247 64,205
Operating expenses 45,593 8,427 54,020
Operating income / (loss) 13,365 (3,180) 10,185
Interest / other expense, net (3,303) (377) (3,680)
Pretax income / (loss) 10,062 (3,557) 6,505
</TABLE>
As fiscal 1999 does not include the divested Access and Services operations, the
following Results of Operations review compares only the ongoing UHP operations.
UHP RESULTS OF OPERATIONS ANALYSIS
The following analysis presents a year over year comparison of the UHP
operations. The following pro forma table presents the results of operations of
the Company's UHP business only:
<TABLE>
<CAPTION>
(In thousands) Year ended
April 30,
-------------------------
1999 1998
-------------------------
<S> <C> <C>
Revenue $ 148,202 $ 142,632
Gross profit 65,231 58,958
Operating expenses:
Marketing 24,847 21,952
Research & engineering 12,396 9,990
General & administrative 14,888 13,651
--------- ---------
52,131 45,593
--------- ---------
Operating income 13,100 13,365
Interest expense, net (3,177) (2,886)
Other expense, net (587) (417)
--------- ---------
Pretax income 9,336 10,062
Net income $ 6,722 $ 7,144
</TABLE>
15
<PAGE>
Revenues for the year ended April 30, 1999 were $148.2 million, an
increase of $5.6 million (4%) over the prior year period. The Company's
revenues can be segregated into two primary categories, systems sales and
consumables sales. Systems are generally comprised of a pump along with the
robotics or articulation used to move the cutting or cleaning head. Systems
are further broken down between standard systems such as the
Bengal-Registered Trademark-, Integrated Flying Bridge and A-Series, and
special or custom designed systems used primarily in the aerospace and
automotive markets. Systems sales in fiscal 1999 were $94 million, a decrease
of $688,000 (1%) over the prior year. Included in this decrease was an $8.5
million reduction in large custom designed systems versus the prior year.
Weakness in the automotive and aerospace markets account for this decrease.
In addition, the average standard domestic system selling price has decreased
by 10% as the lower cost systems, such as the Integrated Flying Bridge and
Bengal, now deliver improved accuracy and feature enhancements that were
formerly found only on the more expensive models. Consumables are primarily
parts used by the pump and cutting head during operation. Consumable parts
and services revenues increased $6.3 million (13%) to $54.2 million in fiscal
1999. The consumable parts increase reflects the expanding base of waterjet
systems installed throughout the world.
Domestically, revenues increased 9% to $77.5 million and represent 52%
of fiscal 1999 sales. This increase in revenues was achieved in spite of a
27% decrease in the U.S. cutting machine tool market for the 12 months ended
April 30, 1999 according to the Association for Manufacturing Technology
("AMT"). The Company did however experience weakness domestically during the
fourth quarter of fiscal 1999 with an 8% decline in domestic sales as
compared to the prior year. According to AMT, the domestic cutting machine
tool market dropped 47% during the first calendar quarter of 1999. Management
believes the decline in fourth quarter domestic sales is a function of a
tightening economy as opposed to a reduction in the benefits of the waterjet
cutting technology over competitive technologies. European revenues posted
the strongest geographic gain, 22% to $42 million and represent 28% of total
revenues. The Company experienced weakness in the Asian region, where
revenues decreased $4.4 million (23%) to $14.9 million. Weakness in Japan
accounted for $3.5 million of this drop. Sales in the remainder of the world,
primarily Canada, Mexico and South America also decreased 23% to $13.9
million. The Company typically sells its products at higher prices outside
the United States due to the costs of servicing these markets. The Company
did not significantly raise prices during fiscal 1999.
The Company has begun to apply UHP technology to food, also known as
"Fresher Under Pressure". By exposing foods to pressures from 50,000 psi to
over 100,000 psi for a short time, typically 30 seconds to slightly more than
two minutes, UHP achieves the effects of pasteurization without heat. Not
only are spoilage microorganisms destroyed, but the process also destroys
harmful pathogens such as E. coli bacteria, thus increasing shelf life while
ensuring a safe, healthy product. Unlike thermal treatment (pasteurization),
UHP technology does not destroy or alter the nutritional qualities, taste,
texture or color of the food. Flow has developed a technology that features a
`continuous flow' concept whereby pumpable foods such as juices, salsas,
guacamole, liquid eggs and salad dressings are pumped into pressure chambers,
pressurized and then pumped into the next stage of the process, such as
bottling. This continuous
16
<PAGE>
flow process is fully automated and requires just a single operator. The
Company also has the ability to UHP process non-pumpable foods as a result of
the March 1999 acquisition of Flow Pressure Systems Vasteras AB ("Pressure
Systems"). Pressure Systems provides Flow the patented large batch system
vessel technology. Flow is the leader in both the continuous feed and batch
UHP food processing technology. The Company has delivered two continuous flow
technology systems and is producing several other systems for near-term
delivery. The Company is leasing the continuous flow technology and, as such,
the deliveries did not result in revenue recognition in fiscal 1999. These
leases have a fixed monthly charge plus a per gallon or per pound usage fee.
The batch processing systems manufactured by Pressure Systems are sold, not
leased. The Company estimates fiscal 2000 revenues related to both batch and
continuous flow food purification systems will be between $7 million and $10
million depending on when clients launch their new fresh products. Management
also anticipates this market will double each year for the next three years.
Gross profit for the year ended April 30, 1999 increased $6.3 million
(11%) on just a 4% increase in sales. Gross profit expressed as a percentage
of revenue (gross margin rate) was 44% in fiscal 1999 as compared to 41% in
fiscal 1998. In general, gross margin rates on systems sales are less than
45% and on consumables sales are in excess of 50%. As such, the gross margin
rate can vary depending on the revenue mix between systems, both standard and
special, and consumables sales. Systems sales represented 63% of fiscal 1999
revenues, down from 66% in the prior year, and consumables sales represented
37% of fiscal 1999 revenues, up from 34% in the prior year. The increase in
gross margin rate was a function of the shift in revenue towards a greater
percentage of consumables sales, as well as an increase in standard system
sales, as compared to special systems. On average, standard systems carry
higher margins than the custom engineered systems. Additionally, production
efficiencies and greater throughput resulted in reduced costs.
Total operating expenses of $52.1 million increased $6.5 million (14%)
over the prior year. Expressed as a percentage of revenues, operating
expenses increased to 35% in fiscal 1999 from 32% in fiscal 1998. Marketing
expense of $24.8 million increased $2.9 million (13%) as compared to the
prior year, and expressed as a percentage of revenues, increased to 17% from
15% in the prior year. This increase includes marketing activity for "Fresher
Under Pressure" and several major trade shows including IMTS and EMO, both of
which are held every other year. Research and engineering expense in fiscal
1999 increased $2.4 million (24%) to $12.4 million as compared to the prior
year. Approximately $2.1 million of this increase was development of the
"Fresher Under Pressure" technology. Management will continue to aggressively
pursue technological advances through increased research and engineering
spending to maintain the Company's technological superiority. As a percentage
of revenues, research and engineering expenses were 8% in fiscal 1999 as
compared to 7% in fiscal 1998. General & administrative expense of $14.9
million increased $1.2 million (9%) for the year as compared to the prior
year. Expressed as a percentage of revenues however, general and
administrative expenses were comparable to the prior year at 10%.
17
<PAGE>
Operating income can vary significantly for domestic and foreign
operations, but is primarily the result of product mix variations and volume
from year to year. Management continues to monitor the economic situation
throughout all primary geographic areas. Domestic growth was weaker than past
years and the Asian region experienced a 23% decline. Management anticipates
a continued weakness in the domestic economy for the near term and flat to
slightly reduced sales into Asia for fiscal 2000. Fiscal 2000 European growth
is expected to continue but at a lower level than in fiscal 1999.
Net interest expense of $3.2 million increased $291,000 (10%) in fiscal
1999 compared to 1998. This increase resulted from higher debt levels
associated with a $3.3 million stock repurchase program and inventory and
capital asset additions related to "Fresher Under Pressure" of approximately
$7.7 million. During fiscal 1999, other expense, net, totaled $587,000
compared to other expense, net, of $417,000 in fiscal 1998.
Fiscal 1999 income tax expense was 28% of income before tax as compared
to 29% in the previous year. The income tax rates were lower than the
statutory rates in both the current and prior year due primarily to lower
foreign tax rates, benefits from the foreign sales corporation, and an
ongoing review of the Company's valuation allowance.
The weighted average number of shares outstanding used for the
calculation of Basic and Diluted earnings per share is 14,730,000 and
15,059,000, respectively, for fiscal 1999 and 14,707,000 and 15,037,000,
respectively, for fiscal 1998.
The Company recorded fiscal 1999 net income of $6.7 million, or $.46
Basic and $.45 Diluted earnings per share as compared to $7.1 million, or
$.48 Basic and $.47 Diluted earnings per share in fiscal 1998. The Company's
pretax investment in "Fresher Under Pressure" in marketing, research and
engineering and the carrying costs of inventory and fixed assets was $2.5
million in fiscal 1999. Excluding the effects of "Fresher Under Pressure"
spending, fiscal 1999 net income would have been $8.5 million or $.58 Basic
and $.57 Diluted earnings per share.
FISCAL 1998 COMPARED TO FISCAL 1997
During fiscal 1998 the Company sold its non-core Access and Services
operations. Fiscal 1998 results included these operations only during the
first quarter, while fiscal 1997 included these operations for the entire
year. The Access and Services business units accounted for approximately 11%
and 33% of fiscal 1998 and 1997 revenues, respectively.
The following pro forma table separates the Company's Consolidated
Income Statement into the ongoing operations (UHP) and the divested
operations (Access and Services). The Company recorded a total of $13.9
million in restructuring charges during fiscal 1998 and 1997 to write down
the Access and Services assets sold to net realizable value and provide for
transaction expenses and probable future obligations associated with the
sale. These charges are
18
<PAGE>
included as a separate component of operating expenses in the accompanying
Consolidated Statements of Income, and are included in the Access and
Services results below:
<TABLE>
<CAPTION>
(In thousands) Year Ended April 30, 1998 Year Ended April 30, 1997
------------------------------------------ -----------------------------------------
Access & Access &
UHP Services Consolidated UHP Services Consolidated
------------------------------------------ -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 142,632 $ 16,850 $ 159,482 $ 112,432 $ 55,761 $ 168,193
Gross profit 58,958 5,247 64,205 46,635 19,516 66,151
Operating expenses 45,593 8,427 54,020 37,431 23,874 61,305
Operating income / (loss) 13,365 (3,180) 10,185 9,204 (4,358) 4,846
Interest / other exp., net (3,303) (377) (3,680) (2,918) (965) (3,883)
Pretax income / (loss) 10,062 (3,557) 6,505 6,286 (5,323) 963
</TABLE>
Given the disposition of Access and Services, two separate Results of Operations
reviews have been provided. The "UHP RESULTS OF OPERATIONS ANALYSIS" provides a
review of the UHP operations for fiscal 1998 as compared to 1997 and the "ACCESS
AND SERVICES OPERATIONS ANALYSIS" is a review of the results of operations for
Access and Services for fiscal 1998 as compared to 1997.
UHP RESULTS OF OPERATIONS ANALYSIS
The following analysis is a year over year comparison of the ongoing UHP
operations. The following pro forma table presents the results of operations of
the Company's UHP business only:
<TABLE>
<CAPTION>
(In thousands) Year ended
April 30,
------------------------
1998 1997
------------------------
<S> <C> <C>
Revenue $ 142,632 $ 112,432
Gross profit 58,958 46,635
Operating expenses:
Marketing 21,952 18,924
Research and engineering 9,990 7,706
General and administrative 13,651 10,801
--------- ---------
45,593 37,431
--------- ---------
Operating income 13,365 9,204
Interest expense, net (2,886) (2,248)
Other expense, net (417) (670)
--------- ---------
Pretax income 10,062 6,286
Net income $ 7,144 $ 4,732
</TABLE>
19
<PAGE>
Revenues for the year ended April 30, 1998 were $142.6 million, an
increase of $30.2 million (27%) over the prior year period. Systems sales in
fiscal 1998 were $94.7 million, an increase of $23.1 million (32%) over the
prior year. The Company's standard systems, the Flying Bridge, the Bengal and
the A-series, represent the majority of the increase in systems sales.
Consumable parts and services revenues increased $7.1 million (17%) to $47.9
million in fiscal 1998. Revenues grew in all three primary geographic
markets, the Americas, Europe and Asia, with increases of 27%, 25% and 29%,
respectively, over the prior year. The Company did not significantly raise
prices during fiscal 1998.
The gross margin rate was 41% in both fiscal 1998 and 1997. The gross
margin rate is dependent on the mix of sales between systems and consumables.
Systems sales represented 66% of fiscal 1998 revenues, up from 64% in the
prior year and consumables sales represented 34% of fiscal 1998 revenues,
down from 36% in the prior year. The gross margin rate remained constant in
fiscal 1998 versus 1997 even with the continuing shift in revenue mix towards
systems versus consumables sales. This reflects, in part, the benefit of
lower costs on the standard product line as a result of increased production
levels.
Operating expenses of $45.6 million increased $8.2 million (22%) over
the prior year, however expressed as a percentage of revenues, operating
expenses decreased to 32% from 33% in fiscal 1997. Marketing expense of $22
million increased $3 million (16%) as compared to the prior year; however,
expressed as a percentage of revenues, marketing expense decreased to 15%
from 17% in the prior year. This reduction reflected management's ability to
leverage marketing activities against a higher revenue base. Research and
engineering expense in fiscal 1998 increased $2.3 million (30%) to $10
million as compared to fiscal 1997. This increased spending included
continued development of the "Fresher Under Pressure" technology as well as
research in other areas of the Company's products and applications.
Management will continue to aggressively pursue technological advances
through increased research and engineering spending. As a percentage of
revenues however, research and engineering expenses were 7% in both fiscal
1998 and 1997. General and administrative expense of $13.7 million increased
$2.9 million (26%) for the year as compared to the prior year. Over one half
of this increase is attributable to the inclusion of the fiscal 1998
acquisitions of Foracon and CIS. Expressed as a percentage of revenues,
general and administrative expenses were comparable to the prior year.
Operating income can vary significantly for domestic and foreign
operations, but is primarily the result of product mix variations and volume
from year to year.
Net interest expense of $2.9 million increased $638,000 (28%) in fiscal
1998 compared to 1997. This increase results from higher debt levels
associated with an increased level of production and capital additions as
well as borrowings related to the fiscal 1998 acquisitions. During fiscal
1998, other expense, net, totaled $417,000 compared to other expense, net, of
$670,000 in 1997.
20
<PAGE>
Fiscal 1998 income tax expense was 29% of income before tax as compared
to 25% in the previous year. The income tax rates were lower than the
statutory rates in both the current and prior year due primarily to lower
foreign tax rates, benefits from the foreign sales corporation, and an
ongoing review of the Company's valuation allowance.
The weighted average number of shares outstanding used for the
calculation of Basic and Diluted earnings per share is 14,707,000 and
15,037,000, respectively, for fiscal 1998 and 14,561,000 and 14,932,000,
respectively, for fiscal 1997.
The Company recorded fiscal 1998 UHP net income of $7.1 million, or $.48
Basic and $.47 Diluted earnings per share as compared to $4.7 million, or
$.33 Basic and $.32 Diluted earnings per share in fiscal 1997.
ACCESS AND SERVICES OPERATIONS ANALYSIS
The following pro forma table presents the results of operations of the
Access and Services business units, including the restructuring charges:
<TABLE>
<CAPTION>
(In thousands) Year ended
April 30,
------------------------
1998 1997
---------- ---------
<S> <C> <C>
Revenue $ 16,850 $ 55,761
Gross profit 5,247 19,516
Operating expenses 8,427 23,874
Operating loss (3,180) (4,358)
Interest / other expense, net (377) (965)
Pretax loss (3,557) (5,323)
</TABLE>
The differences between fiscal 1998 and 1997 occurred as a result of the
sale of these businesses during fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $2.9 million in cash flow from operations during
fiscal 1999 as compared to $2.7 million in fiscal 1998. Cash flow in fiscal
1999 was impacted by increases in both trade accounts receivable and
inventory as discussed further below as well as reductions in accrued
liabilities. The Company invested $8.2 million in property and equipment
during fiscal 1999 of which $3.2 million related to "Fresher Under Pressure".
Additionally, the Company paid $13.6 million net of cash acquired for
Pressure Systems and spent $3.3 million to repurchase Company common stock.
Total debt at April 30, 1999 was $69.2 million, an increase of $30.2 million
(78%) from April 30, 1998. Management believes that the available credit
facilities and working capital generated by operations will provide
sufficient resources to meet its operating and capital requirements for the
next 12 months. The Company's Credit Agreement and Private Placement require
the Company to comply with certain financial covenants. The
21
<PAGE>
covenants were amended as a result of the Pressure Systems acquisition. As of
April 30, 1999, the Company was in compliance with all such covenants, as
amended. The fiscal 1998 Consolidated Statement of Cash Flows reflects the
disposition of the Access and Services businesses.
See Note 8 of Notes to Consolidated Financial Statements for a schedule
of long-term debt maturities. Long-term debt obligations are expected to be
met from working capital provided by operations and, as necessary, by other
indebtedness.
Capital spending plans currently provide for outlays of approximately $4
million to $8 million in fiscal 2000. Of this amount, approximately $2
million to $5 million relates to manufacture of the continuous feed "Fresher
Under Pressure" assets. The timing of these continuous feed asset additions
will be determined by market demand. It is expected that funds necessary for
these expenditures will be generated internally, and through available credit
facilities.
Gross trade accounts receivable of $56.5 million at April 30, 1999
increased $18.5 million (49%) from April 30, 1998. The April 30, 1999 amount
includes the March 1999 acquisition of Pressure Systems. Exclusive of the
acquisition, gross accounts receivable were flat compared to April 30, 1998.
Days' sales outstanding in gross accounts receivable is negatively impacted
by the traditionally longer payment cycle outside the United States.
Additionally, longer payment terms are sometimes negotiated on large system
orders. Management does not believe these timing issues will present a
material adverse impact on the Company's short-term liquidity requirements.
Inventory of $47.8 million at April 30, 1999 represents an increase of
$10.8 million (29%) compared to April 30, 1998. Excluding the March 1999
Pressure Systems acquisition, inventories increased $7.8 million (21%)
compared to April 30, 1998. Approximately $5 million of this increase is
inventory for the continuous feed "Fresher Under Pressure" technology.
Certain products manufactured by the Company's robotics and automation
divisions require an extended manufacturing period, and therefore involve
higher levels of work in process.
Quantitative and Qualitative Disclosures About Market Risk:
Market risk exists in the Company's financial instruments related to an
increase in interest rates as well as adverse changes in foreign exchange
rates relative to the U.S. dollar. These exposures are related to the daily
operations of the Company.
Interest Rate Exposure - At April 30, 1999 the Company had $69.2 million
in interest bearing debt. Of this amount $21.3 million was fixed rate debt
with interest rates ranging from 4.75% to 7.2% per annum. The remaining debt
of $47.9 million was variable with $40.5 million of this total bearing a rate
of LIBOR + 1% or 5.94% at April 30, 1999. The majority of the remaining
floating rate debt was at prime, 7.75%. See Note 8 to the Consolidated
Financial Statements for additional contractual information on the Company's
debt obligations. At April
22
<PAGE>
30, 1999 the fair value of the Company's debt approximates the carrying
amount on the Consolidated Balance Sheet. Market risk is estimated as the
potential for interest rates to increase 10% on the variable rate debt. A 10%
increase in interest rates would result in an approximate additional annual
charge to the Company's pretax profits and cash flow of $275,000. At April
30, 1999 the Company had no derivative instruments to offset the risk of
interest rate changes. The Company may choose to use derivative instruments,
such as interest rate swaps, to manage the risk associated with interest rate
changes.
Foreign Currency Exchange Rate Risk - The Company transacts business in
various foreign currencies, primarily the Canadian dollar, the German mark,
the Japanese yen, the New Taiwan dollar, and the Swedish crown. The assets
and liabilities of its foreign operations, with functional currencies other
than the U.S. dollar, are translated into U.S. dollars at exchange rates in
effect at the balance sheet date. Income and expense items are translated at
the average exchange rates prevailing during the period. Aggregate
transaction gains and losses included in the determination of net income have
not been material. Based on the Company's overall currency rate exposure at
April 30, 1999, a near-term 10% appreciation or depreciation of the U.S.
dollar would have an insignificant effect on the Company's financial
position, results of operations and cash flows over the next fiscal year. At
April 30, 1998, a near-term 10% appreciation or depreciation of the U.S.
dollar was also determined to have an insignificant effect.
Year 2000 Issues and Conversion:
Background: Some computers, software, and other equipment include programming
code that limits the "year" field to two digits. Thus, these systems could
fail in the event that the last two digits "00" are interpreted to mean the
year 1900. For this reason, the Company began the conversion process to
upgrade its systems in fiscal 1998.
Assessment: The Year 2000 issues could effect computers, software, and other
equipment used, or maintained by the Company. The Company has reviewed its
internal computer programs and systems to determine if the programs and
systems are Year 2000 ready. The Company believes that its computer systems
will be Year 2000 ready in a timely manner. To date, the Company has
converted and tested its primary computer system and is currently upgrading
the internal computer systems of its subsidiaries.
The estimated costs of these efforts are $250,000 and are not expected to be
material to the Company's financial position or any of its financial results
from operations. There can however be no assurance to this effect. To date,
no other Information Technology projects that have a material effect on the
Company's operations have been deferred.
Software Sold to Customers: The Company develops its own proprietary software
that controls the functions of some of its machines. The Company also sells
software or other electronic control devices purchased from third party
vendors. The Company believes that it has substantially identified and
resolved all potential Year 2000 issues with any of its software
23
<PAGE>
products. However, the Company believes that it is not possible to determine
with complete certainty that its products are entirely Year 2000 ready. As
with most software, it is dependent upon hardware and other operating systems
that are provided by other third party vendors not under the Company's
control.
Internal Infrastructure: The Company is in the process of reviewing all of
its equipment that is used in the receiving, manufacturing, and shipping of
its products as well as its copiers, fax machines, elevators, telephone
systems and other equipment used to maintain daily operations. To date, the
Company has not identified any material issues that would affect the ongoing
operations. The Company is on schedule with its review of these systems and
does not expect any required modifications to have a material adverse effect
on its future financial results. However, the Company is continuing to
monitor the process and this estimate will be revised if additional material
information is discovered.
Suppliers: The Company initiated communications with all of its critical
suppliers in April 1998. The form of this communication was by questionnaire
designed to determine the Year 2000 readiness of the suppliers' business
systems. In addition, the Company has met in person with the Company's
primary suppliers to review year 2000 readiness. The Company is in the
process of evaluating supplier responses. Based upon responses to date, the
Company believes that its critical suppliers will be Year 2000 ready and does
not currently expect any adverse effects on its daily operations. While the
Company does not expect any material adverse effects, the Company can provide
no assurance that these suppliers will resolve all of their Year 2000 issues
on a timely basis. The Company will continue to monitor this process and
revise its expectations as needed.
Risks: While the Company is taking steps in all areas discussed above, there
can be no assurance that all Year 2000 issues will be entirely resolved. Due
to this inherent uncertainty, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers and customers, there could be
interruptions or failures that would materially impact normal business
operations. The Year 2000 Project is expected to significantly reduce the
potential of any such material adverse effects. Further, the Year 2000
Project includes the development of contingency plans for those systems that
are critical to daily operations.
Readers are cautioned that the forward-looking statements contained in the
Year 2000 Issues and Conversion should be read in conjunction with the
Company's disclosures under the heading: "Safe Harbor Statement'.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 131 ("FAS 131"),
"Disclosures about Segments of an Enterprise and Related Information" is
effective beginning in fiscal 1999. FAS 131 requires the Company to report
information about operating segments both annually as well as condensed data
quarterly. Operating segments are determined based upon the manner in which
internal financial information is produced and evaluated. Additionally
certain
24
<PAGE>
geographical information is required regardless of how internal financial
information is generated. Based on the reporting structure of the Company,
management believes the Company operates within geographic segments only and
has adopted FAS 131 accordingly.
Statement of Financial Accounting Standards No. 133, ("FAS 133"),
"Accounting for Derivative Instruments and Hedging Activities", is effective
beginning in fiscal 2001, with early adoption permitted. FAS 133 standardizes
the accounting for derivative instruments by requiring that an entity
recognize those items as assets or liabilities in the financial statements
and measure them at fair value. The Company is currently reviewing the
requirements of FAS 133 and assessing its impact on the Company's financial
statements. The Company has not made a decision regarding the period of
adoption.
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use", is effective
beginning in fiscal 2000. SOP 98-1 requires companies to capitalize the cost
of computer software developed or obtained for internal use. The adoption of
SOP 98-1 is not expected to have a material impact on the Company.
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-up Activities", is effective beginning in fiscal 2000. SOP 98-5
requires companies to expense costs associated with start-up operations,
including costs previously deferred. The adoption of SOP 98-5 is not expected
to have a material impact on the Company.
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
Management is responsible for the fair and accurate presentation of
information in this annual report. The financial statements and related notes
have been prepared in accordance with generally accepted accounting
principles. Financial and operating information comes from Company records
and other sources. Certain amounts are, of necessity, based on judgment and
estimation.
We believe that adequate accounting systems and financial controls are
maintained to ensure that the Company's records are free from material
misstatement and to protect the Company's assets from loss or unauthorized
use. In addition, the Audit Committee of the Board of Directors periodically
meets with PricewaterhouseCoopers LLP and management to review the work of
each, to discuss financial reporting matters, and to review auditing and
internal control procedures.
/s/ Stephen D. Reichenbach
--------------------------
Stephen D. Reichenbach
Executive Vice President, Treasurer
and Chief Financial Officer
- --------------------------------------------------------------------------------
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
The following consolidated financial statements are filed as a part of
this report:
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE IN THIS REPORT
- -----------------------------------------------------------------------------------------
<S> <C>
Report of Independent Accountants 27
Consolidated Balance Sheets at April 30, 1999 and 1998 28
Consolidated Statements of Income for each of the three
years in the period ended April 30, 1999 29
Consolidated Statements of Cash Flows for each of
the three years in the period ended April 30, 1999 30
Consolidated Statements of Stockholders'
Equity for each of the three years in the period
ended April 30, 1999 32
Notes to Consolidated Financial Statements 33
FINANCIAL STATEMENT SCHEDULES
Schedule VIII Valuation and Qualifying Accounts 51
</TABLE>
All other schedules are omitted because they are not applicable.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Flow International Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Flow International Corporation and its subsidiaries at April 30,
1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended April 30, 1999, in conformity
with generally accepted accounting principles. In addition, in our opinnion,
the financial statement schedules listed in the accompanying index present
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Seattle, Washington
June 3, 1999
27
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
April 30,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS:
Current Assets:
Cash $10,403 $3,006
Trade Accounts Receivable, less
allowances for doubtful accounts of $766 and $669, respectively 55,783 37,359
Inventories, net 47,771 36,976
Deferred Income Taxes 1,658 2,493
Other Current Assets 4,849 7,846
-------------------------
Total Current Assets 120,464 87,680
Property and Equipment, net 17,723 11,992
Intangible Assets, net of accumulated amortization of
$7,000 and $5,546, respectively 36,211 16,561
Deferred Income Taxes 1,314 1,562
Other Assets 3,440 3,386
-------------------------
$179,152 $121,181
-------------------------
-------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes Payable $ 419 $1,450
Current Portion of Long-Term Obligations 4,185 5,455
Accounts Payable 18,411 11,338
Accrued Payroll and Related Liabilities 6,801 5,428
Other Accrued Taxes 851 374
Deferred Revenue 2,888 102
Other Accrued Liabilities 6,916 3,670
-------------------------
Total Current Liabilities 40,471 27,817
Long-Term Obligations 64,614 32,076
Customer Deposits 8,931
Commitments and Contingencies (Note 13)
Minority Interest 1,114 93
Stockholders' Equity:
Series A 8% Convertible Preferred Stock -
$.01 par value, 1,000,000 shares authorized, none issued
Common Stock - $.01 par value, 20,000,000 shares authorized,
14,665,700 shares outstanding at April 30, 1999
14,846,908 shares outstanding at April 30, 1998 147 148
Capital in Excess of Par 40,260 39,925
Retained Earnings 28,037 23,749
Cumulative Translation Adjustment (3,882) (2,286)
Unrealized loss on equity securities available for sale (540) (341)
-------------------------
Total Stockholders' Equity 64,022 61,195
-------------------------
$179,152 $121,181
-------------------------
-------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------------------------
1999 1998 * 1997
--------- ---------- ---------
<S> <C> <C> <C>
Revenue:
Sales $ 148,202 $ 149,414 $ 135,908
Services - 6,423 19,515
Rentals - 3,645 12,770
---------------------------------------
Total Revenues 148,202 159,482 168,193
---------------------------------------
Cost of Sales:
Sales 82,971 88,291 80,735
Services - 5,887 14,657
Rentals - 1,099 6,650
---------------------------------------
Total Cost of Sales 82,971 95,277 102,042
---------------------------------------
Gross Profit 65,231 64,205 66,151
---------------------------------------
Expenses:
Marketing 24,847 23,972 27,173
Research and Engineering 12,396 10,253 8,749
General and Administrative 14,888 14,885 16,432
Restructuring - 4,910 8,951
---------------------------------------
52,131 54,020 61,305
---------------------------------------
Operating Income 13,100 10,185 4,846
Interest Expense, net (3,177) (3,246) (3,837)
Other Expense, net (587) (434) (46)
---------------------------------------
Income Before Provision for Income Taxes 9,336 6,505 963
Provision for Income Taxes 2,614 1,702 238
---------------------------------------
Net Income $ 6,722 $ 4,803 $ 725
---------------------------------------
---------------------------------------
Basic Earnings Per Share $ .46 $ .33 $ .05
---------------------------------------
---------------------------------------
Diluted Earnings Per Share $ .45 $ .32 $ .05
---------------------------------------
---------------------------------------
</TABLE>
* SEE NOTE 4 WHICH DESCRIBES THE DISPOSITION OF CERTAIN BUSINESS UNITS DURING
FISCAL 1998
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
29
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------
1999 1998 * 1997
----- ------ ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 6,722 $ 4,803 $ 725
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization 4,882 4,369 7,472
Restructuring provision 4,910 8,951
Provision for losses on trade accounts receivable 373 508 704
Tax effect of exercised stock options 218 373 284
Other 92
(Increase) Decrease in Operating Assets and Liabilities,
net of effects of business combinations and restructuring:
Trade Accounts Receivable (4,201) (13,007) (5,960)
Inventories (4,707) (2,377) (3,946)
Other Current Assets 3,798 (3,078) (46)
Deferred Income Taxes 835 2,265 (2,793)
Accounts Payable 4,423 2,009 (469)
Accrued Payroll and Related Liabilities 1,168 1,562 622
Other Accrued Taxes 20 (515) 549
Deferred Revenue 2,684 102
Other Accrued Liabilities (14,586) (31) (878)
Other Long-Term Assets 188 778 (1,165)
Other Long-Term Liabilities 1,065 38 (484)
-------- -------- --------
Cash provided by operating activities 2,882 2,709 3,658
-------- -------- --------
Cash Flows from Investing Activities:
Expenditures for property and equipment (8,200) (6,600) (9,153)
Investment in equity securities (1,500)
Payment for business combinations, net of cash acquired (13,564) (7,735)
Proceeds from sale of certain business units 31,189
Other (44) (186) 462
-------- -------- --------
Cash (used) provided by investing activities (21,808) 16,668 (10,191)
-------- -------- --------
Cash Flows from Financing Activities:
Borrowings under line of credit agreements, net 33,594 (24,512) 8,585
Proceeds from long-term obligations 8,544 184
Payments of long-term obligations (3,357) (1,389) (2,399)
Proceeds from issuance of common stock 948 1,789 550
Common stock repurchased (3,266) - (873)
-------- -------- --------
Cash provided (used) by financing activities 27,919 (15,568) 6,047
-------- -------- --------
Effect of exchange rate changes (1,596) (3,282) (880)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 7,397 527 (1,366)
Cash and cash equivalents at beginning of period 3,006 2,479 3,845
-------- -------- --------
Cash and cash equivalents at end of period $ 10,403 $ 3,006 $ 2,479
-------- -------- --------
-------- -------- --------
</TABLE>
* SEE NOTE 4 WHICH DESCRIBES THE DISPOSITION OF CERTAIN BUSINESS UNITS DURING
FISCAL 1998
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
30
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $ 3,175 $ 3,504 $ 3,707
Income Taxes 569 1,656 2,091
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value of assets acquired (Note 2) $ 43,703 $ 10,144
Net Cash paid, stock issued and notes assumed for assets acquired (13,564) (7,466)
-------- --------
Liabilities assumed $ 30,139 $ 2,678
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
31
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Loan to
Employee
Common Stock Stock Unrealized
------------------- Capital Cumulative Ownership Loss On Total
Par In Excess Retained Translation Plan and Equity stockholder's
Shares Value of Par Earnings Adjustment Trust Securities equity
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, April 30, 1996 14,510 $145 $37,359 $18,667 $981 $(92) $57,060
Components of Comprehensive Income:
Net Income 725 725
Unrealized Loss on Equity Securities
Available for Sale, Net of Tax (205) (205)
Cumulative Translation Adjustment (880) (880)
-----------
Total Comprehensive Loss (360)
-----------
Exercise of Stock Options 141 1 549 550
Repurchase of Common Stock (67) (1) (164) (333) (498)
Other (39) 22 (113) 92 1
-----------------------------------------------------------------------------------------
Balances, April 30, 1997 14,545 145 37,766 18,946 101 - (205) 56,753
Components of Comprehensive Income:
Net Income 4,803 4,803
Unrealized Loss on Equity Securities
Available for Sale, Net of Tax (136) (136)
Cumulative Translation Adjustment (2,387) (2,387)
-----------
Total Comprehensive Income 2,280
-----------
Exercise of Stock Options 302 3 1,786 1,789
Other 373 373
-----------------------------------------------------------------------------------------
Balances, April 30, 1998 14,847 148 39,925 23,749 (2,286) - (341) 61,195
Components of Comprehensive Income:
Net Income 6,722 6,722
Unrealized Loss on Equity Securities
Available for Sale, Net of Tax (199) (199)
Cumulative Translation Adjustment (1,596) (1,596)
-----------
Total Comprehensive Income 4,927
-----------
Exercise of Stock Options 155 2 946 948
Repurchase of Common Stock (336) (3) (829) (2,434) (3,266)
Other 218 218
-----------------------------------------------------------------------------------------
Balances, April 30, 1999 14,666 $147 $40,260 $28,037 $(3,882) - $(540) $64,022
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three years ended April 30, 1999
(All tabular dollar amounts in thousands, except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include Flow International
Corporation, ("Flow" or the "Company"), and its wholly-owned subsidiaries,
Flow Europe GmbH ("Flow Europe"), Foracon Maschinen und Anlagenbau GmbH &
CO.KG ("Foracon"), Flow Asia Corporation ("Flow Asia"), Flow Automation Inc.
("Flow Automation"), Flow Software Technologies Ltd. ("Flow Software"), Flow
Pressure Systems Vasteras AB ("Pressure Systems"), Flow Holdings GmbH (SAGL)
Limited Liability Company ("Flow Switzerland"), and three joint ventures,
Flow Autoclave Inc. ("Flow Autoclave"), a 50% owned joint venture and two
majority owned joint ventures including Flow Japan Corporation ("Flow
Japan"). In addition, periods through the first quarter of fiscal 1998
included the wholly-owned subsidiaries Rampart Waterblast, Inc., Spider
Staging Corporation ("Spider"), Power Climber and affiliated companies
("Power Climber") as well as a joint venture, Consortium Europeen du Materiel
("CEM") and the HydroMilling division, collectively ("Access and Services")
(see Note 4). All significant intercompany transactions have been eliminated.
OPERATIONS
The Company develops and manufactures ultrahigh-pressure ("UHP")
waterjet cutting, cleaning and specialized robotic systems for the
manufacturing, industrial and marine cleaning markets. The Company provides
products to a wide variety of industries, including the automotive,
aerospace, disposable products, food processing, job shop, marble, tile and
other stone cutting, and paper industries. In addition, the Company provides
isostatic presses to the automotive and aerospace industry and UHP processing
equipment for food. Equipment is designed, developed, and manufactured at the
Company's principal facilities in Kent, Washington, and at manufacturing
facilities in Bretton and Darmstadt Germany, Burlington, Canada, Hsinchu
Taiwan, Jeffersonville, Indiana, and Vasteras, Sweden. The Company markets
its products to customers worldwide through its principal offices in Kent and
its subsidiaries in Canada, Germany, Japan, Sweden, Switzerland, Taiwan, and
the United Kingdom.
REVENUE RECOGNITION
Revenues are recognized at the time of shipment for products and certain
types of systems, and under percentage of completion, measured by the cost to
cost method, for other types of systems, and at the time of service or rental
with respect to service and rental revenues. Products are warranted to be
free from material defects for a period of one year from the date of
shipment. Warranty obligations are limited to the repair or replacement of
products. The Company's warranty accrual is reviewed quarterly by management
for adequacy based upon
33
<PAGE>
recent shipments and historical warranty expense. Credit is issued for
product returns upon receipt of the returned goods, or, if material, at the
time of notification and approval.
Services revenues primarily consist of revenues related to
hydrodemolition services. Rental revenues consist of charges to customers for
the temporary use of access system equipment.
PRODUCT LIABILITY
The Company is obligated under terms of its product liability insurance
contracts to pay all costs up to deductible amounts. Included in general and
administrative expense are insurance, investigation and legal defense costs.
Legal settlements, if any, are included in other expense.
INVENTORIES
Inventories are stated at the lower of cost, determined by using the
first-in, first-out method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation for financial
reporting purposes is provided using the straight-line method over the
estimated useful lives of the assets, which range from three to eleven years
for machinery and equipment; three to nine years for furniture and fixtures
and 19 years for buildings. Leasehold improvements are amortized over the
related lease term.
RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS
The Company reviews most long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used in its
business annually for impairment, or whenever events or changes in
circumstances indicate that the carrying amount of an asset or group of
assets may not be recoverable in accordance with Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". An impaired asset is
written down to its estimated fair market value based on the best information
available. The Company generally measures estimated fair market value by
discounting estimated future cash flows. Accordingly, actual results could
vary significantly from such estimates.
INCOME TAXES
The Company accounts for income taxes under the asset and liability
method, which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
34
<PAGE>
If it is more likely than not that some portion of a deferred tax asset will
not be realized, a valuation allowance is recorded.
TREASURY STOCK
During fiscal 1999, the Company changed incorporation from Delaware to
Washington State. Under Washington State law, Treasury Stock is not
recognized. Accordingly, the Company retired all Treasury Stock during fiscal
1999 and the financial statements reflect this change in all periods
presented.
BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share represents net income available to common
stockholders divided by the weighted average number of shares outstanding
during the period. Diluted earnings per share represents net income available
to common stockholders divided by the weighted average number of shares
outstanding including the potentially dilutive impact of stock options.
Common stock options are converted using the treasury stock method.
The following table sets forth the computation of Basic and Diluted
earnings per share for the years ended April 30, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Year Ended April 30,
1999 1998 1997
---------------------------------
<S> <C> <C> <C>
Numerator:
Net income $ 6,722 $ 4,803 $ 725
Denominator:
Denominator for basic earnings
per share - weighted average shares 14,730 14,707 14,561
Dilutive potential common shares from
employee stock options 329 330 371
----------------------------------
Denominator for diluted earnings
per share - weighted average shares
and assumed conversions 15,059 15,037 14,932
Basic earnings per share $ .46 $ .33 $ .05
Diluted earnings per share $ .45 $ .32 $ .05
</TABLE>
35
<PAGE>
INTANGIBLE ASSETS
Intangible assets consisting primarily of acquired technology, patents
and goodwill are amortized on a straight-line basis over fifteen years.
FOREIGN CURRENCY TRANSLATION
The functional currency of Flow Asia is the New Taiwan dollar; of Flow
Automation, the Canadian dollar; of Flow Europe and Foracon, the German mark;
of Flow Japan, the Japanese yen; of Power Climber N.V. (part of Power
Climber), the Belgian franc, and of Pressure Systems, the Swedish crown.. The
functional currency of Flow Europe was converted from the U.S. dollar to the
German mark as of the beginning of fiscal 1998. The acquisition of Foracon by
Flow Europe in May 1997 made this change preferable. All assets and
liabilities of these foreign subsidiaries are translated at year-end rates.
Income and expense accounts of the foreign subsidiaries are translated at the
average rates in effect during the year. Adjustments resulting from the
translation of Flow Asia, Flow Automation, Flow Europe, Foracon, Flow Japan,
Power Climber N.V., and Pressure Systems financial statements are recorded in
the cumulative translation adjustment account in the stockholders' equity
section of the accompanying Consolidated Balance Sheets.
At times the Company utilizes forward exchange contracts and local
currency borrowings to hedge its exposure to exchange rate fluctuations in
connection with monetary assets and liabilities held in foreign currencies.
The Company held no forward exchange contracts at April 30, 1999 or 1998. For
the years ended April 30, 1999, 1998 and 1997 a net foreign exchange loss of
$104,000, $75,000 and $590,000, respectively, is included in Other Expense,
net, in the accompanying Consolidated Statements of Income.
CASH EQUIVALENTS
For the purposes of the Consolidated Statements of Cash Flows, the
Company considers short-term investments with original or remaining
maturities from the date of purchase of three months or less, if any, to be
cash equivalents.
CONCENTRATION OF CREDIT RISK
In countries or industries where the Company is exposed to material
credit risk, sufficient collateral, including cash deposits and/or letters of
credit, is required prior to the completion of a transaction. The Company
does not believe there is a material credit risk beyond that provided for in
the financial statements in the ordinary course of business. The Company
makes use of foreign exchange contracts to cover some transactions
denominated in foreign currencies, and does not believe there is an
associated material credit or financial statement risk.
36
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
All financial instruments on the balance sheet as of April 30, 1999 and
1998 are valued at cost which approximates fair value with the exception of
the Company's investment in Phenix Composites, Incorporated, ("Phenix") (see
Note 5).
USE OF ESTIMATES
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
disclosures 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. Estimates
that are particularly susceptible to significant change in the near term are
the percentage of completion estimates and the adequacy of the allowance for
obsolete inventory, warranty obligations and doubtful accounts receivable.
MINORITY INTERESTS IN JOINT VENTURES
The Company includes income or expense associated with the minority
interest in joint ventures as part of Other Expense, net in the accompanying
Consolidated Statements of Income.
RECLASSIFICATIONS
Certain 1998 and 1997 amounts have been reclassified to conform with the 1999
presentation. These reclassifications had no effect on previously reported
net income.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 131 ("FAS 131"),
"Disclosures about Segments of an Enterprise and Related Information" is
effective beginning in fiscal 1999. FAS 131 requires the Company to report
information about operating segments both annually as well as condensed data
quarterly. Operating segments are determined based upon the manner in which
internal financial information is produced and evaluated. Additionally
certain geographical information is required regardless of how internal
financial information is generated. Based on the reporting structure of the
Company, management believes the Company operates within geographic segments
only and has adopted FAS 131 accordingly.
Statement of Financial Accounting Standards No. 133, ("FAS 133"),
"Accounting for Derivative Instruments and Hedging Activities", is effective
beginning in fiscal 2001, with early adoption permitted. FAS 133 standardizes
the accounting for derivative instruments by requiring that an entity
recognize those items as assets or liabilities in the financial statements
and measure them at fair value. The Company is currently reviewing the
requirements of FAS 133 and
37
<PAGE>
assessing its impact on the Company's financial statements. The Company has
not made a decision regarding the period of adoption.
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use", is effective
beginning in fiscal 2000. SOP 98-1 requires companies to capitalize the cost
of computer software developed or obtained for internal use. The adoption of
SOP 98-1 is not expected to have a material impact on the Company.
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-up Activities", is effective beginning in fiscal 2000. SOP 98-5
requires companies to expense costs associated with start-up operations,
including cost previously deferred. The adoption of SOP 98-5 is not expected
to have a material impact on the Company.
NOTE 2 - BUSINESS COMBINATIONS:
- --------------------------------------------------------------------------------
In March 1999 the Company acquired all of the stock of Pressure Systems
from Asea Brown Boveri AB ("ABB"). In addition the Company purchased a 50%
ownership in Flow Autoclave from an ABB subsidiary. Pressure Systems
manufactures pressure vessels used in batch UHP food processing, a
complementary product to the Company's continuous flow food processing
technology, as well as isostatic and flex forming presses for the aerospace
and automotive industry. Flow Autoclave is the domestic distributor for the
Pressure Systems product. Total cash consideration for the above two
acquisitions was $22.8 million. The difference between the net fair market
value of assets acquired and consideration given totaled $21.1 million and
has been recorded as an intangible. Operating results have been included in
the Consolidated Financial Statements from the date of acquisition based upon
the purchase method of accounting.
In May 1997 the Company purchased the stock of Foracon. Foracon supplies
UHP and related systems to the European market. In April 1998 the Company
purchased substantially all the assets and selected liabilities of CIS
Robotics Inc. and the stock of Flow Software. These companies develop
software used to program industrial robots as well as provide, as a service,
industrial robot programming.
Total cash consideration for the above two acquisitions was $6.9
million. The difference between the net fair market value of assets acquired
and consideration given totaled $6.3 million and has been recorded as an
intangible. Results have been included in the Consolidated Financial
Statements from the date of acquisition based upon the purchase method of
accounting. Unaudited pro forma results are not presented as they are not
materially different from the results reported in the Consolidated Financial
Statements.
During fiscal 1998 the Company invested an additional $800,000 to
increase its ownership in two joint ventures, Flow Japan and HydroDynamic
Cutting Services.
38
<PAGE>
NOTE 3 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
- --------------------------------------------------------------------------------
Pressure Systems was a small subsidiary of ABB. Consistent with ABB
policy, Pressure Systems was subject to various intercompany charges, many of
which will not be recurring in the future. These charges are included in the
pro forma financial information below.
If Pressure Systems had been acquired at the beginning of the years
ended April 30, 1999 and 1998, the results of operations of the Company would
be adjusted as follows on a pro forma basis. Total revenues would have been
$170.3 million and $189.8 million for the years ended April 30, 1999 and
1998, respectively. Net income for the years ended April 30, 1999 and 1998
would have been $4.8 million and $1.5 million, respectively, Basic earnings
per share would have been $.33 and $.10, respectively, and Diluted earnings
per share would have been $.32 and $.10, respectively. The adjustments to net
income for the years ended April 30, 1999 and 1998 include additional
interest expense of $1.1 million and $1.2 million, respectively, and
additional goodwill amortization of $1.3 million and $1.4 million,
respectively. The pro forma consolidated financial information is presented
for information purposes only, does not take into account savings that may
have been realized from the combination of the Company and Pressure Systems,
and is not indicative of the actual consolidated financial position or
results of operations in the future. Pressure Systems utilized the completed
contract method of revenue recognition during the year ended April 30, 1998
and through the second quarter of the year ended April 30, 1999.
NOTE 4 - BUSINESS DIVESTITURE:
- --------------------------------------------------------------------------------
During the second quarter of fiscal 1998 the Company sold its Access and
Services operations. The Company recorded a $4.9 million restructuring
provision during fiscal 1998 associated with this sale. The primary
components of this expense were: write down of assets to net realizable
value, $4 million; probable future obligations associated with the sale,
$900,000. In addition, during fiscal 1997 the Company recorded a $9 million
restructuring provision associated with the then proposed divestiture. The
primary components of this expense were: write down of assets to net
realizable value, $7.4 million; restructuring costs to be incurred in fiscal
1998, $1.3 million; restructuring costs incurred during fiscal 1997,
$300,000. These charges are included as a separate component of operating
expenses in the accompanying Consolidated Statements of Income.
At April 30, 1998 the Company had $860,000 in asset valuation guarantee
reserves related to the sale. During the year ended April 30, 1999 the
Company utilized the reserve for $860,000 with no other adjustment to the
reserve during the year.
39
<PAGE>
The following table summarizes the operating results of the Access and
Services operations, excluding the restructuring provisions, for the year
ended April 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenue $16,850 $55,761
Gross Profit 5,427 19,516
Operating Income 1,730 4,593
Pretax Income 1,353 3,628
</TABLE>
NOTE 5 - RELATED PARTY TRANSACTIONS:
- --------------------------------------------------------------------------------
In August 1992, the Company entered into a stock purchase agreement with
Phenix and contributed cash and certain equipment valued at cost. The book
value of the investment is $484,000 at April 30, 1999 and 1998 and is being
accounted for under the cost method. Currently, the Company's CEO and
president is a member of the board of directors of Phenix.
During fiscal 1997 the Company purchased 369,791 shares or 3.1% of
Western Garnet International Ltd. ("Western Garnet") for $1.5 million.
Western Garnet is publicly traded on the Toronto stock exchange. This
investment was made to secure a long-term relationship with the Company's
supplier of its high quality garnet. Garnet is sold by the Company as a
consumable used in abrasivejet cutting. The Company classifies this
investment as available-for-sale under Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". Based on the April 30, 1999 closing stock price of Western
Garnet, the Company recorded a tax-affected unrealized loss of $540,000 which
is reflected in the equity section of the accompanying Consolidated Balance
Sheets. Currently, the Company's CEO and president is a member of the board
of directors of Western Garnet.
NOTE 6 - INVENTORIES:
- --------------------------------------------------------------------------------
Inventories consist of the following:
<TABLE>
<CAPTION>
April 30,
1999 1998
---------------------
<S> <C> <C>
Raw Materials and Parts $29,090 $23,617
Work in Process 11,223 9,312
Finished Goods 9,772 6,574
---------------------
50,085 39,503
Less: Provisions for Slow-Moving
and Obsolete Inventory 2,314 2,527
---------------------
$47,771 $36,976
---------------------
---------------------
</TABLE>
40
<PAGE>
NOTE 7 - PROPERTY AND EQUIPMENT:
- --------------------------------------------------------------------------------
Property and equipment are as follows:
<TABLE>
<CAPTION>
April 30,
1999 1998
---------------------
<S> <C>
Land and Buildings $ 461 $ 461
Machinery and Equipment 25,845 23,674
Furniture and Fixtures 2,646 2,323
Leasehold Improvements 8,588 6,902
Construction in Progress 3,620 261
---------------------
41,160 33,621
Less:
Accumulated Depreciation and Amortization 23,437 21,629
---------------------
$17,723 $11,992
---------------------
---------------------
</TABLE>
NOTE 8 - LONG-TERM OBLIGATIONS AND NOTES PAYABLE:
- --------------------------------------------------------------------------------
Long-term obligations are as follows:
<TABLE>
April 30,
1999 1998
---------------------
<S> <C> <C>
Flow Line of Credit $44,070 $12,414
Private Debt Placement 15,000 15,000
Term Loans Payable 9,729 10,117
---------------------
68,799 37,531
Less: Current Portion 4,185 5,455
---------------------
$64,614 $32,076
---------------------
---------------------
</TABLE>
Current notes payable are as follows:
<TABLE>
<CAPTION>
April 30,
1999 1998
---------------------
<S> <C> <C>
Flow Japan Notes Payable $ 419 $ 756
Flow Automation Notes Payable 430
Other Notes Payable 264
---------------------
$ 419 $ 1,450
---------------------
---------------------
</TABLE>
In August 1998 the Company renegoiated its Credit Agreement. The
Company's Credit Agreement provides for a revolving line of credit of up to
$75 million, with two financial institutions, which expires on September 30,
2003. The amount that can be borrowed is limited based on certain debt
covenant restrictions. Interest rates under the Credit Agreement are at the
bank's prime rate or are linked to LIBOR, at the Company's option. The funded
debt ratio determines the LIBOR based interest rate. The Company has borrowed
$44.1 million under the Credit Agreement as of April 30, 1999, of which $3.6
million carries an interest rate of prime and the remainder carries an
interest rate of LIBOR + 1%. Prime at April 30, 1999 was 7.75% and
41
<PAGE>
LIBOR was 4.94%. The Company pays 0.1% as an unused commitment fee. As of
April 30, 1999, the Company had less than $1 million of available domestic
unused line of credit.
The Private Debt Placement is a 10-year note with seven equal principal
payments beginning in September 1999. The Company pays interest semi-annually
at a fixed rate of 7.2%. The Credit Agreement and Private Debt Placement are
collateralized by a general lien on all of the Company's assets. The Company
is required to comply with certain covenants relating to the Credit Agreement
and Private Debt Placement including restrictions on dividends and
transactions with affiliates, limitations on additional indebtedness, and
maintenance of tangible net worth, working capital, fixed charge coverage,
funded debt and debt service ratios. The covenants were amended in
conjunction with the acquisition of Pressure Systems. As of April 30, 1999,
the Company was in compliance with all such covenants, as amended.
Included in Term Loans Payable are the following:
A German mark denominated loan of $6.2 million. The Company's principal
bank has issued a $9.4 million standby letter of credit to the Company's
German bank, to secure a credit facility for use by Flow Europe. Principal
and interest is payable monthly at a rate of 4.6% through fiscal 2003. At
April 30, 1999, Flow Europe had an unused $3.2 million credit facility.
A secured Japanese yen denominated loan of $3.1 million. Principal and
interest is payable monthly at a range of 2.2% to 2.3% through fiscal 2003.
An unsecured $149,000 note to a previous owner of Power Climber in
conjunction with the acquisition of assets. The note requires monthly payment
of principal and interest, at 7.25%, through fiscal 2003.
Current notes payable include:
A 100 million Japanese yen standby letter of credit has been issued by
the Company's principal bank to the Company's Japanese bank, to secure a
credit facility for use by Flow Japan. The notes payable by Flow Japan are
denominated in Japanese yen at interest rates ranging from 1.4% to 1.6% at
April 30, 1999. As of April 30, 1999 Flow Japan had an unused $419,000 credit
facility.
The Flow Automation credit facility is collateralized by trade accounts
receivable and inventory, and is denominated in Canadian dollars at an
interest rate of Canadian prime plus 1.25%. Flow Automation has approximately
$619,000 dollars in unused credit facilities at April 30, 1999.
Principal payments under long-term obligations for the next five years
and thereafter are as follows: $4,185,000 in 2000, $4,161,000 in 2001,
$4,161,000 in 2002, $2,648,000 in 2003, $49,355,000 in 2004, and $4,289,000
thereafter.
42
<PAGE>
NOTE 9 - INCOME TAXES:
- --------------------------------------------------------------------------------
The components of consolidated income before income taxes and the provision
for income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income (Loss) Before Income Taxes:
Domestic $5,753 $3,237 $2,509
Foreign 3,583 3,268 (1,546)
---------- ---------- ----------
Total $9,336 $6,505 $ 963
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The provision for income taxes comprises:
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current Tax Expense (Benefit):
Domestic $ 443 $ (135) $ 1,952
State and Local 255 219 261
Foreign 589 400 476
---------- ---------- ----------
Total 1,287 484 2,689
Deferred Tax Expense (Benefit) 1,327 1,218 (2,451)
---------- ---------- ----------
Total Provision for Income Taxes $2,614 $1,702 $ 238
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Net deferred tax assets (liabilities) comprise the following:
<TABLE>
<CAPTION>
April 30, 1999 April 30, 1998
-------------- --------------
<S> <C> <C>
Fixed assets $ 469 $ 471
Obsolete inventory provisions 325 513
Restructuring charge 96 292
Net operating loss carryover 2,348 3,712
Subpart F income 369 228
Foreign taxes (747) (781)
Accounts receivable allowances 94 108
Inventory capitalization 94 92
AMT Credits 897 1,076
All other 415 192
--------- ---------
Subtotal 4,360 5,903
Valuation allowance (1,388) (1,848)
--------- ---------
Total Net Deferred Taxes $2,972 $4,055
--------- ---------
--------- ---------
</TABLE>
43
<PAGE>
A reconciliation of income taxes at the federal statutory rate to the
provision for income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------------
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Income taxes at federal statutory rate $3,174 $2,212 $327
Foreign sales corporation benefit (244) (327) (228)
Foreign operations expense (36) 199 (199)
Change in valuation allowances (460) (651) 92
State and local taxes 168 144 261
Other 12 125 (15)
-------- --------- ---------
Income tax provision $2,614 $1,702 $ 238
-------- --------- ---------
-------- --------- ---------
</TABLE>
As of May 1, 1999, the Company had approximately $3 million of domestic
net operating loss carryforwards to offset certain Flow earnings for federal
income tax purposes. Of the $3 million carryforward, approximately $2 million
was currently available. An additional $943,000 becomes available in fiscal
year 2000 with the remaining becoming available the following year. These net
operating loss carryforwards expire in varying amounts through the year 2003.
Due to current and expected future earnings, the Company expects
increased utilization of its foreign net operating loss carryforwards of $3.2
million. Therefore, the foreign valuation allowance was reduced by a net tax
affected amount of $561,000 in fiscal 1999.
Provision has not been made for U.S. income taxes or foreign withholding
taxes on $7.6 million of undistributed earnings of foreign subsidiaries.
Those earnings have been and will continue to be reinvested. These earnings
could become subject to additional tax if they were remitted as dividends, if
foreign earnings were loaned to the Company or a U.S. affiliate, or if the
Company should sell its stock in the subsidiaries. It is not practicable to
estimate the amount of additional tax that might be payable on the foreign
earnings; however, the Company believes that U.S. foreign tax credits would
largely eliminate any U.S. tax and offset any foreign tax.
NOTE 10 - STOCK OPTIONS:
- --------------------------------------------------------------------------------
The Company has stock options outstanding under various option plans
described as follows:
1984 RESTATED STOCK OPTION PLAN (THE "1984 RESTATED PLAN"). Approved by
the Company's stockholders in September 1984 and subsequently amended and
restated, the 1984 Restated Plan provides for grants to employees and
contractors to purchase a maximum of 1,800,000 shares of the Company's common
stock. The 1984 Restated Plan allows for the grant of either incentive or
nonqualified stock options.
44
<PAGE>
1987 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS (THE "1987 NONEMPLOYEE
DIRECTORS PLAN"). Approved by the Company's stockholders in September 1987,
the 1987 Nonemployee Directors Plan, as subsequently amended, provides for
the automatic grant of nonqualified options for 10,000 shares of Company
common stock to a nonemployee director when initially elected or appointed,
and currently, the issuance of 10,000 options annually thereafter during the
term of directorship.
1991 STOCK OPTION PLAN (THE "1991 SO PLAN"). The 1991 SO Plan was
adopted in October 1991 and amended in August 1993. Incentive and
nonqualified stock options up to 700,000 shares may be issued under this plan.
1995 LONG-TERM INCENTIVE PLAN (THE "1995 LTI PLAN"). The 1995 LTI Plan
was adopted in August 1995. Incentive and nonqualified stock options up to
1,350,000 shares may be issued under this plan.
All options become exercisable upon a change in control of the Company.
Options have a two-year vesting schedule, and are granted with an exercise
price equal to the fair market value of the Company's Common Stock on the
date of grant. The maximum term of options is 10 years from the date of
grant. No compensation expense has been recorded in fiscal 1999, 1998 or
1997. The following chart summarizes the status of the options at April 30,
1999:
<TABLE>
<CAPTION>
-----------------------------------------------------------
1991 SO
1984 1987 Plan
Restated Nonemployee and 1995
Plan Directors Plan LTI Plan Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of options outstanding 181,600 380,000 1,508,194 2,069,794
Number of options vested 181,600 368,000 914,194 1,463,794
Average exercise price per share $2.66 $8.60 $8.63 $8.10
of options outstanding
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Company has adopted the disclosure only provisions of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock Based
Compensation". Pro forma information regarding the net income or loss as
calculated under FAS 123 has been determined as if the Company had accounted
for its employee stock options under the fair value method. If the Company
had elected to recognize compensation costs based on the fair value at the
date of grant for awards in fiscal 1999, 1998 and 1997, consistent with the
provisions of FAS 123, the Company's net income (loss) and earnings (loss)
per Basic and Diluted share would have been reduced to the following pro
forma amounts:
45
<PAGE>
<TABLE>
<CAPTION>
Year Ended April 30:
- -----------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (Loss) from Continuing Operations:
As reported $6,722 $4,803 $725
Pro forma $5,034 $3,808 $(1,110)
Earnings (Loss) Per Share - Basic:
As reported $0.46 $0.33 $0.05
Pro forma $0.34 $0.26 $(0.08)
Earnings (Loss) Per Share - Diluted:
As reported $0.45 $0.32 $0.05
Pro forma $0.33 $0.25 $(0.08)
- -----------------------------------------------------------------------------------
</TABLE>
Such pro forma disclosures may not be representative of future
compensation cost because options vest over several years and additional
grants are made each year.
The weighted-average fair values at the date of grant for options
granted in fiscal 1999, 1998 and 1997 were estimated using the Black-Scholes
option-pricing model, based on the following assumptions: (i) no expected
dividend yields for fiscal years 1999, 1998 and 1997; (ii) expected
volatility rates of 47.9%, 48.9% and 47.1% for fiscal 1999, 1998 and 1997,
respectively; and (iii) expected lives of 6 years for fiscal 1999, 1998 and
1997. The risk-free interest rate applied to fiscal 1999, 1998 and 1997 was
6.0%, 5.8% and 6.9%, respectively.
The following table summarizes information about stock options
outstanding at April 30, 1999:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Range of Exercise Prices Number Weighted-Average Weighted-Average Number Weighted-Average
Outstanding at Remaining Exercise Exercisable at Exercise
April 30, 1999 Contractual Life Price April 30, 1999 Price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.25 - $4.99 231,600 2.02 years $ 2.74 231,600 $ 2.74
$5.00 - $7.99 422,050 4.31 years 5.96 422,050 5.96
$8.00 - $12.25 1,416,144 7.36 years 9.61 810,144 9.46
- ------------------------------------------------------------------------------------------------------------------------
Total: 2,069,794 6.14 years $ 8.10 1,463,794 $ 7.39
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
The following table rolls forward the stock option activity for the years
ended April 30:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
1999 1998 1997
Shares Weighted- Shares Weighted- Shares Weighted-
Average Average Average
Exercise Price Exercise Price Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 1,903,593 $ 7.64 1,887,199 $ 6.92 1,498,825 $ 5.73
Granted during the year: 380,100 9.59 423,700 10.21 622,195 9.41
Exercised during the year: (155,242) 6.12 (301,648) 5.93 (140,980) 3.80
Forfeited during the year: (58,657) 8.07 (105,658) 9.19 (92,841) 9.31
--------- ------ --------- ------ --------- ------
Outstanding, end of year 2,069,794 $ 8.10 1,903,593 $ 7.64 1,887,199 $ 6.92
Exercisable, end of year 1,463,794 $ 7.39 1,231,552 $ 6.51 1,027,465 $ 5.52
Weighted Average fair value of $ 4.26 $ 4.37 $ 4.59
options granted during each period:
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 11 - VOLUNTARY PENSION AND SALARY DEFERRAL PLAN AND ESOP PLAN:
- --------------------------------------------------------------------------------
The Company has a 401(k) savings plan in which employees may contribute a
percentage of their compensation. The Company makes contributions based on
employee contributions and length of employee service. Company contributions and
expenses under the plan for the years ended April 30, 1999, 1998, and 1997 were
$753,000, $763,000, and $709,000, respectively.
In September 1989, the Company established an ESOP for all employees
meeting certain service requirements. During fiscal 1997 the ESOP loan was
repaid and the remaining ESOP stock was distributed. Compensation and interest
expense related to the ESOP of $108,000 was recorded during the year ended April
30, 1997. No such expense was incurred during fiscal 1999 or 1998. In March,
1998 the Company's Board of Directors approved termination of the ESOP.
NOTE 12 - PREFERRED SHARE RIGHTS PURCHASE PLAN:
- --------------------------------------------------------------------------------
The Board of Directors of the Company has adopted a Preferred Share Rights
Purchase Plan under which a Preferred Share Purchase Right (a "Right") is
attached to each share of Company common stock. The Rights will be exercisable
only if a person or group acquires 20% or more of the Company's common stock or
announces a tender offer, the consummation of which would result in ownership by
a person or group of 20% or more of the common stock. Each Right entitles
stockholders to buy one one-hundredth of a share of Series B Junior
Participating Preferred Stock (the "Series B Preferred Shares") of the Company
at a price of $15. If the Company is acquired in a merger or other business
combination transaction, each Right
47
<PAGE>
will entitle its holder to purchase a number of the acquiring company's
common shares having a value equal to twice the exercise price of the Right.
If a person or group acquires 20% or more of the Company's outstanding common
stock, each Right will entitle its holder (other than such person or members
of such group) to receive, upon exercise, a number of the Company's common
shares having a value equal to two times the exercise price of the Right.
Following the acquisition by a person or group of 20% or more of the
Company's common stock and prior to an acquisition of 50% or more of such
common stock, the Board of Directors may exchange each Right (other than
Rights owned by such person or group) for one share of common stock or for
one one-hundredth of a Series B Preferred Share. Prior to the acquisition by
a person or group of 20% of the Company's common stock, the Rights are
redeemable, at the option of the Board, for $.01 per Right. The Rights expire
on July 17, 2000. The Rights do not have voting or dividend rights, and until
they become exercisable, have no dilutive effect on the earnings of the
Company. The Board of Directors has authorized certain changes to terms of
the Preferred Share Rights Purchase Plan to take effect after April 30, 1999.
NOTE 13- COMMITMENTS AND CONTINGENCIES:
- --------------------------------------------------------------------------------
The Company rents certain facilities and equipment under agreements treated
for financial reporting purposes as operating leases. The majority of leases
currently in effect are renewable for periods of two to five years. Rent expense
under these leases was approximately $3.4 million, $3.4 million, and $3.7
million for the years ended April 30, 1999, 1998 and 1997, respectively.
Future minimum rents payable under operating leases for years ending April
30 are as follows:
<TABLE>
<CAPTION>
Year Ending April 30,
---------------------
<C> <C>
2000 $ 4,152
2001 2,508
2002 2,093
2003 1,313
2004 610
Thereafter 2,397
-------
$13,073
</TABLE>
The Company has been subject to product liability claims primarily through
Spider, its former subsidiary that was sold in September 1997. To minimize the
financial impact of product liability risks and adverse judgments, product
liability insurance has been purchased in amounts and under terms considered
acceptable to management.
48
<PAGE>
At any point in time covered by these financial statements, there are
outstanding product liability claims against the Company, and incidents are
known to management that may result in future claims. Management, in conjunction
with defense counsel, periodically reviews the likelihood that such product
claims and incidents will result in adverse judgments, the estimated amount of
such judgments and costs of defense, and accrues liabilities as appropriate.
Recoveries, if any, may be realized from indemnitors, codefendants,
insurers or insurance guaranty funds. Management, based on estimates provided by
the Company's legal counsel on such claims, believes its insurance coverage is
adequate.
Management estimates the range of the Company's future exposure amounts
relating to unresolved claims at April 30, 1999, aggregate from approximately $0
to $450,000.
Included in Other Expense, net, in the years ended April 30, 1999, 1998 and
1997 are settlements of approximately $299,000, $134,000, and $161,000,
respectively.
NOTE 14- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal 1999 Quarters First Second Third Fourth Total
- -------------------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Revenue $36,422 $38,383 $33,554 $39,843 $148,202
Gross Profit 15,835 16,928 15,585 16,883 65,231
Net Income 1,796 2,189 1,443 1,294 6,722
Earnings Per share:
Basic .12 .15 .10 .09 .46
Diluted * .12 .15 .10 .09 .45
<CAPTION>
Fiscal 1998 Quarters First Second Third Fourth Total
- -------------------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Revenue $47,514 $35,162 $34,463 $42,343 $159,482
Gross Profit 18,060 14,686 14,467 16,992 64,205
Net Income (Loss) (949) 1,804 1,810 2,138 4,803
Earnings (Loss) Per share:
Basic * (.07) .12 .12 .14 .33
Diluted * (.07) .12 .12 .14 .32
</TABLE>
* The total of the four quarters does not equal the year due to rounding.
49
<PAGE>
NOTE 15- FOREIGN OPERATIONS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNITED OTHER ADJUSTMENTS &
STATES EUROPE ASIA FOREIGN ELIMINATIONS CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues:
Customers (1) $74,594 $42,414 $14,877 $16,317 $ - $148,202
Inter-area (2) 22,917 - 1,793 1,441 (26,151)
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues $97,511 $42,414 $16,670 $17,758 $(26,151) $148,202
Long-Lived Assets $21,095 $26,120 $1,870 $8,855 $57,940
1998
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues:
Customers (1) $86,561 $36,041 $18,807 $18,073 $ - $159,482
Inter-area (2) 16,772 - 3,053 - (19,825)
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues $103,333 $36,041 $21,860 $18,073 $(19,825) $159,482
Long-Lived Assets $15,924 $5,155 $1,555 $9,471 $32,105
1997
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues:
Customers (1) $103,721 $33,845 $17,231 $13,396 $ - $168,193
Inter-area (2) 17,711 - 2,293 - (20,004) -
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues $121,432 $33,845 $19,524 $13,396 $(20,004) $168,193
Long-Lived Assets $31,006 $6,038 $1,692 $8,291 $47,027
</TABLE>
(1) U.S. sales to unaffiliated customers in foreign countries were $4,000,000,
$5,300,000 and $7,600,000 in fiscal 1999, 1998, and 1997, respectively.
(2) Inter-area sales to affiliates represent products that were transferred
between geographic areas at negotiated prices. These amounts have been
eliminated in the consolidation.
50
<PAGE>
FLOW INTERNATIONAL CORPORATION
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
--------------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Classification of Period Expenses Accounts Deductions * of Period
- -------------- ---------- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 30:
ALLOWANCE FOR DOUBTFUL ACCOUNTS
1999 $ 669 $373 $(22) $ (254) $ 766
1998 1,008 508 (377) (470) 669
1997 1,186 704 (882) 1,008
PROVISION FOR SLOW-MOVING AND OBSOLETE INVENTORY
1999 $2,527 $365 $328 $ (906) $2,314
1998 1,897 1,060 (224) (206) 2,527
1997 2,352 83 (538) 1,897
</TABLE>
- ----------
* Write-offs of uncollectible accounts and disposal of obsolete inventory.
51
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- --------------------------------------------------------------------------------
Information regarding directors and executive officers of the registrant is
incorporated herein by reference from the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
- --------------------------------------------------------------------------------
Information regarding executive compensation is incorporated herein by
reference from the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- --------------------------------------------------------------------------------
Information regarding security ownership of certain beneficial owners and
management is incorporated herein by reference from the Company's Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------------------------------
Information regarding certain relationships and related transactions is
incorporated herein by reference from the Company's Proxy Statement.
52
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
1. Consolidated Financial Statements.
See Item 8 of Part II for a list of the Financial Statements filed as
part of this report.
2. Financial Statement Schedules.
See Item 8 of Part II for a list of the Financial Statement Schedules
filed as part of this report.
3. Exhibits. See subparagraph (c) below.
(b) Reports on Form 8-K -
Current Report on Form 8-K dated April 12, 1999.
(c) Exhibits.
53
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
<S> <C>
3.1 Articles of Incorporation, filed with the state of Washington
October 1, 1998.
3.2 By-Laws of Flow International Corporation.
4.1 Certificate of Designation of Series B Junior Participating Preferred
Stock. (Incorporated by reference to Exhibit 4.5 to the registrant's
Annual Report on Form 10-K for the year ended April 30, 1990.)
4.2 Rights Agreement dated as of June 7, 1990, between Flow International
Corporation and First Interstate Bank, Ltd. (Incorporated by reference
to Exhibit 4.1 to the registrant's Current Report on Form 8-K dated
June 8, 1990.)
10.1 Flow International Corporation 1984 Restated Stock Option Plan, as
amended. (Incorporated by reference to Exhibit 10.1 to the registrant's
Annual Report on Form 10-K for the year ended April 30, 1990.)
10.2 Flow International Corporation 1987 Stock Option Plan for Nonemployee
Directors, as amended. (Incorporated by reference to Exhibit 10.5 to
the registrant's Annual Report on Form 10-K for the year ended April
30, 1994.)
10.3 Flow International Corporation 1991 Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.6 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1994.)
10.4 Flow International Corporation 1995 Long-Term Incentive Plan.
(Incorporated by reference to Exhibit 10.4 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1995.)
10.5 Flow International Corporation Employee Stock Ownership Plan and Trust
Agreement, as amended and restated effective January 1, 1994, and
certain later dates, between Flow International Corporation and
Seattle-First National Bank, as trustee. (Incorporated by reference to
Exhibit 10.7 to the registrant's Annual Report on Form 10-K for the
year ended April 30, 1994).
10.6 Stock Purchase Agreement dated as of September 26, 1989, between Flow
International Corporation Employee Stock Ownership Plan and Trust and
Seattle-First National Bank. (Incorporated by reference to Exhibit 10.7
to the registrant's Annual Report on Form 10-K for the year ended April
30, 1990.)
10.7 ESOT Loan and Guaranty Agreement dated September 26, 1989, among U.S.
Bank of Washington, N.A., Flow International Corporation Employee Stock
Ownership Plan and Trust and Flow International Corporation.
(Incorporated by reference to Exhibit 10.8 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1990).
10.8 Replacement ESOT Note dated September 1992. (Incorporated by reference
to Exhibit 10.10 to the registrant's Annual Report on Form 10-K for the
year ended April 30, 1993).
10.9 Pledge Agreement dated September 26, 1989, among U.S. Bank of
Washington, N.A., Flow International Corporation. Employee Stock
Ownership Plan and Trust and Flow International Corporation.
(Incorporated by reference to Exhibit 10.10 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1990.)
54
<PAGE>
10.10 Unconditional Guaranty dated September 26, 1989, by Flow International
Corporation for the benefit of U.S. Bank of Washington, N.A.
(Incorporated by reference to Exhibit 10.11 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1990.)
10.11 Flow International Corporation Voluntary Pension and Salary Deferral
Plan and Trust Agreement, as restated effective January 1, 1992.
(Incorporated by reference to Exhibit 10.13 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1993).
10.12 Amendment to Flow International Corporation Voluntary Pension and
Salary Deferral Plan. (Incorporated by reference to Exhibit 10.13 to
the registrant's Annual Report on Form 10-K for the year ended April
30, 1994).
10.13 Lease dated September 24, 1991, between Flow International and Birtcher
LP/LC Partnership, together with Addendum to Lease. (Incorporated by
reference to Exhibit 10.25 to the registrant's Annual Report on Form
10-K for the year ended April 30, 1992.)
10.14 Credit agreement amount Flow International Corporation, as borrower,
Bank of America National Trust and Savings Association d/b/a SeaFirst
Bank and U.S. Bank, National Association, as lenders, and Bank of
America National Trust and Savings Association d/b/a SeaFirst Bank as
agent for lenders dated August 31, 1998.
10.15 Amendment Number One to Credit Agreement dated March 1999, between Flow
International Corporation and Bank of America National Trust and
Savings Association d/b/a SeaFirst Bank.
10.16 Amendment Number Two to Credit Agreement dated June 21, 1999 between
Flow International Corporation and U.S. Bank of Washington, N.A.
10.17 Note purchase agreement dated September 1, 1995. (Incorporated by
reference to Exhibit 10.2 to the registrant's Quarterly Report on Form
10-Q for the period ended October 31, 1995.)
10.18 First amendment to Note Purchase Agreement dated July 16, 1997.
(Incorporated by reference to Exhibit 10.17 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1997.)
10.19 Form of Change in Control Agreement. (Incorporated by reference to
Exhibit 10.17 to the registrant's Annual Report on Form 10-K for the
year ended April 30, 1996.)
10.20 Amended and Restated Stock Purchase Agreement dated March 31, 1999
between Asea Brown Boveri AB and Gigantissimo 2131 AB, under change of
name to Flow International FPS AB. (Incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated April
12, 1999.)
10.21 Asset Purchase Agreement dated March 31, 1999 between Asea Brown Boveri
AB and Flow Holdings GmbH (SAGL) Limited Liability Company.
(Incorporated by reference to Exhibit 2.2 to the Registrant's Current
Report on Form 8-K dated April 12, 1999.)
10.22 Amended and Restated Stock Purchase Agreement dated March 31, 1999
among ABB Industrial Systems, Inc., Flow International Corporation, and
AGG Autoclave Systems Inc. (Incorporated by reference to Exhibit 2.3 to
the Registrant's Current Report on Form 8-K dated April 12, 1999.)
55
<PAGE>
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
</TABLE>
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FLOW INTERNATIONAL CORPORATION
July 22, 1999
/s/ Ronald W. Tarrant
-----------------------------------------------
Ronald W. Tarrant
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on the behalf of
the registrant and in the capacities on this 22nd day of July, 1999
Signature Title
--------- -----
/s/ Ronald W. Tarrant Chairman, President, Chief Executive Officer
- -------------------------- (Principal Executive Officer)
Ronald W. Tarrant
/s/ Stephen D. Reichenbach Executive Vice President,
- -------------------------- Chief Financial Officer
Stephen D. Reichenbach (Principal Financial Officer & Principal
Accounting Officer)
/s/ Ronald D. Barbaro Director
- --------------------------
Ronald D. Barbaro
/s/ Daniel J. Evans Director
- --------------------------
Daniel J. Evans
/s/ Kathryn L. Munro Director
- --------------------------
Kathryn L. Munro
57
<PAGE>
Signature Title
--------- -----
/s/ Arlen I. Prentice Director
- --------------------------
Arlen I. Prentice
/s/ J. Michael Ribaudo Director
- --------------------------
J. Michael Ribaudo
/s/ Kenneth M. Roberts Director
- --------------------------
Kenneth M. Roberts
/s/ Sandra F. Rorem Director
- --------------------------
Sandra F. Rorem
/s/ Dean D. Thornton Director
- --------------------------
Dean D. Thornton
58
<PAGE>
ARTICLES OF INCORPORATION
OF
NEW FLOW INTERNATIONAL CORPORATION
ARTICLE I
NAME
The name of the corporation is New Flow International Corporation.
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the registered office of the "Corporation" is 5000
Columbia Center, 701 Fifth Avenue, Seattle, Washington 98104-7078, and the
name of the registered agent at such address is PTSGE Corp.
ARTICLE III
PURPOSE
The Corporation is organized for the purposes of transacting any and
all lawful business for which a corporation may be incorporated under the
Washington Business Corporation Act, Title 23B of the Revised Code of
Washington, now or hereafter in force (the "Act").
ARTICLE IV
CAPITAL SHARES
4.1 AUTHORIZED SHARES. The total number of shares of stock which
the Corporation shall have authority to issue is 30,000,000 shares, which
shall consist of 29,000,000 shares of common stock, $.01 par value per share
("Common Shares") and 1,000,000 shares of preferred stock, $.01 par value per
share ("Preferred Shares").
4.2 ISSUANCE OF COMMON STOCK IN SERIES. The common stock may be
issued from time to time in one or more series, the shares of each series to
have such voting powers, full or limited, and such designations, preferences
and relative, participating, optional or other special
-1-
<PAGE>
rights and qualifications, limitations or restrictions hereof as are stated
and expressed herein or in the resolution or resolutions providing for the
issuance of such series adopted by the Board of Directors.
4.2.1 COMMON STOCK. The Common Stock shall consist of
29,000,000 shares. Except as otherwise provided in accordance with these
Articles of Incorporation, the Common Shares shall have the unlimited voting
rights, with each share being entitled to one vote, and the rights to receive
the net assets of the Corporation upon dissolution, with each share
participating on a pro rata basis.
4.3 ISSUANCE OF PREFERRED SHARES. The Board of Directors is hereby
authorized from time to time, without shareholder action, to provide for the
issuance of Preferred Shares in one or more series not exceeding in the
aggregate the number of Preferred Shares authorized by these Articles of
Incorporation, as amended from time to time; and to determine with respect to
each such series the voting powers, if any (which voting powers, if granted,
may be full or limited), designations, preferences, and relative,
participating, option, or other special rights, and the qualifications,
limitations, or restrictions relating thereto, including without limiting the
generality of the foregoing, the voting rights relating to Preferred Shares
of any series (which may be one or more votes per share or a fraction of a
vote per share, which may vary over time, and which may be applicable
generally or only upon the happening and continuance of stated events or
conditions), the rate of dividend to which holders of Preferred Shares of any
series may be entitled (which may be cumulative or noncumulative), the rights
of holders of Preferred Shares of any series in the event of liquidation,
dissolution, or winding up of the affairs of the Corporation, the rights, if
any, of holders of Preferred Shares of any series to convert or exchange such
Preferred Shares of such series for shares of any other class or series of
capital stock or for any other securities, property, or assets of the
Corporation or any subsidiary (including the determination of the price or
prices or the rate or rates applicable to such rights to convert or exchange
and the adjustment thereof, the time or times during which the right to
convert or exchange shall be applicable, and the time or times during which a
particular price or rate shall be applicable), whether or not the shares of
that series shall be redeemable, and if so, the terms and conditions of such
redemption, including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption, which
amount may vary under different conditions and at different redemption dates,
and whether any shares of that series shall be redeemed pursuant to a
retirement or sinking fund or otherwise and the terms and conditions of such
obligation.
4.4 FILINGS AND EFFECTIVENESS. Before the Corporation shall issue any
Preferred Shares of any series, Articles of Amendment or Restated Articles of
Incorporation, fixing the voting powers, designations, preferences, the
relative, participating, option, or other rights, if any, and the
qualifications, limitations, and restrictions, if any, relating to the Preferred
Shares of such series, and the number of Preferred Shares of such series
authorized by the Board of Directors to be issued shall be filed with the
secretary of state in accordance with the Washington
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Business Corporation Act ("WBCA") and shall become effective without any
shareholder action. The Board of Directors is further authorized to increase
or decrease (but not below the number of such shares of such series then
outstanding) the number of shares of any series subsequent to the issuance of
shares of that series.
ARTICLE V
NO PREEMPTIVE RIGHT'S
Shareholders of the Corporation have no preemptive rights to acquire
additional shares of stock or securities convertible into shares of stock issued
by the Corporation.
ARTICLE VI
DIRECTORS
6.1 NUMBER. The number of directors of the Corporation shall be
fixed in the manner specified by the bylaws of the Corporation.
6.2 VACANCIES. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors shall be filled only by
a majority of the directors then in office, although less than a quorum, or by a
sole remaining director, unless for any reason there are no directors in office
in which case they shall be filled by a special election by shareholders.
6.3 CLASSIFICATION OF DIRECTORS. The directors shall be divided
into three classes, with each class to be as nearly equal in number as
possible. The term of office of directors of the first class shall expire at
the first annual meeting of shareholders after their election. The term of
office of the directors of the second class shall expire at the second annual
meeting after their election. The term of office of directors of the third
class shall expire at the third annual meeting after their election. At each
annual meeting after such classification, a number of directors equal to the
number of the class whose term expires at the time of such meeting shall be
elected to hold office until the third succeeding annual meeting.
ARTICLE VII
ELECTION OF DIRECTORS
Shareholders of the Corporation shall not have the right to cumulate
votes in the election of directors.
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ARTICLE VIII
SPECIAL SHAREHOLDER MEETINGS
Special meetings of the shareholders of the Corporation for any purpose
or purposes may be called at any time by the Board of Directors, or by a
committee of the Board of Directors which has been duly designated by the Board
of Directors and whose powers and authority, as provided in a resolution of the
Board of Directors or in the bylaws of the Corporation, include the power to
call such meetings, but such special meetings may not be called by any other
person or persons.
ARTICLE IX
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, adopt, repeal, alter,
amend, and rescind the bylaws of the Corporation by a resolution adopted by a
majority of the directors.
ARTICLE X
LIMITATION OF DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for conduct as a director,
except for:
(a) Acts or omissions involving intentional misconduct by the director
or a knowing violation of law by the director;
(b) Conduct violating Section 23B.08.310 of the Act (which involves
distributions by the Corporation);
(c) Any transaction from which the director will personally receive a
benefit in money, property, or services to which the director is
not legally entitled.
If the Washington Business Corporation Act is amended to authorize corporate
action further eliminating or limiting the personal liability of directors,
then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent not prohibited by the Washington Business
Corporation Act, as so amended. The provisions of this Article shall be
deemed to be a contract with each Director of the Corporation who serves as
such at any time while such provisions are in effect, and each such Directors
shall be deemed to be serving as such in reliance on the provisions of this
Article. Any repeal or modification of the foregoing paragraph by the
shareholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation with respect to any acts or
omissions of such director occurring prior to such repeal or modification.
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ARTICLE XI
MERGERS, SHARE EXCHANGES, AND OTHER TRANSACTIONS
A merger, share exchange, sale of substantially all of the Corporation's
assets, or dissolution must be approved by the affirmative vote of two-thirds of
the Corporation's outstanding shares entitled to vote, or if separate voting by
voting groups is required then by not less than a majority of all the votes
entitled to be cast by that voting group.
ARTICLE XII
INDEMNIFICATION
12.1 DEFINITIONS. As used in this Article:
a. "Agent" means an individual who is or was an agent of the
Corporation or an individual who, while an agent of the Corporation, is
or was serving at the Corporation's request as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or
other enterprise. "Agent" includes, unless the context requires
otherwise, the spouse, heirs, estate and personal representative of an
agent.
b. "Corporation" means the Corporation, and any domestic or
foreign predecessor entity which, in a merger or other transaction,
ceased to exist.
c. "Director" means an individual who is or was a director of
the Corporation or an individual who, while a director of the
Corporation, is or was serving at the Corporation's request as a director
officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, limited liability
company, limited liability partnership, trust, employee benefit plan or
other enterprise. "Director" includes, unless the context requires
otherwise, the spouse, heirs, estate and personal representative of a
director.
d. "Employee" means an individual who is or was an employee of
the Corporation or an individual, while an employee of the Corporation,
is or was serving at the Corporation's request as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, limited liability
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company, limited liability partnership, trust, employee benefit plan, or
other enterprise- "Employee" includes, unless the context requires
otherwise, the spouse, heirs, estate and personal representative of an
employee.
e. "Expenses" include counsel fees.
f. "Indemnitee" means an individual made a party to a
proceeding because the individual is or was a Director, Officer,
Employee, or Agent of the Corporation, and who possesses indemnification
rights pursuant to these Articles or other corporate action.
"Indemnitee" includes, unless the context requires otherwise, the spouse,
heirs, estate, and personal representative of such individuals.
g. "Liability" means the obligation to pay a judgment,
settlement, penalty, fine, including an excise tax with respect to an
employee benefit plan, or reasonable Expenses incurred with respect to a
proceeding.
h. "Officer" means an individual who is or was an officer of
the Corporation (regardless of whether or not such individual was also a
Director) or an individual who, while an officer of the Corporation, is
or was serving at the Corporation's request as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, limited liability company,
limited liability partnership, trust, employee benefit plan, or other
enterprise. "Officer" includes, unless the context requires otherwise,
the spouse, heirs, estate and personal representative of an officer.
i. "Party" includes an individual who was, is, or is
threatened to be named a defendant, respondent or witness in a
proceeding.
j. "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, derivative, criminal,
administrative, or investigative, and whether formal or informal.
12.2 INDEMNIFICATION RIGHTS OF DIRECTORS AND OFFICERS. The Corporation
shall indemnify its Directors and Officers to the full extent not prohibited by
applicable law now or hereafter in force against liability arising out of a
Proceeding to which such individual was made a Party because the individual is
or was a Director or an Officer. However, such indemnity shall not apply on
account of:
(a) Acts or omissions of a Director or Officer finally adjudged to be
intentional misconduct or a knowing violation of law;
(b) Conduct of a Director or Officer finally adjudged to be in
violation of Section 23B.09.3 10 of the Act relating to
distributions by the Corporation; or
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(c) Any transaction with respect to which it was finally adjudged that
such Director or Officer personally received a benefit in money,
property, or services to which the Director or Officer was not
legally entitled.
Subject to the foregoing, it is specifically intended that Proceedings
covered by indemnification shall include Proceedings brought by the
Corporation (including derivative actions), Proceedings by government
entities and governmental officials or other third party actions.
12.3 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION.
The Corporation may, by action of its Board of Directors from time to time,
provide indemnification and pay Expenses in advance of the final disposition
of a Proceeding to Employees and Agents of the Corporation who are not also
Directors, in each case to the same extent as to a Director with respect to
the indemnification and advancement of Expenses pursuant to rights granted
under, or provided by, the Act or otherwise.
12.4 PARTIAL INDEMNIFICATION. If an Indemnitee is entitled to
indemnification by the Corporation for some or a portion of Expenses,
liabilities, or losses actually and reasonably incurred by Indemnitee in an
investigation, defense, appeal or settlement but not, however, for the total
amount thereof, the Corporation shall nevertheless indemnify Indemnitee for
the portion of such Expenses, liabilities or losses to which Indemnitee is
entitled.
12.5 PROCEDURE FOR SEEKING INDEMNIFICATION AND/OR ADVANCEMENT OF
EXPENSES. The following procedures shall apply in the absence of (or at the
option of the Indemnitee, in lieu thereof), specific procedures otherwise
applicable to an Indemnitee pursuant to a contract, trust agreement, or
general or specific action of the Board of Directors:
12.5.1 NOTIFICATION AND DEFENSE OF CLAIM. Indemnitee shall
promptly notify the Corporation in writing of any proceeding for which
indemnification could be sought under this Article. In addition,
Indemnitee shall give the Corporation such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
With respect to any such proceeding as to which Indemnitee has notified
the Corporation:
(a) The Corporation will be entitled to participate therein at
its own expense; and
(b) Except as otherwise provided below, to the extent that
it may wish, the Corporation, jointly with any other
indemnifying party similarly notified, will be entitled
to assume the defense thereof, with counsel satisfactory
to Indemnitee. Indemnitee's consent to such counsel may
not be unreasonably withheld.
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After notice from the Corporation to Indemnitee of its election to
assume the defense, the Corporation will not be liable to Indemnitee
under this Article for any legal or other Expenses subsequently incurred
by Indemnitee in connection with such defense. However, Indemnitee shall
continue to have the right to employ its counsel in such proceeding, at
Indemnitee's expense; and if:
(i) The employment of counsel by Indemnitee has been authorized
by the Corporation;
(ii) Indemnitee shall have reasonably concluded that there may
be a conflict of interest between the Corporation and
Indemnitee in the conduct of such defense; or
(iii) The Corporation shall not in fact have employed counsel to
assume the defense of such proceeding,
the fees and Expenses of Indemnitee's counsel shall be at the expense of
the Corporation.
The Corporation shall not be entitled to assume the defense of any
proceeding brought by or on behalf of the Corporation or as to which
Indemnitee shall reasonably have made the conclusion that a conflict of
interest may exist between the Corporation and the Indemnitee in the
conduct of the defense.
12.5.2 INFORMATION TO BE SUBMITTED AND METHOD OF DETERMINATION AND
AUTHORIZATION OF INDEMNIFICATION. For the purpose of pursuing rights to
indemnification under this Article, the Indemnitee shall submit to the
Board a sworn statement requesting indemnification and reasonable
evidence of all amounts for which such indemnification is requested
(together, the sworn statement and the evidence constitute an
"Indemnification Statement").
Submission of an Indemnification Statement to the Board shall
create a presumption that the Indemnitee is entitled to indemnification
hereunder, and the Corporation shall, within sixty (60) calendar days
thereafter, make the payments requested in the Indemnification Statement
to or for the benefit of the Indemnitee, unless: (1) within such sixty
(60) calendar day period it shall be determined by the Corporation that
the Indemnitee is not entitled to indemnification under this Article;
(2) such determination shall be based upon clear and convincing evidence
(sufficient to rebut the foregoing presumption); and (3) the Indemnitee
shall receive notice in writing of such determination, which notice shall
disclose with particularity the evidence upon which the determination is
based.
The foregoing determination may be made: (1) by the Board of
Directors by majority vote of a quorum of Directors who are not at the
time parties to the proceedings;
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(2) if a quorum cannot be obtained, by majority vote of a committee duly
designated by the Board of Directors (in which designation Directors who
are parties may participate) consisting solely of two (2) or more
Directors not at the time parties to the proceeding; (3) by special legal
counsel; or (4) by the shareholders as provided by Section 23B.08.550 of
the Act.
Any determination that the Indemnitee is not entitled to
indemnification, and any failure to make the payments requested in the
Indemnification Statement, shall be subject to judicial review by any
court of competent jurisdiction.
12.5.3 SPECIAL PROCEDURE REGARDING ADVANCE FOR EXPENSES. An
Indemnitee seeking payment of Expenses in advance of a final disposition
of the proceeding must furnish the Corporation, as part of the
Indemnification Statement:
(a) A written affirmation of the Indemnitee's good faith
belief that the Indemnitee has met the standard of
conduct required to be eligible for indemnification;
and
(b) A written undertaking, constituting an unlimited
general obligation of the Indemnitee, to repay the
advance if it is ultimately determined that the
Indemnitee did not meet the required standard of
conduct.
Upon satisfaction of the foregoing the Indemnitee shall have a
contractual right to the payment of such Expenses.
12.5.4 SETTLEMENT. The Corporation is not liable to indemnify
Indemnitee for any amounts paid in settlement of any proceeding without
the Corporation's written consent. The Corporation shall not settle any
proceeding in any manner which would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent. Neither the Corporation
nor Indemnitee may unreasonably withhold its consent to a proposed
settlement.
12.6. CONTRACT AND RELATED RIGHTS.
12.6.1 CONTRACT RIGHTS. The right of an Indemnitee to
indemnification and advancement of Expenses is a contract right upon
which the Indemnitee shall be presumed to have relied in determining to
serve or to continue to serve in his or her capacity with the
Corporation. Such right shall continue as long as the Indemnitee shall
be subject to any possible proceeding. Any amendment to or repeal of
this Article shall not adversely affect any right or protection of an
Indemnitee with respect to any acts or omissions of such Indemnitee
occurring prior to such amendment or repeal.
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12.6.2 OPTIONAL INSURANCE, CONTRACTS, AND FUNDING. The
Corporation may:
(a) Maintain insurance, at its expense, to protect
itself and any Indemnitee against any liability,
whether or not the Corporation would have power to
indemnify the individual against the same liability
under Section 23B.08.510 or .520 of the Act;
(b) Enter into contracts with any Indemnitee in
furtherance of this Article and consistent with the
Act; and
(c) Create a trust fund, grant a security interest, or
use other means (including without limitation a
letter of credit) to ensure the payment of such
amounts as may be necessary to effect
indemnification as provided in this Article.
12.6.3 SEVERABILITY. If any provision or application of this
Article shall be invalid or unenforceable, the remainder of this Article
and its remaining applications shall not be affected thereby, and shall
continue in full force and effect.
12.6.4 RIGHT OF INDEMNITEE TO BRING SUIT. If (1) a claim under
this Article for indemnification is not paid in full by the Corporation
within sixty (60) days after a written claim has been received by the
Corporation; or (2) a claim under this Article for advancement of
Expenses is not paid in full by the Corporation within twenty (20) days
after a written claim has been received by the Corporation, then the
Indemnitee may, but need not, at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. To the extent
successful in whole or in part, the Indemnitee shall be entitled to also
be paid the expense (to be proportionately prorated if the Indemnitee is
only partially successful) of prosecuting such claim. Neither (1) the
failure of the Corporation (including its Board of Directors, its
shareholders, or independent legal counsel) to have made a determination
prior to the commencement of such proceeding that indemnification or
reimbursement or advancement of Expenses to the Indemnitee is proper in
the circumstances; nor (2) an actual determination by the Corporation
(including its Board of Directors, its shareholders, or independent legal
counsel that the Indemnitee is not entitled to indemnification or to the
reimbursement or advancement of Expenses, shall be a defense to the
proceeding or create a presumption that the Indemnitee is not so
entitled.
12.6.5 NONEXCLUSIVITY OF RIGHTS. The right to indemnification and
the payment of Expenses incurred in defending a Proceeding in advance of
its final disposition granted in this Article shall not be exclusive of
any other right which any Indemnitee may have or hereafter acquire under
any statute, provision of this Article or the Bylaws, agreement, vote of
shareholders or disinterested directors, or otherwise. The Corporation
shall have the express right to grant additional indemnity without
seeking further approval or
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satisfaction by the shareholders. All applicable indemnity provisions
and any applicable law shall be interpreted and applied so as to provide
an Indemnitee with the broadest but nonduplicative indemnity to which he
or she is entitled.
12.7 CONTRIBUTION. If the indemnification provided in Section 12.2 of
this Article is not available to be paid to Indemnitee for any reason other than
those set forth in subparagraphs 12.2(a), 12.2(b), and 12.2(c) of Section 12.2
of this Article (for example, because indemnification is held to be against
public policy even though otherwise permitted under Section 12.2) then in
respect of any proceeding in which the Corporation is jointly liable with
Indemnitee (or would be if joined in such proceeding), the Corporation shall
contribute to the amount of loss paid or payable by Indemnitee in such
proportion as is appropriate to reflect:
The relative benefits received by the Corporation on the
one hand and the Indemnitee on the other hand from the
transaction from which such proceeding arose, and
The relative fault of the Corporation on the one hand and
the Indemnitee on the other hand in connection with the
events which resulted in such loss, as well as any other
relevant equitable consideration.
The relative benefits received by and fault of the Corporation on the one
hand and the Indemnitee on the other shall be determined by a court of
appropriate jurisdiction (which may be the same court in which the proceeding
took place) with reference to, among other things, the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent the
circumstances resulting in such loss. The Corporation agrees that it would not
be just and equitable if a contribution pursuant to this Article was determined
by pro rata allocation or any other method of allocation which does not take
account of the foregoing equitable considerations.
12.8 EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Corporation shall not be obligated pursuant to the terms of
these Articles to indemnify or advance Expenses to Indemnitee with respect to
any Proceeding.
12.8.1 CLAIMS INITIATED BY INDEMNITEE. Initiated or brought
voluntarily by Indemnitee and not by way of defense, but such
indemnification or advancement of Expenses may be provided by the
Corporation in specific cases if the Board of Directors finds it to be
appropriate. Notwithstanding the foregoing, the Corporation shall
provide indemnification including the advancement of Expenses with
respect to Proceedings brought to establish or enforce a right to
indemnification under these Articles or any other statute or law or as
otherwise required under the statute.
12.8.2 LACK OF GOOD FAITH. Instituted by Indemnitee to enforce
or interpret this Article, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in
such proceeding was not made in good faith or was frivolous.
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12.8.3 INSURED CLAIMS. For which any of the Expenses or
liabilities for indemnification is being sought have been paid directly
to Indemnitee by an insurance carrier under a policy of officers' and
directors' liability insurance maintained by the Corporation.
12.8.4 PROHIBITED BY LAW. If the Corporation is prohibited by
the Act or other applicable law as then in effect from paying such
indemnification and/or advancement of Expenses. For example, the
Corporation and Indemnitee acknowledge that the Securities and Exchange
Commission ("SEC") has taken the position that indemnification is not
possible for liabilities arising under certain federal securities laws.
Indemnitee understands and acknowledges that the Corporation has
undertaken or may be required in the future to undertake with the SEC to
submit the question of indemnification to a court in certain
circumstances for a determination of the Corporation's right to indemnify
Indemnitee.
12.9 SUCCESSORS AND ASSIGNS. All obligations of the Corporation to
indemnify any Director or Officer shall be binding upon all successors and
assigns of the Corporation (including any transferee of all or substantially all
of its assets and any successor by merger or otherwise by operation of law).
The Corporation shall not effect any sale of substantially all of its assets,
merger, consolidation, or other reorganization, in which it is not the surviving
entity, unless the surviving entity agrees in writing to assume all such
obligations of the Corporation.
ARTICLE XIII
CORPORATION'S ACQUISITION OF ITS OWN SHARES
The Corporation may purchase, redeem, receive, take or otherwise acquire,
own and hold, sell, lend, exchange, transfer or otherwise dispose of, pledge,
use and otherwise deal with and in its own shares. As a specific modification
of Section 23B.06.310 of the Act, pursuant to the authority in
Section 23B.02.020(5)(c) of the Act, to include provisions related to the
management of the business and the regulation of the affairs of the Corporation,
shares of the Corporation's stock acquired by it pursuant to this Article shall
be considered "Treasury Stock" and so held by the Corporation. The shares so
acquired by the Corporation shall not be considered as authorized and unissued
but rather as authorized, issued, and held by the Corporation. The shares, so
acquired shall not be regarded as cancelled or as a reduction to the authorized
capital of the Corporation unless specifically so designated by the Board of
Directors in an amendment to these Articles of Incorporation. The provisions of
this Article do not alter or effect the status of the Corporation's acquisition
of its shares as a "distribution" by the Corporation as defined in Section
23B.01.400(6) of the Act, nor alter or effect the limitations on distributions
by the Corporation as set forth in Section 23B.06.400 of the Act. Any shares so
acquired by the Corporation, unless otherwise specifically designated by the
Board of Directors,
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at the time of acquisition, shall be considered on subsequent disposition, as
transferred rather than reissued. Nothing in this Article limits or
restricts the right of the Corporation to resell or otherwise dispose of any
of its shares previously acquired for such consideration and according to
such procedures as established by the Board of Directors.
The undersigned has signed these Articles of Incorporation as of
September 30, 1998.
-----------------------------
Christopher H. Cunningham
Incorporator
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BY-LAWS
OF
NEW-FLOW INTERNATIONAL CORPORATION
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1. ANNUAL MEETING. An annual meeting of the shareholders of
this Corporation shall be held each year within 120 days after the close of
the immediately preceding fiscal year of the Corporation or at such other
time specified by the Board of Directors. If the Corporation is required to
hold an annual meeting of shareholders for the purpose of electing directors,
the meeting shall be held no later than 120 days after the occurrence of the
event requiring the meeting. The failure to hold an annual meeting at the
time stated or fixed in accordance with these By-laws does not affect the
validity of any corporate action.
Section 2. SPECIAL MEETINGS. Except as otherwise provided by law,
special meetings of shareholders of this Corporation shall be held whenever
called by any officer or by the Board of Directors or one or more
shareholders who hold at least ten percent (10%) of all shares entitled to
vote on any issue proposed to be considered at the meeting.
Section 3. PLACE OF MEETINGS. The Board of Directors may designate
any place, either within or without the State of Washington, as the place of
meeting for any annual meeting or for any special meeting, pursuant to proper
notice.
Section 4. NOTICE. Written notice of each shareholders' meeting
stating the date, time, and place and, in case of a special meeting, the
purpose(s) for which such meeting is called, shall be given by the
Corporation not less than ten (10) (unless a greater period of notice is
required by law in a particular case) nor more than sixty (60) days prior to
the date of the meeting, to each shareholder of record entitled to vote at
such meeting unless required by law to send notice to all shareholders
(regardless of whether or not such shareholders are entitled to vote), to the
shareholder's address as it appears on the current record of shareholders of
this Corporation.
Section 5. WAIVER OF NOTICE. A shareholder may waive any notice
required to be given by these By-laws, or the Articles of Incorporation of
this Corporation, or any of the corporate laws of the State of Washington,
before or after the meeting that is the subject of such notice. A valid
waiver is created by any of the following three methods: (a) in writing,
signed by the shareholder entitled to the notice and delivered to the
Corporation for inclusion in its corporate records; (b) attendance at the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; or (c) failure to
object at
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the time of presentation of a matter not within the purpose or purposes
described in the meeting notice.
Section 6. SHAREHOLDERS' LIST. The officer having charge of the stock
ledger of the Corporation shall make, beginning ten (10) days prior to the
meeting and continuing through the meeting of the shareholders, a complete
list of the shareholders entitled to vote at such meeting arranged in
alphabetical order, showing the address of each shareholder and the number of
shares registered in the name of each shareholder, and must be arranged by
voting group, and within each voting group by class or series of shares. The
list must be available for inspection at the Corporation's principal office
or at a place identified in the meeting notice in the city where the meeting
will be held. Such list shall be available for inspection by any shareholder,
a shareholder's agent or a shareholder's attorney for any purpose germane to
the meeting, during regular business hours, and at the shareholder's expense,
during the period it is available for inspection. The list shall also be
produced and available at the meeting or any adjournment, and may be
inspected by any shareholder, the shareholder's agent, or the shareholder's
attorney who is present.
Section 7. QUORUM OF SHAREHOLDERS. Except as otherwise provided in
the Washington Business Corporation Act (the "Act") or the Articles of
Incorporation, at any meeting of the shareholders, a majority in interest of
all the shares entitled to vote on a matter, represented by shareholders of
record in person or by proxy, shall constitute a quorum of that voting group
for action on that matter.
Once a share is represented at a meeting, other than solely to object
to holding the meeting or transacting business, it is deemed to be present
for quorum purposes for the remainder of the meeting and for any adjournment
of that meeting unless a new record date is or must be set for the adjourned
meeting. At such reconvened meeting, any business may be transacted that
might have been transacted at the meeting as originally notified.
If a quorum exists, action on a matter is approved by a voting group
if the votes cast within the voting group favoring the action exceed the
votes cast within the voting group opposing the action, unless the question
is one upon which by express provision of the Act or other applicable law or
of the Articles of Incorporation or of these By-laws a different vote is
required.
Section 8. ADJOURNED MEETINGS. A majority of the shares represented
at the meeting, even if less than a quorum, may adjourn the meeting from time
to time. At such reconvened meeting at which a quorum is present any business
may be transacted at the meeting as originally notified. If a meeting is
adjourned to a different date, time, or place, notice need not be given of
the new date, time, or place if a new date, time, or place is announced at
the meeting before adjournment; however, if a new record date for the
adjourned meeting is or must be fixed in accordance with the corporate laws
of the State of Washington, notice of the adjourned meeting must be given to
persons who are shareholders as of the new record date.
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Section 9. VOTING. Subject to the provisions of the Act and other
applicable laws of the State of Washington, and unless otherwise provided in
the Articles of Incorporation, each outstanding share, regardless of class,
is entitled to one (1) vote on each matter voted on at a shareholders'
meeting.
Section 10. PROXIES. Shareholders of record may vote at any meeting
either in person or by proxy executed in writing. A proxy is effective when
received by the person authorized to tabulate votes for the Corporation. A
proxy is valid for eleven (11) months unless a longer period is expressly
provided in the proxy.. A duly executed proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with
an interest sufficient in law to support an irrevocable power. A proxy may be
made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation
generally. Any proxy is suspended when the person executing the proxy is
present at a meeting of shareholders and elects to vote, except that when
such proxy is coupled with an interest and the fact of the interest appears
on the face of the proxy, the agent named in the proxy shall have all voting
and other fights referred to in the proxy, notwithstanding the presence of
the person executing the proxy. At each meeting of the shareholders, and
before any voting commences, all proxies filed at or before the meeting shall
be submitted to and examined by the secretary or a person designated by the
secretary, and no shares may be represented or voted under a proxy that has
been found to be invalid or irregular.
Section 11. BUSINESS BROUGHT BEFORE AN ANNUAL MEETING. At an annual
meeting of the shareholders, only such business shall be conducted as shall
have been properly brought before the meeting. To be properly brought before
an annual meeting, business must be (i) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the board of
directors, (ii) brought before the meeting by or at the direction of the
board of directors, or (iii) otherwise properly brought before the meeting by
a shareholder. For business to be properly brought before an annual meeting
by a shareholder, the shareholder must have given timely notice thereof in
writing to the secretary of the corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation, not less than sixty (60) days nor more than
ninety (90) days prior to the meeting; PROVIDED, HOWEVER, that in the event
that less than seventy days' notice or prior public announcement of the date
of the meeting is given or made to shareholders, notice by the shareholder to
be timely must be so received not later than the close of business on the
tenth (10th) day following the date on which such notice of the date of the
annual meeting was mailed or such public announcement was made A
shareholder's notice to the secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting,
(ii) the name and address, as they appear on the corporation's books, of the
shareholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in such business. Notwithstanding
anything in these by-laws to the contrary, no business shall be conducted at
an annual meeting except in accordance with the procedures set forth in this
Section 11. The presiding officer of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this
Section 11; and if he should so determine, he shall
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so declare to the meeting and any such business not properly brought before
the meeting shall not be transacted. For purposes of this Section 11, "public
announcement" shall mean disclosure in a press release reported by Dow Jones
News Service, Associated Press or a comparable national news service. Nothing
in this Section 11 shall be deemed to affect any fights of shareholders to
request inclusion of proposals in the corporation's proxy statement pursuant
to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
ARTICLE II
DIRECTORS
Section 1. GENERAL POWERS. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the Corporation
shall be managed under the direction of, the Board of Directors, except as
otherwise provided by its Articles of Incorporation.
Section 2. NUMBER, ELECTION AND TERM OF OFFICE. The number of
directors which shall constitute the Board shall be such as from time to time
shall be fixed by resolution adopted by the affirmative vote of 70% of the
total number of directors then in office but in no event shall such number be
greater than nine (9) directors. The directors shall be elected by a
plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote in the election of directors;
provided that, whenever the holders of any class or series of capital stock
of the Corporation are entitled to elect one or more directors pursuant to
the provisions of the Articles of Incorporation of the Corporation, such
directors shall be elected by a plurality of the votes of such class or
series present in person or represented by proxy at the meeting and entitled
to vote in the election of such directors. Directors need not be shareholders
of this Corporation or residents of the State of Washington, but must have
reached the age of majority. The terms of the initial directors expire at the
first shareholders' meeting at which directors are elected. The directors
shall be elected by the shareholders at each annual shareholders' meeting to
hold office until the next annual meeting of the shareholders and until their
respective successors are elected and qualified. If, for any reason, the
directors shall not have been elected at any annual meeting, they may be
elected at a special meeting of shareholders called for that purpose in the
manner provided by these By-laws.
Section 3. REMOVAL AND RESIGNATION. Any director of this Corporation
may resign at any time by giving written notice to the Board of Directors,
its Chairman, the President, or Secretary of this Corporation. Any such
resignation is effective when the notice is delivered, unless the notice
specifies a later effective date. The shareholders, at a special meeting
called expressly for that purpose, may remove from office with or without
cause one or more directors and elect their successors. Shareholders may
remove one or more directors without cause only in accordance with the
Corporation's Articles of Incorporation. A director may be removed only if
the number of votes cast for removal exceeds the number of votes cast against
removal.
Section 4. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the total number of directors may be filled by
the Board of Directors. The term of a
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director elected to fill a vacancy expires at the next shareholders' meeting
at which directors are elected.
Section 5. NOMINATIONS.
(a) Only persons who are nominated in accordance with the
procedures set forth in these by-laws shall be eligible to serve as
directors. Nominations of persons for election to the board of directors of
the corporation may be made at a meeting of shareholders (i) by or at the
direction of the board of directors or (ii) by any shareholder of the
corporation who was a shareholder of record at the time of giving of notice
provided for in this by-law, who is entitled to vote for the election of
directors at the meeting and who shall have complied with the notice
procedures set forth below in Section 5(b).
(b) In order for a shareholder to nominate a person for
election to the board of directors of the corporation at a meeting of
shareholders, such shareholder shall have delivered timely notice of such
shareholder's intent to make such nomination in writing to the secretary of
the corporation. To be timely, a shareholder's notice shall be delivered to
or mailed and received at the principal executive offices of the corporation
(i) in the case of an annual meeting, not less than sixty (60) nor more than
ninety (90) days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the
annual meeting is changed by more than thirty (30) days from such anniversary
date, notice by the shareholder to be timely must be so received not later
than the close of business on the tenth (10th) day following the earlier of
the day on which notice of the date of the meeting was mailed or public
disclosure of the meeting was made, and (ii) in the case of a special meeting
at which directors are to be elected, not later than the close of business on
the tenth (10th) day following the earlier of the day on which notice of the
date of the meeting was mailed or public announcement of the meeting was
made. Such shareholder's notice shall set forth (i) as to each person whom
the shareholder proposes to nominate for election as a director at such
meeting all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each ease pursuant to Regulation 14A under the
Exchange Act (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (ii)
as to the shareholder giving the notice (A) the name and address, as they
appear on the corporation's books, of such shareholder and 03) the class and
number of shares of the corporation which are beneficially owned by such
shareholder and also which are owned of record by such shareholder; and (iii)
as to the beneficial owner, if any, on whose behalf the nomination is made,
(A) the name and address of such person and (B) the class and number of
shares of the corporation which are beneficially owned by such person. At the
request of the board of directors, any person nominated by the board of
directors for election as a director shall furnish to the secretary of the
corporation that information required to be set forth in a shareholder's
notice of nomination which pertains to the nominee.
(c) No person shall be eligible to serve as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 5. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section 5, and if he should so
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determine, he shall so declare to the meeting and the defective nomination
shall be disregarded. A shareholder seeking to nominate a person to serve as
a director must also comply with all applicable requirements of the Exchange
Act, and the rules and regulations thereunder with respect to the matters set
forth in this Section 5.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such places, and at such times as the Board by
vote may determine, and, if so determined, no notice thereof need be given.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place whenever called by any officer or
one (1) or more directors, notice thereof being given to each director by the
officer calling or by the officer directed to call the meeting.
Section 8. NOTICE. No notice is required for regular meetings of the
Board of Directors. Notice of special meetings of the Board of Directors,
stating the date, time, and place thereof, shall be given at least two (2)
days prior to the date of the meeting. The purpose of the meeting need not be
given in the notice. Such notice may be oral or written.
Section 9. WAIVER OF NOTICE. A director may waive notice of a special
meeting of the Board either before or after the meeting, and such waiver
shall be deemed to be the equivalent of giving notice. The waiver must be in
writing, signed by the director and entitled to the notice and delivered to
the Corporation for inclusion in its corporate records. Attendance of a
director at a meeting shall constitute waiver of notice of that meeting
unless said director attends for the express purpose of objecting to the
transaction of business because the meeting has not been lawfully called or
convened.
Section 10. CHAIRMAN OF THE BOARD, QUORUM, REQUIRED VOTE AND
ADJOURNMENT. The Board of Directors shall elect, by the affirmative vote of
70% of the total number of directors then in office, a chairman of the Board,
who shall preside at all meetings of the shareholders and Board of Directors
at which he or she is present. If the chairman of the Board is not present at
a meeting of the shareholders or the Board of Directors, the president (if
the president is a director and is not also the chairman of the Board) shall
preside at such meeting, and, if the president is not present at such
meeting, a majority of the directors present at such meeting shall elect one
of their members to so preside. A majority of the total number of directors
then in office shall constitute a quorum for the transaction of business.
When a quorum is present at any meeting, a majority of the members present
thereat shall decide any question brought before such meeting, except as
otherwise provided by the Act, the Articles of Incorporation or by these
By-laws.
Section 11. ADJOURNMENT. A majority of the directors present, even if
less than a quorum, may adjourn a meeting and continue it to a later time.
Notice of the adjourned meeting or of the business to be transacted thereat,
other than by announcement, shall not be necessary. At any adjourned meeting
at which a quorum is present, any business may be transacted which could have
been transacted at the meeting as originally called.
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Section 12. COMMITTEES. The Board of Directors, by resolution adopted
by two-thirds of the full Board of Directors, may designate from among its
members an Executive Committee and one or more other committees, each of
which:
a. Must have two (2) or more members;
b. Must be governed by the same rules regarding meetings,
action without meetings, notice, and waiver of notice, and quorum and
voting requirements as applied to the Board of Directors; and
c. To the extent provided in such resolution, shall have and
may exercise all the authority of the Board of Directors, except no such
committee shall have the authority to:
(1) Authorize or approve a distribution except according
to a general formula or method prescribed by the Board of
Directors;
(2) Approve or propose to shareholders action which the
Washington Business Corporation Act (the "Act") requires to be
approved by shareholders;
(3) Fill vacancies on the Board of Directors or on any of
its committees;
(4) Amend the Articles of Incorporation;
(5) Adopt, amend, or repeal the By-laws;
(6) Approve a plan of merger not requiring shareholder
approval; or
(7) Authorize or approve the issuance or sale or contract
for sale of shares, or determine the designation and relative
rights, preferences, and limitations on a class or series of
shares, except that the Board of Directors may authorize a
committee, or a senior executive officer of the Corporation, to
do so within limits specifically prescribed by the Board of
Directors.
Section 13. COMMUNICATIONS EQUIPMENT. Members of the Board of
Directors or any committee thereof may participate in and act at any meeting
of such board or committee through the use of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear and speak with each other, and participation in the meeting
pursuant to this Section 13 shall constitute presence in person at the
meeting.
Section 14. PRESUMPTION OF ASSENT. A director of this Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless:
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a. The director objects at the beginning of the meeting, or
promptly upon the director's arrival, to holding it or transacting
business at the meeting;
b. The director's dissent or abstention from the action taken
is entered in the minutes of the meeting; or
c. The director shall file written dissent or abstention with
the presiding officer of the meeting before its adjournment or to the
Corporation within a reasonable time after adjournment of the meeting.
The right of dissent or abstention is not available to a director who votes in
favor of the action taken.
Section 15. COMPENSATION. By resolution of the Board of Directors,
each director may be paid expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a stated salary as director, or a
fixed sum for attendance at each meeting of the Board of Directors, or both.
No such payment shall preclude any director from serving this Corporation in
any other capacity and receiving compensation therefor.
Section 16. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by
the restated certificate of incorporation, any action required or permitted
to be taken at any meeting of the board of directors, or of any committee
thereof, may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
ARTICLE III
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be appointed
by the Board of Directors and shall consist of a chief executive officer, a
president, one or more vice-presidents, a secretary, a chief financial
officer, a treasurer and such other officers and assistant officers as may be
deemed necessary or desirable by the Board of Directors. Such other officers
and assistant officers as may be necessary may also be appointed by a duly
appointed officer to whom such authority has been delegated by Board
resolution. Any number of offices may be held by the same person. In its
discretion, the Board of Directors may choose not to fill any office for any
period as it may deem advisable, except that the offices of president and
secretary shall be filled as expeditiously as possible.
The Board of Directors in its discretion may elect a Chairman from
amongst its members to serve as Chairman of the Board of Directors, who, when
present shall preside at all meetings of the Board of Directors, and who
shall have such other powers as the Board may determine.
Section 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be appointed annually by the Board of Directors at its first meeting held
after each annual meeting
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of shareholders or as soon thereafter as convenient. Vacancies may be filled
or new offices created and filled at any meeting of the Board of Directors.
Each officer shall hold office until a successor is duly elected and
qualified or until his or her earlier death, resignation or removal as
hereinafter provided.
Section 3. REMOVAL. Any officer appointed by the Board of Directors
may be removed by the Board of Directors with or without cause at its
discretion, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
Section 4. VACANCIES. If any office becomes vacant by any reason, the
directors may appoint a successor or successors who shall hold office for the
unexpired term. Any vacancy occurring in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors.
Section 5. COMPENSATION AND CONTRACT RIGHTS. Compensation of all
executive officers shall be approved by the Board of Directors, and no
officer shall be prevented from receiving such compensation by virtue of his
or her also being a director of the Corporation. The appointment of an
officer shall not of itself create contract rights.
Section 6. CHIEF EXECUTIVE OFFICER. The chief executive officer shall
have the powers and perform the duties incident to that position. Subject to
the powers of the Board of Directors, he shall be in the general and active
charge of the entire business and affairs of the Corporation, and shall be
its chief policy making officer. He shall preside at all meetings of the
Board of Directors and shareholders and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or
provided in these By-laws. The chief executive officer is authorized to
execute bonds, mortgages and other contracts requiring a seal, under the seal
of the Corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall
be expressly delegated by the Board of Directors to some other officer or
agent of the Corporation. Whenever the president is unable to serve, by
reason of sickness, absence or otherwise, the chief executive officer shall
perform all the duties and responsibilities and exercise all the powers of
the president.
Section 7. THE PRESIDENT. The president of the Corporation shall,
subject to the powers of the Board of Directors and the chairman of the
Board, have general charge of the business, affairs and property of the
Corporation, and control over its officers, agents and employees; and shall
see that all orders and resolutions of the Board of Directors are carried
into effect. The president is authorized to execute bonds, mortgages and
other contracts requiting a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated
by the Board of Directors to some other officer or agent of the Corporation.
The president shall have such other powers and perform such other duties as
may be prescribed by the chief executive officer, the Board of Directors or
as may be provided in these By-laws.
Section 8. VICE-PRESIDENTS. The vice-president, or if there shall be
more than one, the vice-presidents in the order determined by the Board of
Directors or the chairman of the Board,
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shall, in the absence or disability of the president, act with all of the
powers and be subject to all the restrictions of the president. The
vice-presidents shall also perform such other duties and have such other
powers as the Board of Directors, the chief executive officer, the president
or these By-laws may, from time to time, prescribe. The vice-presidents may
also be designated as executive vice-presidents or senior vice-presidents, as
the Board of Directors may from time to time prescribe.
Section 9. THE SECRETARY AND ASSISTANT SECRETARIES. The secretary
shall attend all meetings of the Board of Directors, all meetings of the
committees thereof and all meetings of the shareholders and record all the
proceedings of the meetings in a book or books to be kept for that purpose or
shall ensure that his or her designee attends each such meeting to act in
such capacity. Under the chairman of the Board's supervision, the secretary
shall give, or cause to be given, all notices required to be given by these
By-laws or by law; shall have such powers and perform such duties as the
Board of Directors, the chief executive officer, the president or these
By-laws may, from time to time, prescribe; and shall have custody of the
corporate seal of the Corporation. The secretary, or an assistant secretary,
shall authenticate records of the Corporation and shall have authority to
affix the corporate seal to any instrument requiring it and when so affixed,
it may be attested by his or her signature or by the signature of such
assistant secretary, The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing
by his or her signature. The assistant secretary, or if there be more than
one, any of the assistant secretaries, shall in the absence or disability of
the secretary, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the Board
of Directors, the chief executive officer, the president, or secretary may,
from time to time, prescribe.
Section 10. THE CHIEF FINANCIAL OFFICER. The chief financial officer
shall have the custody of the corporate funds and securities; shall keep full
and accurate all books and accounts of the Corporation as shall be necessary
or desirable in accordance with applicable law or generally accepted
accounting principles; shall deposit all monies and other valuable effects in
the name and to the credit of the Corporation as may be ordered by the
chairman of the Board or the Board of Directors; shall cause the funds of the
Corporation to be disbursed when such disbursements have been duly
authorized, taking proper vouchers for such disbursements; and shall render
to the Board of Directors, at its regular meeting or when the Board of
Directors so requires, an account of the Corporation; shall have such powers
and perform such duties as the Board of Directors, the chief executive
officer, the president or these By-laws may, from time to time, prescribe. If
required by the Board of Directors, the chief financial officer shall give
the Corporation a bond (which shall be rendered every six years) in such sums
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the office of chief
financial officer and for the restoration to the Corporation, in case of
death, resignation, retirement, or removal from office, of all books, papers,
vouchers, money, and other property of whatever kind in the possession or
under the control of the chief financial officer belonging to the Corporation.
Section 11. TREASURER. The treasurer shall, in the absence or disability
of the chief financial officer, act with all of the powers and be subject to all
the restrictions of the chief
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financial officer. The treasurer shall also perform such other duties and
have such other powers as the Board of Directors, the chief executive
officer, the chief financial officer or these By-laws may, from time to time,
prescribe.
Section 12. OTHER OFFICERS, ASSISTANT OFFICERS AND AGENTS. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these By-laws, shall have such authority and perform such
duties as may from time to time be prescribed by resolution of the Board of
Directors.
Section 13. ABSENCE OR DISABILITY OF OFFICERS. In the case of the
absence or disability of any officer of the Corporation and of any person
hereby authorized to act in such officer's place during such officer's
absence or disability, the Board of Directors may by resolution delegate the
powers and duties of such officer to any other officer or to any director, or
to any other person selected by it.
ARTICLE IV
CERTIFICATES AND TRANSFER OF STOCK
Section 1. ISSUANCE; CERTIFICATES OF SHARES. No shares of this
Corporation shall be issued unless authorized by the Board. Such
authorization shall include the maximum number of shares to be issued, the
consideration to be received, and a statement that the Board considers the
consideration to be adequate. Certificates for shares of the Corporation
shall be in such form as is consistent with the provisions of the Act and
shall state:
a. The name of the Corporation and that the Corporation is
organized under the laws of the State of Washington;
b. The name of the person to whom issued; and
c. The number and class of shares and the designation of the
series, if any, which such certificate represents.
The certificate shall be signed by original or facsimile signature of
two officers of the Corporation, and the seal of the Corporation may be
affixed thereto. If the person who signed, either manually or in facsimile, a
certificate no longer holds office when the certificate is issued, the
certificate is nevertheless valid.
Section 2. TRANSFER OF STOCK. Shares of stock may be transferred by
delivery of the certificate accompanied by either an assignment in writing on
the back of the certificate or by a written power of attorney to assign and
transfer the same on the books of this Corporation, signed by the record holder
of the certificate. The shares shall be transferable on the books of this
Corporation upon surrender thereof so assigned or endorsed. The board of
directors may appoint a bank or trust company organized under the laws of the
United States or any state
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thereof to act as its transfer agent or registrar, or both in connection with
the transfer of any class or series of securities of the corporation.
Section 3. LOSS OR DESTRUCTION OF CERTIFICATES. In case of the loss,
mutilation, or destruction of a certificate of stock, a duplicate certificate
may be issued upon such terms as the Board of Directors shall prescribe.
Section 4. RECORD DATE AND TRANSFER BOOKS. For the purpose of
determining shareholders who are entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders
for any other proper purpose, the Board of Directors may fix in advance a
record date for any such determination of shareholders, such date in any case
to be not more than seventy (70) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action, requiring such determination of shareholders, is to be
taken.
If no record date is fixed for such purposes, the date on which
notice of the meeting is mailed or the date on which the resolution of the
Board of Directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, unless the Board of Directors fixes a
new record date, which it must do if the meeting is adjourned more than one
hundred twenty (120) days after the date fixed for the original meeting.
ARTICLE V
GENERAL PROVISIONS
Section 1. DISTRIBUTIONS. Distributions may be authorized by the
Board of Directors at any regular or special meeting and made by the
Corporation, subject to the provisions of the Articles of Incorporation, if
any, and in accordance with the Act. No distribution may be paid if, after
giving it effect: (i) the Corporation would not be able to pay its debts as
they become due in the usual course; or the Corporation's total assets would
be less than the sum of its total liabilities plus, unless the Articles of
Incorporation permit otherwise, the amount that would be needed, if the
Corporation were to be dissolved at the time of the distribution to satisfy
the preferential rights upon dissolution of shareholders whose preferential
rights are superior to those receiving the distribution.
Section 2. CHECKS, DRAFTS OR ORDERS. All checks, drafts, or other
orders for the payment of money by or to the Corporation and all notes and
other evidences of indebtedness issued in the name of the Corporation shall
be signed by such officer or officers, agent or agents of the Corporation,
and in such manner, as shall be determined by resolution of the Board of
Directors or a duly authorized committee thereof.
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Section 3. CONTRACTS. In addition to the powers otherwise granted to
officers pursuant to ARTICLE V hereof, the Board of Directors may authorize
any officer or officers, or any agent or agents, of the Corporation to enter
into any contract or to execute and deliver any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined
to specific instances.
Section 4. LOANS. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiaries, including any officer or employee who is
a director of the Corporation or its subsidiaries, whenever, in the judgment
of the directors, such loan, guaranty or assistance may reasonably be
expected to benefit the Corporation. The loan, guaranty or other assistance
may be with or without interest, and may be unsecured, or secured in such
manner as the Board of Directors shall approve, including, without
limitation, a pledge of shares of stock of the Corporation. Nothing in this
section shall be deemed to deny, limit or restrict the powers of guaranty or
warranty of the Corporation at common law or under any statute.
Section 5. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 6. CORPORATE SEAL. The Board of Directors may provide a
corporate seal which shall be in the form of a circle and shall have
inscribed thereon the name of the Corporation and the words "Corporate Seal,
Washington." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. No seal is required and the
absence thereof does not affect the validity of any document.
Section 7. VOTING SECURITIES OWNED BY CORPORATION. Voting securities
in any other corporation held by the Corporation shall be voted by the chief
executive officer, the president or a vice-president, unless the Board of
Directors specifically confers authority to vote with respect thereto, which
authority may be general or confined to specific instances, upon some other
person or officer. Any person authorized to vote securities shall have the
power to appoint proxies, with general power of substitution.
Section 8. BOOKS OF ACCOUNTS, MINUTES, AND SHARE REGISTER. The
Corporation:
a. Shall keep as permanent records minutes of all meetings of
its shareholders and Board of Directors, a record of all actions taken
by the shareholders or Board of Directors without a meeting, and a
record of all actions taken by a committee of the Board of Directors
exercising the authority of the Board of Directors on behalf of the
corporation;
b. Shall maintain appropriate accounting records;
c. Or its agent shall maintain a record of its shareholders, in
a form that permits preparation of a list of the names and addresses of
all shareholders, in
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alphabetical order by class of shares showing the number and class of
shares held by each; and
d. Shall keep a copy of the following records at its principal
office:
(1) The Articles or Restated Articles of Incorporation and
all amendments to them currently in effect;
(2) The By-laws or Restated By-laws and all amendments to
them currently in effect;
(3) The minutes of all shareholders' meetings, and records
of all actions taken by shareholders without a meeting, for the
past three (3) years;
(4) Its financial statements for the past three (3) years,
including balance sheets showing in reasonable detail the
financial condition of the Corporation as of the close of each
fiscal year, and an income statement showing the results of its
operations during each fiscal year prepared on the basis of
generally accepted accounting principles or, if not, prepared on
a basis explained therein;
(5) All written communications to shareholders generally
within the past three (3) years;
(6) A list of the names and business addresses of its
current directors and officers; and
(7) Its most recent annual report delivered to the
Secretary of State of Washington.
Section 9. COPIES OF RESOLUTIONS. Any person dealing with the
Corporation may rely upon a copy of any of the records of the proceedings,
resolutions, or votes of the Board of Directors or shareholders, when
certified by the Chairman, President, Secretary or any Assistant Secretary.
Section 10. SECTION HEADINGS. Section headings in these By-laws are
for convenience of reference only and shall not be given any substantive
effect in limiting or otherwise construing any provision herein.
Section 11. INCONSISTENT PROVISIONS. In the event that any provision
of these By-laws is or becomes inconsistent with any provision of the
Articles of Incorporation, the Act or any other applicable law, the provision
of these By-laws shall not be given any effect to the extent of such
inconsistency but shall otherwise be given full force and effect.
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ARTICLE VI
AMENDMENT OF BY-LAWS
Section 1. BY THE BOARD OF DIRECTORS. In furtherance and not in
limitation of the powers conferred by statute, the Board of Directors of the
Corporation is expressly authorized to make, alter, amend, change, add to or
repeal these By-laws by the affirmative vote of two-thirds of the total
number of directors then in office of any meeting of the Board, if notice of
the proposed amendment is contained in the notice of the meeting.
Section 2. BY THE SHAREHOLDERS. Any alteration or repeal of these
By-laws by the shareholders of the Corporation shall require the affirmative
vote of a majority of the outstanding shares of the Corporation entitled to
vote on such alteration or repeal; PROVIDED, HOWEVER, that Sections 2, 3 and
4 of ARTICLE III and this ARTICLE VI of these By-laws shall not be altered,
amended or repealed and no provision inconsistent therewith shall be adopted
without the affirmative vote of the holders of at least 66 2/3% of the
outstanding shares of the Corporation entitled to vote on such alteration or
repeal.
ARTICLE VII
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION A. DEFINITIONS. As used in this Article:
(a) "Agent" means an individual who is or was an agent of the
Corporation or an individual who, while an agent of the Corporation, is or
was serving at the Corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other
enterprise. "Agent" includes, unless the context requires otherwise, the
spouse, heirs, estate and personal representative of an agent.
(b) "Corporation" means the Corporation, its Subsidiaries,
and any domestic or foreign predecessor entity which, in a merger or other
transaction, ceased to exist.
(c) "Director" means an individual who is or was a Director
of the Corporation or an individual who, while a Director of the Corporation,
is or was serving at the Corporation's request as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, limited liability company, partnership, joint venture, trust,
employee benefit plan or other enterprise. "Director" includes, unless the
context requires otherwise, the spouse, heirs, estate and personal
representative of a Director.
(d) "Employee" means an individual who is or was an employee
of the Corporation or an individual, while an employee of the Corporation, is
or was serving at the Corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
limited liability company, partnership, joint venture, trust, employee
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benefit plan, or other enterprise. "Employee" includes, unless the context
requires otherwise, the spouse, heirs, estate, and personal representative of
an employee.
(e) "Expenses" include counsel fees.
(f) "Indemnitee" means an individual made a party to a
proceeding because the individual is or was a Director, Officer, Employee, or
Agent of the Corporation, and who possesses indemnification rights pursuant
to these Articles or other corporate action. "Indemnitee" includes, unless
the context requires otherwise, the spouse, heirs, estate, and personal
representative of such individuals.
(g) "Liability" means the obligation to pay a judgment,
settlement, penalty, fine, including an excise tax with respect to an
employee benefit plan, or reasonable Expenses incurred with respect to a
proceeding.
(h) "Officer" means an individual who is or was an officer of
the Corporation (regardless of whether or not such individual was also a
Director) or an individual who, while an officer of the Corporation, is or
was serving at the Corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
limited liability company, partnership, joint venture, trust, employee
benefit plan, or other enterprise. "Officer" includes, unless the context
requires otherwise, the spouse, heirs, estate and personal representative of
an officer.
(i) "Party" includes an individual who was, is, or is
threatened to be named a defendant, respondent or witness in a proceeding.
(j) "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, derivative, criminal,
administrative, or investigative, and whether formal or informal.
(k) "Subsidiary" means any corporation or other entity that
is wholly owned by the Corporation, directly or indirectly, and any other
entities that are specifically designated as "Subsidiaries" for purposes of
this Article by the Board of Directors.
SECTION B. INDEMNIFICATION RIGHTS OF DIRECTORS AND OFFICERS. The
Corporation shall indemnify its Directors and Officers to the full extent not
prohibited by applicable law now or hereafter in force against liability
arising out of a Proceeding to which such individual was made a Party because
the individual is or was a Director or an Officer. However, such indemnity
shall not apply on account of:
(a) Acts or omissions of a Director or Officer finally
adjudged to be intentional misconduct or a knowing violation of law;
(b) Conduct of a Director or Officer finally adjudged to be
in violation of Section 23B.08.310 of the Act relating to distributions by
the Corporation; or
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(c) Any transaction with respect to which it was finally
adjudged that such Director or Officer personally received a benefit in
money, property, or services to which the Director or Officer was not legally
entitled.
Subject to the foregoing, it is specifically intended that Proceedings
covered by indemnification shall include Proceedings brought by the
Corporation (including derivative actions), Proceedings by government
entities and governmental officials, or other third party actions.
SECTION C. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE
CORPORATION. The Corporation may, by action of its Board of Directors from
time to time, provide indemnification and pay Expenses in advance of the
final disposition of a Proceeding to Employees and Agents of the Corporation
who are not also Directors, in each case to the same extent as to a Director
with respect to the indemnification and advancement of Expenses pursuant to
rights granted under, or provided by, the Act or otherwise.
SECTION D. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled to
indemnification by the Corporation for some or a portion of Expenses,
liabilities, or losses actually and reasonably incurred by Indemnitee in an
investigation, defense, appeal or settlement but not, however, for the total
amount thereof, the Corporation shall nevertheless indemnify Indemnitee for
the portion of such Expenses, liabilities or losses to which Indemnitee is
entitled.
SECTION E. PROCEDURE FOR SEEKING INDEMNIFICATION AND/OR ADVANCEMENT
OF EXPENSES. The following procedures shall apply in the absence of (or at
the option of the Indemnitee, in lieu thereof), specific procedures otherwise
applicable to an Indemnitee pursuant to a contract, trust agreement, or
general or specific action of the Board of Directors:
SECTION E.1. NOTIFICATION AND DEFENSE OF CLAIM. Indemnitee shall
promptly notify the Corporation in writing of any proceeding for which
indemnification could be sought under this Article. In addition,
Indemnitee shall give the Corporation such information and cooperation
as it may reasonably require and as shall be within Indemnitee's power.
With respect to any such proceeding as to which Indemnitee has notified
the Corporation:
(a) The Corporation will be entitled to participate therein at
its own expense; and
(b) Except as otherwise provided below, to the extent that it
may wish, the Corporation, jointly with any other
indemnifying party similarly notified, will be entitled to
assume the defense thereof, with counsel satisfactory to
Indemnitee. Indemnitee's consent to such counsel may not be
unreasonably withheld.
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After notice from the Corporation to Indemnitee of its election
to assume the defense, the Corporation will not be liable to Indemnitee
under this Article for any legal or other Expenses subsequently incurred
by Indemnitee in connection with such defense. However, Indemnitee shall
continue to have the right to employ its counsel in such proceeding, at
Indemnitee's expense; and if:
(i) The employment of counsel by Indemnitee has been
authorized by the Corporation;
(ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the
Corporation and Indemnitee in the conduct of such
defense; or
(iii) The Corporation shall not in fact have employed
counsel to assume the defense of such proceeding,
the fees and Expenses of Indemnitee's counsel shall be at the expense of
the Corporation.
The Corporation shall not be entitled to assume the defense of
any proceeding brought by or on behalf of the Corporation or as to which
Indemnitee shall reasonably have made the conclusion that a conflict of
interest may exist between the Corporation and the Indemnitee in the
conduct of the defense.
SECTION E.2. INFORMATION TO BE SUBMITTED AND METHOD OF
DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION. For the purpose of
pursuing rights to indemnification under this Article, the Indemnitee
shall submit to the Board a sworn statement requesting indemnification
and reasonable evidence of all amounts for which such indemnification is
requested (together, the sworn statement and the evidence constitute an
"Indemnification Statement").
Submission of an Indemnification Statement to the Board shall
create a presumption that the Indemnitee is entitled to indemnification
hereunder, and the Corporation shall, within sixty (60) calendar days
thereafter, make the payments requested in the Indemnification Statement
to or for the benefit of the Indemnitee, unless: (1) within such sixty
(60. ) calendar day period it shall be determined by the Corporation
that the Indemnitee is not entitled to indemnification under this
Article; (2) such determination shall be based upon clear and convincing
evidence (sufficient to rebut the foregoing presumption); and (3) the
Indemnitee shall receive notice in writing of such determination, which
notice shall disclose with particularity the evidence upon which the
determination is based.
The foregoing determination may be made: (1) by the Board of
Directors by majority vote of a quorum of Directors who are not at the
time parties to the proceedings; (2) if a quorum cannot be obtained, by
majority vote of a committee duly designated by the Board of Directors
(in which designation, Directors who are parties may participate)
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consisting solely of two (2) or more Directors not at the time parties
to the proceeding; (3) by special legal counsel; or (4) by the
shareholders as provided by Section 23B.08.550 of the Act.
Any determination that the Indemnitee is not entitled to
indemnification, and any failure to make the payments requested in the
Indemnification Statement, shall be subject to judicial review by any
court of competent jurisdiction.
SECTION E.3 SPECIAL PROCEDURE REGARDING ADVANCE FOR EXPENSES. An
Indemnitee seeking payment of Expenses in advance of a final disposition
of the proceeding must furnish the Corporation, as part of the
Indemnification Statement:
(a) A written affirmation of the Indemnitee's good
faith belief that the Indemnitee has met the
standard of conduct required to be eligible for
indemnification; and
(b) A written undertaking, constituting an unlimited
general obligation of the Indemnitee, to repay the
advance if it is ultimately determined that the
Indemnitee did not meet the required standard of
conduct.
Upon satisfaction of the foregoing, the Indemnitee shall have a
contractual right to the payment of such Expenses.
SECTION E.4 SETTLEMENT. The Corporation is not liable to
indemnify Indemnitee for any amounts paid in settlement of any
proceeding without the Corporation's written consent. The Corporation
shall not settle any proceeding in any manner which would impose any
penalty or limitation on Indemnitee without Indemnitee's written
consent. Neither the Corporation nor Indemnitee may unreasonably
withhold its consent to a proposed settlement.
SECTION F. CONTRACT AND RELATED RIGHTS.
SECTION F.1 CONTRACT RIGHTS. The right of an Indemnitee to
indemnification and advancement of Expenses is a contract right upon
which the Indemnitee shall be presumed to have relied in determining to
serve or to continue to serve in his or her capacity with the
Corporation. Such right shall continue as long as the Indemnitee shall
be subject to any possible proceeding. Any amendment to or repeal of
this Article shall not adversely affect any right or protection of an
Indemnitee with respect to any acts or omissions of such Indemnitee
occurring prior to such amendment or repeal.
SECTION F.2 OPTIONAL INSURANCE, CONTRACTS, AND FUNDING. The
Corporation may:
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(a) Maintain insurance, at its expense, to protect
itself and any Indemnitee against any liability,
whether or not the Corporation would have power to
indemnify the individual against the same liability
under Section 23B.08.510 or .520 of the Act;
(b) Enter into contracts with any Indemnitee in
furtherance of this Article and consistent with the
Act; and
(c) Create a trust fund, grant a security interest, or
use other means (including without limitation a
letter of credit) to ensure the payment of such
amounts as may be necessary to effect
indemnification as provided in this Article.
SECTION F.3 SEVERABILITY. If any provision or application of
this Article shall be invalid or unenforceable, the remainder of this
Article and its remaining applications shall not be affected thereby,
and shall continue in full force and effect.
SECTION F.4 RIGHT OF INDEMNITEE TO BRING SUIT. If (1) a claim
under this Article for indemnification is not paid in full by the
Corporation within sixty (60) calendar days after an Indemnification
Statement has been received by the Corporation; or (2) a claim under
this Article for advancement of Expenses is not paid in full by the
Corporation within twenty (20) calendar days after a written claim has
been received by the Corporation, then the Indemnitee may, but need not,
at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. To the extent successful in whole or in
part, the Indemnitee shall be entitled to also be paid the expense (to
be proportionately prorated if the Indemnitee is only partially
successful) of prosecuting such claim. Neither (1) the failure of the
Corporation (including its Board of Directors, its shareholders, or
independent legal counsel) to have made a determination prior to the
commencement of such proceeding that indemnification or reimbursement or
advancement of Expenses to the Indemnitee is proper in the
circumstances; nor (2) an actual determination by the Corporation
(including its Board of Directors, its shareholders, or independent
legal counsel) that the Indemnitee is not entitled to indemnification or
to the reimbursement or advancement of Expenses, shall be a defense to
the proceeding or create a presumption that the Indemnitee is not so
entitled.
SECTION F.5 NONEXCLUSIVITY OF RIGHTS. The right to
indemnification and the payment of Expenses incurred in defending a
Proceeding in advance of its final disposition granted in this Article
shall not be exclusive of any other right which any Indemnitee may have
or hereafter acquire under the Act, any statute, provision of this
Article or the Bylaws, agreement, vote of shareholders or disinterested
directors, or otherwise. The Corporation shall have the express right to
grant additional indemnity without seeking further approval or
satisfaction by the shareholders. All applicable indemnity provisions
and any applicable law shall be interpreted and applied so as to provide
an Indemnitee with the broadest but nonduplicative indemnity to which he
or she is entitled.
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SECTION G. CONTRIBUTION. If the indemnification provided in Section B
of this Article is not available to be paid to Indemnitee for any reason
other than those set forth in subparagraphs (a), (b), and (c) of Section B of
this Article (for example, because indemnification is held to be against
public policy even though otherwise permitted under Section B) then in
respect of any proceeding in which the Corporation is jointly liable with
Indemnitee (or would be if joined in such proceeding), the Corporation shall
contribute to the amount of loss paid or payable by Indemnitee in such
proportion as is appropriate to reflect:
The relative benefits received by the Corporation on the
one hand and the Indemnitee on the other hand from the
transaction from which such proceeding arose, and
The relative fault of the Corporation on the one hand and
the Indemnitee on the other hand in connection with the
events which resulted in such loss, as well as any other
relevant equitable consideration.
The relative benefits received by and fault of the Corporation on the
one hand and the Indemnitee on the other shall be determined by a court of
competent jurisdiction (which may be the same court in which the proceeding
took place) with reference to, among other things, the parties' relative
intent, knowledge, access to information, and opportunity to correct or
prevent the circumstances resulting in such loss. The Corporation agrees that
it would not be just and equitable if a contribution pursuant to this Article
was determined by pro rata allocation or any other method of allocation which
does not take account of the foregoing equitable considerations.
SECTION H. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Corporation shall not be obligated pursuant to the terms
of these Articles to indemnify or advance Expenses to Indemnitee with respect
to any proceeding.
SECTION H.1 CLAIMS INITIATED BY INDEMNITEE. Initiated or brought
voluntarily by Indemnitee and not by way of defense, but such
indemnification or advancement of Expenses may be provided by the
Corporation in specific cases if the Board of Directors finds it to be
appropriate. Notwithstanding the foregoing, the Corporation shall
provide indemnification including the advancement of Expenses with
respect to Proceedings brought to establish or enforce a right to
indemnification under these Articles or any other statute or law or as
otherwise required under the statute.
SECTION H.2 LACK OF GOOD FAITH. Instituted by Indemnitee to
enforce or interpret this Article, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in
such proceeding was not made in good faith or was frivolous.
SECTION H.3 INSURED CLAIMS. For which any of the Expenses or
liabilities for indemnification is being sought have been paid directly
to Indemnitee by an insurance
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carrier under a policy of officers' and directors' liability insurance
maintained by the Corporation.
SECTION H.4 PROHIBITED BY LAW. If the Corporation is prohibited
by the Act or other applicable law as then in effect from paying such
indemnification and/or advancement of Expenses. For example, the
Corporation and Indemnitee acknowledge that the Securities and Exchange
Commission ("SEC") has taken the position that indemnification is not
possible for liabilities arising under certain federal securities laws.
Indemnitee understands and acknowledges that the Corporation has
undertaken or may be required in the future to undertake with the SEC to
submit the question of indemnification to a court in certain
circumstances for a determination of the Corporation's right to
indemnify Indemnitee.
SECTION I. SUCCESSORS AND ASSIGNS. All obligations of the Corporation
to indemnify any Director or Officer shall be binding upon all successors and
assigns of the Corporation (including any transferee of all or substantially
all of its assets and any successor by merger or otherwise by operation of
law). The Corporation shall not effect any sale of substantially all of its
assets, merger, consolidation, or other reorganization, in which it is not
the surviving entity, unless the surviving entity agrees in writing to assume
all such obligations of the Corporation.
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CERTIFICATE OF ADOPTION
The undersigned Secretary of Flow International Corporation does
hereby certify that the above and foregoing By-laws of said Corporation were
adopted by the directors as the By-laws of said Corporation and that the same
do now constitute the By-laws of this Corporation.
DATED as of the _____ day of _____, 1998
---------------------------------
John Leness, Secretary
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CREDIT AGREEMENT
Among
FLOW INTERNATIONAL CORPORATION
as Borrower,
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
D/B/A SEAFIRST BANK
and
U.S. BANK NATIONAL ASSOCIATION
as Lenders,
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
D/B/A SEAFIRST BANK
as Agent for Lenders
---------------------------------------------
August 31, 1998
---------------------------------------------
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
DEFINITIONS.....................................................1
Section 1.1 Certain Defined Terms...................................................1
Section 1.2 General Principles Applicable to Definitions...........................12
Section 1.3 Accounting Terms.......................................................12
ARTICLE 2
THE LOANS......................................................13
Section 2.1 Amounts and Terms of Commitments.......................................13
(a) The Revolving Credit..................................................13
(b) The Sweepline Credit..................................................13
(c) The Multi-Currency Credit.............................................13
Section 2.2 Manner of Borrowing....................................................14
(a) Revolving Loans.......................................................14
(b) Sweepline Loans.......................................................14
(c) Multi-Currency Loans..................................................15
Section 2.3 Utilization of Multi-Currency Commitment in Offshore Currencies........15
Section 2.4 Currency Exchange Fluctuations.........................................16
Section 2.5 Agent's Right to Fund..................................................17
Section 2.6 Repayment of Principal.................................................17
(a) Revolving Loans.........................................................17
(b) Sweepline Loans.........................................................17
(c) Multi-Currency Loans....................................................17
Section 2.7 Interest on Loans......................................................17
(a) General Provisions......................................................17
(b) Selection of Alternative Rates..........................................18
(c) Applicable Days For Computation of Interest and Fees....................19
(d) Unavailable LIBOR Rate..................................................19
(e) Compensation for Increased Costs........................................20
Section 2.8 Prepayments............................................................22
Section 2.9 Notes..................................................................22
Section 2.10 Manner of Payments....................................................22
Section 2.11 Fees..................................................................23
(a) Execution Fee.........................................................23
(b) Commitment Fee........................................................23
(c) Unused Portion Fee....................................................23
(d) Sweepline Commitment Fee..............................................24
Section 2.12 Sharing of Payments, Etc..............................................24
Section 2.13 Application of Payments...............................................24
ARTICLE 3
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LETTERS OF CREDIT..............................................25
Section 3.1 Letters of Credit......................................................25
Section 3.2 Manner of Requesting Letters of Credit.................................25
Section 3.3 Indemnification; Increased Costs.......................................26
Section 3.4 Payment by Borrower....................................................27
ARTICLE 4
CONDITIONS.....................................................28
Section 4.1 Conditions to Initial Loan or Issuance of Letter of Credit.............28
(a) Loan Documents and Evidence of Security.................................28
(b) Borrower Authority......................................................28
(c) Legal Opinion...........................................................29
(d) Officer's Certificate...................................................29
(e) Evidence of Insurance...................................................29
(f) Other Information.......................................................29
(g) Payment of Fees.........................................................29
Section 4.2 Conditions to All Loans and Issuances of Letters of Credit.............29
(a) Prior Conditions........................................................29
(b) Notice of Borrowing.....................................................29
(c) No Default..............................................................29
(d) Other Information.......................................................30
ARTICLE 5
REPRESENTATIONS AND WARRANTIES.................................30
Section 5.1 Corporate Existence and Power..........................................30
Section 5.2 Corporate Authorization................................................30
Section 5.3 Government Approvals, Etc..............................................30
Section 5.4 Binding Obligations, Etc...............................................31
Section 5.5 Litigation.............................................................31
Section 5.6 Lien Priority..........................................................31
Section 5.7 Financial Condition....................................................31
Section 5.8 Title and Liens........................................................31
Section 5.9 Taxes..................................................................32
Section 5.10 Laws, Orders, Other Agreements........................................32
Section 5.11 Federal Reserve Regulations...........................................32
Section 5.12 ERISA.................................................................32
Section 5.13 Security Offerings....................................................33
Section 5.14 Investment Company; Public Utility Holding Company....................33
Section 5.15 Representations as a Whole............................................33
Section 5.16 Year 2000 Compliance..................................................34
ARTICLE 6
AFFIRMATIVE COVENANTS..........................................34
Section 6.1 Use of Proceeds........................................................34
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Section 6.2 Preservation of Corporate Existence, Etc...............................34
Section 6.3 Visitation Rights......................................................34
Section 6.4 Keeping of Books and Records...........................................35
Section 6.5 Maintenance of Property, Etc...........................................35
Section 6.6 Compliance with Laws, Etc..............................................35
Section 6.7 Other Obligations......................................................35
Section 6.8 Insurance..............................................................35
Section 6.9 Financial Information..................................................36
(a) Annual Audited Financial Statements.....................................36
(b) Quarterly Unaudited Financial Statements................................36
(c) Annual Financial Projections..........................................36
(d) Accounts Receivable Summary...........................................36
(e) SEC Filings...........................................................36
(f) Compliance Certificates...............................................37
(g) Other...................................................................37
Section 6.10 Notification..........................................................37
Section 6.11 Additional Payments; Additional Acts..................................38
Section 6.12 Fixed Charge Coverage Ratio...........................................38
Section 6.13 Funded Debt Ratio.....................................................38
Section 6.14 Minimum Net Worth.....................................................39
Section 6.15 Debt to Tangible Net Worth Ratio......................................39
Section 6.16 Guaranties and Security Agreements from Subsidiaries..................39
ARTICLE 7
NEGATIVE COVENANTS.............................................39
Section 7.1 Dividends, Purchase of Stock, Etc......................................39
Section 7.2 Liquidation, Merger, Sale of Assets....................................40
Section 7.3 Indebtedness...........................................................40
Section 7.4 Guaranties, Etc........................................................40
Section 7.5 Liens..................................................................41
Section 7.6 Investments............................................................41
Section 7.7 Operations.............................................................41
Section 7.8 ERISA Compliance.......................................................41
ARTICLE 8
EVENTS OF DEFAULT..............................................42
Section 8.1 Events of Default......................................................42
(a) Payment Default.........................................................42
(b) Breach of Warranty......................................................42
(c) Breach of Certain Covenants.............................................42
(d) Breach of Other Covenant................................................42
(e) Cross-default...........................................................42
(f) Voluntary Bankruptcy, Etc...............................................43
(g) Involuntary Bankruptcy, Etc.............................................43
(h) Insolvency, Etc.........................................................43
(i) Judgment................................................................44
(j) Government Approvals....................................................44
(k) Other Government Action.................................................44
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(l) ERISA...................................................................44
Section 8.2 Consequences of Default................................................44
ARTICLE 9
AGENT..........................................................46
Section 9.1 Authorization and Action.......................................46
Section 9.2 Duties and Obligations.........................................47
Section 9.3 Dealings Between Seafirst and Borrower.........................48
Section 9.4 Lender Credit Decision.........................................48
Section 9.5 Indemnification................................................48
Section 9.6 Successor Agent................................................49
ARTICLE 10
LETTER OF CREDIT RISK PARTICIPATIONS...........................50
Section 10.1 Sale of Risk Participations...........................................50
Section 10.2 Notice to Lenders.....................................................50
Section 10.3 Payment Obligations............................................50
(a) Reimbursements to Agent...............................................50
(b) Payments to Lenders...................................................50
(c) Reimbursements to Lenders.............................................51
ARTICLE 11
MISCELLANEOUS..................................................51
Section 11.1 No Waiver; Remedies Cumulative........................................51
Section 11.2 Governing Law.........................................................52
Section 11.3 Mandatory Arbitration.................................................52
Section 11.4 Consent to Jurisdiction; Waiver of Immunities.........................52
Section 11.5 Notices...............................................................53
Section 11.6 Assignment and Participations.........................................53
Section 11.7 Severability..........................................................54
Section 11.8 Survival..............................................................54
Section 11.9 Executed in Counterparts..............................................54
Section 11.10 Entire Agreement; Amendment, Etc.....................................54
Section 11.11 Headings.............................................................54
Section 11.12 Reincorporation of Borrower..........................................54
Section 11.13 Oral Agreements Not Enforceable......................................55
</TABLE>
SCHEDULES
Schedule 1 - Prepayment Fees
Schedule 2 - Litigation
Schedule 3 - Subsidiaries
Schedule 4 - Existing Guaranties
Schedule 5 - Liens
EXHIBITS
iv
<PAGE>
Exhibit A-1 - Revolving Loan Note (Seafirst)
Exhibit A-2 - Revolving Loan Note (U.S. Bank)
Exhibit B - Sweepline Loan Note
Exhibit C - Multi-Currency Loan Note
Exhibit D - Security Agreement
Exhibit E - Legal Opinion
v
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement") is made as of the 31st day of
August, 1998, by and among BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION d/b/a SEAFIRST BANK, a national banking association ("Seafirst"),
U.S. BANK NATIONAL ASSOCIATION, a national banking association ("U.S. Bank")
(each individually a "Lender" and collectively the "Lenders"), BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION d/b/a SEAFIRST BANK, as agent for Lenders
(the "Agent") and FLOW INTERNATIONAL CORPORATION, a Delaware corporation (the
"Borrower").
WHEREAS, Lenders have agreed to make available to Borrower certain
secured revolving credit facilities with a letter of credit subfacility upon the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
1 DEFINITIONS
.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following terms
have the following meanings:
"ACQUISITION" means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the acquisition
of all or substantially all of the assets of a person, or of any business or
division of a person, (b) the acquisition of in excess of 50% of the capital
stock, partnership interests, membership interests or equity of any person, or
otherwise causing any person to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another person (other than a person
that is a Subsidiary) provided that Borrower or the Subsidiary is the surviving
entity.
"AGENT" means Bank of America National Trust and Savings Association
d/b/a Seafirst Bank and any successor agent selected pursuant to Section 9.6
hereof.
"AGREED ALTERNATIVE CURRENCY" shall have the meaning given in Section
2.3.
"APPLICABLE CURRENCY" means, as to any particular payment or
Multi-Currency Loan, Dollars or the Offshore Currency in which it is denominated
or is payable.
"APPLICABLE INTEREST PERIOD" means, with respect to any Loan accruing
interest at the LIBOR Rate or the Multi-Currency Rate, the period
1
<PAGE>
commencing on the first date Borrower elects to have such rate apply to such
Loan, in the case of LIBOR Loans, pursuant to Section 2.7(b), and ending one,
two, three or six months as specified in the Interest Rate Notice given in
respect of such Loan.
"APPLICABLE INTEREST RATE" means for each Loan, the Reference Rate or
LIBOR Rate, or in the case of a Multi-Currency Loan, the Multi-Currency Rate, as
designated by Borrower in an Interest Rate Notice given with respect to such
Loan (or portion thereof) or as otherwise determined pursuant to Section 2.7(b).
"APPLICABLE MARGIN" means on any date, with respect to any LIBOR
Loans or Multi-Currency Loans, the rate per annum that is determined by
reference to the following matrix:
<TABLE>
<CAPTION>
Funded Debt Ratio as of the end of the previous Applicable
fiscal quarter Margin
-------------- ------
<S> <C>
Less than 2.0: .75%
Equal to or greater than 2.0:1 and less than 2.35:1
.90%
Equal to or greater than 2.35:1 and less than 2.6:1
1.00%
Equal to or greater than 2.60:1 1.25%
</TABLE>
The Applicable Margin shall be adjusted forty-five (45) days after the end of
each fiscal quarter of Borrower and ninety (90) days after the end of each
fiscal year of Borrower (when compliance with the Funded Debt Ratio is to be
tested); provided, however, in the event that any of the financial statements or
quarterly compliance certificates required to be delivered pursuant to Section
6.9 are not delivered when due, then (a) if such financial statements and
certificates are delivered after the date such financial statements and
certificates were required to be delivered (without giving effect to any
applicable cure period) and the Applicable Margin increases from that previously
in effect as a result of the delivery of such financial statements, then the
Applicable Margin during the period from the date upon which such financial
statements were required to be delivered (without giving effect to any
applicable cure period) until the date upon which they actually are delivered
shall, except as otherwise provided in clause (c) below, be the Applicable
Margin as so increased; (b) if such financial statements and certificates are
delivered after the date such financial statements and certificates are required
to be delivered (without giving effect to any applicable cure period) and the
Applicable Margin decreases from that previously in effect as a result of the
delivery of such financial statements, then such decrease in the Applicable
Margin shall not become effective until the date upon which the financial
statements and certificates actually were delivered; and (c) if such financial
statements and certificates are not delivered prior to the expiration of the
applicable cure period, then,
2
<PAGE>
effective upon such expiration, for the period from the date upon which such
financial statements and certificates were required to be delivered (after
the expiration of the applicable cure period) until two (2) Business Days
following the date upon which they actually are delivered, the Applicable
Margin shall be 1.25% (125 basis points) (it being understood that the
foregoing shall not limit the rights of Agent and Lenders under Section
2.7(a)).
"BORROWER" means Flow International Corporation, a Delaware
corporation and any Successor.
"BUSINESS DAY" means any day other than Saturday, Sunday or another
day on which commercial banks are authorized or obligated to close in Seattle,
Washington, and, with respect to any disbursements and payments in and
calculations pertaining to any Multi-Currency Loan, a day on which commercial
banks are open for foreign exchange business in London, England, and on which
dealings in the relevant Offshore Currency are carried on in the applicable
offshore foreign exchange interbank market in which disbursement of or payment
in such Offshore Currency will be made or received hereunder.
"CASH FLOW" has the meaning given in Section 6.12.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
"COLLATERAL" means the personal property described by item or type in
the Security Agreement or otherwise subject at any time to a lien granted by
Borrower to secure its obligations under the Loan Documents.
"COMMITMENT" shall mean, with respect to each Lender, (a) its
obligation to extend Revolving Loans under this Agreement; or (b) its obligation
to purchase Letter of Credit Risk Participations pursuant to Article 10 hereof;
(c) with respect to Seafirst only, its obligation to extend Sweepline Loans and
Multi-Currency Loans; and (d), with respect to Agent, its obligation to issue
Letters of Credit under this Agreement.
"COMPUTATION DATE" has the meaning specified in subsection 2.3(a).
"CONTROLLED GROUP" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with Borrower, are treated as a single employer
under Section 414(b) or 414(c) of the Code.
"DEBT" has the meaning given in Section 6.15.
"DEFAULT" means any event which but for the passage of time or the
giving of notice or both would be an Event of Default.
"DOLLARS", "dollars" and "$" each mean lawful money of the United
States.
3
<PAGE>
"DOLLAR EQUIVALENT" means, at any time, (a) as to any amount
denominated in Dollars, the amount thereof at such time, and (b) as to any
amount denominated in an Offshore Currency, the equivalent amount in Dollars as
determined by Agent at such time on the basis of the Spot Rate for the purchase
of Dollars with such Offshore Currency on the most recent Computation Date
provided for in subsection 2.3(a).
"DOMESTIC SUBSIDIARY" means a Subsidiary of Borrower incorporated and
organized under the laws of any state of the United States and the District of
Columbia.
"EBITDA" has the meaning given in Section 6.13.
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and land use
matters; including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution
Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency
Planning and Community Right-to-Know Act, and any applicable state law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EVENT OF DEFAULT" has the meaning given in Section 8.1.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on
transactions received by Agent from three federal funds brokers of recognized
standing selected by Agent.
"FIXED CHARGES" shall have the meaning given in Section 6.12.
"FIXED CHARGE COVERAGE RATIO" shall have the meaning given in Section
6.12.
"FUNDED DEBT" shall have the meaning given in Section 6.13.
"FUNDED DEBT RATIO" shall have the meaning given in Section 6.13.
4
<PAGE>
"FX TRADING OFFICE" means the Foreign Exchange Trading Center of
Seafirst located at 800 Fifth Avenue, Floor 34, Seattle, WA 98104, or such other
equivalent office of Seafirst as Seafirst may designate from time to time.
"GAAP" shall have the meaning given in Section 1.3.
"GOVERNMENT APPROVAL" means an approval, permit, license,
authorization, certificate, or consent of any Governmental Authority.
"GOVERNMENTAL AUTHORITY" means the government of the United States or
any State or any foreign country or any political subdivision of any thereof or
any branch, department, agency, instrumentality, court, tribunal or regulatory
authority which constitutes a part or exercises any sovereign power of any of
the foregoing.
"GUARANTOR" shall have the meaning given in Section 6.16.
"INDEBTEDNESS" means for any person (a) all items of indebtedness or
liability (except capital, surplus, deferred credits and reserves, as such)
which would be included in determining total liabilities as shown on the
liability side of a balance sheet as of the date as of which indebtedness is
determined, (b) indebtedness secured by any Lien, whether or not such
indebtedness shall have been assumed, (c) any other indebtedness or liability
for borrowed money or for the deferred purchase price of property or services
for which such person is directly or contingently liable as obligor, guarantor,
or otherwise, or in respect of which such person otherwise assures a creditor
against loss, (d) any other obligations of such person under leases which shall
have been or should be recorded as capital leases, and (e) guarantees or other
contingent obligations, including, without limitation, any obligations under any
Swap Documents.
"INTERCREDITOR AGREEMENT" means that certain Intercreditor Agreement
dated as of the date hereof by and among Borrower, Lenders, Agent and Private
Lenders.
"INTEREST RATE NOTICE" shall have the meaning given in Section
2.7(b).
"LETTER OF CREDIT" means any commercial or standby letter of credit
issued by Agent pursuant to the terms of Article 3 hereof.
"LETTER OF CREDIT RISK PARTICIPATION" with respect to each Lender,
means a risk participation purchased by such Lender pursuant to Article 10
hereof with respect to a Letter of Credit (including risk participations deemed
purchased from Agent by Seafirst in its capacity as Lender).
"LETTER OF CREDIT USAGE" means, as of any date of determination, the
sum of (i) the aggregate face amount of all outstanding unmatured Letters
5
<PAGE>
of Credit PLUS (ii) the aggregate amount of all payments made by Agent under
Letters of Credit and not yet reimbursed by Borrower pursuant to Section 3.4.
"LIBOR LOAN" means any Loan or portion thereof bearing interest at
the LIBOR Rate.
"LIBOR RATE" shall mean, with respect to any LIBOR Loan for any
Applicable Interest Period, an interest rate per annum equal to the sum of: (a)
the Applicable Margin and (b) the product of (i) the Euro-dollar Rate in effect
for such Applicable Interest Period and (ii) the Euro-dollar Reserves in effect
on the first day of such Applicable Interest Period.
As used herein the "Euro-dollar Rate" will be determined by reference
to that rate (rounded upward to the next 1/16th of one percent) appearing on the
display designated as "Page 3750" on the Telerate Service (or on such other page
on that service or such other service designated by the British Banker's
Association for the display of that Association's Interest Settlement Rates for
U.S. Dollar deposits) as of 11:00 a.m. (London time) on the day which is two (2)
London Banking Days prior to the first date of the proposed Applicable Interest
Period. If there are no applicable quotes available through Telerate Service,
then the LIBOR Rate shall be deemed unavailable as provided in Section 2.7(d)
hereof.
As used herein, the term "Euro-dollar Reserves" means a fraction
(expressed as a decimal), the numerator of which is the number one and the
denominator of which is the number one minus the aggregate of the maximum
reserve percentages (including, without limitation, any special, supplemental,
marginal or emergency reserves) expressed as a decimal established by the Board
of Governors of the Federal Reserve System or any other banking authority to
which Agent is subject for Eurocurrency Liability (as defined in Regulation D of
such Board of Governors). It is agreed that for purposes hereof, each LIBOR Loan
shall be deemed to constitute a Eurocurrency Liability and to be subject to the
reserve requirements of Regulation D, without benefit of credit or proration,
exemptions or offsets which might otherwise be available to any Lender from time
to time under such Regulation D. Euro-dollar Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage and shall apply to Applicable Interest Periods commencing after the
effective date of such change.
"LIEN" means, for any person, any security interest, pledge,
mortgage, charge, assignment, hypothecation, encumbrance, attachment,
garnishment, execution or other voluntary or involuntary lien upon or
affecting the revenues of such person or any real or personal property in
which such person has or hereafter acquires any interest, EXCEPT (a) liens
for Taxes which are not delinquent or which remain payable without penalty or
the validity or amount of which is being contested in good faith by
appropriate proceedings upon stay of execution of the enforcement thereof;
(b) liens imposed by law (such as mechanics' liens) incurred in good faith in
the ordinary course of business which are not delinquent or which remain
payable
6
<PAGE>
without penalty or the validity or amount of which is being contested in good
faith by appropriate proceedings upon stay of execution of the enforcement
thereof with, in the case of liens on property of Borrower, provision having
been made to the satisfaction of Agent for the payment thereof in the event
the contest is determined adversely to Borrower; and (c) deposits or pledges
under worker's compensation, unemployment insurance, social security or other
similar laws or made to secure the performance of bids, tenders, contracts
(except for repayment of borrowed money), or leases, or to secure statutory
obligations or surety or appeal bonds or to secure indemnity, performance,
customs or other similar bonds given in the ordinary course of business.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Letters of
Credit, the Reimbursement Agreements, the Security Agreement, the UCC Financing
Statements, and all other certificates, instruments and other documents executed
by or on behalf of Borrower in connection with this Agreement or the
transactions contemplated hereby.
"LOANS" means the Revolving Loans, the Sweepline Loans, and the
Multi-Currency Loans.
"LONDON BANKING DAY" means any day which is a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) in London, England.
"MAJORITY LENDERS" means at any time Lenders then holding in excess
of fifty percent (50%) of the aggregate unpaid principal amount of the
Commitments.
"MINIMUM NET WORTH" has the meaning given in Section 6.14.
"MULTI-CURRENCY BANK" means Seafirst.
"MULTI-CURRENCY COMMITMENT" has the meaning specified in Section
2.1(c).
"MULTI-CURRENCY LOAN" means any Loan denominated in an Offshore
Currency accruing interest at the Multi-Currency Rate.
"MULTI-CURRENCY MATURITY DATE" means September 30, 1999.
"MULTI-CURRENCY RATE" means (i) the Applicable Margin, plus (ii) the
per annum rate for the currency advanced, calculated on a basis of actual number
of days elapsed over a year of 365/366 days as to Canadian Dollars and British
Pounds Sterling, and on the basis of actual number of days elapsed over a year
of 360 days as to all other currencies, determined by Agent to be the applicable
borrowing rate for such currency in an amount and for the Applicable Interest
Period of the requested Multi-Currency Loan, as determined between 6:30 a.m. and
7:00 a.m. (Seattle time) on the day which is (a) two (2) Business Days prior to
the date of such Multi-Currency Loan as to all currencies other than Canadian
Dollars, and (b) one (1) Business Day prior to
7
<PAGE>
the date of such Multi-Currency Loan as to Canadian Dollars; which rate shall
be a rate within .125% of the index rate appearing on the Reuters service
display designated "(SWIFT Currency Code)F=" for such currency between 6:30
a.m. and 7:00 a.m. (Seattle time) on the same date.
"NOTES" has the meaning given in Section 2.9.
"NOTE AGREEMENT" means that certain note purchase agreement by and
among Borrower and Private Lenders dated as of September 1, 1995, as amended
from time to time, pursuant to which Borrower has issued and Private Lenders
have purchased Fifteen Million Dollars ($15,000,000) of Borrower's 7.20% Senior
Notes due 2005.
"NOTICE OF BORROWING" means a written or oral request for a Loan from
Borrower delivered to Agent in the manner, at the time, and containing the
information required under Section 2.2.
"OFFICER'S CERTIFICATE" means a certificate executed and delivered on
behalf of Borrower by its Chairman, President or Chief Financial Officer.
"OFFSHORE CURRENCY" means at any time British Pounds Sterling, French
Francs, Deutsche Mark, Japanese Yen or any other Agreed Alternative Currency.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PENSION PLAN" means an "employee pension benefit plan" (as such term
is defined in ERISA) from time to time maintained by Borrower or a member of the
Controlled Group.
"PLAN" shall mean, at any time, an employee pension benefit plan
which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and is either (a) maintained by Borrower
or any member of the Controlled Group for employees of Borrower or any member of
the Controlled Group or (b) maintained pursuant to a collective bargaining
agreement or any other arrangement under which more than one employer makes
contributions and to which Borrower or any member of the Controlled Group is
then making or accruing an obligation to make contributions or has within the
preceding five (5) plan years made contributions.
"PRO RATA SHARE" has the meaning given in Section 2.1.
"PRIVATE LENDERS" means Connecticut General Life Insurance Company
and Life Insurance Company of North America, and their successors and assigns.
"REFERENCE RATE" means, for any day, the rate of interest in effect
for such day as publicly announced from time to time by Seafirst (or any
Successor) in San Francisco, California, as its "reference rate." (The
8
<PAGE>
"reference rate" is a rate set by Seafirst based upon various factors including
Seafirst's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate.) Any change in the reference
rate announced by Seafirst shall take effect at the opening of business on the
day specified in the public announcement of such change.
"REFERENCE RATE LOAN" means any Loan or payment made by Agent under
Letters of Credit that bears interest based on the Reference Rate.
"REIMBURSEMENT AGREEMENT" has the meaning given in Section 3.2.
"REVOLVING COMMITMENT PERIOD" has the meaning given in Section 2.1.
"REVOLVING COMMITMENT" has the meaning given in Section 2.1.
"REVOLVING LOANS" has the meaning given in Section 2.1.
"REVOLVING MATURITY DATE" means September 30, 2003.
"SECURITY AGREEMENT" means that certain Security Agreement
substantially in the form attached hereto as Exhibit D.
"SPOT RATE" for a currency means the rate quoted by Seafirst as the
spot rate for the purchase by Seafirst of such currency with another currency
through its FX Trading Office at approximately 8:00 a.m. (Seattle time) on the
date two Business Days prior to the date as of which the foreign exchange
computation is made.
"SUBSIDIARY" shall mean any person, corporation, association or other
business entity directly or indirectly controlled by Borrower. For the purposes
of this definition, "controlled by" shall mean the possession, directly or
indirectly of the power to direct or cause the direction of the management and
policies of such Subsidiary, whether through the ownership of voting securities,
by contract or otherwise.
"SUCCESSOR" means, for any corporation or banking association, any
successor by merger or consolidation, or by acquisition of substantially all of
the assets of the predecessor.
"SWAP DOCUMENTS" means any agreement between Borrower and any Lender,
whether or not in writing, relating to any transaction that is a rate swap,
basis swap, forward rate transaction, commodity swap, commodity option, equity
or equity index swap or option, bond, note or bill option, interest rate option,
forward foreign exchange transaction, cap, collar or floor transaction, currency
swap, cross-currency rate swap, swap option, currency option or any other,
similar transaction (including any option to enter into any of the foregoing) or
any combination of the foregoing, and, unless the
9
<PAGE>
context otherwise clearly requires, any master agreement relating to or
governing any or all of the foregoing.
"SWEEPLINE BANK" means Seafirst.
"SWEEPLINE COMMITMENT" has the meaning specified in subsection
2.1(b).
"SWEEPLINE LOAN" has the meaning specified in subsection 2.1(b).
"SWEEPLINE MATURITY DATE" means September 30, 2003.
"TANGIBLE NET WORTH" means the total assets less total liabilities,
excluding, however, from the determination of total assets: (a) intangible
assets, (such as goodwill, patents, trademarks, copyrights, franchises and
deferred taxes, including unamortized debt discount and research and development
costs); (b) cash held in a sinking fund or other similar fund established for
the purpose of redemption or other retirement of capital stock; (c) reserves for
depreciation, depletion, obsolescences, or amortization of properties and other
reserves or appropriations of retained earnings which have been established in
connection with Borrower's business; and (d) any revaluation or other write-up
in book value of assets subsequent to the fiscal year of Borrower last ended as
the date the Tangible Net Worth is being measured.
"TAX" means, for any person, any tax, assessment, duty, levy, impost
or other charge imposed by any Governmental Authority on such person or on any
property, revenue, income, or franchise of such person and any interest or
penalty with respect to any of the foregoing.
"TOTAL PRO RATA SHARE" means, for any Lender, a fraction whose
numerator is such Lender's Commitment and whose denominator is the sum of the
Commitments of all Lenders.
"TOTAL REVOLVING COMMITMENT" means $70,000,000.
"TOTAL UTILIZATION" shall mean, as of any date of determination, the
sum of (i) the aggregate principal amount of all outstanding Revolving Loans;
plus (ii) the Letter of Credit Usage.
"UCC FINANCING STATEMENTS" means those Uniform Commercial Code
financing statements satisfactory in form and substance to Agent, naming Agent
as secured party, executed by Borrower as debtor in form acceptable for filing
with the appropriate Governmental Authority in each of the States set forth in
Schedule 1 to the Security Agreement hereto for purposes of perfection of
security interests under the Uniform Commercial Code and identifying by item or
type the Collateral described in the Security Agreement.
"UNFUNDED VESTED LIABILITIES" means, with respect to any Plan at any
time, the amount (if any) by which (a) the present value of all vested
10
<PAGE>
nonforfeitable benefits under such Plan exceeds (b) the fair market value of
all Plan assets allocable to such benefits, all determined as of the then
most recent evaluation date for such Plan, but only to the extent that such
excess represents a potential liability of Borrower or any member of the
Controlled Group to the PBGC or the Plan under Title IV of ERISA.
.2 GENERAL PRINCIPLES APPLICABLE TO DEFINITIONS. Definitions given
herein shall be equally applicable to both singular and plural forms of the
terms therein defined and references herein to "he" or "it" shall be applicable
to persons whether masculine, feminine or neuter. References herein to any
document including, but without limitation, this Agreement shall be deemed a
reference to such document as it now exists, and as, from time to time
hereafter, the same may be amended. References herein to a "person" or "persons"
shall be deemed to be references to an individual, corporation, partnership,
limited liability company, trust, unincorporated association, joint venture,
joint-stock company, government (including political subdivisions), Governmental
Authority or agency or any other entity. References herein to any section,
subsection, schedule or exhibit shall, unless otherwise indicated, be deemed a
reference to sections and subsections within and schedules and exhibits to this
Agreement.
.3 ACCOUNTING TERMS. Except as otherwise provided herein, accounting terms
not specifically defined shall be construed, and all accounting procedures shall
be performed, in accordance with generally accepted United States accounting
principles consistently applied ("GAAP") and as in effect on the date of
application.
2
THE LOANS
.1 AMOUNTS AND TERMS OF COMMITMENTS.
(a) THE REVOLVING CREDIT. Subject to the terms and conditions of this
Agreement, each Lender hereby severally agrees to make loans ("Revolving Loans")
to Borrower from time to time on Business Days during the period beginning on
the date hereof and ending on the Revolving Maturity Date (the "Revolving
Commitment Period") in amounts equal to such Lender's pro rata share (as set
forth below) of each requested loan; PROVIDED that, after giving effect to any
requested loan (i) the aggregate of all Revolving Loans from such Lender will
not exceed at any one time outstanding the sum set forth opposite its name below
(such Lender's "Revolving Commitment"), and (ii) the Total Utilization will not
exceed the Total Revolving Commitment then in effect. The Revolving Loans
described in this Section 2.1(a) constitute a revolving credit and within the
amount and time specified, Borrower may pay, prepay and reborrow.
<TABLE>
<CAPTION>
Lender Revolving Commitment Pro Rata Share
------ -------------------- --------------
<S> <C> <C>
11
<PAGE>
Seafirst $45,000,000 64.285714285%
U.S. Bank $25,000,000 35.714285715%
Total Revolving
Commitment $70,000,000 100.00%
</TABLE>
(b) THE SWEEPLINE CREDIT. Subject to the terms and conditions of this
Agreement, the Sweepline Bank hereby severally agrees to make loans (each such
loan, a "Sweepline Loan") to Borrower from time to time on Business Days during
the period from the date hereof and ending on the Sweepline Maturity Date to
cover overdrafts on any of Borrower's checking accounts with the Sweepline Bank
in an aggregate principal amount at any one time outstanding not to exceed Five
Million Dollars ($5,000,000) (the "Sweepline Commitment"). Within the foregoing
limits, the Sweepline Loans described in this Section 2.1(b) constitute a
revolving credit and within the amount and time specified, Borrower may pay,
prepay and reborrow.
(c) THE MULTI-CURRENCY CREDIT. Subject to the terms and conditions of
this Agreement, the Multi-Currency Bank hereby severally agrees to make
revolving loans denominated in Offshore Currency (the "Multi-Currency Loans") to
Borrower from time to time on Business Days during the period beginning on the
date hereof and ending on the Multi-Currency Maturity Date; PROVIDED THAT, after
giving effect to any such requested loan, the aggregate of all Multi-Currency
Loans shall not exceed Five Million Dollars ($5,000,000) (the "Multi-Currency
Commitment"). No more than five (5) Multi-Currency Loans may be outstanding at
any one time. The Multi-Currency Loans described in this Section 2.1(c)
constitute a revolving credit and within the amount and time specified, Borrower
may pay, prepay and reborrow.
.2 MANNER OF BORROWING.
(a) REVOLVING LOANS. For each requested Revolving Loan, Borrower shall
deliver to Agent a Notice of Borrowing specifying the date of the requested
borrowing and the amount thereof. Borrower may give an oral Notice of Borrowing
on the same day it wishes the Revolving Loan to be made, PROVIDED that said
Notice of Borrowing is received by Agent no later than 11:00 a.m. (Seattle time)
on the date of the requested borrowing, PROVIDED further that if Borrower shall
simultaneously elect to have interest accrue on a Revolving Loan at the LIBOR
Rate by giving an Interest Rate notice in respect of such borrowing, the Notice
of Borrowing shall be given prior to 11:00 a.m. (Seattle time) on a Business Day
that is at least two (2) Business Days prior to the requested date of borrowing.
Requests for borrowing, or confirmations thereof, received after the designated
hour will be deemed received on the next succeeding Business Day. Each such
Notice of Borrowing shall be irrevocable and shall be deemed to constitute a
representation and warranty by Borrower that as of the date of such notice the
statements set forth in Article 4 hereof are true and correct and that no
Default or Event of
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Default has occurred and is continuing. On receipt of a Notice of Borrowing,
Agent shall promptly notify each Lender by telephone, telex or telefax of the
date of the requested borrowing and the amount thereof. Each Lender shall
before 1:00 p.m. (Seattle time) on the date of the requested borrowing, pay
such Lender's Pro Rata Share of the aggregate principal amount of the
requested borrowing in immediately available funds to Agent at its Commercial
Loan Processing Center, Seattle, Washington. Upon fulfillment to Agent's
satisfaction of the applicable conditions set forth in Article 5, and after
receipt by Agent of such funds, Agent will promptly make such funds available
to Borrower by depositing them to the ordinary checking account maintained by
Borrower at Agent's Commercial Accounts Service Center.
(b) SWEEPLINE LOANS. An overdraft of any of Borrower's checking accounts
with the Sweepline Bank shall be deemed to be an irrevocable request to the
Sweepline Bank to disburse to Borrower a Sweepline Loan in the amount of such
overdraft. The Sweepline Bank will promptly notify Agent (by telephone or in
writing) that the Sweepline Bank has made or intends to make the requested
Sweepline Loan to Borrower. Each Sweepline Loan shall be deemed to have been
made immediately upon the occurrence of the overdraft giving rise to such Loan.
(c) MULTI-CURRENCY LOANS. For each requested Multi-Currency Loan,
Borrower shall deliver to Agent a written or oral (confirmed in writing by
facsimile that same day) Notice of Borrowing (which notice must be received by
Agent prior to 11:00 a.m. (Seattle time)) three (3) Business Days prior to the
requested borrowing date specifying (i) the date of the requested borrowing,
(ii) the amount thereof, (iii) the duration of the Applicable Interest Period
applicable to such Loans, and (iv) the Applicable Currency. Requests for
borrowing, or confirmations thereof, received after the designated hour will be
deemed received on the next succeeding Business Day. Each such Notice of
Borrowing shall be irrevocable and shall be deemed to constitute a
representation and warranty by Borrower that as of the date of such notice the
statements set forth in Article 5 hereof are true and correct and that no
Default or Event of Default has occurred and is continuing. Each Multi-Currency
Loan requested by Borrower under this Section 2.2 shall be in an amount of not
less than $500,000 and an integral multiple of $100,000. The Dollar Equivalent
amount of any borrowing in an Offshore Currency will be determined by Agent for
such borrowing on the Computation Date therefor in accordance with Section 2.3.
On receipt of a Notice of Borrowing, Agent shall promptly notify the
Multi-Currency Bank by telephone, telex or telefax of the date of the requested
borrowing and the amount thereof. The Multi-Currency Bank shall before 1:00 p.m.
(Seattle time) on the date of the requested borrowing, pay the principal amount
of the requested borrowing in immediately available funds to Agent at its
Commercial Loan Processing Center, Seattle, Washington. Upon fulfillment to
Agent's satisfaction of the applicable conditions set forth in Article 4, and
after receipt by Agent of such funds, Agent will promptly make such funds
available to Borrower by depositing them to the ordinary checking account
maintained by Borrower at Agent's Commercial Accounts Service Center.
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.3 UTILIZATION OF MULTI-CURRENCY COMMITMENT IN OFFSHORE CURRENCIES.
(a) Agent will determine the Dollar Equivalent amount with respect to
any (i) borrowing comprised of Multi-Currency Loans as of the requested date of
borrowing, (ii) outstanding Multi-Currency Loans as of the last Business Day of
each month, and as of the last Business Day of any Applicable Interest Period,
and (iii) outstanding Multi-Currency Loans as of any redenomination date
pursuant to this Section 2.3 (each such date, a "COMPUTATION DATE").
(b) In the case of a proposed borrowing comprised of Multi-Currency
Loans, the Multi-Currency Bank shall be under no obligation to make
Multi-Currency Loans in the requested Offshore Currency as part of such
borrowing if Agent has received notice from the Multi-Currency Bank by 5:00 p.m.
(Seattle time) three (3) Business Days prior to the day of such borrowing that
the Multi-Currency Bank cannot provide Loans in the requested Offshore Currency,
in which event Agent will give notice to Borrower no later than 9:00 a.m.
(Seattle time) on the second Business Day prior to the requested date of such
borrowing that the borrowing in the requested Offshore Currency is not then
available, and notice thereof also will be given promptly by Agent to the
Multi-Currency Bank. If Agent shall have so notified Borrower that any such
borrowing in a requested Offshore Currency is not then available, the borrowing
requested in the Notice of Borrowing shall not occur and Agent will promptly so
notify the Multi-Currency Bank.
(c) Borrower shall be entitled to request that Multi-Currency Loans
hereunder also be permitted to be made in any other lawful currency constituting
a eurocurrency (other than Dollars), in addition to the eurocurrencies specified
in the definition of "Offshore Currency" herein, that in the opinion of the
Multi-Currency Bank is at such time freely traded in the offshore interbank
foreign exchange markets and is freely transferable and freely convertible into
Dollars (an "Agreed Alternative Currency"). Borrower shall deliver to Agent any
request for designation of an Agreed Alternate Currency in accordance with
Section 11.02, to be received by Agent not later than 11:00 a.m. (Seattle time)
at least five (5) Business Days in advance of the date of any borrowing
hereunder proposed to be made in such Agreed Alternate Currency. Upon receipt of
any such request Agent will promptly notify the Multi-Currency Bank thereof,
which will use its best efforts to respond to such request within two Business
Days of receipt thereof. The Multi-Currency Bank may grant or accept such
request in its sole discretion. Agent will promptly notify Borrower of the
acceptance or rejection of any such request.
.4 CURRENCY EXCHANGE FLUCTUATIONS. If on any Computation Date Agent shall
have determined that the aggregate Dollar Equivalent principal amount of all
Multi-Currency Loans then outstanding exceeds the Multi-Currency Commitment
by more than Five Hundred Thousand Dollars ($500,000) due to a change in
applicable rates of exchange between Dollars and Offshore Currencies, THEN
Agent shall give notice to Borrower that a prepayment is required under this
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Section, and Borrower agrees thereupon to make prepayments of Multi-Currency
Loans such that, after giving effect to such prepayment the aggregate Dollar
Equivalent amount of all Multi-Currency Loans does not exceed the
Multi-Currency Commitment.
.5 AGENT'S RIGHT TO FUND. Unless Agent shall have received notice from a
Lender prior to 12:00 Noon (Seattle time) on the date of any requested borrowing
that such Lender will not make available to Agent its share of the requested
borrowing, Agent may assume that such Lender has made such funds available to
Agent on the date such Loan is to be made in accordance with Section 2.2 hereof
and Agent may, in reliance upon such assumption, make available to Borrower on
such date a corresponding amount. If and to the extent that such Lender shall
not have so made such portion available to Agent, such Lender and Borrower
jointly and severally agree to pay to Agent forthwith on demand such
corresponding amount, together with interest thereon for each day from the date
such amount is made available to Borrower until the date such amount is repaid
to Agent, at (a) in the case of Borrower, the Reference Rate and (b) in the case
of such Lender, the Federal Funds Rate. Any such repayment by Borrower shall be
without prejudice to any rights it may have against Lender that has failed to
make available its funds for any requested borrowing.
.6 REPAYMENT OF PRINCIPAL.
(a) REVOLVING LOANS.
(1) Borrower shall repay to Lenders from time to time such amounts of
principal as may be necessary to ensure that at all times, the sum of the then
outstanding principal balance of all Revolving Loans and Letter of Credit Usage
is equal to or less than the Total Revolving Commitment.
(2) Borrower shall repay the principal amount of the Revolving Loans
on or before the Revolving Maturity Date.
(b) SWEEPLINE LOANS. Borrower shall repay the principal amount of the
Sweepline Loans on or before the Sweepline Maturity Date.
(c) MULTI-CURRENCY LOANS. Borrower shall repay the principal amount
of the Multi-Currency Loans on or before the Multi-Currency Maturity Date.
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.7 INTEREST ON LOANS.
(a) GENERAL PROVISIONS. Borrower agrees to pay to Lenders interest on
the unpaid principal amount of each Loan from the date of such Loan until
such Loan shall be due and payable, (i) in the case of Revolving Loans, at a
per annum rate equal to the Applicable Interest Rate in effect from time to
time with respect to such Revolving Loan (or respective portions thereof),
(ii) in the case of Sweepline Loans, at a per annum rate equal to the
Reference Rate, and (iii) in the case of Multi-Currency Loans, at a per annum
rate equal to the Multi-Currency Rate. If default shall occur in the payment
when due of any Loan (whether at maturity, upon acceleration or otherwise),
interest shall accrue at a per annum rate equal to three percentage points
(3%) above the Reference Rate (changing as the Reference Rate changes).
Accrued but unpaid interest on each LIBOR Loan shall be paid in arrears on
the last day of the Applicable Interest Period, and, for each LIBOR Loan
having an Applicable Interest Period longer than three months, at the end of
each three (3) month period during such Applicable Interest Period. Accrued
but unpaid interest on each Reference Rate Loan shall be paid in arrears on
the first Business Day of each calendar month, and at the applicable maturity
date. Accrued but unpaid interest on each Multi-Currency Loan shall be paid
in arrears on the last day of the Applicable Interest Period and for each
Multi-Currency Loan having an Applicable Interest Period longer than three
(3) months, on each date which falls three (3) months after the beginning of
such Applicable Interest Period. Notwithstanding the foregoing, accrued
interest on any Loan shall be payable on demand after the occurrence of an
Event of Default.
(b) SELECTION OF ALTERNATIVE RATES.
(1) Borrower, subject to the requirements of this Section 2.7(b),
may elect on any Business Day to have interest accrue on any Revolving Loan
or any portion thereof at the LIBOR Rate for an Applicable Interest Period.
Such notice (herein, an "Interest Rate Notice") shall be given on a Business
Day that is at least two (2) Business Days' prior to the requested date of
borrowing and shall be deemed delivered when communicated to Agent (in the
case of an oral notice, which must be confirmed in writing on the same day)
or when received by Agent (in the case of written notice), except that an
Interest Rate Notice communicated to or received by Agent after 11:00 a.m.
(Seattle time) on any Business Day, shall be deemed to have been delivered or
received on the immediately succeeding Business Day. Such Interest Rate
Notice shall identify, subject to the conditions of this Section 2.7(b), the
portions of the Revolving Loan to accrue interest at the LIBOR Rate and the
Applicable Interest Period which Borrower selects. Any such Interest Rate
Notice shall be irrevocable and shall constitute a representation and
warranty by Borrower that as of the date of such Interest Rate Notice, the
statements set forth in Article 5 are true and correct and that no Default or
Event of Default has occurred and is continuing.
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(2) Borrower's right to select the LIBOR Rate to apply to a Revolving
Loan or any portion thereof shall be subject to the following conditions: (i)
the aggregate of all Revolving Loans or portions thereof to accrue interest at a
particular LIBOR Rate for the same Applicable Interest Period shall be an
integral multiple of $100,000 and not less than $1,000,000; (ii) the LIBOR Rate
may not be selected for any Revolving Loan or portion thereof which is already
accruing interest at the LIBOR Rate unless such selection is only to become
effective at the maturity of the Applicable Interest Period then in effect;
(iii) Borrower shall not have selected more than five (5) different Applicable
Interest Periods to be applicable to all or portions of the Revolving Loans;
(iv) the LIBOR Rate shall not be unavailable pursuant to Section 2.7(d) hereof;
(v) no Default or Event of Default shall have occurred and be continuing; and
(v) if Borrower elects to have some portion (but less than all) of the Revolving
Loans accrue interest at the LIBOR Rate, Borrower shall select a portion of each
Lender's outstanding Revolving Loans to accrue interest at such rate in
proportion to such Lender's Pro Rata Share.
(3) In the absence of an effective request and acceptance thereof for
the application of a LIBOR Rate, the Revolving Loans or remaining portions
thereof shall accrue interest at the Reference Rate. Any Interest Rate Notice
which specifies a LIBOR Rate but fails to identify an Applicable Interest Period
shall be deemed to be a request for the designated LIBOR Rate for an Applicable
Interest Period of one (1) month.
(4) The Interest Rate Notice may be given with and contained in any
Notice of Borrowing.
(5) If Borrower delivers an Interest Rate Notice with any Notice of
Borrowing for a Loan and Borrower thereafter declines to take such Loan or a
condition precedent to the making of such Loan is not satisfied or waived,
Borrower shall indemnify Agent and each Lender for all losses and any costs
which Agent or any Lender may sustain as a consequence thereof including,
without limitation, the costs of re-employment of funds at rates lower than the
cost to Lenders of such funds. A certificate from Agent or any Lender setting
forth the amount due to it pursuant to this subparagraph (b)(5) and the basis
for, and the calculation of, such amount shall be conclusive evidence of the
amount due to it hereunder. Payment of the amount owed shall be due within
fifteen (15) days after Borrower's receipt of such certificate.
(c) APPLICABLE DAYS FOR COMPUTATION OF INTEREST AND FEES. Computations of
interest and fees described in Sections 2.7 and 2.11 shall be made on the basis
of a year of 360 days, for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such interest or
fees are payable.
(d) UNAVAILABLE LIBOR RATE. If any Lender determines that for any reason,
fair and adequate means do not exist for establishing a particular LIBOR Rate or
that a LIBOR Rate will not adequately and fairly reflect the cost to it of
making or maintaining the principal amount of a particular LIBOR
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Loan or that accruing interest on any LIBOR Loan has become unlawful or is
contrary to any internal policies (of general application), such Lender may
give notice of that fact to Agent and Borrower and such determination shall
be conclusive and binding absent manifest error. After such notice has been
given and until such Lender notifies Borrower and Agent that the
circumstances giving rise to such notice no longer exist, the interest rate
or rates so identified in such notice shall no longer be available. Any
subsequent request by Borrower to have interest accrue at such a LIBOR Rate
shall be deemed to be a request for interest to accrue at the Reference Rate.
If the circumstances giving rise to the notice described herein no longer
exist, Lender who had previously given notice of the unavailability of
rate(s) shall notify Agent and Borrower in writing of that fact, and Borrower
shall then once again become entitled to request that such LIBOR Rates apply
to the Loans in accordance with Section 2.7(b) hereof.
(e) COMPENSATION FOR INCREASED COSTS. In the event that after the date
hereof any change occurs in any applicable law, regulation, treaty or directive
or interpretation thereof by any authority charged with the administration or
interpretation thereof, or any condition is imposed by any authority after the
date hereof or any change occurs in any condition imposed by any authority on or
prior to the date hereof which:
(1) subjects any Lender to any Tax (other than any Tax measured by
such Lender's net or gross income), or changes the basis of taxation of any
payments to any Lender on account of principal of or interest on any LIBOR Loan,
the Notes (to the extent the Notes evidence a LIBOR Loan) or fees in respect of
such Lender's obligation to make LIBOR Loans or other amounts payable with
respect to its LIBOR Loans; or
(2) imposes, modifies or determines applicable any reserve, deposit
or similar requirements against any assets held by, deposits with or for the
account of, or loans or commitments by, any office of any Lender in connection
with its LIBOR Loans to the extent the amount of which is in excess of, or was
not applicable at the time of computation of, the amounts provided for in the
definition of such LIBOR Rate; or
(3) affects the amount of capital required or expected to be
maintained by banks generally or corporations controlling banks and any Lender
determines that the amount by which it or any corporation controlling it is
required or expected to maintain or increase its capital is increased by, or
based upon, the existence of this Agreement or of any Lender's Loans or
Commitments hereunder;
(4) imposes upon any Lender any other condition with respect to its
LIBOR Loans or its obligation to make LIBOR Loans;
which, as a result thereof, (i) increases the cost to any Lender of making or
maintaining its Loans or its Commitments hereunder, or (ii) reduces the net
amount of any payment received by any Lender in respect of its LIBOR Loans
(whether of principal, interest, commitment fees or otherwise), or
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(iii) requires any Lender to make any payment on or calculated by reference
to the gross amount of any sum received by it in respect of its LIBOR Loans,
in each case by an amount which any such Lender in its sole judgment deems
material, then and in any such case Borrower shall pay to Agent for the
account of such Lender on demand such amount or amounts as will compensate
such Lender for any increased cost, deduction or payment actually incurred or
made by such Lender, PROVIDED, HOWEVER, Borrower shall not be obligated for
amounts hereunder unless, promptly after learning thereof any such Lender
shall have advised Borrower of the subjection, change, requirement or other
condition forming the basis for such Lender's request for additional payment
hereunder. If Borrower is advised of any such subjection, change, requirement
or other condition prior to the expiration of an Applicable Interest Period
for any LIBOR Loan, Borrower may elect to prepay the LIBOR Loan without
penalty or premium if such prepayment would reduce or eliminate the amounts
which Borrower would otherwise be obligated to pay any Lender under the terms
of this Section 2.7(e). The demand for payment by any Lender shall be
delivered to both Agent and Borrower and shall state the subjection or change
which occurred or the reserve or deposit requirements or other conditions
which have been imposed upon such Lender or the request, direction or
requirement with which it has complied, together with the date thereof, the
amount of such cost, reduction or payment and the manner in which such amount
has been calculated. The statement of any Lender as to the additional amounts
payable pursuant to this Section 2.7(e) shall be conclusive evidence of the
amounts due hereunder absent manifest error.
The protection of this Section 2.7(e) shall be available to each Lender
regardless of any possible contention of invalidity or inapplicability of the
relevant law, regulation, treaty, directive, condition or interpretation
thereof. In the event that Borrower pays any Lender the amount necessary to
compensate such Lender for any charge, deduction or payment incurred or made by
such Lender as provided in this Section 2.7(e), and such charge, deduction or
payment or any part thereof is subsequently returned to such Lender as a result
of the final determination of the invalidity or inapplicability of the relevant
law, regulation, treaty, directive or condition, then such Lender shall remit to
Borrower the amount paid by Borrower which has actually been returned to such
Lender (together with any interest actually paid to such Lender on such returned
amount), less such Lender's costs and expenses incurred in connection with such
governmental regulation or any challenge made by such Lender with respect to its
validity or applicability.
.8 PREPAYMENTS. Reference Rate Loans may be repaid at any time without
penalty or premium. Except as provided in Section 2.7(e), if a LIBOR Loan or
Multi-Currency Loan is paid prior to the end of the Applicable Interest Period,
a fee computed in the manner set out in Schedule 1 hereto shall be assessed and
paid at the time of such payment. Such fee shall be calculated by Agent and such
calculation shall be binding evidence of the amount due hereunder absent a
showing by Borrower of manifest error. Except as provided in Section 2.7(e),
such fee shall apply in all circumstances where a LIBOR Loan or Multi-Currency
Loan is paid prior to the end of the Applicable Interest Period, regardless of
whether such payment is voluntary, mandatory
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(including, without limitation, payments required pursuant to Section 2.4 or
2.6(a)(1) or the result of Agent's or any Lender's collection efforts.
.9 NOTES. The Revolving Loans shall be evidenced by promissory notes of
Borrower substantially in the forms attached hereto as Exhibits A-1 and A-2. The
Sweepline Loans shall evidenced by a promissory notes of Borrower substantially
in the form attached hereto as Exhibit B. The Multi-Currency Loans shall be
evidenced by a promissory note of Borrower substantially in the forms attached
hereto as Exhibits C. The promissory notes referred to herein are collectively
referred to as the "Notes." Each Lender is hereby authorized to record the date
and amount of Loans it makes and the date and amount of each payment of
principal and interest thereon on a schedule annexed to and constituting part of
the appropriate Note. Any such recordation by a Lender shall constitute PRIMA
FACIE evidence of the accuracy of the information so recorded; PROVIDED,
HOWEVER, that the failure to make any such recordation or any error in any such
recordation shall not affect the obligations of Borrower hereunder or under the
Notes.
.10 MANNER OF PAYMENTS.
(a) All payments and prepayments of principal and interest on any
Loan and all other amounts payable hereunder by Borrower to Agent or any Lender
shall be made by paying the same in Dollars and in immediately available funds
to Agent at its Commercial Loan Processing Center, Seattle, Washington not later
than 12:00 Noon (Seattle time) on the date on which such payment or prepayment
shall become due.
(b) Borrower hereby authorizes Agent and each Lender, if and to the
extent any payment is not promptly made pursuant to this Agreement or any other
Loan Document, to charge from time to time against any or all of the accounts of
Borrower with Agent or any Lender or any affiliate of any Lender any amount due
hereunder or under such other Loan Document.
(c) Whenever any payment hereunder or under any other Loan Document
shall be stated to be due would otherwise occur on a day other than a Business
Day, such payment shall be made on the next succeeding Business Day. In the case
of a LIBOR Loan or a Multi-Currency Loan, whenever the last day of any
Applicable Interest Period would otherwise occur on a day other than a Business
Day, the last day of such Applicable Interest Period shall occur, on the next
succeeding Business Day and such extension of time shall in such case be
included in the computation and payment of interest, UNLESS, such extension
would cause the last date of such Applicable Interest Period to occur in the
next following calendar month, in which case the last day of such Applicable
Interest Period shall occur, on the next preceding Business Day.
.11 FEES. In addition to certain fees described in Section 3.2(b), Borrower
shall pay the following fees:
(a) EXECUTION FEE. On the date hereof, Borrower shall pay to Agent
for the account of Lenders in accordance with their Pro Rata Shares, a
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non-refundable execution fee in an amount equal to the product of (i) .10% (10
basis points) and (ii) $45,000,000.
(b) COMMITMENT FEE. On the date of the first borrowing of a Revolving
Loan or the first issuance of a Letter of Credit hereunder that causes the Total
Utilization to exceed $45,000,000, Borrower shall pay to Agent for the account
of Lenders in accordance with their Pro Rata Shares, a commitment fee in an
amount equal to the product of (i) .15% (15 basis points); and (ii) $25,000,000.
(c) UNUSED PORTION FEE. Borrower shall pay to Agent for the account
of Lenders in accordance with their Pro Rata Shares an annual commitment fee in
the amount equal to the product of (i) .10% (ten basis points) and (ii) the
Unused Portion. As used herein, "Unused Portion" shall mean $45,000,000 LESS the
Total Utilization until the first borrowing of a Revolving Loan or issuance of a
Letter of Credit hereunder which causes the Total Utilization to exceed
$45,000,000, in which case, "Unused Portion" shall mean $70,000,000 LESS Total
Utilization. Such fee shall accrue as of the date hereof until the Revolving
Maturity Date, be payable quarterly in arrears and shall be deemed fully earned
when due and non-refundable, in whole or in part, when paid.
(d) SWEEPLINE COMMITMENT FEE. On the date hereof, Borrower shall pay
to Agent for the account of the Sweepline Bank, a commitment fee equal to the
product of (i) .10% (10 basis points); and (ii) $5,000,000.
.12 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any payment in
respect of Borrower's obligations under the Loan Documents (whether voluntary or
involuntary, through the exercise of any right of setoff or otherwise) (other
than payments in respect of the Sweepline Loans or the Multi-Currency Loans) in
excess of the amount it would have received if all payments had been made
directly to Agent and apportioned in accordance with the terms hereof, such
Lender shall hold such excess payment in trust for Agent and Lenders and shall
forthwith remit the same to Agent for Agent's Lenders' accounts as herein
provided.
.13 APPLICATION OF PAYMENTS. Any payment by Borrower hereunder shall be
applied FIRST, against fees, expenses and indemnities due hereunder, SECOND,
against interest then due in respect of any Loan, THIRD, against amounts due
under Section 3.4 hereof, and THEREAFTER, ratably against amounts owing under
any Swap Documents and Loan principal. After the applicable maturity date for
any Loan, payments to be applied to loan principal shall be applied first to
principal installments then due and thereafter to principal installments in the
inverse order of maturity. Agent shall distribute any payment by Borrower in
respect of Revolving Loans in accordance with each Lender's Pro Rata Share. Any
payment by Borrower to Agent in respect of Sweepline Loans and Multi-Currency
Loans shall be solely for the benefit of the Sweepline Bank and the
Multi-Currency Bank, as the case may be. After any of the Loans become due (by
maturity, upon acceleration or otherwise), any amounts recovered from Borrower,
including, without limitation, through realization on any
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Collateral, shall be applied, and distributed by Agent to Lenders, in
accordance with each Lender's Total Pro Rata Share.
3
LETTERS OF CREDIT
.1 LETTERS OF CREDIT. Borrower may request that Agent issue letters of
credit for Borrower's account in accordance with the terms and conditions of
this Article 3.
.2 MANNER OF REQUESTING LETTERS OF CREDIT.
(a) From time to time, Borrower may request that Agent issue standby
or commercial letter of credit for Borrower's account or extend or renew any
existing Letters of Credit. Such request will be made by delivering a written
request or making an oral request (confirmed in writing by facsimile that same
day) for the issuance, extension or renewal of such a letter of credit to Agent
not later than 9:00 a.m. (Seattle time) on the date a new letter of credit is to
be issued or an existing letter of credit is scheduled to expire, PROVIDED that,
any request given orally shall be confirmed by Borrower in a writing delivered
to Agent not later than 10:00 a.m. (Seattle time) on the date such oral request
is made. Each such request shall be deemed to constitute a representation and
warranty by Borrower that as of the date of such request, statements set forth
in Article 5 hereof are true and correct and that no Default or Event of Default
has occurred and is continuing. Each such request shall specify the face amount
of the requested Letter of Credit, the proposed date of expiration, the name of
the intended beneficiary thereof, and whether such Letter of Credit is a standby
or commercial letter of credit or an extension or renewal thereof.
(b) Borrower shall pay to Agent for the account of Lenders a letter
of credit fee (i) with respect to any standby Letters of Credit, equal to .75%
(75 basis points) per annum of the amount available to be drawn on the
outstanding standby Letters of Credit, which fee shall not be less than Two
Hundred Fifty Dollars ($250), (ii) with respect to commercial Letters of Credit,
equal to .375% (37.5 basis points) of the face value of each commercial Letter
of Credit, which fee shall not be less than One Hundred Twenty Five Dollars
($125), and (iii) such other letter of credit fees calculated and payable in
accordance with Agent's normal and customary practices.
(c) Each letter of credit requested hereunder shall (i) be in a face
amount such that after issuance of such letter of credit (A) the Total
Utilization will not exceed the Total Revolving Commitment, and (B) the Letter
of Credit Usage would not exceed $20,000,000; and (ii) have an expiration date
not later than the Revolving Maturity Date.
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(d) At the request of Agent, Borrower shall execute a letter of
credit application and reimbursement agreement, in the standard form then used
by Agent, in respect of each Letter of Credit requested hereunder. The letter of
credit applications and reimbursement agreements now in effect with respect to
each existing Letter of Credit shall remain in full force and effect except
that, if such existing Letter of Credit is extended or renewed, Agent may, at
its option, require Borrower to execute a new letter of credit application and
reimbursement agreement (all reimbursement agreements relating to any of the
Letters of Credit shall, as such agreements may be amended from time to time, be
collectively referred to herein as the "Reimbursement Agreements").
(e) Subject to the satisfaction of the conditions precedent set forth
in Article 4 and Borrower's compliance with the terms of this Section 3.2, Agent
shall issue and deliver its letter of credit to Borrower or to the designated
beneficiary at such address as Borrower may specify. New Letters of Credit and
extensions or renewals of any existing Letters of Credit shall contain terms and
conditions customarily included in Agent's letters of credit and shall otherwise
be in a form acceptable to Agent.
(f) Letters of Credit issued hereunder, upon the request of Borrower
in accordance with subsection (a) above, may be denominated in an Offshore
Currency; PROVIDED THAT (i) upon the issuance of each Letter of Credit requested
in an Offshore Currency hereunder, the Dollar Equivalent of Letter of Credit
Usage, calculated at any time, shall not exceed Twenty Million Dollars
($20,000,000), and (ii) should Agent determine at any time that the Dollar
Equivalent of Total Utilization exceeds the Dollar Equivalent of Total Revolving
Commitment, then Borrower shall repay to Lenders such amounts of principal as
may be necessary to ensure that the Dollar Equivalent of Total Utilization is
equal to or less than the Dollar Equivalent of Total Revolving Commitment.
(g) In the event of any conflict between the terms of any
Reimbursement Agreement and the terms of this Agreement, the terms of this
Agreement shall control, unless Agent has otherwise agreed in a writing.
.3 INDEMNIFICATION; INCREASED COSTS. Borrower agrees to indemnify Agent and
any Lender on demand for any and all additional costs, expenses, or damages
incurred by such Agent or Lender, directly or indirectly, arising out of the
issuance of any Letter of Credit or the purchase of any Letter of Credit Risk
Participation, including, without limitation, any costs of maintaining reserves
in respect thereof and any premium rates imposed by the Federal Deposit
Insurance Corporation in connection therewith. A certificate as to such
additional amounts submitted to Borrower by Agent or such Lender shall be final,
conclusive, and binding, absent manifest error.
If at any time after the date hereof the introduction of or any change in
applicable law, rule, or regulation or in the interpretation or the
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by Agent or Lender with
any requests directed by any such Governmental Authority (whether or not
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having the force of law) shall, with respect to any Letter of Credit or
Letter of Credit Risk Participation subject Agent or such Lender to any Tax
or impose, modify, or deem applicable any reserve, special deposit, or
similar requirements against assets of, deposits with or for the account of,
credit extended by Agent or such Lender or shall impose on Agent or such
Lender any other conditions affecting the Letters of Credit or Letter of
Credit Risk Participations and the result of any of the foregoing is to
increase the cost to Agent or such Lender of issuing a Letter of Credit or
holding a Letter of Credit Risk Participation or to reduce the amount of any
sum received or receivable by Agent or such Lender hereunder with respect to
the Letters of Credit or Letter of Credit Risk Participations, then, upon
demand by Agent or such Lender, Borrower shall pay to Agent or such Lender
such additional amount or amounts as will compensate Agent or such Lender for
such increased cost or reduction. A certificate submitted to Borrower by
Agent or such Lender setting forth the basis for the determination of such
additional amount or amounts shall be final, conclusive, and binding, absent
manifest error.
Borrower agrees to indemnify and hold Agent and each Lender (an
"Indemnitee") harmless from and against any and all (a) Taxes (exclusive of
Taxes measured by net income and gross receipts) and other fees payable in
connection with Letters of Credit, Letter of Credit Risk Participations or the
provisions of this Agreement relating thereto, and (b) any and all actions,
claims, damages, losses, liabilities, fines, penalties, costs, and expenses of
every nature, including reasonable attorney's fees, suffered or incurred by the
Indemnitee otherwise arising out of or relating to this Article 3, any Letter of
Credit, or any Letter of Credit Risk Participations; PROVIDED, HOWEVER, said
indemnification shall not apply to the extent that any such action, claim,
damage, loss, liability, fine, penalty, cost, or expense arises out of or is
based solely upon the Indemnitee's willful misconduct or negligence.
.4 PAYMENT BY BORROWER. Borrower agrees to fully reimburse Agent for all
amounts paid by Agent under any Letter of Credit and to pay interest thereon at
the Reference Rate then applicable to Revolving Loans from the date Agent makes
such payment until the date of any demand for reimbursement by Agent. Such
payment shall be made in immediately available funds at Agent's Commercial Loan
Processing Center not later than 11:00 a.m. (Seattle time) on the date Borrower
is first notified by Agent that Agent has made payment under the Letter of
Credit; PROVIDED, that, if Agent so elects pursuant to the terms of Section 9.2,
following the occurrence of an Event of Default, the face amount of each Letter
of Credit shall become immediately due and payable. If Borrower shall default in
its obligations to reimburse Agent or make any other payment required hereunder,
interest shall accrue on the unpaid amount thereof at a per annum rate equal to
three percentage (3%) points above the Reference Rate changing as such Reference
Rate changes from the date such amount becomes due and payable until payment in
full by Borrower. Interest on such unpaid amounts shall be calculated on the
basis of a year of 360 days and shall be payable on demand.
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4
CONDITIONS
.1 CONDITIONS TO INITIAL LOAN OR ISSUANCE OF LETTER OF CREDIT. In addition
to the conditions set forth in Section 4.2, the obligation of each Lender to
make any Loan and the obligation of Agent to issue any Letter of Credit, are
subject to fulfillment of the following:
(a) LOAN DOCUMENTS AND EVIDENCE OF SECURITY. Agent shall have
received (i) the Loan Documents, each been duly executed and delivered by
Borrower and (ii) evidence satisfactory to Agent that the security interests in
the Collateral have been duly perfected by the filing of UCC Financing
Statements (or any other appropriate Uniform Commercial Code filing) and the
taking of all such other or additional acts as may be necessary to create a
valid and perfected lien of first priority enforceable against all third parties
in all jurisdictions to secure all obligations of Borrower to Agent and Lenders
under the Loan Documents; provided, however, that Agent and Lenders acknowledge
that the security interest granted by Debtor in respect of certain mobile
demonstration equipment having an market value equal to or less than Two Million
Dollars ($2,000,000) in the aggregate may be unperfected if such equipment is
located in states other than Indiana, Louisiana, Michigan or Washington.
(b) BORROWER AUTHORITY. Agent shall have received in form and
substance satisfactory to it (i) a copy of a resolution adopted by the Board of
Directors of Borrower authorizing the execution, delivery and performance of
this Agreement and the other Loan Documents certified by the Secretary of
Borrower; (ii) evidence of the authority and specimen signatures of the persons
who have signed this Agreement and the other Loan Documents; (iii) a Certificate
of Good Standing dated as of a recent date issued by the Secretary of State of
Washington in respect of Borrower; and (iv) such other evidence of corporate
authority as Agent shall reasonably require.
(c) LEGAL OPINION. Agent on behalf of each Lender shall have received
the legal opinion of John S. Leness, as General Counsel to Borrower,
substantially in the form attached hereto as Exhibit E and dated as of the date
hereof;
(d) OFFICER'S CERTIFICATE. Agent shall have received a certificate of
Borrower's chief financial officer or president as to the accuracy of Borrower's
representations and warranties set forth in Article 5 and as to the absence of
any Default or Event of Default.
(e) EVIDENCE OF INSURANCE. Agent shall have received evidence
satisfactory to it that all insurance required by the Loan Documents is in full
force and effect.
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(f) OTHER INFORMATION. Agent shall have received such other
statements, opinions, certificates, documents, undertakings and information with
respect to the matters contemplated by this Agreement and the other Loan
Documents as any Lender may reasonably request.
(g) PAYMENT OF FEES. All fees which are due and payable shall have
been paid in full.
.2 CONDITIONS TO ALL LOANS AND ISSUANCES OF LETTERS OF CREDIT. The
obligation of each Lender to make any Loan hereunder and the obligation of Agent
to issue any Letter of Credit, are subject to fulfillment of the following
conditions:
(a) PRIOR CONDITIONS. All of the conditions set forth in Section 4.1
shall have been satisfied.
(b) NOTICE OF BORROWING. In respect of any Loan, Agent shall have
received the Notice of Borrowing in respect of such Loan; and, in respect of any
Letter of Credit, Agent shall have received from Borrower a request therefor
complying with the requirements of Section 3.2.
(c) NO DEFAULT. At the date of the requested Loan or issuance of
requested Letter of Credit, no Default or Event of Default shall have occurred
and be continuing or will have occurred as the result of the making of the Loan
or issuing the Letter of Credit; and the representations and warranties of
Borrower in Article 5 shall be true on and as of such date with the same force
and effect as if made on and as of such date.
(d) OTHER INFORMATION. Agent and each Lender shall have received such
other statements, opinions, certificates, documents and information as it may
reasonably request in order to satisfy itself that the foregoing conditions have
been fulfilled.
5
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Agent and Lenders as follows:
.1 CORPORATE EXISTENCE AND POWER. Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Washington. Borrower is duly qualified to do business in each other
jurisdiction where the nature of its activities or the ownership of its
properties requires such qualification, except to the extent that failure to be
so qualified does not have a material adverse effect on its business, operations
or financial condition. Borrower has full corporate power, authority and legal
right to carry on its business as presently conducted, to own and operate its
properties and assets, and to execute, deliver and perform the Loan Documents to
which it is a party.
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.2 CORPORATE AUTHORIZATION. The execution, delivery and performance by
Borrower of the Loan Documents and any borrowing thereunder and the request for
the issuance of any Letter of Credit thereunder, have been duly authorized by
all necessary corporate action of Borrower, and do not require any shareholder
approval or the approval or consent of any trustee or the holders of any
Indebtedness of Borrower except such as have been obtained (certified copies
thereof having been delivered to Agent), do not contravene any law, regulation,
rule or order binding on it or its Articles of Incorporation or Bylaws and do
not contravene the provisions of or constitute a default under any indenture,
mortgage, contract or other agreement or instrument to which Borrower is a party
or by which Borrower, or any of its properties, may be bound or affected.
.3 GOVERNMENT APPROVALS, ETC. No Government Approval or filing or
registration with any Governmental Authority is required for the making and
performance by Borrower of the Loan Documents to which it is a party or in
connection with any of the transactions contemplated hereby or thereby, except
such as have been heretofore obtained and are in full force and effect
(certified copies thereof having been delivered to Agent).
.4 BINDING OBLIGATIONS, ETC. This Agreement has been duly executed and
delivered by Borrower and constitutes, and the other Loan Documents when duly
executed and delivered by Borrower will constitute, the legal, valid and binding
obligations of Borrower enforceable against Borrower in accordance with their
respective terms except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by the exercise of judicial discretion in accordance with
general principles of equity.
.5 LITIGATION. There are no actions, proceedings, investigations, or claims
against or affecting Borrower now pending before any court, arbitrator or
Governmental Authority (nor to the knowledge of Borrower has any thereof been
threatened nor does any basis exist therefor) which might reasonably be
determined adversely to Borrower and which, if determined adversely, would be
likely to have a material adverse effect on the financial condition or
operations of Borrower or to impair Agent's lien on the Collateral or Borrower's
rights therein, except as described on Schedule 2 hereto.
.6 LIEN PRIORITY. On the date any Loan is made or any Letter of Credit is
issued hereunder, the Security Agreement will constitute a valid and perfected
lien of first priority (subject only to the Lien of the Private Lenders) in and
to all of the Collateral and will be enforceable against all third parties in
all jurisdictions as security for all obligations of Borrower to Agent and
Lenders hereunder and under the other Loan Documents.
.7 FINANCIAL CONDITION. The consolidated balance sheet of Borrower and its
Subsidiaries as at April 30, 1998, and the related statements of income and
retained earnings of Borrower and its Subsidiaries for the fiscal year then
ended, copies of which have been furnished to Lenders, fairly present the
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consolidated financial condition of Borrower and its Subsidiaries as at such
date, including all material contingent liabilities, and the consolidated
results of operations of Borrower for the period then ended, all in accordance
with GAAP. Neither Borrower nor its Subsidiaries had on such date any material
contingent liabilities, unusual forward or long-term commitments or unrealized
or anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in that balance sheet and in the notes to those
financial statements and since that date there has been no material adverse
change in the financial condition or operations of Borrower or its Subsidiaries.
.8 TITLE AND LIENS. Borrower has good and marketable title to each of the
properties and assets reflected in its balance sheet referred to in Section 5.7
hereof (except such as have been since sold or otherwise disposed of in the
ordinary course of business). No assets or revenues of Borrower are subject to
any Lien except as permitted by this Agreement. All properties of Borrower and
its use thereof comply in all material respects with applicable zoning and use
restrictions and with applicable laws and regulations relating to the
environment.
.9 TAXES. Borrower has filed all tax returns and reports required of it, has
paid all Taxes which are shown to be due and payable on such returns and
reports, and has provided adequate reserves for payment of any Tax whose payment
is being contested. The charges, accruals and reserves on the books of Borrower
in respect of Taxes for all fiscal periods to date are accurate in all material
respects and there are no material questions or disputes between Borrower and
any Governmental Authority with respect to any Taxes except as disclosed in the
balance sheet referred to in Section 5.7 or otherwise disclosed to Agent in
writing prior to the date of this Agreement.
.10 LAWS, ORDERS, OTHER AGREEMENTS. Neither Borrower nor any of its
Subsidiaries is in violation of or subject to any contingent liability on
account of any laws, statutes, rules, regulations and orders of any Governmental
Authority. Neither Borrower or any of its Subsidiaries is in material breach of
or default under any material agreement to which it is a party or which is
binding on it or any of its assets.
.11 FEDERAL RESERVE REGULATIONS. Borrower is not engaged principally or as
one of its important activities in the business of extending credit for the
purpose of purchasing or carrying any margin stock (within the meaning of
Federal Reserve Regulation U), and no part of the proceeds of any Loan or Letter
of Credit will be used to purchase or carry any such margin stock or to extend
credit to others for the purpose of purchasing or carrying any such margin stock
or for any other purpose that violates the applicable provisions of any Federal
Reserve Regulation. Borrower will furnish to any Lender on request a statement
conforming with the requirements of Regulation U.
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.12 ERISA.
(a) The present value of all benefits vested under all Pension Plans
did not, as of the most recent valuation date of such Pension Plans, exceed the
value of the assets of the Pension Plans allocable to such vested benefits by an
amount which would represent a potential material liability of Borrower or
affect materially the ability of Borrower to perform this Agreement or the other
Loan Documents.
(b) No Plan or trust created thereunder, or any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as such term
is defined in Section 406 or Section 2003(a) of ERISA) which could subject such
Plan or any other Plan, any trust created thereunder, or any trustee or
administrator thereof, or any party dealing with any Plan or any such trust to
any material tax or penalty on prohibited transactions imposed by Section 502 or
Section 2003(a) of ERISA.
(c) No Pension Plan or trust has been terminated, and there have been
no "reportable events" as that term is defined in Section 4043 of ERISA since
the effective date of ERISA.
(d) No Pension Plan or trust created thereunder has incurred any
"accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA) whether or not waived, since the effective date of ERISA.
(e) The required allocations and contributions to Pension Plans will
not violate Section 415 of the Code in any material respect.
.13 SECURITY OFFERINGS. Neither Borrower nor anyone acting on its behalf
has directly or indirectly offered any Note or similar instrument or security
for sale to any person or solicited from any person any offer to buy any such
instrument or security or approached or negotiated with any person concerning
any such instrument or security in any manner which would violate any applicable
state or federal securities laws, including without limitation, the Securities
Act of 1933, as amended.
.14 INVESTMENT COMPANY; PUBLIC UTILITY HOLDING COMPANY. Borrower is not (a)
an "investment company" or a company "controlled" by an investment company
within the meaning of the Investment Company Act of 1940, as amended; or (b) a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of either a "holding company" or a "subsidiary company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
.15 REPRESENTATIONS AS A WHOLE. This Agreement, the other Loan Documents, the
financial statements referred to in Section 5.7, and all other instruments,
documents, certificates and statements furnished to Agent and Lenders by
Borrower, taken as a whole, do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements contained herein or therein not misleading. Without limiting
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the foregoing, each of the representations and warranties made by Borrower in
the other Loan Documents is true and correct on and as of the date when made,
on and as of the date hereof, and on and as of each date this representation
is deemed made hereunder with the same force and effect as if made on and as
of such dates.
.16 YEAR 2000 COMPLIANCE. On the basis of a comprehensive review and
assessment taken by Borrower of Borrower's computer applications and inquiry
made of Borrower's material suppliers, vendors and customers, Borrower
reasonably believes that the "Year 2000 Problem" (that is, the risk that the
computer applications used by any person may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and after
December 31, 1999) will not result in a material adverse change in Borrower's
business condition (financial or otherwise), operations, properties or
prospects, or ability to repay any amounts owing to Lenders hereunder. Borrower
has developed feasible contingency plans adequately to ensure uninterrupted and
unimpaired business operation in the event of failure of its own or a third
party's systems or equipment due to the Year 2000 problem, including those of
vendors, customers, and suppliers, as well as general failure of or interruption
in its communications and delivery infrastructure.
6
AFFIRMATIVE COVENANTS
So long as Agent or any Lender shall have any Commitment hereunder or
there shall be any outstanding Letters of Credit and until payment in full of
each Loan and performance of all other obligations of Borrower under this
Agreement and the other Loan Documents, Borrower agrees to do all of the
following unless Agent shall otherwise consent in writing.
.1 USE OF PROCEEDS. The proceeds of the Loans and the Letters of Credit will
be used only for working capital, other general corporate purposes, and for
Acquisitions permitted under Section 7.2.
.2 PRESERVATION OF CORPORATE EXISTENCE, ETC. Borrower will, and will cause
the Subsidiaries to, preserve and maintain their corporate existence, rights,
franchises and privileges in the jurisdictions of their incorporation and will,
and will cause the Subsidiaries to, qualify and remain qualified as foreign
corporations in each jurisdiction where qualification is necessary or advisable
in view of their business and operations or the ownership of their properties.
.3 VISITATION RIGHTS. At any reasonable time, and from time to time,
Borrower will, and will cause each Subsidiary to, permit Agent and Lenders to
examine and make copies of and abstracts from the records and books of account
of and to visit the properties of Borrower and to discuss the affairs, finances
and accounts of Borrower with any of its officers or directors.
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.4 KEEPING OF BOOKS AND RECORDS. Borrower will keep adequate records and
books of account in which complete entries will be made, in accordance with
GAAP, reflecting all financial transactions of Borrower.
.5 MAINTENANCE OF PROPERTY, ETC. Borrower will maintain and preserve and
will cause each Subsidiary to maintain and preserve all of their respective
properties in reasonably good working order and condition, ordinary wear and
tear excepted, and will from time to time make all needed repairs, renewals and
replacements so that the efficiency of such properties shall be fully maintained
and preserved.
.6 COMPLIANCE WITH LAWS, ETC. Borrower will comply and will cause each
Subsidiary to comply in all material respects with all laws, regulations, rules,
and orders of Governmental Authorities applicable to Borrower or any Subsidiary
or to their respective operations or property, except any thereof whose validity
is being contested in good faith by appropriate proceedings upon stay of
execution of the enforcement thereof.
.7 OTHER OBLIGATIONS. Borrower will pay and discharge and cause each
Subsidiary to pay and discharge before the same shall become delinquent all
material Indebtedness, Taxes and other obligations for which Borrower or any
Subsidiary is liable or to which their income or property is subject and all
claims for labor and materials or supplies which, if unpaid, might become by law
a Lien upon assets of Borrower or any Subsidiary, except any thereof whose
validity or amount is being contested in good faith by Borrower or the
Subsidiary in appropriate proceedings with provision having been made to the
satisfaction of Agent for the payment thereof in the event the contest is
determined adversely to Borrower or such Subsidiary. In the event any charge is
being contested by Borrower or its Subsidiaries as allowed above, Borrower or
its Subsidiaries shall establish adequate reserves against possible liability
therefor.
.8 INSURANCE. Without limitation on the insurance required by the Security
Agreement to be maintained on the Collateral, Borrower will keep in force and
will cause each Subsidiary to keep in force upon all of their respective
properties and operations policies of insurance carried with responsible
companies in such amounts and covering all such risks as shall be customary in
the industry and reasonably satisfactory to Agent. Borrower will on request
furnish to Agent certificates of insurance or copies of policies evidencing such
coverage.
.9 FINANCIAL INFORMATION. Borrower will deliver to Agent in sufficient
copies for distribution to Agent and each Lender:
(a) ANNUAL AUDITED FINANCIAL STATEMENTS. As soon as available and in
any event within ninety (90) days after the end of each fiscal year of Borrower,
the consolidated balance sheet of Borrower and its Subsidiaries as of the end of
such fiscal year and the related consolidated statements of income and retained
earnings and statement of changes in financial position of Borrower and its
Subsidiaries for such year, accompanied by the audit report
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thereon by independent certified public accountants selected by Borrower and
reasonably satisfactory to Agent (which reports shall be prepared in
accordance with GAAP and shall not be qualified by reason of restricted or
limited examination of any material portion of the records of Borrower or any
Subsidiary and shall contain no disclaimer of opinion or adverse opinion
except such as Agent in its sole discretion determines to be immaterial);
(b) QUARTERLY UNAUDITED FINANCIAL STATEMENTS. As soon as available
and in any event within forty-five (45) days after the end of each fiscal
quarter of Borrower, the unaudited consolidated balance sheet of Borrower as of
the end of such fiscal quarter and the unaudited statement of income and cash
flows of Borrower for the fiscal year to the end of such fiscal quarter, unless
the same has been provided in the form of Borrower's Form 10Q; accompanied by an
Officer's Certificate of Borrower certifying that (i) such reports have been
prepared in accordance with GAAP consistently applied and results of operation
of Borrower as at the end of and for such fiscal quarter and that since the
previous fiscal year-end report referred to in clause (a) there has been no
material adverse change in the financial condition of Borrower and that (ii) as
of the close of such fiscal quarter no Event of Default or Default had occurred
and was continuing;
(c) ANNUAL FINANCIAL PROJECTIONS. As soon as available, but not later
than ninety (90) days after the end of each fiscal year, a copy of Borrower's
annual financial projections;
(d) ACCOUNTS RECEIVABLE SUMMARY. As soon as available, but not later
than forty-five (45) days after the end of each fiscal quarter an accounts
receivable aging summary;
(e) SEC FILINGS. Promptly, copies of all financial statements and
reports that Borrower sends to its shareholders, and copies of all financial
statements and regular, periodical or special reports (including Forms 10K, 10Q
and 8K) that Borrower or any Subsidiary may make to, or file with, the SEC; and
(f) COMPLIANCE CERTIFICATES. Within ninety (90) days after the close
of each fiscal year of Borrower and within forty-five (45) days after the close
of each of Borrower's fiscal quarters, an officer's certificate signed by the
chief financial officer of Borrower stating that to the best of the signer's
knowledge and belief after due inquiry no Default or Event of Default had
occurred and was continuing and setting forth calculations evidencing compliance
with Sections 6.12, 6.13, 6.14, 6.15 hereof;
(g) OTHER. All other statements, reports and other information as
Agent or any Lender may reasonably request concerning the Collateral or the
financial condition and business affairs of Borrower, including, but not limited
to, information on Year 2000 compliance and any auditor's or management letters
issued concerning the same.
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.10 NOTIFICATION. Promptly after learning thereof, Borrower shall notify
Agent of (a) any action, proceeding, investigation or claim against or affecting
Borrower or any Subsidiaries instituted before any court, arbitrator or
Governmental Authority or, to Borrower's knowledge, threatened to be instituted,
which might reasonably be determined adversely to Borrower and which, if
determined adversely, would be likely to have a material adverse effect on the
financial condition or operations of Borrower, or to impair Agent's or Lenders'
lien on Collateral or Borrower's rights therein, or to result in a judgment or
order against Borrower for more than $500,000 in excess of insurance coverage
or, when combined with all other pending or threatened claims, more than
$500,000 in excess of insurance coverage; (b) any substantial dispute between
Borrower or any Subsidiaries and any Governmental Authority; (c) any labor
controversy which has resulted in or, to Borrower's knowledge, threatens to
result in a strike which would materially affect the business operations of
Borrower or any Subsidiary; (d) if Borrower or any member of the Controlled
Group gives or is required to give notice to the PBGC of any "reportable event"
(as defined in subsections (b)(1),(2),(5) or (6) of Section 4043 of ERISA) with
respect to any Plan (or the Internal Revenue Service gives notice to the PBGC of
any "reportable event" as defined in subsection (c)(2) of Section 4043 of ERISA
and Borrower obtains knowledge thereof) which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; and (e) the occurrence of any Event of Default
or Default. In the case of the occurrence of an Event of Default or Default,
Borrower will deliver to Agent an Officer's Certificate specifying the nature
thereof, the period of existence thereof, and what action Borrower proposes to
take with respect thereto.
.11 ADDITIONAL PAYMENTS; ADDITIONAL ACTS. From time to time, Borrower will
(a) pay or reimburse Agent and Lenders on request for all Taxes (other than
Taxes imposed on the net or gross income of Agent or Lenders) imposed on any
Loan Document or payment and for all reasonable expenses, including legal fees,
incurred by Agent or any Lender in connection with the preparation of the Loan
Documents or the making or administration of the Loans, or the issuance of any
Letter of Credit; (b) pay or reimburse Agent and any Lender for all reasonable
expenses, including legal fees, incurred by Agent or any Lender in connection
with the enforcement by judicial proceedings or otherwise of any of the rights
of Agent or any Lender under the Loan Documents (including the enforcement or
protection of Agent's or any Lender's rights in any bankruptcy or any insolvency
proceeding); (c) obtain and promptly furnish to Agent evidence of all such
Government Approvals as may be required to enable Borrower to comply with its
obligations under the Loan Documents and to continue in business as conducted on
the date hereof without material interruption or interference; and (d) execute
and deliver all such instruments (such as Uniform Commercial Code continuation
statements) and perform all such other acts as Agent or any Lender may
reasonably request to carry out the transactions contemplated by the Loan
Documents and to maintain the continuous perfection and priority of Agent's lien
on all Collateral.
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.12 FIXED CHARGE COVERAGE RATIO. For any four consecutive fiscal quarters,
Borrower shall maintain, on a consolidated basis, a Fixed Charge Coverage Ratio
of at least 1.50 to 1. "Fixed Charge Coverage Ratio" shall mean the quotient
obtained by dividing (a) the sum of Cash Flow by (b) the sum of Fixed Charges.
"Cash Flow" shall mean Borrower's net income after taxes, PLUS interest expense,
depreciation and amortization, and LESS the aggregate amount of any dividends
issued. "Fixed Charges" shall mean Borrower's interest expense, PLUS its current
portion of any long-term debt.
.13 FUNDED DEBT RATIO. For any four consecutive fiscal quarters, Borrower
shall maintain, on a consolidated basis, a Funded Debt Ratio of not more than
3.0 to 1. As used herein "Funded Debt Ratio" shall mean the quotient obtained by
dividing (a) the sum of Funded Debt by (b) EBITDA, PLUS, in the event that
Borrower has acquired any Subsidiaries during the immediately preceding four
fiscal quarters of Borrower, the EBITDA of such Subsidiaries from the first day
of the immediately preceding four fiscal quarters through the date of
acquisition of each Subsidiary. "Funded Debt" shall mean all interest bearing
liabilities of Borrower, including capitalized lease obligations. "EBITDA" shall
mean pre-tax net income (or pre-tax net loss), PLUS, the sum of (i) interest
expense, (ii) depreciation expense, (iii) depletion expense, and (iv)
amortization expense.
.14 MINIMUM NET WORTH. Borrower shall maintain, on a consolidated basis,
as at the end of each fiscal quarter commencing with the fiscal quarter
ending October 31, 1998, an excess of total tangible assets over total
liabilities of Borrower equal to or greater than the then applicable Minimum
Net Worth. "Minimum Net Worth" shall mean $35,000,000 as of April 30, 1998,
PLUS quarterly increases equal to fifty percent (50%) of Borrower's net
income, excluding any adjustments thereto for losses.
.15 DEBT TO TANGIBLE NET WORTH RATIO. Borrower shall maintain, on a
consolidated basis, as at the end of each fiscal quarter commencing with the
fiscal quarter ending October 31, 1998, a ratio of Debt to Tangible Net Worth of
not more than 1.75 to 1. As used herein, "Debt" shall mean all liabilities of
Borrower as determined and computed in accordance with GAAP.
.16 GUARANTIES AND SECURITY AGREEMENTS FROM SUBSIDIARIES. After any entity
becomes a Domestic Subsidiary of Borrower, other than those Subsidiaries set
forth on Schedule 3 hereto, and unless Agent and the Majority Lenders provide
prior written consent to the contrary, such Domestic Subsidiary shall execute
and deliver to Agent, promptly upon Agent's request, (a) a guaranty agreement,
unconditionally guarantying Borrower's obligations under the Loan Documents, (b)
a security agreement granting Agent for its benefit and the ratable benefit of
Lenders', a first priority and exclusive security interest in all personal
property of such Domestic Subsidiary, (c) a copy of a resolution adopted by the
Board of Directors of such Domestic Subsidiary authorizing the execution,
delivery, and performance of the guaranty and security agreement, and (d) such
other documents and agreements as Agent may reasonably request. All of the
foregoing documents shall be in
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form and substance satisfactory to Agent. Each such Domestic Subsidiary shall
be referred to herein as a "Guarantor."
7
NEGATIVE COVENANTS
So long as Agent or any Lender shall have any Commitment hereunder or
there shall be any outstanding Letters of Credit and until payment in full of
each Loan and performance of all other obligations of Borrower under this
Agreement and the other Loan Documents, Borrower agrees that it will not do any
of the following unless Agent shall otherwise consent in writing, such consent
not to be unreasonably withheld.
.1 DIVIDENDS, PURCHASE OF STOCK, ETC. During the continuance of any Default
or Event of Default, or if such payment or distribution would result in a
Default or Event of Default, Borrower shall not, and shall cause each Subsidiary
to not, (a) declare or pay any dividend (except dividends payable in its capital
stock) on any shares of any class of its capital stock or (b) apply any assets
to the purchase, redemption or other retirement of, or set aside any sum for the
payment of any dividends on or for the purchase, redemption or other retirement
of, or make any other distribution by reduction of capital or otherwise in
respect of, any shares of any class of capital stock of Borrower.
.2 LIQUIDATION, MERGER, SALE OF ASSETS. Neither Borrower nor any Guarantor
shall liquidate, dissolve or enter into any merger, consolidation, joint
venture, partnership or other combination or sell, lease, or dispose of
(including through transfers to any Subsidiary that has not executed a guaranty
and security agreement pursuant to Section 6.16) all or any substantial portion
of its business or assets or of any Collateral (excepting sales of goods in the
ordinary course of business); PROVIDED, HOWEVER, that Borrower may acquire
another person engaged in business similar or related to Borrower's PROVIDED
that (a) prior to such Acquisition, no Default or Event of Default has occurred
nor is continuing and such Acquisition shall not cause a Default or an Event of
Default hereunder, (b) ten (10) days prior to such Acquisition, Borrower
provides to Agent and each Lender written notice of such Acquisition and
evidence that such Acquisition complies with the terms and conditions contained
herein, and (c) the amount of such Acquisition, together with the amount of all
other acquisitions consummated within the twelve (12) consecutive months, does
not exceed $10,000,000.
.3 INDEBTEDNESS. Neither Borrower nor any Guarantor shall create, incur or
become liable for any Indebtedness except (a) the Loans and Indebtedness
hereunder in respect of the Letters of Credit and Swap Documents, (b) existing
Indebtedness reflected on the balance sheets referred to in Section 5.7, (c)
current accounts payable or accrued or other current liabilities incurred by
Borrower or Guarantor in the ordinary course of business, (d) indebtedness for
the deferred purchase price, or for obligations under leases, of real and
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personal property used by Borrower or Guarantor in its business, and (e)
Indebtedness incurred in respect of any Acquisition permitted under Section 7.2,
which, in the aggregate, measured on any rolling twelve (12) month period, does
not exceed Five Million Dollars ($5,000,000).
.4 GUARANTIES, ETC. Except for the guaranties set forth on Schedule 4
hereto, neither Borrower nor any Guarantor shall assume, guaranty, endorse or
otherwise become directly or contingently liable for, or obligated to purchase,
pay or provide funds for payment of, any obligation or Indebtedness of any other
person, other than by endorsement of negotiable instruments for deposit or
collection or by similar transactions in the ordinary course of business.
.5 LIENS. Neither Borrower nor any Guarantor shall create, assume or suffer
to exist any Lien except (a) liens pursuant to the Security Agreement, (b)
existing Liens reflected in the balance sheet referred to in Section 5.7, (c)
Liens described on Schedule 5 hereto, and (d) with respect to any Guarantor,
liens pursuant to the security agreements required under Section 6.16.
.6 INVESTMENTS. Borrower shall not make any loan or advance to any person or
purchase or otherwise acquire the capital stock, assets or obligations of, or
any interest in, any person, except (a) commercial bank time deposits maturing
within one year, (b) marketable general obligations of the United States or a
State or marketable obligations fully guaranteed by the United States, and (c)
short-term commercial paper with the highest rating of a generally recognized
rating service.
.7 OPERATIONS. Borrower shall not engage in any activity which is
substantially different from or unrelated to the present business activities or
products of Borrower.
.8 ERISA COMPLIANCE. Neither Borrower nor any member of the Controlled
Group nor any Plan will:
(a) engage in any "prohibited transaction" (as such term is defined
in Section 406 or Section 2003(a) of ERISA) which could result in a material
liability to Borrower;
(b) incur any "accumulated funding deficiency" (as such term is
defined in Section 302 of ERISA) whether or not waived which could result in a
material liability to Borrower;
(c) terminate any Pension Plan in a manner which could result in a
material liability to Borrower or could result in the imposition of a material
Lien on any property of Borrower or any member of the Controlled Group pursuant
to Section 4068 of ERISA; or
(d) violate state or federal securities laws applicable to any Plan
in any material respect.
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8
EVENTS OF DEFAULT
.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" hereunder.
(a) PAYMENT DEFAULT. Borrower shall fail to pay for a period of three
(3) Business Days when due any amount of principal of or interest on any Loan or
any other amount payable by it hereunder including, without limitation, amounts
due in respect of Letters of Credit; or
(b) BREACH OF WARRANTY. Any representation or warranty made (or
deemed made pursuant to Section 2.2 or 3.2 hereof) by Borrower under or in
connection with this Agreement or any Loan Document shall prove to have been
incorrect in any material respect when made; or
(c) BREACH OF CERTAIN COVENANTS. Borrower shall have failed to comply
with Sections 6.2, 6.8, 6.10(e), 6.12, 6.13, 6.14 or 6.15 or any provision of
Article 7 of this Agreement, and to the extent that it relates to the obtaining
and maintaining of insurance or delivery of evidence of same, Section 11 of the
Security Agreement; or
(d) BREACH OF OTHER COVENANT. Borrower shall fail to perform or
observe any other material covenant, obligation or term of any Loan Document
executed by it and such failure shall remain unremedied for thirty (30) days
after written notice thereof shall have been given to Borrower by Agent; or
(e) CROSS-DEFAULT. Borrower shall fail (i) to pay when due (whether
by scheduled maturity, required prepayment, acceleration, demand or otherwise)
any amounts owing under any Swap Document, Indebtedness which in the aggregate
exceeds One Hundred Thousand Dollars ($100,000) or any interest or premium
thereon and such failure shall continue after the applicable grace period, if
any, specified in the agreement or instrument relating to such Indebtedness, or
(ii) to perform any term or covenant on its part to be performed under any Swap
Document or any agreement or instrument relating to any such Indebtedness and
required to be performed and such failure shall continue after the applicable
grace period, if any, specified in such Swap Document, agreement or instrument,
if the effect of such failure to perform is to accelerate or to permit the
acceleration of the maturity of any obligations under the Swap Document or of
such Indebtedness, or (iii) any amounts owing under any Swap Document or such
Indebtedness shall be declared to be due and payable or required to be prepaid
(other than by regularly scheduled required prepayment) prior to the stated
maturity thereof; or
(f) VOLUNTARY BANKRUPTCY, ETC. Without the prior written consent of
Agent and Lenders, Borrower or any Subsidiary shall: (i) file a petition seeking
relief for itself under Title 11 of the United States Code, as now
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constituted or hereafter amended, or file an answer consenting to, admitting
the material allegations of or otherwise not controverting, or fail timely to
controvert a petition filed against it seeking relief under Title 11 of the
United State Code, as now constituted or hereafter amended; or (ii) file such
petition or answer with respect to relief under the provisions of any other
now existing or future applicable bankruptcy, insolvency, or other similar
law of the United States of America or any State thereof or of any other
country or jurisdiction providing for the reorganization, winding-up or
liquidation of corporations or an arrangement, composition, extension or
adjustment with creditors; or
(g) INVOLUNTARY BANKRUPTCY, ETC. An order for relief shall be
entered against Borrower or any Subsidiary under Title 11 of the United
States Code, as now constituted or hereafter amended, which order is not
stayed; or upon the entry of an order, judgment or decree by operation of law
or by a court having jurisdiction in the premises which is not stayed
adjudging it a bankrupt or insolvent under, or ordering relief against it
under, or approving as properly filed a petition seeking relief against it
under the provisions of any other now existing or future applicable
bankruptcy, insolvency or other similar law of the United States of America
or any State thereof or of any other country or jurisdiction providing for
the reorganization, winding-up or liquidation of corporations or any
arrangement, composition, extension or adjustment with creditors; or
appointing a receiver, liquidator, assignee, sequestrator, trustee or
custodian of Borrower, or any Subsidiary or of any substantial part of its or
their property, or ordering the reorganization, winding-up or liquidation of
its or their affairs; or upon the expiration of sixty (60) days after the
filing of any involuntary petition against it seeking any of the relief
specified in Section 8.1(f) or this Section 8.1(g) without the petition being
dismissed prior to that time; or
(h) INSOLVENCY, ETC. Borrower or any Subsidiary shall (i) make a
general assignment for the benefit of its creditors or (ii) consent to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, or custodian of all or a substantial part of the property of Borrower
or any Subsidiary, as the case may be, or (iii) admit its insolvency or
inability to pay its debts generally as they become due, or (iv) fail generally
to pay its debts as they become due, or (v) take any action (or suffer any
action to be taken by its directors or shareholders) looking to the dissolution
or liquidation of Borrower or any Subsidiary, as the case may be; or
(i) JUDGMENT. A final judgment or order for the payment of money in
excess of Five Hundred Thousand Dollars ($500,000) in excess of insurance
coverage or which impairs the lien on Collateral or rights of Borrower therein
in any material respect, shall be rendered against Borrower and such judgment or
order shall continue unsatisfied and in effect for a period of ten (10)
consecutive days following entry, or all or substantially all of the assets of
Borrower are attached, seized, subject to writ or warrant or are levied on or
come into the possession or control of a receiver, trustee, custodian or
assignee for the benefit of creditors; or
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(j) GOVERNMENT APPROVALS. Any Government Approval or registration or
filing with any Governmental Authority now or hereafter required in connection
with the performance by Borrower of its obligations set forth in the Loan
Documents shall be revoked, withdrawn or withheld or shall fail to remain in
full force and effect unless in the reasonable opinion of Agent such revocation,
withdrawal or withholding would not be likely to have a material adverse affect
on the ability of Borrower to perform its obligations under the Loan Documents;
or
(k) OTHER GOVERNMENT ACTION. Borrower is enjoined or restrained or
in any way prevented by order of a court or other Governmental Authority from
conducting all or a substantial part of its business affairs or operations; or
(l) ERISA. Borrower or any member of the Controlled Group shall fail
to pay when due an amount or amounts aggregating in excess of One Million
Dollars ($1,000,000) which it shall have become liable to pay to the PBGC or to
a Plan under Section 515 of ERISA or Title IV of ERISA; or notice of intent to
terminate a Plan or Plans (other than a multi-employer plan, as defined in
Section 4001(3) of ERISA, having aggregate Unfunded Vested Liabilities in excess
of One Million Dollars ($1,000,000) shall be filed under Title IV of ERISA by
Borrower, any member of the Controlled Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate any Plan or Plans which could result in any
liability of Borrower in excess of One Million Dollars ($1,000,000); or
(m) NOTE AGREEMENT DEFAULT. The occurrence of an "Event of Default"
or "Default" under the Note Agreement, as such terms are defined therein.
.2 CONSEQUENCES OF DEFAULT. If an Event of Default described in Section
8.1(f) or 8.1(g) shall occur and be continuing, then in any such case, the
Commitments shall be immediately terminated and, if any Loans or Letters of
Credit shall have been made or issued, the principal of and interest on the
Loans, the face amounts of all issued and outstanding Letters of Credit, and all
other sums payable by Borrower under the Loan Documents shall become immediately
due and payable all without notice or demand of any kind.
If any other Event of Default shall occur and be continuing, then in any
such case and at any time thereafter so long as any such Event of Default shall
be continuing, (i) Agent shall at the request, or may with the consent, of the
Majority Lenders immediately terminate the Commitments, and, if any Revolving
Loans or Letters of Credit shall have been made or issued, Agent shall at the
request, or may with the consent, of the Majority Lenders declare the principal
of and the interest on the Revolving Loans, the face amounts of all issued and
outstanding Letters of Credit, and all other sums payable by Borrower under the
Loan Documents with respect to such Revolving Loans and Letters of Credit
immediately due, whereupon the same shall become immediately due and payable all
without protest, presentment, notice or demand, all of
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which Borrower expressly waives, and (ii) Agent shall at the request, or may
with the consent, of the Sweepline Bank or Multi-Currency Bank, terminate the
Sweepline Commitment and the Multi-Currency Commitment, as applicable, and
declare the principal of and the interest on the Sweepline Loans and the
Multi-Currency Loans, and all other sums payable by Borrower under the Loan
Documents with respect to such Sweepline Loans and Multi-Currency Loans
immediately due, whereupon the same shall become immediately due and payable
all without protest, presentment, notice or demand, all of which Borrower
expressly waives.
Regardless of whether Borrower's obligations to repay the Loans and
Letters of Credit have been accelerated pursuant to the preceding sentences,
Agent shall at the request, or may with the consent, of the Majority Lenders
realize on any or all of the Collateral by exercising any remedies provided in
any Security Document or otherwise provided by law. Amounts paid or received
hereunder in respect of issued and outstanding Letters of Credit which exceed
amounts paid by Agent under such Letters of Credit shall be held (and applied)
as cash collateral to secure the performance of all obligations of Borrower
owing to Agent and Lenders hereunder and under the other Loan Documents. Agent
and Lenders may exercise or pursue any remedy or cause of action permitted by
this Agreement, the Notes, and any other Loan Document or applicable law. The
rights and remedies provided by law, this Agreement, the Notes and the other
Loan Documents are cumulative and non exclusive, and the exercise or partial
exercise of any right, power or remedy hereunder shall not preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
9
AGENT
.1 AUTHORIZATION AND ACTION. Each Lender hereby appoints and authorizes
Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to Agent by the terms hereof, together
with such powers as are reasonably incidental thereto. Agent shall have no
duties or responsibilities except those expressly set forth in this Agreement.
The duties of Agent shall be mechanical and administrative in nature; Agent
shall not have by reason of this Agreement a fiduciary relationship in respect
of any Lender; and nothing in this Agreement or the other Loan Documents,
expressed or implied, is intended to or shall be so construed as to impose upon
Agent any obligations in respect of this Agreement or the other Loan Documents
except as expressly set forth herein. As to any matters not expressly provided
for by this Agreement, including enforcement or collection of the Loans and
Letters of Credit, Agent shall not be required to exercise any discretion or
take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining) upon the instructions of
the Majority Lenders, and such instructions shall be binding upon all Lenders,
PROVIDED that Agent shall not be required to take any action which exposes Agent
to personal liability or which is contrary to
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the Loan Documents or applicable law and PROVIDED, FURTHER, that without the
consent of all Lenders, Agent shall not change or modify any Lender's
Commitment, the definition of "Majority Lenders", the timing or rates of
interest payments, the timing or amounts of principal payments due in respect
of Loans and Letters of Credit, and PROVIDED, FURTHER, that the terms of
Sections 2.5, Article 3, this Article 9 and Article 10 shall not be amended
without the prior written consent of Agent (acting for its own account). In
the absence of instructions from the Majority Lenders, Agent shall have
authority (but no obligation), in its sole discretion, to take or not to take
any action, unless this Agreement specifically requires the consent of
Lenders or the consent of the Majority Lenders and any such action or failure
to act shall be binding on all Lenders. Each Lender and each holder of any
Note shall execute and deliver such additional instruments, including powers
of attorney in favor of Agent, as may be necessary or desirable to enable
Agent to exercise its powers hereunder.
.2 DUTIES AND OBLIGATIONS.
(a) Neither Agent nor any of its directors, officers, agents or
employees shall be liable for any action taken or omitted to be taken by it or
any of them under or in connection with this Agreement or any other Loan
Document except for its or their own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, Agent (i) may treat each
Lender which is a party hereto as the party entitled to receive payments
hereunder until Agent receives written notice of the assignment of such Lender's
interest herein signed by such Lender and made in accordance with the terms
hereof and a written agreement of the assignee that it is bound hereby to the
same extent as it would have been had it been an original party hereto, in each
case in form satisfactory to Agent; (ii) 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 experts;
(iii) makes no warranty or representation to any Lender and shall not be
responsible to any Lender for any statements, warranties or representations made
in or in connection with this Agreement, any other Loan Document, or in any
instrument or document furnished pursuant hereto or thereto; (iv) shall not have
any duty to ascertain or to inquire as to the performance of any of the terms,
covenants, or conditions of the Loan Documents, or of any instrument or document
furnished pursuant thereto on the part of Borrower or as to the use of the
proceeds of any Loan; (v) shall not be responsible to any Lender for the due
execution, legality, validity, enforceability, genuineness, effectiveness, or
value of this Agreement, of any other Loan Document, or of any instrument or
document furnished pursuant hereto or thereto; and (vi) shall incur no liability
under or in respect to this Agreement or any other Loan Document by acting upon
any oral or written notice, consent, certificate or other instrument or writing
(which may be by telex, facsimile transmission, telegram or cable) believed by
it to be genuine and signed, sent or made by the proper party or parties or by
acting upon any representation or
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warranty of Borrower made or deemed to be made in this Agreement or any other
Loan Document. Agent may execute any of its duties under this Agreement or
any other Loan Document by or through agents, employees or attorneys-in-fact
and shall be entitled to advice of counsel concerning all matters pertaining
to such duties. Agent shall not be responsible for the negligence or
misconduct of any agent or attorney-in-fact that it selects with reasonable
care.
(b) Agent will promptly transmit to each Lender copies of all
documents received from Borrower pursuant to the requirements of this Agreement
other than documents which by the terms of this Agreement, Borrower is obligated
to deliver directly to Lenders.
(c) Each Lender or its assignee shall furnish to Agent in a timely
fashion such documentation (including, but not by way of limitation, IRS Forms
Nos. W-8, 1001 and 4224) as may be reasonably requested by Agent to establish
such Lender's status for tax withholding purposes.
(d) Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default under any of the Loan Documents
unless Agent has received written notice from a Lender or Borrower referring to
one or more of the Loan Documents, describing such Default or Event of Default
and stating that such notice is a "notice of default." In the event that Agent
receives such a notice, Agent shall promptly notify each of Lenders.
.3 DEALINGS BETWEEN SEAFIRST AND BORROWER. With respect to its Commitment,
the Loans made by it, and the Letters of Credit issued by it, Seafirst shall
have the same rights and powers under this Agreement and the other Loan
Documents as any other Lender and may exercise the same as though it were not
Agent, and the term "Lender" as used herein and in the other Loan Documents
shall unless otherwise expressly indicated include Seafirst in its individual
capacity. Seafirst may accept deposits from, lend money to, act and generally
engage in any kind of business with Borrower and any person which may do
business with Borrower, all as if Seafirst were not Agent hereunder and without
any duty to account therefor to Lenders.
.4 LENDER CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon Agent or the other Lenders and based
upon such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and without
reliance upon Agent or the other Lenders and based upon such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and the
other Loan Documents.
.5 INDEMNIFICATION. Each Lender agrees to indemnify Agent (to the extent
not reimbursed by Borrower) ratably, in the same proportion as its Pro Rata
Share, from and against any and all liabilities, obligations, losses,
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damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against Agent in any way relating to or arising out
of this Agreement or any other Loan Document or any action taken or omitted
by Agent under this Agreement or any other Loan Document, except any such as
result from Agent's gross negligence or willful misconduct. Without limiting
the foregoing, each Lender agrees to reimburse Agent promptly on demand
ratably, in the same proportion as its Pro Rata Share, for any out-of-pocket
expenses, including legal fees, incurred by Agent in connection with the
administration or enforcement or preservation of any rights under any Loan
Document (to the extent that Agent is not reimbursed for such expenses by
Borrower).
.6 SUCCESSOR AGENT. Agent may give written notice of resignation at any
time to Lenders and may be removed at any time with cause by the Majority
Lenders. If Agent shall have resigned or been removed in accordance with the
terms of this Section 9.6, the Majority Lenders shall have the right to appoint
a successor Agent. If no successor Agent shall have been so appointed by Lenders
and shall have accepted such appointment within thirty (30) days after the
retiring Agent's giving of notice of resignation or the Majority Lenders'
removal of the retiring Agent, then the retiring Agent may on behalf of Lenders,
appoint a successor Agent, which shall be one of Lenders or a bank organized
under the laws of the United States or of any state thereof, or any affiliate of
such bank, and having a combined capital and surplus of at least Five Hundred
Million Dollars ($500,000,000). Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. Until the acceptance by such a successor
Agent, the retiring Agent shall continue as "Agent" hereunder. After any
retiring Agent's resignation or removal hereunder as Agent shall become
effective, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. Any person into which Agent may be merged or converted or with which
it may be consolidated or any person resulting from any merger, conversion or
consolidation to which it shall be a party or any person to which Agent may sell
or transfer all or substantially all of its agency relationships shall be the
successor to Agent hereunder without the execution or filing of any paper or
further act, anything herein to the contrary notwithstanding.
10
LETTER OF CREDIT RISK PARTICIPATIONS
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.1 SALE OF RISK PARTICIPATIONS. Agent agrees to sell to Lenders, and upon
issuance of any Letter of Credit hereunder each Lender shall be deemed to have
unconditionally and irrevocably purchased from Agent, an undivided risk
participation in such Letter of Credit in proportion to such Lender's Pro Rata
Share.
.2 NOTICE TO LENDERS. Via telephone, telex, or facsimile, Agent will
promptly advise each Lender of each Letter of Credit issued hereunder. Agent
shall not have any duty to ascertain or to inquire as to the accuracy of the
information furnished by Borrower, or accuracy of the representations and
warranties made by Borrower in any request for the issuance of such Letter of
Credit nor shall Agent have any duty to confirm that all conditions precedent to
the issuance of such Letter of Credit have been fully satisfied.
.3 PAYMENT OBLIGATIONS.
(a) REIMBURSEMENTS TO AGENT. In the event Borrower fails to pay any
amount due under Section 3.4 by 12:00 noon (Seattle time) on the date Agent
shall make demand for payment thereof, Lenders shall each, upon receipt of
notice from Agent of such failure, pay to Agent their Pro Rata Share of such
amount, PROVIDED, HOWEVER, if Borrower pays a portion but less than all of the
amount due under Section 3.4, Lenders shall each pay Agent only their respective
Pro Rata Shares of the difference between the amount due under Section 3.4 and
the amount paid by Borrower on account thereof. Each and every payment to be
made by Lenders to Agent under this Section 10.3(a) shall be made by federal
wire transfer in immediately available funds. If any Lender receives notice from
Agent by 1:30 p.m. (Seattle time) on any Business Day of its obligation to make
payments under this subsection, then such Lender shall make such payment no
later than 2:00 p.m. (Seattle time) on the day such notice is received. If any
Lender receives such notice after 1:30 p.m. (Seattle time) on any Business Day,
then such Lender shall make such payment by no later than 1:00 p.m. (Seattle
time) on the next succeeding Business Day. If any Lender fails to make such
payment by the date and time required, its obligation shall bear interest from
and including the date when such payment was due until paid at the per annum
rate equal to the Federal Funds Rate.
(b) PAYMENTS TO LENDERS. Agent shall immediately remit to Lenders,
via federal wire transfer of funds, such Lender's Pro Rata Share of:
(1) the letter of credit fee paid by Borrower pursuant to
Section 3.2(b) hereof, provided, however, that Agent may retain for its own
account and as a fee for its services hereunder certain letter of credit
transaction fees calculated in accordance with Agent's normal and customary
practices; and
(2) any amounts (other than fees and expense reimbursements)
received from or for the account of Borrower in respect of any Letter of Credit,
PROVIDED, HOWEVER, Agent shall not remit to any Lender any amounts received from
or for the account of Borrower in respect of a Letter of
44
<PAGE>
Credit unless, prior to Agent's receipt of such funds, such Lender has paid
its Pro Rata Share of such amounts pursuant to Section 10.3(a). In the event
Agent is required to refund any amount which is paid to it or received by it
from or for the account of Borrower, then Lenders, to the extent they shall
have previously received their share of such amount, agree to repay to Agent
their respective Pro Rata Share of such amount.
(c) REIMBURSEMENTS TO LENDERS. Borrower agrees to reimburse any
Lender for amounts paid by such Lender to Agent pursuant to Section 10.3(a). Any
amounts received from or for the account of Borrower by any Lender in respect of
the aforesaid reimbursement obligation shall reduce Borrower's payment
obligation to Agent under Section 3.4. Any amounts received from or for the
account of Borrower by Agent in satisfaction of its obligations under Section
3.4 shall reduce PRO TANTO Borrower's reimbursement obligation to Lenders under
this Section 10.3(c).
11 MISCELLANEOUS
.1 NO WAIVER; REMEDIES CUMULATIVE. No failure by Agent or any Lender to
exercise, and no delay in exercising, any right, power or remedy under this
Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or remedy under this
Agreement or any other Loan Document preclude any other or further exercise
thereof or the exercise of any other right, power, or remedy. The exercise of
any right, power, or remedy shall in no event constitute a cure or waiver of any
Event of Default this Agreement or any other Loan Document or prejudice the
rights of Agent or Lenders in the exercise of any right hereunder or thereunder.
The rights and remedies provided herein and therein are cumulative and not
exclusive of any right or remedy provided by law.
.2 GOVERNING LAW. This Agreement and the other Loan Documents shall be
governed by and construed in accordance with the laws of the State of
Washington, U.S.A.
.3 MANDATORY ARBITRATION.
(a) At the written request of either all of Lenders or Borrower, any
controversy or claim between Lenders and Borrower, arising from or relating to
this Agreement or any of the other Loan Documents, or arising from an alleged
tort, shall be settled by arbitration in Seattle, Washington. The United States
Arbitration Act shall apply even though this Agreement is otherwise governed by
Washington law. The proceedings shall be administered by the American
Arbitration Association under its commercial rules of arbitration. Any
controversy over whether an issue is arbitrable shall be determined by the
arbitrator(s). Judgment upon the arbitration award may be entered in any court
having jurisdiction over the parties. The institution and maintenance of an
action for judicial relief or pursuit of an ancillary or
45
<PAGE>
provisional remedy shall not constitute a waiver of the right of either
party, including the plaintiff, to submit the controversy or claim to
arbitration if such action for judicial relief is contested. For purposes of
the application of the statute of limitations, laches or other time bar, the
filing of an arbitration pursuant to this subsection is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated
under this subsection is subject to any applicable statute of limitations,
laches or other time bar. The arbitrator(s) will have the authority to decide
whether any such claim or controversy is barred by the statute of
limitations, laches or other time bar and, if so, to dismiss the arbitration
on that basis. The parties consent to the joinder of any guarantor,
hypothecator, or other party having an interest relating to the claim or
controversy being arbitrated in any proceedings under this Section.
(b) No provision of this subsection shall limit the right of
Borrower, Agent or Lenders to exercise self-help remedies such as setoff,
foreclosure, retention or sale of any collateral, or obtaining any ancillary,
provisional, or interim remedies from a court of competent jurisdiction before,
after, or during the pendency of any arbitration proceeding. The exercise of any
such remedy does not waive the right of either party to request arbitration.
.4 CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. Borrower, Agent and
Lenders hereby irrevocably submit to the nonexclusive jurisdiction of any state
or federal court sitting in Seattle, King County, Washington, in any action or
proceeding brought to enforce or otherwise arising out of or relating to any
Loan Document and irrevocably waive to the fullest extent permitted by law any
objection which they may now or hereafter have to the laying of venue in any
such action or proceeding in any such forum, and hereby further irrevocably
waive any claim that any such forum is an inconvenient forum. Borrower agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in any other jurisdiction by suit on the judgment or in any
other manner provided by law. Nothing in this Section 11.4 shall impair the
right of any party to request or demand arbitration under Section 11.3 or the
right of Agent or a Lender or the holder of any Note to bring any action or
proceeding against Borrower or its property in the courts of any other
jurisdiction, and Borrower irrevocably submits to the nonexclusive jurisdiction
of the appropriate courts of the jurisdiction in which Borrower is incorporated
or sitting and any place where property or an office of Borrower is located.
.5 NOTICES. All notices and other communications provided for in any Loan
Document shall be in writing or (unless otherwise specified) by telex, telefax
or cable and shall be mailed (with first class postage prepaid) or sent or
delivered to each party at the address or telefax number set forth under its
name on the signature page hereof, or at such other address as shall be
designated by such party in a written notice to each other party. Except as
otherwise specified all notices sent by mail, if duly given,
46
<PAGE>
shall be effective three (3) Business Days after deposit into the mails, all
notices sent by a nationally recognized overnight courier service, if duly
given, shall be effective one (1) Business Day after delivery to such courier
service, and all other notices and communications if duly given or made shall
be effective upon receipt. Neither Agent nor any Lender shall incur any
liability to Borrower for actions taken in reliance on any telephonic notice
referred to in this Agreement which Agent believes in good faith to have been
given by a duly authorized officer or other person authorized to borrow or
give such telephonic notice hereunder on behalf of Borrower.
.6 ASSIGNMENT AND PARTICIPATIONS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective Successors and assigns,
except that Borrower may not assign or otherwise transfer all or any part of its
rights or obligations hereunder without the prior written consent of Agent and
the Majority Lenders, and any such assignment or transfer purported to be made
without such consent shall be ineffective. Lenders may at any time assign or
otherwise transfer all or any part of their respective interests under the Loan
Documents (including assignments for security and sales of participations), but
only with the prior written consent of Agent and Majority Lenders, and to the
extent of such assignment, the assignee shall have the same rights and benefits
against Borrower and otherwise under the Loan Documents (including the right of
setoff) as if such assignee were a Lender.
.7 SEVERABILITY. Any provision of this Agreement or any other Loan Document
which is prohibited or unenforceable in any jurisdiction shall as to such
jurisdiction be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties waive any
provision of law which renders any provision hereof prohibited or unenforceable
in any respect.
.8 SURVIVAL. The representations, warranties and indemnities of Borrower in
favor of Agent and Lenders shall survive indefinitely and, without limiting the
foregoing, shall survive the execution and delivery of this Agreement and the
other Loan Documents, the making of any Loans, the issuance of any Letters of
Credit the expiration of the Commitments and the repayment of all amounts due
under the Loan Documents.
.9 EXECUTED IN COUNTERPARTS. The Loan Documents may be executed in any
number of counterparts and by different parties in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
.10 ENTIRE AGREEMENT; AMENDMENT, ETC. This Agreement together with the
schedules and exhibits hereto comprise the entire agreement of the parties and
may not be amended or modified except by written agreement of Borrower and Agent
executed in conformance with the terms hereof. No provision of this Agreement
may be waived except in writing and then only in the specific instance and for
the specific purpose for which given.
47
<PAGE>
.11 HEADINGS. The headings of the various provisions of this Agreement are
for convenience of reference only, do not constitute a part hereof, and shall
not affect the meaning or construction of any provision hereof.
.12 REINCORPORATION OF BORROWER. The parties hereto acknowledge that Borrower
intends to change the state of its incorporation from Delaware to Washington by
merging Borrower into an as yet to be formed wholly owned Washington subsidiary.
The surviving Washington corporation shall, after the merger with Borrower, be
named Flow International Corporation. Lenders and Agent hereby consent to such
reincorporation. Borrower agrees, and Lenders and Agent intend, that all of the
indebtedness, liabilities and obligations of Borrower arising hereunder and
under the other Loan Documents (including, without limitation, all grants of
security interests made in the Security Agreement), the Swap Documents and the
Intercreditor Agreement shall be the indebtedness, liabilities and obligations
of the surviving Washington corporation.
.13 ORAL AGREEMENTS NOT ENFORCEABLE.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers or agents thereunto duly authorized as of
the date first above written.
BORROWER: FLOW INTERNATIONAL CORPORATION
By
---------------------------------
Its
-------------------------
Address: 23500 64th Avenue South
Kent, WA 98032
Telefax: (253) 813-3311
48
<PAGE>
LENDERS: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION d/b/a SEAFIRST
BANK
By
---------------------------------
Its Vice President
Address: 10500 N.E. Eighth Street,
Suite 500
Bellevue, WA 98009
Attn: William P. Stivers,
Vice President
Telefax: (206) 450-5709
U.S. BANK NATIONAL ASSOCIATION
By
---------------------------------
Its
-------------------------
Address: 10800 N.E. Eighth Street,
Suite 1000
Bellevue, WA 98004
Attn: Ned Freer,
Vice President
Telefax: (425) 450-5709
AGENT: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION d/b/a SEAFIRST
BANK
By
---------------------------------
Its Vice President
Address: Columbia Seafirst Center
Floor 16
701 Fifth Avenue
Seattle, WA 98104
Attn: Ken Puro,
Vice President
Telefax: (206) 358-0971
49
<PAGE>
SCHEDULE 1
PREPAYMENT FEES
The amount of the fee to be paid pursuant to Section 2.8 shall depend
on the following:
12 The amount by which interest rates have changed between the
Reference Date and the Prepayment Date. As used herein, "Reference
Date" shall mean the first day of an Applicable Interest Period. As
used herein, "Prepayment Date" shall mean the date Borrower either
voluntarily or involuntarily prepays a LIBOR Loan. Certain U.S.
Treasury rates are used as a benchmark to measure changes in interest
rate levels.
.1 A "reference rate" equal to the average interest rate yield
at the Reference Date for U.S. Government Securities having
maturities equivalent to that of the applicable LIBOR Loan will
be determined in the manner described below for determining
applicable rates but will be established as of the Reference Date
for the Applicable Interest Period. This rate represents interest
rate levels at the time a Revolving Loan is made or its interest
rate fixed.
.2 An "applicable rate," determined as described below,
represents interest rate levels as of the Prepayment Date.
13 The amount of principal prepaid.
14 A payment fee factor (see "payment fee factor schedule" below).
This factor represents the economic loss to Agent and Lenders
resulting from a one dollar payment if rates were to drop by one
percent from the time the rate was fixed.
1
<PAGE>
CALCULATION OF PAYMENT FEE
If the reference rate is lower than or equal to the applicable rate,
there is no payment fee.
If the applicable rate is lower than the reference rate, the payment fee
shall be equal to the difference between the reference rate and the applicable
rate (expressed as a decimal), multiplied by the appropriate factor from the
payment fee factor schedule, multiplied by the principal amount of the LIBOR
Loan which is prepaid.
EXAMPLE:
A LIBOR Loan with principal of $1,000,000 is fully prepaid with 4 months
remaining prior to the end of the Applicable Interest Period. A reference
rate of 10% was assigned to the LIBOR Loan when the rate was fixed. The
applicable rate (as determined by current 4-month U.S. Treasury rates) is
8.5%. Rates are therefore judged to have dropped by 1.5% since the rate
was fixed, and a payment fee applies.
A payment fee factor of .41 is determined from the tables below, and the
payment fee is computed as follows:
Payment Fee = (.10-.085) x (.41) x ($1,000,000) = $6,150.00
APPLICABLE RATES
The applicable rate is equal to the average interest rate yield at the
time of prepayment for U.S. Government Securities having maturities equivalent
to the remaining portion of the Applicable Interest Period.
The applicable rate shall be determined from the Federal Reserve
Statistical Release (Publication H.15(519)) in the "This Week" (most recent
week) column under the heading U.S. Government Securities - Treasury Bills -
Secondary Market, interpolated to the nearest month.
Rates listed in the Federal Reserve Statistical Release for maturities of
less than one year are on a discount rate basis, and these rates shall be
converted to a coupon equivalent basis, based upon a 360-day year. The
Statistical Release published on Monday shall be used for calculation of payment
fees payable on the following Tuesday through the following Monday, with
appropriate adjustment if the day of publication changes.
PAYMENT FEE FACTOR SCHEDULES
Months Remaining in the
2
<PAGE>
Applicable Interest Period for LIBOR Loans(1)
---------------------------------------------
<TABLE>
<CAPTION>
0 1 2 3 4 5 6
--- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Factors 0 .10 .20 .31 .41 .51 .61
<CAPTION>
7 8 9 10 11 12
--- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Factors .71 .81 .91 1.01 1.11 1.21
</TABLE>
- ----------------
(1) If the remaining Applicable Interest Period or time prior to scheduled
maturity is between any two time periods in the above schedules,
interpolate between the corresponding factors.
Agent and Lenders are not required to actually reinvest the paid
principal in any U.S. Government Treasury obligations as a condition to
receiving a payment fee as calculated above.
3
<PAGE>
SCHEDULE 2
LITIGATION
In addition to a number of product liability matters, all of which
involve insured losses, the following contractual dispute is pending:
BARBARA WILDNER, ROBERT WILDNER, ARK SYSTEMS, INC. AND R.J. WILDNER
CONTRACTING, INC. V. FLOW INTERNATIONAL CORPORATION, SPIDER STAGING CORP., ARK
SYSTEMS PRODUCTS, INC., NANCY A. DONAUE, WILLIAM KEADLE & MICHAEL MCNUTT; In the
United States District Court for the Western District of Pennsylvania, Civil
Action N. 97-15J.
4
<PAGE>
SCHEDULE 3
SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary Place of Incorporation or
---------- Organization
--------------------------
<S> <C>
Flow International Sales Corporation Guam
Flow Europe, GmbH Germany
Flow Asia Corporation Taiwan
Flow Asia International Corporation Mauritius
Flow Japan Corporation Japan
Foracon Maschinen und Anlagenbau
GmbH & CO.KG Germany
CEM-FLOW France
CIS Acquisition Corporation Michigan
Robotic Simulations Limited United Kingdom
Hydrodynamic Cutting Services Louisiana
Flow Automation Systems Corporation Ontario
Rampart Waterblast Incorporated Florida
Spider Staging Corporation Washington
Power Climber Incorporated California
Astro Hoist Incorporated California
Power Operated Staging Incorporated California
Suspended Scaffold Systems Incorporated California
Scaffold Climber Incorporated California
Flow Holdings BVBA Belgium
Flow Access BVBA Belgium
Spider Staging Corporation Canada
</TABLE>
5
<PAGE>
SCHEDULE 4
EXISTING GUARANTIES
The following are loans that Borrower guarantees:
1. Loan from U.S. Bank to Ronald W. Tarrant in the principal amount of
$253,940.30.
2. Loan from U.S. Bank to R.B. Lawrence in the principal amount of
$84,643.40.
3. Loan from U.S. Bank to John S. Leness in the principal amount of
$183,405.81.
4. Loan from U.S. Bank to Stephen D. Reichenbach in the principal amount
of $183,405.81.
6
<PAGE>
SCHEDULE 5
LIENS
The following liens, as amended, continued or assigned:
(a) UCC-1 filed on November 29, 1993 with the Washington Department of
Licensing against Borrower as debtor by U.S. Bancorp Leasing & Financial as
secured party under Filing No. 933330352 covering certain leased equipment
comprised of one new HX3-68-16 EMC Manufactured Harmonex 3 and related equipment
and attachments described therein subject to that certain Lease Agreement dated
February 26, 1993.
(b) UCC-1 filed on January 5, 1994 with the Washington Department of
Licensing against Borrower as debtor by U.S. Bancorp Leasing & Financial as
secured party under Filing No. 940050161 covering certain leased equipment.
(c) UCC-1 filed on September 15, 1994 with the Washington Department of
Licensing against Borrower as debtor by U.S. Bancorp Leasing & Financial as
secured party under Filing No. 942580397 covering certain leased equipment
comprised of one new okuma MC-40VB vertical machining center and related
controls and attachments described therein subject to that certain Lease
Agreement dated February 26, 1993.
(d) UCC-1 filed on October 28, 1996 with the Washington Department of
Licensing against Borrower as debtor by Panasonic Communications, assigned to
Sanwa Leasing Corp., as secured party under Filing No. 963020308 covering
certain leased equipment comprised of copy machines.
(e) UCC-1 filed on April 25, 1997 with the Washington Department of
Licensing against Borrower as debtor by Panasonic Communications, assigned to
Sanwa Leasing Corp., as secured party under Filing No. 971150301 covering
certain leased equipment comprised of fax machines.
(f) UCC-1 filed on May 19, 1997 with the Washington Department of
Licensing against Borrower as debtor by Panasonic Communications, assigned to
Sanwa Leasing Corp., as secured party under Filing No. 971390206 covering
certain leased equipment comprised of copy machines.
(g) UCC-1 filed on May 27, 1997 with the Washington Department of
Licensing against Borrower as debtor by Panasonic Communications, assigned to
Sanwa Leasing, as secured party under Filing No. 971470302 covering certain
leased equipment comprised of a fax machine.
(h) UCC-1 filed on July 10, 1997 with the Washington Department of
Licensing against Borrower as debtor by PCL Leasing Corporation, assigned to
U.S. Bank of Washington, as secured party, under Filing No. 971910496 covering
certain leased equipment comprised of Compaq computer systems.
7
<PAGE>
(i) UCC-1 filed on July 10, 1997 with the Washington Department of
Licensing against Borrower as debtor by PCL Leasing Corporation, assigned to
U.S. Bank of Washington, as secured party, under Filing No. 971910497 covering
certain leased equipment comprised of IBM computer systems.
(j) UCC-1 filed on August 25, 1997 with the Washington Department of
Licensing against Borrower as debtor by Panasonic Communications, assigned to
Sanwa Leasing Corp., as secured party under Filing No. 972370362 covering
certain leased equipment comprised of a copy machine.
(k) UCC-1 filed on March 23, 1998 with the Washington Department of
Licensing against Borrower as debtor by Panasonic Communications, assigned to
Sanwa Leasing Corp., as secured party under Filing No. 980820100 covering
certain leased equipment comprised of a fax machine.
8
<PAGE>
AMENDMENT NUMBER ONE
TO
CREDIT AGREEMENT
THIS AMENDMENT NUMBER ONE TO CREDIT AGREEMENT (this "Amendment") is made
as of this ______ day of March, 1999 by and among BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, a national banking association, d/b/a SEAFIRST
BANK, and U.S. BANK NATIONAL ASSOCIATION, a national banking association
(each a "Lender"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a
national banking association, d/b/a SEAFIRST BANK, as agent for the Lenders
(the "Agent"), and FLOW INTERNATIONAL CORPORATION, a Washington corporation
("Borrower").
RECITALS
A. Lenders, Agent and Borrower are parties to that certain Credit
Agreement dated as of August 31, 1998 (the "Credit Agreement").
B. Borrower has requested, and Lenders and Agent have agreed to amend
the Credit Agreement upon certain terms and conditions contained in this
Amendment.
NOW, THEREFORE, the parties hereto agree as follows:
AGREEMENT
1. DEFINITIONS. Capitalized terms not otherwise defined in this
Amendment shall have the meanings set forth in the Credit Agreement.
2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is amended as
follows:
a. AMENDMENT TO DEFINITIONS. In Section 1.1, amendments are made
to the definitions as follows:
(1) ABB AUTOCLAVE SYSTEMS. The definition of "ABB Autoclave Systems"
is hereby added as follows:
1
<PAGE>
"ABB AUTOCLAVE SYSTEMS" means ABB Autoclave Systems Inc., a
Delaware corporation.
(2) ABB PRESSURE SYSTEMS. The definition of "ABB Pressure Systems"
is hereby added as follows:
"ABB PRESSURE SYSTEMS" means ABB Pressure Systems AB, a Swedish
company.
(3) APPLICABLE MARGIN. The definition of "Applicable Margin" is
hereby amended and restated to read as follows:
"APPLICABLE MARGIN" means on any date, with respect to any LIBOR
Loans or Multi-Currency Loans, the rate per annum that is determined
by reference to the following matrix:
<TABLE>
<CAPTION>
Funded Debt Ratio as of the end of the Applicable
previous fiscal quarter Margin
----------------------- ------
<S> <C>
Less than 2.0: .75%
Equal to or greater than 2.0:1 and less
than 2.35:1 .90%
Equal to or greater than 2.35:1 and less
than 2.6:1 1.00%
Equal to or greater than 2.60:1 and less
than 3.0:1 1.25%
Equal to or greater than 3.0:1 and less
than 3.5:1 1.50%
Equal to or greater than 3.5:1 1.75%
</TABLE>
The Applicable Margin shall be adjusted forty-five (45) days after the
end of each fiscal quarter of Borrower and ninety (90) days after the
end of each fiscal year of Borrower (when compliance with the Funded
Debt Ratio is to be tested); provided, however, in the event that any of
the financial statements or quarterly compliance certificates required
to be delivered pursuant to
2
<PAGE>
Section 6.9 are not delivered when due, then (a) if such financial
statements and certificates are delivered after the date such financial
statements and certificates were required to be delivered (without
giving effect to any applicable cure period) and the Applicable Margin
increases from that previously in effect as a result of the delivery of
such financial statements, then the Applicable Margin during the period
from the date upon which such financial statements were required to be
delivered (without giving effect to any applicable cure period) until
the date upon which they actually are delivered shall, except as
otherwise provided in clause (c) below, be the Applicable Margin as so
increased; (b) if such financial statements and certificates are
delivered after the date such financial statements and certificates are
required to be delivered (without giving effect to any applicable cure
period) and the Applicable Margin decreases from that previously in
effect as a result of the delivery of such financial statements, then
such decrease in the Applicable Margin shall not become effective until
the date upon which the financial statements and certificates actually
were delivered; and (c) if such financial statements and certificates
are not delivered prior to the expiration of the applicable cure period,
then, effective upon such expiration, for the period from the date upon
which such financial statements and certificates were required to be
delivered (after the expiration of the applicable cure period) until two
(2) Business Days following the date upon which they actually are
delivered, the Applicable Margin shall be 1.75% (175 basis points) (it
being understood that the foregoing shall not limit the rights of Agent
and Lenders under Section 2.7(a)).
(4) APPLICABLE UNUSED FEE PERCENTAGE. The definition of
"Applicable Unused Fee Percentage" is hereby added to read as follows:
3
<PAGE>
"APPLICABLE UNUSED FEE PERCENTAGE" means, on any date, the rate
per annum that is determined by reference to the following matrix:
<TABLE>
<CAPTION>
Applicable Margin Applicable
----------------- Unused Fee
Percentage
----------
<S> <C>
.75% 10 basis
points
.90% 10 basis
points
1.00% 10 basis
points
1.25% 10 basis
points
1.50% 25 basis
points
1.75% 37.5 basis
points
</TABLE>
b. AMENDMENT TO SECTION 2.11(c). Section 2.11(c) is hereby amended
and restated as follows:
(c) UNUSED PORTION FEE. Borrower shall pay to Agent for the
account of Lenders in accordance with their Pro Rata Shares an annual
commitment fee in the amount equal to the product of (i) the
Applicable Unused Fee Percentage and (ii) the Unused Portion. As used
herein, "Unused Portion" shall mean $45,000,000 LESS the Total
Utilization until the first borrowing of a Revolving Loan or issuance
of a Letter of Credit hereunder which causes the Total Utilization to
exceed $45,000,000, in which case, "Unused Portion" shall mean
$70,000,000 LESS Total Utilization. Such fee shall accrue as of the
date hereof until the Revolving Facility Maturity Date, be payable
quarterly in arrears and shall be deemed fully earned when due and
non-refundable, in whole or in part, when paid.
4
<PAGE>
b. AMENDMENT TO SECTION 6.9(a). Section 6.9(a) is hereby amended
and restated as follows:
(a) ANNUAL AUDITED FINANCIAL STATEMENTS. As soon as available
and in any event within ninety (90) days after the end of each fiscal
year of Borrower, the consolidated and consolidating balance sheet of
Borrower and its Subsidiaries as of the end of such fiscal year and
the related consolidated and consolidating statements of income and
the consolidated statement of retained earnings and statement of cash
flows of Borrower and its Subsidiaries for such year, accompanied by
the audit report thereon by independent certified public accountants
selected by Borrower and reasonably satisfactory to Agent (which
reports shall be prepared in accordance with GAAP and shall not be
qualified by reason of restricted or limited examination of any
material portion of the records of Borrower or any Subsidiary and
shall contain no disclaimer of opinion or adverse opinion except such
as Agent in its sole discretion determines to be immaterial);
c. AMENDMENT TO SECTION 6.9(b). Section 6.9(b) is hereby amended
and restated as follows:
(b) QUARTERLY UNAUDITED FINANCIAL STATEMENTS. As soon as available
and in any event within forty-five (45) days after the end of each
fiscal quarter of Borrower, the unaudited consolidated and
consolidating balance sheet of Borrower as of the end of such fiscal
quarter and the unaudited consolidated and consolidating statement of
income and consolidated statement of cash flows of Borrower for the
fiscal year to the end of such fiscal quarter, unless the same has
been provided in the form of Borrower's Form 10Q; accompanied by an
Officer's Certificate of Borrower certifying that (i) such reports
have been prepared in accordance with GAAP consistently applied and
results of operation of Borrower as at the end of and for such fiscal
quarter and that since the previous fiscal year-
5
<PAGE>
end report referred to in clause (a) there has been no material adverse
change in the financial condition of Borrower and that (ii) as of the
close of such fiscal quarter no Event of Default or Default had occurred
and was continuing;
d. AMENDMENT TO SECTION 6.13. Section 6.13 is hereby amended and
restated as follows:
SECTION 6.13 FUNDED DEBT RATIO. For any four consecutive
fiscal quarters, Borrower shall maintain, on a consolidated basis, a
Funded Debt Ratio of not more than (a) 3.0 to 1 from the date hereof
until the date on which Borrower acquires both ABB Pressure Systems
and ABB Autoclave Systems, (b) 4.0 to 1 on and after the date on which
Borrower acquires both ABB Pressure Systems and ABB Autoclave Systems
through and including October 30, 1999, (c) 3.50 to 1 from October 31,
1999 through and including April 29, 2000, (d) 3.25 to 1 from April
30, 2000 through and including October 30, 2000, and (e) 3.0 to 1 from
October 31, 2000 and thereafter. As used herein "Funded Debt Ratio"
shall mean the quotient obtained by dividing (a) the sum of Funded
Debt by (b) EBITDA, PLUS, in the event that Borrower has acquired any
Subsidiaries during the immediately preceding four fiscal quarters of
Borrower, the EBITDA of such Subsidiaries from the first day of the
immediately preceding four fiscal quarters through the date of
acquisition of each Subsidiary, EXCEPT, HOWEVER,the EBITDA of ABB
Pressure Systems and ABB Autoclave Systems for the fiscal quarters
ending prior to the fiscal quarter ending July 31, 1999. "Funded
Debt" shall mean all interest bearing liabilities of Borrower,
including capitalized lease obligations. "EBITDA" shall mean pre-tax
net income (or pre-tax net loss), PLUS, the sum of (i) interest
expense, (ii) depreciation expense, (iii) depletion expense, and
(iv) amortization expense.
e. AMENDMENT TO SECTION 6.14. Section 6.14 is hereby amended and
restated as follows:
6
<PAGE>
SECTION 6.14. MINIMUM NET WORTH. Borrower shall maintain, on a
consolidated basis, as at the end of each fiscal quarter, an excess of
total tangible assets over total liabilities of Borrower equal to or
greater than the then applicable Minimum Net Worth. "Minimum Net
Worth" shall mean $27,000,000, PLUS cumulative quarterly increases
equal to fifty percent (50%) of Borrower's net income, excluding any
adjustments thereto for losses, calculated as of April 30, 1999.
f. AMENDMENT TO SECTION 6.15. Section 6.15 is hereby amended and
restated as follows:
SECTION 6.15 DEBT TO TANGIBLE NET WORTH RATIO. Borrower shall
maintain, on a consolidated basis, as at the end of each fiscal
quarter commencing with the fiscal quarter ending October 31, 1998, a
ratio of Debt to Tangible Net Worth of not more than (a) 1.75 to 1 as
at the fiscal quarters ending October 31, 1998 and January 31, 1999,
(b) 3.50 to 1 as at the fiscal quarters ending April 30, 1999, July
31, 1999, October 31, 1999 and January 31, 2000, (c) 3.25 to 1 as at
the fiscal quarters ending April 30, 2000, July 31, 2000, October 31,
2000 and January 31, 2001, and (d) 2.50 to 1 as at the fiscal quarters
ending April 30, 2001 and thereafter. As used herein, "Debt" shall
mean all liabilities of Borrower as determined and computed in
accordance with GAAP.
3. ACQUISITION OF ABB PRESSURE SYSTEMS AND ABB AUTOCLAVE SYSTEMS.
This Amendment shall be effective as of the date hereof, PROVIDED THAT if
Borrower shall not have completed its acquisition of both ABB Pressure Systems
AB and ABB Autoclave Systems Inc. within ten (10) days of the date of this
Amendment, the original terms and conditions contained in the Credit Agreement
as amended hereby shall remain in full force and effect as if never amended.
4. AMENDMENT FEE. On the date of this Amendment, Borrower shall pay to
Agent, for the account of Lenders, an amendment fee equal to Thirty Seven
Thousand Five Hundred Dollars ($37,500)
7
<PAGE>
(the "Amendment Fee"). Such fee shall be fully earned upon the execution of
this Amendment and irrevocable upon payment.
5. CONSENT TO ACQUISITION AND WAIVER OF DEFAULT. Agent and Lenders
hereby consent to Borrower's acquisition of ABB Pressure Systems AB, a Swedish
company, and ABB Autoclave Systems Inc., a Delaware corporation, and waive their
respective rights to exercise remedies under the Credit Agreement in respect of
a breach occurring of Borrower's obligations under Sections 6.1 and 7.2 of the
Credit Agreement.
6. CONDITIONS TO EFFECTIVENESS. Notwithstanding anything contained
herein to the contrary, this Amendment shall not become effective until each of
the following conditions is fully and simultaneously satisfied:
a. DELIVERY OF AMENDMENT. Borrower, Agent and each Lender shall
have executed and delivered counterparts of this Amendment to Agent.
b. PAYMENT OF AMENDMENT FEE. Borrower shall have paid the Amendment
Fee to Agent.
c. PAYMENT OF COMMITMENT FEE. Borrower shall have paid the
Commitment Fee pursuant to Section 2.11(b) of the Credit Agreement in an amount
equal to Thirty Seven Thousand Five Hundred Dollars ($37,500).
d. REPRESENTATIONS TRUE; NO DEFAULT. The representations of
Borrower as set forth in Article 5 of the Credit Agreement shall be true on and
as of the date of this Amendment with the same force and effect as if made on
and as of this date. No Event of Default and no event which, with notice or
lapse of time or both, would constitute a Event of Default, shall have occurred
and be continuing or will occur as a result of the execution of this Amendment.
7. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to the Lenders and Agent that each of the representations and
warranties set forth in Article 5 of the Credit Agreement is true and correct in
each case as if made on and as of the date of this Amendment and Borrower
expressly
8
<PAGE>
agrees that it shall be an additional Event of Default under the Credit
Agreement if any representation or warranty made hereunder shall prove to have
been incorrect in any material respect when made.
8. NO FURTHER AMENDMENT. Except as expressly modified by the terms of
this Amendment, all of the terms and conditions of the Credit Agreement and the
other Loan Documents shall remain in full force and effect and the parties
hereto expressly reaffirm and ratify their respective obligations thereunder.
9. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Washington.
10. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original, and all of which taken
together shall constitute one and the same agreement.
11. ORAL AGREEMENTS NOT ENFORCEABLE.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number
One to Credit Agreement as of the date first above written.
BORROWER: FLOW INTERNATIONAL CORPORATION
By
---------------------------------
Its
---------------------------
LENDERS: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, d\b\a SEAFIRST
BANK
By
---------------------------------
Its
---------------------------
U.S. BANK NATIONAL ASSOCIATION
By
---------------------------------
Its
---------------------------
AGENT: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, d\b\a SEAFIRST
BANK
By
---------------------------------
Its
---------------------------
10
<PAGE>
AMENDMENT NUMBER TWO
TO
CREDIT AGREEMENT
THIS AMENDMENT NUMBER TWO TO CREDIT AGREEMENT (this "Amendment") is made as
of this 21st day of June, 1999 by and among BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, a national banking association, d/b/a SEAFIRST BANK, and
U.S. BANK NATIONAL ASSOCIATION, a national banking association (each a
"Lender"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national
banking association, d/b/a SEAFIRST BANK, as agent for the Lenders (the
"Agent"), and FLOW INTERNATIONAL CORPORATION, a Washington corporation
("Borrower").
RECITALS
A. Lenders, Agent and Borrower are parties to that certain Credit
Agreement dated as of August 31, 1998, as amended by that Amendment Number One
to Credit Agreement dated as of March 26, 1999 (the "Credit Agreement").
B. Borrower has requested, and Lenders and Agent have agreed to amend the
Credit Agreement upon certain terms and conditions contained in this Amendment.
NOW, THEREFORE, the parties hereto agree as follows:
AGREEMENT
1. DEFINITIONS. Capitalized terms not otherwise defined in this Amendment
shall have the meanings set forth in the Credit Agreement.
2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is amended as
follows:
a. AMENDMENT TO DEFINITION OF "TANGIBLE NET WORTH." In Section 1.1,
the definition of "Tangible Net Worth" is hereby amended as follows:
"TANGIBLE NET WORTH" means the total assets less Total Liabilities,
excluding, however, from the
1
<PAGE>
determination of total assets: (a) intangible assets, (such as goodwill,
patents, trademarks, copyrights, franchises and deferred taxes,
including unamortized debt discount and research and development costs);
(b) cash held in a sinking fund or other similar fund established for
the purpose of redemption or other retirement of capital stock; (c)
reserves for depreciation, depletion, obsolescences, or amortization of
properties and other reserves or appropriations of retained earnings
which have been established in connection with Borrower's business; and
(d) any revaluation or other write-up in book value of assets subsequent
to the fiscal year of Borrower last ended as the date the Tangible Net
Worth is being measured.
b. ADDITION OF DEFINITION OF "TOTAL LIABILITIES." In Section 1.1,
the definition of "Total Liabilities" is hereby added as follows:
"TOTAL LIABILITIES" means, on a consolidated basis, all liabilities of
Borrower as determined and computed in accordance with GAAP; PROVIDED,
HOWEVER, that Subordinated Debt, and for clarification purposes only,
minority interests, shall not be included in any such amounts. As used
herein, "Subordinated Debt" means all Indebtedness of Borrower then
outstanding that satisfies the following conditions: the terms of the
instrument or agreement creating or evidencing such Indebtedness shall have
been approved in writing by Lenders and Agent and shall provide that such
Indebtedness is subordinated in right of payment to the Indebtedness of
Borrower to Lenders hereunder.
c. AMENDMENT TO SECTION 6.15. Section 6.15 is hereby amended and
restated as follows:
SECTION 6.15 DEBT TO TANGIBLE NET WORTH RATIO. Borrower shall
maintain, on a consolidated basis, as at the end of each fiscal quarter
commencing with the fiscal quarter ending October 31, 1998, a ratio of Debt
to Tangible Net Worth of not more than (a) 1.75 to 1 as at the fiscal
quarters ending October 31, 1998 and
2
<PAGE>
January 31, 1999, (b) 4.0 to 1 as at the fiscal quarter ending April 30,
1999, (c) 3.85 to 1 as at the fiscal quarter ending July 31, 1999, (d)
3.50 to 1 as at the fiscal quarters ending October 31, 1999 and January
31, 2000, (e) 3.25 to 1 as at the fiscal quarters ending April 30, 2000,
July 31, 2000, October 31, 2000 and January 31, 2001, and (f) 2.50 to 1
as at the fiscal quarters ending April 30, 2001 and thereafter. As used
herein, "Debt" shall mean the Total Liabilities of Borrower.
3. CONDITIONS TO EFFECTIVENESS. Notwithstanding anything contained herein
to the contrary, this Amendment shall not become effective until each of the
following conditions is fully and simultaneously satisfied:
a. DELIVERY OF AMENDMENT. Borrower, Agent and each Lender shall
have executed and delivered counterparts of this Amendment to Agent.
b. REPRESENTATIONS TRUE; NO DEFAULT. The representations of Borrower
as set forth in Article 5 of the Credit Agreement shall be true on and as of the
date of this Amendment with the same force and effect as if made on and as of
this date. No Event of Default and no event which, with notice or lapse of time
or both, would constitute a Event of Default, shall have occurred and be
continuing or will occur as a result of the execution of this Amendment.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to the Lenders and Agent that each of the representations and
warranties set forth in Article 5 of the Credit Agreement is true and correct in
each case as if made on and as of the date of this Amendment and Borrower
expressly agrees that it shall be an additional Event of Default under the
Credit Agreement if any representation or warranty made hereunder shall prove to
have been incorrect in any material respect when made.
5. NO FURTHER AMENDMENT. Except as expressly modified by the terms of
this Amendment, all of the terms and conditions of the Credit Agreement and the
other Loan Documents shall remain in
3
<PAGE>
full force and effect and the parties hereto expressly reaffirm and ratify their
respective obligations thereunder.
6. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Washington.
7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original, and all of which taken
together shall constitute one and the same agreement.
8. ORAL AGREEMENTS NOT ENFORCEABLE.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number
Two to Credit Agreement as of the date first above written.
BORROWER: FLOW INTERNATIONAL CORPORATION
By
--------------------------------
Its
---------------------------
LENDERS: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, d\b\a SEAFIRST
BANK
By
--------------------------------
Its
---------------------------
U.S. BANK NATIONAL ASSOCIATION
By
--------------------------------
Its
---------------------------
AGENT: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, d\b\a SEAFIRST
BANK
By
--------------------------------
Its
---------------------------
5
<PAGE>
SUBSIDIARIES OF
FLOW INTERNATIONAL CORPORATION
<TABLE>
<CAPTION>
State or other Jurisdiction of
Subsidiary Incorporation or Organization
---------- ------------------------------
<S> <C>
CIS Acquisition Corporation Michigan
Flow Asia Corporation Taiwan
Flow Asia International Corporation Mauritius
Flow Autoclave Systems, Inc. Delaware
Flow Automation Systems Corporation Ontario
Flow Europe, GmbH Germany
Flow Holdings GmbH (SAGL)
Limited Liability Company Switzerland
Flow International Sales Corporation Guam
Flow Pressure Systems Vasteras AB Sweden
Foracon Maschinen und Anlagenbau
GmbH & CO.KG Germany
Hydrodynamic Cutting Services Louisiana
Robotic Simulations Limited United Kingdom
Flow Japan Corporation Japan
CEM-FLOW France
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 33-57100) and in the Registration Statements on
Form S-8 (No. 33-40397 and No. 33-44776) of Flow International Corporation of
our report dated June 3, 1999 relating to the financial statements and
financial statement schedules, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Seattle, Washington
July 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<CASH> 10,403
<SECURITIES> 0
<RECEIVABLES> 56,549
<ALLOWANCES> 766
<INVENTORY> 47,771
<CURRENT-ASSETS> 120,464
<PP&E> 41,160
<DEPRECIATION> 23,437
<TOTAL-ASSETS> 179,152
<CURRENT-LIABILITIES> 40,471
<BONDS> 0
0
0
<COMMON> 147
<OTHER-SE> 63,875
<TOTAL-LIABILITY-AND-EQUITY> 179,152
<SALES> 148,202
<TOTAL-REVENUES> 148,202
<CGS> 82,971
<TOTAL-COSTS> 135,102
<OTHER-EXPENSES> 587
<LOSS-PROVISION> 373
<INTEREST-EXPENSE> 3,177
<INCOME-PRETAX> 9,336
<INCOME-TAX> 2,614
<INCOME-CONTINUING> 6,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,722
<EPS-BASIC> 0.46
<EPS-DILUTED> 0.45
</TABLE>
