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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MAY 31, 1996
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 1-13402
INPUT/OUTPUT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 22-2286646
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11104 WEST AIRPORT BLVD., STAFFORD, TEXAS 77477
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 933-3339
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: [X] No: [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant at June 30, 1996 (for purposes of the below-stated amount only, all
directors, officers and 5% or more stockholders are presumed to be affiliates):
$963,635,000.
Indicate the number of shares outstanding of the registrant's classes of Common
Stock, as of the latest practicable date.
TITLE OF EACH CLASS NUMBER OF SHARES OUTSTANDING
OF COMMON STOCK AT JUNE 30, 1996
--------------- ----------------
COMMON STOCK, $0.01 PAR VALUE 42,969,676
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Registrant's 1996 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
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P A R T I
ITEM 1. BUSINESS
THE COMPANY
Input/Output is a leading designer and manufacturer of seismic data
acquisition products used across land, transition zone and marine environments.
The Company believes that its I/O SYSTEMs are the most technologically advanced
seismic data acquisition systems and are particularly well-suited for advanced
three-dimensional ("3-D") data collection techniques. The Company's principal
customers are seismic contractors and major, independent and foreign oil and gas
companies around the world. During fiscal 1996, approximately 45% of the
Company's net sales and other revenues were to customers outside the United
States. See "Markets and Customers".
Recent improvements in drilling success rates through the use of advanced
seismic survey techniques, particularly 3-D techniques, have substantially
increased the demand for seismic data. In addition, advances in technology have
significantly reduced the size, weight, cost and power requirements of seismic
data acquisition systems and increased the quality and quantity of data
available to geoscientists, thereby improving the cost-effectiveness of large-
scale 3-D surveys. As a result, 3-D surveys utilizing these advanced
technologies have gained increasing acceptance in the oil and gas industry as an
exploration risk management tool. Moreover, 3-D surveys are increasingly
employed in field development and reservoir management activities.
Since 1988, the Company has applied these technological advances to its
seismic data acquisition systems. The technological evolution of the I/O SYSTEM
has permitted the economical utilization of substantially greater channel
recording capacities. As a result, shipments of I/O SYSTEMs have grown from 14
systems in fiscal 1991 to 65 systems in fiscal 1996. Increased sales of I/O
SYSTEMs with larger average channel counts and customers upgrading existing
systems by expanding channel counts have increased the number of recording
channels shipped by the Company from approximately 8,000 in fiscal 1991 to
77,000 in fiscal 1996.
The Company's marine data acquisition systems were introduced as new
product lines by the Company during fiscal 1996. See "WGEP Acquisition." These
systems consist primarily of marine streamers and shipboard electronics that
collect seismic data in deep water environments. The systems feature second
generation 24-bit digital electronics inside the streamer module, high-quality
Company-manufactured hydrophones and other components, and 12,000-meter streamer
length capabilities. Other marine products manufactured and sold by the Company
include airguns (or energy sources) and integrated shipboard navigation,
positioning, and data telemetry quality control systems. See "Products - New and
Acquired Product Lines."
The Company believes that its future success will depend on its ability to
continue to introduce technological innovations by enhancing its existing
products and services to its customers, as well as by developing new products,
such as those designed for time-lapse 3-D ("4-D") and three-component 3-D ("9-
D") seismic survey techniques.
GROWTH STRATEGY
The Company has achieved its growth by pursuing a strategy focused on: (i)
technological leadership; (ii) complementing internal product development with
product line acquisitions; and (iii) implementing innovative marketing
initiatives. These key elements of the Company's growth strategy can be
summarized as follows:
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- - TECHNOLOGICAL LEADERSHIP. The Company's research efforts have resulted in
the development of numerous inventions, processes and techniques which have
established the I/O SYSTEM TWO-Registered Trademark- as the most
technologically advanced land seismic data acquisition system. The I/O
SYSTEM TWO is upgradable and expandable to accommodate system enhancements
and follow-on orders for components and related accessories as customers
increase the capacities of their systems. The Company's ongoing research
efforts have also led to the introduction of new products such as the I/O
SYSTEM TWO RSR, the Company's first radio telemetry system. The I/O SYSTEM
TWO RSR is designed to acquire data across a variety of difficult
environments, including surf zones, marshes, swamps and mountain ranges.
Research and development efforts are complemented by the Company's Output
Exploration Company, Inc. subsidiary ("OPEX"), which serves as a field
laboratory for testing new products and obtaining feedback regarding
customer requirements.
- - COMPLEMENTARY ACQUISITIONS. The Company has expanded its product line in
recent years through the completion of several complementary acquisitions.
See "WGEP Acquisition" and "Product Development and Support".
- - INNOVATIVE MARKETING INITIATIVES. The Company employs three key initiatives
to stimulate product sales around the world. First, through its Global
Charter Corporation subsidiary ("Global Charter"), the Company offers
lease/purchase programs and assists customers in arranging financing for
their equipment purchases. Second, Global Charter conducts seminars and
equipment demonstrations and provides training for prospective and existing
customers. Third, OPEX serves as a vehicle to introduce and educate
prospective customers regarding the Company's products and capabilities.
WGEP ACQUISITION
During 1995, the Company completed the acquisition ("WGEP Acquisition") of
the Western Geophysical Exploration Products Group ("WGEP") from Western Atlas
International, Inc. ("WAII"). WAII and its affiliates together constituted the
Company's largest customer during fiscal 1996, 1995 and 1994.
The business of WGEP included the manufacture, sale and marketing of marine
and land seismic data acquisition systems; marine streamers; marine streamer
navigation, positioning and quality control systems and related software
products; vibrators and airgun equipment; seismic cables and connectors;
geophones and hydrophones; and certain other products and equipment used in the
domestic and international business of acquiring seismic data in land,
transition zone and marine environments.
The principal assets related to the WGEP operations acquired by the Company
were: (i) inventory, machinery and equipment; (ii) a manufacturing plant in
Alvin, Texas; (iii) certain intellectual property used in the manufacturing
operations of WGEP; (iv) certain customer contracts, accounts receivable and
general intangibles; (v) leases for property located in Texas and England; and
(vi) all of the capital stock of two Dutch companies which manufacture
geophones.
The source of the funds for the $121.3 million cash purchase was
approximately $51.3 million cash on hand and $70 million borrowed under a credit
facility. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition - Liquidity and Capital Resources." In November 1995, the
Company paid WAII an additional $747,000 to reflect certain post-closing net
purchase price adjustments.
In connection with the transaction, the Company and WAII entered into a
product purchase agreement (the "Product Agreement") governing the continuing
relationship between the parties regarding sales of seismic products and
equipment to WAII by the Company. The products covered by the Product Agreement
include those previously manufactured by the Company as well as
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former WGEP products now manufactured by the Company. In the event that WAII
purchases products in any year in an aggregate amount exceeding $70 million
(which amount is subject to adjustment under the Product Agreement), WAII will
be entitled to a rebate (determined pursuant to a formula) based upon the amount
of the shortfall. The Product Agreement has a five-year term, but may earlier
terminate upon WAII's purchase of an aggregate of $350 million (subject to
adjustment) in products from the Company. WAII may also terminate the agreement
if (i) the Company sells all or substantially all of its assets, (ii) the
Company merges or consolidates and, as a result, experiences a change of control
(as defined therein) or (iii) the Company breaches a material term or condition
of the Product Agreement and such breach or violation is not cured within 60
days of notice thereof.
WAII also agreed, for a period of five years from the closing date, or
until the earlier termination of the Product Agreement and subject to certain
exceptions, not to manufacture any of the product lines sold to the Company in
the transaction. The exceptions principally relate to business conducted by
other affiliates or divisions of WAII or Western Atlas Inc., WAII's ability to
perform research and development activities and WAII's having a secondary source
of supply if the Company discontinues manufacturing a former WGEP product. The
parties also agreed that if the Company discontinues manufacturing a former WGEP
product, or fails to manufacture or deliver a former WGEP product to WAII
specifications and the Company fails or chooses not to remedy WAII's objection
to such discontinuance, then subject to certain dispute resolution procedures
being first carried out, WAII would have a limited, worldwide, perpetual,
irrevocable, non-exclusive, royalty-free license under the intellectual property
assigned to the Company under the Asset Purchase Agreement with respect to that
particular product.
PRODUCTS
GENERAL
The Company's principal product line has been the I/O SYSTEMs and their
related components, which has been the major focus of the Company's research and
development efforts. In 1982, the Company initiated a project to design a
technologically advanced land-based seismic data acquisition system which would
use remote seismic data collection modules to digitize the seismic signal in the
field and enhance the quality of the recorded data. Design of such a system was
the major effort of the Company's research and development group over the next
six years. As a result of these efforts, the 15-bit I/O SYSTEM ONE-Registered
Trademark- was introduced in fiscal 1989. In fiscal 1992, the Company introduced
the I/O SYSTEM TWO-Registered Trademark-, the first commercially available
system to utilize a 24-bit analog-to-digital converter. The 24-bit analog-to-
digital converter extended the decibel range of seismic signal recording and
reduced system distortion to provide superior signal fidelity. This
technological innovation provided higher resolution data, which is especially
beneficial for 3-D surveys in geological complicated and/or noisy areas, and
substantially reduced power consumption, which improves the operational
efficiencies.
An I/O SYSTEM consists of a Central Electronics Unit containing a number of
modular components, which may vary depending upon customer specifications, and
multiple remote ground equipment modules, including Line Taps and Remote Signal
Conditioners (each designated as an "MRX" which acquires six channels of analog
seismic data). A typical system consists of a Central Electronics Unit, 12 Line
Taps, approximately 200 MRXs and various accessories, although larger or smaller
systems may be assembled. Once a customer purchases a Central Electronics Unit,
the customer can purchase additional Line Taps, MRXs and accessory equipment to
expand and modify a system to fulfill specific requirements. In addition, a
customer may transform an I/O SYSTEM into two or more separate systems with the
purchase of additional Central Electronics Units.
In addition to the standard I/O SYSTEM components, several optional
components are available as accessory equipment. The Company manufactures most
of the components sold as a part of the I/O SYSTEM product line, and purchases
certain separate components for resale,
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including the operator console, oscilloscope, printer and digital camera.
Depending upon the system's configuration, the price of an I/O SYSTEM typically
ranges from $800,000 to $4.5 million.
The Company's transition zone data acquisition system, the I/O SYSTEM TWO
BCX, incorporates a proprietary cable which lays on the ocean bottom in depths
up to 200 meters and in marine areas of congestion or obstruction and collects
data in a similar manner as a land seismic data acquisition system. Depending
upon the system's configuration, the price of the I/O SYSTEM TWO BCX will
typically range from $4.0 million to $8.0 million.
CENTRAL ELECTRONICS UNIT
The Central Electronics Unit, which acts as the control center of the I/O
SYSTEM, consists of several components which are typically mounted within a
vehicle or helicopter transportable enclosure. The Company also can package the
Central Electronics Unit to be portable for jungle and other difficult terrain
applications. The Central Electronics Unit receives digitized data from the
MRXs, stores it on magnetic tape for subsequent processing, and displays the
data on optional monitoring devices. The Central Electronics Unit also controls
the data collection parameters of the MRXs, as well as calibrates and provides
operating status analysis and tests all functions of the system.
REMOTE GROUND EQUIPMENT
The remote ground equipment of the I/O SYSTEM consists of multiple Remote
Signal Conditioners and Line Taps positioned over the survey area. In September
1993, the Company introduced the MRX, a miniaturized Remote Signal Conditioner
for land seismic applications, which featured significant advances in diagnostic
capabilities. Seismic signals from sensors called geophones are collected by the
MRXs, each of which handles the collection process for six channels of analog
seismic data. The MRX filters and digitizes the data, which is then transmitted
by the MRX via cable to a Line Tap. The Line Taps manage the seismic data
collection process on each seismic line, further organize the seismic data and
transmit this data and remote equipment operating status information via cable
to the Central Electronics Unit. The MRX automatically routes around cable
faults, thereby increasing crew productivity. In addition, the MRX provides high
quality data through its geophone performance capabilities.
OTHER I/O SYSTEM FEATURES
The I/O SYSTEM has been designed to maximize the efficiency of seismic crew
operations. Menu-driven software incorporated into the Central Electronics Unit
allows a crew to quickly calibrate, test and verify the status of each MRX
deployed. The status of each cable, channel and MRX battery pack also can be
verified. These rapid deployment and remote testing and calibration capabilities
can significantly improve the productivity of seismic crews in the field. The
Company believes that competing systems do not offer similarly extensive
capabilities.
Land-based seismic data acquisition systems require electrical power and
must be designed to operate in diverse environmental conditions. The I/O SYSTEM
TWO has the flexibility to power the MRX via cable from a central power source
or a rechargeable or solar powered battery pack. An MRX's battery pack may be
replaced without terminating or interrupting the MRX's operation. The battery
packs may also be monitored by the Central Electronics Unit during actual field
use to forecast usable time remaining for each battery.
A seismic crew may collect data from sound waves produced by one of several
energy sources. Historically, dynamite and other explosives have been used. In
recent years, large, truck-mounted earth vibrators have been used more
frequently as energy sources. See "New and Acquired Product Lines." When non-
explosive energy sources are used, an optional component, the Correlator Stacker
Module, is added to the data acquisition system to correlate the seismic data
for further processing. The Correlator Stacker Module incorporates several
advanced noise control and editing programs to improve data quality and
resolution.
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NEW AND ACQUIRED PRODUCT LINES
RSR SYSTEM. In June 1995, the Company introduced its first radio telemetry
system, the I/O SYSTEM TWO RSR. This system records data across a variety of
environments, including transition zones, surf zones, marshes, swamps or
mountain ranges. Depending upon the system's configuration, the price of the I/O
SYSTEM TWO RSR ranges from $1.2 million to $4.0 million.
MARINE DATA ACQUISITION SYSTEM. The Company's marine data acquisition
system consists primarily of marine streamers and shipboard electronics that
collect seismic data in deep water environments. Marine streamers, which contain
encapsulated Marine Remote Signal Conditioner ("MSX") modules and cabling, may
measure up to 12,000 meters in length and are towed behind a special purpose
vessel to record seismic data. Marine electronics include navigation,
positioning and data telemetry quality control systems and related software
products, as well as electronics for shipboard recording.
The marine systems feature second generation 24-bit digital MSX modules,
each of which contain 16 channels per module. This feature, along with
utilization of fiber-optic data transmission and titanium connectors and
inserts, results in reduced size and power consumption, lower repair costs and
higher quality and reliability of acquired marine seismic data, and permits a
complete MSX system to record up to 1,920 channels.
Important features of the Company's marine systems include Company-
manufactured components, such as its hydrophones. In addition, as larger marine
surveys are conducted by seismic crews, the Company believes that its marine
streamers having up to 12,000-meter length capabilities offer many competitive
advantages, including physical strength and flexibility through specially-
designed non-metallic stress members, down-line power capabilities, and fiber-
optic data transmission.
GEOPHONES AND HYDROPHONES. Geophones and hydrophones are seismic sensor
devices designed to detect energy reflected from the earth's subsurface. The
product line includes low distortion seismic sensors designed for land
(geophones), transition zone (marshphones) and marine (hydrophones)
environments. This product line includes a geophone checking technology as well
as three-component geophones that could be used in 9-D seismic recording.
AIRGUNS. Airguns are the primary energy source used to initiate the energy
transmitted through the earth's subsurface which are subsequently recorded as
data signals in the marine environment. The Company's sleeve gun, a specialized
type of airgun, is well suited for high resolution 3-D seismic data collection
because of its expanded frequency band. Additionally, the Company offers an
airgun source synchronizing system that can control up to 128 airguns
simultaneously, offering real time monitoring of airgun firings.
VIBRATORS. Vibrators are controlled mechanical devices used as a source of
seismic energy on land. The vibrators offered can be supplied with seven
different vehicles (many of which are manufactured by the Company) and offer a
maximum of 62,000 pounds of peak force. The Company believes that its vibrators
are the only vibrators in the industry to offer patented pre-load series which
significantly extends the life of the vibrator and lowers the distortion of the
sound source.
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PRODUCT DEVELOPMENT AND SUPPORT
The Company's ability to compete effectively and maintain a leading market
position in the manufacture and sale of seismic data acquisition systems and
seismic instruments depends to a substantial degree upon continued technological
innovation. While the market for these products is characterized by continual
and rapid changes in technology, development cycles from initial conception
through product introduction tend to extend over several years. Since
introducing its first I/O SYSTEM in fiscal 1989, the Company has targeted an
amount for research and development expenditures equal to approximately 10% of
its annual budgeted revenues. These research and development expenditures have
principally related to the continued enhancement of the I/O SYSTEMs product line
and basic research and development on other emerging technologies having
potential applicability to the seismic industry. See "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition." These efforts have resulted in the
development of numerous inventions, processes and techniques, a number of which
have been incorporated as enhancements to the I/O SYSTEM product line. See "-
Intellectual Property."
The Company evaluates the acquisition of businesses or technologies
relevant to future systems or complementary products. In addition, acquired
technologies in combination with other Company research and development
activities could result in products that may enable the Company to enter non-
geophysical markets. In fiscal 1995, the Company acquired Q.C. Tools, Inc., a
Houston-based developer of geophysical software for seismic data acquisition
applications, which enhances the Company's ability to provide quality control
capabilities and has a database structure suitable for large channel 3-D seismic
surveys. The Company also acquired, in fiscal 1995, DeRegt Special Cable, Ltd.,
a cable manufacturing company in Ireland, to increase its previously acquired
cable manufacturing capacity and to enhance the Company's ability to meet the
growing need for cables. DeRegt's location should enable the Company to more
effectively serve markets in Europe, Africa, the Middle East and the Former
Soviet Union.
Seismic survey techniques being investigated for future commercial
applicability in the industry include 4-D and 9-D techniques. The 4-D process,
or time-lapse 3-D, measures the same length, depth and width of data acquired in
3-D surveys, but also features the capability to record time intervals between
two or more surveys. The process is well-suited for reservoir management
applications, and is intended to identify fluid movements and changes in the
producing status of the reservoir. The 9-D technique, or three-component 3-D, is
an experimental seismic technique being investigated by a consortium of
companies and research firms (to whom the Company serves as a technical
advisor). The 9-D technique delineates reservoir characteristics not easily
depicted by 3-D seismic surveys. The 9-D surveys would measure shear wave data
in addition to conventional 3-D measurements of compressional wave data, thereby
significantly expanding the geophysicist's ability to determine the location of
a potential formation as well as the probability of hydrocarbons. Several
advances in technology and processing will have to be accomplished in order for
4-D and 9-D processes to become commercially viable.
MARKETS AND CUSTOMERS
The Company's principal customers are seismic contractors, which operate
seismic data acquisition systems to collect data in accordance with their
customers' specifications or for their own seismic data libraries. In addition,
the Company markets and sells its products to major, independent and foreign oil
and gas companies, which typically specify seismic data acquisition program
parameters to contractors and consequently may stipulate use of the Company's
equipment, or may operate their own seismic crews. WAII and its affiliates and
Geco-Prakla accounted for approximately 32% and 10%, respectively, of the
Company's net sales and other revenue in fiscal 1996. See Note 8 of Notes to
Consolidated Financial Statements.
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Published industry sources indicate that the number of seismic crews
operating worldwide has decreased over the past ten years. Although the Company
believes that such crews' utilization of high-channel 3-D seismic systems has
increased during the same period, the Company believes that most of the world's
seismic crews are not yet equipped with advanced seismic data acquisition
systems, such as the I/O SYSTEM TWO.
A significant part of the Company's marketing efforts are focused on areas
outside the United States. Foreign sales are subject to special risks inherent
in doing business outside of the United States, including the risk of war, civil
disturbances, embargo and government activities, as well as risks of compliance
with additional laws, including tariff regulations and import/export
restrictions. The Company sells its products through a direct sales force
consisting of Company employees and through several international third-party
sales representatives responsible for key geographic areas. Sales personnel
generally have either oil and gas exploration or production expertise or
experience in selling advanced technology-based systems.
During fiscal 1996, 1995, and 1994, approximately 45%, 68% and 70%,
respectively, of the Company's net sales and other revenues were derived from
sales to customers outside the United States. See Note 8 of Notes to
Consolidated Financial Statements for information concerning geographic
distribution of sales. The principal reason for the decline in fiscal 1996 in
the percentage of sales and other revenues derived from sales to customers
outside the U.S. was the increased level of sales during fiscal 1996 to WAII,
which are considered sales to a U.S. customer. Systems sold to domestic
customers (including WAII) are frequently deployed internationally. Company
sales are predominantly denominated in U.S. dollars. From time to time, certain
foreign sales require export licenses.
The Company normally sells its systems and products to customers on
standard net 30-day terms. Through Global Charter, the Company provides
financing arrangements to customers by installment sales contracts and rents
certain system components to customers from time to time pursuant to short-term
rental arrangements with options to purchase. In addition, through the
Company's revolving line of credit with its principal lender, the Company also
arranges financing for customer purchases through direct loans to customers from
such lender, which loans are in turn guaranteed by the Company. See
"Management's Discussion and Analysis of Results of Operation and Financial
Condition - Liquidity and Capital Resources".
The Company's installment sales contracts are secured by the equipment
under the contract and typically require a down payment of approximately 15% of
the purchase price, normally range in length from 24 to 48 months and bear
interest at rates ranging from 7.0% to 12.0% per annum. See Note 3 of Notes to
Consolidated Financial Statements.
The Company has entered into installment sales contracts with certain
customers located in the Former Soviet Union. The terms of such contracts have
traditionally varied from the terms of the Company's standard installment sales
contracts and typically required such customers to make an initial down payment
of approximately one-half of the total sales price prior to shipment and pay the
remaining balance of the sales price within one year of shipment. However,
recent sales to customers in the Former Soviet Union during the second half of
fiscal 1996 have featured installment contracts containing more standard terms.
The Company's rental program is designed to provide its customers a
convenient and cost effective method to upgrade their system recording capacity
while building equity in the rental equipment. Typical rental terms provide for
a six month term with 80% of the monthly rental payments applying toward the
purchase of the rental equipment. Upon expiration of the rental term, the
customer either exercises the purchase option or returns the equipment and
forfeits the accrued purchase credits.
The Company has from time to time sold and assigned certain of these
installment sales contracts and leases to third-party financing sources (or sold
equipment to leasing companies which equipment is then leased to customers), the
terms of which often obligate the Company to (i)
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guarantee or repurchase all or a portion of the contracts and leases in the
event of a default by the customer or upon certain other occurrences and/or (ii)
assist the financing parties in remarketing the equipment to satisfy the
obligation. As of May 31, 1996, such third party financing sources had purchased
equipment contracts and leases which, in the aggregate, obligate the Company to
guarantee or repurchase up to approximately $30.3 million. Performance of the
Company's obligations under a number of these arrangements could have a material
adverse effect on the Company's financial condition; in addition, a number of
significant payment defaults by customers could have a material adverse effect
on the Company's financial position and results of operations.
MANUFACTURING
Prior to the WGEP Acquisition, the Company manufactured or assembled its
products, produced spare parts and renovated and repaired instruments at its
facilities in Stafford and Houston, Texas, as well as facilities in Ireland and
Canada. As a result of the WGEP Acquisition, the Company added approximately
300,000 square feet of manufacturing-related space in Alvin, Texas, the
Netherlands and England. In January 1996, the Company announced the commencement
of construction of a 109,896 square feet manufacturing facility to replace the
Company's current electronics assembly facility. See Item 2. -"Properties". Upon
completion of assembly, products undergo functional and environmental testing to
the extremes of product specifications and final quality assurance inspection.
The Company's experience has been to normally fill and ship customer orders
within 45 days of receipt.
SUPPLIERS
The Company purchases a substantial portion of the electronic components
used in its systems and products. Currently, the Company purchases the 24-bit
analog-to-digital converters used in its I/O SYSTEMs from a single vendor. While
the Company purchases that vendor's standard converter, the other components of
the I/O SYSTEM are designed for use with that particular converter. Even though
the Company believes that it could replace such a converter with a functional
equivalent, if such 24-bit converter were not available, redesign of the I/O
SYSTEM would be required and costly delays could result.
In addition, certain other components, such as the flash memory
microprocessor used in the Company's I/O SYSTEM TWO RSR, are from time to time
subject to supplier allocation. If the Company's inventory and supplier
allocation of such components were insufficient to meet the Company's
requirements, sales of the Company's systems and products containing those
components could be constrained.
COMPETITION
The market for seismic data acquisition systems and seismic instrumentation
is highly competitive and is characterized by continual and rapid changes in
technology. The Company's principal competitor for land seismic equipment is
Societe d'Etudes Recherches et Construction Electroniques, an affiliate of
Compagnie General de Geophysique which, unlike the Company, possesses the
advantage of being able to sell to an affiliated seismic contractor. The
Company's principal competitor in the marine seismic systems market is
GeoScience Corporation, an affiliate of Tech-Sym Corporation.
The Company believes that technology is the primary basis of competition in
the industry, as oil and gas exploration companies demand higher quality seismic
data and seismic contractors require improved productivity from their equipment
and crews. The remaining principal competitive factors in the industry are price
and customer support services.
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OIL AND GAS ACTIVITIES
As an adjunct to its research, development and marketing efforts, the
Company, through its subsidiary, OPEX, has acquired certain oil and gas
exploration prospects. In fiscal 1995, OPEX designed the survey of the 109,000-
acre Kenedy Ranch in south Texas. OPEX also designed the 3-D survey of the
Brownsville Salt Dome in Mississippi; this survey acquired 2,600 channels of
seismic data, which the Company believes is the largest known survey conducted
on land to date. These activities are intended to demonstrate product
capabilities for potential customers to encourage broader usage of the I/O
SYSTEM and also serve as test sites for Company-developed products, processes
and techniques.
In fiscal 1996, OPEX participated in the drilling of two wells on the
Brownsville Dome prospect. OPEX owns a 47% working interest in the Brownsville
Dome prospect and a 25% working interest in the Kenedy Ranch prospect. OPEX's
remaining rights regarding the Kenedy Ranch prospect, as well as the Santa Fe
and Garcia Ranches in south Texas, are in the nature of seismic options which
expire at various dates in 1996. After the options are exercised and seismic
work is conducted, blocks of leasehold acreage may be purchased by the
participants. If exercised, OPEX anticipates that it would own a 25% working
interest in the particular optioned acreage with respect to the Ranches. Since
fiscal 1994, OPEX has participated in the drilling of twelve wells, six of which
were dry holes; six of the wells are currently classified as productive. The
Company expects to participate in five additional wells in fiscal 1997 and,
depending upon the results, could participate in additional wells over the next
few years. The Company's participation in oil and gas activities has not had any
material effect upon the Company's revenues, net earnings or assets to date.
INTELLECTUAL PROPERTY
The Company relies on a combination of patents, trade secrets, copyrights
and technical measures to protect its proprietary hardware and software
technologies. While certain technologies have been patented by the Company, it
does not normally attempt to patent most proprietary technology, even where
regarded as patentable. The Company believes that in most cases this technology
is more effectively protected by system enhancements, innovations and
maintaining confidentiality, rather than through disclosure and a comprehensive
patent enforcement program. Although the Company's patents are considered
important to its operations, no one patent is considered essential to the
success of the Company. Copyright and trade secret protection may be unavailable
in certain foreign countries in which the Company sells its products. In
addition, the Company seeks to protect its trade secrets through confidentiality
agreements with its employees and agents.
The Company also owns a number of trademarks, including I/O-Registered
Trademark-, I/O SYSTEM ONE-Registered Trademark- and I/O SYSTEM TWO-Registered
Trademark-. Other trademarks used by the Company have been considered less
important to the Company since they pertain to products traditionally producing
substantially smaller revenues to the Company than the seismic data acquisition
system product line.
REGULATORY MATTERS
The Company's operations are subject to numerous local, state and federal
laws and regulations in the United States and in foreign jurisdictions
concerning the containment and disposal of hazardous materials. The Company does
not foresee the need for significant expenditures to ensure continued compliance
with current environmental protection laws. Regulations in this area are subject
to change, and there can be no assurance that future laws or regulations will
not have a material adverse effect on the Company.
9
<PAGE>
EMPLOYEES
At June 30, 1996, the Company had 1,232 employees worldwide, of whom 988
were employed in the United States. The Company's domestic employees are not
subject to any collective bargaining agreement. The Company has never
experienced a work stoppage and considers its relations with its employees to be
satisfactory.
ITEM 2. FACILITIES
The Company's primary manufacturing facilities are as follows:
Manufacturing Facility Square Footage
---------------------- --------------
Stafford, Texas* 35,200
Houston, Texas** 68,880
Alvin, Texas* 240,000
Cork County, Ireland* 35,630
Norwich, England** 31,000
Voorschoten, The Netherlands** 30,000
-------
440,710
- --------------------
* Owned
** Leased
The Company's executive headquarters (utilizing approximately 50,845 square
feet) is located at 11104 West Airport, Stafford, Texas and its research and
development headquarters (utilizing approximately 79,566 square feet) is located
at 12300 Parc Crest Drive, Stafford, Texas; both facilities are owned by the
Company. The Company also leases an aggregate of 111,884 square feet of
additional warehouse, manufacturing and office space under short-term operating
leases. The machinery, equipment, buildings and other facilities owned and
leased by the Company are considered by management to be sufficiently maintained
and adequate for the Company's current operations.
The Company has received a commitment for a $12.5 million ten-year loan to
finance the construction of its new 109,896 square feet manufacturing facility
in Stafford, Texas, adjacent to its corporate executive offices. The loan is to
be secured by a mortgage on the new manufacturing facility as well as the
Company's executive headquarters and its adjacent research and development
headquarters. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Liquidity and Capital Resources."
The Company anticipates these facilities will accommodate the Company's
growth for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any pending legal proceedings to which the
Company or any of its property is subject which, if adversely determined, could
have a material adverse effect on the business or financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Stockholders of the Company held on March 4, 1996,
the Company's stockholders were asked to approve an amendment to the Company's
Restated Certificate of Incorporation (the "Certificate") to (i) increase the
number of authorized shares of
10
<PAGE>
Common Stock, par value $0.01 per share, of the Company from 50,000,000 to
200,000,000 shares and (ii) increase the number of authorized shares of
preferred stock, par value $0.01 per share, of the Company from 5,000,000 to
25,000,000 shares. Approximately 46.5% (19,633,133 shares) of the Company's
outstanding Common Stock voted in favor of this proposal; approximately 30%
(12,683,647 shares) voted against the proposal and 286,280 shares (less than 1%)
abstained. The proposal required for its approval the affirmative vote of a
majority of shares of Common Stock outstanding and entitled to vote at the
meeting, and was therefore rejected.
P A R T II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the New York Stock Exchange
("NYSE") under the symbol "I/O". Prior to November 1994 the Company's Common
Stock was traded on the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") under the symbol
"IPOP". The following table sets forth the high and low last reported sales
prices of the Common Stock for the periods indicated, as reported on the NYSE
composite tape and NASDAQ National Market System, and have been adjusted to
reflect the Company's two-for-one share split (in the nature of a 100% stock
distribution) on January 9, 1996.
PRICE RANGE
------------------------
PERIOD HIGH LOW
---- ---
Fiscal 1996
-----------
Fourth Quarter. . . . . . . . $ 40 1/2 $ 27
Third Quarter . . . . . . . . 30 1/4 22
Second Quarter. . . . . . . . 23 3/8 17 3/16
First Quarter . . . . . . . . 20 7/8 16 15/16
Fiscal 1995
-----------
Fourth Quarter. . . . . . . . $18 1/16 $ 11 1/2
Third Quarter . . . . . . . . 13 5/16 9 9/16
Second Quarter. . . . . . . . 12 3/4 9 5/8
First Quarter . . . . . . . . 13 3/8 8 23/64
The Company historically has not paid and does not intend to pay cash
dividends on its Common Stock in the foreseeable future. The Company presently
intends to retain earnings for use in its business, with any future decision to
pay cash dividends dependent upon its growth, profitability, financial condition
and other factors the Board of Directors may deem relevant. The Company's
revolving line of credit contains post-default prohibitions on payments of
dividends and other distributions payable in cash or property. See"Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Liquidity and Capital Resources".
On June 30, 1996, there were 184 stockholders of record of the Common Stock
and the Company believes that there were approximately 4,812 beneficial owners
of the Common Stock as of such date.
11
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
the Company's consolidated statements of operations for the five fiscal years
ended May 31, 1996, 1995, 1994, 1993 and 1992 and with respect to the Company's
consolidated balance sheets at May 31, 1996, 1995, 1994, 1993 and 1992 have been
derived from the Company's audited consolidated financial statements. This
information should be read in conjunction with Item 7 - "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and the
consolidated financial statements of the Company and the notes thereto included
elsewhere in this Form 10-K. The share data set forth below has been adjusted to
reflect the Company's two two-for-one splits of its Common Stock, which occurred
in May 1994 and January 1996.
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Net sales and other revenues . . . . . . . . $278,283 $134,698 $95,752 $54,205 $45,501
Cost of sales. . . . . . . . . . . . . . . . 163,811 71,440 50,560 26,677 22,999
-------- -------- -------- -------- --------
Gross profit. . . . . . . . . . . . . . . . 114,472 63,258 45,192 27,528 22,502
-------- -------- -------- -------- --------
Operating expenses:
Research and development. . . . . . . . . . 23,243 11,400 7,931 5,004 4,362
Marketing and sales . . . . . . . . . . . . 12,027 6,789 4,673 4,492 2,765
General and administrative. . . . . . . . . 19,096 11,817 8,980 5,007 3,860
Amortization of identified intangibles. . . 4,305 1,331 762 698 495
-------- -------- -------- -------- --------
Total operating expenses. . . . . . . . . 58,671 31,337 22,346 15,201 11,482
-------- -------- -------- -------- --------
Earnings from operations . . . . . . . . . . 55,801 31,921 22,846 12,327 11,020
Interest expense . . . . . . . . . . . . . . (2,515) (30) (160) (203) (296)
Other income . . . . . . . . . . . . . . . . 3,091 3,944 1,466 1,222 1,135
-------- -------- -------- -------- --------
Earnings before income taxes . . . . . . . . 56,377 35,835 24,152 13,346 11,859
Income taxes . . . . . . . . . . . . . . . . 17,700 11,335 7,589 4,204 4,032
-------- -------- -------- -------- --------
Net earnings . . . . . . . . . . . . . . . . $38,677 $24,500 $16,563 $9,142 $7,827
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per common share. . . . . . . . . . $0.94 $0.66 $0.53 $0.31 $0.27
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average common shares
outstanding . . . . . . . . . . . . . . . 41,125 37,381 31,448 29,786 29,326
BALANCE SHEET DATA (END OF YEAR):
Working capital. . . . . . . . . . . . . . . $165,225 $104,908 $87,558 $29,685 $21,782
Total assets . . . . . . . . . . . . . . . . 355,465 165,487 132,000 61,542 46,349
Short-term debt, including current
installments of long-term debt (1). . . . . -- -- 591 1,961 1,636
Long-term debt (1) . . . . . . . . . . . . . -- -- -- 427 545
Stockholders' equity . . . . . . . . . . . . 317,204 146,712 115,659 47,877 37,430
OTHER DATA:
Capital expenditures . . . . . . . . . . . . $10,240 $5,979 $4,010 $3,703 $1,824
Depreciation and amortization. . . . . . . . 10,152 3,570 1,877 1,452 1,086
- ------------------
</TABLE>
(1) See Notes 6 and 12 of Notes to Consolidated Financial Statements for
information with respect to the Company's indebtedness and certain contingent
obligations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto included elsewhere in
this Form 10-K.
ANNUAL RESULTS OF OPERATIONS
The Company's results of operations improved significantly in each of the
last two fiscal years principally as a result of the continued market acceptance
of the I/O SYSTEM product line. Net sales and other revenues consist principally
of seismic data acquisition systems, related
12
<PAGE>
component sales, and rental income relating to operating leases of I/O SYSTEM
components. For the fiscal year ended May 31, 1996, the Company shipped 65 I/O
SYSTEMS.
The results of operations of the Company for the year ended May 31, 1996
and certain balance sheet items as of that date were significantly impacted by
the WGEP Acquisition and the purchase of the specified assets and assumption of
the specified liabilities in connection therewith. The gross profit margins on a
number of former WGEP products have traditionally been lower than the gross
profit margins for I/O SYSTEMs and their components. Accordingly, the Company's
average gross profit margin following the WGEP Acquisition has been lower than
that realized by the Company in the past.
The following table sets forth for fiscal 1996, 1995 and 1994, the
percentage relationship to net sales and other revenues of certain expenses and
earnings together with the percentage change in such items:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
----------------------------
YEAR ENDED MAY 31, PERCENT CHANGE
------------------------------------ ---------------------
1996 1995 1994 1995-1996 1994-1995
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales and other revenues. . . . . . . . . . . . . 100.0% 100.0% 100.0% 106.6% 40.7%
Cost of sales . . . . . . . . . . . . . . . . . . . . 58.9 53.0 52.8 129.3 41.3
----- ----- -----
Gross profit. . . . . . . . . . . . . . . . . . . . . 41.1 47.0 47.2 81.0 40.0
----- ----- -----
Operating expenses:
Research and development. . . . . . . . . . . . . . 8.4 8.5 8.3 103.9 43.7
Marketing and sales . . . . . . . . . . . . . . . . 4.3 5.0 4.9 77.2 45.3
General and administrative. . . . . . . . . . . . . 6.9 8.8 9.3 61.6 31.6
Amortization of identified
intangibles . . . . . . . . . . . . . . . . . . . 1.5 1.0 0.8 223.4 74.7
----- ----- -----
Total operating expenses. . . . . . . . . . 21.1 23.3 23.3 87.2 40.2
----- ----- -----
Earnings from operations . . . . . . . . . . . . . . . 20.1 23.7 23.9 74.8 39.7
Interest expense . . . . . . . . . . . . . . . . . . . (0.9) (0.0) (0.2) 8,283.3 (81.3)
Other income . . . . . . . . . . . . . . . . . . . . . 1.1 2.9 1.5 (21.6) 169.0
----- ----- -----
Earnings before income taxes . . . . . . . . . . . . . 20.3 26.6 25.2 57.3 48.4
Income taxes . . . . . . . . . . . . . . . . . . . . . 6.4 8.4 7.9 56.2 49.4
----- ----- -----
Net earnings . . . . . . . . . . . . . . . . . . . . . 13.9% 18.2% 17.3% 57.9% 47.9%
----- ----- -----
----- ----- -----
</TABLE>
NET SALES AND OTHER REVENUES
Net sales and other revenue for fiscal 1996 were $278.3 million, an
increase of $143.6 million, or 107%, over the prior year, primarily due to sales
from product lines acquired during fiscal 1995 and 1996 (44%), increased sales
to the Company's largest customer, continued sales of the Company's traditional
land-based seismic data acquisition systems (30%), and market acceptance of its
new radio telemetry system, the I/O SYSTEM TWO RSR (13%).
Net sales and other revenues for fiscal 1995 were $134.7 million, an
increase of $38.9 million, or 41%, over the prior year, primarily due to new
sales to Russia and Kazakhstan, increased revenues derived from businesses
acquired by the Company in fiscal 1994 and 1995, the introduction of the new BCX
ocean bottom cable system and continued acceptance of the I/O SYSTEM TWO.
RESEARCH AND DEVELOPMENT
Fiscal 1996 research and development expenses increased $11.8 million, or
104% over the prior year, to $23.2 million, primarily due to increased personnel
and related costs associated with the WGEP Acquisition, and increased supplies
and equipment expense due to additional research and development projects and
the WGEP Acquisition.
13
<PAGE>
Fiscal 1995 research and development expenses increased $3.5 million, or
44% over the prior year, to $11.4 million, primarily due to expenditures
attributable to product lines acquired in fiscal 1995 and 1994, and advanced
system design work.
MARKETING AND SALES
Fiscal 1996 marketing and sales expenses increased $5.2 million, or 77%
over the prior year, to $12.0 million, primarily due to increased personnel and
associated marketing expenses related to the WGEP Acquisition, increased outside
sales commissions resulting from higher sales levels, and increased advertising
and exhibition costs for new products and recently acquired product lines.
Fiscal 1995 marketing and sales expenses increased $2.1 million, or 45%
over the prior year, to $6.8 million, primarily due to marketing expenses
related to new product lines resulting from acquisitions and higher advertising
and exhibition costs for new products.
GENERAL AND ADMINISTRATIVE
Fiscal 1996 general and administrative expenses increased $7.3 million, or
62%, over the prior year, to $19.1 million, primarily due to increased
personnel, insurance costs and property taxes as a result of acquisitions,
increased bad-debt allowance due to higher sales levels, and increased costs
related to the creation of a company-wide data processing services network.
Fiscal 1995 general and administrative expenses increased $2.8 million, or
32% over the prior year, to $11.8 million, primarily due to increased personnel
costs as a result of acquisitions and outside services.
AMORTIZATION OF IDENTIFIED INTANGIBLES
Fiscal 1996 amortization of identified intangibles increased $3.0
million, or 223%, over the prior year, primarily due to amortization of goodwill
related to the WGEP Acquisition.
Fiscal 1995 amortization of identified intangibles increased $569,000 or
75%, over the prior year, due to the intangible costs added as a result of
acquisitions.
OPERATING INCOME
Earnings from operations increased $23.9 million or 75% in fiscal 1996 to
$55.8 million compared to $31.9 million in the prior year, primarily due to
increased revenues.
Earnings from operations increased $9.1 million or 40% in fiscal 1995 to
$31.9 million compared to $22.8 million in the prior year, primarily due to
increased revenues.
INTEREST EXPENSE
Interest expense in fiscal 1996 increased $2.5 million over the prior
year, primarily due to interest on the $70 million term loan and borrowing under
the $40 million revolving line of credit incurred in connection with the WGEP
Acquisition. The Company had no long-term debt outstanding as of May 31, 1996.
Interest expense in fiscal 1995 declined $130,000 primarily due to
repayment of bank debt. The Company had no long-term debt outstanding as of May
31, 1995.
14
<PAGE>
INCOME TAX EXPENSE
The effective tax rate for fiscal 1996 and 1995 was approximately 31.4% and
31.6%, respectively. Income tax expense increased in both 1996 and 1995 in
proportion to the increase in those years in earnings before taxes. See Note 1
and Note 9 of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations from internally generated cash, its
working capital credit facilities, and funds from equity financings. Cash flows
from operating activities before changes in working capital items were $49.0
million for the year ended May 31, 1996. However, cash flows from operating
activities after changes in working capital items were a negative $21.0 million
for the year ended May 31, 1996, primarily due to increases in trade accounts
receivable and inventory required to support increased sales levels. The
Company believes that it has sufficient credit facilities to finance these
increases in its working capital requirements.
In connection with the WGEP Acquisition, the Company established in June
1995 a $110 million credit facility with First Interstate Bank of Texas, N.A.,
comprised of a $70 million term loan to fund the WGEP Acquisition and a $40
million revolving line of credit for working capital purposes. The Company
retired the term loan and repaid the amounts outstanding under the revolving
facility with certain of the proceeds from a $120 million public offering of
5,750,000 shares of the Company's common stock in November 1995. In May 1996,
the Company renegotiated its Credit Facility with First Interstate Bank of
Texas, N.A. (as agent and issuing bank), increasing the maximum amount of the
working capital revolving line of credit to $50 million. Included under this
maximum $50 million facility are subfacilities for (i) letters of credit of up
to $15 million for the benefit of the Company and (ii) purchases from the
Company of conditional sales obligations of the Company's customers and making
direct loans to the Company's customers of up to $25 million (which purchases or
loans by the lender(s) will require guaranties from the Company).
The loan agreement contains restrictive covenants in favor of the
lender(s), including limitations on future indebtedness of the Company,
restrictions on business combinations involving the Company and its
subsidiaries, post-default limitations on dividends and other distributions
payable in cash or property, a $25 million per fiscal year limitation on the
amounts of certain investments by the Company, and limitations on capital
expenditures of $30 million per fiscal year (which does not include $20 million
in connection with the financing of the construction of the Company's new plant
and related facilities in Stafford, Texas). See Item 2. "Facilities". The loan
agreement also contains provisions requiring the Company to maintain a
consolidated tangible net worth in an amount not less than $180 million,
limitations on the ratio of indebtedness to consolidated net worth and a
provision requiring the ratio of consolidated liabilities to consolidated net
worth to not exceed .50 to 1. See also Notes 4,5 and 6 of Notes to Consolidated
Financial Statements.
In June 1996, the Company obtained a commitment for a $12.5 million ten-
year term mortgage loan to finance the construction of the Company's new
manufacturing facility in Stafford, Texas. The loan will be secured by the
Company's land, buildings and improvements housing its executive and research
and development headquarters as well as its adjacent new plant site. The
mortgage loan will bear interest at the rate of 7.875% per annum and is
repayable in equal monthly installments of principal and interest. Funding is
currently expected in August 1996. The commitment also requires the Company to
pledge a $6.8 million letter of credit for the benefit of the mortgage lender as
additional security during the construction phase for the new plant, which is to
be released upon timely completion of construction in accordance with the terms
and conditions of the loan agreement.
15
<PAGE>
The Company anticipates expenditures for the current fiscal year for
exploration and development of oil and gas properties to be $6.3 million and
expects to fund this level of expenditures through cash flows from operations.
Actual levels of exploration and development expenditures may vary significantly
due to many factors, including oil and gas prices, industry conditions, and the
success of the Company's exploration and development projects. The Company's
exploration and development projects are operated by third parties which control
the timing and amount of expenditures required to exploit the participant's
interests in these prospects. The Company's participation in oil and gas
activities is accounted for on a full cost basis.
Capital expenditures for property, plant, and equipment totaled $10.2
million for fiscal 1996 and are expected to aggregate $26.0 million for fiscal
1997. The Company believes that the combination of its existing working
capital, unused credit available under its working capital credit facility,
internally generated cash flow and access to other financing sources (including
sales finance facilities), will be adequate to meet its anticipated capital and
liquidity requirements for the foreseeable future.
OTHER FACTORS AFFECTING OPERATIONS
Due to the relatively high sales price of an I/O SYSTEM TWO (typically
ranging from $800,000 to more than $4.5 million) and relatively low unit sales
volume, the timing in the shipment of systems and the mix of products sold can
produce fluctuations in quarter-to-quarter financial performance. The Company
believes that factors which could affect such timing include, among others,
seasonality of end-user markets, availability of purchaser financing,
manufacturing lead times, customer purchases of leased equipment and shortages
of system components. In addition, because the Company typically operates, and
expects to continue to operate, without a significant backlog of orders for its
products, the Company's manufacturing plans and expenditure levels are based
principally on sales forecasts. See Note 13 of Notes to Consolidated Financial
Statements.
Demand for the Company's products from customers in developing countries is
difficult to predict and can fluctuate significantly from year to year. See
Note 8 of Notes to Consolidated Financial Statements. The Company believes
these changes in demand patterns result primarily from the instability of
economies and governments in certain developing countries, as well as from
changes in internal laws and policies affecting trade and investment.
In fiscal 1997, the Company will adopt SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of." This
standard requires that long-lived assets and certain identified intangibles held
and used by an entity be reviewed for impairment whenever events indicate the
carrying amount of an asset may not be recoverable. Management believes that the
adoption of this standard will not materially affect reported earnings,
financial condition or cash flows.
In fiscal 1997, the Company will adopt SFAS No. 123 "Accounting for Stock-
Based Compensation." This standard establishes a fair value method for
accounting for stock-based compensation plans either through recognition or
disclosure. The Company intends to adopt the standard by disclosing the proforma
net earnings and earnings per share amounts assuming the fair value method was
adopted June 1, 1996. The adoption of this standard in the opinion of management
will not have a material impact on results of operations, financial condition or
cash flows.
Management does not believe that inflation has had a material impact
on the Company's business or operations.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item begin at page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
P A R T I I I
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is contained in the Company's
definitive Proxy Statement to be distributed in connection with its 1996 Annual
Meeting of Stockholders under the caption "Management" and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is contained in the Company's
definitive Proxy Statement to be distributed in connection with its 1996 Annual
Meeting of Stockholders under the caption "Remuneration of Directors and
Officers" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is contained in the Company's
definitive Proxy Statement to be distributed in connection with its 1996 Annual
Meeting of Stockholders under the caption "Voting and Stock Ownership of
Management and Principal Stockholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
17
<PAGE>
P A R T IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents Filed.
(1) Financial Statements:
The financial statements filed as part of this report are listed in
the "Index to Consolidated Financial Statements" on page F-1 hereof.
(2) Financial Statement Schedules:
Not applicable.
(3) Exhibits:
3.1 -- Amended and Restated Certificate of Incorporation, filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1995 and incorporated herein
by reference.
3.2 -- Amended and Restated Bylaws, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 and incorporated herein by reference.
10.2 -- Royalty Agreement, dated November 6, 1992, between I/O
Sensors, Inc., Triton and Triton Technologies, Inc., filed
as Exhibit 10.2 to the 1993 Form 10-K and incorporated
herein by reference.
**10.3 -- 1990 Restricted Stock Plan, filed as Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 and incorporated herein by reference.
**10.4 -- Amended 1990 Stock Option Plan, filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-8 (Registration
No. 33-85304) filed with the Securities and Exchange
Commission on October 19, 1994, and incorporated herein by
reference.
**10.5 -- Input/Output, Inc. Amended Management Incentive Plan, filed
as Exhibit 10.5 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1995 and incorporated
herein by reference.
10.6 -- Input/Output, Inc. 401(k) Plan, filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 and incorporated herein by reference.
**10.7 -- Directors Retirement Plan, filed as Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-49660) (the "1992 Form S-1") and incorporated herein
by reference.
**10.8 -- Amended and Restated 1991 Directors Stock Option Plan, filed
as Exhibit 4.3 to the Company's Registration Statement on
Form S-8 (Registration No. 33-85304) filed with the
Securities and Exchange Commission on October 19, 1994, and
incorporated herein by reference.
**10.9 -- Supplemental Executive Retirement Plan filed as Exhibit 10.9
to the 1992 Form S-1, and incorporated herein by reference.
**10.10 -- Supplemental Executive Retirement Trust filed as Exhibit
10.10 to the 1992 Form S-1, and incorporated herein by
reference.
**10.11 -- Employment Agreement, dated February 6, 1991, between the
Company and Robert P. Brindley, filed as exhibit 10.11 to
the Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 and incorporated herein by reference.
18
<PAGE>
**10.12 -- Employment Agreement, dated February 6, 1991, between the
Company and Gary D. Owens, filed as Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 and incorporated herein by reference.
**10.13 -- Employment Agreement, dated February 6, 1991, between the
Company and Michael J. Sheen, filed as Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 and incorporated herein by reference.
10.15 -- Asset Purchase Agreement dated June 30, 1995, by and between
Input/Output, Inc., I/O Exploration Products (U.S.A.), Inc.
and Western Atlas International, Inc. filed as Exhibit 10.1
to the Company's Form 8-K dated June 30, 1995 and
incorporated herein by reference.
10.16 -- Product Purchase Agreement dated June 30, 1995, by and
between Input/Output, Inc., I/O Exploration Products
(U.S.A.), Inc. and Western Atlas International, Inc. filed
as Exhibit 10.2 to the Company's Form 8-K dated June 30,
1995 and incorporated herein by reference.
*10.17 -- Credit Agreement dated May 7, 1996, by and between
Input/Output, Inc. and First Interstate Bank of Texas, N.A.
10.18 -- Program and Remarketing Agreement dated as of May 25, 1995
among the Company, Global Charter Corporation, Input/Output
of Canada, Inc., Newcourt Financial USA, Inc. and Newcourt
Credit Group, Inc., filed as Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31,
1995 and incorporated herein by reference.
10.19 -- Amended and Restated Remarketing and Deficiency Support
Agreement dated July 27, 1995 among the Company, Dresdner
Bank Canada, Capilano International, Inc. Capilano
Geophysical, Inc. and Capilano International Argentina S.A.,
filed as Exhibit 10.19 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1995 and
incorporated herein by reference.
*10.20 -- Master Letter of Credit Agreement dated April 16, 1996,
between the Company and ABN AMRO Bank N.V. Houston Agency.
*11.1 -- Earnings Per Share Computation.
*21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of KPMG Peat Marwick LLP.
*24.1 -- The Power of Attorney is set forth on the signature page
hereof.
*27.1 -- Financial Data Schedule.
* Filed herewith
** Management contract or compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by Input/Output, Inc.
during the quarter ended May 31, 1996 .
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K.
Reference is made to subparagraph (a) (3) of this Item 14
which is incorporated herein by reference.
(d) NOT APPLICABLE.
19
<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 IN THE CITY OF STAFFORD, STATE OF TEXAS, ON JULY 12, 1996.
Input/Output, Inc.
By /s/ Gary D. Owens
-------------------------------------
GARY D. OWENS,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary D. Owens and Robert P. Brindley and each of
them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all documents relating to the Annual Report
on Form 10-K, including any and all amendments and supplements thereto, for the
fiscal year ended May 31, 1996, and to file the same with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
ANNUAL REPORT ON FORM 10-K HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
NAME CAPACITIES DATE
/s/ Charles E. Selecman Chairman of the Board July 12, 1996
- ----------------------------
CHARLES E. SELECMAN
/s/ Gary D. Owens Director, President July 12, 1996
- ---------------------------- and Chief Executive Officer
GARY D. OWENS (Principal Executive Officer)
/s/ Robert P. Brindley Director, Senior Vice President, July 12, 1996
- ---------------------------- Chief Financial Officer and
ROBERT P. BRINDLEY Secretary (Principal Financial
and Accounting Officer)
/s/ Shelby H. Carter, Jr. Director July 12, 1996
- ----------------------------
SHELBY H. CARTER, JR.
/s/ Ernest E. Cook Director July 12, 1996
- ----------------------------
ERNEST E. COOK
/s/ Glen H. Denison Director July 12, 1996
- ----------------------------
GLEN H. DENISON
/s/ Theodore H. Elliott, Jr. Director July 12, 1996
- ----------------------------
THEODORE H. ELLIOTT, JR.
/s/ Dr. Peter T. Flawn Director July 12, 1996
- ----------------------------
DR. PETER T. FLAWN
/s/ G. Thomas Graves III Director July 12, 1996
- ----------------------------
G. THOMAS GRAVES III
/s/ Michael J. Sheen Director, Senior Vice President July 12, 1996
- ---------------------------- and Chief Technical Officer
MICHAEL J. SHEEN
20
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Input/Output, Inc. and Subsidiaries: Page
----
Independent Auditors' Report . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets -- May 31, 1996 and 1995 . . . . . . F-3
Consolidated Statements of Operations --
Years Ended May 31, 1996, 1995 and 1994. . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity --
Years Ended May 31, 1996, 1995 and 1994. . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows --
Years Ended May 31, 1996, 1995 and 1994. . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Input/Output, Inc.:
We have audited the consolidated financial statements of Input/Output, Inc.
and subsidiaries as listed in the accompanying index. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Input/Output, Inc. and subsidiaries as of May 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended May 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Standards No. 109 "Accounting for Income Taxes", on June
1, 1993.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Houston, Texas
June 24, 1996
F-2
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS May 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,252 $57,392
Trade accounts receivable, less allowance for doubtful accounts of $470
and $100 in 1996 and 1995, respectively. . . . . . . . . . . . . . . . . . . . . . 42,989 28,784
Trade notes receivable, less allowance for doubtful notes
of $728 and $125 in 1996 and 1995, respectively (note 3) . . . . . . . . . . . . . 28,424 5,156
Inventories (note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,787 28,032
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,004 1,467
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,456 120,831
Long-term trade notes receivable (note 3). . . . . . . . . . . . . . . . . . . . . . . . 16,678 2,470
Deferred income tax asset (note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,062 --
Property, plant and equipment, net (note 4). . . . . . . . . . . . . . . . . . . . . . . 56,035 24,079
Goodwill, net of accumulated amortization of $4,115 and
$654 in 1996 and 1995, respectively . . . . . . . . . . . . . . . . . . . . . . . . . 64,200 4,724
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,034 13,383
-------- --------
$355,465 $165,487
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, principally trade . . . . . . . . . . . . . . . . . . . . . . . . . $19,518 $8,357
Accrued expenses (note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,751 6,861
Income taxes payable (note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,962 705
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 35,231 15,923
Other liabilities (note 11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,030 2,287
Deferred income tax liability (note 9) . . . . . . . . . . . . . . . . . . . . . . . . . -- 565
Commitments and contingencies (notes 10, 11 and 12)
Stockholders' equity (note 7):
Preferred stock, $.01 par value; authorized 5,000,000 shares, none issued . . . . . . -- --
Common stock, $.01 par value; authorized 50,000,000 shares; issued
42,969,676 shares in 1996 and 36,275,876 shares in 1995. . . . . . . . . . . . . . 430 363
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,259 83,045
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,145 65,658
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . (762) 206
Unamortized restricted stock compensation . . . . . . . . . . . . . . . . . . . . . . (868) (2,560)
-------- --------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . 317,204 146,712
-------- --------
$355,465 $165,487
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Years ended May 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales and other revenues (notes 8 and 10). . . . . . . . . . . . $278,283 $134,698 $95,752
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,811 71,440 50,560
---------- ---------- ----------
Gross profit.. . . . . . . . . . . . . . . . . . . . . . . . . . 114,472 63,258 45,192
---------- ---------- ----------
Operating expenses:
Research and development. . . . . . . . . . . . . . . . . . . . . 23,243 11,400 7,931
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . 12,027 6,789 4,673
General and administrative. . . . . . . . . . . . . . . . . . . . 19,096 11,817 8,980
Amortization of identified intangibles. . . . . . . . . . . . . . 4,305 1,331 762
---------- ---------- ----------
Total operating expenses . . . . . . . . . . . . . . . . . . . . 58,671 31,337 22,346
---------- ---------- ----------
Earnings from operations . . . . . . . . . . . . . . . . . . . . . . 55,801 31,921 22,846
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . (2,515) (30) (160)
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,091 3,944 1,466
---------- ---------- ----------
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . 56,377 35,835 24,152
Income taxes (note 9). . . . . . . . . . . . . . . . . . . . . . . . 17,700 11,335 7,589
---------- ---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,677 $ 24,500 $ 16,563
---------- ---------- ----------
---------- ---------- ----------
Earnings per common share. . . . . . . . . . . . . . . . . . . . . . $ 0.94 $ 0.66 $ 0.53
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of common shares outstanding . . . . . . . . 41,125,286 37,381,458 31,448,262
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1996, 1995, AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Unamortized
Common stock Additional Cumulative restricted Total
----------------------- paid-in Retained Translation stock stockholders'
Shares Amount capital earnings Adjustment compensation equity
---------- ---------- ---------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1993 . 29,948,320 $299 $24,745 $24,782 $ -- ($1,949) $47,877
Restricted stock issued. . 344,000 3 4,104 -- -- (4,107) --
Amortization of restricted
stock compensation . . . -- -- -- -- -- 1,444 1,444
Public offering. . . . . . 4,600,000 46 47,854 -- -- -- 47,900
Exercise of stock options. 539,600 6 1,396 -- -- -- 1,402
Business acquisition . . . 75,756 1 472 -- -- -- 473
Net earnings . . . . . . . -- -- -- 16,563 -- -- 16,563
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at May 31, 1994. . 35,507,676 355 78,571 41,345 -- (4,612) 115,659
Amortization of restricted
stock compensation . . . -- -- -- -- -- 2,052 2,052
Exercise of stock options. 768,200 8 4,604 -- -- -- 4,612
Equity reduction for SERP
Plan . . . . . . . . . . -- -- -- (187) -- -- (187)
Translation adjustment . . -- -- -- -- 206 -- 206
Public offering. . . . . . -- -- (130) -- -- -- (130)
Net earnings . . . . . . . -- -- -- 24,500 -- -- 24,500
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at May 31, 1995. . 36,275,876 363 83,045 65,658 206 (2,560) 146,712
Amortization of restricted
stock compensation . . . -- -- -- -- -- 1,692 1,692
Exercise of stock options. 943,800 9 11,502 -- -- -- 11,511
Equity reduction for SERP
Plan . . . . . . . . . . -- -- -- (187) -- -- (187)
Equity reduction for
Outside Directors
Retirement Plan. . . . . -- -- -- (3) -- -- (3)
Translation adjustment . . -- -- -- -- (968) -- (968)
Public offering. . . . . . 5,750,000 58 119,712 -- -- -- 119,770
Net earnings . . . . . . . -- -- -- 38,677 -- -- 38,677
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at May 31, 1996. . 42,969,676 $430 $214,259 104,145 ($762) ($868) $317,204
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended May 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . $38,677 $24,500 $16,563
Adjustments to reconcile net earnings to net cash
(used in) provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . 10,152 3,570 1,877
Amortization of restricted stock compensation. . . . . . . . 1,692 2,052 1,444
Deferred income taxes. . . . . . . . . . . . . . . . . . . . (1,627) (624) 32
Pension costs. . . . . . . . . . . . . . . . . . . . . . . . 90 284 242
Changes in assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . (47,157) (32,293) (38)
Inventories . . . . . . . . . . . . . . . . . . . . . . . (29,094) (5,920) (5,172)
Leased equipment. . . . . . . . . . . . . . . . . . . . . 1,332 (2,841) 1,295
Accounts payable and accrued expenses . . . . . . . . . . 7,224 3,099 4,256
Income taxes payable. . . . . . . . . . . . . . . . . . . (555) (1,097) 151
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (1,743) (1,185) (1,178)
-------- -------- --------
Net cash (used in) provided by operating activities. . (21,009) (10,455) 19,472
-------- -------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment. . . . . . . . . . . . . (10,240) (5,979) (4,010)
Acquisition of net assets and business . . . . . . . . . . . . . . (120,467) (5,500) (5,363)
Purchase of short-term investments . . . . . . . . . . . . . . . . -- (65,308) (49,103)
Maturities of short-term investments . . . . . . . . . . . . . . . -- 114,411 --
Investments in other assets. . . . . . . . . . . . . . . . . . . . (2,549) (3,697) (1,702)
-------- -------- --------
Net cash (used in) provided by investing activities. . (133,256) 33,927 (60,178)
-------- -------- --------
Cash flows from financing activities:
Borrowing from bank. . . . . . . . . . . . . . . . . . . . . . . . 97,800 -- --
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . (97,800) (591) (3,797)
Proceeds from sales of notes receivable. . . . . . . . . . . . . . -- 20,717 --
Proceeds from exercise of stock options. . . . . . . . . . . . . . 11,511 4,612 1,402
Net proceeds from public offerings . . . . . . . . . . . . . . . . 119,770 (130) 47,900
-------- -------- --------
Net cash provided by financing activities. . . . . . . 131,281 24,608 45,505
-------- -------- --------
Effect of foreign currency exchange rates. . . . . . . . . . . . . . (156) (1) --
-------- -------- --------
Net (decrease) increase in cash and cash equivalents . . . . . . . . (23,140) 48,079 4,799
Cash and cash equivalents at beginning of year . . . . . . . . . . . 57,392 9,313 4,514
-------- -------- --------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . $34,252 $57,392 $9,313
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION AND GENERAL
The consolidated financial statements include the accounts of Input/Output,
Inc. and its wholly-owned subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company designs, manufactures and markets seismic data acquisition
systems and peripheral seismic instruments for the oil and gas exploration and
production industry worldwide. Net sales and other operating revenues consist
primarily of net sales of products.
(b) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
(c) INVENTORIES
Inventories are stated at the lower of cost (primarily first-in, first-out)
or market. Revenue from the sale of products is recognized at the time of
shipment. The Company's obsolescence policy is to reserve for components that
have not been used in three years. The Company's components do not have an
ongoing service requirement.
(d) PROPERTY, PLANT AND EQUIPMENT
Plant and equipment are depreciated principally on a straight-line basis
using estimated useful lives as follows: building - 25 years, machinery and
equipment - five to eight years and other - three to eight years. Repairs and
maintenance are expensed as incurred. Gains and losses on sales and retirements
are recognized on disposal.
In fiscal 1997, the Company will adopt SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of." This
standard requires that long-lived assets and certain identified intangibles held
and used by an entity be reviewed for impairment whenever events indicate the
carrying amount of an asset may not be recoverable. Management believes that the
adoption of this standard will not materially affect reported earnings,
financial condition or cash flows.
(e) GOODWILL
Goodwill results from business acquisitions and represents the excess of
acquisition costs over the fair value of the net assets of businesses acquired.
Goodwill is amortized on a straight-line basis over 8 to 20 years. The Company
measures goodwill annually using undiscounted cash flows to assess
recoverability. The Company believes that no impairment of goodwill exists.
Accumulated amortization was $4,115,000 and $654,000 at May 31, 1996 and 1995,
respectively.
(f) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at discrete points in time based on relevant
market information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision.
F-7
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company believes that the carrying amounts of its current assets,
current liabilities, and long-term notes receivable approximate the fair value
of such items.
(g) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
(h) REVENUE RECOGNITION
The Company recognizes revenue at the shipment date. No right of return
exists regarding any product(s) sold by the Company.
(i) PRODUCT WARRANTIES
The Company warrants that all equipment manufactured by it will be free
from defects in workmanship, in material and parts ranging from 90 days to three
years from the date of original purchase depending on the product.
For new customers, the Company provides operator training, as well as
start-up and on-site support. The Company provides for estimated training,
installation and warranty costs as a charge to cost of sales at the time of
sale.
(j) INCOME TAXES
As of June 1, 1993, the Company adopted the Financial Accounting Standards
Board (FASB) Statement 109, "Accounting for Income Taxes". FASB 109 requires
deferred tax assets and liabilities be recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be recovered or settled. Under FASB 109 the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that included the enactment date. The adoption of FASB 109 had no
cumulative effect on the financial statements.
(k) EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of
shares of common stock outstanding during the respective years (41,125,286
shares in 1996, 37,381,458 shares in 1995; and 31,448,262 shares in 1994) after
giving retroactive effect to the changes in capital structure discussed in Note
7. For purposes of the computations, restricted stock has been added as a common
stock equivalent as of the date of grant. Stock options have been included from
the date of their issuance due to the dilutive effect on the computation.
(l) FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are generally translated at
current exchange rates and related translation adjustments are reported as a
component of stockholders' equity. Statements of operations are translated at
the average rates during the period.
F-8
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(m) STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information follows (in thousands):
Cash paid during the year for: 1996 1995 1994
------- ------- -------
Interest. . . . . . . . . . . . . . . . . . $ 2,515 $ 30 $ 160
------- ------- -------
------- ------- -------
Income taxes. . . . . . . . . . . . . . . . $10,692 $10,255 $ 7,256
------- ------- -------
------- ------- -------
Non-cash investing and financing activities:
Restricted stock issued:
Increase in common stock
Increase in paid in capital . . . . . . . . . $ -- $ -- $ 2
. . . . . . . . . . . . . . . . . . . . . . . -- -- 4,105
Increase in unamortized restricted
stock compensation . . . . . . . . . . . . -- -- (4,107)
------- ------- -------
------- ------- -------
$ -- $ -- $ --
------- ------- -------
------- ------- -------
Issuance of common stock in connection with
business acquisition (75,756 shares) . . . . $ -- $ -- $ 473
------- ------- -------
------- ------- -------
(n) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of 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.
(o) RECLASSIFICATION
Certain amounts previously reported in the financial statements have been
reclassified to conform to the current year presentation.
(2) INVENTORIES
A summary of inventories follows (in thousands):
1996 1995
------- -------
Raw Materials. . . . . . . . . . . . . . . $47,280 $17,024
Work-in-process. . . . . . . . . . . . . . 29,016 10,103
Finished goods . . . . . . . . . . . . . . 16,491 905
------- -------
$92,787 $28,032
------- -------
------- -------
F-9
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(3) TRADE NOTES RECEIVABLE
The current and long-term trade notes receivable at May 31, 1996 are
secured by seismic equipment sold by the Company, bearing interest at rates
ranging from 7% to 12% and are due at various dates to 2000. In assessing the
exposure to loss, management has considered the financial capabilities of the
borrowers to repay the notes and the net realizable value of the equipment
securing the notes.
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows (in thousands):
MAY 31,
----------------------
1996 1995
------- -------
Land . . . . . . . . . . . . . . . . . . . $ 3,801 $ 2,503
Building . . . . . . . . . . . . . . . . . 15,622 4,321
Machinery and equipment. . . . . . . . . . 39,136 16,378
Leased equipment . . . . . . . . . . . . . 8,338 4,846
Other. . . . . . . . . . . . . . . . . . . 6,425 3,381
------- -------
. . . . . . . . . . . . . . . . . . . . . 73,322 31,429
Less accumulated depreciation. . . . . . . 17,287 7,350
------- -------
. . . . . . . . . . . . . . . . . . . . . $56,035 $24,079
------- -------
------- -------
(5) ACCRUED EXPENSES
A summary of accrued expenses follows (in thousands):
MAY 31,
----------------------
1996 1995
------- -------
Compensation, including commissions. . . . $7,657 $4,377
Warranty, training and installation. . . . 3,731 1,771
Other. . . . . . . . . . . . . . . . . . . 2,363 713
------- -------
. . . . . . . . . . . . . . . . . . . . . $13,751 $6,861
------- -------
------- -------
(6) LONG-TERM DEBT
The Company had no long-term debt outstanding as of May 31, 1996. The
Company has a $50 million working capital line of credit with its lead bank
which had no current balance drawn against it as of May 31, 1996 and 1995.
F-10
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(7) STOCKHOLDERS' EQUITY
(a) CHANGES IN CAPITAL STRUCTURE
On January 9, 1996, the Company effected a two-for-one stock split for
stockholders of record on December 26, 1995. The consolidated financial
statements, including all references to the number of shares of common stock and
all per share information, have been adjusted to reflect the common stock split
on a retroactive basis.
In November 1995, the Company offered and sold 5,750,000 shares of its
common stock in an underwritten public offering. The proceeds to the Company
before deducting the Company's expenses of the offering were approximately
$120,175,000. The proceeds were used to retire indebtedness incurred in
connection with the WGEP Acquisition and for general corporate purposes.
On May 4, 1994, the Company effected a two-for-one stock split for
stockholders of record on April 18, 1994. The consolidated financial statements,
including all references to the number of shares of common stock and all per
share information, have been adjusted to reflect the common stock split on a
retroactive basis.
In May 1994, subsequent to the two-for-one stock split, the Company offered
and sold 4,600,000 shares of its common stock in an underwritten public
offering. The proceeds to the Company before deducting the Company's expenses of
the offering were approximately $47,955,000. The proceeds were used for the WGEP
Acquisition and general corporate purposes.
(b) STOCK OPTIONS AND RESTRICTED STOCK
STOCK OPTION PLANS. The Company has adopted a stock option plan for
eligible employees which provides for the granting of options to purchase a
maximum of 7,000,000 shares of common stock. Transactions under the employee
stock option plan are summarized as follows:
F-11
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
EMPLOYEE STOCK OPTION PLAN
<TABLE>
<CAPTION>
OPTION PRICE AVAILABLE
PER SHARE OUTSTANDING EXERCISABLE FOR GRANT
-------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
May 31, 1993 . . . . . . . . . . . . . $2.00-3.90625 2,544,500 506,700 422,900
-------------- -------------- -------------- --------------
Granted-444,000. . . . . . . . . . . . 6.8438-11.9375 444,000 -- (444,000)
Became exercisable . . . . . . . . . . -- -- 786,000 --
Exercised. . . . . . . . . . . . . . . 2.00-3.5625 (498,600) (498,600) --
Canceled/Forfeited . . . . . . . . . . 2.0313-3.50 (18,100) -- 18,100
-------------- -------------- -------------- --------------
May 31, 1994 . . . . . . . . . . . . . 2.00-11.9375 2,471,800 794,100 (3,000)
-------------- -------------- -------------- --------------
Increase in Shares Authorized. . . . . -- -- -- 4,000,000
Granted-139,000. . . . . . . . . . . . 9.375-16.875 139,000 -- (139,000)
Became exercisable . . . . . . . . . . -- -- 645,000 --
Exercised. . . . . . . . . . . . . . . 2.00-3.90625 (695,700) (695,700) --
Canceled/Forfeited . . . . . . . . . . 2.03125-3.50 (1,700) 1,700
-------------- -------------- -------------- --------------
May 31, 1995 . . . . . . . . . . . . . 2.00-16.875 1,913,400 743,400 3,859,700
-------------- -------------- -------------- --------------
Granted-816,750. . . . . . . . . . . . 17.8125-39.25 816,750 -- (816,750)
Became exercisable . . . . . . . . . . -- -- 544,600 --
Exercised. . . . . . . . . . . . . . . 2.00-11.9375 (741,300) (741,300) --
Canceled/Forfeited . . . . . . . . . . 3.50-17.8125 (6,000) -- 6,000
-------------- -------------- -------------- --------------
May 31, 1996 . . . . . . . . . . . . . $2.0313-$39.25 1,982,850 546,700 3,048,950
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
F-12
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company has also adopted a directors stock option plan which provides
for the granting of options to purchase a maximum of 1,014,000 shares of common
stock by the Company's non-employee directors. Transactions under the directors
stock option plan are summarized as follows:
DIRECTORS STOCK OPTION PLAN
<TABLE>
<CAPTION>
OPTION PRICE AVAILABLE
PER SHARE OUTSTANDING EXERCISABLE FOR GRANT
--------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
May 31, 1993 . . . . . . . . . . . . . $2.0313-$3.2188 264,000 72,000 480,000
--------------- ---------- ----------- ---------
Granted - 120,000. . . . . . . . . . . 5.75 120,000 -- (120,000)
Became exercisable . . . . . . . . . . -- -- 66,000 --
Exercised. . . . . . . . . . . . . . . 2.0313-3.2188 (41,000) (41,000) --
--------------- ---------- ----------- ---------
May 31, 1994 . . . . . . . . . . . . . 2.0313-5.75 343,000 97,000 360,000
--------------- ---------- ----------- ---------
Increase in shares authorized. . . . . -- -- -- 270,000
Granted - 210,000. . . . . . . . . . . 11.8438 210,000 (210,000)
Became exercisable . . . . . . . . . . -- -- 96,000 --
Exercised. . . . . . . . . . . . . . . 2.0313-11.8438 (72,000) (72,000) --
--------------- ---------- ----------- ---------
May 31, 1995 . . . . . . . . . . . . . 2.0313-11.8438 481,000 121,000 420,000
--------------- ---------- ----------- ---------
Granted 210,000. . . . . . . . . . . . 19.1875 210,000 -- (210,000)
Became exercisable . . . . . . . . . . -- -- 112,500 --
Exercised. . . . . . . . . . . . . . . 2.0313-11.8438 (202,500) (202,500) --
--------------- ---------- ----------- ---------
May 31, 1996 . . . . . . . . . . . . . $2.0313-$19.1875 488,500 31,000 210,000
--------------- ---------- ----------- ---------
--------------- ---------- ----------- ---------
</TABLE>
In fiscal 1997 the Company will adopt SFAS No. 123 Accounting for Stock-
Based Compensation. This standard establishes a fair value method for accounting
for stock-based compensation plans either through recognition or disclosure. The
Company intends to adopt the standard by disclosing the proforma net earnings
and earnings per share amounts assuming the fair value method was adopted June
1, 1996. The adoption of this standard in the opinion of management will not
have a material impact on results of operations, financial positions or cash
flows.
F-13
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
RESTRICTED STOCK PLAN. The Company adopted a restricted stock plan which
provides for the award of up to 610,000 shares of common stock to key officers
and employees. Ownership of the common stock will vest over a period of four
years. The restriction is removed from 50% of the shares after two year, 25% in
the third year and 25% in the fourth year. Shares awarded may not be sold,
assigned, transferred, pledged or otherwise encumbered by the grantee during the
vesting period. Except for these restrictions, the grantee of an award of shares
has all the rights of a stockholder, including the right to receive dividends
and the right to vote such shares. The Company has granted all shares of
restricted stock to certain employees.
The market value of shares of common stock granted under the restricted
stock plan was recorded as unamortized restricted stock compensation and shown
as a separate component of stockholders' equity. The restricted stock
compensation is amortized over the four-year vesting period.
(8) EXPORT SALES AND MAJOR CUSTOMERS:
A summary of net sales and other revenues from foreign customers by
geographic area follows (in thousands):
1996 1995 1994
-------- -------- --------
Europe . . . . . . . . . . . . . . $26,718 $15,871 $ 3,965
Canada and Mexico. . . . . . . . . 25,324 28,075 41,056
Middle East. . . . . . . . . . . . 20,192 4,665 2,118
Former Soviet Union. . . . . . . . 17,994 26,066 4,493
People's Republic of China . . . . 16,854 2,479 4,721
Africa . . . . . . . . . . . . . . 8,460 2,222 --
South America. . . . . . . . . . . 6,151 10,792 8,717
Pakistan and India . . . . . . . . 2,684 959 1,220
Other. . . . . . . . . . . . . . . 427 835 388
-------- -------- --------
$124,804 $91,964 $66,678
-------- -------- --------
-------- -------- --------
Net sales and other revenues from individual customers representing 10% or
more of net sales and other revenues were as follows:
Customer 1996 1995 1994
-------- ---- ---- ----
A. . . . . . . . . . . . . . . . . 32% 15% 14%
B. . . . . . . . . . . . . . . . . 10% 11% 13%
C. . . . . . . . . . . . . . . . . -- 5% 10%
D. . . . . . . . . . . . . . . . . 1% 4% 11%
(9) INCOME TAXES
Components of income taxes follow (in thousands):
1996 1995 1994
---- ---- ----
Current:
Federal . . . . . . . . . . . $14,615 $10,517 $6,550
Foreign . . . . . . . . . . . 3,986 1,007 860
State and local . . . . . . . 726 435 147
Deferred-Federal . . . . . . . . . (1,627) (624) 32
------- ------- -------
$17,700 $11,335 $7,589
------- ------- -------
------- ------- -------
F-14
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
A reconciliation of the expected income tax expense on earnings using the
statutory Federal income tax rate of 35% for the years ended 1996, 1995 and
1994, to the income tax expense reported herein is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Expected income tax expense:. . . . . . . . . . . . . . $19,732 $12,542 $8,453
Tax benefit from use of foreign sales corporation . . . (2,032) (982) (598)
Foreign tax credit. . . . . . . . . . . . . . . . . . . (305) (206) --
Research and development credit . . . . . . . . . . . . -- -- (293)
Foreign taxes . . . . . . . . . . . . . . . . . . . . . 118 (6) 431
State and local taxes . . . . . . . . . . . . . . . . . 472 283 96
Other . . . . . . . . . . . . . . . . . . . . . . . . . (285) (296) (500)
------ ------ -----
$17,700 $11,335 $7,589
------ ------ -----
------ ------ -----
</TABLE>
The tax effects of the cumulative temporary differences resulting in the
net deferred tax (asset) liability follow (in thousands):
<TABLE>
<CAPTION>
MAY 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,351) $ (620)
Allowance accounts. . . . . . . . . . . . . . . . . . . . . . . . . . (1,053) (378)
Unamortized restricted stock compensation . . . . . . . . . . . . . . (1,711) (1,347)
Uniform capitalization. . . . . . . . . . . . . . . . . . . . . . . . (409) (169)
-------- --------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . (4,524) (2,514)
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . -- --
-------- --------
Total deferred tax asset, net . . . . . . . . . . . . . . . . . . . (4,524) (2,514)
-------- --------
Basis in identified intangibles . . . . . . . . . . . . . . . . . . . 2,075 1,650
Basis in property, plant and equipment. . . . . . . . . . . . . . . . 150 1,100
Foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,237 322
-------- --------
Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . 3,462 3,079
-------- --------
Total deferred tax (asset) liability, net . . . . . . . . . . . . . . $ (1,062) $ 565
-------- --------
-------- --------
</TABLE>
Management believes that total deferred tax assets, net of valuation
allowance, will more likely than not be fully realized based on the Company's
historical earnings and future expectations of adjusted taxable income as well
as reversing gross deferred tax liabilities
(10) LEASES
The Company is a party to several leases as described below:
AS LESSOR: The Company leases seismic equipment to customers under
operating leases with noncancellable terms of less than one year. Rental income
relating to the operating leases was: $7,386,000 in 1996; $4,263,000 in 1995;
and $2,406,000 in 1994. The Company also owns a building with tenants. The
rental income relating to those leases was: $257,000 in 1996; $194,000 in 1995;
and $211,000 in 1994.
AS LESSEE: The Company had rental expense relating to operating leases for
a secondary facility and various equipment of: $1,801,000 in 1996; $680,000 in
1995; and $223,000 in 1994. At May 31, 1996, none of the operating leases had
noncancellable lease terms in excess of one year.
F-15
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(11) RETIREMENT PLANS
The Company has a 401(k) retirement savings plan which covers substantially
all employees. Employees may voluntarily contribute up to 16% of their
compensation, as defined, to the plan and the Company may contribute additional
amounts at its sole discretion. The Company's contributions to the plan were:
$1,933,000 in 1996; $980,000 in 1995; and $697,000 in 1994.
The Company has adopted a non-qualified, unfunded supplemental executive
retirement plan (SERP Plan). The SERP Plan provides for certain compensation to
become payable on the participant's death, retirement or total disability as set
forth in the plan. The SERP Plan is accounted for under Financial Accounting
Standards No. 87 "Employer's Accounting for Pensions". The fiscal 1996
consolidated financial statements include pension expense of $326,000, accrued
pension costs of $2,201,000, an intangible asset for unrecognized prior service
cost of $951,000 and equity reduction of $187,000.
The Company has adopted a non-qualified, unfunded outside directors
retirement plan (Directors Plan). The Directors Plan provides for certain
compensation to become payable on the participants death, retirement or total
disability as set forth in the plan. The Directors Plan is accounted for under
Financial Accounting Standards No. 87 "Employer's Accounting for Pensions." The
fiscal 1996 consolidated financial statements include pension expense of
$102,000, accrued pension costs of $447,000, an intangible asset for
unrecognized prior service cost of $149,000 and an equity reduction of $3,000.
(12) CREDIT RISK
At May 31, 1996 and 1995, the Company had guaranteed approximately
$30,307,000 and $14,556,000, respectively, of trade notes receivable sold with
recourse (note 3) and loans from unaffiliated parties to purchasers of the
Company's seismic equipment. All loans guaranteed are collateralized by the
seismic equipment. No loss from these guarantees has occurred as of May 31,
1996.
(13) SELECTED QUARTERLY INFORMATION - (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
1996 AUG. 31 NOV. 30 FEB. 28 MAY 31
- ---- ------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales and other revenues . . . . . . . . $54,758 $70,530 $77,074 $75,921
Gross profit . . . . . . . . . . . . . . . . 21,905 28,470 31,671 32,426
Earnings from operations . . . . . . . . . . 9,404 13,642 16,669 16,086
Interest expense . . . . . . . . . . . . . . (868) (1,647) -- --
Other income . . . . . . . . . . . . . . . . 880 (23) 724 1,510
Income taxes . . . . . . . . . . . . . . . . 3,013 3,831 5,566 5,290
------- ------- ------- -------
Net earnings . . . . . . . . . . . . . . . . $ 6,403 $ 8,141 $11,827 $12,306
------- ------- ------- -------
------- ------- ------- -------
Earnings per share . . . . . . . . . . . . . $0.17 $0.21 $0.27 $0.28
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
F-16
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
1995 AUG. 31 NOV. 30 FEB. 28 MAY 31
- ---- ------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales and other revenues . . . . . . . . $27,318 $34,215 $34,512 $38,653
Gross profit . . . . . . . . . . . . . . . . 13,002 15,891 16,734 17,631
Earnings from operations . . . . . . . . . . 6,224 7,995 8,928 8,774
Interest expense . . . . . . . . . . . . . . (24) (6) -- --
Other income . . . . . . . . . . . . . . . . 911 890 948 1,195
Income taxes . . . . . . . . . . . . . . . . 2,276 2,841 3,160 3,058
Net earnings . . . . . . . . . . . . . . . . $ 4,835 $ 6,037 $ 6,717 $ 6,911
------- ------- ------- -------
------- ------- ------- -------
Earnings per share . . . . . . . . . . . . . $ 0.13 $ 0.16 $ 0.18 $ 0.18
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
(14) WGEP ACQUISITION
On June 30, 1995, the Company completed the WGEP Acquisition for
approximately $121.3 million. The transaction was accounted for by the purchase
method of accounting. Accordingly, acquired assets and assumed liabilities were
recorded at their estimated fair values, which resulted in goodwill of
approximately $62.9 million that will be amortized over 20 years. A summary of
the final purchase price allocation is as follows (in thousands):
Cash. . . . . . . . . . . . . . . . . . $1,000
Trade accounts receivable . . . . . . . 4,500
Inventories . . . . . . . . . . . . . . 35,600
Prepaid expenses. . . . . . . . . . . . 300
Property, plant and equipment . . . . . 28,700
Other assets. . . . . . . . . . . . . . 1,000
Goodwill. . . . . . . . . . . . . . . . 62,900
Accounts payable. . . . . . . . . . . . (1,400)
Accrued expenses. . . . . . . . . . . . (9,500)
Income taxes payable. . . . . . . . . . (1,800)
--------
Purchase price. . . . . . . . . . . . . $121,300
--------
--------
The following unaudited condensed proforma statement of operations presents
the results of operations for the year ended May 31, 1996 and 1995 as if the
purchase had occurred on June 1, 1994. The proforma results are not necessarily
indicative of the financial results that might have occurred had the transaction
actually taken place on June 1, 1994, or of future results of operations
(dollars in thousands). (Unaudited)
MAY 31,
--------------------------
1996 1995
----------- -----------
Net sales and other revenues. . . . . . . . . $ 292,405 $ 239,617
Earnings from operations. . . . . . . . . . . 52,874 11,411
Net Earnings. . . . . . . . . . . . . . . . . 36,162 4,982
----------- -----------
Earnings per common share . . . . . . . . . . $ 0.88 $ 0.13
----------- -----------
----------- -----------
Weighted average number of common shares. . . $41,125,286 $37,381,458
----------- -----------
----------- -----------
F-17
<PAGE>
EXHIBIT 10.17
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "AGREEMENT"), dated as of May 7, 1996, is
among INPUT/OUTPUT, INC., a corporation duly organized and validly existing
under the laws of the State of Delaware ("BORROWER"), each of the banks or other
lending institutions which is or which may from time to time become a signatory
hereto or any successor or assignee thereof (individually, a "BANK" and,
collectively, the "BANKS"), and FIRST INTERSTATE BANK OF TEXAS, N.A., a national
banking association, as issuing bank (in such capacity, together with its
successors in such capacity, the "ISSUING BANK") and as agent for itself, the
Issuing Bank and the other Banks (in such capacity, together with its successors
in such capacity, the "AGENT").
R E C I T A L S:
The Borrower has requested that the Banks extend credit to the Borrower
in the form of revolving credit facility under which Borrower may request (i)
Revolving Credit Loans, (ii) Letters of Credit (subject to a $15,000,000
sublimit) and (iii) financing by the Bank for Customers (subject to a
$25,000,000 sublimit) in the form of either (1) loans from the Banks to such
Customers to finance purchase money obligations to acquire Equipment from the
Borrower (which loans will be guaranteed by the Borrower in the event of default
thereunder, with a right to purchase in favor of the Borrower) or (2) the
purchase by the Banks of Conditional Sales Contracts pursuant to which Customers
of the Borrower acquired Equipment in a transaction financed by the Borrower
(each such purchase to be guaranteed by the Borrower in the event of a default
thereunder, with a right to repurchase in favor of the Borrower), such revolving
credit facility not to exceed $50,000,000 outstanding at any time. The Banks
are willing to make such extensions of credit to the Borrower upon the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1 DEFINITIONS. As used in this Agreement, the following
terms have the following meanings:
"ADDITIONAL COSTS" has the meaning specified in Section 6.1.
"ADJUSTED EURODOLLAR RATE" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) determined by the Agent to be equal
to the Eurodollar Rate for such Eurodollar Loan for such Interest Period
divided by 1 minus the Reserve Requirement for such Eurodollar Loan for
such Interest Period.
CREDIT AGREEMENT - Page 1
<PAGE>
"AFFILIATE" means, as to any Person, any other Person (a) that
directly or indirectly, through one or more intermediaries, controls or
is controlled by, or is under common control with, such Person; (b) that
directly or indirectly beneficially owns or holds five percent or more of
any class of voting stock of such Person; or (c) five percent or more of
the voting stock of which is directly or indirectly beneficially owned or
held by the Person in question. The term "control" means the possession,
directly or indirectly, of the power to direct or cause direction of the
management and policies of a Person, whether through the ownership of
voting securities, by contract, or otherwise; PROVIDED, however, in no
event shall the Agent, the Issuing Bank or any Bank be deemed an
Affiliate of the Borrower or any of its Subsidiaries.
"APPLICABLE LENDING OFFICE" means for each Bank and each Type of
Loan, the Lending Office of such Bank (or of an Affiliate of such Bank)
designated for such Type of Loan below its name on the signature pages
hereof or such other office of such Bank (or of an Affiliate of such
Bank) as such Bank may from time to time specify to the Borrower and the
Agent as the office by which its Loans of such Type are to be made and
maintained.
"APPLICABLE MARGIN" means (i) 1.25% during any period in which the
Funded Debt to Capitalization Ratio (as shown on the certificate of no
default delivered pursuant to Section 10.1(c)) is less than 30%; (ii)
1.5% during any period in which the Funded Debt to Capitalization Ratio
(as shown on the certificate of no default delivered pursuant to Section
10.1(c)) is 30% or greater but less than 45%; and (iii) 1.75% during any
period in which the Funded Debt to Capitalization Ratio (as shown on the
certificate of no default delivered pursuant to Section 10.1(c)) is 45%
or greater. Notwithstanding the foregoing, in the event the Borrower
fails to furnish to the Agent the certificate of no default by the date
required by Section 10.1(c), then the maximum Applicable Margin provided
for above shall apply to all Interest Periods commencing thereafter for
Eurodollar Advances and at all times thereafter for Prime Rate Advances
until the Borrower furnishes the required certificate of no default to
the Agent. The initial Applicable Margin shall be 1.25%.
"APPLICABLE RATE" means: (a) during the period that a Loan is a
Prime Rate Loan, the Prime Rate; and (b) during the period that a Loan is
a Eurodollar Loan, the Adjusted Eurodollar Rate plus the Applicable
Margin.
"ASSIGNEE" has the meaning assigned to it in Section 15.8(b).
"ASSIGNING BANK" has the meaning assigned to it in Section
15.8(b).
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance
entered into by a Bank and its assignee and accepted by the Agent
pursuant to Section 15.8, in substantially the form of Exhibit "E"
hereto.
"BASLE ACCORD" means the proposals for risk-based capital
framework described by the Basle Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988,
CREDIT AGREEMENT - Page 2
<PAGE>
as amended, supplemented and otherwise modified and in effect from time
to time, or any replacement thereof.
"BORROWING BASE" means, at any particular time, an amount equal to
the sum of (a) 80% of Eligible Accounts, plus (b) the lesser of
(1) $15,000,000 or (2) 25% of Eligible Inventory.
"BORROWING BASE REPORT" means a Borrowing Base Report delivered or
to be delivered to the Agent in the form of Exhibit "F" hereto.
"BUSINESS DAY" means (a) any day on which commercial banks are not
authorized or required to close in Houston, Texas, and, (b) with respect
to all borrowings, payments, Conversions, Continuations, Interest
Periods, and notices in connection with Eurodollar Loans, any day which
is a Business Day described in clause (a) above and which is also a day
on which dealings in Dollar deposits are carried out in the London
interbank market.
"CAPITAL LEASE OBLIGATIONS" means, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of
(or other agreement conveying the right to use) real and/or personal
property, which obligations are required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP. For
purposes of this Agreement, the amount of such Capital Lease Obligations
shall be the capitalized amount thereof, determined in accordance with
GAAP.
"CODE" means the Internal Revenue Code of 1986, as amended, and
the regulations promulgated and rulings issued thereunder.
"COMMITMENTS" means, as to each Bank, its Revolving Credit
Commitment.
"CONDITIONAL SALES CONTRACTS" means, at any time, conditional
sales contracts between the Borrower or one of its Subsidiaries and a
Customer that are entered into in connection with a contemporaneous sale
by the Borrower or one of its Subsidiaries of Equipment to such Customer
satisfying the conditions set forth in Section 3.2 and which conditional
sales contracts are purchased and then owned by the Agent (for the
ratable benefit of the Banks), and a "Conditional Sales Contract" means
any one of the Conditional Sales Contracts. The form and substance of
each Conditional Sales Contract must be satisfactory to the Agent and the
Banks in their sole discretion.
"CONDITIONAL SALES CONTRACT LIABILITIES" means, at any time, the
aggregate unpaid sales price outstanding under all Conditional Sales
Contracts.
"CONSOLIDATED LIABILITIES" means, at any particular time, all
amounts which, in conformity with GAAP, would be included as liabilities
on a consolidated balance sheet of the Borrower and the Subsidiaries,
including all Contingent Liabilities.
CREDIT AGREEMENT - Page 3
<PAGE>
"CONSOLIDATED NET WORTH" means, at any particular time, all
amounts which, in conformity with GAAP, would be included as
stockholders' equity on a consolidated balance sheet of the Borrower and
the Subsidiaries.
"CONSOLIDATED TANGIBLE NET WORTH" means, at any particular time,
all amounts which, in conformity with GAAP, would be included as
Consolidated Net Worth; PROVIDED, however, there shall be excluded
therefrom: (a) any amount at which shares of capital stock of the
Borrower appear as an asset on the Borrower's balance sheet, (b)
goodwill, including any amounts, however designated, that represent the
excess of the purchase price paid for assets or stock over the value
assigned thereto, (c) patents, trademarks, trade names, and copyrights,
(d) deferred expenses, (e) loans and advances, other than travel and
expense related advances to any stockholder, director, officer, or
employee of the Borrower or any Affiliate of the Borrower not made in the
ordinary course of business, and (f) all other assets which are properly
classified as intangible assets.
"CONTINGENT LIABILITIES" means, as applied to any Person, those
direct or indirect liabilities of that Person with respect to any Debt,
lease, dividend, letter of credit or other obligation (the "PRIMARY
OBLIGATIONS") of another Person (the "PRIMARY OBLIGOR"), including,
without limitation, any obligation of such Person, whether or not
contingent, (a) to purchase, repurchase or otherwise acquire such primary
obligations or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or
discharge of any such primary obligation, or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain
the net worth or solvency or any balance sheet item, level of income or
financial condition of the primary obligor, or (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of
any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, or (d) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof. The amount of any Contingent Liabilities shall be deemed to be
an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Liabilities are made or,
if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by the Borrower in good faith.
"CONTINUE," "CONTINUATION," and "CONTINUED" shall refer to the
continuation pursuant to Section 5.2 of a Eurodollar Loan as a Eurodollar
Loan from one Interest Period to the next Interest Period.
"CONVERT," "CONVERSION," and "CONVERTED" shall refer to a
conversion pursuant to Section 5.2 or Article VI of one Type of Loan into
another Type of Loan.
"CUSTOMER" means a purchaser of Equipment from the Borrower or one
of the Borrower's subsidiaries.
CREDIT AGREEMENT - Page 4
<PAGE>
"CUSTOMER CONFIRMATION" means, with respect to each Conditional
Sales Contract, a confirmation and agreement from the Customer to the
Agent in substantially the form of Exhibit "G" hereto.
"CUSTOMER LOAN DOCUMENTS" means such loan agreements, notes,
Customer Security Agreements and other documents as the Agent, the
Required Banks and the Borrower may require, the form and substance of
which shall be satisfactory to the Agent and the Required Banks.
"CUSTOMER LOAN LIABILITIES" means, at any time, the aggregate
unpaid principal amount outstanding under all Customer Loans.
"CUSTOMER LOANS" means, at any time, loans made by the Agent on
behalf of the Banks (or by Wells Fargo so long as it is the only Bank)
Customers in connection with a contemporaneous sale by the Borrower or
one of its Subsidiaries of Equipment to such Customer satisfying the
conditions set forth in Section 3.2, and a "Customer Loan" means any one
of the Customer Loans. (The loan made by Wells Fargo to Coastline
Geophysical, Inc. in March of 1996, which loan is guaranteed by the
Borrower, is one of the Customer Loans hereunder.)
"CUSTOMER SECURITY AGREEMENT" means each security agreement in
form and substance acceptable to the Agent and the Borrower, together
with such financing statements required by the Agent, executed by a
Customer in favor of Agent in connection with a Customer Loan made by the
Agent (such security agreement may be contained in the Conditional Sale
Agreement applicable to such Customer).
"DEBT" means as to any Person at any time (without duplication):
(a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, notes, debentures, or
other similar instruments, (c) all obligations of such Person to pay the
deferred purchase price of property or services, except trade accounts
payable of such Person arising in the ordinary course of business that
are not past due by more than 90 days, (d) all Capital Lease Obligations
of such Person, (e) all obligations secured by a Lien existing on
property owned by such Person, whether or not the obligations secured
thereby have been assumed by such Person or are non-recourse to the
credit of such Person, (f) all reimbursement obligations of such Person
(whether contingent or otherwise) in respect of letters of credit,
bankers' acceptances, surety or other bonds and similar instruments, and
(g) all liabilities of such Person in respect of unfunded vested benefits
under any Plan.
"DEFAULT" means an Event of Default or the occurrence of an event
or condition which with notice or lapse of time or both would become an
Event of Default.
"DEFAULT RATE" means the lesser of (i) the Maximum Rate, or (ii)
the sum of the Applicable Rate in effect from day to day, plus three
percent.
"DOLLARS" and "$" mean lawful money of the United States of
America.
CREDIT AGREEMENT - Page 5
<PAGE>
"ELIGIBLE ACCOUNTS" means, at any time, all accounts receivable of
the Borrower created in the ordinary course of business that are
acceptable to the Agent in its sole discretion and satisfy the following
conditions:
(a) The account complies with all applicable laws,
rules, and regulations, including, without limitation, usury laws,
the Federal Truth in Lending Act, and Regulation Z of the Board of
Governors of the Federal Reserve System;
(b) The account has not been outstanding for more than
120 days past the original date of invoice;
(c) The account was created in connection with (i) the
sale of goods by the Borrower in the ordinary course of business
and such sale has been consummated and such goods have been
shipped and delivered and received by the account debtor, or (ii)
the performance of services by the Borrower in the ordinary course
of business and such services have been completed and accepted by
the account debtor;
(d) The account arises from an enforceable contract, the
performance of which has been completed by the Borrower;
(e) The account does not arise from the sale of any good
that is on a bill-and-hold, guaranteed sale, sale-or-return, sale
on approval, consignment, or any other repurchase or return basis;
(f) The Borrower has good and indefeasible title to the
account and the account is not subject to any Lien except Liens in
favor of the Agent;
(g) The account does not arise out of a contract with or
order from, an account debtor that, by its terms, prohibits or
makes void or unenforceable the grant of a security interest by
the Borrower to the Agent in and to such account;
(h) The account is not subject to any setoff,
counterclaim, defense, dispute, recoupment, or adjustment other
than normal discounts for prompt payment;
(i) The account debtor is not insolvent or the subject
of any bankruptcy or insolvency proceeding and has not made an
assignment for the benefit of creditors, suspended normal business
operations, dissolved, liquidated, terminated its existence,
ceased to pay its debts as they become due, or suffered a receiver
or trustee to be appointed for any of its assets or affairs;
(j) The account is not evidenced by chattel paper or an
instrument;
(k) No default exists under the account by any party
thereto;
CREDIT AGREEMENT - Page 6
<PAGE>
(l) The account debtor has not returned or refused to
retain, or otherwise notified the Borrower of any dispute
concerning, or claimed nonconformity of, any of the goods from the
sale of which the account arose;
(m) The account is not owed by an Affiliate of the
Borrower;
(n) The account is payable in Dollars by the account
debtor;
(o) The account shall be ineligible if more than 25% of
the aggregate balances then outstanding on accounts owed by such
account debtor and its Affiliates to the Borrower are more than
120 days past due from the dates of their original invoices;
(p) The account shall be ineligible if the account
debtor is the United States of America or any department, agency,
or instrumentality thereof, and the Federal Assignment of Claims
Act of 1940, as amended, shall not have been complied with; and
(q) The account has not been otherwise determined by the
Agent in its reasonable discretion to be ineligible because of the
credit worthiness of the account debtor.
The amount of the Eligible Accounts owed by an account debtor to the
Borrower shall be reduced by the amount of all "contra accounts" and
other obligations owed by the Borrower to such account debtor.
"ELIGIBLE ASSIGNEE" means any commercial bank, savings and loan
association, savings bank, finance company, insurance company, pension
fund, mutual fund, or other financial institution (whether a corporation,
partnership, or other entity) acceptable to the Agent and unless an Event
of Default has occurred and is continuing, reasonably approved by
Borrower to the extent required in Section 15.8, such approval by
Borrower not to be unreasonably withheld or delayed.
"ELIGIBLE INVENTORY" means, at any time, all inventory of raw
materials, work in process, and finished goods then owned by (and in the
possession or under the control of) the Borrower and held for sale or
disposition in the ordinary course of the Borrower's business, valued at
the lower of actual cost or fair market value. Eligible Inventory shall
not include (a) inventory that has been shipped or delivered to a
customer on consignment, a sale-or-return basis, or on the basis of any
similar understanding, (b) inventory with respect to which a claim exists
disputing the Borrower's title to or right to possession of such
inventory, (c) inventory that is not in good condition or does not comply
with any applicable law, rule, or regulation or any standard imposed by
any Governmental Authority with respect to its manufacture, use, or sale,
and (d) inventory that the Agent, in its reasonable discretion, has
determined to be unmarketable.
CREDIT AGREEMENT - Page 7
<PAGE>
"ENVIRONMENTAL LAWS" means any and all federal, state, and local
laws, regulations, and requirements pertaining to health, safety, or the
environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Section 9601 ET SEQ., the Resource Conservation and Recovery Act of 1976,
42 U.S.C. Section 6901 ET SEQ., the Occupational Safety and Health Act,
29 U.S.C. Section 651 ET SEQ., the Clean Air Act, 42 U.S.C. Section 7401
ET SEQ., the Clean Water Act, 33 U.S.C. Section 1251 ET SEQ., and the
Toxic Substances Control Act, 15 U.S.C. Section 2601 ET SEQ., as such
laws, regulations, and requirements may be amended or supplemented from
time to time.
"ENVIRONMENTAL LIABILITIES" means, as to any Person, all
liabilities, obligations, responsibilities, Remedial Actions, losses,
damages, punitive damages, consequential damages, treble damages, costs,
and expenses (including, without limitation, all reasonable fees,
disbursements and expenses of counsel, expert and consulting fees and
costs of investigation and feasibility studies), fines, penalties,
sanctions, and interest incurred as a result of any claim or demand, by
any Person, whether based in contract, tort, implied or express warranty,
strict liability, criminal or civil statute, including any Environmental
Law, permit, order or agreement with any Governmental Authority or other
Person, arising from environmental, health or safety conditions or the
Release or threatened Release of a Hazardous Material into the
environment, resulting from the past, present, or future operations of
such Person or its Affiliates.
"EQUIPMENT" means finished goods manufactured or assembled by the
Borrower or one of its Subsidiaries, or both, and sold to customers in
the ordinary course of business, such equipment may be new, previously
leased or previously sold and repossessed.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations and published
interpretations thereunder.
"ERISA AFFILIATE" means any corporation or trade or business which
is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as the Borrower or is under common
control (within the meaning of Section 414(c) of the Code) with the
Borrower.
"EURODOLLAR LOANS" means Loans the interest rates on which are
determined on the basis of the rates referred to in the definition of
"Adjusted Eurodollar Rate" in this Section 1.1.
"EURODOLLAR RATE" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of 1%) quoted by the Reference Bank at approximately
11:00 A.M. London time (or as soon thereafter as practicable) two
Business Days prior to the first day of such Interest Period for the
offering by the Reference Bank to leading banks in the London interbank
market of Dollar deposits in immediately available funds having a term
comparable to such Interest Period and in an amount comparable to the
principal amount of the Eurodollar Loan made by the Reference Bank to
which such Interest Period relates. If the Reference Bank is not
participating in any
CREDIT AGREEMENT - Page 8
<PAGE>
Eurodollar Loans during any Interest Period therefor (pursuant to
Section 6.4 or for any other reason), the Adjusted Eurodollar Rate
for such Loans for such Interest Period shall be determined by
reference to the amount of the Loans which the Reference Bank would
have made had it been participating in such Loans.
"EVENT OF DEFAULT" has the meaning specified in Section 13.1.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (a) if the
day for which such rate is to be determined is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Business Day as so published on the next succeeding
Business Day, and (b) if such rate is not so published on such next
succeeding Business Day, the Federal Funds Rate for any day shall be the
average rate charged to Wells Fargo on such day on such transactions as
determined by the Agent.
"FINANCED SALES" means, at any time, outstanding Conditional Sales
Contracts and Customer Loans then held by the Agent (or by Wells Fargo);
"FINANCED SALE" means one of the Financed Sales.
"FINANCED SALE ASSIGNMENT" means an assignment, in substantially
the form of Exhibit "I" hereto, properly completed and signed by the
Borrower or one of its Subsidiaries, of a Conditional Sales Contract.
"FINANCED SALES LIABILITIES" means, at any time, the sum of
Conditional Sales Contracts Liabilities and Customer Loan Liabilities.
"FINANCED SALES PARTICIPATION" means, with respect to any Bank,
the amount of participating interest held by such Bank in respect of a
Financed Sale.
"FINANCED SALES REQUEST FORM" means a certificate, in
substantially the form of Exhibit "D" hereto, properly completed and
signed by the Borrower requesting the Agent (on behalf of the Banks) (or
Wells Fargo if it is the only Bank) to advance funds to the Borrower or a
Customer (as appropriate) with respect to a Financed Sale.
"FIXED CHARGES" means, for any period, the sum of the current
portion of scheduled payments of long-term Debt of Borrower and its
Subsidiaries (determined on a consolidated basis), plus Interest Expense
for the four preceding quarters, plus cash dividends paid during such
period by Borrower and its Subsidiaries (determined on a consolidated
basis).
"FOREIGN SUBSIDIARY" means a Subsidiary organized under the laws
of a jurisdiction located outside of the United States of America or any
of its territories.
CREDIT AGREEMENT - Page 9
<PAGE>
"FUNDED DEBT" means, at any time, the current portion of scheduled
payments of long-term Debt of Borrower and its Subsidiaries (determined
on a consolidated basis), plus the long-term Debt of Borrower and its
Subsidiaries (determined on a consolidated basis), plus the short term
Debt of Borrower and its Subsidiaries (determined on a consolidated
basis).
"FUNDED DEBT TO CAPITALIZATION RATIO" means, at any time, the
ratio of Funded Debt to the sum of Funded Debt plus Consolidated Net
Worth.
"GAAP" means generally accepted accounting principles, applied on
a consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board and/or their
respective successors and which are applicable in the circumstances as of
the date in question. Accounting principles are applied on a "consistent
basis" when the accounting principles applied in a current period are
comparable in all material respects to those accounting principles
applied in a preceding period.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state
or political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or
other obligation of any other Person and, without limiting the generality
of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (a) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise)
or (b) entered into for the purpose of assuring in any other manner the
obligee of such Debt or other obligation of the payment thereof or to
protect the obligee against loss in respect thereof (in whole or in
part), provided that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"GUARANTIES" means the guaranties (including a right of purchase
or repurchase, as applicable) in substantially the form of Exhibit "H"
hereto, with appropriate completions, to be executed and delivered to the
Agent in connection with Financed Sales; "GUARANTY" means one of the
Guaranties.
"HAZARDOUS MATERIAL" means any substance, product, waste,
pollutant, material, chemical, contaminant, constituent, or other
material which is or becomes listed, regulated, or addressed under any
Environmental Law, including, without limitation, asbestos, petroleum,
and polychlorinated biphenyls.
CREDIT AGREEMENT - Page 10
<PAGE>
"INTEREST PERIOD" means, with respect to any Eurodollar Loans,
each period commencing on the date such Loan is made or Converted from a
Loan of another Type or, in the case of each subsequent, successive
Interest Period applicable to a Eurodollar Loan, the last day of the next
preceding Interest Period with respect to such Loan, and ending on the
numerically corresponding day in the first, second or third calendar
month thereafter, as the Borrower may select as provided in Section 5.1
or 5.2 hereof, except that each such Interest Period which commences on
the last Business Day of a calendar month (or on any day for which there
is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month.
Notwithstanding the foregoing: (a) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, in the case of an Interest Period for
Eurodollar Loans if such succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day); (b) any
Interest Period which would otherwise extend beyond the applicable
Termination Date shall end on such Termination Date; (c) no more than six
(6) Interest Periods for Eurodollar Loans shall be in effect at the same
time; (d) no Interest Period for any Eurodollar Loans shall have a
duration of less than one (1) month and, if the Interest Period for any
Eurodollar Loans would otherwise be a shorter period, Eurodollar Loans
shall not be available hereunder; and (e) no Interest Period may extend
beyond a principal repayment date unless, after giving effect thereto,
the aggregate principal amount of the Eurodollar Loans having Interest
Periods that end after such principal payment date shall be equal to or
less than the Loans to be outstanding hereunder after such principal
payment date.
"ISSUING BANK" means, with respect to any Letter of Credit, Wells
Fargo and any successor Issuing Bank appointed pursuant to the terms of
Section 4.9.
"L/C APPLICATION" has the meaning specified in Section 4.1.
"L/C DOCUMENTS" has the meaning specified in Section 4.1.
"LC PARTICIPATION" means, with respect to any Bank at any time,
the amount of the participating interest held by such Bank in respect of
a Letter of Credit.
"LETTER OF CREDIT" means any letter of credit issued by the
Issuing Bank for the account of the Borrower pursuant to Article IV.
"LETTER OF CREDIT LIABILITIES" means, at any time, the aggregate
face amounts of all outstanding Letters of Credit.
"LETTER OF CREDIT REQUEST FORM" means a certificate, in
substantially the form of Exhibit "C" hereto, properly completed and
signed by the Borrower requesting issuance of a Letter of Credit.
CREDIT AGREEMENT - Page 11
<PAGE>
"LEVERAGE RATIO" means, at any particular time, the ratio of
Consolidated Liabilities to Consolidated Net Worth.
"LIEN" means any lien, mortgage, security interest, tax lien,
financing statement, pledge, charge, hypothecation, assignment,
preference, priority, or other encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or title
retention agreement), whether arising by contract, operation of law, or
otherwise.
"LOAN DOCUMENTS" means this Agreement and all promissory notes,
security agreements, pledge agreements, Guaranties, deeds of trust, fee
letters, assignments, guaranties, letters of credit, letter of credit
applications and other instruments, documents, and agreements executed
and delivered pursuant to or in connection with this Agreement, as such
instruments, documents, and agreements may be amended, modified, renewed,
extended, or supplemented from time to time.
"LOAN REQUEST FORM" means a certificate, in substantially the form
of Exhibit "B" hereto, properly completed and signed by the Borrower
requesting a Loan.
"LOANS" means the Revolving Credit Loans and the Term Loans.
"MATERIAL SUBSIDIARY" means any Subsidiary whose (a) net worth
(calculated in accordance with GAAP) at the time of determination exceeds
$3,000,000, or (b) total assets (determined in accordance with GAAP)
exceeds an amount equal to 5% of the total assets of the Borrower and the
Subsidiaries determined on a consolidated basis in accordance with GAAP.
"MAXIMUM RATE" means, at any time and with respect to any Bank,
the maximum rate of interest under applicable law that such Bank may
charge the Borrower. The Maximum Rate shall be calculated in a manner
that takes into account any and all fees, payments, and other charges in
respect of the Loan Documents that constitute interest under applicable
law. Each change in any interest rate provided for herein based upon the
Maximum Rate resulting from a change in the Maximum Rate shall take
effect without notice to the Borrower at the time of such change in the
Maximum Rate. For purposes of determining the Maximum Rate under Texas
law, the applicable rate ceiling shall be the indicated rate ceiling
described in, and computed in accordance with, Article 5069-1.04,
Vernon's Texas Civil Statutes.
"MULTIEMPLOYER PLAN" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the
Borrower or any ERISA Affiliate and which is covered by Title IV of
ERISA.
"NET INCOME" means, for any period, the consolidated net income of
Borrower and its Subsidiaries for such period determined in accordance
with GAAP provided that there shall be excluded therefrom: (a) any net
income (or net loss) of any Person in which Borrower has an ownership
interest other than the Subsidiaries, except to the extent that any
CREDIT AGREEMENT - Page 12
<PAGE>
such income has actually been received by the Borrower in the form of
cash dividends or similar distributions; (b) any net gains on the sale or
other disposition, not in the ordinary course of business, of investments
and other capital assets, provided that there shall also be excluded any
related charges for taxes thereon and other costs associated with the
sale or other disposition thereof; and (c) any net gain arising from the
collection of proceeds of any insurance policy.
"OBLIGATED PARTY" means any Person who is or becomes party to any
agreement that guarantees or secures payment and performance of the
Obligations or any part thereof.
"OBLIGATIONS" means all obligations, indebtedness, and liabilities
of the Borrower to the Agent, the Issuing Bank and the Banks, or any or
some of them, arising pursuant to any of the Loan Documents, now existing
or hereafter arising, whether direct, indirect, related, unrelated,
fixed, contingent, liquidated, unliquidated, joint, several, or joint and
several, including, without limitation, the obligations, indebtedness,
and liabilities of the Borrower under this Agreement and the other Loan
Documents (including, without limitation, all of Borrower's contingent
reimbursement obligations in respect of Letters of Credit and Guaranties
of Financed Sales), and all interest accruing thereon and all attorneys'
fees and other expenses incurred in the enforcement or collection
thereof.
"OPERATING LEASE" means any lease (other than a lease constituting
a Capital Lease Obligation) of real or personal property.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to all or any of its functions under ERISA.
"PAYOR" has the meaning assigned to it in Section 5.7.
"PERMITTED DEBT" has the meaning specified in Section 11.1.
"PERMITTED LIENS" has the meaning specified in Section 11.2.
"PERSON" means any individual, corporation, business trust,
association, company, partnership, joint venture, Governmental Authority,
or other entity.
"PLAN" means any employee benefit or other plan established or
maintained by the Borrower or any ERISA Affiliate and which is covered by
Title IV of ERISA.
"PRIME RATE" means, at any time, the rate of interest per annum
then most recently established by the Agent as its prime rate, which rate
may not be the lowest rate of interest charged by the Agent to its
borrowers. Each change in any interest rate provided for herein based
upon the Prime Rate resulting from a change in the Prime Rate shall take
effect without notice to the Borrower at the time of such change in the
Prime Rate.
CREDIT AGREEMENT - Page 13
<PAGE>
"PRIME RATE LOANS" means Loans that bear interest at rates based
upon the Prime Rate.
"PRINCIPAL OFFICE" means the principal office of the Agent,
presently located at 1000 Louisiana, Houston, Texas 77002.
"PROHIBITED TRANSACTION" means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Code.
"QUARTERLY PAYMENT DATE" means the last day of each September,
December, March and June of each year, the first of which shall be the
first such day after the date of this Agreement.
"REFERENCE BANK" means the Agent.
"REGISTER" has the meaning assigned to it in Section 15.8(d).
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from
time to time.
"REGULATORY CHANGE" means, with respect to any Bank, any change
after the date of this Agreement in United States federal, state, or
foreign laws or regulations (including Regulation D) or the adoption or
making after such date of any interpretations, directives, or requests
applying to a class of banks including such Bank of or under any United
States federal or state, or any foreign, laws or regulations (whether or
not having the force of law) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"RELEASE" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, disbursement, leaching,
or migration of Hazardous Materials into the indoor or outdoor
environment or into or out of property owned by such Person, including,
without limitation, the movement of Hazardous Materials through or in the
air, soil, surface water, ground water, or property.
"REMEDIAL ACTION" means all actions required to (a) clean up,
remove, treat, or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or
minimize the further Release of Hazardous Materials so that they do not
migrate or endanger or threaten to endanger public health or welfare or
the indoor or outdoor environment, or (c) perform pre-remedial studies
and investigations and post-remedial monitoring and care.
"REQUIRED BANKS" means at any time while no Loans, Financed Sales
Liabilities or Letter of Credit Liabilities are outstanding, Banks having
at least 66-2/3% of the aggregate amount of the Commitments and, at any
time while Loans or Letter of Credit Liabilities are
CREDIT AGREEMENT - Page 14
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outstanding, Banks holding at least 66-2/3% of the outstanding aggregate
principal amount of the Loans, Financed Sale Participations and LC
Participations.
"REQUIRED PAYMENT" has the meaning assigned to it in Section 5.7.
"REPORTABLE EVENT" means any of the events set forth in Section
4043 of ERISA.
"RESERVE REQUIREMENT" means, for any Eurodollar Loan for any
Interest Period therefor, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are required
to be maintained during such Interest Period under Regulation D by member
banks of the Federal Reserve System in New York City with deposits
exceeding one billion Dollars against "Eurocurrency Liabilities" as such
term is used in Regulation D. Without limiting the effect of the
foregoing, the Reserve Requirement shall reflect any other reserves
required to be maintained by such member banks by reason of any
Regulatory Change against (i) any category of liabilities which includes
deposits by reference to which the Adjusted Eurodollar Rate is to be
determined, or (ii) any category of extensions of credit or other assets
which include Eurodollar Loans.
"REVOLVING CREDIT COMMITMENT" means, as to each Bank, the
obligation of such Bank (i) to make Revolving Credit Loans, (ii) subject
to applicable sublimits, to purchase participations in Letters of Credit
pursuant to Section 4.1 and (iii) subject to applicable sublimits, to
purchase participations in Financed Sales pursuant to Section 3.3, in an
aggregate principal amount at any one time outstanding up to but not
exceeding the amount set forth opposite the name of such Bank on the
signature pages hereto under the heading "Revolving Credit Commitment,"
or on the signature pages of an Assignment and Acceptance, as the case
may be, as the same may be reduced pursuant to Section 2.7 or terminated
pursuant to Section 2.7 or 13.2.
"REVOLVING CREDIT LOAN" means, as to each Bank, the loans to be
made by such Bank pursuant to Section 2.1.
"REVOLVING CREDIT NOTES" means the promissory notes of the
Borrower payable to the order of the Banks, in substantially the form of
Exhibit "A" hereto, and all extensions, renewals, and modifications
thereof and all substitutions therefor; "REVOLVING CREDIT NOTE" means on
of the Revolving Credit Notes.
"REVOLVING CREDIT TERMINATION DATE" means 11:00 A.M. Houston,
Texas time on May 6, 1999, or such earlier date and time on which the
Revolving Credit Commitments terminate as provided in this Agreement.
"RICO" means the Racketeer Influenced and Corrupt Organization Act
of 1970, as amended from time to time.
"SUBSIDIARY" means any Person of which or in which the Borrower
and its other subsidiaries own or control, directly or indirectly, 50
percent or more of (a) the combined
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voting power of all classes having general voting power under ordinary
circumstances to elect a majority of the board of directors or
equivalent body of such Persons, if it is a corporation, (b) the
capital interest or profits interests of such Person, if it is a
partnership, limited liability company, joint venture or similar
entity, or (c) the beneficial interest of such Person, if it is a
trust, association or other unincorporated association or organization.
"TYPE" means any type of Loan (i.e., Prime Rate Loan or Eurodollar
Loan).
"UCC" means the Uniform Commercial Code as in effect in the State
of Texas.
"WELLS FARGO" means First Interstate Bank of Texas, N.A., a
national banking association.
Section 2 OTHER DEFINITIONAL PROVISIONS. All definitions contained
in this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof," "herein," and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. Unless otherwise
specified, all Article and Section references pertain to this Agreement. All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP. Terms used herein that are defined in the UCC, unless
otherwise defined herein, shall have the meanings specified in the UCC.
ARTICLE II
REVOLVING CREDIT LOANS
Section 1 REVOLVING CREDIT COMMITMENTS. Subject to the terms and
conditions of this Agreement, each Bank severally agrees to make one or more
Revolving Credit Loans to the Borrower from time to time from the date hereof to
and including the Revolving Credit Termination Date in an aggregate principal
amount at any time outstanding up to but not exceeding the amount of such Bank's
Revolving Credit Commitment as then in effect, provided that the aggregate
amount of all Revolving Credit Loans at any time outstanding shall not exceed
the lesser of (i) the aggregate amount of the Revolving Credit Commitments minus
the sum of (1) the outstanding Letter of Credit Liabilities and (2) the
outstanding Financed Sales Liabilities or (ii) the Borrowing Base minus the sum
of (1) the outstanding Letter of Credit Liabilities and (2) the outstanding
Financed Sales Liabilities. Subject to the foregoing limitations, and the other
terms and provisions of this Agreement, the Borrower may borrow, repay, and
reborrow hereunder the amount of the Revolving Credit Commitments by means of
Prime Rate Loans and Eurodollar Loans and, until the Revolving Credit
Termination Date, the Borrower may Convert Loans of one Type into Loans of
another Type. Loans of each Type made by each Bank shall be made and maintained
at such Bank's Applicable Lending Office for Loans of such Type.
Section 2 REVOLVING CREDIT NOTES. The obligation of the Borrower to
repay each Bank for Revolving Credit Loans made by such Bank and interest
thereon shall be evidenced by a Revolving Credit Note executed by the Borrower,
payable to the order of such Bank, in the principal
CREDIT AGREEMENT - Page 16
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amount of such Bank's Revolving Credit Commitment, and dated the date hereof
or such later date as may be required with respect to transactions
contemplated by Section 15.8.
Section 3 REPAYMENT OF REVOLVING CREDIT LOANS. The Borrower shall
repay the unpaid principal amount of all Revolving Credit Loans on the Revolving
Credit Termination Date.
Section 4 INTEREST. The unpaid principal amount of the Revolving
Credit Loans shall bear interest at a varying rate per annum equal from day to
day to the lesser of (a) the Maximum Rate, or (b) the Applicable Rate. If at
any time the Applicable Rate for any Revolving Credit Loan shall exceed the
Maximum Rate, thereby causing the interest accruing on such Revolving Credit
Loan to be limited to the Maximum Rate, then any subsequent reduction in the
Applicable Rate for such Revolving Credit Loan shall not reduce the rate of
interest on such Revolving Credit Loan below the Maximum Rate until the
aggregate amount of interest accrued on such Revolving Credit Loan equals the
aggregate amount of interest which would have accrued on such Revolving Credit
Loan if the Applicable Rate had at all times been in effect. Accrued and unpaid
interest on the Revolving Credit Loans shall be due and payable as follows:
(i) in the case of Prime Rate Loans, on each Quarterly Payment
Date and on the Revolving Credit Termination Date;
(ii) in the case of each Eurodollar Loan, on the last day of the
Interest Period with respect thereto;
(iii) upon the payment or prepayment of any Revolving Credit Loan
or the Conversion of any Loan to a Loan of another Type (but only on the
principal amount so paid, prepaid, or Converted); and
(iv) on the Revolving Credit Termination Date.
Notwithstanding the foregoing, any outstanding principal of any Revolving Credit
Loan and (to the fullest extent permitted by law) any other amount payable by
the Borrower under this Agreement or any other Loan Document that is not paid in
full when due (whether at stated maturity, by acceleration, or otherwise) shall
bear interest at the Default Rate for the period from and including the due date
thereof to but excluding the date the same is paid in full. Interest payable at
the Default Rate shall be payable from time to time on demand.
Section 5 USE OF PROCEEDS. The proceeds of Revolving Credit Loans
shall be used by the Borrower for general corporate purposes, including support
of working capital, issuance of Letters of Credit for all Subsidiaries and,
subject to the terms of Article III, to honor the guaranty by the Borrower of
Financed Sales.
Section 6 COMMITMENT FEE. The Borrower agrees to pay to the Agent
for the account of each Bank a commitment fee on the daily average unused amount
of such Bank's Revolving Credit Commitment for the period from and including the
date of this Agreement to and including the Revolving Credit Termination Date,
at the rate of 1/4 of 1% per annum based on a 360 day year
CREDIT AGREEMENT - Page 17
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and the actual number of days elapsed. Accrued commitment fee shall be
payable in arrears on each Quarterly Payment Date and on the Revolving Credit
Termination Date.
Section 7 REDUCTION OR TERMINATION OF REVOLVING CREDIT COMMITMENTS.
The Borrower shall have the right to terminate in whole or reduce in part the
unused portion of the Revolving Credit Commitments upon at least three Business
Days' prior notice (which notice shall be irrevocable) to the Agent specifying
the effective date thereof, whether a termination or reduction is being made,
and the amount of any partial reduction, PROVIDED, HOWEVER, the Revolving Credit
Commitment shall never be reduced below an amount equal to the sum of (1) the
outstanding Letter of Credit Liabilities and (2) the outstanding Financed Sales
Liabilities. Each partial reduction shall be in the amount of $1,000,000 or an
integral multiple thereof and the Borrower shall simultaneously prepay the
amount by which the unpaid principal amount of the Revolving Credit Loans plus
the sum of (1) the outstanding Letter of Credit Liabilities and (2) the
outstanding Financed Sales Liabilities exceeds the Revolving Credit Commitments
(after giving effect to such notice) plus accrued and unpaid interest on the
principal amount so prepaid. The Commitments may not be reinstated after they
have been terminated or reduced.
ARTICLE III
FINANCED SALES
Section 1 FINANCED SALES. Subject to the terms and conditions of
this Agreement, including, without limitation the specific conditions set forth
below, the Agent (on behalf of the Banks), and Wells Fargo so long as it is the
only Bank, agrees to, from time to time, as applicable, purchase Conditional
Sales Contracts and make Customer Loans from and after the date hereof to and
including the Revolving Credit Termination Date; PROVIDED, however, that the
Financed Sales Liabilities shall not at any time exceed the lesser of (i)
$25,000,000, (ii) an amount equal to the aggregate amount of the Revolving
Credit Commitments minus the sum of (1) the outstanding Revolving Credit Loans
and (2) the Letter of Credit Liabilities, or (iii) the Borrowing Base minus the
sum of (1) the outstanding Revolving Credit Loans and (2) the Letter of Credit
Liabilities.
Section 2 TERMS AND CONDITIONS OF FINANCED SALES. Each Conditional
Sales Contract and each Customer Loan purchased or made, as applicable, by the
Agent must satisfy each of the following conditions unless waived in writing by
the Agent and the Required Banks:
(a) the sum of the Conditional Sales Contract Liabilities plus
the Customer Loan Liabilities of any one customer and its Affiliates
shall not exceed, at any time, the lesser of (1) $10,000,000 and (2) any
applicable lending limit applicable to such customer; and
(b) the final maturity date shall not be later than four years
from the date of such Conditional Sales Contract or Customer Loan, as
applicable; and
(c) the amortization schedule for each Conditional Sales
Contract and Customer Loan shall be no longer than for 48 months and
shall provide for level payments of principal
CREDIT AGREEMENT - Page 18
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over such amortization period; PROVIDED, HOWEVER, that payments may be
greater at the front end of Financed Sales if the Borrower so elects
in lieu of a downpayment; and
(d) the Agent (or Wells Fargo if it is the only Bank) shall be
granted a first priority perfected Lien on the Equipment financed
pursuant to a Customer Security Agreement (or if contained in a
Conditional Sale Contract, a first priority perfected Lien shall be
assigned to the Agent or Wells Fargo by the Borrower or one of its
Subsidiaries); and
(e) the Borrower shall execute and deliver a Guaranty
(including purchase or repurchase rights); and
(f) the unpaid principal amount of Financed Sales shall bear
interest prior to default at a varying rate of interest per annum equal
from day to day to the lesser of (i) the Maximum Rate or (ii) the Prime
Rate; and upon and after default it shall bear interest at the Default
Rate (Conditional Sales Contracts may provide for a fee to be paid
directly to the Borrower or one of its Subsidiaries and any accrued but
unpaid interest outstanding in the date a Conditional Sale Contract is
purchased or Customer Loan made shall be collected directly by the
Borrower or its Subsidiary, as applicable, from the Customer); and
(g) a commitment fee in the amount of 1/2% of the principal
amount of the Customer Loan or the Sales Price of the Conditional Sale
Contract, as applicable, shall be payable by the Customer to the Agent
for the account of the Banks upon the funding of any Financed Sales; and
(h) each customer subject of any Customer Loan must execute
Customer Loan Documents (including a loan agreement) acceptable to the
Required Banks in their sole discretion, which shall provide for, among
such other required covenants, insurance and quarterly and annual
financial statements from such customer, and each Conditional Sales
Contract shall contain comparable provisions; and
(i) each customer subject of any Customer Loan or Conditional
Sales Contract must not be insolvent or the subject of any bankruptcy or
insolvency proceeding and must not have made an assignment for the
benefit of creditors, ceased to pay its debts as they become due, or
suffered a receiver or trustee to be appointed for any of its assets or
affairs; and
(j) no customer with any Customer Loan or Conditional Sales
Contract shall be an Affiliate of the Borrower or any Subsidiary; and
(k) no customer with any Customer Loan or Conditional Sales
Contract shall have been otherwise determined by the Agent in its
reasonable discretion to be ineligible because of its lack of
creditworthiness or otherwise.
CREDIT AGREEMENT - Page 19
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Section 3 PARTICIPATION BY BANKS. By the funding of any Financed
Sale and without any further action on the part of the Agent or any of the Banks
in respect thereof, the Agent hereby grants to each Bank and each Bank hereby
agrees to acquire from the Agent a participation in each such Financed Sales and
the related Financed Sales Liabilities, effective upon the funding thereof
without recourse or warranty, equal to such Bank's pro rata part (based on the
Revolving Credit Commitments) of such Financed Sales and Financed Sales
Liabilities. The Agent shall provide a copy of each set of Financed Sales
documents to each other Bank promptly after funding. This agreement to grant
and acquire participations is an agreement between the Agent and the Banks, and
neither Borrower nor any other Person, including without limitation, any
customer of the Borrower or any of its Subsidiaries, shall be entitled to rely
thereon. Not later than 12:00 p.m. Houston, Texas time on the date requested
for each Financed Sale hereunder, each Bank will make available to the Agent at
the principal office in immediately available funds, for the account of the
Agent, its pro rata share of such Financed Sales.
Section 4 PAYMENTS ON GUARANTY. The Borrower agrees that upon a
default under Financed Sales that would obligate the Borrower to honor its
Guaranty in respect thereof, the Agent may, without further direction of the
Borrower, cause an advance to be made under the Revolving Credit Commitment and
each Bank agrees to fund its proportionate share of such Revolving Credit Loan.
Section 5 REQUEST FOR FINANCED SALES. The Financed Sales shall be
made on at least 10 Business Days prior notice from Borrower to the Agent by
means of a Financed Sales Request Form containing the information required
therein, such Financed Sales Request Form to be accompanied by a Financed Sales
Assignment and a Customer Confirmation in the case of a purchase of a
Conditional Sales Contract.
ARTICLE IV
LETTERS OF CREDIT
Section 1 LETTERS OF CREDIT. Subject to the terms and conditions of
this Agreement, the Issuing Bank agrees to issue one or more Letters of Credit
for the account of the Borrower or one of its Subsidiaries from time to time
from the date hereof to and including the Revolving Credit Termination Date;
PROVIDED, however, that the outstanding Letter of Credit Liabilities shall not
at any time exceed the lesser of (1) $15,000,000, (2) an amount equal to the
aggregate amount of the Revolving Credit Commitments minus the sum of (i) the
outstanding Revolving Credit Loans and (ii) the Financed Sales Liabilities, or
(3) the Borrowing Base minus the sum of (i) the outstanding Revolving Credit
Loans and (ii) the Financed Sales Liabilities. Each Letter of Credit shall have
an expiration date not beyond the Termination Date, shall be payable in Dollars
must be satisfactory in form and substance to the Issuing Bank, and shall be
issued pursuant to such documents and instruments (including, without
limitation, the Issuing Bank's standard application for issuance of letters of
credit as then in effect [each an "L/C APPLICATION"]) as the Issuing Bank may
require (collectively, the "L/C DOCUMENTS"). No Letter of Credit shall require
any payment by the Issuing Bank to the beneficiary thereunder pursuant to a
drawing prior to the third Business Day following presentment of a draft and any
related documents to the Issuing Bank.
CREDIT AGREEMENT - Page 20
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Section 2 PARTICIPATION BY BANKS. By the issuance of any Letter of
Credit and without any further action on the part of the Issuing Bank or any of
the Banks in respect thereof, the Issuing Bank hereby grants to each Bank and
each Bank hereby agrees to acquire from the Issuing Bank a participation in each
such Letter of Credit and the related Letter of Credit Liabilities, effective
upon the issuance thereof without recourse or warranty, equal to such Bank's pro
rata part (based on the Revolving Credit Commitments) of such Letter of Credit
and Letter of Credit Liabilities. The Issuing Bank shall provide a copy of each
Letter of Credit to each other Bank promptly after issuance. This agreement to
grant and acquire participations is an agreement between the Issuing Bank and
the Banks, and neither Borrower nor any beneficiary of a Letter of Credit shall
be entitled to rely thereon. Borrower agrees that each Bank purchasing a
participation from the Issuing Bank pursuant to this Section 4.2 may exercise
all its rights to payment against Borrower including the right of setoff, with
respect to such participation as fully as if such Bank were the direct creditor
of Borrower in the amount of such participation.
Section 3 PROCEDURE FOR ISSUING LETTERS OF CREDIT. Each Letter of
Credit shall be issued on at least five Business Days prior notice from the
Borrower to the Issuing Bank (with a copy to the Agent) by means of a Letter of
Credit Request Form describing the transaction proposed to be supported thereby
and specifying (a) the requested date of issuance (which shall be a Business
Day), (b) the face amount of the Letter of Credit, (c) the expiration date of
the Letter of Credit, (d) the name and address of the beneficiary and the
account party, and (e) the form of the draft and any other documents required to
be presented at the time of any drawing (such notice to set forth the exact
wording of such documents or to attach copies thereof). The Issuing Bank shall
notify each Bank of the contents of each such notice on the day such notice is
received by the Issuing Bank if received by 11:00 a.m. Houston, Texas time on a
Business Day and otherwise on the next succeeding Business Day. Upon
fulfillment of the applicable conditions precedent contained in Article VIII,
the Issuing Bank shall make the applicable Letter of Credit available to
Borrower or, if so requested by Borrower, to the beneficiary of the Letter of
Credit.
Section 4 PAYMENTS CONSTITUTE REVOLVING CREDIT LOANS. Each payment
by the Issuing Bank pursuant to a drawing under a Letter of Credit shall
constitute and be deemed a Revolving Credit Loan by each Bank to the Borrower
under such Bank's Revolving Credit Note and this Agreement as of the day and
time such payment is made by the Issuing Bank and in the amount of such payment.
Section 5 LETTER OF CREDIT FEE. The Borrower shall pay to the
Issuing Bank for the account of the Banks a nonrefundable letter of credit fee
payable on the date each Letter of Credit is issued, renewed or extended in an
amount equal to 3/4% per annum of the face amount of such Letter of Credit, for
the period during which such Letter of Credit will remain outstanding, based on
a 360 day year and the actual number of days elapsed.
Section 6 OBLIGATIONS ABSOLUTE. The obligations of the Borrower
under this Agreement and the other Loan Documents (including without limitation
the obligation of the Borrower to reimburse the Issuing Bank for draws under any
Letter of Credit) shall be absolute, unconditional, and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement and
CREDIT AGREEMENT - Page 21
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the other Loan Documents under all circumstances whatsoever, including without
limitation the following circumstances:
(a) Any lack of validity or enforceability of any Letter of
Credit or any other Loan Document;
(b) Any amendment or waiver of or any consent to departure from
any Loan Document;
(c) The existence of any claim, set-off, counterclaim, defense
or other rights which the Borrower, any Obligated Party, or any other
Person may have at any time against any beneficiary of any Letter of
Credit, the Issuing Bank, or any other Person, whether in connection with
this Agreement or any other Loan Document or any unrelated transaction;
(d) Any statement, draft, or other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid, or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(e) Payment by the Issuing Bank under any Letter of Credit
against presentation of a draft or other document which does not comply
with the terms of such Letter of Credit; or
(f) Any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
Section 7 LIMITATION OF LIABILITY. The Borrower assumes all risks of
the acts or omissions of any beneficiary of any Letter of Credit with respect to
its use of such Letter of Credit. Neither the Issuing Bank, the Agent, any Bank
nor any of their officers or directors shall have any responsibility or
liability to the Borrower or any other Person for: (a) the failure of any draft
to bear any reference or adequate reference to any Letter of Credit, or the
failure of any documents to accompany any draft at negotiation, or the failure
of any Person to surrender or to take up any Letter of Credit or to send
documents apart from drafts as required by the terms of any Letter of Credit, or
the failure of any Person to note the amount of any instrument on any Letter of
Credit, each of which requirements, if contained in any Letter of Credit itself,
it is agreed may be waived by the Issuing Bank, (b) errors, omissions,
interruptions, or delays in transmission or delivery of any messages, (c) the
validity, sufficiency, or genuineness of any draft or other document, or any
endorsement(s) thereon, even if any such draft, document or endorsement should
in fact prove to be in any and all respects invalid, insufficient, fraudulent,
or forged or any statement therein is untrue or inaccurate in any respect, (d)
the payment by the Issuing Bank to the beneficiary of any Letter of Credit
against presentation of any draft or other document that does not comply with
the terms of the Letter of Credit, or (e) any other circumstance whatsoever in
making or failing to make any payment under a Letter of Credit. The Issuing
Bank may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
CREDIT AGREEMENT - Page 22
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Section 8 LETTER OF CREDIT DOCUMENTS. Certain additional provisions
regarding the obligations, liabilities, rights, remedies and agreements of the
Borrower and the Agent relative to the Letters of Credit shall be set forth in
the L/C Documents.
Section 9 REPLACEMENT OF THE ISSUING BANK. The Borrower may, with
the approval of Required Banks, appoint a successor Issuing Bank hereunder upon
the condition precedent that such successor Issuing Bank shall become a party to
this Agreement and expressly agree to be bound by the terms and conditions
contained in this Agreement pertaining to the Issuing Bank. Upon the
appointment of a successor Issuing Bank, the Issuing Bank replaced by such
successor Issuing Bank shall cease to issue Letters of Credit but shall continue
to carry out its obligations hereunder and shall continue to have the benefit of
this Agreement and the other Loan Documents with respect to the outstanding
Letters of Credit issued by it until all such Letters of Credit have expired and
any drawings thereunder have been reimbursed in full.
ARTICLE V
BORROWING PROCEDURE; PAYMENTS
Section 1 BORROWING PROCEDURE. The Borrower shall give the Agent
notice by means of a Loan Request Form of each requested Loan at least one
Business Day before the requested date of each Prime Rate Loan and at least
three Business Days before the requested date of each Eurodollar Loan,
specifying: (a) the requested date of such Loan (which shall be a Business
Day), (b) the amount of such Loan, (c) whether such Loan is a Revolving Credit
Loan or a Term Loan and the Type of the Loan, and (d) in the case of a
Eurodollar Loan, the duration of the Interest Period for such Loan. The Agent
at its option may accept telephonic requests for Loans, provided that such
acceptance shall not constitute a waiver of the Agent's right to delivery of a
Loan Request Form in connection with subsequent Loans. Any telephonic request
for a Loan by the Borrower shall be promptly confirmed by submission of a
properly completed Loan Request Form to the Agent. Each Revolving Credit Loan
shall be in a minimum principal amount of $1,000,000 or an integral multiple
thereof. The aggregate principal amount of Eurodollar Loans having the same
Interest Period shall be at least equal to $1,000,000. The Agent shall notify
each Bank of the contents of each such notice. Not later than 12:00 P.M.
Houston, Texas time on the date specified for each Loan hereunder, each Bank
will make available to the Agent at the Principal Office in immediately
available funds, for the account of the Borrower, its pro rata share of each
Loan. After the Agent's receipt of such funds and subject to the other terms
and conditions of this Agreement, the Agent will make each Loan available to the
Borrower by depositing the same, in immediately available funds, in an account
of the Borrower (designated by the Borrower) maintained with the Agent at the
Principal Office. All notices under this Section shall be irrevocable and shall
be given not later than noon Houston, Texas, time on the day which is not less
than the number of Business Days specified above for such notice.
Section 2 CONVERSIONS AND CONTINUATIONS. The Borrower shall have the
right from time to time to Convert all or part of a Loan of one Type into a Loan
of another Type or to Continue Eurodollar Loans as Eurodollar Loans by giving
the Agent written notice at least three Business Days before Conversion
CREDIT AGREEMENT - Page 23
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into a Prime Rate Loan and at least three Business Days before Conversion
into or Continuation of a Eurodollar Loan, specifying: (a) the Conversion or
Continuation date, (b) whether the Loan is a Revolving Credit Loan or a Term
Loan and the amount of the Loan to be Converted or Continued, (c) in the case
of Conversions, the Type of Loan to be Converted into, and (d) in the case of
a Continuation of or Conversion into a Eurodollar Loan, the duration of the
Interest Period applicable thereto; PROVIDED that (i) Eurodollar Loans may
only be Converted on the last day of the Interest Period, and (ii) except for
Conversions into Prime Rate Loans, no Conversions shall be made while a
Default has occurred and is continuing. The Agent shall promptly notify each
Bank of the contents of each such notice. All notices under this Section
shall be irrevocable and shall be given not later than 11:00 A.M. Houston,
Texas time on the day which is not less than the number of Business Days
specified above for such notice. If the Borrower shall fail to give the
Agent the notice as specified above for Continuation or Conversion of a
Eurodollar Loan prior to the end of the Interest Period with respect thereto,
such Eurodollar Loan shall be Converted automatically into a Prime Rate Loan
on the last day of the then current Interest Period for such Eurodollar Loan.
Section 3 METHOD OF PAYMENT. All payments of principal, interest,
and other amounts to be made by the Borrower under this Agreement and the other
Loan Documents shall be made to the Agent at the Principal Office for the
account of each Bank's Applicable Lending Office in Dollars and in immediately
available funds, without setoff, deduction, or counterclaim, not later than
11:00 A.M., Houston, Texas time on the date on which such payment shall become
due (each such payment made after such time on such due date to be deemed to
have been made on the next succeeding Business Day). The Borrower shall, at the
time of making each such payment, specify to the Agent the sums payable by the
Borrower under this Agreement and the other Loan Documents to which such payment
is to be applied (and in the event that the Borrower fails to so specify, or if
an Event of Default has occurred and is continuing, the Agent may apply such
payment to the Obligations in such order and manner as it may elect in its sole
discretion, subject to Section 5.6 hereof). Each payment received by the Agent
under this Agreement or any other Loan Document for the account of a Bank shall
be paid promptly to such Bank, in immediately available funds, for the account
of such Bank's Applicable Lending Office. Whenever any payment under this
Agreement or any other Loan Document shall be stated to be due on a day that is
not a Business Day, such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of the payment of interest and commitment fee, as the case may be.
Section 4 VOLUNTARY PREPAYMENT. The Borrower may, upon at least one
Business Day's prior notice to the Agent in the case of Prime Rate Loans and at
least three Business Days' prior notice to the Agent in the case of Eurodollar
Loans, prepay the Loans in whole at any time or from time to time in part
without premium or penalty (except as set forth in Section 6.5) but with accrued
interest to the date of prepayment on the amount so prepaid, provided that (a)
Eurodollar Loans may be prepaid only on the last day of the Interest Period for
such Loans, and (b) each partial prepayment shall be in the principal amount of
$1,000,000 or an integral multiple thereof. All notices under this Section
shall be irrevocable and shall be given not later than 11:00 A.M. Houston,
Texas, time on the day which is not less than the number of Business Days
specified above for such notice.
Section 5 MANDATORY PREPAYMENT. If at any time the outstanding
Revolving Credit Loans plus the sum of (i) the Letter of Credit Liabilities and
(ii) the Financed Sales Liabilities
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exceed the Borrowing Base, Borrower shall promptly (and in any event within
five Business Days after delivery of the Borrowing Base Report indicating
such excess) prepay the outstanding Revolving Credit Loans by the amount of
the excess plus accrued and unpaid interest on the amount so prepaid or, if
no Revolving Credit Loans are outstanding, Borrower shall immediately pledge
to the Agent for the benefit of itself, the Issuing Bank, and the Banks, cash
or cash equivalent investments in an amount equal to the excess as security
for the Obligations.
Section 6 PRO RATA TREATMENT. Except to the extent otherwise
provided herein: (a) each Loan shall be made by the Banks under Section 2.1 or
deemed made by the Banks under Section 4.4, each Financed Sale made under
Section 3.1 hereof, each payment of commitment fee under Section 2.6 or
Section 3.2 and letter of credit fee under Section 4.5 shall be made for the
account of the Banks, and each termination or reduction of the Revolving Credit
Commitments under Section 2.7 shall be applied to the Revolving Credit
Commitments of the Banks, pro rata according to the respective unused Revolving
Credit Commitments and each Letter of Credit and Financed Sale shall be deemed
participated in by the Banks, pro rata according to the amounts of their
respective Revolving Credit Commitments; (b) the making, Conversion, and
Continuation of Loans of a particular Type (other than Conversions provided for
by Section 6.4) shall be made pro rata among the Banks holding Loans of such
Type according to the amounts of their respective Commitments; (c) each payment
and prepayment of principal of or interest on Loans by the Borrower of a
particular Type shall be made to the Agent for the account of the Banks holding
Loans of such Type pro rata in accordance with the respective unpaid principal
amounts of such Loans held by such Banks; and (d) Interest Periods for Loans of
a particular Type shall be allocated among the Banks holding Loans of such Type
pro rata according to the respective principal amounts held by such Banks.
Section 7 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall
have been notified by a Bank or the Borrower (the "PAYOR") prior to the date on
which such Bank is to make payment to the Agent of the proceeds of a Loan or
Financed Sale to be made or participated in as applicable, by it hereunder or
the Borrower is to make a payment to the Agent for the account of one or more of
the Banks, as the case may be (such payment being herein called the "REQUIRED
PAYMENT"), which notice shall be effective upon receipt, that the Payor does not
intend to make the Required Payment to the Agent, the Agent may assume that the
Required Payment has been made and may, in reliance upon such assumption (but
shall not be required to), make the amount thereof available to the intended
recipient on such date and, if the Payor has not in fact made the Required
Payment to the Agent, the recipient of such payment shall, on demand, pay to the
Agent the amount made available to it together with interest thereon in respect
of the period commencing on the date such amount was so made available by the
Agent until the date the Agent recovers such amount at a rate per annum equal to
the Federal Funds Rate for such period.
Section 8 WITHHOLDING TAXES.
(a) The Company agrees to pay to each Bank that is not a U.S. Person
such additional amounts as are necessary in order that the net payment of
any amount due to such non-U.S. Person hereunder after deduction for or
withholding in respect of any U.S. taxes imposed with respect to such
payment (or in lieu thereof, payment of such U.S. taxes by such
CREDIT AGREEMENT - Page 25
<PAGE>
non-U.S. Person), will not be less than the amount stated herein to be
then due and payable, PROVIDED that the foregoing obligation to pay
such additional amounts shall not apply:
(i) to any payment to any Bank hereunder unless such Bank is, on the date
hereof (or on the date it becomes a Bank hereunder as provided in Section 15.8
hereof) and on the date of any change in the Applicable Lending Office of such
Bank, either entitled to submit a Form 1001 (relating to such Bank and entitling
it to a complete exemption from withholding on all interest to be received by it
hereunder in respect of the Loans) or Form 4224 (relating to all interest to be
received by such Bank hereunder in respect of the Loans),
(ii) to any U.S. taxes imposed solely by reason of the failure of such
non-U.S. Person (or, if such non-U.S. Person is not the beneficial owner of the
relevant Loan, such beneficial owner) to comply with applicable certification,
information, documentation or other reporting requirements concerning the
nationality, residence, identity or connections with the United States of
America of such non-U.S. Person (or beneficial owner, as the case may be) if
such compliance is required by statute or regulation of the United States of
America as a precondition to relief or exemption from such U.S. taxes.
For the purposes of this Section 5.8(a), (A) "FORM 1001" shall mean
Form 1001 (Ownership, Exemption, or Reduced Rate Certificate) of the
Department of the Treasury of the United States of America, and
(B) "FORM 4224" shall mean Form 4224 (Exemption from Withholding of Tax
on Income Effectively Connected with the Conduct of a Trade Business in
the United States) of the Department of the Treasury of the United States
of America (or in relation to either such Form such successor and related
forms as may from time to time be adopted by the relevant taxing
authorities of the United States of America to document a claim to which
such Form relates).
(b) Within 30 days after paying any amount to the Agent or any Bank from
which it is required by law to make any deduction or withholding, and within 30
days after it is required by law to remit such deduction or withholding to any
relevant taxing or other authority, the Company shall deliver to the Agent for
delivery to such non-U.S. Person evidence satisfactory to such Person of such
deduction, withholding or payment (as the case may be).
Section 9 WITHHOLDING TAX EXEMPTION. Each Bank that is not
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to the Borrower and the Agent two duly completed
copies of Form 1001 or 4224, certifying in either case that such Bank is
entitled to receive payments from the Borrower under any Loan Document without
deduction or withholding of any United States federal income taxes. Each Bank
which so delivers a Form 1001 or 4224 further undertakes to deliver to Borrower
and the Agent two additional copies of such form (or a successor form) on or
before the date such form expires or becomes obsolete or after the occurrence of
any event requiring a change in the most recent form so delivered by it, and
such amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Agent, in each case certifying that such Bank
is entitled to receive payments from the Borrower under any Loan Document
without deduction or withholding of any United States federal income taxes,
unless an event (including without limitation any change in treaty, law or
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<PAGE>
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Bank from duly completing and delivering any such form with respect
to it and such Bank advises the Borrower and the Agent that it is not capable of
receiving such payments without any deduction or withholding of United States
federal income tax.
Section 10 COMPUTATION OF INTEREST. Interest on the Loans and all
other amounts payable by the Borrower hereunder shall be computed on the basis
of a year of 360 days and the actual number of days elapsed (including the first
day but excluding the last day) unless such calculation would result in a
usurious rate, in which case interest shall be calculated on the basis of a year
of 365 or 366 days, as the case may be.
ARTICLE VI
YIELD PROTECTION AND ILLEGALITY
Section 1 ADDITIONAL COSTS.
(a) The Borrower shall pay directly to each Bank from time to
time such amounts as such Bank may determine to be necessary to
compensate it for any costs incurred by such Bank which such Bank
determines are attributable to its making or maintaining of any
Eurodollar Loans hereunder or its obligation to make any of such Loans
hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any such Loans or such obligation (such increases
in costs and reductions in amounts receivable being herein called
"ADDITIONAL COSTS"), resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable
to such Bank under this Agreement or its Notes in respect of any
of such Loans (other than taxes imposed on the overall net income
of such Bank or its Applicable Lending Office for any Eurodollar
Loans by the jurisdiction in which such Bank has its principal
office or such Applicable Lending Office);
(ii) imposes or modifies any reserve, special deposit,
minimum capital, capital ratio, or similar requirement relating to
any extensions of credit or other assets of, or any deposits with
or other liabilities or commitments of, such Bank (including any
Eurodollar Loans or any deposits referred to in the definition of
"Eurodollar Rate" in Section 1.1 hereof); or
(iii) imposes any other condition affecting this Agreement
or the Notes or any of such extensions of credit or liabilities or
commitments.
Each Bank will notify the Borrower of any event occurring after the date
of this Agreement which will entitle such Bank to compensation pursuant
to this Section 6.1(a) as promptly as practicable and in any event,
within 180 days, after it obtains knowledge thereof and determines to
request such compensation, and will designate a different Applicable
Lending
CREDIT AGREEMENT - Page 27
<PAGE>
Office for the Loans affected by such event if such designation will
avoid the need for, or reduce the amount of, such compensation and
will not, in the sole opinion of such Bank, violate any law, rule, or
regulation or be in any way disadvantageous to such Bank, provided that
such Bank shall have no obligation to so designate an Applicable Lending
Office located outside the United States of America. Borrower shall not
be obligated to pay for any such amounts if such Bank does not notify the
Borrower that such additional amounts are owing within 180 days of the
date such Bank obtains knowledge thereof. Each Bank will furnish the
Borrower with a certificate setting forth the basis and the amount of
each request of such Bank for compensation under this Section 6.1(a). If
any Bank requests compensation from the Borrower under this
Section 6.1(a), the Borrower may, by notice to such Bank (with a copy to
the Agent) suspend the obligation of such Bank to make or Continue
making, or Convert Loans into, Loans of the Type with respect to which
such compensation is requested until the Regulatory Change giving rise to
such request ceases to be in effect (in which case the provisions of
Section 6.4 hereof shall be applicable). Notwithstanding the foregoing,
in the event any Bank charges the Borrower additional compensation
pursuant to this Section 6.1(a) in excess of the amounts (if any)
generally being charged by the majority of the other Banks, the Borrower
shall have the right to replace such Bank (the "REPLACED BANK") with an
Eligible Assignee (the "REPLACEMENT BANK"), provided, however, that
(i) at the time of any replacement pursuant to this Section, the
Replacement Bank shall enter into an Assignment and Acceptance in form
and substance satisfactory to the Replaced Bank, the Replacement Bank and
the Agent pursuant to which the Replacement Bank shall acquire all of the
Commitments and outstanding Loans of, the Replaced Bank and, in
connection therewith, shall pay to the Replaced Bank an amount equal to
the sum of (A) an amount equal to the principal of, and all accrued and
unpaid interest on all outstanding Loans owing to the Replaced Bank, and
(B) an amount equal to all accrued and unpaid fees owing to the Replaced
Bank, and (ii) Borrower shall pay to the Replaced Bank all obligations of
Borrower owing to such Replaced Bank (other than those specifically
described in clause (i) above) concurrently with such replacement. Upon
execution of the Assignment and Acceptance, the payment of the amounts
referred to in clauses (i) and (ii) above and, if requested by the
Replacement Bank, delivery to the Replacement Bank of the Notes executed
by the Borrower, the Replacement Bank shall become a Bank hereunder and
the Replaced Bank shall cease to be a Bank hereunder, except with respect
to the indemnification provisions under the Loan Documents, which shall
survive as to such Replaced Bank.
(b) Without limiting the effect of the foregoing provisions of
this Section 6.1, in the event that, by reason of any Regulatory Change
that becomes effective after date hereof, any Bank either (i) incurs
Additional Costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of
such Bank which includes deposits by reference to which the interest rate
on Eurodollar Loans is determined as provided in this Agreement or a
category of extensions of credit or other assets of such Bank which
includes Eurodollar Loans or (ii) becomes subject to restrictions on the
amount of such a category of liabilities or assets which it may hold,
then, if such Bank so elects by notice to the Borrower (with a copy to
the Agent), the obligation of such Bank to make or Continue making, or
Convert Loans into, Eurodollar Loans hereunder shall be suspended
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until such Regulatory Change ceases to be in effect (in which case the
provisions of Section 6.4 hereof shall be applicable).
(c) Determinations and allocations by any Bank for purposes of
this Section 6.1 of the effect of any Regulatory Change on its costs of
maintaining its obligations to make Eurodollar Loans or of making or
maintaining Eurodollar Loans or on amounts receivable by it in respect of
Eurodollar Loans, and of the additional amounts required to compensate
such Bank in respect of any Additional Costs, shall be conclusive,
provided that such determinations and allocations are made on a
reasonable basis.
Section 2 LIMITATION ON TYPES OF LOANS. Anything herein to the
contrary notwithstanding, if with respect to any Eurodollar Loans for any
Interest Period therefor:
(a) The Agent determines (which determination shall be
conclusive) that quotations of interest rates for the relevant deposits
referred to in the definition of "Eurodollar Rate" in Section 1.1 hereof
are not being provided in the relative amounts or for the relative
maturities for purposes of determining the rate of interest for
Eurodollar Loans as provided in this Agreement; or
(b) Required Banks determine (which determination shall be
conclusive) and notify the Agent that the relevant rates of interest
referred to in the definition of "Eurodollar Rate" in Section 1.1 hereof
on the basis of which the rate of interest for such Loans for such
Interest Period is to be determined do not accurately reflect the cost to
the Banks of making or maintaining Eurodollar Loans for such Interest
Period;
then the Agent shall give the Borrower prompt notice thereof specifying the
relevant amounts or periods, and so long as such condition remains in effect,
the Banks shall be under no obligation to make additional Eurodollar Loans or to
Convert Prime Rate Loans into Eurodollar Loans and the Borrower shall, on the
last day(s) of the then current Interest Period(s) for the outstanding
Eurodollar Loans, either prepay such Eurodollar Loans or Convert such Eurodollar
Loans into Prime Rate Loans in accordance with the terms of this Agreement.
Section 3 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to (a) honor its obligation to make Eurodollar Loans hereunder or
(b) maintain Eurodollar Loans hereunder, then such Bank shall promptly notify
the Borrower (with a copy to the Agent) thereof and such Bank's obligation to
make or maintain Eurodollar Loans and to Convert Prime Rate Loans into
Eurodollar Loans hereunder shall be suspended until such time as such Bank may
again make and maintain Eurodollar Loans (in which case the provisions of
Section 6.4 hereof shall be applicable).
Section 4 TREATMENT OF EURODOLLAR LOANS. If the Eurodollar Loans of
any Bank are to be Converted pursuant to Section 6.1 or 6.3 hereof, such Bank's
Eurodollar Loans shall be automatically Converted into Prime Rate Loans on the
last day(s) of the then current Interest Period(s) for the Eurodollar Loans (or,
in the case of a Conversion required by Section 6.1(b) or 6.3 hereof, on such
earlier date as such Bank may specify to the Borrower with a copy to the Agent)
and,
CREDIT AGREEMENT - Page 29
<PAGE>
unless and until such Bank gives notice as provided below that the
circumstances specified in Section 6.1 or 6.3 hereof which gave rise to such
Conversion no longer exist:
(a) To the extent that such Bank's Eurodollar Loans have been
so Converted, all payments and prepayments of principal which would
otherwise be applied to such Bank's Eurodollar Loans shall be applied
instead to its Prime Rate Loans;
(b) All Loans which would otherwise be made or Continued by
such Bank as Eurodollar Loans shall be made as or Converted into Prime
Rate Loans and all Loans of such Bank which would otherwise be Converted
into Eurodollar Loans shall be Converted instead into (or shall remain
as) Prime Rate Loans; and
If such Bank gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 6.1 or 6.3 hereof which gave rise to the
Conversion of such Bank's Eurodollar Loans pursuant to this Section 6.4 no
longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans are outstanding, such Bank's
Prime Rate Loans shall be automatically Converted, on the first day(s) of the
next succeeding Interest Period(s) for such outstanding Eurodollar Loans to the
extent necessary so that, after giving effect thereto, all Loans held by the
Banks holding Eurodollar Loans and by such Bank are held pro rata (as to
principal amounts, Types, and Interest Periods) in accordance with their
respective Commitments.
Section 5 COMPENSATION. The Borrower shall pay to the Agent for the
account of each Bank, upon the request of such Bank through the Agent, such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Bank) to compensate it for any loss, cost, or expense incurred by it as a result
of:
(a) Any payment, prepayment or Conversion of a Eurodollar Loan
for any reason (including, without limitation, the acceleration of the
outstanding Loans pursuant to Section 13.2) on a date other than the last
day of an Interest Period for such Loan; or
(b) Any failure by the Borrower for any reason (including,
without limitation, the failure of any conditions precedent specified in
Article VIII to be satisfied) to borrow, Convert, or prepay a Eurodollar
Loan on the date for such borrowing, Conversion, or prepayment, specified
in the relevant notice of borrowing, prepayment, or Conversion under this
Agreement.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid or Converted
or not borrowed for the period from the date of such payment, Conversion, or
failure to borrow to the last day of the Interest Period for such Loan (or, in
the case of a failure to borrow, the Interest Period for such Loan which would
have commenced on the date specified for such borrowing) at the applicable rate
of interest for such Loan provided for herein over (ii) the interest component
of the amount such Bank would have bid in the London interbank
CREDIT AGREEMENT - Page 30
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market (if such Loan is a Eurodollar Loan) for Dollar deposits of leading
banks and amounts comparable to such principal amount and with maturities
comparable to such period.
Section 6 CAPITAL ADEQUACY. If after the date hereof, any Bank shall
have determined that the adoption or implementation of any applicable law, rule,
or regulation regarding capital adequacy (including, without limitation, any
law, rule, or regulation implementing the Basle Accord), or any change therein,
or any change in the interpretation or administration thereof by any central
bank or other Governmental Authority charged with the interpretation or
administration thereof, or compliance by such Bank (or its parent) with any
guideline, request, or directive regarding capital adequacy (whether or not
having the force of law) of any central bank or other Governmental Authority
(including, without limitation, any guideline or other requirement implementing
the Basle Accord), has or would have the effect of reducing the rate of return
on such Bank's (or its parent's) capital as a consequence of its obligations
hereunder or the transactions contemplated hereby to a level below that which
such Bank (or its parent) could have achieved but for such adoption,
implementation, change or compliance (taking into consideration such Bank's
policies with respect to capital adequacy) by an amount deemed by such Bank to
be material, then from time to time, within ten Business Days after demand by
such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank (or its parent) for
such reduction; provided, however, Borrower shall not be liable for any such
amounts unless the Bank to which such amounts are due gives Borrower notice
thereof within 180 days of the date that such Bank obtains knowledge that such
additional compensation is owing. A certificate of such Bank claiming
compensation under this Section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive, provided that the
determination thereof is made on a reasonable basis. In determining such amount
or amounts, such Bank may use any reasonable averaging and attribution methods.
In making capital adequacy determinations, each Bank shall assess capital costs
only to the extent such costs are generally being assessed by such Bank against
other borrowers of comparable size and creditworthiness or, if no other borrower
is of comparable size and creditworthiness, to the extent such Bank is assessing
capital costs against its largest borrowers.
Section 7 ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. If as a
result of any Regulatory Change there shall be imposed, modified, or deemed
applicable any tax, reserve, special deposit, or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder or the commitments to issue or participate in Letters of Credit
hereunder, and the result shall be to increase the cost to the Issuing Bank or
any Bank of issuing, maintaining or participating in any Letter of Credit or its
commitment to issue or participate in Letters of Credit hereunder or reduce any
amount receivable by the Issuing Bank or any Bank hereunder in respect of any
Letter of Credit (which increase in cost, or reduction in amount receivable,
shall be the result of the Issuing Bank's or such Bank's reasonable allocation
of the aggregate of such increases or reductions resulting from such event),
then, upon demand by the Issuing Bank or such Bank, the Borrower agrees to pay
the Issuing Bank or such Bank, from time to time as specified by the Issuing
Bank or such Bank, such additional amounts as shall be sufficient to compensate
the Issuing Bank or such Bank for such increased costs or reductions in amount.
A statement as to such increased costs or reductions in amount incurred by the
Issuing Bank or such Bank, submitted by the Issuing Bank or such Bank to the
Borrower, shall be conclusive as to the
CREDIT AGREEMENT - Page 31
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amount thereof, provided that the determination thereof is made on a
reasonable basis. Notwithstanding the foregoing, if any Bank charges
additional compensation under this Section 6.7 in excess of the amounts (if
any) generally being charged by the majority of the Banks, the Borrower may
replace such Bank with a Replacement Bank pursuant to the same terms and
conditions relating to the replacement of a Bank set forth in Section 6.1(a).
ARTICLE VII
SETOFF
Section 1 SETOFF. If an Event of Default shall have occurred and is
continuing, the Issuing Bank and each Bank are hereby authorized at any time and
from time to time, without notice to the Borrower (any such notice being hereby
expressly waived by the Borrower), to set off and apply any and all deposits
(general, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Issuing Bank, the Agent or such Bank to or
for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement, the
Notes, or any other Loan Document, irrespective of whether or not the Agent, the
Issuing Bank or such Bank shall have made any demand under this Agreement, the
Notes or any other Loan Document and although such obligations may be unmatured.
The Issuing Bank, the Agent and each Bank agree promptly to notify the Borrower
(with a copy to the Agent) after any such setoff and application, provided that
the failure to give such notice shall not affect the validity of such setoff and
application. The rights and remedies of the Issuing Bank, the Agent and each
Bank hereunder are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which the Issuing Bank, the Agent and such
Bank may have.
ARTICLE VIII
CONDITIONS PRECEDENT
Section 1 INITIAL TRANSACTION. The obligation of each Bank to make
its initial Loan, of the Issuing Bank to issue the initial Letter of Credit, or
the Agent to purchase the initial Conditional Sales Contract or make any initial
Customer Loan is subject to the condition precedent that the Agent shall have
received on or before the day of such Loan, issuance purchase or making, as
applicable, of all of the following, each dated (unless otherwise indicated) the
date hereof, in form and substance satisfactory to the Agent:
(a) RESOLUTIONS. Resolutions of the Board of Directors of the
Borrower certified by its Secretary or an Assistant Secretary which
authorize the execution, delivery, and performance by the Borrower of the
Loan Documents to which the Borrower is or is to be a party;
(b) INCUMBENCY CERTIFICATE. A certificate of incumbency
certified by the Secretary or an Assistant Secretary of the Borrower
certifying the names of the officers of the Borrower authorized to sign
this Agreement and each of the other Loan Documents
CREDIT AGREEMENT - Page 32
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to which the Borrower is or is to be a party (including the
certificates contemplated herein) together with specimen signatures of
such officers;
(c) ARTICLES OF INCORPORATION. The articles of incorporation
of the Borrower certified by the Secretary or the Assistant Secretary of
the Borrower;
(d) BYLAWS. The bylaws of the Borrower certified by the
Secretary or an Assistant Secretary of the Borrower;
(e) GOVERNMENTAL CERTIFICATES. Certificates of (i) the
appropriate government officials of the state of incorporation of the
Borrower as to the existence and good standing of the Borrower, and (ii)
the appropriate government officials in each jurisdiction where the
Borrower is qualified to do business as to its good standing and
qualification to do business in such jurisdiction, each dated within 10
days prior to the date of the initial Loan or issuance of a Letter of
Credit;
(f) REVOLVING CREDIT NOTES. The Revolving Credit Notes
executed by the Borrower;
(g) MATERIAL ADVERSE CHANGE. No material adverse change shall
have occurred since the date of the most recent financial statements
delivered by Borrower to the Agent, in the financial condition, business,
operations, or prospects of the Borrower or in its assets, liabilities
and properties and there shall be no material threatened or pending
litigation adversely affecting its property and no material adverse
change shall have occurred in the financial condition, business,
operations, or prospects of the business to be acquired pursuant to the
Acquisition;
(h) INSURANCE POLICIES. Copies of all insurance policies
required by Section 10.5;
(i) UCC SEARCHES. The results of a Uniform Commercial Code
search showing all financing statements and other documents or
instruments on file against the Borrower in such jurisdictions as the
Agent shall determine, such searches to be as of a date no more than 45
days prior to the date of the initial Loan, issuance of the initial
Letter of Credit, purchase of the initial Conditional Sales Contract or
making of the initial Customer Loan, as applicable;
(j) OPINION OF COUNSEL. A favorable opinion of Haynes and
Boone, L.L.P., legal counsel to the Borrower, as to such matters as the
Agent may reasonably request;
(k) BORROWING BASE REPORT. A Borrowing Base Report duly
completed and executed by the chief financial officer of Borrower;
(l) ATTORNEYS' FEES AND EXPENSES. Evidence that the costs,
fees and expenses (including attorneys' fees) referred to in
Section 15.1, to the extent incurred, shall have been paid in full by the
Borrower.
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Section 2 ALL TRANSACTIONS. The obligation of each Bank to make any
Loan, issue any Letter of Credit, purchase any Conditional Sales Contract or
make any Customer Loan (including any initial funding or issuance, as
applicable) is subject to the following additional conditions precedent:
(a) REQUEST FOR LOAN, LETTER OF CREDIT OR FINANCED SALE. The
Agent or the Issuing Bank shall have received, in accordance with
Section 5.1, 4.3, or 3.5, as the case may be, a Loan Request Form, Letter
of Credit Request Form, or Financed Sale Request Form dated the date of
such Loan, Letter of Credit, on Financed Sale executed by an authorized
officer of the Borrower;
(b) NO DEFAULT. No Default shall have occurred and be
continuing, or would result from such Loan or Letter of Credit, as the
case may be;
(c) REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties contained in Article IX hereof and in the other Loan
Documents shall be true and correct on and as of the date of such Loan
with the same force and effect as if such representations and warranties
had been made on and as of such date; and
(d) ADDITIONAL DOCUMENTATION. The Agent shall have received
such additional approvals, opinions, or documents as the Agent or its
legal counsel, Winstead Sechrest & Minick P.C., may reasonably request.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
To induce the Agent, the Issuing Bank, and the Banks to enter into this
Agreement, the Borrower represents and warrants to the Agent, the Issuing Bank
and the Banks that:
Section 1 CORPORATE EXISTENCE. The Borrower and each Subsidiary (a)
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation; (b) has all requisite
corporate power and authority to own its assets and carry on its business as now
being or as proposed to be conducted; and (c) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a material adverse effect
on its business, condition (financial or otherwise), operations, prospects, or
properties. The Borrower has the corporate power and authority to execute,
deliver, and perform its obligations under this Agreement and the other Loan
Documents to which it is or may become a party.
Section 2 FINANCIAL STATEMENTS. The Borrower has delivered to the
Agent audited consolidated financial statements of the Borrower and its
Subsidiaries as at and for the fiscal year ended May 31, 1995, and unaudited
consolidated financial statements of the Borrower and its Subsidiaries for the
three-month period ended February 29, 1996. Such financial statements are true
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and correct, have been prepared in accordance with GAAP, and fairly and
accurately present, on a consolidated basis, the financial condition of the
Borrower and its Subsidiaries as of the respective dates indicated therein and
the results of operations for the respective periods indicated therein. Neither
the Borrower nor any of its Subsidiaries has any material contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments, or
unrealized or anticipated losses from any unfavorable commitments except as
scheduled or referred to or reflected in such financial statements. There has
been no material adverse change in the business, condition (financial or
otherwise), operations, prospects, or properties of the Borrower or any of its
Subsidiaries since the effective date of the most recent financial statements
referred to in this Section.
Section 3 CORPORATE ACTION; NO BREACH. The execution, delivery, and
performance by the Borrower of this Agreement and the other Loan Documents to
which the Borrower is or may become a party and compliance with the terms and
provisions hereof and thereof have been duly authorized by all requisite
corporate action on the part of the Borrower and do not and will not (a) violate
or conflict with, or result in a breach of, or require any consent under (i) the
articles of incorporation or bylaws of the Borrower or any of the Subsidiaries,
(ii) any applicable law, rule, or regulation or any order, writ, injunction, or
decree of any Governmental Authority or arbitrator, or (iii) any agreement or
instrument to which the Borrower or any of the Subsidiaries is a party or by
which any of them or any of their property is bound or subject, or (b)
constitute a default under any such agreement or instrument, or result in the
creation or imposition of any Lien (except as provided in Article XI) upon any
of the revenues or assets of the Borrower or any Subsidiary.
Section 4 OPERATION OF BUSINESS. The Borrower and each of its
Subsidiaries possess all licenses, permits, franchises, patents, copyrights,
trademarks, and tradenames, or rights thereto, necessary to conduct their
respective businesses substantially as now conducted and as presently proposed
to be conducted, and the Borrower and each of its Subsidiaries are not in
violation of any valid rights of others with respect to any of the foregoing.
Section 5 LITIGATION AND JUDGMENTS. Except as disclosed on
Schedule 1 hereto, there is no action, suit, investigation, or proceeding before
or by any Governmental Authority or arbitrator pending, or to the knowledge of
the Borrower, threatened against or affecting the Borrower or any Subsidiary,
that would, if adversely determined, have a material adverse effect on the
business, condition (financial or otherwise), operations, prospects, or
properties of the Borrower or any Subsidiary or the ability of the Borrower to
pay and perform the Obligations. There are no outstanding judgments against the
Borrower or any Subsidiary.
Section 6 RIGHTS IN PROPERTIES; LIENS. The Borrower and each
Subsidiary have good and indefeasible title to or valid leasehold interests in
their respective properties and assets, real and personal, including the
properties, assets, and leasehold interests reflected in the financial
statements described in Section 9.2, and none of the properties, assets, or
leasehold interests of the Borrower or any Subsidiary is subject to any Lien,
except the Permitted Liens.
Section 7 ENFORCEABILITY. This Agreement constitutes, and the other
Loan Documents to which the Borrower is party, when delivered, shall constitute
the legal, valid, and binding obligations of the Borrower, enforceable against
the Borrower in accordance with their respective
CREDIT AGREEMENT - Page 35
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terms, except as limited by bankruptcy, insolvency, or other laws of general
application relating to the enforcement of creditors' rights.
Section 8 APPROVALS. No authorization, approval, or consent of, and
no filing or registration with, any Governmental Authority or third party is or
will be necessary for the execution, delivery, or performance by the Borrower of
this Agreement and the other Loan Documents to which the Borrower is or may
become a party or for the validity or enforceability thereof.
Section 9 DEBT. The Borrower and its Subsidiaries have no Debt,
except as disclosed on Schedule 2 hereto.
Section 10 TAXES. The Borrower and each Subsidiary have filed all tax
returns (federal, state, and local) required to be filed, including all income,
franchise, employment, property, and sales tax returns, and have paid all of
their respective liabilities for taxes, assessments, governmental charges, and
other levies that are due and payable. The Borrower knows of no pending
investigation of the Borrower or any Subsidiary by any taxing authority or of
any pending but unassessed tax liability of the Borrower or any Subsidiary.
Section 11 USE OF PROCEEDS; MARGIN SECURITIES. Neither the Borrower
nor any Subsidiary is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulations G, T, U, or X of the
Board of Governors of the Federal Reserve System), and no part of the proceeds
of any Loan will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying margin stock.
Section 12 ERISA. The Borrower and each Subsidiary are in compliance
in all material respects with all applicable provisions of ERISA. Neither a
Reportable Event nor a Prohibited Transaction has occurred and is continuing
with respect to any Plan. No notice of intent to terminate a Plan has been
filed, nor has any Plan been terminated. No circumstances exist which
constitute grounds entitling the PBGC to institute proceedings to terminate, or
appoint a trustee to administer, a Plan, nor has the PBGC instituted any such
proceedings. Neither the Borrower nor any ERISA Affiliate has completely or
partially withdrawn from a Multiemployer Plan. The Borrower and each ERISA
Affiliate have met their minimum funding requirements under ERISA with respect
to all of their Plans, and the present value of all vested benefits under each
Plan do not exceed the fair market value of all Plan assets allocable to such
benefits, as determined on the most recent valuation date of the Plan and in
accordance with ERISA. Neither the Borrower nor any ERISA Affiliate has
incurred any liability to the PBGC under ERISA.
Section 13 DISCLOSURE. No statement, information, report,
representation, or warranty made by the Borrower in this Agreement or in any
other Loan Document or furnished to the Agent, the Issuing Bank, or any Bank in
connection with this Agreement or any transaction contemplated hereby contains
any untrue statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein not misleading. There is no
fact known to the Borrower which has a material adverse effect, or which might
in the future have a material adverse effect, on
CREDIT AGREEMENT - Page 36
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the business, condition (financial or otherwise), operations, prospects, or
properties of the Borrower or any Subsidiary that has not been disclosed in
writing to the Agent, the Issuing Bank, and the Banks.
Section 14 SUBSIDIARIES. The Borrower has no Subsidiaries other than
those listed on Schedule 3 hereto, and Schedule 3 sets forth the jurisdiction of
incorporation of each Subsidiary and the percentage of the Borrower's ownership
of the outstanding voting stock of each Subsidiary. All of the outstanding
capital stock of each Subsidiary has been validly issued, is fully paid, and is
nonassessable.
Section 15 AGREEMENTS. Neither the Borrower nor any Subsidiary is a
party to any indenture, loan, or credit agreement, or to any lease or other
agreement or instrument, or subject to any charter or corporate restriction
which could have a material adverse effect on the business, condition (financial
or otherwise), operations, prospects, or properties of the Borrower or any
Subsidiary, or the ability of the Borrower to pay and perform its obligations
under the Loan Documents to which it is a party. Neither the Borrower nor any
Subsidiary is in default in any respect in the performance, observance, or
fulfillment of any of the obligations, covenants, or conditions contained in any
agreement or instrument material to its business to which it is a party.
Section 16 COMPLIANCE WITH LAWS. Neither the Borrower nor any
Subsidiary is in violation in any material respect of any law, rule, regulation,
order, or decree of any Governmental Authority or arbitrator.
Section 17 INVENTORY. All inventory of the Borrower has been produced
in substantial compliance with all applicable laws, rules, regulations, and
governmental standards, including, without limitation, the minimum wage and
overtime provisions of the Fair Labor Standards Act, as amended (29 U.S.C.
Sections 201-219), and the regulations promulgated thereunder.
Section 18 INVESTMENT COMPANY ACT. Neither the Borrower nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 19 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower
nor any Subsidiary is a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" or a "public utility"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
Section 20 ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 4
hereto:
(a) The Borrower, each Subsidiary, and all of their respective
properties, assets, and operations are in compliance in all material
respects with all Environmental Laws. The Borrower is not aware of, nor
has the Borrower received notice of, any past, present, or future
conditions, events, activities, practices, or incidents which may
interfere with or prevent the compliance or continued compliance of the
Borrower and the Subsidiaries with all Environmental Laws;
CREDIT AGREEMENT - Page 37
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(b) To the best of the Borrower's knowledge, the Borrower and
each Subsidiary have obtained all permits, licenses, and authorizations
that are required under applicable Environmental Laws, and have received
no notice that all such permits are not in good standing, or that the
Borrower and its Subsidiaries are not in compliance with all of the terms
and conditions of such permits;
(c) To the best of Borrower's knowledge, no Hazardous Materials
exist on, about, or within or have been used, generated, stored,
transported, disposed of on, or Released from any of the properties or
assets of the Borrower or any Subsidiary except in amounts that would not
violate applicable law. The use which the Borrower and the Subsidiaries
make and intend to make of their respective properties and assets will
not result in the use, generation, storage, transportation, accumulation,
disposal, or Release of any Hazardous Material on, in, or from any of
their properties or assets except in amounts that would not violate
applicable law;
(d) Neither the Borrower nor any of its Subsidiaries nor any of
their respective currently or previously owned or leased properties or
operations is subject to any outstanding or, to the best of its
knowledge, threatened order from or agreement with any Governmental
Authority or other Person or subject to any judicial or docketed
administrative proceeding with respect to (i) failure to comply with
Environmental Laws, (ii) Remedial Action, or (iii) any Environmental
Liabilities arising from a Release or threatened Release;
(e) To the best of the Borrower's knowledge, there are no
conditions or circumstances associated with the currently or previously
owned or leased properties or operations of the Borrower or any of its
Subsidiaries that could reasonably be expected to give rise to any
Environmental Liabilities;
(f) Neither the Borrower nor any of its Subsidiaries is a
treatment, storage, or disposal facility requiring a permit under the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ.,
regulations thereunder or any comparable provision of state law. The
Borrower and its Subsidiaries are in substantial compliance with all
applicable financial responsibility requirements of all Environmental
Laws;
(g) Neither the Borrower nor any of its Subsidiaries has filed
or to the best of Borrower's knowledge, failed to file any notice
required under applicable Environmental Law reporting a Release; and
(h) The Borrower has received no notice that a Lien arising
under any Environmental Law has attached to any property or revenues of
the Borrower or its Subsidiaries.
CREDIT AGREEMENT - Page 38
<PAGE>
ARTICLE X
POSITIVE COVENANTS
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Commitment hereunder, the
Issuing Bank has any obligation to issue Letters of Credit hereunder, or the
Agent (or Wells Fargo) has any obligation to make Customer Loans or purchase
Conditional Sales Contracts, the Borrower will perform and observe the following
positive covenants:
Section 1 REPORTING REQUIREMENTS. The Borrower will furnish to the
Agent, the Issuing Bank and each Bank:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in
any event within 120 days after the end of each fiscal year of the
Borrower, beginning with the fiscal year ending May 31, 1996, (i) a copy
of the annual audit report of the Borrower and the Subsidiaries for such
fiscal year containing, on a consolidated basis, balance sheets and
statements of income, retained earnings, and cash flow as at the end of
such fiscal year and for the 12-month period then ended, in each case
setting forth in comparative form the figures for the preceding fiscal
year, all in reasonable detail and audited and certified by independent
certified public accountants of recognized standing acceptable to the
Agent, to the effect that such report has been prepared in accordance
with GAAP; and (ii) a certificate of such independent certified public
accountants to the Agent (A) stating that to their knowledge no Default
has occurred and is continuing, or if in their opinion a Default has
occurred and is continuing, a statement as to the nature thereof, and (B)
confirming the calculations set forth in the officer's certificate
delivered simultaneously therewith;
(b) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and
in any event within 60 days after the end of each of the quarters of each
fiscal year of the Borrower, a copy of an unaudited financial report of
the Borrower and the Subsidiaries as of the end of such fiscal quarter
and for the portion of the fiscal year then ended, containing, on a
consolidated basis, balance sheets and statements of income, retained
earnings, and cash flow, in each case setting forth in comparative form
the figures for the corresponding period of the preceding fiscal year,
all in reasonable detail certified by the chief financial officer of the
Borrower to have been prepared in accordance with GAAP and to fairly and
accurately present (subject to year-end audit adjustments) the financial
condition and results of operations of the Borrower and the Subsidiaries,
on a consolidated basis, at the date and for the periods indicated
therein;
(c) CERTIFICATE OF NO DEFAULT. Within 30 days after the end of
each fiscal quarter, a certificate of the chief executive officer or
chief financial officer of the Borrower (i) stating that to the best of
such officer's knowledge, no Default has occurred and is continuing, or
if a Default has occurred and is continuing, a statement as to the nature
thereof and the action that is proposed to be taken with respect thereto,
and (ii) showing in reasonable detail the calculations demonstrating
compliance with Article XII;
CREDIT AGREEMENT - Page 39
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(d) MANAGEMENT LETTERS. Promptly upon receipt thereof, a copy
of any management letter or written report submitted to the Borrower or
any Subsidiary by independent certified public accountants with respect
to the business, condition (financial or otherwise), operations,
prospects, or properties of the Borrower or any Subsidiary;
(e) NOTICE OF LITIGATION. Promptly after the commencement
thereof, notice of all actions, suits, and proceedings before any
Governmental Authority or arbitrator affecting the Borrower or any
Subsidiary which, if determined adversely to the Borrower or such
Subsidiary, could have a material adverse effect on the business,
condition (financial or otherwise), operations, prospects, or properties
of the Borrower or such Subsidiary;
(f) NOTICE OF DEFAULT. As soon as possible and in any event
within five days after the occurrence of each Default, a written notice
setting forth the details of such Default and the action that the
Borrower has taken and proposes to take with respect thereto;
(g) ERISA REPORTS. Promptly after the filing or receipt
thereof, copies of all reports, including annual reports, and notices
which the Borrower or any Subsidiary files with or receives from the PBGC
or the U.S. Department of Labor under ERISA; and as soon as possible and
in any event within 5 days after the Borrower or any Subsidiary knows or
has reason to know that any Reportable Event or Prohibited Transaction
has occurred with respect to any Plan or that the PBGC or the Borrower or
any Subsidiary has instituted or will institute proceedings under
Title IV of ERISA to terminate any Plan, a certificate of the chief
financial officer of the Borrower setting forth the details as to such
Reportable Event or Prohibited Transaction or Plan termination and the
action that the Borrower proposes to take with respect thereto;
(h) REPORTS TO OTHER CREDITORS. Promptly after the furnishing
thereof, copies of any statement or report furnished to any other party
pursuant to the terms of any indenture, loan, or credit or similar
agreement and not otherwise required to be furnished to the Agent, the
Issuing Bank and the Banks pursuant to any other clause of this Section;
(i) NOTICE OF MATERIAL ADVERSE CHANGE. As soon as possible and
in any event within five days after the occurrence thereof, written
notice of any matter that could have a material adverse effect on the
business, condition (financial or otherwise), operations, prospects, or
properties of the Borrower or any Subsidiary;
(j) PROXY STATEMENTS, ETC. As soon as available and in any
event within 10 days of sending or filing with the Securities and
Exchange Commission or successor agency, one copy of each financial
statement, report, notice or proxy statement sent by the Borrower or any
Subsidiary to its stockholders generally and one copy of each regular,
periodic or special report, form (including, without limitation, all 10-K
and 10-Q filings), registration statement, or prospectus filed by the
Borrower or any Subsidiary with any securities exchange or the Securities
and Exchange Commission or any successor agency; provided, however, in
any
CREDIT AGREEMENT - Page 40
<PAGE>
event, Borrower shall furnish to the Agent within 120 days of fiscal
year end its 10-K filing and within 60 days of fiscal quarter end its
10-Q filing with respect to such fiscal period.
(k) BORROWING BASE REPORT. As soon as available and in any
event within 10 days after the end of each month, a Borrowing Base Report
properly completed and executed by the chief financial officer or other
authorized officer of Borrower;
(l) ACCOUNTS RECEIVABLE AGINGS. Promptly upon request of the
Agent, an aging of accounts receivable of the Borrower in such form as
may be satisfactory to the Agent; and
(m) GENERAL INFORMATION. Promptly, such other information
concerning the Borrower or any Subsidiary as the Agent or any Bank may
from time to time reasonably request.
Section 2 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. The
Borrower will preserve and maintain, and will cause each Subsidiary to preserve
and maintain, its corporate existence and all of its leases, privileges,
licenses, permits, franchises, qualifications, and rights that are necessary or
desirable in the Borrower's reasonable business judgment, and in the ordinary
conduct of its business. The Borrower will conduct, and will cause each
Subsidiary to conduct, its business in an orderly and efficient manner in
accordance with good business practices.
Section 3 MAINTENANCE OF PROPERTIES. The Borrower will maintain,
keep, and preserve, and cause each Subsidiary to maintain, keep, and preserve,
all of its properties (tangible and intangible) necessary or useful in the
proper conduct of its business in good working order and condition.
Section 4 TAXES AND CLAIMS. The Borrower will pay or discharge, and
will cause each Subsidiary to pay or discharge, at or before maturity or before
becoming delinquent (a) all taxes, levies, assessments, and governmental charges
imposed on it or its income or profits or any of its property, and (b) all
lawful claims for labor, material, and supplies, which, if unpaid, might become
a Lien upon any of its property; PROVIDED, however, that neither the Borrower
nor any Subsidiary shall be required to pay or discharge any tax, levy,
assessment, or governmental charge which is being contested in good faith by
appropriate proceedings diligently pursued, and for which adequate reserves have
been established.
Section 5 INSURANCE. The Borrower will maintain, and will cause each
of the Subsidiaries to maintain, insurance with financially sound and reputable
insurance companies in such amounts and covering such risks as is usually
carried by corporations engaged in similar businesses and owning similar
properties in the same general areas in which the Borrower and the Subsidiaries
operate, provided that in any event the Borrower will maintain and cause each
Subsidiary to maintain workmen's compensation insurance, property insurance,
comprehensive general liability insurance, products liability insurance, and
business interruption insurance reasonably satisfactory to the Agent and the
Banks. Each insurance policy covering Collateral shall provide that such policy
will not be cancelled or reduced without 30 days' prior written notice to the
Agent. In the event an Event of Default occurs and continues for a period of
ninety days, Borrower
CREDIT AGREEMENT - Page 41
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will cause, within five days, each insurance policy covering Collateral to
name the Agent as additional assured and loss payee for the benefit of the
Banks and the Issuing Bank.
Section 6 INSPECTION RIGHTS. Upon reasonable prior notice, oral or
written, and during ordinary business hours, the Borrower will permit, and will
cause each Subsidiary to permit, representatives of the Agent, the Issuing Bank
and each Bank to examine, copy, and make extracts from its books and records, to
visit and inspect its properties, and to discuss its business, operations, and
financial condition with its officers, employees, and independent certified
public accountants. Notwithstanding the foregoing, following the occurrence of
a Default, the foregoing restrictions relating to notice and normal business
hours shall not apply.
Section 7 KEEPING BOOKS AND RECORDS. The Borrower will maintain, and
will cause each Subsidiary to maintain, proper books of record and account in
which full, true, and correct entries in conformity with GAAP shall be made of
all dealings and transactions in relation to its business and activities.
Section 8 COMPLIANCE WITH LAWS. The Borrower will comply, and will
cause each Subsidiary to comply, in all material respects with all applicable
laws, rules, regulations, orders, and decrees of any Governmental Authority or
arbitrator.
Section 9 COMPLIANCE WITH AGREEMENTS. The Borrower will comply, and
will cause each Subsidiary to comply, in all material respects with all
agreements, contracts, and instruments binding on it or affecting its properties
or business.
Section 10 FURTHER ASSURANCES. The Borrower will, and will cause each
Subsidiary to, execute and deliver such further agreements and instruments and
take such further action as may be requested by the Agent to carry out the
provisions and purposes of this Agreement and the other Loan Documents.
Section 11 ERISA. The Borrower will comply, and will cause each
Subsidiary to comply, with all minimum funding requirements, and all other
material requirements, of ERISA, if applicable, so as not to give rise to any
liability thereunder.
Section 12 USE OF PROCEEDS; PERMANENT FINANCING. To the extent that
Borrower uses any of the proceeds from the Revolving Credit Loans as
construction financing for a new physical plant of Borrower, Borrower shall
within 90 days from completion of such plant obtain a permanent loan, the
proceeds of which shall be used to refinance such Revolving Credit Loans.
Section 13 INVENTORY. All inventory of the Borrower will hereafter be
produced in substantial compliance with all applicable laws, rules, regulations
and governmental standards, including, without limitation, the minimum wage and
overtime provisions of the Fair Labor Standards Act, as amended (29 U.S.C.
Sections 201-219), and the regulations promulgated thereunder.
CREDIT AGREEMENT - Page 42
<PAGE>
ARTICLE XI
NEGATIVE COVENANTS
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Commitment hereunder, the
Issuing Bank has any obligation to issue Letters of Credit hereunder, or the
Agent (or Wells Fargo) has any obligation to make Customer Loans or purchase
Conditional Sales Contracts, the Borrower will perform and observe the following
negative covenants:
Section 1 DEBT. The Borrower will not incur, create, assume, or
permit to exist, and will not permit any Subsidiary to incur, create, assume, or
permit to exist, any Debt, except the following (herein referred to as
"PERMITTED DEBT"):
(a) Debt to the Agent, the Banks, and the Issuing Bank pursuant
to the Loan Documents;
(b) Debt in an aggregate amount not to exceed $25,000,000 at
any time outstanding (including, without limitation, reimbursement
obligations under letters of credit issued by ABN Amro Bank and Debt
secured by Permitted Liens);
(c) Existing Debt described on Schedule 2 hereto; and
(d) Debt secured by a Lien on the property referred to in
Section 11.2(c) below.
Section 2 LIMITATION ON LIENS. The Borrower will not incur, create,
assume, or permit to exist, and will not permit any Subsidiary to incur, create,
assume, or permit to exist, any Lien upon any of its property, assets, or
revenues, whether now owned or hereafter acquired, except the following (herein
referred to as "PERMITTED LIENS"):
(a) Liens on the property described on Schedule 5 hereto to
secure Permitted Debt;
(b) Liens in favor of the Agent for the benefit of the Banks
and the Issuing Bank;
(c) Liens on the Borrower's office buildings and the new
physical plant (including the purchase and installation of equipment with
respect thereto) being built by the Borrower in Stafford, Texas during
its 1996 fiscal year, securing Permitted Debt;
(d) Encumbrances consisting of minor easements, zoning
restrictions, or other restrictions on the use of real property that do
not (individually or in the aggregate) materially affect the value of the
assets encumbered thereby or materially impair the ability of the
Borrower or the Subsidiaries to use such assets in their respective
businesses, and none of which is violated in any material respect by
existing or proposed structures or land use;
CREDIT AGREEMENT - Page 43
<PAGE>
(e) Liens for taxes, assessments, or other governmental charges
which are not delinquent or which are being contested in good faith and
for which adequate reserves have been established;
(f) Liens of mechanics, materialmen, warehousemen, carriers, or
other similar statutory Liens securing obligations that are not yet due
and are incurred in the ordinary course of business; and
(g) Liens resulting from good faith deposits to secure payments
of workmen's compensation or other social security programs or to secure
the performance of tenders, statutory obligations, surety and appeal
bonds, bids, contracts (other than for payment of Debt), or leases made
in the ordinary course of business.
Section 3 MERGERS, ETC. The Borrower will not, and will not permit
any Subsidiary to, become a party to a merger or consolidation, or purchase or
otherwise acquire all or any part of the business or assets of any Person or any
shares or other evidence of beneficial ownership of any Person, or wind-up,
dissolve, or liquidate itself.
Section 4 RESTRICTED PAYMENTS. After the occurrence of a Default or
if a Default would occur as a result thereof, the Borrower will not declare or
pay any dividends or make any other payment or distribution (whether in cash,
property, or obligations) on account of its capital stock, or redeem, purchase,
retire, or otherwise acquire any of its capital stock, or permit any of its
Subsidiaries to purchase or otherwise acquire any capital stock of the Borrower
or another Subsidiary, or set apart any money for a sinking or other analogous
fund for any dividend or other distribution on its capital stock or for any
redemption, purchase, retirement, or other acquisition of any of its capital
stock.
Section 5 INVESTMENTS. The Borrower will not make, and will not
permit any Subsidiary to make, any advance, loan, extension of credit, or
capital contribution to or investment in, or purchase or own, or permit any
Subsidiary to purchase or own, any stock, bonds, notes, debentures, or other
securities of, any Person in excess of $25,000,000 in the aggregate per fiscal
year of the Borrower, except:
(a) readily marketable direct obligations of the United States
of America or any agency thereof with maturities of one year or less from
the date of acquisition;
(b) fully insured certificates of deposit with maturities of
one year or less from the date of acquisition issued by any commercial
bank operating in the United States of America having capital and surplus
in excess of $50,000,000; and
(c) commercial paper of a domestic issuer if at the time of
purchase such paper is rated in one of the two highest rating categories
of Standard and Poor's Corporation or Moody's Investors Service, Inc.
CREDIT AGREEMENT - Page 44
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Section 6 LIMITATION ON ISSUANCE OF SUBSIDIARIES' CAPITAL STOCK. The
Borrower will not, without the prior written consent of the Required Banks,
which consent shall not be unreasonably withheld, permit any of its Subsidiaries
to, at any time issue, sell, assign, or otherwise dispose of (a) any of such
Subsidiary's capital stock, (b) any securities exchangeable for or convertible
into or carrying any rights to acquire any of such Subsidiary's capital stock,
or (c) any option, warrant, or other right to acquire any of such Subsidiary's
capital stock.
Section 7 TRANSACTIONS WITH AFFILIATES. The Borrower will not enter
into, and will not permit any Subsidiary to enter into, any transaction,
including, without limitation, the purchase, sale, or exchange of property or
the rendering of any service, with any Affiliate of the Borrower or such
Subsidiary, except in the ordinary course of and pursuant to the reasonable
requirements of the Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary than would
be obtained in a comparable arm's-length transaction with a Person not an
Affiliate of the Borrower or such Subsidiary.
Section 8 DISPOSITION OF ASSETS. Except for dispositions of assets
the value of which when aggregated with the value of other disposed assets is
$5,000,000 or less, the Borrower will not without the prior written consent of
the Required Banks, which consent shall not be unreasonably withheld, sell,
lease, assign, transfer, or otherwise dispose of any of its assets, or permit
any Subsidiary to do so with any of its assets, except dispositions of inventory
in the ordinary course of business and dispositions of obsolete, damaged, or
worn out equipment, or charitable contributions of previously owned equipment.
Section 9 SALE AND LEASEBACK. The Borrower will not enter into, and
will not permit any Subsidiary to enter into, any arrangement with any Person
pursuant to which it leases from such Person real or personal property that has
been or is to be sold or transferred, directly or indirectly, by it to such
Person.
Section 10 PREPAYMENT OF DEBT. The Borrower will not prepay, and will
not permit any Subsidiary to prepay, any Debt the amount of which when
aggregated with other prepaid Debt is $5,000,000 or more, except the
Obligations.
Section 11 NATURE OF BUSINESS. The Borrower will not, without the
prior written consent of the Required Banks, which consent shall not be
unreasonably withheld, and will not permit any Subsidiary to, engage in any
business not reasonably related to the businesses in which they are engaged on
the date hereof.
Section 12 ENVIRONMENTAL PROTECTION. The Borrower will not, and
will not permit any of its Subsidiaries to, (a) use (or permit any tenant to
use) any of their respective properties or assets for the handling,
processing, storage, transportation, or disposal of any Hazardous Material
except in amounts that will not violate applicable law, (b) generate any
Hazardous Material, (c) conduct any activity that is likely to cause a
Release or threatened Release of any Hazardous Material, or (d) otherwise
conduct any activity or use any of their respective properties or assets in
any manner that is likely to violate any Environmental Law or create any
Environmental Liabilities for which the Borrower or any of its Subsidiaries
would be responsible except for any such violations or
CREDIT AGREEMENT - Page 45
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Environmental Liabilities that would not individually or in the aggregate have
a material adverse effect on the business, condition (financial or otherwise),
operations, prospects, or properties of the Borrower or any Subsidiary.
Section 13 ACCOUNTING. The Borrower will not, and will not permit any
of its Subsidiaries to, change its fiscal year or make any change (a) in
accounting treatment or reporting practices, except as required by GAAP and
disclosed to the Agent, or (b) in tax reporting treatment, except as required by
law and disclosed to the Agent.
ARTICLE XII
FINANCIAL COVENANTS
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Commitment hereunder or the
Issuing Bank has any obligation to issue Letters of Credit hereunder, or the
Agent (or Wells Fargo) has any obligation to make Customer Loans or purchase
Conditional Sales Contracts, the Borrower will perform and observe the following
financial covenants:
Section 1 FUNDED DEBT TO CAPITALIZATION RATIO. The Borrower will not
permit its Funded Debt to Capitalization Ratio to exceed .30 to 1.0, calculated
quarterly as of the last day of each February, May, August and November.
Section 2 CONSOLIDATED TANGIBLE NET WORTH. The Borrower will
maintain Consolidated Tangible Net Worth in an amount not less than
$180,000,000, calculated quarterly as of the last day of each February, May,
August and November.
Section 3 LEVERAGE RATIO. The Borrower will not permit its Leverage
Ratio to exceed .50 to 1.0, calculated quarterly as of the last day of each
February, May, August and November.
Section 4 CAPITAL EXPENDITURES. The Borrower will not permit the
aggregate capital expenditures of the Borrower and the Subsidiaries to exceed
$30,000,000 during any fiscal year; PROVIDED, HOWEVER, such amount does not
include expenditures to be incurred by Borrower during the 1996 fiscal year in
connection with the construction of a new manufacturing plant in Stafford, Texas
(including the purchase and installation of equipment with respect thereto), the
aggregate cost of which shall not exceed $20,000,000.
ARTICLE XIII
DEFAULT
Section 1 EVENTS OF DEFAULT. Each of the following shall be deemed
an "Event of Default":
(a) The Borrower shall fail to pay when due the Obligations or
any part thereof.
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(b) Any representation or warranty made or deemed made by the
Borrower or any Obligated Party (or any of their respective officers) in
any Loan Document or in any certificate, report, notice, or financial
statement furnished at any time in connection with this Agreement shall
be false, misleading, or erroneous in any material respect when made or
deemed to have been made.
(c) The Borrower shall fail to perform, observe, or comply with
any covenant, agreement, or term contained in Section 10.1(e), (f), (h)
or (i), Article XI, or Article XII of this Agreement; or the Borrower or
any Obligated Party shall fail to perform, observe, or comply with any
other covenant, agreement, or term contained in this Agreement or any
other Loan Document (other than covenants to pay the Obligations) and
such failure shall continue for a period of 30 days after notice thereof
to the Borrower by the Agent or any Bank (through the Agent).
(d) The Borrower, any Material Subsidiary, or any Obligated
Party shall commence a voluntary proceeding seeking liquidation,
reorganization, or other relief with respect to itself or its debts under
any bankruptcy, insolvency, or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian, or other similar official of it or a substantial part of its
property or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it or shall make a general assignment for
the benefit of creditors or shall generally fail to pay its debts as they
become due or shall take any corporate action to authorize any of the
foregoing.
(e) An involuntary proceeding shall be commenced against the
Borrower, any Material Subsidiary, or any Obligated Party seeking
liquidation, reorganization, or other relief with respect to it or its
debts under any bankruptcy, insolvency, or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for it or a substantial
part of its property, and such involuntary proceeding shall remain
undismissed and unstayed for a period of 60 days.
(f) The Borrower, any Material Subsidiary, or any Obligated
Party shall fail to discharge within a period of 30 days after the
commencement thereof any attachment, sequestration, or similar proceeding
or proceedings involving an aggregate amount in excess of $250,000
against any of its assets or properties.
(g) A final judgment or judgments for the payment of money in
excess of $250,000 in the aggregate shall be rendered by a court or
courts against the Borrower, any of its Material Subsidiaries, or any
Obligated Party and the same shall not be discharged (or provision shall
not be made for such discharge), or a stay of execution thereof shall not
be procured, within 30 days from the date of entry thereof and the
Borrower or the relevant Material Subsidiary or Obligated Party shall
not, within said period of thirty (30) days, or such longer period during
which execution of the same shall have been stayed, appeal therefrom and
cause the execution thereof to be stayed during such appeal.
CREDIT AGREEMENT - Page 47
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(h) The Borrower, any Material Subsidiary, or any Obligated
Party shall fail to pay when due any principal of or interest on any Debt
(other than the Obligations), or the maturity of any such Debt shall have
been accelerated, or any such Debt shall have been required to be prepaid
prior to the stated maturity thereof, or any event shall have occurred
that permits (or, with the giving of notice or lapse of time or both,
would permit) any holder or holders of such Debt or any Person acting on
behalf of such holder or holders to accelerate the maturity thereof or
require any such prepayment.
(i) This Agreement or any other Loan Document shall cease to be
in full force and effect or shall be declared null and void or the
validity or enforceability thereof shall be contested or challenged by
the Borrower, any Subsidiary, any Obligated Party or any of their
respective shareholders, or the Borrower or any Obligated Party shall
deny that it has any further liability or obligation under any of the
Loan Documents, or any lien or security interest created by the Loan
Documents shall for any reason cease to be a valid, first priority
perfected security interest in and lien upon any of the Collateral
purported to be covered thereby.
(j) Any of the following events shall occur or exist with
respect to the Borrower or any ERISA Affiliate: (i) any Prohibited
Transaction involving any Plan; (ii) any Reportable Event with respect to
any Plan; (iii) the filing under Section 4041 of ERISA of a notice of
intent to terminate any Plan or the termination of any Plan; (iv) any
event or circumstance that might constitute grounds entitling the PBGC to
institute proceedings under Section 4042 of ERISA for the termination of,
or for the appointment of a trustee to administer, any Plan, or the
institution by the PBGC of any such proceedings; or (v) complete or
partial withdrawal under Section 4201 or 4204 of ERISA from a
Multiemployer Plan or the reorganization, insolvency, or termination of
any Multiemployer Plan; and in each case above, such event or condition,
together with all other events or conditions, if any, have subjected or
could in the reasonable opinion of Required Banks subject the Borrower to
any tax, penalty, or other liability to a Plan, a Multiemployer Plan, the
PBGC, or otherwise (or any combination thereof) which in the aggregate
exceed or could reasonably be expected to exceed $250,000.
(k) The Borrower or any of its Material Subsidiaries, or any of
their properties, revenues, or assets, shall become the subject of an
order of forfeiture, seizure, or divestiture (whether under RICO or
otherwise) and the same shall not have been discharged (or provisions
shall not be made for such discharge) within 30 days from the date of
entry thereof.
Section 2 REMEDIES. If any Event of Default shall occur and be
continuing, the Agent may (and if directed by Required Banks, shall) do any one
or more of the following:
(a) ACCELERATION. Declare all outstanding principal of and
accrued and unpaid interest on the Notes and all other obligations of the
Borrower under the Loan Documents immediately due and
CREDIT AGREEMENT - Page 48
<PAGE>
payable, and the same shall thereupon become immediately due and payable,
without notice, demand, presentment, notice of dishonor, notice of
acceleration, notice of intent to accelerate, protest, or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower.
(b) TERMINATION OF COMMITMENTS. Terminate the Commitments and
the obligation of the Issuing Bank to issue Letters of Credit hereunder
without notice to the Borrower.
(c) JUDGMENT. Reduce any claim to judgment.
(d) FORECLOSURE. Foreclose or otherwise enforce any Lien
granted to the Agent for the benefit of itself and the Banks to secure
payment and performance of the Obligations in accordance with the terms
of the Loan Documents.
(e) RIGHTS. Exercise any and all rights and remedies afforded
by the laws of the State of Texas or any other jurisdiction, by any of
the Loan Documents, by equity, or otherwise.
Provided, however, that upon the occurrence of an Event of Default under
Subsection (d) or (e) of Section 13.1, the Commitments of all of the Banks, the
obligation of the Issuing Bank to issue Letters of Credit and the obligation of
the Agent to make Customer Loans or purchase Conditional Sales Contracts shall
automatically terminate, and the outstanding principal of and accrued and unpaid
interest on the Notes and all other obligations of the Borrower under the Loan
Documents shall thereupon become immediately due and payable without notice,
demand, presentment, notice of dishonor, notice of acceleration, notice of
intent to accelerate, protest, or other formalities of any kind, all of which
are hereby expressly waived by the Borrower.
Section 3 LETTERS OF CREDIT/FINANCED SALES. If any Event of Default
shall occur and be continuing, Borrower shall, if requested by the Agent for the
Required Banks (i) immediately deposit with and pledge to the Agent cash or cash
equivalent investments in an amount equal to the sum of (1) outstanding Letter
of Credit Liabilities and (2) the sum of outstanding Customer Loan Liabilities
as security for the Obligations, and (ii) immediately purchase all Conditional
Sales Contracts and Customer Loans pursuant to the Borrower's Guaranties.
Section 4 PERFORMANCE BY THE AGENT. If the Borrower shall fail to
perform any covenant or agreement in accordance with the terms of the Loan
Documents, the Agent may, at the direction of Required Banks, perform or attempt
to perform such covenant or agreement on behalf of the Borrower. In such event,
the Borrower shall, at the request of the Agent, promptly pay any amount
expended by the Agent or the Banks in connection with such performance or
attempted performance to the Agent at the Principal Office, together with
interest thereon at the Default Rate from and including the date of such
expenditure to but excluding the date such expenditure is paid in full.
Notwithstanding the foregoing, it is expressly agreed that neither the Agent,
the Issuing Bank nor any Bank shall have any liability or responsibility for the
performance of any obligation of the Borrower under this Agreement or any of the
other Loan Documents.
CREDIT AGREEMENT - Page 49
<PAGE>
ARTICLE XIV
THE AGENT
Section 1 APPOINTMENT, POWERS AND IMMUNITIES. In order to expedite
the various transactions contemplated by this agreement, the Banks and the
Issuing Bank hereby irrevocably appoint and authorize Wells Fargo to act as
their Agent hereunder and under each of the other Loan Documents. Wells Fargo
consents to such appointment and agrees to perform the duties of the Agent as
specified herein. The Banks and the Issuing Bank authorize and direct the Agent
to take such action in their name and on their behalf under the terms and
provisions of the Loan Documents and to exercise such rights and powers
thereunder as are specifically delegated to or required of the Agent for the
Banks and the Issuing Bank, together with such rights and powers as are
reasonably incidental thereto. The Agent is hereby expressly authorized to act
as the Agent on behalf of itself, the other Banks and the Issuing Bank:
(a) To receive on behalf of each of the Banks, the Issuing Bank
and the Agent any payment of principal, interest, fees or other amounts
paid pursuant to this Agreement and the Notes and to distribute to each
Bank, the Issuing Bank and the Agent, or any or some of them its share of
all payments so received as provided in this Agreement;
(b) To receive all documents and items to be furnished under
the Loan Documents;
(c) To act as nominee for and on behalf of the Banks, the
Issuing Bank and the Agent in and under the Loan Documents;
(d) To arrange for the means whereby the funds of the Banks are
to be made available to the Borrower;
(e) To distribute to the Banks and the Issuing Bank
information, requests, notices, payments, prepayments, documents and
other items received from the Borrower, the other Obligated Parties, and
other Persons;
(f) To execute and deliver to the Borrower, the other Obligated
Parties, and other Persons, all requests, demands, approvals, notices,
and consents received from the Banks and the Issuing Bank;
(g) To the extent permitted by the Loan Documents, to exercise
on behalf of itself, each Bank and the Issuing Bank all rights and
remedies of Banks upon the occurrence of any Event of Default;
(h) To accept, execute, and deliver any security documents as
the secured party, including, without limitation all UCC financing
statements; and
(i) To take such other actions as may be requested by Required
Banks.
CREDIT AGREEMENT - Page 50
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Neither the Agent nor any of its Affiliates, officers, directors,
employees, attorneys, or agents shall be liable for any action taken or omitted
to be taken by any of them hereunder or otherwise in connection with this
Agreement or any of the other Loan Documents except for its or their own gross
negligence or willful misconduct. Without limiting the generality of the
preceding sentence, the Agent (i) may treat the payee of any Note as the holder
thereof until the Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form satisfactory to the Agent; (ii) shall
have no duties or responsibilities except those expressly set forth in this
Agreement and the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee or fiduciary for any Bank or
the Issuing Bank; (iii) shall not be required to initiate any litigation or
collection proceedings hereunder or under any other Loan Document except to the
extent requested by Required Banks; (iv) shall not be responsible to the Banks
or the Issuing Bank for any recitals, statements, representations or warranties
contained in this Agreement or any other Loan Document, or any certificate or
other document referred to or provided for in, or received by any of them under,
this Agreement or any other Loan Document, or for the value, validity,
effectiveness, enforceability, or sufficiency of this Agreement or any other
Loan Document or any other document referred to or provided for herein or
therein or for any failure by any Person to perform any of its obligations
hereunder or thereunder; (v) may consult with legal counsel (including counsel
for the Borrower), independent public accountants, and other experts selected by
it and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants, or
experts; and (vi) shall incur no liability under or in respect of any Loan
Document by acting upon any notice, consent, certificate, or other instrument or
writing believed by it to be genuine and signed or sent by the proper party or
parties. As to any matters not expressly provided for by this Agreement, the
Agent shall in all cases be fully protected in acting, or in refraining from
acting, hereunder in accordance with instructions signed by Required Banks, and
such instructions of Required Banks and any action taken or failure to act
pursuant thereto shall be binding on all of the Banks; PROVIDED, however, that
the Agent shall not be required to take any action which exposes the Agent to
personal liability or which is contrary to this Agreement or any other Loan
Document or applicable law.
Section 2 RIGHTS OF AGENT AS A BANK. With respect to its Commitment,
the Loans made by it and the Notes issued to it, Wells Fargo in its capacity as
a Bank hereunder shall have the same rights and powers hereunder as any other
Bank and may exercise the same as though it were not acting as the Agent, the
Issuing Bank or the Agent in respect of Financed Sales and the term "BANK" or
"BANKS" shall, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent and its Affiliates may (without having to
account therefor to any Bank, the Issuing Bank or the Agent in respect of
Financed Sales) accept deposits from, lend money to, act as trustee under
indentures of, provide merchant banking services to, and generally engage in any
kind of business with the Borrower, any of its Subsidiaries, any other Obligated
Party, and any other Person who may do business with or own securities of the
Borrower, any Subsidiary, or any other Obligated Party, all as if it were not
acting as the Agent and without any duty to account therefor to the Banks, the
Issuing Bank or the Agent in respect of Financed Sales.
Section 3 SHARING OF PAYMENTS, ETC. If any Bank shall obtain any
payment of any principal of or interest on any Loan made by it under this
Agreement or payment of any other
CREDIT AGREEMENT - Page 51
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obligation under the Loan Documents then owed by the Borrower or any other
Obligated Party to such Bank, whether voluntary, involuntary, through the
exercise of any right of setoff, banker's lien, counterclaim or similar
right, or otherwise, in excess of its pro rata share, such Bank shall
promptly purchase from the other Banks participations in the Loans held by
them hereunder in such amounts, and make such other adjustments from time to
time as shall be necessary to cause such purchasing Bank to share the excess
payment ratably with each of the other Banks in accordance with its pro rata
portion thereof. To such end, all of the Banks shall make appropriate
adjustments among themselves (by the resale of participations sold or
otherwise) if all or any portion of such excess payment is thereafter
rescinded or must otherwise be restored. The Borrower agrees, to the fullest
extent it may effectively do so under applicable law, that any Bank so
purchasing a participation in the Loans made by the other Banks may exercise
all rights of setoff, banker's lien, counterclaim, or similar rights with
respect to such participation as fully as if such Bank were a direct holder
of Loans to the Borrower in the amount of such participation. Nothing
contained herein shall require any Bank to exercise any such right or shall
affect the right of any Bank to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness or
obligation of the Borrower.
Section 4 INDEMNIFICATION. THE BANKS HEREBY AGREE TO INDEMNIFY
THE AGENT FROM AND HOLD THE AGENT AND THE ISSUING BANK HARMLESS AGAINST (TO
THE EXTENT NOT REIMBURSED UNDER SECTIONS 15.1 AND 15.2, BUT WITHOUT LIMITING
THE OBLIGATIONS OF THE BORROWER UNDER SECTIONS 15.1 AND 15.2), RATABLY IN
ACCORDANCE WITH THEIR RESPECTIVE COMMITMENTS, ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES,
SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY
KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED
AGAINST THE AGENT OR THE ISSUING BANK IN ANY WAY RELATING TO OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY
THE AGENT OR THE ISSUING BANK UNDER OR IN RESPECT OF ANY OF THE LOAN
DOCUMENTS; PROVIDED, FURTHER, THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF
THE FOREGOING TO THE EXTENT CAUSED BY THE AGENT'S OR THE ISSUING BANK'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS
THE EXPRESS INTENTION OF THE BANKS THAT THE AGENT AND THE ISSUING BANK SHALL
BE INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), AND
DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE AGENT OR THE
ISSUING BANK. WITHOUT LIMITING ANY OTHER PROVISION OF THIS SECTION, EACH
BANK AGREES TO REIMBURSE THE AGENT AND THE ISSUING BANK PROMPTLY UPON DEMAND
FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF THE COMMITMENTS) OF ANY
AND ALL OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY THE
AGENT OR THE
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ISSUING BANK IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY,
ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH
NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT
OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT
THE AGENT OR THE ISSUING BANK IS NOT REIMBURSED FOR SUCH EXPENSES BY THE
BORROWER.
Section 5 INDEPENDENT CREDIT DECISIONS. Each Bank agrees that it has
independently and without reliance on the Agent, the Issuing Bank, or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis of the Borrower and decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent,
the Issuing Bank, or any other Bank, and based upon such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any of the other Loan Documents. The Agent shall not be required to keep itself
informed as to the performance or observance by the Borrower or any Obligated
Party of this Agreement or any other Loan Document or to inspect the properties
or books of the Borrower or any Obligated Party. Except for notices, reports
and other documents and information expressly required to be furnished to the
Banks by the Agent hereunder or under the other Loan Documents, the Agent shall
not have any duty or responsibility to provide the Issuing Bank, or any Bank
with any credit or other financial information concerning the affairs, financial
condition or business of the Borrower or any Obligated Party (or any of their
Affiliates) which may come into the possession of the Agent or any of its
Affiliates.
Section 6 SEVERAL COMMITMENTS. The Commitments and other obligations
of the Banks under this Agreement are several. The default by any Bank in
making a Loan in accordance with its Commitment shall not relieve the other
Banks of their obligations under this Agreement. In the event of any default by
any Bank in making any Loan, each nondefaulting Bank shall be obligated to make
its Loan but shall not be obligated to advance the amount which the defaulting
Bank was required to advance hereunder. In no event shall any Bank be required
to advance an amount or amounts which shall in the aggregate exceed such Bank's
Commitment. No Bank shall be responsible for any act or omission of any other
Bank.
Section 7 SUCCESSOR AGENT. Subject to the appointment and acceptance
of a successor Agent as provided below, the Agent may resign at any time by
giving notice thereof to the Banks and the Borrower and the Agent may be removed
at any time with or without cause by Required Banks. Upon any such resignation
or removal, Required Banks will have the right to appoint a successor Agent. If
no successor Agent shall have been so appointed by Required Banks and shall have
accepted such appointment within 30 days after the retiring Agent's giving of
notice of resignation or the Required Banks' removal of the retiring Agent, then
the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which
shall be a commercial bank organized under the laws of the United States of
America or any State thereof and having combined capital and surplus of at least
$100,000,000. Upon the acceptance of its appointment as successor Agent, such
successor Agent shall thereupon succeed to and become vested with all rights,
powers, privileges, immunities, and duties of the resigning or removed Agent,
and the resigning or removed Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents.
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After any Agent's resignation or removal as Agent, the provisions of this
Article XIV shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was the Agent.
ARTICLE XV
MISCELLANEOUS
Section 1 EXPENSES. The Borrower hereby agrees to pay on demand:
(a) all reasonable costs and expenses of the Agent, the Issuing Bank, and the
Banks in connection with the preparation, negotiation, execution, and delivery
of this Agreement and the other Loan Documents and any and all amendments,
modifications, renewals, extensions, and supplements thereof and thereto,
including, without limitation, the reasonable fees and expenses of legal counsel
for the Agent, the Issuing Bank, and the Banks, (b) all costs and expenses of
the Agent, the Issuing Bank and the Banks in connection with any Default and the
enforcement of this Agreement or any other Loan Document, including, without
limitation, the reasonable fees and expenses of legal counsel for the Agent, the
Issuing Bank, and the Banks, (c) all transfer, stamp, documentary, or other
similar taxes, assessments, or charges levied by any Governmental Authority in
respect of this Agreement or any of the other Loan Documents, (d) all costs,
expenses, assessments, and other charges incurred in connection with any filing,
registration, recording, or perfection of any security interest or Lien
contemplated by this Agreement or any other Loan Document, and (e) all other
reasonable costs and expenses incurred by the Agent, the Issuing Bank, and the
Banks in connection with this Agreement or any other Loan Document, including,
without limitation, all reasonable costs, expenses, and other charges incurred
following the occurrence of a Default in connection with obtaining any audit or
appraisal in respect of the Collateral.
Section 2 INDEMNIFICATION. THE BORROWER SHALL INDEMNIFY THE AGENT,
THE ISSUING BANK, AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF
THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS'
FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE
FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE,
ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE
TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY THE BORROWER
OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY
OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL,
REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR
AFFECTING ANY OF THE PROPERTIES OR ASSETS OF THE BORROWER OR ANY SUBSIDIARY, OR
(E) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT
LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING
RELATING TO ANY OF THE FOREGOING. WITHOUT
CREDIT AGREEMENT - Page 54
<PAGE>
LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS
THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE
INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS
AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES)
ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH
PERSON.
Section 3 LIMITATION OF LIABILITY. NONE OF THE AGENT, THE ISSUING
BANK, ANY BANK, OR ANY AFFILIATE, OFFICER, DIRECTOR, EMPLOYEE, ATTORNEY, OR
AGENT THEREOF SHALL HAVE ANY LIABILITY WITH RESPECT TO, AND THE BORROWER HEREBY
WAIVES, RELEASES, AND AGREES NOT TO SUE ANY OF THEM UPON, ANY CLAIM FOR ANY
SPECIAL OR PUNITIVE DAMAGES SUFFERED OR INCURRED BY THE BORROWER IN CONNECTION
WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT
OR ANY OF THE OTHER LOAN DOCUMENTS. THE BORROWER HEREBY WAIVES, RELEASES, AND
AGREES NOT TO SUE THE AGENT, THE ISSUING BANK, OR ANY BANK OR ANY OF THEIR
RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, OR AGENTS FOR
PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM IN CONNECTION WITH, ARISING OUT OF, OR
IN ANY WAY RELATED TO, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY
OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS.
Section 4 NO DUTY. All attorneys, accountants, appraisers, and other
professional Persons and consultants retained by the Agent, the Issuing Bank,
and the Banks shall have the right to act exclusively in the interest of the
Agent, the Issuing Bank and the Banks and shall have no duty of disclosure, duty
of loyalty, duty of care, or other duty or obligation of any type or nature
whatsoever to the Borrower or any of the Borrower's shareholders or any other
Person.
Section 5 NO FIDUCIARY RELATIONSHIP. The relationship between the
Borrower and each Bank is solely that of debtor and creditor, and neither the
Agent, the Issuing Bank, nor any Bank has any fiduciary or other special
relationship with the Borrower, and no term or condition of any of the Loan
Documents shall be construed so as to deem the relationship between the Borrower
and any Bank to be other than that of debtor and creditor.
Section 6 EQUITABLE RELIEF. The Borrower recognizes that in the
event the Borrower fails to pay, perform, observe, or discharge any or all of
the Obligations, any remedy at law may prove to be inadequate relief to the
Agent, the Issuing Bank, and the Banks. The Borrower therefore agrees that the
Agent, the Issuing Bank, and the Banks, if the Agent, the Issuing Bank, or the
Banks so request, shall be entitled to temporary and permanent injunctive relief
in any such case without the necessity of proving actual damages.
CREDIT AGREEMENT - Page 55
<PAGE>
Section 7 NO WAIVER; CUMULATIVE REMEDIES. No failure on the part of
the Agent, the Issuing Bank or any Bank to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power, or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power, or privilege under this Agreement preclude
any other or further exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies provided for in this Agreement and the
other Loan Documents are cumulative and not exclusive of any rights and remedies
provided by law.
Section 8 SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. The Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Agent and
all of the Banks. Any Bank may sell participations to one or more banks
or other institutions in or to all or a portion of its rights and
obligations under this Agreement and the other Loan Documents (including,
without limitation, all or a portion of its Commitments and the Loans
owing to it); PROVIDED, however, that (i) such Bank's obligations under
this Agreement and the other Loan Documents (including, without
limitation, its Commitments) shall remain unchanged, (ii) such Bank shall
remain solely responsible to the Borrower for the performance of such
obligations, (iii) such Bank shall remain the holder of its Notes for all
purposes of this Agreement, (iv) the Borrower shall continue to deal
solely and directly with such Bank in connection with such Bank's rights
and obligations under this Agreement and the other Loan Documents, and
(v) such Bank shall not sell a participation that conveys to the
participant the right to vote or give or withhold consents under this
Agreement or any other Loan Document, other than the right to vote upon
or consent to (A) any increase of such Bank's Commitments, (B) any
reduction of the principal amount of, or interest to be paid on, the
Loans of such Bank, (C) any reduction of any commitment fee or other
amount payable to such Bank under any Loan Document, or (D) any
postponement of any date for the payment of any amount payable in respect
of the Loans of such Bank.
(b) The Borrower and each of the Banks agree that any Bank (the
"ASSIGNING BANK") may, with the Agent's consent and unless an Event of
Default has occurred, the Borrower's consent (except that no consent
shall be required with respect to assignments by Wells Fargo during the
first six months after the date hereof, Wells Fargo agreeing to use
reasonable efforts to keep the Borrower advised of any potential
assignees), which consent of the Borrower shall not be unreasonably
withheld or delayed, at any time assign to one or more Eligible Assignees
all, or a proportionate part of all, of its rights and obligations under
this Agreement and the other Loan Documents (including, without
limitation, its Commitments and Loans) (each an "ASSIGNEE"); PROVIDED,
however, that (i) each such assignment shall be of a consistent, and not
a varying, percentage of all of the assigning Bank's Commitments, rights
and obligations under this Agreement and the other Loan Documents, (ii)
except in the case of an assignment of all of a Bank's rights and
obligations under this Agreement and the other Loan Documents, the amount
of the Commitments of the assigning Bank being assigned pursuant to each
assignment (determined as of the date of the Assignment and Acceptance
with respect to such assignment) shall in no event be less
CREDIT AGREEMENT - Page 56
<PAGE>
than $5,000,000, and (iii) the parties to each such assignment shall
execute and deliver to the Agent for its acceptance and recording in the
Register (as defined below), an Assignment and Acceptance, together with
the Notes subject to such assignment, and a processing and recordation
fee of $2,500, to be paid by the Assignee. Upon such execution, delivery,
acceptance, and recording, from and after the effective date specified in
each Assignment and Acceptance, which effective date shall be at least
five Business Days after the execution thereof, or, if so specified in
such Assignment and Acceptance, the date of acceptance thereof by the
Agent, (x) the assignee thereunder shall be a party hereto as a "Bank"
and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the
rights and obligations of a Bank hereunder and under the Loan Documents
and (y) the Bank that is an assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to
such Assignment and Acceptance, relinquish its rights and be released
from its obligations under this Agreement and the other Loan Documents
(and, in the case of an Assignment and Acceptance covering all or the
remaining portion of a Bank's rights and obligations under the Loan
Documents, such Bank shall cease to be a party thereto).
(c) By executing and delivering an Assignment and Acceptance,
the Bank that is an assignor thereunder and the assignee thereunder
confirm to and agree with each other and the other parties hereto as
follows: (i) other than as provided in such Assignment and Acceptance,
such assigning Bank makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties, or
representations made in or in connection with the Loan Documents or the
execution, legality, validity, and enforceability, genuineness,
sufficiency, or value of the Loan Documents or any other instrument or
document furnished pursuant thereto; (ii) such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to
the financial condition of the Borrower or any Obligated Party or the
performance or observance by the Borrower or any Obligated Party of its
obligations under the Loan Documents; (iii) such assignee confirms that
it has received a copy of the other Loan Documents, together with copies
of the financial statements referred to in Section 9.2 and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and
Acceptance; (iv) such assignee will, independently and without reliance
upon the Agent or such assignor and based on 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; (v) such assignee confirms that
it is an Eligible Assignee; (vi) such assignee appoints and authorizes
the Agent to take such action as agent on its behalf and exercise such
powers under the Loan Documents as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of
the Loan Documents are required to be performed by it as a Bank.
(d) The Agent shall maintain at its Principal Office a copy of
each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Banks and
the Commitments of, and principal amount of the
CREDIT AGREEMENT - Page 57
<PAGE>
Loans owing to, each Bank from time to time (the "REGISTER"). The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Agent, the Issuing Bank and the
Banks may treat each Person whose name is recorded in the Register as a
Bank hereunder for all purposes under the Loan Documents. The Register
shall be available for inspection by the Borrower, the Issuing Bank or
any Bank at any reasonable time and from time to time upon reasonable
prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Bank and assignee representing that it is an Eligible
Assignee, together with any Note subject to such assignment, the Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit "E" hereto, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the
Register, and (iii) give prompt written notice thereof to the Borrower.
Within five Business Days after its receipt of such notice, the Borrower,
at its expense, shall execute and deliver to the Agent in exchange for
the surrendered Notes, new Notes to the order of such Eligible Assignee
in an amount equal to the Commitments assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Bank has retained a
portion of its Commitments, new Notes to the order of the assigning Bank
in an amount equal to the Commitments retained by it hereunder (each such
promissory note shall constitute a "NOTE" for purposes of the Loan
Documents). Such new Notes shall be in an aggregate principal amount of
the surrendered Notes, shall be dated the effective date of such
Assignment and Acceptance, and shall otherwise be in substantially the
form of Exhibit "A" hereto.
I\3 Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower or its Subsidiaries
furnished to such Bank by or on behalf of the Borrower or its
Subsidiaries, subject, however, to the provisions of Section 15.21.
Section 9 SURVIVAL. All representations and warranties made in this
Agreement or any other Loan Document or in any document, statement, or
certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents, and no
investigation by the Agent, the Issuing Bank, or any Bank or any closing shall
affect the representations and warranties or the right of the Agent, the Issuing
Bank, or any Bank to rely upon them. Without prejudice to the survival of any
other obligation of the Borrower hereunder, the obligations of the Borrower
under Article VI and Sections 15.1 and 15.2 shall survive repayment of the Notes
and termination of the Commitments.
Section 10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES, AND THE
OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF
CREDIT AGREEMENT - Page 58
<PAGE>
THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
Section 11 AMENDMENTS, ETC. No amendment or waiver of any provision
of this Agreement, the Notes, or any other Loan Document to which the Borrower
is a party, nor any consent to any departure by the Borrower therefrom, shall in
any event be effective unless the same shall be agreed or consented to by
Required Banks and the Borrower, and each such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; PROVIDED, that no amendment, waiver, or consent shall, unless in writing
and signed by all of the Banks and the Borrower, do any of the following: (a)
increase the Commitments of the Banks or subject the Banks to any additional
obligations; (b) reduce the principal of, or interest on, the Notes or any fees
or other amounts payable to the Banks hereunder; (c) postpone any date fixed for
any payment of principal of, or interest on, the Notes or any fees or other
amounts payable to the Banks hereunder; (d) waive any of the conditions
specified in Article VII; (e) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes or the number of Banks which
shall be required for the Banks or any of them to take any action under this
Agreement; (f) change any provision contained in this Section 15.11; or
(g) release any Collateral. Notwithstanding anything to the contrary contained
in this Section, no amendment, waiver, or consent shall be made with respect to
Article XIV hereof without the prior written consent of the Agent, no amendment,
waiver, or consent shall be made with respect to Article IV hereof without the
prior written consent of the Issuing Bank and no amendment, waiver, or consent
shall be made with respect to Article III hereof without the prior consent of
the Agent.
Section 12 MAXIMUM INTEREST RATE. No provision of this Agreement or
of any other Loan Document shall require the payment or the collection of
interest in excess of the maximum amount permitted by applicable law. If any
excess of interest in such respect is hereby provided for, or shall be
adjudicated to be so provided, in any Loan Document or otherwise in connection
with this loan transaction, the provisions of this Section shall govern and
prevail and neither the Borrower nor the sureties, guarantors, successors, or
assigns of the Borrower shall be obligated to pay the excess amount of such
interest or any other excess sum paid for the use, forbearance, or detention of
sums loaned pursuant hereto. In the event any Bank ever receives, collects, or
applies as interest any such sum, such amount which would be in excess of the
maximum amount permitted by applicable law shall be applied as a payment and
reduction of the principal of the indebtedness evidenced by the Notes; and, if
the principal of the Notes has been paid in full, any remaining excess shall
forthwith be paid to the Borrower. In determining whether or not the interest
paid or payable exceeds the Maximum Rate, the Borrower and each Bank shall, to
the extent permitted by applicable law, (a) characterize any non-principal
payment as an expense, fee, or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) amortize, prorate,
allocate, and spread in equal or unequal parts the total amount of interest
throughout the entire contemplated term of the indebtedness evidenced by the
Notes so that interest for the entire term does not exceed the Maximum Rate.
Section 13 NOTICES. All notices and other communications provided for
in this Agreement and the other Loan Documents to which the Borrower is a party
shall be given or made by telecopy or in writing and telecopied, mailed by
certified mail return receipt requested, or
CREDIT AGREEMENT - Page 59
<PAGE>
delivered to the intended recipient at the "Address for Notices" specified
below its name on the signature pages hereof; or, as to any party at such
other address as shall be designated by such party in a notice to each other
party given in accordance with this Section. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly
given when transmitted by telecopy, subject to telephone confirmation of
receipt, or when personally delivered or, in the case of a mailed notice,
when duly deposited in the mails, in each case given or addressed as
aforesaid; provided, however, notices to the Agent pursuant to Article II,
III and IV shall not be effective until received by the Agent.
Section 14 GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
THIS AGREEMENT HAS BEEN ENTERED INTO IN HARRIS COUNTY, TEXAS, AND IT SHALL BE
PERFORMABLE FOR ALL PURPOSES IN HARRIS COUNTY, TEXAS. SUBJECT TO SECTION
15.20, ANY ACTION OR PROCEEDING AGAINST THE BORROWER UNDER OR IN CONNECTION
WITH ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT
IN HARRIS COUNTY, TEXAS. THE BORROWER HEREBY IRREVOCABLY (A) SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT MAY
NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM.
THE BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED
OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED OR
DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 15.13. NOTHING
HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF THE
AGENT, THE ISSUING BANK, OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SUBJECT TO SECTION 15.20, SHALL LIMIT THE RIGHT OF THE
AGENT, THE ISSUING BANK OR ANY BANK TO BRING ANY ACTION OR PROCEEDING AGAINST
THE BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER
JURISDICTIONS. SUBJECT TO SECTION 15.20, ANY ACTION OR PROCEEDING BY THE
BORROWER AGAINST THE AGENT, THE ISSUING BANK, OR ANY BANK SHALL BE BROUGHT
ONLY IN A COURT LOCATED IN HARRIS COUNTY, TEXAS.
Section 15 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 16 SEVERABILITY. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Agreement and the effect thereof
shall be confined to the provision held to be invalid or illegal.
Section 17 HEADINGS. The headings, captions, and arrangements used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
CREDIT AGREEMENT - Page 60
<PAGE>
Section 18 CONSTRUCTION. The Borrower, the Agent, the Issuing
Bank, and each Bank acknowledge that each of them has had the benefit of
legal counsel of its own choice and has been afforded an opportunity to
review this Agreement and the other Loan Documents with its legal counsel and
that this Agreement and the other Loan Documents shall be construed as if
jointly drafted by the parties hereto.
Section 19 INDEPENDENCE OF COVENANTS. All covenants hereunder
shall be given independent effect so that if a particular action or condition
is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations of,
another covenant shall not avoid the occurrence of a Default if such action
is taken or such condition exists.
Section 20 ARBITRATION PROGRAM. THE PARTIES AGREE TO BE BOUND BY
THE TERMS AND CONDITIONS OF THE CURRENT ARBITRATION PROGRAM OF WELLS FARGO,
WHICH IS INCORPORATED HEREIN BY REFERENCE AND ACKNOWLEDGED AS RECEIVED BY THE
PARTIES, PURSUANT TO WHICH ANY AND ALL DISPUTES SHALL BE RESOLVED BY
MANDATORY BINDING ARBITRATION UPON THE REQUEST OF ANY PARTY.
Section 21 TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY. Each
Bank and the Agent agrees (on behalf of itself and each of its affiliates,
directors, officers, employees and representatives) to keep confidential any
non-public information supplied to it by Borrower pursuant to this Agreement
that Borrower identifies to such Bank or the Agent (as the case may be) as
confidential at the time Borrower so supplies such information, provided,
that nothing herein shall limit the disclosure of any such information (i) to
the extent required by statute, rule, regulation or judicial process, (ii) to
counsel for any of the Banks or the Agent, (iii) to bank examiners, auditors
or accountants, (iv) to the Agent or any other Bank, (v) in connection with
any litigation to which any one or more of the Banks or the Agent is a party,
(vi) to a subsidiary or affiliate of such Bank, or (vii) to any assignee or
participant (or prospective assignee or participant) so long as such assignee
or participant (or prospective assignee or participant) first executes and
delivers to the respective Bank an acknowledgement to the effect that it is
bound by the provisions of this Section 15.21, which acknowledgement may be
included as part of the respective assignment or participation agreement
pursuant to which such assignee or participant acquires an interest in the
Loans hereunder; and provided, further, that in no event shall any Bank or
the Agent be obligated or required to return any materials furnished to it by
the Borrower.
CREDIT AGREEMENT - Page 61
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORROWER:
INPUT/OUTPUT, INC.
By:
---------------------------------
Robert P. Brindley
Senior Vice President
Address for Notices:
12300 Parc Crest Drive
Stafford, Texas 77477
Fax No.: (713) 879-3600
Telephone No.: (713) 933-3339
Attention: Senior Vice President
and Chief Financial Officer
AGENT:
FIRST INTERSTATE BANK OF TEXAS, N.A.
By:
---------------------------------
Marc Dunmire
Vice President
Address for Notices:
1000 Louisiana
Houston, Texas 77002
Fax No.: (713) 250-1048
Telephone No.: (713) 250-7240
Attention: Marc Dunmire
CREDIT AGREEMENT - Page 62
<PAGE>
ISSUING BANK:
FIRST INTERSTATE BANK OF TEXAS, N.A.
By:
---------------------------------
Marc Dunmire
Vice President
Address for Notices:
1000 Louisiana
Houston, Texas 77002
Fax No.: (713) 250-1048
Telephone No.: (713) 250-7240
Attention: Marc Dunmire
BANKS:
FIRST INTERSTATE BANK OF TEXAS, N.A.
REVOLVING CREDIT COMMITMENT: By:
---------------------------------
Marc Dunmire
$50,000,000 Vice President
Address for Notices:
1000 Louisiana
Houston, Texas 77002
Fax No.: (713) 250-1048
Telephone No.: (713) 250-7240
Attention: Marc Dunmire
Lending Office for Prime Rate Loans
1000 Louisiana
Houston, Texas 77002
Lending Office for Eurodollar Loans
1000 Louisiana
Houston, Texas 77002
HO960720139
050796 v13 lsd
153:4839-101
CREDIT AGREEMENT - Page 63
<PAGE>
MASTER LETTER OF CREDIT AGREEMENT
Date: April 16, 1996
To induce ABN AMRO Bank N.V. Houston Agency (the "Bank") to issue letters of
credit (as the same may be amended, the "Credits") substantially in accordance
with the Applications submitted to Bank in accordance with Paragraph 1 of this
Agreement, the undersigned, jointly and severally if there is more than one of
the undersigned (the "Applicant") agrees as follows:
1. APPLICATIONS
Each Application to Bank for the issuance of a Credit shall be made by
Applicant on Bank's standard form application or other mutually acceptable
format (the "Application"), either sent by telecopy transmission, by United
States mail or by a Bank-supplied applicant initiation systems (i.e. Planet).
In the event a Bank-supplied applicant initiation system is used, Applicant
represents and warrants that it is authorized to use such system. In
connection with such Applications, Bank and Applicant agree that (i) Bank is
hereby authorized to act on any Application which Bank in good faith believes
emanates from an authorized representative of Applicant and shall not be
liable for any action taken in good faith with respect to Applications from
unauthorized persons; (ii) Bank shall not be under any duty to verify the
identity of any person submitting any Application and all such Applications
shall be binding upon Applicant whether made with or without Applicant's
authority, knowledge or consent; and (iii) APPLICANT WILL INDEMNIFY BANK FROM
ALL ACTIONS, PROCEEDINGS, CLAIMS, LOSS, DAMAGE, COSTS AND EXPENSES BROUGHT
AGAINST, INCURRED OR SUFFERED BY BANK (INCLUDING THOSE RESULTING FROM BANK'S
OWN NEGLIGENCE) WHICH HAVE ARISEN DIRECTLY OR INDIRECTLY FROM THE ACCEPTANCE
BY BANK OF ANY APPLICATION. IT IS THE INTENTION OF THE PARTIES THAT BANK BE
INDEMNIFIED FOR ITS OWN NEGLIGENCE (EXCEPT GROSS NEGLIGENCE).
2. BANK'S GENERAL OBLIGATIONS
Bank may, in Bank's sole and absolute discretion, issue Credits hereunder
upon the request of Applicant. Upon Bank's issuance of a Credit, Bank's
obligations to Applicant with respect to the Credit include good faith and
observance of general banking usage, but shall NOT include liability or
responsibility of any kind arising out of or in connection with: (a)
performance of the underlying contract for sale or other transactions between
Applicant and the beneficiary or any other person; (b) acts, errors,
defaults, or omissions of any person other than Bank's including any use of
the Credit by any such person; (c) loss or destruction of any telegram,
cable, letter, instrument, or document while in transit or in the possession
of others; (d) knowledge or lack of knowledge of any custom or usage of any
particular trade; (e) delivery, transmission, translation, or interpretation
of any message, including any interruption, delay, error or omission therein;
(f) insufficiency, lack of authorization, invalidity of, lack of genuineness,
truthfulness, or error or fraud in any documents presented under the Credit
or in any instructions purporting to be from Applicant or Bank's
correspondents; (g) validity or correctness of any transfer or proper
identity of any transferee (if the Credit is issued in transferable form);
(h) waiver of any requirement which exists for Bank's protection and not for
the protection of Applicant, or which waiver does not in fact materially
prejudice Applicant; or (i) any other act or omission for which banks are
relieved of responsibility under the "Uniform Customs & Practice for
Documentary Credits" of the International Chamber of Commerce (hereafter, the
"UCP") or the Uniform Commercial Code, in each case as in effect on the date
hereof.
3. BANK'S OBLIGATIONS CONCERNING DOCUMENTS
(a) Bank's obligations to Applicant relative to any Credit include Bank's
examination of documents with reasonable care so as to ascertain that on
their face they appear to comply with the terms of the Credit, but do NOT
include liability or responsibility of any kind arising out of or in
connection with: (i) validity, sufficiency, truthfulness, genuineness or
effect of documents which appear on Bank's examination to be regular on their
face; (ii) honor of drafts or demands for payment which appear on Bank's
examination to be regular on their face; or (iii) the ultimate correctness of
Bank's decision regarding documentary compliance, where Bank's decision is
based on Bank's examination of the documents, or Bank's exercise of judgment,
in a manner not manifestly unreasonable. Bank may in its discretion (but
shall not be obligated to) accept documents which substantially or reasonably
comply with the terms of the Credit.
(b) Unless otherwise specified in the Application, Bank may, in Bank's
discretion, but shall not be obligated to, accept or honor (in the case of
negotiable Credits) as complying with a Credit: (i) drafts or documents
signed by or issued by the purported executor, agent, administrator,
liquidation, receiver, trustee in bankruptcy, or other legal representative
of any party designated in the Credit; (ii) drafts or documents which fail to
bear any or adequate reference to the Credit, or notation to be made on the
Credit, or the Credit to be surrendered, or documents to be forwarded apart
from the draft, whether or not required by the Credit; (iii) drafts or
documents which comply under the laws, rules, regulations, and general
banking or trade customs and usages of the place of drawing, negotiation or
presentation; or (iv) drafts or documents which comply with the UCP.
4. PAYMENT; COMMISSIONS
(a) With respect to each Credit, Applicant shall pay Bank in United States
currency and in immediately available funds, by wire transfer or otherwise,
at Bank's office identified in the Application, the amount paid or to be paid
by Bank, Bank's agent or any other party on Bank's behalf, on each draft or
other order, instrument or demand drawn or presented or purporting to be
drawn or presented under a Credit (the "Item") together with all other
amounts owing to Bank in connection therewith, such payment to be made at the
time of honor of each Item or if so demanded by Bank, on demand in advance of
any drawing. In the case of Items drawn in foreign currency, such payments
shall be at Bank's current rate of exchange for transfers to the place of
payment in the currency in which such Item is drawn (or, if for any reason
Bank is unable to establish such a rate of exchange,
<PAGE>
2
in an amount equal to Bank's actual cost of settlement). Applicant shall
reimburse the Bank in the same currency in which the Item is payable,
provided that at Bank's option, Applicant shall reimburse Bank in United
States dollars for Items payable in a foreign currency at the rate at
which Bank could sell such foreign currency in exchange for United States
dollars for transfer to the place of payment of the Item, or, if there is
no such rate, the United States dollar equivalent of Bank's actual cost of
settlement. Applicant agrees to pay Bank on demand in United States
dollars such amounts as Bank may be required to expend to comply with any
and all governmental exchange regulations now or hereafter applicable to
the purchase of foreign currency.
(b) With respect to each Credit, Applicant shall pay Bank on demand, in
United States currency at Bank's office identified on the Application: (i) a
non-refundable commission at such rate as Bank may establish; (ii) interest
on all amounts due and owing to Bank, from and including the date such amount
is paid or incurred by Bank or otherwise due and owing hereunder until such
amount is paid in full, at a fluctuating rate equal to the lesser of (x)
Bank's Prime Rate plus two percent (2%) per annum, and (y) the maximum
nonusurious rate of interest permitted by applicable law from time to time in
effect. "Prime Rate" shall mean the rate in effect from time to time as set
by Bank and called its Prime Rate for United States dollar loans, which rate
is not necessarily the lowest or best interest rate offered by Bank and
interest shall be calculated on the basis of a 360-day year for actual days
elapsed (unless such calculation would cause a usury violation, in which
event interest shall be calculated on the basis of a year of 365 or 366 days,
as the case may be); and (iii) all charges and expenses, including attorney's
fees, legal expenses, court costs, and any similar costs or liabilities from
time to time paid or incurred by Bank issuance or maintenance of the Credit,
Bank's performance under the Credit and this Agreement, and all transactions
(including, without limitation, the involvement of Bank in any court
proceeding regarding the Credit) related to or contemplated by this Agreement
(including without limitation, Bank's creation, perfection, maintenance,
protection, exercise, enforcement or other realization of or upon Bank's
interests, rights, and remedies) and (iv) all charges and fees payable under
any fee schedule of Bank in effect from time to time or as otherwise agreed.
(c) All amounts payable by Applicant hereunder shall be paid at the office
of Bank identified on Application, in immediately available and freely
transferable funds at such place of payment. Bank is authorized to set off or
charge to any account or other funds of Applicant in Bank's possession all
obligations of Applicant owing hereunder, irrespective of the currency in
which such account or funds are denominated.
(d) If, as a result of any law, regulation, treaty or directive, or any
change therein, or in the interpretation or application thereof or Bank's
compliance with any request or directive (whether or not having the force of
law) from any court or governmental authority, agency or instrumentality, any
reserve, capital requirement, premium, special deposit, special assessment or
similar requirements against Bank's assets, deposits or credit extended by
Bank are imposed, modified or deemed applicable and Bank shall determine
that, by reason thereof, the cost to Bank of issuing or maintaining the
Credit is increased, Applicant agrees to pay Bank upon demand such additional
amount or amounts as will compensate Bank for such additional costs (but only
to the extent such compensation does not cause the aggregate compensation to
Bank to exceed the maximum nonusurious rate of interest permitted by
applicable law from time to time in effect). Determinations by Bank of the
additional amounts required to compensate Bank in respect of the foregoing
shall be conclusive, absent manifest error. Applicant further agrees to pay
any applicable levies or other taxes imposed in connection with the Credit
other than net income taxes payable by Bank, and to otherwise comply with all
domestic and foreign laws and regulations applicable to all transactions
under or in connection with the Credit.
(e) Bank may (but shall not be obligated to) make a loan to Applicant in an
amount equal to the reimbursement obligation of Applicant under Section 4(a)
hereof and Bank shall be hereby authorized to apply the proceeds of such loan
to the repayment of such reimbursement obligation. Each loan shall, except
to the extent otherwise agreed to in writing between Applicant and Bank, be
due on demand and shall bear interest payable on demand at the per annum rate
set forth in Section 4(b)(ii) hereof.
5. ASSUMPTION OF RISK BY APPLICANT; INDEMNIFICATION OF BANK BY APPLICANT;
SUBROGATION.
(a) Applicant's obligations to Bank hereunder are, and shall remain, absolute
and unconditional notwithstanding any lack of enforceability of any of the
Credits or the existence of any claim, counterclaim, defense or right of set
off Applicant may have against Bank.
(b) The beneficiary or any other user of a Credit and any other drawer of
any draft or the presenter of any demand for payment thereunder shall be
deemed Applicant's agents, and Applicant assumes all risk, loss, liability,
charges and expenses with respect to their acts or omissions and also with
respect to any error, delay, misdelivery or loss in or arising out of the
transmission of telegrams, cables, letters or other communications or
documents or items forwarded in connection with the drafts or the Credit,
including, without limitation, any Application. Applicant shall not be
relieved from any obligation or liability, nor shall the terms of this
Agreement be affected by the occurrence of any of the foregoing. Any action
or inaction by Bank or its correspondents in connection with a Credit or with
instructions, drafts, documents, or merchandise relative to a Credit, shall,
if in good faith, conclusively be deemed to have been authorized by
Applicant, and Bank shall have no liability thereunder.
(c) APPLICANT SHALL INDEMNIFY BANK AND ITS CORRESPONDENTS AND SHALL DEFEND
AND HOLD BANK AND ITS CORRESPONDENTS HARMLESS FROM AND AGAINST ANY AND ALL
CLAIMS, DAMAGES, LOSS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES) AND
LIABILITIES OF ANY NATURE WHATEVER, SUSTAINED, INCURRED OR ASSERTED IN
CONNECTION WITH ANY CREDITS (INCLUDING CONSEQUENCES OF ANY INDEMNITER'S OWN
NEGLIGENCE), THE PAYMENT OR ACCEPTANCE OR REFUSAL TO PAY OR ACCEPT ANY DRAFT
OR OTHER DEMAND FOR PAYMENT, AND ANY OTHER ACTION OR INACTION IN RELIANCE
UPON THE PROVISIONS OF THIS AGREEMENT (including but not limited to any and
all claims, damages, loss, costs, expenses and liabilities arising out of or
resulting from the negligence (sole, ordinary, contributory or other) of the
person to be indemnified except, only if, and to the extent that any such
claims, damages, loss, expenses or liabilities shall have been determined
<PAGE>
3
by a court of competent jurisdiction to have been directly caused by the
willful misconduct or gross negligence of Bank in performing its obligations
under the Credit or by Bank's failure to make payment of any drawing or other
demand for payment made in strict conformity with the Credit). It is
understood that in making payment under the Credit Bank's exclusive reliance
on the documents presented to Bank in accordance with the terms of the Credit
as to any and all matters set forth therein, whether or not any statement or
any document presented pursuant to the Credit proves to be forged,
fraudulent, invalid or insufficient in any respect whatsoever shall not be
deemed willful misconduct or gross negligence of Bank.
(d) Bank shall be subrogated (for purposes of defending against Applicant's
claims and proceeding against others to the extent of Bank's liability to
Applicant) to Applicant's rights against any person who may be liable to
Applicant on any underlying transaction; to the rights of any holder in due
course or person with similar status against Applicant; and to the rights of
any beneficiary or its assignee or person with similar status against
Applicant.
(e) Applicant certifies that transactions in any commodities covered by this
Agreement are not prohibited under the foreign assets control regulations of
the United States Treasury Department and that any importation covered by
this Agreement conforms in every respect with all existing United States
government regulations.
6. DEFAULT; REMEDIES.
(a) Applicant shall be in default under this Agreement if any of the
following events are not cured within five days of occurrence, and Applicant
shall immediately notify the Bank at such point: (i) any failure by Applicant
to perform its obligations or covenants under this Agreement or any other
agreement with Bank or instrument delivered to Bank; including without
limitation Applicant's obligation to pay promptly all sums due to Bank; (ii)
any failure to furnish upon demand any financial information Bank may request
of Applicant or to permit at a reasonable time Bank's inspection of
Applicant's books, records and accounts; (iii) any act or event evidencing or
reasonably appearing to evidence the bankruptcy, reorganization,
rehabilitation, arrangement, liquidation, insolvency or financial instability
of any party signing hereto as an Applicant, or of any guarantor thereof;
(iv) any material misrepresentation made by Applicant in connection with this
Agreement or a Credit; (v) any default in excess of $200,000 by Applicant
under any agreement involving the borrowing of money or the obtaining of
credit; or (vi) any other act, event or occurrence which in Bank's sole
judgment increases its risk.
(b) Upon default, all of Applicant's obligations and liabilities to Bank, of
whatever nature, whether contingent or absolute, shall become immediately due
and payable WITHOUT PRESENTMENT, PROTEST, NOTICE OR DEMAND AND WITHOUT NOTICE
OF INTENTION TO ACCELERATE OR NOTICE OF ACCELERATION, ALL OF WHICH ARE HEREBY
WAIVED and, without limiting the foregoing and any other rights of Bank
hereunder, Applicant shall pay to Bank within five days an amount equal to
the available undrawn amount of all outstanding Credits. Bank shall have all
the rights and remedies of a secured party under the Uniform Commercial Code,
and in addition to such rights and remedies, Applicant further agrees that
any default under this Agreement shall also be a default under all other
agreements with Bank.
(c) All amounts due and payable shall accrue interest, from and including
the date such amount is paid or incurred by Bank until payment in full, at
the per annum rate set forth in Section 4(b)(ii) hereof.
7. NEGATIVE PLEDGE
Applicant shall not create, assume, incur, suffer or permit to exist any
mortgage, pledge, encumbrance, security interest, assignment, lien or charge
of any kind or character upon any asset of Applicant whether owned at the
date hereof or hereafter acquired except: (i) liens for taxes, assessments or
other governmental charges not yet due or which are being contested in good
faith by appropriate proceedings in such a manner as not to make the property
forfeitable; (ii) other liens, charges, and encumbrances incidental to the
conduct of its business or the ownership of its property and assets which
were not incurred in connection with the borrowing of money or the obtaining
of an advance or credit, and which do not in the aggregate materially detract
from the value of its property or assets or materially impair the use thereof
in the operation of its business; (iii) liens arising out of judgments or
awards against Applicant with respect to which it shall concurrently
therewith be prosecuting an appeal or proceeding for review and with respect
to which it shall have secured a stay of execution pending such appeal or
proceedings for review; (iv) pledges or deposits to secure obligations under
workmen's compensation laws or similar legislation; (v) good faith deposits
in connection with lending contracts or leases to which Applicant is a party;
(vi) deposits to secure public or statutory obligations of Applicant; (vii)
liens existing on the date hereof and disclosed in writing to Bank; (viii)
assignments under Applicant's ongoing note purchase programs not to exceed
$50,000,000 in aggregate; (ix) mortgages against Applicant's property in
Stafford, Texas incurred with the expansion of Applicant's manufacturing
facilities not to exceed $15,000,000 in aggregate; and (x) liens and
encumbrances assumed under purchase money security agreements for equipment
purchases not to exceed $25,000,000 in aggregate.
8. WAIVER BY BANK; ACTS NOT AFFECTING AGREEMENT.
Bank shall have no duty to exercise any of its rights hereunder, and shall
not be liable for any failure to do so or delay in doing so. No such failure
or delay on the part of Bank or its correspondents shall operate as a waiver,
and no notice to or demand by the Bank or its correspondents shall be deemed
a waiver of Bank's right to take any other or further action without notice
or demand. Bank's rights-including all security interests in Collateral, and
Applicant's obligations and liabilities under this Agreement shall continue
unimpaired and this Agreement shall remain binding upon each party hereto
signing as an Applicant, notwithstanding: (a) release or substitution of any
Collateral or any right or interest therein (b) extension of the maturity or
time for presentation of drafts, acceptances, or documents; (c) any other
modification of the terms of any Credit at the request of any party hereto
signing as an Applicant, with or without notification to any other party; or
(d) any increase in the amount
<PAGE>
4
of any Credit at the request of any party hereto. No delay, extension of
time, renewal, compromise or other indulgence which Bank may permit in
connection with any of Bank's rights hereunder shall impair those rights,
and Bank shall not be deemed to have waived any rights unless such waiver
is in writing and signed by Bank or its authorized agent; nor shall any
such waiver constitute a waiver of any other right or of the same right at
any future time. Bank 's acceptance or honor of drafts or issuance of a
Credit varying from the terms of this Agreement will not affect the terms
and conditions applicable to any other drafts or Credits, whether such
other drafts or Credits are then existing or subsequently arising.
9. SOLE OBLIGATION OF BANK.
Without limiting any other provision herein, Bank is hereby expressly
authorized and directed to honor any request for payment which is made under
and in compliance with the terms of any Credit without regard to, and without
any duty on the part of Bank to inquire into, the existence of any disputes
or controversies between Applicant, the beneficiary of a Credit or any other
person, firm or corporation, or the respective rights, duties or liabilities
of any of them or whether any facts or occurrences represented in any of the
documents presented under a Credit are true or correct. Furthermore,
Applicant fully understands and agrees that Bank's sole obligation to
Applicant shall be limited to honoring requests for payment made under and in
compliance with the terms of any Credit and this Agreement and Bank's
obligation remains so limited even if Bank may have assisted Applicant in the
preparation of the wording of any Credit or any documents required to be
presented thereunder or that Bank may otherwise be aware of the underlying
transaction giving rise to any Credit and this Agreement.
10. DURATION OF AGREEMENT, AGREEMENT BINDING UPON SUCCESSORS, INDEMNITY.
This Agreement shall remain in full force and effect until Bank has actually
received written notice to the contrary from the Applicant, and after receipt
of such notice shall continue in full force and effect as to all transactions
between Bank and Applicant commenced prior to the date of such receipt. All
indemnities, covenants, agreements, representations and warranties made in
this Agreement shall survive the issuance by Bank of the Credits and shall
continue in full force and effect so long as any Credit, or any portion
thereof, shall be unexpired or any sums drawn thereunder or other amounts
owing hereunder shall remain unpaid, provided, however, that the provisions
of Section 4(b)(iii), 4(d), 6(c), 11, 13, 14(b), 14(c) and 14(k) shall
survive the termination of this Agreement. This Agreement shall not be
revoked or impaired by the death of any party hereto, by the revocation or
release of any obligations hereunder of any one or more parties hereto (or if
any party hereto shall be a partnership, by any changes in the parties
composing the partnership). If this Agreement is terminated or revoked as to
any party for any reason, Applicant shall indemnify and hold Bank harmless
from any loss incurred in acting hereunder prior to the actual receipt of
written notice of such termination or revocation. The invalidity or lack of
enforceability of any provision hereof shall not affect the validity or
enforceability of any other provision hereof. If this Agreement is signed by
two or more Applicants, it shall constitute the joint and several agreement
of such parties, provided that the Designated Party, as set forth below,
shall have the exclusive right to issue all instructions relating to the
Credits including, without limitation, instructions as to the disposition of
documents and any unutilized funds, waiver of discrepancies and to agree with
Bank upon any amendments, modifications, extensions, renewals or increases in
the Credits or further financing or refinancing of any transaction effected
hereunder, irrespective of whether the same may now or hereafter affect the
rights of any party hereto or of their legal representatives, heirs or
assigns. The Designated Party shall have specimen signatures on file with
Bank and Bank may give notices to the Designated Party without notice to any
other party. The term "Applicant" as used herein shall mean and include each
party signing this Agreement as applicant.
12. LAW GOVERNING
The Credit and this Agreement shall be governed by and construed in
accordance with the laws of the State of Texas applicable to contracts made
and to be wholly performed within such State. Unless inconsistent with such
state law or except so far as otherwise expressly stated in the Credit, the
Credit and this Agreement are subject to the terms of the UCP in effect on
the date of the Application; provided, however, without limiting the
foregoing, Articles 41 and 43 of the UCP 500 (or their counterparts under any
successor UCP) shall have no application to the Credits or this Agreement.
In the absence of proof expressly to the contrary, the UCP shall serve as
evidence of general banking usage.
13. GROSS-UP PROVISION
Any and all payments made to Bank hereunder shall be made free and clear of,
and without deduction or withholding for, any present or future taxes,
levies, imposts, deductions, charges or withholdings of any nature, and all
liabilities with respect thereto, excluding taxes imposed on net income of
Bank and all income and franchise taxes of the United States and any
political subdivision thereof imposed on Bank (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities are
referred to herein as "Taxes"). If Applicant shall be required by law to
deduct any Taxes from or in respect to any sum payable hereunder (i) the sum
payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums
payable under this Section 12(i), Bank shall receive an amount equal to the
sum Bank would have received had no deductions been made; (ii) Applicant
shall make all such deductions; and (iii) Applicant shall pay the full amount
deducted to the relevant taxation authority or other authority in compliance
with applicable law. APPLICANT SHALL INDEMNIFY BANK for the full amount of
Taxes (including, without limitation, any Taxes imposed by any jurisdiction
on amounts payable hereunder) paid by Bank and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes were correctly or legally asserted. Payment upon
this indemnification shall be made within thirty (30) days from the date Bank
makes written demand therefore.
<PAGE>
5
Within thirty (30) days after date of the payment of Taxes, Applicant will
furnish to Bank the original or certified copy of a receipt evidencing
payment thereof.
14. OTHER PROVISIONS.
(a) If any of the Credits shall contain any provision for automatic renewal,
Applicant acknowledges and agrees that Bank is under no obligation to allow
such renewal to occur and any such renewal shall remain within the sole and
absolute discretion of Bank. Applicant hereby irrevocably consents to the
automatic renewal of each such Credit in accordance with its terms should
Bank decide to allow such renewal to occur; provided, however, that Applicant
shall have the right to request Bank to disallow such renewal on the
condition that Applicant shall give Bank prior written notice of such request
not less than thirty (30) days prior to the deadline imposed upon Bank for
notification to the beneficiary of non-renewal of the Credit.
(b) APPLICANT SHALL INDEMNIFY BANK against any loss incurred by Bank as a
result of any judgment or order being given or made for the payment of any
amount due hereunder in a particular currency (the "Currency of Account") and
such judgment or order being expressed in a currency (the "Judgment
Currency") other than the Currency of Account and as a result of any
variation having occurred in the rates of exchange between the date which
such amount is converted into the Judgment Currency and the date of actual
payment pursuant thereto. The foregoing indemnity shall constitute a
separate and independent obligation of Applicant.
(c) Each party signing as Applicant and any guarantor thereof agrees that if
any amount paid to Bank hereunder is rescinded or must be otherwise restored
or returned by Bank due to the insolvency, bankruptcy, liquidation or
reorganization of any party hereto, each party's obligations hereunder with
respect to each such amount shall be reinstated to the same extent as if such
payment had not been made.
(d) Applicant authorizes Bank to set forth the terms of each Application in
the Credit corresponding to such Application in such language as Bank deems
appropriate, with such variations from such terms as Bank may in its
discretion determine to be necessary (which determination shall be
conclusive) and not materially inconsistent with such Application. If
Applicant, or in the case of more than one Applicant, the Designated Party,
does not notify Bank of any inconsistencies in such Credit within ten (10)
calendar days of its issuance, Applicant agrees that such Credit is
conclusively presumed to be in proper form. Upon its receipt of timely
notice of any discrepancy in any Credit, Bank will endeavor to obtain the
consent of the confirming bank (if any) and the beneficiary for an
appropriate modification to the Credit; provided, however that Bank shall
assume no liability or responsibility for its failure to obtain such consent.
(e) No party to this Agreement may assign its rights or obligations under
this Agreement without the prior written consent of Bank, except that the
obligations of Bank under this Agreement may be provided or fulfilled by any
affiliate of Bank so long as Bank assumes full responsibility for such
obligations.
(f) This Agreement and any exhibits hereto constitute the entire agreement
and contract between the parties and supersede any and all prior agreements,
proposals, negotiations and representations pertaining to the obligations and
duties to be performed under this Agreement. No amendments or modifications
of this Agreement shall be valid unless evidenced in writing and signed by or
on behalf of Applicant and Bank.
(g) Except as otherwise provided in this Agreement, all notices required to
be given pursuant to this Agreement shall be effective when received, and
shall be sufficient if given in writing, hand delivered, sent by First Class
United States Mail, postage prepaid, by telecopier or air courier and
addressed to the appropriate party at its address as shown on the signature
page hereof or at such other address as the sending party shall have been
advised in writing.
(h) Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or lack of enforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of
such provision in any other jurisdiction; wherever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law.
(i) This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
taken together shall constitute but one and the same instrument.
(j) Regardless of the expiration date of any Credit, Applicant shall remain
liable hereunder until Bank is released from liability by every person, firm,
corporation or other entity which is entitled to draw or demand payment under
the Credit.
(k) Applicant agrees to indemnify and hold Bank harmless from each and every
claim, demand, liability, loss, cost or expense, including, but not limited
to, attorney's fees and court costs any and all claims, damages, loss, costs,
expenses and liabilities arising out of or resulting from the negligence
(sole, ordinary, contributory or other) of the person to be indemnified which
may arise or be created by Bank's acceptance of telecommunication
instructions in connection with the Credit, including, but not limited to,
telephone or facsimile instructions in connection with any waiver of
discrepancies.
(l) Applicant, or in the case of more than one person signing as Applicant,
the Designated Party, agrees to examine promptly all instruments and
documents delivered to Applicant or the Designated Party, as the case may be,
from time to time and in the event Applicant or the Designated Party shall
have any claim of non-compliance with their instructions or of discrepancies
or other irregularity, Applicant or the Designated Party, as the case may be,
shall immediately notify Bank thereof in writing. Applicant and the
Designated Party shall
<PAGE>
6
conclusively be deemed to have waived any such claim against Bank unless
such immediate notice is given as stated above.
(m) For multiple parties signing as Applicant, such parties may request that
the Credit be issued with the name of one of Applicants, and agree that such
Applicant shall be the Designated Party for the purposes of this Agreement.
(n) The parties hereto each hereby submits to the jurisdiction of the courts
of the State of Texas, the venue of which shall be in the County of Harris
and the United States District Court for the Southern District of Texas, as
well as to the jurisdiction of all courts to which an appeal may be taken or
other review sought from the aforesaid courts, for the purpose of any suit,
action or other proceeding arising out of Applicant's obligations under or
with respect to this Agreement and the Credits and expressly waives any and
all objections it may have as to venue in any such courts. BANK AND APPLICANT
EACH WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT
BY EITHER OF THEM AGAINST THE OTHER ON ANY MATTER WHATSOEVER (INCLUDING,
WITHOUT LIMITATION, ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE CREDITS, ANY OTHER DOCUMENTS
EXECUTED IN CONNECTION HEREWITH OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREIN OR THEREIN). No party to this Agreement, including but not limited to
any assignee or successor of a party, shall seek a jury trial in any lawsuit,
proceeding, counterclaim, or any other litigation procedure based upon, or
arising out of this Agreement, the Credits, any related instruments, any
Collateral or the dealings or the relationship between the parties. No party
will seek to consolidate any such action in which a jury trial has been
waived, with any other action in which a jury trial cannot be or has not been
waived. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE
PARTIES HERETO WITH LEGAL COUNSEL, AND THESE PROVISIONS SHALL BE SUBJECT TO
NO EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY
OTHER PARTY THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED
IN ALL INSTANCES.
IN WITNESS WHEREOF, Applicant and Bank have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
APPLICANT BANK
INPUT/OUTPUT, INC. ABN AMRO Bank N.V. Houston Agency
By: ABN AMRO North America, Inc., as agent
By: /s/ Robert P. Brindley By: /s/ Rebecca S. McCulloch
--------------------------------- -------------------------------
Robert P. Brindley Rebecca S. McCulloch
Senior Vice President and Chief Vice President and Director
Financial Officer
By: /s/ Jonathan C. Homeyer
-------------------------------
Jonathan C. Homeyer
Officer
Address: Address:
Input/Output, Inc. ABN AMRO Bank
12300 Parc Crest Drive Three Riverway, Suite 1700
Stafford, Texas 77477 Houston, Texas 77056
<PAGE>
EXHIBIT 11.1
<PAGE>
EXHIBIT 11.1
INPUT/OUTPUT, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
May 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Weighted average number of common shares outstanding 39,631,464 36,042,560
Dilutive effect of stock options 1,493,822 1,338,898
----------- -----------
Weighted average number of common and common equivalent shares outstanding 41,125,286 37,381,458
Net earnings $38,677,000 $24,500,000
Earnings per common share - primary $ 0.94 $ 0.66
----------- -----------
----------- -----------
Weighted average number of common shares outstanding 39,631,464 36,042,560
Dilutive effect of stock options 1,622,075 1,353,446
----------- -----------
Weighted average number of common and common equivalent shares outstanding 41,253,539 37,396,006
Net earnings $38,677,000 $24,500,000
Earnings per common share - fully diluted $ 0.94 $ 0.66
----------- -----------
----------- -----------
</TABLE>
<PAGE>
EXHIBIT 21.1
<PAGE>
EXHIBIT 21.1
SIGNIFICANT SUBSIDIARIES OF THE COMPANY
INPUT/OUTPUT OF CANADA, INC.
I/O INTERNATIONAL, INC.
I/O EASTERN, INC.
OUTPUT EXPLORATION COMPANY, INC.
IPOP MANAGEMENT, INC.
GLOBAL CHARTER CORPORATION
I/O SENSORS, INC.
MICROFLOW ANALYTICAL, INC.
TESCORP SEISMIC PRODUCTS, INC.
I/O CABLE, INC.
I/O EXPLORATION PRODUCTS (U.S.A.), INC.
I/O EXPLORATION PRODUCTS (U.K.), INC.
<PAGE>
EXHIBIT 23.1
<PAGE>
EXHIBIT 23.1
THE BOARD OF DIRECTORS
INPUT/OUTPUT, INC.:
We consent to incorporation by reference in the registration statements (No. 33-
54394, No. 33-46386, No. 33-50620 and No. 33-85304) on Form S-8 of Input/Output,
Inc. of our report dated June 26, 1996, relating to the consolidated balance
sheets of Input/Output, Inc. and subsidiaries as of May 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended May 31, 1996,
which report appears in the May 31, 1996 annual report on Form 10-K of
Input/Output, Inc.
/s/ KPMG Peat Marwick LLP
Houston, Texas
July 18, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 5/31/96 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 34,252
<SECURITIES> 0
<RECEIVABLES> 71,413
<ALLOWANCES> 0
<INVENTORY> 92,787
<CURRENT-ASSETS> 200,456
<PP&E> 56,035
<DEPRECIATION> 0
<TOTAL-ASSETS> 355,465
<CURRENT-LIABILITIES> 35,231
<BONDS> 0
0
0
<COMMON> 430
<OTHER-SE> 316,774
<TOTAL-LIABILITY-AND-EQUITY> 355,465
<SALES> 278,283
<TOTAL-REVENUES> 278,283
<CGS> 163,811
<TOTAL-COSTS> 58,671
<OTHER-EXPENSES> (576)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,515
<INCOME-PRETAX> 56,377
<INCOME-TAX> 17,700
<INCOME-CONTINUING> 38,677
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,677
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0
</TABLE>
