<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: AUGUST 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ____________
COMMISSION FILE NUMBER: 1-13402
INPUT/OUTPUT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-2286646
(STATE OR OTHER JURISDICTION OF (IRS 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: (281) 933-3339
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 [ ]
At August 31, 1998 there were 44,586,434 shares of common stock, par value
$0.01 per share, outstanding.
- --------------------------------------------------------------------------------
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INPUT/OUTPUT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED AUGUST 31, 1998
PART I. Financial Information.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements.
Consolidated Balance Sheets
August 31, 1998 and May 31, 1998 2
Consolidated Statements of Operations
Three months ended August 31, 1998 and 1997 3
Consolidated Statements of Cash Flows
Three months ended August 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 19
PART II. Other Information.
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
1
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS AUGUST 31, May 31,
1998 1998
--------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 59,999 $ 72,275
Trade accounts receivable, net. . . . . . . . . 75,466 68,257
Trade notes receivable, net . . . . . . . . . . 37,123 38,987
Inventories . . . . . . . . . . . . . . . . . . 125,388 120,206
Prepaid expenses. . . . . . . . . . . . . . . . 3,126 2,649
-------- --------
Total current assets . . . . . . . . . . . . 301,102 302,374
Long-term trade notes receivable . . . . . . . . . . 16,320 32,487
Deferred income tax asset, net . . . . . . . . . . . 3,719 2,896
Property, plant and equipment, net . . . . . . . . . 71,297 69,303
Goodwill, net. . . . . . . . . . . . . . . . . . . . 66,909 68,414
Other assets . . . . . . . . . . . . . . . . . . . . 13,844 14,189
-------- --------
$473,191 $489,663
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, principally trade . . . . . . $ 22,430 $ 33,107
Current installments of debt. . . . . . . . . . 1,006 986
Accrued expenses. . . . . . . . . . . . . . . . 15,982 20,521
Income taxes payable. . . . . . . . . . . . . . 4,685 8,139
-------- --------
Total current liabilities. . . . . . . . . . 44,103 62,753
Long-term debt . . . . . . . . . . . . . . . . . . . 9,754 10,011
Other liabilities. . . . . . . . . . . . . . . . . . 1,302 1,199
Stockholders' equity:
Preferred stock, $.01 par value; authorized
5,000,000 shares, none issued . . . . . . . -- --
Common stock, $.01 par value; authorized
100,000,000 shares; issued 44,586,434
shares at August 31, 1998 and 44,584,634
shares at May 31, 1998. . . . . . . . . . . 446 446
Additional paid-in capital. . . . . . . . . . . 240,765 240,746
Retained earnings . . . . . . . . . . . . . . . 180,160 177,885
Cumulative translation adjustment . . . . . . . (2,181) (2,063)
Unamortized restricted stock compensation . . . (1,158) (1,314)
-------- --------
Total stockholders' equity . . . . . . . . 418,032 415,700
-------- --------
$473,191 $489,663
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
AUGUST 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . $ 66,995 $ 82,970
Cost of sales. . . . . . . . . . . . . . . . . . . . 45,032 49,656
-------- --------
Gross profit. . . . . . . . . . . . . . . . . . 21,963 33,314
-------- --------
Operating expenses:
Research and development. . . . . . . . . . . . . 9,061 7,388
Marketing and sales . . . . . . . . . . . . . . . 3,962 2,884
General and administrative. . . . . . . . . . . . 6,335 6,068
Amortization of intangibles . . . . . . . . . . . 1,860 1,187
-------- --------
Total operating expenses. . . . . . . . . . . . 21,218 17,527
-------- --------
Earnings from operations . . . . . . . . . . . . . . 745 15,787
Interest expense . . . . . . . . . . . . . . . . . . (242) (322)
Other income . . . . . . . . . . . . . . . . . . . . 2,843 1,119
-------- --------
Earnings before income taxes . . . . . . . . . . . . 3,346 16,584
Income taxes . . . . . . . . . . . . . . . . . . . . 1,071 5,307
-------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . $ 2,275 $ 11,277
-------- --------
-------- --------
Basic earnings per common share. . . . . . . . . . . $ 0.05 $ 0.26
-------- --------
-------- --------
Weighted average number of common
shares outstanding . . . . . . . . . . . . . . . . . 44,585,501 43,383,059
---------- ----------
---------- ----------
Diluted earnings per common share. . . . . . . . . . $ 0.05 $ 0.26
-------- --------
-------- --------
Weighted average number of diluted
common shares outstanding. . . . . . . . . . . . . . 44,702,268 43,793,884
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
--------------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . $ 2,275 $11,277
Adjustments to reconcile net earnings to net cash
(used in) provided by operating activities:
Depreciation and amortization . . . . . . . . 4,706 3,764
Amortization of restricted stock
compensation . . . . . . . . . . . . . . . . 156 17
Deferred income taxes . . . . . . . . . . . . (823) 695
Pension costs . . . . . . . . . . . . . . . . 108 91
-------- -------
6,422 15,844
Changes in assets and liabilities:
Receivables. . . . . . . . . . . . . . . . 10,822 18,588
Inventories. . . . . . . . . . . . . . . . (5,182) 1,620
Leased equipment . . . . . . . . . . . . . 335 (272)
Accounts payable and accrued expenses. . . (15,216) (196)
Income taxes payable . . . . . . . . . . . (3,454) 2,909
Other. . . . . . . . . . . . . . . . . . . (753) (653)
-------- -------
Net cash (used in) provided by
operating activities . . . . . . . . . . (7,026) 37,840
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . (5,145) (1,764)
Recovery of (investment in) other assets . . . . . 146 (1,110)
-------- -------
Net cash used in investing activities . . . . . (4,999) (2,874)
Cash flows from financing activities:
Payments on debt. . . . . . . . . . . . . . . . . . (237) (221)
Proceeds from exercise of stock options and
related tax benefit . . . . . . . . . . . . . . . 19 3,718
-------- -------
Net cash (used in) provided by financing
activities . . . . . . . . . . . . . . . . . . (218) 3,497
Effect of foreign currency exchange rates . . . . . (33) (141)
-------- -------
Net (decrease) increase in cash and cash
equivalents. . . . . . . . . . . . . . . . . . . . (12,276) 38,322
Cash and cash equivalents at beginning of period . . 72,275 2,573
-------- -------
Cash and cash equivalents at end of period . . . . . $ 59,999 $40,895
-------- -------
-------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the
opinion of management, necessary to fairly present such information. Although
the Company believes that the disclosures are adequate to make the
information presented not misleading, certain information and footnote
disclosures, including significant accounting policies, normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations. It is suggested that these financial statements be read in
conjunction with the consolidated financial statements and the notes thereto,
as well as Item 7. "Management's Discussion and Analysis of Results of
Operations and Financial Condition," included in the Company's Annual Report
on Form 10-K for the year ended May 31, 1998, as filed with the Securities
and Exchange Commission.
(2) INVENTORIES
Inventories are stated at the lower of cost (primarily first-in,
first-out) or market. A summary of inventories follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 31 MAY 31,
1998 1998
--------- --------
<S> <C> <C>
Raw materials $ 67,075 $ 67,432
Work-in-process 14,610 25,262
Finished goods 43,703 27,512
-------- --------
$125,388 $120,206
-------- --------
-------- --------
</TABLE>
EARNINGS PER SHARE
The Company has adopted the Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 128, "Earnings per Share". In
accordance with this new pronouncement, basic earnings per share is computed
by dividing net earnings available to common stock holders by the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is determined on the assumption that outstanding dilutive
stock options have been exercised and the aggregate proceeds as defined were
used to reacquire Company common stock using the average price of such common
stock for the period. Prior period earnings per share amounts have been
restated in accordance with the requirements of the pronouncement.
5
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INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(UNAUDITED)
The following table summarizes the calculation of net earnings, weighted
average number of common shares outstanding and weighted average number of
diluted common shares outstanding for purposes of the computation of earnings
per share.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
AUGUST 31,
--------------------------
1998 1997
------ ------
<S> <C> <C>
Net earnings available to common stockholders
(in thousands) . . . . . . . . . . . . . . . . . . $ 2,275 $11,277
------- -------
------- -------
Weighted average number of common
shares outstanding . . . . . . . . . . . . . . . . 44,585,501 43,383,059
Stock options. . . . . . . . . . . . . . . . . . . 116,767 410,825
------- -------
Weighted average number of diluted
common shares outstanding. . . . . . . . . . . . . 44,702,268 43,793,884
---------- ----------
---------- ----------
Basic earnings per common share. . . . . . . . . . $ 0.05 $ 0.26
------- -------
------- -------
Diluted earnings per common share. . . . . . . . . $ 0.05 $ 0.26
------- -------
------- -------
</TABLE>
At August 31, 1998 and 1997, there were 3,558,393 and 1,000,500,
respectively, of stock options that were not included in the calculation of
diluted earnings per common share because to do so would have been
antidilutive.
(4) STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
does not use or intend to use derivatives. Exchange rate fluctuations have
not had a material effect on the Company's Statements of Cash Flows.
Supplemental disclosures of cash flow information for the three months
ended August 31, 1998 and 1997 follow (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Cash paid during the periods for:
Interest (net of amount capitalized). . . . . $ 242 $ 342
------- ------
Income taxes. . . . . . . . . . . . . . . . . $ 5,313 $ 140
------- ------
------- ------
</TABLE>
6
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INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(UNAUDITED)
(5) LONG TERM DEBT
A Company subsidiary has a $12.6 million, ten-year term loan secured by
certain of its land and buildings located in Stafford, Texas which includes
the Company's executive offices, research and development headquarters, and
electronics manufacturing facility. The term loan, which the Company has
guaranteed under a Limited Guaranty, bears interest at a fixed rate of 7.875%
per annum. The Company leases all of the property from its subsidiary under
a master lease, which lease has been collaterally assigned to the lender as
security for the term loan. The term loan provides for penalties for
prepayment prior to maturity. The term loan also contains certain restrictive
financial covenants with which the Company was in compliance at August 31,
1998.
(6) COMPREHENSIVE EARNINGS
Effective June 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of comprehensive income
and its components in a full set of financial statements. Comprehensive
income includes all changes in a company's equity (except those resulting
from investments by and distributions to owner's), including, among other
things, foreign currency translations adjustments, and unrealized gains
(losses) on marketable securities classified as available-for-sale. Total
comprehensive earnings for the three months ended August 31, 1998 and 1997
follow (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ -------
<S> <C> <C>
Net earnings $2,275 $11,277
Foreign currency translation adjustments (118) (279)
------ -------
Total comprehensive earnings $2,157 $10,998
------ -------
------ -------
</TABLE>
(7) NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use"(SOP 98-1), establishing accounting standards for such costs, as defined
therein. Accordingly, certain costs of computer software developed or
obtained for internal use will be capitalized and amortized over the
estimated useful life of the software. Effective June 1, 1998, the Company
adopted SOP 98-1.
7
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(8) COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS. On September 24, 1997, a purported class action
lawsuit was filed against the Company and the former president and chief
executive officer, and an executive vice president, of the Company, in the
U.S. District Court for the Southern District of Texas, Houston Division. The
action, styled NORMAN TOCK V. INPUT/OUTPUT, INC., GARY D. OWENS AND ROBERT P.
BRINDLEY, alleges violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, and state statutory and common law fraud provisions.
The action was filed on behalf of purchasers of common stock of the Company
that purchased shares during the period from September 17, 1996 through March
18, 1997. The complaint seeks damages in an unspecified amount plus costs and
attorney's fees. The complaint alleges misrepresentations and omissions in
public filings and announcements concerning the Company's business, sales and
products, and disputes certain accounting methodologies employed by the
Company. On October 21, 1997, a stipulation and order was entered by the
court, extending the time for responses to the complaint by the defendants
pending entry of an order appointing lead plaintiff and lead counsel. An
amended complaint was filed on April 17, 1998. Defendants filed a motion to
dismiss and brief in support thereof on June 8, 1998. Plaintiff has filed
papers in opposition to that motion. Defendants have filed a reply to
Plaintiff's opposition. No hearing on the motion to dismiss has been
scheduled. The Company believes that the plaintiff's allegations are without
merit and that there are meritorious defenses to the allegations and intends
to defend the action vigorously.
In the ordinary course of business, the Company has been named in other
various lawsuits. While the final resolution of these matters may have an
impact on the Company's consolidated financial results for a particular
reporting period, management believes that the ultimate resolution of these
matters will not have a material adverse impact on the Company's financial
position, results of operations or liquidity.
YEAR 2000. -PRODUCTS- With regard to the hardware and software
products sold by it ("Products"), the Company is continuing its testing and
verification procedures to determine the nature and extent of their Year 2000
compliance. The Company has formed a cross-functional focus team to review
these issues and to assist its customers and suppliers in identifying and
resolving Year 2000 issues. The overall assessment of the operational status
of the Company's Products will depend, in large part, on the Year 2000
compliance of the Products' components, many of which are supplied by parties
other than the Company. Prior to the end of calendar year 1998, the Company
intends to (i) complete its internal review of the Year 2000 compliance of
its Products and (ii) circulate and assimilate information from a
questionnaire to vendors and customers in order to obtain information
regarding their Year 2000 compliance. Until additional information is
obtained, the Company will not be able to effectively evaluate whether
further remediation efforts will be required with respect to its Products.
A portion of the Company's Year 2000 compliance expenditures expected to
be incurred relate to the Company's limited warranty coverage. As of August
31, 1998, no specific amounts have been accrued to the warranty reserve for
such costs, as the Company has not yet been able to make an estimate of such
costs based on its current level of assessment. For instances in which the
limited warranty has expired or there was no warranty coverage, the Company
would offer,
8
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on a fee basis, upgrades (if technically achievable) to those Products to
render them Year 2000 compliant.
The Company does not yet possess the information necessary to estimate
the potential impact of Year 2000 compliance issues relating to its Products
or vendors if such Products or vendors were not Year 2000 compliant. In
addition, a relatively small number of customers have traditionally accounted
for most of the Company's net sales from fiscal year to fiscal year, although
the degree of sales concentration with any one customer has varied. The loss
of any significant customer due to reasons related to Year 2000
non-compliance of the Company's Products could have a material adverse impact
on the Company's operations, results of operations or financial position.
CREDIT RISK. The Company sells to many customers on extended-term
arrangements. Moreover, in connection with certain sales of its systems and
equipment, the Company has guaranteed certain loans from unaffiliated parties
to purchasers of such systems and equipment. In addition, the Company has
sold contracts and leases to third-party financing sources, the terms of
which often obligate the Company to repurchase the contracts and leases in
the event of a customer default or upon certain other occurrences.
Performance of the Company's obligations under these arrangements could have
a material adverse effect on the Company's financial condition. At August 31,
1998 and May 31, 1998, the Company had guaranteed approximately $8,078,000
and $11,140,000, respectively, of trade notes receivable sold with recourse
and loans from unaffiliated parties to purchasers of the Company's seismic
equipment. A number of significant payment defaults by customers could have a
material adverse effect on the Company's financial position and results of
operations. All loans guaranteed are collateralized by the seismic equipment.
Due to the inherent uncertainties of guaranty agreements, the Company cannot
estimate the fair value of the guaranties as of August 31, 1998.
SUBSEQUENT EVENT
On September 30, 1998, the Company and DigiCOURSE, Inc., a New
Orleans-based subsidiary of privately-owned The Laitram Corporation, signed a
definitive merger agreement. Under the terms of the agreement, the Company
will acquire, for 5,794,000 shares of Company common stock, all of the
capital stock of DigiCOURSE, Inc. The transaction is subject to certain
closing conditions, including additional due diligence, regulatory approvals
and negotiation of certain ancillary documents. The Company anticipates that
the transaction will close by the end of the Company's second fiscal quarter
and will be accounted for as a purchase business combination.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
NET SALES. The Company's first quarter net sales decreased $16.0
million, or 19.3%, to $67.0 million as compared to the prior year's first
quarter net sales of $83.0 million. The
9
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decrease in sales revenues was primarily due to lower sales levels of the
Company's land systems and components. The decline in sales of land systems
and components is attributable to the decrease in oil prices resulting in
delayed or reduced exploration spending by oil and gas companies during the
quarter, which caused several projects to be postponed or canceled. During
fiscal 1999's first quarter, two I/O SYSTEM TWO-Registered Trademark- land
systems and one MSX marine system were sold, along with other seismic data
acquisition recording equipment and components for expanding existing systems
(representing a total channel count of 5,142 land and 2,448 marine channels);
the prior year's first quarter sales consisted of 14 I/O SYSTEM TWO land
systems and one MSX marine system and other recording equipment and
components (for a total channel count of 23,796 land and 1,778 marine
channels).
GROSS PROFIT MARGIN. The Company's gross profit margin decreased for
the first quarter of fiscal 1999 compared to the prior year's first quarter,
from 40.2% to 32.8%. Reduced demand for land seismic equipment and
instrumentation and a higher percentage of lower-margin marine streamers,
cables and auxiliary equipment in the sales mix were major contributing
factors to the decreased gross profit margins. The Company's gross profit
margin for any particular reporting period is dependent on the product mix
sold and the pricing scheme for the products sold for that period, and may
vary materially from period to period.
OPERATING EXPENSES. Operating expenses increased $3.7 million, or
21.1%, for fiscal 1999's first quarter over the prior year's first quarter
operating expenses. Research and development expenses increased $1.7 million,
or 22.6%, compared to the prior year's first quarter, primarily resulting
from development of new products and expenses related to recent acquisitions.
Marketing and sales expenses increased $1.1 million, or 37.4%, compared to
the prior year's first quarter primarily due to expenses related to recent
acquisitions and higher convention and exhibit expenses. General and
administrative expenses increased $267,000, or 4.4%. Amortization of
intangibles increased $673,000, or 56.7%, primarily due to increased goodwill
expense resulting from acquisitions.
INTEREST EXPENSE. Interest expense for the first quarter (related to the
ten-year term facilities financing) was $242,000. See "Note (5) - Long-Term
Debt" of the Notes to Consolidated Financial Statements. Interest expense for
last year's first quarter was $322,000, also representing interest on this
facility.
INCOME TAX EXPENSE. The Company's effective income tax rate was
approximately 32%, both for the first quarters of fiscal 1999 and of fiscal
1998.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The Company has traditionally financed its operations from
internally generated cash flows, funds from equity financings and its credit
facilities. Cash flows from operating activities before changes in working
capital items were $6.4 million for the three months ended August 31, 1998.
Cash flows from operating activities after changes in working capital items
were a negative $7.0 million for the three months ended August 31, 1998,
primarily due to
10
<PAGE>
decreases in accounts payable and accrued expenses (which represented a use
of cash). As of August 31, 1998 no amounts of indebtedness were outstanding
under the Company's Credit Agreement. The Company had approximately $49.8
million available for borrowings under the Credit Agreement as of August 31,
1998.
The Company had outstanding long-term indebtedness of $9.8 million as of
August 31, 1998 secured by the land, buildings and improvements housing the
Company's executive offices, research and development headquarters and
electronics manufacturing facility in Stafford, Texas. The loan bears
interest at the rate of 7.875% per annum and is repayable in equal monthly
installments of principal and interest of $151,439. The promissory note,
which matures on September 1, 2006, contains prepayment penalties. See "Note
(5) - Long-Term Debt" of the Notes to Consolidated Financial Statements.
Capital expenditures totaled $5.1 million for the first quarter. Total
capital expenditures are currently expected to aggregate $17.0 million for
fiscal 1999. The Company believes that the combination of its existing
working capital, unused credit available under its revolving credit facility,
internally generated cash flows and access to other financing sources will be
adequate to meet its anticipated capital and liquidity requirements for the
foreseeable future.
CREDIT AGREEMENT. On February 27, 1998, the Company entered into a
Credit Agreement with certain lenders, including Bank One, Texas, N.A., as
administrative agent for the lenders, replacing the Company's former
revolving working capital line of credit. The maximum amount available for
borrowings under the Credit Agreement is $50 million. In addition, up to $15
million of credit available under the Credit Agreement may be used, as
needed, by the Company for letters of credit. Indebtedness under the Credit
Agreement will mature on February 27, 2001. Borrowings under the Credit
Agreement may be made to finance the Company's working capital, capital
expenditures, acquisitions permitted under the Credit Agreement and for
general corporate purposes. Outstanding indebtedness under the Credit
Agreement will bear interest, at the Company's option, at fluctuating
interest rates based upon a prime rate or a eurodollar rate plus a credit
margin that fluctuates depending upon the Company's ratio of funded debt to
capitalization. In addition, the Company must pay a commitment fee for unused
amounts available under the credit facility, in an amount also based upon the
Company's ratio of funded debt to capitalization.
The obligations of the Company under the Credit Agreement are unsecured,
except for a first lien pledge of the capital stock of certain wholly-owned
subsidiaries of the Company that the lenders consider to be "material
subsidiaries". Additionally, certain of these wholly-owned subsidiaries have
guaranteed the Company's obligations under the Credit Agreement.
YEAR 2000. Many currently installed computer systems and software
products are coded to accept only two-digit entries in the date code field
and cannot distinguish 21st century dates from 20th century dates. These date
code fields will need to distinguish 21st century dates from 20th century
dates and, as a result, many companies' software and computer systems may
need to be upgraded or replaced in order to comply with such "Year 2000"
requirements. The Company
11
<PAGE>
is currently working to resolve the potential impact of the Year 2000 issue
on the computerized systems it utilizes internally, and with regard to its
products and customers.
STATE OF READINESS. The Company is in the process of evaluating the Year
2000 readiness of the hardware and software products sold by it ("Products"),
the information technology systems used in its operations ("IT Systems"), and
its non-IT Systems, such as building security, voice mail and other systems.
The Company has substantially completed its assessment of its IT Systems used
in the United States, which have been verified and tested to be Year 2000
compliant. Beginning in calendar 1996, the Company commenced replacement of
its then-current U.S. IT System with a new system. This replacement, which
was substantially completed in fiscal 1998, was required in order to meet
current and future needs of the Company's business as well as to make more
efficient various administrative and operating functions. Because the Company
did not undertake this replacement for reasons of Year 2000 compliance (the
Company understands that its previous IT system was also Year 2000
compliant), the costs of this conversion have not been identified as Year
2000 compliance costs. The Company has not yet, however, completed its
assessment of its IT Systems at its European locations. It is currently
planned that these systems will be replaced with a version of the Company's
current U.S. IT System by late calendar 1999. The Company's Year 2000
compliance program is expected to cover the following phases: (i) inventory
of all non-tested IT Systems and non-IT Systems; (ii) assessment of repair or
replacement requirements; (iii) planning and remediation; (iv) testing; and
(v) implementation.
With regard to its Products, the Company is continuing its testing and
verification procedures to determine the nature and extent of their Year 2000
compliance. The Company has formed a cross-functional focus team to review
these issues and to assist its customers and suppliers in identifying and
resolving Year 2000 issues. The Company believes that its Products will be
Year 2000 compliant by mid-1999. The overall assessment of the operational
status of the Company's Products will depend, in large part, on the Year 2000
compliance of the Products' components, many of which are supplied by parties
other than the Company. Prior to the end of calendar year 1998, the Company
intends to (i) complete its internal review of the Year 2000 compliance of
its Products and (ii) circulate and assimilate information from a
questionnaire to vendors and customers in order to obtain information
regarding their Year 2000 compliance. Until additional information is
obtained, the Company will not be able to effectively evaluate whether
further remediation efforts will be required with respect to its Products.
Further, the Company relies, both domestically and internationally, upon
various vendors, governmental agencies, utility companies, telecommunications
service companies, delivery service companies and other service providers,
which are outside of the Company's control. There is no assurance that such
parties will not suffer a Year 2000 business disruption, which could have a
material adverse effect on the Company's financial condition and results of
operations.
COSTS. To date, the Company has not incurred any material expenditures
in connection with identifying, evaluating or remediating Year 2000
compliance issues. The Company has not retained an outside consultant to
assist it in its review and assessment of its Year 2000 issues.
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Most of its expenditures have related to the opportunity cost of time spent
by employees of the Company evaluating the Company's Year 2000 issues for its
IT Systems, its non-IT Systems and its Products. While the Company has not
yet completed its evaluation of the estimated costs to remediate the Year
2000 issues concerning its Products and internal systems (primarily expected
to be costs in connection with replacing systems and modifying software),
management currently believes that these expenditures will not have a
material adverse effect on its operations, results of operations or financial
condition. However, no assurances can be given that until the Company fully
completes its cost evaluation, the economic effects of these remediation
efforts will not have a material adverse effect on its operations, results of
operations or financial condition.
A portion of the Company's Year 2000 compliance expenditures expected to
be incurred relate to the Company's limited warranty coverage. As of August
31, 1998, no specific amounts have been accrued to the warranty reserve for
such costs, as the Company has not been able to make an estimate of such
costs based on its current level of assessment. For instances in which the
limited warranty has expired or there was no warranty coverage, the Company
would offer, on a fee basis, upgrades to those Products to render them Year
2000 compliant. The Company believes that internally generated funds or
available cash will be sufficient to cover the projected costs associated
with its Year 2000 remediation requirements.
RISKS. The Company does not yet possess the information necessary to
estimate the potential impact of Year 2000 compliance issues relating to its
Products or vendors if such Products or vendors were not Year 2000 compliant.
In addition, a relatively small number of customers have traditionally
accounted for most of the Company's net sales from fiscal year to fiscal
year, although the degree of sales concentration with any one customer has
varied. The loss of any significant customer due to reasons related to Year
2000 non-compliance of the Company's Products could have a material adverse
impact on the Company's operations, results of operations or financial
position.
Failure to timely reprogram or replace the Company's European financial
and accounting software could, in a worse case scenario, result in the
Company's inability to process accounting and financial data, which could
have a material adverse effect on the Company. At this time, the Company does
not possess all of the information necessary to estimate the potential impact
of Year 2000 compliance issues relating to its European IT Systems, its
non-IT Systems, its Products, its vendors and its customers. Such impact,
including the effect of a Year 2000 business disruption, could have a
material adverse effect on the Company's financial condition and results of
operations.
CONTINGENCY PLAN. The Company has not yet developed a Year 2000 specific
contingency plan. The Company intends to prepare a contingency plan with
respect to its financial and accounting software and its Products no later
than mid-calendar 1999. In addition, if further Year 2000 compliance issues
are discovered, the Company then will evaluate the need for one or more
contingency plans relating to those particular issues.
OTHER. Demand for the Company's products is dependent upon the level of
worldwide oil and gas exploration and development activity. Such activity in
turn is primarily dependent
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upon oil and gas prices, which have been subject to wide fluctuation in
recent years. Since the spring of fiscal 1999, worldwide oil prices have been
at their lowest levels since 1986. Continuing low prices for hydrocarbon
production have in certain instances resulted in lower exploration budgets by
oil companies, which situation during the first quarter of fiscal 1999
resulted in a reduction in demand for the Company's seismic data acquisition
services and equipment.
In addition, in recent months there has been considerable turmoil and
uncertainty in the Russian financial markets, prompted in large part by the
crisis in the Asian financial market which is still continuing, and the
economic and political problems being experienced by a number of Asian
countries. The Russian ruble has been under significant pressure, requiring
the Russian government to raise interest rates substantially, and to seek
special assistance from the International Monetary Fund in order to defend
its currency. At the present time, it is not possible to predict whether the
Russian government will be successful in avoiding another devaluation of the
ruble, or when stability will return to its financial markets. Any
devaluation of the ruble could exacerbate existing economic problems in
Russia. Historically, customers in Russia and other Former Soviet Union
countries have accounted for approximately 5-9% of the Company sales. The
Company's combined trade accounts receivable and trade notes receivable
balance from customers in Russia and other Former Soviet Union countries as
of August 31, 1998 was approximately $26.6 million, these receivables are
denominated in US dollars. To the extent that economic conditions in the
Former Soviet Union or in Asia negatively affect future sales to the
Company's customers in those regions or the collectibility of the Company's
existing receivables, such conditions may adversely affect the Company's
future results of operations, liquidity and financial condition.
See "Cautionary Statement for Purposes of Forward-Looking Statements
- -Uncertainty of Energy Industry Conditions" and "Risk from Significant Amount
of Foreign Sales".
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained in this Quarterly Report on Form 10-Q as
well as other written and oral statements made or incorporated by reference
from time to time by the Company and its representatives in other reports,
filings with the Securities and Exchange Commission, press releases,
conferences, or otherwise, may be deemed to be forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 and
are subject to the "Safe Harbor" provisions of that section. This information
includes, without limitation, statements concerning future operations, future
revenues, future earnings, future costs, future margins and future expenses;
anticipated product releases and technological advances; the future mix of
business and future asset recoveries; contingent liabilities; Year 2000
issues; the inherent unpredictability of adversarial proceedings; and future
demand for the Company's products, future capital expenditures and future
financial condition of the Company; future energy industry conditions; and
economic conditions in Asia and Former Soviet Union countries. These
statements are based on current expectations and involve a number of risks
and uncertainties, including those set forth below and elsewhere in this
Quarterly Report on Form 10-Q. Although
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<PAGE>
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct.
When used in this report, the words "anticipate," "estimate," "expect,"
"may," "project" and similar expressions are intended to be among the statements
that identify forward-looking statements. Important factors which could affect
the Company's actual results and cause actual results to differ materially from
those results which might be projected, forecast, estimated or budgeted by the
Company in such forward-looking statements include, but are not limited to, the
following:
RISKS RELATED TO PRODUCTS AND TECHNOLOGICAL CHANGE. The markets for the
Company's product lines are characterized by rapidly changing technology and
frequent product introductions. Whether the Company can develop and produce
successfully, on a timely basis, new and enhanced products that embody new
technology, meet evolving industry standards and practice, and achieve levels of
capability and price that are acceptable to its customers, will be significant
factors in the Company's ability to compete in the future. There can be no
assurance that the Company will not encounter resource constraints or technical
or other difficulties that could delay introduction of new products in the
future. If the Company is unable, for technological or other reasons, to develop
competitive products in a timely manner in response to changes in the seismic
data acquisition industry or other technological changes, its business and
operating results will be materially and adversely affected. In addition, the
Company's continuing development of new products inherently carries the risk of
inventory obsolescence with respect to its older products.
UNCERTAINTY OF ENERGY INDUSTRY CONDITIONS. Demand for the Company's
products is dependent upon the level of worldwide oil and gas exploration and
development activity. Such activity in turn is primarily dependent upon oil and
gas prices, which have been subject to wide fluctuation in recent years in
response to relatively minor changes in the supply and demand for oil and
natural gas, market uncertainty and a variety of additional factors that are
beyond the control of the Company. Recent worldwide oil prices have been at
their lowest levels since 1986. Continuing low prices for hydrocarbon production
have resulted in lower exploration budgets by oil companies, which has resulted
in reduced demand for the Company's seismic data acquisition equipment. It is
impossible to predict future oil and natural gas price movements or the duration
of the current environment of lower oil and natural gas prices with any
certainty. No assurances can be given as to future levels of worldwide oil and
natural gas prices, the future level of activity in the oil and gas exploration
and development industry and their relationship(s) to the demand for the
Company's products.
RISK FROM SIGNIFICANT AMOUNT OF FOREIGN SALES. Sales outside the United
States have historically accounted for a significant part of the Company's net
sales and other revenues. 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, which may disrupt markets and
affect operating results. Foreign sales are also generally subject to the risks
of compliance with additional laws, including tariff regulations and
import/export restrictions. The Company is, from time to time, required to
obtain export licenses and there can be no
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<PAGE>
assurance that it will not experience difficulty in obtaining such licenses
as may be required in connection with export sales.
Demand for the Company's products from customers in developing countries
(including Russia and other Former Soviet Union countries as well as certain
Asian countries) is difficult to predict and can fluctuate significantly from
year to year. The Company believes that these changes in demand result primarily
from the instability of economies and governments in certain developing
countries, changes in internal laws and policies affecting trade and investment,
and because those markets are only beginning to adopt new technologies and
establish purchasing practices. These risks may adversely affect the Company's
future operating results and financial position. In addition, sales to customers
in developing countries on extended terms can present heightened credit risks
for the Company, for the reasons discussed above. See, in particular above,
"Liquidity and Capital Resources - Other" for further information concerning
these risks in those countries.
RISKS RELATED TO TIMING OF PRODUCT SHIPMENTS. Due to the relatively high
sales price of the Company's products 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. One of the factors
which may affect the Company's operating results from time to time is that a
substantial portion of its net sales and other revenues in any period may result
from shipments during the latter part of a period. Because the Company
establishes its sales and operating expense levels based on its operational
goals, if shipments in any period do not meet goals, revenues and net profits
may be adversely affected. The Company believes that factors which could affect
such timing in shipments include, among others, seasonality of end-user markets,
availability of purchaser financing, manufacturing lead times 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, which could result in inventory excesses and
imbalances from time to time.
RISKS RELATED TO GROSS MARGIN. The Company's gross margin percentage is a
function of the product mix sold in any period. Continuing increased percentages
of lower margin marine seismic equipment and related components in the overall
sales mix may result in margins remaining below their historically higher
levels. Other factors, such as unit volumes, inventory obsolescence, heightened
price competition, changes in sales and distribution channels, shortages in
components due to untimely supplies or inability to obtain items at reasonable
prices, and unavailability of skilled labor, may also continue to affect the
cost of sales and the fluctuation of gross margin percentages in future periods.
RISKS RELATED TO YEAR 2000 ISSUES. While the Company is currently
assessing aspects of the potential impact of the Year 2000 issue, it has not yet
completed its review. The problems actually encountered by the Company in
addressing its Year 2000 issues may be more pervasive than anticipated by
management, and if so, could have adverse effects on the Company's operations,
results of operations or financial condition. See " - Liquidity and Capital
Resources - Year 2000."
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CREDIT RISK FROM SALES ARRANGEMENTS. The Company sells to many customers
on extended-term arrangements. Moreover, in connection with certain sales of its
systems and equipment, the Company has guaranteed certain loans from
unaffiliated parties to purchasers of such systems and equipment. In addition,
the Company has sold contracts and leases to third-party financing sources, the
terms of which often obligate the Company to repurchase the contracts and leases
in the event of a customer default or upon certain other occurrences.
Performance of the Company's obligations under these arrangements could have a
material adverse effect on the Company's financial condition. A number of
significant payment defaults by customers could have a material adverse effect
on the Company's financial position and results of operations.
RELIANCE ON SIGNIFICANT CUSTOMERS. A relatively small number of customers
has accounted for most of the Company's net sales, although the degree of sales
concentration with any one customer has varied from fiscal year to year. During
fiscal 1998, 1997 and 1996 the two largest customers in each of those years
accounted for 35%, 45% and 42%, respectively, of the Company's net sales and
other revenues. The loss of either of these customers could have a material
adverse effect on the Company's sales revenues.
COMPETITION. The design, manufacture and marketing of seismic data
acquisition systems are highly competitive and are characterized by continual
and rapid changes in technology. The Company's current 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.
Competition in the industry is expected to intensify and could adversely
affect the Company's future results. Several of the Company's competitors have
greater name recognition, more extensive engineering, manufacturing and
marketing capabilities, and greater financial, technological and personnel
resources than those available to the Company. In addition, certain companies in
the industry have expanded their product lines or technologies in recent years
as a result of acquisitions. There can be no assurance that the Company will be
able to compete successfully in the future with existing or new competitors.
Pressures from competitors offering lower-priced products or products employing
new technologies could result in future price reductions for the Company's
products.
A continuing trend toward consolidation, concentrating buying power, in the
oil field services industry may have the effect of adversely affecting the
prices and demand for the Company's products and services.
DISRUPTION IN VENDOR SUPPLIES. The Company's manufacturing process
requires a high volume of quality components. Certain components used by the
Company are currently provided by only one vendor. In the future, the Company
may, from time to time, experience supply or quality control problems with its
suppliers, and such problems could significantly affect its ability to meet
production and sales commitments. The Company's reliance on certain vendors, as
well as industry supply conditions generally, involve several risks, including
the possibility of a
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shortage or a lack of availability of key components, increases in component
costs and reduced control over delivery schedules, any of which could
adversely affect the Company's future financial results.
PROTECTION OF INTELLECTUAL PROPERTY. The Company believes that technology
is the primary basis of competition in the industry. Although the Company
currently holds certain intellectual property rights relating to its product
lines, there can be no assurance that these rights will not be challenged by
third parties or that the Company will obtain additional patents or other
intellectual property rights in the future. Additionally, there can be no
assurance that the Company's efforts to protect its trade secrets will be
successful or that others will not independently develop products similar to the
Company's or design around any of the intellectual property rights owned by the
Company.
DEPENDENCE ON PERSONNEL. The Company's success depends upon the continued
contributions of its personnel, many of whom would be difficult to replace. The
success of the Company will depend on the ability of the Company to attract and
retain skilled employees. Changes in personnel, therefore, could adversely
affect operating results.
RISKS RELATED TO GOVERNMENT REGULATIONS AND PRODUCT CERTIFICATION. The
Company's operations are also subject to laws, regulations, government policies,
and product certification requirements worldwide. Changes in such laws,
regulations, policies, or requirements could affect the demand for the Company's
products or result in the need to modify products, which may involve substantial
costs or delays in sales and could have an adverse effect on the Company's
future operating results.
RISKS OF STOCK VOLATILITY AND ABSENCE OF DIVIDENDS. In recent years, the
stock market in general and the market for energy and technology stocks in
particular, including the Company's common stock, have experienced extreme price
fluctuations. There is a risk that stock price fluctuation could impact the
Company's operations. Changes in the price of the Company's common stock could
affect the Company's ability to successfully attract and retain qualified
personnel or complete desirable business combinations or other transactions in
the future. The Company has historically not paid cash dividends on its capital
stock, and there can be no assurances that the Company will do so in the future.
RISKS RELATED TO ACQUISITIONS. To implement its business plans, the
Company may make further acquisitions in the future. Acquisitions require
significant financial and management resources both at the time of the
transaction and during the process of integrating the newly acquired business
into the Company's operations. The Company's operating results could be
adversely affected if it is unable to successfully integrate such new companies
into its operations. Certain acquisitions or strategic transactions may be
subject to approval by the other party's shareholders, United States or foreign
governmental agencies, or other third parties. Accordingly, there is a risk that
important acquisitions or transactions could fail to be concluded as planned.
Future acquisitions by the Company could also result in issuances of equity
securities or the rights associated with the equity securities, which could
potentially dilute earnings per share. In addition, future acquisitions could
result in the incurrence of additional debt, taxes, or
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contingent liabilities, and amortization expenses related to goodwill and
other intangible assets. These factors could adversely affect the Company's
future operating results and financial position.
OIL AND GAS OPERATIONS. The Company's oil and gas operations are subject to
the economic risks typically associated with exploration, development, and
production activities, including the necessity of significant expenditures to
drill exploratory wells. In conducting exploration and development activities,
the Company may drill unsuccessful wells and experience losses and charges to
earnings and, if oil or natural gas is discovered, there can be no assurance
that such oil or natural gas can be economically produced or satisfactorily
marketed. Historically, the markets for oil and natural gas have been volatile
and are likely to continue to be volatile in the future. The nature of the oil
and gas business involves certain operating hazards such as well blowouts,
cratering, explosions, uncontrollable flows of oil, natural gas or well fluids,
fires, formations with abnormal pressures, pollution, releases of toxic gas and
other environmental hazards and risks, any of which could result in losses to
the Company. While the Company's current practice is not to act as operator of
any drilling prospect, and while the Company does maintain insurance in
accordance with customary industry practices under the circumstances against
some, but not all, of such risks and losses, the occurrence of such an event not
fully covered by insurance could have a material adverse affect on the Company's
financial position and results of operation.
The foregoing review of factors pursuant to the Private Securities
Litigation Reform Act of 1995 should not be construed as exhaustive. In
addition to the foregoing, the Company wishes to refer readers to other factors
discussed elsewhere in this report as well as the Company's other filings and
reports with the Securities and Exchange Commission, including its most recent
Annual Report on Form 10-K, for a further discussion of risks and uncertainties
which could cause actual results to differ materially from those contained in
forward-looking statements. The Company undertakes no obligation to publicly
release the result of any revisions to any such forward-looking statements which
may be made to reflect the events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not yet required to provide the disclosures required by
Regulation S-K Item 305 pursuant to General Instruction 1. to Paragraphs 305(a),
305(b), 305(c), 305(d), and 305(e) of Item 305. The Company's sales and
financial instruments are principally denominated in U.S. dollars and the
Company does not invest or intend to invest in derivative financial instruments
or derivative commodity instruments. The Company's principal market risk is
floating interest rate risk on indebtedness under its Credit Agreement.
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PART II - OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS
On September 24, 1997, a purported class action lawsuit was filed against
the Company and the former president and chief executive officer, and an
executive vice president, of the Company, in the U.S. District Court for the
Southern District of Texas, Houston Division. The action, styled NORMAN TOCK V.
INPUT/OUTPUT, INC., GARY D. OWENS AND ROBERT P. BRINDLEY, alleges violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and state
statutory and common law fraud provisions. The action was filed on behalf of
purchasers of common stock of the Company that purchased shares during the
period from September 17, 1996 through March 18, 1997. The complaint seeks
damages in an unspecified amount plus costs and attorney's fees. The complaint
alleges misrepresentations and omissions in public filings and announcements
concerning the Company's business, sales and products, and disputes certain
accounting methodologies employed by the Company. On October 21, 1997, a
stipulation and order was entered by the court, extending the time for responses
to the complaint by the defendants pending entry of an order appointing lead
plaintiff and lead counsel. An amended complaint was filed on April 17, 1998.
Defendants filed a motion to dismiss and brief in support thereof on June 8,
1998. Plaintiff has filed papers in opposition to that motion. Defendants have
filed a reply to Plaintiff's opposition. No hearing on the motion to dismiss has
been scheduled. The Company believes that the plaintiff's allegations are
without merit and that there are meritorious defenses to the allegations and
intends to defend the action vigorously.
In the ordinary course of business, the Company has been named in other
various lawsuits. While the final resolution of these matters may have an impact
on the Company's consolidated financial results for a particular reporting
period, management believes that the ultimate resolution of these matters will
not have a material adverse impact on the Company's financial position, results
of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES
During the fiscal quarter ended August 31, 1998, the Company made no sales
of its equity securities that were not registered under the Securities Act of
1993, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of documents filed as Exhibits.
10.1 - Agreement and Plan of Merger between I/O Marine, Inc.,
Input/Output, Inc., DigiCourse, Inc. and The Laitram
Corporation as of September 30, 1998.
27.1 - Financial Data Schedule (included in EDGAR copy only)
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(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended August 31, 1998.
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SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
INPUT/OUTPUT, INC.
By: /s/ Ronald A. Harris
-----------------------------
Ronald A. Harris
Vice President and Controller
(Chief Accounting Officer)
Dated: October 14, 1998
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT and PLAN OF MERGER (the "Agreement") is made and entered
into as of September 30, 1998, by and among I/O Marine, Inc. ("I/O Marine"),
a Louisiana corporation; Input/Output, Inc. ("I/O"), a Delaware corporation
and the sole stockholder of I/O Marine; DigiCourse, Inc. ("DigiCourse"), a
Louisiana corporation; and The Laitram Corporation ("Stockholder"), a
Louisiana corporation and the sole stockholder of DigiCourse. I/O, I/O
Marine, DigiCourse and Stockholder are each a "party" and collectively are
the "parties" to this Agreement.
RECITALS
The Boards of Directors of each of the parties have each approved the
merger of I/O Marine with and into DigiCourse (the "Merger"), pursuant to the
terms and subject to the conditions of this Agreement. Each party desires to
make certain representations, warranties and agreements in connection with
the Contemplated Transactions (defined below). The parties intend, for
federal income Tax purposes, that the Contemplated Transactions shall qualify
as a reorganization under the provisions of Section 368 of the Internal
Revenue Code of 1986, as amended, and related rules and regulations ("Code").
It is the intent of the parties that, as of September 30, 1998, at 11:59
P.M., all economic benefits and risks of any kind and nature of DigiCourse
are transferred from Stockholder to the Surviving Corporation. To the extent
any provision of this Agreement and its exhibits is in conflict with this
aforementioned principle, the parties agree that this principle shall be
controlling.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
and the representations and warranties, conditions, covenants and promises
herein contained, and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ACCOUNTING PROCEDURES" are defined in the attached Exhibit 1.
"ACCOUNTS RECEIVABLE" is defined in Section 3.8.
"ACQUISITION" is defined in Section 9.29.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees,
<PAGE>
rulings, damages, dues, penalties, fines, costs, liabilities, obligations,
liens, losses, expenses, and fees, including court costs and attorneys' fees
and expenses, that have a net adverse effect on the financial position of a
Person.
"AFFILIATE" means any person that, directly or indirectly, controls, or
is controlled by or under common control with, another person. For the
purposes of this definition, "CONTROL" (including the terms "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH"), as used with respect to any person, means
the power to direct or cause the direction of the management and policies of
the person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"APPLICABLE CONTRACT" means any Contract under which, prior to the
Economic Closing Date, (a) DigiCourse or Limited has or may acquire any
rights, (b) DigiCourse or Limited has or may become subject to any obligation
or liability, or (c) any asset owned or used by DigiCourse or Limited is or
may become bound.
"BALANCE SHEET" is defined in Section 3.4.
"BREACH" means any material inaccuracy, breach, failure, claim,
occurrence, or circumstance that breaches a representation, warranty,
covenant, obligation, or other provision of this Agreement or any instrument
delivered pursuant to Section 2.4 of this Agreement. A "Breach" will be
deemed to have occurred if there is or has been any material inaccuracy in or
material breach of, or any material failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision.
"CERTIFICATE OF MERGER" is defined in Section 2.1.
"CLOSING" is defined in Section 2.4.
"CLOSING DATE" means the date on which the Closing actually takes place.
"ECONOMIC CLOSING NET WORKING CAPITAL" is defined in Section 2.5.
"CODE" is defined in the Recitals of this Agreement.
"CONSENT" means any approval, consent, ratification, waiver or other
authorization (including any Governmental Authorization).
"CONSTITUENT CORPORATIONS" is defined in Section 2.2.
"CONTEMPLATED TRANSACTIONS" means all of the transactions contemplated
by this Agreement, including:
(a) the Merger and the delivery of the shares of I/O Common Stock in
accordance with Section 2 hereof; and
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(b) the execution, delivery, and performance of all agreements
contemplated by this Agreement.
"CONTRACT" means any material agreement, contract, promise or undertaking
that is legally binding.
"COPYRIGHTS" is defined in Section 3.21.
"DEFICIT NET WORKING CAPITAL" is defined in Section 2.5.
"DIGICOURSE" is defined in the first paragraph of this Agreement.
"DISCLOSURE LETTER" means the disclosure letter delivered by DigiCourse
to I/O within fifteen (15) days after the date of the signing of this
Agreement, as it may be supplemented under Section 9.17.
"DOCUMENTATION" means all documents, other written material (including
user and support manuals, flowcharts and other supporting documentary,
architecture documents, design documents, requirements documents,
specifications documents and computer material), stored in any medium, and
source codes which have been created by or at the request of DigiCourse or
Limited, or acquired by DigiCourse or Limited, relating to, explaining or
assisting in the use of Products.
"ECONOMIC CLOSING DATE" means September 30, 1998.
"EFFECTIVE TIME" shall have the same meaning as defined in Section 2.1.
"ENCUMBRANCE" means any pledge, security interest or encumbrance of any
kind.
"ENVIRONMENT" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life and any other
environmental medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES" means any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law.
"ENVIRONMENTAL LAW" means any Legal Requirement that relates to (a) the
control of any potential pollutant or protection of the air, water or land,
(b) solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation, and (c) exposure to hazardous, toxic or other
substances alleged to be harmful.
"ERISA" means the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
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"EXCESS NET WORKING CAPITAL" is defined in Section 2.5.
"FACILITIES" means any real property, leaseholds, or other interests
currently or formerly owned or operated by DigiCourse or Limited and any
buildings, plants, structures, or equipment currently or formerly owned or
operated by DigiCourse or Limited.
"GAAP" means generally accepted United States accounting principles then
applicable.
"GOVERNMENTAL AUTHORIZATION" means any Consent or license made available
by or under the authority of any Governmental Body pursuant to any Legal
Requirement.
"GOVERNMENTAL BODY" means any:
(a) nation, state, county, parish, city, town, village, district, or
other governmental jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity
and any court or other tribunal); or
(d) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any governmental nature.
"HSR" is defined in Section 6.8.
"INDEMNIFIED PERSON" is defined in Section 8.4.
"INTELLECTUAL PROPERTY ASSETS" is as defined in Section 3.21.
"INTERIM BALANCE SHEET" is defined in Section 3.4.
"INVESTMENT LETTER" is defined in Section 2.4.
"I/O" is defined in the Recitals of this Agreement.
"I/O COMMON STOCK" means the common stock of I/O, par value $0.01 per
share.
"I/O INDEMNIFIED PERSON" is defined in Section 8.2.
"I/O MARINE" is defined in the Recitals of this Agreement.
"I/O MARINE COMMON STOCK" is defined in Section 5.5.
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"KMPG" means the public accounting firm of KMPG Peat Marwick LLP.
"KNOWLEDGE" or "KNOWN" means any fact that is actually known by any of
the following individuals:
(a) in the case of Stockholder and DigiCourse, the following
individuals - James M. Lapeyre, Jr., Roy Kelm, Lawrence P. Oertling, Barry
L. LaCour, James W. Evans, Robbert W. Vorhoff, James T. Cronvich or Franck
F. LaBiche; and
(b) in the case of I/O and I/O Marine, the following individuals -
Zeke Zeringue, Axel Sigmar, Gay Mayeux, Ronald Harris, Chris Wolfe, George
Gentry, Thomas Connolly or Robert Brindley.
"LBCL" means the Louisiana Business Corporation Law.
"LEGAL REQUIREMENT" means any legally binding order, constitution, law,
ordinance, regulation, statute, or treaty of a Governmental Body.
"LIMITATIONS" is defined in Section 3.6(b).
"LIMITED" is defined in Section 3.3.
"MARKS" is defined in Section 3.21.
"MERGER" is defined in the Recitals of this Agreement.
"MERGER CONSIDERATION" is defined in Section 2.3.
"NET WORKING CAPITAL" means DigiCourse's (a) Cash, plus Trade
Receivables (Net), plus Other Receivables, plus Other Current Assets, plus
Inventories; reduced by (b) Accounts Payable Trade, plus Other Accrued
Liabilities (exclusive of the liabilities listed in Section 2.6).
"NYSE" means The New York Stock Exchange Inc.
"OCCUPATIONAL SAFETY AND HEALTH LAW" means any Legal Requirement
designed to provide safe and healthful working conditions and to reduce
occupational safety and health hazards.
"ORDER" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or, if binding, by any
arbitrator.
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"ORDINARY COURSE OF BUSINESS" means an action taken by a Person if such
action is both consistent with the past practices of such Person and is taken
in the ordinary course of the normal day-to-day operations of such Person;
and such action is similar in nature and magnitude to actions customarily
taken in the ordinary course of the normal day-to-day operations of other
Persons that are similar in size and operations to the Person in question.
"ORGANIZATIONAL DOCUMENTS" means (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) any charter or similar
document adopted or filed in connection with the creation, formation, or
organization of a Person; and (c) any amendment to any of the foregoing.
"PATENTS" is defined in Section 3.21.
"PAYMENT DATE" is defined in Section 2.5.
"PERSON" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, labor union, or
other entity or Governmental Body.
"PLAN" or "PLANS" has the same meaning as defined in Section 3.13.
"PRIVATE PLACEMENT MEMORANDUM" means that certain private placement
memorandum, including all attachments, of I/O, dated September 30, 1998,
delivered to Stockholder.
"PROCEEDING" means any action, binding arbitration, audit, hearing,
formal investigation, litigation, or suit (whether civil, criminal or
administrative) commenced, brought, conducted, or heard by or before any
Governmental Body or arbitrator.
"PRODUCTS" means the devices and related Software manufactured and/or
assembled and marketed by DigiCourse and Limited.
"PROPRIETARY RIGHTS AGREEMENT" is defined in Section 3.20.
"REASONABLE EFFORTS" means the commercially reasonable efforts that a
prudent Person desirous of achieving a result would use and expend in similar
circumstances to undertake reasonably to ensure that such result is achieved
expeditiously.
"REGISTRATION RIGHTS AGREEMENT" is defined in Section 2.4.
"RELEASE" is defined in Section 2.4.
"REPRESENTATIVE" with respect to a particular Person, means any
director, officer, employee, agent, consultant, advisor, or other
representative of such Person with respect to a particular matter, including
legal counsel, accountants, and financial advisors with respect
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to a particular matter.
"RIGHTS" means the intellectual property and contract rights, related to
the Products, which are owned or licensed by DigiCourse or Limited in the
development, support, marketing, production, licensing or sale of the
Products; and all Intellectual Property Assets owned or licensed by
DigiCourse or Limited in connection with DigiCourse's or Limited's business.
"RIGHTS" does not include any of the Shared Software and Rights or any of the
foregoing used as a shared service described on Exhibit 2.7, with Stockholder
or any Stockholder Affiliate.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933 or any successor law,
and regulations and rules issued pursuant to that Act or any successor law.
"SHARES" means the 1,080,000 shares, no par value per share, of
DigiCourse common stock constituting all of the issued and outstanding
capital stock of DigiCourse.
"SHARED SOFTWARE AND RIGHTS" is defined in Section 2.12.
"SOFTWARE" means all computer programs, including firmware acquired by
DigiCourse (and whether written or created for DigiCourse by any present or
former consultant or employee of DigiCourse or otherwise commissioned by
DigiCourse), or licensed for sublicensing by DigiCourse, together with any
modifications, enhancements, additions or replacements. "SOFTWARE" does not
include Shared Software and Rights or any of the foregoing used as a shared
service described on Exhibit 2.7, with Stockholder or any Stockholder
Affiliates.
"STOCKHOLDER" is defined in the Recitals of this Agreement.
"STOCKHOLDER AFFILIATE" means Affiliates of Stockholder but excludes
DigiCourse and Limited.
"STOCKHOLDER INDEMNIFIED PERSON" is defined in Section 8.3.
"SUBSIDIARY" with respect to any specified Person, means any corporation
or other Person of which securities or other interests having the power to
elect a majority of that corporation's or other Person's board of directors
or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than
securities or other interests having such power only upon the happening of a
contingency that has not occurred) are held by the specified Person or one or
more of its subsidiaries.
"SURVIVING CORPORATION" means DigiCourse, as survivor of the Merger.
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"TAX" or "TAXES" mean any federal, state, local or foreign income,
sales, real or personal property or other taxes, assessments, levies,
imposts, duties, or other charges of any nature whatsoever commonly referred
to as a "tax" (including without limitation interest and penalties) imposed
by any law, rule or regulation.
"TAX RETURN" means any return (including any information return),
report, statement, schedule, notice, form, or other document or information
submitted to any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax.
"THREATENED" means a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any written demand or statement
has been received or any written notice has been received or any Known action
has been taken by a Claimant that would lead a prudent Person having that
Knowledge to conclude that such a claim, Proceeding, dispute, action, or
other matter will be asserted, commenced, taken, or otherwise pursued in the
future against a specified Person.
"TRADE SECRETS" is defined in Section 3.21.
"TRANSFER PLAN" is defined in Exhibit 2.11.
2. THE MERGER
2.1 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this
Agreement, the certificate of merger in the form of EXHIBIT 2.1 (the
"Certificate of Merger") shall be executed and acknowledged as required by
the LBCL and delivered to the Office of the Secretary of State of the State
of Louisiana for filing, pre-positioned in New Orleans for immediate filing,
and then filed as soon as practicable on or after the Closing Date. The
Merger shall become effective upon the filing of the Certificate of Merger
with the Secretary of State of the State of Louisiana or at such time
thereafter as is provided in the Certificate of Merger (the "Effective Time").
2.2 EFFECTS OF THE MERGER.
(a) At the Effective Time, the separate existence of I/O Marine shall
cease, and I/O Marine shall be merged with and into DigiCourse (DigiCourse
and I/O Marine are sometimes referred to herein as the "Constituent
Corporations"); the Articles of Incorporation of DigiCourse as in effect
immediately prior to the Effective Time shall be amended and restated in the
Certificate of Merger and shall be the Articles of Incorporation of the
Surviving Corporation until thereafter amended; the Bylaws of DigiCourse
shall be amended and restated immediately prior to the Effective Time and
shall be the Bylaws of the Surviving Corporation until thereafter amended;
the duly elected and incumbent Board of Directors of I/O Marine as
constituted immediately prior to the Effective Time shall be the Board of
Directors of the Surviving Corporation, and shall serve until their
successors are duly elected and qualified; and the duly elected and incumbent
officers of I/O Marine as in
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office immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, and shall serve until the Board of Directors of
Surviving Corporation takes action in respect of such service.
(b) At and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises, whether of a
public or a private nature, and be subject to all the restrictions,
disabilities and duties, of each of the Constituent Corporations; and all of
the rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due
to either of the Constituent Corporations on whatever account, shall be
vested in the Surviving Corporation and all contractual rights, property,
rights, privileges, powers and franchises, and all and every other interest
shall thereafter be the property of the Surviving Corporation as they were of
the respective Constituent Corporations, and the title to any real estate
vested by deed or otherwise in either of the Constituent Corporations shall
not revert or be in any way impaired; but all rights of creditors and all
liens upon any property of either of the Constituent Corporations shall be
preserved unimpaired, and all debts, liabilities and duties of the respective
Constituent Corporations shall thenceforth attach to the Surviving
Corporation, and may be enforced against it to the same extent as if said
debts and liabilities had been incurred or contracted by it.
2.3 SHARE CONVERSIONS. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder of any of the Shares of
DigiCourse:
(a) COMMON STOCK OF I/O MARINE. The Merger will automatically convert
each share of common stock of I/O Marine into one share of common stock of
DigiCourse.
(b) CONVERSION OF THE SHARES. The Shares shall be converted into the
right to receive from the Surviving Corporation in exchange for said Shares a
total of 5,794,000 fully paid and non-assessable shares of I/O Common Stock
(the "Merger Consideration"). At the Effective Time, each of the Shares,
when so converted, shall no longer be deemed to be outstanding and shall
automatically be canceled and retired and shall cease to exist, and the
holder of a certificate representing any such Shares shall cease to have any
rights with respect thereto, except the Merger Consideration, upon the
surrender of such certificate, without interest.
2.4 CLOSING. The closing of the Contemplated Transactions (the
"Closing") provided for in this Agreement will take place at the offices of
Haynes and Boone, L.L.P., 1000 Louisiana, Suite 4300, Houston, Texas 77002,
upon such time and date as the parties may agree; or, if they cannot or have
not agreed, such specified date of which any party shall have notified the
others by notice given at least five business days in advance of the
specified date, but in no event prior to (i) consent under the HSR Act, (ii)
the expiration of five days after the delivery by I/O of the Private
Placement Memorandum, (iii) the expiration of five days after delivery of the
Disclosure Letter by DigiCourse, or (iv) the expiration of two days after the
delivery of any supplement to the Disclosure Letter. Either I/O or
DigiCourse (or on occasion each) may delay the Closing Date up to and
including November 30, 1998, if
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necessary to permit conditions to become satisfied that are not satisfied at
the time such delay is effected. At the Closing:
(a) Stockholder will deliver to I/O:
(i) an investment letter in the form of EXHIBIT 2.4(a)(i) executed by
the Stockholder ("Investment Letter");
(ii) the certificates representing the Shares, with appropriate stock
powers duly executed by Stockholder and signatures Medallion guaranteed;
(iii) the Registration Rights Agreement ("Registration Rights
Agreement") in the form of the attached Exhibit 2.4 (a) (iii), executed by
the Stockholder;
(iv) the Non-Competition Agreement ("Non-Competition Agreement") in
the form of the attached Exhibit 2.4(a)(iv) executed by Stockholder; and
(v) the Stockholder's Release in the form of the attached Exhibit
2.4(a)(v) executed by Stockholder (the "Release").
(b) I/O and/or I/O Marine will deliver to Stockholder:
(i) certificates for the shares of I/O Common Stock properly signed
by those Representatives of I/O whose signatures are required for the
validity of the Merger Consideration constituting the Merger Consideration,
registered in the name of the Stockholder;
(ii) the Registration Rights Agreement executed by I/O; and
(iii) the Non-Competition Agreement executed by I/O.
2.5 DETERMINATION OF ECONOMIC CLOSING NET WORKING CAPITAL. During the
sixty (60) days following the Economic Closing Date, KPMG will determine Net
Working Capital of DigiCourse as of the Economic Closing Date ("Economic
Closing Net Working Capital"). Economic Closing Net Working Capital will be
determined by KPMG, the outside accountants of all parties, applying the
accounting procedures in the attached Exhibit 1. The parties stipulate that
the component of Inventory acquired from Syntron has a fair market value of
$1,525,000 for financial accounting purposes. "Excess Net Working Capital"
shall exist if, and to the extent that, Economic Closing Net Working Capital
is greater than $11,500,000 ("Base Amount"). "Deficit Net Working Capital"
shall exist if, and to the extent that, Economic Closing Net Working Capital
is less than Base Amount.
(a) In the event there is Excess Net Working Capital:
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(i) The Surviving Corporation shall, to the extent of the Excess Net
Working Capital, pay to the Stockholder an amount equal to the liabilities
identified in Section 2.6(b) by the date ("Payment Date") that is five
business days after the determination of Economic Closing Net Working
Capital. I/O shall, in accordance with this Agreement, transfer to the
Surviving Corporation an amount of cash equal to, and to be used to pay,
the liabilities identified in Section 2.6(b) in accordance with the
previous sentence.
(ii) To the extent said Excess Net Working Capital exceeds the
liabilities identified in Section 2.6(b), I/O shall, in accordance with
this Agreement transfer to the Surviving Corporation to pay to the
Stockholder by the Payment Date as additional consideration an amount of
cash, equal to the Excess Net Working Capital less the liabilities
identified in Section 2.6(b) paid pursuant to Section 2.5(a)(i).
(iii) If the liabilities identified in Section 2.6(b) exceed the Excess
Net Working Capital, then to the extent of such excess, Stockholder will be
deemed, as a capital contribution, to automatically assume on the Payment
Date and agree to pay, perform and discharge when due and payable, the
liabilities and obligations of DigiCourse identified in Section 2.6(b)
(after the payment referred to in Section 2.5(a)(i) above), whether due and
payable or accrued for future payment but only to the extent such
liabilities exceed Excess Net Working Capital.
(b) If there is Deficit Net Working Capital, the Stockholder will, as a
capital contribution, pay to the Surviving Corporation by the Payment Date an
amount equal to said deficit. Furthermore, Stockholder will be deemed, as a
capital contribution, to automatically assume and agree to pay, perform and
discharge, when due and payable, the liabilities and obligations of
DigiCourse identified in Section 2.6, whether due and payable or accrued for
future payment.
(c) Any payment due under this Section 2.5 will be paid by the Payment
Date and shall include interest thereon from the first to occur of (i) 30
days after the Economic Closing Date or (ii) the Payment Date, through the
date of payment, at a floating rate equal to the prime rate of interest shown
from time to time in the "Money Rates" section of The Wall Street Journal.
The Net Working Capital adjustment is outside of and is not subject to
any of the limitations set forth in the indemnification provisions of Section
8.
2.6 LIABILITIES. For purposes of Section 2.5, the identified
liabilities, whether due and payable or accrued for future payment, are as
follows:
(a) all Tax obligations attributable to periods preceding the Economic
Closing Date; and
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(b) all amounts originally owed to Stockholder or Stockholder Affiliates
(whether assigned after origination) arising on or before the Economic Closing
Date.
Surviving Corporation shall be responsible for the liabilities
identified in this Section 2.6 to the extent, and only to the extent, of any
Excess Net Working Capital. In all other respects, Surviving Corporation and
I/O shall have no obligation or commitment to discharge the obligations
identified in this Section 2.6, and such obligations shall be solely the
responsibility of Stockholder.
2.7 CONTINUED SERVICES. Stockholder agrees to provide to the Surviving
Corporation and to Limited, effective from the Economic Closing Date, the
shared support services listed, for the consideration, and for the time,
described, in the agreement attached as Exhibit 2.7.
2.8 CANCELLATION. Stockholder, on behalf of itself and Stockholder
Affiliates, agrees upon Closing to cancel all Contracts between DigiCourse
and Limited, on the one hand, and Stockholder and Stockholder Affiliates on
the other hand, except for this Agreement and those agreements entered into
pursuant to this Agreement.
2.9 DIRECTOR. Immediately following Closing, I/O will elect James M.
Lapeyre, Jr. to the I/O Board of Directors with a term expiring at the I/O
annual stockholder meeting in the calendar year 2000.
2.10 LEASED FACILITIES. At the Economic Closing Date, Stockholder
agrees to lease, or to cause the lease of, to Surviving Corporation, certain
facilities historically used by DigiCourse, that are described in Exhibit
2.10, on the terms and conditions, and for the consideration, provided in the
attached Exhibit 2.10.
2.11 WORKFORCE. Transfer of the DigiCourse workforce from Stockholder's
corporate group and benefit regime to I/O's corporate group and benefit
regime will be carried out according to the Transfer Plan, attached as
Exhibit 2.11. All DigiCourse salary and benefit expenses after the Economic
Closing Date shall be for the account of, and borne by, the Surviving
Corporation.
2.12 SHARED SOFTWARE AND RIGHTS. As used in this Agreement, "Shared
Software and Rights" means all items that constitute Software or Rights as
defined in this Agreement owned or licensed by Stockholder or a Stockholder
Affiliate and shared by DigiCourse or Limited. Stockholder agrees that, to
the extent it can do so without expense (other than nominal expense) or
inconvenience or reduction of the number of licenses owned by Stockholder or
any Stockholder Affiliate, it will license the Surviving Corporation to use
the Shared Software and Rights and, otherwise, will upon request by the
Surviving Corporation use Reasonable Efforts to assist it in obtaining the
necessary license to use the Shared Software and Rights.
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2.13 POST ECONOMIC CLOSING. DigiCourse shall continue to operate in the
Ordinary Course of Business through the Closing. However, upon Closing,
DigiCourse will be stipulated to have been operated from the Economic Closing
Date through the Closing Date, for the benefit, risk and burden, and at the
expense of, Surviving Corporation. After the Economic Closing Date,
Stockholder will render the services, lease space and otherwise perform all
as set forth in accordance with the Exhibits attached to this Agreement.
Furthermore, Stockholder will continue to charge DigiCourse for all services,
expenses, charges and allocations (other than those set forth in the previous
sentence) in accordance with the practice and procedures utilized by
Stockholder and DigiCourse during the preceding twelve (12) month period.
(Included, without limitation, in said allocations shall be DigiCourse's
share of Tax. DigiCourse's share of income taxes incurred after the Economic
Closing Date shall be calculated by applying a rate of thirty-four percent
(34%) for federal income tax purposes and a rate of eight percent (8%) for
state income tax purposes to net income incurred by DigiCourse after the
Economic Closing Date.) Said services, expenses, charges and allocations
shall be reflected in an intercompany account as a debt owed by DigiCourse to
Stockholder. Surviving Corporation shall be responsible to pay and shall
assume (i) any DigiCourse intercompany debt incurred after the Economic
Closing Date, and (ii) any other debt or charge either (a) incurred by
Stockholder for the account of DigiCourse after the Economic Closing Date or
(b) incurred by DigiCourse after the Economic Closing Date. Promptly
following Closing, Surviving Corporation shall reimburse Stockholder for all
of the foregoing incurred by or for the benefit of DigiCourse after the
Economic Closing Date. Except as set forth above, Surviving Corporation
shall retain all DigiCourse revenues received after the Economic Closing Date
and prior to Closing.
3. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER AND DIGICOURSE
Stockholder, but only with respect to Section 3.1 below as it relates to
Stockholder, and DigiCourse, with respect to all other matters in this
Article 3, represent and warrant to I/O, except as set forth in the
Disclosure Letter, as follows:
3.1 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation
of DigiCourse and the Stockholder, enforceable against DigiCourse and the
Stockholder in accordance with its terms.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of DigiCourse, or (B) any
resolution adopted by the board of directors or the Stockholder of
DigiCourse;
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(ii) contravene, conflict with, or result in a violation of any Order
to which DigiCourse or Stockholder, or any of the assets owned or used by
DigiCourse, may be subject;
(iii) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Applicable Contract over $60,000 in
any twelve (12) month period; or
(iv) result in the imposition or creation, pursuant to an Applicable
Contract over $60,000 in any twelve (12) month period, of any Encumbrance
upon or with respect to any of the assets owned or used by DigiCourse.
Except for satisfaction of HSR requirements, DigiCourse and Stockholder
are not required to give any notice to or obtain any Consent from any Person
in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.
(c) Stockholder is acquiring the shares of I/O Common Stock for its own
account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act. Prior to the date of this Agreement, the
Stockholder has received a copy of the Private Placement Memorandum and has
had an adequate opportunity to review and understand the Private Placement
Memorandum, and to ask questions of and receive answers from I/O and I/O
Marine.
(d) The Stockholder is, and on the Closing Date will be, the record and
beneficial owner and holder of all of the Shares, free and clear of all
Encumbrances.
3.2 ORGANIZATION AND GOOD STANDING. DigiCourse is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Louisiana, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under Applicable
Contracts. Part 3.2 of the Disclosure Letter contains an accurate list of
the other jurisdictions in which DigiCourse is authorized to transact
business. DigiCourse is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which failure to qualify or be in good standing could have a
material adverse effect on DigiCourse.
3.3 CAPITALIZATION. The authorized equity securities of DigiCourse
consist of 2,500,000 shares of common stock, no par value, of which 1,080,000
shares are issued and outstanding and constitute the Shares. All of the
outstanding equity securities of DigiCourse have been duly authorized and
validly issued and are fully paid and nonassessable. Except for this
Agreement, there is no Contract relating to the issuance, sale, or transfer
of any equity securities or other securities of DigiCourse. The outstanding
equity securities or other securities of DigiCourse were issued in compliance
with all Legal Requirements. At Closing,
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DigiCourse will own beneficially and of record all equity interests in
Limited. DigiCourse Limited, a United Kingdom corporation ("Limited"), is
beneficially owned 100% by DigiCourse even though Stockholder is the record
owner of one-half of Limited. However, pursuant to a Declaration of
Nomineeship dated May 18, 1992, Stockholder declared that it holds a 50%
interest in Limited in Trust for the benefit of DigiCourse all in accordance
with said declaration. At or prior to Closing, Stockholder will execute any
and all documents required to establish that DigiCourse owns 100% of Limited.
Limited is a company duly organized, validly existing and in good standing
under the laws of United Kingdom with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the
properties and assets that it purports to own or use and to perform all its
obligations under Applicable Contracts. DigiCourse does not own, nor does it
have any Contract to acquire, any other equity securities or other securities
of any Person or any direct or indirect equity or ownership interest in any
other business and is not a party to any joint venture, teaming agreement,
partnership or similar entity or enterprise. Except as stated above, there
are no preemptive or other outstanding rights, options, warrants, conversion
rights, stock appreciation rights, redemption rights, repurchase rights,
agreements, arrangements or commitments to issue or to sell any shares of
capital stock or other securities of Limited or any of its subsidiaries or
any securities or obligations convertible or exchangeable into or exercisable
for, or giving any Person a right to subscribe for or acquire, any securities
of Limited and no securities or obligation evidencing such rights are
authorized, issued or outstanding. Limited does not have outstanding any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or convertible into or exercisable for securities having the
right to vote) with the stockholder of Limited on any matter.
3.4 FINANCIAL STATEMENTS. DigiCourse has delivered to I/O and will
attach to the Disclosure Letter: (a) unaudited financial statements
consisting of statements of assets, liabilities and stockholder's equity of
DigiCourse as of March 31 for each of the years 1994 through 1998, and the
related unaudited statement of revenues and expenses, and cash flow, for each
of the fiscal years then ended, (b) an unaudited balance sheet of DigiCourse
as of June 30, 1998 (the "Balance Sheet"), and the related unaudited
statement of income for the three months then ended, (c) an unaudited balance
sheet of DigiCourse as of August 31, 1998 and an unaudited balance sheet of
Limited as of August 31, 1998 (together, the "Interim Balance Sheets") and
the related unaudited statements of income for the five months then ended for
DigiCourse and Limited and (d) audited financial statements for the three
past fiscal years of Limited. Such financial statements substantially and
fairly present the financial condition and the results of operations of
DigiCourse and Limited as at the respective dates of and for the periods
referred to in such financial statements, reflecting the consistent
application of accounting principles, in accordance with GAAP, except, in the
case of unaudited financial statements, for the absence of footnote
disclosures throughout the periods involved, and subject to audit adjustments
that either would not have been material in amount or would involve
intercompany accounts and charges. The Interim Balance Sheets reflect
appropriate reserves to satisfy the warranty obligations of DigiCourse and
Limited in accordance with GAAP.
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3.5 BOOKS AND RECORDS. The books of account, minute books, stock
record books, and other records of DigiCourse and Limited, all of which have
been made available to I/O, to DigiCourse's Knowledge are complete and
correct and have been maintained in accordance with sound business practices,
including the maintenance of an adequate system of internal controls. The
minute books of DigiCourse and Limited contain accurate and complete records
of all meetings held of, and corporate actions taken by, the Stockholder in
its capacity as a shareholder, the Boards of Directors of DigiCourse and
Limited, and committees of the Boards of Directors of DigiCourse and Limited,
respectively. At the Closing, all books and records of DigiCourse and
Limited since January 1, 1992, and all minute books and stock records, will
be in the possession of DigiCourse. Stockholder will promptly deliver to the
Surviving Corporation those DigiCourse or Limited records that Stockholder
subsequently discovers in archive. Stockholder shall have the right to retain
a copy of these books and records.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES.
(a) Part 3.6 of the Disclosure Letter contains a complete and accurate
list of all real property leaseholds of DigiCourse or Limited. DigiCourse
and Limited own all the properties and assets (whether real, personal, or
mixed and whether tangible or intangible) reflected in the Interim Balance
Sheets (except for assets held under capitalized leases disclosed, or not
required to be disclosed, in Part 3.6 of the Disclosure Letter and personal
property sold since the date of the Interim Balance Sheets, as the case may
be, in the Ordinary Course of Business), and all of the properties and assets
purchased or otherwise acquired by DigiCourse or Limited since the date of
the Interim Balance Sheets (except for personal property acquired and sold
since the date of the Interim Balance Sheets in the Ordinary Course of
Business).
(b) Except as disclosed on Part 3.6 of the Disclosure Letter, all
material properties and assets reflected in the Interim Balance Sheets are
free and clear of all Encumbrances and are not subject to any building use
restrictions, exceptions, variances, reservations, or limitations of any
nature (collectively, "Limitations") except, with respect to all such
properties and assets, (i) security interests shown on the Interim Balance
Sheets with respect to which no default (or event that, with notice or lapse
of time or both, would constitute a default) exists, (ii) security interests
incurred in connection with the purchase of property or assets after the date
of the Interim Balance Sheets (such security interests being limited to the
property or assets so acquired), with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default)
exists, (iii) liens for current Taxes not yet due, or Encumbrances that are
not material to DigiCourse or Limited and (iv) Encumbrances and Limitations
on real property that do not materially interfere with DigiCourse's or
Limited's use of such real property.
3.7 CONDITION AND SUFFICIENCY OF ASSETS. The leasehold structures and
equipment of DigiCourse and Limited are adequate for the uses to which they
are being put. None of such structures or equipment is in need of
maintenance or repairs except for ordinary, routine maintenance. The
leasehold structures and equipment of DigiCourse and
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Limited are sufficient leasehold structures and equipment for the continued
conduct of DigiCourse's and Limited's business immediately after the Economic
Closing Date in substantially the same manner as conducted immediately prior
to the Economic Closing Date.
3.8 ACCOUNTS RECEIVABLE. All accounts receivable of DigiCourse and
Limited that are reflected on the Interim Balance Sheets or on the accounting
records of DigiCourse or Limited as of the Economic Closing Date
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed
in the Ordinary Course of Business. To DigiCourse's Knowledge, unless paid
prior to the Economic Closing Date, the Accounts Receivable are or will be as
of the Economic Closing Date current and collectible net of the respective
reserves shown on the Interim Balance Sheets or on the accounting records of
DigiCourse and Limited as of the Economic Closing Date (which reserves are
adequate and calculated consistent with past practice). There is no contest,
claim, or right of set-off, other than returns in the Ordinary Course of
Business, under any Contract with any obligor of an Accounts Receivable
relating to the amount or validity of such Accounts Receivable. Part 3.8 of
the Disclosure Letter contains a complete and accurate aged list of all
Accounts Receivable as of the date of the Interim Balance Sheets, which list
sets forth the aging of such Accounts Receivable.
3.9 INVENTORY. All inventory of DigiCourse and Limited reflected in
the Interim Balance Sheets consists, and reflected on the accounting records
at the Economic Closing Date will consist of, a quality and quantity usable
and salable in the Ordinary Course of Business, except for obsolete items and
items of below-standard quality, all of which have been written off or
written down to net realizable value in the Interim Balance Sheets. To
DigiCourse's Knowledge, the quantities of inventory are reasonable in the
present circumstances of DigiCourse and Limited.
3.10 NO UNDISCLOSED LIABILITIES. DigiCourse and Limited have no material
liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities
or obligations reflected or reserved against in the Interim Balance Sheets,
liabilities incurred in the Ordinary Course of Business since the date of the
Interim Balance Sheets and liabilities not required to be reflected or
reserved against under GAAP.
3.11 TAXES. DigiCourse and Limited have each filed or caused to be
filed all Tax Returns that are or were required to be filed by or with
respect to them pursuant to applicable Legal Requirements. DigiCourse and
Limited have paid, or made provision for the payment of, all Taxes that have
or may have become due pursuant to those Tax Returns. The charges, accruals,
and reserves with respect to Taxes on the books of DigiCourse are adequate
under applicable Legal Requirements of taxing authorities and are at least
equal to the liability for Taxes as determined under such Legal Requirements.
All Taxes that each of DigiCourse and Limited is or was required by Legal
Requirements to withhold or collect have been duly withheld or collected and,
to the extent required, have been paid to the proper Governmental Body or
other Person. All Tax Returns filed on a consolidated basis on behalf of
DigiCourse are true, correct, and complete in all material respects. There
is no Tax
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sharing agreement that will require any payment by DigiCourse or Limited
after the date of this Agreement.
3.12 NO MATERIAL ADVERSE CHANGE. Since the date of the Interim Balance
Sheets, there has not been any material adverse change in the business,
operations, properties, assets, or financial condition of DigiCourse or
Limited through the date of this Agreement, and no event has occurred or
circumstance exists through the date of this Agreement that may result in
such a material adverse change other than those generally affecting
DigiCourse's industry.
3.13 EMPLOYEE PLANS AND AGREEMENTS. Part 3.13 of the Disclosure Letter
lists all of the profit sharing plans and all of the retirement, stock
option, stock purchase, bonus, life, medical, vision, health, disability or
accident plans, deferred compensation plans, severance agreements, and other
employee compensation or benefit plans, agreements and arrangements,
including, without limitation, all "plans" as defined in Section 3(3) of
ERISA, relating to officers or employees (including former officers or
employees) of DigiCourse or Limited pursuant to which DigiCourse or Limited
has any liability (contingent or otherwise) (collectively, the "Plans" and
individually, a "Plan"). DigiCourse and Limited have complied with all Legal
Requirements governing, and terms and conditions of, the Plans. Since April
1, 1998, DigiCourse has maintained workers' compensation coverage as required
by applicable state law through purchase of insurance and not by
self-insurance, and DigiCourse has no liabilities for prior workers'
compensation self-insurance.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
To the Knowledge of DigiCourse, DigiCourse and Limited are, and at all times
since January 1, 1994 have been, in full compliance with each Legal
Requirement that is or was applicable to them or to the conduct or operation
of their business or the ownership or use of any of their assets that could
have material Adverse Consequences to DigiCourse or Limited; and to the
Knowledge of DigiCourse, no event has occurred or circumstance exists that
(with or without notice or lapse of time) constitutes a material violation by
DigiCourse or Limited of, or a material failure on the part of DigiCourse or
Limited to comply with, any Legal Requirement. To DigiCourse's Knowledge,
Part 3.14 of the Disclosure Letter contains a complete and accurate list of
each license or permit from a Governmental Body that is held by DigiCourse or
Limited the absence of which would have a material Adverse Consequence to
DigiCourse or Limited.
3.15 LEGAL PROCEEDINGS; ORDERS. Except as set forth in Part 3.15 of the
Disclosure Letter, there is no pending Proceeding:
(a) that has been commenced by or against DigiCourse or Limited or that
involves claims against or by DigiCourse or Limited; or
(b) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
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To the Knowledge of DigiCourse, no such Proceeding has been Threatened.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since the date of the
Interim Balance Sheets, DigiCourse and Limited have each conducted its
business only in the Ordinary Course of Business, except for this Agreement.
3.17 CONTRACTS; NO DEFAULTS. Part 3.17 of the Disclosure Letter
contains an accurate list of each Applicable Contract that involves an amount
in excess of $60,000 in any 12 month period. Each Contract identified or
required to be identified in Part 3.17 of the Disclosure Letter is in full
force and effect, without breach to DigiCourse's Knowledge, and is valid and
enforceable in accordance with its terms (subject to debtors' protection laws
and equitable principles).
3.18 INSURANCE. DigiCourse has delivered to I/O true and complete
copies of all policies of insurance to which DigiCourse or Limited is a party
or under which DigiCourse or Limited, or any officer or director of
DigiCourse or Limited, is or has been covered since March 31, 1996, related
to the business of DigiCourse or Limited. All policies to which DigiCourse
is a party or that provide coverage to DigiCourse or Limited, or any director
or officer of DigiCourse or Limited related to the business of DigiCourse or
Limited are valid, outstanding, and enforceable; and do not provide for any
retrospective premium adjustment or other experienced-based liability on the
part of DigiCourse or Limited. Following the Merger, the Surviving
Corporation will no longer be covered by insurance arranged through
Stockholder.
3.19 ENVIRONMENTAL MATTERS. DigiCourse and Limited are, and at all times
have been, in full compliance with, and has not been and is not in violation
of or liable under, any Environmental Law. Through the Economic Closing Date
there will be no pending or, to the Knowledge of DigiCourse, Threatened
claims resulting from any Environmental, Health, and Safety Liabilities or
arising under or pursuant to any Environmental Law, with respect to or
affecting any of the Facilities or other DigiCourse or Limited operations,
properties and assets.
3.20 EMPLOYEES. DigiCourse has delivered to I/O a complete and accurate
list, as of the date of this Agreement, of the following information for each
employee of DigiCourse or Limited, including each employee on leave of absence
or layoff status: name; job title; current compensation paid or payable and any
change in compensation since January 1, 1996; vacation accrued; and service
credited for purposes of vesting and eligibility to participate under
DigiCourse's or Limited's Plans. To DigiCourse's Knowledge, no employee of
DigiCourse or Limited is a party to, or is otherwise bound by, any agreement or
arrangement, including any confidentiality, noncompetition, or proprietary
rights agreement, between such employee and any other Person ("Proprietary
Rights Agreement") that in any way adversely affects or will affect the
performance of his duties as an employee of DigiCourse or Limited. To
DigiCourse's Knowledge, on the date of this Agreement and on the Economic
Closing Date, no officer, or employee directly reporting to an officer, or other
employee with an annual base compensation of $50,000 per year, of DigiCourse or
Limited intends to terminate his
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employment with DigiCourse or Limited.
3.21 INTELLECTUAL PROPERTY.
(a) INTELLECTUAL PROPERTY ASSETS. The term "Intellectual Property
Assets" includes DigiCourse's and Limited's:
(i) name, and any fictional business names, trading names, registered
and unregistered trademarks, service marks, and trademarks or service mark
applications listed in Part 3.21(a)(i) of the Disclosure Letter
(collectively, "Marks");
(ii) those patents, patent applications, and inventions and
discoveries that may be patentable listed in Part 3.21(a)(i) of the
Disclosure Letter (collectively, "Patents");
(iii) all copyrights in both material published works and material
unpublished works (collectively, "Copyrights");
(iv) all know-how, trade secrets, confidential information, customer
lists, technical information, data, process technology, plans, drawings,
and blue prints that have been protected (collectively, "Trade Secrets") or
are owned or licensed by DigiCourse or Limited as licensee or licensor; and
(v) all material Software and Rights owned or licensed by DigiCourse
or Limited as licensee or licensor.
(b) AGREEMENTS. Part 3.21(b) of the Disclosure Letter contains a complete
and accurate list of all Contracts relating to the Intellectual Property Assets
to which DigiCourse or Limited is a party or by which DigiCourse or Limited is
bound, except for (i) any perpetual license implied by the sale of a product and
(ii) each paid-up license for commonly available software programs with a value
of less than $50,000 under which DigiCourse is the licensee. There are no
outstanding and, to DigiCourse's Knowledge, no Threatened disputes or
disagreements with respect to any listed Contract. DigiCourse and Stockholder
have not granted and are not obligated to grant a license, assignment or other
right in respect of any item of Intellectual Property Assets, except as
disclosed on Part 3.21(b) to the Disclosure Letter.
(c) KNOW-HOW NECESSARY FOR THE BUSINESS.
(i) The Intellectual Property Assets are all those necessary for the
operation of DigiCourse's businesses as they are currently conducted other
than Intellectual Property Assets that are Shared Software and Rights or
that are used as a shared service described on Exhibit 2.7 with Stockholder
or Stockholder Affiliates. DigiCourse is the owner or licensee of all
right, title, and interest in and to each of the Intellectual Property
Assets, free and clear of all liens, security interests, charges,
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encumbrances, equities, and other adverse claims, and has the right to use
without payment to a third party all of the Intellectual Property Assets,
unless listed in Part 3.21(c)(i) of the Disclosure Letter.
(ii) No past or present employee or consultant of DigiCourse has any
ownership interest or any other rights in and to any Intellectual Property
Asset. No Contract exists between DigiCourse and any third party which
would impede or prevent the continued use of such right, title and interest
of DigiCourse in and to the Intellectual Property Assets as DigiCourse had
prior to the Economic Closing Date and used in the conduct of its business,
subject to the rights of licensors and licensees pursuant to existing
Contracts listed on Part 3.21(b) to the Disclosure Letter.
(d) PATENTS.
(i) Part 3.21(a)(ii) of the Disclosure Letter contains a complete
and accurate list of all issued Patents. At the time of the Economic
Closing Date, DigiCourse will be the owner of all right, title, and
interest in and to each of the issued Patents, free and clear of any
Encumbrances, and Stockholder will take steps in an orderly and prompt
fashion to transfer ownership of record to all issued foreign Patents to
Surviving Corporation.
(ii) All of the issued U.S. Patents are currently in compliance with
formal legal requirements (including payment of filing, examination, and
maintenance fees).
(iii) To DigiCourse's Knowledge, no issued Patent is involved in
any interference, reissue, reexamination, or opposition proceeding. To
DigiCourse's Knowledge, there is no interfering patent or patent
application of any third party to any issued Patent.
(iv) To DigiCourse's Knowledge, no issued Patent has been Threatened.
To DigiCourse's Knowledge, none of the Products infringes or is alleged to
infringe any patent or other proprietary right of any other Person.
(e) MARKS.
(i) Part 3.21(e) of Disclosure Letter contains a complete and
accurate list of all registered Marks. At the time of the Economic Closing
Date, DigiCourse will be the owner of all right, title, and interest in and
to each of the U.S. Marks, free and clear of all Encumbrances and
Stockholder will take steps in an orderly and timely fashion to transfer
ownership of record to all registered foreign Marks.
(ii) All Marks that have been registered with the United States
Patent and Trademark Office are currently in compliance with all formal
legal requirements (including the timely post-registration filing of
affidavits of use and incontestability and renewal applications).
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(iii) To DigiCourse's Knowledge, no registered Mark or pending
trademark application is now involved in any opposition, invalidation, or
cancellation.
(f) COPYRIGHTS.
(i) Part 3.21(f) of the Disclosure Letter contains a complete and
accurate list of all registered Copyrights. DigiCourse is the owner of all
right, title, and interest in and to each of the registered Copyrights,
free and clear of all Encumbrances.
(ii) All registered Copyrights are currently in compliance with
formal legal requirements.
(iii) To DigiCourse's Knowledge, no Copyright is infringed or
Threatened.
(g) TRADE SECRETS. To DigiCourse's Knowledge, with respect to material
Trade Secrets, the documentation relating to such Trade Secret is reasonably
current and sufficient in detail and content to identify and explain it and to
allow its full and proper use without reliance on the knowledge or memory of any
single individual.
(h) RIGHTS.
(i) Part 3.21(h) of the Disclosure Letter contains a complete and
accurate list of all Products. DigiCourse is the owner of all right,
title, and interest in and to the Rights, free and clear of all
Encumbrances and the Rights may be used by the Surviving Corporation to
produce and market all of the Products following the Economic Closing Date
in the same manner as such were used prior to the Economic Closing Date
without the payment of additional fees.
(ii) To DigiCourse's Knowledge, the Products perform in all material
respects in accordance with the Documentation.
(iii) DigiCourse will have delivered to I/O in written form, and
scheduled in the Disclosure Letter, all material Products (A) that are
non-standard Products under development for a particular customer, (b) that
require non-standard support, (C) that have a non-standard warranty, and
(D) that have non-standard delivery obligations. To DigiCourse's
Knowledge, neither DigiCourse nor Limited has requested additional
equipment, development tools or technical personnel indicating that they
are needed to satisfy and discharge these obligations.
(iv) DigiCourse has made available to I/O and I/O Marine
documentation identifying, to DigiCourse's Knowledge, all bugs in
Products together with documentation of all fixes implemented, in
development or planned for those bugs.
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(v) Except for changes to be made in the Ordinary Course of Business
which will not have material Adverse Consequences on DigiCourse's business,
to DigiCourse's Knowledge, no currently available or announced
technological advance or release will result in any Product's obsolescence
within the next twelve (12) months.
(vi) Except as disclosed in writing to I/O, to DigiCourse's Knowledge
performance of the Products will not be adversely affected in any material
respect solely as a result of the date change from December 31, 1999 to
January 1, 2000.
3.22 DISCLOSURE. To DigiCourse's Knowledge, no representation or warranty
of Stockholder in this Agreement and no statement in the Disclosure Letter omits
to state a material fact necessary to make the statements herein or therein, in
light of the circumstances in which they were made, not misleading.
3.23 BROKERS OR FINDERS. DigiCourse and Limited have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
3.24 YEAR 2000 COMPLIANCE. Part 3.24 of the Disclosure Letter contains
DigiCourse's and Limited's Year 2000 action plans and status reports.
DigiCourse's and Limited's operations as currently conducted, upon execution of
these Year 2000 action plans, to DigiCourse's Knowledge, will not suffer a
material Adverse Consequence determined applying the British Standards Institute
definition of Year 2000 compliant.
4. REPRESENTATIONS AND WARRANTIES OF I/O
I/O and I/O Marine jointly and severally represent and warrant to
Stockholder as follows:
4.1 ORGANIZATION AND GOOD STANDING. I/O is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware
with full corporate power and authority to conduct its business as it is now
being conducted, to own and use the properties and assets that it purports to
own or use and to perform all its obligations under all Contracts to which it is
a party.
4.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation of
I/O, enforceable against I/O in accordance with its terms. I/O has the absolute
and unrestricted right, power, and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement.
(b) Neither the execution and delivery of this Agreement by I/O nor the
consummation or performance of any of the Contemplated Transactions by I/O will,
directly
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or indirectly (with or without notice or the lapse of time), contravene,
conflict with or result in a violation of:
(i) any provision of I/O's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of I/O;
(iii) any Legal Requirement or Order to which I/O or any of its
assets may be subject; or
(iv) any Contract to which I/O is a party or by which I/O or any of
its assets may be bound; or result in the imposition or creation of any
Encumbrance upon or with respect to any of such assets.
Except for satisfaction of HSR requirements and as set forth in Schedule 4.2,
I/O is not and will not be required to obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.
4.3 CERTAIN PROCEEDINGS. There is no pending Proceeding that has been
commenced against I/O and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of
the Contemplated Transactions or that involves material claims not disclosed
in the I/O SEC Reports against I/O or I/O Affiliates. To I/O's Knowledge, no
such Proceeding has been Threatened.
4.4 BROKERS OR FINDERS. Except for fees payable by I/O to Schnitzius &
Vaughan, I/O and its officers and agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement and
will indemnify and hold Stockholder harmless from any such payment alleged to
be due from Stockholder by or through I/O as a result of the action of I/O or
its officers or Representatives. This indemnity is not subject to the
ceiling or threshold of Section 8.
4.5 I/O CAPITALIZATION.
(a) The authorized capital stock of I/O consists of 100,000,000 shares
of I/O Common Stock, of which 44,586,434 shares were outstanding as of the
close of business on September 21, 1998, and 5,000,000 shares of preferred
stock, par value $0.01 per share, of which no shares were outstanding as of
September 21, 1998. All of the outstanding shares of I/O Common Stock have
been duly authorized and are validly issued, fully paid and nonassessable.
I/O does not have outstanding any bonds, debentures, notes or other
obligations the holders of which have the right to vote (or, except stock
options, convertible into or exercisable for securities having the right to
vote) with the stockholders of I/O on any matter.
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(b) Prior to the Closing, I/O will have taken all necessary action to
permit it to issue to Stockholder the number of shares of I/O Common Stock
required to be issued pursuant to Section 2. Such I/O Common Stock, when
issued, will be validly issued, fully paid and nonassessable and will be
"Restricted Stock" within the meaning of SEC Rule 144 promulgated under the
Securities Act.
4.6 I/O SEC REPORTS. I/O has delivered to the Stockholder the Private
Placement Memorandum and each registration statement, report, press releases
or proxy statement prepared by it since May 31, 1998, and all exhibits filed
or incorporated by reference thereto including (i) I/O's Annual Report on
Form 10-K for the year ended May 31, 1998, (ii) I/O's Quarterly Report on
Form 10-Q for its fiscal quarter ended August 31, 1998 and (iii) I/O's
definitive proxy statement prepared in connection with its annual meeting of
stockholders to be held on September 28, 1998, all in the form (including any
amendments thereto) as filed with the SEC and all reports and proxy materials
filed by I/O with the SEC at any time after May 31, 1998 (collectively, the
"I/O SEC Reports"). As of their respective dates, the I/O SEC Reports did
not, and any I/O SEC Reports filed with the SEC subsequent to the date
hereof, and prior to the Effective Time will not, and the Private Placement
Memorandum does not, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances in which they were
made, not misleading; to I/O's Knowledge, all such I/O SEC Reports complied
as to form, in all material respects, with all applicable Legal Requirements.
Since the filing of I/O's latest current report on Form 10-Q, there has been
no material adverse change in the business or financial prospects of I/O that
has not been disclosed through press releases issued by I/O. Each of the
consolidated balance sheets included in or incorporated by reference into the
I/O SEC Reports (including the related notes and schedules) fairly presents
the consolidated financial position of I/O and its subsidiaries as of its
date and each of the consolidated statements of income and of cash flow
included in or incorporated by reference into the I/O SEC Reports (including
any related notes and schedules) fairly presents the results of operations,
retained earnings and changes in cash flow, as the case may be, of I/O and
its subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to notes and normal year end audit adjustments that
will not be material in amount or effect), in each case in accordance with
GAAP consistently applied during the periods involved, except as may be noted
therein.
4.7 INVESTMENT REPRESENTATIONS.
(a) I/O is an "accredited investor" within the meaning of Regulation D
under the Securities Act. I/O will acquire the shares of DigiCourse pursuant
to the Merger solely for the purpose of investment, for its own account, and
not with a view to any distribution thereof within the meaning of Section
2(11) of the Securities Act.
(b) I/O understands that the shares of DigiCourse will not have been
registered under the Securities Act, that there is no established market for
the shares of DigiCourse, and that the shares of DigiCourse must be held
indefinitely and cannot be transferred unless an exemption from such
registration is available with respect to such transfer.
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(c) I/O, alone or in conjunction with its advisors, has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment in the shares of DigiCourse
and of making an informed investment decision with respect thereto.
(d) I/O is able to bear the economic risk of an investment in the
shares of DigiCourse.
(e) I/O and its advisors have been given access to all documents, books
and additional information concerning DigiCourse and Limited which they have
requested. I/O has been represented by legal counsel and investment bankers
in this transaction and such advisors have been given the opportunity to ask
questions of, and receive answers from, the officers of DigiCourse and
Limited concerning the affairs and business and financial condition of
DigiCourse and Limited. I/O has conducted such investigations in making a
decision to enter into this Agreement and the Contemplated Transactions as
I/O and its advisors have deemed necessary and advisable.
4.8 TAX REPRESENTATIONS.
(a) I/O Marine was formed solely for the purpose of merging into
DigiCourse in accordance with this Agreement.
(b) Except for assets transferred by I/O to I/O Marine pursuant to this
Agreement, prior to the Effective Time, I/O Marine will have no historical
assets or liabilities, and except for this Agreement, and no Contracts.
Accordingly, DigiCourse will assume no liabilities of I/O Marine and I/O Marine
will not transfer to DigiCourse any assets subject to liabilities.
(c) Assets transferred for purposes of this Agreement by I/O to I/O
Marine, or by I/O to the Surviving Corporation, were transferred pursuant to
this Agreement and Plan of Merger for the purpose set forth in Treasury
Regulations Section 1.368-2 (j) (3).
(d) All of the issued and outstanding shares of stock of I/O Marine are
owned by I/O such that I/O Marine is a 100% owned subsidiary of I/O; I/O has
been and immediately prior to the Merger will be in control of I/O Marine within
the meaning of Section 368 of the Code.
(e) Following the Merger of I/O Marine into DigiCourse pursuant to the
terms of this Agreement and Merger, DigiCourse will hold substantially all of
the properties of I/O Marine and DigiCourse, other than the Merger
Consideration, all within the meaning of Code Section 368 (a) (2) (E).
(f) Merger Consideration transferred to the Stockholder in exchange for
the Shares will be voting common stock of I/O within the meaning of Code Section
368 (a)(2)(E) (aside from any Net Working Capital adjustment payments under
Section 2.5(a)(ii))
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(g) After the completion of the Agreement, I/O will control DigiCourse
within the meaning of Code Section 368 (c).
(h) I/O has no present plan or intention to liquidate DigiCourse; to
merge DigiCourse with or into another corporation; to sell or otherwise
dispose of the stock of DigiCourse except for transfers of stock to
corporations controlled by I/O; or to cause DigiCourse to sell or otherwise
dispose of any of its assets or any of the assets acquired from I/O Marine,
except for dispositions made in the Ordinary Course of Business or transfers
of assets to a corporation controlled by DigiCourse.
(i) Following the Merger, DigiCourse will continue its historic
business.
4.9 RELIANCE. I/O and I/O Marine acknowledge, warrant, represent, and
agree that neither of them has relied or will rely, in connection with the
transactions contemplated by this Agreement, upon any representation,
warranty, fact or statement (or failure to make any statement) of or by the
Stockholder except the Stockholder's representations and warranties expressly
set forth in this Agreement. Nothing contained in this Agreement constitutes
an acknowledgment by Stockholder that it has offered or sold to I/O any
"securities," as such term is defined in the Securities Act and applicable
state securities laws.
5. REPRESENTATIONS AND WARRANTIES OF I/O MARINE
I/O and I/O Marine, jointly and severally, represent and warrant to
Stockholder as follows:
5.1 ORGANIZATION AND GOOD STANDING. I/O Marine is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Louisiana with full corporate power and authority to conduct its business as it
is now conducted, to own and use the properties and assets that it purports to
own or use and to perform all its obligations under all Contracts to which it is
a party.
5.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation of
I/O Marine, enforceable against I/O Marine in accordance with its terms. I/O
Marine has the absolute and unrestricted right, power, and authority to execute
and deliver this Agreement and to perform its obligations under this Agreement.
(b) Neither the execution and delivery of this Agreement by I/O Marine nor
the consummation or performance of any of the Contemplated Transactions by I/O
Marine will, directly or indirectly (with or without notice or the lapse of
time), contravene, conflict with or result in a violation of:
(i) any provision of I/O Marine's Organizational Documents;
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(ii) any resolution adopted by the board of directors or the
shareholders of I/O Marine;
(iii) any Legal Requirement or Order to which I/O Marine or any of
its assets may be subject; or
(iv) any Contract to which I/O Marine is a party or by which I/O
Marine or any of its assets may be bound.
Except for satisfaction of the HSR requirements, I/O Marine is not and will
not be required to obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or performance
of any of the Contemplated Transactions.
5.3 CERTAIN PROCEEDINGS. There is no pending Proceeding that has been
commenced against I/O Marine and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of
the Contemplated Transactions or that involves material claims not disclosed
in the I/O SEC Reports against I/O or I/O Affiliates. To I/O Marine's
Knowledge, no such Proceeding has been Threatened.
5.4 BROKERS OR FINDERS. I/O Marine and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage
or finders' fees or agents' commissions or other similar payment in
connection with this Agreement and will indemnify and hold Stockholder
harmless from any such payment alleged to be due from Stockholder by or
through I/O Marine as a result of the action of I/O Marine or its officers or
Representatives.
5.5 I/O MARINE CAPITALIZATION. The authorized capital stock of I/O
Marine consists of 1,000 shares of common stock ("I/O Marine Common Stock"),
all of which is issued to and owned by I/O, free of any Encumbrances. All of
the outstanding shares of I/O Marine Common Stock have been duly authorized
and are validly issued, fully paid and nonassessable. Except as stated
above, there are no preemptive or other outstanding rights, options,
warrants, conversion rights, stock appreciation rights, redemption rights,
repurchase rights, agreements, arrangements or commitments to issue or to
sell any shares of capital stock or other securities of I/O Marine or any
securities or obligations convertible or exchangeable into or exercisable
for, or giving any Person a right to subscribe for or acquire, any securities
of I/O Marine and no securities or obligation evidencing such rights are
authorized, issued or outstanding. I/O Marine does not have outstanding any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or convertible into or exercisable for securities having the
right to vote) with the stockholder of I/O Marine on any matter.
5.6 ASSETS AND LIABILITIES. Prior to and at the Closing, I/O Marine
will have no material assets or liabilities, no Affiliates that are
subsidiaries and, except for this Agreement, no Contracts.
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6. CONDITIONS PRECEDENT TO I/O'S AND I/O MARINE'S OBLIGATION TO CLOSE
The obligation of each of I/O and I/O Marine to consummate the Contemplated
Transactions, and to take the other actions required to be taken by I/O and I/O
Marine at the Closing is subject to the satisfaction, at or prior to the
Closing, of each of the following conditions (any of which may be waived, if
permitted by law, by I/O and I/O Marine, in whole or in part):
6.1 ACCURACY OF REPRESENTATIONS. All of Stockholder's and DigiCourse's
representations and warranties in this Agreement (considered collectively),
and each of these representations and warranties (considered individually),
must be accurate in all material respects as of the date of this Agreement
and as of the Economic Closing Date.
6.2 STOCKHOLDER'S PERFORMANCE. All of the covenants and obligations
that Stockholder is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing (considered collectively), and each of
these covenants and obligations (considered individually), must have been
duly performed and complied with in all material respects.
6.3 ADDITIONAL DOCUMENTS. Each of the following documents must have
been delivered to I/O and I/O Marine:
(a) the Certificate of Merger, duly executed and acknowledged by
Stockholder and DigiCourse to the extent required by the LBCL;
(b) certificates of the Secretary of State and the taxing authorities
of Louisiana dated not more than ten days prior to the Closing Date,
attesting to the organization and good standing of DigiCourse, and to the
payment of all state taxes due and owing thereby, if Louisiana issues such a
certificate;
(c) copies, certified by the Secretary of State of Louisiana as of a
date not more than five days prior to the Closing Date, of the articles of
incorporation of DigiCourse, and all amendments thereto;
(d) copies, certified by the Secretary of DigiCourse as of the Closing
Date, of the bylaws of DigiCourse, and all amendments thereto; and
(e) copies, certified by the Secretary of DigiCourse as of the Closing
Date, of resolutions duly adopted by the Stockholder and Board of Directors
of DigiCourse, authorizing the execution and delivery by DigiCourse of this
Agreement and all other agreements attached hereto as exhibits or
contemplated herein, the consummation of the Merger, and the taking of all
such other corporate action as shall have been required as a condition to or
in connection with the consummation of the Contemplated Transactions.
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6.4 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. There must not
have been made or Threatened by any Person any claim asserting that such Person
(a) is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any stock of, or any other voting, equity, or
ownership interest in DigiCourse, or (b) is entitled to all or any portion of
the Merger Consideration.
6.5 NO PROHIBITION. Neither the consummation nor the performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause I/O or any Person affiliated with
I/O to suffer any material Adverse Consequences under, (a) any applicable
Legal Requirement or Order, or (b) any Legal Requirement or Order that has
been published, introduced, or otherwise proposed by or before any
Governmental Body.
6.6 NO MATERIAL ADVERSE CHANGE. There shall not have been, since the
date of the Interim Balance Sheets through the Economic Closing Date, any
material adverse change in the business, operations, properties, assets, or
financial condition of DigiCourse or Limited.
6.7 OPINIONS OF COUNSEL. I/O shall have received, in a form
satisfactory to it in its reasonable commercial discretion, opinions,
addressed to it, of (i) its counsel to the effect that this Agreement, and
the Registration Rights Agreement are enforceable against Stockholder in
accordance with their respective terms; and (ii) Correro Fishman Haygood
Phelps Walmsley & Casteix, L.L.P., to the effect that the shares of
DigiCourse and Limited (relying upon British counsel's opinion as necessary
regarding Limited) to be delivered to I/O under this Agreement are, at the
Closing, duly and validly authorized and issued and fully paid and
nonassessable.
6.8 HSR CLEARANCE. Closing shall not occur until the receipt of any
required Government Authorization, including Government Authorization
(whether by lapse of requisite waiting period or otherwise) following filings
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended)
("HSR"). I/O agrees to pay the entire HSR filing fee.
6.9 EMPLOYMENT ARRANGEMENT. I/O and Roy Kelm shall have agreed upon
post-Closing employment terms and conditions acceptable to I/O.
6.10 RELEASE OF GUARANTY. DigiCourse shall have been released as a
guarantor (and from any similar obligation) with respect to any indebtedness
of Stockholder or any Stockholder Affiliates.
6.11 DUE DILIGENCE. I/O shall have completed its due diligence
investigation of DigiCourse, Limited and the Contemplated Transactions, with
results satisfactory to I/O, and shall have received and timely reviewed
(five days after receipt) the Disclosure Letter.
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7. CONDITIONS PRECEDENT TO STOCKHOLDER'S AND DIGICOURSE'S OBLIGATION TO CLOSE
The obligation of DigiCourse and the Stockholder to consummate the
Contemplated Transactions and to take the other actions required to be taken by
Stockholder and DigiCourse at the Closing is subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (any of which may be
waived by Stockholder and DigiCourse, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS. All of I/O's and I/O Marine's
representations and warranties in this Agreement (considered collectively),
and each of these representations and warranties (considered individually),
must be accurate in all material respects as of the date of this Agreement
and as of the Closing Date.
7.2 I/O'S PERFORMANCE.
(a) All of the covenants and obligations that I/O and I/O Marine are
required to perform or to comply with pursuant to this Agreement at or prior
to the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and complied
with in all material respects.
(b) I/O must have delivered each of the documents required to be
delivered by I/O pursuant to Section 2.4 and must have delivered the Merger
Consideration.
7.3 ADDITIONAL DOCUMENTS. I/O must have caused the following documents
to be delivered to Stockholder:
(a) the Certificate of Merger, duly executed by each of I/O and I/O
Marine, to the extent required by the LBCL;
(b) certificates of the Secretary of State and the taxing authorities
of Delaware or Louisiana, as applicable, dated not more than ten days prior
to the Closing Date, attesting to the organization and good standing of each
of I/O and I/O Marine as a corporation in its jurisdiction of incorporation,
and to the payment of all state taxes due and owing thereby (if available in
Louisiana);
(c) copies, certified by the Secretary of State of Delaware or
Louisiana, as applicable, as of a date not more than ten days prior to the
Closing Date of the articles or certificate of incorporation of each of I/O
and I/O Marine, and all amendments thereto;
(d) copies, certified by the Secretary of I/O as of the Closing Date,
of the bylaws of each of I/O and I/O Marine, and all amendments thereto;
(e) copies, certified by a certificate of the Secretary of I/O and I/O
Marine as of the Closing Date, of resolutions duly adopted by the boards of
directors of each of I/O and I/O
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Marine, and by I/O as sole stockholder of I/O Marine, authorizing the
execution and delivery by I/O and I/O Marine of this Agreement and all other
agreements attached hereto as Exhibits or contemplated herein, the
consummation of the Merger, and the taking of all such other corporate action
as shall have been required as a condition to, or in connection with the
consummation of the Contemplated Transactions.
7.4 NO PROHIBITION. Neither the consummation nor the performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Stockholder or any Person
affiliated with Stockholder to suffer any material Adverse Consequences
under, (a) any applicable Legal Requirement or Order, or (b) any Legal
Requirement or Order that has been published, introduced, or otherwise
proposed by or before any Governmental Body.
7.5 NYSE LISTING. The shares of I/O Common Stock issuable to the
Stockholder pursuant to this Agreement shall have been approved for listing
on the NYSE upon and subject to official notice of issuance.
7.6 OPINIONS OF COUNSEL. Stockholder shall have received, in a form
satisfactory to it in its reasonable commercial discretion, opinions,
addressed to the Stockholder, of (i) its special Delaware counsel to the
effect that this Agreement and the Registration Rights Agreement are
enforceable against I/O in accordance with their respective terms; (ii) its
tax counsel, to the effect that the Merger will for tax purposes constitute a
reorganization under Section 368(a)(2)(E) of the Code and that, accordingly,
the Stockholder will not incur any recognized gain or loss by reason of its
receipt of shares of I/O capital stock pursuant to the Merger; and (iii)
Haynes and Boone, L.L.P. to the effect that the shares of I/O Common Stock to
be delivered to the Stockholder under this Agreement are, at the Closing,
duly and validly authorized and issued and fully paid and nonassessable.
7.7 SECTION 2.5 PAYMENT. Stockholder shall have no reasonable
expectation that any payment that may become due to it pursuant to Section
2.5 of this Agreement might exceed in amount 19% of the aggregate value of
the Merger Consideration.
7.8 FAIRNESS OPINION. DigiCourse and the Stockholder shall have
received the opinion of NationsBanc Montgomery Securities, LLP, addressed to
DigiCourse and the Stockholder, in form satisfactory to each of them in its
reasonable commercial discretion, to the effect that the Merger Consideration
is fair to the Stockholder from a financial point of view.
7.9 NO MATERIAL ADVERSE CHANGE. There shall not have been, since
September 1, 1998, any material adverse change in the business, operation,
properties, assets, or financial condition of I/O, other than those factors
generally affecting I/O's industry.
7.10 HSR CLEARANCE. Closing shall not occur until the receipt of any
required Government Authorization, including Government Authorization
(whether by lapse of
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requisite waiting period or otherwise) following filings under the HSR. I/O
agrees to pay the entire HSR filing fee.
8. INDEMNIFICATION; REMEDIES
8.1 SURVIVAL. All representations, warranties, covenants, and obligations
contained in this Agreement, the Disclosure Letter, and any other certificate or
document delivered pursuant to this Agreement will survive the Closing Date, but
solely to support a timely claim for indemnification pursuant to Section 8
thereto; PROVIDED, HOWEVER, that claims for indemnification in respect of
Breaches relating to the Environment, ERISA and Taxes representations and
warranties may be made until six (6) years after the Economic Closing Date and
indemnification for claims against title to the Shares or the Merger
Consideration shall survive without expiration, but all other claims for
indemnification for Breaches of this Agreement must be made within eighteen (18)
months after the Economic Closing Date. Stockholder has the option of
performing, at its expense, in a safe manner not disrupting Surviving
Corporation's operations, Environment remediation for any indemnified claim that
is related to the Environment.
8.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY STOCKHOLDER.
(a) Stockholder will indemnify and hold harmless I/O, I/O Marine, and
their respective Representatives, stockholders, controlling persons, and
affiliates (collectively, the "I/O Indemnified Persons") for, and will pay to
the I/O Indemnified Persons the amount of Adverse Consequences, arising,
directly or indirectly, from or in connection with (i) any Breach of any
representation, warranty or covenant made by DigiCourse or Stockholder in
this Agreement other than the performance of DigiCourse with respect to
post-Closing covenants, the Disclosure Letter, or any other certificate or
document delivered by Stockholder at the Closing pursuant to this Agreement
and (ii) the Yardney lithium batteries that were incorporated into DigiCourse
products and any litigation of claims in connection therewith (the "Yardney
Litigation").
(b) The amount of Adverse Consequences payable by the Stockholder
pursuant to this Section 8.2 will not exceed $30,000,000 in the aggregate,
except for claims to rights in the Shares which shall not be subject to any
ceiling amount.
(c) I/O Indemnified Persons shall not be entitled to assert any claim
for indemnification under this Section 8.2 unless and until such time as all
claims of I/O Indemnified Persons for indemnification exceed $1,000,000 in
the aggregate, at which time any and all claims of I/O for indemnification
may be asserted.
8.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY I/O.
(a) I/O and I/O Marine will, jointly and severally, indemnify and hold
harmless Stockholder and Stockholder's Representatives ("Stockholder
Indemnified Persons"), and will pay to Stockholder Indemnified Persons, the
amount of any Adverse Consequences arising,
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directly or indirectly, from or in connection with (i) any Breach of any
representation or warranty made by I/O or I/O Marine in this Agreement or in
any certificate delivered by I/O or I/O Marine pursuant to this Agreement,
(ii) any Breach by I/O or I/O Marine of any covenant or obligation of I/O or
I/O Marine in this Agreement, (iii) any post-Closing performance obligations
of the Surviving Corporation required by this Agreement, or (iv) any claim by
any Person for brokerage or finder's fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such
Person with I/O (or any Person acting on its behalf) in connection with any
of the Contemplated Transactions.
(b) Stockholder Indemnified Persons shall not be entitled to assert any
claim for indemnification under this Section 8.3 unless and until such time
as all claims of Stockholder Indemnified Persons for indemnification exceed
$1,000,000 in the aggregate, at which time any and all claims of Stockholder
Indemnified Persons for indemnification may be asserted.
(c) The amount of Adverse Consequences payable pursuant to this Section
8.3 by I/O and/or I/O Marine will exceed not $30,000,000 in the aggregate,
except for claims to rights in the I/O Common Stock delivered to Stockholder
under this Agreement, which shall not be subject to any ceiling amount.
8.4 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.
(a) Promptly after receipt by a I/O Indemnified Person or Stockholder
Indemnified Person ("Indemnified Person") under Section 8.2 or Section 8.3 of
notice of the commencement of any Proceeding against it, such Indemnified
Person will, if a claim is to be made against an indemnifying party under
such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any Indemnified
Person, except to the extent that the indemnifying party demonstrates that
the defense of such action is prejudiced by the Indemnified Person's failure
to give such notice, or the notice is outside the time limitations of Section
8.1.
(b) If any Proceeding referred to in Section 8.4(a) is brought against
an Indemnified Person and the Indemnified Person gives timely notice to the
indemnifying party of the commencement of such Proceeding, the indemnifying
party will be entitled to participate in such Proceeding and, to the extent
that it wishes to assume the defense of such Proceeding with counsel
satisfactory to the Indemnified Person and, after notice from the
indemnifying party to the Indemnified Person of its election to assume the
defense of such Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the Indemnified Person under
this Section 8 for any fees of other counsel or any other expenses with
respect to the defense of such Proceeding, in each case subsequently incurred
by the Indemnified Person in connection with the defense of such Proceeding,
other than reasonable costs of investigation. If the indemnifying party
assumes the defense of a Proceeding, (i) no compromise or settlement of such
claims may be effected by the indemnifying party without the Indemnified
Person's consent unless (A) there is no finding or admission of any violation
of Legal Requirements or any violation of the rights of any
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Person and no effect on any other claims that may be made against the
Indemnified Person, and (B) the sole relief provided is monetary damages that
are paid in full by the indemnifying party; and (ii) the Indemnified Person
will have no liability with respect to any compromise or settlement of such
claims effected without its consent. If notice is given to an indemnifying
party of the commencement of any Proceeding and the indemnifying party does
not, within thirty days after the Indemnified Person's notice is given, give
notice to the Indemnified Person of its election to assume the defense of
such Proceeding, the indemnifying party will be bound by any determination
made in such Proceeding or any compromise or settlement effected by the
Indemnified Person.
(c) Notwithstanding the foregoing, if an Indemnified Person determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it other than as a result of monetary damages for which it
would be entitled to indemnification under this Agreement, the Indemnified
Person may, by notice to the indemnifying party, assume the exclusive right
to defend, compromise, or settle such Proceeding, but the indemnifying party
will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
8.5 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be
asserted by notice to the party from whom indemnification is sought within
the Section 8.1 time limits.
8.6 CALCULATION OF ADVERSE CONSEQUENCES. The parties shall make
appropriate adjustments for tax benefits and insurance coverage and shall
take into account the time cost of money in determining the amount of
indemnified Adverse Consequences. Indemnified Adverse Consequences will be
without duplication with respect to Stockholder Indemnified Persons, on one
hand, and I/O Indemnified Persons, on the other hand.
8.7 KNOWLEDGE LIMITATION. If I/O had Knowledge, prior to Closing, of
facts that would give rise to a Breach by Stockholder, DigiCourse or Limited
of a representation, warranty or covenant upon Closing, then Stockholder
shall have no duty to indemnify that specific claim of Adverse Consequences,
except to the extent that Stockholder, DigiCourse or Limited also had
Knowledge, a duty to disclose under this Agreement and failed to disclose
these facts.
If Stockholder or DigiCourse had Knowledge, prior to closing, of facts
that would give rise to a Breach by I/O or I/O Marine of a representation,
warranty or covenant upon Closing, then I/O and I/O Marine shall have no duty
to indemnify that specific claim of Adverse Consequences except to the extent
that I/O also had Knowledge, a duty to disclose under this Agreement, and
failed to disclose these facts.
If a party has Knowledge of any Breach of another party's
representations and warranties given in this Agreement prior to Closing, the
party with Knowledge shall, prior to Closing, give notice to the potentially
breaching party of those facts.
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8.8 EXCLUSIVE REMEDY. Following the Closing, except as specifically
excluded from Section 8 elsewhere in this Agreement, the indemnification
provisions in this Section 8 are the sole and exclusive remedy (except for
any injunctive remedy that may be available) any party may have for Breach of
representation, warranty or covenant of the Agreement or any other matters
provided for in this Agreement.
8.9 NO THIRD PARTY BENEFICIARIES. The foregoing indemnification is
given solely for the purpose of protecting the parties to this Agreement and
the Indemnified Persons and shall not be deemed extended to, or interpreted
in a manner to confer any benefit, right or cause of action upon, any other
Person.
9. GENERAL PROVISIONS
9.1 EXPENSES. Each of Stockholder and I/O will bear its respective
expenses incurred in connection with the preparation, execution, and
performance of this Agreement and the Contemplated Transactions, including
all fees and expenses of agents, representatives, counsel, and accountants.
I/O will pay all amounts payable to Schnitzius & Vaughan in connection with
this Agreement and the Contemplated Transactions. Stockholder will pay all
fees payable to NationsBanc Montgomery Securities, LLP and to counsel and
accountants to DigiCourse and to Stockholder with respect to legal,
financial, accounting or other professional services in connection with this
Agreement and the Contemplated Transactions. Stockholder will cause
DigiCourse not to incur any out-of-pocket expenses in connection with this
Agreement.
9.2 PUBLIC ANNOUNCEMENTS. Except under Legal Requirements, no
information concerning Stockholder will be publicized by I/O without
Stockholder's prior consent, which consent shall not be unreasonably
withheld. Any public announcement or similar publicity with respect to this
Agreement or the Contemplated Transactions will be issued, if at all, at such
time and in such manner as I/O determines with 24 hour advance written notice
to Stockholder, giving Stockholder an opportunity to review the proposed
release, subject to Legal Requirements deadlines. Unless consented to by I/O
in advance or required by Legal Requirements, prior to the Closing,
Stockholder shall use reasonable efforts, and shall cause DigiCourse to use
reasonable efforts, to keep this Agreement strictly confidential and may not
make any disclosure of this Agreement to any Person. Stockholder and I/O will
consult with each other concerning the means by which DigiCourse's employees,
customers, and suppliers and others having dealings with DigiCourse will be
informed of the Contemplated Transactions, and I/O will have the right to be
present for any such communication.
9.3 CONFIDENTIALITY. Between the date of this Agreement and the Closing
Date, the parties will maintain in confidence, and will cause their
directors, officers, employees, agents, and advisors to maintain in
confidence, and not use to the detriment, except as contemplated by this
Agreement, of another party hereto any written, oral, or other information
obtained in confidence from such other party in connection with this
Agreement or the Contemplated Transactions, unless (a) such information is
already known to such party (other than through delivery by the proprietor
party in connection with the
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Contemplated Transactions) or to others not bound by a duty of
confidentiality or such information becomes publicly available through no
fault of such party, (b) the use of such information is necessary or required
in making any filing or obtaining any consent or approval required for the
consummation of the Contemplated Transactions, or (c) the furnishing or use
of such information is required by an Order in connection with legal
proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
request.
Whether the Closing takes place, each party waives any cause of action,
right, or claim arising out of the access of a recipient party or its
representatives to any trade secrets or other confidential information of the
disclosing party except for the intentional competitive misuse by the
recipient party of such trade secrets or confidential information.
9.4 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a
copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses
and telecopier numbers as a party may designate by notice to the other
parties):
STOCKHOLDER:
The Laitram Corporation
220 Laitram Lane
Harahan, La. 70123
Attn: General Counsel
Facsimile No.: (504) 734-5233
I/O:
Input/Output, Inc.
11104 West Airport Boulevard, Suite 200
Stafford, Texas 77477
Attn: General Counsel
Facsimile No.: (281) 879-3649
9.5 FURTHER ASSURANCES. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each
other such other documents, and (c) to do such other acts and things, all as
another party may reasonably request for the
37
<PAGE>
purpose of carrying out the intent of this Agreement and the documents
referred to in this Agreement.
9.6 WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or
the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such
right, power, or privilege will preclude any other or further exercise of
such right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no waiver
that may be given by a party will be applicable except in the specific
instance for which it is given; and (b) no notice to or demand on one party
will be deemed to be a waiver of any obligation of such party or of the right
of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the documents referred to
in this Agreement.
9.7 ENTIRE AGREEMENT AND MODIFICATION. Except for the existing
confidentiality agreement between the parties dated June 4, 1998, this
Agreement supersedes all prior agreements between the parties with respect to
its subject matter and constitutes (along with the documents referred to in
this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the
parties. There are no representations or warranties of the parties given
with respect to the Contemplated Transactions except for those expressly
given in this Agreement, and any and all implied representations or
warranties are expressly disclaimed.
9.8 ASSIGNMENTS, SUCCESSORS, AND NO THIRD PARTY RIGHTS. No party may
assign any of its rights under this Agreement without the prior consent of
the other parties, which will not be unreasonably withheld. Subject to the
preceding sentence, this Agreement will apply to, be binding in all respects
upon, and inure to the benefit of the successors and permitted assigns of the
parties. Nothing expressed or referred to in this Agreement will be construed
to give any Person other than the parties to this Agreement any legal or
equitable right, remedy, or claim under or with respect to this Agreement or
any provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their permitted successors and assigns.
9.9 SEVERABILITY. If any court of competent jurisdiction holds any
provision of this Agreement, or any agreement provided for by this Agreement,
invalid or unenforceable, the unaffected provisions of this Agreement or that
agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
9.10 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement. All words
used in this Agreement will be construed to be of such
38
<PAGE>
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
9.11 TIME OF ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
9.12 GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE
STATE OF DELAWARE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
9.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9.14 DISPUTE RESOLUTION. If a disagreement under this Agreement arises
between Stockholder and I/O, prior to sending a formal demand letter from
counsel or demanding arbitration, Stockholder and I/O will seek in good faith
to resolve the dispute. Resolution will not be considered unachieveable
until the matter has been turned over to an executive officer of Stockholder
and I/O respectively, and they are unable to resolve the matter.
Unreasonable delay on the part of an officer to attend to a dispute will
indicate that agreement is unachieveable. Resolution between Stockholder and
I/O in a dispute may include disposition of the matter, agreement to submit
the dispute to arbitration, or agreement upon another conciliatory method of
resolution. All parties agree to submit to mandatory and binding arbitration
under American Arbitration Association Rules of Commercial Arbitration (i)
any disputes not resolved in accordance with the foregoing procedure of
Section 9.14 or (ii) if KPMG fails to determine the Economic Closing Net
Working Capital within sixty (60) days after the Economic Closing Date.
Arbitration under (i) will be before three arbitrators. Arbitration under
(ii) will be held before a single arbitrator who must be a CPA. Arbitration
will take place in a location or locations specified by the arbitrators.
9.15 CONSTRUCTION. All parties participated in drafting this Agreement.
The rule of constructing contracts against the drafting party shall have no
application to this Agreement.
9.16 NO RAIDING OF EMPLOYEES. Without prior written approval from I/O,
Stockholder and Stockholder Affiliates will not, for a period of six months
after Closing, employ an employee of any of I/O or the I/O Affiliates.
Thereafter, without prior written approval from I/O, for a period of an
additional 18 months, Stockholder and Stockholder Affiliates will not (a)
solicit for employment an employee of I/O or I/O Affiliates (other than by
normal and customary advertising and recruiting procedures) or (b) employ any
of the persons listed on Exhibit 9.16A. Without prior written approval of
Stockholder, I/O and I/O Affiliates will not, for a period of six months
after Closing, employ an employee of any of Stockholder or Stockholder
Affiliates. Thereafter, without prior written approval of Stockholder, for a
period of an additional 18 months, I/O and I/O Affiliates will not (a)
solicit for employment an employee of Stockholder or the Stockholder
Affiliates (other than by
39
<PAGE>
normal and customary advertising and recruitment procedures) or (b) employ
any of the persons listed on Exhibit 9.16B.
9.17 DISCLOSURE LETTERS. The disclosures in the Disclosure Letter, and
those in any supplement thereto, shall expressly refer to a Section of this
Agreement; provided, however, that disclosures in the Disclosure Letter
expressly referring to a Section of this Agreement may incorporate by
reference the disclosures in any other Section of the Disclosure Letter by
express reference to that other Section or if the facts and circumstances
clearly apply the disclosure to another Section. Stockholder shall deliver
to I/O a Supplement to Stockholder's Disclosure Letter promptly after
Stockholder becomes aware of any event which changes any representation or
warranty made by Stockholder in this Agreement or any statement made in
Stockholder's Disclosure Letter or in any Supplement. Closing will not occur
until two days after delivery of a Supplement.
9.18 SHARE ADJUSTMENTS. The I/O shares constituting the Merger
Consideration will be equitably adjusted for any stock dividends, splits or
any distributions to I/O stockholders with a record date prior to the
Effective Time.
9.19 TAX PROCEDURES. Tax Procedures are contained in the attached
Exhibit 9.19.
9.20 INVESTIGATIONS.
(a) Between the date of this Agreement and the Closing, (i)
Stockholder, DigiCourse and Limited shall give to I/O and its advisors such
access to the premises, books and records of DigiCourse and Limited and cause
the officers, employees and accountants of DigiCourse and Limited to furnish
such financial and operating data and other information with respect to
DigiCourse and Limited as I/O shall from time to time reasonably request; and
(ii) I/O shall give to Stockholder such access to the premises, books and
records of I/O and cause the officers, employees and accountants of I/O to
furnish such financial and operating data and other information with respect
to I/O as Stockholder shall from time to time reasonably request.
(b) In connection with the Contemplated Transactions, in addition to,
and not by way of limitation of, any other obligations of the parties under
or pursuant to any other agreement, whether written or oral, with Stockholder
or any other obligations of I/O at law or in equity, all confidential
information furnished to another party will be kept confidential by the
recipient party's Representatives prior to the Closing Date, or in the event
the Closing does not occur, for a period of five (5) years following
termination of this Agreement. During such time, the recipient will hold and
will cause its Representatives to hold in strict confidence, unless compelled
to disclose by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law, all confidential documents and
information in connection with the Transaction (with prior notice given to
the parties whose information is to be disclosed).
40
<PAGE>
9.21 TERMINATION OF THIS AGREEMENT. The parties may terminate this
Agreement as provided below:
(a) Stockholder and I/O may terminate this Agreement by mutual written
consent at any time prior to the Closing.
(b) Stockholder may terminate this Agreement upon a material Breach of
any representation, warranty, covenant or agreement on the part of I/O or I/O
Marine set forth in this Agreement, or if any representation or warranty of
I/O or I/O Marine shall have become untrue, in either case such that the
conditions set forth in Section 7 would be incapable of being satisfied by
November 30, 1998, unless I/O and Stockholder extend the time period by
written mutual consent.
(c) I/O may terminate this Agreement upon a material Breach of any
representation, warranty, covenant or agreement on the part of the
Stockholder or DigiCourse as set forth in this Agreement, or if any
representation or warranty of the Stockholder or DigiCourse shall have become
untrue, in either case such that the conditions set forth in Section 6 herein
would be incapable of being satisfied by November 30, 1998, unless I/O and
Stockholder extend the time period by written mutual consent.
(d) I/O or Stockholder may terminate this Agreement if there shall be
any Order preventing the consummation of the Contemplated Transactions,
except if the party relying on such Order to terminate this Agreement has not
complied with its obligations under this Agreement.
(e) Either I/O or Stockholder may terminate this Agreement, if the
Exhibits to this Agreement have not been agreed upon, and attached to this
Agreement, by the parties by October 15, 1998, or if the Closing shall not
have been consummated before November 30, 1998.
(f) Stockholder may terminate this Agreement during the five (5)
calendar days following delivery to Stockholder of the Private Placement
Memorandum.
(g) I/O may terminate this Agreement during the five (5) calendar days
following delivery of the Disclosure Letter or two (2) calendar days
following delivery of any Supplement to the Disclosure Letter.
9.22 EFFECT OF TERMINATION. If any party terminates this Agreement
pursuant to Section 9.21, all rights and obligations of the parties hereunder
shall terminate without any liability, under any theory, of one party to any
other party; and Sections 9.1, 9.3, 9.4, 9.6 through 9.16 and 9.22 shall
survive termination of this Agreement.
9.23 EFFORTS TO CONSUMMATE. Each party shall use its Reasonable Efforts
to cause the conditions of the obligations of the parties contained in this
Agreement to be satisfied to
41
<PAGE>
the extent that the satisfaction of such conditions can be controlled or
influenced by that party or its Affiliates.
9.24 EMPLOYEE MATTERS. DigiCourse employees who are employed by
DigiCourse immediately before the Effective Time will remain employees of the
Surviving Corporation, subject to all employment policies of I/O.
9.25 DIGICOURSE BENEFIT PLANS. Provisions concerning the disposition of
accounts in Plans in which DigiCourse employees participated prior to the
Closing are contained in the Transfer Plan.
9.26 RECORDS.
(a) Following Closing, Surviving Corporation shall give to Stockholder
free and unrestricted access to (and the right to make copies at the expense
of Stockholder) of DigiCourse pre-Closing records held by the Surviving
Corporation, but any access pursuant to this Section 9.26 shall be conducted
in such manner as not to interfere unreasonably with the operations of the
Surviving Corporation.
(b) Following the Effective Time of Closing, Stockholder shall give to
Surviving Corporation free and unrestricted access to (and the right to make
copies at the expense of Surviving Corporation) DigiCourse's pre-Closing
records held by Stockholder, but any access pursuant to this Section 9.26
shall be conducted in such manner as not to interfere unreasonably with the
operations of the business of Stockholder.
(c) Any access to Records pursuant to this Section shall be subject to
the confidentiality obligations stated in Section 9.3.
9.27 RECORDS RETENTION. I/O agrees to cause the Surviving Corporation,
for a period of eight (8) years after the Closing, to preserve, retain and
permit access to and copying by the Stockholder, and its representatives, of
all pre-Closing books, records, accounts, purchase orders, invoices and other
material documents of or relating to DigiCourse together with all minute
books, seals, share certificate, share ledgers and other corporate records
and material of DigiCourse held by Surviving Corporation.
9.28 CONDUCT OF BUSINESS. Until the earlier of (i) the Effective Time
or (ii) termination of this Agreement, each party will conduct its business
only in the Ordinary Course of Business.
9.29 CERTAIN ACTIONS. Stockholder and DigiCourse shall have no
obligation to consummate the Contemplated Transactions unless and until the
I/O Board of Directors approves the following provision: Prior to February
1, 1999, I/O will not, without the written consent of Stockholder, take any
action in furtherance of I/O being acquired by any Person (an "Acquisition")
except an action that is required by Legal Requirements (other than under
Contracts) of any Governmental Body. I/O warrants and represents to
Stockholder that I/O,
42
<PAGE>
its Board of Directors, management, or Representatives are not engaged in
discussions with any Person concerning an Acquisition. Since January 1,
1998, I/O has taken no action in furtherance of an Acquisition.
9.30 EXHIBITS. References in this Agreement to Exhibits shall mean and
refer to those Exhibits (except those Exhibits which are attached hereto) to be
agreed upon by the parties and attached hereto and made a part hereof on or
prior to October 15, 1998. The parties shall use Reasonable Efforts to complete
the Exhibits prior to October 15, 1998.
43
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above:
DIGICOURSE, INC. I/O Marine, Inc.
a Louisiana Corporation a Louisiana Corporation
By: /s/ ROY KELM By: /s/ W. J. ZERINGUE
---------------------------- ----------------------------
Director Director
By: /s/ BARRY LACOUR By: /s/ AXEL M. SIGMAR
---------------------------- ----------------------------
Director Director
By: /s/ JAMES LAPEYRE
----------------------------
Director
By: /s/ LAWRENCE P. OERTLING
----------------------------
Director
By: /s/ ROBBERT W. VORHOFF
----------------------------
Director
THE LAITRAM CORPORATION INPUT/OUTPUT, INC.
a Louisiana Corporation a Delaware Corporation
By: /s/ JAMES LAPEYRE By: /s/ W. J. ZERINGUE
---------------------------- ----------------------------
James M. Lapeyre, Jr., Chairman W. J. Zeringue, Chairman
44
<PAGE>
CERTIFICATE OF SECRETARIES
The undersigned Secretary of DigiCourse, Inc., a Louisiana corporation,
and the undersigned Secretary of I/O Marine, Inc., a Louisiana corporation,
each hereby certify with respect to the corporation of which they serve in
such capacity that this Agreement has been approved by the sole shareholder
of such corporation in the manner required by law.
/s/ LAWRENCE P. OERTLING
Dated: September 30, 1998 ---------------------------------
Lawrence P. Oertling, Secretary
DigiCourse, Inc.
a Louisiana Corporation
/s/ CHRIS WOLFE
Dated: September 30, 1998 ---------------------------------
Chris Wolfe, Secretary
I/O Marine, Inc.
a Louisiana Corporation
Pursuant to Section 112 of the Louisiana Business Corporation Law, the
undersigned corporations have caused this Agreement and Plan of Merger to be
executed by their respective presidents.
Dated: September 30, 1998 DIGICOURSE, INC.
By: /s/ ROY KELM
--------------------------------
Name: Roy Kelm
Title: President
Dated: September 30, 1998 I/O MARINE, INC.
By: /s/ AXEL M. SIGMAR
--------------------------------
Name: Axel M. Sigmar
--------------------------------
Title: President
45
<PAGE>
ACKNOWLEDGMENT
STATE OF TEXAS
COUNTY OF HARRIS
BE IT KNOWN, that on this 1st day of October, 1998, before me, the
undersigned Notary, duly commissioned, qualified and sworn within and for the
State and County aforesaid, personally came and appeared Axel M. Sigmar,
appearing herein in his capacity as the President of I/O Marine, Inc., to me
personally known to be the identical person whose name is subscribed to the
foregoing instrument as the said officer of the said corporation, and
declared and acknowledged to me, Notary, in the presence of the undersigned
competent witnesses, that he executed the same on behalf of the said
corporation with full authority of its Board of Directors, and that the said
instrument is the free act and deed of the said corporation and was executed
for the uses, purposes and benefits therein expressed.
WITNESS 1: PRESIDENT:
/s/ CHRIS WOLFE /s/ AXEL M. SIGMAR
- ---------------------------- ----------------------------
Axel M. Sigmar
WITNESS 2:
/s/ TERESA M. PRUITT
- ----------------------------
/s/ MICHELLE D. LYLES
- ----------------------------
NOTARY PUBLIC
46
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF JEFFERSON
BE IT KNOWN, that on this 1st of October, 1998, before me, the
undersigned Notary, duly commissioned, qualified and sworn within and for the
State and Parish aforesaid, personally came and appeared Roy Kelm, appearing
herein in his capacity as the President of DigiCourse, Inc., to me personally
known to be the identical person whose name is subscribed to the foregoing
instrument as the said officer of the said corporation, and declared and
acknowledged to me, Notary, in the presence of the undersigned competent
witnesses, that he executed the same on behalf of the said corporation with
full authority of its Board of Directors, and that the said instrument is the
free act and deed of the said corporation and was executed for the uses,
purposes and benefits therein expressed.
WITNESSES: PRESIDENT:
/s/ DEBORAH T. PIZZOLATO
/s/ MARJY T. BECNEL /s/ ROY KELM
- ---------------------------- ----------------------------
Roy Kelm
/s/ FRANCK F. LABICHE, JR.
- ----------------------------
NOTARY PUBLIC
47
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE FIRST QUARTER
ENDED AUGUST 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 59,999
<SECURITIES> 0
<RECEIVABLES> 112,589
<ALLOWANCES> 0
<INVENTORY> 125,388
<CURRENT-ASSETS> 301,102
<PP&E> 71,297
<DEPRECIATION> 0
<TOTAL-ASSETS> 473,191
<CURRENT-LIABILITIES> 44,103
<BONDS> 0
0
0
<COMMON> 446
<OTHER-SE> 417,586
<TOTAL-LIABILITY-AND-EQUITY> 473,191
<SALES> 66,995
<TOTAL-REVENUES> 66,995
<CGS> 45,032
<TOTAL-COSTS> 21,218
<OTHER-EXPENSES> (2,843)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 242
<INCOME-PRETAX> 3,346
<INCOME-TAX> 1,071
<INCOME-CONTINUING> 2,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,275
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
