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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: FEBRUARY 28, 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 February 28, 1998 there were 44,451,293 shares of common stock, par value
$0.01 per share, outstanding.
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<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 1998
PART I. Financial Information. Page
----
Item 1. Financial Statements.
Consolidated Balance Sheets
February 28, 1998 and May 31, 1997........................ 2
Consolidated Statements of Operations
Three and nine months ended February 28, 1998 and 1997... 3
Consolidated Statements of Cash Flows
Nine months ended February 28, 1998 and 1997............. 4
Notes to Consolidated Financial Statements.................. 5
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition................ 8
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.......................................... 15
PART II. Other Information.
Item 1. Legal Proceedings.................................... 15
Item 2. Changes in Securities................................ 16
Item 6. Exhibits and Reports on Form 8-K..................... 16
1
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INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
FEBRUARY 28, MAY 31,
1998 1997
------------ -------
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 50,347 $ 2,573
Trade accounts receivable, net. . . . . . . . . 64,015 61,788
Trade notes receivable, net . . . . . . . . . . 38,065 27,800
Income taxes receivable . . . . . . . . . . . . -- 2,403
Inventories . . . . . . . . . . . . . . . . . . 114,790 106,337
Prepaid expenses. . . . . . . . . . . . . . . . 1,172 1,939
-------- --------
Total current assets. . . . . . . . . . . . . 268,389 202,840
Long-term trade notes receivable . . . . . . . . . 35,558 27,003
Deferred income tax asset. . . . . . . . . . . . . 2,232 3,097
Property, plant and equipment, net . . . . . . . . 71,752 78,376
Goodwill, net. . . . . . . . . . . . . . . . . . . 58,478 61,024
Other assets . . . . . . . . . . . . . . . . . . . 26,306 12,318
-------- --------
$462,715 $384,658
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, principally trade . . . . . . $ 31,467 $ 13,143
Accrued expenses. . . . . . . . . . . . . . . . 19,073 18,358
Current installments of debt. . . . . . . . . . 967 912
Income taxes payable. . . . . . . . . . . . . . 2,502 --
-------- --------
Total current liabilities . . . . . . . . . . 54,009 32,413
Long-term debt . . . . . . . . . . . . . . . . . . 10,270 11,000
Other liabilities. . . . . . . . . . . . . . . . . 1,063 2,631
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 44,451,293 shares at
February 28, 1998 and 43,280,851
shares at May 31, 1997. . . . . . . . . . . . 445 433
Additional paid-in capital. . . . . . . . . . . 238,058 218,973
Retained earnings . . . . . . . . . . . . . . . 162,619 121,116
Cumulative translation adjustment . . . . . . . (2,268) (1,673)
Unamortized restricted stock compensation . . . (1,481) (235)
-------- --------
Total stockholders' equity. . . . . . . . . . 397,373 338,614
-------- --------
$462,715 $384,658
-------- --------
-------- --------
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>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
-------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales and other revenues . . . . . . . . $ 95,266 $ 64,773 $ 281,919 $ 204,821
Cost of sales. . . . . . . . . . . . . . . . 54,455 40,887 166,003 130,089
----------- ----------- ----------- -----------
Gross profit . . . . . . . . . . . . . 40,811 23,886 115,916 74,732
----------- ----------- ----------- -----------
Operating expenses:
Research and development . . . . . . . . . 8,122 5,641 23,738 17,514
Marketing and sales. . . . . . . . . . . . 4,160 3,456 10,751 10,322
General and administrative . . . . . . . . 6,572 4,984 21,082 16,161
Amortization of intangibles. . . . . . . . 1,628 1,118 4,044 3,340
----------- ----------- ----------- -----------
Total operating expenses . . . . . . . 20,482 15,199 59,615 47,337
----------- ----------- ----------- -----------
Earnings from operations . . . . . . . . . . 20,329 8,687 56,301 27,395
Interest expense . . . . . . . . . . . . . . (262) (296) (842) (468)
Other income . . . . . . . . . . . . . . . . 2,204 685 5,576 3,412
----------- ----------- ----------- -----------
Earnings before income taxes . . . . . . . . 22,271 9,076 61,035 30,339
Income taxes . . . . . . . . . . . . . . . . 7,127 2,904 19,532 9,709
----------- ----------- ----------- -----------
Net earnings . . . . . . . . . . . . . . . . $ 15,144 $ 6,172 $ 41,503 $ 20,630
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per common share. . . . . . . $ 0.34 $ 0.14 $ 0.95 $ 0.48
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding . . . . . . . . . . . . . 44,157,319 43,248,318 43,758,807 43,148,387
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per common share. . . . . . $ 0.34 $ 0.14 $ 0.94 $ 0.47
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common and
common equivalent shares outstanding . . . . 44,564,745 43,742,770 44,257,576 43,873,227
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
NINE MONTHS ENDED
FEBRUARY 28,
--------------------
1998 1997
---- -----
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,503 $ 20,630
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 12,096 8,976
Amortization of restricted stock compensation . . . . . . . 154 500
Deferred income taxes . . . . . . . . . . . . . . . . . . . 865 429
Pension costs . . . . . . . . . . . . . . . . . . . . . . . 277 323
-------- --------
54,895 30,858
Changes in assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . (20,058) (20,865)
Inventories . . . . . . . . . . . . . . . . . . . . . . . (7,944) (25,122)
Leased equipment. . . . . . . . . . . . . . . . . . . . . 3,355 (2,362)
Accounts payable and accrued expenses . . . . . . . . . . 18,016 (4,969)
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 5,059 (2,726)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (569) (230)
-------- --------
Net cash provided by (used in) operating activities . . . 52,754 (25,416)
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . . . . . (4,363) (24,793)
Acquistion of net assets and business, net of cash acquired. . (10,803) --
Investment in other assets . . . . . . . . . . . . . . . . . . (324) (1,445)
-------- --------
Net cash used in investing activities. . . . . . . . . (15,490) (26,238)
Cash flows from financing activities:
Borrowing from bank. . . . . . . . . . . . . . . . . . . . . . -- 20,750
Payments on debt . . . . . . . . . . . . . . . . . . . . . . . (675) (5,921)
Proceeds from exercise of stock options
and related tax benefit. . . . . . . . . . . . . . . . . . . 10,857 4,627
Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . 465 --
-------- --------
Net cash provided by financing activities. . . . . . . 10,647 19,456
Effect of foreign currency exchange rates. . . . . . . . . . . . (137) (511)
-------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . 47,774 (32,709)
Cash and cash equivalents at beginning of year . . . . . . . . . 2,573 34,252
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 50,347 $ 1,543
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
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, 1997, 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>
FEBRUARY 28 May 31,
1998 1997
---------- --------
<S> <C> <C>
Raw materials $ 65,982 $ 56,573
Work-in-process 25,129 23,878
Finished goods 23,679 25,886
-------- --------
$114,790 $106,337
-------- --------
-------- --------
</TABLE>
(3) EARNINGS PER SHARE
The Company adopted the Financial Accounting Statements Board Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128)
during the third quarter of 1998. In accordance with this new pronouncement,
basic earnings per share is computed by dividing net earnings available to
common share 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
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(UNAUDITED)
The following table summarizes the calculation of net earnings and
weighted average common shares and common equivalent shares outstanding for
purposes of the computation of earnings per share.
<TABLE>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
--------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Net earnings available to common stockholders
(in thousands) $15,144 $6,172 $41,503 $20,630
Weighted average number of common
shares outstanding 44,157,319 43,248,318 43,758,807 43,148,387
Common stock equivalent of stock options 407,426 494,452 498,769 724,840
---------- ---------- ---------- ----------
Weighted average number of common shares and
common shares equivalent outstanding 44,564,745 43,742,770 44,257,576 43,873,227
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per common share $ 0.34 $ 0.14 $ 0.95 $ 0.48
------- ------- ------- -------
------- ------- ------- -------
Diluted earnings per common share $ 0.34 $ 0.14 $ 0.94 $ 0.47
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
(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. Similar
investments with original maturities beyond three months are considered
short-term investments available for sale and are carried at fair value. 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 nine months ended
February 28, 1998 and 1997 follow (in thousands):
<TABLE>
1998 1997
------ ------
<S> <C> <C>
Cash paid during the periods for:
Interest (net of amount capitalized) $ 892 $ 416
Income taxes $7,947 $9,418
</TABLE>
6
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(UNAUDITED)
<TABLE>
1998 1997
------- -----
<S> <C> <C>
Non-cash investing and financing activities:
Restricted stock issued:
Increase in common stock $ 1 $ --
Increase in paid in capital 1,572 --
Increase in unamortized restricted stock compensation (1,573) --
------- -----
$ -- $ --
------- -----
------- -----
Issuance of common stock in
connection with business acquisition (320,555 shares):
Increase in common stock $ 3 $ --
Increase in paid in capital 6,372 --
------- -----
$ 6,375 $ --
------- -----
------- -----
</TABLE>
(5) LONG TERM DEBT
In August 1996, the Company, through one of its wholly-owned
subsidiaries, obtained 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.
(6) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130). SFAS 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. The requirements of this statement will be effective
for both interim and annual periods beginning with the Company's fiscal year
ending May 31, 1999. Management does not believe that the implementation of
SFAS 130 will have a material effect on the financial statements.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
NET SALES AND OTHER REVENUES. The Company's third quarter net sales and
other revenues increased $30.5 million, or 47.1%, to $95.3 million as
compared to the prior year's third quarter net sales and other revenues of
$64.8 million. The increase in sales revenues was primarily due to continued
demand for the Company's land systems and components for expansion of
existing systems. During the third quarter, six I/O SYSTEM TWO-Registered
Trademark- land systems and two MSX marine systems were sold, along with
other seismic data acquisition recording equipment and components for
expanding existing systems (for a total channel capacity of 25,356 land and
7,712 marine), compared to the prior year's third quarter sales of eight I/O
SYSTEM TWO land systems and five MSX marine systems and other recording
equipment and components (for a total channel capacity of 10,172 land and
4,288 marine).
Net sales and other revenues for the first nine months of the current
year were $281.9 million, up 37.6% from $204.8 million for last year's first
nine month period, reflecting continued demand for the Company's systems,
recording equipment and components for expansion of existing systems. Sales
of 37 I/O SYSTEM TWO land systems and four MSX marine systems (for a total
channel capacity of 82,872 land and 13,074 marine) were recorded during the
first nine months of fiscal 1998 compared to 30 I/O SYSTEM TWO land systems
and eight MSX marine systems (for a total channel capacity of 49,728 land and
7,232 marine) for the prior year's first nine months.
GROSS PROFIT MARGIN. The Company's gross profit margin increased
for the third quarter and year-to-date compared to the prior year's
comparable periods, from 36.9% to 42.8%, and 36.5% to 41.1% respectively.
Continued demand for seismic equipment and instrumentation and the resulting
sales of land systems and land system expansion components, which typically
feature higher margins than the Company's marine systems and other equipment,
were major contributing factors to the improved 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 from period to period.
OPERATING EXPENSES. Operating expenses increased $5.3 million, or
34.8%, for the third quarter over the prior year's third quarter operating
expenses. Research and development expenses increased $2.5 million, or 44.0%,
compared to the prior year's third quarter, primarily resulting from
increased development and enhancement efforts, recent acquisitions and
increased usage of outside engineering services. Marketing and sales expenses
increased $704,000, or 20.4%, compared to the prior year's third quarter
primarily due to outside commissions on increased third party sales. General
and administrative expenses increased $1.6 million, or 31.9%, primarily due
to an increase in allowance for doubtful accounts resulting from increased
sales, increased outside services and increased depreciation. Amortization of
intangibles increased $510,000, or 45.6%, primarily due to increased goodwill
expense resulting from acquisitions.
Operating expenses for the first nine months of the current year were
$12.3 million, or 25.9%, above operating expenses for the first nine months
of the prior year. Research and development expense increased $6.2 million,
or 35.5%, compared to the prior year's first nine months, primarily resulting
from increased development and enhancement efforts, recent acquisitions and
increased usage of outside engineering services. Marketing and sales expense
increased $429,000, or 4.2%, compared to the prior year's first nine months.
General and administrative expenses increased $4.9 million, or 30.4%,
primarily due to increased compensation expense (mainly attributable to the
first six months of fiscal 1998) and
8
<PAGE>
increased allowance for doubtful accounts resulting from increased sales.
Amortization of intangibles increased $704,000, or 21.1%, primarily due to
increased goodwill expense resulting from acquisitions.
INTEREST EXPENSE. As a result of the ten-year term facilities financing
completed in August 1996, interest expense for the third quarter and the
first nine months of the current year was $262,000 and $842,000 respectively.
See "Note (5) - Long-Term Debt" of the Notes to Consolidated Financial
Statements. Interest expense for last year's third quarter and first nine
months was $296,000,and $468,000 respectively, representing interest on this
facility.
INCOME TAX EXPENSE. The Company's effective income tax rate was
approximately 32%, both for the third quarter and the first nine months of
1998 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The Company has traditionally financed its operations from
internally generated cash flow, funds from equity financings and its credit
facilities. Operating funds flows (which does not consider changes in
operating assets and liabilities) were $54.9 million for the nine months
ended February 28, 1998. Cash flows from operating activities were $52.8
million for the nine months ended February 28, 1998, primarily due to higher
net earnings and increases in accounts payable and accrued expenses (which
represented a source of cash) as a result of the increased levels of sales
and related increases in inventory during fiscal 1998. As of February 28,
1998 the Company had no borrowings outstanding under its revolving line of
credit. On February 27, 1998 the Company entered into a new revolving working
capital facility; see "Credit Agreement" below.
For the first nine months of 1998, the Company has experienced higher
levels of cash and cash equivalents (approximately $50.3 million as of
February 28, 1998) as a result of increased sales during 1998 to date
compared to the first nine months of 1997 sales. Trade notes receivable
increased 34.3% compared to May 31, 1997, proportionately with the increased
level of sales. For information concerning the Company's sales finance
activities, see "Item 1. Business - Markets and Customers" of the Company's
Annual Report on Form 10-K for the year ended May 31, 1997. Accounts payable
and accrued expenses at February 28, 1998 were 60.4% higher than at May 31,
1997, primarily reflecting the increased levels of sales and increase in
inventory during the first nine months of fiscal 1998. The Company's various
working capital accounts can vary in amount substantially from period to
period depending upon the Company's levels of sales, product mix sold, demand
for its products, percentages of cash versus credit sales, collection rates,
inventory levels, and general economic and industry factors.
In August 1996, a subsidiary of the Company borrowed $12.6 million in
long-term financing 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.
The Company anticipates current year expenditures for exploration and
development of oil and gas properties to be approximately $2.5 million and
expects to fund these expenditures from its cash flows from operations.
However, the Company currently expects that its future level of participation
in oil and gas drilling activities will be funded primarily by cash flows
from its productive properties. The Company has drilled one well to date in
1998, which was a dry hole. The Company expects to participate in up to three
wells in 1998.
9
<PAGE>
Capital expenditures totaled $15.2 million for the first nine months of
1998, representing $10.8 million for acquisition of net assets and
businesses, and $4.4 million for purchases of property, plant and equipment.
Total capital expenditures are currently expected to aggregate $17.0 million
for 1998. The Company believes that the combination of its existing working
capital, unused credit available under its revolving credit facility,
internally generated cash flow 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. The credit facility under the Credit
Agreement replaces the Company's existing 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.
The Credit Agreement contains certain covenants, representations and
warranties by the Company, including (i) restrictions on liens on the assets
of the Company and its subsidiaries, (ii) limitations on acquisitions of
unaffiliated businesses, (iii) limitations on mergers, consolidations and the
sale of substantially all of the assets of the Company or its subsidiaries,
and (iv) limitations on indebtedness permitted to be incurred or assumed by
the Company and its subsidiaries, and certain investments (including
investments in partnerships and joint ventures) that may be made by the
Company and its subsidiaries, if such indebtedness or investments would
result in the failure by the Company to be in compliance with its financial
ratios and other covenants.
The Credit Agreement also contains provisions restricting the amount of
capital expenditures (excluding capital expenditures in connection with
permitted acquisitions) that the Company and its subsidiaries may make in any
fiscal year ($30 million for any fiscal year). Further, the Credit Agreement
requires the Company to maintain and comply with certain financial covenants
and ratios, including a current ratio, a maximum funded debt to
capitalization ratio, a fixed charge coverage ratio and a covenant requiring
that the Company maintain a certain minimum tangible net worth.
YEAR 2000. Historically, most computer systems have utilized software
that processes transactions using two digits to represent the year of the
transaction (i.e., 97 represents the year 1997). This software needs to be
modified to properly process dates beyond December 31, 1999 and to avoid
miscalculation or system failures (the "Year 2000 issue"). The Company is
currently working to resolve the potential impact of the Year 2000 issue on
the computerized information systems it utilizes internally and its products
and customers.
10
<PAGE>
The Company has completed a preliminary assessment of the Year 2000
issue with respect to the systems and software internally utilized in its
business enterprise. The Company is in the process of bringing its
externally-generated information system software into compliance and
estimates that such software will be fully Year 2000 compliant by mid-1999.
While the Company has not yet completed its assessment of the Year 2000
issue with respect to its products and customers, it has formed a focus team
responsible for this area. The focus team is in the process of reviewing
these issues and contacting the Company's suppliers and certain of the
Company's customers, to assist them in identifying and resolving Year 2000
issues. Because its assessment is not yet completed, the Company has not
yet determined whether it, its customers or its suppliers have any material
Year 2000 issues, and if so, the potential effects on the Company's
operations, results of operations or financial condition.
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained in this Quarterly Report on Form 10-Q
(including statements contained in this Part I., Item 2. "Management's
Discussion and Analysis of Results of Operation and Financial Condition" and
in Part II, Item 1. "Legal Proceedings"), 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 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, future industry conditions and trends, future
capital expenditures, and future financial condition. 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. Although 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:
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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.
While the Company is currently assessing 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."
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, customer purchases of leased equipment and
shortages of system components. In addition, because the Company typically
operates, and expects to continue to operate, without a significant backlog
of orders for its products, the Company's manufacturing plans and expenditure
levels are based principally on sales forecasts, which sometimes results 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. Other factors, such as unit
volumes, inventory obsolescence, heightened price competition, changes in
sales and distribution channels, shortages in components due to timely
supplies or ability to obtain items at reasonable prices, and availability of
skilled labor, may also continue to affect the cost of sales and the
fluctuation of gross margin percentages in future periods.
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. It is impossible to predict future oil and
natural gas price movements with any certainty. No assurances can be given as
to the future level of activity in the oil and gas exploration and
development industry and its relationship to the future demand for the
Company's products.
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
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by customers could have a material adverse effect on the Company's financial
position and results of operations.
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 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.
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 1995, 1996 and 1997 the two largest customers in
each of those years accounted for 26%, 42% and 45%, respectively, of the
Company's net sales and other revenues. The loss of any 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 is highly competitive and is characterized by continual
and rapid changes in technology. The Company's principal competitor for land
seismic equipment is Societe d'Etudes Recherches et Construction
Electroniques, an affiliate of Compagnie General de Geophysique which, unlike
the Company, possesses the advantage of being able to sell to an affiliated
seismic contractor.
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 and recent mergers in the oil field
services industry. 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 could result in
future price reductions for the Company's products.
A continuing trend toward consolidation in the oil field services
industry may have the effect of adversely affecting the prices and demand for
the Company's products and services.
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 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
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
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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.
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.
RISKS RELATED TO ACQUISITIONS. To implement its business plans, the
Company has relied in part upon acquisitions and 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 board or shareholders, domestic 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 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
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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 the
Company's other filings and reports with the Securities and Exchange
Commission, including its recent reports on Forms 10-K and 10-Q, 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
Regulations 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.
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 the executive vice president, chief financial officer and secretary
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. On March 2, 1998 the Court
entered an order extending the time in which plaintiff may file an amended
complaint through April 17, 1998. Responses to the amended complaint are due
on June 8, 1998. 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.
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ITEM 2. CHANGES IN SECURITIES
During the fiscal quarter ended February 28, 1998, the Company made no
sales of its equity securities that were not registered under the Securities
Act of 1993, as amended, except that on February 2, 1998, the Company issued
in a privately-negotiated transaction, 320,555 shares of its Common Stock in
connection with the Company's acquisition of CompuSeis, Inc. ("CompuSeis").
The Common Stock was issued as partial consideration for such acquisition to
the former shareholders of CompuSeis in a statutory merger of CompuSeis with
and into a wholly-owned subsidiary of the Company. The issuance of the Common
Stock was effected in a transaction exempt from registration pursuant to the
provisions of Section 4(2) (Rule 506 under Regulation D) of the Securities
Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of documents filed as Exhibits.
10.1 - Employment Agreement, effective as of January 1, 1998
between the Company and W.J. "Zeke" Zeringue.
10.2 - Credit Agreement dated as of February 27, 1998 among the
Company, certain lenders and Banc One, Texas, N.A. as
agent for the lenders.
27.1 - Financial Data Schedule (included in EDGAR copy only)
(b) Reports on Form 8-K
No reports on form 8-K were filed by the Company during the
quarter ended February 28, 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:
-------------------------------------
Ronald A. Harris
Vice President and Controller
(duly authorized officer and
Chief Accounting Officer)
Dated: March 26, 1998
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EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into by and between INPUT/OUTPUT, INC.
(the "Company"), having a business address at 11104 West Airport Boulevard,
Stafford, Texas 77477-3016, and W. J. Zeringue ("Executive"), having a mailing
address at 7930 State Highway 6, Missouri City, Texas 77459.
WHEREAS, the Company wishes to employ the Executive and to assure itself of
the services of the Executive for the period provided in this Agreement, and the
Executive wishes to be employed by the Company for such period on the terms and
conditions hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
1. EMPLOYMENT. Upon the terms and subject to the conditions contained in
this Agreement, the Executive agrees to provide services as provided herein for
the Company during the term of this Agreement. The Executive agrees to devote
his best efforts to the business of the Company, and shall perform his duties in
a diligent and business-like manner, all for the purpose of advancing the
business of the Company.
2. DUTIES. The duties of the Executive shall be those duties which can
reasonably be expected to be performed by a person with the titles of Chairman
of the Board, President and Chief Executive Officer of Input/Output, Inc. The
Executive shall report directly to the Board of Directors of the Company.
3. EMPLOYMENT TERM. Subject to the terms and conditions hereof, the
Company agrees to employ the Executive for a term commencing as of January 1,
1998 (the "Effective Date") and continuing until December 31, 1998 (the "Primary
Term"), unless renewed in accordance with this SECTION 3. Beginning December
31, 1998, this Agreement shall be automatically renewed for successive one-year
terms, unless either the Company or the Executive provides written notice of
election not to renew, at least 60 days before the applicable renewal date.
4. SALARY AND BENEFITS.
(a) BASE SALARY. The Company shall, during the Primary Term of this
Agreement, pay the Executive an annual base salary of $420,000 beginning on
January 15, 1998. Such salary shall be paid in bi-monthly installments,
minus applicable withholding and authorized salary deductions. The base
salary may be reviewed and adjusted by the Board of Directors upon any
renewal of this Agreement under SECTION 3. The Company may not, however,
reduce the Executive's base salary at any time during the Primary Term.
<PAGE>
(b) SIGN-ON BONUS. The Company shall pay the Executive a sign-on
bonus of $200,000, payable on January 2, 1998. Such amount shall be paid
in a lump sum, less applicable withholding and authorized salary
deductions.
(c) BONUS. The Company shall pay the Executive a bonus of $400,000
on December 31, 1998 in lieu of the Executive's right to participate in the
Input/Output, Inc. 1996 Management Incentive Plan (the "Incentive Plan")
for fiscal 1998. This bonus shall be paid to the Executive irrespective of
Company performance during 1998, and is contingent only upon the
Executive's being employed by the Company at December 31, 1998. The
Executive will be eligible to participate in the Incentive Plan for awards
based on the Plan's performance criteria for the Company's fiscal 1999.
(d) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Company agrees that
the Board will select the Executive to be a participant in the
Input/Output, Inc. Supplemental Executive Retirement Plan or any subsequent
supplement executive retirement plan established by the Company.
(e) STOCK OPTIONS. The Executive shall be granted two stock options
effective December 10, 1997, to purchase shares of common stock of the
Company under the Input/Output, Inc. 1990 Stock Option Plan (the "Option
Plan"). Both option grants will be evidenced by standard stock option
agreements. The first grant will provide for an option to purchase 500,000
shares of stock under the Option Plan, having an exercise price equal to
the fair market value of the stock on the date of grant. This option will
vest in equal annual installments over a four-year period beginning on the
date of grant. This option will have a term of ten years and will
otherwise be subject to the standard terms and conditions of the Option
Plan; provided, however, that the option agreement shall expressly provide
that (i) upon the Company's termination of the Executive's employment for
any reason other than for "Cause" (as defined in SECTION 5(c) of this
Agreement), (A) all unvested installments of shares under such option shall
thereupon automatically accelerate and become fully vested, and (B) the
option shall be exercisable from the date of such termination of employment
through that date which is the first anniversary date of such date of
termination, and (ii) upon the occurrence of a "change of control" (as
defined under the terms of the Option Plan as of the date hereof), all
unvested installments of shares under such option shall thereupon
automatically accelerate and become fully vested.
The second stock option grant will provide for an option to purchase
100,000 shares of common stock under the Option Plan. This grant will be
100% vested on December 10, 1998, but will be exercisable commencing upon
that date only if the fair market value per share of the common stock is at
least equal to 120% of the exercise price (i.e., the New York Stock
Exchange
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closing price of the common stock on December 10, 1997). For the
purpose of determining whether the option becomes exercisable beginning on
December 10, 1998, "fair market value" will be based on the average closing
price per share of the common stock on the 30 consecutive trading days
prior to December 10, 1998. If such "fair market value" of the stock on
December 10, 1998 is not equal to at least 120% of the exercise price, then
this option will terminate.
(f) RESTRICTED STOCK. The Executive shall be granted, effective as
of January 1, 1998, 53,000 shares of restricted stock under the terms of
the Input/Output, Inc. 1990 Restricted Stock Plan (the "Restricted Stock
Plan"). The restrictions on the restricted stock will lapse as to one-half
of the restricted stock on January 1, 2000, as to an additional one-fourth
of the restricted stock on January 1, 2001, and as to the remaining
one-fourth of the restricted stock on January 1, 2002; provided, however,
that the award agreement shall expressly provide that (i) any restrictions
on the restricted stock will lapse in full upon the Company's termination
of the Executive's employment for any reason other than for "Cause" (as
defined in SECTION 5(c) of this Agreement) and (ii) any restrictions on the
restricted stock will lapse in full upon the occurrence of a "change of
control" (as defined under the terms of the Restricted Stock Plan as of the
date hereof). The restricted stock will otherwise be subject to the terms
and conditions under the Restricted Stock Plan.
(g) REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Executive for all out-of-pocket expenses incurred by the Executive in the
course of his duties, in accordance with normal Company policies.
(h) EMPLOYEE BENEFITS. The Executive shall be entitled to
participate in all employee benefit programs generally available to
employees of the Company and to receive all normal perquisites provided to
senior executive officers of the Company.
(i) BENEFITS NOT IN LIEU OF COMPENSATION. No benefit or perquisite
provided to the Executive shall be deemed to be in lieu of base salary,
bonus, or other compensation.
5. TERMINATION OF EMPLOYMENT. The Board of Directors of the Company may
terminate the employment of the Executive at any time as it deems appropriate.
(a) TERMINATION WITHOUT CAUSE. If, during the term of this
Agreement, the Company terminates the Executive's employment for any reason
other than for Cause (as defined in SECTION 5(c) of this Agreement), the
Company shall pay to the Executive an amount (the "Severance Payment")
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equal to (i) two (2), multiplied by (ii) the average of the sum of the
Executive's annual base salary plus annual bonus payments for the three (3)
most recently completed fiscal years of the Company (or, in the event that
the Executive has not been employed by the Company for three (3) fiscal
years of the Company as of the date of his termination of employment with
the Company, (A) two multiplied by (B) the average of the sum of the
Executive's annual base salary plus annual bonus payments during the
Executive's employment with the Company). For these purposes, the bonus
relating to any fiscal year shall be used even if that bonus is actually
paid in a different fiscal year. The amount of any such Severance Payment
shall be paid in a lump sum, less applicable withholding, as soon as
practicable following such termination.
(b) TERMINATION UPON A CHANGE OF CONTROL. If, within one year
following the date of a "Change of Control" of the Company (as defined
below), the Company terminates the Executive's employment for any reason
other than for "Cause" (as defined in SECTION 5(c) of this Agreement) or
the Executive terminates employment with the Company for "Good Reason" (as
defined below), the Company shall pay to the Executive an amount (the
"Change of Control Payment") equal to (A) two (2), multiplied by (B) the
average of the sum of the Executive's annual base salary plus annual bonus
payments for the three (3) most recently completed fiscal years of the
Company (or, in the event that the Executive has not been employed by the
Company for three (3) fiscal years of the Company as of the date of the
Change of Control, (X) two, multiplied by (Y) the average of the sum of the
Executive's annual base salary plus annual bonus payments during the
Executive's employment with the Company). For these purposes, the bonus
relating to any fiscal year shall be used even if that bonus is actually
paid in a different fiscal year. The amount of any such Change of Control
Payment shall be paid in a lump sum, less applicable withholding, as soon
as practicable following such termination, and shall be paid in lieu of any
Severance Payment otherwise payable under SECTION 5(a) above.
(i) For purposes of this SECTION 5(b), "Good Reason" shall mean:
(A) Without his express written consent, the assignment to
Executive of any duties inconsistent with his positions, duties,
responsibilities and status with the Company immediately prior to
a Change of Control, or a change in his reporting
responsibilities, titles or offices as in effect immediately
prior to a Change of Control, or any removal of Executive from or
any failure to re-elect Executive to any of such positions,
except in connection with the termination of his employment for
Cause, death, permanent and total disability (as such term is
defined in
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Section 22(e)(3) of the Internal Revenue Code of 1986,as
amended (the "Code")) or retirement in accordance with normal
Company policies or by Executive other than for Good Reason;
(B) A reduction by the Company in Executive's base salary
as in effect on the date of a Change of Control or as the same
may be increased from time to time thereafter;
(C) The Company's requiring Executive to be based anywhere
other than either the Company's offices at which he was based
immediately prior to a Change of Control or the Company's offices
which are no more than 20 miles from the offices at which the
Executive was based immediately prior to a Change of Control,
except for required travel on the Company's business to an extent
substantially consistent with his business travel obligations
immediately prior to the Change of Control (excluding, however,
any travel obligations prior to the Change of Control that are
associated with or caused by the Change of Control events or
circumstances), or, in the event Executive consents to any
relocation beyond such 20-mile radius, the failure by the Company
to pay (or reimburse Executive) for all reasonable moving
expenses incurred by him relating to a change of his principal
residence in connection with such relocation and to indemnify
Executive against any loss (defined as the difference between the
actual sale price of such residence and the higher of (1) his
aggregate investment in such residence or (2) the fair market
value of such residence as determined by a real estate appraiser
designated by Executive and reasonably satisfactory to the
Company) realized on the sale of Executive's principal residence
in connection with any such change of residence; or
(D) Any failure of the Company to obtain the assumption of,
or the agreement to perform, this Agreement by any successor as
contemplated in SECTION 7(a).
For purposes of this SECTION 5(b)(i), any good faith determination of
"Good Reason" made by the Executive shall be conclusive and binding on
the parties.
(ii) For purposes of this SECTION 5(b), a "Change of Control" of
the Company shall mean the occurrence of any of the following events:
(A) there shall be consummated any merger or consolidation pursuant to
which shares of the Company's common stock would be converted into
cash, securities or other property, or any sale, lease, exchange or
other
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disposition (excluding disposition by way of mortgage, pledge or
hypothecation), in one transaction or a series of related
transactions, of all or substantially all of the assets of the Company
(a "Business Combination"), in each case unless, following such
Business Combination, the holders of the outstanding common stock
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 51% of the outstanding common stock
or equivalent equity interests of the corporation or entity resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination, of the outstanding common stock of the Company, (B) the
stockholders of the Company approve any plan or proposal for the
complete liquidation or dissolution of the Company, (C) any "person"
(as such term is defined in Section 3(a)(9) or Section 13(d)(3) under
the Securities Exchange Act of 1934 (the "1934 Act")) or any "group"
(as such term is used in Rule 13d-5 promulgated under the 1934 Act),
other than the Company, any successor of the Company or any subsidiary
or any employee benefit plan of the Company or any subsidiary
(including such plan's trustee), becomes a beneficial owner for
purposes of Rule 13d-3 promulgated under the 1934 Act, directly or
indirectly, of securities of the Company representing 40% or more of
the Company's then outstanding securities having the right to vote in
the election of directors, or (D) during any period of two consecutive
years, individuals who, at the beginning of such period constituted
the entire Board, cease for any reason (other than death) to
constitute a majority of the directors, unless the election, or the
nomination for election by the Company's stockholders, of each new
director was approved by a vote of at least a majority of the
directors then still in office who were directors at the beginning of
the period.
(iii) Notwithstanding anything in this Agreement to the
contrary, the total present value of all change of control payments
(i.e., "parachute payments," as defined under Section 280G of the
Code) payable to the Executive or for the Executive's benefit, whether
payable under this Agreement or any other arrangements with the
Company, shall be limited to three times the Executive's base amount
less one dollar and, to the extent necessary, the acceleration of
vesting and exercisability and the payment of benefits to the
Executive shall be reduced so that this limit is not exceeded. The
terms "base amount" and "present value" will have the meanings
assigned to them under Section 280G of the Code. This limit is
intended to avoid excise taxes which
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may be imposed on the Executive under Section 4999 of the Code
and to avoid the disallowance of a deduction to the Company under
Section 280G of the Code.
(c) TERMINATION FOR CAUSE; TERMINATION BY EXECUTIVE. If the Company
shall discharge the Executive for Cause, or if the Executive shall
terminate his employment with the Company due to death, disability, or any
other reason, the Executive shall be entitled to receive only the amount of
base salary accrued by but unpaid to the Executive through the date of such
termination of employment, and the Company shall have no further obligation
to make any payment under this Agreement, except as may otherwise be
provided under the terms of any employee benefit programs in which the
Executive is then participating.
For the purposes of this Agreement, the Company shall have "Cause" to
terminate the Executive's employment hereunder upon (i) the willful and
continued failure by the Executive to perform his duties with the Company
(other than any such failure resulting from incapacity due to physical or
mental illness), after a demand for substantial performance is delivered to
the Executive by the Board which specifically identifies the manner in
which the Board believes that he has not substantially performed his
duties, or (ii) the willful engaging by the Executive in gross misconduct
materially and demonstrably injurious to the Company. For purposes of this
paragraph, no act, or failure to act, on the Executive's part shall be
considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was not in
the best interest of the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to him a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds (2/3) of the
entire authorized membership of the Board at a meeting of the Board called
and held for the purpose (after reasonable notice and an opportunity for
the Executive, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board he was guilty of
conduct set forth above in clauses (i) or (ii) of the first sentence of
this paragraph and specifying the particulars thereof in detail.
(d) MITIGATION OF AMOUNTS PAYABLE HEREUNDER. The Executive shall
not be required to mitigate the amount of any payment provided for in this
SECTION 5 by seeking other employment or otherwise, nor shall the amount of
any payment provided for in this SECTION 5 be reduced by any compensation
earned by the Executive as the result of employment by another employer
after the date of termination, or otherwise.
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6. CONFIDENTIALITY AGREEMENT. As a condition of his employment with the
Company, the Executive shall be required to execute the Company's standard
Invention and Confidentiality Agreement.
7. MISCELLANEOUS PROVISIONS.
(a) SUCCESSORS OF THE COMPANY. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or assets of
the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the Company
to obtain such agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms as
the Executive would be entitled hereunder if the Company terminated the
Executive's employment without Cause, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this SECTION 7(a) or which otherwise
becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) SPECIAL REPRESENTATIONS OF EXECUTIVE. The Executive may not
assign his rights or delegate his duties or obligations hereunder without
the written consent of the Company. The Executive represents to the
Company that no previous employer has imposed any contractual restriction
which would, if enforced, have a material adverse effect on the Company.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amounts would still be payable to him hereunder as if
he had continued to live, all such amounts, unless other provided herein,
shall be paid in accordance with the terms of this Agreement to his
designee or, if there be no such designee, to his estate.
(c) NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered or certified mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth on the first page
of this Agreement, provided that all notices to the Company shall be
directed to the
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attention of the Executive Vice President of the Company with a copy
to the Secretary of the Company, or to such other person in writing
in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
(d) AMENDMENT; WAIVER. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by the Executive and such officer
as may be designated by the Board of Directors of the Company. No waiver
by either party hereto at any time of any breach by the other party hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. Except as provided in SECTION 6, no agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set
forth expressly in this Agreement.
(e) INVALID PROVISIONS. Should any portion of this Agreement be
adjudged or held to be invalid, unenforceable or void, such holding shall
not have the effect of invalidating or voiding the remainder of this
Agreement and the parties hereby agree that the portion so held invalid,
unenforceable or void shall, if possible, be deemed amended or reduced in
scope, or otherwise be stricken from this Agreement to the extent required
for the purposes of validity and enforcement thereof.
(f) SURVIVAL OF THE PARTIES' OBLIGATIONS. The obligations of the
Company and the Executive under this Agreement shall survive regardless of
whether the Executive's employment by the Company is terminated,
voluntarily or involuntarily, by the Company or the Executive, with or
without Cause or Good Reason.
(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
(h) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Texas.
(i) CAPTIONS. The use of captions and Section headings herein is for
purposes of convenience only and shall not effect the interpretation or
substance of any provisions contained herein.
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IN WITNESS WHEREOF, the parties hereto have signed this Agreement on the
10th day of December, 1997, but except as otherwise set forth in this Agreement,
effective as of January 1, 1998.
INPUT/OUTPUT, INC.
By: /s/ CHARLES E. SELECMAN
--------------------------------------
Name: Charles E. Selecman
Title: Chairman of the Board, President
and Chief Executive Officer
/s/ W. J. ZERINGUE
--------------------------------------
W. J. Zeringue
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CREDIT AGREEMENT
This CREDIT AGREEMENT, dated as of February 27, 1998 (this "AGREEMENT"),
is entered into among INPUT/OUTPUT, INC., a Delaware corporation (the
"BORROWER"), the financial institutions that are or may from time to time
become parties hereto (together with their respective successors and assigns,
the "BANKS") and BANK ONE, TEXAS, N.A., as agent for the Banks.
In consideration of the premises and the mutual agreements herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
Section 1.1 DEFINITIONS. When used herein the following terms shall
have the following meanings:
ACQUISITION means any tender offer, merger, purchase or exchange of
stock, purchase of assets or other similar transaction by the Borrower or any
of its Subsidiaries with respect to any Person other than the Borrower or a
Subsidiary of the Borrower.
AFFECTED BANK means any Bank that has given notice to the Borrower
(which has not been rescinded) of (i) any obligation by the Borrower to pay
any amount pursuant to SECTION 7.6 or 8.1 or (ii) the occurrence of any
circumstances of the nature described in SECTION 8.2 or 8.3.
AFFILIATE of any Person means any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
Person, including, (i) any Person which beneficially owns or holds ten
percent or more of any class of voting stock of such Person or ten percent of
more of the equity interest in such Person, (ii) any Person of which such
Person beneficially owns or holds ten percent or more of any class of voting
shares or in which such Person beneficially owns or holds ten percent or more
of the equity interests in such Person, and (iii) any officer or director of
such Person.
AGENT means Bank One in its capacity as agent for the Banks hereunder
and any successor thereto in such capacity.
AGENT-RELATED PERSONS means Bank One and any successor agent arising
under SECTION 13.9, together with their
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respective Affiliates and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
AGREEMENT - see the first paragraph hereof.
ASSIGNMENT AGREEMENT - see SECTION 14.9.1.
BANK - see the first paragraph hereof.
BANK ONE means Bank One, Texas, N.A. in its individual capacity.
BORROWER - see the first paragraph hereof.
BUSINESS DAY means any day on which Bank One is open for commercial
banking business in Houston, Texas and, in the case of a Business Day which
relates to a Eurodollar Loan, on which dealings are carried on in the
interbank eurodollar market.
CALCULATION PERIOD means the period for which any calculation under this
Agreement is being made.
CAPITAL EXPENDITURES means all expenditures for assets which, in
accordance with GAAP, are properly classified as equipment, real property,
improvements, fixed assets or a similar type of capitalized asset and which
would be required to be capitalized and shown on the consolidated balance
sheet of the Borrower; provided, however, Capital Expenditures shall not
include expenditures in connection with Acquisitions.
CAPITAL LEASE means, with respect to any Person, any lease of (or other
agreement conveying the right to use) any real or personal property by such
Person that, in conformity with GAAP, is accounted for as a capital lease on
the balance sheet of such Person.
CASH EQUIVALENT INVESTMENT means, at any time, (a) any evidence of Debt,
maturing not more than one year after such time, issued or guaranteed by the
United States Government or any agency thereof, (b) commercial paper,
maturing not more than one year from the date of issue, corporate demand
notes or other debt securities having a maturity or tender right less than
one year from the date of issuance thereof, in each case (unless issued by a
Bank or its holding company) rated in one of the two highest rating
categories by Standard & Poor's Ratings Group or Moody's Investors Service,
Inc., (c) any certificate of deposit (or time deposits represented by such
certificates of deposit) or bankers acceptance, maturing not more than one
year after such time, or overnight Federal Funds transactions that are issued
or sold by a commercial banking institution that is a member of the Federal
Reserve System and has a combined capital and surplus and undivided profits
of
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not less than $500,000,000, (d) any repurchase agreement entered into with
any Bank (or other commercial banking institution of the stature referred to
in CLAUSE (c)) which (i) is secured by a fully perfected security interest in
any obligation of the type described in any of CLAUSES (a) through (c) and
(ii) has a market value at the time such repurchase agreement is entered into
of not less than 100% of the repurchase obligation of such Bank (or other
commercial banking institution) thereunder and (e) investments in short-term
asset management accounts offered by any Bank for the purpose of investing in
loans to any corporation (other than the Borrower or an Affiliate of the
Borrower), state or municipality, in each case organized under the laws of
any state of the United States or of the District of Columbia.
CERCLA - See SECTION 9.15.
CODE means the Internal Revenue Code of 1986, as amended.
COLLATERAL DOCUMENTS means the Pledge Agreements-Borrower, the Pledge
Agreements-Subsidiary and any other agreement pursuant to which the Borrower
or any Subsidiary grants a Lien or security interest in collateral to the
Agent for the benefit of the Banks.
COMMITMENT AMOUNT - see SECTION 2.1.1.
COMMITMENTS means the Loan Commitment and the L/C Commitment.
COMPLIANCE CERTIFICATE means a certificate in substantially the form of
EXHIBIT E.
COMPUTATION PERIOD means each period of four consecutive Fiscal Quarters
ending on the last day of a Fiscal Quarter.
CONTINGENT LIABILITIES mean, with respect to Borrower or any Subsidiary,
those direct or indirect liabilities of such Person with respect to any Debt,
lease, dividend, letter of credit or other obligation (the "PRIMARY
OBLIGATIONS") of another Person (the "PRIMARY OBLIGOR"), including, without
limitation, any obligation of such Person, whether or not contingent, (a) to
purchase, repurchase or otherwise acquire such primary obligations or any
property constituting direct or indirect security therefor, (b) to advance or
provide funds (i) for the payment or discharge of any such primary
obligation, (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance
sheet item, level of income or financial condition of the primary obligor,
(c) to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the
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ability of the primary obligor to make payment of such primary obligation, or
(d) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof. The amount of any Contingent
Liabilities shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Liabilities are made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
the Borrower in good faith.
CONTROLLED GROUP means all members of a controlled group of corporations
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the Borrower, are
treated as a single employer under Section 414 of the Code or Section 4001 of
ERISA.
CURRENT ASSETS means, at any particular time, all amounts which, in
conformity with GAAP, would be included as current assets on a consolidated
balance sheet of Borrower and its Subsidiaries.
CURRENT LIABILITIES means, at any particular time, all amounts which, in
conformity with GAAP, would be included as current liabilities on a
consolidated balance sheet of Borrower and its Subsidiaries.
CURRENT MATURITIES OF LONG TERM DEBT means for Borrower and its
Subsidiaries on a consolidated basis, the principal amount due and payable
during the next succeeding twelve month period on Funded Debt of Borrower and
its Subsidiaries which has a final maturity more than twelve months from the
date of calculation.
CURRENT RATIO means the ratio of Current Assets to Current Liabilities.
DEBT of any Person means, without duplication, (a) all indebtedness of
such Person for borrowed money, whether or not evidenced by bonds,
debentures, notes or similar instruments, (b) all obligations of such Person
as lessee under Capital Leases which have been or should be recorded as
liabilities on a balance sheet of such Person, (c) all obligations of such
Person to pay the deferred purchase price of property or services (but
excluding trade accounts payable or trade notes in the ordinary course of
business that are not past due by more than 90 days), (d) all indebtedness
secured by a Lien on the property of such Person (other than Liens for taxes
and assessments that are not delinquent) whether or not such indebtedness
shall have been assumed by such Person (it being understood that if such
Person has not assumed or otherwise become personally liable for any such
indebtedness, the amount
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of the Debt of such Person in connection therewith shall be limited to the
lesser of the face amount of such indebtedness or the fair market value of
all property of such Person securing such indebtedness), (e) all obligations,
contingent or otherwise, with respect to the face amount of all letters of
credit (whether or not drawn) and banker's acceptances issued for the account
of such Person (including the Letters of Credit), and (f) net liabilities of
such Person under all Hedging Obligations.
DISPOSAL - see the definition of "RELEASE".
DOLLAR and the sign "$" mean lawful money of the United States of
America.
"EBITDA" means for Borrower and its Subsidiaries, on a consolidated
basis, for any period, the sum of (a) Net Income, plus (b) taxes, plus (c)
depreciation and amortization, plus (d) Interest Expense; provided that for
purposes of calculating EBITDA of the Borrower and its Subsidiaries for any
period, the consolidated net income of any Person acquired by the Borrower or
any Subsidiary during such period (plus, to the extent deducted in
determining such consolidated net income, interest expense, income tax
expense, depreciation and amortization of such Person) shall be included on
a PRO FORMA basis for such period (assuming the consummation of each such
acquisition and the incurrence or assumption of any Debt in connection
therewith occurred on the first day of such period) if the audited
consolidated balance sheet of such acquired Person and its consolidated
Subsidiaries as at the end of the period preceding the acquisition of such
Person and the related audited consolidated statements of income,
stockholders' equity and cash flows for the period in respect of which EBITDA
is to be calculated (i) have been previously provided to the Agent and the
Banks and (ii) have been found acceptable by the Required Banks.
EFFECTIVE DATE - see SECTION 11.1.
ENVIRONMENTAL CLAIMS means all claims, however asserted, by any
governmental, regulatory or judicial authority or other Person alleging
potential liability or responsibility for violation of any Environmental Law,
or for release or injury to the environment.
ENVIRONMENTAL LAWS means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with
all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any governmental
authority, in each case relating to environmental matters.
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ERISA means the Employee Retirement Income Security Act of 1974.
References to sections of ERISA also refer to any successor sections.
EUROCURRENCY RESERVE PERCENTAGE means, with respect to any Eurodollar
Loan for any Interest Period, a percentage (expressed as a decimal) equal to
the daily average during such Interest Period of the percentage in effect on
each day of such Interest Period, as prescribed by the Board of Governors of
the Federal Reserve System (or any successor), for determining the aggregate
maximum reserve requirements applicable to "Eurocurrency Liabilities"
pursuant to Regulation D or any other then applicable regulation of such
Board of Governors which prescribes reserve requirements applicable to
"Eurocurrency Liabilities" as presently defined in Regulation D.
EURODOLLAR LOAN means any Loan which bears interest at a rate determined
by reference to the Eurodollar Rate (Reserve Adjusted).
EURODOLLAR MARGIN - see SCHEDULE 1.1.A.
EURODOLLAR OFFICE means with respect to any Bank the office or offices
of such Bank which shall be making or maintaining the Eurodollar Loans of
such Bank hereunder or such other office or offices through which such Bank
determines its Eurodollar Rate. A Eurodollar Office of any Bank may be, at
the option of such Bank, either a domestic or foreign office.
EURODOLLAR RATE means, with respect to each Interest Period, the rate of
interest per annum at which deposits in Dollars are offered by the major
London clearing banks, as reported on Telerate System reports (Page 3807) (or
such other similar news reporting service as the Agent may subscribe to at
the time such Eurodollar Rate is determined), in the London interbank
Eurodollar market for a period of time equal or comparable to such Interest
Period and in an amount equal or comparable to the principal amount of the
Eurodollar Loan to which such Interest Period relates. The Eurodollar Rate
for the Interest Period to which it relates shall (a) be determined as of
11:00 a.m. (London, England time) two (2) Business Days prior to the first
day of such Interest Period, or at such earlier time as determined by the
Agent, and (b) shall be rounded upward, if necessary, to the nearest one-one
hundredth of one percent.
EURODOLLAR RATE (RESERVE ADJUSTED) means, with respect to any Eurodollar
Loan for any Interest Period, a rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined pursuant to the following
formula:
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Eurodollar Rate = EURODOLLAR RATE
(Reserve Adjusted) 1-Eurocurrency
Reserve Percentage
EVENT OF DEFAULT means any of the events described in SECTION 12.1.
FISCAL QUARTER means a fiscal quarter of a Fiscal Year.
FISCAL YEAR means the fiscal year of the Borrower and its Subsidiaries,
which period shall be the 12-month period ending on May 31 of each year.
References to a Fiscal Year with a number corresponding to any calendar year
(e.g., "Fiscal Year 1998") refer to the Fiscal Year ending on May 31 of such
calendar year.
FIXED CHARGE COVERAGE RATIO means, for any Calculation Period (a) EBITDA
for such Calculation Period, minus (b) taxes paid in cash by the Borrower and
its Subsidiaries during such Calculation Period, minus (c) dividends paid in
cash by Borrower to its shareholders during such Calculation Period, plus (d)
R&D Expense incurred by Borrower and its Subsidiaries during such Calculation
Period, divided by the sum of (v) that amount which is equal to one fifth
(1/5) of the daily average sum during such Computation Period of (i) the
outstanding principal amount of the Loans plus (ii) the aggregate undrawn
amount of all outstanding Letters of Credit, plus (w) Current Maturities of
Long Term Debt as of the date of calculation, plus (x) Interest Expense
incurred by Borrower and its Subsidiaries during such Calculation Period,
plus (y) Maintenance Capital Expenditures incurred by Borrower and its
Subsidiaries during such Calculation Period, plus (z) R&D Expense incurred by
Borrower and its Subsidiaries during such Calculation Period.
FORM 10-Q means Form 10-Q used for quarterly reports under Section 13 or
15(d) of the Securities Exchange Act of 1934, filed pursuant to Rule 13a-13
or Rule 15d-13 of the Securities Exchange Act of 1934.
FUNDED DEBT means, at any time, the current portion of scheduled
payments of long-term Debt of Borrower and its Subsidiaries (determined on a
consolidated basis), plus the long-term Debt of Borrower and its Subsidiaries
(determined on a consolidated basis), plus the short term Debt of Borrower
and its Subsidiaries (determined on a consolidated basis).
FUNDED DEBT TO CAPITALIZATION RATIO - COVENANT means, at any time, the
sum of Funded Debt plus Contingent Liabilities divided by the sum of Funded
Debt plus Tangible Net Worth.
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FUNDED DEBT TO CAPITALIZATION RATIO - PRICING means, at any time, Funded
Debt divided by the sum of Funded Debt plus Tangible Net Worth.
GAAP means generally accepted accounting principles set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S.
accounting profession), which are applicable to the circumstances as of the
date of determination.
GROUP - see SECTION 2.2.1.
GUARANTOR means, on any day, each Material Subsidiary, unless the
Required Banks have determined that such Material Subsidiary is not to be a
Guarantor. The Guarantors as of the Effective Date are listed on Schedule
1.1.B.
GUARANTY means a guaranty substantially in the form of EXHIBIT C.
HAZARDOUS SUBSTANCES - see SECTION 9.15.
HEDGING OBLIGATIONS means, with respect to any Person, all liabilities
of such Person under interest rate, currency and commodity swap agreements,
cap agreements and collar agreements, and all other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates, currency exchange rates or commodity prices.
INTEREST EXPENSE means for any period the consolidated interest expense
of the Borrower and its Subsidiaries for such period (including all imputed
interest on Capital Leases and before giving effect to any capitalization of
interest but excluding amortization of deferred financing costs).
INTEREST PERIOD - see SECTION 4.3.
INVESTMENT means, relative to any Person, (a) any loan or advance made
by such Person to any other Person (excluding any commission, travel or
similar advances made to directors, officers and employees of the Borrower or
any of its Subsidiaries), (b) any ownership or similar interest held by such
Person in any other Person and (c) deposits and the like relating to
prospective acquisitions of businesses.
ISSUING BANK means Bank One in its capacity as an issuer of Letters of
Credit hereunder and any other Bank which, with the written consent of the
Borrower and the Agent, is the issuer of one or more Letters of Credit
hereunder.
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L/C APPLICATION means, with respect to any request for the issuance of
a Letter of Credit, a letter of credit application in the form being used by
the applicable Issuing Bank at the time of such request for the type of
letter of credit requested.
L/C COMMITMENT means the commitment of the Issuing Bank to issue, and of
each Bank to participate in, Letters of Credit pursuant to SECTION 2.1.2.
LETTER OF CREDIT - see SECTION 2.1.2.
LIEN means, with respect to any Person, any interest granted by such
Person in any real or personal property, asset or other right owned or being
purchased or acquired by such Person which secures payment or performance of
any obligation and shall include any security interest, mortgage, lien,
encumbrance, charge or other security interest of any kind, whether arising
by contract, as a matter of law, by judicial process or otherwise.
LOAN COMMITMENT means the commitment of the Banks to make Loans pursuant
to SECTION 2.1.1.
LOAN DOCUMENTS means this Agreement, the Notes, the L/C Applications,
the Guaranties, the Collateral Documents and all other documents and
instruments executed by Borrower in connection with this Agreement.
LOANS - see SECTION 2.1.1.
MAINTENANCE CAPITAL EXPENDITURES means Capital Expenditures incurred by
the Borrower or its Subsidiaries in connection with the replacement or
maintenance of equipment or other fixed assets of the Borrower or its
Subsidiaries.
MARGIN STOCK means any "margin stock" as defined in Regulation U of the
Board of Governors of the Federal Reserve System.
MATERIAL ADVERSE EFFECT means (a) a material adverse change in, or a
material adverse effect upon, the financial condition, operations, assets,
business or properties of the Borrower and its Subsidiaries taken as a whole,
or (b) a material adverse effect upon any substantial portion of the
collateral under the Collateral Documents or upon the legality, validity,
binding effect or enforceability against the Borrower or any Guarantor of any
Loan Document.
"MATERIAL SUBSIDIARY" means, (a) with respect to Subsidiaries existing
on the Effective Date, those Subsidiaries listed on Schedule 1.1.B. and (b)
with respect to
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Subsidiaries created or acquired by the Borrower after the Effective Date,
all such Subsidiaries, unless the Borrower and the Required Banks shall
mutually determine (which determination shall be made in good faith based
upon the relative net worth of such Subsidiary) that any such Subsidiary is
not a Material Subsidiary.
"MAXIMUM RATE" means, with respect to any Bank and the holder of any
Note, the maximum nonusurious interest rate, if any, that at any time, or
from time to time, may be contracted for, taken, reserved, charged or
received on the indebtedness created under this Agreement, the Notes or any
other Loan Document under the laws which are presently in effect in the
United States and the State of Texas applicable to the Banks, such holders
and such indebtedness or, to the extent permitted by law, under such
applicable laws of the United States and the State of Texas which may
hereafter be in effect and which allow a higher maximum nonusurious interest
rate than applicable laws now allow. To the extent that Chapter 303 of the
Texas Finance Code (the "Code"), is relevant to any Bank or any holder of any
Note for the purposes of determining the Maximum Rate, each such Person shall
determine such applicable legal rate under the Code pursuant to the "weekly
ceiling," from time to time in effect, as referred to and defined in Chapter
303 of the Code; subject, however, to the limitations on such applicable
ceiling referred to and defined in Chapter 303 of the Code, and further
subject to any right such Person may have subsequently, under applicable law,
to change the method of determining the Maximum Rate. If no Maximum Rate is
established by applicable law, then the Maximum Rate shall be equal to
eighteen percent (18%).
MULTIEMPLOYER PENSION PLAN means a multiemployer plan, as such term is
defined in Section 4001(a) (3) of ERISA, and to which the Borrower or any
member of the Controlled Group may have any liability.
NET INCOME means, with respect to the Borrower and its Subsidiaries for
any period, the consolidated net income (or loss) of the Borrower and its
Subsidiaries for such period, excluding any extraordinary gains during such
period.
NOTE - see SECTION 3.1.
OPERATING LEASE means any lease of (or other agreement conveying the
right to use) any real or personal property by the Borrower or any
Subsidiary, as lessee, other than any Capital Lease.
PBGC means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
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PLEDGE AGREEMENT-BORROWER means a Security Agreement-Pledge executed by
Borrower and the Agent, substantially in the form of EXHIBIT B-1, as the same
may be amended, modified or supplemented.
PLEDGE AGREEMENT-SUBSIDIARY means a Security Agreement-Pledge executed
by a Subsidiary and the Agent, substantially in the form of EXHIBIT B-2, as
the same may be amended, modified or supplemented.
PENSION PLAN means a "pension plan", as such term is defined in Section
3(2) of ERISA, which is subject to Title IV of ERISA (other than a
Multiemployer Pension Plan), and to which the Borrower or any member of the
Controlled Group may have any liability, including any liability by reason of
having been a substantial employer within the meaning of Section 4063 of
ERISA at any time during the preceding five years, or by reason of being
deemed to be a contributing sponsor under Section 4069 of ERISA.
PERCENTAGE means, with respect to any Bank, the percentage specified
opposite such Bank's name on SCHEDULE 2.1 hereto, reduced (or increased) by
subsequent assignments pursuant to SECTION 14.9.1.
PERSON means any natural person, corporation, partnership, trust,
limited liability company, association, governmental authority or unit, or
any other entity, whether acting in an individual, fiduciary or other
capacity.
"PRIME RATE" means, at any time, the rate of interest per annum then
most recently published in The Wall Street Journal (or any successor
publication if The Wall Street Journal is no longer published) in the "Money
Rates" section (or such successor section) as the "Prime Rate." If a range
of prime interest rates per annum is so published, "Prime Rate" shall mean
the highest rate per annum in such published range. If the definition of
"Prime Rate" is no longer published in The Wall Street Journal (or any
successor publication), "Prime Rate" shall mean, at any time, the rate of
interest per annum then most recently established by the Agent as its prime
rate or equivalent base rate.
PRIME RATE LOAN means any Loan which bears interest at or by reference
to the Prime Rate.
PRIME RATE MARGIN - see SCHEDULE 1.1.A.
R&D EXPENSE means expenditures incurred by the Borrower and its
Subsidiaries, on a consolidated basis, attributable to research and product
development and recorded as such in accordance with GAAP.
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REGULATION S-X means Regulation S-X as promulgated by the Securities
Exchange Commission in connection with the Securities Exchange Act of 1934.
RELEASE has the meaning specified in CERLA and the term "DISPOSAL" (or
"DISPOSED") has the meaning specified in RCRA; PROVIDED that in the event
either CERLA or RCRA is amended so as to broaden the meaning of any term
defined thereby, such broader meaning shall apply as of the effective date of
such amendment; and PROVIDED, FURTHER, that to the extent that the laws of a
state wherein any affected property lies establish a meaning for "RELEASE" or
"DISPOSAL" which is broader than is specified in either CERLA or RCRA, such
broader meaning shall apply.
RCRA - see SECTION 9.15.
REQUIRED BANKS means Banks having Percentages aggregating 80% or more.
SEC means the Securities and Exchange Commission.
STATED AMOUNT means, with respect to any Letter of Credit at any date of
determination, the maximum aggregate amount available for drawing thereunder
at any time during the then ensuing term of such Letter of Credit under any
and all circumstances, plus the aggregate amount of all unreimbursed payments
and disbursements under such Letter of Credit.
SUBSIDIARY means, with respect to any Person, a corporation of which
such Person and/or its other Subsidiaries own, directly or indirectly, such
number of outstanding shares as have more than 50% of the ordinary voting
power for the election of directors. Unless the context otherwise requires,
each reference to Subsidiaries herein shall be a reference to Subsidiaries of
the Borrower.
TANGIBLE NET WORTH means, at any particular time, all amounts which,
in conformity with GAAP, would be included as stockholders' equity on a
consolidated balance sheet of Borrower and its Subsidiaries (including
preferred stock accounts); provided, however, there shall be excluded
therefrom (a) any amount at which shares of capital stock of Borrower or any
Subsidiary appear as an asset on Borrower's or any Subsidiary's balance
sheet, (b) goodwill, including any amounts, however designated, that
represent the excess of the purchase price paid for assets or stock over the
value assigned thereto, (c) patents, trademarks, trade names, and copyrights,
(d) deferred expenses, (e) loans and advances to any stockholder, director,
officer, or employee of Borrower or any Subsidiary or any affiliate, and (f)
all other assets which are properly classified as intangible assets.
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TERMINATION DATE means the earlier to occur of (a) February 27, 2001, or
such later date to which the Termination Date may be extended at the request
of the Borrower and with the consent of each Bank or (b) such other date on
which the Commitments shall terminate pursuant to ARTICLE VI or XII.
TYPE OF LOAN OR BORROWING - see SECTION 2.2.1. The types of Loans or
borrowings under this Agreement are Prime Rate Loans or borrowings and
Eurodollar Loans or borrowings.
UNMATURED EVENT OF DEFAULT means any event that, if it continues
uncured, will, with passage of time or notice or both, constitute an Event of
Default.
WELFARE PLAN means a "welfare plan", as such term is defined in Section
3(1) of ERISA.
Section 1.2 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of
defined terms are equally applicable to the singular and plural forms of the
defined terms.
(b) SECTION, SCHEDULE and EXHIBIT references are to this Agreement
unless otherwise specified.
(c) (i) The term "including" is not limiting and means "including
without limitation."
(ii) In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"; the words
"to" and "until" each mean "to but excluding", and the word "through" means
"to and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications
thereto, but only to the extent such amendments and other modifications are
not prohibited by the terms of any Loan Document, and (ii) references to any
statute or regulation are to be construed as including all statutory and
regulatory provisions consolidating, amending, replacing, supplementing or
interpreting such statute or regulation.
(e) This Agreement and the other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and
shall each be performed in accordance with their terms.
(f) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the
Borrower, the Banks and the other parties thereto and are the products of all
parties. Accordingly, they shall not
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be construed against the Agent or the Banks merely because of the Agent's or
Banks' involvement in their preparation.
ARTICLE II.
COMMITMENTS OF THE BANKS; LETTER OF CREDIT,
BORROWING AND CONVERSION PROCEDURES
Section 2.1 COMMITMENTS. On and subject to the terms and conditions
of this Agreement, each of the Banks, severally and for itself alone, agrees
to make loans to, and to issue or participate in the issuance of letters of
credit for the account of, the Borrower as follows:
2.1.1 LOAN COMMITMENT. Each Bank will make loans on a revolving
basis ("LOANS") from time to time before the Termination Date in such Bank's
Percentage of such aggregate amounts as the Borrower may from time to time
request from all Banks; PROVIDED that the aggregate principal amount of all
Loans which all Banks shall be committed to have outstanding at any one time
shall not exceed (a) $50,000,000, as such amount may be reduced from time to
time pursuant to SECTION 6.1 (as so reduced, the "COMMITMENT AMOUNT"), minus
(b) the Stated Amount of all outstanding Letters of Credit.
2.1.2 L/C COMMITMENT. (a) The Issuing Banks will issue standby
letters of credit, in each case containing such terms and conditions as are
permitted by this Agreement and are reasonably satisfactory to the applicable
Issuing Bank (each, a "LETTER OF CREDIT"), at the request of and for the
account of the Borrower or any Subsidiary from time to time before the
Termination Date and (b) as more fully set forth in SECTION 2.3.5, each Bank
agrees to purchase a participation in each such Letter of Credit; PROVIDED
that the aggregate Stated Amount of all Letters of Credit shall not at any
time exceed the lesser of (i) $15,000,000 or (ii) the Commitment Amount minus
the aggregate principal amount of all outstanding Loans.
Section 2.2 LOAN PROCEDURES.
2.2.1 VARIOUS TYPES OF LOANS. Each Loan shall be either a Prime
Rate Loan or a Eurodollar Loan (each a "TYPE" of Loan), as the Borrower shall
specify in the related notice of borrowing or conversion pursuant to SECTION
2.2.2 or 2.2.3. Eurodollar Loans having the same Interest Period are
sometimes called a "GROUP" or collectively "GROUPS". Prime Rate Loans and
Eurodollar Loans may be outstanding at the same time, PROVIDED that (i) not
more than eight different Groups of Loans shall be outstanding at any one
time and (ii) the aggregate principal amount of each Group of Eurodollar
Loans shall at all times be at least $1,000,000 and an integral
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multiple of $250,000. All borrowings, conversions and repayments of Loans
shall be effected so that each Bank will have a pro rata share (according to
its Percentage) of all types and Groups of Loans.
2.2.2 BORROWING PROCEDURES. The Borrower shall give written notice
or telephonic notice (followed immediately by written confirmation thereof)
to the Agent of each proposed borrowing not later than (a) in the case of a
Prime Rate borrowing, 12:00 P.M., Houston, Texas time, at least one Business
Day prior to the proposed date of such borrowing, and (b) in the case of a
Eurodollar borrowing, 10:00 A.M., Houston, Texas time, at least three
Business Days prior to the proposed date of such borrowing. Each such notice
shall be effective upon receipt by the Agent, shall be irrevocable, and shall
specify the date, amount and type of borrowing and, in the case of a
Eurodollar borrowing, the initial Interest Period therefor. Promptly upon
receipt of such notice, the Agent shall advise each Bank thereof. Each
written or telephonic notice shall constitute a representation by Borrower
that the statements contained in SECTION 11.2.1 are true and correct as of
the date of such notice. Not later than 1:00 P.M., Houston, Texas time, on
the date of a proposed borrowing, each Bank shall provide the Agent at the
office specified by the Agent with immediately available funds covering such
Bank's Percentage of such borrowing and, so long as the Agent has not
received written notice that the conditions precedent set forth in ARTICLE XI
with respect to such borrowing have not been satisfied (and does not have
knowledge of any default in the payment of any principal, interest or fees to
be paid to the Agent for the account of the Banks), the Agent shall pay over
the requested amount to the Borrower on the requested borrowing date. Each
borrowing shall be on a Business Day. Each borrowing shall be in an
aggregate amount of at least $1,000,000 and an integral multiple of $250,000.
2.2.3 PROCEDURES FOR CONVERSION OF TYPE OF LOAN. Subject to the
provisions of SECTION 2.2.1, the Borrower may convert all or any part of any
outstanding Loan into a Loan of a different type by giving written notice or
telephonic notice (followed immediately by written confirmation thereof) to
the Agent not later than (a) in the case of conversion into a Prime Rate
Loan, 12:00 P.M., Houston, Texas time, at least one Business Day prior to the
proposed date of such conversion, and (b) in the case of a conversion into a
Eurodollar Loan, 10:00 A.M., Houston, Texas time, at least three Business
Days prior to the proposed date of such conversion. Each such notice shall
be effective upon receipt by the Agent, shall be irrevocable, and shall
specify the date and amount of such conversion, the Loan to be so converted,
the type of Loan to be converted into and, in the case of a conversion into a
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Eurodollar Loan, the initial Interest Period therefor. Promptly upon
receipt of such notice, the Agent shall advise each Bank thereof. Subject to
SECTION 2.5, such Loan shall be so converted on the requested date of
conversion. Each conversion shall be on a Business Day. Each conversion of
a Eurodollar Loan on a day other than the last day of an Interest Period
therefor shall be subject to the provisions of SECTION 8.4.
Section 2.3 LETTER OF CREDIT PROCEDURES.
2.3.1 L/C APPLICATIONS. The Borrower shall give notice to the Agent
and the applicable Issuing Bank of the proposed issuance of each Letter of
Credit on a Business Day which is at least three Business Days (or such
lesser number of days as the Agent and such Issuing Bank shall agree in any
particular instance) prior to the proposed date of issuance of such Letter of
Credit. Each such notice shall be accompanied by an L/C Application, duly
executed by the Borrower (together with any Subsidiary for the account of
which the related Letter of Credit is to be issued) and in all respects
satisfactory to the Agent and the applicable Issuing Bank, together with such
other documentation as the Agent or such Issuing Bank may request in support
thereof, it being understood that each L/C Application shall specify, among
other things, the date on which the proposed Letter of Credit is to be
issued, the expiration date of such Letter of Credit (which shall not be
later than the Termination Date) and whether such Letter of Credit is to be
transferable in whole or in part. So long as the applicable Issuing Bank has
not received written notice that the conditions precedent set forth in
ARTICLE XI with respect to the issuance of such Letter of Credit have not
been satisfied, such Issuing Bank shall issue such Letter of Credit on the
requested issuance date. Each Issuing Bank shall promptly advise the Agent
and the Banks of the issuance of each Letter of Credit by such Issuing Bank
and of any amendment thereto, extension thereof or event or circumstance
changing the amount available for drawing thereunder.
2.3.2 PARTICIPATION IN LETTERS OF CREDIT. Concurrently with the
issuance of each Letter of Credit, the applicable Issuing Bank shall be
deemed to have sold and transferred to each other Bank, and each other Bank
shall be deemed irrevocably and unconditionally to have purchased and
received from such Issuing Bank, without recourse or warranty, an undivided
interest and participation, to the extent of such other Bank's Percentage, in
such Letter of Credit and the Borrower's reimbursement obligations with
respect thereto. For the purposes of this Agreement, the unparticipated
portion of each Letter of Credit shall be deemed to be the applicable Issuing
Bank's "participation" therein. Each Issuing Bank
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hereby agrees, upon request of the Agent or any Bank, to deliver to such Bank
a list of all outstanding Letters of Credit issued by such Issuing Bank,
together with such information related thereto as such Bank may reasonably
request.
2.3.3 PAYMENTS CONSTITUTE LOANS. Each payment by the Issuing Bank
pursuant to a drawing under a Letter of Credit shall constitute and be deemed
a Loan by the Banks to the Borrower under the Notes and this Agreement as of
the day and time such payment is made by the Issuing Bank and in the amount
of such payment.
2.3.4 LIMITATION ON OBLIGATIONS OF ISSUING BANKS. In determining
whether to pay under any Letter of Credit, no Issuing Bank shall have any
obligation to the Borrower or any Bank other than to confirm that any
documents required to be delivered under such Letter of Credit appear to have
been delivered and appear to comply on their face with the requirements of
such Letter of Credit. Any action taken or omitted to be taken by an Issuing
Bank under or in connection with any Letter of Credit, if taken or omitted in
the absence of gross negligence and willful misconduct, shall not impose upon
such Issuing Bank any liability to the Borrower or any Bank and shall not
reduce or impair the Borrower's reimbursement obligations set forth in
SECTION 2.3.3 or the obligations of the Banks pursuant to SECTION 2.3.5.
2.3.5 FUNDING BY BANKS TO ISSUING BANKS. Promptly upon receipt of
documents requesting a drawing on any Letter of Credit, the Issuing Bank
shall advise the Agent and each Bank thereof. Such notice shall include a
statement by the Issuing Bank of the Business Day on which such drawing is to
be made under such Letter of Credit. Not later than 12:00 P.M., Houston,
Texas time, on the Business Day on which such drawing is to be made under
such Letter of Credit, each Bank shall provide the Agent for the account of
the Issuing Bank, at the office specified by the Agent, with immediately
available funds covering such Bank's Percentage of such drawing.
Section 2.4 COMMITMENTS SEVERAL. The failure of any Bank to make a
requested Loan on any date shall not relieve any other Bank of its obligation
to make a Loan on such date, but no Bank shall be responsible for the failure
of any other Bank to make any Loan to be made by such other Bank.
Section 2.5 CERTAIN CONDITIONS. Notwithstanding any other provision of
this Agreement, no Bank shall have an obligation to make any Loan other than
a Loan to fund a drawing on a Letter of Credit, or to permit the continuation
of or any conversion into any Eurodollar Loan, and no Issuing Bank shall have
any obligation to
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issue any Letter of Credit, if an Event of Default or Unmatured Event of
Default exists.
ARTICLE III.
NOTES EVIDENCING LOANS; PRINCIPAL
Section 3.1 NOTES. The Loans of each Bank shall be evidenced by a
promissory note (each a "NOTE") substantially in the form set forth in
EXHIBIT A, with appropriate insertions, payable to the order of such Bank in
an amount equal to such Bank's Percentage of the Loan Commitment.
Section 3.2 PAYMENT OF PRINCIPAL OF LOANS. The Borrower shall repay
the unpaid principal amount of all Loans on the earlier of (a) the
Termination Date or (b) such other dates on which the Loans are or may be
required to be paid pursuant to this Agreement.
Section 3.3 RECORDKEEPING. Each Bank shall record in its records the
date and amount of each Loan made by such Bank, each repayment or conversion
thereof and, in the case of each Eurodollar Loan, the dates on which each
Interest Period for such Loan shall begin and end. The aggregate unpaid
principal amount so recorded shall be rebuttable presumptive evidence of the
principal amount owing and unpaid on such Note. The failure to so record any
such amount or any error in so recording any such amount shall not, however,
limit or otherwise affect the obligations of the Borrower hereunder or under
any Note to repay the principal amount of the Loans evidenced by such Note
together with all interest accruing thereon.
ARTICLE IV.
INTEREST
Section 4.1 INTEREST RATES. The Borrower promises to pay interest on
the unpaid principal amount of each Loan for the period commencing on the
date of such Loan until such Loan is paid in full as follows:
(a) at all times while such Loan is a Prime Rate Loan, at a rate per
annum equal to the sum of the Prime Rate from time to time in effect plus the
Prime Rate Margin from time to time in effect; and
(b) at all times while such Loan is a Eurodollar Loan, at a rate per
annum equal to the sum of the Eurodollar Rate (Reserve Adjusted) applicable
to each Interest Period for such Loan plus the Eurodollar Margin from time to
time in effect;
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PROVIDED, HOWEVER, that at any time an Event of Default exists, the interest
rate applicable to each Loan shall be increased by 2%.
Section 4.2 INTEREST PAYMENT DATES. Accrued interest on each Prime
Rate Loan shall be payable in arrears on the last day of each calendar
quarter and on the Termination Date. Accrued interest on each Eurodollar
Loan shall be payable on the last day of each Interest Period relating to
such Loan (and, in the case of a Eurodollar Loan with a one hundred eighty
(180) day Interest Period, on the ninetieth (90th) day of such Interest
Period) and at maturity. Accrued interest shall be payable upon the payment
or prepayment of any Loan or the conversion of any Loan to a Loan of another
type (but only upon the principal amount so paid, prepaid or converted).
After maturity, accrued interest on all Loans shall be payable on demand.
Section 4.3 INTEREST PERIODS. Each "Interest Period" for a Eurodollar
Loan shall commence on the date such Eurodollar Loan is made or converted
from a Prime Rate Loan, or on the last day of the immediately preceding
Interest Period for such Eurodollar Loan, and shall end on the date which is
thirty (30), sixty (60), ninety (90) or one hundred eighty (180) days
thereafter, as the Borrower may specify:
(a) in the case of an Interest Period which commences on the date a
Eurodollar Loan is made or converted from a Prime Rate Loan, in the related
notice of borrowing or conversion pursuant to SECTION 2.2.2 or 2.2.3, or
(b) in the case of a succeeding Interest Period with respect to any
Eurodollar Loan, by written notice or telephonic notice (followed immediately
by written confirmation thereof) to the Agent not later than 10:00 A.M.,
Houston, Texas time, at least two Business Days prior to the first day of
such succeeding Interest Period, it being understood that (i) each such
notice shall be effective upon receipt by the Agent and (ii) if the Borrower
fails to give such notice, such Loan shall automatically become a Prime Rate
Loan at the end of its then-current Interest Period.
Each Interest Period which would otherwise end on a day which is not a
Business Day shall end on the immediately succeeding Business Day. The
Borrower may not select any Interest Period for a Loan which would end after
the Termination Date.
Section 4.4 SETTING AND NOTICE OF EURODOLLAR RATES. The applicable
Eurodollar Rate for each Interest Period shall be determined by the Agent,
and notice thereof shall be given by the Agent promptly to the Borrower and
each Bank. Each determination of the applicable Eurodollar Rate by the Agent
shall be conclusive and binding upon the parties hereto, in the absence of
demonstrable error. The Agent shall, upon written request of the Borrower or
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any Bank, deliver to the Borrower or such Bank a statement showing the
computations used by the Agent in determining any applicable Eurodollar Rate
hereunder.
Section 4.5 COMPUTATION OF INTEREST. All determinations of interest
shall be made on the basis of a year of 360 days, and the actual number of
days elapsed. The applicable interest rate for each Prime Rate Loan shall
change simultaneously with each change in the Prime Rate.
ARTICLE V.
FEES
Section 5.1 NON-USE FEE. The Borrower agrees to pay to the Agent for
the account of each Bank a non-use fee, for the period from the Effective
Date to the Termination Date, at the rate per annum in effect from time to
time pursuant to SCHEDULE 1.1.A of the daily average of the unused amount of
such Bank's Percentage of the Commitment Amount. For purposes of calculating
usage under this Section, the Commitment Amount shall be deemed used to the
extent of the aggregate principal amount of all outstanding Loans plus the
undrawn amount of all Letters of Credit. Such non-use fee shall be payable in
arrears on the last day of each calendar quarter and on the Termination Date
for any period then ending for which such non-use fee shall not have
theretofore been paid. The non-use fee shall be computed for the actual
number of days elapsed on the basis of a year of 360 days.
Section 5.2 LETTER OF CREDIT FEES. (a) The Borrower agrees to pay to
the Agent for the account of the Banks pro rata according to their respective
Percentages a letter of credit fee for each Letter of Credit in an amount
equal to the rate per annum in effect from time to time pursuant to SCHEDULE
1.1.A of the undrawn amount of such Letter of Credit (computed for the actual
number of days elapsed on the basis of a year of 360 days). Such letter of
credit fee shall be payable in arrears on the last day of each calendar
quarter and on the Termination Date for the period from the date of the
issuance of each Letter of Credit to the date such payment is due or, if
earlier, the date on which such Letter of Credit expired or was terminated.
(b) In addition, with respect to each Letter of Credit, the Borrower
agrees to pay to the applicable Issuing Bank, for its own account, such fees
and expenses as such Issuing Bank customarily requires in connection with the
issuance, negotiation, processing and/or administration of letters of credit
in similar situations.
Section 5.3 AGENT'S FEES. The Borrower agrees to pay to the Agent such
agent's fees as are mutually agreed to from time to time by the Borrower and
the Agent.
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ARTICLE VI.
REDUCTION AND TERMINATION OF THE COMMITMENTS; PREPAYMENTS
Section 6.1 REDUCTION OR TERMINATION OF THE COMMITMENTS. The Borrower
may from time to time on at least five Business Days' prior written notice
received by the Agent (which shall promptly advise each Bank thereof)
permanently reduce the Commitment Amount to an amount not less than the sum
of the aggregate unpaid principal amount of the Loans and the aggregate
Stated Amount of all Letters of Credit. Any such reduction shall be in an
amount not less than $5,000,000 or a higher integral multiple of $1,000,000.
The Borrower may at any time on like notice terminate the Commitments upon
payment in full of all Loans and all other obligations of the Borrower
hereunder and cash collateralization in full, pursuant to documentation in
form and substance reasonably satisfactory to the Banks, of all obligations
arising with respect to the Letters of Credit. Upon any such payment of the
Loans and cash collateralization of the obligations arising with respect to
the Letters of Credit in a manner satisfactory to the Agent, the Agent shall
release all Liens created by the Collateral Documents. All reductions of the
Commitment Amount shall reduce the Commitments pro rata among the Banks
according to their respective Percentages.
Section 6.2 VOLUNTARY PREPAYMENTS. The Borrower may from time to time
prepay the Loans in whole or in part, PROVIDED that (a) the Borrower shall
give the Agent (which shall promptly advise each Bank) notice thereof not
later than 12:00 P.M. (Houston, Texas time) one Business Day prior to the day
of such prepayment, in the case of a prepayment of Prime Rate Loans, or two
Business Days prior to the day of such prepayment, in the case of a
prepayment of Eurodollar Loans, in either case specifying the Loans to be
prepaid and the date and amount of prepayment, (b) each partial prepayment
shall be in a principal amount of at least $100,000 and an integral multiple
of $100,000 and (c) any prepayment of a Eurodollar Loan on a day other than
the last day of an Interest Period therefor shall be subject to SECTION 8.4.
ARTICLE VII.
MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES
Section 7.1 MAKING OF PAYMENTS. All payments of principal of or
interest on the Notes, and of all non-use fees and Letter of Credit fees,
shall be made by the Borrower to the Agent in immediately available funds at
the office specified by the Agent not later than 12:00 P.M., Houston, Texas
time, on the date due; and funds received after that hour shall be deemed to
have been received by the Agent on the next following Business Day. The
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Borrower hereby authorizes and instructs the Agent to charge any demand
deposit account of the Borrower maintained with Bank One for the amount of
any such payment on the due date therefor, and (subject to there being a
sufficient balance in such account for such purpose) the Agent agrees to do
so, PROVIDED that the Agent's failure to so charge such account shall in no
way affect the obligation of the Borrower to make any such payment. The
Agent shall promptly remit to each Bank or other holder of a Note its share
of all such payments received in collected funds by the Agent for the account
of such Bank or holder.
All payments under SECTION 8.1 shall be made by the Borrower directly to the
Bank entitled thereto.
Section 7.2 APPLICATION OF CERTAIN PAYMENTS. Each payment of principal
shall be applied to such Loans as the Borrower shall direct by notice to be
received by the Agent on or before the date of such payment or, in the
absence of such notice, as the Agent shall determine in its discretion.
Concurrently with each remittance to any Bank of its share of any such
payment, the Agent shall advise such Bank as to the application of such
payment.
Section 7.3 DUE DATE EXTENSION. If any payment of principal or
interest with respect to any of the Notes, or of non-use fees or Letter of
Credit fees, falls due on a day which is not a Business Day, then such due
date shall be extended to the immediately following Business Day (unless, in
the case of a Eurodollar Loan, such immediately following Business Day is the
first Business Day of a calendar month, in which case such date shall be the
immediately preceding Business Day) and, in the case of principal, additional
interest shall accrue and be payable for the period of any such extension.
Section 7.4 SETOFF. The Borrower agrees that the Agent, each Bank and
each other holder of a Note have all rights of set-off and bankers' lien
provided by applicable law, and in addition thereto, the Borrower agrees that
if at any time (a) any payment or other amount owing by the Borrower under
this Agreement is then due to the Agent, any Bank or any such holder or (b)
any Unmatured Event of Default under SECTION 12.1.4 with respect to the
Borrower or any Event of Default exists, the Agent, each Bank and each such
holder may apply to the payment of such payment or other amount (or, in the
case of CLAUSE (B), to any obligations of the Borrower hereunder, whether or
not then due) any and all balances, credits, deposits, accounts or moneys of
the Borrower then or thereafter with the Agent, such Bank or such holder.
The Agent and the Banks shall use their best efforts promptly to notify the
Borrower in writing of any setoff; provided that the failure of the Agent or
any Bank to give, or the Borrower to receive, such notice shall not affect,
invalidate or make void the set-off in any manner. Any set-off by the Agent
or any Bank shall be for the ratable benefit of the Agent and the Banks.
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Section 7.5 PRORATION OF PAYMENTS. If any Bank shall obtain any
payment or other recovery (whether voluntary, involuntary, by application of
offset or otherwise) on account of principal of or interest on any Note (or
on account of its participation in any Letter of Credit) in excess of its pro
rata share of payments and other recoveries obtained by all Banks on account
of principal of and interest on Notes (or such participation in Letters of
Credit) then held by them, such Bank shall purchase from the other Banks such
participation in the Notes (or sub-participation in Letters of Credit) held
by them as shall be necessary to cause such purchasing Bank to share the
excess payment or other recovery ratably with each of them; PROVIDED,
HOWEVER, that if all or any portion of the excess payment or other recovery
is thereafter recovered from such purchasing Bank, the purchase shall be
rescinded and the purchase price restored to the extent of such recovery.
Section 7.6 TAXES. All payments of principal of, and interest on, the
Loans and all other amounts payable hereunder shall be made free and clear
of, and without deduction for any present or future income, excise, stamp or
franchise taxes and other taxes, fees, duties, withholdings or other charges
of any nature whatsoever imposed by any taxing authority, but excluding
franchise taxes and taxes imposed on or measured by any Bank's net income,
receipts, assets or operations (all non-excluded items being called "TAXES").
If any withholding or deduction from any payment to be made by the Borrower
hereunder is required in respect of any Taxes pursuant to any applicable law,
rule or regulation, then the Borrower will:
(a) pay directly to the relevant authority the full amount required to
be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the Agent for the account of the Banks such additional
amount or amounts as is necessary to ensure that the net amount actually
received by each Bank will equal the full amount such Bank would have
received had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against the Agent or any Bank
with respect to any payment received by the Agent or such Bank hereunder, the
Agent or such Bank may pay such Taxes and the Borrower will promptly pay such
additional amounts (including any penalty, interest and expense) as is
necessary in order that the net amount received by such Person after the
payment of such Taxes (including any Taxes on such additional amount) shall
equal the amount such Person would have received had such Taxes not been
asserted.
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If the Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Agent, for the account of the respective
Banks, the required receipts or other required documentary evidence, the
Borrower shall indemnify the Banks for any incremental Taxes, interest or
penalties that may become payable by any Bank as a result of any such
failure. For purposes of this SECTION 7.6, a distribution hereunder by the
Agent or any Bank to or for the account of any Bank shall be deemed a payment
by the Borrower. This indemnification shall be made within thirty (30) days
from the date the Agent makes written demand therefor. The Agent and the
Banks shall use reasonable efforts to avoid and minimize any amounts which
might otherwise be payable pursuant to this SECTION 7.6 (including using
reasonable efforts to seek refunds of any amounts that are reasonably
believed not to have been correctly or legally asserted).
Upon the request from time to time of the Borrower or the Agent, each Bank
that is organized under the laws of a jurisdiction other than the United
States of America shall execute and deliver to the Borrower and the Agent one
or more (as the Borrower or the Agent may reasonably request) United States
Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or
documents, appropriately completed, as may be applicable to establish the
extent, if any, to which a payment to such Bank is exempt from withholding or
deduction of Taxes.
The obligations of the Borrower under this SECTION 7.6 are subject to the
limitation set out in SECTION 14.9.1.
ARTICLE VIII.
INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS
Section 8.1 INCREASED COSTS. (a) If, after the date hereof, the
adoption of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or any
Eurodollar Office of such Bank) with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency
(i) shall subject any Bank (or any Eurodollar Office of such Bank) to
any tax, duty or other charge with respect to its Eurodollar Loans, its Note
or its obligation to make Eurodollar Loans, or shall change the basis of
taxation of payments to any Bank of the principal of or interest on its
Eurodollar Loans or any other amounts due under this Agreement in respect of
its Eurodollar Loans or its obligation to make Eurodollar Loans (except for
changes in the rate of tax on the
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overall net income of such Bank or its Eurodollar Office imposed by the
jurisdiction in which such Bank's principal executive office or Eurodollar
Office is located); or
(ii) shall impose, modify or deem applicable any reserve (including any
reserve imposed by the Board of Governors of the Federal Reserve System, but
excluding any reserve included in the determination of interest rates
pursuant to ARTICLE IV), special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by any
Bank (or any Eurodollar Office of such Bank); or
(iii) shall impose on any Bank (or its Eurodollar Office) any other
condition affecting its Eurodollar Loans, its Note or its obligation to make
Eurodollar Loans;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D of the Board of Governors of the Federal Reserve System,
to impose a cost on) such Bank (or any Eurodollar Office of such Bank) of
making or maintaining any Eurodollar Loan, or to reduce the amount of any sum
received or receivable by such Bank (or its Eurodollar Office) under this
Agreement or under its Note with respect thereto, then within 10 days after
demand by such Bank (which demand shall be accompanied by a statement setting
forth the basis for such demand, a copy of which shall be furnished to the
Agent), the Borrower shall pay directly to such Bank such additional amount
as will compensate such Bank for such increased cost or such reduction.
(b) If any Bank shall reasonably determine that the adoption or phase-in
of any applicable law, rule or regulation regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any Bank or
any Person controlling such Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on such Bank's or such controlling Person's
capital as a consequence of such Bank's obligations hereunder (including such
Bank's obligations under the Loan Commitment or the L/C Commitment) or under
any Letter of Credit to a level below that which such Bank or such
controlling Person could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's or such controlling
Person's policies with respect to capital adequacy) by an amount deemed by
such Bank or such controlling Person to be material, then from time to time,
within 10 days after demand by such Bank (which demand shall be accompanied
by a statement setting forth the basis for such demand, a copy of which shall
be furnished to the Agent), the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank or such controlling
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Person for such reduction; provided, however, the Borrower shall not be
liable for any such amounts unless the Bank to which such amounts are due
gives the Borrower notice thereof within 180 days of the date that such Bank
obtains knowledge that such additional compensation is owing. A certificate
of such Bank claiming compensation under this Section and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive,
provided that the determination thereof is made on a reasonable basis. In
determining such amount or amounts, such Bank may use any reasonable
averaging and attribution methods. In making capital adequacy
determinations, each Bank shall assess capital costs only to the extent such
costs are generally being assessed by such Bank against other borrowers of
comparable size and creditworthiness or, if no other borrower is of
comparable size and creditworthiness, to the extent such Bank is assessing
capital costs against its largest borrowers.
Section 8.2 BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If
with respect to any Interest Period:
(a) deposits in Dollars (in the applicable amounts) are not being
offered to the Agent in the interbank eurodollar market for such Interest
Period, or the Agent otherwise reasonably determines (which determination
shall be binding and conclusive on the Borrower) that by reason of
circumstances affecting the interbank eurodollar market adequate and
reasonable means do not exist for ascertaining the applicable Eurodollar
Rate; or
(b) Banks having an aggregate Percentage of thirty percent (30%) or
more advise the Agent that the Eurodollar Rate (Reserve Adjusted) as
determined by the Agent will not adequately and fairly reflect the cost to
such Banks of maintaining or funding such Loans for such Interest Period
(taking into account any amount to which such Banks may be entitled under
SECTION 8.1) or that the making or funding of Eurodollar Loans has become
impracticable as a result of an event occurring after the date of this
Agreement which in the opinion of such Banks materially affects such Loans;
THEN the Agent shall promptly notify the other parties thereof and, so long
as such circumstances shall continue, (i) no Bank shall be under any
obligation to make or convert into Eurodollar Loans and (ii) on the last day
of the current Interest Period for each Eurodollar Loan, such Loan shall,
unless then repaid in full, automatically convert to a Prime Rate Loan.
Section 8.3 CHANGES IN LAW RENDERING EURODOLLAR LOANS UNLAWFUL. In the
event that any change in (including the adoption of any new) applicable laws
or regulations, or any change in the interpretation of applicable laws or
regulations by any governmental or other regulatory body charged with the
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administration thereof, should make it (or in the good faith judgment of any
Bank cause a substantial question as to whether it is) unlawful for any Bank
to make, maintain or fund Eurodollar Loans, then such Bank shall promptly
notify each of the other parties hereto and, so long as such circumstances
shall continue, (a) such Bank shall have no obligation to make or convert
into Eurodollar Loans (but shall make Prime Rate Loans concurrently with the
making of or conversion into Eurodollar Loans by the Banks which are not so
affected, in each case in an amount equal to such Bank's pro rata share of
all Eurodollar Loans which would be made or converted into at such time in
the absence of such circumstances) and (b) on the last day of the current
Interest Period for each Eurodollar Loan of such Bank (or, in any event, on
such earlier date as may be required by the relevant law, regulation or
interpretation), such Eurodollar Loan shall, unless then repaid in full,
automatically convert to a Prime Rate Loan.
Section 8.4 FUNDING LOSSES. The Borrower hereby agrees that upon demand
by any Bank (which demand shall be accompanied by a statement setting forth
the basis for the amount being claimed, a copy of which shall be furnished to
the Agent), the Borrower will indemnify such Bank against any net loss or
expense which such Bank may sustain or incur (including any net loss or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Bank to fund or maintain any Eurodollar Loan),
as reasonably determined by such Bank, as a result of (a) any payment,
prepayment or conversion of any Eurodollar Loan of such Bank on a date other
than the last day of an Interest Period for such Loan (including any
conversion pursuant to SECTION 8.3) or (b) any failure of the Borrower to
borrow or convert any Loan on a date specified therefor in a notice of
borrowing or conversion pursuant to this Agreement. For this purpose, all
notices to the Agent pursuant to this Agreement shall be deemed to be
irrevocable.
Section 8.5 RIGHT OF BANKS TO FUND THROUGH OTHER OFFICES. Each Bank
may, if it so elects, fulfill its commitment as to any Eurodollar Loan by
causing a foreign branch or affiliate of such Bank to make such Loan,
PROVIDED that in such event for the purposes of this Agreement such Loan
shall be deemed to have been made by such Bank and the obligation of the
Borrower to repay such Loan shall nevertheless be to such Bank and shall be
deemed held by it, to the extent of such Loan, for the account of such branch
or affiliate.
Section 8.6 DISCRETION OF BANKS AS TO MANNER OF FUNDING.
Notwithstanding any provision of this Agreement to the contrary, each Bank
shall be entitled to fund and maintain its funding of all or any part of its
Loans in any manner it sees fit, it being understood, however, that for the
purposes of this Agreement all determinations hereunder shall be made as if
such Bank had actually funded and maintained each Eurodollar Loan during each
Interest Period for such Loan through the purchase of deposits having a
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maturity corresponding to such Interest Period and bearing an interest rate
equal to the Eurodollar Rate for such Interest Period.
Section 8.7 MITIGATION OF CIRCUMSTANCES; REPLACEMENT OF AFFECTED BANK.
(a) Each Bank shall promptly notify the Borrower and the Agent of any event
of which it has knowledge which will result in, and will use reasonable
commercial efforts available to it (and not, in such Bank's good faith
judgment, otherwise disadvantageous to such Bank) to mitigate or avoid, (i)
any obligation by the Borrower to pay any amount pursuant to SECTION 7.6 or
8.1 or (ii) the occurrence of any circumstances of the nature described in
SECTION 8.2 or 8.3 (and, if any Bank has given notice of any such event
described in CLAUSE (i) or (ii) above and thereafter such event ceases to
exist, such Bank shall promptly so notify the Borrower and the Agent).
Without limiting the foregoing, each Bank will designate a different funding
office if such designation will avoid (or reduce the cost to the Borrower of)
any event described in CLAUSE (i) or (ii) of the preceding sentence and such
designation will not, in such Bank's sole judgment, be otherwise
disadvantageous to such Bank.
(b) At any time any Bank is an Affected Bank, the Borrower may replace
such Affected Bank as a party to this Agreement with one or more other
bank(s) or financial institution(s) reasonably satisfactory to the Agent (and
upon notice from the Borrower such Affected Bank shall assign pursuant to an
Assignment Agreement, and without recourse or warranty, its Commitment, its
Loans, its Note, its participation in Letters of Credit, and all of its other
rights and obligations hereunder to such replacement bank(s) or other
financial institution(s) for a purchase price equal to the sum of the
principal amount of the Loans so assigned, all accrued and unpaid interest
thereon, its ratable share of all accrued and unpaid non-use fees and Letter
of Credit fees, any amounts payable under SECTION 8.4 as a result of such
Bank receiving payment of any Eurodollar Loan prior to the end of an Interest
Period therefor and all other obligations owed to such Affected Bank
hereunder).
Section 8.8 CONCLUSIVENESS OF STATEMENTS; SURVIVAL OF PROVISIONS.
Determinations and statements of any Bank pursuant to SECTION 8.1, 8.2, 8.3
or 8.4 shall be conclusive absent demonstrable error. Banks may use
reasonable averaging and attribution methods in determining compensation
under SECTIONS 8.1 and 8.4, and the provisions of such Sections shall survive
repayment of the Loans, cancellation of the Notes, cancellation or expiration
of the Letters of Credit and any termination of this Agreement.
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ARTICLE IX.
WARRANTIES
To induce the Agent and the Banks to enter into this Agreement and to
induce the Banks to make Loans and issue or purchase participations in
Letters of Credit hereunder, the Borrower warrants to the Agent and the Banks
that:
Section 9.1 ORGANIZATION, ETC. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware; each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the state or jurisdiction of
its incorporation; and the Borrower and each Subsidiary is duly qualified to
transact business in each jurisdiction where the nature of its business makes
such qualification necessary (except in those instances in which the failure
to be qualified or in good standing does not have a Material Adverse Effect)
and has full power and authority to own its property and conduct its business
as presently conducted by it.
Section 9.2 AUTHORIZATION; NO CONFLICT. The execution and delivery by
the Borrower of this Agreement and each other Loan Document to which it is a
party, the borrowings hereunder, the execution and delivery by each Guarantor
of each Loan Document to which it is a party and the performance by each of
the Borrower and each Guarantor of its obligations under each Loan Document
to which it is a party are within the corporate powers of the Borrower and
each Guarantor, have been duly authorized by all necessary corporate action
on the part of the Borrower and each Guarantor (including any necessary
shareholder action), have received all necessary governmental approval (if
any shall be required), and do not and will not (a) violate any provision of
law or any order, decree or judgment of any court or other government agency
which is binding on the Borrower or any Guarantor, (b) contravene or conflict
with, or result in a breach of, any provision of the Certificate of
Incorporation, By-Laws or other organizational documents of the Borrower or
any Guarantor or of any agreement, indenture, instrument or other document
which is binding on the Borrower, any Guarantor or any other Subsidiary or
(c) result in, or require, the creation or imposition of any Lien on any
property of the Borrower, any Guarantor or any other Subsidiary (other than
Liens arising under the Loan Documents).
Section 9.3 VALIDITY AND BINDING NATURE. Each of this Agreement and
each other Loan Document to which the Borrower is a party is the legal, valid
and binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms; and each Loan Document to which any Guarantor is a
party is, or upon the execution and delivery thereof by such Guarantor will
be, the legal, valid and binding obligation of such Guarantor, enforceable
against such Guarantor in accordance with its terms.
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Section 9.4 FINANCIAL CONDITION. The audited consolidated financial
statements of the Borrower and its Subsidiaries dated May 31, 1997, and the
unaudited consolidated financial statements of the Borrower and its
Subsidiaries dated November 30, 1997, copies of which have been furnished to
each Bank:
(i) were prepared in accordance with GAAP consistently applied
throughout the periods covered thereby, except as otherwise expressly noted
therein (subject, in the case of the unaudited financial statements, to the
absence of footnotes and to customary year-end audit adjustments); and
(ii) fairly present in all material respects on a consolidated basis
the financial condition of the Borrower and its Subsidiaries as of the dates
thereof and the results of operations for the periods covered thereby.
Section 9.5 NO MATERIAL ADVERSE CHANGE. Since November 30, 1997, there
has been no material adverse change in the financial condition, operations,
assets, business, properties or prospects of the Borrower and its
Subsidiaries taken as a whole.
Section 9.6 LITIGATION AND OTHER LIABILITIES. No litigation (including
derivative actions), arbitration proceeding, labor controversy or
governmental investigation or proceeding is pending or, to the Borrower's
knowledge, threatened against the Borrower or any Subsidiary which might
reasonably be expected to have a Material Adverse Effect, except as set forth
in SCHEDULE 9.6. Other than any liability incident to such litigation or
proceedings, neither the Borrower nor any Subsidiary has any material
contingent liabilities (except for Contingent Liabilities) which are not
listed in such SCHEDULE 9.6.
Section 9.7 OWNERSHIP OF PROPERTIES; LIENS. Each of the Borrower and
each Subsidiary owns good and indefeasible title to all of its properties and
assets, real and personal, tangible and intangible, of any nature whatsoever
(including patents, trademarks, trade names, service marks and copyrights),
free and clear of all Liens, charges and material claims (including material
infringement claims with respect to patents, trademarks, copyrights and the
like) except as permitted pursuant to SECTION 10.8.
Section 9.8 SUBSIDIARIES. The Borrower has no Subsidiaries except those
listed in SCHEDULE 9.8.
Section 9.9 PENSION AND WELFARE PLANS. (a) During the
twelve-consecutive-month period prior to the date of the execution and
delivery of this Agreement or the making of any Loan hereunder, (i) no steps
have been taken to terminate any Pension Plan and (ii) no contribution
failure has occurred with respect to any Pension Plan sufficient to give rise
to a lien under Section 302(f) of ERISA. No condition exists or event or
transaction has occurred
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with respect to any Pension Plan which could result in the incurrence by the
Borrower of any material liability, fine or penalty. The Borrower has no
contingent liability with respect to any post-retirement benefit under a
Welfare Plan, other than liability for continuation coverage described in
Part 6 of Subtitle B of Title I of ERISA.
(b) All contributions (if any) have been made to any Multiemployer
Pension Plan that are required to be made by the Borrower or any other member
of the Controlled Group under the terms of the plan or of any collective
bargaining agreement or by applicable law; neither the Borrower nor any
member of the Controlled Group has withdrawn or partially withdrawn from any
Multiemployer Pension Plan, incurred any withdrawal liability with respect to
any such plan, received notice of any claim or demand for withdrawal
liability or partial withdrawal liability from any such plan, and no
condition has occurred which, if continued, might result in a withdrawal or
partial withdrawal from any such plan; and neither the Borrower nor any
member of the Controlled Group has received any notice that any Multiemployer
Pension Plan is in reorganization, that increased contributions may be
required to avoid a reduction in plan benefits or the imposition of any
excise tax, that any such plan is or has been funded at a rate less than that
required under Section 412 of the Code, that any such plan is or may be
terminated, or that any such plan is or may become insolvent.
Section 9.10 INVESTMENT COMPANY ACT. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of
1940.
Section 9.11 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower
nor any Subsidiary is a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935.
Section 9.12 REGULATION U. The Borrower is not engaged principally, or
as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying Margin Stock.
Section 9.13 TAXES. Each of the Borrower and each Subsidiary has filed
all tax returns and reports required by law to have been filed by it and has
paid all taxes and governmental charges thereby shown to be owing, except any
such taxes or charges which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with
GAAP shall have been set aside on its books.
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Section 9.14 SOLVENCY, ETC. On the Effective Date (or, in the case of
any Person which becomes a Guarantor after the Effective Date, on the date
such Person becomes a Guarantor), and immediately prior to and after giving
effect to the issuance of each Letter of Credit and each borrowing hereunder
and the use of the proceeds thereof, (a) the fair salable value of the assets
of the Borrower and the Guarantors, on a consolidated basis, exceeds, and
will immediately following the making of each Loan or other extension of
credit hereunder, exceed the amount of all debt and liabilities (including
all Contingent Liabilities) of the Borrower and the Guarantors, (b) neither
the Borrower nor any Guarantor has, or will have immediately following the
making of each Loan or other extension of credit hereunder, unreasonably
small capital to carry out its business as conducted or proposed to be
conducted; and (c) the Borrower and the Guarantors do not intend to, or
believe that they will, incur debts beyond their ability to pay such debts as
they mature.
Section 9.15 ENVIRONMENTAL MATTERS.
(a) NO VIOLATIONS. Except as set forth on SCHEDULE 9.15, neither the
Borrower nor any Subsidiary, nor any operator of the Borrower's or any
Subsidiary's properties, is in violation, or alleged violation, of any
judgment, decree, order, law, permit, license, rule or regulation pertaining
to environmental matters, including those arising under the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986 or any other Environmental Law
which (i) in any single case, requires expenditures in any three-year period
of $500,000 or more by the Borrower and its Subsidiaries in penalties and/or
for investigative, removal or remedial actions or (ii) individually or in the
aggregate otherwise might reasonably be expected to have a Material Adverse
Effect.
(b) NOTICES. Except as set forth on SCHEDULE 9.15, neither the Borrower
nor any Subsidiary has received notice from any third party, including any
Federal, state or local Governmental authority: (a) that any one of them has
been identified by the U.S. Environmental Protection Agency as a potentially
responsible party under CERCLA with respect to a site listed on the National
Priorities List, 40 C.F.R. Part 300 Appendix B; (b) that any hazardous waste,
as defined by 42 U.S.C. Section 6903(5), any hazardous substance as defined
by 42 U.S.C. Section 9601(14), any pollutant or contaminant as defined by 42
U.S.C. Section 9601(33) or any toxic substance, oil or hazardous material or
other chemical or substance regulated by any Environmental Law, excluding
household hazardous waste (all of the foregoing, "HAZARDOUS SUBSTANCES"),
which any one of them has generated, transported or disposed of has been
found at any site at which a Federal, state or local agency or other third
party has conducted a remedial investigation, removal or other
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response action pursuant to any Environmental Law; (c) that the Borrower or
any Subsidiary must conduct a remedial investigation, removal, response
action or other activity pursuant to any Environmental Law; or (d) of any
Environmental Claim which individually or in the aggregate might reasonably
be expected to have a Material Adverse Effect.
(c) HANDLING OF HAZARDOUS SUBSTANCES. Except as set forth on SCHEDULE
9.15, (i) no portion of the real property or other assets of the Borrower or
any Subsidiary has been used for the handling, processing, storage or
disposal of Hazardous Substances except in accordance in all material
respects with applicable Environmental Laws; and no underground tank or other
underground storage receptacle for Hazardous Substances is located on such
properties; (ii) except in the ordinary course of business of the Borrower
and its Subsidiaries and in accordance in all material respects with
applicable Environmental Laws, no Hazardous Substances have been generated or
are being used on the properties of Borrower or any Subsidiary, except to the
extent such generation or use, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect; (iii) there have
been no Releases or threatened Releases of Hazardous Substances on, upon,
into or from any real property or other assets of the Borrower or any
Subsidiary, which Releases singly or in the aggregate might reasonably be
expected to have a material adverse effect on the value of such real property
or assets; (iv) to the Borrower's current, actual knowledge without inquiry,
there have been no Releases on, upon, from or into any real property in the
vicinity of the real property or other assets of the Borrower or any
Subsidiary which, through soil or groundwater contamination, may have come to
be located on the real property or other assets of Borrower or any
Subsidiary, and which might reasonably be expected to have a Material Adverse
Effect; and (v) to the extent any Hazardous Substances generated by the
Borrower and its Subsidiaries have been transported offsite, such
transportation of Hazardous Substances has been performed only by properly
licensed carriers and delivered only to treatment or disposal facilities
maintaining valid permits as required under applicable Environmental Laws,
which transporters and facilities have been and are, to the best of the
Borrower's knowledge, operating in compliance with such permits and
applicable Environmental Laws.
Section 9.16 YEAR 2000. The Borrower and its Subsidiaries have reviewed
the areas within their business and operations which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, any "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower and its Subsidiaries may be unable to
recognize and perform properly date-sensitive functions involving certain
dates prior to and any date after December 31, 1999). Based on such review
and program, the Borrower reasonably believes that any such "Year 2000
Problem" will not have a Material Adverse Effect.
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Section 9.17 INFORMATION. All information heretofore or
contemporaneously herewith furnished in writing by the Borrower or any
Subsidiary to any Bank for purposes of or in connection with this Agreement
and the transactions contemplated hereby is, and all written information
hereafter furnished by or on behalf of the Borrower or any Subsidiary to any
Bank pursuant hereto or in connection herewith will be, true and accurate in
every material respect on the date as of which such information is dated or
certified, and none of such information is or will be incomplete by omitting
to state any material fact necessary to make such information not misleading
in light of the circumstances under which made (it being recognized by the
Agent and the Banks that any projections and forecasts provided by the
Borrower are based on good faith estimates and assumptions believed by the
Borrower to be reasonable as of the date of the applicable projections or
assumptions and that actual results during the period or periods covered by
any such projections and forecasts may differ from projected or forecasted
results).
Section 9.18. DEBT AND CONTINGENT LIABILITIES. Neither Borrower nor any
Subsidiary has any Debt except Debt which is described on SCHEDULE 9.18(A).
Neither Borrower nor any Subsidiary has any Contingent Liabilities except
Contingent Liabilities which are described on SCHEDULE 9.18(B).
ARTICLE X.
COVENANTS
Until the expiration or termination of the Commitments and thereafter
until all obligations of the Borrower hereunder and under the other Loan
Documents are paid in full and all Letters of Credit have been terminated,
the Borrower agrees that, unless at any time the Required Banks shall
otherwise expressly consent in writing, it will observe and perform the
covenants set forth below.
Section 10.1 REPORTS, CERTIFICATES AND OTHER INFORMATION. The Borrower
will furnish to the Agent and each Bank:
10.1.1 AUDIT REPORT. Promptly when available and in any event within
one hundred twenty (120) days after the close of each Fiscal Year, a copy of
the annual audit report of the Borrower and its Subsidiaries for such Fiscal
Year, including therein consolidated balance sheets of the Borrower and its
Subsidiaries as of the end of such Fiscal Year and consolidated statements of
earnings and cash flow of the Borrower and its Subsidiaries for such Fiscal
Year, certified without qualification by KPMG Peat Marwick, L.L.P. or other
independent auditors of recognized standing selected by the Borrower and
reasonably acceptable to the Required Banks.
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10.1.2 QUARTERLY REPORTS. Promptly when available and in any event
within 45 days after the end of each Fiscal Quarter (except the last Fiscal
Quarter) of each Fiscal Year, consolidated balance sheets of the Borrower and
its Subsidiaries as of the end of such Fiscal Quarter, together with
consolidated statements of earnings and consolidated statements of cash flow
for such Fiscal Quarter and for the period beginning with the first day of
such Fiscal Year and ending on the last day of such Fiscal Quarter, certified
by an officer of the Borrower acceptable to the Agent to have been prepared
in accordance with GAAP for interim financial statements and instructions to
Form 10-Q and Regulation S-X and to fairly present the financial conditions
and results of operations of Borrower and its Subsidiaries, on a consolidated
basis, at the date and for the periods indicated therein.
10.1.3 COMPLIANCE CERTIFICATES. Contemporaneously with the
furnishing of a copy of each annual audit report pursuant to SECTION 10.1.1
and of each set of quarterly statements pursuant to SECTION 10.1.2, a duly
completed Compliance Certificate, with appropriate insertions, dated the date
of such annual report or such quarterly statements and signed by an officer
of the Borrower acceptable to the Agent.
10.1.4 PROJECTIONS. As soon as practicable and in any event within
45 days after the commencement of each Fiscal Year, consolidated financial
projections for the Borrower and its Subsidiaries for such Fiscal Year
prepared in a manner consistent with those projections delivered by the
Borrower to the Banks prior to the Effective Date or otherwise in a manner
satisfactory to the Agent.
10.1.5 REPORTS TO SEC AND TO SHAREHOLDERS. Promptly upon the filing
or sending thereof, copies of all regular, periodic or special reports of the
Borrower or any Subsidiary filed with the SEC (excluding exhibits thereto,
provided that the Borrower shall promptly deliver any such exhibit to the
Agent or any Bank upon request therefor); copies of all registration
statements of the Borrower or any Subsidiary filed with the SEC (other than
on Form S-8); and copies of all proxy statements or other communications made
to security holders generally concerning material developments in the
business of the Borrower or any Subsidiary.
10.1.6 NOTICE OF DEFAULT, LITIGATION AND ERISA MATTERS. Immediately
upon becoming aware of any of the following, written notice describing the
same and the steps being taken by the Borrower or the Subsidiary affected
thereby with respect thereto:
(a) the occurrence of an Event of Default or an Unmatured Event of
Default;
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(b) any litigation, arbitration or governmental investigation or
proceeding not previously disclosed by the Borrower to the Banks which
has been instituted or, to the knowledge of the Borrower, is threatened
against the Borrower or any Subsidiary or to which any of the properties
of any thereof is subject which, if adversely determined, might
reasonably be expected to have a Material Adverse Effect;
(c) the institution of any steps by any member of the Controlled
Group or any other Person to terminate any Pension Plan, or the failure
of any member of the Controlled Group to make a required contribution to
any Pension Plan (if such failure is sufficient to give rise to a lien
under Section 302(f) of ERISA) or to any Multiemployer Pension Plan, or
the taking of any action with respect to a Pension Plan which could
result in the requirement that the Borrower furnish a bond or other
security to the PBGC or such Pension Plan, or the occurrence of any
event with respect to any Pension Plan or Multiemployer Pension Plan
which could result in the incurrence by any member of the Controlled
Group of any material liability, fine or penalty (including any claim or
demand for withdrawal liability or partial withdrawal from any
Multiemployer Pension Plan), or any material increase in the contingent
liability of the Borrower with respect to any post-retirement Welfare
Plan benefit, or any notice that any Multiemployer Pension Plan is in
reorganization, that increased contributions may be required to avoid a
reduction in plan benefits or the imposition of an excise tax, that any
such plan is or has been funded at a rate less than that required under
Section 412 of the Code, that any such plan is or may be terminated, or
that any such plan is or may become insolvent;
(d) any cancellation or material change in any material insurance
maintained by the Borrower or any Subsidiary, if the failure of the
Borrower to maintain such insurance (individually or in the aggregate)
might reasonably be expected to have a Material Adverse Effect; provided
that the Borrower shall not be required to give notice of cancellations
of or changes to insurance policies if such policies are replaced with
policies containing comparable coverage provisions and similar
deductibles;
(e) any event (including (i) any violation of any Environmental
Law or the assertion of any Environmental Claim or (ii) the enactment or
effectiveness of any law, rule or regulation) which might reasonably be
expected to have a Material Adverse Effect; or
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(f) any setoff, claims, withholdings or other defenses to which
any of the Collateral, or the Banks' rights with respect to the
Collateral, are subject, which if asserted might be reasonably likely to
cause a Material Adverse Effect.
10.1.7 SUBSIDIARIES. Promptly upon any change in the list of its
ubsidiaries, a written report of such change.
10.1.8 MANAGEMENT REPORTS. Promptly upon the request of the Agent or
any Bank, copies of all detailed financial and management reports submitted
to the Borrower by independent auditors in connection with each annual or
interim audit made by such auditors of the books of the Borrower.
10.1.9 MONTHLY FINANCIAL STATEMENTS UPON AN EVENT OF DEFAULT OR
UNMATURED EVENT OF DEFAULT. Upon the occurrence and during the continuance
of an Event of Default or an Unmatured Event of Default, promptly when
available and in any event within 30 days after the end of each month of each
Fiscal Year, consolidated balance sheets of the Borrower and its Subsidiaries
as of the end of such month, together with consolidated statements of
earnings and consolidated statements of cash flow for such month and for the
period beginning with the first day of such Fiscal Year and ending on the
last day of such month, certified by an officer of the Borrower acceptable to
the Agent to have been prepared in accordance with GAAP and to fairly present
the financial conditions and results of operations of Borrower and its
Subsidiaries, on a consolidated basis, at the date and for the periods
indicated therein.
10.1.10 OTHER INFORMATION. From time to time such other information
concerning the Borrower and its Subsidiaries as any Bank or the Agent may
reasonably request.
Section 10.2 BOOKS, RECORDS AND INSPECTIONS. The Borrower will keep,
and will cause each Subsidiary to keep, its books and records in accordance
with sound business practices sufficient to allow the preparation of
financial statements in accordance with GAAP; permit, and cause each
Subsidiary to permit, at any reasonable time and with reasonable notice (or
at any time without notice if an Event of Default exists), any Bank or the
Agent or any representative thereof to inspect the properties and operations
of the Borrower and of such Subsidiary; and permit, and cause each Subsidiary
to permit, at any reasonable time and with reasonable notice (or at any time
without notice if an Event of Default exists), any Bank or the Agent or any
representative thereof to visit any or all of its offices, to discuss its
financial matters with its officers and its independent auditors (and,
subject to applicable laws regarding professional privileges, the Borrower
hereby authorizes such independent auditors to discuss such
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financial matters with any Bank or the Agent or any representative thereof
whether or not any representative of the Borrower or any Subsidiary is
present), and to examine (and, at the expense of the Borrower or the
applicable Subsidiary, photocopy extracts from) any of its books or other
corporate records.
Section 10.3 INSURANCE. The Borrower will maintain, and cause each
Subsidiary to maintain, with responsible insurance companies, such insurance
as may be required by any law or governmental regulation or court decree or
order applicable to it and such other insurance, to such extent and against
such hazards and liabilities, as is customarily maintained by companies
similarly situated; and, upon request of the Agent or any Bank, furnish to
the Agent or such Bank a certificate setting forth in reasonable detail the
nature and extent of all insurance maintained by the Borrower and its
Subsidiaries.
Section 10.4 COMPLIANCE WITH LAWS; PAYMENT OF TAXES AND LIABILITIES.
The Borrower will (a) comply, and cause each Subsidiary to comply, in all
material respects with all applicable laws (including Environmental Laws),
rules, regulations, decrees, orders, judgments, licenses and permits; and (b)
pay, and cause each Subsidiary to pay, prior to delinquency, all taxes and
other governmental charges against it or any of its property, as well as
claims of any kind which, if unpaid, might become a Lien on any of its
property; PROVIDED, HOWEVER, that the foregoing shall not require the
Borrower or any Subsidiary to pay any such tax or charge so long as it shall
contest the validity thereof in good faith by appropriate proceedings and
shall set aside on its books adequate reserves with respect thereto in
accordance with GAAP.
Section 10.5 MAINTENANCE OF EXISTENCE, ETC. The Borrower will maintain
and preserve, and (subject to SECTION 10.10) cause each Subsidiary to
maintain and preserve, (a) its existence and good standing in the
jurisdiction of its incorporation and (b) its qualification and good standing
as a foreign corporation in each jurisdiction where the nature of its
business makes such qualification necessary (except in those instances in
which the failure to be so qualified or in good standing does not have a
Material Adverse Effect).
Section 10.6 FINANCIAL COVENANTS.
10.6.1 CURRENT RATIO. The Borrower will at all times maintain a
Current Ratio of not less than 1.75 to 1.00. The Current Ratio shall be
calculated and tested quarterly as of the last day of each Fiscal Quarter.
10.6.2 FUNDED DEBT TO CAPITALIZATION RATIO - COVENANT. The Borrower
at all times maintain a Funded Debt to Capitalization Ratio - Covenant of not
greater than 0.45 to 1.00. The Funded Debt to Capitalization Ratio -
Covenant
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shall be calculated and tested quarterly as of the last day of each
Fiscal Quarter.
10.6.3 FIXED CHARGE COVERAGE RATIO. The Borrower will at all times
maintain a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00. The
Fixed Charge Coverage Ratio shall be calculated and tested quarterly as of
the last day of each Fiscal Quarter, and the Calculation Period for such
testing shall be the Computation Period ending on the last day of such Fiscal
Quarter.
10.6.4 TANGIBLE NET WORTH. The Borrower will at all times maintain
Tangible Net Worth in an amount which is not less than the sum of (a) ninety
percent (90%) of Tangible Net Worth as of November 30, 1997
($280,000,000.00), PLUS (b) fifty percent (50%) of Net Income during the
period beginning on the Effective Date and ending on the date on which such
calculation is made (PROVIDED that, if Net Income is less than zero for any
Fiscal Quarter, for purposes of this SECTION 10.6.4 such sum will be deemed
to have been zero for such Fiscal Quarter) PLUS (c) seventy-five percent
(75%) of the net proceeds of any equity issued by the Borrower or any of its
Subsidiaries (on a consolidated basis) after the Effective Date. Tangible
Net Worth shall be calculated and tested quarterly as of the last day of each
Fiscal Quarter.
10.6.5 CAPITAL EXPENDITURES. The Borrower will not permit the
aggregate amount of all Capital Expenditures made by Borrower and its
Subsidiaries in any Fiscal Year to exceed $30,000,000.
Section 10.7 LIMITATIONS ON DEBT AND CONTINGENT LIABILITIES. The
Borrower will not, and will not permit any Subsidiary to, create, incur,
assume or permit to exist any Debt or Contingent Liabilities unless (a)
immediately before and immediately after giving effect to such additional
Debt or Contingent Liabilities no Event of Default or Unmatured Event of
Default shall have occurred and be continuing, and (b) the Borrower is in PRO
FORMA compliance with all the financial ratios and covenants set forth in
SECTION 10.6 before and immediately after giving effect to such additional
Debt.
Section 10.8 LIENS. The Borrower will not, and will not permit any
Subsidiary to, create or permit to exist any Lien on any of its real or
personal properties, assets or rights of whatsoever nature (whether now owned
or hereafter acquired), except:
(a) Liens in favor of the Agent arising under the Loan Documents;
(b) Liens identified in SCHEDULE 10.8;
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(c) Liens for taxes, assessments or other governmental charges not at
the time delinquent or thereafter payable without penalty or being contested
in good faith by appropriate proceedings and, in each case, for which it
maintains adequate reserves;
(d) Liens arising in the ordinary course of business (such as (i) Liens
of carriers, warehousemen, mechanics and materialmen and other similar Liens
imposed by law and (ii) Liens incurred in connection with worker's
compensation, unemployment compensation and other types of social security
(excluding Liens arising under ERISA) or in connection with surety bonds,
bids, performance bonds and similar obligations) for sums not overdue or
being contested in good faith by appropriate proceedings and not involving
any deposits or advances or borrowed money or the deferred purchase price of
property or services, and, in each case, for which it maintains adequate
reserves;
(e) attachments, appeal bonds, judgments and other similar Liens, for
sums not exceeding $250,000 arising in connection with court proceedings,
provided the execution or other enforcement of such Liens is effectively
stayed and the claims secured thereby are being actively contested in good
faith and by appropriate proceedings;
(f) easements, rights of way, restrictions, minor defects or
irregularities in title and other similar Liens not interfering in any
material respect with the ordinary conduct of the business of the Borrower or
any Subsidiary;
(g) Liens on property acquired by Borrower or any Subsidiary in
connection with an Acquisition existing at the time of such Acquisition (and
not created in contemplation of such Acquisition); and
(h) Liens that constitute purchase money security interests on equipment
securing Debt incurred after the Effective Date for the purpose of financing
all or any part of the cost of acquiring such equipment after the Effective
Date in an aggregate amount which does not exceed $10,000.000.00 at any time,
PROVIDED that any such Lien attaches to such equipment within 60 days of the
acquisition thereof and such Lien attaches solely to the equipment so
acquired.
Section 10.9 ADDITIONAL MATERIAL SUBSIDIARIES AS GUARANTORS; PLEDGE OF
STOCK OF ADDITIONAL MATERIAL SUBSIDIARIES. The Borrower will cause each
Material Subsidiary created or acquired after the Effective Date to execute a
Guaranty and deliver such Guaranty to the Agent, unless the Required Banks
have determined that such Material Subsidiary is not to be a Guarantor. If
any Subsidiary which was not determined to be a Material Subsidiary on the
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Effective Date or upon its creation or acquisition becomes a Material
Subsidiary, the Borrower will promptly give the Agent notice of such event
and will cause such Material Subsidiary to execute and deliver a Guaranty to
the Agent, unless the Required Banks determine that such Material Subsidiary
is not to be a Guarantor. Promptly upon the creation or acquisition of any
Material Subsidiary after the Effective Date or the determination after the
Effective Date that a Subsidiary has become a Material Subsidiary, the
Borrower or the Subsidiary of which such Material Subsidiary is a Subsidiary
will execute and deliver to the Agent (a) a Pledge Agreement-Borrower or a
Pledge Agreement-Subsidiary, as applicable, pursuant to which the Borrower or
such Subsidiary of which such Material Subsidiary is a Subsidiary will pledge
to the Agent (i) 100% of the shares of voting stock of such newly created or
acquired Material Subsidiary if such Material Subsidiary is organized and
existing under the laws of the United States or a state thereof, and (ii) 65%
of the shares of voting stock of such newly created or acquired Material
Subsidiary if such Material Subsidiary is not organized and existing under
the laws of the United States or a state thereof, (b) certificates evidencing
the shares pledged pursuant to the preceding clause (a), (c) blank stock
powers with signatures guaranteed in a manner satisfactory to the Agent with
respect to the certificates referred to in the preceding clause (b), and (d)
uniform commercial code financing statements with respect to the shares
pledged pursuant to the preceding clause (a).
Section 10.10 MERGERS, CONSOLIDATIONS, SALES; LIQUIDATION. The Borrower
will not, and will not permit any Subsidiary to, be a party to any merger or
consolidation, or purchase or otherwise acquire all or substantially all of
the assets or any stock of any class of, or any partnership or joint venture
interest in, any other Person, or sell, transfer, convey or lease all or any
substantial part of its assets, or sell or assign with or without recourse
any receivables, except for (a) any such merger or consolidation, sale,
transfer, conveyance, lease or assignment of or by any wholly-owned
Subsidiary into the Borrower or into, with or to any other wholly-owned
Subsidiary; (b) any such purchase or other acquisition by the Borrower or any
wholly-owned Subsidiary of the assets or stock of any wholly-owned
Subsidiary; (c) any such negotiated, non-hostile purchase or other
acquisition by the Borrower or any wholly-owned Subsidiary of the assets or
stock of any other Person where (1) immediately before and immediately after
giving effect to such purchase or acquisition, no Event of Default or
Unmatured Event of Default shall have occurred and be continuing; and (2) the
Borrower is in PRO FORMA compliance (on a combined historical basis) with all
the financial ratios and covenants set forth in SECTION 10.6 immediately
before and immediately after giving effect to such purchase or acquisitions;
and (d) sales and dispositions of assets (including the stock of
Subsidiaries), other than sales of inventory in the ordinary course of
business, so long as the net book value of all assets sold or
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otherwise disposed of in any Fiscal Year does not exceed $5,000,000.00. The
Borrower will not dissolve or liquidate.
Section 10.11 MODIFICATION OF ORGANIZATIONAL DOCUMENTS. The Borrower
will not permit the Certificate of Incorporation, By-Laws or other
organizational documents of the Borrower or any Subsidiary to be amended or
modified in any way which might reasonably be expected to materially
adversely affect the interests of the Banks.
Section 10.12 USE OF PROCEEDS. The Borrower will use the proceeds of
the Loans solely to finance the Borrower's working capital, for acquisitions
permitted by SECTION 10.10, for Capital Expenditures and for other general
corporate purposes, including the payment of existing Debt; and not use or
permit any proceeds of any Loan to be used, either directly or indirectly,
for the purpose, whether immediate, incidental or ultimate, of "purchasing or
carrying" any Margin Stock.
Section 10.13 FURTHER ASSURANCES. The Borrower will take, and will
cause each Subsidiary to take, such actions as the Agent or the Required
Banks may reasonably request from time to time (including the execution and
delivery of guaranties, pledge agreements, financing statements and other
documents, the filing or recording of any of the foregoing, the delivery of
stock certificates and other collateral with respect to which perfection is
obtained by possession and the delivery of stock powers with signatures
guaranteed) to ensure that the obligations of the Borrower hereunder and
under the other Loan Documents are secured as contemplated herein and in the
Pledge Agreements and guaranteed by the Guarantors by their execution of the
Guaranties.
Section 10.14 TRANSACTIONS WITH AFFILIATES. The Borrower will not, and
will not permit any Subsidiary to, enter into, or cause, suffer or permit to
exist any transaction, arrangement or contract with any of its other
Affiliates (other than the Borrower and its Subsidiaries) which is on terms
which are less favorable than are obtainable from any Person which is not one
of its Affiliates.
Section 10.15 EMPLOYEE BENEFIT PLANS. The Borrower will maintain, and
will cause each Subsidiary to maintain, each Pension Plan in substantial
compliance with all applicable requirements of law and regulations.
Section 10.16 ENVIRONMENTAL MATTERS. If any material Release or
Disposal of Hazardous Substances shall occur or shall have occurred on any
real property or any other assets of the Borrower or any Subsidiary which
individually or in the aggregate might reasonably be expected to have a
Material Adverse Effect, the Borrower shall, or shall cause the applicable
Subsidiary to, cause the prompt containment and removal of such Hazardous
Substances and the remediation of such real property or other assets as
necessary
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to comply in all material respects with all Environmental Laws and to
preserve the value of such real property or other assets. Without limiting
the generality of the foregoing, the Borrower shall, and shall cause each
Subsidiary to, comply in a reasonable and cost-effective manner with any
valid Federal or state judicial or administrative order requiring the
performance at any real property of the Borrower or any Subsidiary of
activities in response to the Release or threatened Release of a Hazardous
Substance except for the period of time that the Borrower or such Subsidiary
is diligently and in good faith contesting such order.
Section 10.17 INCONSISTENT AGREEMENTS. The Borrower will not, and will
not permit any Subsidiary to, enter into any agreement containing any
provision which (a) would be violated or breached by any borrowing by
Borrower hereunder or by the performance by the Borrower or any Subsidiary of
any of its obligations hereunder or under any other Loan Document or (b)
would require the Borrower or any Subsidiary to grant a Lien on any of its
assets, except for Liens permitted by Section 10.9.
Section 10.18 BUSINESS ACTIVITIES. The Borrower will not, and will not
permit any Subsidiary to, engage in any line of business not reasonably
related to the businesses in which they were engaged on the Effective Date
without the prior consent of the Required Banks, which consent shall not be
unreasonably withheld or delayed. The Borrower will continue to be engaged
in the lines of business in which it was engaged on the Effective Date.
Section 10.19 ADVANCES AND OTHER INVESTMENTS. The Borrower will not,
and will not permit any Subsidiary to, make, incur, assume or suffer to exist
any Investment in any other Person, except (without duplication) the
following:
(a) equity Investments existing on the Effective Date in Subsidiaries
identified in SCHEDULE 9.8;
(b) equity Investments in Subsidiaries acquired after the Effective
Date in transactions permitted as acquisitions of stock or assets pursuant to
SECTION 10.10;
(c) in the ordinary course of business, contributions by the Borrower
to the capital of any of its Subsidiaries, or by any such Subsidiary to the
capital of any of its Subsidiaries;
(d) in the ordinary course of business, Investments by the Borrower in
any Subsidiary or by any of the Subsidiaries in the Borrower, by way of
intercompany loans, advances or guaranties, all to the extent permitted by
SECTION 10.7;
(e) Investments made in connection with prospective acquisitions of
stock or assets permitted by SECTION 10.10;
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(f) Cash Equivalent Investments;
(g) loans to customers of the Borrower or any Subsidiary relating to
the sale of inventory; and
(h) loans and advances which do not exceed $5,000,000.00 in principal
amount outstanding at any time;
PROVIDED, HOWEVER, that no Investment otherwise permitted by CLAUSE (b), (c),
(d), (e), (g) OR (h) shall be permitted to be made if, immediately before and
immediately after giving effect thereto, any Event of Default or Unmatured
Event of Default shall have occurred and be continuing.
Section 10.20 PARTNERSHIPS AND JOINT VENTURES. The Borrower will not,
and will not permit any Subsidiary to, be a party to any partnership or joint
venture (other than the partnerships and joint ventures listed on Schedule
10.20), or purchase or otherwise acquire any partnership or joint venture
interest in, any other Person, except for (a) partnerships or joint ventures
in which the Borrower and its Subsidiaries are the sole partners or joint
venturers; and (b) any such purchase or other acquisition by the Borrower or
any wholly-owned Subsidiary of any partnership or joint venture interest in
any other Person where (1) immediately before and immediately after giving
effect to such purchase or acquisition, no Event of Default or Unmatured
Event of Default shall have occurred and be continuing; and (2) the Borrower
is in PRO FORMA compliance (on a combined historical basis) with all the
financial ratios and covenants set forth in SECTION 10.6 immediately before
and immediately after giving effect to such purchase or acquisition.
Section 10.21 MANAGEMENT. Borrower will maintain in senior management
positions Persons who would generally be deemed to be competent to perform
such positions by Persons engaged in similar businesses.
ARTICLE XI.
EFFECTIVENESS; CONDITIONS OF LENDING, ETC.
The obligation of each Bank to make its Loans and of any Issuing Bank to
issue Letters of Credit is subject to the following conditions precedent:
Section 11.1 INITIAL CREDIT EXTENSIONS. The obligation of each Bank to
make its initial Loan and of any Issuing Bank to issue any Letter of Credit,
whichever first occurs, is, in addition to the conditions precedent specified
in SECTION 11.2, subject to the conditions precedent (and the date on which
all such conditions precedent have been satisfied or waived in writing by the
Banks is
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called the "EFFECTIVE DATE") that the Agent shall have received (a) all
amounts which are then due and payable pursuant to ARTICLE V and (to the
extent billed) SECTION 14.6 and (b) all of the following, each duly executed
and dated the Effective Date (or such earlier date as shall be satisfactory
to the Agent), in form and substance satisfactory to the Agent, and each
(except for the Notes, of which only one original of each Note shall be
signed) in sufficient number of signed counterparts to provide one for each
Bank:
11.1.1 RESOLUTIONS - BORROWER. Certified copies of resolutions of
the Board of Directors of the Borrower authorizing or ratifying the
execution, delivery and performance by the Borrower of this Agreement, the
Notes and the other Loan Documents to which the Borrower is a party.
11.1.2 RESOLUTIONS - GUARANTORS. Certified copies of resolutions of
the Board of Directors of each Guarantor authorizing or ratifying the
execution, delivery and performance by such Guarantor of each Loan Document
to which such Guarantor is a party.
11.1.3 INCUMBENCY AND SIGNATURE CERTIFICATES. A certificate of the
Secretary or an Assistant Secretary of the Borrower and each Guarantor as of
the Effective Date certifying the names of the officer or officers of such
Person authorized to sign the Loan Documents to which such Person is a party,
together with a sample of the true signature of each such officer (it being
understood that the Agent and each Bank may conclusively rely on each such
certificate until formally advised by a like certificate of any changes
therein).
11.1.4 CERTIFICATE OF INCORPORATION. The certificate or articles of
incorporation of the Borrower certified by the Secretary of State of
Delaware, and the certificate or articles of incorporation of each Guarantor
certified by the Secretary or the Assistant Secretary of such Guarantor.
11.1.5 BYLAWS. The bylaws of the Borrower and each Guarantor
certified by the Secretary or an Assistant Secretary of such Person.
11.1.6 GOVERNMENTAL CERTIFICATES. Certificates of the appropriate
government officials of (a) the jurisdiction of incorporation of the Borrower
and each Guarantor as to the existence and good standing of the Borrower and
each Guarantor, and (b) each jurisdiction in which the Borrower or any
Guarantor is qualified to transact business as a foreign corporation as to
the good standing of such Person as a foreign corporation.
11.1.7 NOTES. The Notes.
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11.1.8 PLEDGE AGREEMENTS. (a) A Pledge Agreement-Borrower pursuant
to which the Borrower will pledge to the Agent (a) 100% of the shares of
voting stock of each Material Subsidiary owned by it if such Material
Subsidiary is organized and existing under the laws of the United States or
a state thereof, and (b) 65% of the shares of voting stock of each Material
Subsidiary owned by it if such Material Subsidiary is not organized and
existing under the laws of the United States or a state thereof, together
with stock certificates representing the stock pledged thereby, stock powers
with respect thereto (containing signature guaranties), uniform commercial
code financing statements with respect thereto and other items required to be
delivered in connection therewith.
(b) A Pledge Agreement-Subsidiary pursuant to which any Subsidiary who
is the parent of a Material Subsidiary will pledge to the Agent (a) 100% of
the shares of voting stock of each Material Subsidiary owned by it if such
Material Subsidiary is organized and existing under the laws of the United
States or a state thereof, and (b) 65% of the shares of voting stock of each
Material Subsidiary owned by it if such Material Subsidiary is not organized
and existing under the laws of the United States or a state thereof, together
with stock certificates representing the stock pledged thereby, stock powers
with respect thereto (containing signature guaranties), uniform commercial
code financing statements with respect thereto and other items required to be
delivered in connection therewith.
11.1.9 GUARANTIES. Guaranties executed by each of the Material
Subsidiaries who are to be Guarantors listed on Schedule 1.1.B.
11.1.10 CONSENTS, ETC. Certified copies of all documents evidencing
any necessary corporate action, consents and governmental approvals (if any)
required for the execution, delivery and performance by the Borrower and the
Guarantors of the documents referred to in this ARTICLE XI.
11.1.11 COMPLIANCE CERTIFICATE. A Compliance Certificate as of
November 30, 1997.
11.1.12 OPINION OF COUNSEL FOR THE BORROWER AND GUARANTORS. The
opinion of Haynes and Boone, L.L.P., counsel to the Borrower and Guarantors.
11.1.13 OTHER. Such other documents as the Agent or any Bank may
reasonably request.
Section 11.2 CONDITIONS. The obligation (a) of each Bank to make each
Loan and (b) of each Issuing Bank to issue each Letter of
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Credit is subject to the following further conditions precedent that:
11.2.1 COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Both before and
after giving effect to any borrowing and the issuance of any Letter of Credit
the following statements shall be true and correct:
(a) the representations and warranties of the Borrower and
Guarantors set forth in this Agreement (excluding SECTION 9.6) and the
other Loan Documents shall be true and correct in all material respects
with the same effect as if then made (except to the extent stated to
relate to an earlier date, in which case such representations and
warranties shall be true and correct in all material respects as of such
earlier date);
(b) except as disclosed by the Borrower to the Agent and the Banks
pursuant to SECTION 9.6,
(i) no litigation (including derivative actions), arbitration
proceeding, labor controversy or governmental investigation or
proceeding shall be pending or, to the knowledge of the Borrower,
threatened against the Borrower or any of its Subsidiaries which
might reasonably be expected to have a Material Adverse Effect or
which purports to affect the legality, validity or enforceability
of this Agreement, the Notes or any other Loan Document; and
(ii) no development shall have occurred in any litigation
(including derivative actions), arbitration proceeding, labor
controversy or governmental investigation or proceeding disclosed
pursuant to SECTION 9.6 which might reasonably be expected to have
a Material Adverse Effect; and
(c) no Event of Default or Unmatured Event of Default shall have
then occurred and be continuing, and neither the Borrower nor any of its
Subsidiaries shall be in violation of any law or governmental regulation
or court order or decree where such violation or violations singly or in
the aggregate might reasonably be expected to have a Material Adverse
Effect.
11.2.2 CONFIRMATORY CERTIFICATE. If requested by the Agent or any
Bank, the Agent shall have received (in sufficient counterparts to provide
one to each Bank) a certificate dated the date of such requested Loan or
Letter of Credit and signed by a duly authorized representative of the
Borrower as to the matters set out in SECTION 11.2.1 (it being
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understood that each request by the Borrower for the making of a Loan or the
issuance of a Letter of Credit shall be deemed to constitute a warranty by
the Borrower that the conditions precedent set forth in SECTION 11.2.1 will
be satisfied at the time of the making of such Loan or the issuance of such
Letter of Credit), together with such other documents as the Agent or any
Bank may reasonably request in support thereof.
ARTICLE XII.
EVENTS OF DEFAULT AND THEIR EFFECT
Section 12.1 EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default under this Agreement:
12.1.1 NON-PAYMENT OF THE LOANS, ETC. Default in the payment when
due of the principal of, or interest on, any Loan; or default in the payment
when due of any fee or other amount payable by the Borrower hereunder or
under any other Loan Document.
12.1.2 WARRANTIES. Any warranty made by the Borrower herein is
breached, or is false or misleading, in any material respect, or any
schedule, certificate, financial statement, report, notice or other writing
furnished by the Borrower to the Agent or any Bank in connection herewith is
false or misleading in any material respect as of the date as of which the
facts therein set forth are stated or certified.
12.1.3 NON-COMPLIANCE WITH PROVISIONS OF THIS AGREEMENT. (a) Failure
by the Borrower to comply with or to perform any covenant set forth in
SECTION 10.1, 10.2, 10.3, 10.4, 10.6, 10.7, 10.8, 10.9, 10.13, 10.14, 10.15
OR 10.16 and continuance of such failure for thirty (30) days following
delivery by the Lender to the Borrower of notice of such failure; or (b)
failure by the Borrower to comply with or to perform any provision of this
Agreement other than the covenants set forth in SECTION 10.6.
12.1.4 BANKRUPTCY, INSOLVENCY, ETC. The Borrower or any Material
Subsidiary becomes insolvent or generally fails to pay, or admits in writing
its inability or refusal to pay, debts as they become due; or the Borrower or
any Subsidiary applies for, consents to, or acquiesces in the appointment of
a trustee, receiver or other custodian for the Borrower or such Material
Subsidiary or any property thereof, or makes a general assignment for the
benefit of creditors; or, in the absence of such application, consent or
acquiescence, a trustee, receiver or other custodian is appointed for the
Borrower or any Material Subsidiary or for a substantial part of the property
of any thereof; or any bankruptcy,
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reorganization, debt arrangement, or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution or liquidation proceeding
(except the voluntary dissolution, not under any bankruptcy or insolvency
law, of a Material Subsidiary), is commenced in respect of the Borrower or
any Material Subsidiary, and if such case or proceeding is not commenced by
the Borrower or such Material Subsidiary, it is consented to or acquiesced in
by the Borrower or such Material Subsidiary, or remains for 60 days
undismissed; or the Borrower or any Material Subsidiary takes any corporate
action to authorize, or in furtherance of, any of the foregoing.
12.1.5 NON-PAYMENT OF OTHER DEBT. Any default shall occur under the
terms applicable to any Debt of the Borrower or any Subsidiary in an
aggregate principal amount which exceeds $2,000,000.00 and such default shall
(a) consist of the failure to pay such Debt when due (subject to any
applicable grace period), whether by acceleration or otherwise, or (b)
accelerate the maturity of such Debt or permit the holder or holders thereof,
or any trustee or agent for such holder or holders, to cause such Debt to
become due and payable prior to its expressed maturity, and a period of
thirty (30) days shall have elapsed following the occurrence of such default.
12.1.6 OTHER MATERIAL OBLIGATIONS. Default in the payment when due,
or in the performance or observance of, any material obligation of, or
condition agreed to by, the Borrower or any Material Subsidiary with respect
to any material purchase or lease of goods or services where such default,
singly or in the aggregate with other such defaults might reasonably be
expected to have a Material Adverse Effect (except only to the extent that
the existence of any such default is being contested by the Borrower or such
Subsidiary in good faith and by appropriate proceedings and appropriate
reserves have been made in respect of such default), and period of thirty
(30) days shall have elapsed following delivery by the Lender to the Borrower
of notice of the occurrence of such default.
12.1.7 PENSION PLANS. (i) Institution of any steps by the Borrower
or any other Person to terminate a Pension Plan if as a result of such
termination the Borrower could be required to make a contribution to such
Pension Plan, or could incur a liability or obligation to such Pension Plan,
in excess of $250,000.00; (ii) a contribution failure occurs with respect to
any Pension Plan sufficient to give rise to a Lien under section 302(f) of
ERISA; or (iii) there shall occur any withdrawal or partial withdrawal from
a Multiemployer Pension Plan and the withdrawal liability (without unaccrued
interest) to Multiemployer Pension Plans as a result of such withdrawal
(including any outstanding withdrawal liability that the
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Borrower and the Controlled Group have incurred on the date of such
withdrawal) exceeds $250,000.00.
12.1.8 JUDGMENTS. Final judgments which exceed an aggregate of
$250,000.00 shall be rendered against the Borrower, or any Material
Subsidiary and shall not have been paid, discharged or vacated or had
execution thereof stayed pending appeal within 30 days after entry or filing
of such judgments.
12.1.9 INVALIDITY OF GUARANTY, ETC. Any Guaranty shall cease to be
in full force and effect with respect to any Guarantor, any Guarantor shall
fail (subject to any applicable grace period) to comply with or to perform
any applicable provision of the Guaranty executed by such Guarantor, or any
Guarantor (or any Person by, through or on behalf of such Guarantor) shall
contest in any manner the validity, binding nature or enforceability of the
Guaranty executed by such Guarantor.
12.1.10 INVALIDITY OF COLLATERAL DOCUMENTS, ETC. Any Collateral
Document shall cease to be in full force and effect with respect to the
Borrower or any Guarantor, the Borrower or any Guarantor shall fail (subject
to any applicable grace period) to comply with or to perform any applicable
provision of any Collateral Document to which such entity is a party, or the
Borrower or any Guarantor (or any Person by, through or on behalf of the
Borrower or any Guarantor) shall contest in any manner the validity, binding
nature or enforceability of any Collateral Document.
Section 12.2 EFFECT OF EVENT OF DEFAULT. If any Event of Default
described in SECTION 12.1.4 shall occur, the Commitments (if they have not
theretofore terminated) shall immediately terminate and the Notes and all
other obligations hereunder shall become immediately due and payable and the
Borrower shall become immediately obligated to deliver to the Agent cash
collateral in an amount equal to the outstanding face amount of all Letters
of Credit, all without notice, demand, presentment, notice of dishonor,
notice of acceleration, notice of intent to accelerate, notice of intent to
demand, protest, or other formalities of any kind, all of which are hereby
expressly waived by the Borrower; and, if any other Event of Default shall
occur and be continuing, the Agent (upon written request of the Required
Banks) shall declare the Commitments (if they have not theretofore
terminated) to be terminated and/or declare all Notes and all other
obligations hereunder to be due and payable and/or demand that the Borrower
immediately deliver to the Agent cash collateral in amount equal to the
outstanding face amount of all Letters of Credit, whereupon the Commitments
(if they have not theretofore terminated) shall immediately terminate and/or
all Notes and all other obligations hereunder shall become immediately due
and payable and/or the
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Borrower shall immediately become obligated to deliver to the Agent cash
collateral in an amount equal to the face amount of all Letters of Credit,
all without notice, demand, presentment, notice of dishonor, notice of
acceleration, notice of intent to accelerate, notice of intent to demand,
protest, or other formalities of any kind, all of which are hereby expressly
waived by the Borrower. The Agent shall promptly advise the Borrower of any
such declaration, but failure to do so shall not impair the effect of such
declaration. Notwithstanding the foregoing, the effect as an Event of
Default of any event described in SECTION 12.1.1, SECTION 12.1.2 or SECTION
12.1.4 may be waived by the written concurrence of all of the Banks, and the
effect as an Event of Default of any other event described in this SECTION 12
may be waived by the written concurrence of the Required Banks. Any cash
collateral delivered hereunder shall be held by the Agent (without liability
for interest thereon) and applied to obligations arising in connection with
any drawing under a Letter of Credit. After the expiration or termination of
all Letters of Credit, such cash collateral shall be applied by the Agent to
any remaining obligations hereunder and any excess shall be delivered to the
Borrower or as a court of competent jurisdiction may elect.
ARTICLE XIII.
THE AGENT
Section 13.1 APPOINTMENT AND AUTHORIZATION. (a) Each Bank hereby
irrevocably (subject to SECTION 13.9) appoints, designates and authorizes the
Agent to take such action on its behalf under the provisions of this
Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the
Agent shall not have any duties or responsibilities except those expressly
set forth herein, nor shall the Agent have or be deemed to have any fiduciary
relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
(b) Each Issuing Bank shall act on behalf of the Banks with respect to
any Letters of Credit issued by it and the documents associated therewith.
Each Issuing Bank shall have all of the benefits and immunities (i) provided
to the Agent in this ARTICLE XIII with respect to any acts taken or omissions
suffered by such Issuing Bank in connection with Letters of Credit issued by
it or proposed to be issued by it and the applications and agreements for
letters of credit pertaining to such Letters of Credit as fully as if the
term "Agent", as used in this ARTICLE XIII, included such
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Issuing Bank with respect to such acts or omissions and (ii) as additionally
provided in this Agreement with respect to the Issuing Banks.
Section 13.2 DELEGATION OF DUTIES. The Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
Section 13.3 LIABILITY OF AGENT. None of the Agent-Related Persons
shall (i) be liable for any action taken or omitted to be taken by any of
them under or in connection with this Agreement or any other Loan Document or
the transactions contemplated hereby (except for its own gross negligence or
willful misconduct), or (ii) be responsible in any manner to any of the Banks
for any recital, statement, representation or warranty made by the Borrower
or any Subsidiary or Affiliate of the Borrower, or any officer thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for
in, or received by the Agent under or in connection with, this Agreement or
any other Loan Document, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document,
or for any failure of the Borrower or any other party to any Loan Document to
perform its obligations hereunder or thereunder. No Agent-Related Person
shall be under any obligation to any Bank to ascertain or to inquire as to
the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of the Borrower or any of the Borrower's
Subsidiaries or Affiliates.
Section 13.4 RELIANCE BY AGENT. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution,
notice, consent, certificate, affidavit, letter, telegram, facsimile, telex
or telephone message, statement or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons, and upon advice and statements of legal counsel
(including counsel to the Borrower), independent accountants and other
experts selected by the Agent. The Agent shall be fully justified in failing
or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Banks as it deems appropriate and, if it so requests, confirmation
from the Banks of their obligation to indemnify the Agent against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the
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Required Banks and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Banks.
Section 13.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Event of Default or Unmatured
Event of Default except with respect to defaults in the payment of principal,
interest and fees required to be paid to the Agent for the account of the
Banks, unless the Agent shall have received written notice from a Bank or the
Borrower referring to this Agreement, describing such Event of Default or
Unmatured Event of Default and stating that such notice is a "notice of
default". The Agent will notify the Banks of its receipt of any such notice.
The Agent shall take such action with respect to such Event of Default or
Unmatured Event of Default as may be requested by the Required Banks in
accordance with ARTICLE XII; PROVIDED, HOWEVER, that unless and until the
Agent has received any such request, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Event of Default or Unmatured Event of Default as it shall
deem advisable or in the best interest of the Banks.
Section 13.6 CREDIT DECISION. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that
no act by the Agent hereafter taken, including any review of the affairs of
the Borrower and its Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Bank. Each
Bank represents to the Agent that it has, independently and without reliance
upon any Agent-Related Person and based on such documents and information as
it has deemed appropriate, made its own appraisal of and investigation into
the business, prospects, operations, property, financial and other condition
and creditworthiness of the Borrower and its Subsidiaries, and all applicable
bank regulatory laws relating to the transactions contemplated hereby, and
made its own decision to enter into this Agreement and to extend credit to
the Borrower hereunder. Each Bank also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking
or not taking action under this Agreement and the other Loan Documents, and
to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly herein required to be furnished to the Banks by the
Agent, the Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the business, prospects,
operations, property, financial or other condition or creditworthiness of the
Borrower which may come into the possession of any of the Agent-Related
Persons.
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Section 13.7 INDEMNIFICATION. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand
the Agent-Related Persons (to the extent not reimbursed by or on behalf of
the Borrower and without limiting the obligation of the Borrower to do so),
pro rata, from and against any and all Indemnified Liabilities; PROVIDED,
HOWEVER, that no Bank shall be liable for any payment to the Agent-Related
Person of any portion of the Indemnified Liabilities resulting solely from
such Person's gross negligence or willful misconduct. Without limitation of
the foregoing, each Bank shall reimburse the Agent upon demand for its
ratable share of any costs or out-of-pocket expenses (including reasonable
fees of attorneys for the Agent (including the allocable costs of internal
legal services and all disbursements of internal counsel)) incurred by the
Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect
of rights or responsibilities under, this Agreement, any other Loan Document,
or any document contemplated by or referred to herein, to the extent that the
Agent is not reimbursed for such expenses by or on behalf of the Borrower.
The undertaking in this Section shall survive repayment of the Loans,
cancellation of the Notes, any foreclosure under, or any modification,
release or discharge of, any or all of the Collateral Documents, any
termination of this Agreement and the resignation or replacement of the Agent.
For the purposes of this SECTION 13.7, "INDEMNIFIED LIABILITIES" shall
mean: any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, charges, expenses and disbursements
(including reasonable fees of attorneys for the Agent (including the
allocable costs of internal legal services and all disbursements of internal
counsel)) of any kind or nature whatsoever which may at any time (including
at any time following repayment of the Loan and the termination, resignation
or replacement of the Agent or the replacement of any Bank) be imposed on,
incurred by or asserted against any Agent-Related Person in any way relating
to or arising out of this Agreement or any document contemplated by or
referred to herein, or the transactions contemplated hereby, or any action
taken or omitted by any such Person under or in connection with any of the
foregoing, including with respect to any investigation, litigation or
proceeding (including (a) any case, action or proceeding before any court or
other governmental authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion
of its creditors; undertaken under U.S. Federal, state or foreign law,
including the Bankruptcy Code, and including any appellate proceeding)
related to or arising out of this Agreement or the Commitments or the use of
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the proceeds thereof, whether or not any Agent-Related Person, any Bank or
any of their respective officers, directors, employees, counsel, agents or
attorneys-in-fact is a party thereto.
Section 13.8 AGENT IN INDIVIDUAL CAPACITY. Bank One and its
Affiliates may make loans to, issue letters of credit for the account of,
accept deposits from, acquire equity interests in and generally engage in any
kind of banking, trust, financial advisory, underwriting or other business
with the Borrower and its Subsidiaries and Affiliates as though Bank One were
not the Agent hereunder and without notice to or consent of the Banks. The
Banks acknowledge that, pursuant to such activities, Bank One or its
Affiliates may receive information regarding the Borrower or its Affiliates
(including information that may be subject to confidentiality obligations in
favor of the Borrower or such Subsidiary) and acknowledge that the Agent
shall be under no obligation to provide such information to them. With
respect to their Loans, Bank One and its Affiliates shall have the same
rights and powers under this Agreement as any other Bank and may exercise the
same as though Bank One were not the Agent, and the terms "Bank" and "Banks"
include Bank One and its Affiliates, to the extent applicable, in their
individual capacities.
Section 13.9 SUCCESSOR AGENT; ASSIGNMENT OF AGENCY. The Agent may,
and at the request of the Required Banks shall, resign as Agent upon thirty
(30) days' notice to the Banks. If the Agent resigns under this Agreement,
the Required Banks shall, with (so long as no Event of Default exists) the
consent of the Borrower (which shall not be unreasonably withheld or
delayed), appoint from among the Banks a successor agent for the Banks. If
no successor agent is appointed prior to the effective date of the
resignation of the Agent, the Agent may appoint, after consulting with the
Banks and the Borrower, a successor agent from among the Banks. Upon the
acceptance of its appointment as successor agent hereunder, such successor
agent shall succeed to all the rights, powers and duties of the retiring
Agent and the term "Agent" shall mean such successor agent, and the retiring
Agent's appointment, powers and duties as Agent shall be terminated. After
any retiring Agent's resignation hereunder as Agent, the provisions of this
ARTICLE XIII and SECTIONS 14.6 and 14.13 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the
date which is thirty (30) days following a retiring Agent's notice of
resignation, the retiring Agent's resignation shall nevertheless thereupon
become effective and the Banks shall perform all of the duties of the Agent
hereunder until such time, if any, as the Required Banks appoint a successor
agent as provided for above. Notwithstanding the foregoing, however, Bank
One may not be removed as the Agent at the request of the Required Banks
unless Bank One shall also simultaneously be replaced as an "Issuing Bank"
hereunder pursuant
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to documentation in form and substance reasonably satisfactory to Bank One.
Section 13.10 WITHHOLDING TAX.
(a) If any Bank is a "foreign corporation, partnership or trust" within
the meaning of the Code and such Bank claims exemption from, or a reduction
of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Bank
agrees to deliver to the Agent:
(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed
Internal Revenue Service ("IRS") Forms 1001 and W-8 before the payment
of any interest in the first calendar year and before the payment of any
interest in each third succeeding calendar year during which interest
may be paid under this Agreement;
(ii) if such Bank claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two
properly completed and executed copies of IRS Form 4224 before the
payment of any interest is due in the first taxable year of such Bank
and in each succeeding taxable year of such Bank during which interest
may be paid under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of, withholding tax
under a United States tax treaty by providing IRS Form 1001 and such Bank
sells, assigns, grants a participation in, or otherwise transfers all or part
of the obligations of the Borrower to such Bank, such Bank agrees to notify
the Agent of the percentage amount in which it is no longer the beneficial
owner of such obligations of the Borrower hereunder. To the extent of such
percentage amount, the Agent will treat such Bank's IRS Form 1001 as no
longer valid.
(c) If any Bank claiming exemption from United States withholding tax
by filing IRS Form 4224 with the Agent sells,
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assigns, grants a participation in, or otherwise transfers all or part of
the obligations of the Borrower to such Bank hereunder, such Bank agrees to
undertake sole responsibility for complying with the withholding tax
requirements imposed by Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such
Bank an amount equivalent to the applicable withholding tax after taking into
account such reduction. If the forms or other documentation required by
SUBSECTION (a) of this Section are not delivered to the Agent, then the Agent
may withhold from any interest payment to such Bank not providing such forms
or other documentation an amount equivalent to the applicable withholding
tax.
(e) If the IRS or any other governmental authority of the United States
or any other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Bank (because the
appropriate form was not delivered or was not properly executed, or because
such Bank failed to notify the Agent of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason) such Bank shall indemnify the Agent fully for all
amounts paid, directly or indirectly, by the Agent as tax or otherwise,
including penalties and interest, and including any taxes imposed by any
jurisdiction on the amounts payable to the Agent under this Section, together
with all costs and expenses (including reasonable fees of attorneys for the
Agent [[(including the allocable costs of internal legal services and all
disbursements of internal counsel]])). The obligation of the Banks under this
subsection shall survive the repayment of the Loans, cancellation of the
Notes, any termination of this Agreement and the resignation or replacement
of the Agent.
Section 13.11 COLLATERAL MATTERS. The Banks irrevocably authorize the
Agent, at its option and in its discretion, to release any Lien granted to or
held by the Agent under any Collateral Document (i) upon termination of the
Commitments and payment in full of all Loans and all other obligations of the
Borrower hereunder and the expiration or termination of all Letters of Credit;
(ii) constituting property sold or to be sold or disposed of as part of or in
connection with any disposition permitted hereunder; or (iii) subject to
SECTION 14.1, if approved, authorized or ratified in writing by all the Banks.
Upon request by the Agent at any time, the Banks will confirm in writing the
Agent's authority to release particular types or items of collateral pursuant
to this SECTION 13.11.
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ARTICLE XIV.
GENERAL
Section 14.1 WAIVER; AMENDMENTS. No delay on the part of the Agent,
any Bank or any other holder of a Note in the exercise of any right, power or
remedy shall operate as a waiver thereof, nor shall any single or partial
exercise by any of them of any right, power or remedy preclude other or
further exercise thereof, or the exercise of any other right, power or
remedy. No amendment, modification or waiver of, or consent with respect to,
any provision of this Agreement or the Notes shall in any event be effective
unless the same shall be in writing and signed and delivered by Banks having
an aggregate Percentage of not less than the aggregate Percentage expressly
designated herein with respect thereto or, in the absence of such designation
as to any provision of this Agreement or the Notes, by the Required Banks,
and then any such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given. No amendment, modification, waiver or consent shall change the
Percentage of any Bank without the consent of such Bank. No amendment,
modification, waiver or consent shall (i) extend or increase the amount of
the Commitments, (ii) extend the date for payment of any principal of or
interest on the Loans or any fees payable hereunder, (iii) reduce the
principal amount of any Loan, the rate of interest thereon or any fees
payable hereunder, (iv) release a Guaranty (other than with respect to a
Guarantor which ceases to be a Subsidiary as a result of a transaction
permitted hereunder) or all or substantially all of the collateral granted
under the Collateral Documents or (v) reduce the aggregate Percentage
required to effect an amendment, modification, waiver or consent without, in
each case, the consent of all Banks. No provisions of ARTICLE XIII or other
provision of this Agreement affecting the Agent in its capacity as such shall
be amended, modified or waived without the consent of the Agent. No
provision of this Agreement relating to the rights or duties of an Issuing
Bank in its capacity as such shall be amended, modified or waived without the
consent of such Issuing Bank.
Section 14.2 CONFIRMATIONS. The Borrower and each holder of a Note
agree from time to time, upon written request received by it from the other,
to confirm to the other in writing (with a copy of each such confirmation to
the Agent) the aggregate unpaid principal amount of the Loans then
outstanding under such Note.
Section 14.3 NOTICES. Except as otherwise provided in SECTION 2.2,
all notices hereunder shall be in writing (including facsimile transmission)
and shall be sent to the applicable party at its address shown on SCHEDULE
14.3 or at such other address as such party may, by written notice received
by the other parties, have designated as its address for such purpose.
Notices sent by facsimile transmission shall be deemed to have been given
when sent
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with confirmation of transmission; notices sent by mail shall be deemed to
have been given three Business Days after the date when sent by registered or
certified mail, postage prepaid; and notices sent by hand delivery or
overnight courier service shall be deemed to have been given when received.
For purposes of SECTION 2.2, the Agent shall be entitled to rely on
telephonic instructions from any person that the Agent in good faith believes
is an authorized officer or employee of the Borrower, and the Borrower shall
hold the Agent and each Bank harmless from any loss, cost or expense
resulting from any such reliance.
Section 14.4 COMPUTATIONS. Where the character or amount of any asset
or liability or item of income or expense is required to be determined, or
any consolidation or other accounting computation is required to be made, for
the purpose of this Agreement, such determination or calculation shall, to
the extent applicable and except as otherwise specified in this Agreement, be
made in accordance with GAAP, consistently applied; PROVIDED that if the
Borrower notifies the Agent that the Borrower wishes to amend any covenant in
ARTICLE X to eliminate or to take into account the effect of any change in
GAAP on the operation of such covenant (or if the Agent notifies the Borrower
that the Required Banks wish to amend ARTICLE X for such purpose), then the
Borrower's compliance with such covenant shall be determined on the basis of
GAAP in effect immediately before the relevant change in GAAP became
effective, until either such notice is withdrawn or such covenant is amended
in a manner satisfactory to the Borrower and the Required Banks.
Section 14.5 REGULATION U. Each Bank represents that it in good faith
is not relying, either directly or indirectly, upon any Margin Stock as
collateral security for the extension or maintenance by it of any credit
provided for in this Agreement.
Section 14.6 COSTS, EXPENSES AND TAXES. The Borrower agrees to pay
promptly following written demand all reasonable out-of-pocket costs and
expenses of the Agent (including the reasonable fees and charges of counsel
for the Agent and of local counsel, if any, who may be retained by said
counsel) in connection with the preparation, execution, delivery and
administration of this Agreement, the other Loan Documents and all other
documents provided for herein or delivered or to be delivered hereunder or in
connection herewith (including any amendments, supplements or waivers to any
Loan Documents), and all reasonable out-of-pocket costs and expenses
(including reasonable attorneys' fees, court costs and other legal expenses
and allocated costs of staff counsel) incurred by the Agent and each Bank
after an Event of Default in connection with the enforcement of this
Agreement, the other Loan Documents or any such other documents. Each Bank
agrees to reimburse the Agent for such Bank's pro rata share (based on its
respective Percentage) of any such costs and expenses of the Agent not paid
by the Borrower. In addition, the Borrower agrees to pay,
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and to save the Agent and the Banks harmless from all liability for, (a) any
stamp or other taxes (excluding income taxes and franchise taxes based on net
income, assets or operations) which may be payable in connection with the
execution and delivery of this Agreement, the borrowings hereunder, the
issuance of the Notes or the execution and delivery of any other Loan
Document or any other document provided for herein or delivered or to be
delivered hereunder or in connection herewith and (b) any fees of the
Borrower's auditors in connection with any reasonable exercise by the Agent
and the Banks of their rights pursuant to SECTION 10.2. All obligations
provided for in this SECTION 14.6 shall survive repayment of the Loans,
cancellation of the Notes and any termination of this Agreement.
Section 14.7 SUBSIDIARY REFERENCES. The provisions of this Agreement
relating to Subsidiaries shall apply only during such times as the Borrower
has one or more Subsidiaries.
Section 14.8 CAPTIONS. Section captions used in this Agreement are
for convenience only and shall not affect the construction of this Agreement.
Section 14.9 ASSIGNMENTS; PARTICIPATIONS.
14.9.1 ASSIGNMENTS. Any Bank may, with the prior written consents of
the Borrower and the Agent (which consents shall not be unreasonably delayed
or withheld), at any time assign and delegate to one or more commercial banks
or other Persons (any Person to whom such an assignment and delegation is to
be made being herein called an "ASSIGNEE"), all or any fraction of such
Bank's Loans and Commitments (which assignment and delegation shall be of a
constant, and not a varying, percentage of all the assigning Bank's Loans and
Commitments) in a minimum aggregate amount equal to the lesser of (i) the
assigning Bank's remaining aggregate Commitments and (ii) $5,000,000;
PROVIDED, HOWEVER, that (a) no assignment and delegation may be made to any
Person if, at the time of such assignment and delegation, the Borrower would
be obligated to pay any greater amount under SECTION 7.6 or ARTICLE VIII to
the Assignee than the Borrower is then obligated to pay to the assigning Bank
under such Sections (and if any assignment is made in violation of the
foregoing, the Borrower will not be required to pay the incremental amounts)
and (b) the Borrower and the Agent shall be entitled to continue to deal
solely and directly with such Bank in connection with the interests so
assigned and delegated to an Assignee until the date when all of the
following conditions shall have been met:
(x) five Business Days (or such lesser period of time as the Agent
and the assigning Bank shall agree) shall have passed after written
notice of such assignment
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and delegation, together with payment instructions, addresses and related
information with respect to such Assignee, shall have been given to the
Borrower and the Agent by such assigning Bank and the Assignee,
(y) the assigning Bank and the Assignee shall have executed and
delivered to the Borrower and the Agent an assignment agreement
substantially in the form of EXHIBIT D (an "ASSIGNMENT AGREEMENT"),
together with any documents required to be delivered thereunder, which
Assignment Agreement shall have been accepted by the Agent, and
(z) the assigning Bank or the Assignee shall have paid the Agent
a processing fee of $3,500.
From and after the date on which the conditions described above have been
met, (x) such Assignee shall be deemed automatically to have become a party
hereto and, to the extent that rights and obligations hereunder have been
assigned and delegated to such Assignee pursuant to such Assignment
Agreement, shall have the rights and obligations of a Bank hereunder, and (y)
the assigning Bank, to the extent that rights and obligations hereunder have
been assigned and delegated by it pursuant to such Assignment Agreement,
shall be released from its obligations hereunder. Within five Business Days
after effectiveness of any assignment and delegation, the Borrower shall
execute and deliver to Agent (for delivery to the Assignee and the Assignor,
as applicable) a new Note in the principal amount of the Assignee's Loan
Commitment and, if the assigning Bank has retained a Loan Commitment
hereunder, a replacement Note in the principal amount of the Loan Commitment
retained by the assigning Bank (such Note to be in exchange for, but not in
payment of, the predecessor Note held by such assigning Bank). Each such
Note shall be dated the effective date of such assignment. The assigning
Bank shall mark the predecessor Note "exchanged" and deliver it to the
Borrower. Accrued interest on that part of the predecessor Note being
assigned shall be paid as provided in the Assignment Agreement. Accrued
interest and fees on that part of the predecessor Note not being assigned
shall be paid to the assigning Bank. Accrued interest and accrued fees shall
be paid at the same time or times provided in the predecessor Note and in
this Agreement. Any attempted assignment and delegation not made in
accordance with this SECTION 14.9.1 shall be null and void.
Notwithstanding the foregoing provisions of this SECTION 14.9.1 or any
other provision of this Agreement, any Bank may at any time assign all or any
portion of its Loans and its Note to a Federal Reserve Bank (but no such
assignment shall release any Bank from any of its obligations hereunder).
Section 14.9.2 PARTICIPATIONS. Any Bank may at any time sell to one or
more commercial banks or other Persons participating
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<PAGE>
interests in any Loan owing to such Bank, the Note held by such Bank, the
Commitments of such Bank, the direct or participation interest of such Bank
in any Letter of Credit or any other interest of such Bank hereunder (any
Person purchasing any such participating interest being herein called a
"PARTICIPANT"). In the event of a sale by a Bank of a participating interest
to a Participant, (x) such Bank shall remain the holder of its Note for all
purposes of this Agreement, (y) the Borrower and the Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations hereunder and (z) all amounts payable by the Borrower shall
be determined as if such Bank had not sold such participation and shall be
paid directly to such Bank. No Participant shall have any direct or indirect
voting rights hereunder except with respect to any of the events (excluding
the events described in CLAUSE (v) thereof) described in the penultimate
sentence of SECTION 14.1. Each Bank agrees to incorporate the requirements
of the preceding sentence into each participation agreement which such Bank
enters into with any Participant. The Borrower agrees that if amounts
outstanding under this Agreement and the Notes are due and payable (as a
result of acceleration or otherwise), each Participant shall be deemed to
have the right of setoff in respect of its participating interest in amounts
owing under this Agreement, any Note and with respect to any Letter of Credit
to the same extent as if the amount of its participating interest were owing
directly to it as a Bank under this Agreement or such Note; PROVIDED that
such right of setoff shall be subject to the obligation of each Participant
to share with the Banks, and the Banks agree to share with each Participant,
as provided in SECTION 7.5. The Borrower also agrees that each Participant
shall be entitled to the benefits of SECTION 7.6 and ARTICLE VIII as if it
were a Bank (provided that no Participant shall receive any greater
compensation pursuant to SECTION 7.6 or ARTICLE VIII than would have been
paid to the participating Bank if no participation had been sold).
Section 14.10 GOVERNING LAW. This Agreement, each Note and each other
Loan Document shall be a contract made under and governed by the internal
laws of the State of Texas. All obligations of the Borrower and rights of
the Agent, the Banks and any other holder of a Note expressed herein or in
any other Loan Document shall be in addition to and not in limitation of
those provided by applicable law.
Section 14.11 SEVERABILITY. Whenever possible each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
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<PAGE>
Section 14.12 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
Agreement. When counterparts executed by all of the parties hereto shall
have been lodged with the Agent (or, in the case of any Bank as to which an
executed counterpart shall not have been so lodged, the Agent shall have
received confirmation from such Bank of execution of a counterpart hereof by
such Bank), this Agreement shall become effective as of the date hereof, and
at such time the Agent shall notify the Borrower and each Bank.
Section 14.13 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Borrower, the Banks and the Agent and their respective successors
and assigns, and shall inure to the benefit of the Borrower, the Banks and
the Agent and the successors and assigns of the Banks and the Agent;
PROVIDED, however, that the Borrower shall not assign its obligations under
this Agreement except in connection with a transaction which is in compliance
with the terms and provisions of this Agreement.
Section 14.14 MAXIMUM INTEREST RATE. No provision of this Agreement
or of any other Loan Documents shall require the payment or the collection of
interest in excess of the maximum permitted by applicable law. If any excess
of interest in such respect is hereby provided for, or shall be adjudicated
to be so provided, in any Loan Document or otherwise in connection with the
transactions contemplated by this Agreement, the provisions of this Section
shall govern and prevail and neither the Borrower nor the sureties,
guarantors, successors, or assigns of the Borrower shall be obligated to pay
the excess amount of such interest or any other excess sum paid for the use,
forbearance, or detention of sums loaned pursuant hereto. In the event any
Bank ever receives, collects, or applies as interest any such sum, such
amount which would be in excess of the maximum amount permitted by applicable
law shall be applied as a payment and reduction of the principal of the
indebtedness evidenced by the Note held by such Bank; and, if the principal
of such Note has been paid in full, any remaining excess shall forthwith be
paid to the Borrower. In determining whether or not the interest paid or
payable exceeds the Maximum Rate, Borrower and Lender shall, to the extent
permitted by applicable law, (a) characterize any non-principal payment as an
expense, fee or premium rather than as interest, (b) exclude voluntary
prepayments and the effects thereof, and (c) amortize, prorate, allocate, and
spread in equal or unequal parts the total amount of interest throughout the
entire contemplated term of the indebtedness evidenced by the Notes so that
interest for the entire term does not exceed the Maximum Rate.
Section 14.15 INDEMNIFICATION BY THE BORROWER.
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<PAGE>
(a) IN CONSIDERATION OF THE EXECUTION AND DELIVERY OF THIS AGREEMENT BY
THE AGENT AND THE BANKS AND THE AGREEMENT TO EXTEND THE COMMITMENTS PROVIDED
HEREUNDER, THE BORROWER HEREBY AGREES INDEMNIFY, EXONERATE AND HOLD THE
AGENT, EACH BANK AND EACH OF THE OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES
AND AGENTS OF THE AGENT AND EACH BANK (EACH A "BANK PARTY") FREE AND HARMLESS
FROM AND AGAINST ANY AND ALL ACTIONS, CAUSES OF ACTION, SUITS, LOSSES,
LIABILITIES, DAMAGES AND EXPENSES, INCLUDING REASONABLE ATTORNEYS' FEES AND
CHARGES (COLLECTIVELY, FOR PURPOSES OF THIS SECTION 14.15, CALLED THE
"INDEMNIFIED LIABILITIES"), INCURRED BY THE BANK PARTIES OR ANY OF THEM AS A
RESULT OF, OR ARISING OUT OF, OR RELATING TO (I) ANY TENDER OFFER, MERGER,
PURCHASE OF STOCK, PURCHASE OF ASSETS OR OTHER SIMILAR TRANSACTION FINANCED
OR PROPOSED TO BE FINANCED IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, WITH
THE PROCEEDS OF ANY OF THE LOANS, (II) THE USE, HANDLING, RELEASE, EMISSION,
DISCHARGE, TRANSPORTATION, STORAGE, TREATMENT OR DISPOSAL OF ANY HAZARDOUS
SUBSTANCE AT ANY PROPERTY OWNED OR LEASED BY THE BORROWER OR ANY SUBSIDIARY,
(III) ANY VIOLATION OF ANY ENVIRONMENTAL LAWS WITH RESPECT TO CONDITIONS AT
ANY PROPERTY OWNED OR LEASED BY THE BORROWER OR ANY SUBSIDIARY OR THE
OPERATIONS CONDUCTED THEREON, (IV) THE INVESTIGATION, CLEANUP OR REMEDIATION
OF OFFSITE LOCATIONS AT WHICH THE BORROWER OR ANY SUBSIDIARY OR THEIR
RESPECTIVE PREDECESSORS ARE ALLEGED TO HAVE DIRECTLY OR INDIRECTLY DISPOSED
OF HAZARDOUS SUBSTANCES OR (V) THE EXECUTION, DELIVERY, PERFORMANCE OR
ENFORCEMENT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BY ANY OF THE BANK
PARTIES, EXCEPT FOR ANY SUCH INDEMNIFIED LIABILITIES ARISING ON ACCOUNT OF
ANY SUCH BANK PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IF AND TO THE
EXTENT THAT THE FOREGOING UNDERTAKING MAY BE UNENFORCEABLE FOR ANY REASON,
THE BORROWER HEREBY AGREES TO MAKE THE MAXIMUM CONTRIBUTION TO THE PAYMENT
AND SATISFACTION OF EACH OF THE INDEMNIFIED LIABILITIES WHICH IS PERMISSIBLE
UNDER APPLICABLE LAW. NOTHING SET FORTH ABOVE SHALL BE CONSTRUED TO RELIEVE
ANY BANK PARTY FROM ANY OBLIGATION IT MAY HAVE UNDER THIS AGREEMENT.
(b) ALL OBLIGATIONS PROVIDED FOR IN THIS SECTION 14.15 SHALL SURVIVE
REPAYMENT OF THE LOANS, CANCELLATION OF THE NOTES, ANY FORECLOSURE UNDER, OR
ANY MODIFICATION, RELEASE OR DISCHARGE OF ANY OR ALL OF THE COLLATERAL
DOCUMENTS AND ANY TERMINATION OF THIS AGREEMENT.
Section 14.16 FORUM SELECTION AND CONSENT TO JURISDICTION. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED
EXCLUSIVELY IN THE COURTS OF THE STATE OF TEXAS OR IN THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS; PROVIDED, HOWEVER, THAT
ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION
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<PAGE>
WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE
STATE OF TEXAS AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF TEXAS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE.
THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT
THE STATE OF TEXAS. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY
SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO
JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
Section 14.17 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT
AND EACH BANK HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE,
ANY OTHER LOAN DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION
WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
SECTION 14.18. ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES, AND THE
OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND
THEREOF AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES HERETO.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written, and have delivered this Agreement
in Houston, Texas.
BORROWER:
INPUT/OUTPUT, INC.
By: /s/ Robert P. Brindley
--------------------------------------------
Robert P. Brindley
Executive Vice President
and Chief Financial Officer
AGENT:
BANK ONE, TEXAS, N.A.
By: /s/ Marc A. Dunmire
--------------------------------------------
Marc A. Dunmire
Vice President
BANKS:
BANK ONE, TEXAS, N.A.
By: /s/ Marc A. Dunmire
--------------------------------------------
Marc A. Dunmire
Vice President
BANK OF AMERICA TEXAS, N.A.
By: /s/ Joseph R. Patterson
--------------------------------------------
Joseph R. Patterson
Vice President
SOUTHWEST BANK OF TEXAS, N.A.
By: /s/ Carmen Billings
--------------------------------------------
Carmen Billings
Vice President
-66-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAAL STATEMENTS FOR THE THIRD QUARTER ENDED 2/28/98
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 50,347
<SECURITIES> 0
<RECEIVABLES> 102,080
<ALLOWANCES> 0
<INVENTORY> 114,790
<CURRENT-ASSETS> 268,389
<PP&E> 71,752
<DEPRECIATION> 0
<TOTAL-ASSETS> 462,715
<CURRENT-LIABILITIES> 54,009
<BONDS> 0
0
0
<COMMON> 445
<OTHER-SE> 396,928
<TOTAL-LIABILITY-AND-EQUITY> 462,715
<SALES> 281,919
<TOTAL-REVENUES> 281,919
<CGS> 166,003
<TOTAL-COSTS> 59,615
<OTHER-EXPENSES> (5,576)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 842
<INCOME-PRETAX> 61,035
<INCOME-TAX> 19,532
<INCOME-CONTINUING> 41,503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,503
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.94
</TABLE>
