UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended January 31, 1997
("Fiscal 1996") or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
__________
Commission file number 0-8493
STEWART & STEVENSON SERVICES, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1051605
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2707 North Loop West, Houston, Texas 77008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 868-7700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
Without Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting securities held by nonaffiliates as of
February 28, 1997:
$738,624,314
Number of shares outstanding of each of the issuer's classes of common stock, as
of February 28, 1997:
Common Stock, Without Par Value 33,120,460 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K
- -------- -----------------
Proxy Statement for the 1997 Annual Meeting of Shareholders Part III
PART I
Item 1. Business.
Stewart & Stevenson Services, Inc. (together with its wholly-owned subsidiaries,
the "Company" or "Stewart & Stevenson") was founded in Houston, Texas in 1902
and was incorporated under the laws of the State of Texas in 1947. Since its
beginning, the Company has been primarily engaged in custom fabrication
enterprises. Stewart & Stevenson consists of three business segments: the
Engineered Power Systems segment, the Distribution segment and the Tactical
Vehicle Systems segment.
The Engineered Power Systems segment designs, engineers, services and markets
engine-driven equipment principally utilizing diesel or gas turbine engines
supplied by independent manufacturers. In addition, this segment offers
operation and maintenance contracts for large gas turbine projects and petroleum
production facilities. The Company's products include gas turbine generator sets
for primary electrical power and diesel generator sets for primary, emergency or
stand-by electrical power sources. Stewart & Stevenson is a leading packager of
aeroderivative gas turbine engines for electrical power generation. A majority
of the gas turbine engines used by the Company are manufactured by General
Electric Corporation. The Company's engineered power systems and operations and
maintenance services are marketed worldwide, particularly in developing
countries where there has been growth in demand for electrical power. Stewart &
Stevenson also participates in the development of molten carbonate fuel cells
and hybrid photo-voltaic/recip systems.
The Distribution segment markets industrial equipment and related parts
manufactured by others and provides in-shop and on-site repair services for such
products. This segment began operations in 1938 and currently markets Detroit
Diesel engines, General Motors Electro-Motive diesel engines, Allison automatic
transmissions, Waukesha natural gas engines, Deutz diesel engines, Hyster
material handling equipment, Thermo King transport refrigeration units and John
Deere construction, utility and forestry equipment. The Distribution segment
markets primarily in the Southern and Western United States, as well as in
Mexico, Venezuela and Central America.
The Tactical Vehicle Systems segment has received contracts with the United
States Department of Defense to manufacture the U.S. Army's next generation of
medium tactical vehicles (the "Family of Medium Tactical Vehicles" or "FMTV").
The FMTV contracts call for the production of approximately 11,000
newly-designed 2 1/2-ton and 5-ton trucks in several configurations, including
troop carriers, wreckers, cargo trucks, vans and dump trucks. All variants of
the FMTV incorporate a high level of common parts. Manufacturing of the FMTV is
being performed by the Company's Tactical Vehicle Systems segment at a facility
located near Houston, Texas. The Company is also offering the FMTV for sale to
other branches of the U.S. Armed Forces and to the armed forces of foreign
countries.
The Company's fiscal year begins on February 1 of the year stated and ends on
January 31 of the following year. For example, "Fiscal 1996" commenced on
February 1, 1996 and ended on January 31, 1997. Identifiable assets at the close
of Fiscal 1996, 1995 and 1994 and net sales, operating profit and export sales
for such fiscal years for the Company's business segments and sales to customers
which exceed 10% of consolidated sales are presented under "Industry Segment
Data" in the Notes to the Consolidated Financial Statements in Item 8 Part II.
ENGINEERED POWER SYSTEMS SEGMENT
Stewart & Stevenson designs, engineers and markets engine-driven equipment of
various descriptions utilizing diesel or gas turbine engines manufactured by
independent suppliers and provides operation and maintenance services for power
generation and petroleum facilities. As a custom packager of engine-driven
equipment, the Company designs its products to meet the specific needs of its
customers in a variety of applications. Both equipment and services are sold
under the "Stewart & Stevenson" name throughout the world.
Operations of the Engineered Power Systems segment accounted for approximately
40.2%, 50.9% and 56.5%, respectively, of consolidated sales during Fiscal 1996,
1995 and 1994.
Gas Turbine Driven Equipment. The Company packages gas turbine products based on
turbine engines purchased from General Electric Corporation ("GE"), European Gas
Turbines ("EGT") and the Garrett Corporation ("Garrett"). The table below lists
the simple cycle capacity of generator sets based on each model of gas turbine
engine regularly packaged by the Company.
Generator Set
Capacity
Engine Model in Megawatts
GE LM6000 . . . . . . . . . . . . . . 40.30 Mw
GE LM2500+. . . . . . . . . . . . . . 27.60 Mw
GE LM2500 STIG. . . . . . . . . . . . 26.50 Mw
GE LM2500 . . . . . . . . . . . . . . 22.20 Mw
GE LM1600 . . . . . . . . . . . . . . 13.40 Mw
EGT TEMPEST . . . . . . . . . . . . . 7.49 Mw
EGT TORNADO . . . . . . . . . . . . . 6.25 Mw
EGT TYPHOON . . . . . . . . . . . . . 4.91 Mw
Gas turbine generator sets have a lower capital cost, higher efficiency and
shorter lead times and are more environmentally acceptable than many alternative
technologies. In addition, gas turbine generator sets may be used for the
simultaneous production of electrical power and useful thermal energy
("cogeneration"). The gas turbine generator sets packaged by the Company in the
20 Mw to 42 Mw size incorporate GE gas turbine engines and are marketed
primarily to independent power producers for prime power and cogeneration
applications and to electrical utilities for base load capacity or additional
capacity during peak demand periods. Generators in the 5 Mw to 20 Mw range are
marketed to hospitals, hotels, office complexes and industrial facilities, both
for prime power and cogeneration applications. Stewart & Stevenson's package
design and full-load testing prior to shipment permit the complete installation
and start-up of the Company's gas turbine generators in as little as 30 days
after shipment and decrease both the time and expense required to build a
complete electrical generation facility.
The Company assembles turbine-driven mechanical drive packages, including gas
compressor sets, powered by GE and EGT gas turbine engines. The table below
lists the output of each model of gas turbine engine offered by the Company for
mechanical drive applications.
Output in
Engine Model Shaft Horsepower
GE LM6000. . . . . . . . . . . . . . 55,545 Shp
GE LM2500+ . . . . . . . . . . . . . 37,000 Shp
GE LM2500. . . . . . . . . . . . . . 31,235 Shp
GE LM1600+ . . . . . . . . . . . . . 18,745 Shp
EGT TORNADO. . . . . . . . . . . . . 8,900 Shp
EGT TYPHOON. . . . . . . . . . . . . 6,500 Shp
Like the Company's turbine-driven generator sets, gas compression packages are
designed to be easily and quickly installed at the customer's location and can
be full-load tested at the Company's facility before shipment. Gas compressor
sets are marketed to gas production and pipeline operators for both offshore and
onshore installation.
Stewart & Stevenson offers the turnkey design, procurement and construction of
power generation and compression facilities that incorporate turbine-driven
generators, turbine-driven compressors and other equipment packaged by the
Company. The balance of the equipment required for a complete facility and the
installation and construction services are subcontracted by the Company and
performed under the Company's supervision.
Stewart & Stevenson believes that the international market provides significant
sale and lease opportunities for the Company's gas turbine products and
construction services. The market for electrical power in developing countries
is growing, and the Company's gas turbine generator sets are well suited for the
requirements of developing countries; providing quick delivery, low initial
capital costs and ease of installation in areas without significant existing
electrical power infrastructure.
A majority of the Company's gas turbine sales are derived from packaging gas
turbine engines manufactured by GE and EGT. The Company believes that its
relationship with GE and EGT is good and will continue. Any interruption of
these relationships, however, would adversely affect the Company.
Sales of gas turbine products accounted for approximately 16.7%, 30.5% and
40.1%, respectively, of consolidated sales in Fiscal 1996, 1995 and 1994.
Gas Turbine Product Support Services. Stewart & Stevenson enters into operation
and maintenance contracts under which the Company provides all labor,
supervision and expertise necessary to operate, maintain and repair power
generation, gas compression and petroleum production, processing and
transportation facilities. Operation and maintenance contracts may have a term
of up to 10 years and provide for a fixed fee out of which the Company must pay
all costs incurred under the contract or for the payment of a fixed fee plus
reimbursement of the costs incurred by the Company. The Company has provided
operation and maintenance services for power generation facilities since 1986.
Operation and maintenance services are provided on a worldwide basis.
In addition, Stewart & Stevenson offers parts and repair services for
turbine-driven equipment and is authorized to perform complete overhaul services
on certain GE and EGT gas turbine engines. Another turbine product manufactured
by the Company is an exhaust flow enhancement device that is manufactured under
license from Norlock Technologies, Inc. This new product improves power output
and fuel efficiency and reduces exhaust gas turbulence.
Sales of Gas Turbine Product Support Services accounted for approximately 14.2%,
12.6% and 7.6%, respectively, of consolidated sales in Fiscal 1996, 1995 and
1994.
Other Power Systems. Stewart & Stevenson is a leading manufacturer of coil
tubing units, well stimulation equipment and other diesel equipment for the
oilfield service industries. Most of the Company's well stimulation equipment is
manufactured according to the Company's proprietary designs and incorporates
advanced microprocessor-based systems to automatically control the pressures,
density and other characteristics of the high pressure fluids used to fracture
oil-bearing formations. Other oilfield equipment includes blowout preventors and
high pressure valves for the drilling and workover industry.
Stewart & Stevenson also manufactures a complete line of aircraft ground support
equipment, including gate tractors, air-start units, ground power equipment and
air conditioning systems.
Sales of other power systems and services accounted for approximately 9.2%, 7.8%
and 8.8%, respectively, of consolidated sales in Fiscal 1996, 1995 and 1994.
DISTRIBUTION SEGMENT
Distribution Operations. Stewart & Stevenson markets various industrial
equipment, components, replacement parts, accessories and other material
supplied by independent manufacturers and provides in-shop and on-site repair
services for diesel-driven equipment. The following table contains the name of
each manufacturer with whom the Company presently maintains a distribution
contract, a description of the products and territories covered thereby and the
expiration date thereof.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Expiration
Manufacturer Products Territories Date
Detroit Diesel Corporation Heavy Duty High Speed Texas, Colorado, New 1998
("Detroit Diesel") Diesel Engines Mexico, Wyoming, Nebraska,
Louisiana, Mississippi,
Alabama and Venezuela
Electro-Motive Division of Heavy Duty Medium Speed Texas, Colorado, New 1998
General Motors Corporation Diesel Engines Mexico, Nebraska,
("EMD") Oklahoma, Arkansas,
Louisiana, Tennessee,
Mississippi, Alabama,
Mexico, Central America
and most of South America
Allison Transmission On- and Off-Highway Texas, Colorado, New 1997
Division of General Motors Automatic Transmissions, Mexico, Wyoming, Nebraska,
Corporation ("Allison") Power Shift Transmissions Louisiana, Mississippi,
and Torque Converters Alabama and Venezuela
Hyster Company Material Handling Equipment Texas *
John Deere Industrial Construction, Utility and Southeast Texas and Wyoming *
Equipment Company Forestry Equipment
Thermo King Corporation Transport Refrigeration Southeast Texas and 1999
Equipment Southern Louisiana
Waukesha Engine Division of Natural Gas Industrial Colorado, Montana, North 1997
Dresser Industries, Inc. Engines Dakota, Oklahoma, Wyoming,
New Mexico, Utah, Oregon,
Hawaii, Kansas, Arizona,
California, Washington and
Nevada
KHD - Deutz Corporation Diesel Engines Colorado, Wyoming, 1997
Arizona, New Mexico,
Washington and Alaska
- ------------------------
</TABLE>
*No expiration date. Agreements may be terminated by written notice of
termination.
Distribution agreements generally require the Company to purchase and stock the
products and repair parts covered thereby for resale to end users, original
equipment manufacturers or independent dealers within the franchise area of
distribution. Such agreements also require the Company to provide after-sale
service within its designated territory and may contain provisions prohibiting
the sale of competitive products within the franchise territory. Distribution
operations are conducted at branch facilities located in major cities within the
Company's franchised area of distribution. New products are marketed primarily
under the trademarks and the trade names of the original manufacturer.
The Company's principal distribution agreements are subject to early termination
by the suppliers for a variety of causes, including a change in control or a
change in the principal management of the Company. Although no assurance can be
given that such distribution agreements will be renewed beyond their expiration
dates, they have been renewed regularly.
Manufacturing Operations. The Distribution segment also manufactures and sells
generator sets and mechanical drive packages using reciprocating engines fueled
with diesel, natural gas, or both. Generator sets range in size from 20 kw to
12,700 kw and are based on engines supplied by companies with whom the
Distribution segment has a distributor or packaging agreement. The Company
undertakes the selection of the appropriate engine and generator based on the
intended application and fabricates the completed package according to a design
developed specifically to fit the needs of the customer. Reciprocating
engine-driven generator sets are marketed by the Company as both standby power
sources for emergency use and as prime power sources to supply electricity at
remote locations.
In addition to reciprocating engine-driven power systems, the Distribution
segment manufactures and sells snow removal equipment and wheel chair lifts.
Some products manufactured by the Distribution segment are based upon
proprietary designs owned by the Company and others are based upon designs owned
by others and licensed to the Company.
Operations of the Distribution segment accounted for approximately 42.8%, 33.7%
and 30.4%, respectively, of consolidated sales during Fiscal 1996, 1995 and
1994. The Distribution segment's marketing units regularly sell certain products
manufactured by the Engineered Power Systems segment and also sell to military
and airline users. In both cases, such sales are included in the Distribution
segment.
TACTICAL VEHICLE SYSTEMS SEGMENT
In October 1991, the United States Department of Defense selected Stewart &
Stevenson to manufacture the next generation of medium tactical vehicles (the
"Family of Medium Tactical Vehicles" or "FMTV") for the U.S. Army and awarded
the Company contracts for the production of 2 1/2-ton and 5-ton trucks, spare
parts and logistical support. The Family of Medium Tactical Vehicles is the U.S.
Army's next generation of basic transportation vehicle for personnel and
materials. As such, the FMTV is produced in several variants to carry troops and
cargo, including cargo beds, vans, troop carriers, wreckers, dump trucks and
tractors. In addition, several of the vehicles are specially configured for
airdrop operation. Although more than ten configurations of the FMTV are being
produced, a high degree of common components is incorporated in the Stewart &
Stevenson design.
The Company also sells the FMTV to other government contractors as a platform
for installation of weapons systems and other equipment which is then resold to
the Armed Forces. Stewart & Stevenson believes that there will be opportunities
to sell additional vehicles to the U.S. Army, to other branches of the U.S.
Armed Forces and to the armed forces of foreign countries. The FMTV contracts
allow for such sales, and the Company's facility has the capacity to produce
vehicles for those additional sales.
Operations of the Tactical Vehicle Systems segment accounted for approximately
16.9%, 15.3%, and 13.0%, respectively, of consolidated sales in Fiscal 1996,
1995 and 1994.
COMPETITION
The Company encounters strong competition in all segments of its business.
Competition involves pricing, quality, availability, the range of products and
services and other factors. Some of the Company's competitors have greater
financial resources than Stewart & Stevenson. The Company believes that its
reputation for quality engineering and after-sales service, and single-source
responsibility, are important to its market position.
The Engineered Power Systems segment competes with various entities, including
certain suppliers of major components, for the sale of its products.
Manufacturers of gas turbine generator sets in the 20-42 Mw size include General
Electric Corporation, Ruston Gas Turbines Ltd., Seimens, Westinghouse and ABB
Energy Services, Inc., a subsidiary of Asea Brown Boveri. Competition in the
market for the other products manufactured, and services provided, by the
Engineered Power Systems segment is highly diversified with no single competitor
participating in all of the markets of the Company.
The Distribution segment competes with distributors for other manufacturers in
the sale of original equipment, with the manufacturers and distributors of
non-original equipment parts for the sale of spare parts and with independent
repair shops for in-shop and on-site repair services.
The Tactical Vehicle Systems segment competes with domestic companies for
incremental sales to the U.S. Armed Forces. Both domestic and foreign suppliers
compete for the sale of vehicles to foreign governments. The Company's foreign
competitors include Daimler-Benz, Steyr, and other vehicle manufacturers that
have greater international recognition as vehicle manufacturers.
INTERNATIONAL OPERATIONS
International sales are subject to the risks of international political and
economic changes, such as changes in foreign governmental policies, currency
exchange rates and inflation. Generally, the Company accepts payments only in
United States Dollars and makes most sales to customers outside the United
States against letters of credit drawn on established international banks,
thereby limiting the Company's exposure to the effects of exchange rate
fluctuations and customer credit risks. In the limited circumstances in which
the Company has entered into contracts in foreign currencies, it has hedged its
exposure to fluctuations in such currencies. The profit margin on export sales
is not materially different from that on domestic sales of the same or similar
products with the same or similar delivery requirements.
The performance of operation and maintenance contracts in some countries could
be disrupted by political unrest, terrorist activity or government action. The
Company believes that any such disruption would be temporary.
UNFILLED ORDERS
Stewart & Stevenson's unfilled orders consist of written purchase orders,
letters of intent and oral commitments. These unfilled orders are generally
subject to cancellation or modification due to customer relationships or other
conditions. Purchase options are not included in unfilled orders until
exercised. Unfilled orders at the close of Fiscal 1996 and Fiscal 1995 were as
follows:
<TABLE>
<CAPTION>
Estimated percentage
to be recognized in Fiscal Fiscal
Fiscal 1997 1996 1995
----------- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Engineered Power Systems
Equipment 70% $324.0 $208.9
Operations and Maintenance 27% 296.7 321.8
----------------- ------------------
620.7 530.7
Distribution 100% 92.2 50.9
Tactical Vehicle Systems 51% 817.3 862.7
----------------- ------------------
Total 53% $1,530.2 $1,444.3
================= ==================
</TABLE>
Although no assurance can be given, the Company expects sales of the Engineered
Power Systems segment to continue to be weighted in favor of turbine-driven
equipment based on the number of unfilled orders for these units, the number of
proposals that are presently outstanding and the current worldwide need for
additional electrical generating and gas compression capacity.
Unfilled orders of the Tactical Vehicle Systems segment consists principally of
the contracts awarded in October 1991 by the United States Department of the
Army to manufacture medium tactical vehicles, and options under the FMTV
contract that have been exercised by the U.S. Army to purchase additional
vehicles.
EMPLOYEES
At March 1, 1997, the Company employed approximately 4,879 persons. The Company
considers its employee relations to be satisfactory.
Item 2. Properties.
The Company maintains its corporate and executive offices at 2707 North Loop
West, Houston, Texas. The corporate office, which includes the executive
offices, the national sales offices for the Engineered Power Systems segment and
administrative offices for the Distribution segment, occupies about 133,000
square feet of space leased from a limited partnership in which the Company owns
an 80% limited partnership interest.
Stewart & Stevenson's Engineered Power Systems segment is headquartered in
Houston, where the Company owns approximately 919,000 square feet and leases
approximately 41,000 square feet of space at seven locations devoted to
manufacturing, warehousing and administration. The Company leases gas turbine
operations and maintenance facilities in Long Beach, California, and Anchorage,
Alaska each totaling 5,000 square feet and maintains a sales office in
Alexandria, Virginia and Fort Lauderdale, Florida. The Company also owns gas
turbine parts, service, operations and maintenance facilities in Syracuse, New
York (15,000 square feet) and Bakersfield, California (14,000 square feet) and a
high pressure valve manufacturing facility in Jennings, Louisiana (89,000 square
feet).
Activities of the Distribution segment are coordinated from Houston, where the
Company owns 293,000 square feet of space at three locations devoted to
equipment and parts sales and service. To service its distribution territory
(See "Item 1. Business -- Distribution Segment"), Stewart & Stevenson maintains
Company-operated facilities occupying 523,000 square feet of owned space and
357,000 square feet of leased space in 25 cities in Texas, Louisiana, Colorado,
New Mexico, Wyoming, Utah, North Dakota, Kansas, Washington and California.
The Tactical Vehicle Systems segment is located in a 500,000 square foot
Company-owned facility near Houston, Texas. The Tactical Vehicle Systems segment
also leases 171,000 square feet of warehousing facilities in Houston, Texas.
The Company considers all property owned or leased by it to be well maintained,
adequately insured and suitable for its purposes.
Item 3. Legal Proceedings.
The Company is a defendant in a federal criminal matter and certain related
civil litigation arising from a 1987 subcontract to supply diesel generators to
the Kingdom of Saudi Arabia. See Note 5 to the Consolidated Financial Statements
which is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock is traded on the NASDAQ Stock Market under the
symbol: SSSS. There were 760 shareholders of record as of February 28, 1997. The
following table sets forth the high and low sales prices relating to the
Company's Common Stock and the dividends declared by the Company in each
quarterly period within the last two fiscal years.
<TABLE>
<CAPTION>
Fiscal Fiscal
1996 1995
--------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
High Low Dividend High Low Dividend
First Quarter $29 3/4 $23 1/4 $0.080 $40 1/2 $28 3/4 $0.07
Second Quarter 30 1/2 19 3/4 0.085 41 1/4 32 3/4 0.08
Third Quarter 23 3/4 19 5/8 0.085 38 3/4 21 1/2 0.08
Fourth Quarter 29 1/4 21 0.085 26 1/2 21 7/8 0.08
</TABLE>
Item 6. Selected Financial Data.
The Selected Financial Data set forth below should be read in conjunction with
the accompanying Consolidated Financial Statements and notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Stewart & Stevenson Services, Inc.
CONSOLIDATED FINANCIAL REVIEW
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------- ---------------- ----------------- -------------- ------------- ------------
(Dollars in thousands, except per share data) Fiscal Fiscal Fiscal Fiscal Fiscal
1996 1995 1994 1993 1992
- --------------------------------------------------- ---------------- ----------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Financial Data:
Sales $1,187,161 $1,233,981 $1,138,336 $981,892 $812,526
Earnings before income taxes
and accounting change (a) 25,575 91,908 102,852 85,301 64,376
Earnings before accounting change (a) 16,851 61,803 67,558 56,780 43,958
Net earnings (a) 16,851 61,803 67,558 56,780 34,658
Total assets 1,145,285 1,040,583 875,616 692,624 573,348
Short-Term Debt (including current portion
of Long-Term Debt) 29,100 66,100 43,344 7,219 3,252
Long-Term Debt 319,700 210,800 116,900 68,000 44,451
Per Share Data:
Earnings before accounting change (a) .51 1.87 2.05 1.73 1.35
Net earnings (a) .51 1.87 2.05 1.73 1.06
Cash dividends declared 0.335 0.31 0.27 0.23 0.19
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Company adopted Statement of Financial Accounting Standard No. 106
effective February 1, 1992, resulting in a cumulative charge to Fiscal 1992
earnings of $9,300, or $0.29 per share, after a deferred tax benefit of $4,790.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis, as well as the accompanying Consolidated
Financial Statements and related footnotes, will aid in understanding the
Company's results of operations as well as its financial position, cash flows,
indebtedness and other key financial information.
SUMMARY TABLES
The following table sets forth for the periods indicated (i) percentages which
certain items reflected in the Company's Consolidated Statements of Earnings
bear to consolidated sales of the Company and (ii) the percentage increase
(decrease) of such items as compared to the indicated prior period:
<TABLE>
<CAPTION>
Relationship to
Consolidated Sales Growth Rate
- ---------------------------------------- -------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal Fiscal Fiscal Fiscal
1996 1995 1994 1995-1996 1994-1995
- ---------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Sales 100.0% 100.0% 100.0% (3.8)% 8.4%
Cost of sales 86.0 84.4 84.0 (2.0) 8.9
---------------- ---------------- ----------------
Gross profit 14.0 15.6 16.0 (13.7) 5.8
Selling and administrative expenses 8.5 7.5 6.6 9.6 22.0
Interest expense 2.0 1.1 .6 73.7 102.2
Settlement of litigation 1.7 0 0 N/A N/A
Other income, net (.3) (.4) (.2) (20.0) 85.0
---------------- ---------------- ----------------
11.9 8.2 7.0 39.6 26.9
Earnings before income taxes 2.1 7.4 9.0 (72.2) (10.6)
Income taxes .7 2.5 3.0 (72.2) (11.2)
---------------- ---------------- ----------------
Earnings of consolidated
companies 1.4 4.9 6.0 (72.2) (10.4)
Equity in net earnings (losses)of
unconsolidated affiliates 0 .1 (.1) (136.4) 172.4
---------------- ---------------- ----------------
Net Earnings 1.4% 5.0% 5.9% (72.7) (8.5)
================ ================ ================
</TABLE>
The following tables present both the contribution to sales and operational
profit from each of the Company's business segments, as well as the growth rate
year to year achieved by these segments.
<TABLE>
<CAPTION>
Business Segment Highlights
-------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
-------------------------------------------------------------------------------------------------------------------------
Sales Growth Rate
------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal Fiscal
1996 1995 1994 1995-1996 1994-1995
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Engineered Power Systems $476,680 40% $627,702 51% $642,804 57% -24% -2%
Distribution 508,305 43 416,229 34 346,564 30 +22 +20
Tactical Vehicle Systems 200,916 17 189,009 15 147,920 13 +6 +28
Corporate Services 1,260 - 1,041 - 1,048 - +21 -1
========================================================================
$1,187,161 100% $1,233,981 100% $1,138,336 100% -4 +8
========================================================================
</TABLE>
<TABLE>
<CAPTION>
Operating Profit Growth Rate
------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal Fiscal
1996 1995 1994 1995-1996 1994-1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Engineered Power Systems $33,538 43% $73,449 65% $82,395 71% -54% -11%
Distribution 33,143 42 30,130 27 24,015 21 +10 +25
Tactical Vehicle Systems 10,823 14 9,703 8 8,782 8 +12 +10
Corporate Services 528 1 292 - 376 - +81 -22
===================================================================
$78,032 100% $113,574 100% $115,568 100% -31 -2
===================================================================
</TABLE>
<TABLE>
<CAPTION>
Operating Profit as a Percentage of Sales
------------------------------------------------------------------------
Fiscal Fiscal Fiscal
1996 1995 1994
- ----------------------------- ------------------------ ----------------------- -----------------------
<S> <C> <C> <C>
Engineered Power Systems 7.0% 11.7% 12.8%
Distribution 6.5 7.2 6.9
Tactical Vehicle Systems 5.4 5.1 5.9
Corporate Services 41.9 28.1 35.9
Consolidated 6.6 9.2 10.2
</TABLE>
RESULTS OF OPERATIONS
Fiscal 1996 vs. Fiscal 1995
Sales for Fiscal 1996 decreased 4% to $1.187 billion compared to sales of $1.234
billion for Fiscal 1995. The Company's international sales decreased 20% to $305
million in Fiscal 1996 as compared to $382 million in Fiscal 1995, representing
26% and 30% of consolidated sales for Fiscal 1996 and 1995, respectively.
The Distribution segment was the primary growth contributor to the Company's
sales with an increase in sales of $92 million (22%) in Fiscal 1996 compared to
Fiscal 1995. A strengthening oil and gas market served by the Company's
Distribution territory contributed to these sales improvements, particularly
among the Company's Detroit Diesel, EMD and Waukesha product lines.
The Tactical Vehicle Systems (TVS) segment sales increased $12 million (6%)
during Fiscal 1996 as compared to Fiscal 1995. The increase in TVS sales
reflects the increase in truck production under the "Family of Medium Tactical
Vehicles" (FMTV) contract to 1,764 trucks in Fiscal 1996 as compared to 1,560
trucks in Fiscal 1995.
The Engineered Power Systems (EPS) segment sales were the primary contributor to
the Company's sales decline, decreasing $151 million (24%) in Fiscal 1996 as
compared to Fiscal 1995. During Fiscal 1996, the EPS segment saw a continuation
of the very weak domestic market for its gas turbine electrical power generation
equipment, as well as a very competitive international market place. Incoming
domestic orders, which declined significantly in Fiscal 1995, were non existent
in Fiscal 1996. The international market activity, although encouraging, did not
produce a level of new orders adequate to offset the lost revenue and profits
from the domestic market. This decrease was partially offset by the gas turbine
product support group (consisting of the servicing of customer's equipment and
the long-term contracting for the operation and maintenance of the customer's
power plants) which increased sales $16 million (10%) in Fiscal 1996 as compared
to Fiscal 1995. Airline and petroleum equipment experienced increased sales of
$12 million (40%) and $6 million (11%), respectively, in Fiscal 1996 as compared
to Fiscal 1995.
Operating profit decreased approximately 31% during Fiscal 1996 to $78 million
as compared to $114 million in Fiscal 1995. The decrease in gross profit margin
reflects both the decrease in turbine-driven equipment sales as well as decrease
in the gross profit margin on these gas turbine-driven equipment sales.
Fiscal 1995 vs. Fiscal 1994
Sales for Fiscal 1995 increased 8% to $1.234 billion compared to sales of $1.138
billion for Fiscal 1994. The Company's international sales increased 27% to $382
million in Fiscal 1995 as compared to $301 million in Fiscal 1994, representing
30% and 26% of consolidated sales for Fiscal 1995 and 1994, respectively.
The Distribution segment was the primary contributor to the Company's sales
growth with an increase in sales of $70 million (20%) in Fiscal 1995 compared to
Fiscal 1994. This increase is primarily attributable to the acquisition of
substantially all of the assets of Power Application & Mfg., Co. ("PAMCO"), a
Waukesha distributor for the Western United States, during the fourth quarter of
Fiscal 1994. The distribution of product lines acquired from PAMCO contributed
sales of $49 million in Fiscal 1995 compared to $5 million in Fiscal 1994.
Excluding sales relating to the PAMCO acquisition, the Distribution segment's
sales increased 7% in Fiscal 1995 over Fiscal 1994 reflecting the continued
economic growth in the territories serviced by the Company.
The Tactical Vehicle Systems segment sales increased $41 million (28%) during
Fiscal 1995 as compared to Fiscal 1994. The increase in TVS sales reflects the
increase in truck production under the FMTV contract to 1,560 trucks in Fiscal
1995 as compared to 1,130 trucks in Fiscal 1994. Although sales increased for
the current fiscal year, the increase was less than anticipated. Sales for the
year were adversely affected by the deployment of certain U.S. Army personnel to
Haiti in Fiscal 1994 which delayed the completion of testing and certification
of the FMTV program for high volume production until the fourth quarter of
Fiscal 1995.
The Engineered Power Systems segment of the Company experienced a 2% decrease in
sales in Fiscal 1995. This decline in EPS sales was primarily within the Gas
Turbine equipment product lines which experienced sharply reduced domestic
activity, reflecting the U.S. utility market's response to deregulation
proposals, and delays in contract awards in the international markets. Gas
Turbine product support sales, consisting of the servicing of customers'
equipment and the long-term contracting for operation and maintenance of power
plants, continued to grow with Fiscal 1995 sales increasing more than 10% above
Fiscal 1994.
Operating profit decreased by approximately 2% during Fiscal 1995 to $114
million as compared to $116 million in Fiscal 1994. Both the Distribution and
the Tactical Vehicle Systems segments' operating profits increased at a rate
comparable to the growth in sales volumes. The Engineered Power Systems
segment's operating profit of 11.7% in Fiscal 1995 declined from 12.8% in Fiscal
1994. This decline is primarily related to lower profits realized on the sale of
certain compression equipment during Fiscal 1995, and to increased market
competitiveness.
<TABLE>
<CAPTION>
Net Period Expenses
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Percentage Change
Fiscal Fiscal Fiscal Fiscal
1996 1995 1994 1995-1996 1994-1995
- --------------------------------------------------- ------------- ------------- ------------- ------------------------------
<S> <C> <C> <C> <C> <C>
Selling and administrative expenses $100,624 $91,814 $75,249 +10% +22%
Interest expense 24,113 13,884 6,865 +74 +102
Settlement of litigation 20,000 N/A N/A
0 0
Other income, net (3,742) (4,676) (2,528) -20 +85
============= ============= =============
$140,995 $101,022 $79,586 +40 +27
============= ============= =============
============= ============= =============
Net period expenses as a percentage of sales 11.9% 8.2% 7.0%
============= ============= =============
</TABLE>
Net period expenses increased significantly during Fiscal 1996, both in amount
and in relation to sales, when compared to Fiscal 1995. Selling and
administrative expenses increased primarily in those business lines having sales
growth, in addition a one-time charge of approximately $900 thousand related to
settling a lawsuit and substantial legal expenses related to the "Peace Shield"
litigation are also included. Interest expense grew significantly in both Fiscal
1996 and 1995 reflecting the increased borrowings required to fund the Company's
operations; primarily gas turbine inventories relating to international
contracts that do not contain substantial progress payments and inventories of
vehicles under the FMTV. The decrease in other income during Fiscal 1996 is
primarily attributable to both decreased interest income and decreased gains on
the disposal of real estate.
On July 25, 1996, a jury in Houston, Texas returned a $43 million verdict
against the Company in a case filed by Serv-Tech, Inc. for breach of a secrecy
agreement. The Company's liability in connection with this matter was limited
pursuant to a pretrial agreement between the Company and Serv-Tech. The Company
recognized a pre-tax charge against earnings of $20 million ($13 million or $.39
per share after taxes) relating to this case in the second quarter of Fiscal
1996. The judgment based on this verdict was paid by the Company in September
1996.
<TABLE>
<CAPTION>
Net Earnings
- -------------------------------------------------------------------------------------------- ----------------------------------
(Dollars in thousands) Percentage Change
Fiscal Fiscal Fiscal Fiscal
1996 1995 1994 1995-1996 1994-1995
- ---------------------------------------------------- ------------ ------------- ------------- --------------------------------
<S> <C> <C> <C> <C> <C>
Amount $16,851 $61,803 $67,558 -73% -9%
Percentage of sales 1.4% 5.0% 5.9%
============ ============= =============
</TABLE>
Fiscal 1996's net earnings decline from Fiscal 1995 primarily reflects the
decrease in operational profits and the increase in net period expense. Income
tax expense, relative to operational profits, was comparable for Fiscal 1996,
1995 and 1994.
<TABLE>
<CAPTION>
FINANCIAL CONDITION
Working Capital
- ---------------------------------------------------------------------------------------------------------------------------
Percentage Change
Fiscal Fiscal Fiscal
(Dollars in thousands) 1996 1995 1995 - 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Assets $974,128 $881,446 +11%
Current Liabilities 320,559 330,080 -3%
============== ==============
Working Capital 653,569 551,366 +19%
============== ==============
Current Ratio 3.04:1 2.67:1
============== ==============
</TABLE>
Current assets increased $93 million from Fiscal 1995. This increase was
primarily in accounts and notes receivable, which increased $41 million (+21%)
and inventories which increased $40 million (+11%). The increase in accounts
receivable reflects the significant increase (29%) in consolidated revenue
during the fourth quarter of Fiscal 1996 compared to the same period a year ago.
The growth in inventories, at a rate faster than annual revenue growth, can be
attributed to the Engineered Power Systems' procurement and manufacturing
activities in anticipation of increased demand.
Current liabilities decreased $10 million from Fiscal 1995, with decreases
primarily in notes payable of $37 million (-57%) and billings on uncompleted
contracts in excess of incurred costs of $5 million (-35%), offset by an
increase in accounts payable of $31 million (+23%).
The reduction in notes payable reflects the Company strategy of replacing a
portion of notes payable with long-term debt. The decrease in billings on
uncompleted contracts in excess of incurred costs was caused by the customer
payment terms on uncompleted contracts which were more favorable to the customer
at the end of Fiscal 1996 than at the end of Fiscal 1995.
INVESTMENTS
The Company's capital expenditures for plant, rental machines and other property
were $25 million for Fiscal 1996, an increase of $2 million from Fiscal 1995.
The increase reflects the Company's continuing investment in business units
capable of rapid growth.
Depreciation and amortization totaled $26 million for Fiscal 1996, an increase
of $2 million from Fiscal 1995. Additionally, the Company disposed of
approximately $3 million of property during Fiscal 1996 versus disposals of $4
million during Fiscal 1995.
Investments and other assets were $48 million at the end of Fiscal 1996, an
increase of $16 million from the end of Fiscal 1995. This increase is primarily
comprised of an investment in an independent power producer operating in
Argentina, as well as an increase in the non-current portion of notes
receivable.
<TABLE>
<CAPTION>
Company's Capital
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Fiscal 1996 Fiscal 1995
Amount Percentage Amount Percentage
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term Debt $319,700 39% $210,800 30%
Other Long-Term Liabilities 25,791 3 27,788 4
Shareholders' Equity 479,235 58 471,915 66
=======================================================
$824,726 100% $710,503 100%
=======================================================
</TABLE>
Long-term debt increased $109 million during Fiscal 1996, reflecting the
Company's strategy to reduce its dependence on short-term notes payable and to
take advantage of relatively attractive long-term interest rates. Shareholders'
equity increased $7 million during Fiscal 1996 primarily as a result of earnings
retained after dividends.
LIQUIDITY
The Company's sources of liquidity include cash and equivalents, cash from
operations, amounts available under credit facilities and other external sources
of funds. The Company believes that these sources are sufficient to fund the
current requirements of working capital, capital expenditures, dividends and
other financial commitments.
The following table summarizes the Company's cash flows from operating,
investing and financing activities as prescribed by Generally Accepted
Accounting Principles (GAAP), and reflected in the Consolidated Statement of
Cash Flows.
<TABLE>
<CAPTION>
Summarized Statement of Cash Flows
- --------------------------------------------------------------------------------------- ------------- ------------- -------------
(Dollars in thousands) Fiscal Fiscal Fiscal
1996 1995 1994
- --------------------------------------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Net Cash Provided By (Used In):
Operating Activities $(29,278) $(86,142) $(52,606)
Investing Activities (30,284) (19,600) (29,007)
Financing Activities 62,369 108,080 77,812
============= ============= =============
$2,807 $2,338 $(3,801)
============= ============= =============
Cash Used In Operating Activities
- ------------------------------------ --------------------------------------------------- ----------- ------------- --------------
(Dollars in thousands) Fiscal Fiscal Fiscal
1996 1995 1994
- ------------------------------------ --------------------------------------------------- ----------- ------------- --------------
Net Earnings $16,851 $61,803 $67,558
Depreciation and amortization 26,263 24,732 23,954
Deferred income taxes, net (1,667) (1,244) 2,170
------------- ------------- -------------
Funds from operations 41,447 85,291 93,682
Change in net operating assets and liabilities (70,725) (171,433) (146,288)
------------- ------------- -------------
Net cash (used in) operating activities $(29,278) $(86,142) $(52,606)
============= ============= =============
</TABLE>
Funds from operations decreased 51% during Fiscal 1996 versus a 9% decrease
during Fiscal 1995, reflecting primarily the relative change in earnings each
year. Working capital to support the operations of the Company fluctuates
significantly depending on the progress payment streams of contracts in process.
The Tactical Vehicle Systems segment is primarily funded by progress payments
under government regulations which require that contractors retain a significant
amount of the contract costs until government acceptance of the product. The
Company regularly bids on commercial and government contracts, which if awarded
to the Company, could significantly affect both working capital and capital
expenditures needs.
<TABLE>
<CAPTION>
Cash Used In Investing Activities
- --------------------------------------------------------------------------------------- ------------- ------------- ------------
(Dollars in thousands) Fiscal Fiscal Fiscal
1996 1995 1994
- --------------------------------------------------------------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
Expenditures for property, plant and equipment $(25,038) $(23,487) $(33,379)
Investment (See Note 14) (8,000) 0 0
Disposal of property, plant and equipment 2,754 3,887 4,372
------------- ------------- ------------
Net cash (used) in investing activities $(30,284) $(19,600) $(29,007)
============= ============= ============
</TABLE>
Net cash used in investing activities increased 55% during Fiscal 1996 versus a
32% decrease during Fiscal 1995. During Fiscal 1996, the Company made an
investment in an independent power producer. Proceeds from asset sales decreased
29% in Fiscal 1996 as compared to an 11% decrease in Fiscal 1995. On April 12,
1997, the Company acquired ownership of Sierra Detroit Diesel Allison, Inc. from
Outer Drive Holdings, Inc. The acquisition will broaden the Company's
distribution territory for certain products.
<TABLE>
<CAPTION>
Cash Provided From Financing Activities
- --------------------------------------------------------------------------------------- ------------- ------------- ------------
(Dollars in thousands) Fiscal Fiscal Fiscal
1996 1995 1994
- --------------------------------------------------------------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
Additions to long-term debt $360,000 $200,071 $ 85,000
Payments on long-term debt (251,100) (106,100) (36,975)
Net borrowings and payments on short-term notes payable (37,000) 23,000 37,000
Dividends paid (11,081) (10,243) (8,904)
Exercise of stock options 1,550 1,352 1,691
------------- ------------- ------------
Net cash provided by financing activities $62,369 $108,080 $77,812
============= ============= ============
</TABLE>
Net cash provided from financing activities decreased 42% for Fiscal 1996
compared to a 39% increase for Fiscal 1995. During Fiscal 1996 the Company
increased long-term debt $360.0 million while retiring $251.1 million in
long-term debt. In addition to the increased long-term debt, financing cash
inflows included the exercise of stock options totaling $1.55 million.
Payment of cash dividends on common stock totaled $11.081 million.
On May 30, 1996, the Company completed a private placement of $135 million
senior notes with an average maturity of 5 1/2 years. The notes are unsecured
and were issued pursuant to an agreement containing a covenant which imposes a
debt to total capitalization requirement. The notes will mature in three, five,
seven and ten year increments with semi-annual interest payments at a weighted
average life and coupon rate of 5 1/2 years and 7.01%, respectively. The
proceeds from the sale of the notes were used to reduce other short-term
outstanding indebtedness of the Company and for general corporate purposes. In
the event that any acquisition of additional operations, growth in existing
operations, changes in inventory levels, accounts receivable or other working
capital items create a need for working capital or capital expenditures in
excess of existing committed lines of credit, the Company may seek to convert
uncommitted borrowing arrangements to committed credit facilities, to borrow
under other long-term financing sources or to issue additional equity
securities.
The amount of cash dividends increased 8% and 15% during Fiscal 1996 and 1995,
respectively. Cash dividends represented 66%, 17% and 13% of net earnings before
accounting change for Fiscal 1996, 1995 and 1994, respectively. The Board of
Directors of the Company intends to consider the payment of dividends on a
quarterly basis, commensurate with the Company's earnings and financial needs.
The Company uses both funds from operations, along with borrowings, to pay
dividends.
ACCOUNTING DEVELOPMENTS
In June 1996, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." This standard provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. This standard is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. The adoption of this standard is not expected
to impact the Company's consolidated results of operations, financial position
or cash flow.
TACTICAL VEHICLE SYSTEMS' CONTRACT STATUS
Under the terms of the FMTV contract, approximately 2,936 vehicles produced
before December 1995 were required to be retrofitted with any modifications
required by test results or specification changes ordered by the U.S.
government. This retrofit program was commenced during the fourth quarter of
Fiscal 1995 and was substantially completed in the second quarter of Fiscal
1996. Full rate production of the FMTV commenced after the retrofit program was
substantially completed and, as of January 31, 1997, the Company has completed
approximately 4,750 of the 11,197 vehicles covered by the original contract plus
options and additional requirements to date. During Fiscal 1996, the Company
entered into a contract modification that extended the FMTV delivery schedule
through December 1998 and reduced the annual product requirements. The total
number of vehicles covered by the FMTV contract did not change.
Major contracts for military systems are performed over extended periods of time
and are subject to changes in scope of work and delivery schedules. Pricing
negotiations on changes and settlement of claims often extend over prolonged
periods of time. The Company's ultimate profitability on such contracts will
depend not only upon the accuracy of the Company's cost projections, but also
the eventual outcome of an equitable settlement of contractual issues with the
U.S. Government.
The FMTV contract is a firm fixed-price multi-year contract whereby the price
paid to the Company is not subject to adjustment to reflect the Company's actual
costs, except costs incurred as a result of actions or inactions of the
government. Stewart & Stevenson has incurred significant cost overruns and
delivery schedule delays on the FMTV contract which the Company believes are
primarily due to the government's decision to delay the testing of trucks and
other government directed changes to the contract. The Company has and will
continue to submit a series of Requests for Equitable Adjustments (REAs), under
the FMTV contract, seeking increases in the FMTV contract price for those
additional costs that relate to government caused delays and changes.
Revenues and profits realized on the FMTV contract are based on the Company's
estimates of total contract sales value and costs at completion. Amounts in
excess of agreed upon contract price for government caused delays, disruptions,
unpriced change orders and government caused additional contract costs are
recognized in contract value when the Company believes it is probable that the
claim for such amounts will result in additional contract revenue and the amount
can be reasonably estimated. At January 31, 1997, the Company's FMTV contract
accounting position reflects the expected recovery of substantial amounts in
excess of the contract price for government caused delays, disruptions, unpriced
change orders and other government caused additional contract costs. These
claims are in varying stages of negotiation. Although management believes that
the contract provides a legal basis for the claims and its estimates are based
on reasonable assumptions and on a reasonable analysis of contract costs, due to
uncertainties inherent in the estimation and claims negotiations process, no
assurances can be given that its estimates will be accurate, and variances
between such estimates and actual results could be material. In the event that
the Company is unable to recover a substantial portion of the additional costs,
the Company may suffer a material adverse effect on its earnings during the
accounting period in which such contract issues are resolved.
The funding of the contract is subject to the inherent uncertainties of
congressional appropriations. As is typical of multi-year defense contracts, the
FMTV contracts must be funded annually by the Department of the Army and may be
terminated at any time for the convenience of the government. The Company has
received full funding for the production of approximately 10,155 vehicles
through August 1997. It is anticipated that the remaining 1,042 vehicles will be
funded after October 1997 when the 1998 Government fiscal year funding is
approved. If the FMTV contract is terminated other than for default, the FMTV
contract provides for termination charges that will reimburse the Company for
allowable costs, but not necessarily all costs.
EFFECT OF CERTAIN LITIGATION
On May 3, 1995, the Company and four employees, including the Company's
President, were indicted by a federal Grand Jury on six counts arising out of a
1987 subcontract to supply diesel generator sets for installation in Saudi
Arabia. See Note 5: Commitments and Contingencies to the Consolidated Financial
Statements. On May 12, 1995, the U.S. Air Force suspended the Company from
contracting with any agency of the U.S. Government and from receiving the
benefit of federal assistance programs. This suspension was temporarily
terminated on November 8, 1995, pending the resolution of the charges covered by
the indictment, pursuant to an Interim Administrative Agreement between the
Company and the U.S. Air Force. The Interim Administrative Agreement does not
have any effect on the indictment.
The Interim Administrative Agreement requires the Company to maintain various
internal procedures and policies intended to assure the U.S. Government that the
Company is a responsible contractor. In the event that the Company or any of the
indicted employees are convicted of the charges contained in the indictment, the
U.S. Air Force may re-evaluate whether the Company should be suspended or
debarred based on all of the facts and circumstances then known. An acquittal of
all parties of the charges does not terminate the Interim Administrative
Agreement and any failure by the Company to perform its obligations thereunder
may also be grounds for suspension or debarment.
If the Company is suspended or debarred, either because of a conviction pursuant
to the indictment or as a result of a breach of the Interim Administrative
Agreement, it would be ineligible to enter into new contracts or subcontracts
with agencies of the U.S. Government or receive the benefit of federal
assistance payments for the duration of such suspension or debarment. Any such
suspension could also prevent the Company from receiving future modifications to
the FMTV contract unless the Secretary of the Army finds a compelling need to
enter into such modification. The Company would also be unable to sell equipment
and services to customers that depend on loans or financial commitments from the
Export Import Bank ("EXIM Bank"), Overseas Private Investment Corporation
("OPIC") and similar government agencies during a suspension or debarment. The
Engineered Power Systems segment frequently sells equipment to customers that
rely on financial commitments from EXIM Bank and/or OPIC. Any such suspension or
debarment could have a material adverse impact on the Company's future financial
condition and results of operations.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this annual report contains forward-looking
statements that are based on current expectations, estimates, and projections
about the markets and industries in which the Company operates, management's
beliefs and assumptions made by management. These forward-looking statements are
made pursuant to the Safe Harbor Provisions of the Private Securities Litigation
Reform Act of 1995. These statements are not guarantees of future performance
and involve certain risks, uncertainties and assumptions ("future factors")
which are difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in such forward-looking
statements. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Future factors include increasing price and product/service
competition by foreign and domestic competitors; rapid technological
developments and changes; the ability to continue to introduce competitive new
products and services on a timely, cost effective basis; the mix of
products/services; the achievement of lower costs and expenses; reliance on
large customers; technological, implementation and cost/financial risks in use
of large, multi-year contracts; the cyclical nature of the markets served; the
outcome of pending and future litigation and governmental proceedings and
continued availability of financing, financial instruments and financial
resources in the amount, at the times and on the terms required to support the
Company's business; and the risk of cancellation or adjustments of specific
orders and termination of significant government programs. These are
representative of the future factors that could affect the outcome of
forward-looking statements. In addition, such statements could be affected by
general industry and market conditions and growth rates, general domestic and
international conditions including interest rates, rates of inflation and
currency exchange rate fluctuations and other future factors.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Stewart & Stevenson Services, Inc.
We have audited the accompanying consolidated statements of financial position
of Stewart & Stevenson Services, Inc. and subsidiaries as of January 31, 1997
and 1996, and the related consolidated statements of earnings, shareholders'
equity and cash flows for each of the three years in the period ended January
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stewart & Stevenson Services,
Inc. and subsidiaries as of January 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
January 31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 20, 1997
===========================================================================
===========================================================================
<TABLE>
<CAPTION>
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
- -----------------------------------------------------------------------------------------------------------
(Dollars in thousands) Fiscal Fiscal
1996 1995
- -----------------------------------------------------------------------------------------------------------
Assets
Current Assets
<S> <C> <C>
Cash and equivalents $9,132 $6,325
Accounts and notes receivable, net 237,062 196,548
Recoverable costs and accrued profits not yet billed 326,952 317,855
Inventories 400,982 360,718
---------------------- -------------------
Total Current Assets 974,128 881,446
Property, Plant and Equipment, net 123,433 127,055
Investments and Other Assets 47,724 32,082
====================== ===================
$1,145,285 $1,040,583
====================== ===================
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $28,000 $65,000
Accounts payable 165,999 134,562
Accrued payrolls and incentives 22,008 22,450
Billings on uncompleted contracts in excess of incurred 9,354 14,417
costs
Current income taxes 65,881 68,650
Other accrued liabilities 29,317 25,001
---------------------- -------------------
Total Current Liabilities 320,559 330,080
Commitments and Contingencies (See Note 5)
Long-Term Debt 319,700 210,800
Deferred Income Taxes 5,127 6,794
Accrued Postretirement Benefits 15,091 15,454
Deferred Compensation 5,573 5,540
Shareholders' Equity
Common Stock, without par value, 100,000,000 shares authorized at January
31, 1997 and January 31, 1996, respectively; 33,132,280 and 33,061,908
shares issued at January 31, 1997 and 1996, respectively,
including 11,820 shares held in treasury 164,959 163,409
Retained earnings 314,309 308,539
---------------------- -------------------
479,268 471,948
Less cost of treasury stock (33) (33)
---------------------- -------------------
Total Shareholders' Equity 479,235 471,915
-------------------
======================
$1,145,285 $1,040,583
====================== ===================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<TABLE>
<CAPTION>
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) Fiscal Fiscal Fiscal
1996 1995 1994
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $1,187,161 $1,233,981 $1,138,336
Cost of sales 1,020,591 1,041,051 955,898
-------------- -------------- --------------
Gross profit 166,570 192,930 182,438
-------------- -------------- --------------
Selling and administrative expenses 100,624 91,814 75,249
Interest expense 24,113 13,884 6,865
Settlement of litigation (See Note 2) 20,000 0 0
Other income, net (3,742) (4,676) (2,528)
-------------- -------------- --------------
140,995 101,022 79,586
-------------- -------------- --------------
Earnings before income taxes 25,575 91,908 102,852
Income taxes 8,520 30,665 34,520
-------------- -------------- --------------
Earnings of consolidated companies 17,055 61,243 68,332
Equity in net earnings (losses) of unconsolidated affiliates (204) 560 (774)
============== ============== ==============
Net earnings $16,851 $61,803 $67,558
============== ============== ==============
Weighted average number of shares of Common Stock outstanding 33,068 33,035 32,973
============== ============== ==============
Net earnings per share $.51 $1.87 $2.05
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<TABLE>
<CAPTION>
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Common Retained Treasury
Stock Earnings Total
Stock
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at end of Fiscal 1993 $160,366 $198,325 $(33) $358,658
Net earnings 67,558 67,558
Cash dividends (8,904) (8,904)
Exercise of stock options 1,691
1,691
------------- ------------- ------------- ----------
Balance at end of Fiscal 1994 162,057 256,979 (33) 419,003
Net earnings 61,803 61,803
Cash dividends (10,243) (10,243)
Exercise of stock options 1,352
1,352
------------- ------------- ------------- ----------
Balance at end of Fiscal 1995 163,409 308,539 (33) 471,915
Net earnings 16,851 16,851
Cash dividends (11,081) (11,081)
Exercise of stock options 1,550 1,550
============= ============= ============= ==========
Balance at end of Fiscal 1996 $164,959 $314,309 $(33) $479,235
============= ============= ============= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<TABLE>
<CAPTION>
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Fiscal Fiscal Fiscal
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C> <C>
Net earnings $16,851 $61,803 $67,558
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Accrued postretirement benefits (363) 202 224
Depreciation and amortization 26,263 24,732 23,954
Deferred income taxes, net (1,667) 2,170
(1,244)
Change in operating assets and liabilities:
Accounts and notes receivable, net (40,514) (9,734) (39,522)
Recoverable costs and accrued profits not yet billed (9,097) (90,388) (111,599)
Inventories (40,264) (64,851) (26,262)
Accounts payable 31,437 (29,912) 32,694
Billings on uncompleted contracts in excess
of incurred costs (5,063) 3,133 (19,804)
Current income taxes (2,769) 26,410 14,309
Other current liabilities 3,874 (3,776) 6,644
Other--principally long-term assets and liabilities (7,966) (2,517) (2,972)
------------- ------------- -----------
Net Cash Used in Operating Activities (29,278) (86,142) (52,606)
Investing Activities
Expenditures for property, plant and equipment (25,038) (23,487) (33,379)
Investment (See Note 14) (8,000) 0 0
Disposal of property, plant and equipment 2,754 3,887 4,372
------------- ------------- -----------
Net Cash Used in Investing Activities (30,284) (19,600) (29,007)
Financing Activities
Additions to long-term debt 360,000 200,071 85,000
Payments on long-term debt (251,100) (106,100) (36,975)
Net borrowings and payments on short-term notes payable (37,000) 23,000 37,000
Dividends paid (11,081) (10,243) (8,904)
Exercise of stock options 1,550 1,352 1,691
------------- ------------- -----------
Net Cash Provided by Financing Activities 62,369 108,080 77,812
------------- ------------- -----------
Increase (decrease) in cash and equivalents 2,807 2,338 (3,801)
Cash and equivalents, beginning of fiscal year 6,325 3,987 7,788
------------- ------------- -----------
Cash and equivalents, end of fiscal year $9,132 $6,325 $3,987
============= ============= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
Stewart & Stevenson Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Note 1: Summary of Principal Accounting Policies
Fiscal Year: The Company's fiscal year begins on February 1 of the year stated
and ends on January 31 of the following year. For example, "Fiscal 1996"
commenced on February 1, 1996 and ended on January 31, 1997.
Consolidation: The consolidated financial statements include the accounts of
Stewart & Stevenson Services, Inc. and all of its majority-owned subsidiaries.
Investments in other partially-owned companies and joint ventures in which
ownership ranges from 20 to 50 percent are generally accounted for using the
equity method. All significant intercompany accounts and transactions have been
eliminated.
Stock-Based Compensation: The Company will continue to apply the existing
accounting rules contained in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations. Pro
forma disclosure of the compensation expense determined under the fair-value
provision of Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" has been provided. (See Note 10)
Cash Equivalents: Interest-bearing deposits and other investments with
original maturities of three months or less are considered cash equivalents.
Inventories: Inventories are generally stated at the lower of cost (using LIFO)
or market (determined on the basis of estimated realizable values), less related
customer deposits. Inventory costs include material, labor and overhead. The
carrying values of these assets approximate their fair values.
Capitalized Interest: Interest costs associated with certain constructed assets
are capitalized during the construction period. Capitalized interest in 1996 was
$725 and was netted against interest expense in the consolidated statement of
earnings. There was no capitalized interest in 1995 and 1994. Interest
capitalized on assets constructed for customers will be included in cost of
sales. Interest capitalized on assets developed for the Company's use will be
amortized over the depreciable life of the related assets.
Contract Revenues and Costs: Revenues relating to contracts or contract changes
that have not been completely priced, negotiated, documented, or funded are not
recognized unless realization is considered probable. Generally, revenue is
recognized when a product is shipped or accepted by the customer, except for
certain Engineered Power Systems' products, where revenue is recognized using
the percentage-of-completion method. The revenues of the Tactical Vehicle
Systems segment are generally recognized under the units-of-production method,
whereby sales and estimated average cost of the units to be produced under the
Family of Medium Tactical Vehicle ("FMTV") contract are recognized as units are
substantially completed. Profits expected to be realized on contracts are based
on the Company's estimates of total sales value and costs at completion. Changes
in estimates for sales, costs, and profits are recognized in the period which
they are determinable using the cumulative catch-up method of accounting. In
certain cases, the estimated sales values include amounts expected to be
realized from contract adjustments or claims when recovery of such amounts are
probable, subject to negotiations or legal proceedings. Any anticipated losses
on contracts are charged in full to operations in the period in which they are
determinable.
Depreciable Property: The Company depreciates property, plant and equipment over
their estimated useful lives, using accelerated and straight-line methods.
Expenditures for property, plant and equipment are capitalized and carried at
cost. When items are retired or otherwise disposed of, income is charged or
credited for the difference between net book value and proceeds realized
thereon. Ordinary maintenance and repairs are charged to expense as incurred and
replacements and betterments are capitalized.
Foreign Exchange Contracts: The Company occasionally enters into forward
exchange contracts only as a hedge against certain economic exposures and not
for speculative or trading purposes. While the forward contracts affect the
Company's results of operations, they do so only in connection with the
underlying transactions. As a result, they do not subject the Company to risk
from exchange rate movements, because gains and losses on these contracts offset
losses and gains on the transactions being hedged. The Company limits exposure
to foreign currency fluctuations in its operations and maintenance contracts
through provisions that generally require customer payments in U.S. dollars or
other currency either corresponding to the currency in which the costs are
incurred or otherwise having the customer assume currency rate risk.
Other Off-Balance Sheet Risks: The Company has entered into certain
contracts whereby it has guaranteed the repayment of a customer's debt to third
party lenders. (See Note 5)
Fair Value of Financial Instruments: The Company's financial instruments consist
primarily of cash and equivalents, trade receivables, trade payables and debt
instruments. The book values of cash and equivalents, trade receivables and
trade payables are considered to be representative of their respective fair
values. Generally, the Company's notes receivable and payable have interest
rates which are tied to current market rates. The Company estimates that the
book value of its financial instruments approximates market values.
Warranty Costs: Expected warranty and performance guarantee costs are
accrued as revenue is recorded, based on historical experience and contract
terms.
Net Earnings Per Share: Net earnings per share of Common Stock are computed by
dividing net earnings by the weighted average number of shares outstanding.
Common Stock equivalents (outstanding options to purchase shares of Common
Stock) are excluded from the computations because they are insignificant and
adjustments could be material to the Company's results of operations.
Use of Estimates and Assumptions: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Reclassifications: The accompanying consolidated financial statements for
Fiscal 1995 and 1994 contain certain reclassifications to conform with the
presentation used in Fiscal 1996.
Note 2: Industry Segment Data
The Engineered Power Systems segment includes the designing, packaging,
manufacturing and marketing of diesel and gas turbine engine-driven equipment
and the operations and maintenance of large gas turbine projects and petroleum
production and processing facilities. The Distribution segment includes the
marketing of diesel engines, automatic transmissions, material handling
equipment, transport refrigeration units and construction equipment and the
provision of related parts and service. The Tactical Vehicle Systems segment
includes the designing, manufacturing and marketing of tactical vehicles,
primarily 2 1/2-ton and 5-ton trucks under contract with the United States Army.
The high degree of integration of the Company's operations necessitates the use
of a substantial number of allocations and apportionments in the determination
of business segment information. Sales are shown net of intersegment
eliminations.
Corporate assets consist primarily of cash and equivalents and the assets of a
limited partnership.
The Company markets its products and services throughout the world and is not
dependent upon any single geographic region or single customer. Other than the
U.S. Government, no single group or customer represents greater than 10% of
consolidated sales. Export sales, including sales to domestic customers for
export, for Fiscal 1996, 1995 and 1994 were $304,508, $382,452 and $301,885
respectively. Export sales to any single geographic region in Fiscal 1996, 1995
and 1994 were not material to consolidated sales.
During Fiscal 1996, a jury in Houston, Texas returned a $43,000 verdict against
the Company in a case filed by Serv-Tech, Inc. for breach of a secrecy
agreement. The Company's liability in connection with this matter was limited
pursuant to a pretrial agreement between the Company and Serv-Tech. The Company
recognized a pre-tax charge against earnings of $20,000 ($13,000 or $.39 per
share after taxes) relating to this case in the second quarter of Fiscal 1996.
The judgment based on this verdict was paid by the Company in September 1996.
<TABLE>
<CAPTION>
Financial information relating to industry segments is as follows:
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Identifiable Capital
Sales Profit Assets Expenditures Depreciation
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal 1996
<S> <C> <C> <C> <C> <C>
Engineered Power Systems $476,680 $33,538 $651,768 $9,877 $6,925
Distribution 508,305 33,143 290,011 13,119 7,699
Tactical Vehicle Systems 200,916 10,823 185,211 1,422 10,746
Corporate Services 1,260 528 18,295 620 536
=============== ============== ================ =============== ============
Total $1,187,161 $78,032 $1,145,285 $25,038 $25,906
=============== ============== ================ =============== ============
Fiscal 1995
Engineered Power Systems $627,702 $73,449 $601,690 $9,495 $6,230
Distribution 416,229 30,130 240,390 10,780 6,900
Tactical Vehicle Systems 189,009 9,703 175,174 2,111 10,349
Corporate Services 1,041 292 23,329 1,101 926
=============== ============== =============== ============== =============
Total $1,233,981 $113,574 $1,040,583 $23,487 $24,405
=============== ============== ================ =============== ============
Fiscal 1994
Engineered Power Systems $642,804 $82,395 $478,354 $12,082 $6,759
Distribution 346,564 24,015 222,462 17,651 6,113
Tactical Vehicle Systems 147,920 8,782 152,772 2,929 9,943
Corporate Services 1,048 376 22,028 717 805
=============== ============== ================ =============== ============
Total $1,138,336 $115,568 $875,616 $33,379 $23,620
=============== ============== ================ =============== ============
</TABLE>
<TABLE>
<CAPTION>
A reconciliation of Operating profit to Earnings before income taxes is as
follows:
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating profit $ 78,032 $113,574 $115,568
Corporate expenses, net (8,344) (7,782) (5,851)
Interest expense (24,113) (13,884) (6,865)
Settlement of litigation (20,000) 0 0
---------------- ---------------- --------------
Earnings before income taxes $25,575 $91,908 $102,852
================ ================ ==============
</TABLE>
Note 3: Contracts in Process
Amounts included in the financial statements which relate to recoverable costs
and accrued profits not yet billed on contracts in
process are classified as current assets, billings on uncompleted contracts in
excess of incurred cost and accrued profits are classified as current
liabilities. Summarized below are the components of the amounts:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Costs incurred on uncompleted contracts $1,008,332 $913,108
Accrued profits 30,140 83,824
--------------- --------------
$1,038,472 996,932
Less: Customer progress payments (720,874) (693,494)
--------------- --------------
$317,598 $303,438
=============== ==============
Included in the statements of financial position:
Recoverable costs and accrued profits not yet billed $326,952 $317,855
Billings on uncompleted contracts in excess of incurred costs (9,354) (14,417)
=============== ==============
$317,598 $303,438
=============== ==============
</TABLE>
Recoverable costs and accrued profits related to the Tactical Vehicle Systems
segment include direct costs of manufacturing and engineering and allocable
overhead costs. Generally, overhead costs include general and administrative
expenses allowable in accordance with the United States Government contract cost
principles and are charged to cost of sales at the time revenue is recognized.
General and administrative costs remaining in recoverable costs and accrued
profits not yet billed amounted to $33,943 and $26,640 at January 31, 1997 and
1996, respectively. The Company's total general and administrative expenses
incurred amounted to $116,553, $103,999 and $86,292 in Fiscal 1996, 1995 and
1994, respectively.
The United States Government has a security interest in unbilled amounts
associated with contracts that provide for progress payments.
In accordance with industry practice, recoverable costs and accrued profits not
yet billed include amounts relating to programs and contracts with long
production cycles, a portion of which is not expected to be realized within one
year.
Note 4: Inventories
<TABLE>
<CAPTION>
Summarized below are the components of inventories:
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal
Fiscal 1995
1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Engineered Power Systems $308,027 $273,200
Customer deposits (1,081) (4,081)
--------------- --------------
Total Engineered Power Systems 306,946 269,119
Distribution 149,238 145,179
Excess of current cost over LIFO values (55,202) (53,580)
=============== ==============
Total Inventories $400,982 $360,718
=============== ==============
</TABLE>
The Company's inventory classifications correspond to its industry segments. As
a custom packager of power systems to customer specifications, the Engineered
Power Systems segment's inventory consists primarily of work-in-process which
includes purchased and manufactured components in various stages of assembly.
The Engineered Power Systems segment's inventory at January 31, 1997 and 1996
includes approximately $19,139 and $19,022, respectively, of costs on a certain
U.S. Government contract in excess of contractual authorization which will be
billable upon either contractual amendment or approval of claims increasing
contract funding. During Fiscal 1995, the Company recognized $3,500 of
additional costs under such contract based upon preliminary settlement
discussions. Management's position, supported by outside legal counsel which
specializes in government procurement law, is that the Company will recover a
substantial portion of the amount claimed which significantly exceeds the
inventory carrying value. The Distribution segment's inventory consists
primarily of industrial equipment, equipment under modification and parts held
in the Company's distribution network for resale.
During Fiscal 1996, certain inventories were reduced. The reductions resulted in
liquidation of LIFO inventory quantities carried at lower costs prevailing in
prior fiscal years as compared with the cost of Fiscal 1996 purchases, the
effect of which increased pre-tax earnings in Fiscal 1996 by approximately
$4,047.
Note 5: Commitments and Contingencies
As a custom packager of power systems, the Company issues bid and performance
guarantees in the form of performance bonds or standby letters of credit.
Performance type letters of credit totaled $40,889 at the close of Fiscal 1996.
On May 3, 1995, an indictment was returned by a federal Grand Jury in Houston,
Texas, accusing the Company and four employees, including the Company's
President, of one count of major fraud against the United States, four counts of
false statements and one count of conspiracy to commit major fraud, make false
statements and interfere with the administration of a foreign military sale. All
of the counts arise from a 1987 subcontract to supply diesel generator sets for
installation at long-range radar sites in Saudi Arabia (the "Peace Shield"). The
indictment alleges that a former employee of the general contractor for the
Peace Shield program, who later became a consultant to the Company, conspired
with the Company and the other defendants to award the subcontract to the
Company. The indictment also alleges that the government was defrauded out of
approximately $5 million in connection with cost savings from a change order
under the Peace Shield contract and that the Company made false statements
relating to cost estimates in connection with such change order. The Company and
each individual have denied all charges under the indictment and the case is
pending in the United States District Court, Southern District of Texas, Houston
Division. The Company is not able to make a reasonable estimate of the fines or
penalties that could be imposed under the Federal Sentencing Guidelines in the
event of a conviction under the indictment. Such fines and penalties could be
substantial and adversely affect the Company's future financial position and
results of operations. If the Company or any of the individuals are convicted of
any charges under the indictment, the Company could also be suspended or
debarred from entering into new contracts or subcontracts with agencies of the
U.S. Government or receiving the benefit of federal assistance payments for the
duration of such suspension or debarment. Any such suspension could prevent the
Company from receiving future modifications to the Family of Medium Tactical
Vehicle ("FMTV") contract unless the Secretary of the Army finds a compelling
need to enter into such modification. The Company would also be unable to sell
equipment and services to customers that depend on loans or financial
commitments from the Export Import Bank ("EXIM Bank"), Overseas Private
Investment Corporation ("OPIC") and similar government agencies during a
suspension or debarment. The Engineered Power Systems segment frequently sells
equipment to customers that rely on financial commitments from EXIM Bank and/or
OPIC. Any such suspension or debarment could have a material adverse impact on
the Company's financial condition and results of operations.
Also in connection with the Peace Shield contract, the Company has been advised
that a former consultant of the Company filed a suit in the United States
District Court, Southern District of Texas, Houston Division, for himself and
the United States of America alleging that the Company supplied false
information in violation of the False Claims Act (the "Act"), engaged in common
law fraud and misapplied costs. Under the provisions of the Act, the suit has
not been served upon the Company pending an investigation of the case by the
U.S. Department of Justice and a determination as to whether the Department of
Justice will intervene and pursue the matter on behalf of the United States. The
suit alleges treble damages of $21 million plus unspecified penalties.
Proceedings in this case have been stayed pending resolution of the criminal
matter referred to above. The Company cannot predict the outcome of this action
or the likelihood that substantial damages will result. However, the Company
intends to vigorously defend this case if it is served upon the Company.
The Company is a defendant in a number of other lawsuits relating to
contractual, product liability, personal injury and warranty matters and
otherwise of the type normally incident to the Company's business. Management is
of the opinion that a negative outcome in any such lawsuits will not have a
material effect on the Company's financial position, results of operations and
cash flows. The Company has not established any reserves or accruals for any
potential liability that may be subsequently found in any of the foregoing
cases.
The Company has provided certain guarantees in support of its customer's
financing of purchases from the Company in the form of both residual value
guarantees and debt guarantees. At the end of Fiscal 1996 the maximum exposure
of the Company had in this regard was $48 million which will decrease annually.
At the end of Fiscal 1995 the Company's exposure was nominal.
The Company leases certain property and equipment under lease arrangements of
varying terms. Annual rentals under terms of noncancelable leases are less than
1% of consolidated sales.
Note 6: Government Contracts
Major contracts for military systems are performed over extended periods of time
and are subject to changes in scope of work and delivery schedules. Pricing
negotiations on changes and settlement of claims often extend over prolonged
periods of time. The Company's ultimate profitability on such contracts will
depend not only upon the accuracy of the Company's cost projections, but also
the eventual outcome of an equitable settlement of contractual issues with the
U.S. Government.
Revenues and profits realized on the FMTV contract are based on the Company's
estimates of total contract sales value and costs at completion. Stewart &
Stevenson has incurred significant cost overruns and delivery schedule delays on
the FMTV contract which the Company believes are primarily due to the
government's decision to delay the testing of trucks and other government
directed changes to the contract. The Company has and will continue to submit a
series of Requests for Equitable Adjustments or claims, under the FMTV contract,
seeking increases in the FMTV contract price for those additional costs that
relate to government caused delays and changes. Amounts in excess of agreed upon
contract price for government caused delays, disruptions, unpriced change orders
and government caused additional contract costs are recognized in contract value
when the Company believes it is probable that the claim for such amounts will
result in additional contract revenue and the amount can be reasonably
estimated.
The Company's FMTV contract accounting position reflects the expected recovery
of substantial amounts in excess of the contract price for government caused
delays, disruptions, unpriced change orders and other government caused
additional contract costs. These claims are in varying stages of negotiations.
Although management believes that the FMTV contract provides a legal basis for
the claims and that its estimates are based on reasonable assumptions and on a
reasonable analysis of the contract costs, the ultimate profitability of the
FMTV contract will depend not only on the accuracy of the Company's cost
projections but also on the outcome of these claims and other contractual
issues. Due to uncertainties inherent in the estimation and claim negotiation
process, no assurances can be given that management's estimates will be
accurate, and variances between such estimates and actual results could be
material. If the Company is unable to recover a substantial portion of the
additional costs, previously recognized earnings may be overstated and the
Company may suffer a material adverse effect on its operations during the
accounting period in which such FMTV contract issues are resolved and future
earnings may be recognized at reduced rates.
The funding of the FMTV contract is subject to the inherent uncertainties of
congressional appropriations. As is typical of multi-year defense contracts, the
FMTV contract must be funded annually by the Department of the Army and may be
terminated at any time for the convenience of the government. The Company has
received full funding for the production of approximately 10,155 vehicles
through August 1997. Approximately 1,042 vehicles scheduled for production after
that date have not been funded due to reductions in the U.S. Army's budget for
acquisitions. Government Fiscal Year 1998 funding will not be available until
after October 1, 1997. If the FMTV contract is terminated other than for
default, the FMTV contract provides for termination charges that will reimburse
the Company for allowable costs, but not necessarily all costs.
Note 7: Debt Arrangements
The Company has informal borrowing arrangements with banks which may be
withdrawn at the banks' option. Borrowings under these credit arrangements are
unsecured, are due within 90 days and bear interest at varying bid and
negotiated rates. On January 31, 1997 and 1996, the amounts outstanding under
these arrangements were $28,000 and $65,000, respectively, with a weighted
average interest rate of 6.11% and 5.95%, respectively.
<TABLE>
<CAPTION>
Long-Term Debt, which is generally unsecured, consists of the following:
- ----------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Notes payable to insurance company:
<S> <C> <C>
-10.20%, principal due $1,000 annually to 1998 $2,000 $3,000
Debt of consolidated limited partnership:
-note payable to a bank, principal due monthly to 1998 (see note below) 8,800 8,900
Revolving credit notes payable to banks (see note below) 175,000 200,000
Senior Notes
6.72% principal due 1999 60,000 0
7.03% principal due 2001 20,000 0
7.29% principal due 2003 30,000 0
7.38% principal due 2006 25,000 0
---------------- ---------------
320,800 211,900
Less current portion (1,100) (1,100)
---------------- ---------------
Long-Term Debt $319,700 $210,800
================ ===============
</TABLE>
The Company has commitments of $225,000 from banks under revolving credit notes
(subject to reduction at the Company's election) which mature on December 31,
2001. Under the terms of the revolving credit facility, the commitment fee on
the daily average unused balance is based on the Company's debt to
capitalization ratio with a maximum of 20 basis points per annum. Borrowings
outstanding under the revolving credit notes bear interest at various options,
the maximum rate being the prime rate.
On May 30, 1996, the Company completed a private placement of $135,000 senior
notes. The notes are unsecured and were issued pursuant to an agreement
containing a covenant which imposes a debt to total capitalization requirement.
The notes will mature in three, five, seven and ten year increments with
semi-annual interest payments. The proceeds from the sale of the notes were used
to reduce other outstanding indebtedness of the Company and for general
corporate purposes.
The Company's unsecured long-term debt was issued pursuant to agreements
containing covenants which impose working capital requirements on the Company
and designated subsidiaries and restrict indebtedness, guarantees, rentals,
dividends and other items. At the close of Fiscal 1996, approximately $104,001
of retained earnings were available for payment of dividends under the most
restrictive covenant.
As a result of the acquisition of a majority interest in a partnership in which
the Company is a limited partner, the Company's Consolidated Statements of
Financial Position include the debt of this partnership, which owns the building
where the Company's corporate office is located. Such debt is solely the
obligation of the partnership and is secured by the office building and garage.
Interest is payable in monthly installments at various rates, the maximum rate
being 9%.
Interest paid on both long-term and short-term debt during Fiscal 1996, 1995 and
1994 was $22,975, $13,261 and $6,679, respectively. The amounts of long-term
debt which will become due during Fiscal 1997 through 2000, are approximately:
1997--$1,100; 1998--$9,700; 1999--$60,000; 2000--$0; 2001--$195,000 and
beyond--$55,000.
Note 8: Postretirement Medical Plan
The Company has a postretirement medical plan which covers most of its employees
and provides for the payment of medical costs of eligible employees and
dependents upon retirement. The plan is currently not funded. The Company
expects to continue financing postretirement medical costs as covered claims are
incurred.
<TABLE>
<CAPTION>
Postretirement medical benefit costs includes the following components:
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service costs - benefits attributed to service during the period $457 $527 $418
Interest cost on accumulated postretirement medical benefit
obligation 528 620 678
Amortization of prior service costs (874) (718) (718)
-------------- -------------- ---------------
Net postretirement medical benefit costs $111 $429 $378
============== ============== ===============
</TABLE>
<TABLE>
<CAPTION>
The status of the plan is as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
January 31, January 31, January 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued Postretirement Benefits:
<S> <C> <C> <C>
Retirees $3,692 $4,642 $4,454
Employees eligible to retire 1,696 2,073 1,978
Employees not eligible to retire 1,799 2,020 1,500
-------------- -------------- -------------
7,187 8,735 7,932
Unrecognized prior service cost 4,074 4,701 5,328
Unrecognized net gain 3,830 2,018 1,992
-------------- -------------- -------------
$15,091 $15,454 $15,252
============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
The actuarial assumptions used are as follows:
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal
1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Discount Rate 7.50% 7.25%
Health Care Cost Trend 8.40% - 9.50% (a) 8.50% - 10.00% (b)
</TABLE>
(a) Gradually declining to 5.00% by 2005
(b) Gradually declining to 5.00% by 2004
Changing the health care cost trend rates by one percentage point would change
the accumulated postretirement medical benefit obligation at January 31, 1997 by
approximately $1,082 and the postretirement medical benefit costs for Fiscal
1996 by approximately $185.
Note 9: Employee Pension and Other Benefit Plans
The Company has a noncontributory defined benefit pension plan covering
substantially all of its full-time employees. The pension benefits are based on
years of service, limited to 45 years, and the employee's highest consecutive
five-year average compensation out of the last ten years of employment. The
Company funds pension costs in conformity with the funding requirements of
applicable government regulations.
<TABLE>
<CAPTION>
The following table sets forth the plan's funded status and amounts recognized
in the Company's statements of financial position:
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
<S> <C> <C>
Accumulated benefit obligation, including vested benefits
of $48,193 in 1996 and $45,809 in 1995 $52,478 $48,720
============ =============
Projected benefit obligation for service rendered to date $(66,129) $(59,767)
Plan assets at fair value for Fiscal 1996 and 1995;
primarily publicly traded stocks and bonds,
including 70,956 shares of the Company's Common
Stock at the end of both Fiscal 1996 and 1995 68,196 62,136
------------- ------------
Plan assets in excess of projected benefit obligations 2,067 2,369
Unrecognized net loss from past experience different from that assumed 3,297 5,467
------------- -----------
Prepaid pension cost included in Investments and Other Assets $5,364 $7,836
============ ============
</TABLE>
<TABLE>
<CAPTION>
Net pension (income)/expense includes the following components:
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned during the year $3,674 $2,187 $1,815
Interest cost on projected benefit obligation 4,360 3,800 3,541
Actual return on plan assets (8,197) (2,782) (5,494)
Amortization of unrecognized net gain - (738) (406)
Net amortization and deferrals 2,635 (2,494) 200
----------- ------------- ------------
Net periodic pension (income) expense $2,472 $(27) $(344)
=========== ============= ============
</TABLE>
<TABLE>
<CAPTION>
The actuarial assumptions used are as follows:
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal
1996 1995
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Discount Rate 7.50% 7.25%
Long-term rate of return on assets 9.50% 9.50%
Rate of increase in future compensation 4.50 - 5.00% 4.50 - 5.00%
</TABLE>
The expected return on plan assets is determined based on the expected long-term
rate of return on plan assets and the market-related value of plan assets. The
market-related value of plan assets for Fiscal 1996 and Fiscal 1995 was
determined using the calculated value and for Fiscal 1994 using the fair value.
There was no material impact to operating results as a result of the change.
Effective June 1997, the Company will terminate its unfunded defined benefit
retirement plan for non-employee directors which had provided for payments upon
retirement, death, or disability. Retirement expense for this plan in Fiscal
1996, 1995 and 1994, respectively, was $59, $141 and $68.
The Company has an unfunded supplemental retirement plan for certain corporate
officers. Retirement expense for the plan in Fiscal 1996, 1995 and 1994 was
$406, $459 and $216, respectively. Prior service cost not yet recognized in
periodic pension cost was $1,547, $1,676, and $1,804 at January 31, 1997, 1996
and 1995, respectively.
The Company has an employee savings plan, which qualifies under Section 401(k)
of the Internal Revenue Code. Under the plan, participating employees may
contribute up to 15% of their pre-tax salary, but not more than statutory
limits. The Company contributes twenty five cents for each dollar contributed by
a participant, subject to certain limitations. The Company's matching
contribution to the savings plan was $981, $788 and $399 in Fiscal 1996, 1995
and 1994, respectively.
Under a nonqualified deferred compensation plan for certain employees, a portion
of eligible employees' discretionary income can be deferred at the election of
the employee. These deferred funds accrue interest payable to the employee at
the prime rate in effect on specified dates.
Note 10: Common Stock
Shareholder Rights Plan: In 1995, the Company adopted a shareholders rights
plan. The rights may be exercised by their holders to purchase one-third (1/3)
of a share at $30.00 for each share owned by a shareholder upon the acquisition,
or announcement of intended acquisition, of 15% or more of the Company's stock
by a person or group. The rights are subject to antidilution adjustments and
will expire on March 20, 2005, unless the plan is further extended or the rights
are earlier redeemed.
Stock Option Plans: The Stewart & Stevenson Services, Inc. 1988 Nonstatutory
Stock Option Plan, the Stewart & Stevenson Services, Inc. 1993 Nonofficer Stock
Option Plan, the 1994 Director Stock Option Plan and the 1996 Director Stock
Plan authorize the grant of options to purchase an aggregate of up to 1,800,000,
984,950, 150,000 and 150,000 shares of Common Stock, respectively, at not less
than fair market value at the date of grant. The options have a term not
exceeding ten years and vest over periods not exceeding four years. Under the
terms of the 1993 Nonofficer Stock Option Plan, the number of options available
for grant increased from 757,150 to 984,950 shares as of February 1, 1997.
Pursuant to an amendment adopted in Fiscal 1996, no future grants of options may
be made pursuant to the 1994 Director Stock Option Plan.
<TABLE>
<CAPTION>
A summary of the status of the Company's stock option plans during Fiscal years 1994, 1995 and 1996 is presented in the tables
below:
- -----------------------------------------------------------------------------------------------------------------------------------
Option Price
Shares under Range
Option Per Share
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at end of Fiscal 1993 478,100 $13.125 - $32.625
Granted 180,050 $50.25
Exercised (60,750) $13.125 - $32.625
Canceled (12,225) $18.75 - $50.25
--------------
Outstanding at end of Fiscal 1994 585,175 $18.75 - $50.25
Granted 386,300 $33.75 and $35.125
Exercised (52,750) $18.75 - $32.625
Canceled (20,650) $32.625 - $50.25
--------------
Outstanding at end of Fiscal 1995 898,075 $18.75 - $50.25
Granted 343,800 $24.25 and $24.375
Exercised (71,500) $18.75
Canceled (35,375) $24.25 - $50.25
--------------
Outstanding at end of Fiscal 1996 1,135,000 $18.75 - $50.25
==============
Options available for future grants at the end of Fiscal 1996
608,050
==============
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options exercisable at end of year 414,917 299,421
Weighted average exercise price of options exercisable $ 33.58 $ 27.67
Weighted average fair value of options granted $ 9.59 $ 15.01
</TABLE>
<TABLE>
<CAPTION>
------------------------- ------------------------ ------------------------ -- ------------------------ ------------------------
Weighted Average Remaining Contractual
Exercise Price Exercise Price Options Outstanding Options Exercisable Life (Years)
------------------------- ------------------------ ------------------------ -- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C>
$18.75 $18.75 82,000 82,000 Less than 1
$24.25 - $35.125 $30.32 889,200 250,025 6 - 10
$50.25 $50.25 163,800 82,892 8
======================== ========================
1,135,000 414,917
======================== ========================
</TABLE>
The Company accounts for these plans under APB Opinion No. 25 under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with FASB Statement No. 123, the Company's net income
and earnings per share would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------- ---------------------- ----------------------
Fiscal Fiscal
1996 1995
----------------------------------------------------------------------------------- ---------------------- ----------------------
<S> <C> <C>
Net earnings As Reported $16,851 $61,803
Pro Forma $15,498 $60,961
Net earnings per share As Reported $.51 $1.87
Pro Forma $.47 $1.85
</TABLE>
Because the Statement 123 method of accounting is not required to be applied to
options granted prior to February 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in Fiscal 1996 and 1995:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------- ---------------------- ----------------------
Fiscal Fiscal
1996 1995
----------------------------------------------------------------------------------- ---------------------- ----------------------
1988 Nonstatutory Stock Option Plan and 1993
Nonoffficer Stock Option Plan
<S> <C> <C>
Risk free interest rates 6.13% 7.00%
Expected dividend yields 1.30% .80%
Expected volatility 34.42% 33.01%
Expected life (years) 6 6
1994 Director Stock Option Plan
Risk free interest rates 6.79% 6.19%
Expected dividend yields 1.30% .80%
Expected volatility 35.24% 32.56%
Expected life (years) 6 6
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
<TABLE>
<CAPTION>
Note 11: Income Taxes
The components of the income tax provision and the income tax payments are as
follows:
- ---------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $3,887 $20,430 $2,194
Deferred 4,633 10,235 32,326
------------- ------------- -------------
Income tax provision $8,520 $30,665 $34,520
============= ============= =============
Income tax payments (excluding refunds) $15,320 $13,337 $17,422
============= ============= =============
A reconciliation between the provision for income taxes and income taxes
computed by applying the statutory U.S. Federal income tax rate of 35% in Fiscal
1996, 1995 and 1994 is as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Provision at statutory rates $ 8,952 $32,190 $35,998
Other (432) (1,525) (1,478)
------------- ------------- --------------
$ 8,520 $30,665 $34,520
============= ============= ==============
</TABLE>
The deferred tax liability is determined under the liability method based on the
difference between the financial statement and tax basis of assets and
liabilities as measured by the enacted statutory tax rates and deferred tax
expense is the result of changes in the net liability for deferred taxes.
<TABLE>
<CAPTION>
The tax effects of the significant temporary differences which comprise the
deferred tax liability at the end of Fiscal 1996 and 1995 are as follows:
---------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal
1996 1995
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets
Postretirement benefit obligation $ 5,282 $ 5,407
Accrued expenses and other reserves 5,257 9,282
Other 33
33
------------- -------------
Gross deferred tax assets 10,572 14,722
------------- -------------
Deferred Tax Liabilities
Property, plant and equipment 3,253 4,259
Pension accounting 1,114 2,233
Contract accounting 32,880 36,730
Prepaid expenses and deferred charges 50,918 44,485
Other
9,927 9,902
------------- -------------
Gross deferred tax liabilities 98,092 97,609
------------- -------------
Net deferred tax liability $87,520 $82,887
============= =============
Current portion of deferred tax liability $82,393 $76,093
Non-current portion of deferred tax liability 5,127
6,794
------------- -------------
Net deferred tax liability $ 87,520 $ 82,887
============= =============
</TABLE>
<TABLE>
<CAPTION>
Note 12: Supplemental Financial Data
Accounts and Notes Receivables, net consist of the following:
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable $234,843 $193,406
Notes receivable 24,614 18,121
Allowance for doubtful accounts (1,513)
(1,409)
Less non-current portion of notes receivable (20,882) (13,570)
-------------- -------------
$237,062 $196,548
============== =============
No single group or customer represents greater than 10% of total accounts
receivable in Fiscal 1996. The U.S. Government accounted for approximately 7.3%
and 16.3% of accounts receivable at January 31, 1997 and 1996, respectively. Due
to the large number of entities and diversity of the Company's customer base,
concentration of credit risk with respect to trade receivables is limited. At
the end of Fiscal 1996 accounts receivable and notes receivable included
immaterial amounts due from certain investees of the Company.
Components of property, plant and equipment, net are as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Machinery and equipment $135,612 $126,306
Buildings and leasehold improvements 93,469 91,298
Revenue earning assets 16,174 12,917
Accumulated depreciation and amortization (138,759) (116,436)
-------------- -------------
106,496 114,085
Construction-in-progress 2,373 6
Land 14,564 12,964
-------------- -------------
$123,433 $127,055
============== =============
</TABLE>
<TABLE>
<CAPTION>
Note 13: Consolidated Quarterly Data (unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $390,061 $336,834 $240,726 $219,540
Gross profit 47,258 42,698 38,511 38,103
Net earnings (loss) 10,636 7,189 (7,687) 6,713
Net earnings (loss) per share .32 .22 (.23) .20
Fiscal 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------------------
Sales $301,340 $323,779 $319,840 $289,022
Gross profit 46,482 47,957 49,949 48,542
Net earnings 13,861 15,000 16,927 16,015
Net earnings per share .42 .45 .51 .49
</TABLE>
Note 14: Acquisitions
On April 12, 1997, the Company acquired ownership of Sierra Detroit Diesel
Allison, Inc. from Outer Drive Holdings, Inc. The acquisition will broaden
the Company's distribution territory for certain products.
From time to time, the Company enters into investment arrangements that are
related to its Engineered Power Systems segment. During Fiscal 1996, the Company
made an approximate $8 million investment in an independent power producer.
Note 15: Vulnerability Due To Certain Concentrations
A majority of the Engineered Power Systems Segment sales is derived from
packaging, operating and servicing gas turbine engines manufactured by General
Electric Company ("GE") and European Gas Turbines ("EGT"). The Company has no
reason to believe that its relationship with GE and EGT will not continue for
the foreseeable future. Any interruption of these relationships, however, would
adversely affect the Company.
The Company's principal distribution agreements are subject to termination by
the suppliers for a variety of causes. Although no assurance can be given that
such distribution agreements will be renewed beyond their expiration dates, they
have been renewed regularly.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
None.
PART III
In accordance with General Instruction G(3) to Form 10-K, Items 10 through 13
have been omitted since the Company will file with the Commission a definitive
proxy statement complying with Regulation 14A involving the election of
directors not later than 120 days after the close of its fiscal year. Such
information is incorporated herein by reference.
CROSS REFERENCE
Form 10-K Item Caption in Definitive
Number and Caption Proxy Statement
Item 10. Directors and Executive
Officers of the Registrant........... Election of Directors;
Executive Officers;
Compliance with Securities Laws
Item 11. Executive Compensation.............. Election of Directors;
Performance of Stewart &
Stevenson Common Stock;
Report of the Compensation and
Management Development
Committee; Executive
Compensation
Item 12. Security Ownership of
Certain Beneficial Owners
and Management...................... Voting Securities and Ownership
Thereof by Certain Beneficial
Owners and Management
Item 13. Certain Relationships
and Related Transactions............ Transactions with Management and
Certain Business Relationships
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. The following financial statements for Stewart & Stevenson Services,
Inc. are filed as a part of this report:
Consolidated Statements of Financial Position--January 31, 1997 and
1996.
Consolidated Statements of Earnings--Years ended January 31, 1997, 1996
and 1995.
Consolidated Statements of Shareholders' Equity--Years ended January
31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows--Years ended January 31, 1997,
1996 and 1995.
Notes to Consolidated Financial Statements.
2. Schedules are omitted because of the absence of conditions under which
they are required or because the information is included in the
financial statements or notes thereto.
3. The Company has several instruments which define the rights of holders
of long-term debt. Except for the instruments listed as exhibits 4.1
and 4.2 below, the total amount of securities authorized under any
individual instrument with respect to long-term debt does not exceed
10% of the total assets of the Company and its subsidiaries on a
consolidated basis. The Company agrees to furnish upon request by the
Securities and Exchange Commission any instruments not filed herewith
relating to its long-term debt.
The Company will furnish to any shareholder of record as of April 23,
1997, a copy of any exhibit to this annual report upon receipt of a
written request addressed to Mr. Lawrence E. Wilson, Vice President and
Secretary, P. O. Box 1637, Houston, Texas 77251-1637 and the payment of
$.20 per page with a minimum charge of $5.00 for reasonable expenses
prior to furnishing such exhibits.
The following exhibits are part of this report pursuant to item 601 of
regulation S-K.
3.1 Third Restated Articles of Incorporation of Stewart &
Stevenson Services, Inc., effective as of September 13, 1995
(incorporated by reference to Exhibit 3(a) of the Form 10-Q of
Stewart & Stevenson for the quarterly period ended October 31,
1995 under the Commission File No.
001-11443).
3.2 Fourth Restated Bylaws of Stewart & Stevenson Services, Inc.,
effective as of September 13, 1995 (incorporated by reference
to Exhibit 3(b) of the Form 10-Q of Stewart & Stevenson for
the quarterly period ended October 31, 1995 under the
Commission File No. 001-11443).
*4.1 Revolving Credit Agreement effective December 20, 1996,
between Stewart & Stevenson Services, Inc. and Texas Commerce
Bank National Association and Bank of America Illinois and
NationsBank of Texas, N.A. and ABM AMRO Bank N.V., Houston
Agency and The Bank of New York and PNC Bank National
Association and First National Bank of Commerce.
4.2 Note Purchase Agreement effective May 30, 1996, between
Stewart & Stevenson Services, Inc. and the Purchasers named
therein (incorporated by reference to Exhibit 4 of the Form
10-Q of Stewart & Stevenson for the quarterly period ended
July 31, 1996 under the Commission File No.
0-8493).
4.3 Rights Agreement effective March 13, 1995, between Stewart
& Stevenson Services, Inc. and The Bank of New York
(incorporated by reference to Exhibit 1 of the Form 8-A
Registration Statement of Stewart & Stevenson under the
Commission File No. 001-11443).
*10.1 Lease Agreement effective April 15, 1997, between Miles
McInnes and Faye Manning Tosch, as Lessors, and the Company,
as Lessee.
10.2 Distributor Sales and Service Agreement effective January 1,
1996, between the Company and Detroit Diesel Corporation
(incorporated by reference to Exhibit 10.2 of the Form 10-K of
Stewart & Stevenson for the fiscal year ended January 31, 1996
under Commission File No.
0-8493).
10.3 Contract Number DAAE07-92-R001 dated October 11, 1991 between
Stewart & Stevenson Services, Inc. and the United States
Department of Defense, U.S. Army Tank-Automotive Command, as
modified (incorporated by reference to Exhibit 28.1 of the
Form S-3 Registration Statement of Stewart & Stevenson under
the Commission File No. 33-44149).
10.4 Contract Number DAAE07-92-R002 dated October 15, 1991 between
Stewart & Stevenson Services, Inc. and the United States
Department of Defense, U.S. Army Tank-Automotive Command, as
modified (incorporated by reference to Exhibit 28.2 of the
Form S-3 Registration Statement of Stewart & Stevenson under
the Commission File No. 33-44149).
10.5 Stewart & Stevenson Services, Inc. Deferred Compensation Plan
dated as of December 31, 1979 (incorporated by reference to
Exhibit 10.8 of the Form 10-K of Stewart & Stevenson for the
fiscal year ended January 31, 1994 under the Commission File
No. 0-8493).
10.6 Stewart & Stevenson Services, Inc. 1988 Nonstatutory
Stock Option Plan (incorporated by reference to Exhibit
10.9 of the Form 10-K of Stewart & Stevenson for the fiscal
year ended January 31, 1994 under the Commission File No.
0-8493).
10.7 Amendment No. 1 to Stewart & Stevenson Services, Inc. 1988
Nonstatutory Stock Option Plan, dated September 11, 1990
(incorporated by reference to Exhibit 10.10 of the Form
10-K of Stewart & Stevenson for the fiscal year ended January
31, 1994 under the Commission File No. 0-8493).
10.8 Stewart & Stevenson Services, Inc. Supplemental Executive
Retirement Plan (incorporated by reference to Exhibit 10.11
of the Form 10-K of Stewart & Stevenson for the fiscal year
ended January 31, 1994 under the Commission File No. 0-8493).
10.9 Stewart & Stevenson Services, Inc. 1994 Director Stock Option
Plan (incorporated by reference to Exhibit 4.1 of the Form S-8
Registration Statement of Stewart & Stevenson under the
Commission File No. 33-58685).
*21.1 List of Subsidiaries.
*23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
*27.1 Financial Data Schedule.
----------
* Filed with this report.
(b) No reports on Form 8-K were filed during the three months ended January 31,
1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 8th day of April,
1997.
STEWART & STEVENSON SERVICES, INC.
By /s/ Robert L. Hargrave
Robert L. Hargrave
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 8th day of April, 1997.
/s/ Robert L. Hargrave
Robert L. Hargrave Bob H. O'Neal
Director, Principal Executive Officer, Director
Principal Financial Officer and
Principal Accounting Officer
/s/ C. Jim Stewart II /s/ J. Carsey Manning
C. Jim Stewart II J. Carsey Manning
Director Director
/s/ Donald E. Stevenson /s/ Robert H. Parsley
Donald E. Stevenson Robert H. Parsley
Director Director
/s/ Jack W. Lander, Jr. /s/ Jack T. Currie
Jack W. Lander, Jr. Jack T. Currie
Director Director
/s/ Robert S. Sullivan /s/ Richard R. Stewart
Robert S. Sullivan Richard R. Stewart
Director Director
/s/ Orson C Clay /s/ Brian H. Rowe
Orson C Clay Brian H. Rowe
Director Director
EXHIBIT INDEX
Exhibit Number and Description
4.1 Revolving Credit Agreement.
10.1 Lease Agreement.
21.1 List of subsidiaries.
23.1 Consent of Arthur Andersen LLP,
Independent Public Accountants.
27.1 Financial Data Schedule.
LOAN AGREEMENT
by and among
STEWART & STEVENSON SERVICES, INC.,
a Texas corporation,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
a national banking association
acting in its individual capacity
and as Agent for Lenders
BANK OF AMERICA ILLINOIS
and
NATIONSBANK OF TEXAS, N.A.
as Co-Agents
and
THE FINANCIAL INSTITUTIONS NOW OR HEREAFTER
A PARTY HERETO
$225,000,000 Revolving Credit Facility
December 20, 1996
I N D E X
1. CERTAIN DEFINITIONS.................................................1
Accounts and Inventory..............................................1
Additional Interest.................................................1
Adjusted CD Rate....................................................1
Adjusted Eurodollar Interbank Rate..................................1
Affiliate...........................................................1
Agreement...........................................................1
Alternate Rates.....................................................2
Alternate Rate Borrowing............................................2
Annual Financial Statements.........................................2
Bankruptcy Code.....................................................2
Base CD Rate........................................................2
Base Rate...........................................................2
Base Rate Borrowing.................................................3
Borrowing Authorization.............................................3
Business Day........................................................3
Calculation Date....................................................3
Capital Expenditures................................................3
Capital Lease Obligations...........................................3
Cash Interest Expense...............................................4
CD Rate.............................................................4
CD Rate Borrowing...................................................4
CD Reserve Requirement..............................................4
Ceiling Rate........................................................4
Chapter One.........................................................5
Code................................................................5
Commitment..........................................................5
Commitment Fee Percentage...........................................5
Compliance Certificate..............................................5
Controlled Group....................................................5
Credit Documents....................................................5
Dealer Rate.........................................................5
Default.............................................................6
EBITDA..............................................................6
Eligible Assignee...................................................6
Environmental Claim.................................................6
Environmental Liabilities...........................................6
Environmental Permit................................................7
ERISA...............................................................7
Eurodollar Business Day.............................................7
Eurodollar Interbank Rate...........................................7
Eurodollar Rate.....................................................7
Eurodollar Rate Borrowing...........................................7
Eurodollar Reserve Requirement......................................8
Event of Default....................................................8
Facility Debt.......................................................8
FDIC Percentage.....................................................8
Federal Funds Rate..................................................8
FMTV Capital Expenditures...........................................8
Funding Loss........................................................8
GAAP................................................................9
Governmental Authority..............................................9
Hazardous Substance.................................................9
Indebtedness........................................................9
Interest Bearing Debt..............................................10
Interest Bearing Debt to Total Capitalization......................10
Interest Coverage Ratio............................................10
Interest Options...................................................10
Interest Payment Dates.............................................10
Interest Period....................................................10
Investment.........................................................11
Legal Requirement..................................................11
Lien...............................................................11
Loan Availability Period...........................................11
Loans..............................................................11
MAC................................................................11
Majority Lenders...................................................11
Margin Percentage..................................................11
Maturity Date......................................................11
Maximum Commitment.................................................11
Negotiated Base Rate...............................................12
Negotiated Rate....................................................12
Negotiated Rate Borrowing..........................................12
Net Income.........................................................12
Net Tangible Assets................................................12
Notes..............................................................12
Organizational Documents...........................................12
Original Notes.....................................................12
Past Due Rate......................................................12
PBGC...............................................................12
Percentage.........................................................12
Permitted Investments..............................................12
Person.............................................................13
Plan...............................................................13
Prime Rate.........................................................13
Proper Form........................................................13
Property...........................................................13
Quarterly Financial Statements.....................................13
Rate Designation Notice............................................14
Regulation D.......................................................14
Request for Credit.................................................14
Subsidiary.........................................................14
Superseded Loan Agreement..........................................14
Tangible Net Worth.................................................15
Taxes..............................................................15
Termination Date...................................................15
Texas Credit Code..................................................15
Total Capitalization...............................................15
Unfunded Liabilities...............................................15
2. LOANS..............................................................15
3. INTEREST OPTIONS FOR LOANS.........................................17
4. CONDITIONS PRECEDENT...............................................22
5. REPRESENTATIONS AND WARRANTIES.....................................23
6. AFFIRMATIVE COVENANTS..............................................27
7. NEGATIVE COVENANTS.................................................32
8. DEFAULT............................................................34
9. LENDERS' RIGHT TO CURE.............................................36
10. THE AGENT..........................................................37
11. PARTICIPATION; ASSIGNMENT..........................................40
12. USURY NOT INTENDED; SAVINGS PROVISIONS.............................40
13. DOCUMENTATION REQUIREMENTS.........................................41
14. SURVIVAL...........................................................41
15. BORROWER AGREES TO PAY OR REIMBURSE
AGENT'S EXPENSES; INDEMNIFICATION..................................41
16. AMENDMENTS IN WRITING..............................................42
17. NOTICES............................................................42
18. "INCLUDING" IS NOT LIMITING; SECTION HEADINGS
AND REFERENCES; EXHIBITS, ETC......................................43
19. OFFSET RIGHTS......................................................43
20. VENUE..............................................................44
21. RIGHTS CUMULATIVE; DELAY NOT WAIVER................................44
22. ENTIRE AGREEMENT; FORMER AGREEMENT SUPERSEDED......................45
23. SEVERABILITY.......................................................45
24. RELEASE OF CLAIMS..................................................45
25. COUNTERPARTS.......................................................45
26. ASSIGNMENT TO FEDERAL RESERVE BANK.................................46
EXHIBITS:
A - Note form
B - Rate Designation Notice
C - Request for Credit
D - Compliance Certificate
E - Assignment form
SCHEDULES:
I - Litigation
II - Subsidiaries
III - Investments
IV - Liens
LOAN AGREEMENT
This Loan Agreement ("Agreement") is made as of December 20, 1996 by and
among STEWART & STEVENSON SERVICES, INC. ("Borrower"), a Texas corporation, the
financial institutions (collectively herein called "Lenders") which are now or
may hereafter become a party hereto, and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association (in its individual capacity, "TCB"),
as agent for Lenders (in such capacity, "Agent"). Borrower has requested that
Lenders make loans to Borrower in the following manner and subject to the
following terms and conditions:
I. CERTAIN DEFINITIONS. Unless a particular word or phrase is otherwise
defined or the context otherwise requires, capitalized words and phrases
used in this Agreement shall have the following meanings (all definitions that
are defined in this Agreement in the singular to have the same meanings when
used in the plural and vice versa):
Accounts and Inventory shall have the respective meanings assigned to them
in the Texas Business and Commerce Code in force on the date hereof.
Additional Interest means the aggregate of all amounts
accrued or paid pursuant to the Notes or any of the other Credit Documents
(other than interest on the Notes at the Stated Rate) which, under applicable
laws, are or may be deemed to constitute interest on the indebtedness evidenced
by the Notes.
Adjusted CD Rate means, with respect to each Interest Period applicable
to a CD Rate Borrowing, a rate per annum equal to the sum of(a) the quotient,
expressed as a percentage, of (i) the Dealer Rate with respect to such Interest
Period divided by (ii) 1.0000 minus the CD Reserve Requirement in effect on the
first day of such Interest Period plus (b) the FDIC Percentage in effect on the
first day of such Interest Period.
Adjusted EurodollarInterbank Rate means, with respect to each Interest
Period applicable to a Eurodollar Rate Borrowing, a rate per annum equal to
the quotient, expressed as a percentage, of (a) the Eurodollar Interbank Rate
with respect to such Interest Period divided by (b) 1.0000 minus the Eurodollar
Reserve Requirement in effect on the first day of such Interest Period.
Affiliate means any Person controlling, controlled by or under common
control with any other Person. For purposes of this definition, "control"
(including "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of any indicia of equity rights (whether issued and outstanding
capital stock, partnership interests or otherwise) or by any other means.
Agreement means this Loan Agreement, as it may from time to time be
amended, modified, restated or supplemented.
Alternate Rates means the CD Rate, the Eurodollar Rate and the Negotiated
Rate.
Alternate Rate Borrowing means that portion of the principal balance of
the Loans at any time bearing interest at an Alternate Rate.
Annual Financial Statements means for any fiscal year of a Person the
annual financial statements of such Person, including all notes thereto, which
statements shall include a balance sheet as of the end of such fiscal year and
an income statement, retained earnings statement and statement of cash flows for
such fiscal year, all setting forth in comparative form the corresponding
figures from the previous fiscal year, all prepared in conformity with GAAP, and
accompanied by an unqualified report and opinion of Arthur Andersen & Co. or
independent certified public accountants of recognized national standing
satisfactory to Majority Lenders, which shall state that such financial
statements, in the opinion of such accountants, present fairly, in all material
respects, the financial position of such Person as of the date thereof and the
results of its operations for the period covered thereby in conformity with
GAAP. Such statements shall be accompanied by a certificate of such accountants
that in making the appropriate audit and/or investigation in connection with
such report and opinion, such accountants did not become aware of any Default
or, if in the opinion of such accountant any such Default exists, a description
of the nature and status thereof. The Annual Financial Statements for Borrower
and its Subsidiaries shall be prepared on both a consolidated and a
consolidating basis (the parties recognizing that such consolidating statements
will be prepared in accordance with GAAP only to the extent normal and
customary).
Bankruptcy Code means the United States Bankruptcy Code, as amended,
and any successor statute.
Base CD Rate means, for any day, a rate per annum equal to the sum of
(a) the quotient, expressed as a percentage, of (1) the secondary market rate
for three-month certificates of deposit reported as being in effect on such day
(or, if such day is not a Business Day, the immediately preceding Business Day)
by the Federal Reserve Board through the public information telephone line of
the Federal Reserve Bank of New York (which rate will, under the current
practices of the Federal Reserve Board, be published in Federal Reserve
Statistical Release H.15[519] during the week following such day) or, if such
rate is not so reported on such day or such immediately preceding Business Day,
the average of the secondary market quotations for three-month certificates of
deposit of major money center banks in New York City received at approximately
10:00 a.m., Houston, Texas time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by Agent from three New York
City negotiable certificate of deposit dealers of recognized standing selected
by Agent in its sole and absolute discretion, divided by (2) 1.0000 minus the CD
Reserve Requirement in effect on such day plus (b) the FDIC Percentage in effect
for such day.
Base Rate means for any day a rate per annum (rounded upwards to the
nearest 1/16 of 1%) equal to the lesser of (a) the greater of (1) the Prime Rate
for that day, (2) the Base CD Rate for that day plus 1 1/4%, and (3) the Federal
Funds Rate for that day plus 1/2 of 1% and (b) the Ceiling Rate. If for any
reason Agent shall have determined (which determination shall be conclusive and
binding, absent manifest error) that it is unable to ascertain the Base CD Rate
or the Federal Funds Rate, or both, for any reason, including the inability or
failure of Agent to obtain sufficient quotations in accordance with the terms
hereof, the Base Rate shall, until the circumstances giving rise to such
inability no longer exist, be the lesser of (a) the Prime Rate and (b) the
Ceiling Rate.
Base Rate Borrowing means that portion of the principal balance of the
Loans at any time bearing interest at the Base Rate.
Borrowing Authorization means a certificate, in Proper Form, of the
Secretary or an Assistant Secretary of a corporation as to the resolutions of
the Board of Directors of such corporation authorizing the execution, delivery
and performance of the documents to be executed by such corporation; the
incumbency and signature of the officer of such corporation executing such
documents on behalf of such corporation, and the Organizational Documents of
such corporation.
Business Day means any day other than a day on which commercial banks
are authorized or required to close in Houston, Texas or in the jurisdiction in
which the principal place of business of any Lender is located.
Calculation Date shall mean the Business Day on which Agent receives
either an Annual Financial Statement of Borrower, as contemplated in Section
6(b), or the Quarterly Financial Statements of Borrower for a quarter-annual
period as contemplated in Section 6(b), together with the applicable schedules
and certificates required hereunder.
Capital Expenditures means, as to any Person, expenditures in respect
of fixed or capital assets by such Person, including the capital portion of
lease payments made in respect of Capital Lease Obligations, but excluding
expenditures for the restoration, repair or replacement of any fixed or capital
asset which was destroyed or damaged, in whole or in part, to the extent
financed by the proceeds of an insurance policy maintained by such Person and
further excluding the FMTV Capital Expenditures. Expenditures in respect of
replacements and maintenance consistent with the business practices of a Person
in respect of plant facilities, machinery, fixtures and other like capital
assets utilized in the ordinary course of business are not Capital Expenditures
to the extent such expenditures are not capitalized in preparing a balance sheet
of such Person in accordance with GAAP.
Capital Lease Obligations means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal Property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP (including Statement of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board, as amended) and,
for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP (including such
Statement No. 13).
Cash Interest Expense means, for any period, the cash interest payments
by a Person made during such period in connection with such Person's Interest
Bearing Debt.
CD Rate means for any day a rate per annum equal to the lesser of (a)
the sum of (1) the Adjusted CD Rate in effect on the first day of the Interest
Period for the applicable CD Rate Borrowing plus (2) the applicable Margin
Percentage in effect on the first day of the Interest Period for the applicable
CD Rate Borrowing and (b) the Ceiling Rate. The CD Rate shall be computed on the
basis of the actual number of days elapsed in a year consisting of 360 days. The
CD Rate is subject to adjustments for reserves, insurance assessments and other
matters as provided for in Section 3(c).
CD Rate Borrowing means that portion of the Loans at any time bearing
interest at the CD Rate.
CD Reserve Requirement means, on any day, that percentage (expressed as
a decimal fraction and rounded, if necessary, to the next highest one ten
thousandth [.0001]) which is in effect on such day for determining all reserve
requirements (including basic, supplemental, marginal and emergency reserves)
applicable to new, non-personal, negotiable certificates of deposit issued by
Agent, in amounts of $100,000 or more with maturities equal to or comparable
with the applicable Interest Period, all as specified by any governmental
authority, including those imposed under Regulation D. The CD Reserve
Requirement shall be adjusted automatically on and as of the effective date of
any change without notice to Borrower or any other Person. Each determination of
the CD Reserve Requirement by Agent shall be conclusive and binding, absent
manifest error, and may be computed by using any reasonable averaging and
attribution method.
Ceiling Rate means, on any day, the maximum nonusurious rate of
interest permitted for that day by whichever of applicable federal or Texas laws
permits the higher interest rate, stated as a rate per annum. On each day, if
any, that Chapter One establishes the Ceiling Rate, the Ceiling Rate shall be
the "indicated rate ceiling" (as defined in Chapter One) for that day. Lenders
may from time to time, as to current and future balances, implement any other
ceiling under Chapter One by notice to Borrower, if and to the extent permitted
by Chapter One. Without notice to Borrower or any other Person, the Ceiling Rate
shall automatically fluctuate upward and downward as and in the amount by which
such maximum nonusurious rate of interest permitted by applicable law
fluctuates.
Change of Control means any of (a) the acquisition by any Person or two
or more Persons acting in concert of beneficial ownership of 25% or more of the
outstanding shares of voting stock of Borrower, or (b) a majority of the members
of the Board of Directors of Borrower on any date shall not have been members of
the Board of Directors of Borrower on the date 12 months prior to such date, or
(c) all or substantially all of the assets of Borrower are sold in a single
transaction or series of related transactions to any Person or Persons, or (d)
the merger or consolidation of Borrower with or into any other Person.
Chapter One means Chapter One of the Texas Credit Code, as in effect on
the date hereof.
Code means the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and interpretations
thereof or thereunder by the Internal Revenue Service.
Commitment means the Maximum Commitment or such lesser amount as
Borrower may designate by notice to Agent pursuant to Section 2(b).
Commitment Fee Percentage means, on any day, the per annum percentage
corresponding to the Interest Bearing Debt to Total Capitalization Ratio
(determined as of the most recent Calculation Date) on such day as provided
below:
Interest Bearing Debt Per Annum
to Total Capitalization Ratio Percentage
0.45 or more to 1.00 0.20%
0.40 or more to 1.00 but less than 0.45 to 1.00 0.15%
less than 0.40 to 1.00 0.125%
Compliance Certificate shall have the meaning given to it in Section
6(b).
Controlled Group means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the applicable Person, are treated as a
single employer under Section 414 of the Code.
Credit Documents means any and all papers now or hereafter governing,
evidencing, guaranteeing or securing or otherwise relating to all or any part of
the Facility Debt, including the Notes, this Agreement, Borrowing Authorizations
of Borrower, all instruments, certificates and agreements now or hereafter
executed or delivered to Agent or any Lender pursuant to any of the foregoing or
in connection with the Loans or any commitment regarding the Loans and all
amendments, modifications, renewals, extensions, increases and rearrangements
of, and substitutions for, any of the foregoing.
Dealer Rate means, for each Interest Period, the rate of interest per
annum, rounded, if necessary, to the next highest whole multiple of
one-sixteenth percent (1/16%), quoted by Agent at or before 10:00 a.m., Houston,
Texas time (or as soon thereafter as practicable), on the first day of such
Interest Period, to be the arithmetic average of the prevailing rates per annum
at the time of determination and in accordance with the then existing practice
in the applicable market, bid by one or more certificate of deposit dealers of
recognized standing selected by Agent in its sole discretion, for the purchase
at face value of domestic negotiable certificates of deposit from Agent, or any
affiliate of Agent selected by Agent as the reference bank, having a maturity
equal to the length of such Interest Period and in an amount equal (or as nearly
equal as may be) to the CD Rate Borrowing to which such Interest Period relates.
Each determination by Agent of the Dealer Rate shall be conclusive and binding,
absent manifest error, and may be computed using any reasonable averaging and
attribution method.
Default means an Event of Default or an event which with notice or
lapse of time or both would, unless cured or waived, become an Event of Default.
EBITDA means Net Income plus (a) interest expense; (b) depreciation,
amortization, depletion and obsolescence of Property; (c) other non-cash
extraordinary charges (net of non-cash extraordinary credits), and (d) tax
expense, all determined in accordance with GAAP; provided, however, that in
determining EBITDA for the last three quarters of fiscal year 1996 and the first
quarter of fiscal year 1997, the pre-tax charge of $20,000,000 resulting from
the verdict in Serv-Tech, Inc. vs. Stewart & Stevenson Services, Inc. shall be
excluded. EBITDA shall be determined on a consolidated basis.
Eligible Assignee means a financial institution acceptable to Agent and
Borrower, which acceptance shall not be unreasonably withheld.
Environmental Claim means any claim; litigation; demand; action; cause
of action; suit; judgment, governmental or private investigation and testing;
notification of status of being potentially responsible for clean-up of any
facility or for being in violation or in potential violation of any
Environmental Law; proceeding; consent or administrative orders, agreements or
decrees; lien; personal injury or death of any person; or property damage,
whether threatened, sought, brought or imposed, that is related to or that seeks
to recover or impose Environmental Liabilities for (i) failure to comply with
Environmental Laws; (ii) improper use or treatment of wetlands, pinelands or
other protected land or wildlife; (iii) radioactive materials (including
naturally occurring radioactive materials ["NORM"]); (iv) pollution,
contamination, Remediation or clean-up of the air, surface water, groundwater,
or soil; (v) solid, gaseous or liquid waste generation, handling, discharge,
release, threatened release, treatment, storage, disposal or transportation;
(vi) exposure or death of, or injury to, persons or property from Hazardous
Substances and the effects thereof; and (vii) the release or threatened release
(into the indoor or outdoor environment) or Remediation of Hazardous Substances.
Environmental Laws means any and all laws, rules, regulations,
ordinances, orders, consent agreements, orders on consent, or guidance documents
now or hereafter in effect of any applicable international, federal, state or
local executive, legislative, judicial, regulatory or administrative agency,
board or authority or any judicial or administrative decision relating thereto
that relate in any manner to health, worker protection, the environment,
Hazardous Substances or a community's right to know.
Environmental Liabilities shall mean all liabilities arising from any
Environmental Claim under any theory of recovery, at law or in equity, and
whether based on negligence, strict liability, any Environmental Law or
otherwise, including: remedial, removal, response, abatement, restoration
(including natural resources), investigative, or monitoring costs, personal
injury and damage to property or natural resources and any other related costs,
expenses, losses, damages, penalties, fines, liabilities and obligations and
including, but not limited to, attorneys' fees, diminution in value, and
expert's fees and costs incurred in testing for the likelihood of Remediation or
the likelihood of violation of any Environmental Laws, and monitoring or
responding to efforts to require Remediation or any claim based upon any
asserted or actual breach or violation of Environmental Law.
Environmental Permit shall mean any permit, license, certificates,
registrations, identification numbers, applications, consents, approvals,
variances, notices of intent, exemptions approval or other authorization
required under any Environmental Law.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the U.S. Department
of Labor thereunder.
Eurodollar Business Day means a Business Day on which transactions in
United States dollar deposits between banks may be carried on in whatever
Eurodollar interbank market may be selected by Agent in accordance herewith.
Eurodollar Interbank Rate means, for each Interest Period, the rate of
interest per annum, rounded, if necessary, to the next highest whole multiple of
one-sixteenth percent (1/16%), quoted by Agent at or before 10:00 a.m., Houston,
Texas time (or as soon thereafter as practicable), on the date two Eurodollar
Business Days before the first day of such Interest Period, to be the arithmetic
average of the prevailing rates per annum at the time of determination and in
accordance with the then existing practice in the applicable market, for the
offering to Agent by one or more prime banks selected by Agent in its sole
discretion, in whatever Eurodollar interbank market may be selected by Agent in
its sole discretion, of deposits in United States dollars for delivery on the
first day of such Interest Period and having a maturity equal to the length of
such Interest Period and in an amount equal (or as nearly equal as may be) to
the Eurodollar Rate Borrowing to which such Interest Period relates. Each
determination by Agent of the Eurodollar Interbank Rate shall be conclusive and
binding, absent manifest error, and may be computed using any reasonable
averaging and attribution method.
Eurodollar Rate means for any day a rate per annum equal to the lesser
of (a) the sum of (1) the Adjusted Eurodollar Interbank Rate in effect on the
first day of the Interest Period for the applicable Eurodollar Rate Borrowing
plus (2) the applicable Margin Percentage in effect on the first day of the
Interest Period for the applicable Eurodollar Rate Borrowing and (b) the Ceiling
Rate. Subject to Section 12, each Eurodollar Rate is subject to adjustments for
reserves, insurance assessments and other matters as provided for in Section
3(c).
Eurodollar Rate Borrowing means each portion of the principal balance
of the Loans at any time bearing interest at a Eurodollar Rate.
Eurodollar Reserve Requirement means, on any day, that percentage
(expressed as a decimal fraction and rounded, if necessary, to the next highest
one ten thousandth [.0001]) which is in effect on such day for determining all
reserve requirements (including basic, supplemental, marginal and emergency
reserves) applicable to "Eurocurrency liabilities," as currently defined in
Regulation D, all as specified by any governmental authority, including those
imposed under Regulation D. Each determination of the Eurodollar Reserve
Requirement by Agent shall be conclusive and binding, absent manifest error, and
may be computed using any reasonable averaging and attribution method.
Event of Default shall have the meaning assigned to it in Section 8.
Facility Debt means the Indebtedness evidenced by the Notes and any and
all other Indebtedness arising pursuant to this Agreement or any other Credit
Document from time to time.
FDIC Percentage means, on any day, the annual assessment rate in effect
on such day which is payable by a member of the Bank Insurance Fund classified
as well capitalized and within supervisory subgroup "B" (or a comparable risk
classification) within the means of 12 C.F.R. ss.372.3(d) (or any successor
provision) to the Federal Deposit Insurance Corporation (or any successor) for
its insuring time deposits at offices of such member in the United States. Each
determination of the FDIC Percentage by Agent shall be conclusive and binding,
absent manifest error, and may be computed by using any reasonable averaging and
attribution method.
Federal Funds Rate means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by Agent from three Federal funds brokers of recognized
standing selected by Agent in its sole and absolute discretion.
FMTV Capital Expenditures shall mean the sum of all capitalized leases
and capital expenditures, determined in accordance with GAAP, relating to the
performance by Borrower of that certain contract between Borrower and the United
States of America to assemble and furnish medium tactical vehicles.
Funding Loss means, with respect to (a) Borrower's payment of principal
of an Alternate Rate Borrowing on a day other than the last day of the
applicable Interest Period; (b) Borrower's failure to borrow an Alternate Rate
Borrowing on the date specified by Borrower; (c) Borrower's failure to make any
prepayment of the Loans (other than Base Rate Borrowings) on the date specified
by Borrower, or (d) any cessation of an Alternate Rate to apply to the Loans or
any part thereof pursuant to Section 3(c), in each case whether voluntary or
involuntary, any loss, expense, penalty, premium or liability incurred by Agent
or any Lender (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by Agent or any
Lender to fund or maintain a Loan).
GAAP means, as to a particular Person, such accounting practice as, in
the opinion of the independent certified public accountants of recognized
national standing regularly retained by such Person and acceptable to Majority
Lenders, conforms at the time to generally accepted accounting principles,
consistently applied. Generally accepted accounting principles means those
principles and practices (a) which are recognized as such by the Financial
Accounting Standards Board or equivalent non-United States counterpart, (b)
which are applied for all periods after the date hereof in a manner consistent
with the manner in which such principles and practices were applied to the most
recent audited financial statements of the relevant Person furnished to Lenders,
and (c) which are consistently applied for all periods after the date hereof so
as to reflect properly the financial condition, and results of operations and
changes in financial position, of such Person. If any change in any accounting
principle or practice is required by the Financial Accounting Standards Board or
equivalent non-United States counterpart in order for such principle or practice
to continue as a generally accepted accounting principle or practice, all
reports and financial statements required hereunder may be prepared in
accordance with such change only after written notice of such change is given to
Agent.
Governmental Authority means any sovereign governmental authority, the
United States of America, any State of the United States and any political
subdivision of any of the foregoing, and any central bank, agency, department,
commission, board, bureau, court or other tribunal having jurisdiction over
Agent, any Lender, Borrower, any Subsidiary of Borrower, or any of their
respective Property.
Hazardous Substance shall mean (i) those substances included within the
statutory and/or regulatory definitions or listings of "hazardous substance,"
"medical waste," "special waste," "solid waste," "hazardous waste," "extremely
hazardous substance," "regulated substance," "hazardous materials," or "toxic
substances," under any Environmental Law; (ii) any material, waste or substance
which is or contains: (A) petroleum, oil or a fraction thereof, (B) explosives,
or (C) radioactive materials (including naturally occurring radioactive
materials); and (iii) such other substances, materials, or wastes that are or
become classified or regulated as hazardous or toxic under any applicable
international, federal, state or local law or regulation.
Indebtedness means and includes (a) all items which in accordance with
GAAP would be included on the liability side of a balance sheet on the date as
of which Indebtedness is to be determined (excluding capital stock, surplus,
surplus reserves and deferred credits); (b) all guaranties, letter of credit
contingent reimbursement obligations, endorsements and other contingent
obligations in respect of, or any obligations to purchase or otherwise acquire,
Indebtedness of others, and (c) all Indebtedness secured by any Lien existing on
any interest of the Person with respect to which Indebtedness is being
determined in Property owned subject to such Lien whether or not the
Indebtedness secured thereby shall have been assumed (up to the amount of such
Indebtedness or the book value of such Property, whichever is less); provided,
that such term shall not mean or include any Indebtedness in respect of which
monies sufficient to pay and discharge the same in full (either on the expressed
date of maturity thereof or on such earlier date as such Indebtedness may be
duly called for redemption and payment) shall be deposited with a depository,
agency or trustee acceptable to Majority Lenders in trust for the payment
thereof.
Interest Bearing Debt means, as to any Person, (a) Indebtedness of such
Person for borrowed money (other than Indebtedness which is non-recourse to such
Person), (b) Indebtedness of such Person for deferred compensation and (c)
Capital Lease Obligations.
Interest Bearing Debt to Total Capitalization means, as of any day, the
ratio of Interest Bearing Debt to Total Capitalization.
Interest Coverage Ratio means, as of any day, the ratio of (a) the
amount of EBITDA for the 12-month period ending on such date less cash taxes and
Capital Expenditures for such period to (b) Cash Interest Expense for such
period.
Interest Options means the Base Rate and the Alternate Rates.
Interest Payment Dates means (a) for Base Rate Borrowings, the last
Business Day of each October, January, April and July and the Maturity Date; and
(b) for Alternate Rate Borrowings, the end of the applicable Interest Period
(and if such Interest Period exceeds three months' duration, quarterly,
commencing on the first quarterly anniversary of the first day of such Interest
Period), and, in all cases, the Maturity Date.
Interest Period means, for each Alternate Rate Borrowing, a period
commencing on the date such Alternate Rate Borrowing began and ending on the
numerically corresponding day which is, subject to availability, (a) for each CD
Rate Borrowing, 30, 60, 90 or 180 days thereafter, (b) for each Eurodollar Rate
Borrowing, one, two, three or six months thereafter and (c) for each Negotiated
Rate Borrowing, overnight or no less than seven but no more than 29 days
thereafter, as Borrower shall elect in accordance herewith; provided, (v) any
Interest Period with respect to a Eurodollar Rate Borrowing which would
otherwise end on a day which is not a Eurodollar Business Day shall be extended
to the next succeeding Eurodollar Business Day, unless such Eurodollar Business
Day falls in another calendar month, in which case such Interest Period shall
end on the next preceding Eurodollar Business Day; (w) any Interest Period with
respect to a CD Rate Borrowing or Negotiated Rate Borrowing which would
otherwise end on a day which is not a Business Day shall be extended to the next
succeeding Business Day (subject to the provisions of the clause [y] below), (x)
any Interest Period with respect to a Eurodollar Rate Borrowing which begins on
the last Eurodollar Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Eurodollar Business Day of the
appropriate calendar month; (y) no Interest Period shall ever extend beyond the
Maturity Date; and (z) Interest Periods shall be selected by Borrower in such a
manner that the Interest Period with respect to any portion of the Loans which
shall become due shall not extend beyond such due date.
Investment means the purchase or other acquisition of any securities or
Indebtedness of, or the making of any loan, advance, transfer of Property or
capital contribution to, or the incurring of any liability in respect of the
Indebtedness of, any Person.
Legal Requirement means any law, statute, ordinance, decree,
requirement, order, judgment, rule, or regulation (or interpretation of any of
the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, whether presently existing or arising in the future. The
term "Legal Requirement" includes Environmental Laws.
Lien means any mortgage, pledge, charge, encumbrance, security
interest, collateral assignment or other lien or restriction of any kind,
whether based on common law, constitutional provision, statute or contract, and
shall include reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other title exceptions.
Loan Availability Period means the period from and including the date
hereof to (but not including) the Termination Date.
Loans means the loans described in and provided for by Section 2.
MAC means Machinery Acceptance Corporation, a Texas corporation.
Majority Lenders means Lenders the aggregate of whose Percentages is
greater than fifty percent (50%).
Margin Percentage means, on any day, the per annum percentage
corresponding to the Interest Bearing Debt to Total Capitalization Ratio
(determined as of the most recent Calculation Date) on such day as provided
below:
Interest Bearing Debt Per Annum
to Total Capitalization Ratio Percentage
0.45 or more to 1.00 0.65%
0.40 or more to 1.00 but less than 0.45 to 1.00 0.45%
0.35 or more to 1.00 but less than 0.40 to 1.00 0.35%
0.30 or more to 1.00 but less than 0.35 to 1.00 0.30%
less than 0.30 to 1.00 0.25%
Maturity Date means the maturity of the Notes, December 20, 2001, as
the same may hereafter be accelerated pursuant to the provisions of any of the
Credit Documents.
Maximum Commitment means Two Hundred Twenty-five Million Dollars
($225,000,000).
Negotiated Base Rate means, for each Interest Period, the rate of
interest per annum quoted by Agent to Borrower at the time of the applicable
request by Borrower for a Negotiated Rate Borrowing as the "Negotiated Base
Rate."
Negotiated Rate means for any day a rate per annum equal to the lesser
of (a) the Negotiated Base Rate in effect of the first day of the Interest
Period for the applicable Negotiated Rate Borrowing and (b) the Ceiling Rate.
Subject to Section 12, the Negotiated Rate is subject to adjustments for
reserves, insurance assessments and other matters as provided for in Section
3(c).
Negotiated Rate Borrowing means each portion of the principal balance
of the Loans at any time bearing interest at the Negotiated Rate.
Net Income means gross revenues and other proper income credits, less
all proper income charges (including Taxes on income), all determined in
accordance with GAAP. Net Income shall be determined on a consolidated basis.
Net Tangible Assets means, as to a particular Person, assets (valued at
cost less normal depreciation) of such Person and its Subsidiaries minus
intangibles of such Person and its Subsidiaries, all determined in accordance
with GAAP.
Notes means the promissory notes of Borrower evidencing the Loans
substantially in the form of Exhibit A, and any and all renewals, extensions,
modifications, rearrangements and/or replacements thereof.
Organizational Documents means the certificate or articles of
incorporation and bylaws of a corporation.
Original Notes shall mean the promissory notes issued pursuant to the
Superseded Loan Agreement.
Past Due Rate shall mean a rate per annum equal to the lesser of
(a) the Base Rate plus four percent (4%)and (b) the Ceiling Rate.
PBGC means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
Percentage means, for any Lender, such Lender's interest in the Maximum
Commitment. The dollar amount of each Lender's interest in the Maximum
Commitment as of the date hereof is set forth opposite such Lender's name on the
signature pages of this Agreement.
Permitted Investments means: (a) readily marketable securities issued
or fully guaranteed by the United States of America with maturities of not more
than one year, (b) financial instruments (including commercial paper) with
maturities of not more than 270 days of Persons, in each case, rated "Prime 2"
or better by Moody's Investors Service, Inc. or "A-2" or better by Standard and
Poor's Corporation; (c) certificates of deposit, eurodollar deposits or
repurchase obligations having a maturity of not more than one year from the date
of issuance thereof, or tax exempt bonds backed by letters of credit, in each
case, issued by any U.S. domestic bank having capital surplus of at least
$100,000,000 or by any other financial institution acceptable to Majority
Lenders, all of the foregoing; (d) readily marketable shares of any money market
fund having total assets in excess of $250,000,000 and not disapproved in
writing by Majority Lenders; and (e) common stock of Borrower, not to exceed
$50,000,000 in aggregate cost; provided, that the aggregate value of the assets
subject to Section 7(a) consisting of "margin stock" (as defined from time to
time in or pursuant to Regulation U of the Board of Governors of the Federal
Reserve System, or any successor regulation) shall never exceed 25% of the
aggregate value of all assets subject to Section 7(a).
Person means any individual, corporation, partnership, joint venture,
joint stock association, business or other trust, unincorporated organization,
Governmental Authority or any other form of entity.
Plan means an employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code and is either (a) maintained by Borrower, any Subsidiary of Borrower or any
member of a Controlled Group for employees of Borrower or any of its
Subsidiaries or (b) maintained pursuant to a collective bargaining agreement or
any other arrangement under which more than one employer makes contributions and
to which Borrower or any member of a Controlled Group for employees of Borrower
or any of its Subsidiaries is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions.
Prime Rate means, on any day, the prime rate for that day as announced
from time to time by TCB. Without notice to Borrower or any other Person, the
Prime Rate shall automatically fluctuate upward and downward as and in the
amount by which said prime rate fluctuates, with each change to be effective as
of the date of each change in said prime rate. THE PRIME RATE IS A REFERENCE
RATE AND DOES NOT NECESSARILY REPRESENT THE LOWEST OR BEST RATE OR A FAVORED
RATE, AND AGENT AND LENDERS DISCLAIM ANY STATEMENT, REPRESENTATION OR WARRANTY
TO THE CONTRARY. ANY LENDER MAY MAKE COMMERCIAL LOANS OR OTHER LOANS AT RATES OF
INTEREST AT, ABOVE OR BELOW THE PRIME RATE.
Proper Form means in form and substance satisfactory to Agent and
Majority Lenders.
Property means any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
Quarterly Financial Statements means for any fiscal quarter of a Person
the quarterly financial statements of such Person which statements shall include
a balance sheet as of the end of such fiscal quarter and an income statement,
and a statement of cash flows for the fiscal year to date, subject only to
normal year-end adjustments, all setting forth in comparative form the
corresponding figures for the corresponding fiscal quarter of the preceding
year, prepared in accordance with GAAP and certified as presenting fairly the
financial condition and results of operations by the chief financial officer or
treasurer of such Person. The Quarterly Financial Statements for Borrower and
its Subsidiaries shall be prepared on both a consolidated and a consolidating
basis (the parties recognizing that such consolidating statements will be
prepared in accordance with GAAP only to the extent normal and customary and the
statement of cash flows need not be furnished in a consolidating form).
Rate Designation Date means that Business Day which is (a) in the case
of Base Rate Borrowings and Negotiated Rate Borrowings, 10:00 a.m., Houston,
Texas time, on the date of such borrowing; (b) in the case of Eurodollar Rate
Borrowings, 10:00 a.m., Houston, Texas time, on the date two Eurodollar Business
Days preceding the first day of any proposed Interest Period, and (c) in the
case of CD Rate Borrowings, 10:00 a.m., Houston, Texas time, on the Business Day
immediately preceding the first day of any proposed Interest Period.
Rate Designation Notice means a written notice substantially in the
form of Exhibit B.
Regulation D means Regulation D of the Board of Governors of the
Federal Reserve System or any successor from time to time in effect and includes
any successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
Remediation means any action necessary to: (i) comply with and ensure
compliance with the Environmental Laws and (ii) the taking of all reasonably
necessary precautions to protect against and/or respond to, investigate, remove,
remediate or monitor the release or threatened release of Hazardous Substances.
Request for Credit means a request for credit duly executed by an
appropriate officer on behalf of Borrower, appropriately completed and
substantially in the form of Exhibit C attached hereto.
Subsidiary means, as to a particular parent Person, any other Person of
which 50% or more of the indicia of equity rights (whether outstanding capital
stock, partnership interests or otherwise) is at the time directly or indirectly
owned or held by such parent Person, or by one or more of its Affiliates. In
cases herein where reference is made to the Subsidiaries of Borrower, such
references shall not refer to or include 2707 North Loop West, Ltd., a Texas
limited partnership, until such time as Borrower or any of its Subsidiaries
becomes the general partner thereof.
Superseded Loan Agreement shall have the meaning ascribed to it in
Section 22.
Tangible Net Worth means total stockholders' equity (adjusted for
treasury stock), less all intangibles, all determined in accordance with GAAP.
Taxes means any tax, levy, impost, duty, charge or fee.
Termination Date means the earlier of (a) the Maturity Date or (b) the
date of termination of the Commitment pursuant to Section 8.
Texas Credit Code means Title 79, Texas Revised Civil Statutes, 1925,
as amended.
Total Capitalization shall mean the sum of (i) all Interest Bearing
Debt and (ii) total stockholders' equity of Borrower (adjusted for treasury
stock).
Unfunded Liabilities means, with respect to any Plan, at any time, the
amount (if any) by which (a) the present value of all benefits under such Plan
exceeds (b) the fair market value of all Plan assets allocable to such benefits,
all determined as of the then most recent actuarial valuation report for such
Plan, but only to the extent that such excess represents a potential liability
of any member of the applicable Controlled Group to the PBGC or a Plan under
Title IV of ERISA.
The words "hereof," "herein," and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not any
particular provision of this Agreement.
2. LOANS.
(a) Loans and Commitments. Subject to the terms and conditions
hereof, each Lender severally agrees to make Loans to Borrower from time to
time during the Loan Availability Period, not to exceed at any time outstanding
such Lender's Percentage of the Commitment, Borrower having the right to borrow,
repay and reborrow. Each Request for Credit by Borrower shall be deemed a
request for a Loan from each Lender equal to such Lender's Percentage of the
aggregate amount so requested, and such aggregate amount shall be equal to the
lesser of (1) an integral multiple of $1,000,000 and (2) the unused portion of
the Commitment. Each repayment of the Loans shall be deemed a repayment of each
Lender's Loans equal to such Lender's Percentage of the aggregate amount so
repaid, and the aggregate amount so repaid shall be equal to the lesser of (i)
an integral multiple of $1,000,000 and (ii) the aggregate unpaid principal
balance of the Notes. The obligations of Lenders hereunder are several and
not joint, and the preceding two sentences will give rise to certain
inappropriate results if special provisions are not made to accommodate the
failure of a Lender to fund a Loan as and when required by this Agreement;
therefore, notwithstanding anything herein to the contrary, (I) no Lender shall
be required to make Loans at any one time outstanding in excess of such Lender's
Percentage of the Commitment or of the requested Loan and (II) if a Lender fails
to make a Loan as and when required hereunder and Borrower subsequently makes a
repayment on the Loans, such repayment shall be split among the non-defaulting
Lenders ratably in accordance with their respective Percentages until each
Lender has its Percentage of all of the outstanding Loans, and the balance of
such repayment shall be divided among all of Lenders in accordance with their
respective Percentages. The Loans shall be evidenced by the Notes.
(b) Reduction in Commitment. Borrower shall have the right to terminate
or permanently reduce the unused portion of the Commitment at any time or from
time to time, provided that Borrower may not decrease the Commitment to an
amount less than the aggregate outstanding principal balance of the Notes.
Each decrease in the Commitment pursuant to this Section shall be permanent and
shall be an integral multiple of $1,000,000. Each notice of a decrease in the
Commitment shall be effective upon the date specified therein; provided that
Agent must receive such notice at least five (5) Business Days prior to its
effective date.
(c) Commitment Fee. In consideration of the Commitment, Borrower agrees
to pay commitment fee (computed on the basis of the actual number of days
elapsed in a year composed of 365 or 366 days, as the case may be) computed by
multiplying the Commitment Fee Percentage from time to time in effect times the
daily average difference between the Commitment and the aggregate principal
balance of the Notes, such commitment fee to be due and payable to Agent for the
account of Lenders on each Interest Payment Date for Base Rate Borrowings before
the Termination Date, and on the Termination Date, in addition to the
installments of interest on the Notes. All past due commitment fees shall bear
interest at the Past Due Rate. Lenders and Borrower agree that Chapter 15 of the
Texas Credit Code shall not apply to this Agreement, the Notes or any Loan.
(d) Mandatory Payments of Principal and Interest. Accrued and unpaid
interest on the unpaid principal balance of the Notes shall be due and payable
on the Interest Payment Dates. The entire unpaid principal balance of each Note
shall be finally due and payable on the Maturity Date. All payments hereon made
pursuant to this Section shall be applied first to accrued interest, the balance
to principal. If any payment provided for in any Note shall become due on a day
other than a Business Day, such payment may be made on the next succeeding
Business Day (unless the result of such extension of time would be to extend the
date of such payment into another calendar month or beyond the Maturity Date,
and in either such event such payment shall be made on the Business Day
immediately preceding the day on which such payment would otherwise have been
due), and such extension of time shall in such case be included in the
computation of interest on the Notes.
(e) Mandatory Prepayments. Borrower shall from time to time prepay the
Loans in such amounts as shall be necessary so that at all times the aggregate
principal amount of all Loans outstanding shall be less than or equal to the
Commitment.
(f) Funding Mechanics for Loans. Agent shall forward a copy of each Request
for Credit to Lenders promptly upon each receipt. Each Lender shall provide
Agent with such Lender's Percentage of each requested Loan in immediately
available funds no later than 12:00 noon Houston time on the date Borrower has
requested such Loan to be made. If any Lender fails to so provide funds to
Agent, Agent may (but shall not be obligated to) advance to Borrower such
Lender's Percentage of such requested Loan; such advance shall be payable by
such Lender on demand and shall bear interest at the Federal Funds Rate. Agent
shall disburse to Lenders all funds received by it from or on account of
Borrower pursuant to the Credit Documents in accordance with the respective
interests of Lenders therein (in accordance with their respective Percentages)
by wire transfer of immediately available funds (1) if such funds are received
by Agent prior to 12:00 noon, Houston, Texas time, on the day of receipt and (2)
if such funds are received by Agent after 12:00 noon, during the next Business
Day, without interest, premium or penalty thereon. If Agent does not so disburse
such funds, such funds shall be payable by Agent on demand and shall bear
interest from the day when due at the Federal Funds Rate. If a Lender owes any
amount to Agent pursuant to this Agreement, Agent shall give notice thereof,
specifying the amount thereof and reasonable detail as to the determination
thereof, to such Lender and the same shall be due and payable on demand and
shall bear interest from the date when due at the Federal Funds Rate.
(g) Sharing of Payments, Etc. If a Lender shall obtain payment of any
principal of or interest on any Loan made by it under this Agreement or on other
Facility Debt then due to such Lender hereunder, through the exercise of any
right of set-off (including, without limitation, any right of setoff or lien
granted under Section 19 hereof), banker's lien, counterclaim or similar right,
or otherwise, it shall promptly purchase from the other Lenders participations
in the Loans made or other Facility Debt held by the other Lenders in such
amounts, and make such other adjustments from time to time as shall be equitable
to the end that all Lenders shall share the benefit of such payment (net of any
expenses which may be incurred by such Lenders in obtaining or preserving such
benefit) pro rata in accordance with their respective Percentages. To such end,
Lenders shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored. Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any Lender so purchasing a participation in the Loans
made or other Facility Debt held, by other Lenders may exercise all rights of
setoff, bankers' lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Loans or other
Facility Debt in the amount of such participation. Nothing contained herein
shall require any Lender to exercise any such right or shall affect the right of
any Lender to exercise, and retain the benefits of exercising, any such right
with respect to any other Indebtedness of Borrower.
3. INTEREST OPTIONS FOR LOANS.
(a) Options Available. The outstanding principal balances of the Notes
shall bear interest at the Base Rate; provided, that (1) all past due amounts,
both principal and accrued interest, shall bear interest at the Past Due Rate,
and (2) subject to the provisions hereof, Borrower shall have the option of
having all or any portion of the principal balances of the Notes from time to
time outstanding bear interest at an Alternate Rate. The records of Agent with
respect to Interest Options, Interest Periods and the amounts of Loans to which
they are applicable shall be binding and conclusive, absent manifest error.
Interest on the Loans shall be calculated at the Base Rate except where it is
expressly provided pursuant to this Agreement that an Alternate Rate is to
apply. Interest on the amount of each advance against the Notes shall be
computed on the amount of that advance and from the date it is made.
Notwithstanding anything in this Agreement to the contrary, for the full term of
the Notes the interest rate produced by the aggregate of all sums paid or agreed
to be paid to the holder of the Notes for the use, forbearance or detention of
the debt evidenced thereby (including all interest on the Notes at the Stated
Rate plus the Additional Interest) shall not exceed the Ceiling Rate.
(b) Designation and Conversion. Borrower shall have the right to designate
or convert its Interest Options in accordance with the provisions hereof.
Provided no Default has occurred and is continuing and subject to the last
sentence of Section 3(a) and the provisions of Section 3(c), Borrower may elect
to have an Alternate Rate apply or continue to apply to all or any portion of
the principal balance of the Notes. Each change in Interest Options shall be a
conversion of the rate of interest applicable to the specified portion of the
Loans, but such conversion shall not change the respective outstanding principal
balance of the Notes. The Interest Options shall be designated or converted in
the manner provided below:
(i) Borrower shall give Agent telephonic notice, promptly confirmed by a
Rate Designation Notice (in the case of a conversion of an outstanding Loan) or
a Request for Credit (in the case of a new Loan). Each such telephonic and
written notice shall specify the amount of the Loan which is the subject of the
designation, if any; the amount of borrowings into which such borrowings are to
be converted or for which an Interest Option is designated; the proposed date
for the designation or conversion and the Interest Period or Periods, if any,
selected by Borrower. Such telephonic notice shall be irrevocable and shall be
given to Agent no later than the applicable Rate Designation Date.
(ii) No more
than six (6) Alternate Rate Borrowings shall be in effect at any time.
(iii) Each designation or conversion of a Eurodollar Rate Borrowing shall
occur on a Eurodollar Business Day. Each designation or conversion of a CD Rate
Borrowing or a Negotiated Rate Borrowing shall occur on a Business Day.
(iv) Except as provided in Section 3(c), no Alternate Rate Borrowing shall
be converted on any day other than the last day of the applicable Interest
Period.
(c) Special Provisions Applicable to Alternate Rate Borrowings.
(i) Options Unlawful. If the adoption of any applicable Legal Requirement
or any change in any applicable Legal Requirement or in the interpretation or
administration thereof by any Governmental Authority or compliance by Agent or
any Lender with any request or directive (whether or not having the force of
law) of any Governmental Authority shall at any time make it unlawful or
impossible for Agent or any Lender to permit the establishment of or to maintain
any Alternate Rate Borrowing, the commitment to establish or maintain such
Alternate Rate Borrowing shall forthwith be canceled and Borrower shall
forthwith, upon demand by Agent to Borrower, (1) convert the Alternate Rate
Borrowing with respect to which such demand was made to a Base Rate Borrowing or
another Alternate Rate Borrowing; (2) pay all accrued and unpaid interest to
date on the amount so converted; and (3) pay any amounts required to compensate
Agent or any Lender for any additional cost or expense which Agent or any Lender
may incur as a result of such adoption of or change in such Legal Requirement or
in the interpretation or administration thereof and any Funding Loss which Agent
or any Lender may incur as a result of such conversion. If, when Agent so
notifies Borrower, Borrower has given a Rate Designation Notice or a Request for
Credit specifying an Alternate Rate Borrowing but the selected Interest Period
has not yet begun, such Rate Designation Notice or Request for Credit, as the
case may be, shall be deemed to be of no force and effect, as if never made, and
the balance of the Loans specified in such Rate Designation Notice or Request
for Credit, as the case may be, shall bear interest at the Base Rate until a
different available Interest Option shall be designated in accordance herewith.
(ii) Increased Cost of Borrowings. Subject to Section 12, if the adoption
of any applicable Legal Requirement or any change in any applicable Legal
Requirement or in the interpretation or administration thereof by any
Governmental Authority or compliance by Agent or any Lender with any request or
directive (whether or not having the force of law) of any Governmental Authority
shall at any time as a result of any portion of the principal balances of the
Notes being maintained on the basis of an Alternate Rate would:
(1) subject Agent or any Lender (or make it apparent that Agent or any
Lender is subject) to any Taxes, or any deduction or withholding for any Taxes,
on or from any payment due under any Alternate Rate Borrowing or other amount
due hereunder, other than income and franchise taxes of the United States and
its political subdivisions; or
(2) change the basis of taxation of payments due from Borrower to any
Lender under any Alternate Rate Borrowing (otherwise than by a change in the
rate of taxation of the overall net income of such Lender); or
(3) impose, modify, increase or deem applicable any reserve requirement
(excluding that portion of any reserve requirement included in the calculation
of the applicable Alternate Rate), special deposit requirement or similar
requirement (including state law requirements and Regulation D) imposed,
modified, increased or deemed applicable by any Governmental Authority against
assets held by Agent or any Lender, or against deposits or accounts in or for
the account of Agent or any Lender, or against loans made by Agent or any
Lender, or against any other funds, obligations or other property owned or held
by Agent or any Lender; or
(4) impose on Agent or any Lender any other condition regarding any
Alternate Rate Borrowing;
and the result of any of the foregoing is to increase the cost
to Agent or any Lender of agreeing to make or of making,
renewing or maintaining such Alternate Rate Borrowing, or
reduce the amount of principal or interest received by Agent
or any Lender, then, upon demand by Agent, Borrower shall pay
to Agent, from time to time as specified by Agent, additional
amounts which shall compensate Agent and each Lender for such
increased cost or reduced amount. The determination by Agent
or any Lender, as the case may be, of the amount of any such
increased cost, increased reserve requirement or reduced
amount shall be conclusive and binding, absent manifest error.
Each Lender will notify Borrower through Agent of any event
occurring after the date of this Agreement which will entitle
such Lender to compensation pursuant to this Section as
promptly as practicable after it obtains knowledge thereof and
determines to request such compensation.
(iii) Inadequacy of Pricing and Rate Determination. Subject to Section
12, if for any reason with respect to any Interest Period Agent (or, in the
case of clause 3 below, the applicable Lender) shall have determined
(which determination shall be conclusive and binding upon Borrower) that:
(1) Agent is unable through its customary general practices to
determine any applicable Alternate Rate, or
(2) by reason of circumstances affecting the applicable Eurodollar
market, generally, Agent is not being offered deposits in United States dollars
in such market, for the applicable Interest Period and in an amount equal to
the amount of any applicable Alternate Rate Borrowing requested by Borrower, or
(3) any applicable Alternate Rate will not adequately and fairly reflect
the cost to any Lender of making and maintaining such Alternate Rate Borrowing
hereunder for any proposed Interest Period,
Agent shall give Borrower notice thereof and thereupon, (A) any Rate
Designation Notice or Request for Credit previously given by Borrower
designating the applicable Alternate Rate Borrowing which has not commenced as
of the date of such notice from Agent shall be deemed for all purposes hereof to
be of no force and effect, as if never given, and (B) until Agent shall notify
Borrower that the circumstances giving rise to such notice from Agent no longer
exist, each Rate Designation Notice and Request for Credit requesting the
applicable Alternate Rate shall be deemed a request for a Base Rate Borrowing,
and any applicable Alternate Rate Borrowing then outstanding shall be converted,
without any notice to or from Borrower, upon the termination of the Interest
Period then in effect with respect to it, to a Base Rate Borrowing.
(iv) Funding Losses. Borrower shall indemnify Agent and each Lender against
and hold Agent and each Lender harmless from any Funding Loss. This agreement
shall survive the payment of the Notes. A certificate as to any additional
amounts payable pursuant to this Section submitted to Borrower shall be
conclusive and binding upon Borrower, absent manifest error.
(d) Funding Offices; Adjustments Automatic; Calculation Year. Any Lender
may, if it so elects, fulfill its obligation as to any Alternate Rate Borrowing
by causing a branch or Affiliate of such Lender to make such Loan and may
transfer and carry such Loan at, to or for the account of any branch office or
Affiliate of such Lender; provided, that in such event for the purposes of this
Agreement such Loan shall be deemed to have been made by such Lender, and the
obligation of Borrower to repay such Loan shall nevertheless be to such Lender,
as the case may be, and shall be deemed held by it for the account of such
branch or Affiliate. Without notice to Borrower or any other Person, each rate
required to be calculated or determined under this Agreement shall automatically
fluctuate upward and downward in accordance with the provisions of this
Agreement. Interest at the Prime Rate shall be computed on the basis of the
actual number of days elapsed in a year consisting of 365 or 366 days, as the
case may be. All other interest and fees required to be calculated or determined
under this Agreement shall be computed on the basis of the actual number of days
elapsed in a year consisting of 360 days, unless the Ceiling Rate would thereby
be exceeded, in which event, to the extent necessary to avoid exceeding the
Ceiling Rate, the applicable interest and fees shall be computed on the basis of
the actual number of days elapsed in the applicable calendar year in which
accrued.
(e) Funding Sources. Each Lender shall be entitled to fund and maintain its
funding of all or any part of the 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 each Lender had actually funded and maintained
each Alternate Rate Borrowing during each Interest Period through the purchase
of deposits having a maturity corresponding to such Interest Period and bearing
an interest rate equal to the Alternate Rate for such Interest Period.
(f) Stated Rate; Recapture. As used in the Credit Documents, "Stated Rate"
means the effective weighted per annum rate of interest applicable to the Loans;
provided, that if on any day such rate shall exceed the Ceiling Rate for that
day, the Stated Rate shall be fixed at the Ceiling Rate on that day and on each
day thereafter until the total amount of interest accrued at the Stated Rate on
the unpaid principal balance of the Notes plus the Additional Interest equals
the total amount of interest which would have accrued if there had been no
Ceiling Rate. If the Notes mature (or are prepaid) before such equality is
achieved, then, in addition to the unpaid principal and accrued interest then
owing pursuant to the other provisions of the Credit Documents, Borrower
promises to pay on demand to the order of the holders of the Notes interest in
an amount equal to the excess (if any) of (a) the lesser of (i) the total
interest which would have accrued on the Notes if the Stated Rate had been
defined as equal to the Ceiling Rate from time to time in effect and (ii) the
total interest which would have accrued on the Notes if the Stated Rate were not
so prohibited from exceeding the Ceiling Rate, over (b) the total interest
actually accrued on the Notes to such maturity (or prepayment) date. Without
notice to Borrower or any other Person, the Stated Rate shall automatically
fluctuate upward and downward in accordance with the provisions of this
definition.
4. CONDITIONS PRECEDENT.
(a) All Loans. The obligation of any Lender to make any Loan is subject to
the accuracy of all representations and warranties of Borrower in this Agreement
and any other Credit Document on the date thereof as if made on such date (and
such Lender's receipt of evidence of such accuracy), to the performance by
Borrower of its obligations under the Credit Documents (and such Lender's
receipt of evidence of such performance) and to the satisfaction of the
following conditions:
(i) Agent shall have received (1) no later than (A) in the case of a
Negotiated Rate Borrowing, the earlier of (y) 30 minutes from the time that a
Negotiated Rate has been quoted for such Loan and (z) 10:00 a.m., Houston, Texas
time, and (B) in all other cases, 10:00 a.m. Houston, Texas time, on the
applicable Rate Designation Date, telephonic notice from Borrower of the
proposed date and amount of such Loan, and (2) no later than 12:00 noon,
Houston, Texas time, on the applicable Rate Designation Date, a Request for
Credit signed by the President, a Vice President, the Treasurer or the Assistant
Treasurer of Borrower and complete in all material respects. If any telephonic
request for a Loan is received by Agent after the applicable times set forth
above, or if the corresponding Request for Credit for such telephonic request is
not received by 12:00 noon, Houston, Texas time, such telephonic request shall
be treated as having been received on the next Business Day.
(ii) prior to the date thereof, there shall have occurred, in the sole
opinion of Majority Lenders, no material adverse change in the Property,
liabilities, financial condition, business or affairs of Borrower or any of its
Subsidiaries from those reflected in the most recent financial statements
delivered to Lenders as of the date hereof or in the facts warranted or
represented in any Credit Document.
(iii) no Default or Event of Default shall have occurred and be continuing
or will occur as a result of the requested Loan.
(iv) the making of such Loan shall not be prohibited by, or subject Agent
or any Lender to any penalty or onerous condition under, any applicable Legal
Requirement.
(vi) all fees and expenses owed to Agent or any Lender under any of the
Credit Documents as of the date thereof shall have been paid in full. (a) Agent
and Lenders shall have received such other documents as any of them may
reasonably require.
Each such Loan shall be subject to the further condition that, at the time
thereof, all legal matters incident to the transactions herein contemplated
shall be satisfactory to Agent's legal counsel. Delivery of any Request for
Credit to Agent shall constitute a representation by Borrower that the
representations and warranties made by Borrower under this Agreement and the
other Credit Documents are true and correct as of the date of delivery of such
Request for Credit.
(b) First Loan. In addition to the conditions described in Section 4(a),
the obligation of Lenders to make the initial Loan is subject to the following,
in Proper Form: (1) Lenders shall have received their respective Notes and Agent
shall have received the other Credit Documents; (2) Agent shall have received a
duly executed Borrowing Authorization of Borrower; (3) Agent shall have received
a current certificate from the Secretary of State or other appropriate official
of the State of Texas as to the continued existence and good standing of
Borrower, (4) Agent shall have received a legal opinion from the general counsel
for Borrower acceptable to Agent and Majority Lenders.
5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that:
(a) Borrower and each of its Subsidiaries (i) is duly organized, validly
existing and in good standing under the laws of the state of its organization
and has full legal right, power and authority to carry on its business as
presently conducted and to execute, deliver and perform its obligations under
the Credit Documents executed by it, and (ii) is duly qualified to do business
and in good standing in each jurisdiction in which the nature of the business it
conducts makes such qualification necessary or desirable.
(b) The execution, delivery and performance of the Credit Documents
executed by Borrower have been duly authorized by all necessary action under
Borrower's Organizational Documents and otherwise.
(c) Borrower's execution, delivery and performance of the Credit Documents
do not and will not require (i) any consent of any other Person or (ii) any
consent, license, permit, authorization or other approval (including foreign
exchange approvals) of any Governmental Authority, or any notice to, exemption
by, any registration, declaration or filing with or the taking of any other
action in respect of, any Governmental Authority.
(d) The execution, delivery and performance of any Credit Document will not
(i) violate any Legal Requirement or the Organizational Documents of Borrower or
any of its Subsidiaries or (ii) conflict with or result in a breach of the
terms, conditions or provisions of, or cause a default under, any agreement,
instrument, franchise, license or concession to which Borrower or any of its
Subsidiaries is a party or by which any of them is bound.
(e) Borrower has duly and validly executed, issued and delivered each
Credit Document to which it is a party. The Credit Documents are in proper legal
form for prompt enforcement and they are Borrower's legal, valid and binding
obligations, enforceable in accordance with their terms. Borrower's obligations
under them rank and will rank at least equal in priority of payment with all of
Borrower's other Indebtedness (except only for Indebtedness preferred by
operation of law or Indebtedness disclosed in writing to Lenders before
execution and delivery of this Agreement).
(f) All information supplied to Agent or any Lender, and all statements
made to Agent or any Lender, by or on behalf of Borrower or any of its
Subsidiaries before, concurrently with or after execution of this Agreement are
and will be true, correct, complete, valid and genuine in all material respects.
The most recent financial statements for Borrower and its Subsidiaries furnished
to Lenders fairly present the financial condition of Borrower and its
Subsidiaries as of their date and for the period then ended in accordance with
GAAP. No material adverse change has occurred in the financial conditions
reflected in the October 31, 1996 statements.
(g) Borrower and each of its Subsidiaries have filed all tax returns
required to be filed and paid all Taxes shown thereon to be due, including
interest and penalties, except for Taxes which are being diligently contested in
good faith and for payment of which adequate reserves have been set aside.
(h) Except as set forth on Schedule I, there is no litigation, condemnation
or other action, suit or proceeding pending--or, to the best of Borrower's
knowledge, threatened--against or affecting Borrower or any of its Subsidiaries,
at law or in equity, or before or by any Governmental Authority, which
individually or together with all other such actions, suits or proceedings
presenting substantially the same issue of fact, involves the assertion of
claims for actual damages in excess of, on an aggregate basis, $1,000,000, or
otherwise might result in any material adverse change in the business or
financial condition or in other Property of Borrower or any of its Subsidiaries
or any interest in it.
(i) Neither Borrower nor any of its Subsidiaries is in default with respect
to any order, writ, injunction, decree or demand of any Governmental Authority,
in the payment of any Indebtedness for borrowed money or under any agreement or
other papers evidencing or securing any such Indebtedness.
(j) Neither Borrower nor any of its Subsidiaries is a party to any contract
or agreement which materially and adversely affects any of their businesses,
Property or financial conditions.
(k) Borrower and its Subsidiaries are now solvent, and no bankruptcy or
insolvency proceedings are pending or contemplated by or--to Borrower's
knowledge--against Borrower or any of its Subsidiaries. Borrower's liabilities
and obligations under the Credit Documents to which it is a party do not and
will not render Borrower insolvent, cause Borrower's liabilities to exceed
Borrower's assets or leave Borrower with too little capital to properly conduct
all of its business as now conducted or contemplated to be conducted.
(l) No representation or warranty contained in any Credit Document and no
statement contained in any certificate, schedule, list, financial statement or
other papers furnished to Agent or any Lender by or on behalf of Borrower
contains--or will contain--any untrue statement of material fact, or omits--or
will omit--to state a material fact necessary to make the statements contained
therein not misleading.
(m) None of the proceeds of any Note will be used for the purpose of
purchasing or carrying, directly or indirectly, any margin stock or for any
other purpose which would make such credit a "purpose credit" within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System.
(n) Borrower and each of its Subsidiaries possess all permits, licenses,
patents, trademarks, tradenames and copyrights required to conduct their
respective businesses.
(o) Borrower and each of its Subsidiaries are in compliance with all
applicable Legal Requirements and Borrower and each of its Subsidiaries manage
and operate (and will continue to manage and operate) their businesses in
accordance with good industry practices.
(p) With respect to each Plan, Borrower and each member of a Controlled
Group for the employees of Borrower or any of its Subsidiaries have fulfilled
their obligations, including obligations under the minimum funding standards of
ERISA and the Code and are in compliance in all material respects with the
provisions of ERISA and the Code. No event has occurred which could result in a
liability of Borrower or any member of a Controlled Group for the employees of
Borrower or any of its Subsidiaries to the PBGC or a Plan (other than to make
contributions in the ordinary course). Since the effective date of Title IV of
ERISA, there have not been any nor are there now existing any events or
conditions that would cause the Lien provided under Section 4068 of ERISA to
attach to any Property of Borrower or any member of a Controlled Group for the
employees of Borrower or any of its Subsidiaries. There are no Unfunded
Liabilities with respect to any Plan. No "prohibited transaction" has occurred
with respect to any Plan.
(q) Neither Borrower nor any of its Subsidiaries is an investment company
within the meaning of the Investment Company Act of 1940, as amended, or,
directly or indirectly, controlled by or acting on behalf of any Person which is
an investment company, within the meaning of said Act.
(r) Neither Borrower nor any of its Subsidiaries is an "affiliate" or a
"subsidiary company" of a "public utility company," or a "holding company," or
an "affiliate" or a "subsidiary company" of a "holding company," as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended ("PUHC
Act") or a "public utility" as defined in the Federal Power Act. Further, none
of the transactions contemplated under this Agreement shall cause or constitute
a violation of any of the provisions, rules, regulations or orders of or under
the PUHC Act and the PUHC Act does not in any manner impair the legality,
validity or enforceability of the Notes or the liabilities of Borrower under any
of the Credit Documents.
(s) Borrower and its Subsidiaries are and have been in compliance with all
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any applicable Environmental
Law or Environmental Permit, except where failure to be in such compliance could
not reasonably be expected to have a material adverse effect on Borrower and its
Subsidiaries on a consolidated basis. Borrower and its Subsidiaries (i) have
obtained and maintained in effect all Environmental Permits, the failure to
obtain which could reasonably be expected to have a material adverse effect on
Borrower and its Subsidiaries on a consolidated basis, (ii) along with their
Property or any other facility operated, leased, managed or controlled by any of
them are not and have not been subject to nor is there any basis for any (A)
Environmental Claims or (B) Environmental Liabilities arising from or based upon
any act, omission, event, condition or circumstance occurring or existing on or
prior to the date hereof which could reasonably be expected to have or which
within the past five (5) years has had a material adverse effect on Borrower and
its Subsidiaries on a consolidated basis, and (iii) have not received
individually or collectively any notice of any violation or alleged violation of
any Environmental Law or Environmental Permit or any Environmental Claim in
connection with their respective Property or any other facility operated,
leased, managed or controlled by any of them which could reasonably be expected
to have or which within the past five (5) years has had a material adverse
effect on Borrower and its Subsidiaries on a consolidated basis. None of the
off-site locations where Hazardous Substances generated from or in connection
with any property, facility or operations of Borrower or any of its Subsidiaries
have been stored, treated, recycled, disposed of or released has been nominated
or identified as a facility which is subject to an existing or potential claim
under Environmental Laws for which Borrower or any of its Subsidiaries could
reasonably be expected to have liability which individually or aggregately could
have a material adverse effect. Borrower is not aware of any requirement of
Environmental Laws that will require future compliance costs or capital
expenditures on the part of Borrower or any of its Subsidiaries which
individually or aggregately could have a material adverse effect in relationship
to costs or expenditures currently expended in the ordinary course of business.
There are no obligations, undertakings or liabilities arising out of or relating
to Environmental Laws which Borrower or any of its Subsidiaries has agreed to,
assumed or retained, by contract or otherwise which individually or aggregately
could have a material adverse effect.
(t) Borrower's fiscal year ends January 31.
(u) Borrower has no Subsidiaries other than the Subsidiaries listed on
Schedule II. Each such Subsidiary is owned in the percentage set forth opposite
such Subsidiary's name on Schedule II.
(v) All statements made by or on behalf of Borrower in connection with this
Agreement or any other Credit Document shall constitute the joint and several
representations and warranties of the Person making the statement and of
Borrower.
(w) Borrower and each of its Subsidiaries has good and marketable title to
their respective Property free and clear of all material Liens, except for those
permitted in Section 7(a). All rights, permits, easements, servitudes and
rights-of-way included in or necessary to the development, maintenance and
operation of any such Property have been obtained and are in full force and
effect.
(x) Neither Borrower nor any of its Subsidiaries has made any Investment
in, advance to or guaranty of the obligations of any Person, except as set forth
in Schedule III.
(y) All leases of real and personal Property to which Borrower or any of
its Subsidiaries is a lessee are in full force and effect, and no default has
occurred with regard to any such lease.
(z) Neither Borrower nor any agent acting for it has offered the Notes or
any similar obligation of Borrower for sale to or solicited any offers to buy
the Notes or any similar obligations of Borrower from any Person other than
Lenders, and Borrower will take no action which would subject the sale of the
Notes to the provisions of Section 5 of the Securities Act of 1933, as amended,
or any applicable state securities law.
(aa) Borrower and each of its Subsidiaries carries insurance with reputable
insurers in respect of such of its Property, in such amounts and against such
risks as is customarily maintained by other Persons of similar size engaged in
similar businesses.
6. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that prior to
termination of this Agreement:
(a Borrower shall (and shall cause each of its Subsidiaries to) at all
times (i) pay when due all Taxes and governmental charges of every kind upon it
or against its income, profits or Property, unless and only to the extent that
the same shall be contested diligently in good faith and reserves have been
established therefor; (ii) to the extent applicable, do all things necessary to
preserve its existence, qualifications, rights and franchises in all states
where such qualification is necessary or desirable; (iii) comply with all
applicable Legal Requirements (including Environmental Law) in respect of the
conduct of its business and the ownership of its Property; (iv) cause its
Property to be protected, maintained and kept in good repair and make all
replacements and additions to its Property as may be reasonably necessary to
conduct its business properly and efficiently, and (v) pay punctually and
discharge when due, or renew or extend, any Indebtedness incurred by it and
discharge, perform and observe the covenants, provisions and conditions to be
performed, discharged and observed on its part in connection therewith, or in
connection with any agreement or other instrument relating thereto or in
connection with any mortgage, pledge or lien existing at any time upon any of
its Property; provided, however, that nothing contained in this subparagraph (v)
shall require payment, discharge, renewal or extension of any such Indebtedness
or discharge, performance or observance of any such covenants, provisions and
conditions so long as any claims which may be asserted against with respect to
any such Indebtedness or any such covenants, provisions and conditions shall be
contested diligently and in good faith and reserves with respect thereto shall
be established.
(b) Borrower shall furnish or cause to be furnished to Agent and shall
furnish to each Lender (without duplication) three (3) copies of each of the
following: (1) as soon as available and in any event within 120 days after the
end of each fiscal year of Borrower, Annual Financial Statements of Borrower and
its Subsidiaries; (2) as soon as available and in any event within 60 days after
the end of each fiscal quarter (except the last fiscal quarter) of each fiscal
year of Borrower, Quarterly Financial Statements of Borrower and its
Subsidiaries; (3) promptly upon their becoming available, all financial
statements, registration statements (except for registration statements on Form
S-8 covering employee benefit plans), reports and proxy statements which
Borrower or any of its Subsidiaries may file with the Securities and Exchange
Commission from time to time; (4) as soon as available and in any event within
60 days after the end of each fiscal quarter of each fiscal year of Borrower, a
schedule of all contingent liabilities of Borrower and its Subsidiaries as of
the end of the period covered thereby; (5) concurrently with the financial
statements provided for in subsections (1) and (2) of this Section 6(b), such
schedules, computations and other information, in reasonable detail, as may be
required by Agent or any Lender to demonstrate compliance with the covenants set
forth herein or reflecting any non-compliance therewith as of the applicable
date, and a compliance certificate ("Compliance Certificate") in the form of
Exhibit D, duly executed by the chief financial officer, treasurer or assistant
treasurer of Borrower, and (5) such other information relating to the financial
condition, operations, prospects or business of Borrower and its Subsidiaries as
from time to time may be reasonably requested by Agent or any Lender. Each
delivery of a financial statement pursuant to this Section shall constitute a
republication of the representations and warranties contained in Section 5.
(c) Borrower and its Subsidiaries shall have and maintain, on a
consolidated basis, at all times:
(1) an Interest Bearing Debt to Total Capitalization Ratio for Borrower of
not greater than 0.50 to 1.00.
(2) a Tangible Net Worth for Borrower of not less than $350,000,000.
(3) an Interest Coverage Ratio for Borrower of not less than 2.00 to 1.00.
(d) Borrower shall (and shall cause each of its Subsidiaries to) permit
each Lender upon reasonable advance notice to inspect its Property, to examine
its files, books and records and make and take away copies thereof, and to
discuss its affairs with its officers and accountants, all at such times during
normal business hours and such intervals and to such extent as such Lender may
reasonably desire. All such information shall be maintained by Lenders in
confidence and shall not be disclosed to any Person except (a) in connection
with a sale of a Lender's interest hereunder, (b) in connection with the
enforcement or collection of any Credit Document, (c) as may be required or
directed by any Legal Requirement or Governmental Authority, (d) where such
information has become a part of the public domain, and (e) Affiliates of
Lenders.
(e) Borrower shall promptly execute and deliver (or cause to be executed
and delivered), at Borrower's expense, any and all other and further instruments
which may be requested by any Lender or Agent to cure any defect in the
execution and delivery of any Credit Document or more fully to describe
particular aspects of the agreements and undertakings set forth in the Credit
Documents.
(f) Borrower shall (and shall cause each of its Subsidiaries to) maintain
books of record and account in accordance with GAAP.
(g) Borrower shall (and shall cause each of its Subsidiaries to) maintain
insurance with such insurers, on such of its Property, officers, directors and
employees, in such amounts and against such risks as is customarily maintained
by other Persons of similar size to that of, and engaged in businesses
substantially similar to those of, Borrower and its Subsidiaries, and furnish
Agent satisfactory evidence thereof promptly upon request.
(h) Borrower shall notify Agent immediately upon acquiring knowledge of the
occurrence of, or if Borrower or any of its Subsidiaries causes or intends to
cause, as the case may be: (1) the institution of any lawsuit or administrative
proceeding or the existence of an Environmental Claim or Remediation affecting
Borrower or any of its Subsidiaries, the adverse determination under which could
have a material adverse effect on the business, condition (financial or
otherwise), operations, Property or prospects of Borrower or any of its
Subsidiaries or on the ability of Borrower to perform its obligations under any
Credit Document to which it is a party; (2) any material adverse change, either
in any case or in the aggregate, in the assets, liabilities, business, condition
(financial or otherwise), operations, Property or prospects of Borrower or any
of its Subsidiaries; (3) any Event of Default or any Default, together with a
detailed statement by an appropriate officer or other responsible party
acceptable to Agent on behalf of Borrower of the steps being taken to cure the
effect of such Event of Default or Default; (4) the receipt of any notice from,
or the taking of any other action by, the holder of any Indebtedness of Borrower
or any of its Subsidiaries with respect to a claimed default, together with a
detailed statement by an appropriate officer or other responsible party
acceptable to Agent on behalf of Borrower specifying the notice given or other
action taken by such holder and the nature of the claimed default and what
action is being taken or proposed to take with respect thereto; (5) the
occurrence of a default or event of default by Borrower or any of its
Subsidiaries under any agreement to which it is a party, which default or event
of default could reasonably be expected to have a material adverse effect on the
business, condition (financial or otherwise), operations, Property or prospects
of Borrower or any of its Subsidiaries; and (6) any change in the accuracy of
the representations and warranties of Borrower in this Agreement or any other
Credit Document. Borrower shall provide to Agent such information as Agent may
reasonably request regarding any of the enumerated matters set forth in this
paragraph, any developments in connection therewith, and, as applicable, the
Borrower's or its Subsidiary's anticipated or actual response thereto.
(i) Borrower shall promptly furnish to Agent (1) immediately upon receipt,
a copy of any notice of complete or partial withdrawal liability under Title IV
of ERISA and any notice from the PBGC under Title IV of ERISA of an intent to
terminate or appoint a trustee to administer any Plan, (2) if requested by any
Lender, promptly after the filing thereof with the United States Secretary of
Labor or the PBGC or the Internal Revenue Service, copies of each annual and
other report with respect to each Plan or any trust created thereunder, (3)
immediately upon becoming aware of the occurrence of any "reportable event," as
such term is defined in Section 4043 of ERISA, or of any "prohibited
transaction," as such term is defined in Section 4975 of the Code, in connection
with any Plan or any trust created thereunder, a written notice signed by an
appropriate officer or other responsible party acceptable to Agent on behalf of
Borrower or the applicable member of a Controlled Group for employees of
Borrower or any of its Subsidiaries specifying the nature thereof, what action
Borrower or the applicable member of such Controlled Group is taking or proposes
to take with respect thereto, and, when known, any action taken by the PBGC, the
Internal Revenue Service or the Department of Labor with respect thereto, (4)
promptly after the filing or receiving thereof by Borrower or any member of a
Controlled Group for employees of Borrower or any of its Subsidiaries of any
notice of the institution of any proceedings or other actions which may result
in the termination of any Plan, and (5) each request for waiver of the funding
standards or extension of the amortization periods required by Sections 303 and
304 of ERISA or Section 412 of the Code promptly after the request is submitted
by Borrower or any member of a Controlled Group for employees of Borrower or any
of its Subsidiaries to the Secretary of the Treasury, the Department of Labor or
the Internal Revenue Service, as the case may be. To the extent required under
applicable statutory funding requirements, Borrower will fund, and will cause
each of its Subsidiaries to fund, all current service pension liabilities as
they are incurred under the provisions of all Plans from time to time in effect,
and comply with all applicable provisions of ERISA. Borrower covenants that it
shall and shall cause each of its Subsidiaries and each other member of a
Controlled Group for employees of Borrower or any of its Subsidiaries to (a)
make contributions to each Plan in a timely manner and in an amount sufficient
to comply with the contribution obligations under such Plan and the minimum
funding standards requirements of ERISA; (b) prepare and file in a timely manner
all notices and reports required under the terms of ERISA including annual
reports, and (c) pay in a timely manner all required PBGC premiums.
(j) Subject to Section 12, if, after the date of this Agreement, any Lender
shall have determined that the adoption or effectiveness of any applicable law,
rule or regulation regarding capital adequacy, or any change therein or any
change after the date hereof with respect to any existing law, or any change in
the interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof or any change after
the date hereof with respect to any existing law, or compliance by such Lender
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such Governmental Authority has or would have the
effect of reducing the rate of return on such Lender's capital (or on the
capital of any Person owning or holding a participation interest in the Facility
Debt) as a consequence of its obligations to Borrower with respect to the Loans
to a level below that which could have been achieved but for such adoption,
effectiveness, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time, Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction.
A certificate of such Lender setting forth such amount or amounts as shall be
necessary to compensate such Lender as specified in this Section shall be
delivered as soon as practicable to Borrower and shall be conclusive and
binding, absent manifest error. Borrower shall pay such Lender the amount shown
as due on any such certificate within fifteen (15) days after such Lender
delivers such certificate. In preparing such certificate, such Lender may employ
such assumptions and allocations of costs and expenses as it shall in good faith
deem reasonable and may use any reasonable averaging and attribution method.
(k) The proceeds of the Loans will be used for general corporate purposes
and working capital for Borrower and its Subsidiaries.
(l) With respect to each Plan, Borrower and each member of a Controlled
Group for the employees of Borrower or any of its Subsidiaries shall fulfil
their obligations, including obligations under the minimum funding standards of
ERISA and the Code, and comply in all material respects with the provisions of
ERISA and the Code and all other applicable laws. Borrower shall not permit any
event to occur which could result in a liability of Borrower or any member of a
Controlled Group for the employees of Borrower or any of its Subsidiaries to the
PBGC or a Plan (other than to make contributions in the ordinary course).
Borrower shall not permit to occur or exist any event or condition that would
cause the Lien provided under Section 4068 of ERISA to attach to any Property of
Borrower or any member of a Controlled Group for the employees of Borrower or
any of its Subsidiaries. Borrower shall not permit to exist any Unfunded
Liabilities with respect to any Plan. Borrower shall not permit to occur any
"prohibited transaction" with respect to any Plan.
7. NEGATIVE COVENANTS. Borrower further covenants and agrees that prior to
termination of this Agreement:
(a) Borrower will not (and will not permit any of its Subsidiaries to)
create or suffer to exist any Lien upon any of its Property now owned or
hereafter acquired, or acquire any Property upon any conditional sale or other
title retention device or arrangement or any purchase money security agreement;
or in any manner directly or indirectly sell, assign, pledge or otherwise
transfer any of its Accounts or contract rights; provided, however, that
Borrower or any of its Subsidiaries may create or suffer to exist: (1)
artisans', mechanics', operators' or drillers' Liens to secure claims for labor,
materials or supplies arising in the ordinary course of business, and Liens for
Taxes, but only to the extent that payment of the foregoing shall not at the
time be due or shall be contested in good faith by appropriate proceedings
diligently conducted and with respect to which appropriate reserves have been
set aside; (2) Liens in effect on the date hereof and disclosed on Schedule IV,
provided that neither the Indebtedness secured thereby nor the Property covered
thereby shall increase; (3) Liens in favor of Agent for the ratable benefit of
all Lenders or in favor of all Lenders on a pari passu basis; (4) deposits or
pledges to secure payment of workers' compensation, unemployment insurance, old
age pensions or other social security, or to secure the performance of bids,
tenders, contracts (other than those relating to borrowed money) or leases or to
secure statutory obligations or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds in the ordinary course of business, or in
connection with contests, to the extent that payment thereof shall not at the
time be due or shall be contested in good faith by appropriate proceedings
diligently conducted and there have been set aside on its books appropriate
reserves with respect thereto; (5) Liens arising out of judgments or awards
against Borrower or any of its Subsidiaries with respect to which Borrower or
such Subsidiary shall be in good faith prosecuting an appeal or a proceeding for
review; (6) Liens consisting of encumbrances, easements or reservations of, or
rights of others for, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, zoning restrictions, restrictions on
the use of real Property and minor defects and irregularities in the title
thereto, landlord's or lessor's liens under leases to which Borrower or any of
its Subsidiaries is a party and other similar encumbrances, none of which
interferes with the use of the Property subject thereto by Borrower or such
Subsidiary in the ordinary conduct of its business; (7) Liens or security
interests on assets of a Subsidiary of Borrower to secure obligations of such
Subsidiary to Borrower or another Subsidiary of Borrower; (8) Liens in or
affecting Property of Borrower or any of its Subsidiaries securing any
Indebtedness representing the purchase price, or any portion thereof, of any
Property acquired or being acquired by Borrower or a Subsidiary, provided that
such Liens shall attach only to Property of Borrower that is financed with such
Indebtedness, and shall be in accordance with or similar to arrangements in
existence as of the date hereof; (9) Liens in or limitations on the use of funds
held in trust securing the repayment of Indebtedness to any Industrial
Development Corporation, and (10) Liens in Property acquired by Borrower that
existed when such Property was acquired (provided, that the Indebtedness which
such Liens secure is not increased).
(b) Borrower will not (and will not permit any of its Subsidiaries to), in
any single transaction or series of transactions, directly or indirectly: (1)
consolidate, terminate, liquidate or dissolve; (2) be a party to any
consolidation, termination, merger or consolidation; (3) modify or amend any of
its Organizational Documents if doing so would have a material adverse effect on
Borrower's ability to repay the Facility Debt; or (4) sell, convey, lease,
transfer or otherwise dispose of assets representing more than 10% of Net
Tangible Assets of Borrower and its Subsidiaries in the aggregate during the
term hereof, or agree to take any such action, except for sale of Inventory in
the ordinary course of business. Borrower will not (and will not permit any of
its Subsidiaries to) pledge, transfer or otherwise dispose of any of the indicia
of equity rights (whether issued and outstanding capital stock, partnership
interests or otherwise) of a Subsidiary or any Indebtedness of a Subsidiary, or
permit any Subsidiary of any such Person to issue any additional indicia of
equity rights (whether issued and outstanding capital stock, partnership
interests or otherwise) other than to its parent. Notwithstanding the foregoing,
(1) Any of Borrower's Subsidiaries may merge or consolidate with Borrower
(provided that Borrower shall be the continuing or surviving Corporation), or
with any one or more of Borrower's Subsidiaries, or with any other Person or
Persons, provided that each surviving Person after any such merger or
consolidation shall be a Subsidiary of Borrower;
(2) Shares of stock and Indebtedness of any Subsidiary of Borrower at any
time owned by or owed to Borrower or any of Borrower's Subsidiaries may be sold
for a cash consideration which represents the fair value (as determined in good
faith by the Board of Directors of Borrower) at the time of sale of the shares
of stock or Indebtedness so sold, provided that the assets of such Subsidiary do
not constitute more than ten percent (10%) of the Net Tangible Assets of
Borrower and all of its Subsidiaries and that such Subsidiary shall not have
contributed more than 10% of Net Income during the most recently completed
fiscal year of Borrower, and, further provided, that upon consummation of such
sale and after giving effect thereto, no Default exists under the Credit
Documents; and
(3) Borrower may merge or consolidate with any other Person provided that
Borrower shall be the surviving Person and as such shall not, immediately after
such merger or consolidation, be in default hereunder.
(c) Borrower will not (and will not permit any of its Subsidiaries to)
enter into any transaction or agreement with any officer, director, partner,
trustee or owner or holder of any indicia of equity rights (whether issued and
outstanding capital stock, partnership interests or otherwise) of Borrower or
any of its Subsidiaries (or any Affiliate of any such Person) unless the same is
upon terms substantially similar to those obtainable from wholly unrelated
sources.
(d) Borrower will not (and, subject to the last sentence of this Section,
will not permit any of its Subsidiaries to) make any Investment in, any Person,
or make any commitment to make any such Investment, except indicia of equity
rights of Borrower's Subsidiaries; Permitted Investments; normal and reasonable
travel advances in the ordinary course of business to employees; stock of or
additional capital contributions to Subsidiaries; customer obligations and
receivables owing to Borrower or any of its Subsidiaries and arising out of
sales or leases made or the rendering of services by Borrower or any of its
Subsidiaries in the ordinary course of business; acquisitions (with or without
recourse and with or without discount) of negotiable instruments evidencing
customer obligations and receivables of Borrower or any of its Subsidiaries and
arising out of sales or leases made by Borrower or any of its Subsidiaries in
the ordinary course of business; acquisitions of Indebtedness of Borrower or any
Subsidiary by Borrower or any other Subsidiary; (8) the guarantee by Borrower of
up to $44,000,000 of a credit facility to be extended to Ave Fenix Energia S.A.
("Ave Fenix") by NationsBank to finance a portion of the cost of acquiring a
160MW electric generating facility in Argentina for which Borrower will sell
approximately $70,000,000 in equipment and obtain a 10-year $20,000,000
operations and maintenance agreement, such credit facility to be on
substantially the same terms and conditions as the facility described by
Borrower to the Agent by letter dated July 28, 1995; provided that the covenants
and events of default contained in such guarantee shall all be less restrictive
on Borrower than those binding upon Borrower under this Agreement; and (9) other
Investments not to exceed an aggregate original cost amount of $50,000,000
outstanding at any one time subject to the provisions of Section 5(m).
Notwithstanding the foregoing, the limitations on Investments set forth above in
this Section shall not apply to those made by MAC so long as the assets of MAC
do not exceed three percent (3%) of the Net Tangible Assets of Borrower and its
Subsidiaries.
(e) Borrower will not do or permit anything that will cause Borrower or any
of its Subsidiaries or any of their respective properties or facilities which
any of them may own, operate, lease, manage or control to be in violation of any
applicable Environmental Laws, or to become subject to any Remediation
obligations or Environmental Claims which may have a material adverse effect
upon Borrower or its Subsidiaries on a consolidated basis.
8. DEFAULT. The occurrence of any of the following events shall constitute
an Event of Default (herein so called) under this Agreement:
(a) any part of the Facility Debt is not paid when due, whether by lapse of
time or acceleration or otherwise.
(b) Borrower or any of its Subsidiaries fails to perform, observe or comply
with--or defaults under--any of the terms, covenants, conditions or provisions
of any Credit Document.
(c) any representation or warranty made in any Credit Document or in any
other report or other paper now or hereafter provided to any Lender or Agent
pursuant or incident to any Credit Document or the Facility Debt proves to have
been untrue or misleading in any material respect as of the date made or deemed
made.
(d) any of Borrower and its Subsidiaries: (i) voluntarily suspends
transaction of business; (ii) becomes insolvent or unable to pay its
Indebtedness as it matures; (iii) commences a voluntary case in bankruptcy or a
voluntary petition seeking reorganization or to effect a plan or other
arrangement with creditors; (iv) makes an assignment for the benefit of
creditors; (v) applies for or consents to the appointment of a receiver or
trustee for any such Person or for any substantial portion of its Property; or
(vi) makes an assignment to an agent authorized to liquidate any substantial
part of its assets.
(e) in respect of any of Borrower and its Subsidiaries: (i) an involuntary
case shall be commenced with any court or other authority seeking liquidation,
reorganization or a creditor's arrangement of any such Person; (ii) an order of
any court or other authority shall be entered appointing any receiver or trustee
for any such Person or for any substantial portion of its Property; or (iii) a
writ or warrant of attachment or any similar process shall be issued by any
court or other authority against any substantial portion of the Property of any
such Person and such petition seeking liquidation, reorganization or a
creditor's arrangement or such order appointing a receiver or trustee is not
vacated or stayed, or such writ, warrant of attachment or similar process is not
vacated, released or bonded off within sixty (60) days after its entry or levy.
(f) dissolution, liquidation or termination of Borrower or any of its
Subsidiaries, except as permitted in Section 7(b).
(g) any action, suit or proceeding shall be commenced against or affecting
any or involving the validity or enforceability of any Credit Document, at law
or in equity, or before any Governmental Authority, which in Majority Lenders'
reasonable judgment, impairs or might impair Lenders' ability to collect the
Facility Debt when due or the enforceability of any Credit Document.
(h) any one or more final judgments in the aggregate for the payment of
money in excess of $100,000 shall be rendered against Borrower or any of its
Subsidiaries and the same shall remain unstayed or undischarged for a period of
30 days or any appeal time provided by applicable law, if longer.
(i) Borrower or any of its Subsidiaries shall be prevented or relieved by
any Governmental Authority from performing or observing any material term,
covenant or condition of any Credit Document.
(j) any change shall occur in the Property, financial condition, business,
operations, affairs or circumstances of Borrower or any of its Subsidiaries
which materially adversely effects Borrower and its Subsidiaries taken as a
whole.
(k) Borrower or any of its Subsidiaries shall fail to pay when due any
principal of or interest on any borrowed money obligation or the holder of such
other obligation declares--or has the right to declare--such obligation due
before its stated maturity because of default; provided, that a default for
purposes of this Section 8(k) shall not be deemed to exist by reason of the
acceleration of the maturity of any such obligation solely by reason of a
default in the performance of a term or condition in any agreement or instrument
under or by which such obligation is created, evidenced or secured, which term
or condition restricts the right of Borrower or any other Person to sell, pledge
or otherwise dispose of any margin stock (as such term is defined in Regulation
U of the Board of Governors of the Federal Reserve System, or any entity
succeeding to all or any part of its functions)) held by Borrower or such other
Person.
(l) Borrower or any of its Subsidiaries shall be in default under or in
violation of any Legal Requirement of any Governmental Authority having
jurisdiction over it or any of its Property; or any Property of any such Person
shall be subject to any Remediation obligation or Environmental Claim which
causes Borrower or any of its Subsidiaries to incur Environmental Liabilities in
excess of $1,000,000.
(m) Borrower or any of its Subsidiaries shall have concealed, removed, or
permitted to be concealed or removed, any part of its Property, with intent to
hinder, delay or defraud any of its creditors, or made or suffered a transfer of
any of its Property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law, or shall have made any transfer of its Property to or
for the benefit of a creditor at a time when other creditors similarly situated
have not been paid, or, while insolvent, shall have suffered or permitted any
creditor to obtain a lien upon any of its Property through legal proceedings or
distraint which is not vacated with 30 days from its date.
(n) a Change of Control shall occur.
Upon the occurrence of any Event of Default, and at any time thereafter, the
obligation, if any, to make Loans shall cease and terminate, and Majority
Lenders shall have the right, at their option, to declare the Commitment
terminated (whereupon the Commitment shall be terminated) and to declare the
unpaid balance of the Indebtedness evidenced by the Notes to be immediately due
and payable without further notice (including notice of intent to accelerate and
notice of acceleration), protest or demand or presentment for payment, ALL OF
WHICH ARE HEREBY EXPRESSLY WAIVED BY BORROWER; provided, that in the case of the
occurrence of an Event of Default referred to in Section 8(d) or 8(e), the
Commitment shall be automatically terminated and the unpaid balance of the
Indebtedness evidenced by the Notes (principal and accrued and unpaid interest)
shall be and become automatically due and payable, without notice (including
notice of intent to accelerate and notice of acceleration) and without
presentment, demand or other formalities of any kind, all which are hereby
expressly WAIVED by Borrower; and acting through Agent, to enforce or exercise
any and all powers, rights and remedies available at law or provided in this
Agreement, the Notes, the other Credit Documents or any other document executed
pursuant hereto or in connection herewith.
9. LENDERS' RIGHT TO CURE. If Borrower should fail to comply with any of
its agreements, covenants or obligations under any Credit Document, Agent or any
Lender (in Borrower's name or in its own name) may (but shall have no obligation
to) perform them or cause them to be performed for Borrower's account and at
Borrower's expense. Any and all expenses thus incurred or paid by Agent or such
Lender shall be Borrower's obligations to such Person due and payable on demand,
or if no demand is sooner made, then they shall be due on or before four (4)
years after the respective dates on which they were incurred, and each shall
bear interest from the date such Person pays it until the date Borrower repays
it to such Person, at the Past Due Rate. Upon making any such payment or
incurring any such expense, such Person shall be fully and automatically
subrogated to all of the rights of the Person receiving such payment. The amount
and nature of any such expense and the time when it was paid shall be fully
established by the affidavit of Agent or the applicable Lender or any of such
Person's officers or agents. The exercise of the privileges granted to Agent and
Lenders in this Section shall in no event be considered or constitute a cure of
the default or a waiver of Agent's or any Lender's right at any time after an
Event of Default to declare the Notes to be at once due and payable, but is
cumulative of such right and of all other rights given by this Agreement, the
Notes and the Credit Documents and of all rights given Agent and Lenders by law
or in equity.
10. THE AGENT.
(a) Appointment. Each Lender hereby irrevocably appoints and authorizes
Agent to act on such Lender's behalf and to exercise such powers under the
Credit Documents as are specifically delegated to or required of Agent by the
terms thereof, together with such powers as are reasonably incidental thereto.
As to any matters not expressly provided for by the Credit Documents (including
enforcement or collection of the Notes), Agent shall not be required to exercise
any discretion or take any action, but shall be required to act or to refrain
from acting (and shall be fully protected in so acting or refraining from
acting) upon the instructions of Majority Lenders, and such instructions shall
be binding upon all Lenders and all holders of the Notes; provided that Agent
shall not be required to take any action which it reasonably believes may (1)
expose it to personal liability or (2) be contrary to the Credit Documents or
applicable Legal Requirements.
(b) Liability. Neither Agent nor any of its directors, officers, agents or
employees shall be liable for any action taken or omitted to be taken by it
under or in connection with the Credit Documents (1) with the consent or at the
request of Majority Lenders or (2) in the absence of its or their own gross
negligence or willful misconduct (IT BEING THE EXPRESS INTENTION OF LENDERS THAT
AGENT AND ITS DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES SHALL HAVE NO LIABILITY
FOR ACTIONS AND OMISSIONS UNDER THE CREDIT DOCUMENTS RESULTING FROM ITS OR THEIR
ORDINARY OR CONTRIBUTORY NEGLIGENCE). Without limiting the generality of the
foregoing, Agent (1) may treat the payee of each Note as the holder thereof
until it receives written notice of the assignment or transfer thereof, in
Proper Form and signed by such payee; (2) may consult with legal counsel
(including counsel for Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (3) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations made in or in connection with the Credit Documents, other than
those made by Agent in writing; (4) except as otherwise expressly provided
herein, shall not have any duty to ascertain or to inquire as to the performance
or observance of any of the terms, covenants or conditions of the Credit
Documents or to inspect the Property (including the books and records) of
Borrower; (5) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of the
Credit Documents, and (6) shall incur no liability under or with respect to the
Credit Documents by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telegram, telecopier, cable or telex)
reasonably believed by it to be genuine and signed or sent by the proper party
or parties. Neither of the Co-Agents (except in their capacity as Lenders) shall
have any duties or responsibilities or be subject to any liability under this
Agreement.
(c) TCB a Lender. With respect to its Loans and Notes, TCB shall have the
same rights and powers under the Credit Documents as any other Lender and may
exercise the same as though it were not Agent. The term "Lender" or "Lenders"
shall, unless otherwise expressly indicated, include TCB in its individual
capacity. TCB and its Affiliates may accept deposits from, lend money to, act as
trustee under indentures of, issue letters of credit for the account of, and
generally engage in any kind of business with, Borrower and any Person who may
do business with or own securities of Borrower, all as if it was not Agent and
without any duty to account therefor to Lenders. Without limiting the rights and
remedies of the Banks specifically set forth herein, no other Bank by virtue of
being a Bank hereunder shall have any interest in any such activities, any
present or future guaranty by or for the account of Borrower, any present or
future offset exercised by the Agent in respect of any such other activities, or
any present or future property at any time taken as security for any such other
activities; provided, however, that if any payment in respect of such guaranties
or such property or the proceeds thereof shall be applied to the indebtedness
under this Agreement, each Bank shall be entitled to share in such application
pro rata according to its portion of the indebtedness under this Agreement.
(d) Independent Review. Each Lender acknowledges and agrees that it has,
independently and without reliance upon Agent or any other Lender and based on
the financial statements referred to in Section 5(f) and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges and agrees
that it will, independently and without reliance upon Agent or any other Lender
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement.
(e) Indemnification. Agent shall not be required to take any action
hereunder or to prosecute or defend any suit in respect of the Credit Documents
unless indemnified to its satisfaction by Lenders against loss, cost, liability
and expense. If any indemnity furnished to Agent shall become impaired, it may
call for additional indemnity and cease to do the acts indemnified against until
such additional indemnity is given. In addition, Lenders agree to indemnify
Agent (to the extent not reimbursed by Borrower), ratably according to their
respective Percentages, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by, or asserted against Agent in any way relating to or arising out of the
Credit Documents or any action taken or omitted by Agent under the Credit
Documents; provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the gross negligence or willful
misconduct of Agent. EACH LENDER AGREES, HOWEVER, THAT IT EXPRESSLY INTENDS
UNDER THIS SECTION TO INDEMNIFY AGENT RATABLY AS AFORESAID FOR ALL SUCH
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,
COSTS, EXPENSES AND DISBURSEMENTS ARISING OUT OF OR RESULTING FROM THE SOLE OR
CONTRIBUTORY NEGLIGENCE OF AGENT. Without limitation of the foregoing, each
Lender agrees to reimburse Agent promptly upon demand for such Lender's
Percentage of any out-of-pocket expenses (including reasonable counsel fees)
incurred by Agent in connection with the preparation, execution, administration,
or enforcement of, or legal advice in respect of rights or responsibilities
under, the Credit Documents to the extent that Agent is not reimbursed for such
expenses by Borrower. The provisions of this Section shall survive the
termination of this Agreement and/or the payment or assignment of any of the
Notes.
(f) Knowledge of Defaults. Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless it
shall have received written notice from Borrower or a Lender referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default." If Agent receives such a notice, it shall give
notice thereof to Lenders; provided that if such notice is received from a
Lender, Agent also shall give notice thereof to Borrower. Agent shall be
entitled to take action or refrain from taking action with respect to such
Default or Event of Default as provided in this Section 10.
(g) Resignation; Removal. Agent may resign at any time by giving written
notice thereof to Lenders and Borrower, and may be removed as agent under the
Credit Documents at any time with or without cause by Majority Lenders. Upon any
such resignation or removal, Majority Lenders shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by Majority
Lenders and shall have accepted such appointment within 30 days after the notice
of resignation or removal, then the retiring Agent may, on behalf of Lenders,
appoint a successor, which shall be a commercial bank organized under the laws
of the United States or of any State thereof and having a combined capital and
surplus of at least $100,000,000. Upon the acceptance of any appointment as
Agent under the Credit Documents by a successor, such successor shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent shall be discharged from its duties
and obligations under the Credit Documents. After the resignation or removal of
Agent under the Credit Documents, the provisions of this Section 10 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Agent.
(h) Reliance by Borrower. In any case requiring approval or consent by
Majority Lenders, Borrower shall be entitled to rely on the written
representation by Agent that Agent has obtained such approval or consent.
11. PARTICIPATION; ASSIGNMENT. Each Lender reserves the right, in its sole
discretion, without notice to Borrower, to sell to any bank, savings and loan,
savings bank, credit union or other deposit-taking financial institution
participations in all or any part of such Lender's Loans, Notes or interest in
the Commitment in which event, the provisions of the Credit Documents shall
inure to the benefit of each purchaser of a participation, but the pro rata
treatment of payments and funding obligations hereunder shall be determined as
if such Lender had not sold such participation. Each Lender may assign any or
all or its rights and obligations under the Credit Documents to any Eligible
Assignee, if such assignment involves the Commitment or such Lender's Note, such
consent not to be unreasonably withheld; provided that (a) no such assignment
shall result in a Lender with an interest in the Commitment of less than
$5,000,000, and (b) each such assignment shall be substantially in the form of
Exhibit E, with the assignor to exchange its Note for a new Note and the
assignee to receive a new Note and with the assignor to have no further right or
obligation with respect to the rights and obligations assumed by the assignee.
Borrower agrees to cooperate with the prompt execution and delivery of documents
reasonably necessary to such assignment process, including the issuance of a new
Note to the assignor (if retaining an interest hereunder) and the assignee
immediately upon delivery to Borrower of the assignor's Note. Upon such
assignment, the assignee shall be a Lender for all purposes under the Credit
Documents and the Percentages (in each case as appropriate) and Percentages of
the assignor and assignee Lenders shall be adjusted appropriately.
12. USURY NOT INTENDED; SAVINGS PROVISIONS. Notwithstanding any provision
to the contrary contained in any Credit Document, it is expressly provided that
in no case or event shall the aggregate of any amounts accrued or paid pursuant
to this Agreement which under applicable laws are or may be deemed to constitute
interest ever exceed the maximum nonusurious interest rate permitted by
applicable Texas or federal laws, whichever permit the higher rate. In this
connection, Borrower and Lenders stipulate and agree that it is their common and
overriding intent to contract in strict compliance with applicable usury laws.
In furtherance thereof, none of the terms of this Agreement shall ever be
construed to create a contract to pay, as consideration for the use, forbearance
or detention of money, interest at a rate in excess of the maximum rate
permitted by applicable laws. Borrower shall never be liable for interest in
excess of the maximum rate permitted by applicable laws. If, for any reason
whatever, such interest paid or received during the full term of the applicable
Indebtedness produces a rate which exceeds the maximum rate permitted by
applicable laws, Lenders shall credit against the principal of such Indebtedness
(or, if such Indebtedness shall have been paid in full, shall refund to the
payor of such interest) such portion of said interest as shall be necessary to
cause the interest paid to Agent produce a rate equal to the maximum rate
permitted by applicable laws. All sums paid or agreed to be paid to Agent or any
Lender for the use, forbearance or detention of money shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread in
equal parts throughout the full term of the applicable Indebtedness, so that the
interest rate is uniform throughout the full term of such Indebtedness. The
provisions of this Section shall control all agreements, whether now or
hereafter existing and whether written or oral, between or among Borrower, Agent
and/or any Lender.
13. DOCUMENTATION REQUIREMENTS. Each written instrument required by this
Agreement, the Notes or the other Credit Documents to be furnished to Agent or
any Lender shall be duly executed by the person or persons specified (or where
no particular person is specified, by such person as Agent or such Lender shall
require), duly acknowledged where reasonably required by Agent or such Lender
and, in the case of affidavits and similar sworn instruments, duly sworn to and
subscribed before a notary public duly authorized to act by Governmental
Authority; shall be furnished to Agent or such Lender in one or more copies as
required by such Lender; and shall in all respects be in form and substance
satisfactory to Agent or such Lender and to its legal counsel.
14. SURVIVAL. All covenants, agreements, representations and warranties
made by Borrower in this Agreement, the other Credit Documents and any other
document executed pursuant hereto or in connection herewith, and in any
certificates or other documents or instruments delivered pursuant to this
Agreement, the other Credit Documents or any other document executed pursuant
hereto or in connection herewith shall survive the execution and delivery of
this Agreement, the other Credit Documents and the other documents executed
pursuant hereto or in connection herewith, and shall continue in full force and
effect until full payment of Facility Debt, complete performance of all of the
obligations of Borrower under the Credit Documents and final termination of
Lenders' obligations--if any--to make any further advances under the Notes or to
provide any other financial accommodation to Borrower (provided, however, that
all reimbursement obligations, indemnification and hold harmless obligations and
other similar obligations of Borrower under any of the Credit Documents shall
survive such payment, performance and termination). All such covenants,
agreements, representations and warranties shall be binding upon any successors
and assigns of Borrower, but any attempted assignment of any rights of Borrower
hereunder without the prior written consent of Majority Lenders shall be null
and void. No Person other than Borrower shall have any right or action hereon or
any rights to Loans at any time, the Loans shall not constitute a trust fund for
the benefit of any third parties and no third party shall under any
circumstances have or be entitled to any Lien or any trust impressed on any
undisbursed Loans.
15. BORROWER AGREES TO PAY OR REIMBURSE AGENT'S EXPENSES; INDEMNIFICATION.
To the extent not prohibited by applicable law, Borrower will pay all costs and
expenses and reimburse Agent for any and all reasonable expenditures of every
character incurred or expended from time to time, regardless of whether an Event
of Default shall have occurred, in connection with the preparation, negotiation,
documentation, closing, renewal, revision, modification, increase, review or
restructuring of any loan or credit facility secured by the Credit Documents,
including legal, accounting, auditing, architectural, engineering and inspection
services and disbursements, and shall pay Agent and Lenders for any and all
reasonable expenditures of every character incurred or expended in connection
with collecting or attempting to enforce or collect any Credit Document.
Provided, that no right or option granted by Borrower to Agent or any Lender or
otherwise arising pursuant to any provision of any Credit Document shall be
deemed to impose or admit a duty on Agent or any Lender to supervise, monitor or
control any aspect of the character or condition of any operations conducted in
connection therewith for the benefit of Borrower or any Person other than Agent
or such Lender. Borrower shall indemnify Agent, Lenders and each Affiliate
thereof and their respective directors, officers, employees and agents from, and
hold each of them harmless against, any and all losses, liabilities (including
Environmental Liabilities), claims (including Environmental Claims), expenses
(including reasonable attorneys' fees) or damages to which any of them may
become subject, insofar as such losses, liabilities, claims, expenses or damages
arise out of or result from (a) any actual or proposed use by Borrower of the
proceeds of any Loan made by any Lender or growing out of or resulting from any
Credit Document or any transaction or event contemplated therein; (b) violation
by Borrower or any of its Subsidiaries of any law, rule, regulation or order
including Environmental Laws; (c) any Lender or Agent being deemed an operator
of any of Borrower's real or personal Property by a court or other regulatory or
administrative agency or tribunal or other third party, to the extent such
losses, liabilities, claims or damages arise out of or result from any Hazardous
Substance, or (d) any investigation, litigation or other proceeding (including
any threatened investigation or proceeding) relating to any of the foregoing.
The obligations of the Borrower under this Section shall survive the termination
of this Agreement and the repayment of the Loans. Any amount to be paid under
this Section by Borrower to Agent or any Lender shall be a demand obligation
owing by Borrower to Agent or such Lender and shall bear interest from the date
of expenditure until paid at the Past Due Rate.
16. AMENDMENTS IN WRITING. This Agreement shall not be changed orally but
shall be changed only by agreement in writing signed by Borrower, Agent and all
Lenders. Any waiver or consent with respect to this Agreement shall be effective
only in the specific instance and for the specific purpose for which given. No
course of dealing between the parties, no usage of trade and no parol or
extrinsic evidence of any nature shall be used to supplement or modify any of
the terms or provisions of this Agreement.
17. NOTICES. Any notice, request or other communication required or
permitted to be given hereunder shall be given in writing by (a) delivering it
against receipt for it, (b) depositing it with an overnight delivery service or
by depositing it in a receptacle maintained by the United States Postal Service,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the respective parties at the addresses shown herein (and if so
given, shall be deemed given when mailed), or (c) by telecopy (provided, that
notice by telecopy is intended for the convenience of the Person giving such
notice and the Person receiving such notice may rely on, and shall not be liable
for acting or refraining from acting upon, any notice, instruction or request
purporting to have been signed or presented by the proper Person). Borrower's
address for notice may be changed at any time and from time to time, but only
after 30 days' advance written notice to Agent and Lenders and shall be the most
recent such address furnished in writing by Borrower to Agent and Lenders.
Agent's address for notice may be changed at any time and from time to time, but
only after ten days' advance written notice to Borrower and shall be the most
recent such address furnished in writing by Agent to Borrower and Lenders. Any
Lender's address for notice may be changed at any time and from time to time,
but only after ten days' advanced notice to Borrower, Agent and the other
Lenders and shall be the most recent such address furnished in writing by such
Lender to Borrower, Agent and the other Lenders. Actual notice, however and from
whomever given or received, shall always be effective when received.
Notwithstanding anything to the contrary contained in the Section, any notice
required or permitted to be given to Agent under Section 2 shall be effective
only when actually received by Agent. Notices given by telecopy shall be
effective on the day transmitted; provided, that telecopies transmitted after 5
p.m. Houston time shall be deemed sent on the next succeeding Business Day.
18. "INCLUDING" IS NOT LIMITING; SECTION HEADINGS AND REFERENCES; EXHIBITS,
ETC. Wherever the term "including" or a similar term is used in this Agreement,
it shall be read as if it were written "including by way of example only and
without in any way limiting the generality of the clause or concept referred
to." The headings used is this Agreement are included for reference only and
shall not be considered in interpreting, applying or enforcing this Agreement.
References in any Credit Document to paragraph or section numbers are references
to paragraphs or sections, as the case may be, to such Credit Document.
References in any Credit Document to Exhibits, Schedules, Annexes and Appendices
are to the Exhibits, Schedules, Annexes and Appendices to such Credit Document
and they shall be deemed incorporated into such Credit Document by reference.
19. OFFSET RIGHTS. Each Lender is hereby authorized at any time and from
time to time, without notice to any Person (and Borrower hereby WAIVES any such
notice) to the fullest extent permitted by law, to set-off and apply any and all
monies, securities and other Property of Borrower now or in the future in the
possession, custody or control of such Lender, or on deposit with or otherwise
owed to Borrower by such Lender--including all such monies, securities and other
Property held in general, special, time, demand, provisional or final accounts
or for safekeeping or as collateral or otherwise (but excluding those accounts
clearly designated as escrow or trust accounts held by Borrower for others
unaffiliated with Borrower)--against any and all of Borrower's obligations to
Agent or any Lender now or hereafter existing under this Agreement, irrespective
of whether any demand shall have made under this Agreement. Each Lender agrees
to use reasonable efforts to promptly notify Borrower after any such set-off and
application, provided that failure to give--or delay in giving--any such notice
shall not affect the validity of such set-off and application or impose any
liability on such Lender. Each Lender's rights under this Section are in
addition to other rights and remedies (including other rights of set-off) which
such Lender may have. Borrower is hereby authorized, without notice to any
Person (and Lenders hereby WAIVE any such notice), to set-off and apply against
any and all amounts from time to time owing to any Lender hereunder or under
such Lender's Note, any and all of such Lender's obligation to Borrower pursuant
to any general, special, time, demand, provisional or final account with such
Lender to the extent (but only to the extent) that such account is not insured
by the Federal Deposit Insurance Corporation and Borrower incurs a loss thereof
as a result of the bankruptcy, insolvency, liquidation, dissolution or other
cessation of business by such Lender. Borrower's rights under this Section are
in addition to other rights and remedies (including other rights of set-off)
which Borrower may have at law or in equity with respect to a failed financial
institution.
20. VENUE. THIS AGREEMENT IS PERFORMABLE IN HARRIS COUNTY, TEXAS, WHICH
SHALL BE A PROPER PLACE OF VENUE FOR SUIT ON OR IN RESPECT OF THIS AGREEMENT.
BORROWER IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING IN RESPECT OF THIS
AGREEMENT SHALL BE BROUGHT IN THE DISTRICT COURTS OF HARRIS COUNTY, TEXAS OR THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON
DIVISION (COLLECTIVELY, THE "SPECIFIED COURTS"). BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE
STATE OF TEXAS. BORROWER HEREBY 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 SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY
CREDIT DOCUMENT BROUGHT IN ANY SPECIFIED COURT, AND HEREBY FURTHER IRREVOCABLY
WAIVES ANY CLAIMS THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. BORROWER FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE SPECIFIED COURTS IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS AS
PROVIDED IN THIS AGREEMENT OR AS OTHERWISE PROVIDED BY TEXAS LAW. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF AGENT OR ANY LENDER TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST BORROWER IN ANY JURISDICTION OR TO SERVE PROCESS IN
ANY MANNER PERMITTED BY APPLICABLE LAW. BORROWER AGREES THAT A FINAL JUDGMENT IN
ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME
TO TIME IN EFFECT.
21. RIGHTS CUMULATIVE; DELAY NOT WAIVER. Agent's or any Lender's exercise
of any right, benefit or privilege under any of the Credit Documents or any
other papers or at law or in equity shall not preclude the concurrent or
subsequent exercise of Agent's or any Lender's other present or future rights,
benefits or privileges. The remedies provided in this Agreement are cumulative
and not exclusive of any remedies provided by law, the Credit Documents or any
other papers; provided, however, that to the extent of any conflict between any
provision of this Agreement and any provision contained in any Note, the other
Credit Documents or any other document executed pursuant hereto or in connection
herewith, the provisions of this Agreement shall control. Every power, right or
remedy of Agent or any Lender set forth in this Agreement, the Notes, the other
Credit Documents or any other document executed pursuant hereto or in connection
herewith, or afforded by law may be exercised from time to time, and as often as
may be deemed expedient by the Person entitled to enforce or exercise such. No
failure by Agent or any Lender to exercise, and no delay in exercising, any
right under any Credit Document or any other papers shall operate as a waiver
thereof.
22. ENTIRE AGREEMENT; FORMER AGREEMENT SUPERSEDED. This Agreement embodies
the entire agreement and understanding among Borrower and Agent and Lenders
relating to the subject matter hereof and supersedes all prior proposals,
agreements and understandings relating to such subject matter. The other Credit
Documents are incorporated herein by reference; however, in the event and to the
extent of any conflict, the provisions of this Agreement shall control. Without
limiting the effect of the foregoing provisions of this Section 22, this
Agreement supersedes all of the terms and provisions of that certain Loan
Agreement dated as of September 3, 1993, by and among Borrower, TCB individually
and as agent, and the financial institutions party thereto, as amended from time
to time (collectively, the "Superseded Loan Agreement"). All rights of Borrower
to request loans under the Superseded Loan Agreement are hereby terminated.
23. SEVERABILITY. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws, the legality, validity
and enforceability of the remaining provisions of this Agreement shall not be
affected thereby, and this Agreement shall be liberally construed so as to carry
out the intent of the parties to it. Each waiver in this Agreement is subject to
the overriding and controlling rule that it shall be effective only if and to
the extent that (a) it is not prohibited by applicable law and (b) applicable
law neither provides for nor allows any material sanctions to be imposed against
Agent or any Lender for having bargained for and obtained it.
24. RELEASE OF CLAIMS. Borrower hereby releases, discharges and acquits
forever Agent and Lenders and their respective officers, directors, trustees,
agents, employees and counsel (in each case, past, present or future) from any
and all Claims existing as of the date hereof (or the date of actual execution
hereof by Borrower, if later) including those arising pursuant to the Superseded
Loan Agreement and/or any of the Original Notes. As used herein, the term
"Claim" shall mean any and all liabilities, claims, defenses, demands, actions,
causes of action, judgments, deficiencies, interest, liens, costs or expenses
(including court costs, penalties, attorneys' fees and disbursements, and
amounts paid in settlement) of any kind and character whatsoever, including
claims for usury, breach of contract, breach of commitment, negligent
misrepresentation or failure to act in good faith, in each case whether now
known or unknown, suspected or unsuspected, asserted or unasserted or primary or
contingent, and whether arising out of written documents, unwritten
undertakings, course of conduct, tort, violations of laws or regulations or
otherwise.
25. COUNTERPARTS. This Agreement may be executed in several identical
counterparts, and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an original
instrument, and all such separate counterparts shall constitute but one and the
same instrument.
26. ASSIGNMENT TO FEDERAL RESERVE BANK. Notwithstanding any other language
in this Agreement, any Lender shall may at any time assign all or any portion of
its rights under this Agreement, its Note and the Credit Documents to a Federal
Reserve Bank as collateral in accordance with Regulation A and the applicable
operating circular of such Federal Reserve Bank.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE ss.26.02
THIS AGREEMENT, THE NOTES AND THE OTHER CREDIT DOCUMENTS AND ALL OTHER
CREDIT DOCUMENTS EXECUTED BY ANY OF THE PARTIES SUBSTANTIALLY CONCURRENTLY
HEREWITH CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
STEWART & STEVENSON SERVICES, INC.,
a Texas corporation
By:/s/ Robert L. Hargrave
Name:Robert L. Hargrave
Title:CEO
Address for Notices:
If by mail:
Stewart & Stevenson Services, Inc.
P. O. Box 1637
Houston, Texas 77251-1637
Attention: Chief Financial Officer
If by hand delivery or telecopy:
Stewart & Stevenson Services, Inc.
2707 North Loop West, 8th Floor
Houston, Texas 77008
Attention: Chief Financial Officer
Telecopier No. (713) 868-0208
TEXAS COMMERCE BANK
NATIONAL
ASSOCIATION, a national banking
association acting in its individual
capacity and as Agent for Lenders
named herein
By:/s/ Mona M. Foch
Name:Mona M. Foch
Title:Vice President
Address for Notices:
Texas Commerce Bank
National Association
712 Main Street
Houston, Texas 77002
Attention: Manager, Manufacturing and Oilfield
Services Division
Telecopy No. (713) 216-4227
Interest in
Maximum
Commitment: $50,000,000
BANK OF AMERICA ILLINOIS,
an Illinois banking association
as a Co-Agent and a Lender
By:/s/ Claire Liu
Claire Liu
Vice President
Address for Notices:
Bank of America Illinois
231 S. LaSalle Street
Chicago, Illinois 60697
Attention: Juanita Hester
Telecopy No.: (312) 974-9626
with a copy to:
Bank of America Illinois
333 Clay Street, Suite 4550
Houston, Texas 77002
Attention: Pamela Rodgers
Telecopy No.: (713) 651-4807
Interest in
Maximum
Commitment: $40,000,000
NATIONSBANK OF TEXAS, N.A., a national
banking association
By:/s/ Forest Scott Singhoff
Name:Forest Scott Singhoff
Title:Senior Vice President
Address for Notices:
NationsBank of Texas, N.A.
700 Louisiana
P.O. Box 2518
Houston, Texas 77252-2518
Attention: Corporate Banking Group
Telecopy No.: (713) 247-6360
Interest in
Maximum
Commitment: $40,000,000
ABN AMRO BANK N.V., HOUSTON AGENCY
By: ABN AMRO NORTH AMERICA, INC., its agent
By:/s/ Timothy M. Schneider
Name:Timothy M. Schneider
Title:Officer
By:/s/ Ronald A. Mahle
Name:Ronald A. Mahle
Title:Group Vice President & Director
Address for Notices:
ABN AMRO Bank N.V., Houston Agency
Three Riverway, Suite 1700
Houston, Texas 77056
Attention:
Telecopy No. (713) 629-7533
Interest in
Maximum
Commitment: $30,000,000
THE BANK OF NEW YORK,
a New York banking corporation
By:/s/ Gregory L. batson
Name:Gregory L. Batson
Title:Vice President
Address for Notices:
The Bank of New York
One Wall Street, 22nd Floor
New York, New York 10286
Attention:Alen Lyster, Jr.
Telecopy No.: (212) 635-6434
Interest in
Maximum
Commitment: $30,000,000
PNC BANK, NATIONAL
ASSOCIATION,
a national banking association
By:/s/ Tamara R. O'Connor
Name:Tamara R. O'Connor
Title:Vice President
Address for Notices:
PNC Bank, National Association
One Pnc Plaza
249 Fifth Avenue
MS P1-POPP-02-2
Pittsburgh, PA 15222-2707
Attn: Sally Hunter
Fax: (412) 768-4586
Interest in
Maximum
Commitment: $20,000,000
FIRST NATIONAL BANK OF
COMMERCE,
a national banking association
By:/s/ Joshua C. Cummings
Name:Joshua C. Cummings
Title:Relationship Manager
Address for Notices:
First National Bank of Commerce
210 Baronne Street, 2nd Floor
New Orleans, LA 70112
Attention: Joshua C. Cummings
Telecopy No.: (504) 561-1316
Interest in
Maximum
Commitment: $15,000,000
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into on the date of execution
hereof by and between STEWART & STEVENSON SERVICES, INC. (hereinafter "Lessee"),
a Texas corporation, and MILES McINNIS and FAYE TOTSCH (hereinafter referred to
as "Lessor"), individual residents of Texas.
ARTICLE 1. PREMISES
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the
premises situated in the City of Beaumont, Jefferson County, Texas, and more
particularly described in Exhibit A attached and made a part hereof. Said
premises together with all improvements thereon are hereinafter referred to as
the "Leased Premises".
ARTICLE 2. TERM
The term of this Lease Agreement shall begin on April 15, 1997, and shall
terminate at midnight on April 14, 2002, unless extended as provided below.
The term of this Lease Agreement may be extended, at the option of Lessee,
for five successive periods of one year, each such period of one year being
hereinafter referred to as an Extended Term, as follows:
First Extended Term - April 15, 2002 through April 14, 2003
Second Extended Term - April 15, 2003 through April 14, 2004
Third Extended Term - April 15, 2004 through April 14, 2005
Fourth Extended Term - April 15, 2005 through April 14, 2006
Fifth Extended Term - April 15, 2006 through April 14, 2007
Such options to extend the term of this Lease Agreement shall be exercised
by Lessee by the giving of written notice to Lessor not less than sixty days
prior to the expiration of the then existing term.
Each extended term shall be upon the same terms, covenants, and conditions,
with the same monthly rent payable, as provided in this Lease Agreement for the
initial term.
ARTICLE 3. PURCHASE OPTION
At any time from the date of execution of this Lease Agreement, Lessee may,
at its option, purchase the Leased Premises for a price to be agreed upon with
Lessor. Should the parties fail to agree upon such price, the price shall be
determined by appraisal. Lessor and Lessee shall each appoint one appraiser who
shall, in turn, jointly select a third appraiser. The three appraisers shall
appraise promptly the Leased Premises and the decision of any two appraisers as
to the purchase price for the Leased Premises shall be binding upon the parties.
ARTICLE 4. RENT
Without offset or deduction, Lessee shall pay Lessor at the address shown
in Article 18, or at such other address as Lessor may from time to time notify
Lessee in writing on the first day of each calendar month, monthly in advance,
for each and every month in the term hereof, the sum of Six Thousand Six Hundred
United States Dollars (U.S. $6,600.00). The monthly rent will be divided as
follows: 90.675% Miles McInnis and 9.325% Mrs. Faye Totsch.
ARTICLE 5. PAYMENT OF TAXES
Lessee, in addition to the rent and all other charges provided for in this
Lease Agreement, shall pay all taxes and assessments upon the Leased Premises
which are assessed during the existence of this Lease Agreement. All taxes
assessed prior to but payable in whole or in installments after the effective
date of this Lease Agreement and all taxes assessed during the existence of this
Lease Agreement but payable in whole or in installments after termination of
this Lease Agreement shall be adjusted and prorated so that Lessor shall pay its
prorated share for the period prior to the commencement and subsequent to the
termination of this Lease Agreement and Lessee shall pay its prorated share for
the duration of this Lease Agreement.
ARTICLE 6. UTILITY CHARGES
Lessee shall pay all charges for utilities used in and about the Leased
Premises. All such charges are to be paid by Lessee to the utility companies or
municipalities furnishing the same, before the same shall become delinquent.
ARTICLE 7. INSURANCE
Throughout the duration of this Lease Agreement, Lessee shall maintain fire
and casualty insurance equal to the replacement value of all structures and
fixtures situated upon the Leased Premises. Additionally, Lessee shall maintain
liability insurance protecting both Lessor and Lessee from claims by their
persons for personal injury and property damage.
ARTICLE 8. REPAIRS
At its own expense, Lessee shall perform all routine maintenance as is
reasonably necessary to keep the Leased Premises in good condition and repair
normal wear and tear excepted. Lessee agrees that all damages or injury done to
the Leased Premises shall be repaired by Lessee at Lessee's sole expense (other
than structural damage to the walls, roofs, and foundations not caused by
Lessee).
ARTICLE 9. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS
Lessee shall not make any alterations, additions, or improvements to the
Leased Premises without the prior written consent thereto by Lessor. All
alterations, additions, or improvements made by Lessee to the Leased Premises
shall become the property of Lessor at the termination of this Lease Agreement.
However, Lessee shall remove promptly, if Lessor so elects, all alterations,
additions, and improvements or any other property placed on the Leased Premises
by Lessee and Lessee shall repair any damages caused by such removal.
ARTICLE 10. ENTRY AND INSPECTION
Lessee shall permit Lessor to enter and to inspect the Leased Premises at
any time and shall permit Lessor to make whatever reasonable repairs Lessor
deems necessary to satisfy Lessee's obligations under Article 7 of this Lease
Agreement. Any such necessary repairs shall be charged to Lessee together with
interest at the rate of ten percent (10%) per annum from the time Lessor pays
for such repairs until the time Lessor is repaid by Lessee. The rights of Lessor
under this Article shall be exercisable without the rebate of any rent to Lessee
for the loss of any occupancy or quiet enjoyment of the Leased Premises
occasioned by such repairs.
ARTICLE 11. DESTRUCTION OF THE LEASED PREMISES
If the building situated upon the Lease Premises should be damaged or
destroyed by fire, tornado, or other casualty, Lessee shall give immediate
notice thereof to Lessor. If the building(s) situated on the Leased Premises
should be totally destroyed by fire, tornado, or other casualty or if the
building(s) should be so damaged that rebuilding or repair cannot be completed
within thirty days after the date the Lessor is notified by Lessee of such
damage or destruction, this Lease Agreement shall terminate at Lessee's
elections and the rent shall be abated effective with the date of such damage or
destruction. Lessor will rebuild or repair the Leased Premises promptly if
requested to do so by Lessee.
ARTICLE 12. CONDEMNATION OF THE LEASED PREMISES
If during the term of this Lease Agreement, all of the Leased Premises
should be taken for any public or quasi-public use under any governmental law,
ordinance, or regulation, or by right of eminent domain, or should be sold to
the condemning authority under threat of condemnation, this Lease Agreement
shall terminate effective as of the date of the taking of the Leased Premises by
the condemning authority or as of the date of the sale of the Leased Premises to
such authority.
If less, then all of the Leased Premises shall be taken for any public or
quasi-public use under any governmental law, ordinance, or regulation, or by
right of eminent domain, or should be sold to the condemning authority under
threat of condemnation, this Lease Agreement shall neither terminate nor shall
the rent be abated.
Lessor and Lessee shall each be entitled to receive and retain such
separate awards and portions of lump sum awards as may be allocated to their
respective interest in any condemnation proceedings. Termination of this Lease
Agreement will not affect the rights of the parties hereto to such awards.
ARTICLE 13. LIMITATION LIABILITY
Lessor shall not be liable for any injury or damage to the persons or
property of Lessee, its agents and employees, or to any other occupant of the
Leased Premises irrespective of how such injury or damage may be caused except
where such injury or damage is caused by Lessor or its agents in bad faith and
with the intent to cause such injury or damage.
ARTICLE 14. INDEMNITY
Except as to injury, death, or property damage proximately caused solely by
the negligence of Lessor for which Lessor is legally liable, Lessee agrees to
indemnify and to hold Lessor harmless from all claims, suit, actions, damages,
and liability (including attorney's fees and other expenses of defending against
all of the aforesaid) arising or alleged to have arisen from any act or
omissions or Lessee or Lessee's agent, employees, assignees, subleases,
contractors, customers, or invitees, or arising from any injury to or death of
any person(s) or damage to the property of any person(s) occurring on or about
the Leased Premises or on the sidewalks adjacent thereto. Lessee assumes full
responsibility for the condition of the Leased Premises except as otherwise
provided in this Lease Agreement, and agrees to use and to occupy the Leased
Premises and to place its fixtures, equipment, merchandise, and other property
therein at its own risk.
ARTICLE 15. ASSIGNMENT OR SUBLEASING
Lessee neither will assign his rights hereunder, nor sublease the Leased
Premises or any part thereof, nor mortgage, pledge, or hypothecate its leasehold
interest without the express prior written consent of Lessor which consent will
not be unreasonably withheld. In any case where Lessor consents to any
assignment, subleasing, or mortgage, pledge, or hypothecation of the leasehold,
Lessee will remain liable for all its obligations hereunder.
ARTICLE 16. REMEDIES
16.1 The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease Agreement by Lessee:
(a) The vacating or abandonment of the Leased Premises.
(b) Failure by Lessee to make any payment or rent or any other
payment required to be made by Lessee hereunder, as and when
due, when such failure shall continue for a period of ten days
after written notice thereof from Lessor to Lessee.
(c) The failure by Lessee to observe or to perform any of the
terms of this Lease Agreement other than described in
sub-article (b) above, where such failure shall continue for a
period of thirty days after written notice thereof from Lessor
to Lessee; provided, however, that if the nature of Lessee's
default is such that more than thirty days are reasonably
required for its cure, the Lessee shall not be deemed to be in
default if Lessee commences such a cure within the said
thirty-day period and thereafter diligently prosecutes such
cure to completion.
(d) (i) The making of Lessee of any general assignment or
general arrangement for the benefit of creditors;
(ii) The adjudication of Lessee as a bankrupt;
(iii) The appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at
the premises or of Lessee's interest in this Lease Agreement
where possession is not restored to Lessee within thirty days;
(iv) The attachment, execution, or other judicial seizure of
substantially of all of Lessee's assets located at the Leased
Premises or of Lessee's interest in this Lease Agreement,
where such seizure is not discharged within thirty days.
16.2 In the event of any such default by Lessee, Lessor may at any time
thereafter, with or without notice or demand and without limiting Lessor's
exercise of any right or remedy which Lessor may have reason of such default of
breach;
(a) Terminate Lessee's right to possession of the Leased Premises by
any lawful means in which case this Lease Agreement shall terminate and Lessee
shall immediately surrender possession of the Lease Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason or Lessee's default including, but not limited to, the cost of
recovering possession of the Leased Premises, expenses of reletting, including
necessary renovation and alteration of the Leased Premises, reasonable
attorney's fees, and any real estate commission actually paid; the worth at the
time of the award by the court having jurisdiction thereof of the amount of
which the unpaid rent for the balance of the term after the time of such award
exceeds the amount of such rental loss for the same period that Lessee proves
could be reasonably avoided; and that portion of the leasing commission paid by
lessor applicable to the unexpired term of this Lease Agreement. Unpaid
installments of rent or other sums shall bear interest from the date due at the
rate of ten percent per annum. In the event Lessee shall have abandoned the
Leased Premises, Lessor shall have the option of either retaking possession of
the Leased Premises and recovering from Lessee the amount specified in this
sub-article or proceeding under the following sub-articles set forth below.
(b) Maintain Lessee's right to possession, in which case this Lease
Agreement shall continue in effect whether or not Lessee shall have abandoned
the premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease Agreement, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws of the State of Texas.
ARTICLE 17. NON-WAIVER OF DEFAULT
The forbearance of the exercise of any right of Lessor arising
hereunder or the subsequent acceptance of rent hereunder by Lessor shall not be
deemed a waiver of any right of Lessor. All rights and remedies of Lessor
hereunder shall be cumulative and may be exercised and enforced concurrently
whenever and as often as occasion therefor arises.
ARTICLE 18. COMPLIANCE WITH THE LAW
Lessee, at its own cost and expense, shall comply with all applicable
laws, rules, regulations, and order of all federal, state, and municipal
governments and agencies.
ARTICLE 19. NOTICE
All notices to be given to Lessee by Lessor shall be in writing,
deposited in the United States mail, certified or registered, postage prepaid,
and addressed to Lessee at Stewart & Stevenson Services, Inc., P.O. Box 1637,
Houston, Texas 77001. All notices to be given to Lessor by Lessee shall be in
writing, deposited in the United States mail, certified or registered, postage
prepaid, and addressed to Lessor at 4113 San Carlos, Dallas, Texas 75205, to the
attention of Miles W. McInnis and Faye Totsch. Notices shall be deemed to be
delivered when deposited in the United States mail as above provided. Changes of
address of either party must be by notice given to the other party in the same
manner as above provided.
ARTICLE 20. PRIOR AGREEMENTS SUPERSEDED
This Lease Agreement constitutes the sole and only agreement between
the parties respecting the subject matter of this Lease Agreement and supersedes
any prior agreements and understandings, whether oral or written, including a
lease dated and beginning April 15, 1982, with monthly rental of $5,070.00.
ARTICLE 21. AMENDMENT
No amendment or alteration of the terms hereof shall be of any force
or effect unless the same shall be in writing, dated subsequent to the date of
execution hereof, and duly executed by the parties hereto.
EXECUTED this 7th day of April, 1997.
STEWART & STEVENSON SERVICES, INC.
By: /s/ C. Jim Stewart II /s/ Miles McInnis
/s/ Faye Totsch by
/s/ Joe Manning POA Faye Totsch
EXHIBIT 21.1
SUBSIDIARIES OF STEWART & STEVENSON SERVICES, INC.
<TABLE>
<CAPTION>
The following list sets forth the name of each subsidiary of the
Company, which is also the name under which such subsidiary does business:
<S> <C> <C>
Jurisdiction of Names under which
Incorporation business is
Or Organization conducted
C. Jim Stewart & Stevenson, Inc. Delaware Stewart & Stevenson
CPS International, Inc. Panama None
Creole Stewart & Stevenson, Inc. Delaware None
Sierra Detroit Diesel Allison, Inc. Nevada Stewart & Stevenson
Stewart & Stevenson Capital Corporation Texas Stewart & Stevenson
Stewart & Stevenson Development Services, Inc. Delaware Stewart & Stevenson
Stewart & Stevenson International, Inc. Delaware Stewart & Stevenson
Stewart & Stevenson International Sales, Inc. Barbados None
Stewart & Stevenson Operations, Inc. Delaware Stewart & Stevenson
Stewart & Stevenson Overseas, Inc. Texas None
Stewart & Stevenson Power, Inc. Delaware Pamco-Stewart & Stevenson
Stewart & Stevenson Project Services, Inc. Delaware Stewart & Stevenson
Stewart & Stevenson Realty Corporation Texas None
Stewart & Stevenson Technical Services, Inc. Delaware Stewart & Stevenson
Stewart & Stevenson Transportation, Inc. Texas None
Stewart & Stevenson (U.K.) Limited Scotland None
Stewart & Stevenson Vehicle Services, Inc. Delaware Stewart & Stevenson
Tokumei Kumiai Holdings, Inc. Delaware None
</TABLE>
The Company has additional subsidiaries which, if considered in the aggregate as
a single subsidiary, would not constitute a significant subsidiary.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in Registration Statement No. 33-21515 on Form S-8 dated April 28,
1988, Registration Statement No. 33-22463 on Form S-8 dated June 13, 1988,
Registration Statement No. 33-65404 on Form S-8 dated July 1, 1993, Registration
Statement No. 33-52881 on Form S-8 dated March 30, 1994, Registration Statement
No. 33-52903 on Form S-8 dated March 30, 1994, Registration Statement No.
33-54389 on Form S-4 dated June 30, 1994, Registration Statement No. 33-58679 on
Form S-8 dated April 18, 1995, Registration Statement No. 33-58685 on Form S-8
dated April 18, 1995, Registration Statement No. 333-02817 on Form S-8 dated
April 25, 1996, and Registration Statement No. 333-15271 on Form S-8 dated
October 31, 1996 of our report dated March 20, 1997 included in Stewart &
Stevenson Services, Inc.'s Form 10-K for the fiscal year ended January 31, 1997.
/s/ Arthur Andersen LLP
Houston, Texas
April 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC
FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERNCE TO SUCH FINANCIAL
STATEMENTS)
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Jan-31-1997
<CASH> 9,132
<SECURITIES> 0
<RECEIVABLES> 238,575
<ALLOWANCES> (1513)
<INVENTORY> 727,934
<CURRENT-ASSETS> 974,128
<PP&E> 262,192
<DEPRECIATION> (138,759)
<TOTAL-ASSETS> 1,145,285
<CURRENT-LIABILITIES> 320,559
<BONDS> 319,700
164,959
0
<COMMON> 0
<OTHER-SE> 314,309
<TOTAL-LIABILITY-AND-EQUITY> 1,145,285
<SALES> 1,187,161
<TOTAL-REVENUES> 1,187,161
<CGS> 1,020,591
<TOTAL-COSTS> 1,020,591
<OTHER-EXPENSES> 140,995
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,113
<INCOME-PRETAX> 25,575
<INCOME-TAX> 8,520
<INCOME-CONTINUING> 16,851
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,851
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
