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, 1999 ("Fiscal 1998") or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to ________
Commission file number 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. [X]
AGGREGATE MARKET VALUE OF VOTING SECURITIES HELD BY NONAFFILIATES AS OF
MARCH 2, 1999:
$200,174,184
NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS
OF MARCH 2, 1999:
COMMON STOCK, WITHOUT PAR VALUE 27,984,035 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF FORM 10-K
Proxy Statement for the 1999 Annual Meeting of Shareholders Part III
1
<PAGE>
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 the custom fabrication of
engine driven products. Stewart & Stevenson consists of three major business
segments: the Power Products segment, the Tactical Vehicle Systems segment, and
the Petroleum Equipment segment.
Effective as of January 31, 1998, the Company sold the net assets of its Gas
Turbine Operations Division ("GTO") to the General Electric Company ("GE").
Accordingly, the operating results of GTO have been segregated from continuing
operations and reported as a separate line item on the Consolidated Statement of
Earnings. The Company has restated its prior financial statements to present the
operating results of GTO as a discontinued operation and reorganized the
remaining businesses into the current business segments.
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 1998" commenced on
February 1, 1998 and ended on January 31, 1999. Identifiable assets at the close
of Fiscal 1998, 1997 and 1996, net sales and operating profit for such fiscal
years for the Company's business segments, export sales, and sales to customers
representing 10% or more of consolidated sales are presented in "Note 4: Segment
Data".
POWER PRODUCTS SEGMENT
The Power Products segment sells and rents various industrial equipment; sells
components, replacement parts, accessories and other materials supplied by
independent manufacturers; and provides in-shop and on-site repair services for
industrial equipment.
Some of the equipment sold or rented by the Power Products segment is acquired
by the Company from independent manufacturers pursuant to distribution
agreements. The following table contains the name of each significant
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>
EXPIRATION
MANUFACTURER PRODUCTS TERRITORIES DATE
- ------------ -------- ----------- ----------
<S> <C> <C> <C>
Detroit Diesel Heavy Duty High Speed Diesel Texas, Colorado, Northern California, New Mexico, 2001
Corporation Engines Wyoming, Nebraska, Louisiana, Mississippi,
("Detroit Diesel") Alabama, Venezuela and Colombia
Electro-Motive Division Heavy Duty Medium Speed Texas, Colorado, New Mexico, Nebraska, Oklahoma, 1999
of General Motors Diesel Engines Arkansas, Louisiana, Tennessee, Mississippi,
Corporation Kansas, Alabama, Mexico, Central America and most of
("EMD") South America
Allison Transmission Division On- and Off-Highway Automatic Texas, Colorado , Northern California, New Mexico, 2001
of General Motors Transmissions, Power Shift Wyoming, Nebraska, Louisiana, Mississippi,
Corporation ("Allison") Transmissions and Torque Converters Alabama, Venezuela and Colombia
Hyster Company Material Handling Equipment Texas *
John Deere Industrial Construction, Utility and Wyoming *
Equipment Company Forestry Equipment
Thermo King Transport Refrigeration Southeast Texas and Southern Louisiana 1999
Corporation Equipment
Waukesha Engine Natural Gas Industrial Engines Colorado, Northern California, Montana, North 2001
Division of Dresser Dakota, Oklahoma, Wyoming, New Mexico, Utah,
Industries, Inc. Oregon, Hawaii, Kansas, Arizona, California,
Washington, Nevada, Colombia and China
Kohler Company Spectrum Generator Sets Colorado, Southern Louisiana, New Mexico, Texas, *
and Wyoming
KHD - Deutz Corporation Diesel Engines Colorado, Wyoming, Arizona, New Mexico, *
Washington and Alaska, Texas, Oklahoma, Kansas,
Arkansas, Louisiana, Mississippi, Western Tennessee
</TABLE>
- ------------------------
* No expiration date. Agreements may be terminated by written notice of
termination.
2
<PAGE>
Distribution agreements generally require the Company to purchase and stock the
products for resale to end users, original equipment manufacturers, or
independent dealers within the franchise area of distribution. Such agreements
may contain provisions restricting sales of products outside of the franchised
territory and prohibiting the sale of competitive products within the franchise
territory.
The Power Products segment also sells custom generator sets, pump packages,
marine propulsion systems, and other engine-driven equipment. Generator sets
fabricated by the Company range in size from 25 kw to 12,700 kw. Pump packages,
marine propulsion systems and other engine-driven packaged equipment fabricated
by the Company range in size from 35 hp to 7,000 hp. Most generator sets and
other engine-driven packaged equipment are based upon diesel, dual fuel or
natural gas fueled engines supplied by independent manufacturers with whom the
Company has a distribution or packaging agreement. Such agreements do not
usually restrict the sale of packaged equipment to a franchised territory and
the products fabricated by the Company are sold on a world-wide basis.
The Company's major distribution agreements also require the Company to stock
repair parts, components, and accessories for resale to end users, either
directly by the Company or through a dealer network; and to provide after market
service support for distributed products within the franchised territory. The
Company also offers in-shop and on-site repair services for related equipment
manufactured by companies with whom it does not have a distribution agreement.
Power Product segment operations are conducted at branch facilities located in
major cities within the Company's franchised area of operations. New products
manufactured by suppliers, repair parts, components and accessories are marketed
under the trademarks and trade names of the original manufacturer. Products
fabricated by the Company and after market service are marketed under the
"Stewart & Stevenson" name and other trademarks, trade names, and service marks
owned by the Company.
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. Any interruption in the supply of
materials from the original manufacturers or a termination of a distributor
agreement could have a material effect on the performance of the Power Products
segment.
Operations of the Power Products segment accounted for approximately 46%, 50%
and 62%, respectively, of consolidated sales during Fiscal 1998, 1997 and 1996.
TACTICAL VEHICLE SYSTEMS SEGMENT
The Tactical Vehicle Systems segment assembles The Family of Medium Tactical
Vehicles ("FMTV") under contracts with the U. S. Army. The initial FMTV contract
was awarded in 1991 and called for the production of approximately 11,200 2
1/2-ton and 5-ton trucks in several configurations, including troop carriers,
wreckers, cargo trucks, van and dump trucks. Most of the production pursuant to
the original FMTV contract was completed as of January 31, 1999. During October
1998, the Company received a second set of multi-year contracts from the U.S.
Army that provides for continued production of the FMTV through Fiscal 2002,
with a one year option that would extend the contracts through Fiscal 2003. The
second FMTV contract incorporates an environmentally compliant engine, improved
diagnostics system, anti-lock brakes and other improvements. Production of
approximately 7,800 trucks and 1,500 trailers under the second contract is
expected to begin in the third quarter of Fiscal 1999. If all options are
exercised, the second contract will have a total value of $1.36 billion.
The U.S. Army has directed the Company to make certain changes in drive train
components of all vehicles produced under the first FMTV contracts. The Company
commenced the installation of the directed changes during the current fiscal
year and, subject to availability of vehicles, expects to complete the changes
by the end of Fiscal 2000. The financial responsibility for the cost of the
drive train change, as well as claims filed by the Company for the costs of
government caused delays and other government-directed changes under the first
FMTV contract, have not been resolved.
The Company also sells the FMTV to other government contractors as a platform
for installation of 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. The United States Government is the predominant customer of
the Tactical Vehicle Systems segment, accounting for practically all of the
sales of this segment. The FMTV contracts are subject to termination at the
election of this customer. The loss of this customer would have a material
adverse effect on the Company's consolidated future financial condition and
results of operations.
3
<PAGE>
The FMTV incorporates engines, transmissions, axles, and a number of other
components specified by the U.S. Army and available only from the source
selected by them. Interruption of the supply of any of these components could
affect the ability of the Company to deliver vehicles under the contract. The
Company believes that any delays arising from the unavailability of
source-specified components would be fully compensated under the FMTV contracts.
Operations of the Tactical Vehicle Systems segment accounted for approximately
38%, 36%, and 24%, respectively, of consolidated sales in Fiscal 1998, 1997, and
1996.
PETROLEUM EQUIPMENT SEGMENT
The Petroleum Equipment segment manufactures equipment for oil and gas
exploration, production, and well stimulation industries. Its products include
marine riser systems, blow-out preventers and controls, high pressure valves,
coil tubing systems, acidizing and fracturing systems, and compression molded
rubber products. Many of its products are manufactured according to proprietary
designs and are covered by appropriate process and apparatus patents. Other
products may be manufactured according to the designs or specifications of its
customers.
The Petroleum Equipment segment purchases many of the components incorporated
into its products from independent suppliers. Some of these components are
manufactured according to designs and specifications owned by the Company and
protected from disclosure by confidentiality arrangements. Other components are
standard commercial or oilfield products and may be acquired under the
distribution or packaging agreements as discussed under "Power Products Segment"
above. The Company believes that the Petroleum Equipment segment is not
dependent on a single supplier of any critical component.
The Company sells oilfield equipment under the "Stewart & Stevenson" trade name
and compression molded rubber products under the "H & H Rubber" trade name. All
of the Petroleum Equipment segment's products are sold world-wide. Demand for
oilfield equipment is substantially dependent on the price trends for crude oil.
Operations of the Petroleum Equipment segment represented 10%, 7%, and 7%,
respectively, of consolidated sales during Fiscal 1998, 1997, and 1996.
OTHER BUSINESS ACTIVITIES
The Company is engaged in other business activities that are not included in any
of its three major business segments. Other businesses include airline ground
support equipment (including tow tractors, air start units, electrical ground
power units, air conditioning units, and baggage handling equipment),
fabrication of gas compression equipment, and operating gas compression
equipment under maintenance or lease agreements.
COMPETITION
The Company encounters strong competition in all segments of its business.
Competition involves pricing, quality, availability, range of products and
services, and other factors. Some of the Company's competitors have greater
financial resources than Stewart & Stevenson and manufacture some of the major
components that the Company must buy from independent suppliers. The Company
believes that its reputation for quality engineering and after-sales service,
with single-source responsibility, are important to its market position.
The Power Products 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. No single competitor
competes against the Company's Power Products segment in all of its businesses,
but certain competitors may have a dominant position in different product areas.
Major competitors in the sale of packaged diesel and gas-fired reciprocating
equipment include Caterpillar, Inc. and its distributors, and Waukesha Diesel
Group and its distributors.
The Tactical Vehicle Systems segment competes with domestic companies for
incremental sales to the U.S. Armed Forces. Two other truck manufacturers have
received government funding to qualify as a second potential source for the FMTV
and may compete for incremental sales to the U.S. Army. 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 companies
that have greater international recognition as vehicle manufacturers.
The Petroleum Equipment segment competes primarily with other manufacturers of
similar equipment. Products are differentiated by protected technology and no
manufacturer has a dominant position in any product line. Major competitors
include Cooper
4
<PAGE>
Cameron Corporation in blow-out preventers and valves, ABB Vetco, Inc. in riser
systems, Caterpillar, Inc. and Halliburton Corporation in fracturing and
acidizing equipment, and Tuboscope Corporation in coil tubing systems.
INTERNATIONAL OPERATIONS
International operations are subject to the risks of international political and
economic changes, such as changes in foreign governmental policies, currency
exchange rates, and inflation. The Company maintains operations in various
foreign jurisdictions, some of which may be considered politically or
economically volatile. Where appropriate to avoid risk of loss of a material
asset, the Company purchases insurance against political risks.
International sales are also subject to changes in exchange rates, government
policies, 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.
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 relating to continuing operations at the close of Fiscal 1998
and Fiscal 1997 were as follows:
ESTIMATED
PERCENTAGE TO BE UNFILLED ORDERS AT
RECOGNIZED IN -------------------
FISCAL 1999 1/31/99 1/31/98
----------------- -------- ---------
(Dollars in millions)
Tactical Vehicle Systems 17% $ 991.7 $ 487.0
Power Products 100 69.9 69.6
Petroleum Equipment 100 38.6 44.7
All Other 100 17.9 12.8
-------- ---------
$1,118.1 $ 614.1
======== =========
Unfilled orders of the Tactical Vehicle Systems segment at January 31, 1999
consisted principally of a follow-on contract awarded in October 1998 by the
United States Department of Defense to manufacture medium tactical vehicles for
the U.S. Army.
EMPLOYEES
At January 31, 1999, the Company employed approximately 4,240 persons. The
Company considers its employee relations to be satisfactory.
ITEM 2. PROPERTIES.
The Company maintains its corporate executive and administrative offices at 2707
North Loop West, Houston, Texas, which occupy about 65,000 square feet of space
leased from a limited partnership in which the Company owns an 80% interest.
Activities of the Power Products segment are coordinated from Houston, where the
Company owns 320,000 square feet of space at three locations and leases 44,900
square feet in two locations devoted to equipment and parts sales and service.
To service its distribution territory (See "Item 1. Business -- Power Products
Segment"), Stewart & Stevenson maintains Company-operated facilities occupying
656,000 square feet of owned space and 430,000 square feet of leased space in 28
cities in Texas, Louisiana, Colorado, New Mexico, Wyoming, Utah, North Dakota,
Kansas, Washington, Georgia, California, Mississippi, Arizona and Arkansas.
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 123,000 square feet of warehousing facilities in Houston, Texas and
leases 24,000 square feet in Sealy, Texas. The Petroleum Equipment segment is
headquartered in Houston, where the Company owns approximately 300,000 square
feet devoted to manufacturing, warehousing and administration. The Company also
owns a high pressure valve manufacturing facility in Jennings, Louisiana (89,000
square feet) and has facilities in Scotland (20,000 sq. feet) and Abu Dhabi,
U.A.E. (12,000 sq. feet).
5
<PAGE>
The Company provides central manufacturing for power products and assembles
airline, compression, and railcar movers in a 407,000 square foot company owned
facility in Houston, Texas. Airline products are also assembled in an 89,000
square foot company-owned facility in Kennesaw, Georgia. The Company also leases
an additional 59,300 square feet of office, warehouse and shop space to support
its marketing department, corporate records, and a transportation department.
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.
During Fiscal 1998, the U.S. Customs Service detained a medium tactical vehicle
that was being shipped by the Company for display in a European trade show. The
Company has been advised that the U.S. Customs Service and the Department of
Justice are investigating potential violations by the Company of laws relating
to the export of controlled military vehicles, weapons mounting systems, and
firearms. Such investigation could result in the filing of criminal, civil, or
administrative sanctions against the Company and/or individual employees and
could result in a suspension or debarment of the Company from receiving new
contracts or subcontracts with agencies of the U.S. Government or the benefit of
federal assistance payments.
The Company is also a defendant in a number of lawsuits relating to contractual,
product liability, personal injury, and warranty matters normally incident to
the Company's business. No individual case, or group of cases presenting
substantially similar issues of law or fact, involve a claim for damages in
excess of $5,000,000 or are expected to have a material effect on the manner in
which the Company conducts its business. Although management has established
reserves that it believes to be adequate in each case, an unforeseen outcome in
such cases could have a material adverse impact on the results of operations in
the period it occurs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
6
<PAGE>
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 712 shareholders of record as of February 26, 1999. 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.
FISCAL FISCAL
1998 1997
------------------------------ ------------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
-------- -------- -------- -------- -------- --------
First Quarter $26 3/16 $22 1/4 $ 0.085 $27 1/2 $19 3/8 $ 0.085
Second Quarter 22 1/8 17 1/4 0.085 28 3/8 23 3/8 0.085
Third Quarter 17 1/4 9 3/4 0.085 29 1/4 21 0.085
Fourth Quarter 14 1/4 8 7/16 0.085 26 3/16 20 7/8 0.085
On December 8, 1998, the Board of Directors approved a dividend of $.085 per
share for shareholders of record on January 31, 1999, payable on February 12,
1999. 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. Certain covenants in the Company's loan agreements may restrict
the payment of future dividends. See "Note 9: Debt Arrangements".
7
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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". The Company has restated its prior financial statements to present
the operating results of the GTO as a discontinued operation.
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED FINANCIAL REVIEW
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Sales $ 1,206,772 $ 1,115,034 $ 825,187 $ 702,324 $ 596,003
Earnings (loss) from continuing operations
before income taxes (61,711) (22,190) 6,651 32,892 27,323
Net earnings (loss) from continuing operations (1) (39,005) (14,505) 4,768 20,698 16,215
Net earnings (loss) from discontinued operations -- 5,424 12,083 41,105 51,343
Gain (loss) on discontinued operations (33,979) 61,344 -- -- --
Net earnings (loss) (72,984) 52,263 16,851 61,803 67,588
Total assets 705,777 1,252,647 1,079,159 948,626 786,520
Short-Term Debt (including current portion
of Long-Term Debt) 86,956 261,000 29,100 66,100 43,344
Long-Term Debt 83,530 147,166 319,700 210,800 116,900
PER SHARE DATA:
Earnings (loss) from continuing operations $ (1.34) $ (.44) $ .14 $ .63 $ .49
Earnings (loss) from discontinued operations -- .16 .37 1.24 1.56
Gain (loss) on discontinued operations (1.17) 1.85 -- -- --
----------- ----------- ----------- ----------- -----------
Net earnings (loss) per share - Basic and Diluted $ (2.51) $ 1.57 $ .51 $ 1.87 $ 2.05
Weighted average number of shares of common stock outstanding
Basic 29,006 33,184 33,068 33,035 32,973
Diluted 29,006 33,250 33,090 33,101 33,123
Cash dividends declared $ .34 $ .34 $ .335 $ .31 $ .27
</TABLE>
- ------------------
(1) The net earnings (loss) from continuing operations for Fiscal 1998,
1997 and 1996 includes special items, net of tax, of $50,632, $29,696 and
$13,000, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
8
<PAGE>
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. The following discussion may
contain forward-looking statements. In connection therewith, please see the
cautionary statements contained herein, which identify important factors that
could cause actual results to differ materially from those in the
forward-looking statements.
BUSINESS SEGMENT HIGHLIGHTS
(DOLLARS IN THOUSANDS)
The following tables present the contribution to sales and operating profit from
each of the Company's business segments. Business segment data for prior years
have been restated to reflect the Company's current business segments as well as
other items that comprise earnings (loss) from continuing operations before
taxes.
SALES
------------------------------------------
FISCAL FISCAL FISCAL
1998 1997 1996
---------- ---------- ----------
Power Products $ 555,507 $ 558,393 $ 508,779
Tactical Vehicle Systems 455,399 396,734 200,916
Petroleum Equipment 115,800 83,096 57,406
Other Business Activities 80,066 76,811 58,086
---------- ---------- ----------
Total Segment Sales $1,206,772 $1,115,034 $ 825,187
========== ========== ==========
OPERATING PROFIT
------------------------------------
FISCAL FISCAL FISCAL
1998 1997 1996
-------- -------- --------
Power Products $ 23,638 $ 34,120 $ 31,081
Tactical Vehicle Systems (77,717) (10,005) 10,597
Petroleum Equipment 10,245 5,695 2,419
Other Business Activities (5,106) (5,333) 3,018
-------- -------- --------
Total Operating Profits (48,940) 24,477 47,115
Corporate expenses, net (11,452) (9,816) (9,910)
Non-operating interest income 10,925 1,941 1,920
Interest expense (12,244) (15,440) (12,474)
Special items -- (23,352) (20,000)
-------- -------- --------
Earnings (loss) from continuing
operations before taxes $(61,711) $(22,190) $ 6,651
======== ======== ========
OPERATING PROFIT AS A PERCENTAGE OF SALES
-----------------------------------------
FISCAL FISCAL FISCAL
1998 1997 1996
---------- ---------- ----------
Power Products 4.3% 6.1% 6.1%
Tactical Vehicle Systems (17.1) (2.5) 5.3
Petroleum Equipment 8.8 6.9 4.2
Other Business Activities (6.4) (6.9) 5.2
Consolidated (5.1) 2.2 5.7
9
<PAGE>
SPECIAL ITEMS
Special items are infrequent transactions that may affect comparability of the
results of continuing operations between years. The special items included in
the Fiscal 1998, 1997, and 1996 results are shown below:
PRETAX CHARGE (BENEFIT)
(DOLLARS IN THOUSANDS) FISCAL FISCAL FISCAL
1998 1997 1996
-------- -------- --------
Tactical Vehicle Systems
Estimated costs associated with a
government directive $ 40,000 $ -- $ --
Charge related to a series
of claims 36,849 -- --
Change in estimated profit
at completion 9,700 26,703 --
Power Products
Gain on sale of construction
equipment franchise -- (4,369) --
Other Business Activities
Interest income on proceeds from
sale of gas turbine business (8,654) -- --
Litigation and special changes -- 23,352 20,000
-------- -------- --------
Pretax charge 77,895 45,686 20,000
Tax benefit (35% tax rate assumed) 27,263 15,990 7,000
-------- -------- --------
Special items net of tax $ 50,632 $ 29,696 $ 13,000
======== ======== ========
RESULTS OF OPERATIONS
FISCAL 1998 VS. FISCAL 1997
Sales for Fiscal 1998 totaled $1,207 million, an increase of 8% over Fiscal 1997
sales of $1,115 million. The Company reported a $49 million operating loss for
Fiscal 1998 compared with a $24 million operating profit for Fiscal 1997.
The Power Products segment recorded sales of $556 million during Fiscal 1998,
virtually flat when compared with Fiscal 1997 sales of $558 million. Sales were
affected by several factors. In particular, sales were higher as a result of
recent business acquisitions, but such increase was offset by (1) lower
equipment, parts, and services sales in branches supplying the petroleum
industry (due primarily to depressed oil and gas prices) and (2) the sale of the
Company's construction equipment business in Fiscal 1997. Operating profits in
the Power Products segment for Fiscal 1998 totaled $24 million compared with $34
million for the prior year. Operating profits decreased as a result of weakness
in the petroleum industry, increased reserves for exposures in accounts
receivable and inventory from the decline in the financial condition of the
petroleum industry, and increased costs arising out of recent business
acquisitions.
The Tactical Vehicle Systems segment recorded sales of $455 million in Fiscal
1998, an increase of $59 million (15%) over Fiscal 1997. An operating loss of
$78 million was recorded for the current year and included: (1) a $40 million
charge for estimated costs associated with a government directive to make
certain changes in the drive train components of the FMTV; (2) a $37 million
charge related to a series of claims for additional costs arising from
government caused delays and changes; and (3) a $10 million charge to cost of
sales relating to cost overruns and superseded materials on the original
contract. The Tactical Vehicle Systems segment reported an operating loss of $10
million in Fiscal 1997. For further explanation, see "Factors That May Affect
Future Results - Business Outlook".
The Petroleum Equipment segment achieved sales and operating profits of $116
million and $10 million, respectively, for Fiscal 1998, which compared favorably
with Fiscal 1997 sales of $83 million and profits of $6 million. This segment
reported sustained quarter-to-
10
<PAGE>
quarter improvement during Fiscal 1998, largely on the strength of new product
introductions such as marine riser systems. Consequently, this segment was less
vulnerable to the impact of depressed oil and gas prices because of its
relatively strong position in deep water exploration products.
All other business activities not defined as a specific segment included airline
ground support equipment, leased gas compression equipment and related services,
and other miscellaneous sales. Sales for these activities totaled $80 million
for Fiscal 1998, compared to $77 million for Fiscal 1997. Net losses for both
1998 and 1997 totaled $5 million. Airline product sales continue to feel the
effects of the weak Asian market, with an offsetting increase from the recent
acquisition of Tug Manufacturing Corporation in late December 1998. Lower gas
compression revenues were more than offset by higher miscellaneous sales. Both
years were impacted by under-recovered costs associated with the restructuring
of pooled manufacturing facilities. In addition, Fiscal 1998 included startup
costs in the gas compression leasing and services business, and the airline
ground support equipment business incurred substantial product development costs
in Fiscal 1998, and asset write-offs and product warranty charges in Fiscal
1997.
FISCAL 1997 VS. FISCAL 1996
Sales for Fiscal 1997 increased 35% to $1,115 million compared to sales of $825
million for Fiscal 1996. Operating profits decreased to $24 million in 1997 from
$47 million in 1996.
The Power Products segment sales increased $50 million or 10% to $558 million,
which included $30 million in revenue from the acquisition of Sierra Detroit
Diesel Allison, Inc. in California. The Power Products segment reported a $34
million operating profit in 1997 including a $4 million gain from the sale of
the construction equipment franchise in Houston, Texas. The operating profit for
Fiscal 1996 was $31 million.
The Tactical Vehicle Systems segment had sales of $397 million in Fiscal 1997, a
97% increase from the prior year. This increase reflected the achievement of a
high rate of truck production during Fiscal 1997. The Tactical Vehicle System
segment recorded an operating loss of $10 million for Fiscal 1997, which
included the impact of a change in the estimated profit at completion of its
principle contract with the U.S. Army. The cumulative impact of this change was
a charge to cost of sales of $27 million.
Sales in the Petroleum Equipment segment amounted to $83 million in 1997
compared with $57 million in 1996. Operating profit for Fiscal 1997 was $6
million versus $2 million in 1996. Sales growth was largely attributable to the
introduction of a new marine riser product. However, increased margins from the
higher sales were offset by $2.4 million in asset write-downs in 1997.
All other business activities not defined as a specific segment included airline
ground support equipment, leased gas compression equipment and related services,
and other miscellaneous sales. Sales for these activities totaled $77 million
for 1997, compared with $58 million for 1996. Net loss for 1997 totaled $5
million compared with an operating profit of $3 million in 1996. Entrance into
the gas compression business accounted for most of the sales increase in 1997.
The restructuring of certain pooled manufacturing facilities and decreased
profitability in airline ground support equipment accounted for the decline in
profitability in 1997.
<TABLE>
<CAPTION>
NET PERIOD EXPENSES
FISCAL FISCAL FISCAL
(DOLLARS IN THOUSANDS) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Selling and administrative expenses $ 90,857 $ 75,619 $ 67,163
Interest expense 12,244 15,440 12,474
Settlement of litigation and
special charge -- 23,352 20,000
Gain on sale of construction
equipment franchise -- (4,369) --
Other income, net (12,706) (4,867) (3,571)
--------- --------- ---------
$ 90,395 $ 105,175 $ 96,066
========= ========= =========
Net period expenses as a percentage
of sales 7.5% 9.4% 11.6%
========= ========= =========
</TABLE>
11
<PAGE>
Net period expenses for Fiscal 1998 totaled $90 million or 7.5% of sales
compared with $105 million or 9.4% of sales in Fiscal 1997. Selling and
administration expenses increased $15 million (20%) during 1998 largely due to
recent business acquisitions and startups, as well as volume related costs
associated with the Petroleum Equipment segment. The $3 million decrease in
interest expense in 1998 resulted from a reduction in borrowings accomplished
with funds received from sale of the GTO. Net period expenses increased 9% in
Fiscal 1997 from 1996, which was substantially less than the 35% increase in
sales. Selling and administrative growth was modest, reflecting the better
utilization of existing infrastructure. Interest expense grew by 24% in Fiscal
1997 as additional borrowings were obtained to fund the growth in working
capital needs.
Special charges in Fiscal 1997 totaled over $23 million including (1) $10
million in expenses relating to the Company's resolution of certain litigation
relating to a 1987 contract to supply diesel generator sets, and (2) $13 million
associated with settling a claim by the Company for excessive costs incurred on
a U.S. Government contract.
On October 6, 1997, the Company sold its construction equipment franchise for
$30 million and recognized a gain on the sale of $4 million. The construction
equipment franchise operated in the gulf coast territory of Texas and primarily
distributed, and provided services for, products manufactured by John Deere
Construction Equipment Company and other companies engaged in the business of
manufacturing earth moving equipment, forestry equipment, skidsteer equipment
and utility equipment.
Other income, net, for 1998 included approximately $9 million in interest income
earned on proceeds from sale of GTO.
NET EARNINGS (LOSS)
FISCAL FISCAL FISCAL
(DOLLARS IN THOUSANDS) 1998 1997 1996
-------- -------- --------
Continuing operations $(39,005) $(14,505) $ 4,768
Discontinued operations (33,979) 66,768 12,083
-------- -------- --------
Total earnings (loss) $(72,984) $ 52,263 $ 16,851
======== ======== ========
The loss from continuing operations for Fiscal 1998 was $39 million versus a
loss of $15 million in Fiscal 1997 and a profit of $5 million in Fiscal 1996.
All three years had special items which significantly impacted performance. See
"Special Items". Excluding special charges, net of tax, after tax of $51 million
in Fiscal 1998, $30 million Fiscal 1997, and $13 million in 1996, net profit of
continuing operations for Fiscal 1998, 1997 and 1996 would have been $12
million, $15 million and $18 million, respectively.
The total loss for Fiscal 1998 was $73 million or $2.51 per share versus profits
of $52 million or $1.57 per share in Fiscal 1997 and $17 million or $.51 per
share in 1996.
DISCONTINUED OPERATIONS
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS
FISCAL FISCAL FISCAL
(DOLLARS IN THOUSANDS) 1998 1997 1996
-------- -------- --------
Net earnings (loss) $ -- 5,424 $ 12,083
Gain (loss) $(33,979) 61,344 --
-------- -------- --------
$(33,979) $ 66,768 $ 12,083
======== ======== ========
During Fiscal 1997, the Company completed the sale of the net assets of GTO to
GE for $600 million, with subsequent downward adjustments of $84 million in
Fiscal 1998. The Company used these funds to retire $260 million of debt,
repurchase $120 million of its outstanding stock, and acquire four businesses at
a cost of approximately $34 million.
In the fourth quarter of Fiscal 1998, it became probable that the Company would
be required to perform under a debt guaranty related to a power generation
facility in Argentina. Accordingly, the Company recorded an estimated obligation
of $14.0 million, net of tax. The guaranty arose as part of the Company's GTO
and the charge has been reflected in results from discontinued operations. Also
in Fiscal 1998, the Company recorded an after tax charge, net of accruals, of
$20 million relating to certain contractual purchase price adjustments. The net
loss from discontinued operations in Fiscal 1998 totaled $34.0 million and
represented the equivalent of $1.17 per share.
12
<PAGE>
FINANCIAL CONDITION
WORKING CAPITAL
JANUARY 31, JANUARY 31,
(DOLLARS IN THOUSANDS) 1999 1998
----------- -----------
Current Assets
Cash and equivalents $ 12,959 $ 18,987
Accounts and notes receivable, net 164,547 185,033
Recoverable costs and accrued
profits not yet billed 99,097 138,208
Income tax receivable 48,596 --
Inventories 215,202 167,577
Receivable from sale of assets of
Gas Turbine Operations -- 600,000
----------- -----------
Total Current Assets 540,401 1,109,805
Current Liabilities
Notes payable 17,468 35,000
Accounts payable 83,127 92,728
Accrued payrolls and incentives 17,123 18,693
Income tax 2,931 88,862
Current portion of long-term debt 69,488 226,000
Other accrued liabilities 95,349 100,819
----------- -----------
Total Current Liabilities 285,486 562,102
----------- -----------
Working Capital $ 254,915 $ 547,703
=========== ===========
Current Ratio 1.89:1 1.97:1
Current assets of continuing operations, excluding the $600,000 receivable from
the Fiscal 1997 sale of GTO, increased from $509,805 to $540,401. Accounts
receivable decreased $20 million or 11% despite an increase in sales during the
comparable period of 8%, reflecting management's effort to improve the cash
collection cycle time. Recoverable costs declined $39 million or 28% primarily
reflecting the liquidation of the Tactical Vehicle Systems contract which was
substantially completed during Fiscal 1998. Current assets at the end of Fiscal
1998 included a $49 million income tax receivable which will be realized from
the future tax benefits associated with certain accrued reserves discussed in
the results of operation. Inventories grew by $48 million or 28%, reflecting
both inventories obtained with acquired businesses and over-stocking in certain
business units where planned sales growth did not materialize. The $600 million
receivable from the sale of GTO was collected in February 1998.
Current liabilities were reduced significantly at the end of Fiscal 1998
compared to Fiscal 1997 by the re-payment of notes payable and the current
portion of long-term debt with proceeds from sale of the GTO. The decrease in
current income taxes during Fiscal 1998 was primarily attributable to payment of
taxes associated with the sale of GTO and contract tax accounting methods. Other
accrued liabilities at the end of Fiscal 1998 were comprised primarily of the
amounts accrued both to perform government directed changes under the FMTV
program and to partially perform under a guarantee related to a retained
obligation of the GTO. Other accrued liabilities at the end of Fiscal 1997
consisted primarily of amounts accrued for certain contractual obligations
stipulated by the GTO sale agreement and estimated retained liabilities of GTO.
The Company's current ratio remained relatively unchanged at 1.89 at the end of
Fiscal 1998.
13
<PAGE>
LONG LIVED ASSETS
JANUARY 31, JANUARY 31,
(DOLLARS IN THOUSANDS) 1999 1998
----------- -----------
Property, plant, and equipment $ 101,029 $ 85,803
Revenue earning assets, net 27,716 11,941
Deferred income tax asset 7,904 --
Investments and other assets 28,727 45,098
----------- -----------
$ 165,376 $ 142,842
=========== ===========
The growth in property, plant and equipment during Fiscal 1998 included
expenditures for plant enhancements, and property plant and equipment purchases
in connection with certain businesses acquisitions. The change in revenue
earning assets resulted primarily from the entry into and expansion of the gas
compression rental business. At the end of Fiscal 1998, the Company recorded
deferred tax assets representing the future tax benefits of certain accrued
long-term reserves which will become deductible under the applicable tax
regulations in a future period. The decline in investments and other assets
during Fiscal 1998 was principally the result of a reduction in the long-term
portion of notes receivable.
CAPITAL STRUCTURE
(DOLLARS IN THOUSANDS) JANUARY 31, 1999 JANUARY 31, 1998
---------------------- ----------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------- ---------- -------- ----------
Long-Term Debt $ 83,530 20% $147,166 21%
Other Long-Term Liabilities 16,398 4 21,672 3
Shareholders' Equity 320,363 76 521,707 76
-------- ---------- -------- ----------
$420,291 100% $690,545 100%
======== ========== ======== ==========
The Company's capital structure consists primarily of shareholder's equity and
long-term debt. During Fiscal 1998 the Company repurchased 5,265,120 shares of
its common stock which resulted in a reduction of shareholder's equity of $120
million. The Company's capital was further reduced in Fiscal 1998 by both the
Company's net loss of $73 million, and the current maturities of long-term debt
during Fiscal 1999 totaling $69 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity included 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. During Fiscal 1999 the Company anticipates a
reduction in current liabilities, due to the scheduled repayment of $60 million
of senior debt, and the performance under a government directed change to
previously produced FMTV trucks projected to cost approximately $40 million. The
Company has provided $23 million, as a current liability, for its probable
partial performance under a guarantee, although no demand for performance has
been received. See Note 7 to the consolidated financial statements for
additional information. The Company has in place an unsecured revolving debt
facility that could provide up to approximately $150 million, all of which was
unused at January 31, 1999, but subject to certain limitations as a result of
modifications made effective January 31, 1999. See Note 9 to the consolidated
financial statements for additional information. This revolving facility matures
during Fiscal 2001. 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 the existing committed lines of credit, the Company
may seek to borrow under other long-term financing sources or to curtail certain
activities reducing the demand for such borrowings. See Note 7 to the
consolidated financial statements for additional liquidity considerations.
The following table summarizes the Company's cash flows from operating,
investing and financing activities as reflected in the Consolidated Statement of
Cash Flows.
14
<PAGE>
SUMMARIZED STATEMENT OF CASH FLOWS
FISCAL FISCAL FISCAL
(DOLLARS IN THOUSANDS) 1998 1997 1996
--------- -------- --------
Net cash provided by (used in):
Operating activities $ 428,075 $(11,916) $(32,600)
Investing activities (65,249) (14,236) (26,966)
Financing activities (368,854) 36,033 62,369
--------- -------- --------
$ (6,028) $ 9,881 $ 2,803
========= ======== ========
<TABLE>
<CAPTION>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
FISCAL FISCAL FISCAL
(DOLLARS IN THOUSANDS) 1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Net earnings (loss) from continuing operations $ (39,005) $(14,505) $ 4,768
Depreciation and amortization 19,636 22,447 22,376
Accrued postretirement benefits (237) (1,835) (363)
Deferred income taxes, net (10,760) (3,350) (1,667)
(Gain) loss on sale of business assets 53 (4,369) --
--------- -------- --------
Funds provided by (used in) continuing operations (30,313) (1,612) 25,114
Change in net operating assets and liabilities (57,612) 70,639 27,653
Funds provided by (used in) discontinued operations 516,000 (80,943) (85,367)
--------- -------- --------
Net cash provided by (used in) operating activities $ 428,075 $(11,916) $(32,600)
========= ======== ========
</TABLE>
During both Fiscal 1998 and Fiscal 1997 the Company's continuing operations
consumed funds. In both years this was primarily caused by both the net loss
from continuing operations, as well as the payment of previously deferred income
taxes. The change in net operating assets and liabilities during Fiscal 1998 was
in large part caused by certain tax events, including the payment of income
taxes associated with the sale of GTO and the accrual of certain reserves which
under tax regulations were not deductible during Fiscal 1998. The cash consumed
by discontinued operations in Fiscal 1997 and 1996 reflects the net results of
the GTO activities, whereas in Fiscal 1998 cash provided by discontinued
operations represents the net collection of the proceeds from the sale of the
GTO business.
<TABLE>
<CAPTION>
NET CASH USED IN INVESTING ACTIVITIES
FISCAL FISCAL FISCAL
(DOLLARS IN THOUSANDS) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Expenditures for property, plant and equipment $(39,565) $(31,778) $(21,004)
Proceeds from sale of business assets 4,597 22,773 --
Acquisition of business (33,659) (8,729) --
Disposal of property, plant and equipment 3,378 3,498 2,038
Investment -- -- (8,000)
-------- -------- --------
Net cash used in investing activities $(65,249) $(14,236) $(26,966)
======== ======== ========
</TABLE>
15
<PAGE>
During Fiscal 1998, 1997 and 1996 the Company invested significant amounts into
property, plant and equipment to expand its existing businesses. Fiscal 1998
includes the initial acquisition of $6.3 million of the Company's gas
compression rental fleet, and additional expenditures of $12.2 million during
the remainder of the year.
The increase in net cash used in investing activities in Fiscal 1998 was
primarily the result of several acquisitions made by the Company. In March 1998,
the Company acquired substantially all of the assets of Compression Specialties,
Inc., a Wyoming based gas compression leasing and service company, for
approximately $9.45 million. In June 1998, the Company acquired the stock of
IPSC Co., Inc., the Deutz engine distributor for Louisiana, Mississippi,
Arkansas, and Western Tennessee, for approximately $4.2 million, and acquired
the Deutz distributorship franchise for Texas, Oklahoma, and Kansas from Harley
Equipment Company. Also in June 1998, the Company acquired H & H Rubber, Inc., a
manufacturer of specialty rubber products, for $4 million. Finally, in December
1998, the Company acquired Tug Manufacturing Corporation, an airline ground
support equipment manufacturer, for approximately $13 million in cash and $3
million in contingent purchase price to be paid ratably over three years if
certain performance measures are met. During October 1998, the Company sold the
net assets of Carson Cogeneration, LLP (discussed below).
During Fiscal 1997, the Company transferred a gas turbine valued at
approximately $5 million from its discontinued operations inventory to the
property, plant and equipment of the Company's other operations, to support its
interests and obligations associated with a retained investment in a power plant
in Argentina. In April 1997, the Company acquired ownership of Sierra Detroit
Diesel Allison, Inc., a Detroit Diesel and Allison Transmission distributor for
Northern California. In September 1997, the Company also acquired Carson
Cogeneration LLP, an independent power producer in California. In October 1997,
the Company sold its Houston construction equipment distributorship.
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
(DOLLARS IN THOUSANDS) 1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Additions to long-term debt $ 25,000 $ 76,153 $ 360,000
Payments on long-term debt (242,780) (37,329) (251,100)
Net borrowings and payments on short-term notes payable (22,714) 7,000 (37,000)
Dividends paid (9,758) (11,286) (11,081)
Repurchase of common stock (120,000) -- --
Proceeds from exercise of stock options 1,398 1,495 1,550
--------- -------- ---------
Net cash provided by (used in) financing activities $(368,854) $ 36,033 $ 62,369
========= ======== =========
</TABLE>
Effective as of January 31, 1999, the Company obtained certain
modifications to its unsecured revolving line of credit, which among other
things, adjusted its interest rate options and modified certain covenants
dealing with debt levels, interest coverage, investments and levels of retained
earnings. Under this amendment, the most commonly used interest rate option
increased by approximately 150 basis points. See Note 9 to the consolidated
financial statements for additional information. In addition to the revolving
credit facility, the Company has $135 million in senior notes outstanding. The
senior notes are unsecured and were issued pursuant to an agreement
containing a covenant which imposes a debt to total capitalization requirement.
Payment of cash dividends on common stock totaled $9.8 million and $11.3 million
during Fiscal 1998 and 1997, respectively. There has been no change in the
dividends per share during these years and the decline in total dividends
results from the Company's repurchase of 5,265,120 shares of its outstanding
stock. Cash dividends represented 82%, 75% and 61% of net earnings from
continuing operations before special charges for Fiscal 1998, 1997 and 1996,
respectively. The Company uses both funds from operations, along with
borrowings, to pay dividends.
ACCOUNTING DEVELOPMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME
and SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. In February 1998, SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT
PENSIONS AND OTHER POST EMPLOYMENT BENEFITS was issued. Each of these statements
became effective for years beginning after December 31, 1997.
16
<PAGE>
SFAS No. 130 requires disclosure of comprehensive income, which consists of all
changes in equity from non-shareholder sources. SFAS No. 131 requires that
segment reporting for public reporting purposes be conformed to the segment
reporting used by management for internal purposes. SFAS No. 132 standardizes
the disclosure requirements of Statements No. 87 and No. 106. The adoption of
these statements did not impact the Company's consolidated financial position,
results of operations or cash flows, but is limited to the form and content of
the Company's disclosures. Since most of the information required under these
statements is currently disclosed, their adoption does not materially change the
Company's current disclosures.
FACTORS THAT MAY AFFECT FUTURE RESULTS
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this annual report contain 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 risks associated with newly
acquired businesses; 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.
BUSINESS OUTLOOK
During Fiscal 1998, both the Power Products segment and the Petroleum Equipment
segment were adversely affected by depressed prices for oil and gas. The Company
expects that low oil and gas prices will continue throughout Fiscal 1999 and has
adopted programs to reduce costs associated with these business segments. These
programs include disposition of several unprofitable branches, implementation of
turnaround plans for under-performing branches, and better integration of
recently acquired operations into the business segments. In addition, the
Company is taking action to reduce working capital requirements by increasing
inventory turnover and accelerating collection of accounts receivable.
Performance measurements systems have been restructured to focus on these areas.
The Company expects that these efforts will result in improved operating margins
and return on assets in both segments despite the effect of depressed prices for
oil and gas.
During Fiscal 1998, the U.S. Army directed the Company to make certain changes
in the drive train components of all vehicles produced under the first FMTV
contracts. The Company made a decision to refit all fielded vehicles and to fund
most of the $40 million estimated cost to perform that work. The Company
commenced the installation of the directed changes during Fiscal 1999 and,
subject to availability of vehicles, expects to complete the changes by the end
of Fiscal 2000. Intensive efforts continue with the U.S. Army and certain
vendors to reach an equitable settlement regarding this matter. The Company
intends to submit Requests for Equitable Adjustments or claims under the FMTV
contracts seeking compensation for the additional costs relating to this
directive. In addition, the Company has filed a certified claim with the U.S.
Army for $48 million seeking recovery of additional costs incurred under the
initial FMTV contracts as a result of other changes and delays caused or
directed by the government. Management believes that the FMTV contracts provide
a legal basis for the claims, however, due to the inherent uncertainties in the
claims resolution process, the Company has expensed the cost relating to these
matters. Since the costs associated with these claims have been expensed, any
future recovery of these amounts will be treated as income in the period in
which this matter is resolved.
The Company is presently in a production hiatus between the original FMTV
contracts and the new FMTV contracts. During this period, the Company has
undertaken several changes to the management and production processes intended
to improve the performance of the Tactical Vehicle Systems segment. These
changes included the reduction of both direct and indirect personnel,
17
<PAGE>
improvements in materials management, and reductions in cash flow cycle times.
The Company expects that these changes will result in improved operating
margins, cash flow, and return on assets in the Tactical Vehicles Systems
segment.
GOVERNMENT CONTRACTING FACTORS
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. 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.
During Fiscal 1998, the Company was awarded a new multi-year contract that will
extend production of the FMTV into 2002 (or 2003 if the government exercises its
option to purchase additional vehicles). The funding of the new 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. As of January 31, 1999, funding in the amount of
$315 million for the new FMTV contract had been authorized and appropriated by
the U.S. Congress. If the new FMTV contract is terminated other than for
default, the FMTV contracts provide for termination charges that will reimburse
the Company for allowable costs, but not necessarily all costs.
The Company's government contract operations are subject to U.S. Government
investigations of business practices and cost classifications from which legal
or administrative proceedings can result. Based on government procurement
regulations, under certain circumstances a contractor can be fined, as well as
suspended or barred from government contract. 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, Overseas Private Investment
Corporation, and similar government agencies during a suspension or debarment.
The Company entered an Administrative Agreement with the United States Air Force
that imposes certain requirements on the Company intended to assure the U.S. Air
Force that the Company is a responsible government contractor. Under this
agreement, the Company has established and maintains an effective program to
ensure compliance with applicable laws and the Administrative Agreement. The
program provides employees with education and guidance regarding compliance and
ethical issues, operates a means to report questionable practices on a
confidential basis, and files periodic reports with the U.S. Air Force regarding
the Company's business practices. A default by the Company of the requirements
under the Administrative Agreement could result in the suspension or debarment
of the Company from receiving any new contracts or subcontracts with agencies of
the U.S. Government or the benefit of federal assistance payments. 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 Administrative Agreement expires pursuant to
its term on March 19, 2001, but the Company intends to maintain compliance
programs on a continuing basis.
YEAR 2000 COMPLIANCE
In the past, many computer software programs were written using two digits
rather than four to define the applicable year. As a result, date-sensitive
computer software may recognize a date using "00" as the year 1900 rather than
the year 2000. If this situation occurs, the potential exists for computer
system failures or miscalculations by computer programs, which could disrupt
operations. This is generally referred to as the Year 2000 issue.
The Company has established a team to address the potential impacts of the year
2000 on each of its critical business functions. The team has concluded its
assessment of the Company's critical date-sensitive technology, including its
information systems, computer equipment and other systems used in its various
operations, and is now in the process of making the required modifications to or
replacing these systems to be year 2000 compliant. The modification costs are
expected to be approximately $2 million. The majority of these costs are
attributable to the purchase of new computer equipment. The required
modifications and most related testings are expected to be completed by June 30,
1999. The Company's contingency plan for any non-compliant systems will be
developed for each particular system if, and as, they are identified. Systems
modification costs are being expensed as incurred. Costs associated with new
equipment are being capitalized and will be amortized over the life of the
product.
18
<PAGE>
In addition to addressing the Company's internal systems, the team has
identified key vendors that could be impacted by year 2000 issues, and
communication has been made. The Company has evaluated the responses to this
correspondence and has not identified any critical vendor systems whose timely
remediation poses a material threat to the Company. The most likely worst case
scenario would involve the interruption of supply of key materials necessary to
timely complete production under outstanding contract commitments. In order to
reduce this risk, the Company is developing a final contingency plan which may
include having materials from sole-source suppliers that are necessary to
fulfill outstanding contract commitments on hand prior to December 31, 1999.
While the Company believes that its program is sufficient to identify the
critical issues and associated costs necessary to address possible year 2000
problems in a timely manner, there can be no assurance that the program or
underlying steps implemented, will be successful in resolving all such issues
prior to the year 2000. If the steps taken by the Company (or critical third
parties) are not made in a timely manner, or are not successful in identifying
and remedying all significant year 2000 issues, business interruptions or delays
could occur. Based on the information the Company has gathered to date and its
expectation of its ability to remedy problems encountered, the Company believes
that it will not experience significant business interruptions that would have a
material adverse impact on its results of operations or financial condition.
19
<PAGE>
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, 1999
and 1998, and the related consolidated statements of earnings, shareholders'
equity and cash flows for each of the three years in the period ended January
31, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1999 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 29, 1999
20
<PAGE>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
FISCAL FISCAL
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1998 1997
---------- -----------
Assets
Current Assets
Cash and equivalents $ 12,959 $ 18,987
Accounts and notes receivable, net 164,547 185,033
Recoverable costs and accrued profits
not yet billed 99,097 138,208
Income tax receivable 48,596 --
Inventories 215,202 167,577
Receivable from sale of assets of Gas
Turbine Operations -- 600,000
---------- -----------
Total Current Assets 540,401 1,109,805
Property, Plant and Equipment, net 128,745 97,744
Deferred Income Tax Asset 7,904 --
Investments and Other Assets 28,727 45,098
---------- -----------
$ 705,777 $ 1,252,647
========== ===========
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 17,468 $ 35,000
Accounts payable 83,127 92,728
Accrued payrolls and incentives 17,123 18,693
Income tax 2,931 88,862
Current portion of long-term debt 69,488 226,000
Other accrued liabilities 95,349 100,819
---------- -----------
Total Current Liabilities 285,486 562,102
Commitments and Contingencies (See Note 7)
Long-Term Debt 83,530 147,166
Deferred Income Tax 43 2,899
Accrued Postretirement Benefits 13,019 13,256
Deferred Compensation 3,336 5,517
Shareholders' Equity
Common Stock, without par value,
100,000,000 shares authorized at
January 31, 1999 and January 31, 1998;
27,984,035 and 33,205,688 shares issued
at January 31, 1999 and 1998, respectively,
including 11,820 shares held in treasury
at January 31, 1998 47,819 166,454
Retained earnings 272,544 355,286
---------- -----------
320,363 521,740
Less cost of treasury stock -- (33)
---------- -----------
Total Shareholders' Equity 320,363 521,707
---------- -----------
$ 705,777 $ 1,252,647
========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
21
<PAGE>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Sales $ 1,206,772 $ 1,115,034 $ 825,187
Cost of sales 1,178,088 1,032,049 722,470
----------- ----------- ---------
Gross profit 28,684 82,985 102,717
----------- ----------- ---------
Selling and administrative expenses 90,857 75,619 67,163
Interest expense 12,244 15,440 12,474
Special charges, net -- 18,983 20,000
Other income, net (12,706) (4,867) (3,571)
----------- ----------- ---------
90,395 105,175 96,066
----------- ----------- ---------
Earnings (loss) from continuing operations
before income taxes (61,711) (22,190) 6,651
Income tax expense (benefit) (22,804) (8,075) 1,776
----------- ----------- ---------
Earnings (loss) from continuing operations of
consolidated companies (38,907) (14,115) 4,875
Equity in net losses of unconsolidated
affiliates (98) (390) (107)
----------- ----------- ---------
Net earnings (loss) from continuing operations (39,005) (14,505) 4,768
Net earnings from discontinued operations, net
of tax of $1,920 and $6,744 (See Note 2) -- 5,424 12,083
Gain (loss) on disposal of discontinued
operations, net of tax of $(21,985) and
$35,297 (See Note 2) (33,979) 61,344 --
----------- ----------- ---------
Net earnings (loss) $ (72,984) $ 52,263 $ 16,851
=========== =========== =========
Weighted average number of shares of Common
Stock outstanding
Basic 29,006 33,184 33,068
Diluted 29,006 33,250 33,090
Net earnings (loss) per share: Basic and
Diluted
Continuing operations $ (1.34) $ (.44) $ .14
Discontinued operations -- .16 .37
Gain (loss) on disposal (1.17) 1.85 --
----------- ----------- ---------
Net earnings (loss) per share $ (2.51) $ 1.57 $ .51
=========== =========== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
22
<PAGE>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED TREASURY
(DOLLARS IN THOUSANDS) STOCK EARNINGS STOCK TOTAL
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
Net earnings -- 52,263 -- 52,263
Cash dividends -- (11,286) -- (11,286)
Exercise of stock options 1,495 -- -- 1,495
--------- --------- --------- ---------
Balance at end of Fiscal 1997 166,454 355,286 (33) 521,707
Net loss -- (72,984) -- (72,984)
Cash dividends -- (9,758) -- (9,758)
Issuance of common stock and exercise of
stock options 1,398 -- -- 1,398
Repurchase and cancellation of shares (120,033) -- 33 (120,000)
--------- --------- --------- ---------
Balance at end of Fiscal 1998 $ 47,819 $ 272,544 $ -- $ 320,363
========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
23
<PAGE>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
(DOLLARS IN THOUSANDS) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) from continuing operations $ (39,005) $ (14,505) $ 4,768
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Accrued postretirement benefits (237) (1,835) (363)
Depreciation and amortization 19,636 22,447 22,376
Deferred income taxes, net (10,760) (3,350) (1,667)
(Gain) loss on sale of business assets 53 (4,369) --
Change in operating assets and liabilities net of the
effect of acquisition, divestiture and discontinued
operations:
Accounts and notes receivable, net 31,318 (13,699) (37,495)
Recoverable costs and accrued profits not yet billed 39,111 18,167 (30,335)
Inventories (35,711) (17,596) 53,203
Accounts payable (14,465) (32,700) 49,196
Current income taxes, net (122,815) 23,043 (2,769)
Other current liabilities 33,421 79,947 6,885
Other--principally long-term assets and liabilities 11,529 13,477 (11,032)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS (87,925) 69,027 52,767
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 516,000 (80,943) (85,367)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 428,075 (11,916) (32,600)
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (39,565) (31,778) (21,004)
Proceeds from sale of business assets (See Note 15) 4,597 22,773 --
Acquisition of businesses (See Note 15) (33,659) (8,729) --
Investment -- -- (8,000)
Disposal of property, plant and equipment 3,378 3,498 2,038
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (65,249) (14,236) (26,966)
FINANCING ACTIVITIES
Additions to long-term debt 25,000 76,153 360,000
Payments on long-term debt (242,780) (37,329) (251,100)
Net borrowings and payments on short-term notes payable (22,714) 7,000 (37,000)
Dividends paid (9,758) (11,286) (11,081)
Repurchase of common stock (120,000) -- --
Proceeds from exercise of stock options 1,398 1,495 1,550
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (368,854) 36,033 62,369
--------- --------- ---------
Increase (decrease) in cash and equivalents (6,028) 9,881 2,803
Cash and equivalents, beginning of fiscal year 18,987 9,106 6,303
--------- --------- ---------
Cash and equivalents, end of fiscal year $ 12,959 $ 18,987 $ 9,106
========= ========= =========
Non-Cash Activities:
Transfer of inventory to fixed assets - Continuing
operations $ -- $ 4,712 $ --
Transfer of inventory to fixed assets - Discontinued
operations $ -- $ 4,015 $ --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
24
<PAGE>
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 1998"
commenced on February 1, 1998 and ended on January 31, 1999.
CONSOLIDATION: The consolidated financial statements include the accounts of
Stewart & Stevenson Services, Inc. and all enterprises in which the company has
a controlling financial interest. Investments in other partially-owned
enterprises 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 applies Accounting Principles Board
Opinion (APB) 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
(SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION has been provided. (See
Note 11)
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 inventories are not in excess of their fair values.
CAPITALIZED INTEREST: Interest costs associated with certain constructed assets
are capitalized during the construction period. There was no capitalized
interest in 1998, 1997 or 1996. Interest capitalized on assets developed for the
Company's use is 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 Petroleum Equipment 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") contracts are recognized as units are
substantially completed. Profits expected to be realized on contracts are based
on the Company's estimates of total revenue value and costs. Changes in
estimates for revenues, 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 revenue values include amounts expected to be
realized from contract adjustments when recovery of such amounts are probable.
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 both 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.
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 7)
25
<PAGE>
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 fair market value of the
senior notes is $140 million at January 31, 1999, which are recorded at a book
value of $135 million. The Company estimates that the book value of all other of
its financial instruments approximates market values.
WARRANTY COSTS: Expected warranty and performance guarantee costs are accrued as
revenue is recorded, based on both historical experience and contract terms.
NET EARNINGS PER SHARE: As of January 31, 1998 the Company adopted, SFAS No. 128
EARNINGS PER SHARE, which specifies the computation, presentation, and
disclosure requirements for earnings per share ("EPS"). It replaces the
presentation of primary and fully diluted EPS with basic and diluted EPS. Basic
EPS excludes all dilution. It is based upon the weighted average number of
common shares outstanding during the period. Diluted EPS reflects the potential
dilution that would occur if all securities or other contracts to issue common
stock were exercised or converted into common stock. During Fiscal 1997 and
1996, 66,000 and 22,000 stock options, respectively, were deemed to be dilutive.
There were no stock options during Fiscal 1998 which were deemed to be dilutive.
Accordingly, all periods presented have been stated as basic and diluted EPS.
There is no material difference between SFAS No. 128 presentation of EPS and the
EPS presented in prior reporting periods.
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. Significant estimates have been made by management with
respect to (1) future obligations associated with a government directive to
change the FMTV truck configuration, (2) future obligations associated with
guarantees and (3) the outcome of ongoing investigations and outstanding
litigation. Actual results could differ from those estimates making it
reasonably possible that a change in these estimates could occur in the near
term.
RECLASSIFICATIONS: The accompanying consolidated financial statements for prior
Fiscal years contain certain reclassifications to conform with the presentation
used in Fiscal 1998. The consolidated financial statements have been restated to
reflect the Company's Gas Turbine Operations as a discontinued operation.
NEW ACCOUNTING PRONOUNCEMENTS: In April, 1998 Statement of Position ("SOP") No.
98-5 REPORTING ON COSTS OF START UP ACTIVITIES was issued by the American
Institute of Certified Public Accountants. The statement requires costs of
start-up activities and organizational costs to be expensed as incurred. Initial
application of the statement, which is effective for Fiscal 1999, is to be
reported as a cumulative effect of a change in accounting principle. The Company
is currently evaluating the impact of SOP No. 98-5 on its results of operations
and financial position.
In June 1997, SFAS No. 130, REPORTING COMPREHENSIVE INCOME was issued. SFAS No.
130 requires the presentation of comprehensive income in an entity's financial
statements. Comprehensive income represents all changes in equity of an entity
during the reporting period, including net income and charges directly to equity
which are excluded from net income. This statement does not have any impact as
the Company currently does not enter into any transactions which result in
material charges (or credits) directly to equity (such as additional minimum
pension liability charges, currency translation adjustments or unrealized gains
and losses on available-for-sale securities, etc.).
Effective January 31, 1999, the Company adopted SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. This statement establishes
new standards for segment reporting which are based on the way management
organizes segments within a company for making operating decisions and assessing
performance. In connection with the sale of the Gas Turbine Operations (GTO) and
in response to these new standards, the Company reorganized its business
segments. The Company's financial reporting segments consist of Power Products,
Tactical Vehicle Systems, Petroleum Equipment and Other Business Activities.
(See Note 4)
In June 1998, SFAS No. 132 - EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER
POST EMPLOYMENT BENEFITS was issued. This statement standardizes the disclosure
requirements of SFAS No. 87 and No. 106, and the Company adopted the provisions
of this statement for Fiscal 1998. (See Note 10)
In June 1998, the FASB issued SFAS No. 133 - ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This statement establishes accounting and
reporting standards for
26
<PAGE>
derivative instruments, including derivative instruments embedded in other
contracts and hedging activities. The statement, which is to be applied
prospectively, is effective for the Company's quarter ending January 31, 2000.
The Company believes that the future adoption of SFAS No. 133 will not have a
material effect on its results of operations or financial position.
NOTE 2: DISCONTINUED OPERATIONS
During Fiscal 1997, the Company completed the sale of the net assets of GTO
to General Electric Company ("GE") for $600 million, with a subsequent downward
adjustment of $84 million in Fiscal 1998. GTO manufactured and serviced gas
turbine driven equipment and associated spare parts, provided contract operation
and maintenance services for power generation and petrochemical processing
facilities, and engaged in the development and turnkey construction of power
generation projects. The results of the GTO have been classified as discontinued
operations in the accompanying financial statements. Net earnings from
discontinued operations for the eight months ended September 30, 1997 (the
pre-measurement period) includes interest expense of approximately $9.9 million,
which was allocated based on the ratio of net assets to be discontinued to the
sum of the total net assets of the consolidated entity. The gain on disposal of
discontinued operations includes interest expense of approximately $3.9 million,
allocated using the same method.
In the third quarter of Fiscal 1998, the Company reached an agreement with GE
regarding certain contractual adjustments to the purchase price and other
matters related to the sale of GTO. The agreement required the Company to pay GE
$84 million, resulting in an after tax charge, net of accruals, of $20 million
to net earnings (loss) from discontinued operations. Additionally, in the fourth
quarter of Fiscal 1998, it became probable that the Company would be required to
perform under a debt guaranty related to a power generation facility in
Argentina. Accordingly, the Company recorded an estimated obligation of $14
million, net of tax. The guaranty arose as part of the Company's Gas Turbine
Operations.
Summarized operating results of discontinued operations are as follows:
TWELVE MONTHS ENDED
JANUARY 31
-------------------------------
1999 1998 1997
-------- -------- --------
(Unaudited)
Sales $ -- $404,172 $361,974
Gross profit -- 35,643 63,852
Income tax expense -- 1,920 6,744
Net earnings (loss) from discontinued
operations, net of tax -- 5,424 12,083
Gain (loss) on disposal of discontinued
operations, net of tax (33,979) 61,344 --
NOTE 3: SPECIAL ITEMS AND EVENTS
Included in Fiscal 1998 net earnings (loss) from continuing operations are the
effects of three significant nonrecurring events including (1) a $36.8 million
charge related to a series of claims, (2) a $40 million charge for estimated
costs associated with a government directive to make certain changes in the
drive train components of the FMTV and (3) $8.6 million of interest income
earned on the proceeds from the sale of the GTO.
On December 17, 1998, following an extensive period of negotiations with the
U.S. Army seeking to amicably resolve certain requests for equitable adjustments
for additional costs incurred by the Company due to delays and changes caused by
the government during the initial truck contract, the Company filed a certified
claim with the U.S. Army seeking recovery of the additional costs. Management
believes that the FMTV contract provides a legal basis for the claim, however,
due to the inherent uncertainties in the claims resolution process, the Company
has fully reserved all recoveries relating to the claim. The Company will
continue to pursue recovery of all amounts claimed. Any compensation received
from the U.S. Army related to this matter will be recorded in the period in
which the additional compensation is awarded.
In the fourth quarter of Fiscal 1998, the Company made a decision to refit all
fielded vehicles at the Sealy facility and fund all or a significant portion of
the $40 million estimated cost to perform that work. The Company will submit a
claim under the FMTV contract, seeking compensation for those additional costs
related to the directive. Any additional compensation received from the U.S.
Army related to this matter will be recorded in the period in which the
additional compensation is awarded.
During Fiscal 1997 the Company incurred a $10 million charge relating to the
resolution of litigation arising from a 1987 contract to
27
<PAGE>
supply diesel generator sets for installation at long range radar sites in Saudi
Arabia. Also during Fiscal 1997 the Company recorded a special charge of $13.4
million relative to the settlement of a government claim and special gain of
$4.4 million related to the sale of the Company's John Deere franchise in
Houston, Texas. (See Note 15)
During Fiscal 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, Inc. The
Company recognized a pre-tax charge against earnings of $20 million 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.
NOTE 4: SEGMENT DATA
The Power Products segment includes the marketing of diesel engines, automatic
transmissions, material handling equipment, transport refrigeration units and
construction equipment and 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 Petroleum Equipment segment includes the design, manufacturing,
and marketing of specialty equipment for the oilfield service market. Other
business activities not included in a business segment for reporting purposes
include airline ground support products, gas compression contract services,
financial services, as well as development stage businesses. Corporate assets,
consisting primarily of cash and cash equivalents and investments, are included
in "Other Business Activities".
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.
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 in any of the last three fiscal years. Export sales,
including sales to domestic customers for export, for Fiscal 1998, 1997 and 1996
were $84.7 million, $65.7 million and $83.2 million, respectively. Export sales
to any single geographic region in Fiscal 1998, 1997 and 1996 were not material
to consolidated sales.
Financial information relating to industry segments is as follows:
<TABLE>
<CAPTION>
DEPRECIATION
OPERATING IDENTIFIABLE CAPITAL AND
SALES PROFIT ASSETS EXPENDITURES AMORTIZATION
---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FISCAL 1998
Power Products $ 555,507 $ 23,638 $ 334,234 $ 17,409 $ 11,396
Tactical Vehicle Systems 455,399 (77,717) 113,721 1,434 3,120
Petroleum Equipment 115,800 10,245 96,874 4,771 2,634
Other Business Activities 80,066 (5,106) 160,948 15,951 2,486
---------- --------- ------------ ------------ ------------
Total $1,206,772 $ (48,940) $ 705,777 $ 39,565 $ 19,636
========== ========= ============ ============ ============
FISCAL 1997
Power Products $ 558,393 $ 34,120 $ 307,232 $ 17,308 $ 9,887
Tactical Vehicle Systems 396,734 (10,005) 179,260 1,509 8,312
Petroleum Equipment 83,096 5,695 60,214 7,358 1,428
Other Business Activities 76,811 (5,333) 105,941 5,603 2,820
Discontinued Operations -- -- 600,000 -- --
---------- --------- ------------ ------------ ------------
Total $1,115,034 $ 24,477 $ 1,252,647 $ 31,778 $ 22,447
========== ========= ============ ============ ============
FISCAL 1996
Power Products $ 508,779 $ 31,081 $ 267,471 $ 13,797 $ 8,077
Tactical Vehicle Systems 200,916 10,597 185,211 1,171 10,653
Petroleum Equipment 57,406 2,419 47,564 4,401 1,393
Other Business Activities 58,086 3,018 126,624 1,635 2,253
Discontinued Operations -- -- 452,289 -- --
---------- --------- ------------ ------------ ------------
Total $ 825,187 $ 47,115 $ 1,079,159 $ 21,004 $ 22,376
========== ========= ============ ============ ============
</TABLE>
(1) Operating profit of Power Products for Fiscal 1997 includes the $4,369 gain
on the sale of a construction equipment franchise. A reconciliation of Operating
Profit to Earnings (Loss) from Continuing Operations before Income Taxes is as
follows:
28
<PAGE>
FISCAL FISCAL FISCAL
1998 1997 1996
-------- -------- --------
Operating profit $(48,940) $ 24,477 $ 47,115
Corporate expenses, net (11,452) (9,816) (9,910)
Non-operating interest income 10,925 1,941 1,920
Interest expense (12,244) (15,440) (12,474)
Settlement of litigation and special charge -- (23,352) (20,000)
-------- -------- --------
Earnings (loss) from continuing operations
before income taxes $(61,711) $(22,190) $ 6,651
======== ======== ========
NOTE 5: 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
1998 1997
----------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 1,467,957 $ 1,137,220
Accrued profits 8,655 19,440
----------- -----------
1,476,612 1,156,660
Less: Customer progress payments (1,377,739) (1,018,892)
----------- -----------
$ 98,873 $ 137,768
=========== ===========
Included in the statements of financial position:
Recoverable costs and accrued profits not yet billed $ 99,097 $ 138,208
Billings on uncompleted contracts in excess of
incurred costs (224) (440)
=========== ===========
$ 98,873 $ 137,768
=========== ===========
</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 $0 and $13,992 at January 31, 1999 and 1998,
respectively. The Company's total general and administrative expenses incurred,
including amounts capitalized and charged to cost of sales under the FMTV
contract, totaled $105,887, $88,235 and $83,092 in Fiscal 1998, 1997 and 1996,
respectively.
The United States Government has a security interest in unbilled amounts
associated with contracts that provide for both progress payments and
performance based 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.
29
<PAGE>
NOTE 6: INVENTORIES
Summarized below are the components of inventories:
FISCAL FISCAL
1998 1997
--------- ---------
Power Products $ 182,894 $ 163,143
Petroleum Equipment, net of customer deposits 40,560 28,717
Other Business Activities 40,222 21,609
Excess of current cost over LIFO values (48,474) (45,892)
--------- ---------
Total Inventories $ 215,202 $ 167,577
========= =========
The Company's inventory classifications correspond to its reportable segments.
The Power Products segment's inventory consists primarily of industrial
equipment, equipment under modification and parts held in the Company's
distribution network for resale. As a custom packager of power systems to
customer specifications, the Petroleum Equipment and Other Business Activities
segment's inventory consists primarily of work-in-process which includes
purchased and manufactured components in various stages of assembly.
NOTE 7: 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 approximately $5.8 million at the
close of Fiscal 1998.
The Company's government contract operations are subject to U.S. Government
investigations of business practices and cost classifications from which legal
or administrative proceedings can result. Based on government procurement
regulations, under certain circumstances a contractor can be fined, as well as
suspended or barred from government contract. 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, Overseas Private Investment
Corporation, and similar government agencies during a suspension or debarment.
The Company entered an Administrative Agreement with the United States Air Force
that imposes certain requirements on the Company intended to assure the U.S. Air
Force that the Company is a responsible government contractor. Under this
agreement, the Company has established and maintains an effective program to
ensure compliance with applicable laws and the Administrative Agreement. The
program provides employees with education and guidance regarding compliance and
ethical issues, operates a means to report questionable practices on a
confidential basis, and files periodic reports with the U.S. Air Force regarding
the Company's business practices. A default by the Company of the requirements
under the Administrative Agreement could result in the suspension or debarment
of the Company from receiving any new contracts or subcontracts with agencies of
the U.S. Government or the benefit of federal assistance payments. 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 Administrative Agreement expires pursuant to
its term on March 19, 2001, but the Company intends to maintain compliance
programs on a continuing basis.
During Fiscal 1998, the U.S. Customs Service detained a medium tactical vehicle
that was being shipped by the Company for display in a European trade show. The
Company has been advised that the U.S. Customs Service and the Department of
Justice are investigating potential violations by the Company of laws relating
to the export of controlled military vehicles, weapons mounting systems, and
firearms. Such investigation could result in the filing of criminal, civil, or
administrative sanctions against the Company and/or individual employees and
could result in a suspension or debarment of the Company from receiving new
contracts or subcontracts with agencies of the U.S. Government or the benefit of
federal assistance payments.
The Company is also a defendant in a number of lawsuits relating to contractual,
product liability, personal injury and warranty matters normally incident to the
Company's business. No individual case, or group of cases presenting
substantially similar issues of law or fact, involve a claim for damages in
excess of $5 million or are expected to have a material effect on the manner in
which the Company conducts its business. Although management has established
reserves that it believes to be adequate in each case, an unforeseen outcome in
such cases could have a material adverse impact on the results of operations in
the period it occurs.
The Company has guaranteed the project financing ($42,600 at January 31, 1999)
of a power generation plant in Argentina (Note 2). Included in "Other accrued
liabilities" at January 31, 1999 is a reserve of $22,600 for the anticipated
loss related to such guarantee; this estimated loss is predicated on projections
of future events and realization value of the underlying collateral. As a result
of the Company's net loss for Fiscal 1998, the Company was unable to meet
certain financial covenant requirements and is in default of the guarantee
agreement. Presently, the lender has the right to demand payment of the entire
$42,600. Such a demand, if made, would cause defaults under the majority of the
Company's outstanding debt (approximately $151,000 at January 31, 1999), as well
as the revolving credit facility, which would required the Company to negotiate
waivers and amendments or seek additional financing or other sources of funds.
In the event the Company is unable to successfully negotiate waivers and
amendments or obtain additional financing or other sources of funds, liquidity
would be adversely affected. Although management is of the opinion that a demand
for payment is unlikely, no assurances can be given that such a demand will not
be made. The Company has reached a written agreement in principle (the Proposed
Agreement), subject to final documentation, to amend the guarantee agreement
with the project lender that provides for, among other things, waivers of the
financial covenant defaults and amends them to permit future compliance. The
Proposed Agreement also requires that standby letters of credit (LOC's) be
provided in varying amounts between May 31, 1999 and June 30, 2000 totaling the
entire outstanding balance of the project financing. It is the Company's
intention to comply with the Proposed Agreement and provide the LOC's. Such
LOC's may be drawn and applied in payment of the $42,600 upon the earlier of an
event of default or December 31, 2000. Certain provisions of the Proposed
Agreement may require the concurrence of the senior noteholders.
30
<PAGE>
The Company has provided certain other guarantees in support of its customer's
financing of purchases from the Company in the form of both residual value
guarantees and debt guarantees. The maximum exposure of the Company related to
guarantees at January 31, 1999 is $13 million, excluding the $42.6 million
discussed above.
The Company leases certain additional property and equipment under lease
arrangements of varying terms whose annual rentals are less than 1% of
consolidated sales.
NOTE 8: 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. 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.
Most of the production under the original FMTV contract was completed as of
January 31, 1999. Revenues and profits realized on the original FMTV contracts
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 original FMTV contracts 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 contracts. In addition, the
Company has been directed by the U.S. Army to undertake certain changes to the
drive train of all vehicles produced under the first FMTV contract. The Company
has and will continue to submit a series of Requests for Equitable Adjustments
or claims under the original FMTV contract, seeking increases in the FMTV
contract price for those additional costs that relate to government caused
changes and delays amounts in excess of agreed upon contract price. It is not
possible to estimate the amount, if any, that the Company will recover under
such Requests for Equitable Adjustments or claims. The Company has expensed the
costs associated with $48 million in claims relating to program delays and
changes, and has fully reserved $40 million related to drive train changes. Any
future recovery of these amounts will be treated as income in the period in
which the matter is resolved.
During Fiscal 1998, the Company was awarded a second set of multi-year contracts
from the U.S. Army that provides for continued production of the FMTV through
Fiscal 2002 with a one year option that would extend the new contract through
2003. The funding of the new FMTV contract is subject to the inherent
uncertainties of congressional appropriations. As is typical of multi-year
defense contracts, the new 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. As of January 31, 1999, funding in the amount of $315 million
for the new FMTV contract had been authorized and appropriated by the U.S.
Congress. If the new 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 9: 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, 1999 and 1998, the amounts outstanding under
these arrangements were $16,000 and $35,000, respectively, with a weighted
average interest rate of 5.48% and 6.11%, respectively.
The Company has entered into an agreement to acquire up to $17 million of diesel
engines. This agreement allows for vendor supported financing with payments due
upon certain events, not to exceed three years. At the end of Fiscal 1998 there
was not a material amount of this facility in place. The Company has also
entered into a facility to finance computer hardware and software totaling up to
approximately $7 million.
31
<PAGE>
Long-Term Debt, which is generally unsecured, consists of the following:
FISCAL FISCAL
1998 1997
--------- ---------
Notes payable to insurance company:
-10.20%, principal due $1,000 annually to 1998 $ -- $ 1,000
Debt of consolidated limited partnership:
-note payable to a bank, principal due 2000 8,582 8,700
Revolving credit notes payable to banks -- 225,000
Senior Notes
6.72% principal due 1999 60,000 60,000
7.03% principal due 2001 20,000 20,000
7.29% principal due 2003 30,000 30,000
7.38% principal due 2006 25,000 25,000
Other 9,436 3,466
--------- ---------
153,018 373,166
Less current portion (See Note Below) (69,488) (226,000)
--------- ---------
Long-Term Debt $ 83,530 $ 147,166
========= =========
At January 31, 1999, the Company had commitments of $150,000, limited by certain
financial calculations, from banks under unsecured revolving credit notes which
mature on December 20, 2001. Effective January 31, 1999, the Company obtained
certain modifications to its revolving line of credit which, among other things,
adjusted its interest rate options and modified certain covenants dealing with
debt levels, interest coverage, investments and required tangible net worth.
Additionally, the $150,000 commitment could be less if the involved banks, at
their discretion, decide to limit the facility to a certain percentage of
qualified receivables and inventory. Under these modifications, the Company pays
interest and a commitment fee at various options. The maximum interest rate is
the prime rate and the maximum commitment fee is 50 basis points per annum on
the daily average unused balance. Pursuant to the amended covenants under the
revolving credit facility, approximately $100,000 would have been available for
the Company's use as of January 31, 1999, of which $76,000 would be required to
pay current debt levels.
The Company's unsecured long-term notes, which include the revolving credit
notes and senior notes, were issued pursuant to agreements containing covenants
that restrict indebtedness, guarantees, rentals and other items. Additional
covenants in the revolving credit notes require the Company to maintain a
minimum tangible net worth and interest coverage. See Note 7 for additional
information regarding debt compliance. Since these requirements are calculated
from earnings and cash flow, dividends could be restricted indirectly. Dividends
at the current level are not restricted as of the date of this report.
In December 1998, the Company entered into an agreement under which the Company
has financed approximately $7 million of gas compression equipment.
As a result of the ownership 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 parking
garage. Interest is payable in monthly installments at various rates, the
maximum rate being 9%.
The amounts of long-term debt which will become due during Fiscal 1999 through
2003, and beyond are approximately: 1999--$69,500; 2000--$1,000; 2001--$21,100;
2002--$1,900; 2003-- $31,300 and beyond--$28,200.
NOTE 10: 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
32
<PAGE>
of the last ten years of employment. The Company funds pension costs in
conformity with the funding requirements of applicable government regulations.
In addition, 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.
The following table includes pension benefits information for the
noncontributory defined benefit pension plan discussed above as well as the
unfunded supplemental retirement plan and the unfunded defined benefit
retirement plan for non-employee directors.
<TABLE>
<CAPTION>
OTHER POST EMPLOYMENT
PENSION BENEFITS BENEFITS
-------------------- ----------------------
1998 1997 1998 1997
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning
of year $ 74,468 $ 69,515 $ 7,058 $ 7,187
Service cost 3,175 3,937 421 457
Interest Cost 5,385 5,037 500 528
Participant contributions 180 171
Curtailment (gain) or loss -- (2,931) -- (824)
Benefits paid (5,970) (2,377) (632) (500)
Actuarial loss 7,888 1,287 449 39
-------- -------- --------- ---------
Benefit Obligation at end of year $ 84,946 $ 74,468 $ 7,976 $ 7,058
======== ======== ========= =========
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year $ 76,323 $ 68,196 -- --
Actual return on plan assets 7,145 11,387 -- --
Employer contributions 205 60 $ 452 $ 329
Participant contributions 180 171
Benefits paid (5,970) (2,377) (632) (500)
Administrative Expenses (981) (943) -- --
-------- -------- --------- ---------
Fair value of plan assets at end
of year $ 76,722 $ 76,323 $ -- $ --
======== ======== ========= =========
RECONCILIATION OF FUNDED STATUS
Funded status $ (8,224) $ 1,855 $ (7,976) $ (7,058)
Unrecognized actuarial (gain) or
loss 7,495 (796) (2,870) (3,543)
Unrecognized prior service cost 1,723 2,033 (2,173) (2,655)
-------- -------- --------- ---------
Net amount recognized at year-end $ 994 $ 3,092 $ (13,019) $ (13,256)
======== ======== ========= =========
AMOUNTS RECOGNIZED IN THE STATEMENT
OF FINANCIAL POSITION
Prepaid benefit cost $ 3,666 $ 5,401 -- --
Accrued benefit liability (3,820) (3,254) -- --
Intangible assets 1,110 925 -- --
Accumulated other comprehensive
income 38 20
-------- -------- --------- ---------
Net amount recognized at year-end $ 994 $ 3,092 -- --
======== ======== ========= =========
Other comprehensive income
attributable to change in
additional minimum liability
obligation $ 18 $ 1 -- --
ADDITIONAL YEAR-END INFORMATION FOR
PLANS WITH BENEFIT OBLIGATIONS IN
EXCESS OF PLAN ASSETS:
Benefit obligation $ 84,946 $ 4,857 $ 7,976 $ 7,058
Fair Value of plan assets 76,722 -- -- --
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
OTHER POST EMPLOYMENT
PENSION BENEFITS BENEFITS
----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ADDITIONAL YEAR-END INFORMATION FOR
PENSION PLANS WITH ACCUMULATED BENEFIT
OBLIGATIONS IN EXCESS OF PLAN ASSETS
Projected benefit obligation $ 5,419 $ 4,857 -- --
Accumulated benefit obligation 3,820 3,254 -- --
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 3,175 $ 3,937 $ 421 $ 457
Interest cost 5,385 5,037 500 528
Expected return on plan assets (6,616) (6,153) -- --
Amortization of prior service cost 311 372 (483) (1,419)
Additional gain recognized due to
curtailment -- (2,722) -- (824)
Recognized actuarial (gain) or
loss 48 24 (225) (247)
--------- --------- --------- ---------
Net periodic cost (benefit) $ 2,303 $ 495 $ 213 $ (1,505)
========= ========= ========= =========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
DECEMBER 31
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected long-term rate of return
on plan assets 9.50% 9.50% N/A N/A
Rate of compensation increase 4.75% 4.75% N/A N/A
</TABLE>
ASSUMED HEALTH CARE COST TREND
For measurement purposes, a 10% annual rate of increase in the per capita cost
of covered health care benefits was assumed for Fiscal 1998. The rate is assumed
to decrease gradually to 6% for 2001 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
ONE-PERCENTAGE- ONE-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
Effect on total service and interest cost
components for Fiscal 1998 $ 103 $ (108)
Effect on Fiscal 1998 postretirement benefit
obligation 918 (870)
The sale of GTO resulted in a curtailment as defined by SFAS No. 88, EMPLOYER'S
ACCOUNTING FOR SETTLEMENTS AND CURTAILMENTS OF DEFINED BENEFIT PENSION PLANS AND
FOR TERMINATION BENEFITS. The impact of the curtailment was a net gain of
$2,722, which includes a decrease in the projected benefit obligation of $2,931
as of January 31, 1998. The Company has retained all liabilities and obligations
of the GTO plan participants up to the date of sale.
Effective June 1997, the Company terminated 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
1998, 1997 and 1996, respectively, was $33, $47, and $59.
The Company has an unfunded supplemental retirement plan for certain corporate
officers. Retirement expense for the plan in Fiscal 1998, 1997 and 1996 was
$535, $486 and $406, respectively. Prior service cost not yet recognized in
periodic pension cost was $1,289, $1,418 and $1,547, at January 31, 1999, 1998
and 1997, respectively.
34
<PAGE>
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 matching percentages were
changed as of January 1, 1999 and now provide a matching payment equal to each
dollar contributed by employees up to 1% of their annual income and twenty-five
cents for each dollar contributed in excess of 1%, subject to certain
limitations. The Company's matching contribution to the savings plan for
continuing operations was $986, $817 and $670 in Fiscal 1998, 1997 and 1996,
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 11: COMMON STOCK
STOCK REPURCHASE PROGRAM: In October, 1997 the Company's Board of Directors
authorized the repurchase of up to $120 million in its common stock. During
Fiscal 1998, the Company repurchased 5,265,120 shares of its outstanding stock
for $120 million.
SHAREHOLDER RIGHTS PLAN: The Company has 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 3,300,000,
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
amended terms of the 1988 Nonstatutory Stock Option Plan, the number of options
available for grant increased from 1,800,000 to 3,300,000 shares as of June 10,
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.
STOCK ISSUANCE: During Fiscal 1998, the Company issued 33,783 shares of common
stock to acquire an additional interest in its Venezuela affiliate from a
minority shareholder. The Company also issued under the 1996 Director Stock Plan
4,504 shares to certain directors of the Company for services rendered.
A summary of the status of the Company's stock option plans during Fiscal 1996,
1997 and 1998 is presented in the tables below:
SHARES OPTION PRICE
UNDER RANGE
OPTION PER SHARE
---------- ------------------
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
Granted 375,900 $20.00 - $28.125
Exercised (70,000) $18.75
Canceled (73,175) $18.75 - $50.25
----------
Outstanding at end of Fiscal 1997 1,367,725 $20.00 - $50.25
Granted 277,500 $21.3125 - $24.375
Exercised (17,000) $20.00
Canceled (85,250) $20.00 - $50.25
----------
Outstanding at end of Fiscal 1998 1,542,975 $20.00 - $50.25
==========
Options available for future grants at
the end of Fiscal 1998 2,094,275
==========
35
<PAGE>
During Fiscal 1997 the Company sold GTO. Those GTO employees holding stock
options were granted a one year period, from the date of sale, in which to
exercise vested options at the time of the sale. Effective February 2, 1999,
354,025 options held by employees of the Company's discontinued GTO were
canceled.
FISCAL FISCAL
1998 1997
----------- -----------
Options exercisable at end of year 775,100 552,050
Weighted average exercise price of options exercisable $ 33.14 $ 35.61
Weighted average fair value of options granted $ 11.71 $ 12.23
REMAINING
WEIGHTED AVERAGE OPTIONS OPTIONS CONTRACTUAL
EXERCISE PRICE EXERCISE PRICE OUTSTANDING EXERCISABLE LIFE (YEARS)
--------------- ---------------- ----------- ----------- ------------
$20.00 - $35.125 $29.51 1,407,375 639,500 4 - 10
$50.25 $50.25 135,600 135,600 6
----------- -----------
1,542,975 775,100
=========== ===========
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 in accordance with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the following pro forma amounts:
FISCAL FISCAL
1998 1997
-------- -------
Net earnings (loss) As Reported $(72,984) $52,263
Pro Forma (74,724) $49,869
Net earnings per share As Reported $ (2.51) $ 1.57
Pro Forma $ (2.58) $ 1.50
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 1998 and 1997:
FISCAL FISCAL
1998 1997
-------- --------
1988 Nonstatutory Stock Option Plan and
1993 Nonofficer Stock Option Plan
Risk free interest rates 5.93% 6.61%
Expected dividend yields 1.39% 0.34%
Expected volatility 35.48% 39.21%
Expected life (years) 10 10
1994 Director Stock Option Plan
Risk free interest rates 6.79% 6.79%
Expected dividend yields 1.30% 1.30%
Expected volatility 35.24% 35.24%
Expected life (years) 6 6
1996 Director Stock Plan
Risk free interest rates 5.93% 6.93%
Expected dividend yields 1.60% 0.50%
Expected volatility 35.71% 39.28%
Expected life (years) 10 10
36
<PAGE>
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.
NOTE 12: INCOME TAXES
The components of the income tax provision (benefit) and the income tax payments
are as follows:
FISCAL FISCAL FISCAL
1998 1997 1996
--------- -------- --------
Current $ 84,335 $ 4,990 $ (6,083)
Deferred (107,139) (13,065) 7,859
--------- -------- --------
Income tax provision (benefit) $ (22,804) $ (8,075) $ 1,776
========= ======== ========
Income tax payments (excluding refunds) $ 100,153 $ 15,378 $ 15,320
========= ======== ========
A reconciliation between the provision (benefit) for income taxes and income
taxes computed by applying the statutory U.S. Federal income tax rate of 35% in
Fiscal 1998, 1997 and 1996 is as follows:
FISCAL FISCAL FISCAL
1998 1997 1996
-------- ------- -------
Provision (benefit) at statutory rates $(21,599) $(7,767) $ 2,328
Other (1,205) (308) (552)
-------- ------- -------
$(22,804) $(8,075) $ 1,776
======== ======= =======
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.
The tax effects of the significant temporary differences which comprise the
deferred tax liability at the end of Fiscal 1998 and 1997 are as follows:
FISCAL FISCAL
1998 1997
-------- --------
Deferred Tax Assets
Postretirement benefit obligation $ 4,830 $ 4,640
Accrued expenses and other reserves 39,520 14,768
Property, plant and equipment 937 --
Other 3,354 33
-------- --------
Gross deferred tax assets 48,641 19,441
-------- --------
Deferred Tax Liabilities
Property, plant and equipment -- 2,544
Pension accounting 422 1,273
Contract accounting 20,737 63,928
Prepaid expenses and deferred charges 5,649 50,999
Other 3,403 11,842
-------- --------
Gross deferred tax liabilities 30,211 130,586
-------- --------
Net deferred tax (asset) liability $(18,430) $111,145
======== ========
Current portion of deferred tax (asset) liability $(10,569) $108,246
Non-current portion of deferred tax (asset) liability (7,861) 2,899
-------- --------
Net deferred tax (asset) liability $(18,430) $111,145
======== ========
37
<PAGE>
The Company believes it is more likely than not that the net deferred income tax
asset as of January 31, 1999 in the amount of $18.4 million will be realized,
based primarily upon sufficient taxable income available in carryback years as
permitted by the tax law.
NOTE 13: SUPPLEMENTAL FINANCIAL DATA
Accounts and notes receivables, net consist of the following:
FISCAL FISCAL
1998 1997
--------- ---------
Accounts receivable $ 162,219 $ 180,388
Notes receivable 13,509 26,119
Allowance for doubtful accounts (3,999) (2,236)
Less non-current portion of notes receivable (7,182) (19,238)
--------- ---------
$ 164,547 $ 185,033
========= =========
The U.S. Government accounted for approximately 15.7% and 22.5% of accounts
receivable, exclusive of the receivable due from the sale of GTO, at January 31,
1999 and 1998, 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.
Components of property, plant and equipment, net are as follows:
FISCAL FISCAL
1998 1997
--------- ---------
Machinery and equipment $ 127,947 $ 111,931
Buildings and leasehold improvements 93,868 80,511
Revenue earning assets 34,383 17,118
Accumulated depreciation and amortization (142,913) (129,408)
--------- ---------
113,285 80,152
Construction-in-progress 105 3,607
Land 15,355 13,985
--------- ---------
$ 128,745 $ 97,744
========= =========
Other accrued liabilities consist of the following:
FISCAL FISCAL
1998 1997
-------- --------
Estimated cost to perform under a government directive $ 40,000 --
Estimated obligation to perform under a debt guarantee 22,600 --
Estimated purchase price adjustment on sale of GTO -- $ 52,250
Estimated retained liabilities of GTO -- 28,026
Other 32,749 20,543
-------- --------
$ 95,349 $100,819
======== ========
38
<PAGE>
NOTE 14: CONSOLIDATED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1998
---------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 257,102 $ 321,121 $323,539 $305,010
Gross profit (loss) (45,932) 11,842 31,740 31,034
Net earnings (loss) - Continuing (49,690) (6,917) 8,437 9,165
Net earnings (loss) - Discontinued (13,979) (20,000) -- --
Net earnings (loss) per share: Basic and Diluted
Continuing operations (1.77) (.25) .30 .29
Discontinued operations (.50) (.71) -- --
--------- --------- -------- --------
Net earnings (loss) per share $ (2.27) $ (.96) $ .30 $ .29
========= ========= ======== ========
<CAPTION>
FISCAL 1997
---------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
--------- --------- -------- --------
Sales $ 334,297 $ 298,998 $248,778 $232,961
Gross profit (loss) (8,723) 33,693 30,238 27,777
Net earnings (loss) - Continuing (29,689) 3,524 6,390 5,270
Net earnings (loss) - Discontinued 356 (1,382) 1,838 4,612
Gain on disposal of discontinued
operations, net of tax 61,344 -- -- --
Net earnings (loss) per share: Basic and Diluted
Continuing operations (.90) .11 .19 .16
Discontinued operations .01 (.04) .06 .14
Gain on disposal 1.85 -- -- --
--------- --------- -------- --------
Net earnings per share $ .96 $ .07 $ .25 $ .30
========= ========= ======== ========
</TABLE>
NOTE 15: ACQUISITIONS AND DIVESTITURE
On April 12, 1997, the Company acquired Sierra Detroit Diesel Allison, Inc., a
Detroit Diesel distributor whose franchise covers northern California. The
purchase price totaled approximately $5.0 million.
On September 12, 1997, the Company acquired ownership of Carson Cogeneration,
LLP, a California independent power producer. The purchase price totaled
approximately $3.7 million. The assets and operating results of the plant prior
to the acquisition are not material to the Company's consolidated assets or
earnings. In October 1998, the Company sold the assets of Carson Cogeneration,
LLP for approximately $4.6 million realizing an approximate loss of $53.
On October 6, 1997, the Company sold its construction equipment franchise in
Houston, Texas for $30.2 million. The construction equipment franchise operated
in the gulf coast territory of Texas and primarily distributed, and provided
services for, products manufactured by John Deere Construction Equipment Company
and other companies engaged in the business of manufacturing earth moving
equipment, forestry equipment, skidsteer equipment, and utility equipment. A
gain of $4.4 million was recognized on the sale.
On March 30, 1998, the Company acquired the assets of Compression Specialties,
Inc., a compression equipment distributor in the
39
<PAGE>
business of leasing and servicing compression equipment in the State of Wyoming
and the surrounding Rocky Mountain area. The purchase price totaled
approximately $9.5 million.
On December 21, 1998 the Company acquired the assets and certain liabilities of
Tug Manufacturing Corporation, a manufacturer of airline ground support
equipment. The purchase price totaled approximately $13 million and is subject
to an upward adjustment of up to $3 million to be paid ratably over three years
if certain earnings and other performance measures are met.
On June 30, 1998 the Company acquired IPSC Co., Inc. based in Stuttgard,
Arkansas for approximately $4.2 million. IPSC Co., Inc. is the exclusive Deutz
engine distributor for Louisiana, Mississippi, Arkansas and Western Tennessee.
IPSC Co., Inc. also manufactures its own line of pumping equipment and generator
sets for agriculture, industrial and marine markets utilizing the Deutz engines.
It complements the existing engine distributorships owned by the Power Products
segment.
The Company acquired H & H Rubber on June 1, 1998 for approximately $4 million.
Based in Houston, Texas, H & H Rubber manufactures molded rubber products
utilized in the production of petroleum equipment and sells after market
products.
The Company has made other immaterial acquisitions which were included mainly in
the petroleum equipment segment with a combined purchase price of approximately
$2.9 million.
The results of all businesses acquired in fiscal years 1998 and 1997 have been
included in the consolidated financial statements from the date of acquisition.
The assets and any operations of the businesses acquired are not material to the
Company's consolidated assets or earnings. In allocating purchase price, the
assets acquired and liabilities assumed have been initially assigned and
recorded based upon preliminary estimates of fair value and may be reviewed as
additional information becomes available. As a result, the financial information
in the Company's consolidated financial statements is subject to adjustment
prospectively as subsequent revisions in estimates of fair value, if any, are
necessary.
NOTE 16: VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
SOURCES OF SUPPLY: 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. Any interruption in the
supply of materials from the original manufacturers or a termination of a
distributor agreement could have a material adverse effect on the performance of
the Power Products segment.
Additionally, the FMTV incorporates components specified by the U.S. Army which
are produced by specified sources. Interruption of the supply of any of these
components could affect the Company's ability to deliver vehicles.
CUSTOMERS: The U.S. Government is the predominant customer of the Tactical
Vehicle Systems segment, accounting for practically all of the sales of this
segment. The loss of this customer would have a material adverse effect on the
Company's consolidated financial condition and results of operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
40
<PAGE>
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 Election of Directors; Executive
Officers of the Registrant Officers; Section 16(a) Beneficial
Ownership Reporting Compliance
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 Voting Securities and Ownership
Certain Beneficial Thereof by Certain Beneficial
Owners and Management Owners and Management
Item 13. Certain Relationships Transactions with Management and
and Related Transactions Certain Business Relationships
41
<PAGE>
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, 1999 and 1998.
Consolidated Statements of Earnings--Years ended January 31, 1999, 1998
and 1997.
Consolidated Statements of Shareholders' Equity--Years ended January 31,
1999, 1998 and 1997.
Consolidated Statements of Cash Flows--Years ended January 31, 1999, 1998
and 1997.
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 21,
1999, 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.
*2.1 Transaction Agreement dated September 21, 1997 between General
Electric Company and Stewart & Stevenson Services, Inc. (Exhibit
2.1 to 9/97 8-K).
*3.1 Third Restated Articles of Incorporation of Stewart & Stevenson
Services, Inc., effective as of September 13, 1995 (Exhibit 3(a)
to 10/95 10-Q).
3.2 Fifth Restated Bylaws of Stewart & Stevenson Services, Inc.,
effective as of April 14, 1998, as amended through April 13, 1999.
*4.1 Revolving Credit Agreement effective December 20, 1996, between
Stewart & Stevenson Services, Inc. and Texas Commerce Bank
National Association, as Agent, and the other Banks named therein
(Exhibit 4.1 to 1/97 10-K).
4.2 Amendment to Loan Agreement effective August 25, 1997, between
Stewart & Stevenson Services, Inc. and Texas Commerce Bank
National Association, as Agent, and the other Banks named therein.
4.3 Agreement and Second Amendment to Loan Agreement effective January
31, 1998, between Stewart & Stevenson Services, Inc. and Chase
Bank of Texas, National Association, as Agent, and the other Banks
named therein.
4.4 Agreement and Third Amendment to Loan Agreement effective May 13,
1998, between Stewart & Stevenson Services, Inc. and Chase Bank of
Texas, National Association, as Agent, and the other Banks named
therein.
4.5 Agreement and Fourth Amendment to Loan Agreement effective October
31, 1998, between Stewart & Stevenson Services, Inc. and Chase
Bank of Texas, National Association, as Agent, and the other Banks
named therein.
42
<PAGE>
4.6 Agreement and Fifth Amendment to Loan Agreement effective April
23, 1999, between Stewart & Stevenson Services, Inc. and Chase
Bank of Texas, National Association, as Agent, and the other Banks
named therein.
*4.7 Note Purchase Agreement effective May 30, 1996, between Stewart &
Stevenson Services, Inc. and the Purchasers named therein (Exhibit
4 to 7/96 10-Q).
*4.8 Rights Agreement effective March 13, 1995, between Stewart &
Stevenson Services, Inc. and The Bank of New York (Exhibit 1 to
Form 8-A Registration Statement 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
(Exhibit 10.1 to 1/97 10-Q).
*10.2 Distributor Sales and Service Agreement effective January 1, 1996,
between the Company and Detroit Diesel Corporation (Exhibit 10.2
to 1/96 10-K).
*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 (Exhibit 28.1 of the Form S-3 Registration Statement
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 (Exhibit 28.2 of the Form S-3 Registration Statement
under the Commission File No. 33-44149).
*10.5 Stewart & Stevenson Services, Inc. Deferred Compensation Plan
dated as of December 31, 1979 (Exhibit 10.8 to 1/94 10-K).
*10.6 Stewart & Stevenson Services, Inc. 1988 Nonstatutory Stock Option
Plan (as amended and restated effective as of June 10, 1997)
(Exhibit B to 5/9/97 Proxy Statement).
*10.7 Stewart & Stevenson Services, Inc. Supplemental Executive
Retirement Plan (Exhibit 10.11 to 1/94 10-K).
*10.8 Stewart & Stevenson Services, Inc. 1996 Director Stock Plan
(Exhibit A to 5/9/97 Proxy Statement).
*10.9 Contract Number DAAE07-98-C-M005 dated October 14, 1998 between
Stewart & Stevenson Services, Inc. and the United States
Department of Defense, U.S. Army Tank-Automotive and Armaments
Command (Exhibit 10.9 to 10/98 10-Q).
21.1 List of Subsidiaries.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
27.1 Financial Data Schedule.
----------
* Incorporated by reference.
(b) Form 8-K Report Date - January 19, 1999 (Resignation of CEO)
Items reported - Item 5. Other Events
Item 7. Exhibits
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 13th day of April,
1999.
STEWART & STEVENSON SERVICES, INC.
By/S/ C. JIM STEWART II
C. Jim Stewart, II
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 13th day of April, 1999.
/s/ C. Jim Stewart II /s/ J. Carsey Manning
C. Jim Stewart II J. Carsey Manning
Director and Chief Executive Officer Director
/s/ Donald E. Stevenson /s/ Jack T. Currie
Donald E. Stevenson Jack T. Currie
Director Director
/s/ Jack W. Lander, Jr. /s/ Brian H. Rowe
Jack W. Lander, Jr. Brian H. Rowe
Director Director
/s/ Robert S. Sullivan /s/ Khleber V. Attwell
Robert S. Sullivan Khleber V. Attwell
Director Director
/s/ John H. Doster ______________________________
John H. Doster William R. Lummis
Chief Financial Officer Director
/s/ Darvin M. Winick ______________________________
Darvin M. Winick Howard Wolf
Director Director
/s/ Patrick G. O'Rourke
Patrick G. O'Rourke
Controller
44
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER AND DESCRIPTION
- -------------------------------------------
3.2 Bylaws.
4.2 Amendment to Loan Agreement.
4.3 Agreement and Second Amendment to Loan Agreement.
4.4 Agreement and Third Amendment to Loan Agreement.
4.5 Agreement and Fourth Amendment to Loan Agreement
4.6 Agreement and Fifth Amendment to Loan Agreement.
21.1 List of subsidiaries.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
27.1 Financial Data Schedule.
45
EXHIBIT 3.2
FIFTH RESTATED
BYLAWS OF
STEWART & STEVENSON SERVICES, INC.
EFFECTIVE APRIL 14, 1998
ARTICLE I
OFFICES
SECTION 1.1. OFFICES. The principal business office of the Corporation
shall be at Houston, Texas or at such other location within the State of Texas
as the Board of Directors may, from time to time, establish by resolution. The
Corporation may have such other business offices within or without the State of
Texas as the Board of Directors may from time to time establish or the business
of the Corporation may require.
ARTICLE II
CAPITAL STOCK
SECTION 2.1. CERTIFICATES REPRESENTING SHARES. Certificates representing
shares of stock of the Corporation shall be consecutively numbered and in such
form or forms as comply with the requirements of law and the Restated Articles
of Incorporation and as the Board of Directors shall approve. Such certificates
shall be signed by the President or a Vice President, and the Secretary or an
Assistant Secretary of the Corporation, and may be sealed with the seal of the
Corporation or a facsimile thereof. The signatures of the President or Vice
President and the Secretary or Assistant Secretary may be facsimiles, engraved
or printed, if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the Corporation itself or an employee of
the Corporation. In case any officer or officers who have signed or whose
facsimile signature or signatures have been placed upon such certificate shall
have ceased to be such officer or officers before such certificate is issued, it
may be adopted and issued by the Corporation with the same effect as if he or
they had not ceased to be such officer or officers as of the date of its
issuance, and the issuance and delivery thereof by the Corporation shall
constitute adoption thereof by the Corporation.
SECTION 2.2. STOCK CERTIFICATE REGISTER AND SHAREHOLDERS OF RECORD. The
Secretary of the Corporation shall keep at the registered office of the
Corporation, or cause a duly appointed transfer agent or registrar to keep at
its principal office, a share register showing the names of the shareholders and
their addresses, the number of shares held by each, the number and date of issue
of all certificates representing shares of the Corporation, the number and date
of cancellation of every certificate surrendered for cancellation and whether
such certificates originated from original issue or transfer. Such information
may be kept in any medium capable of reproducing the information in
<PAGE>
clearly legible form and shall be the official list of shareholders of record of
the Corporation for all purposes. The Corporation shall be entitled to treat the
holder of record of any shares of the Corporation as the owner thereof for all
purposes, and shall not be bound to recognize any equitable or other claim to,
or interest in, such shares or any rights deriving from such shares on the part
of any other person, including (but without limitation) a purchaser, assignee,
or transferee, unless and until such other person becomes the holder of record
of such shares, whether or not the Corporation shall have either actual or
constructive notice of the interest of such other person.
SECTION 2.3. TRANSFER OF STOCK. The shares represented by any share
certificates of the Corporation are transferable only on the stock certificate
register of the Corporation by the holder of record thereof in person or by a
duly authorized attorney or legal representative upon surrender of the
certificate for such shares properly endorsed or assigned.
SECTION 2.4. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint one or more transfer agents or registrars of the shares, or both, and
may require all share certificates to bear the signature of a transfer agent or
registrar or both.
SECTION 2.5. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may
issue a new certificate for shares of stock in the place of any certificate
theretofore issued and alleged to have been lost, stolen or destroyed, but the
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to furnish an affidavit as to such
loss, theft, or destruction and to give a bond in such form and substance, and
with such surety or sureties, with fixed or open penalty, as it may direct, to
indemnify the Corporation, and the transfer agents and registrars, if any,
against any claim that may be made on account of the alleged loss, theft or
destruction of such certificate. Any such new certificate shall be plainly
marked "Duplicate" on its face.
ARTICLE III
THE SHAREHOLDERS
SECTION 3.1. ANNUAL MEETINGS. An annual meeting of the shareholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, within or without the State of Texas, as may be
designated by the Board of Directors or officer calling the meeting at 10:00 in
the morning of the second Tuesday in June, or on such other date and time as the
Board of Directors or officer calling such meeting shall fix and set forth in
the notice of the meeting. At the annual meeting of the shareholders, only such
business shall be conducted as shall have been properly brought before the
annual meeting. To be properly brought before the annual meeting of
shareholders, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (iii) otherwise properly brought before the meeting by a
shareholder of the Corporation who is a shareholder of record at the time of
giving of notice provided for in this Section 3.1, who shall be entitled to vote
at such meeting and who complies with the notice procedures set forth in this
Section
2
<PAGE>
3.1. For business to be properly brought before an annual meeting by a
shareholder, the shareholder, in addition to any other applicable requirements,
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of shareholders of the Corporation. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting: (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business, (c) the class
and number of shares of voting stock of the Corporation which are beneficially
owned by the shareholder, (d) a representation that the shareholder intends to
appear in person or by proxy at the meeting to bring the proposed business
before the annual meeting, and (e) a description of any material interest of the
shareholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 3.1. The presiding
officer of an annual meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 3.1, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 3.1, a
shareholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section 3.1.
SECTION 3.2. SPECIAL MEETINGS. Except as otherwise provided by law or by
the Restated Articles of Incorporation, special meetings of the shareholders may
be called by the Chairman of the Board, the President, the Board of Directors,
or the holders of not less than one-tenth of all the shares having voting power
at such meeting, and shall be held at the principal office of the Corporation,
at such time as is stated in the notice calling such meeting, or at such other
place as the person or body calling such meeting may determine and state in such
notice.
SECTION 3.3. NOTICE OF MEETINGS - WAIVER. Written or printed notice,
stating the place, day and hour of any meeting and, in case of a special
shareholders' meeting, the purpose or purposes for which the meeting is called,
shall be delivered not less than ten (10) nor more than fifty (50) days before
the date of the meeting, either personally or by mail, by or at the direction of
the Chairman of the Board, the President, or the officer, body or person calling
the meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
stock certificate register of the Corporation, with postage thereon prepaid.
Such further or earlier notice shall be given as may be required by law. Waiver
3
<PAGE>
by a shareholder of notice in writing of a shareholders' meeting, signed by him,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. No notice shall be necessary for any adjourned meeting.
SECTION 3.4. CLOSING OF STOCK CERTIFICATE REGISTER AND FIXING RECORD DATE.
For the purpose of determining shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend or in order to make a determination of shareholders for
any other proper purpose, the Board of Directors of the Corporation may provide
that the stock certificate register shall be closed for a stated period but not
to exceed, in any case, fifty (50) days. If the stock certificate register shall
be closed for the purpose of determining shareholders entitled to notice of or
to vote at a meeting of shareholders, such registers shall be closed for at
least ten (10) days immediately preceding such meeting. In lieu of closing the
stock certificate register, the Board of Directors may fix in advance a date as
the record date for any such determination of shareholders, such date in any
case to be not more than fifty (50) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
If the stock certificate register is not closed and no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made, as provided in this Section, such determination
shall apply to any adjournment thereof except where the determination has been
made through the closing of the stock certificate register and the stated period
of closing has expired.
SECTION 3.5. VOTING LIST. The officer or agent having charge of the stock
certificate register for shares of the Corporation shall make, at least ten (10)
days before such meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten (10) days prior to such meeting, shall be kept
on file at the registered office of the Corporation and shall be subject to
inspection by any shareholder at any time during the usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting. Failure to comply with this Section shall not effect the
validity of any action taken at such meeting.
SECTION 3.6. QUORUM AND OFFICERS. Except as otherwise provided by law, by
the Restated Articles of Incorporation or by these Bylaws, the holders of a
majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders, but the shareholders
present at any meeting, although less than a quorum, may from time to time
adjourn the meeting to some other day and hour, without notice other than
announcement at the meeting. The vote of the holders of a
4
<PAGE>
majority of the shares entitled to vote and thus represented at a meeting at
which a quorum is present shall be the act of the shareholders' meeting, unless
the vote of a greater number is required by law, the Restated Articles of
Incorporation or these Bylaws. The Chairman of the Board, or in his absence, the
President, shall preside at and the Secretary, or in his absence, any Assistant
Secretary shall keep the records of each meeting of shareholders, and in the
absence of all such officers, their respective duties shall be performed by
persons appointed by the meeting.
SECTION 3.7. PROXIES. A shareholder may vote either in person or by proxy
executed in writing by the shareholder, or by his duly authorized
attorney-in-fact. Proxies shall be dated but need not be sealed, witnessed or
acknowledged. No proxy shall be valid after eleven (11) months from the date of
its execution unless otherwise provided in the proxy. Each proxy shall be
revocable unless provided expressly therein to be irrevocable, and unless
otherwise made irrevocable by law. Proxies shall be filed with the Secretary of
the Corporation before or at the time of the meeting.
SECTION 3.8. BALLOTING. Upon the demand of any shareholder, the vote upon
any question before the meeting shall be by ballot. At each meeting inspectors
of election may be appointed by the presiding officer of the meeting, and at any
meeting for the election of directors, inspectors shall be so appointed on the
demand of any shareholder present or represented by proxy and entitled to vote
at the election of directors. No director or candidate for the office of
directors shall be appointed as such inspector.
SECTION 3.9. VOTING RIGHTS; VOTING FOR DIRECTORS. Each outstanding share
of common stock shall be entitled to one (1) vote upon each matter submitted to
a vote at a meeting of shareholders. No shareholder shall have the right to
cumulate his votes for the election of directors, but each share shall be
entitled to one vote in the election of each director.
SECTION 3.10 NOMINATIONS FOR ELECTION AS A DIRECTOR. Only persons who are
nominated in accordance with the procedures set forth in these Bylaws and
qualify for nomination pursuant to Section 4.1 shall be eligible for election by
shareholders as, and to serve as, directors. Nominations of persons for election
to the Board of Directors of the Corporation may be made at a meeting of
shareholders (a) by or at the direction of the Board of Directors or a duly
constituted committee thereof or (b) by any shareholder of the Corporation who
is a shareholder of record at the time of giving of notice provided for in this
Section 3.10, who shall be entitled to vote for the election of directors at the
meeting and who complies with the notice procedures set forth in this Section
3.10. Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation (i) with respect to an election to be held at the annual meeting of
the shareholders of the Corporation, not less than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of shareholders of
the Corporation, and (ii) with respect to an election to be held at a special
meeting of shareholders of the Corporation for the election of
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directors not later than the close of business on the tenth (10th) day following
the day on which notice of the date of the special meeting was mailed to
shareholders of the Corporation as provided in Section 3.3 or public disclosure
of the date of the special meeting was made, whichever first occurs. Such
shareholder's notice to the Secretary shall set forth (x) as to each person whom
the shareholder proposes to nominate for election or re-election as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including such person's written consent to being named in the proxy statement
as a nominee and to serve as a director if elected), and (y) as to the
shareholder giving the notice (i) the name and address, as they appear on the
Corporation's books, of such shareholder and (ii) the class and number of shares
of voting stock of the Corporation which are beneficially owned by such
shareholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the Corporation that information required to be set forth in a shareholder's
notice of nomination which pertains to the nominee. In the event that a person
is validly designated as a nominee to the Board of Directors in accordance with
the procedures set forth in this Section 3.10 and shall thereafter become unable
or unwilling to stand for election to the Board of Directors, the Board of
Directors or the shareholder who proposed such nominee, as the case may be, may
designate a substitute nominee. Other than directors chosen pursuant to the
provisions of Section 4.3, no person shall be eligible to serve as a director of
the Corporation unless nominated in accordance with the procedures set forth in
this Section 3.10. The presiding officer of the meeting of shareholders shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by these Bylaws, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provisions of
this Section 3.10, a shareholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder with respect to the matters set forth in this Section
3.10.
ARTICLE IV
THE BOARD OF DIRECTORS
SECTION 4.1. NUMBER AND QUALIFICATIONS. The business and affairs of the
Corporation shall be managed and controlled by the Board of Directors, and
subject to any restrictions imposed by law, by the Restated Articles of
Incorporation, or by these Bylaws, the Board of Directors may exercise all the
powers of the Corporation. The Board of Directors shall consist of ten (10)
members. The number thereof may be increased or decreased from time to time by
amendment to these Bylaws, but no decrease shall have the effect of shortening
the term of any incumbent director. Directors need not be residents of Texas and
need not be shareholders. No person shall be qualified for election or
re-election as a director of the Corporation if: (i) he was originally elected
as a director of the Corporation on or before June 19, 1981 and has attained the
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age of 75 years prior to the date that such qualification is determined; or (ii)
he was originally elected or nominated for election as a director for the
Corporation after June 19, 1981, and has attained the age of 73 prior to the
date that such qualification is determined; or (iii) he is an incumbent director
and has attended fewer than fifty (50%) percent of the meetings of the Board of
Directors held during any fiscal year commencing after January 31, 1981, which
such incumbent was entitled to attend as a director.
SECTION 4.2. CLASSIFICATION AND TERM. The Board of Directors shall be
divided into three classes, each class consisting as nearly as possible of
one-third (1/3) of the number of directors that make up the full Board of
Directors. At each annual meeting of shareholders, the number of directors equal
to the number of the class whose term expires at the time of such meeting shall
be elected to hold office until the third succeeding annual meeting of
shareholders.
SECTION 4.3. VACANCIES. Any vacancy on the Board of Directors may be
filled by the vote of a majority of the remaining directors though less than a
quorum of the Board of Directors; provided, that the Board of Directors may not
fill more than two (2) vacancies caused by an increase in the number of
directors during any period between two (2) successive annual meetings of
shareholders. A director elected to fill a vacancy shall hold office for the
unexpired portion of his predecessor's term if such vacancy was created by the
death, resignation, disqualification or removal of a director or until the next
annual meeting of shareholders if such vacancy was created by an increase in the
size of the Board of Directors.
SECTION 4.4. PLACE OF MEETING. Meetings of the Board of Directors may be
held either within or without the State of Texas, at whatsoever place is
specified by the officer or director calling the meeting. In the absence of
other designation, the meeting shall be held at the principal business office of
the Corporation.
SECTION 4.5. REGULAR MEETINGS. The Board of Directors shall hold no fewer
than four (4) regular meetings in each fiscal year. One such regular meeting
(the "Annual Meeting of Directors") shall be held immediately following the
annual meeting of shareholders, at the place of such shareholder meeting, and
the other regular meetings shall be held at such times and places as the Board
of Directors shall establish by resolution at the regular meeting following the
annual meeting of shareholders. No notice of any kind of such regular meetings
shall be necessary to either old or new members of the Board of Directors.
SECTION 4.6. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held at any time by call of the Chairman of the Board, the President
(if a director) or by a majority of the directors. The Secretary or officer
performing his duties shall give notice of special meetings to each director at
his usual business or residence address by mailing such notice at least five (5)
days or one hundred twenty (120) hours before the meeting or by delivering the
same at least one (1) day or twenty-four (24) hours before the meeting. No
notice shall be necessary for any adjourned meeting. A waiver of notice of any
special meeting, in writing, signed by the person or persons entitled to such
notice,
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whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Such notice or waiver thereof need not specify the
business to be transacted at, or the purpose of, such meeting. Attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express and announced purpose
of objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened.
SECTION 4.7. QUORUM. Seven directors shall constitute a quorum for the
transaction of business. The act of a majority of the directors present at a
meeting at which a quorum is in attendance shall be the act of the Board of
Directors unless a larger number is required by applicable law, the Restated
Articles of Incorporation or these Bylaws, but any one or more directors,
although less than a quorum, may adjourn the meeting to some other day or hour.
SECTION 4.8. CHAIRMAN OF THE BOARD. At each Annual Meeting of Directors,
the Board of Directors shall elect from its membership a Chairman of the Board
who shall serve in such capacity until the next Annual Meeting of Directors or
until his death, resignation, disqualification or removal if sooner. The
Chairman of the Board shall preside at all meetings of the Board of Directors
and at all meetings of the shareholders of the Company.
SECTION 4.9. PROCEDURE AT MEETINGS. The Chairman of the Board shall
preside at meetings of the Board of Directors. In his absence at any meeting,
the President (if a director) shall preside, and in the absence of both the
Chairman of the Board and the President, a member of the Board of Directors
selected by the members present shall preside. The Secretary of the Corporation
shall act as secretary at all meetings of the Board, or in his absence the
presiding officer of the meeting may designate any person to act as secretary.
At meetings of the Board of Directors, business shall be transacted in such
order as from time to time the Board of Directors may determine.
SECTION 4.10. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
SECTION 4.11. COMPENSATION. Directors as such shall not receive any stated
salary for their service, but by resolution of the Board of Directors (a) an
annual directors fee and (b) a fixed sum and expenses for attendance, if any,
may be allowed to each director who is not an officer or employee of the
Corporation for attendance at each regular or special meeting of the Board of
Directors or of any Committee thereof; but nothing herein shall preclude any
director from serving the Corporation in any other capacity or receiving
compensation therefor.
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SECTION 4.12. STANDING COMMITTEES. The Board of Directors by resolution
adopted by a majority of the number of directors fixed by the Bylaws shall
designate from their number an Executive Committee and an Audit Committee.
The Executive Committee shall consist of five (5) persons. Each member
shall serve until the next annual meeting of shareholders or until such
director's retirement, removal, disqualification, or death. The Executive
Committee shall meet upon the call of the chairman of such committee or any two
(2) members thereof and shall have and may exercise all of the authority of the
Board of Directors in the business and affairs of the Corporation except (a) the
power to authorize or approve the sale or other transfer of any real property
now owned or hereafter acquired by the Corporation; (b) the power to vote,
direct the vote or grant proxies relating to any stock owned by the Corporation;
(c) the power to authorize or approve purchases or commitments for goods or
services with an aggregate market value in any single transaction or group of
related transactions exceeding $5,000,000 except for goods and services
purchased in the ordinary course of business for inventory or pursuant to
capital expenditure budgets approved by the Board of Directors; (d) the power to
authorize or approve the incurrence or guaranty of indebtedness with an original
principal amount in excess of $1,000,000 and a maturity of longer than one (1)
year; (e) the power to make loans, guaranties, investments, or other commitments
outside the ordinary course of business in excess of $5,000,000 at any time
outstanding to any one person or group of persons; and (f) where action of the
Board of Directors is specified by the Texas Business Corporation Act or by
other applicable law.
The Audit Committee shall consist of four (4) persons, all of whom shall
be independent of management and free of any relationship that, in the opinion
of the Board of Directors, would interfere with the exercise of independent
judgment as a committee member. Each member shall serve until the next annual
meeting of shareholders or until such director's retirement, removal,
disqualification, or death. The Audit Committee shall meet no fewer than two (2)
times in each fiscal year of the Corporation upon the call of the chairman of
such committee or any two (2) members thereof and shall have and may exercise
such responsibilities, authority and power as the Board of Directors specifies.
The designation of Standing Committees and delegation of authority thereto
shall not operate to relieve the Board of Directors, or any member thereof, of
any responsibility imposed upon it or him by law.
SECTION 4.13. OTHER COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors, by resolution adopted by a majority of the number of directors fixed
by the Bylaws, may designate from their number such compensation, nominating and
other committees as they shall, from time to time, deem necessary and proper.
Such committees shall be composed of not less than three members and shall have
and exercise such of the Board of Directors' authority as shall by resolution,
be delegated to it. The designation of such other committees and the delegation
of authority thereto shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility imposed upon it or him by law.
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SECTION 4.14. MEETINGS AND REPORTS OF THE COMMITTEES. The Committees shall
meet from time to time as set forth in the Bylaws and on call of the Chairman or
any two or more members thereof. Notice of each such meeting, stating the place,
day and hour thereof, shall be served personally on each member of such
Committee, or shall be mailed, delivered or telephoned to his address on the
books of the Corporation, at least twenty-four (24) hours before the meeting. No
such notice need state the business proposed to be transacted at the meeting. No
notice of the time or place of any meeting of such Committee need be given to
any member thereof who attends in person or who, in writing executed and filed
with the records of the meeting either before or after the holding thereof,
waives such notice. No notice need be given of an adjourned meeting of any
Committee. Meetings of the Committees may be held at such place or places,
either within or outside of the State of Texas, as such Committee shall
determine, or as may be specified or fixed in the respective notices or waivers
thereof. Each Committee may fix its own rules of procedure. They shall keep
record of their proceedings and shall report these proceedings to the Board of
Directors at the regular meetings thereof held next after they have been taken.
SECTION 4.15. ADVISORY DIRECTORS. The Board of Directors, by resolution
adopted by a majority of the number of directors fixed by the Bylaws, may
appoint from those persons who have previously served as a director of the
Corporation, such advisory directors as the Board of Directors may, from time to
time, determine to be desirable. Such advisory directors shall be ex-officio
members of the Board of Directors, shall hold office from the date elected until
the next following annual meeting of the Board of Directors unless sooner
removed in the manner provided for the removal of Directors, shall be entitled
to receive notice of and to attend all meetings of the Board of Directors and
shall be reimbursed for all out-of-pocket expenses incurred to attend meetings
of the Board of Directors. Advisory directors shall not be a member of any
committee of the Board of Directors, vote on any matter brought before the Board
of Directors for action or be counted for the purposes of determining whether a
quorum exists. Failure to notify the advisory directors of any meeting shall not
render any meeting or any action taken at such meeting void.
ARTICLE V
OFFICERS
SECTION 5.1. NUMBER. The officers of the Corporation shall consist of the
President, Secretary, Treasurer and Controller; and, in addition, such Vice
Presidents, other officers and assistant officers and agents as may be deemed
necessary and elected or appointed by the Board of Directors. The Board of
Directors may by resolution designate any officer as the Chief Executive
Officer, Chief Financial Officer, Chief Accounting Officer, or other title. Any
two or more offices may be held by the same person.
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SECTION 5.2. ELECTION; TERM; QUALIFICATION. Officers shall be chosen by
the Board of Directors at the Annual Meeting of the Directors and may be chosen
at any other meeting of the Board of Directors. Each officer shall hold office
until the next following Annual Meeting of Directors, or until his death,
resignation, retirement or removal.
SECTION 5.3. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors at its pleasure, but
such removal shall be without prejudice to other contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create any contract rights.
SECTION 5.4. RETIREMENT. No person may serve as an officer of the
Corporation after the last day of the fiscal year in which such officer
celebrates his sixty-fifth birthday or such later date as is necessary to comply
with applicable laws.
SECTION 5.5. VACANCIES. Any vacancy in any office for any cause may
be filled by the Board of Directors at any meeting.
SECTION 5.6. DUTIES. The officers of the Corporation shall have such
powers and duties, except as modified by the Board of Directors, as generally
pertain to their offices, respectively, as well as such powers and duties as
from time to time shall be conferred by the Board of Directors and by these
Bylaws.
SECTION 5.7. THE PRESIDENT. The President shall, subject to the control of
the Board of Directors, have general supervision and control over all of the
business, assets and affairs of the Corporation. All other officers shall report
as directed by the President. In the absence of the Chairman of the Board, the
President shall perform all of the duties of the Chairman of the Board, and when
so acting shall have all of the powers of, and be subject to all restrictions
upon, the Chairman of the Board.
SECTION 5.8. SECRETARY. The Secretary shall: (a) keep the minutes of all
meetings of the shareholders, of the Board of Directors, and of all committees
of the Board of Directors, in one or more books provided for that purpose and
shall distribute a copy of all such minutes to the members of the Board of
Directors immediately on receipt thereof, (b) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law,
(c) be custodian of the corporate records and of the seal of the Corporation and
see that the seal of the Corporation is affixed to all documents the execution
of which on behalf of the Corporation under its seal is duly authorized, (d)
have general charge of the stock certificate register, transfer books and stock
ledgers, and such other books and papers as the Board of Directors may direct,
of the Corporation, all of which shall, at all reasonable times, be open to the
examination of any director, upon application at the office of the Corporation
during business hours, and (e) in general perform all duties and exercise all
powers incident to the office of the Secretary and such other duties and powers
as the Board of Directors or the President from time to time may assign to or
confer on him.
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SECTION 5.9. TREASURER. The Treasurer shall be legal custodian of all
monies, notes, securities, and other valuables which may from time to time come
into the possession of the Corporation and shall perform such other duties as
the Bylaws may require or the Board of Directors may prescribe. The Treasurer
shall have the power and authority to incur or guaranty indebtedness on behalf
of the Corporation without the prior approval of the Board of Directors provided
that the original principal amount thereof is less than $1,000,000 and the
original maturity is less than one year.
SECTION 5.10. CONTROLLER. The Controller shall keep complete and accurate
books and records of account showing accurately at all times the financial
condition of the Corporation. He shall furnish at meetings of the Board of
Directors, or whenever requested, a statement of the financial condition of the
Corporation, and shall perform such other duties as the Bylaws may require or
the Board of Directors may prescribe.
SECTION 5.11. THE VICE PRESIDENTS. The Board of Directors may from time to
time elect such Vice Presidents as the Board of Directors deems appropriate and
assign thereto such general or specific powers, authority and responsibility as
the Board of Directors deems appropriate. The Board of Directors may specify the
order in which the Vice Presidents may act in the absence of the President. Any
action taken by a Vice President in the performance of the duties of President
shall be conclusive evidence of the absence of the President. The Vice
Presidents shall perform such other duties as may, from time to time, be
assigned to them by the Board of Directors or the President. A Vice President
may also sign with the Secretary or an Assistant Secretary certificates of stock
of the Corporation.
SECTION 5.12. ASSISTANT OFFICERS. Any Assistant Secretary, Assistant
Treasurer or Assistant Controller appointed by the Board of Directors shall have
power to perform, and shall perform, all duties incumbent upon the Secretary,
the Treasurer or the Controller of the Corporation, respectively, subject to the
general direction of such officers, and shall perform such other duties as the
Bylaws may require or the Board of Directors may prescribe.
SECTION 5.13. SALARIES. The salaries or other compensation of the officers
shall be fixed from time to time by the Board of Directors. No officer shall be
prevented from receiving such salary or other compensation by reason of the fact
that he is also a director of the Corporation.
SECTION 5.14. BONDS OF OFFICERS. The Board of Directors may secure the
fidelity of any or all of such officers by bond or otherwise, in such terms and
with such surety or sureties, conditions, penalties or securities as shall be
required by the Board of Directors.
SECTION 5.15. DELEGATION. The Board of Directors may delegate temporarily
the powers and duties of any officer of the Corporation, in case of his absence
or for any other reason, to any other officer, and may authorize the delegation
by any officer of the Corporation of any of his powers and duties to any agent
or employee subject to the general supervision of such officer.
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ARTICLE VI
MISCELLANEOUS
SECTION 6.1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents, of the Corporation to enter into any contract or
execute and deliver any instrument in the name of or on behalf of the
Corporation, and such authority may be general or confined to specific
instances; and, unless so authorized by the Board of Directors or by these
Bylaws, no officer, agent or employee shall have any power or authority to bind
the Corporation by any contract or engagement, or to pledge its credit or to
render it liable pecuniarily for any purpose or to any amount.
SECTION 6.2. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officers or employees of the
Corporation as shall from time to time be authorized pursuant to these Bylaws or
by resolution of the Board of Directors.
SECTION 6.3. DEPOSITORIES. All funds of the Corporation shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies, or other depositories as the Board of Directors may from time to time
designate, upon such terms and conditions as shall be fixed by the Board of
Directors. The Board of Directors may from time to time authorize the opening
and keeping with any such depository as it may designate of general and special
bank accounts, and may make such special rules and regulations with respect
thereto, not inconsistent with the provisions of these Bylaws, as it may deem
expedient.
SECTION 6.4. ENDORSEMENT OF STOCK CERTIFICATES. Subject to the specific
directions of the Board of Directors, any share or shares of stock issued by any
corporation and owned by the Corporation (including reacquired shares of the
Corporation) may, for sale or transfer, be endorsed in the name of the
Corporation by the President or any Vice President, and attested or witnessed by
the Secretary or any Assistant Secretary either with or without affixing the
corporate seal.
SECTION 6.5. VOTING OF SHARES OWNED BY THE CORPORATION. Subject to the
direction of the Board of Directors, the President, the Secretary and the
Treasurer, or any of them, shall have the power and authority on behalf of the
Corporation to attend and to vote and to grant proxies to be used at any meeting
of shareholders of any corporation in which the Corporation may hold stock. The
Board of Directors may confer like powers upon any other person or persons.
SECTION 6.6. CORPORATE SEAL. The corporate seal shall be in the form of a
five pointed star surrounded by the words "Stewart & Stevenson Services, Inc.,"
and such seal, or a facsimile thereof, may be impressed on, affixed to, or in
any manner
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reproduced upon, instruments of any nature required to be executed by officers
of the Corporation.
SECTION 6.7. FISCAL YEAR. The fiscal year of the Corporation shall begin
on February 1 and end on January 31 of the next following year, or on such other
dates as the Board of Directors at any time shall determine.
SECTION 6.8. RESIGNATIONS. Any director or officer may resign at any time.
Such resignations shall be made in writing and shall take effect at the time
specified therein, or, if no time be specified, at the time of its receipt by
the Chairman of the Board, President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
SECTION 6.9. INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Corporation
shall indemnify any person against any judgment, penalty, fine, settlement and
reasonable expenses incurred by him in connection with any threatened, pending
or completed action, suit or proceeding in which such person is or is threatened
to be made a party because he is or was serving as an officer or director of the
Corporation or at the request of the Corporation as an officer, director,
partner, venturer, proprietor, trustee, employee, agent or other functionary of
another entity and (i) such person is wholly successful in the defense thereof,
or (ii) it is determined in the manner required by law that such person
conducted himself in good faith, reasonably believed that his conduct was in the
best interest of the Corporation and had no reasonable cause to believe that his
conduct was unlawful; provided, however, that no person shall be indemnified if
such indemnity is prohibited by applicable law. Any such indemnification shall
be reported in writing to the shareholders of the Corporation on or before the
notice or waiver of notice of the next shareholders' meeting and in any event
within twelve (12) months of the indemnification. The right of indemnification
under this Section 6.9 shall be in addition to any other rights to which such
persons may be entitled and is intended to provide the broadest benefits
permitted by law.
SECTION 6.10. LOANS TO AND GUARANTIES FOR OFFICERS AND DIRECTORS. The
Corporation shall not lend money to or guaranty the indebtedness of any of its
officers or directors unless such loan or guaranty is approved by the number of
directors equal to a majority of the full Board of Directors none of whom are
then or will become as a result of such action indebted to the Corporation and
on the express finding by such directors that such loan or guaranty is
reasonably expected to directly or indirectly benefit the Corporation.
ARTICLE VII
AMENDMENTS
SECTION 7.1. AMENDMENTS. The Board of Directors, by the affirmative vote
of seven directors may alter, amend or repeal these Bylaws or adopt new Bylaws.
The shareholders by affirmative vote of two-thirds (2/3) of the issued and
outstanding shares entitled to vote may alter, amend or repeal these Bylaws or
adopt new Bylaws, without notice at any regular meeting, or if notice of the
proposed amendment be contained in the notice of any special meeting.
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FIRST AMENDMENT TO THE FIFTH RESTATED BYLAWS
OF STEWART & STEVENSON SERVICES, INC.
Effective as of June 9, 1998, the first sentence of the second paragraph in
Section 4.12 of the Bylaws of Stewart & Stevenson Services, Inc. was amended to
read as follows:
"The Executive Committee shall consist of four (4) persons."
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SECOND AMENDMENT TO THE FIFTH RESTATED BYLAWS
OF STEWART & STEVENSON SERVICES, INC.
Effective as of December 8, 1998, Section 4.1 of the Fifth Restated Bylaws of
Stewart & Stevenson Services, Inc. was amended in its entirety to read as
follows:
"SECTION 4.1. NUMBER AND QUALIFICATIONS. The business and affairs of the
Corporation shall be managed and controlled by the Board of Directors, and
subject to any restrictions imposed by law, by the Restated Articles of
Incorporation, or by these Bylaws, the Board of Directors may exercise all
the powers of the Corporation. The Board of Directors shall consist of ten
(10) members. The number thereof may be increased or decreased from time
to time by amendment to these Bylaws, but no decrease shall have the
effect of shortening the term of any incumbent director. Directors need
not be residents of Texas and need not be shareholders. Directors shall
retire as of the date of the annual meeting of shareholders first
occurring following the Director's 73rd birthday; provided, that any
Director who was originally elected on or before June 19, 1981 shall not
be required to retire until the date of the annual meeting of shareholders
first occurring following such Director's 75th birthday. No person shall
be qualified for election or re-election as a director of the Corporation
if he is an incumbent director and has attended fewer than fifty (50%)
percent of the meetings of the Board of Directors held during any fiscal
year commencing after January 31, 1981, which such incumbent was entitled
to attend as a director."
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THIRD AMENDMENT TO THE FIFTH RESTATED BYLAWS
OF STEWART & STEVENSON SERVICES, INC.
Effective as of April 13, 1999, Section 4.1 of the Fifth Restated Bylaws of
Stewart & Stevenson Services, Inc. was amended in its entirety to read as
follows:
"SECTION 4.1. NUMBER AND QUALIFICATIONS. The business and affairs of the
Corporation shall be managed and controlled by the Board of Directors, and
subject to any restrictions imposed by law, by the Restated Articles of
Incorporation, or by these Bylaws, the Board of Directors may exercise all
the powers of the Corporation. The Board of Directors shall consist of
eleven (11) members. The number thereof may be increased or decreased from
time to time by amendment to these Bylaws, but no decrease shall have the
effect of shortening the term of any incumbent director. Directors need
not be residents of Texas and need not be shareholders. Directors shall
retire as of the date of the annual meeting of shareholders first
occurring following the Director's 73rd birthday; provided, that any
Director who was originally elected on or before June 19, 1981 shall not
be required to retire until the date of the annual meeting of shareholders
first occurring following such Director's 75th birthday. No person shall
be qualified for election or re-election as a director of the Corporation
if he is an incumbent director and has attended fewer than fifty (50%)
percent of the meetings of the Board of Directors held during any fiscal
year commencing after January 31, 1981, which such incumbent was entitled
to attend as a director."
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EXHIBIT 4.2
AMENDMENT TO LOAN AGREEMENT
THIS AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT"), dated as of August
25,1997, is made and entered into by and among STEWART & STEVENSON SERVICES,
INC. (the "BORROWER"), a Texas corporation; the financial institutions listed on
the signature pages hereto (collectively, the "LENDERS") and TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, a national banking association domiciled in Houston,
Harris County, Texas, acting in its capacity as agent for the Lenders (in such
capacity, the "AGENT"). The Borrower, the Lenders and the Agent are herein
sometimes called the "PARTIES".
RECITALS:
1 . The Parties have entered into a Loan Agreement dated as of December
20, 1996 (which Loan Agreement, as amended to the date hereof, is herein called
the "LOAN AGREEMENT").
2. The Parties desire to amend the Loan Agreement in certain respects to
(a) increase the Maximum Commitment and (b) provide for a new financial
institution to become a Lender, all as is more fully described below.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
the Parties, the Parties agree as follows:
1. MAXIMUM COMMITMENT. The definition of "Maximum Commitment" in Section 1
of the Loan Agreement is amended to provide in its entirety as follows:
MAXIMUM COMMITMENT means Two Hundred Fifty Million Dollars
($250,000,000).
2. ADDITION OF LENDER. Credit Lyonnais New York Branch is hereby added as
a Lender. The dollar amount of Credit Lyonnais New York Branch's interest in the
Maximum Commitment as of the date hereof is set forth opposite its name on its
signature page of this Amendment.
3. TRANSITION.
(a) Certain Alternate Rate Borrowings are outstanding as of the date
hereof, and the Parties do not wish to disturb such Alternate Rate Borrowings.
Notwithstanding anything in the Loan Agreement as amended by this Amendment to
<PAGE>
the contrary, (1) a Lender with an Alternate Rate Borrowing (a "TRANSITION
BORROWING") outstanding as of the date hereof shall retain such Transition
Borrowing, with no change in its amount resulting from the change of such
Lender's Percentage effected by this Amendment, and such Lender shall be
entitled to the payment of the principal of and accrued interest on such
Transition Borrowing; (2) new Loans made after the date hereof (including the
renewal of any Transition Borrowing at the end of its Interest Period, if the
Borrower elects to renew such Loan pursuant to the terms and conditions of the
Loan Agreement, or the conversion of any Transition Borrowing) shall be made in
accordance with the Lenders' new Percentages (PROVIDED that in no event shall
any Lender have an obligation to make Loans at any one time outstanding in
excess of such Lender's Percentage of the Commitment); (3) the Agent shall
determine the maximum aggregate amount of Loans which may be outstanding for all
of the Lenders and for each Lender--after giving effect to the proviso of the
immediately preceding clause--for each day while there exists any Transition
Borrowing, and such amounts shall be the "Commitment" and each Lender's interest
in the Commitment for purposes of determining the commitment fee due under
Section 2(c) of the Loan Agreement and for the allocation of that commitment
fee; (4) if (A) an Event of Default occurs while any Transition Borrowing is
outstanding and (B) the Agent or any Lender exercises any of its remedies for
such Event of Default, then (but only for the purposes of allocating payments of
principal and interest by or on the account of the Borrower) the Percentage of a
Lender shall be such Lender's interest in all of the outstanding Loans, and (5)
for all other purposes under the Credit Documents, the Percentages of the
Lenders and the Commitment shall be determined without reference to this
Section.
(b) On the date this Amendment becomes effective, (1) Credit Lyonnais New
York Branch shall fund its Percentage of all then-outstanding Base Rate
Borrowings to the Agent and (2) the Agent shall allocate such fundings to all of
the other Lenders, to reduce their share of all then-outstanding Base Rate
Borrowings, in accordance with their respective Percentages. Notwithstanding
anything in the Loan Agreement as amended by this Amendment or the other Credit
Documents to the contrary, interest accruing on the Base Rate Borrowings through
the effective date of this Amendment shall be allocated among the Lenders in
accordance with their respective Percentages as in effect immediately before the
effective date of this Amendment.
(c) Notwithstanding anything in the Loan Agreement as amended by this
Amendment to the contrary, commitment fees accruing under SECTION 2(C) of the
Loan Agreement through the effective date of this Amendment shall be allocated
among the Lenders in accordance with their respective Percentages as in effect
immediately before the effective date of this Amendment.
4. CONDITIONS PRECEDENT. This Amendment shall be effective as of the date
set forth above, subject to the satisfaction, in a manner satisfactory to the
Agent, of each of the following conditions precedent:
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<PAGE>
(a) The Agent shall have received the following, each of which shall be in
form and substance satisfactory to the Agent in its sole discretion and duly and
validly executed:
(1) A certificate of the Secretary or any Assistant Secretary of the
Borrower, dated as of the date hereof, as to (A) the resolutions of the Board of
Directors of the Borrower authorizing the execution, delivery and performance of
this Amendment (a copy of such resolutions to be attached to such certificate),
such certificate to state that said copy is a true and correct copy of such
resolutions and that such resolutions were duly adopted and have not been
amended, superseded, revoked or modified in any respect and remain in full force
and effect as of the date of such certificate and (B) the absence of any change
since December 20, 1996, in any of (x) the incumbency and signatures of the
officer or officers of the Borrower; (y) the Articles of Incorporation of the
Borrower, or (z) the Bylaws of the Borrower; and
(2) this Amendment, duly executed by the Borrower, the Lenders and
the Agent.
(b) Credit Lyonnais New York Branch shall have received a new Note, in the
maximum principal amount of $25,000,000.
(c) The Agent shall have received a legal opinion from the general counsel
for the Borrower acceptable to the Agent and the Majority Lenders.
(d) The Borrower shall have paid all accrued and unpaid fees and other
amounts in connection with this Amendment.
(e) No Default shall have occurred and be continuing.
(f) Such effectiveness shall not violate any legal requirement applicable
to the Agent or any Lender.
5. REPRESENTATIONS TRUE; NO DEFAULT. The Borrower represents and warrants
to the Agent and each Lender that (a) the representations and warranties
contained in the Loan Agreement and in the other Credit Documents are true and
correct on and as of the date hereof as though made on and as of such date
(except to the extent such representations and warranties are expressly stated
to be made solely as of an earlier date) and (b) no event has occurred and is
continuing which constitutes an Event of Default under the Loan Agreement or any
of the other Credit Documents or which upon the giving of notice or the lapse of
time or both would constitute such an Event of Default.
6. RATIFICATION. Except as expressly amended hereby, the Loan Agreement,
as hereby amended, and the other Credit Documents are in all respects ratified
and confirmed and are, and shall continue to be, in full force and effect. The
Borrower hereby agrees and acknowledges that all of its liabilities and
obligations under the Loan
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<PAGE>
Agreement, the other Credit Documents, or otherwise, remain in full force and
effect as of the date of this Amendment. The New Lenders hereby (a) acknowledges
receipt of copies of all of the Credit Documents (including agreements
exclusively among the Agent and the Lenders) and (b) acknowledges and agrees
that (1) it has, independently and without reliance upon the Agent or any other
Lender and based on the financial statements of the Borrower delivered to such
New Lender by the Borrower and such other documents and information as such New
Lender has deemed appropriate, made its own credit analysis and decision to
become a Lender and (2) it is a Lender for all purposes under the Credit
Documents, with all of the liabilities and obligations of a Lender with its
interest in the Maximum Commitment.
7. DEFINITIONS AND REFERENCES. Unless otherwise defined herein, terms used
herein which are defined in the Loan Agreement or in the other Credit Documents
shall have the meanings therein ascribed to them. The term "Agreement" as used
in the Loan Agreement and the term "Loan Agreement" as used in the other Credit
Documents or any other instrument, document or writing furnished to the Agent or
any Lender by or on behalf of the Borrower shall mean the Loan Agreement as
hereby amended.
8. EXPENSES; ADDITIONAL INFORMATION. The Borrower shall pay to the Agent
on demand all expenses (including reasonable counsel's fees) incurred in
connection with the preparation, reproduction, execution and delivery of this
Amendment and with respect to advising the Agent as to its rights and
responsibilities under the Loan Agreement, as hereby amended. In addition, the
Borrower shall pay all costs and expenses of the Agent and each Lender
(including counsel's fees) in connection with the enforcement of this Amendment.
9. SEVERABILITY. If any term or provision of this Amendment or the
application thereof to any person or circumstances shall, to any extent, be
deemed invalid or unenforceable, the remainder of this Amendment, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and this Amendment shall be valid and enforced to the fullest extent
permitted by applicable law. Any provision of this Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions thereof or affecting the validity or
enforceability of such provision in any other jurisdiction and, to this end, the
provisions of this Amendment are severable.
10. INDEMNIFICATION. THE BORROWER SHALL INDEMNIFY THE AGENT, THE 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
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<PAGE>
OR PROPOSED USE BY THE BORROWER OF THE PROCEEDS OF ANY LOAN MADE OR LETTER OF
CREDIT ISSUED BY ANY LENDER OR GROWING OUT OF OR RESULTING FROM ANY CREDIT
DOCUMENT OR ANY TRANSACTION OR EVENT CONTEMPLATED THEREIN; (B) VIOLATION BY THE
BORROWER OR ANY OF ITS SUBSIDIARIES OF ANY LAW, RULE, REGULATION OR ORDER
INCLUDING THOSE RELATING TO HAZARDOUS SUBSTANCES, PETROLEUM, PETROLEUM PRODUCTS
OR PETROLEUM WASTES; (C) ANY LENDER OR THE AGENT BEING DEEMED AN OPERATOR OF ANY
OF THE 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, PETROLEUM, PETROLEUM PRODUCT OR PETROLEUM WASTE LOCATED IN
ON OR UNDER SUCH PROPERTY, 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 THE LOAN AGREEMENT (AS AMENDED BY THIS AMENDMENT AND
AS IT MAY OTHERWISE BE AMENDED, RESTATED, MODIFIED AND SUPPLEMENTED FROM TIME TO
TIME) AND THE REPAYMENT AND EXPIRY OF THE LOANS AND ALL LETTER OF CREDIT
LIABILITIES. ANY AMOUNT TO BE PAID UNDER THIS SECTION BY THE BORROWER TO THE
AGENT OR ANY LENDER SHALL BE A DEMAND OBLIGATION OWING BY THE BORROWER TO THE
AGENT OR SUCH LENDER AND SHALL BEAR INTEREST FROM THE DATE OF EXPENDITURE UNTIL
PAID AT THE PAST DUE RATE.
11. RELEASE OF CLAIMS. THE BORROWER HEREBY RELEASES, DISCHARGES AND
ACQUITS FOREVER THE AGENT AND THE 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 THE BORROWER, IF LATER). 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.
12. MISCELLANEOUS. This Amendment (a) shall be binding upon and inure to
the benefit of the Borrower, the Agent and the Lenders and their respective
successors, assigns, receivers and trustees (however, the Borrower may not
assign its rights hereunder without the express prior written consent of the
Lenders); (b) may be modified or amended only by a writing signed by each party;
(c) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES) AND OF THE
UNITED STATES OF AMERICA; (d) may be executed in several counterparts, and by
the Parties on separate counterparts, and each counterpart, when so executed and
delivered, shall constitute an original agreement,
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<PAGE>
and all such separate counterparts shall constitute but one and the same
agreement, and (e) embodies the entire agreement and understanding between the
Parties with respect to the subject matter hereof and supersedes all prior
agreements, consents and understandings relating to such subject matter. The
headings herein shall be accorded no significance in interpreting this
Amendment.
13. THIS AMENDMENT TOGETHER WITH ALL OF THE OTHER CREDIT DOCUMENTS
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AS TO THE SUBJECT MATTER HEREOF
AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
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<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed
by their respective duly authorized officers effective as of the date written
above.
STEWART & STEVENSON SERVICES, INC.,
a Texas corporation
By:_________________________________
Name: ROBERT L. HARGRAVE
Title: CHIEF EXECUTIVE OFFICER
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<PAGE>
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, acting
in its individual capacity and as the Agent for
the Lenders named herein
By:_____________________________________
Name: MONA M. FOCH
Title: VICE PRESIDENT
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<PAGE>
BANK OF AMERICA NATIONAL TRUST & SAVINGS
ASSOCIATION as successor to Bank of America
Illinois by merger, as a Co-Agent and a Lender
By:_______________________________________
Name: JAMES E. FLORCZAK
Title: MANAGING DIRECTOR
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<PAGE>
NATIONSBANK OF TEXAS, NATIONAL
ASSOCIATION
By:_____________________________________
Name: RICHARD L. NICHOLS, JR.
Title: VICE PRESIDENT
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<PAGE>
ABN AMRO BANK N.V., HOUSTON AGENCY
By: ____________________________________
Name: LILA JORDAN
Title: VICE PRESIDENT
By: ____________________________________
Name: DAVID P. ORR
Title: VICE PRESIDENT
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<PAGE>
THE BANK OF NEW YORK
By: __________________________
Name: JOHN YANCEY
Title: VICE PRESIDENT
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<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By:_____________________________
Name: DAVID J. EGAN
Title: SENIOR VICE PRESIDENT
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<PAGE>
FIRST NATIONAL BANK OF COMMERCE
By: _________________________________
Name: JOSHUA C. CUMMINGS
Title: ASSISTANT VICE PRESIDENT
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<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: _______________________________
Name: ALAIN PAPIASSE
Title: EXECUTIVE VICE PRESIDENT
INTEREST IN MAXIMUM COMMITMENT:
$25,000,000
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EXHIBIT 4.3
AGREEMENT AND SECOND AMENDMENT TO LOAN AGREEMENT
(January 31, 1998)
THIS AGREEMENT AND SECOND AMENDMENT TO LOAN AGREEMENT (this "Amendment"),
dated as of January 31, 1998, is made and entered into by and among STEWART &
STEVENSON SERVICES, INC. (the "BORROWER"), a Texas corporation; the financial
institutions listed on the signature pages hereto (collectively, the "LENDERS"),
and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (formerly known as Texas Commerce
Bank National Association), a national banking association domiciled in Houston,
Harris County, Texas, acting in its individual capacity (in such capacity,
"CHASE TEXAS") and its capacity as agent for the Lenders (in such capacity, the
"AGENT"). The Borrower, the Lenders and the Agent are herein sometimes called
the "PARTIES".
RECITALS:
1. The Parties (except Credit Lyonnais New York Branch) have entered into
a Loan Agreement dated as of December 20, 1996. Such Loan Agreement was amended
by Amendment to Loan Agreement dated as of August 25, 1997, which added Credit
Lyonnais New York Branch as a Lender, and, as so amended, is herein called the
"LOAN AGREEMENT".
2. The Borrower has entered into a Transaction Agreement dated September
21, 1997 with General Electric Company ("GENERAL ELECTRIC") pursuant to which
the Borrower has agreed to sell to General Electric certain of the Borrower's
assets (or, additionally or alternatively, the stock of certain of its
subsidiaries) constituting the Borrower's gas turbine division for approximately
$600,000,000 in cash. Such sale is herein called the "TRANSACTION".
3. The Lenders desire to consent to the Transaction. The Parties desire to
amend the Loan Agreement to reduce the Maximum Commitment and the Commitment Fee
Percentage and to make other changes, all as is more fully described below.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
the Parties, the Parties agree as follows:
1. CONSENT. Each of the Lenders hereby (a) consents to the execution,
delivery and performance of the Transaction Agreement and the documents required
thereby and to the consummation of the Transaction and (b) agrees that none of
the foregoing shall constitute a Default or an Event of Default under the Loan
Agreement.
<PAGE>
2. TRANSACTION NOT AN "INVESTMENT". The term "Investment" as used in the
Loan Agreement does not and shall not include the Transaction.
3. CONSENT TO STOCK REPURCHASE. Each of the Lenders hereby consents to the
use of up to $120,000,000 of the proceeds of the Transaction to repurchase
shares of the Borrower's common stock PROVIDED that such repurchase is made in
compliance with all applicable Legal Requirements.
4. MAXIMUM COMMITMENT. The definition of "Maximum Commitment" in SECTION 1
of the Loan Agreement is amended, effective February 3, 1998, to provide in its
entirety as follows:
"MAXIMUM COMMITMENT means One Hundred Fifty Million Dollars
($150,000,000)."
The dollar amount of each Lender's interest in the Maximum Commitment as of the
date hereof is set forth opposite its name on the signature pages of this
Amendment.
5. COMMITMENT FEE PERCENTAGE. The definition of "Commitment Fee
Percentage" in SECTION 1 of the Loan Agreement is amended to provide in its
entirety as follows:
"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 0.175%
0.35 or more to 1.00 but less than 0.40 to 1.00 0.15%
0.30 or more to 1.00 but less than 0.35 to 1.00 0.125%
less than 0.30 to 1.00 0.10%"
6. CEILING RATE. The definition of "Ceiling Rate" in SECTION 1 of the Loan
Agreement is amended to provide in its entirety as follows:
"CEILING RATE means, on any day, the maximum nonusurious rate of
interest permitted for that day by whichever of applicable federal or
Texas law permits the higher interest rate, stated as a rate per annum. On
each day, if any, that applicable Texas law establishes the Ceiling Rate,
the Ceiling Rate shall be the "weekly ceiling" (as defined in ss.303 of
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<PAGE>
the Texas FinancE Code - the "TEXAS FINANCE CODE" - and Chapter 1D of
Title 79, Texas Rev. Civ. Stats. 1925 -- "CHAPTER 1D", as amended,
respectively) for that day. The Lenders may from time to time, as to
current and future balances, implement any other ceiling under the Texas
Finance Code or Chapter 1D by notice to Borrower if and to the extent
permitted by the Texas Finance Code or Chapter 1D."
The definitions of "Chapter One" and "Texas Credit Code" in SECTION 1 of
the Loan Agreement are deleted.
7. TCB. All references to "TCB" in the Loan Agreement are amended to refer
instead to "Chase Texas".
8. AMENDMENT OF SECTION 2(C). The last sentence of SECTION 2(C) of the
Loan Agreement is deleted, and there is added to the end of SECTION 2(C) the
following sentence:
"Borrower and Lenders expressly agree, pursuant to Chapter 346 ("CHAPTER
346") of the Texas Finance Code, that Chapter 346 (which relates to
open-end line of credit revolving loan accounts) shall not apply to any
Loan and that neither this Agreement nor any such Loan shall be governed
by Chapter 346 or subject to its provisions."
9. AMENDMENT OF SECTION 16. SECTION 16 of the Loan Agreement is amended to
provide in its entirety as follows:
"16. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision
of this Agreement or any other Credit Document, and no consent with
respect to any departure by Borrower or any of its Subsidiaries therefrom,
shall be effective unless the same shall be in writing and signed by the
Majority Lenders, and then such waiver shall be effective only in the
specific instance and for the specific purpose for which given; PROVIDED,
HOWEVER, that no such waiver, amendment or consent shall, unless in
writing and signed by all the Lenders, do any of the following:
(a) increase the Maximum Commitment or the Commitment;
(b) postpone or delay any date fixed for any payment of
principal, interest, fee or other amount due under this Agreement or any
other Credit Document;
(c) reduce the principal of, or the rate of interest on, any
Loan or any fee or other amount payable under this Agreement or any other
Credit Document;
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<PAGE>
(d) change the percentage of the Lenders or of the aggregate
unpaid principal amount of the Loans which shall be required for Agent,
Lenders or any of them to take any action under this Agreement or any
other Credit Document; or
(e) amend this SECTION 16;
and, PROVIDED FURTHER, that no amendment, waiver or consent shall, unless
in writing and signed by Agent in addition to the Majority Lenders, affect
the rights or duties of Agent under this Agreement or any other Credit
Document.
10. CONDITIONS PRECEDENT. This Amendment shall be effective as of the date
set forth above, subject to the satisfaction, in a manner satisfactory to the
Agent, of each of the following conditions precedent:
(a) The Agent shall have received the following, each of which shall be in
form and substance satisfactory to the Agent in its sole discretion and duly and
validly executed:
(1) A certificate of the Secretary or any Assistant Secretary of the
Borrower, dated as of the date hereof, as to (A) the resolutions of the Board of
Directors of the Borrower authorizing the execution, delivery and performance of
this Amendment (a copy of such resolutions to be attached to such certificate),
such certificate to state that said copy is a true and correct copy of such
resolutions and that such resolutions were duly adopted and have not been
amended, superseded, revoked or modified in any respect and remain in full force
and effect as of the date of such certificate and (B) the absence of any change
since December 20, 1996, in any of (x) the incumbency and signatures of the
officer or officers of the Borrower; (y) the Articles of Incorporation of the
Borrower, or (z) the Bylaws of the Borrower; and
(2) this Amendment, duly executed by the Borrower, the Lenders and
the Agent.
(b) The Borrower shall have paid all accrued and unpaid fees and other
amounts in connection with this Amendment.
(c) No Default shall have occurred and be continuing.
(d) Such effectiveness shall not violate any legal requirement applicable
to the Agent or any Lender.
11. REPRESENTATIONS TRUE; NO DEFAULT. The Borrower represents and warrants
to the Agent and each Lender that (a) the representations and warranties
contained in the Loan Agreement and in the other Credit Documents are true and
correct on and as of the date hereof as though made on and as of such date
(except to
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<PAGE>
the extent such representations and warranties are expressly stated to be made
solely as of an earlier date) and (b) no event has occurred and is continuing
which constitutes an Event of Default under the Loan Agreement or any of the
other Credit Documents or which upon the giving of notice or the lapse of time
or both would constitute such an Event of Default.
12. RATIFICATION. Except as expressly amended hereby, the Loan Agreement,
as hereby amended, and the other Credit Documents are in all respects ratified
and confirmed and are, and shall continue to be, in full force and effect. The
Borrower hereby agrees and acknowledges that all of its liabilities and
obligations under the Loan Agreement, the other Credit Documents, or otherwise,
remain in full force and effect as of the date of this Amendment.
13. DEFINITIONS AND REFERENCES. Unless otherwise defined herein, terms
used herein which are defined in the Loan Agreement or in the other Credit
Documents shall have the meanings therein ascribed to them. The term "Agreement"
as used in the Loan Agreement and the term "Loan Agreement" as used in the other
Credit Documents or any other instrument, document or writing furnished to the
Agent or any Lender by or on behalf of the Borrower shall mean the Loan
Agreement as hereby amended.
14. EXPENSES; ADDITIONAL INFORMATION. The Borrower shall pay to the Agent
on demand all expenses (including reasonable counsel's fees) incurred in
connection with the preparation, reproduction, execution and delivery of this
Amendment and with respect to advising the Agent as to its rights and
responsibilities under the Loan Agreement, as hereby amended. In addition, the
Borrower shall pay all costs and expenses of the Agent and each Lender
(including counsel's fees) in connection with the enforcement of this Amendment.
15. SEVERABILITY. If any term or provision of this Amendment or the
application thereof to any person or circumstances shall, to any extent, be
deemed invalid or unenforceable, the remainder of this Amendment, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and this Amendment shall be valid and enforced to the fullest extent
permitted by applicable law. Any provision of this Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions thereof or affecting the validity or
enforceability of such provision in any other jurisdiction and, to this end, the
provisions of this Amendment are severable.
16. INDEMNIFICATION. THE BORROWER SHALL INDEMNIFY THE AGENT, THE 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
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<PAGE>
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 THE BORROWER OF THE PROCEEDS OF ANY LOAN MADE OR
LETTER OF CREDIT ISSUED BY ANY LENDER OR GROWING OUT OF OR RESULTING FROM ANY
CREDIT DOCUMENT OR ANY TRANSACTION OR EVENT CONTEMPLATED THEREIN; (B) VIOLATION
BY THE BORROWER OR ANY OF ITS SUBSIDIARIES OF ANY LAW, RULE, REGULATION OR ORDER
INCLUDING THOSE RELATING TO HAZARDOUS SUBSTANCES, PETROLEUM, PETROLEUM PRODUCTS
OR PETROLEUM WASTES; (C) ANY LENDER OR THE AGENT BEING DEEMED AN OPERATOR OF ANY
OF THE 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, PETROLEUM, PETROLEUM PRODUCT OR PETROLEUM WASTE LOCATED IN ON OR
UNDER SUCH PROPERTY, 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 THE LOAN AGREEMENT (AS AMENDED BY THIS AMENDMENT AND AS IT MAY
OTHERWISE BE AMENDED, RESTATED, MODIFIED AND SUPPLEMENTED FROM TIME TO TIME) AND
THE REPAYMENT AND EXPIRY OF THE LOANS AND ALL LETTER OF CREDIT LIABILITIES. ANY
AMOUNT TO BE PAID UNDER THIS SECTION BY THE BORROWER TO THE AGENT OR ANY LENDER
SHALL BE A DEMAND OBLIGATION OWING BY THE BORROWER TO THE AGENT OR SUCH LENDER
AND SHALL BEAR INTEREST FROM THE DATE OF EXPENDITURE UNTIL PAID AT THE PAST DUE
RATE.
17. RELEASE OF CLAIMS. THE BORROWER HEREBY RELEASES, DISCHARGES AND
ACQUITS FOREVER THE AGENT AND THE 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 THE BORROWER, IF LATER). 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.
18. MISCELLANEOUS. This Amendment (a) shall be binding upon and inure to
the benefit of the Borrower, the Agent and the Lenders and their respective
successors, assigns, receivers and trustees (however, the Borrower may not
assign its rights hereunder without the express prior written consent of the
Lenders); (b) may be modified or amended only by a writing signed by each party;
(C) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
-6-
<PAGE>
PRINCIPLES) AND OF THE UNITED STATES OF AMERICA; (d) may be executed in several
counterparts, and by the Parties on separate counterparts, and each counterpart,
when so executed and delivered, shall constitute an original agreement, and all
such separate counterparts shall constitute but one and the same agreement, and
(e) embodies the entire agreement and understanding between the Parties with
respect to the subject matter hereof and supersedes all prior agreements,
consents and understandings relating to such subject matter. The headings herein
shall be accorded no significance in interpreting this Amendment.
19. THIS AMENDMENT TOGETHER WITH ALL OF THE OTHER CREDIT DOCUMENTS
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AS TO THE SUBJECT MATTER HEREOF
AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
-7-
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed
by their respective duly authorized officers effective as of January 31, 1998
(except for SECTION 4, which is effective February 3, 1998).
STEWART & STEVENSON SERVICES, INC.,a Texas
corporation
By: ______________________________________
Name: KYLE J. GIDEON
Title: ASSISTANT TREASURER
-8-
<PAGE>
$30,000,000.00 CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
(formerly known as Texas Commerce Bank National
Association), acting in its individual capacity
and as the Agent for the Lenders named herein
By: _____________________________________
Name: MONA M. FOCH
Title: MANAGING DIRECTOR
-9-
<PAGE>
Bank of America NT & SA as survivor by way of
$24,000,000.00 merger with BANK OF AMERICA ILLINOIS, as a
Co-Agent and a Lender
By: _____________________________________
Name: JAMES E. FLORCZAK
Title: MANAGING DIRECTOR
-10-
<PAGE>
$24,000,000.00 NATIONSBANK OF TEXAS, NATIONAL
ASSOCIATION, as Co-Agent and a Lender
By: ____________________________________
Name: JOHN J. O'NEILL
Title: SENIOR VICE PRESIDENT
-11-
<PAGE>
$18,000,000.00 ABN AMRO BANK N.V., HOUSTON AGENCY
By: ________________________________
Name: DAVID P. ORR
Title: VICE PRESIDENT
By: ________________________________
Name: RONALD A. MAHLE
Title: GROUP VICE PRESIDENT
-12-
<PAGE>
$18,000,000.00 THE BANK OF NEW YORK
By: ________________________________
Name: ALAN F. LYSTER, JR.
Title: VICE PRESIDENT
-13-
<PAGE>
$15,000,000.00 CREDIT LYONNAIS NEW YORK BRANCH
By: ________________________________
Name: ALAIN PAPIASSE
Title: EXECUTIVE VICE PRESIDENT
-14-
<PAGE>
$12,000,000.00 PNC BANK, NATIONAL ASSOCIATION
By: _______________________________
Name: ERIC C. JOHNSON
Title: SENIOR VICE PRESIDENT
-15-
<PAGE>
$9,000,000.00 FIRST NATIONAL BANK OF COMMERCE
By: _______________________________
Name: NEMESIO J. VISO
Title: VICE PRESIDENT
-16-
EXHIBIT 4.4
AGREEMENT AND THIRD AMENDMENT TO LOAN AGREEMENT
(May 13, 1998)
THIS AGREEMENT AND THIRD AMENDMENT TO LOAN AGREEMENT (this "Amendment"),
dated as of May 13, 1998, is made and entered into by and among STEWART &
STEVENSON SERVICES, INC. (the "BORROWER"), a Texas corporation; the financial
institutions listed on the signature pages hereto (collectively, the "LENDERS"),
and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (formerly known as Texas Commerce
Bank National Association), a national banking association domiciled in Houston,
Harris County, Texas, acting in its individual capacity (in such capacity,
"CHASE TEXAS") and its capacity as agent for the Lenders (in such capacity, the
"AGENT"). The Borrower, the Lenders and the Agent are herein sometimes called
the "PARTIES".
RECITALS:
1. The Parties (except Credit Lyonnais New York Branch) have entered into
a Loan Agreement dated as of December 20, 1996. Such Loan Agreement was amended
by Amendment to Loan Agreement dated as of August 25, 1997, which added Credit
Lyonnais New York Branch as a Lender, and by Agreement and Second Amendment to
Loan Agreement dated as of January 31, 1998 and, as so amended, is herein called
the "LOAN AGREEMENT".
2. The Parties desire to amend the Loan Agreement to permit the Borrower
and its Subsidiaries to incur a limited amount of indebtedness secured by Liens
on their property.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
the Parties, the Parties agree as follows:
1. AMENDMENT OF SECTION 7(A). SECTION 7(A) of the Loan Agreement is hereby
amended by deleting the word "and" before CLAUSE (10) thereof and adding after
CLAUSE (10) thereof the following:
"and (11) Liens not otherwise permitted by CLAUSES (1) THROUGH (10)
above incurred subsequent to April 1, 1998 to secure indebtedness,
PROVIDED that the aggregate amount of Indebtedness so secured shall not
exceed $20,000,000 at any one time outstanding."
<PAGE>
2. CONDITIONS PRECEDENT. This Amendment shall be effective as of the date
set forth above, subject to the satisfaction, in a manner satisfactory to the
Agent, of each of the following conditions precedent:
(a) The Agent shall have received the following, each of which shall be in
form and substance satisfactory to the Agent in its sole discretion and duly and
validly executed:
(1) A certificate of the Secretary or any Assistant Secretary of the
Borrower, dated as of the date hereof, as to the Bylaws of the Borrower (a copy
of such Bylaws to be attached to such certificate) and as to the absence of any
change since December 20, 1996, in any of (x) the incumbency and signatures of
the officer or officers of the Borrower or (y) the Articles of Incorporation of
the Borrower; and
(2) this Amendment, duly executed by the Borrower, the Majority
Lenders and the Agent.
(b) The Borrower shall have paid all accrued and unpaid fees and other
amounts in connection with this Amendment.
(c) No Default shall have occurred and be continuing.
(d) Such effectiveness shall not violate any legal requirement applicable
to the Agent or any Lender.
3. REPRESENTATIONS TRUE; NO DEFAULT. The Borrower represents and warrants
to the Agent and each Lender that (a) the representations and warranties
contained in the Loan Agreement and in the other Credit Documents are true and
correct on and as of the date hereof as though made on and as of such date
(except to the extent such representations and warranties are expressly stated
to be made solely as of an earlier date) and (b) no event has occurred and is
continuing which constitutes an Event of Default under the Loan Agreement or any
of the other Credit Documents or which upon the giving of notice or the lapse of
time or both would constitute such an Event of Default.
4. RATIFICATION. Except as expressly amended hereby, the Loan Agreement,
as hereby amended, and the other Credit Documents are in all respects ratified
and confirmed and are, and shall continue to be, in full force and effect. The
Borrower hereby agrees and acknowledges that all of its liabilities and
obligations under the Loan Agreement, the other Credit Documents, or otherwise,
remain in full force and effect as of the date of this Amendment.
5. DEFINITIONS AND REFERENCES. Unless otherwise defined herein, terms used
herein which are defined in the Loan Agreement or in the other Credit Documents
shall have the meanings therein ascribed to them. The term "Agreement" as used
in the Loan Agreement and the term "Loan Agreement" as used in the other Credit
Documents or any other instrument, document or writing furnished to the Agent or
any
-2-
<PAGE>
Lender by or on behalf of the Borrower shall mean the Loan Agreement as hereby
amended.
6. EXPENSES; ADDITIONAL INFORMATION. The Borrower shall pay to the Agent
on demand all expenses (including reasonable counsel's fees) incurred in
connection with the preparation, reproduction, execution and delivery of this
Amendment and with respect to advising the Agent as to its rights and
responsibilities under the Loan Agreement, as hereby amended. In addition, the
Borrower shall pay all costs and expenses of the Agent and each Lender
(including counsel's fees) in connection with the enforcement of this Amendment.
7. SEVERABILITY. If any term or provision of this Amendment or the
application thereof to any person or circumstances shall, to any extent, be
deemed invalid or unenforceable, the remainder of this Amendment, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and this Amendment shall be valid and enforced to the fullest extent
permitted by applicable law. Any provision of this Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions thereof or affecting the validity or
enforceability of such provision in any other jurisdiction and, to this end, the
provisions of this Amendment are severable.
8. INDEMNIFICATION. THE BORROWER SHALL INDEMNIFY THE AGENT, THE 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 THE BORROWER OF THE PROCEEDS OF ANY LOAN MADE OR
LETTER OF CREDIT ISSUED BY ANY LENDER OR GROWING OUT OF OR RESULTING FROM ANY
CREDIT DOCUMENT OR ANY TRANSACTION OR EVENT CONTEMPLATED THEREIN; (B) VIOLATION
BY THE BORROWER OR ANY OF ITS SUBSIDIARIES OF ANY LAW, RULE, REGULATION OR ORDER
INCLUDING THOSE RELATING TO HAZARDOUS SUBSTANCES, PETROLEUM, PETROLEUM PRODUCTS
OR PETROLEUM WASTES; (C) ANY LENDER OR THE AGENT BEING DEEMED AN OPERATOR OF ANY
OF THE 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, PETROLEUM, PETROLEUM PRODUCT OR PETROLEUM WASTE LOCATED IN ON OR
UNDER SUCH PROPERTY, 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 THE LOAN AGREEMENT (AS AMENDED BY THIS AMENDMENT AND AS IT MAY
OTHERWISE BE AMENDED, RESTATED, MODIFIED AND SUPPLEMENTED FROM TIME TO TIME) AND
THE REPAYMENT AND EXPIRY OF THE LOANS AND ALL LETTER OF CREDIT
-3-
<PAGE>
LIABILITIES. ANY AMOUNT TO BE PAID UNDER THIS SECTION BY THE BORROWER TO THE
AGENT OR ANY LENDER SHALL BE A DEMAND OBLIGATION OWING BY THE BORROWER TO THE
AGENT OR SUCH LENDER AND SHALL BEAR INTEREST FROM THE DATE OF EXPENDITURE UNTIL
PAID AT THE PAST DUE RATE.
9. RELEASE OF CLAIMS. THE BORROWER HEREBY RELEASES, DISCHARGES AND ACQUITS
FOREVER THE AGENT AND THE 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 THE BORROWER, IF LATER). 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.
10. MISCELLANEOUS. This Amendment (a) shall be binding upon and inure to
the benefit of the Borrower, the Agent and the Lenders and their respective
successors, assigns, receivers and trustees (however, the Borrower may not
assign its rights hereunder without the express prior written consent of the
Lenders); (b) may be modified or amended only by a writing signed by each party;
(c) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES) AND OF THE
UNITED STATES OF AMERICA; (d) may be executed in several counterparts, and by
the Parties on separate counterparts, and each counterpart, when so executed and
delivered, shall constitute an original agreement, and all such separate
counterparts shall constitute but one and the same agreement, and (e) embodies
the entire agreement and understanding between the Parties with respect to the
subject matter hereof and supersedes all prior agreements, consents and
understandings relating to such subject matter. The headings herein shall be
accorded no significance in interpreting this Amendment.
11. THIS AMENDMENT TOGETHER WITH ALL OF THE OTHER CREDIT DOCUMENTS
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AS TO THE SUBJECT MATTER HEREOF
AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
-4-
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed
by their respective duly authorized officers effective as of MAY 13, 1998.
STEWART & STEVENSON SERVICES, INC.,
a Texas corporation
By: ________________________________
Name: KYLE J. GIDEON
Title: ASSISTANT TREASURER
-5-
<PAGE>
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, acting
in its individual capacity and as the Agent for
the Lenders named herein
By: ________________________________
Name: MONA M. FOCH
Title: MANAGING DIRECTOR
-6-
<PAGE>
BANK OF AMERICA NT & SA AS SURVIVOR BY WAY OF
MERGER WITH BANK OF AMERICA ILLINOIS, as a
Co-Agent and a Lender
By: ________________________________
Name: JAMES E. FLORCZAK
Title: MANAGING DIRECTOR
-7-
<PAGE>
NATIONSBANK OF TEXAS, NATIONALASSOCIATION, as
Co-Agent and a Lender
By: ________________________________
Name: JOHN J. O'NEILL
Title: SENIOR VICE PRESIDENT
-8-
<PAGE>
ABN AMRO BANK N.V., HOUSTON AGENCY
By: ________________________________
Name: DIEGO PUIGGARI
Title: VICE PRESIDENT
By: ________________________________
Name: KEVIN P. COSTELLO
Title: VICE PRESIDENT
-9-
<PAGE>
THE BANK OF NEW YORK
By: ________________________________
Name: ALAN F. LYSTER, JR.
Title: VICE PRESIDENT
-10-
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: ________________________________
Name: ROBERT IVOSEVICH
Title: SENIOR VICE PRESIDENT
-11-
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: ________________________________
Name: TIMOTHY J. MARCHANDO
Title: VICE PRESIDENT
-12-
<PAGE>
FIRST NATIONAL BANK OF COMMERCE
By: ________________________________
Name: NEMESIO J. VISO
Title: VICE PRESIDENT
-13-
EXHIBIT 4.5
AGREEMENT AND FOURTH AMENDMENT TO LOAN AGREEMENT
(October 31, 1998)
THIS AGREEMENT AND FOURTH AMENDMENT TO LOAN AGREEMENT (this "Amendment"),
dated as of October 31, 1998, is made and entered into by and among STEWART &
STEVENSON SERVICES, INC. (the "BORROWER"), a Texas corporation; the financial
institutions listed on the signature pages hereto (collectively, the "LENDERS"),
and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (formerly known as Texas Commerce
Bank National Association), a national banking association domiciled in Houston,
Harris County, Texas, acting in its individual capacity (in such capacity,
"CHASE TEXAS") and its capacity as agent for the Lenders (in such capacity, the
"AGENT"). The Borrower, the Lenders and the Agent are herein sometimes called
the "PARTIES".
RECITALS:
1 . The Parties (except Credit Lyonnais New York Branch) have entered into
a Loan Agreement dated as of December 20, 1996. Such Loan Agreement was amended
by Amendment to Loan Agreement dated as of August 25, 1997, which added Credit
Lyonnais New York Branch as a Lender; by Agreement and Second Amendment to Loan
Agreement dated as of January 31, 1998; by Agreement and Third Amendment to Loan
Agreement dated as of May 13, 1998, and, as so amended, is herein called the
"LOAN AGREEMENT".
2. The Parties desire to amend the Loan Agreement to change the definition
of the terms "Interest Coverage Ratio" and "Capital Expenditures".
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
the Parties, the Parties agree as follows:
1. AMENDMENT OF DEFINITIONS.
(a) The definition of "Interest Charge Ratio" is hereby amended to provide
in its entirety as follows:
"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; PROVIDED, HOWEVER, that for the period beginning
and including May 1, 1998 and ending and including January 31, 1999, in
computing the Interest
<PAGE>
Coverage Ratio there shall be excluded (i) cash taxes paid on the gain
from the sale of Borrower's gas turbine operations; (ii) cash taxes paid
due to the completion of that certain contract between Borrower and the
United States of America to assemble and furnish medium tactical vehicles;
(iii) the one-time charge in the amount of $19,700,000 for profit margin
adjustment and possible retrofit costs in connection with such contract;
and (iv) the onetime charge in the quarter ended October 31, 1998 in the
amount of $20,000,000 due to earnings from discontinued operations."
(b) The definition of "Capital Expenditures" is hereby amended to provide
in its entirety as follows:
"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 (i) the FMTV Capital
Expenditures and (ii) expenditures classified as "Acquisition of
Businesses" in Borrower's statement of cash flows. 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."
2. CONDITIONS PRECEDENT. This Amendment shall be effective as of the date
set forth above, subject to the satisfaction, in a manner satisfactory to the
Agent, of each of the following conditions precedent:
(a) The Agent shall have received the following, each of which shall be in
form and substance satisfactory to the Agent in its sole discretion and duly and
validly executed:
(1) A certificate of the Secretary or any Assistant Secretary of the
Borrower, dated as of the date hereof, as to the Bylaws of the Borrower (a copy
of such Bylaws to be attached to such certificate) and as to the absence of any
change since December 20, 1996, in any of (x) the incumbency and signatures of
the officer or officers of the Borrower or (y) the Articles of Incorporation of
the Borrower; and
(2) this Amendment, duly executed by the Borrower, the Majority
Lenders and the Agent.
(b) No Default shall have occurred and be continuing.
-2-
<PAGE>
(c) Such effectiveness shall not violate any legal requirement applicable
to the Agent or any Lender.
3. REPRESENTATIONS TRUE; NO DEFAULT. The Borrower represents and warrants
to the Agent and each Lender that (a) the representations and warranties
contained in the Loan Agreement and in the other Credit Documents are true and
correct on and as of the date hereof as though made on and as of such date
(except to the extent such representations and warranties are expressly stated
to be made solely as of an earlier date) and (b) no event has occurred and is
continuing which constitutes an Event of Default under the Loan Agreement or any
of the other Credit Documents or which upon the giving of notice or the lapse of
time or both would constitute such an Event of Default.
4. RATIFICATION. Except as expressly amended hereby, the Loan Agreement,
as hereby amended, and the other Credit Documents are in all respects ratified
and confirmed and are, and shall continue to be, in full force and effect. The
Borrower hereby agrees and acknowledges that all of its liabilities and
obligations under the Loan Agreement, the other Credit Documents, or otherwise,
remain in full force and effect as of the date of this Amendment.
5. DEFINITIONS AND REFERENCES. Unless otherwise defined herein, terms used
herein which are defined in the Loan Agreement or in the other Credit Documents
shall have the meanings therein ascribed to them. The term "Agreement" as used
in the Loan Agreement and the term "Loan Agreement" as used in the other Credit
Documents or any other instrument, document or writing furnished to the Agent or
any Lender by or on behalf of the Borrower shall mean the Loan Agreement as
hereby amended.
6. EXPENSES; ADDITIONAL INFORMATION. The Borrower shall pay to the Agent
on demand all expenses (including reasonable counsel's fees) incurred in
connection with the preparation, reproduction, execution and delivery of this
Amendment and with respect to advising the Agent as to its rights and
responsibilities under the Loan Agreement, as hereby amended. In addition, the
Borrower shall pay all costs and expenses of the Agent and each Lender
(including counsel's fees) in connection with the enforcement of this Amendment.
7. SEVERABILITY. If any term or provision of this Amendment or the
application thereof to any person or circumstances shall, to any extent, be
deemed invalid or unenforceable, the remainder of this Amendment, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and this Amendment shall be valid and enforced to the fullest extent
permitted by applicable law. Any provision of this Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions thereof or affecting the validity or
-3-
<PAGE>
enforceability of such provision in any other jurisdiction and, to this end, the
provisions of this Amendment are severable.
8. INDEMNIFICATION. THE BORROWER SHALL INDEMNIFY THE AGENT, THE 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 THE BORROWER OF THE PROCEEDS OF ANY LOAN MADE OR
LETTER OF CREDIT ISSUED BY ANY LENDER OR GROWING OUT OF OR RESULTING FROM ANY
CREDIT DOCUMENT OR ANY TRANSACTION OR EVENT CONTEMPLATED THEREIN; (B) VIOLATION
BY THE BORROWER OR ANY OF ITS SUBSIDIARIES OF ANY LAW, RULE, REGULATION OR ORDER
INCLUDING THOSE RELATING TO HAZARDOUS SUBSTANCES, PETROLEUM, PETROLEUM PRODUCTS
OR PETROLEUM WASTES; (C) ANY LENDER OR THE AGENT BEING DEEMED AN OPERATOR OF ANY
OF THE 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, PETROLEUM, PETROLEUM PRODUCT OR PETROLEUM WASTE LOCATED IN ON OR
UNDER SUCH PROPERTY, 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 THE LOAN AGREEMENT (AS AMENDED BY THIS AMENDMENT AND AS IT MAY
OTHERWISE BE AMENDED, RESTATED, MODIFIED AND SUPPLEMENTED FROM TIME TO TIME) AND
THE REPAYMENT AND EXPIRY OF THE LOANS AND ALL LETTER OF CREDIT LIABILITIES. ANY
AMOUNT TO BE PAID UNDER THIS SECTION BY THE BORROWER TO THE AGENT OR ANY LENDER
SHALL BE A DEMAND OBLIGATION OWING BY THE BORROWER TO THE AGENT OR SUCH LENDER
AND SHALL BEAR INTEREST FROM THE DATE OF EXPENDITURE UNTIL PAID AT THE PAST DUE
RATE.
9. RELEASE OF CLAIMS. THE BORROWER HEREBY RELEASES, DISCHARGES AND ACQUITS
FOREVER THE AGENT AND THE 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 THE BORROWER, IF LATER). 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.
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<PAGE>
10. MISCELLANEOUS. This Amendment (a) shall be binding upon and inure to
the benefit of the Borrower, the Agent and the Lenders and their respective
successors, assigns, receivers and trustees (however, the Borrower may not
assign its rights hereunder without the express prior written consent of the
Lenders); (b) may be modified or amended only by a writing signed by each party;
(c) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES) AND OF THE
UNITED STATES OF AMERICA; (d) may be executed in several counterparts, and by
the Parties on separate counterparts, and each counterpart, when so executed and
delivered, shall constitute an original agreement, and all such separate
counterparts shall constitute but one and the same agreement, and (e) embodies
the entire agreement and understanding between the Parties with respect to the
subject matter hereof and supersedes all prior agreements, consents and
understandings relating to such subject matter. The headings herein shall be
accorded no significance in interpreting this Amendment.
11. THIS AMENDMENT TOGETHER WITH ALL OF THE OTHER CREDIT DOCUMENTS
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AS TO THE SUBJECT MATTER HEREOF
AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
-5-
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed
by their respective duly authorized officers effective as of October 31, 1998.
STEWART & STEVENSON SERVICES, INC.,
a Texas corporation
By: ________________________________
Name: KYLE J. GIDEON
Title: ASSISTANT TREASURER
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<PAGE>
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, acting
in its individual capacity and as the Agent for
the Lenders named herein
By: ________________________________
Name: KI ALLEN
Title: VICE PRESIDENT
-7-
<PAGE>
BANK OF AMERICA NATIONAL TRUST & SAVINGS
ASSOCIATION, as a Co-Agent and a Lender
By: ________________________________
Name: RICHARD L. NICHOLS, JR.
Title: VICE PRESIDENT
-8-
<PAGE>
NATIONSBANK, N.A., as Co-Agent and a Lender
By: ________________________________
Name: RICHARD L. NICHOLS, JR.
Title: VICE PRESIDENT
-9-
<PAGE>
ABN AMRO BANK N.V., HOUSTON AGENCY
By: ________________________________
Name: DIEGO PUIGGARI
Title: GROUP VICE PRESIDENT
By: ________________________________
Name: GLENN SROKA
Title: CREDIT OFFICER
-10-
<PAGE>
THE BANK OF NEW YORK
By: ________________________________
Name: HELEN L. SARRO
Title: ASSISTANT VICE PRESIDENT
-11-
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: ________________________________
Name: ROBERT IVOSEVICH
Title: SENIOR VICE PRESIDENT
-12-
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: ________________________________
Name: ______________________________
Title: _____________________________
-13-
<PAGE>
BANK ONE, LOUISIANA, NA, as successor to
First National Bank of Commerce
By: ________________________________
Name: ______________________________
Title: _____________________________
-14-
EXHIBIT 4.6
AGREEMENT AND FIFTH AMENDMENT TO LOAN AGREEMENT
(April 23, 1999)
THIS AGREEMENT AND FIFTH AMENDMENT TO LOAN AGREEMENT (this "Amendment"),
dated as of April 23, 1999, is made and entered into by and among STEWART &
STEVENSON SERVICES, INC. (the "BORROWER"), a Texas corporation; the financial
institutions listed on the signature pages hereto (collectively, the "LENDERS"),
and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (formerly known as Texas Commerce
Bank National Association), a national banking association domiciled in Houston,
Harris County, Texas, acting in its individual capacity (in such capacity,
"CHASE TEXAS") and its capacity as agent for the Lenders (in such capacity, the
"AGENT"). Borrower, the Lenders and the Agent are herein sometimes called the
"PARTIES".
PRELIMINARY STATEMENTS:
1. The Parties (except Credit Lyonnais New York Branch) have entered into
a Loan Agreement dated as of December 20, 1996. Such Loan Agreement was amended
by Amendment to Loan Agreement dated as of August 25, 1997, which added Credit
Lyonnais New York Branch as a Lender; by Agreement and Second Amendment to Loan
Agreement dated as of January 31, 1998; by Agreement and Third Amendment to Loan
Agreement dated as of May 13, 1998, and by Agreement and Fourth Amendment to
Loan Agreement dated as of October 31, 1998, and, as so amended, is herein
called the "LOAN AGREEMENT".
2. The Parties desire to amend the Loan Agreement to (a) change and add
financial covenants; (b) add a new acquisition limitation; (c) create a
$25,000,000 sub-limit for the issuance of letters of credit; (d) require an
asset audit; (e) add provisions concerning the Year 2000; (f) modify the
commitment fee rate and interest rate margins, and (g) make other changes, and
they also desire to terminate that certain Forbearance Agreement (the
"FORBEARANCE AGREEMENT") among the Parties and dated as of April 9, 1999.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
the Parties, the Parties agree as follows:
1. AMENDMENT OF DEFINITIONS. Each of the following definitions contained
in the Loan Agreement is hereby amended to read in its entirety as follows:
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 sum of (x) the Base
Rate Margin
<PAGE>
Percentage for such day plus (y) 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 the 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 the 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 plus the Base Rate Margin
Percentage, in each case from time to time in effect, and (b) the Ceiling
Rate.
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,
net of retirements of such assets (valued at depreciated historical cost
on the date of retirement, determined in accordance with GAAP), 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 (i) the FMTV Capital
Expenditures and (ii) expenditures classified as "Acquisition of
Businesses" in Borrower's statement of cash flows. 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.
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; PROVIDED, HOWEVER that if such period ends
before January 31, 2000, then "Cash Interest Expense" with respect to the
Indebtedness incurred pursuant to that certain Note Purchase Agreement
dated as of May 30, 1996 shall mean the quotient of (a) $7,454,004 divided
by (b) the Annualization Factor for such period, rather than any cash
interest payment which may or may not have been made thereon during such
period.
COMMITMENT FEE PERCENTAGE means, on any day, the per annum
percentage corresponding to the Leverage Ratio (determined as of the most
recent Calculation Date, and "X" in the table below) on such day as
provided below:
PER ANNUM
LEVERAGE RATIO PERCENTAGE
-------------- ----------
X greater than or equal to 3.50 to 1 0.500%
3.50 to 1 greater than X greater than or equal to 2.50 to 1 0.375%
2.50 to 1 greater than X 0.250%
-2-
<PAGE>
FACILITY DEBT means the Indebtedness evidenced by the Notes, the
Letter of Credit Advances and any and all other Indebtedness arising
pursuant to this Agreement or any other Credit Document from time to time.
MARGIN PERCENTAGE means, on any day, the per annum percentage
corresponding to the Leverage Ratio (determined as of the most recent
Calculation Date, and "X" in the table below) on such day as provided
below:
PER ANNUM
LEVERAGE RATIO PERCENTAGE
-------------- ----------
X greater than or equal to 4.00 to 1 2.00%
4.00 to 1 greater than X greater than or equal to 3.50 to 1 1.75%
3.50 to 1 greater than X greater than or equal to 3.00 to 1 1.50%
3.00 to 1 greater than X greater than or equal to 2.50 to 1 1.25%
2.50 to 1 greater than X 1.00%
PRIME RATE means, on any day, the prime rate for that day as
determined from time to time by Chase Texas. 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.
2. ADDITIONAL DEFINITIONS. The following definitions are hereby added to
the Loan Agreement:
ANNUALIZATION FACTOR means, with respect to any period ending before
January 31, 2000, the quotient of (a) 365 divided by (b) the number of
days in such period.
APPLICATION means an application for a letter of credit in Proper
Form.
AVAILABLE COMMITMENT means, for any day, the Commitment minus the
Letter of Credit Exposure.
BASE RATE MARGIN PERCENTAGE means, for any day, the Margin
Percentage for such day minus 1%.
COVER for the Letter of Credit Exposure Amount shall be effected by
paying to the Agent on behalf of the Lenders immediately available funds,
to be held by the Agent in a collateral account maintained by the Agent at
Chase Texas and collaterally
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<PAGE>
assigned as security by Borrower for the financial accommodations extended
pursuant to this Agreement using documentation in Proper Form, in an
amount equal to any required repayment. Such amount shall be retained by
the Agent in such collateral account until such time as the applicable
Letters of Credit shall have expired and the Letter of Credit Advances, if
any, with respect thereto shall have been fully satisfied; PROVIDED,
HOWEVER, that at such time if a Default has occurred and is continuing at
such time, the Agent shall not be required to release such amount until
such Default shall have been cured.
CURRENT SUM means, on any day, the sum of (a) the aggregate
outstanding principal balance of the Notes on such day PLUS (b) the
aggregate Letter of Credit Exposure Amount on such day.
FIXED CHARGE COVERAGE RATIO means, for any day, the ratio of (a) the
amount of EBITDA less the sum of (x) Capital Expenditures and (y) common
and preferred stock dividends to (b) Cash Interest Expense, in each case
determined with respect to Borrower on a consolidated basis and for the
12-month period ending on such date (PROVIDED, HOWEVER that for purposes
of the computation of the Fixed Charge Coverage Ratio for the quarters
ending May 1 and July 31, 1999, Capital Expenditures shall exclude up to
$20,000,000 of Capital Expenditures related to the compression equipment
business that were made or committed before April 23, 1999, and PROVIDED,
FURTHER that if such date is before January 31, 2000, then (1) such
determinations shall be made for the period from February 1, 1999 to such
date and (2) both the numerator and the denominator of such ratio shall be
multiplied by the relevant Annualization Factor.
ISSUER means Chase Texas acting in its capacity as the issuer of a
Letter of Credit.
LETTER OF CREDIT ADVANCES means all sums which may from time to time
be paid by the Issuer or any Lender pursuant to the Letters of Credit, or
any of them, together with all other sums, fees, reimbursements or other
obligations which may be due to the Issuer or any Lender pursuant to the
Letters of Credit, or any of them.
LETTER OF CREDIT EXPOSURE AMOUNT means at any time the sum of (a)
the aggregate undrawn amount of all Letters of Credit outstanding at such
time PLUS (b) the aggregate amount of all Letter of Credit Advances for
which the Lenders have not been reimbursed and which remain unpaid at such
time.
LETTER OF CREDIT SUB-LIMIT means the lesser of (a) $25,000,000 or
(b) the Commitment.
LETTERS OF CREDIT means all irrevocable standby letters of credit
issued pursuant to this Agreement.
LEVERAGE RATIO means, for any day, the ratio of (a) Interest Bearing
Debt on such date to (b) the amount of EBITDA for the 12-month period
ending on such date
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<PAGE>
(PROVIDED, HOWEVER that if such date is before January 31, 2000, then such
amount of EBITDA shall be the product of (x) the amount of EBITDA from
February 1, 1999 to such date times (y) the appropriate Annualization
Factor), all determined with respect to Borrower on a consolidated basis.
MINIMUM TANGIBLE NET WORTH means, as of any date, the sum of (a)
$262,449,000; (b) the net cash proceeds received by Borrower in connection
with the issuance of any indicia of its equity ownership after January 31,
1999, and (c) 50% of the Net Income of Borrower for each fiscal quarter
beginning after January 31, 1999 and completed by such date (but if the
Net Income of Borrower is negative for any such fiscal quarter, then such
Net Income shall not be used in computing the Minimum Tangible Net Worth).
3. LOANS. Sections 2(a), (b), (c), (d) and (e) of the Loan Agreement are
hereby amended to read in their entirety as follows:
(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 Available 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 Available 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 the 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 Available 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 Current Sum. Each decrease in the
Commitment pursuant to this Section shall be permanent and shall be an
integral multiple of $1,000,000.
-5-
<PAGE>
Each notice of a decrease in the Commitment shall be effective upon the
date specified therein; PROVIDED that the 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
Current Sum, such commitment fee to be due and payable to the Agent for
the account of the 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. Borrower and the
Lenders expressly agree, pursuant to Chapter 346 ("CHAPTER 346") of the
Texas Finance Code, that Chapter 346 (which relates to open-end line of
credit revolving loan accounts) shall not apply to any Loan and that
neither this Agreement nor any such Loan shall be governed by Chapter 346
or subject to its provisions.
(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 on the Notes and all payments on the Letter of Credit Advances
shall be applied first to accrued interest, the balance to principal; all
prepayments (whether voluntary or mandatory) on the Notes shall be applied
first to principal, the balance to accrued interest. If any payment on the
Facility Debt 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 such Facility Debt.
(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 Available Commitment.
4. LETTERS OF CREDIT. There is hereby added to the Loan Agreement a new
Section 2(h), which shall read in its entirety as follows:
(h) LETTERS OF CREDIT.
(1) Subject to the terms and conditions contained herein,
Borrower shall have the right to utilize the Commitment from time to
time, prior to the Termination Date, by obtaining from the Issuer
Letters of Credit for the account of Borrower in such amounts and in
favor of such
-6-
<PAGE>
beneficiaries as Borrower from time to time shall request; PROVIDED,
that in no event shall the Issuer have any obligation to issue any
Letter of Credit if (i) the face amount of such Letter of Credit,
PLUS the Letter of Credit Exposure Amount at such time, would exceed
the Letter of Credit Sub-Limit, (ii) the face amount of such Letter
of Credit, PLUS the Current Sum at such time, would exceed the
Commitment then in effect, (iii) such Letter of Credit would have an
expiry date later than the earlier of (x) one year from the date
thereof or (y) the Termination Date, (iv) such Letter of Credit
would not be in Proper Form, (v) Borrower has not executed and
delivered such customary Applications and other instruments and
agreements relating to such Letter of Credit as the Agent shall have
requested; (vi) an event has occurred and is continuing which
constitutes a Default; (vii) in the sole opinion of the Majority
Lenders, there has been a material adverse change in the Property,
liabilities, financial condition, business or affairs of Borrower or
any of its Subsidiaries from those reflected in the financial
statements of Borrower dated January 31, 1999 and delivered to the
Lenders or in the facts warranted or represented in any Credit
Document, or (vii) the issuance of such Letter of Credit shall be
prohibited by, or subject the Agent, the Issuer or any Lender to any
penalty or onerous condition under, any applicable Legal
Requirement. Borrower promises to pay to the Agent for the account
of each Lender, on demand, such Lender's Percentage of each Letter
of Credit Advance, together with interest thereon at (1) prior to
the third Business Day following each such Letter of Credit Advance,
the Base Rate, and (2) on and after such third Business Day, the
Past Due Rate. The Lenders may, but shall not be obligated to, at
any time deem that Borrower has requested a Loan to satisfy any
Letter of Credit Advance, and the Lenders may without further action
by Borrower satisfy such Letter of Credit Advance (without regard to
the conditions precedent to a Loan, the minimum size of a Loan or
other matters) by making Loans. All rights, powers, benefits and
privileges of this Agreement with respect to the Notes, all security
therefor and guaranties thereof (if any) and all restrictions,
provisions for repayment or acceleration and all other covenants,
warranties, representations and agreements of Borrower contained in
this Agreement with respect to the Notes shall apply to each Letter
of Credit Advance.
Upon the date of the issuance of a Letter of Credit, the
Issuer shall be deemed, without further action by any party to this
Agreement, to have sold to each Lender, and each Lender shall be
deemed, without further action by any party to this Agreement, to
have purchased from the Issuer, a participation, to the extent of
such Lender's Percentage, in such Letter of Credit and the related
Letter of Credit Exposure Amount. Should the Lenders in their sole
and absolute discretion approve, contrary to SECTION
2(H)(1)(III)(Y), the issuance of a Letter of Credit with an expiry
date after the Termination Date, such Letter of Credit shall be
fully Covered or, in the alternative, if Borrower chooses, shall be
backed by a letter of credit in Proper Form issued by an issuer
acceptable to the Issuer in its sole and absolute discretion.
-7-
<PAGE>
(2) The following additional provisions shall apply to each
Letter of Credit:
(A) Borrower shall give the Agent at least three
Business Days' irrevocable prior notice (effective upon
receipt) specifying the date such Letter of Credit is to be
issued, describing the proposed terms of such Letter of Credit
and the nature of the transaction proposed to be supported
thereby, and shall furnish such additional information
regarding such transaction as the Agent may reasonably
request. Upon receipt of such notice the Agent shall promptly
provide each Lender with a copy thereof and with notice of
such Lender's Percentage of the amount of such proposed Letter
of Credit.
(B) On each day during the period commencing with the
issuance of any Letter of Credit and until such Letter of
Credit shall have expired or been terminated, the Commitment
of each Lender shall be deemed to be utilized for all purposes
of this Agreement in an amount equal to such Lender's
Percentage of the sum of (i) the undrawn amount of such Letter
of Credit PLUS (ii) the unpaid amount of all Letter of Credit
Advances with respect to such Letter of Credit.
(C) Upon receipt from the beneficiary of any Letter of
Credit of any demand for payment thereunder, the Issuer shall
promptly notify Borrower and each Lender as to the amount to
be paid as a result of such demand and the payment date. If at
any time the Issuer shall have made a payment to a beneficiary
of a Letter of Credit in respect of a drawing or in respect of
an acceptance created in connection with a drawing under such
Letter of Credit, each Lender will pay to the Agent
immediately upon demand by the Agent at any time during the
period commencing after such payment until reimbursement
thereof in full by Borrower, an amount equal to such Lender's
Percentage of such payment, together with interest on such
amount for each day from the date of demand for such payment
(or, if such demand is made after 12:00 noon, Houston time, on
such date, from the next succeeding Business Day) to the date
of payment by such Lender of such amount at a rate of interest
per annum equal to the Federal Funds Rate for such day.
(D) Borrower shall be irrevocably and unconditionally
obligated forthwith to reimburse the Issuer for the account of
each Lender for any amount paid by the Issuer upon any drawing
under any Letter of Credit, without presentment, demand,
protest or other formalities of any kind, all of which are
hereby expressly WAIVED by Borrower to the extent not
prohibited by law.
(3) Borrower will pay to the Issuer for the account of each
Lender a letter of credit fee equal to such Lender's Percentage of
the face amount of
-8-
<PAGE>
each Letter of Credit, for the period from and including the date of
issuance of such Letter of Credit to and including its date of
expiry, at a rate per annum equal to the Margin Percentage on the
date of issuance, such fee to be due and payable on the date of
issuance (and a condition to the issuance of such Letter of Credit);
PROVIDED, HOWEVER, that the aggregate of all letter of credit fees
payable to the Lenders with respect to a Letter of Credit pursuant
to this sentence shall be at least $600. Borrower will pay to the
Issuer for the account of the Issuer, as a condition precedent to
the issuance of each Letter of Credit, an issuance fee of $300 for
such Letter of Credit.
(4) Borrower shall pay to the Agent for the account of the
Issuer, in advance (and as a condition of issuance of the Letter of
Credit), a fronting fee for each Letter of Credit equal to 1/8 of 1%
per annum times the face amount of such Letter of Credit, for the
period from and including the date of issuance of such Letter of
Credit to and including the date of expiration or termination
thereof.
(5) Each Letter of Credit shall be subject to (A) either (i)
the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500
(and any subsequent revision thereof approved by a Congress of the
International Chamber of Commerce) or (ii) the International Standby
Practices 1998, as appropriate, and, (B) to the extent not
inconsistent therewith, the laws of the State of Texas.
(6) The obligations of Borrower under this Agreement in
respect of the Letters of Credit and Letter of Credit Advances shall
be absolute, unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever.
(7) If as a result of any change in any Legal Requirement, or
the interpretation thereof by any Governmental Authority, there
shall be imposed, modified or deemed applicable any tax, reserve,
special deposit or similar requirement against or with respect to or
measured by reference to Letters of Credit issued or to be issued
hereunder or participations in such Letters of Credit, and the
result shall be to increase the cost to the Issuer or any other
Lender of issuing or maintaining any Letter of Credit or any
participation therein, or reduce any amount receivable by the Issuer
or any other Lender hereunder in respect of any Letter of Credit or
any participation therein (which increase in cost, or reduction in
amount receivable, shall be the result of the reasonable allocation
by the Issuer or such other Lender, as the case may be, of the
aggregate of such increases or reductions resulting from such event;
the determination of such amount by the Issuer or such other Lender,
as the case may be, shall be conclusive and binding, absent manifest
error), then the Issuer or such other Lender shall notify Borrower
or the Agent, as the case may be, and upon demand therefor by the
Agent, Borrower (subject to SECTION 12) shall pay to the Issuer or
such other Lender,
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<PAGE>
from time to time as specified by the Issuer or such other Lender
through the Agent, such additional amounts as shall be sufficient to
compensate the Issuer or such other Lender for such increased costs
or reductions in amount; .
5. REGULATION U. Section 5(m) of the Loan Agreement is hereby amended to
read in its entirety as follows:
(m) None of the proceeds of any Note, and no Letter of Credit, 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.
6. NEW REPRESENTATION. There is hereby added to the Loan Agreement a new
Section 5(bb), which shall read in its entirety as follows:
(bb) Any reprogramming required to permit the proper functioning, in
and following the year 2000, of (1) the computer systems of Borrower and
its Subsidiaries and (2) the computer systems and equipment containing
embedded microchips (including systems and equipment supplied by others or
with which Borrower's systems interface) of Borrower and its Subsidiaries
will be completed by June 30, 1999, and the testing of all such systems
and equipment, as so reprogrammed, will be completed by September 30,
1999. Except for such of the reprogramming referred to in the preceding
sentence as may be necessary, the computer and management information
systems of Borrower and its Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue for the term of this Agreement to
be, sufficient to permit Borrower to conduct its business without
resulting in a material adverse change in the Property, liabilities,
financial condition, business or affairs of Borrower or any of its
Subsidiaries. The cost to Borrower and its Subsidiaries of such
reprogramming and testing and of the reasonably foreseeable consequences
of year 2000 to Borrower and its Subsidiaries (including, without
limitation, reprogramming errors and the failure of others' systems or
equipment) will not result in a Default or have a material adverse change
in the Property, liabilities, financial condition, business or affairs of
Borrower or any of its Subsidiaries.
7. REVISED FINANCIAL COVENANTS. Section 6(c) of the Loan Agreement is
hereby amended to read in its entirety as follows:
(c) Borrower and its Subsidiaries shall have and maintain, on a
consolidated basis, at all times on and after May 1, 1999:
(1) a Leverage Ratio for Borrower of no more than (A) 4.25 to
1 until July 31, 1999; (B) 4.00 to 1 on and after July 31, 1999; (C)
3.50 to 1 on and after October 30, 1999, and (D) 3.00 to 1 on and
after January 31, 2000;
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(2) a Tangible Net Worth for Borrower of not less than the
Minimum Tangible Net Worth; and
(3) a Fixed Charge Coverage Ratio for Borrower of at least (A)
1.75 to 1 until July 31, 1999; (B) 1.65 on and after July 31, 1999
until October 30, 1999; (C) 2.25 to 1 on and after October 30, 1999,
and (D) 2.50 to 1 on and after January 31, 2000.
8. PURPOSES OF LOANS AND LETTERS OF CREDIT. Section 6(k) of the Loan
Agreement is hereby amended to read in its entirety as follows:
(k) The proceeds of the Loans will be used for general corporate
purposes and working capital for Borrower and its Subsidiaries; the
Letters of Credit will be used for general corporate purposes of Borrower
and its Subsidiaries.
9. NEW ACQUISITION LIMITATION. There is hereby added to the Loan Agreement
a new Section 7(f), which shall read in its entirety as follows:
(f) Borrower will not (and will not permit any of its Subsidiaries
to), in any single transaction or series of related transactions, make any
Investment or acquire any Property which (1) would be classified as
"Acquisition of Businesses" in Borrower's statement of cash flows and (2)
involves net cash consideration in excess of $10,000,000.
10 REMEDIES. The last sentence of Section 8 of the Loan Agreement is
hereby amended to read in its entirety as follows:
Upon the occurrence of any Event of Default, and at any time thereafter,
the Majority Lenders shall have the right, at their option, to do any or
all of the following: (1) to declare the Commitment terminated (whereupon
the Commitment shall be terminated); (2) 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 OF WHICH ARE HEREBY EXPRESSLY WAIVED BY BORROWER; (3) by notice
to Borrower, require Cover for all outstanding Letters of Credit, and (4)
acting through the 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.
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<PAGE>
11 LIABILITY OF ISSUER. There is hereby added to Section 10(b) of the Loan
Agreement a new sentence, which shall appear at the end of such Section and
shall read in its entirety as follows:
Without in any way limiting any of the foregoing, each Lender acknowledges
that the Issuer shall have no greater responsibility in the operation of
the Letters of Credit than is specified in the Uniform Customs and
Practice of Documentary Credits (1993 Revision, International Chamber of
Commerce Publication No. 500) or International Standby Practices 1998, as
the case may be.
12 ISSUER INDEMNIFICATION. There is hereby added to Section 15 of the Loan
Agreement a new sentence, which shall be inserted immediately before the
penultimate sentence of that Section and shall read in its entirety as follows:
TO THE FULLEST EXTENT NOT PROHIBITED BY LAW, BORROWER SHALL INDEMNIFY THE
AGENT (INCLUDING THE AGENT WHEN ACTING AS ISSUER OF LETTERS OF CREDIT),
EACH LENDER AND EACH OF THEIR RESPECTIVE AFFILIATES FROM, AND HOLD EACH OF
THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, COSTS, EXPENSES,
CLAIMS OR DAMAGES TO WHICH ANY OF THEM MAY BECOME SUBJECT, REGARDLESS OF
AND INCLUDING LOSSES, LIABILITIES, COSTS, EXPENSES, CLAIMS AND DAMAGES
ARISING FROM THE SOLE, ORDINARY OR CONTRIBUTORY NEGLIGENCE OF THE AGENT,
ANY LENDER OR ANY OTHER INDEMNIFIED PERSON, IN CONNECTION WITH THE
EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO PAY UNDER
ANY LETTER OF CREDIT, INCLUDING, WITHOUT LIMITATION, ANY CLAIMS, DAMAGES,
LOSSES, LIABILITIES, COSTS OR EXPENSES WHICH THE AGENT, OR SUCH OTHER
INDEMNIFIED PERSON, AS THE CASE MAY BE, MAY INCUR (WHETHER INCURRED AS A
RESULT OF ITS OWN NEGLIGENCE OR OTHERWISE) BY REASON OF OR IN CONNECTION
WITH THE FAILURE OF ANY OTHER LENDER (WHETHER AS A RESULT OF ITS OWN
NEGLIGENCE OR OTHERWISE) TO FULFILL OR COMPLY WITH ITS OBLIGATIONS TO THE
AGENT OR ANY LENDER, AS THE CASE MAY BE, WITH RESPECT TO SUCH LETTER OF
CREDIT HEREUNDER (BUT NOTHING HEREIN CONTAINED SHALL AFFECT THE RIGHTS THE
COMPANY MAY HAVE AGAINST SUCH DEFAULTING LENDER); BUT EXCLUDING ANY SUCH
LOSSES, LIABILITIES, CLAIMS, DAMAGES, COSTS OR EXPENSES INCURRED BY SUCH
INDEMNIFIED PERSON BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
OF THE PARTY TO BE INDEMNIFIED.
13 EXHIBITS. Exhibits C and D to the Loan Agreement are hereby deleted and
there are hereby substituted therefor new Exhibits C and D, which shall be
identical to EXHIBITS C and D, respectively, attached hereto and hereby made a
part hereof.
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<PAGE>
14 EFFECTIVE RATES. Notwithstanding anything in the Loan Agreement as
hereby amended, from the date hereof to the first Calculation Date after the
date hereof, the Margin shall be 1.50% (with respect to all Loans outstanding on
the date hereof and all Loans made thereafter before such Calculation Date) and
the Commitment Fee Percentage shall be 0.375%.
15 ASSET AUDIT. Borrower has permitted the Agent to perform the field work
in connection with an asset audit (the "ASSET AUDIT") of Borrower and its
Subsidiaries. Promptly after completion of the Asset Audit, the Agent shall
discuss the same with Borrower and then provide a report thereof (the "AUDIT
REPORT") to the Lenders. Borrower agrees to provide such additional information
to any Lender as such Lender may reasonably request with respect to any matter
related to the Asset Audit, and Borrower may provide each Lender with such
additional information (at such time and in such manner as is reasonably
convenient for Borrower and the Lenders) as Borrower believes may be useful to
the Lenders in their evaluation of the Audit Report. Within ten Business Days
after receipt of the Audit Report, each Lender shall provide notice to the Agent
as to whether such Lender, in its sole and absolute discretion, determines that
the results of the Asset Audit are satisfactory to such Lender; if, by the end
of such period, the Agent does not receive notices from Lenders with Commitment
Percentages aggregating at least 66-_% stating that the results of the Asset
Audit are satisfactory to such Lenders, then (a) Borrower and each Lender agrees
to use its best efforts to come to an agreement as to (1) the frequency and
method of the reporting of Borrower's calculation of the Borrowing Base; (2) the
X% and Y% appearing in the definitions below, and (3) the definitions of the
terms "Eligible Accounts" and "Eligible Inventory" (together with such
additional definitions as may be used in the definitions of those terms); (b)
immediately upon the agreement by Borrower and the Majority Lenders as to the
foregoing, the same shall be added to the amendments to the Loan Agreement
appearing below, and (c) the Loan Agreement shall thereupon automatically, and
without any further action by any Party, be amended as follows (after giving
effect to the additions to such amendments of clause (b) of this Section):
(x) The following definition contained in the Loan Agreement will be
amended to read in its entirety as follows:
AVAILABLE COMMITMENT means, for any day, the difference of (a) the
lesser of the Commitment or the Borrowing Base minus (b) the Letter of
Credit Exposure.
(y) The following definition will be added to the Loan Agreement:
BORROWING BASE means, on any day, the sum of (a) X% of the Eligible
Accounts plus (b) Y% of the Eligible Inventory as set forth on the most
recent calculation of the Borrowing Base delivered to the Agent, subject
to arithmetic correction.
(z) Section 2(h)(1)(ii) of the Loan Agreement will be amended to read in
its entirety as follows:
(ii) the face amount of such Letter of Credit, PLUS the Current Sum at
such time, would exceed the lesser of the Commitment or the Borrowing
Base, in each case as then in effect,
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<PAGE>
16 WAIVER. All breaches of Section 6(c) of the Loan Agreement as in effect
before the effectiveness of this Amendment are hereby waived; PROVIDED, HOWEVER
that such waiver (a) is conditioned upon the accuracy of all information
heretofore furnished to the Agent and the Lenders and (b) is not a waiver of any
similar or dissimilar Default or Event of Default occurring after the date
hereof.
17 FORBEARANCE AGREEMENT. Upon the effectiveness of this Amendment, the
Forbearance Agreement shall be terminated and of no further force or effect.
18 CONDITIONS PRECEDENT. This Amendment shall be effective as of the date
set forth above, subject to the satisfaction, in a manner satisfactory to the
Agent, of each of the following conditions precedent on or before April 30,
1999:
(a) The Agent shall have received the following (the "AMENDMENT
DOCUMENTS"), each of which shall be in form and substance satisfactory to the
Agent in its sole and absolute discretion and duly and validly executed:
(1) A certificate of the Secretary or any Assistant Secretary of
Borrower, dated as of the date hereof, as to (1) the resolutions of the
Board of Directors of Borrower authorizing the execution, delivery and
performance of this Amendment and of each of the other Amendment Documents
(a copy of such resolutions to be attached to such certificate), such
certificate to state that said copy is a true and correct copy of such
resolutions and that such resolutions were duly adopted and have not been
amended, superseded, revoked or modified in any respect and remain in full
force and effect as of the date of such certificate, and (2) as to the
absence of any change since (i) October 31, 1998 in the Bylaws of Borrower
and (ii) December 20, 1996 in any of (x) the incumbency and signatures of
the officer or officers of the Borrower or (y) the Articles of
Incorporation of the Borrower;
(2) this Amendment, duly executed by Borrower, the Majority Lenders
and the Agent.
(3) Such effectiveness shall not violate any legal requirement
applicable to the Agent or any Lender; and
(4) a fee for the account of each Lender which had given written
notice to the Agent by April 23, 1999 of such Lender's agreement (subject
to review of documentation) to the modifications of the Loan Agreement
contained in this Amendment, in an amount equal to 0.25% of such Lender's
Commitment.
(b) Borrower shall have paid to the Agent on behalf of the Lenders all
accrued and unpaid fees and other amounts in connection with the Loan Agreement
and all amounts accrued under this Amendment and the other Amendment Documents.
(c) The Agent on behalf of the Lenders shall have received in writing all
such information respecting the business, operations, condition (financial and
otherwise), properties and prospects of Borrower and its financial and credit
arrangements, as any Lender through the Agent may from time to time have
reasonably requested.
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<PAGE>
(d) After giving effect to this Amendment, no Default shall have occurred
and be continuing.
(e) No event, circumstance or condition shall have occurred since January
31, 1999 which has had, or which could have, a material adverse effect on the
business, operations, condition (financial or otherwise), properties or
prospects of Borrower.
(f) Such effectiveness shall not violate any legal requirement applicable
to the Agent or any Lender.
19 REPRESENTATIONS TRUE; NO DEFAULT. Borrower represents and warrants to
the Agent and each Lender that (a) the representations and warranties contained
in the Loan Agreement and in the other Credit Documents are true and correct on
and as of the date hereof as though made on and as of such date (except to the
extent such representations and warranties are expressly stated to be made
solely as of an earlier date) and (b) except for the "Existing Defaults" (as
such term is defined in the Forbearance Agreement) no event has occurred and is
continuing which constitutes an Event of Default under the Loan Agreement or any
of the other Credit Documents or which upon the giving of notice or the lapse of
time or both would constitute such an Event of Default.
20 RATIFICATION. Except as expressly amended hereby and by the other
Amendment Documents, the Loan Agreement, as hereby amended, and the other Credit
Documents are in all respects ratified and confirmed and are, and shall continue
to be, in full force and effect. Borrower hereby agrees and acknowledges that
all of its liabilities and obligations under the Loan Agreement, the other
Credit Documents, or otherwise, remain in full force and effect as of the date
of this Amendment.
21 DEFINITIONS AND REFERENCES. Unless otherwise defined herein, terms used
herein which are defined in the Loan Agreement or in the other Credit Documents
shall have the meanings therein ascribed to them. The term "Agreement" as used
in the Loan Agreement and the term "Loan Agreement" as used in the other Credit
Documents or any other instrument, document or writing furnished to the Agent or
any Lender by or on behalf of Borrower shall mean the Loan Agreement as hereby
amended.
22 EXPENSES; ADDITIONAL INFORMATION. Whether or not this Amendment becomes
effective, Borrower shall pay or reimburse on demand each of the Lenders and the
Agent for paying: (a) the reasonable fees and expenses of Locke Liddell & Sapp
LLP, special counsel to the Agent, in connection with (1) the preparation,
execution and delivery of this Amendment (including its exhibits and appendix)
and the other Amendment Documents and (2) advising the Agent as to its rights
and responsibilities under the Loan Agreement, as hereby amended; (b) all costs
and expenses of the Lenders and the Agent (including costs of reasonable
counsels' fees) in connection with any Event of Default or the enforcement of
any Credit Document; (c) all transfer, stamp, documentary or other similar
taxes, assessments or charges levied by any governmental or revenue authority in
respect of any Credit Document or any other document referred to therein; (d)
all costs, expenses, taxes, assessments and other charges incurred in connection
with any filing or registration contemplated by any Credit Document or any
document referred to therein; and (e) reasonable expenses of due diligence and
syndication, and mutually agreed advertising and marketing costs.
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<PAGE>
23 SEVERABILITY. If any term or provision of this Amendment or any of the
other Amendment Documents or the application thereof to any person or
circumstances shall, to any extent, be deemed invalid or unenforceable, the
remainder of this Amendment or such Amendment Document, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and this
Amendment or such Amendment Document shall be valid and enforced to the fullest
extent permitted by applicable law. Any provision of this Amendment or of any
other Amendment Documents which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
thereof or affecting the validity or enforceability of such provision in any
other jurisdiction and, to this end, the provisions of this Amendment and each
of the other Amendment Documents are severable.
24 INDEMNIFICATION. BORROWER SHALL INDEMNIFY ON DEMAND THE AGENT
(INCLUDING THE AGENT WHEN ACTING AS THE ISSUER), THE LENDERS AND EACH AFFILIATE
THEREOF AND THEIR RESPECTIVE SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS AND ADVISORS (COLLECTIVELY, THE "INDEMNITEES" AND INDIVIDUALLY AN
"INDEMNITEE") 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 CREDIT DOCUMENT OR ANY LEGAL REQUIREMENT, INCLUDING
THOSE RELATING TO HAZARDOUS SUBSTANCES, PETROLEUM, PETROLEUM PRODUCTS OR
PETROLEUM WASTES; (C) ANY LENDER'S OR THE AGENT'S 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, PETROLEUM, PETROLEUM PRODUCT OR PETROLEUM WASTE LOCATED IN ON OR
UNDER SUCH PROPERTY, (D) THE SOLE, ORDINARY OR CONTRIBUTORY NEGLIGENCE OF ANY
INDEMNITEE, OR (E) ANY INVESTIGATION, LITIGATION OR OTHER PROCEEDING (INCLUDING
ANY THREATENED INVESTIGATION OR PROCEEDING) RELATING TO ANY OF THE FOREGOING,
AND BORROWER SHALL REIMBURSE EACH INDEMNITEE UPON DEMAND FOR ANY EXPENSES
(INCLUDING LEGAL FEES) INCURRED IN CONNECTION WITH ANY OF THE FOREGOING, BUT
EXCLUDING ANY SUCH LOSSES BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE INDEMNITEE TO BE INDEMNIFIED. THE OBLIGATIONS OF BORROWER
UNDER THIS SECTION SHALL SURVIVE THE TERMINATION OF THE LOAN AGREEMENT (AS
AMENDED BY THIS AMENDMENT AND AS IT MAY OTHERWISE BE AMENDED, RESTATED, MODIFIED
AND SUPPLEMENTED FROM TIME TO TIME) AND THE REPAYMENT AND EXPIRY OF THE LOANS.
ANY AMOUNT TO BE PAID UNDER THIS SECTION BY BORROWER TO THE AGENT OR ANY LENDER
SHALL BE A DEMAND OBLIGATION OWING BY BORROWER TO THE AGENT OR SUCH LENDER AND
SHALL BEAR INTEREST FROM THE DATE OF EXPENDITURE UNTIL PAID AT THE PAST DUE
RATE.
25 RELEASE OF CLAIMS. BORROWER HEREBY RELEASES, DISCHARGES AND ACQUITS
FOREVER THE AGENT AND THE 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). 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
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<PAGE>
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.
26 MISCELLANEOUS. This Amendment and the other Amendment Documents (a)
shall be binding upon and inure to the benefit of Borrower, the Agent and the
Lenders and their respective successors, assigns, receivers and trustees
(however, Borrower may not assign its rights hereunder without the express prior
written consent of the Lenders); (b) may be modified or amended only by a
writing signed by each party; (c) SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES) AND OF THE UNITED STATES OF AMERICA; (d) may be
executed in several counterparts, and by the Parties on separate counterparts,
and each counterpart, when so executed and delivered, shall constitute an
original agreement, and all such separate counterparts shall constitute but one
and the same agreement, and (e) embodies the entire agreement and understanding
between the Parties with respect to the subject matter hereof and thereof and
supersedes all prior agreements, consents and understandings relating to such
subject matter. The headings herein shall be accorded no significance in
interpreting this Amendment. Unless otherwise defined herein, terms used herein
which are defined in the Loan Agreement or in the other Credit Documents shall
have the meanings therein ascribed to them. Time is of the essence in the
performance of this Amendment and the other Amendment Documents. This Amendment
and the other Amendment Documents are Credit Documents.
27 THIS AMENDMENT AND THE OTHER AMENDMENT DOCUMENTS, TOGETHER WITH ALL OF
THE OTHER CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AS TO
THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed
by their respective duly authorized officers effective as of the date first
above written.
STEWART & STEVENSON SERVICES, INC.,
a Texas corporation
By: _______________________________
Name: _____________________________
Title: ____________________________
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<PAGE>
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, acting in its individual
capacity and as the Agent for the Lenders
named herein
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE>
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION, as a Co-Agent
and a Lender
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE>
NATIONSBANK, N.A., d/b/a Bank of America,
N.A., as Co-Agent and a Lender
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE>
ABN AMRO BANK N.V., HOUSTON AGENCY
By: _______________________________
Name: _____________________________
Title: ____________________________
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE>
THE BANK OF NEW YORK
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE>
BANK ONE, LOUISIANA, NA, as successor to
First National Bank of Commerce
By: _______________________________
Name: _____________________________
Title: ____________________________
Exhibit C - Request for Credit
Exhibit D - Compliance Certificate
<PAGE>
REQUEST FOR CREDIT
[Date]
Chase Bank of Texas,
National Association, as Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Manufacturing and
Oilfield Services Division
Ladies and Gentlemen:
The undersigned hereby certifies that [he] [she] is the
______________________________1 of Stewart & Stevenson Services, Inc.
("BORROWER"), a Texas corporation, and that as such is authorized to execute
this Request for Credit (the "REQUEST") on behalf of Borrower pursuant to the
Loan Agreement (as it may be amended, supplemented or restated from time to
time, the "LOAN AGREEMENT") dated as of December 20, 1996, by and among
Borrower, Chase Bank of Texas, National Association, a national banking
association then known as Texas Commerce Bank National Association, acting as
agent, and the financial institutions which are a party thereto from time to
time. Capitalized terms used herein and not defined herein shall have the
respective meanings assigned to them in the Loan Agreement. The Loan being
requested hereby is to be in the amount set forth in (b) below and is requested
to be made on , which is a Business Day. On behalf of Borrower, the undersigned
further certifies, represents and warrants as follows:
a. As of the date hereof:
(1) Aggregate outstanding amount
of Loans is: $_______________
(2) Letter of Credit Exposure is: $_______________
(3) Current Sum
(clause (1) + clause (2) is: $_______________
(4) The current Commitment is: $_______________
(5) The Available Commitment
(clause 4 - clause 3) is: $_______________
- --------
1 Must be the President, a vice president, the Treasurer or an Assistant
Treasurer of Borrower.
EXHIBIT C - Page 1
<PAGE>
b. If and only if the Available Commitment is positive, Borrower hereby
requests a Loan in the amount of $____________ (which is no more
than the Available Commitment).
c. The requested Loan is to be a (CHECK ONE) [ ] Base Rate Borrowing
[ ] CD Rate Borrowing [ ] Eurodollar Rate Borrowing [ ] Negotiated
Rate Borrowing. If the Loan is to be an Alternate Rate Borrowing,
the applicable Interest Period is to be .
d. The representations and warranties made in each Credit Document are
true and correct in all respects on and as of the time of delivery
hereof, with the same force and effect as if made on and as of the
time of delivery hereof.
e. No Default has occurred and is continuing or will occur as a result
of the requested Loan.
Thank you for your attention to this matter.
Very truly yours,
STEWART & STEVENSON SERVICES,
INC., a Texas corporation
By:_______________________________
Name:_____________________________
Title:____________________________
EXHIBIT C - Page 2
<PAGE>
COMPLIANCE CERTIFICATE
The undersigned hereby certifies that [he] [she] is the
_____________________________2 of Stewart & Stevenson Services, Inc.
("BORROWER"), a Texas corporation, and that as such is authorized to execute
this certificate on behalf of Borrower pursuant to the Loan Agreement (as it may
be amended, supplemented or restated from time to time, the "LOAN AGREEMENT")
dated as of December 20, 1996, by and among Borrower and Chase Bank of Texas,
National Association, a national banking association then known as Texas
Commerce Bank National Association, acting as agent (in such capacity, the
"AGENT") and the financial institutions which are a party thereto from time to
time; and that a review of Borrower and its Subsidiaries has been made under
[his] [her] supervision with a view to determining whether Borrower has
fulfilled all of its obligations under the Loan Agreement and the other Credit
Documents; and on behalf of Borrower further certifies, represents and warrants
as follows (each capitalized term used herein having the same meaning given to
it in the Loan Agreement unless otherwise specified):
(a) Borrower has fulfilled its respective obligations under the
Credit Documents.
(b) Except for those made only as of a specific date, the
representations and warranties made in each Credit Document are true and
correct in all respects on and as of the time of delivery hereof, with the
same force and effect as if made on and as of the time of delivery hereof.
(c) The financial statements delivered to the Agent and the Lenders
concurrently with this Compliance Certificate have been prepared in
accordance with GAAP consistently followed throughout the period indicated
and fairly present the financial condition and results of operations of
the applicable Persons as at the end of, and for, the period indicated.
(d) No Default has occurred and is continuing. In this regard,
Borrower is in compliance with the provisions of SECTION 6(C) of the Loan
Agreement, as follows:
SECTION 6(C)(1) -- LEVERAGE RATIO
actual Leverage Ratio for Borrower and its Subsidiaries as
of the date hereof:
__.____ : 1.00
maximum Leverage Ratio for Borrower and its Subsidiaries as
of the date hereof:
- ----------
2 Must be the Chief Financial Officer, Treasurer or any Assistant Treasurer
of Borrower.
EXHIBIT D - Page 1
<PAGE>
__.____ : 1.00
SECTION 6(C)(2) -- TANGIBLE NET WORTH
actual Tangible Net Worth for Borrower and its Subsidiaries
as of the date hereof:
$_______________
Minimum Tangible Net Worth for Borrower and its Subsidiaries as of
the date hereof:
$_______________
SECTION 6(C)(3) -- FIXED CHARGE COVERAGE RATIO
actual Fixed Charge Coverage Ratio for Borrower and its
Subsidiaries as of the date hereof:
__.____ : 1.00
minimum Fixed Charge Coverage Ratio for Borrower and its
Subsidiaries as of the date hereof:
__.____ : 1.00
(e) There has occurred no material adverse change in the assets,
liabilities, financial condition, business or affairs of Borrower or any
of its Subsidiaries since the date of the Loan Agreement.
DATED as of ___________.
STEWART & STEVENSON SERVICES, INC.,
a Texas corporation
By:_________________________________
Name:_______________________________
Title:______________________________
EXHIBIT D - Page 2
EXHIBIT 21.1
SUBSIDIARIES OF STEWART & STEVENSON SERVICES, INC.
The following list sets forth the name of each subsidiary of the Company, which
is also the name under which such subsidiary does business:
JURISDICTION OF
INCORPORATION
OR ORGANIZATION
---------------
C. Jim Stewart & Stevenson, Inc. Delaware
CPS International, Inc. Panama
Creole Stewart & Stevenson, Inc. Delaware
IPSC Co., Inc. Arkansas
PAMCO Services International, Inc. Delaware
S&S Cogen, Inc. Delaware
Sierra Detroit Diesel Allison, Inc. Nevada
Stewart & Stevenson Capital Corporation Texas
Stewart & Stevenson Carson, Inc. Texas
Stewart & Stevenson Development Services, Inc. Delaware
Stewart & Stevenson International, Inc. Delaware
Stewart & Stevenson International Sales, Inc. Barbados
Stewart & Stevenson Operations, Inc. Delaware
Stewart & Stevenson Overseas, Inc. Texas
Stewart & Stevenson Petroleum Services, Inc. Delaware
Stewart & Stevenson Power, Inc. Delaware
Stewart & Stevenson Project Services, Inc. Delaware
Stewart & Stevenson Realty Corporation Delaware
Stewart & Stevenson Technical Services, Inc. Delaware
Stewart & Stevenson Transportation, Inc. Texas
Stewart & Stevenson Tug, LLC Delaware
Stewart & Stevenson TVS, Inc. Delaware
Stewart & Stevenson (U.K.) Limited Scotland
Stewart & Stevenson Vehicle Services, Inc. Delaware
Tokumei Kumiai Holdings, Inc. Delaware
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, Registration Statement No. 333-15271 on Form S-8 dated October
31, 1996, Registration Statement No. 333-26089 on Form S-8 dated April 29, 1997,
Registration Statement No. 333-35617 dated September 15, 1997, and Registration
Statement No. 333-51567 on Form S-8 dated May 1, 1998 of our report dated April
29, 1999 included in Stewart & Stevenson Services, Inc.'s Form 10-K for the
fiscal year ended January 31, 1999.
/s/ Arthur Andersen LLP
Houston, Texas
April 29, 1999
<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 REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 12,959
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<RECEIVABLES> 168,546
<ALLOWANCES> (3,999)
<INVENTORY> 215,202
<CURRENT-ASSETS> 540,401
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<TOTAL-ASSETS> 705,777
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47,819
0
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<SALES> 1,206,772
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<INTEREST-EXPENSE> 12,244
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<EPS-DILUTED> (2.51)
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