-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UEG6DhAQnlMN0rEG3jbo7xqvVyb3ectZxf7r0VO+ZoIZ7jLG7n36W2o9QYh63Nb9 RIUaTEGtsPUKtRJJHFpdpA== 0000950134-98-002441.txt : 19980327 0000950134-98-002441.hdr.sgml : 19980327 ACCESSION NUMBER: 0000950134-98-002441 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TYLER CORP /NEW/ CENTRAL INDEX KEY: 0000860731 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS [3310] IRS NUMBER: 752303920 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-10485 FILM NUMBER: 98574020 BUSINESS ADDRESS: STREET 1: 2121 SAN JACINTO ST STREET 2: STE 3200 SAN JACINTO TOWER CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2147547800 MAIL ADDRESS: STREET 1: 2121 SAN JACINTO STREET STREET 2: SUITE 3200 CITY: DALLAS STATE: TX ZIP: 75201 FORMER COMPANY: FORMER CONFORMED NAME: TYLER THREE INC DATE OF NAME CHANGE: 19600201 10-K405 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------------- Commission File Number 1-10485 TYLER CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 75-2303920 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 2121 SAN JACINTO STREET 75201 SUITE 3200 (Zip code) DALLAS, TEXAS (Address of principal executive offices) Registrant's telephone number, including area code: (214) 754-7800 ---------------------- Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- --------------------- COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE ---------------------- INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ] INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THE FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. YES [X] NO [ ] THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT ON MARCH 10, 1998 WAS $263,358,245. THE NUMBER OF SHARES OF COMMON STOCK OF THE REGISTRANT OUTSTANDING ON MARCH 10, 1998 WAS 33,981,709. DOCUMENTS INCORPORATED BY REFERENCE CERTAIN INFORMATION REQUIRED BY PART III OF THIS ANNUAL REPORT IS INCORPORATED BY REFERENCE FROM THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR ITS ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 28, 1998. ================================================================================ 2 TYLER CORPORATION FORM 10-K TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 16 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . 26 Item 8. Financial Statements and Supplementary Data (see Index to Financial Statements below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 28 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Consolidated Balance Sheets as of December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
TYLER CORPORATION FORM 10-K PAGE 1 3 PART I ITEM 1. BUSINESS. GENERAL In February 1998, Tyler Corporation ("Tyler" or the "Company") acquired Business Resources Corporation ("Resources"), The Software Group, Inc. ("TSG"), and Interactive Computer Designs, Inc. ("INCODE"). These acquisitions represent the implementation of Tyler's recently announced strategy to build an integrated information management services, systems, and outsourcing company servicing local governments. Resources, TSG and INCODE provide information management solutions to approximately 200 county governments and 225 cities, principally located in the Southwestern United States. The Company believes that the information management industry today is fragmented and that the county government and related markets are primarily served by small, private companies. Given these industry characteristics and the ability to identify suitable acquisition candidates and complete acquisitions, the Company intends to pursue a consolidation strategy that, if successful, could lead to significant revenue growth for the Company. The acquisitions of Resources, TSG and INCODE will position the Company to grow rapidly through consolidating acquisitions and give it the opportunity to obtain a larger share of the county and city information management market. The Company intends to pursue aggressively this consolidation strategy through an acquisition program focused on entry into new geographic markets, expansion within existing geographic markets and development of related services and systems. The Company also continues to operate through Forest City Auto Parts Company ("Forest City"), a retailer of automotive parts and supplies. Forest City specializes in selling mechanical and electrical hard parts, such as brake parts, rack-and-pinion steering and fuel injectors, to do-it-yourself customers. Forest City also stocks a wide variety of maintenance items, fluids and accessories. Effective October 15, 1997, Tyler sold all of the capital stock of its former subsidiary, Institutional Financing Services, Inc. ("IFS") to I.F.S. Acquisition Corporation. INFORMATION MANAGEMENT SOLUTIONS Overview County and local governments have recognized the value of information management services and systems to improve revenue collection, provide increased access to information and streamline delivery of government services. As a result, information management services and systems have become primary vehicles for county and local governments, and their respective agencies, seeking to TYLER CORPORATION FORM 10-K PAGE 2 4 improve the delivery of goods and services to their constituents. From integrated tax systems to integrated criminal justice information systems, many county and local governments have benefited significantly from the implementation of jurisdiction-wide systems. These systems allow different agencies to share data and provide a more comprehensive approach to information management. Individual county and local government agencies also have information management requirements, many of which must be tailored to the services being provided. The annual expenditure by county governments for information technologies and resources, excluding personnel costs, was estimated in a Syracuse University study in 1992 at over $23 billion, with approximately $10 billion spent annually on information management services and data processing. County governments were created over three centuries ago primarily to serve the needs of rural areas. Today, county governments are the fastest growing form of government. There are over 3,000 county governments in the United States, plus 30 city-county governments, and county governments are experiencing growth in expenditures estimated at approximately 5% to 10% per year. Texas, with 254 counties, has the largest number of any state. Overall spending by county governments nationwide increased dramatically from approximately $115 billion in the fiscal year ended in 1989 to approximately $148 billion in the fiscal year ended in 1992. Traditionally, counties performed state-mandated duties, including property assessment, record keeping (i.e., property and vital statistics), road maintenance, administration of election and judicial functions and the provision of welfare assistance. Today, a host of emerging and urgent issues are confronting counties, each of which demands a service response. These areas include solid waste disposal, clean air and water, transportation, criminal justice and corrections, administration and finance, public safety, health and human services and public works. Transfers of responsibility from the federal and state governments, while empowering county and local governments to address issues and problems directly, also place additional service and financial requirements on these governmental units. In addition, county governments are typically comprised of numerous individual agencies, each fulfilling different missions and each having its own information management requirements. While all of these needs are not addressed by the Company's subsidiaries, they are indicative of the environment in which the Company's customers operate. The information management business serving county and local governments is highly fragmented and the Company competes with several competitors, some of whom may have greater resources than the Company, in most areas of its information management business. TYLER CORPORATION FORM 10-K PAGE 3 5 Information Management Outsourcing Services Resources provides a wide range of information management outsourcing services, primarily to county and local governments. The largest component of Resources' business is the computerized indexing and imaging of real property records maintained by county clerks and recorders. Other services Resources provides include records management and micrographic reproduction, as well as information management and outsourcing and professional services required by other county and local government units and agencies. Resources also provides title plant update services to title companies in Texas. Resources was formed in 1993 to serve as a holding company to acquire businesses that provide information management outsourcing services to local and county governments. In December 1994, Resources acquired Government Records Services, Inc. ("GRS"), its subsidiary that provides property records management services, and other business interests from American Title Group, Inc., in connection with the sale of that title insurance holding company to an unaffiliated party. GRS was founded in 1990 by four current Resources employees each of whom has worked in the government services business for over 20 years. These key employees have long-term, established relationships with Resources' customers and GRS has strong name recognition in Texas among county and local governments. In August 1995, Resources acquired the business and assets of a company that provides government information services to tax appraisal districts in Texas. In September 1995, Resources acquired the government outsourcing services business of BRC Holdings, Inc. ("Holdings"), in Texas, Oklahoma, Louisiana and New Mexico, making it the largest provider of those services in Texas. On July 31, 1997, Resources acquired the title services division of Holdings and began providing title services to title insurance companies throughout Texas, principally in the Dallas-Fort Worth metropolitan area. Property Records Services. County and local governments are responsible for recording and indexing real property transactions, maintaining archival copies of the filed documents and making those records available for public inspection and copying. Historically, these governmental units have used manual methods to record deeds and other title documents and to maintain alphabetical indexes of transactions. Resources provides microfilm and optical recording and computer indexing services to county and local governments (primarily county clerk and recorder offices) to organize and automate the recording and indexing of deeds and other title documents. Many of the records that are filed in a county clerk's office are permanent records that form the basis of land ownership in the county (e.g., deeds, deeds of trust, liens, miscellaneous property records and plats). Therefore, in addition to being accessible to the public, these records must be protected by a fail-safe backup procedure in the event of vandalism, fire or flood. These records are recorded by making archival quality paper copies, microfilm TYLER CORPORATION FORM 10-K PAGE 4 6 copies or imaging. Each record filed in the county clerk's or recorder's office pertaining to a parcel of land in the county is recorded in one of these methods and a county may have used different methods over time. In addition, these documents vary by county and within a county as to shape, size, quality and legibility. Recording Services. Resources' archival print recording service creates a high-quality film image of original documents on a custom-designed microfilm camera owned by Resources and located in county offices. Either Resources, or trained county government personnel, film the valuable records in a format suitable for creating a two-sided paper copy. The film is then processed in Resources' Kodak-certified laboratory and printed double-sided on archive quality, rag content paper using high fusing temperatures to permanently bond the print to the paper. The finished pages are then returned to the county to be placed in binders for public access and use. The original microfilm is stored in the Resources' archival film storage vault allowing Resources to access the microfilm and reproduce pages on short notice or reproduce entire volumes in the event of a natural or other disaster resulting in a destruction or loss of records. Resources' 20/20 Perfect Vision System allows an imaging system to be integrated with an indexing application as well as a cashiering system. This system is designed to manage the document workflow in the county clerk's or county recorder's office. The imaging, indexing and cashiering applications can stand alone, but are more powerful when integrated because of shared information across the applications. Indexing Services. In order to provide better service to the public and to increase the ease of information access, many county clerk offices maintain their grantor/grantee (i.e., buyer/seller) indices for property records in computerized form. To accomplish this, information relating to the grantor, grantee and property description must by keyed into a database from the recorded documents. Resources provides two types of computerized indexing services: (i) data entry performed by Resources personnel at a central location, allowing the county either to reduce the number of employees required for records management, or to utilize employees on other tasks; and (ii) to a lesser extent, data entry performed by a customer using Resources' microcomputers in the customer's offices. With each type of indexing service, Resources provides periodic merged updates of the cumulative grantor/grantee indices for each county, using centralized computer and software systems located in Dallas, Texas. Resources has a large staff of qualified and well-trained data entry operators specializing in creating consistent, quality indices. Based on its property records experience, Resources believes that accuracy and consistency are the keys to a reliable index. Resources requires its personnel to adhere to strict data entry standards. Accuracy is ensured by having each document entered twice in a process called "key verification" in which two operators separately key the same information from a document TYLER CORPORATION FORM 10-K PAGE 5 7 and any discrepancies between the entries are then verified both visually and by means of several computerized edits. As discussed above, the indexing application can be integrated with imaging and cashiering applications through Resources' 20/20 Perfect Vision System to manage the document workflow in the county clerk's or county recorder's office. Re-creation Services. Resources also provides record re-creation services to a number of customers. These services provide image-enhanced, archival-quality reprints of old records, including photostatic prints, with microfilm backup copies for improved security in case of loss by fire, theft, water damage, or other catastrophe. Other Services. Resources provides information management outsourcing and professional services to numerous units and agencies of county and local governments other than county clerks and recorders. These services concentrate on establishing and maintaining a recurring revenue base built upon a foundation of quality service. Information is a critical part of government, and the increasing difficulty of effectively managing that information has caused many governmental units to consider outsourcing alternatives. Through its information management outsourcing services, Resources provides direct and complete facilities management of a county or local government's financial, judicial, law enforcement, personnel, tax, clerical and administrative information by, in effect, becoming its information systems department. Outsourcing, typically negotiated under a multi-year contract, provides a government entity with a more reliable method of controlling its data processing budget while receiving greater automation benefits. Outsourcing also typically results in controllable, long-term relationships with customers and recurring annual revenues for Resources. Under a typical outsourcing services contract, Resources assumes the role of a customer's information systems department during the term of the contract. In addition to operating and maintaining all centralized systems, Resources also assumes responsibility for local area networks, client/server systems, and personal computers, which often involve multiple users in multiple offices. Software applications are also integrated for the benefit of the customer. Resources' employees may either perform these services from Resources' Dallas, Texas, office or from the customer's facilities, providing essentially the same function as the customer's former in-house information systems personnel. Also, Resources' management personnel become part of a strategic planning committee along with the customer's representatives to set the goals and objectives to be achieved during the contract. Resources also provides professional services to appraisal districts, counties, cities, and school districts. Under a professional services agreement, Resources provides a variety of hardware and specialized software for the customer's use to assist these government entities in automating their TYLER CORPORATION FORM 10-K PAGE 6 8 property tax appraisal, assessment, and collections, and voter registration processing. In addition to installing Resources' products in the customer's locations, training, maintenance and support are provided on an ongoing basis along with optional services, including laser printing of tax rolls, appraisal rolls and voter certificates, media conversions and data entry activities. Resources receives monthly service fees from customers for the use of these systems, resulting in recurring annual revenues. Title Plant Services. Title companies in Texas are required to maintain extensive files of real property data called "title plants." Title plants contain the information needed to perform title searches in order to underwrite title insurance policies. In Texas, a title plant must include at least a 25-year history of all land transactions and documents affecting each lot and tract of land in a particular county, which must be indexed so that the transactions and documents can be searched by reference to the lot or tract. Resources provides certain title insurance companies, primarily in the Dallas-Fort Worth metropolitan area, with a variety of title plant update services, including providing daily updates of their title plants. These updates are offered in various formats, ranging from paper copies of each deed, deed of trust, lien, plat, or other title document to installation of microcomputer-based title plant storage products in the customer's office. Resources owns title plants for Collin, Denton, Rockwall and Tarrant Counties in Texas, and may from time to time sell copies of these title plants to title companies or other firms that need title search capabilities. A recently approved Constitutional amendment in Texas, which permits second liens on homes to secure general home equity loans, is expected to result in increased demand for title plant services. Sales and Marketing. Resources markets its services through its direct sales and marketing personnel. Resources typically enters into long-term contracts with larger governmental units and title companies. Although most Resources customers are small and do not have long-term contracts, they have long-term, continuing relationships with Resources and its sales and marketing personnel. Many of Resources' county government customers and title plant customers have been served by Resources and its predecessors for more than 20 years, with some customers dating back to 1962. Customer turnover is extremely low. Customers. No single customer accounted for 10% or more of Resources' total revenues in 1997. The five largest customers of Resources accounted for a total of 23% of Resources' total revenues in 1997. These customers are currently under long-term contracts with Resources expiring in 1998 through 2002. Three of these five contracts permit early termination by the customer in the following respective TYLER CORPORATION FORM 10-K PAGE 7 9 circumstances: (i) upon 10 days' notice to Resources for any reason; (ii) at the end of a budget year; and (iii) upon 30 days' notice if required for the "public good" or because of change in applicable laws. Information Software Systems and Services TSG and/or INCODE provide county and local governments with software, systems and services to serve their information technology and automation needs. TSG and INCODE integrate their own products with computer equipment from hardware vendors, third-party database management applications and office automation software. TSG assists counties with all aspects of software and hardware selection, network design and management, installation and training and on- going support and related services. INCODE provides similar services to municipal governments. TSG was formed in 1981 and currently services approximately 1,000 county and local government units and agencies, primarily in Texas. INCODE was also formed in 1981 and provides information management systems and services to 250 municipal government sites throughout Texas, Oklahoma and Missouri, as well as certain additional cities in contiguous states. Services. TSG and INCODE provide the following services to county and local governments: Judicial Information Management. TSG offers a complete suite of information management products designed to meet the needs of various aspects of the judicial system. While each of these products may be installed on a stand- alone basis, most of the products are generally installed in the different government offices located in and around a county courthouse to take full advantage of the benefits of an integrated system of products. The ability to share information between government offices eliminates some of the duplicate input and record keeping and helps increase the efficiency of the offices. Court System. TSG's Courts system is comprised of several integrated products designed to track and manage the information involved in criminal and civil cases. The criminal and civil case management applications track cases, process fines and fees, generate judgment and sentencing paperwork in conjunction with criminal cases, generate numerous citations, notices and forms required in a civil case and generally track the status of each criminal and civil case in the court system. TSG's court administration application manages court calendars, coordinates judges' schedules and generates court dockets. The criminal justice information application accommodates local and state level reporting and electronic submission of case dispositions. An application designed for Justices of the Peace processes traffic tickets and other limited jurisdiction court matters. Finally, TSG's applications for the district attorney or prosecutor of a county automate the investigation, tracking, and filing of cases. TYLER CORPORATION FORM 10-K PAGE 8 10 INCODE also offers a comprehensive municipal court management system designed to fully automate the processing of citations, fees, warrants, bonds, and other tasks related to a city's municipal court operations. Law Enforcement System. The applications comprising TSG's Law Enforcement system are designed to automate all aspects of a sheriffs' agency. Applications for jail management include booking and releases, as well as the jail commissary. The medical processing application tracks inmates' medical histories and generates invoices to inmates or third parties. TSG's incident and offense reporting application tracks officers' activities, categorizes reporting obligations, and prepares state and federal Uniform Crime Reports. Finally, the warrant tracking application helps a county sheriffs' office track outstanding and closed arrest warrants. In addition, TSG offers a Computer Aided Dispatch/Emergency 911 system to track calls and the status of emergency response vehicles, interface with local and state searches and generally assist dispatchers in processing emergency situations. Other Judicial Information Products. TSG markets a variety of other specialized products in conjunction with the Courts system and the Law Enforcement system. Both systems are image-enabled using TSG's ableIMAGE application and the Law Enforcement system is video-enabled using ableVIDEO. A jury selection application assists election officials in the selection and notification of jurors, processing of jury payments, and management of juror histories. TSG's hot check processing application assists in the collection of bad checks, tracking of payments and fines and issuance of disbursements to vendors. Applications relating to adult and juvenile probation track probationers, collect fines and fees, maintain probation history and generate required state reporting. Utility Customer Information System. INCODE offers integrated applications designed to automate the billing and collections of the various metered utilities (i.e., water, gas, electricity) and non-metered services (i.e., sanitation, sewer) provided by municipal governments. This system allows INCODE customers to track invoicing, cash collections, work orders and automated meter readings. Property Appraisal and Tax. TSG has a comprehensive system for the automation of Texas Central Appraisal Districts and assessors' and appraisers' offices in Oregon and Washington. The Automated Central Appraisal District system (the "ACAD system") is designed to automate the appraisal and assessment of real and personal property including record keeping, mass appraisal, inquiry and protest tracking, appraisal and tax roll generation, tax statement processing and electronic state level reporting. The ACAD system can also be image- and video-enabled using TSG's ableIMAGE and ableVIDEO products for the storage of the many property related documents involved (including exemption applications, personal property renditions, and agricultural or special use application), as well as for the on-line storage of electronic photographs of properties for use in defending values in protest situations. TYLER CORPORATION FORM 10-K PAGE 9 11 TSG's ACAD system can be used in connection with TSG's Automated Tax Collection system (the "ATC system"), which supports tax billing and collection agencies, including counties and city, school tax offices, as well as special collection agencies. The ATC system supports billing, collections, lock box operations, mortgage company electronic payments, and provides daily, monthly and annual audit and distribution reporting. Specialized Products. TSG markets an integrated fund accounting system that conforms to government auditing and financial reporting requirements and generally accepted accounting principles. This system includes modules for accounts payable, budgetary accounting (general ledger), payroll/personnel, purchase order, fixed assets, revenues, bank manager and human resources. This system can operate in any government agency, although it is primarily installed in county auditor and county treasurer offices. INCODE provides a similar product which is mainly installed in city governments and municipal utility districts and authorities. TSG also offers other specialized products that allow the government offices in and around a courthouse to further integrate and automate their operations. Through the child support application, TSG customers are able to track child support cases, payments, and disbursements. The voter registration application tracks registered voters, generates voter cards, prepares precinct rolls in support of elections and interfaces with other state systems. TSG also offers an absentee voting application to assist in the management and tracking of absentee voters, as well as an election night system to assist in the tabulation of election results from various precincts. A motor vehicle registration application is available from TSG to process fees and issue motor vehicle registrations. Finally, TSG's indexing application allows government officials to index all official public records such as deeds, birth and death certificates and commissioner's court minutes. INCODE also offers similar products that allow city governments to further integrate and automate their operations. Through its city hall application, INCODE customers are able to maintain the records for cemeteries, ambulance billing and fleet maintenance. In addition, INCODE markets a suite of applications designed to automate the various responsibilities of the code enforcement department of a city, including tracking of citizen complaints, permits and inspections and business licenses. Imaging and Voice Products. TSG markets a variety of products that interface with and enhance its other products. TSG's ableIMAGE is an electronic document imaging system that integrates the scanning, retrieval, and display of document images into all of TSG's applications where needed. For example, the ableIMAGE application integrates with both the Court and Law Enforcement systems by allowing court related paperwork and documents to be scanned and stored as part of an electronic case folder designed to improve access to documents and reduce the need to distribute paper copies. TYLER CORPORATION FORM 10-K PAGE 10 12 TSG's ableVIDEO application allows a customer to add an electronic video imaging system which integrates the capture and display of pictures with all of TSG's applications. For example, the Law Enforcement system applications are video image-enabled using ableVIDEO to provide video mug shots of inmates at critical locations for identification and to allow investigators to compile electronic video line-ups. The Interactive Voice Response system developed by TSG interfaces with the ACAD system to allow retrieval of basic property information and interfaces with the child support system to allow retrieval of child support payment information using any touch-tone telephone. In addition, appropriate TSG products support bar coding for tracking of civil and criminal case folders, tracking of inmates, quick check-in of jurors, and rapid processing of tax statements. Internet Web Development. TSG has developed ableSERVE and a variety of other specialized application database interfaces to allow the public records portion of information contained in the various TSG systems to be made available to the public via the Internet. TSG also provides both web site development and web server hosting services for county customers. Sales and Marketing. TSG's sales are primarily performed by its direct sales and marketing personnel who are presently organized into five sales territories within the states of Texas and Georgia. Sales for other states and national account opportunities are managed by TSG's marketing manager except for the states of Oregon and Washington which are currently handled by TSG's Northwest Manager. Other in-house staff focus on add-on sales, forms, supplies and professional services. TSG's sales of most new systems are typically to other offices or organizations in counties already using TSG applications and systems, but sales are also generated from referrals from adjoining counties, relationships established between sales representatives and county officials, contacts at trade shows, direct mailings and direct contact from a prospect already familiar with TSG. TSG is active in virtually all state-level county government associations, including annual meetings, trade shows and educational events. In addition, TSG generally hosts customer luncheons at larger, statewide meetings such as the Texas Association of Appraisal Districts and the Texas County and District Clerks Association. TSG also hosts a user's group meeting for all TSG customers about once every 18 months, which provides an opportunity for customers to learn more about TSG products and an opportunity for feedback. INCODE's sales are primarily performed by its direct sales and marketing personnel who are presently organized into four sales territories within the states of Texas, Oklahoma, Missouri, New Mexico, Colorado, Kansas, and Louisiana. INCODE's marketing manager is responsible for sales in other states. Other in-house staff focuses on add-on sales of products and services to existing customers. TYLER CORPORATION FORM 10-K PAGE 11 13 Sales leads are derived from various sources including referrals from customers, consultants, and auditors, regional software demonstration seminars, direct mail, the Internet, telemarketing and trade shows and conferences. INCODE also hosts an annual Education Forum, which provides an opportunity for customers to learn more about INCODE products and services. Customers. TSG's customers consist primarily of county government offices, including the auditor, treasurer, tax assessor/collector, county clerk, district clerk, county and district court judges, probation officers, sheriffs' office and appraisal districts. No single customer (county government office) accounted for more than 5%, and no single county accounted for more than 10%, of total revenues for the fiscal year ending October 31, 1997. Due to the nature of TSG's sales as installation of countywide systems, a county customer representing a significant portion of revenues in one year is generally not a source of significant revenues the following year. Contracts for products and services are generally implemented over six months to one year with annually renewing service and software update agreements thereafter. Currently, approximately one-third of TSG's revenues are attributable to ongoing support and maintenance agreements. Although by the terms of these agreements either TSG or the customer are entitled to terminate upon 90- days' notice after the first anniversary of the agreement, historically most agreements are automatically renewed annually. INCODE's market is primarily small to mid-sized municipal governments, typically a city government in the 3,000 to 35,000 population range. The average population of new customer sites is increasing. INCODE added a city with a population of 110,000 to its customer base in 1997. In addition to city government customers, INCODE has approximately twenty municipal utility districts as customers. No single customer (municipal governmental entity) accounted for more than 5% of total revenues for the year ended December 31, 1997. Customer turnover for both TSG and INCODE is very low. Competition A number of local and regional businesses provide or offer at least some of the products and services provided by the Company through Resources, TSG or INCODE. In addition to third-party vendors, Resources, TSG and INCODE occasionally compete with centralized information service departments of county or local governments to provide products or services to other departments and often must persuade the end-user department to discontinue the service by its own personnel and outsource the service. The ability of TSG and INCODE to offer an integrated system of applications for several offices is often a factor in their favor. In addition, county and local governments are often required to put their contracts up for competitive bid on a periodic basis. Competition may be increased TYLER CORPORATION FORM 10-K PAGE 12 14 if a customer seeks bids on only one aspect of its system (such as imaging or indexing or voter registration) rather than bidding all of the services as an integrated whole. Single function bidding generally results in more bidders and more intense price competition. GRS and TSG are Qualified Information Systems Vendors for the Texas General Services Commission on state purchasing contracts and, as a result, in some cases county governments offices may contract with GRS or TSG directly without a bid process. For Resources, competition typically is based on price, service and technological capabilities or the ability to modify the products and services to be provided to accommodate the requirements of the customer. For TSG and INCODE, competition typically is based on confidence in the supplier, service, technological capabilities or the ability to modify and price. As a result of various acquisitions and sales of businesses by Resources, it has contractual commitments not to compete in the property records services business in the Southeastern United States until September 1998. Additionally, in connection with Resources' acquisition of the title services division of Holdings in July 1997, Resources acquired the Dallas, Texas, data processing center of Holdings and agreed to provide to Holdings certain data entry services for customers of property records services provided by Holdings. Resources also agreed not to solicit these customers, which are located primarily in the Northeastern and Southeastern United States, prior to August 1999. AUTOMOTIVE AFTERMARKET PARTS Forest City, headquartered in Cleveland, Ohio, is a retailer of automotive parts and supplies. The company specializes in selling mechanical and electrical hard parts, such as rack-and-pinion steering and fuel injectors to do- it-yourself customers. Forest City also stocks a wide variety of maintenance items, fluids and accessories. Known for extensive inventories, Forest City's stores use the slogan, "Stop looking! The odds are we have it." Each Forest City location maintains inventories which average 20,000 parts for both domestic and foreign cars and light trucks. Company stores carry deeper inventories than most competitors and stock items that best suit the vehicle mix in their area. Major Forest City suppliers include Allied Signal Inc., Kem Manufacturing Company, TRW Inc. and Tenneco Automotive. Inventories carried by Forest City are generally available from multiple sources. Quality customer service provided by knowledgeable store personnel is fundamental to the company's strategy. Through on-the-job and formal training programs, Forest City's employees learn to assist customers in diagnosing specific problems and selecting the correct parts. The company's use of incentive compensation and opportunities for promotion allow Forest City to hire and motivate high-quality individuals. TYLER CORPORATION FORM 10-K PAGE 13 15 Forest City was founded in 1927 and served the Akron area with one store until 1961. At the end of 1981, the company had 31 locations in operation. Forest City ended 1997 with 71 locations, including ten new stores added in October 1997 in the Chicago and Milwaukee areas. Open seven days a week, each location operates extended hours to provide maximum customer convenience. Sources estimate total annual sales attributable to the do-it-yourself portion of the auto-parts aftermarket at approximately $30 billion. Auto-parts retailing is a fragmented market with major competitors in Forest City's markets including AutoZone, Inc., Parts America, a division of Western Auto, Murray's Discount Auto Stores, Inc., Pep Boys - Manny, Moe & Jack and Trak Auto Corp. Additional competition comes from jobbers who sell principally to wholesale accounts and, to a lesser extent, from discount and general merchandise stores. The auto-parts retailing industry is intensely competitive. Factors contributing to competitive pressures are the slowing growth of the do-it-yourself market as a result of longer-lived automobile parts, increased complexity of modern cars and higher incidences of leasing. Virtually all cars and trucks now have computer-controlled engines, as well as complex electronic fuel injection and ignition systems. Employees. At December 31, 1997, the Company had 787 employees, of which 779 were employed by Forest City. The number of employees at December 31, 1997, does not include the employees added with the acquisitions of Resources, TSG and INCODE on February 19, 1998. ITEM 2. PROPERTIES. At December 31, 1997, the Company occupied approximately 420,000 square feet of floor space which is primarily utilized in retail facilities. As of December 31, 1997, Forest City operated 71 stores in Illinois, New York, Ohio, Pennsylvania and Wisconsin, most of which were leased, generally under leases of less than seven years' duration. Store sizes range from 4,300 to 7,000 square feet with the typical store located in a free-standing building of approximately 6,000 square feet. Property descriptions are as of December 31, 1997, and do not include properties added with the acquisitions of Resources, TSG and INCODE on February 19, 1998. ITEM 3. LEGAL PROCEEDINGS. The New Jersey Department of Environmental Protection and Energy ("NJDEPE") has alleged that a site where a former affiliate of Tyler Pipe Industries, Inc. (a wholly-owned subsidiary of the Company known as TPI of Texas, Inc. ("TPI")), Jersey-Tyler Foundry Company ("Jersey-Tyler"), once operated a foundry contains lead and possible other priority pollutant metals and may need on-site and off-site remediation. The site was used for foundry operations from the early part of this century to 1969 TYLER CORPORATION FORM 10-K PAGE 14 16 when it was acquired by Jersey-Tyler. Jersey-Tyler operated the foundry from 1969 to 1976, at which time the foundry was closed. In 1976, Jersey-Tyler sold the property to other persons who have operated a salvage yard on the site. Based on a remedial investigation conducted by TPI, the NJDEPE has demanded TPI remediate the foundry site and the contamination in the adjacent stream and nearby lake. TPI has offered to conduct a feasibility study to assess remediation options, including costs, but has not agreed to commit to further action at this time. TPI never held title to the site and denies liability. In connection with the sale of the assets of TPI to Ransom Industries, Inc. (formerly known as Union Acquisition Corporation) (the "Buyer"), an affiliate of McWane, Inc., on December 1, 1995, pursuant to an Acquisition Agreement among the Company, TPI and the Buyer (the "Acquisition Agreement"), the Buyer agreed to manage and direct the prosecution or defense of these matters on behalf of TPI. In addition, the Buyer agreed to reimburse TPI the first $3,000,000 of certain costs and expenses incurred in connection with the investigation or remediation of the site, and one-half of such expenses in excess of $3,000,000. Under any circumstances, however, the maximum amount that the Buyer agreed to reimburse TPI in connection with this matter is $6,500,000. As of December 31, 1997, the Buyer has reimbursed TPI approximately $500,000 which represents principally all the expenses to-date associated with the investigation of the site. The Buyer, on behalf of TPI, is proceeding against predecessor owners and operators of the site, as well as others, to bear their share of the cost of the investigation and any other costs, including any remediation costs incurred by TPI. Some costs may also be covered by insurance although the insurance carriers have initially denied coverage. TPI expects to proceed against such insurance carriers seeking coverage of remediation costs. Recoveries from predecessor companies and insurance companies are shared by TPI and the Buyer. Pursuant to the Acquisition Agreement, the Buyer agreed to manage and direct the prosecution or defense of certain matters on behalf of TPI, and to reimburse related costs and expenses. The Buyer agreed to reimburse TPI the first $750,000 of all costs and expenses incurred in connection with each such matter, and one-half of such expenses in excess of $750,000. The maximum amount that the Buyer agreed to reimburse TPI in connection with all of these matters excluding Jersey-Tyler is $8,000,000. The Buyer did not agree to reimburse TPI for, among other things, (a) liabilities relating to the use, handling, manufacture or sale of products containing asbestos or silica, (b) claims of individuals for health problems such as (but not limited to) silicosis, or (c) offsite environmental liabilities. Although it is impossible to predict the outcome of legal or regulatory proceedings, the Company believes that substantially all of the costs, expenses and damages, if any, resulting from the legal proceedings and environmental matters described above will be reimbursed by the Buyer pursuant to the Acquisition Agreement or have been adequately provided for in the financial statements. TYLER CORPORATION FORM 10-K PAGE 15 17 Between 1968 and December 1995, TPI owned and operated foundries. TPI is, and expects to continue to be, involved in different types of litigation for which it will not be reimbursed by the Buyer. Beginning in February 1997, over fifty former employees of TPI have filed a series of separate personal injury lawsuits which allege that they were exposed to silica, asbestos and/or other industrial dusts during their employment at TPI. Named as defendants with TPI and Swan Transportation Company ("Swan"), another wholly-owned subsidiary of the Company, are major suppliers of asbestos, sand and industrial respirator devices. These codefendants have been sued under product liability theories of recovery. The plaintiffs seek to recover money damages for the personal injuries they allegedly suffered as a result of their occupational exposure to silica, asbestos and other industrial dusts. No discovery has taken place, and it is not possible to predict the outcome at this time. While the Company plans to defend this litigation vigorously, the ultimate outcome is uncertain. On September 25, 1997, a former employee of a Forest City store brought suit against Forest City and the Company in the Supreme Court of Erie County, New York. The plaintiff alleges that employees of Forest City falsely accused her of falsifying overtime entries, terminated her employment on that basis, filed a criminal report based upon the false overtime entries and forced her to sign a restitution agreement. Based upon these allegations, the plaintiff is suing for slander, intentional abuse of the criminal law enforcement process and intentional and negligent infliction of emotional distress. The plaintiff is seeking compensatory damages of at least $1,500,000 and punitive damages of at least $3,000,000. The Company believes the claims are without merit and intends to vigorously defend this action. Other than ordinary course, routine litigation incidental to the business of the Company and except as described herein, there are no material legal proceedings pending to which the Company or its subsidiaries are parties or to which any of its properties are subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. TYLER CORPORATION FORM 10-K PAGE 16 18 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Tyler common stock is traded on the New York Stock Exchange. At December 31, 1997, Tyler had approximately 3,500 stockholders of record. A number of the Company's stockholders hold their shares in street name; therefore, there are substantially more than 3,500 beneficial owners of its common stock. The following table sets forth for the calendar periods indicating the high and low sales price per share of Tyler common stock as reported on the New York Stock Exchange.
High Low ---- --- 1996: First Quarter . . . . . . . . . . . . . . $ 3 $ 2 1/4 Second Quarter . . . . . . . . . . . . . . 2 7/8 2 1/8 Third Quarter . . . . . . . . . . . . . . 2 3/4 1 3/8 Fourth Quarter . . . . . . . . . . . . . . 2 1/4 1 3/8 1997: First Quarter . . . . . . . . . . . . . . $ 2 3/8 $ 1 1/2 Second Quarter . . . . . . . . . . . . . . 2 1/4 1 3/8 Third Quarter . . . . . . . . . . . . . . 3 3/4 2 Fourth Quarter . . . . . . . . . . . . . . 5 7/8 3 3/8 1998: First Quarter (through March 10, 1998) . . . . . . . . . . . . . $ 8 3/4 $ 5 5/16
No cash dividends were paid in 1997 or 1996. TYLER CORPORATION FORM 10-K PAGE 17 19 ITEM 6. SELECTED FINANCIAL DATA.
AS OF OR FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- (DOLLARS AND AVERAGE SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Net sales ............................... $ 76,429 $ 85,074 $ 86,893 $ 91,849 $ 84,464 Costs and expenses: Cost of sales ........................ 43,947 49,275 (1) 51,126 53,626 46,566 Selling, general and administrative .. 29,887 41,162 (1) 34,531 36,229 33,695 Amortization of goodwill ............. -- 1,101 1,112 1,111 1,092 Depreciation and amortization ........ 2,057 1,368 1,060 895 770 Interest (income) expense, net ....... (830) (277) 1,003 678 85 Goodwill and other intangibles impairment charge ................. -- 14,789 (2) -- -- -- -------- -------- -------- -------- -------- Income (loss) from continuing operations before taxes .............. 1,368 (22,344) (1,939) (690) 2,256 Income tax (benefit) .................... 197 (3,037) (497) (24) 1,308 -------- -------- -------- -------- -------- Income (loss) from continuing operations ........................... $ 1,171 $(19,307) $ (1,442) $ (666) $ 948 (3) ======== ======== ======== ======== ======== Earnings (loss) per common share from continuing operations(4) ........ $ .06 $ (.97) $ (.07) $ (.03) $ .05 (3) ======== ======== ======== ======== ======== Weighted average number of common shares outstanding ................... 20,498 19,876 19,869 19,925 20,556
AS OF DECEMBER 31, ------------------------------------------------------------ 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Total assets ..................................... $ 54,895 $ 59,390 $123,512 $197,800 $143,171 Long-term debt ................................... -- -- -- 63,500 -- Shareholders' equity ............................. 31,403 32,041 93,362 110,298 117,964
(1) Cost of sales and selling, general and administrative include pretax restructuring and other charges of $612 and $6,638, respectively (see Note 11 in Notes to Consolidated Financial Statements). (2) Pretax charge for write-off of goodwill and other intangibles at Forest City (see Note 12 in Notes to Consolidated Financial Statements). (3) Before cumulative effect of change in accounting principles for income tax resulting in a credit of $1,127, or $.05 per share. (4) Earnings (loss) per share represents basic earnings per share. When the effect of dilutive shares are considered, there is no change from basic earnings per share (see Note 9 in the Notes to Consolidated Financial Statements). TYLER CORPORATION FORM 10-K PAGE 18 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The continuing operations information discussed below excludes the results of operations of IFS sold in October 1997 and TPI sold in December 1995. Interest expense has been charged to discontinued operations based on net assets associated with IFS and TPI at the average borrowing rate during each period. Income tax (benefit) has been charged (credited) to discontinued operations based on the income tax (benefit) resulting from inclusion of the discontinued operations segment in the Company's consolidated federal income tax return. Continuing operations at December 31, 1997, 1996 and 1995 principally consisted of Forest City. The Company's results of operations do not include the results of operations of Resources, TSG or INCODE, which were acquired in February 1998. Subsidiary operating profits, as used herein, exclude amortization and write-off of goodwill and other intangibles arising from acquisitions and restructuring and other charges recorded in the fourth quarter of 1996. 1997 COMPARED TO 1996 Tyler reported income from continuing operations of $1.2 million, or $.06 per diluted share in 1997, compared to a loss of $19.3 million, or $.97 per diluted share in 1996. Loss from continuing operations in 1996 includes pretax charges of $14.8 million to write off goodwill and other intangibles at Forest City and $7.3 million of restructuring and other charges. Forest City's same store sales were down 9% in 1997 and operating profit declined to $3.5 million in 1997 from $3.8 million in 1996 before restructuring and other fourth-quarter charges. Although gross margin on a yearly basis was down slightly at 42.5% in 1997 compared to 42.8% in 1996 before restructuring and other charges, the fourth quarter 1997 gross margin declined to 41.2%. Both the decline in the fourth quarter margin and sales for the year reflect increased competition in the markets Forest City serves. Selling, general and administrative expenses in 1996 included $1.1 million of goodwill and other intangibles amortization and $3.0 million of restructuring and other charges. In December 1996, the company wrote-off all goodwill and other intangibles. Excluding these charges, Forest City's selling, general and administrative expenses as a percent of sales in 1997 were flat compared to 1996. TYLER CORPORATION FORM 10-K PAGE 19 21 Forest City completed a transaction on October 8, 1997, which added ten stores, primarily in the Chicago and Milwaukee areas. The company purchased existing inventory at a discount and assumed leases on these stores. The cost of this transaction, which includes the cost of additional inventory purchased after the acquisition, was approximately $3.2 million. These additional stores are expected to impact Forest City's operations in a positive manner. Historically, same-store sales comparisons have been more favorable in the Chicago and Milwaukee areas as opposed to other markets served by Forest City. The auto-parts retailing industry is intensely competitive. Factors contributing to competitive pressures are the slowing growth of the do-it-yourself market as a result of longer-lived automobile parts, increased complexity of modern cars and higher incidences of leasing. Virtually all cars and trucks now have computer-controlled engines, as well as complex electronic fuel injection and ignition systems. As a result of the changes in the market place, the auto-parts retailing industry is quickly consolidating. This consolidation trend led to lower sales volume in 1997 and is expected to continue in 1998 with the larger retailers gaining market share at the expense of jobbers, smaller independent operators and less specialized mass merchandisers, which lack the economies of scale in purchasing and distribution available to larger retail chains. Although this trend is expected to negatively impact sales volume in 1998, Forest City anticipates limiting the impact on operating margin by more closely monitoring payroll and other store costs. In an effort to lower inventory costs, in the fourth quarter of 1997, Forest City negotiated several new vendor contracts, which resulted in slightly lower costs and more favorable payment terms. As part of a new strategy to limit the negative sales impact of new competition, Forest City opened its first new built-to-specifications store in February 1998. The new 5,800 square foot free-standing store, which replaced an outdated facility in Akron, Ohio, is the prototype for future Forest City stores. In addition, the company plans to build a similar new store in the Chicago area in April 1998 and remodel at least three of their more profitable stores to resemble the new prototype. Furthermore, Forest City intends to remodel other stores as soon as it becomes known that a major competitor plans to enter or expand in the company's markets. Despite these efforts, the Company cannot provide any assurances that this trend will not negatively impact earnings. In addition, in 1998, Forest City will review the performance of existing stores, which may result in the relocation or closure of some unprofitable stores. After excluding restructuring and other charges recorded in the fourth quarter of 1996, corporate expense in 1997 declined approximately 9% compared to 1996, primarily due to reduced employee costs. TYLER CORPORATION FORM 10-K PAGE 20 22 The Company's income tax expense of $.2 million in 1997 was less than the amount computed by applying the statutory rate to its income from continuing operations due to the utilization of capital losses and the effect of state income taxes. 1996 COMPARED TO 1995 For the year ended December 31, 1996, Tyler Corporation had a pretax loss from continuing operations of $22.3 million. Sales fell 2% for the year. The pretax loss from continuing operations includes a pretax charge of $14.8 million to write off goodwill and other intangibles at Forest City and $7.3 million of restructuring and other charges. The continued decline in the financial results of Forest City in the second half of 1996 and a related strategic and operational review resulted in an evaluation of goodwill and other intangibles for possible impairment. The underlying factors contributing to the decline in financial results included changes in the marketplace and increased competition. The Company calculated the present value of expected cash flows to estimate the fair value of Forest City. In the fourth quarter of 1996, the Company recorded $1.7 million of restructuring and other pretax charges in relation to a restructuring plan to reduce costs and increase future operating efficiency by reducing the work force, closing and relocating Forest City stores and reducing corporate office space requirements. Also in the fourth quarter, the Company recorded pretax charges of $3.7 million, which included vendor restocking charges for on-hand inventory items at Forest City, the noncash write-off of certain fixed assets and software, which Forest City decided in the fourth quarter of 1996 that it would no longer utilize in its business, and other obligations relating to the termination of former employees. In addition, the Company terminated its defined benefit pension plan in the fourth quarter of 1996 resulting in a net charge of $1.9 million. Total restructuring and other charges recorded in the fourth quarter of 1996 were $7.3 million of which $.6 million is included in cost of sales and $6.7 million is included in selling, general and administrative expenses. Same-store sales at Forest City advanced 5% in the first half of 1996; however, competitors aggressively opened new stores in Forest City's markets in the third quarter resulting in a 4% decline in same-store sales comparison for the second half. Forest City's operating profit declined from $4.0 million in 1995 to $3.8 million in 1996 before restructuring and other fourth-quarter 1996 charges. Gross margin was up 1.6% in the year-to-year comparisons. Installation of an electronic point-of-sale system ("POS") early in 1996, tightened security in the stores and a management program targeting stores with gross margins below a minimum standard contributed to this increase. While better productivity lowered operating payroll as a percentage of sales TYLER CORPORATION FORM 10-K PAGE 21 23 by 1.5%, these savings were more than offset by higher costs associated with the new information systems. After excluding restructuring and other charges, Tyler had much lower corporate expense for 1996 compared to 1995. Savings came from a gain through sale of an asset and lower personnel expense. This reduction, coupled with interest income as opposed to interest expense in 1995, lowered the pretax loss for 1996. LIQUIDITY Tyler ended 1997 with cash and cash equivalents of $8.9 million, a decrease of $6.5 million from year-end 1996. The Company received $5.8 million in October 1997 from the sale of IFS and recorded a receivable of $2.6 million for the remaining purchase price. The $2.6 million receivable was subsequently collected in January 1998. In October 1997 the Company added ten stores to the Forest City network of retail automotive parts stores. Forest City purchased existing inventory at a discount and assumed leases on these stores, primarily in the Chicago and Milwaukee areas. The cost of this transaction, which included the cost of additional inventory purchased after the acquisition, was approximately $3.2 million. In September 1997, Richmond Partners, Ltd., a Houston-based investment partnership of which Louis A. Waters is the managing general partner, invested $3.5 million in a package of Tyler securities consisting of two million common shares and a warrant to acquire two million common shares with an exercise price of $2.50 per common share. Mr. Waters is currently Chairman of the Board of the Company. In connection with Bruce W. Wilkinson's resignation as a director and President and Chief Executive Officer of the Company effective October 8, 1997, the Company purchased 447,609 shares of the Company's common stock owned by Mr. Wilkinson for $1.5 million. Mr. Wilkinson purchased these shares in the second quarter of 1997 as a condition of his employment. In addition, the Company also made payments to Mr. Wilkinson of approximately $.3 million relating to various stock compensation plans. In 1996, several benefit plans maintained for certain key employees of the Company and TPI were terminated which resulted in a final settlement payment of $1.3 million in January 1997. This amount was accrued at December 31, 1996. The Company also made payments of approximately $1.1 million in connection with workforce reductions which were included in restructuring and other charges in the fourth quarter of 1996. In February 1998, the Company entered into a three-year bank credit agreement in an amount not to exceed $50.0 million, including a $5.0 million sublimit for the issuance of standby and commercial TYLER CORPORATION FORM 10-K PAGE 22 24 letters of credit (the "Senior Credit Facility"). The proceeds of the Senior Credit Facility are intended to be used to fund acquisitions and meet short-term working capital needs and capital expenditures which may arise from time to time. Borrowings under the Senior Credit Facility bear interest at either the bank's prime rate plus a margin of zero to .25% or the London Interbank Offered Rate plus a margin of 1% to 2%, depending on the Company's ratio of indebtedness to earnings before interest, taxes, depreciation and amortization. The credit facility is secured by a pledge of the common stock of all present and future operating subsidiaries and is guaranteed by all such subsidiaries. Under the terms of the Senior Credit Facility, the Company is required to maintain certain financial ratios and other financial conditions. The Senior Credit Facility also prohibits the Company from incurring certain additional indebtedness, limits certain investments, advances or loans and restricts substantial asset sales, capital expenditures and cash dividends. On February 19, 1998, the Company acquired Resources, TSG and INCODE. The combined purchase price for these companies was 12.2 million shares of Tyler common stock and approximately $41.3 million of cash and debt assumption, which includes $5.7 million loaned to Resources for working capital purposes on December 29, 1997. The Company financed the acquisitions utilizing funds available under its Senior Credit Facility. The Company is from time to time engaged in discussions with respect to selected acquisitions and expects to continue to assess these and other acquisition opportunities as they arise. The Company may also require additional financing if it decides to make additional acquisitions. There can be no assurance, however, that any such opportunities will arise, any such acquisitions will be consummated or that any needed additional financing will be available when required on terms satisfactory to the Company. Tyler entered into a tax-benefit transfer lease in 1983 pursuant to which it is obligated to make income tax payments totaling $4.5 million over the next four years beginning in 1998. This obligation is included in deferred income taxes at December 31, 1997. Management believes adequate cash resources will be available for the next 12 months to fund capital spending programs and working capital needs. TYLER CORPORATION FORM 10-K PAGE 23 25 CAPITALIZATION Historically, Tyler's capital structure has varied depending on the Company's strategies and actions. Acquisitions for cash and repurchases of Tyler common stock generally have increased debt, while cash-generating capabilities of Tyler's operating subsidiaries and dispositions of companies or assets have provided funds to reduce debt. Total capitalization at the end of 1997 consisted of $31.4 million in shareholders' equity. The Company had $2.0 million of letters of credit outstanding at December 31, 1997, which were released in January 1998. While the Company has no material commitments for capital expenditures, Tyler anticipates that 1998 spending for Forest City could exceed last year's level of $1.2 million. In addition, the combined capital expenditures of Resources, BRC and INCODE could exceed $2.5 million. IMPACT OF YEAR 2000 The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Thus, a date using "00" is recognized as the year 1900 rather than 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. The majority of the Company's computer hardware and software susceptible to this condition is utilized by Forest City, specifically in its electronic POS and perpetual inventory systems, which were installed in early 1996. In conjunction with the purchase of the hardware and software, the vendor agreed to sustain the cost of converting the systems to be Year 2000 compliant. The project is estimated to be completed not later than second quarter of 1998. The Company believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of Forest City. Forest City has yet to commence discussions with its suppliers and customers concerning their status with regard to the Year 2000 Issue. Forest City will begin these inquiries during 1998. As Forest City does not place significant reliance on any single supplier or customer, management believes that a supplier or customer negatively impacted by the Year 2000 Issue will not have a material adverse effect on operations. With regard to the acquisitions of Resources, TSG and INCODE, which occurred subsequent to December 31, 1997, the Company does not anticipate significant operational problems. The companies TYLER CORPORATION FORM 10-K PAGE 24 26 have either completed or substantially completed their conversions to be Year 2000 compliant. Thus, the Company does not anticipate the Year 2000 Issue to have a material impact on the normal operations of the companies. IFS DIVESTITURE Effective October 15, 1997, the Company sold all of the capital stock of its subsidiary, IFS, which provided products for fund-raising programs, to I.F.S. Acquisition Corporation for approximately $8.4 million. This sale resulted in a loss on disposal of approximately $2.5 million. The estimated loss on disposal includes estimates regarding the value of certain assets that are subject to change. Management does not expect these estimates to have a significant impact on the estimated loss on disposal. Proceeds consisted of approximately $5.8 million in cash received at closing and approximately $2.6 million received in January 1998. The results of IFS are included in the Company's consolidated financial statements as discontinued operations. TYLER PIPE DIVESTITURE On December 1, 1995, the Company sold substantially all of its assets to the Buyer, and the Buyer assumed substantially all the liabilities of TPI. In the same transaction, the Company sold all of the outstanding capital stock of Swan (which was repurchased in May 1997) to the Buyer. The results of these entities and the effect of subsequent changes in estimates of retained contingent liabilities are included as discontinued operations. The assets TPI sold and the liabilities the Buyer assumed included all those relating to TPI's business of manufacturing and marketing cast iron pipe and fittings, excluding cash and certain other assets and liabilities. Swan was a motor- carrier company that provided transportation services to TPI prior to the closing. Based on a July 1, 1995, balance sheet, the Buyer paid a net amount of $66.1 million for the assets of TPI and the stock of Swan, of which $58.5 million was received on December 1, 1995, and the net remaining payment was received in January 1996. In addition, Tyler Pipe Industries, Inc. distributed cash of approximately $17.7 million to the Company from July 1, 1995, through December 1, 1995. Between 1968 and December 1995, TPI, together with its predecessors and subsidiaries, owned and operated foundries. TPI is, and expects to continue to be, involved in different types of litigation, including environmental claims and claims for work-related injuries and physical conditions. See "Legal Proceedings." Costs associated with investigation of such matters are included in other liabilities at December 31, 1997 and 1996. TYLER CORPORATION FORM 10-K PAGE 25 27 FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than historical or current facts, including, without limitation, statements about the business, financial condition, business strategy, plans and objectives of management and prospects of the Company are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from these expectations. Such risks and uncertainties include, without limitation, changes in product demand, turnover in the sales force, the availability of products, changes in competition, economic conditions, various inventory risks due to changes in market conditions, decrease in demand for information management services or record services generally or by governmental authorities, new technological developments, decrease in demand for aftermarket automotive parts, changes in tax and other governmental rules and regulations applicable to the Company, and other risks indicated in the Company's filings with the Securities and Exchange Commission. These risks and uncertainties are beyond the ability of the Company to control and, in many cases, the Company cannot predict the risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements. When used in this report, the words "believes," "plans," "estimates," "expects," "anticipates," "intends," and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company, together with the report of independent auditors, are included on pages 33 through 55 of this report. Financial statement schedules have been omitted because the required information is contained in the consolidated financial statements or related notes, or such information is not applicable. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. TYLER CORPORATION FORM 10-K PAGE 26 28 PART III The information required by Items 10 through 13 of Part III is incorporated herein by reference from the indicated sections of Tyler's definitive proxy statement for its annual meeting of stockholders to be held on April 28, 1998 (the "Proxy Statement"). Only those sections of the Proxy Statement that specifically address the items set forth herein are incorporated by reference. Such incorporation by reference does not include the Compensation Committee Report or the Stock Performance Graphs, included in the Proxy Statement.
Headings in Proxy Statement --------------------------------------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. "Directors and Executive Officers" ITEM 11. EXECUTIVE COMPENSATION. "Executive Compensation" ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS "Security Ownership of Directors and AND MANAGEMENT. Executive Officers" ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. "Certain Transactions"
TYLER CORPORATION FORM 10-K PAGE 27 29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) (1) The consolidated financial statements listed in the "Index to Financial Statements" included in the Table of Contents on page 1 are filed as part of this report. (2) Financial statement schedules have been omitted because the required information is contained in the consolidated financial statements or related notes, or such information is not applicable. (3) Exhibits Certain of the exhibits to this report are hereby incorporated by reference, as specified: 3.1 Restated Certificate of Incorporation of Tyler Three, as amended through May 14, 1990, and Certificate of Designation of Series A Junior Participating Preferred Stock (filed as Exhibit 3.1 to the Company's Form 10-Q for the quarter ended June 30, 1990, and incorporated herein). 3.2 Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company's Form 8-K, dated February 19, 1998, and incorporated herein). *3.3 Amended and Restated By-Laws of Tyler Corporation, dated November 4, 1997. 4.1 Rights Agreement, dated as of March 14, 1993, by and between Tyler Corporation and The First National Bank of Boston, as Rights Agent, which includes the form of Rights Certificate as Exhibit B thereto (filed as Exhibit 4 to the Company's Form 8-K, dated January 29, 1993, and incorporated herein). 4.2 Specimen of Common Stock Certificate (filed as Exhibit 4.1 to the Company's registration statement no. 33-33505 and incorporated herein). *4.3 Credit agreement among Tyler Corporation and NationsBank of Texas, N.A., dated February 13, 1998. 10.1 Form of Indemnification Agreement for directors and officers (filed as Exhibit 10.1 to the Company's Form 10- Q for the quarter ended March 31, 1992, and incorporated herein). 10.2 Stock Option Plan amended and restated as of February 7, 1997 (filed as Exhibit 4.1 to the Company's registration statement no. 33-34809 and incorporated herein). 10.3 Split-dollar life insurance agreement with Joseph F. McKinney (filed as Exhibit 10.5 to the Company's registration statement no. 33-33505 and incorporated herein). 10.4 Supplemental Retirement Plan (filed as Exhibit 10.6 to the Company's registration statement no. 33-33505 and incorporated herein). 10.5 Indemnification Agreement, dated December 20, 1989 (filed as Exhibit 2.3 to the Company's registration statement no. 33-33505 and incorporated herein). TYLER CORPORATION FORM 10-K PAGE 28 30 10.6 Agreement and Plan of Merger among Tyler Corporation, T1 Acquisition Corporation, Business Resources Corporation and William D. Oates dated October 8, 1997 (filed as Exhibit 10.25 to the Company's Form 8-K, dated October 16, 1997, and incorporated herein). 10.7 Agreement and Plan of Merger among Tyler Corporation, T2 Acquisition Corporation, The Software Group, Inc., Brian B. Berry and Glenn A. Smith dated October 8, 1997 (filed as Exhibit 10.26 to the Company's Form 8-K, dated October 16, 1997, and incorporated herein). 10.8 Second Amended and Restated Agreement and Plan of Merger, dated as of December 29, 1997, and effective as of October 8, 1997, among the Company, T1 Acquisition Corporation, Business Resources Corporation, and William D. Oates (filed as Exhibit 10.1 to the Company's Form 8-K, dated February 19, 1998, and incorporated herein). 10.9 Amended and Restated Agreement and Plan of Merger, dated as of December 29, 1997, and effective as of October 8, 1997, among the Company, T2 Acquisition Corporation, The Software Group, Inc., and Brian B. Berry and Glenn A. Smith (filed as Exhibit 10.2 to the Company's Form 8-K, dated February 19, 1998, and incorporated herein). 10.10 Amendment Number One, dated February 19, 1998, and effective as of October 8, 1997, to the Amended and Restated Agreement and Plan of Merger among the Company, T2 Acquisition Corporation, The Software Group, Inc. and Brian B. Berry and Glenn A. Smith (filed as Exhibit 10.3 to the Company's Form 8-K, dated February 19, 1998, and incorporated herein). 10.11 Acquisition Agreement dated as of November 20, 1995, by and among the Registrants, Tyler Pipe Industries, Inc. and Ransom Industries, Inc., formerly known as Union Acquisition Corporation (filed as Exhibit 2.1 to the Company's Form 8-K, dated December 14, 1995, and incorporated herein). 10.12 Purchase Agreement between Tyler Corporation, Richmond Partners, Ltd. and Louis A. Waters, dated August 20, 1997 (filed as Exhibit 10.24 to the Company's Form 8-K, dated September 2, 1997, and incorporated herein). 10.13 Consulting Agreement between the Company and Joseph F. McKinney, dated October 7, 1996 (filed as Exhibit 10.20 to the Company's Form 10-K for the year ended December 31, 1996, and incorporated herein). 10.14 Employment agreement between the Company and Bruce W. Wilkinson, dated March 28, 1997 (filed as Exhibit 10.21 to the Company's Form 10-Q for the quarter ended March 31, 1997, and incorporated herein). *10.15 Employment agreement between the Company and C.A. Rundell, Jr., dated October 8, 1997. *10.16 Employment agreement between the Company and Brian K. Miller, dated December 1, 1997. *10.17 Employment agreement between the Company and Harold W. Parkison, dated January 6, 1997. *21 Subsidiaries of Tyler TYLER CORPORATION FORM 10-K PAGE 29 31 *23 Consent of Ernst & Young LLP Tyler will furnish copies of these exhibits to shareholders upon written request and payment for copying charges of $0.15 per page. * Filed herewith. (b) Reports on Form 8-K
Form 8-K Item Financial Statements Reported Date Reported Filed ------------- -------- -------------------- 10/16/97 5 7 (c) Exhibits 10/30/97 2 7(b) Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1997 Pro Forma Condensed Consolidated Income Statements for the year ended December 31, 1996 and the six months ended June 30, 1997 12/31/97 5 7(c) Restated Selected Financial Data, Management's Discussion and Analysis of Financial Condition and Results of Operations and consolidated financial statements as of December 31, 1995 and 1996, and for the three years in the period ended December 31, 1996
TYLER CORPORATION FORM 10-K PAGE 30 32 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. TYLER CORPORATION Date: March 25, 1998 By: /s/ Louis A. Waters --------------------------------- Louis A. Waters Chairman of the Board 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 and on the dates indicated. Date: March 25, 1998 By: /s/ Louis A. Waters --------------------------------- Louis A. Waters Chairman of the Board Date: March 25, 1998 By: /s/ C. A. Rundell, Jr. --------------------------------- C. A. Rundell, Jr. President, Chief Executive Officer, and Director (principal executive officer) Date: March 25, 1998 By: /s/ James E. Russell --------------------------------- James E. Russell Vice President, Chief Financial Officer, and Director (principal financial officer) Date: March 25, 1998 By: /s/ Brian K. Miller --------------------------------- Brian K. Miller Vice President and Chief Accounting Officer (principal accounting officer) TYLER CORPORATION FORM 10-K PAGE 31 33 Date: March 25, 1998 By: /s/ Ernest H. Lorch --------------------------------- Ernest H. Lorch Director Date: March 25, 1998 By: /s/ F. R. Meyer --------------------------------- F. R. Meyer Director Date: March 25, 1998 By: /s/ William D. Oates --------------------------------- William D. Oates Director TYLER CORPORATION FORM 10-K PAGE 32 34 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Tyler Corporation We have audited the accompanying consolidated balance sheets of Tyler Corporation as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tyler Corporation at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Dallas, Texas March 6, 1998 TYLER CORPORATION FORM 10-K PAGE 33 35 CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31
1997 1996 1995 ------------- ------------- ------------- Net sales .................................................. $ 76,429,000 $ 85,074,000 $ 86,893,000 Costs and expenses Cost of sales ........................................... 43,947,000 49,275,000 51,126,000 Selling, general and administrative expenses ............ 31,944,000 43,631,000 36,703,000 Interest (income) expense, net .......................... (830,000) (277,000) 1,003,000 Goodwill and other intangibles impairment charge ............................................... -- 14,789,000 -- ------------- ------------- ------------- 75,061,000 107,418,000 88,832,000 Income (loss) from continuing operations before income tax (benefit) .................................... 1,368,000 (22,344,000) (1,939,000) Income tax (benefit) Current ................................................. 1,695,000 570,000 (1,040,000) Deferred ................................................ (1,498,000) (3,607,000) 543,000 ------------- ------------- ------------- 197,000 (3,037,000) (497,000) ------------- ------------- ------------- Income (loss) from continuing operations ................... 1,171,000 (19,307,000) (1,442,000) Discontinued operations Income (loss) from discontinued operations, after income tax (benefit) ........................... (2,051,000) (42,023,000) 1,100,000 Loss on disposal of discontinued operations, after income tax ..................................... (2,468,000) -- (16,631,000) ------------- ------------- ------------- Loss from discontinued operations ....................... (4,519,000) (42,023,000) (15,531,000) ------------- ------------- ------------- Net loss ................................................... $ (3,348,000) $ (61,330,000) $ (16,973,000) ============= ============= ============= Basic and diluted earnings (loss) per common share: Continuing operations ................................... $ .06 $ (0.97) $ (0.07) Discontinued operations ................................. (.22) (2.12) (0.78) ------------- ------------- ------------- Net loss per common share ............................... $ (.16) $ (3.09) $ (0.85) ============= ============= ============= Weighted average shares .................................... 20,498,000 19,876,000 19,869,000
See accompanying notes. TYLER CORPORATION FORM 10-K PAGE 34 36 CONSOLIDATED BALANCE SHEETS December 31
1997 1996 ------------ ------------ ASSETS Current assets Cash and cash equivalents ......................................... $ 8,877,000 $ 15,419,000 Accounts receivable (less allowance for losses of $42,000 in 1997 and 1996) ................................................. 201,000 137,000 Note receivable from I.F.S. Acquisition Corporation ............... 2,628,000 -- Merchandise inventories ........................................... 22,901,000 17,323,000 Income tax receivable ............................................. 516,000 907,000 Prepaid expense ................................................... 394,000 301,000 Deferred income tax benefit ....................................... 762,000 1,804,000 ------------ ------------ Total current assets ........................................... 36,279,000 35,891,000 Net assets of discontinued operations ................................ -- 10,857,000 Property, plant and equipment, at cost ............................... 10,339,000 9,427,000 Less allowance for depreciation ................................... 4,759,000 3,755,000 ------------ ------------ 5,580,000 5,672,000 Other assets Sundry ............................................................ 2,881,000 1,970,000 Note receivable from Business Resources Corporation ............... 5,700,000 -- Other receivables ................................................. 4,455,000 5,000,000 ------------ ------------ 13,036,000 6,970,000 ------------ ------------ $ 54,895,000 $ 59,390,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable .................................................. $ 5,615,000 $ 3,313,000 Accrued wages and commissions ..................................... 788,000 1,597,000 Accrued taxes other than federal income taxes ..................... 1,009,000 1,360,000 Other accrued liabilities ......................................... 4,375,000 6,236,000 ------------ ------------ Total current liabilities ...................................... 11,787,000 12,506,000 Deferred income tax .................................................. 3,168,000 5,708,000 Other liabilities .................................................... 8,537,000 9,135,000 Commitments and contingencies Shareholders' equity Common stock, $.01 par value, 50,000,000 shares authorized, 23,309,277 shares issued in 1997; 21,309,277 issued in 1996 ... 233,000 213,000 Capital surplus ................................................... 51,216,000 48,520,000 Retained deficit .................................................. (13,431,000) (10,083,000) ------------ ------------ 38,018,000 38,650,000 Less 1,552,965 treasury shares in 1997 and 1,428,828 treasury shares in 1996, at cost ........................................ 6,615,000 6,609,000 ------------ ------------ Total shareholders' equity .................................. 31,403,000 32,041,000 ------------ ------------ $ 54,895,000 $ 59,390,000 ============ ============
See accompanying notes. TYLER CORPORATION FORM 10-K PAGE 35 37 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended December 31, 1997, 1996 and 1995
Common Stock Treasury Stock ------------------------- Retained -------------------------- Capital Earnings Shares Amount Surplus (Deficit) Shares Amount ------------ --------- ----------- ------------ ----------- ----------- Balance at December 31, 1994 .......... 21,309,277 $ 213,000 $48,587,000 $68,220,000 (1,450,178) $(6,722,000) Issuance of treasury shares upon exercise of stock options ...... -- -- (57,000) -- 12,770 75,000 Net sale of treasury shares to employee benefit plan ........... -- -- -- -- 3,625 11,000 Federal income tax benefit related to exercise of stock options .... -- -- 8,000 -- -- -- Net loss ........................... -- -- -- (16,973,000) -- -- ------------ --------- ----------- ------------ ----------- ----------- Balance at December 31, 1995 .......... 21,309,277 213,000 48,538,000 51,247,00 (1,433,783) (6,636,000) Net sale of treasury shares to employee benefit plan ........... -- -- (18,000) -- 4,955 27,000 Net loss ........................... -- -- -- (61,330,000) -- -- ------------ --------- ----------- ------------ ----------- ----------- Balance at December 31, 1996 .......... 21,309,277 213,000 48,520,000 (10,083,000) (1,428,828) (6,609,000) Issuance of treasury shares upon exercise of stock options ...... -- -- (309,000) -- 198,472 682,000 Issuance of treasury shares for employee stock grants .......... -- -- (442,000) -- 150,000 942,000 Sale of common stock and warrant .. 2,000,000 20,000 3,480,000 -- -- -- Redemption of rights ............... -- -- (220,000) -- -- -- Purchase of treasury shares ........ -- -- -- -- (472,609) (1,630,000) Federal income tax benefit related to exercise of stock options .... -- -- 187,000 -- -- -- Net loss ........................... -- -- -- (3,348,000) -- -- ------------ --------- ----------- ------------ ----------- ----------- Balance at December 31, 1997 .......... 23,309,277 $ 233,000 $51,216,000 $(13,431,000) (1,552,965) $(6,615,000) ============ ========= =========== ============ =========== ===========
See accompanying notes. TYLER CORPORATION FORM 10-K PAGE 36 38 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31
1997 1996 1995 ---------- ------------ ------------ Cash flows from operating activities Net loss ....................................................... $ (3,348,000) $(61,330,000) $(16,973,000) Adjustments to reconcile loss from operations to net cash provided (used) by operations: Depreciation and amortization ............................... 2,057,000 2,469,000 2,172,000 Goodwill and other intangibles impairment charge ............ -- 14,789,000 -- Other noncash charges ....................................... -- 11,150,000 -- Provision for losses on accounts receivable ................. -- 42,000 -- Deferred income tax (benefit) ............................... (1,498,000) (4,189,000) 953,000 (Increase) decrease in accounts receivable .................. (64,000) 253,000 (158,000) (Increase) decrease in inventories .......................... (5,578,000) 324,000 572,000 (Increase) decrease in prepaid expenses ..................... (93,000) 124,000 195,000 (Increase) decrease in income tax receivable ................ 391,000 3,341,000 (1,091,000) Increase (decrease) in accounts payable ..................... 2,170,000 (1,100,000) 533,000 Increase (decrease) in accrued liabilities .................. (4,290,000) (3,322,000) 1,208,000 Decrease in other liabilities ............................... (53,000) (161,000) (300,000) Discontinued operations - noncash charges and working capital changes .......................................... 3,555,000 44,916,000 29,115,000 ---------- ------------ ------------ Net cash provided (used) by operating .................... (6,751,000) 7,306,000 16,226,000 ---------- ------------ ------------ Cash flows from investing activities Net proceeds from sale of pipe and fittings segment and products for fund raising programs segment, after expenses ........... 5,847,000 7,599,000 58,540,000 Additions to property, plant and equipment ..................... (1,165,000) (1,034,000) (1,744,000) Cost of acquisitions, net of cash acquired ..................... -- (1,320,000) -- Proceeds from disposal of property, plant and equipment ........ 36,000 69,000 1,538,000 Investing activities of discontinued operations ................ 8,000 (1,538,000) (8,612,000) Note receivable from Business Resources Corporation ............ (5,700,000) -- -- Other .......................................................... (1,332,000) 1,664,000 (1,639,000) ---------- ------------ ------------ Net cash provided (used) by investing activities ......... (2,306,000) 5,440,000 48,083,000 ---------- ------------ ------------ Cash flows from financing activities Long-term debt repayments ...................................... -- -- (62,700,000) Issuance of common stock ....................................... 3,500,000 -- 26,000 Net sale of treasury shares to employee benefit plans .......... 645,000 9,000 11,000 Purchase of treasury shares .................................... (1,630,000) -- -- ---------- ------------ ------------ Net cash provided (used) by financing activities ......... 2,515,000 9,000 (62,663,000) ---------- ------------ ------------ Net increase (decrease) in cash and cash equivalents .............. (6,542,000) 12,755,000 1,646,000 Cash and cash equivalents at beginning of year .................... 15,419,000 2,664,000 1,018,000 ---------- ------------ ------------ Cash and cash equivalents at end of year .......................... $ 8,877,000 $ 15,419,000 $ 2,664,000 =========== ============ ============
See accompanying notes. TYLER CORPORATION FORM 10-K PAGE 37 39 Notes To Consolidated Financial Statements Tyler Corporation provides products and services to customers through its operating subsidiary, Forest City Auto Parts Company ("Forest City"), which specializes in selling mechanical automotive aftermarket parts to do-it- yourself customers. Forest City is headquartered in Cleveland, Ohio and operates 71 retail store locations in Illinois, New York, Ohio, Pennsylvania and Wisconsin. (1) Summary of Significant Accounting Policies PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Tyler Corporation (the "Company") and its subsidiaries, all of which are wholly-owned. The Company's continuing operations consist principally of the operations of Forest City. INVENTORIES. Inventories are valued at the lower of cost or market. Costs of inventories are determined by the first-in, first-out method. DEPRECIATION. Depreciation for financial statement purposes is provided principally by the straight-line method over the estimated useful lives of the various assets. Depreciation expense was $1,221,000, $1,368,000 and $1,060,000 for 1997, 1996 and 1995, respectively. For income tax purposes, accelerated depreciation is used with recognition of deferred income tax for the resulting temporary differences. REVENUE RECOGNITION. Substantially all revenue is recognized when products are delivered to customers. STATEMENTS OF CASH FLOWS. For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with maturities of three months or less which includes overnight repurchase agreements, to be cash equivalents. Excess cash during the year was invested at an average rate of approximately 5%. Interest paid in 1997 and 1996 was $5,000 and $65,000, respectively. Interest paid in 1995 was $6,935,000, which includes interest charged to the results of discontinued operations. USE OF ESTIMATES. The preparation of the 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. TYLER CORPORATION FORM 10-K PAGE 38 40 ADOPTION OF ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income", and Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information". Both Statements are effective for the Company for the year ending December 31, 1998. The Company does not anticipate that the adoption of these standards will have a material impact on the financial statements. (2) Discontinued Operations Effective October 15, 1997, the Company sold all of the capital stock of its subsidiary which provided products for fund-raising programs, Institutional Financing Services, Inc. ("IFS"), to I.F.S. Acquisition Corporation for approximately $8,400,000, resulting in a loss on disposal of approximately $2,500,000. This estimated loss on disposal includes estimates regarding the value of certain assets that are subject to change. Management does not expect these estimates to have a significant impact on the estimated loss on disposal. Proceeds consisted of approximately $5,800,000 in cash received at closing and approximately $2,600,000 received in January 1998. On December 1, 1995, the Company sold all the outstanding capital stock of Swan Transportation Company ("Swan") to Ransom Industries, Inc. (formerly known as Union Acquisition Corporation) (the "Buyer"). In the same transaction, Tyler Pipe Industries, Inc., (subsequently renamed TPI of Texas, Inc.) ("TPI"), a wholly-owned subsidiary of the Company, sold substantially all of its assets to the Buyer, and the Buyer assumed substantially all the liabilities of TPI. The results of these entities and the effects of subsequent changes in estimates of retained contingent liabilities are included as discontinued operations. The assets TPI sold and the liabilities the Buyer assumed included all those relating to TPI's business of manufacturing and marketing cast iron pipe and fittings, excluding cash and certain other assets and liabilities. Swan was a motor-carrier company that provided transportation services to TPI prior to the closing. Based on a July 1, 1995, balance sheet, the Buyer paid a net amount of $66,139,000 for the stock of Swan and assets of TPI of which $58,540,000 was received at closing on December 1, 1995, and the net remaining payment was received in January 1996. In addition, TPI distributed approximately $17,700,000 to the Company from July 1, 1995, through closing. TYLER CORPORATION FORM 10-K PAGE 39 41 Operating results of the discontinued pipe and fittings segment and the products for fund-raising programs segment for the years ended December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995 ------------ ------------ ------------ Net sales ..................... $ 21,913,000 $ 43,299,000 $256,197,000 Income (loss) before income tax (benefit) .............. (3,131,000) (43,993,000) 2,613,000 Income tax (benefit) .......... (1,080,000) (1,970,000) 1,513,000 ------------ ------------ ------------ Net income (loss) from discontinued operations .... $ (2,051,000) $(42,023,000) $ 1,100,000 ============ ============ ============
Interest has been charged to discontinued operations based on net assets of the pipe and fittings segment and the products for fund-raising programs segment. Interest expense allocated to discontinued operations in 1995 was $4,546,000. Income tax (benefit) has been charged (credited) to discontinued operations based on the income tax (benefit) resulting from inclusion of the discontinued segments in the Company's consolidated federal income tax return. The income tax (benefit) differs from the amount which would be provided by applying the statutory income tax rate to income (loss) before income tax (benefit) due primarily to differences resulting from excess book over tax amortization and differences in book and tax bases of inventory and fixed assets. Discontinued operations for the products for fund-raising programs segment in the fourth quarter of 1996 includes a goodwill impairment charge of $37,316,000 related to the 1994 acquisition of IFS by the Company. The continued decline in the financial results in the second half of 1996 and a related strategic and operational review resulted in an evaluation of goodwill and other intangibles for possible impairment. The underlying factors contributing to the decline in financial results included changes in the marketplace and increased competition. The Company calculated the present value of expected cash flows to estimate the fair value of IFS. In addition, IFS also recorded $198,000 of restructuring and other charges in the fourth quarter of 1996, in connection with a restructuring plan to discontinue a small product line. Also in the fourth quarter of 1996, IFS recorded charges of $2,449,000 which included a provision for uncollectable accounts receivable and the write-down of excess inventory remaining after fourth-quarter sales declines. Included in the discontinued operations' income before income tax in 1995 are losses relating to IFS's foreign operations of $782,000. TYLER CORPORATION FORM 10-K PAGE 40 42 Income tax of $4,157,000 on the loss on disposal of the discontinued pipe and fittings segment differs from the amount which would be provided by applying the statutory income tax rate to the pretax loss primarily as a result of excess book over tax amortization and differences in book and tax bases of inventory, fixed assets and goodwill. No current tax benefit was provided on the loss on disposal of the products for fund-raising programs due to the character of the loss. The Company recorded a pretax charge from other discontinued operations of $2,000,000 in 1996 for the investigation of certain claims and contingent claims (see Note 13). (3) Acquisitions Pursuant to the 1994 IFS acquisition agreement, the Company made a $1,208,000 payment in the third quarter of 1996 to former shareholders and executives of IFS. The amount was accrued at December 31, 1995. In connection with the 1991 acquisition of Forest City, the Company was obligated to make payments up to a specified amount on or before March 31, 1996, if certain profit objectives were met, some of which would be paid as bonuses to certain executives of Forest City. As a result, the Company made a final payment of $1,320,000 in the first quarter of 1996 to former shareholders and certain other executives of Forest City. The amount paid was accrued at December 31, 1995. In addition, the Company paid $660,000 in 1994 for 1993 performance, $660,000 in 1993 for 1992 performance and $660,000 in 1992 for 1991 performance for a total of $3,300,000 since the acquisition. Each payment included both additional purchase price and bonus components and was recorded accordingly in the year earned. Of the total amount paid, $2,160,000 was paid to former shareholders and considered additional purchase price with additional goodwill recorded. The remaining $1,140,000 was considered special incentive bonuses to certain executives of Forest City as designated by the former shareholders and provided for in the sales agreement. These bonus amounts were expensed as earned and included in selling, general and administrative expenses. TYLER CORPORATION FORM 10-K PAGE 41 43 (4) Related Party Transaction Effective October 8, 1997, the Company entered into an agreement to acquire Business Resources Corporation ("Resources") and received shareholder approval for the transaction on February 19, 1998 (see Note 16). In connection with this transaction, the Company loaned Resources $5,700,000 on December 29, 1997, for working capital purposes. The unsecured loan bears interest at 8.5% and matures on September 30, 1999. (5) Property, Plant and Equipment Property, plant and equipment consist of the following at December 31:
Estimated Useful Lives (in years) 1997 1996 ------------ --------- --------- Land .............................. $ 457,000 $ 457,000 Buildings and leasehold improvements ................... 7 to 30 4,169,000 3,825,000 Machinery and transportation equipment ...................... 4 to 10 5,713,000 5,145,000 ----------- ----------- $10,339,000 $ 9,427,000 =========== ===========
(6) Bank Debt The Company had outstanding letters of credit aggregating $2,000,000 at December 31, 1997, relating to guarantees of performance to a third party for potential environmental remediation. The outstanding letters of credit were secured by cash collateral and were released and canceled in February 1998. In February 1998, the Company entered into a three year bank credit agreement for revolving lines of credit totaling $50,000,000 (see Note 16). TYLER CORPORATION FORM 10-K PAGE 42 44 (7) Income Tax The provision (benefit) for income tax consists of the following at December 31:
1997 1996 1995 ----------- ----------- ----------- Current: Federal ....................................... $ 1,860,000 $ 570,000 $(1,040,000) State ......................................... (165,000) -- -- ----------- ----------- ----------- 1,695,000 570,000 (1,040,000 Deferred ......................................... (1,498,000) (3,607,000) 543,000 ----------- ----------- ----------- $ 197,000 $(3,037,000) $ (497,000) =========== =========== ===========
The income tax provision (benefit) differs from amounts computed by applying the statutory tax rate to income (loss) from continuing operations as follows:
Years ended December 31, --------------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Income tax (benefit) at statutory rate .................. $ 479,000 $(7,820,000) $ (678,000) State income tax, net of federal income tax benefit ................................... (107,000) -- -- Life insurance .......................................... -- 534,000 (5,000) Excess book amortization ................................ 13,000 134,000 139,000 Goodwill and other intangibles impairment charge .................................... -- 4,075,000 -- Utilization of capital loss ............................. (188,000) -- -- Other, net .............................................. -- 40,000 47,000 ----------- ----------- ----------- $ 197,000 $(3,037,000) $ (497,000) =========== =========== ===========
TYLER CORPORATION FORM 10-K PAGE 43 45 Significant components of deferred tax assets and liabilities as of December 31 are as follows:
1997 1996 ------------ ------------ Deferred income tax assets: Inventories ...................................... $ (400,000) $ 316,000 Insurance reserves ............................... 98,000 98,000 Operating expenses not currently deductible ...... 2,082,000 2,771,000 Employee benefit plans ........................... 148,000 139,000 Net operating loss ............................... 1,763,000 -- Capital loss ..................................... 11,723,000 -- Other ............................................ 169,000 147,000 ------------ ------------ Total deferred income tax assets .............. $ 15,583,000 $ 3,471,000 ------------ ------------ Deferred income tax liabilities: Tax-benefit transfer lease ....................... (4,512,000) (5,370,000) Property, plant and equipment .................... (1,594,000) (1,748,000) Other ............................................ (160,000) (257,000) ------------ ------------ Total deferred income tax liabilities ......... $ (6,266,000) $ (7,375,000) ------------ ------------ Net deferred income tax assets (liabilities) before valuation allowance .................... 9,317,000 (3,904,000) Less valuation allowance ......................... 11,723,000 -- ------------ ------------ Net deferred income tax liabilities ................. $ (2,406,000) $ (3,904,000) ============ ============
The Company received refunds of prior years' income taxes of $95,000 in 1997 and $4,693,000 in 1996. The Company paid income taxes, net of refunds received, of $803,000 in 1995. TYLER CORPORATION FORM 10-K PAGE 44 46 (8) Leases The Company leases certain offices, retail stores, transportation, computer and other equipment used in its operations under noncancellable operating lease agreements expiring at various dates through 2010. Most leases contain renewal options and some contain purchase options. The leases generally provide that the Company pay taxes, maintenance, insurance and certain other operating expenses. Rent expense was approximately $2,213,000 in 1997, $2,405,000 in 1996 and $2,349,000 in 1995. Minimum rental payments under the leases described above are as follows: Year ended December 31: 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,954,000 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,454,000 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,032,000 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,725,000 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,239,000 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,949,000 --------------- $ 14,353,000 ===============
(9) Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share:
Years ended December 31, ----------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ Numerator for basic and diluted earnings per share: Income (loss) from continuing operations ........... $ 1,171,000 $(19,307,000) $ (1,442,000) ============ ============ ============ Denominator: Denominator for basic earnings per share - weighted average shares ............................ 20,498,000 19,876,000 19,869,000 Effect of dilutive securities: Employee stock options ............................. 222,000 -- -- Warrant ............................................ 268,000 -- -- ------------ ------------ ------------ Dilutive potential common shares ...................... 490,000 -- -- Denominator for diluted earnings per share- adjusted weighted-average shares and assumed conversion .............................. 20,988,000 19,876,000 19,869,000 ============ ============ ============ Basic and diluted earnings (loss) per share from continuing operations ........................... $ .06 $ (.97) $ (.07) ============ ============ ============
TYLER CORPORATION FORM 10-K PAGE 45 47 The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share", in the fourth quarter of 1997 and restated prior years as necessary. The Company incurred losses from continuing operations in 1996 and 1995. As a result, the denominator was not adjusted for dilutive securities in 1996 and 1995 as the effect would be antidilutive. Options to purchase 50,000 shares of common stock at $5.25 per share were outstanding from December 1997, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. On February 19, 1998, the Company issued approximately 12,200,000 shares of common stock in connection with acquisitions (see Note 16). (10) Employee Benefit Plans Forest City maintains a profit-sharing plan for the benefit of its eligible employees. The amount of Forest City's contribution to the profit-sharing plan is determined by its board of directors but may not exceed 15% of the aggregate compensation paid by Forest City to eligible employees for any plan year. Forest City's annual contribution to the profit-sharing plan was $90,000 in 1997, 1996 and 1995. Prior to TPI's sale of assets to the Buyer on December 1, 1995, the Company maintained a defined benefit pension plan (the "Plan") which provided income and death benefits for certain employees of the Company and employees of TPI. The benefits were generally based on final average salary and years of service. The Company's policy was to fund net pension cost accrued. However, the Company would not contribute an amount less than the minimum funding requirements of the Employee Retirement Income Security Act of 1974 or more than the maximum tax-deductible amount. In connection with TPI's sale of assets to the Buyer and pursuant to the terms of the acquisition agreement among the Company, TPI and the Buyer (the "Acquisition Agreement"), the Company froze benefit accruals for all TPI employees on December 1, 1995, and transferred the benefit obligation relating to the TPI employees and the related assets to a new plan established by the Buyer (the "Buyer Plan") in April 1996. The assets transferred to the Buyer Plan consisted principally of publicly traded stocks and bonds, U.S. government securities and 251,200 shares of the Company's common stock. The assets remaining in the Company's Plan were invested in short-term fixed income securities. As a result, the Company recognized an accrued curtailment gain in 1995 of approximately $2,700,000. The curtailment gain reduced the loss on disposal of discontinued operations in 1995. TYLER CORPORATION FORM 10-K PAGE 46 48 Subsequent to the asset and obligation transfer to the Buyer Plan, the Company terminated the Plan on June 30, 1996, and determined that the remaining Plan assets exceeded the obligation relating to the remaining participants. As a result, the Plan was amended to provide a "pro rata benefit increase" as described in section 4980(d)(3) of the Internal Revenue Code of 1986. This amendment allows the excise tax associated with the excess asset reversion to be 20% rather than 50%. The Company received a favorable determination letter from the IRS in November 1996 relating to the termination of the Plan including the terms of the pro rata benefit increase. As a result of the amendment and termination of the Plan, the Company received cash and recorded income from reversion of excess assets from a defined benefit pension plan of approximately $2,300,000 and accrued an excise tax liability of approximately $465,000 in December 1996. In addition, the Company also recorded a settlement loss of approximately $3,700,000 and reduced the related prepaid pension asset in accordance with Statement of Financial Accounting Standards No. 88 - "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination of Benefits." These two events, the income reversion and the settlement of the pension plan, resulted in a net charge of $1,865,000. Final distributions were paid to all remaining participants in the form of lump-sum settlements. No assets or liabilities of the Plan remained at December 31, 1996. In addition, no pension cost was recorded in 1996. Prior to TPI's sale of assets to the Buyer on December 1, 1995, the Company maintained several other benefit plans for certain key employees of the Company and TPI. These plans were also terminated in 1996. Approximately 55% of these benefits were funded by insurance policies which were redeemed in 1996. The Company made final settlement payments of approximately $2,400,000 in 1996 and an additional $1,300,000 remained accrued at December 31, 1996, which was paid in January 1997. Prior to TPI's sale of assets to the Buyer on December 1, 1995, the Company maintained a savings and investment plan primarily for the employees of TPI and certain other employees of the Company. As a result of the sale, the Company ceased substantially all contributions as of December 1, 1995. The Company transferred all TPI employee account balances to a new plan established by the Buyer in the first quarter of 1996 and received governmental approval in November 1996 to terminate the remaining savings and investment plan. All account balances were distributed by year end. Substantially all expenses in 1995 relating to the savings and investment plan are included in discontinued operations. TYLER CORPORATION FORM 10-K PAGE 47 49 (11) Restructuring and Other Fourth-Quarter Charges In the fourth quarter of 1996, the Company recorded $1,731,000 of restructuring and other charges in connection with a restructuring plan to reduce costs and increase future operating efficiency by reducing the work force, closing and relocating Forest City stores and reducing corporate office space requirements. Also in the fourth quarter of 1996, the Company recorded charges of $3,654,000 which included obligations relating to the termination of former employees, vendor restocking charges for on-hand inventory items at Forest City and the noncash write-off of certain fixed assets and software which Forest City decided in the fourth quarter that it would no longer utilize in its business. In addition, the Company terminated its defined benefit pension plan in December 1996 resulting in a net charge of approximately $1,865,000 (see Note 10). The total restructuring and other charges recorded in the fourth quarter of 1996 were $7,250,000 of which $612,000 is included in cost of sales and $6,638,000 is included in selling, general and administrative expenses. See Note 2 for additional information regarding restructuring and other fourth-quarter charges. (12) Goodwill and Other Intangibles Impairment Charge Prior to December 1996, goodwill was amortized over 40 years. In December 1996, the Company recognized a goodwill and other intangibles impairment charge of $14,789,000 related to the 1991 acquisition of Forest City. The continued decline in the financial results of Forest City in the second half of 1996 and a related strategic and operational review resulted in an evaluation of goodwill and other intangibles for possible impairment. The underlying factors contributing to the decline in financial results included changes in the marketplace and increased competition. The Company calculated the present value of expected cash flows to estimate the fair value of the operating company. See Note 2 for additional information regarding goodwill and other intangibles impairment charge. (13) Commitments and Contingencies The New Jersey Department of Environmental Protection and Energy ("NJDEPE") has alleged that a site where a former affiliate of TPI, Jersey-Tyler Foundry Company ("Jersey-Tyler"), once TYLER CORPORATION FORM 10-K PAGE 48 50 operated a foundry contains lead and possible other priority pollutant metals and may need on-site and off-site remediation. The site was used for foundry operations from the early part of this century to 1969, when it was acquired by Jersey-Tyler. Jersey-Tyler operated the foundry from 1969 to 1976, at which time the foundry was closed. In 1976, Jersey-Tyler sold the property to other persons who have operated a salvage yard on the site. Based on a remedial investigation conducted by TPI, the NJDEPE has demanded TPI remediate the foundry site and the contamination in the adjacent stream and nearby lake. TPI has offered to conduct a feasibility study to assess remediation options, including costs, but has not agreed to commit to further action. TPI never held title to the site and denies liability. Based upon preliminary engineering estimates, management currently estimates the cost associated with the investigation or remediation of the New Jersey site to be approximately $6,500,000. This amount is accrued and is included in other liabilities in the accompanying consolidated balance sheet. The New Jersey site has been under active investigation by the NJDEPE since 1992 and such investigation is expected to continue for several more years. The proposed feasibility study has not yet begun or been authorized by the NJDEPE. Loss estimates are based on the application of reasonable remediation options. The Company believes that the NJDEPE will select the most cost effective, environmentally sound remediation alternative. Factors such as additional engineering and analytical services required and/or the amount of soil which must be excavated and disposed of, if any, or other cost relating to the disposal of soil could impact the loss estimate. In connection with TPI's sale of substantially all its assets to the Buyer, on December 1, 1995, pursuant to the Acquisition Agreement, the Buyer agreed to manage and direct the prosecution or defense of these matters on behalf of TPI. In addition, the Buyer agreed to reimburse TPI for the first $3,000,000 incurred in connection with the investigation or remediation of the New Jersey site, and one-half of such expenses in excess of $3,000,000. Under any circumstances, however, the maximum amount that the Buyer agreed to reimburse TPI in connection with this matter is $6,500,000. As of December 31, 1996, management estimated total cost to investigate or remediate the New Jersey site to be $7,000,000. In accordance with the above-mentioned provisions of the Acquisition Agreement, the Company recorded a $5,000,000 receivable due from the Buyer for its portion of the estimated costs as of December 31, 1996. This amount is presented as other receivables in the accompanying consolidated balance sheets. As of December 31, 1997, approximately $500,000 of expenses in connection with the investigation of the New Jersey site, have been paid by TPI and as provided for in the Acquisition Agreement, the Buyer has reimbursed this amount to TPI. Accordingly, management currently estimates the total cost remaining in connection with the investigation or remediation of the New Jersey site to be approximately $6,500,000 and the related receivable from the Buyer to be approximately $4,500,000. TYLER CORPORATION FORM 10-K PAGE 49 51 The Buyer, on behalf of TPI, is proceeding against predecessor owners and operators of the site, as well as others, to bear their share of the cost of the investigation and any other costs, including any remediation costs incurred by TPI. Some costs may also be covered by insurance, although the insurance carriers have initially denied coverage. TPI expects to proceed against such insurance carriers seeking coverage of remediation costs. Recoveries from predecessor companies and insurance companies are shared by TPI and the Buyer. Pursuant to the Acquisition Agreement, the Buyer agreed to manage and direct the prosecution or defense of certain other matters on behalf of TPI and to reimburse related costs and expenses. The Buyer agreed to reimburse TPI the first $750,000 of all costs and expenses incurred in connection with each such matter and one-half of such expenses in excess of $750,000. The maximum amount that the Buyer agreed to reimburse TPI in connection with all of these matters, excluding Jersey-Tyler, is $8,000,000. Although it is impossible to predict the outcome of legal or regulatory proceedings, the Company believes that substantially all of the costs, expenses and damages, if any, resulting from the legal proceedings and environmental matters described above will be reimbursed by the Buyer pursuant to the Acquisition Agreement or have been adequately provided for in the financial statements. The Buyer did not agree to reimburse TPI for, among other things, (a) liabilities relating to the use, handling, manufacture or sale of products containing asbestos or silica, (b) claims of individuals for health problems such as (but not limited to) silicosis, or (c) offsite environmental liabilities. Between 1968 and December 1995, TPI owned and operated foundries. TPI is, and expects to continue to be, involved in different types of litigation for which it will not be reimbursed by the Buyer. Beginning in February 1997, over fifty former employees of TPI have filed a series of separate personal injury lawsuits which allege that they were exposed to silica, asbestos and/or other industrial dusts during their employment at TPI. Named as defendants with TPI and Swan, another wholly-owned subsidiary of the Company, are major suppliers of asbestos, sand and industrial respirator devices. These co-defendants have been sued under product liability theories of recovery. The plaintiffs seek to recover money damages for the personal injuries they allegedly suffered as a result of their occupational exposure to silica, asbestos and other industrial dusts. No discovery has taken place, and it is not possible to predict the outcome at this time. In light of the current litigation, and based on a preliminary assessment of claims and contingent claims that may result in future litigation involving TPI, a pretax charge from discontinued operations of $2,000,000 was recorded in 1996 for such matters. This amount is included in other liabilities in the accompanying balance sheets at December 31, 1997 and 1996. Since TPI retained the responsibilities for these liabilities and in connection with these matters, the Company repurchased all the outstanding capital stock of Swan from the Buyer for its net book value of TYLER CORPORATION FORM 10-K PAGE 50 52 approximately $400,000 in may 1997. Prior to the repurchase, Swan had disposed of all its trucking assets. While the Company plans to defend this litigation vigorously, the ultimate outcome is uncertain. On September 25, 1997, a former employee of a Forest City store brought suit against Forest City and the Company in the Supreme Court of Erie County, New York. The plaintiff alleges that employees of Forest City falsely accused her of falsifying overtime entries, terminated her employment on that basis, filed a criminal report based upon the false overtime entries and forced her to sign a restitution agreement. Based upon these allegations, the plaintiff is suing for slander, intentional abuse of the criminal law enforcement process and intentional and negligent infliction of emotional distress. The plaintiff is seeking compensatory damages of at least $1,500,000 and punitive damages of at least $3,000,000. The Company believes the claims are without merit and intends to defend this action vigorously. Other than ordinary course, routine litigation incidental to the business of the Company and except as described herein, there are no other material legal proceedings pending to which the Company or its subsidiaries are parties or to which any of its properties are subject. TYLER CORPORATION FORM 10-K PAGE 51 53 (14) Shareholders' Equity The Company has authorized 1,000,000 shares of $10 par value voting preferred stock. The board of directors has designated 250,000 shares as Series A Junior Participating Preferred Stock which were reserved for issuance upon exercise of the Company's stock purchase rights. In December 1997, the board of directors authorized the redemption of the preferred stock purchase rights in connection with proposed acquisitions (see Note 16). The rights were redeemed in January 1998 at $.01 per share. Prior to this redemption, each share of the Company's common stock included a stock purchase right. These rights, which did not have voting rights, could be exercised only after public announcement that a person or group had acquired 20% or more of the Company's common stock or public announcement of an offer for 30% or more of the Company's common stock. The Company had the right to redeem the rights at a price of $.01 per right at any time prior to 15 days (or such longer period as the board of directors may have determined) after the acquisition of 20% of the Company's common stock. Upon exercise each right could have been used to purchase 1/100 of a share of Series A Junior Participating Preferred Stock for $21. Each share of Series A Junior Participating Preferred Stock would have had a minimum preferential quarterly dividend of 100 times the dividend declared on common stock, minimum liquidation preference of $100 per share and other preferential common stock conversion features in connection with mergers or other business combinations. As of December 31, 1997, the Company had a warrant outstanding to purchase 2,000,000 shares of the Company's common stock at $2.50 per share. The warrant expires in September 2007. TYLER CORPORATION FORM 10-K PAGE 52 54 (15) Stock Option Plan The Tyler Corporation Stock Option Plan provides for the granting of non-qualified and incentive stock options, as defined by the Internal Revenue Code, to key employees of the Company and its subsidiaries for up to 1,800,000 shares of the Company's common stock at prices which represent fair market value at dates of grant. All options granted have ten year terms and generally vest over, and become fully exercisable, at the end of, four to five years of continued employment. The following table summarizes the transactions of the Company's stock option plan for the three-year period ended December 31, 1997:
Number of Weighted-Average Shares Exercise Prices ---------- ------------------ Options outstanding at January 1, 1995 .......................... 232,168 $ 2.95 Granted .................................................... 10,000 2.75 Canceled ................................................... (109,524) 4.05 Exercised .................................................. (12,770) 1.37 ---------- Options outstanding at December 31, 1995 ........................ 119,874 2.10 Granted .................................................... 225,000 1.85 Canceled ................................................... (14,605) 3.23 ---------- Options outstanding at December 31, 1996 ........................ 330,269 1.88 Granted ................................................... 1,516,666 2.36 Canceled .................................................. (952,530) 1.80 Exercised ................................................. (198,472) 1.87 ---------- Options outstanding at December 31, 1997 ........................ 695,933 $ 3.04 ========== Reserved for future options at December 31, 1997 ................ 705,382 ========== Exercisable options December 31, 1995 .......................................... 103,549 $ 1.81 December 31, 1996 .......................................... 150,702 $ 1.98 December 31, 1997 .......................................... 144,777 $ 2.71
TYLER CORPORATION FORM 10-K PAGE 53 55 The following table summarizes information concerning outstanding and exercisable options at December 31, 1997:
WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING NUMBER OF AVERAGE PRICE NUMBER OF AVERAGE PRICE OF RANGE OF EXERCISE CONTRACTUAL OUTSTANDING OF OUTSTANDING EXERCISABLE EXERCISABLE PRICES LIFE OPTIONS OPTIONS OPTIONS OPTIONS - ----------------- ----------- ------------ ------------- ----------- ----------------- $1.50 - $2.125 5 years 288,333 $ 1.83 94,116 $ 2.13 $2.75 - $3.6875 10 years 352,000 $ 3.68 45,061 $ 3.66 $4.875 - $5.25 9.5 years 55,600 $ 5.21 5,600 $ 4.88
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), became effective for the Company in 1996. As allowed by FAS 123, the Company has elected to continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", which does not recognize compensation expense on the issuance of its stock options because the option terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. As required by FAS 123, the Company has determined the pro forma information as if the Company had accounted for stock options granted since January 1, 1995, under the fair value method of FAS 123. The Black-Scholes option pricing model was used with the following weighted-average assumptions for 1997, 1996 and 1995 respectively: risk-free interest rates of 6.49%, 6.32% and 7.62%; dividend yield of 0%; expected common stock market price volatility factor of .39, .37 and .32; and a weighted-average expected life of the options of seven years. The weighted-average fair value of options granted in 1997, 1996 and 1995 was $1.24, $.94 and $1.40 per share, respectively. Had compensation expense been recorded based on the fair values of the stock option grants, the Company's 1997 pro forma income from continuing operations would have been $751,000, or $.04 per share. The pro forma effect of these options on net earnings and earnings per share in 1996 and 1995 was not material. These proforma calculations only include the effects of 1995, 1996 and 1997 grants. Accordingly, the impacts are not necessarily indicative of the effects on reported net income of future years. TYLER CORPORATION FORM 10-K PAGE 54 56 (16) Subsequent Events In February 1998, the Company entered into a three year bank credit agreement in an amount not to exceed $50,000,000, including a $5,000,000 sublimit for the issuance of standby and commercial letters of credit (the "Senior Credit Facility"). The proceeds of the Senior Credit Facility are intended to be used to fund acquisitions and meet short-term working capital needs and capital expenditures which may arise from time to time. Borrowings under the Senior Credit Facility bear interest at either the bank's prime rate plus a margin of zero to .25% or the London Interbank Offered Rate plus a margin of 1% to 2% depending on the Company's ratio of indebtedness to earnings before interest, taxes, depreciation and amortization. The Senior Credit Facility is secured by a pledge of the common stock of all present and future operating subsidiaries and will be guaranteed by all such subsidiaries. Under the terms of the Senior Credit Facility the Company is required to maintain certain financial ratios and other financial conditions. The Senior Credit Facility also prohibits the Company from incurring certain additional indebtedness, limits certain investments, advances or loans and restricts substantial asset sales, capital expenditures and cash dividends. On February 19, 1998, the Company's shareholders authorized an increase in the number of authorized shares of the Company's common stock from 50,000,000 to 100,000,000 shares. On February 19, 1998, the Company acquired Resources, The Software Group, Inc. ("TSG") and Interactive Computer Designs, Inc. ("INCODE") for approximately 12,200,000 shares of Tyler common stock and approximately $41,300,000 of cash and debt assumption. The Company financed the acquisitions utilizing funds available under the Senior Credit Facility. Resources and TSG are based in Dallas, Texas, and INCODE is located in Lubbock, Texas. All three companies provide information management solutions to county and local governments, principally located in the Southwestern United States. TYLER CORPORATION FORM 10-K PAGE 55 57 INDEX TO EXHIBITS
Exhibit No. Description ----------- ---------------------------------------------------------- 3.3 Amended and Restated By-Laws of Tyler Corporation, dated November 4, 1997. 4.3 Credit agreement among Tyler Corporation and NationsBank of Texas, N.A., dated February 13, 1998. 10.15 Employment agreement between the Company and C.A. Rundell, Jr., dated October 8, 1997. 10.16 Employment agreement between the Company and Brian K. Miller, dated December 1, 1997. 10.17 Employment agreement between the Company and Harold W. Parkinson, dated January 6, 1997. 21 Subsidiaries of Tyler 23 Consent of Ernst & Young LLP 27 Financial Data Schedule
EX-3.3 2 AMENDED & RESTATED BYLAWS 1 EXHIBIT 3.3 AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. NOVEMBER 4, 1997 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I Offices Section 1. Registered Office . . . . . . . . . . . . . . . 1 Section 2. Other Offices . . . . . . . . . . . . . . . . . 1 ARTICLE II Meeting of Stockholders Section 1. Time and Place of Meetings . . . . . . . . . . . 1 Section 2. Annual Meetings . . . . . . . . . . . . . . . . 1 Section 3. Notice of Annual Meetings . . . . . . . . . . . 1 Section 4. Special Meetings . . . . . . . . . . . . . . . . 1 Section 5. Notice of Special Meetings . . . . . . . . . . . 1 Section 6. Quorum . . . . . . . . . . . . . . . . . . . . . 1 Section 7. Order of Business . . . . . . . . . . . . . . . 2 Section 8. New Business . . . . . . . . . . . . . . . . . . 2 Section 9. Voting . . . . . . . . . . . . . . . . . . . . . 3 Section 10. List of Stockholders . . . . . . . . . . . . . . 3 Section 11. Inspectors of Votes . . . . . . . . . . . . . . 4 ARTICLE III Board of Directors Section 1. Powers . . . . . . . . . . . . . . . . . . . . . 4 Section 2. Number, Qualification and Term of Office . . . . 4 Section 3. Resignations . . . . . . . . . . . . . . . . . . 4 Section 4. Nominations . . . . . . . . . . . . . . . . . . 4 Section 5. Vacancies . . . . . . . . . . . . . . . . . . . 6 Meetings of the Board of Directors Section 6. Time and Place of Meeting . . . . . . . . . . . 6 Section 7. Annual Meetings . . . . . . . . . . . . . . . . 6 Section 8. Regular Meetings-Notice . . . . . . . . . . . . 6 Section 9. Special Meetings-Notice . . . . . . . . . . . . 6 Section 10. Quorum and Manner of Acting . . . . . . . . . . 6 Section 11. Remuneration . . . . . . . . . . . . . . . . . . 7 Committees of Directors Section 12. How Constituted and Powers. . . . . . . . . . . 7 Section 13. Minutes of Committees . . . . . . . . . . . . . 7 General Section 14. Actions Without a Meeting . . . . . . . . . . . 7 Section 15. Presence at Meetings by Means of Communications Equipment . . . . . . . . . . . . . . . . . . . 7 ARTICLE IV Notices Section 1. Type of Notice . . . . . . . . . . . . . . . . . 8
3 Section 2. Waiver of Notice . . . . . . . . . . . . . . . . 8 Section 3. Authorized Notices . . . . . . . . . . . . . . . 8 ARTICLE V Officers Section 1. Description . . . . . . . . . . . . . . . . . . 8 Section 2. Election . . . . . . . . . . . . . . . . . . . . 8 Section 3. Salaries . . . . . . . . . . . . . . . . . . . . 8 Section 4. Term . . . . . . . . . . . . . . . . . . . . . . 9 Section 5. Duties of the Chairman of the Board . . . . . . 9 Section 6. Duties of the President and Chief Executive Officer . . . . . . . . . . . . . . . . 9 Section 7. Duties of Vice President-Finance . . . . . . . . 9 Section 8. Duties of Vice Presidents and Assistant Vice Presidents . . . . . . . . . . . . . . . . . . . 9 Section 9. Duties of Secretary and Assistant Secretaries . 10 Section 10. Duties of Treasurer and Assistant Treasurers . . 10 Section 11. Duties of Controller and Assistant Controllers . 10 ARTICLE VI Indemnification Section 1. Damages and Expenses . . . . . . . . . . . . . . 11 Section 2. Prepaid Expenses . . . . . . . . . . . . . . . . 11 Section 3. Insurance . . . . . . . . . . . . . . . . . . . 11 Section 4. Mergers . . . . . . . . . . . . . . . . . . . . 11 ARTICLE VII Certificates Representing Stock Section 1. Right to Certificate . . . . . . . . . . . . . . 12 Section 2. Facsimile Signatures . . . . . . . . . . . . . . 12 Section 3. New Certificates . . . . . . . . . . . . . . . . 12 Section 4. Transfers . . . . . . . . . . . . . . . . . . . 12 Section 5. Record Date . . . . . . . . . . . . . . . . . . 13 Section 6. Registered Stockholders . . . . . . . . . . . . 13 ARTICLE VIII General Provisions Section 1. Dividends . . . . . . . . . . . . . . . . . . . 13 Section 2. Reserves . . . . . . . . . . . . . . . . . . . . 13 Section 3. Annual Statement . . . . . . . . . . . . . . . . 13 Section 4. Checks . . . . . . . . . . . . . . . . . . . . . 13 Section 5. Fiscal Year . . . . . . . . . . . . . . . . . . 13 Section 6. Corporate Seal . . . . . . . . . . . . . . . . . 13 Section 7. Certificate of Incorporation . . . . . . . . . . 13 ARTICLE IX Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4 ARTICLE I OFFICES SECTION 1. Registered Office. The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. SECTION 2. Other Offices. The corporation may also have offices at such other place or places, both within and without the State of Delaware, as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II Meeting of Stockholders SECTION 1. Time and Place of Meetings. All meetings of the stockholders shall be held at such time and place, either within or without the State of Delaware, as the board of directors shall designate and as shall be stated in the notice of the meeting. SECTION 2. Annual Meetings. The annual meeting of the stockholders shall be held on the fourth Wednesday of April of each year, if not a legal holiday, and if a legal holiday, then the next secular day following, or at such other date as the board of directors of the corporation may determine and commencing at such time as the board of directors shall determine: at the annual meeting, the stockholders shall elect by a plurality vote by written ballot a board of directors and transact such other business as may properly be brought before the meeting. SECTION 3. Notice of Annual Meetings. Written notice of the annual meeting, stating the place, date and hour of the meeting, shall be given to each stockholder of record entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting. SECTION 4. Special Meetings. Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called at any time by the chairman of the board, or by order of the board of directors, and shall be called by the chairman of the board, the chief executive officer or the secretary at the request in writing of a majority of the board of directors. Such request shall state the purpose or purposes of the proposed special meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. SECTION 5. Notice of Special Meetings. Written notice of a special meeting, stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting. SECTION 6. Quorum. The holders of stock having a majority of the voting power of the stock entitled to be voted thereat, present in person or represented by proxy, shall constitute a AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 1 5 quorum for the transaction of business at all meetings of the stockholders. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time without notice (other than announcement at the meeting at which the adjournment is taken of the time and place of the adjourned meeting) until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted that might have been transacted at the meeting as originally notified. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 7. Order of Business. The order of business at annual meetings of stockholders and, so shall be determined by the chairman of the board. SECTION 8. New Business. At an annual meeting of stockholders, only such new business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before the annual meeting. For any new business proposed by the board of directors to be properly brought before the annual meeting such new business shall be approved by the board of directors and shall be stated in writing and filed with the secretary of the corporation at least five days before the date of the annual meeting, and all business so approved, stated and filed shall be considered at the annual meeting. Any stockholder may make any other proposal at the annual meeting, but unless properly brought before the annual meeting such proposal shall not be acted upon at the annual meeting. For a proposal to be properly brought before an annual meeting by a stockholder, the stockholder must have given proper and timely notice thereof in writing to the secretary of the corporation as specified herein. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not later than the date that corresponds to 120 days prior to the date the corporation's proxy statement was released to stockholders in connection with the previous year's annual meeting of stockholders. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a description of the proposal 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 stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (c) the class and number of shares of the stock that are held of record, beneficially owned and represented by proxy on the date of such stockholder notice and on the record date of the meeting (if such date shall have been made publicly available) by the stockholder and by any other stockholders known by such stockholder to be supporting such proposal on such dates, (d) any financial interest of the stockholder in such proposal, and (e) all other information that would be required to be filed with the Securities and Exchange Commission if, with respect to any such item of business, such stockholder or stockholders were a participant in a solicitation subject to Section 14 of the Securities Exchange Act of 1934. as amended. The board of directors may reject any stockholder proposal not made strictly in accordance with the terms of this Section 8. Alternatively, if the board of directors fails to consider the validity of any stockholder proposal, the presiding officer of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that the stockholder proposal was not made in strict AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 2 6 accordance with the terms of this section and, if he should so determine, he shall so declare at the annual meeting and any such business or proposal not properly brought before the annual meeting shall not be acted upon at the annual meeting. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees of the board of directors, but, in connection with such reports, no new business shall be acted upon at such annual meeting unless stated, filed and received as herein provided. SECTION 9. Voting. Except as otherwise provided in the certificate of incorporation, each stockholder shall, at each meeting of the stockholders, be entitled to one vote in person or by proxy for each share of stock of the corporation held by him and registered in his name on the books of the corporation on the date fixed pursuant to the provisions of Section 5 of Article VII of these by-laws as the record date for the determination of stockholders who shall be entitled to notice of and to vote at such meeting. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held directly or indirectly by the corporation, shall not be entitled to vote. Any vote by stock of the corporation may be given at any meeting of stockholders by the stockholder entitled thereto, in person or by his proxy appointed by an instrument in writing subscribed by such stockholder or by his attorney thereunto duly authorized and delivered to the secretary of the corporation or to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date, unless said proxy shall provide for a longer period. Each proxy shall be revocable unless expressly provided therein to be irrevocable and unless otherwise made irrevocable by law. At all meetings of the stockholders, all matters, except where other provision is made by law, the certificate of incorporation, or these by-laws, shall be decided by the vote of a majority of the votes cast by the stockholders present in person or by proxy and entitled to vote thereat, a quorum being present. Unless demanded by a stockholder of the corporation present in person or by proxy at any meeting of the stockholders and entitled to vote thereat, the chairman of the meeting shall determine the method of voting at the meeting, except that the election or removal of directors shall be by written ballot. Upon a demand of any such stockholder for a vote by written ballot on any question or at the direction of such chairman that a vote by written ballot be taken on any question, such vote shall be taken by written ballot. On a vote by written ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. SECTION 10. List of Stockholders. It shall be the duty of the secretary or other officer of the corporation who shall have charge of its stock ledger, either directly or through another officer of the corporation designated by him or through a transfer agent appointed by the board of directors, to prepare and make, at least ten days before every meeting of the stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days before said meeting, either at a place within the city where said meeting is to be held, which place shall be specified in the notice of said meeting, or, if not so specified, at the place where said meeting is to be held. The list shall also be produced and kept at the time and place of said meeting during the whole time thereof, and may be inspected by any stockholder of record who shall be present thereat. The stock ledger shall be the only AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 3 7 evidence as to who are the stockholders entitled to examine the stock ledger, such list or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 11. Inspectors of Votes. The chairman may appoint two inspectors of votes to act at each meeting of the stockholders, unless the board of directors shall have theretofore made such appointments. Each inspector of votes shall first subscribe an oath or affirmation faithfully to execute the duties of an inspector of votes at the meeting with strict impartiality and according to the best of his ability. Such inspectors of votes, if any, shall take charge of the ballots, if any, at the meeting, and after the balloting on any question, shall count the ballots cast and shall make a report in writing to the secretary of the meeting of the results of the balloting. An inspector of votes need not be a stockholder of the corporation, and any officer of the corporation may be an inspector of votes on any question other than a vote for or against his election to any position with the corporation or on any other question in which he may be directly interested. ARTICLE III Board of Directors SECTION 1. Powers. The business and affairs of the corporation shall be managed by its board of directors, which shall have and may exercise all powers of the corporation and take all lawful acts as are not by statute, the certificate of incorporation or these by-laws directed or required to be exercised or taken by the stockholders. SECTION 2. Number, Qualification and Term of Office. The number of directors that shall constitute the whole board of directors shall be determined, from time to time, only by resolution of the board of directors but shall be no fewer than three (3) nor more than fifteen (15). Except as provided in Section 5 of this Article III, the directors shall be elected at the annual meeting of stockholders by written ballot, and each director shall hold office until the next annual meeting after his election or until his successor is duly elected and qualified, or until his death or retirement, or until he resigns or is removed in the manner hereinafter provided. SECTION 3. Resignations. Any director may resign at any time by giving written notice of his resignation to the corporation, effective at the time specified therein or, if not specified, immediately upon its receipt by the corporation. Unless otherwise specified in the notice, acceptance of a resignation shall not be necessary to make it effective. SECTION 4. Nominations. If a person is to be elected to the board of directors because of a vacancy existing on the board, nomination shall be made only by the board of directors or of a nominating committee of the board of directors (the board of directors as a whole or such committee of the board being referred to herein as the "nominating committee") pursuant to the affirmative vote of the majority of the entire membership of the nominating committee. The nominating committee shall also make nominations for the directors to be elected by the stockholders of the corporation at an annual meeting of the stockholders as provided in this section. Only persons nominated in accordance with the procedures set forth in this Section 4 shall be eligible for election as directors at an annual meeting. The nominating committee shall select the AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 4 8 management nominees for election as directors. Except in the case of a nominee substituted as a result of the death, incapacity, disqualification or other inability to serve as a management nominee. the nominating committee shall deliver written nominations to the secretary at least 30 days prior to the date of the annual meeting. Management nominees substituted as a result of the death, incapacity, disqualification or other inability to serve as a management nominee shall be delivered to the secretary as promptly as practicable. Provided the nominating committee selects the management nominees, no nominees for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by stockholders are made in accordance with the provisions of this Section 4. Ballots bearing the names of all the persons nominated for election as directors at an annual meeting in accordance with the procedures set forth in this Section 4 by the nominating committee and by stockholders shall be provided for use at the annual meeting. However, except in the case of a management nominee substituted as a result of the death, incapacity, disqualification or other inability to serve as a management nominee, if the nominating committee shall fail or refuse to nominate a slate of directors at least 30 days prior to the date of the annual meeting, nominations for directors may be made at the annual meeting by any stockholder entitled to vote and shall be voted upon. No person shall be elected as a director of the corporation unless nominated in accordance with the terms set forth in this Section 4. Nominations of individuals for election to the board of directors of the corporation at an annual meeting of stockholders may be made by any stockholder of the corporation entitled to vote for the election of directors at that meeting who complies with the procedures set forth in this Section 4. To be timely, a stockholder's notice shall be delivered to, or mailed and received at, the principal executive offices of the corporation not less than 75 days prior to the date of the annual meeting of stockholders nor more than 85 days prior to the date of such annual meeting; provided, however, that if less than 75 days' notice or prior public disclosure of the date of the annual meeting is given or made, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the 10th day following the earlier of (a) the day on which such notice of the date of the annual meetings was mailed or (b) the day on which such public disclosure was made. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or re-election as a director (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the classes and number of shares of capital stock of the corporation that are owned of record and beneficially owned by such person on the date of such stockholder notice and (D) any other information relating to such person that is required to be disclosed in solicitations of proxies with respect to nominees for election as directors pursuant to Section 14 under the Securities Exchange Act of 1934, as amended; and (ii) as to the stockholder giving the notice (A) the name and address, as they appear on the corporation's books, of such stockholder and any other stockholders known by such stockholder to be supporting such nominees, and (B) the classes and number of shares of capital stock of the corporation that are owned of record and beneficially owned by such stockholder on the date of such stockholder notice and by any other stockholders known by such stockholder to be supporting such nominees on the date of such stockholder notice. The board of directors may reject any nomination by a stockholder not made in strict accordance with the terms of this Section 4. Alternatively, if the board of directors fails to consider the validity of any nominations by a stockholder, the presiding officer of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that a nomination was not made in AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 5 9 strict accordance with the terms of this Section 4, and, if he should so determine, he shall so declare at the annual meeting and the defective nomination shall be disregarded. SECTION 5. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled only (a) by a majority of the directors then in office though less than a quorum, or by a sole remaining director, or (b) by the vote of the stockholders at an annual meeting of stockholders. Directors so chosen shall hold office until the annual meeting next after their election or until their successors are elected and qualified, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. MEETINGS OF THE BOARD OF DIRECTORS SECTION 6. Time and Place of Meeting. The board of directors of the corporation may hold meetings, both regular and special, at such time and places as it determines. SECTION 7. Annual Meetings. The first meeting of each newly elected board of directors shall be held immediately following the annual meeting of stockholders, and no notice of such meeting to the newly elected directors shall be necessary in order legally to constitute the meeting, provided a quorum shall be present. If such meeting is not held immediately following the annual meeting of stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. SECTION 8. Regular Meetings-Notice. Regular meetings of the board of directors may be held without notice. SECTION 9. Special Meetings-Notice. Special meetings of the board of directors may be called by the chairman of the board, or one-third of the directors, on 15 hours' notice to each director, either personally or by telephone or by mail, telegraph, telex, cable, wireless or other form of recorded communication; special meetings shall be called by he secretary in like manner and on like notice on the written request of the chairman of the board, or one-third of the directors. Notice of any such meeting need not be given to any director, however, if waived by him in writing or by telegraph, telex, cable, wireless or other form of recorded communication, or if he shall be present at the meeting. SECTION 10. Quorum and Manner of Acting. At all meetings of the board of directors, fifty percent (50%) of the directors at the time in office (but not less than one-third of the whole board of directors) shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 6 10 SECTION 11. Remuneration. Unless otherwise expressly provided by resolution adopted by the board of directors, none of the directors shall, as such, receive any stated remuneration for his services; but the board of directors may at any time and from time to time by resolution provide that a specified sum shall be paid to any director of the corporation, either as his annual remuneration as such director or member of any committee of the board of directors or as remuneration for his attendance at each meeting of the board of directors or any such committee. The board of directors may also likewise provide that the corporation shall reimburse each director for any expenses paid by him on account of his attendance at any meeting. Nothing in this section shall be construed to preclude any director from serving the corporation in any other capacity and receiving remuneration therefor. COMMITTEES OF DIRECTORS SECTION 12. Committees-How Constituted and Powers. The Board of directors may, by resolution passed by a majority of the whole board designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any committee. to the extent provided in the resolution of the board of directors and not prohibited by law, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it. At any meeting of a committee, a majority of the members of the committee shall constitute a quorum for the transaction of business, and the act of a majority of the members present at any meeting at which a quorum is present shall be the act of the committee. SECTION 13. Minutes of Committees. Each committee shall keep regular minutes of its meetings and proceedings and report the same to the board of directors at the next meeting thereof. GENERAL SECTION 14. Actions Without a Meeting. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board of directors or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board of directors or the committee. SECTION 15. Presence at Meetings by Means of Communications Equipment. Members of the board of directors, or of any committee designated by the board of directors, may participate in a meeting of the board of directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear one another. Participation in a meeting conducted pursuant to this section shall constitute presence in person at the meeting. AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 7 11 ARTICLE IV Notices SECTION 1. Type of Notice. Whenever, under the provisions of any applicable statute, the certificate of incorporation, or these by-laws, notice is required to be given to any director or stockholder, the requirement shall not be construed to mean personal notice, but such notice may be given in writing, in person or by mail, addressed to such director or stockholder at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when it shall be deposited in the United States mail. Notice to directors may also be given in any manner permitted by Article III hereof and shall be deemed to be given at the time when first transmitted by the method of communication so permitted. SECTION 2. Waiver of Notice. Whenever any notice is required to be given under the provisions of any applicable statute, the certificate of incorporation or these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto, and transmission of a waiver of notice by a director or stockholder by mail, telegraph, telex. cable, wireless or other form of recorded communication may constitute such a waiver. SECTION 3. Authorized Notices. Unless otherwise specified herein, the secretary or such other person or persons as the chief executive officer designates shall be authorized to give notices for the corporation. ARTICLE V Officers SECTION 1. Description. The elected officers of the corporation shall be a president (who shall be a director), one or more vice presidents, with or without such descriptive titles as the board of directors shall deem appropriate. a secretary, a treasurer, and a controller. The board of directors by resolution shall also appoint one or more assistant secretaries, assistant treasurers, assistant controllers and such other officers and agents as from time to time may appear to be necessary or advisable in the conduct of the affairs of the corporation. Any two or more offices may be held by the same person. SECTION 2. Election. The board of directors at its first meeting after each annual meeting of stockholders shall elect and appoint the officers to fill the positions designated in Section 1 of this Article V. SECTION 3. Salaries. The board of directors shall fix all salaries of all elected officers of the corporation. AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 8 12 SECTION 4. Term. An officer of the corporation shall hold office until he resigns or his successor is chosen and qualified. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the whole board of directors. The board of directors shall fill any vacancy occurring in any office of the corporation by death, resignation. removal or otherwise. SECTION 5. Duties of the Chairman of the Board. The chairman of the board shall preside, when present, at all meetings of stockholders, except as may otherwise be provided by statue or the board of directors. He shall also preside, when present, at all meetings of the board of directors. He shall advise and counsel the president and officers of the corporation, and shall exercise such powers and perform such duties that shall be assigned to or required of him from time to time by the board of directors. The chairman shall not be an officer or employee of the corporation. SECTION 6. Duties of the President and Chief Executive Officer. The president shall be the chief executive officer of the corporation, and, subject to the provisions of these by-laws, shall have general supervision of the affairs of the corporation and shall have general and active control of all its business. He shall have general authority to execute bonds, deeds and contracts in the name of the corporation and to affix the corporate seal thereto; to sign stock certificates; to cause the employment or appointment of such employees and agents of the corporation as the proper conduct of operations may require, and to fix their compensation, subject to the provisions of these by-laws; to remove or to suspend any employee or agent who shall have been employed or appointed under his authority or under authority of an officer subordinate to him; to suspend for cause, pending final action by the authority that shall have elected or appointed him, any officer subordinate to the president, and, in general, to exercise all the powers usually appertaining to the office of president of a corporation, except as otherwise provided in these by-laws. In the absence of the president, his duties shall be performed and his powers may be exercised by such other officer as he shall designate in writing or (failing such designation) by the executive committee (if any has been appointed) or such officer as it shall designate in writing, subject, in either case, to review and superseding action by the board of directors. SECTION 7. Duties of Vice President-Finance. There may be designated a vice president-finance, who, if so designated, shall be the chief financial and accounting officer of the corporation. He shall have active control of and responsibility for all matters pertaining to the financial affairs of the corporation and its subsidiaries. His authority shall include the authorities of the treasurer and controller. He shall be responsible for approval of all filings with governmental agencies. He shall have the authority to execute and deliver bonds, deeds, contracts and stock certificates of and for the corporation, and to affix the corporate seal thereto by handwritten or facsimile signature and all other powers customarily appertaining to his office, except to the extent otherwise limited or enlarged. He shall report to the president and to the executive committee and the board of directors of the corporation at their request on all financial matters of the corporation. SECTION 8. Duties of Vice Presidents and Assistant Vice Presidents. In the absence of the president or in the event of his inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated by the board, or in the absence of any designation, in the order of their election) shall perform the duties of the president and, when so acting, shall have all the powers of and be subject to all the restrictions upon the AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 9 13 president. The vice presidents shall perform such other duties and have such other powers as the board of directors or the president may from time to time prescribe. SECTION 9. Duties of Secretary and Assistant Secretaries. The secretary or an assistant secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all proceedings of the meetings of the stockholders of the corporation and of the board of directors in a book to be kept for that purpose, and shall perform like duties for the standing committees when required. The secretary shall be under the supervision of the president and shall perform such other duties as may be prescribed by the president. The secretary shall have charge of the seal of the corporation and have authority to affix the seal to any instrument requiring it. When so affixed, the seal shall be attested by the signature of the secretary or treasurer or an assistant secretary or assistant treasurer, which may be a facsimile. The secretary shall keep and account for all books, documents, papers and records of the corporation except those for which some other officer or agent is properly accountable. The secretary shall have authority to sign stock certificates, and shall generally perform all the duties usually appertaining to the office of the secretary of a corporation. Assistant secretaries in the order of their seniority, unless otherwise determined by the board of directors, shall assist the secretary, and in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary. They shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. SECTION 10. Duties of Treasurer and Assistant Treasurers. The treasurer shall have the responsibility for and custody over all assets of the corporation, and the responsibility for handling of the liabilities of the corporation. He shall cause proper entries of all receipts and disbursements of the corporation to be recorded in its books of account. He shall have the responsibility for all matters pertaining to taxation and insurance. He shall have the authority to endorse for deposit or collection, or otherwise, all commercial paper payable to the corporation, and to give proper receipts or discharges for all payments to the corporation. He shall be responsible for all terms of credit granted by the corporation and for the collection of all its accounts. He shall have the authority to execute and deliver bonds, deeds, contracts and stock certificates of and for the corporation, and to affix the corporate seal thereto by handwritten or facsimile signature and all other powers customarily appertaining to his office, except to the extent otherwise limited or enlarged. The treasurer shall be under the supervision of the vice president-finance and he shall perform such other duties as may be prescribed to him by the vice president-finance, if one be designated. Assistant treasurers, in the order of their seniority, shall assist the treasurer, and in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer. SECTION 11. Duties of Controller and Assistant Controllers. The controller shall be responsible for all matters pertaining to the accounts of the corporation, its subsidiaries and divisions, with the supervision of the books of account, their installation, arrangement and classification. The controller shall maintain adequate records of all assets, liabilities and transactions; see that an adequate system of internal audit thereof is currently and regularly maintained; coordinate the efforts of the corporation's independent public accountants in its external audit program; receive, review and consolidate all operating and financial statements of the AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 10 14 corporation and its various departments and subsidiaries; and prepare financial statements, reports and analyses. The controller shall have supervision of the accounting practices of the corporation and of each subsidiary and division of the corporation, and shall prescribe the duties and powers of the chief accounting personnel of the subsidiaries and divisions. The controller shall cause to be maintained an adequate system of financial control through a program of budgets, financial planning and interpretive reports. The controller shall initiate and enforce accounting measures and procedures whereby the business of the corporation and its subsidiaries and divisions shall be conducted with the maximum efficiency and economy. The controller shall have all other powers customarily appertaining to the office of controller, except to the extent otherwise limited or enlarged. The controller shall be under the supervision of the vice president-finance, if one be designated. The assistant controllers, in the order of their seniority, shall assist the controller, and if the controller is unavailable, perform the duties and exercise the powers of the controller. ARTICLE VI Indemnification SECTION 1. Damages and Expenses. To the full extent permitted by law, the corporation shall indemnify and pay the expenses of any party who is or was made, or threatened to be made, a party to an action or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that he is or was a director, officer or employee of the corporation or served any other corporation trust or enterprise in any capacity at the request of the corporation. SECTION 2. Prepaid Expenses. Expenses incurred in defending a civil or criminal action. suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding, as authorized by the board of directors in the specific case. SECTION 3. Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. SECTION 4. Mergers. For purposes of this Article VI, references to "the corporation" shall include, in addition to the resulting or surviving corporation, constituent corporations (including any constituent of a constituent) absorbed in a consolidation or merger that, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article VI with respect to the resulting or AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 11 15 surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. ARTICLE VII Certificates Representing Stock SECTION 1. Right to Certificate. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman of the board, the president or a vice president and by the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers. designations. preferences and relative, participating, option or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations. preferences and relative. participating, optional or other special rights of each class of stock or series thereof and the qualifications. limitations or restrictions of such preferences or rights. SECTION 2. Facsimile Signatures. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer. transfer agent or registrar at the date of issue. SECTION 3. New Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation and alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate. SECTION 4. Transfers. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation, subject to any proper restrictions on transfer, to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 12 16 SECTION 5. Record Date. The board of directors may fix, in advance, a record date for stockholders' meetings or for any other lawful purpose, which shall be no fewer than 10 nor more than 60 days before the date of the meeting or other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. SECTION 6. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not provided by the laws of the State of Delaware. ARTICLE VIII General Provisions SECTION 1. Dividends. Dividends upon the capital stock of the corporation, if any, may be declared by the board of directors pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock or other securities. SECTION 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the board of directors from time to time, in their absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the board of directors shall think conducive to the interest of the corporation, and the board of directors may modify or abolish any such reserve in the manner in which it was created. SECTION 3. Annual Statement. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. SECTION 4. Checks. All checks or demands for money and promissory notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time prescribe. SECTION 5. Fiscal Year. The fiscal year of the corporation shall be determined by the board of directors. SECTION 6. Corporate Seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization, and the word "Delaware." The seal may be used by causing it or a facsimile thereof to be impressed. affixed, reproduced or otherwise. SECTION 7. Certificate of Incorporation. These by-laws are subject to the terms of the certificate of incorporation of the corporation. AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 13 17 ARTICLE IX Amendments The by-laws may be altered, amended or repealed or new by-laws adopted only in accordance with the Restated Certificate of Incorporation of the corporation and any other requirements specified in these by-laws. AMENDED AND RESTATED BY-LAWS OF TYLER THREE, INC. PAGE 14 EX-4.3 3 CREDIT AGREEMENT DATED FEBRUARY 13, 1998 1 EXHIBIT 4.3 [Bracewell & Patterson Draft 2/12/98] CREDIT AGREEMENT Among TYLER CORPORATION as Borrower, THE FINANCIAL INSTITUTIONS NAMED IN THIS CREDIT AGREEMENT as Banks, and NATIONSBANK OF TEXAS, N.A., as Agent for the Banks $50,000,000 February 13, 1998 2 TABLE OF CONTENTS ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . 1 1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . 1 1.2 Computation of Time Periods . . . . . . . . . . . . . . . . . 16 1.3 Accounting Terms; Preparation of Financials . . . . . . . . . 16 1.4 Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.5 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE 2. CREDIT FACILITIES . . . . . . . . . . . . . . . . . . . . . . 18 2.1 Revolving Loan Facility . . . . . . . . . . . . . . . . . . . 18 2.2 Letter of Credit Facility . . . . . . . . . . . . . . . . . . 20 2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.4 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.5 Breakage Costs . . . . . . . . . . . . . . . . . . . . . . . . 27 2.6 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . 28 2.7 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2.8 Market Failure . . . . . . . . . . . . . . . . . . . . . . . . 29 2.9 Payment Procedures and Computations . . . . . . . . . . . . . 29 2.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.11 Replacement of Bank in Event of Adverse Condition . . . . . . 33 ARTICLE 3. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . 33 3.1 Conditions Precedent to Initial Extensions of Credit . . . . . 33 3.2 Conditions Precedent to Each Extension of Credit . . . . . . . 35 ARTICLE 4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 35 4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . 36 4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . 36 4.3 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . 36 4.4 Absence of Conflicts and Approvals . . . . . . . . . . . . . . 36 4.5 Investment Companies . . . . . . . . . . . . . . . . . . . . . 36 4.6 Public Utilities . . . . . . . . . . . . . . . . . . . . . . . 36 4.7 Financial Condition . . . . . . . . . . . . . . . . . . . . . 37 4.8 Condition of Assets . . . . . . . . . . . . . . . . . . . . . 37 4.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.10 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 38 4.11 Laws and Regulations . . . . . . . . . . . . . . . . . . . . . 38 4.12 Environmental Compliance . . . . . . . . . . . . . . . . . . . 38 4.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 4.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 4.15 True and Complete Disclosure . . . . . . . . . . . . . . . . . 39
3 ARTICLE 5. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 39 5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . 39 5.2 Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.3 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 42 5.5 Financial Covenants . . . . . . . . . . . . . . . . . . . . . 42 5.6 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.8 Other Obligations . . . . . . . . . . . . . . . . . . . . . . 44 5.9 Corporate Transactions . . . . . . . . . . . . . . . . . . . . 44 5.10 Distributions . . . . . . . . . . . . . . . . . . . . . . . . 46 5.11 Transactions with Affiliates . . . . . . . . . . . . . . . . . 46 5.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.13 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 47 5.14 Lines of Business . . . . . . . . . . . . . . . . . . . . . . 47 5.15 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 47 5.16 Environmental Compliance . . . . . . . . . . . . . . . . . . . 47 5.17 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . 48 5.18 Payment of Certain Claims . . . . . . . . . . . . . . . . . . 48 5.19 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE 6. DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . 49 6.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . 49 6.2 Termination of Revolving Loan Commitments . . . . . . . . . . 51 6.3 Acceleration of Credit Obligations . . . . . . . . . . . . . . 51 6.4 Cash Collateralization of Letters of Credit . . . . . . . . . 51 6.5 Default Interest . . . . . . . . . . . . . . . . . . . . . . . 52 6.6 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . 52 6.7 Actions Under Credit Documents . . . . . . . . . . . . . . . . 52 6.8 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . 52 6.9 Application of Payments . . . . . . . . . . . . . . . . . . . 52 ARTICLE 7. THE AGENT AND THE ISSUING BANK . . . . . . . . . . . . . . . . . 53 7.1 Authorization and Action . . . . . . . . . . . . . . . . . . . 53 7.2 Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 54 7.3 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 54 7.4 Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . 54 7.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 7.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 55 7.7 Successor Agent and Issuing Bank . . . . . . . . . . . . . . . 55
-ii- 4 ARTICLE 8. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 56 8.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 56 8.3 Modifications, Waivers, and Consents . . . . . . . . . . . . . 57 8.4 Survival of Agreements . . . . . . . . . . . . . . . . . . . . 57 8.5 Assignment and Participation . . . . . . . . . . . . . . . . . 57 8.6 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.7 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . 60 8.8 Forum Selection . . . . . . . . . . . . . . . . . . . . . . . 60 8.9 Service of Process . . . . . . . . . . . . . . . . . . . . . . 61 8.10 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . 61 8.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 61 8.12 No Further Agreements . . . . . . . . . . . . . . . . . . . . 62
EXHIBITS Exhibit A - Form of Compliance Certificate Exhibit B - Form of Revolving Loan Borrowing Request Exhibit C - Form of Continuation/Conversion Request Exhibit D - Form of Revolving Loan Note Exhibit E - Form of Assignment and Acceptance Exhibit F - Closing Documents List Exhibit G - Form of Joinder Agreement Exhibit H - Form of Acquisition EBITDA Certificate SCHEDULES Schedule I - Administrative Information (Borrower; Agent; Banks) Schedule II - Disclosures (Existing Subsidiaries, Investments, Debt, Liens and Litigation) Schedule III - Certain Excluded Charges -iii- 5 CREDIT AGREEMENT This Credit Agreement dated as of February 13, 1998, is among Tyler Corporation, a Delaware corporation, as Borrower, the financial institutions named herein, as Banks, and NationsBank of Texas, N.A., as Agent for the Banks. The parties hereto agree as follows: ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS. 1.1 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (unless otherwise indicated, such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Acquisition" means the direct or indirect purchase or acquisition, whether in one or more related transactions, of any Person or group of Persons or any related group of assets, liabilities, or securities of any Person or group of Persons (excluding purchases of inventory and equipment in the ordinary course of business). "Acquisition EBITDA Certificate" means a certificate executed by a Responsible Officer of the Borrower in substantially the form of Exhibit H, certifying a proforma schedule reflecting the addition of the consolidated EBITDA of Acquisitions for a period to the consolidated EBITDA of the Borrower for such period as if such Acquisitions had occurred prior to the beginning of the such period, prepared in accordance with the requirements of Section 1.3(c) for proforma historical financial information. "Adjusted Base Rate" means, for any day, the fluctuating rate per annum of interest equal to the greater of (a) the Prime Rate in effect on such day or (b) the Federal Funds Rate in effect on such day plus 0.50%. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person or any Subsidiary of such Person. The term "control" (including the terms "controlled by" or "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership, by contract, or otherwise. "Agent" means NationsBank in its capacity as an agent pursuant to Article 7 and any successor agent pursuant to Section 7.7. "Agent Fee Letter" means the confidential letter agreement dated as of February 13, 1998 between the Borrower and the Agent regarding certain fees owed by the Borrower to the Agent in connection with this Agreement. 6 "Agreement" means this Credit Agreement. "Applicable Margin" means, with respect to interest rates, unused commitment fees, and letter of credit fees and as of any date of its determination, an amount equal to the percentage amount set forth in the table below opposite the applicable ratio of (a) the consolidated Debt of the Borrower as of the end of the fiscal quarter then most recently ended to (b) the consolidated EBITDA of the Borrower for the four fiscal quarters then most recently ended (determined as provided below, including adjustments to reflect Acquisitions as provided below):
Funded Debt Applicable Margin Applicable Margin to EBITDA LIBOR Tranches and Base Rate Tranches --------- Letter of Credit Fee ------------------ -------------------- <0.75 1.00% 0.00% >0.75 but <1.25 1.25% 0.00% - >1.25 but <1.75 1.50% 0.00% - >1.75 2.00% 0.25% -
Funded Debt Applicable Margin to EBITDA Commitment Fee --------- ----------------- <0.75 0.250% >0.75 but <1.25 0.250% - >1.25 but <1.75 0.375% - >1.75 0.500% -
Until delivery of the first Compliance Certificate, the foregoing ratio shall be deemed to be 1.26 to 1.00. Thereafter, the Agent shall periodically redetermine the ratio and resulting Applicable Margin based upon the most recent Compliance Certificate delivered to the Agent pursuant to Section 5.2(a) or Section 5.2(b). Notwithstanding such redetermination of the ratio, until the date when the Applicable Margin is reset based upon the Compliance Certificate (and if applicable, the Acquisition EBITDA Certificate as described below) for the period ending June 30, 1998, the ratio shall be deemed to be the greater of (a) the ratio as determined or (b) 1.26 to 1.00, and the Applicable Margin shall be set accordingly. Any adjustments to the Applicable Margin resulting from redetermining the ratio shall become effective on the 45th day following the last day of each fiscal quarter or on the 90th day following the last day of each fiscal year as applicable; provided, however, that if any such Compliance Certificate is not delivered when required hereunder, the Applicable Margin shall be deemed to be the maximum percentage amount in each table from such 45th or 90th day until such Compliance Certificate is received by the Agent. If any Compliance Certificate presented by the Borrower does not fully reflect the EBITDA effects of any Acquisition that has occurred prior to the end of the applicable period covered by such Compliance Certificate, and if the addition of the EBITDA of such Acquisition was -2- 7 expressly approved in writing by the Majority Banks for use in determining the ratio and resulting Applicable Margin, then the Borrower may supplement such Compliance Certificate with an Acquisition EBITDA Certificate provided to the Agent with such Compliance Certificate, and the Agent shall determine the ratio and resulting Applicable Margin using the proforma historical EBITDA of the Borrower and the Acquisition set forth in the Acquisition EBITDA Certificate. In the event there shall occur any Acquisition requiring reporting under Section 5.2(c) since the date the ratio and resulting Applicable Margin was last redetermined as set forth above, the Borrower shall provide to the Agent (a) a revised Compliance Certificate, and (b) an Acquisition EBITDA Certificate, in each case reflecting the consolidated status (including increased Debt) and results (including increased EBITDA) of the Borrower as if such Acquisition had occurred prior to the beginning of the applicable period, and the Agent shall make an interim redetermination of the ratio and, if the ratio has increased, the resulting Applicable Margin shall be adjusted based upon such information. Any such adjustment to the Applicable Margin shall become effective on the effective date of the Acquisition. Upon any change in the Applicable Margin, the Agent shall promptly notify the Borrower and the Banks of the new Applicable Margin. "Applicable Lending Office" means, with respect to each Bank and for any particular type of transaction, the office of such Bank set forth in Schedule I to this Agreement (or in the applicable Assignment and Acceptance by which such Bank joined this Agreement) as its applicable lending office for such type of transaction or such other office of such Bank as such Bank may from time to time specify in writing to the Borrower and the Agent for such particular type of transaction. "Assignment and Acceptance" means an Assignment and Acceptance in substantially the form of Exhibit E executed by an assignor Bank, an assignee Bank, and the Agent, in accordance with Section 8.5. "BRC" means Business Resources Corporation, a Texas corporation. "BRC/GRS Pledge Agreement and Guaranty" is defined within the definition of "Pledge Agreement". "BRC Loan Documents" means the $6,000,000 Note dated July 31, 1997 executed by Title Records Corporation in favor of Business Records Corporation and the security agreement and the pledge agreement and guaranty securing the Note. "Banks" means the lenders listed as Banks on the signature pages of this Agreement and each Eligible Assignee that shall become a party to this Agreement pursuant to Section 8.5(b). -3- 8 "Base Rate Tranche" shall mean any Tranche which bears interest based upon the Adjusted Base Rate, as determined in accordance with Section 2.4. "Borrower" means Tyler Corporation, a Delaware corporation. "Borrower Account" means the principal operating account of Borrower with the Agent or any other account of Borrower with the Agent which is designated as Borrower's "Borrower Account" in writing by the Borrower to the Agent. "Business Day" means any Monday through Friday during which commercial banks are open for business in Houston, Texas, Dallas, Texas, and, if the applicable Business Day relates to any LIBOR Tranche, on which dealings are carried on in the London interbank market. "Capital Expenditures" means, with respect to any Person and with respect to any period of its determination, the consolidated expenditures of such Person during such period that are required to be included in or are reflected by the consolidated property, plant, or equipment accounts of such Person, or any similar fixed asset or long term capitalized asset accounts of such Person, on the consolidated balance sheet of such Person in conformity with generally accepted accounting principles. Capital Expenditures shall not include, however, such expenditures deemed to have occurred as a result of any Acquisition. "Capital Leases" means, with respect to any Person, any lease of any property by such Person which would, in accordance with generally accepted accounting principles, be required to be classified and accounted for as a capital lease on the balance sheet of such Person. "Change of Control" means, with respect to the Borrower, excluding the effect of the Borrower's acquisition of BRC and TSG, (a) the direct or indirect acquisition after the date hereof by any Person or related Persons constituting a group of (i) beneficial ownership of issued and outstanding shares of Voting Securities of the Borrower, the result of which acquisition is that such Person or such group possesses 30% or more of the combined voting power of all then-issued and outstanding Voting Securities of the Borrower or (ii) the power to elect, appoint, or cause the election or appointment of at least a majority of the members of the board of directors of the Borrower, or (b) the individuals who, at the beginning of any period of 12 consecutive months, constitute the Borrower's board of directors (together with any new director whose election by the Borrower's board of directors or whose nomination for election by the Borrower's stockholders entitled to vote thereon was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason (other than death or disability) to constitute a majority of the Borrower's board of directors then in office. -4- 9 "Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "Commonly Controlled Entity" means, with respect to any Person, any other Person which is under common control with such Person within the meaning of Section 414 of the Code. "Compliance Certificate" means a compliance certificate executed by a Responsible Officer of the Borrower in substantially the form of Exhibit A. "Continuation/Conversion Request" means a Continuation/Conversion Request in substantially the form of Exhibit C executed by a Responsible Officer of the Borrower and delivered to the Agent. "Credit Documents" means this Agreement, the Revolving Loan Notes, the Letter of Credit Documents, the Guaranty, the Security Documents, the Interest Hedge Agreements, and each other agreement, instrument, or document executed at any time in connection with this Agreement. "Credit Obligations" means all principal, interest, fees, reimbursements, indemnifications, and other amounts now or hereafter owed by the Borrower to the Agent and the Banks (or with respect to the Interest Hedge Agreements, any Affiliates of the Banks) under this Agreement, the Revolving Loan Notes, the Letter of Credit Documents, and the other Credit Documents and any increases, extensions, and rearrangements of those obligations under any amendments, supplements, and other modifications of the documents and agreements creating those obligations. "Credit Parties" means the Borrower, the Guarantors, TPI of Texas, Inc., a Delaware corporation, and Swan Transportation Company, a Delaware corporation. "Debt" means, with respect to any Person or group of Persons on a consolidated basis, without duplication, (a) indebtedness of such Person for borrowed money, (b) obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments, (c) obligations of such Person to pay the deferred purchase price of property or services (other than trade debt and normal operating liabilities incurred in the ordinary course of business), (d) obligations of such Person as lessee under Capital Leases, (e) obligations of such Person under or relating to letters of credit, guaranties, purchase agreements, or other creditor assurances assuring a creditor against loss in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (d) of this definition, and (f) nonrecourse indebtedness or obligations of others of the kinds referred to in clauses (a) through (e) of this definition secured by any Lien on or in respect of any property of such Person. For the purposes of determining the amount of any Debt, the amount of any Debt described in clause (e) of the definition of Debt shall be valued at the maximum amount of the contingent liability -5- 10 thereunder and the amount of any Debt described in clause (f) that is not covered by clause (e) shall be valued at the lesser of the amount of the Debt secured or the book value of the property securing such Debt. "Default" means (a) an Event of Default or (b) any event or condition which with notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Default Rate" means, with respect to any amount due hereunder, a per annum interest rate equal to (a) if such amount is either outstanding principal accruing interest based upon a rate established elsewhere in this Agreement or accrued but unpaid interest thereon, the sum of (i) the interest rate established elsewhere in this Agreement from time to time for such principal amount, including any applicable margin, plus (ii) 2.00% per annum or (b) in all other cases, the Adjusted Base Rate in effect from time to time plus the Applicable Margin for Base Rate Tranches in effect from time to time plus 2.00% per annum. "Derivatives" means any swap, hedge, cap, collar, or similar arrangement providing for the exchange of risks related to price changes in any commodity, including money. "Dollars or $" means lawful money of the United States of America. "EBIT" means, with respect to any Person and for any period of its determination, the consolidated net income of such Person for such period, plus the consolidated interest expense and income and franchise taxes of such Person for such period less extraordinary gains and interest income. "EBITDA" means, with respect to any Person and for any period of its determination, the EBIT of such Person for such period, plus the consolidated depreciation and amortization of such Person for such period. With respect to any determination of the consolidated EBITDA of the Borrower, the earnings of the Borrower used in making such determination shall be determined before the effect of the extraordinary charges for discontinued operations incurred in 1997 and for the charges included in Schedule III to this Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Eligible Assignee" means, with respect to any assignment hereunder at the time of such assignment, any commercial bank organized under the laws of the United States or any of the countries parties to the Organization for Economic Cooperation and Development or any political subdivision of any thereof which has primary capital (or its equivalent) of not less than $250,000,000 and which maintains a branch or agency in the United States which shall be designated its Applicable Lending Office for non-LIBOR based transactions, is approved by the Agent, and, so long as no Event of Default exists, is approved by the Borrower, in either case, such approval not to be unreasonably withheld. -6- 11 "Environmental Law" means all federal, state, and local laws, rules, regulations, ordinances, orders, decisions, agreements, and other requirements now or hereafter in effect relating to the pollution, destruction, loss, or injury of the environment, the presence of any contaminant in the environment, the protection, cleanup, remediation, or restoration of the environment, the creation, handling, transportation, use, or disposal of any waste product in the environment, exposure of persons to any contaminant, waste, or hazardous substance in the environment, and the health and safety of employees in relation to their environment. "Event of Default" has the meaning specified in Section 6.1. "Federal Funds Rate" means, for any period, a fluctuating per annum interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for any such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any of its successors. "Financial Statements" means: (a) for Borrower, audited fiscal year end financial statements dated December 31, 1996; (b) for BRC, audited fiscal year end financial statements dated December 31, 1996; and (c) for TSG, audited fiscal year end financial statements dated October 31, 1997. "GRS" is defined in the definition of "Pledge Agreement". "Guaranty" means the Guaranty dated as of February 13, 1998, made by Forest City Auto Parts Company, T1 Acquisition Corporation, T2 Acquisition Corporation, and T3 Acquisition Corporation, each a Subsidiary of the Borrower, in favor of the Agent guarantying the Credit Obligations. "Guarantors" means (a) the Subsidiaries of the Borrower that have executed the Guaranty in connection with the execution of this Agreement and (b) any future Subsidiaries of the Borrower that join the Guaranty pursuant to Section 5.19. -7- 12 "Hazardous Materials" means any substance or material identified as a hazardous substance pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended and as now or hereafter in effect; any substance or material regulated as a hazardous waste pursuant to the Resource Conservation and Recovery Act of 1976, as amended and as now or hereafter in effect; and any substance or material designated as a hazardous substance or hazardous waste pursuant to any other Environmental Law. "Highest Lawful Rate" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to the Bank which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. The maximum lawful rate under this Agreement shall be the weekly indicated rate ceiling under Chapter 1D of Article 5069 of the Texas Revised Civil Statutes, unless any other lawful rate ceiling exceeds the rate ceiling so determined, and then the higher rate ceiling shall apply. "Interest Hedge Agreements" means any swap, hedge, cap, collar, or similar arrangement between the Borrower and any Bank (or any Affiliate of any Bank) providing for the exchange of risks related to price changes in the interest rate on the Revolving Loan Advances under this Agreement. "Interest Period" means, with respect to each LIBOR Tranche, the period commencing on the date of such LIBOR Tranche and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three, or six months, in each case as the Borrower may select in the applicable Revolving Loan Borrowing Request or Continuation/Conversion Request (unless there shall exist any Default or Event of Default, in which case the Borrower may only select one month Interest Periods); provided, however, that: (a) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day; provided that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; (b) any Interest Period which begins on the last Business Day of the calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month in which it would have ended if there were a numerically corresponding day in such calendar month; and (c) the Borrower may not select an Interest Period for any LIBOR Tranche which ends after any date when outstanding principal amounts of the Revolving Loan must be repaid -8- 13 unless, after giving effect to such selection, the aggregate outstanding principal amount of Base Rate Tranches under the Revolving Loan and LIBOR Tranches under the Revolving Loan having Interest Periods which end on or before such repayment date shall be at least equal to or greater than the principal amount of the Revolving Loan due and payable on or before such date (and therefore in no event shall any Interest Period for any LIBOR Tranche extend beyond the Revolving Loan Maturity Date). "Interim Financial Statements" means: (a) for Borrower, unaudited interim financial statements dated September 30, 1997; and (b) for BRC, unaudited interim financial statements dated September 30, 1997. "Issuing Bank" means NationsBank and any successor issuing bank pursuant to Section 7.7. "LIBOR" means, for any LIBOR Tranche for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "LIBOR" shall mean, for any LIBOR Tranche for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. "LIBOR Tranche" shall mean any Tranche which bears interest based upon the LIBOR, as determined in accordance with Section 2.5. "Letter of Credit" means any commercial or standby letter of credit issued by the Issuing Bank for the account of the Borrower pursuant to the terms of this Agreement. "Letter of Credit Application" means the Issuing Bank's standard form letter of credit application for either a commercial or standby letter of credit, as the case may be, which has been executed by a Borrower and accepted by the Issuing Bank in connection with the issuance of a Letter of Credit. "Letter of Credit Application Amendment" means the Issuing Bank's standard form application to amend a letter of credit for either a commercial or standby letter of credit, as -9- 14 the case may be, which has been executed by a Borrower and accepted by the Issuing Bank in connection with the increase or extension of a Letter of Credit. "Letter of Credit Collateral Account" means a special cash collateral account pledged to the Agent containing cash deposited pursuant to Sections 2.2(d) or 6.4 to be maintained with the Agent in accordance with Section 2.2(g). "Letter of Credit Documents" means all Letters of Credit, Letter of Credit Applications, Letter of Credit Application Amendments, and agreements, documents, and instruments entered into in connection with or relating thereto. "Letter of Credit Exposure" means, as of any date of its determination, the aggregate outstanding undrawn amount of Letters of Credit plus the aggregate of the reimbursement obligations of the Borrower under the Letter of Credit Applications and this Agreement. "Letter of Credit Sublimit" means $5,000,000. "Lien" means any mortgage, lien, pledge, charge, deed of trust, security interest, encumbrance, or other type of preferential arrangement to secure or provide for the payment of any obligation of any Person, whether arising by contract, operation of law, or otherwise (including any title retention for such purposes under any conditional sale agreement, any Capital Lease, or any other title transfer or retention agreement). "Majority Banks" means, at any time, Banks holding more than 67% of the then aggregate unpaid principal amount of the Revolving Loan Notes held by the Banks and the Letter of Credit Exposure of the Banks at such time; provided that if no such principal amount or Letter of Credit Exposure is then outstanding, "Majority Banks" shall mean Banks having more than 67% of the aggregate amount of the Revolving Loan Commitments at such time. "Material Adverse Change" means any material adverse change in the business, operations, or financial condition of the Borrower and its Subsidiaries on a consolidated basis or, prior to the date on which the initial extension of credit is made under this Agreement, BRC, or TSG. "Minimum Borrowing Amount" means $250,000 for each Base Rate Tranche and $1,000,000 for each LIBOR Tranche. "Minimum Borrowing Multiple" means $250,000 for each Base Rate Tranche and $1,000,000 for each LIBOR Tranche. "Minimum Tranche Amount" means $250,000 for each Base Rate Tranche and $1,000,000 for each LIBOR Tranche. -10- 15 "Minimum Tranche Multiple" means $250,000 for each Base Rate Tranche and $1,000,000 for each LIBOR Tranche. "NationsBank" means NationsBank of Texas, N.A., in its individual capacity. "Net Worth" means, with respect to any Person and as of any date of its determination, the excess of (a) the assets of such Person over (b) the liabilities of such Person. "PBGC" means Pension Benefit Guaranty Corporation or its successor. "Permitted Debt" means all of the following Debt: (a) Debt in the form of the Credit Obligations; (b) Debt between Credit Parties; and (c) Debt outstanding as of the date of the most recent Interim Financial Statements or Financial Statement with respect to TSG and disclosed in the Interim Financial Statements or the Financial Statement with respect to TSG or on Schedule II in an aggregate outstanding amount not to exceed $10,000,000; and (d) Debt other than that specified above in an aggregate outstanding amount not to exceed $5,000,000. "Permitted Investments" means all of the following investments: (a) (i) investments in Guarantors that are wholly-owned Subsidiaries of the Borrower, (ii) investments in Persons other than Guarantors that are wholly-owned Subsidiaries of the Borrower that were made or assumed in connection with Acquisitions to the extent such investments were expressly approved by the Majority Banks in connection with such Acquisitions, but no further investments therein unless such further investments have been approved by the Majority Banks, and (iii) loans, advances, and other investments in Persons other than those permitted in clause (i) and (ii) in an aggregate outstanding amount not to exceed $1,000,000; (b) investments in the form of short term loans, guaranties, open accounts, and other extensions of trade credit in the ordinary course of business; (c) investments in commercial paper and bankers' acceptances maturing in twelve months or less from the date of issuance and which, at the time of acquisition are rated A-2 or better by Standard & Poor's Corporation and P-2 or better by Moody's Investors Services, Inc; -11- 16 (d) investments in direct obligations of the United States, or investments in any Person which investments are guaranteed by the full faith and credit of the United States, in either case maturing in twelve months or less from the date of acquisition thereof and repurchase agreements having a term of less than one year and fully collateralized by such obligations which are entered into with banks or trust companies described in clause (e) below or brokerage companies having net worth in excess of $250,000,000; (e) investments in time deposits or certificates of deposit maturing within one year from the date such investment is made, issued by a bank or trust company organized under the laws of the United States or any state thereof having capital, surplus, and undivided profits aggregating at least $250,000,000 or a foreign branch thereof and whose long-term certificates of deposit are, at the time of acquisition thereof, rated A-2 by Standard & Poor's Corporation or Prime-2 by Moody's Investors Services, Inc.; (f) investments in money market funds which invest solely in the types of investments described in paragraphs (c) through (e) above; and (g) investments disclosed on Schedule II or either (i) in the Interim Financial Statements or (ii) in the Financial Statement of TSG. In valuing any investments for the purpose of applying the limitations set forth in this Agreement, such investments shall be taken at the original cost thereof (but without reduction for any subsequent appreciation or depreciation thereof) less any amount actually repaid or recovered on account of capital or principal (but without reduction for any offsetting investments made by the investee in the investor). For purposes of this Agreement, at any time when a corporation becomes a Subsidiary of the Borrower, all investments of such corporation at such time shall be deemed to have been made by such corporation at such time. "Permitted Liens" means all of the following Liens: (a) Liens securing the Credit Obligations; (b) Liens securing obligations under the BRC Loan Documents existing on the date of this Agreement created by the BRC Loan Documents as they are in effect on the date of this Agreement and covering the collateral described therein, including proceeds of such collateral. (c) Liens on equipment securing purchase money debt or Capital Leases permitted under clause (c) of the definition of Permitted Debt provided that no such Lien is spread to cover any property not purchased or leased in connection with the incurrence of such Debt; (d) Liens arising in the ordinary course of business which are not incurred in connection with the borrowing of money, the obtaining of advances or credit, or payment of -12- 17 legal judgments and which do not materially detract from the value of any Restricted Entity's assets or materially interfere with any Restricted Entity's business, including such (i) Liens for taxes, assessments, or other governmental charges or levies; (ii) Liens in connection with worker's compensation, unemployment insurance, or other social security, old age pension, or public liability obligations; (iii) Liens in the form of legal or equitable encumbrances deemed to exist by reason of negative pledge covenants and other covenants or undertakings of like nature; (iv) Liens in the form of vendors', carriers', warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction, or other like Liens arising by operation of law in the ordinary course of business or incident to the construction or improvement of any property; (v) Liens in the form of zoning restrictions, easements, licenses, and other restrictions on the use of real property or minor irregularities in title thereto which do not materially impair the use of such property in the operation of the business of the applicable Restricted Entity or the value of such property; and (vi) Liens in the form of precautionary financing statements that have been filed to reflect operating leases (to the extent such filings could be considered Liens hereunder); (e) Other Liens on equipment disclosed on Schedule II or either (i) in the Interim Financial Statements or (ii) in the Financial Statement of TSG; and (f) Liens on equipment and real property acquired pursuant to an Acquisition not totalling more than the Debt permitted pursuant to clause (d) of the definition of Permitted Debt provided that in connection with any Acquisition, liens on equipment and real property of the Borrower other than those acquired in that Acquisition are not permitted. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, or other entity, or a government or any political subdivision or agency thereof, or any trustee, receiver, custodian, or similar official. "Plan" means any (a) employee medical benefit plan under Section 3(1) of ERISA, (b) employee pension benefit plan under Section 3(2) of ERISA, (c) multiemployer plan under Section 4001(a)(3) of ERISA, and (d) employee account benefit plan under Section 3(2) of ERISA. "Pledge Agreement" means the Pledge Agreement dated as of February 13, 1998, made by Borrower and the Subsidiaries of Borrower in favor of the Agent granting the Agent a security interest in the stock of each Subsidiary (whether direct or indirect) of Borrower to secure the Credit Obligations; provided, however, that BRC shall not be required to pledge the stock of Government Records Services, Inc. ("GRS") and GRS shall not be required to pledge the stock of Title Records Corporation until such time as the Pledge Agreement and Guaranty dated as of July 31, 1997, by BRC and GRS in favor of Business Records Corporation (the "BRC/GRS Pledge Agreement and Guaranty") shall be terminated. -13- 18 "Prime Rate" means, for any day, the fluctuating per annum interest rate in effect on such day equal to the rate of interest publicly announced by the Agent as its prime rate, whether or not the Borrower has notice thereof. "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code. "ratable share" or "pro rata share" means, with respect to any Bank and as of any date of its determination, either (a) the ratio of such Bank's Revolving Loan Commitment at such time to the aggregate Revolving Loan Commitments at such time or (b) if the Revolving Loan Commitments have been terminated, the ratio of such Bank's aggregate outstanding Revolving Loan Advances and share of the Letter of Credit Exposure at such time to the aggregate outstanding Revolving Loan Advances and Letter of Credit Exposure at such time. "Related Parties" means, with respect to any Person, such Person's stockholders, directors, officers, employees, agents, Affiliates, successors, and assigns, and their respective stockholders, directors, officers, employees, and agents, and, with respect to any Person that is an individual, such Person's family relations and heirs. "Reportable Event" means any of the events set forth in Section 4043 of ERISA. "Responsible Officer" means, with respect to any Person, such Person's Chief Executive Officer, President, Vice President, Chief Financial Officer, Secretary, Treasurer, or any other officer of such Person designated by any of the foregoing in writing from time to time. "Restricted Entities" means the Borrower and each Subsidiary of the Borrower. "Revolving Loan" means the aggregate outstanding principal amount of the Revolving Loan Borrowings. "Revolving Loan Advance" means the outstanding principal from a Bank which represents such Bank's ratable share of a Revolving Loan Borrowing. "Revolving Loan Borrowing" means any aggregate amount of principal advanced on the same day and pursuant to the same Revolving Loan Borrowing Request under the revolving loan facility created in Section 2.1. "Revolving Loan Borrowing Request" means a Revolving Loan Borrowing Request in substantially the form of Exhibit B executed by a Responsible Officer of the Borrower and delivered to the Agent. -14- 19 "Revolving Loan Commitment" means, for any Bank, the amount set forth below such Bank's name on the signature pages of this Agreement as its Revolving Loan Commitment, or if such Bank has entered into any Assignment and Acceptance since the date of this Agreement, as set forth for such Bank as its Revolving Loan Commitment in the Register maintained by the Agent pursuant to Section 8.5(c), in each case as such amount may be terminated pursuant to Section 6.2. "Revolving Loan Maturity Date" means February 13, 2001. "Revolving Loan Note" means a promissory note of the Borrower payable to the order of a Bank, in substantially the form of Exhibit D, evidencing the indebtedness of the Borrower to such Bank resulting from Revolving Loan Advances made by such Bank to the Borrower. "Security Documents" means the Pledge Agreement and any other document creating or consenting to Liens in favor of the Agent securing Credit Obligations. "Subsidiary" means, with respect to any Person, any other Person, a majority of whose outstanding Voting Securities (other than directors' qualifying shares) shall at any time be owned by such Person or one or more Subsidiaries of such person. "Swan" means Swan Transportation Company, a Delaware corporation. "TPI" means TPI of Texas, Inc., a Delaware corporation. "TSG" means The Software Group, Inc., a Texas corporation. "Tranche" means any tranche of principal outstanding under the Revolving Loan accruing interest on the same basis whether created in connection with new advances of principal under the Revolving Loan pursuant to Section 2.4(a)(i) or by the continuation or conversion of existing tranches of principal under the Revolving Loan pursuant to Section 2.4(a)(ii) and shall include any Base Rate Tranche or LIBOR Tranche. "Type" has the meaning set forth in Section 1.4. "Voting Securities" means (a) with respect to any corporation, any capital stock of the corporation having general voting power under ordinary circumstances to elect directors of such corporation, (b) with respect to any partnership, any partnership interest having general voting power under ordinary circumstances to elect the general partner or other management of the partnership, and (c) with respect to any other Person, such ownership interests in such Person having general voting power under ordinary circumstances to elect the management of such Person, in each case irrespective of whether at the time any other -15- 20 class of stock, partnership interests, or other ownership interest might have special voting power or rights by reason of the happening of any contingency. 1.2 Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." 1.3 Accounting Terms; Preparation of Financials. (a) All accounting terms, definitions, ratios, and other tests described herein shall be construed in accordance with United States generally accepted accounting principles applied on a consistent basis with those applied in the preparation of the Financial Statements, except as expressly set forth in this Agreement. (b) The Restricted Entities shall prepare their financial statements in accordance with United States generally accepted accounting principles applied on a consistent basis with those applied in the preparation of the Financial Statements, unless otherwise approved in writing by the Agent. The Restricted Entities shall not conduct any Acquisition that requires pooling accounting treatment in accordance with generally accepted accounting principles without the approval of the Agent. (c) The Restricted Entities shall prepare all proforma financial statements and certificates reflecting Acquisitions, including Acquisition EBITDA Certificates and Compliance Certificates reflecting the effects of Acquisitions pursuant to the definition of "Applicable Margin" or for the purposes of Section 5.5(b), in accordance with the requirements established by the Securities and Exchange Commission for acquisition accounting for reported acquisitions by public companies, whether or not the applicable Acquisitions are required to be publicly reported, and applying such requirements to make such proforma financial statements and certificates reflect the accounting procedures used in the preparation of the regular financial statements of the Restricted Entities unless otherwise approved in writing by the Agent. All applications of the foregoing requirements regarding proforma financial statements and certificates must be approved by the Agent. 1.4 Types. The "Type" of a Tranche refers to the determination whether such tranche is a LIBOR Tranche or a Base Rate Tranche. 1.5 Interpretation. Article, Section, Schedule, and Exhibit references are to this Agreement, unless otherwise specified. All references to instruments, documents, contracts, and agreements are references to such instruments, documents, contracts, and agreements as the same may be amended, supplemented, and otherwise modified from time to time, unless otherwise specified. The word "including" shall mean "including but not limited to." The word "or" shall mean "and/or" wherever necessary to prevent interpretation of any provision against the Agent or the Banks. Whenever the Borrower has an obligation under this -16- 21 Agreement and the Credit Documents the expense of complying with that obligation shall be an expense of the Borrower unless otherwise specified. Whenever any determination is to be made by the Agent or any Bank, such determination shall be in such Person's sole discretion unless otherwise specified in this Agreement. If any provision in this Agreement and the Credit Documents is held to be illegal, invalid, not binding, or unenforceable, such provision shall be fully severable and this Agreement and the Credit Documents shall be construed and enforced as if such illegal, invalid, not binding, or unenforceable provision had never comprised a part of this Agreement and the Credit Documents, and the remaining provisions shall remain in full force and effect. This Agreement and the Credit Documents have been reviewed and negotiated by sophisticated parties with access to legal counsel and shall not be construed against the drafter. In the event of a conflict between this Agreement and any other Credit Documents, this Agreement shall control. ARTICLE 2. CREDIT FACILITIES. 2.1 Revolving Loan Facility. (a) (i) Revolving Loan Commitments. Each Bank severally agrees, on the terms and conditions set forth in this Agreement and for the purposes set forth in Section 5.4, to make Revolving Loan Advances to the Borrower as such Bank's ratable share of Revolving Loan Borrowings requested by the Borrower from time to time on any Business Day during the period from the date of this Agreement until the Revolving Loan Maturity Date provided that the aggregate outstanding principal amount of Revolving Loan Advances made by such Bank plus such Bank's ratable share of the Letter of Credit Exposure shall not exceed such Bank's Revolving Loan Commitment. Revolving Loan Borrowings must be made in an amount equal to or greater than the Minimum Borrowing Amount and be made in multiples of the Minimum Borrowing Multiple. Within the limits expressed in this Agreement, the Borrower may from time to time borrow, prepay, and reborrow Revolving Loan Borrowings. The indebtedness of the Borrower to the Banks resulting from the Revolving Loan Advances made by the Banks shall be evidenced by Revolving Loan Notes made by the Borrower. (ii) Reduction of Revolving Loan Commitments The Borrower shall have the right, upon at least 30 days' advance notice to the Agent, to reduce ratably in part or terminate in whole the Revolving Loan Commitments. Each such notice shall specify the amount of the termination or reduction and shall be irrevocable and binding on the Borrower. Partial reductions shall be in a minimum amount of $5,000,000 and be made in integral multiples of $5,000,000. In the event of any partial reduction, each Bank's Revolving Loan Commitment shall be reduced pro rata. The Revolving Loan Commitments cannot be reduced below the amount of the Revolving Loan plus the Letter of Credit Exposure. Any termination or reduction of the Revolving Loan Commitments pursuant to this Section 2.1(a)(ii) shall be permanent, with no obligation of the Banks to reinstate such reduced or terminated Revolving Loan Commitments. -17- 22 (b) Method of Advancing (i) Each Revolving Loan Borrowing shall be made pursuant to a Revolving Loan Borrowing Request given by the Borrower to the Agent in writing or by telecopy not later than the time required pursuant to Section 2.4(a)(i) to select the interest rate basis for the Revolving Loan Borrowing. Each Revolving Loan Borrowing Request shall be fully completed and shall specify the information required therein, and shall be irrevocable and binding on the Borrower. If the Revolving Loan Borrowing Request is accepted by the Agent, the Agent shall promptly forward notice of the Revolving Loan Borrowing to the Banks. Each Bank shall, before 2:00 p.m. (local time at the Applicable Lending Office of the Agent) on the date of the requested Revolving Loan Borrowing, make available from its Applicable Lending Office to the Agent at the Agent's Applicable Lending Office, in immediately available funds, such Bank's ratable share of such Revolving Loan Borrowing. Subject to the satisfaction of all applicable conditions precedent, after receipt by the Agent of such funds, the Agent shall before close of business on the date requested for such Revolving Loan Borrowing make such Revolving Loan Borrowing available to the Borrower in immediately available funds at the Borrower Account. (ii) Unless the Agent shall have received notice from a Bank before the date of any Revolving Loan Borrowing that such Bank shall not make available to the Agent such Bank's ratable share of such Revolving Loan Borrowing, the Agent may assume that such Bank has made its ratable share of such Revolving Loan Borrowing available to the Agent on the date of such Revolving Loan Borrowing in accordance with paragraph (i) above and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made its ratable share of such Revolving Loan Borrowing available to the Agent, such Bank agrees that it shall pay interest on such amount for each day from the date such amount is made available to the Borrower by the Agent until the date such amount is paid to the Agent by such Bank at the Federal Funds Rate in effect from time to time, provided that with respect to such Bank if such amount is not paid by such Bank by the end of the second day after the Agent makes such amount available to the Borrower, the interest rates specified above shall be increased by a per annum amount equal to 2.00% on the third day and shall remain at such increased rate thereafter. Interest on such amount shall be due and payable by such Bank upon demand by the Agent. If such Bank shall pay to the Agent such amount and interest as provided above, such amount so paid shall constitute such Bank's Revolving Loan Advance as part of such Revolving Loan Borrowing for all purposes of this Agreement even though not made on the same day as the other Revolving Loan Advances comprising such Revolving Loan Borrowing. In the event that such Bank has not repaid such amount by the end of the fifth day after such amount was made available to the Borrower, the Borrower agrees to repay to the Agent on demand such amount, together with interest on such amount for each day from the date such amount was made available to the Borrower until the date such amount is repaid to the Agent at the interest rate charged to the Borrower for such Revolving Loan Borrowing under the terms of this Agreement. -18- 23 (iii) The failure of any Bank to make available its ratable share of any Revolving Loan Borrowing shall not relieve any other Bank of its obligation, if any, to make available its ratable share of such Revolving Loan Borrowing. No Bank shall be responsible for the failure of any other Bank to honor such other Bank's obligations hereunder, including any failure to make available any funds as part of any Revolving Loan Borrowing. (c) Prepayment. (i) The Borrower may prepay the outstanding principal amount of the Revolving Loan pursuant to written notice given by the Borrower to the Agent in writing or by telecopy not later than (A) 2:00 p.m. (local time at the Applicable Lending Office of the Agent) on the third Business Day before the date of the proposed prepayment, in the case of the prepayment of any portion of the Revolving Loan which is comprised of LIBOR Tranches, or (B) 12:00 noon (local time at the Applicable Lending Office of the Agent) on the same Business Day of the proposed prepayment, in the case of the prepayment of any portion of the Revolving Loan comprised solely of Base Rate Tranches. Each such notice shall specify the principal amount and Tranches of the Revolving Loan which shall be prepaid, the date of the prepayment, and shall be irrevocable and binding on the Borrower. Prepayments of the Revolving Loan shall be made in integral multiples of the Minimum Borrowing Multiple. If the prepayment would cause the aggregate outstanding principal amount of any LIBOR Tranche comprising all or any part of the Revolving Loan or the aggregate outstanding principal amount of all Base Rate Tranches comprising all or any part of the Revolving Loan, to be less than the Minimum Tranche Amount, the prepayment must be in an amount equal to the entire outstanding principal amount of such LIBOR Tranche under the Revolving Loan or the entire outstanding principal amount of all Base Rate Tranches under the Revolving Loan, as the case may be. Upon receipt of any notice of prepayment, the Agent shall give prompt notice of the intended prepayment to the Banks. For each such notice given by the Borrower, the Borrower shall prepay the Revolving Loan in the specified amount on the specified date as set forth in such notice. The Borrower shall have no right to prepay any principal amount of the Revolving Loan except as provided in this Section 2.1(c)(i). (ii) Each prepayment of principal of any LIBOR Tranche under the Revolving Loan pursuant to this Section 2.1(c) shall be accompanied by payment of all accrued but unpaid interest on the principal amount prepaid and any amounts required to be paid pursuant to Section 2.5 as a result of such prepayment. (d) Repayment. The Borrower shall pay to the Agent for the ratable benefit of the Banks the aggregate outstanding principal amount of the Revolving Loan on the Revolving Loan Maturity Date. -19- 24 2.2 Letter of Credit Facility. (a) Commitment for Letters of Credit. The Issuing Bank shall, on the terms and conditions set forth in this Agreement and for the purposes set forth in Section 5.4, issue, increase, and extend Letters of Credit at the request of the Borrower from time to time on any Business Day during the period from the date of this Agreement until the Revolving Loan Maturity Date provided that (i) the Letter of Credit Exposure shall not exceed the Letter of Credit Sublimit and (ii) the aggregate outstanding principal amount of Revolving Loan Borrowings plus the Letter of Credit Exposure shall not exceed the aggregate amount of the Revolving Loan Commitments. No Letter of Credit may have an expiration date later than 12 months after its issuance date, and each Letter of Credit which is self-extending beyond its expiration date must be cancelable upon no more than 60 days notice given by the Issuing Bank to the beneficiary of such Letter of Credit. No Letter of Credit may have an expiration date later than 12 months after the Revolving Loan Maturity Date unless approved by the Issuing Bank, the Agent, and the Banks. Each Letter of Credit must be in form and substance acceptable to the Issuing Bank. The indebtedness of the Borrower to the Issuing Bank resulting from Letters of Credit requested by the Borrower shall be evidenced by the Letter of Credit Applications made by the Borrower. (b) Requesting Letters of Credit. Each Letter of Credit shall be issued, increased, or extended pursuant to a Letter of Credit Application or Letter of Credit Application Amendment, as applicable, given by the Borrower to the Issuing Bank in writing or by telecopy promptly confirmed in writing, such Letter of Credit Application or Letter of Credit Application Amendment being given not later than 2:00 p.m. (local time at the Applicable Lending Office of the Agent) on the third Business Day before the date of the proposed issuance, increase, or extension of the Letter of Credit. Each Letter of Credit Application or Letter of Credit Application Amendment shall be fully completed and shall specify the information required therein (including the proposed form of the Letter of Credit or change thereto), and shall be irrevocable and binding on the Borrower. If the Issuing Bank accepts the Letter of Credit Application or Letter of Credit Application Amendment, the Issuing Bank shall give prompt notice thereof to the Agent, and the Agent shall promptly inform the Banks of the proposed Letter of Credit or change thereto. Subject to the satisfaction of all applicable conditions precedent, the Issuing Bank shall before close of business on the date requested by the Borrower for the issuance, increase, or extension of such Letter of Credit issue, increase, or extend such Letter of Credit to the specified beneficiary. Upon the date of the issuance, increase, or extension of a Letter of Credit, the Issuing Bank shall be deemed to have sold to each other Bank and each other Bank shall be deemed to have purchased from the Issuing Bank a ratable participation in the related Letter of Credit or change thereto. The Issuing Bank shall notify the Agent of each Letter of Credit issued, increased, or extended and the date and amount of each Bank's participation in such Letter of Credit, and the Agent shall in turn notify the Banks. -20- 25 (c) Reimbursements for Letters of Credit. With respect to any Letter of Credit and in accordance with the related Letter of Credit Application, the Borrower agrees to pay to the Issuing Bank on demand of the Issuing Bank any amount due to the Issuing Bank under such Letter of Credit Application (provided that fees due with respect to such Letter of Credit shall be payable as specified in Section 2.3(b)). If the Borrower does not pay upon demand of the Issuing Bank any amount due to the Issuing Bank under any Letter of Credit Application, in addition to any rights the Issuing Bank may have under such Letter of Credit Application, the Issuing Bank may upon written notice to the Agent request the satisfaction of such obligation by the making of a Revolving Loan Borrowing. Upon such request, the Borrower shall be deemed to have requested the making of a Revolving Loan Borrowing in the amount of such obligation and the transfer of the proceeds thereof to the Issuing Bank. Such Revolving Loan Borrowing shall be comprised of a Base Rate Tranche. The Agent shall promptly forward notice of such Revolving Loan Borrowing to the Borrower and the Banks, and each Bank shall, in accordance with the procedures of Section 2.1(b), other than limitations on the size of Revolving Loan Borrowings, and notwithstanding the failure of any conditions precedent, make available such Bank's ratable share of such Revolving Loan Borrowing to the Agent, and the Agent shall promptly deliver the proceeds thereof to the Issuing Bank for application to such Bank's share of the obligations under such Letter of Credit. The Borrower hereby unconditionally and irrevocably authorizes, empowers, and directs the Issuing Bank to make such requests for Revolving Loan Borrowings on behalf of the Borrower, and the Banks to make Revolving Loan Advances to the Agent for the benefit of the Issuing Bank in satisfaction of such obligations. The Agent and each Bank may record and otherwise treat the making of such Revolving Loan Borrowings as the making of Revolving Loan Borrowings to the Borrower under this Agreement as if requested by the Borrower. Nothing herein is intended to release the Borrower's obligations under any Letter of Credit Application, but only to provide an additional method of payment therefor. The making of any Revolving Loan Borrowing under this Section 2.2(c) shall not constitute a cure or waiver of any Default or Event of Default caused by the Borrower's failure to comply with the provisions of this Agreement or any Letter of Credit Application. (d) Prepayments of Letters of Credit. In the event that any Letters of Credit shall be outstanding according to their terms after the Revolving Loan Maturity Date, the Borrower shall pay to the Agent an amount equal to the Letter of Credit Exposure allocable to such Letters of Credit to be held in the Letter of Credit Collateral Account and applied in accordance with paragraph (g) below. (e) Obligations Unconditional. The obligations of the Borrower and each Bank under this Agreement and the Letter of Credit Applications to make payments as required to reimburse the Issuing Bank for draws under Letters of Credit and to make other payments due in respect of Letters of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and the Letter of Credit Applications under all circumstances, including: (i) any lack of validity or enforceability of any -21- 26 Letter of Credit Document; (ii) any amendment, waiver, or consent to departure from any Letter of Credit Document; (iii) the existence of any claim, set-off, defense, or other right which the Borrower or any Bank may have at any time against any beneficiary or transferee of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Bank, or any other person or entity, whether in connection with the transactions contemplated in this Agreement or any unrelated transaction; (iv) any statement or any other document presented under such Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or (v) payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit; provided, however, that nothing contained in this paragraph (d) shall be deemed to constitute a waiver of any remedies of the Borrower or any Bank in connection with the Letters of Credit or the Borrower's or such Bank's rights under paragraph (f) below. (f) Liability of Issuing Bank. The Issuing Bank shall not be liable or responsible for: (i) the use which may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (ii) the validity, sufficiency, or genuineness of documents related to Letters of Credit, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent, or forged; (iii) payment by the Issuing Bank against presentation of documents which do not strictly comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the relevant Letter of Credit; or (iv) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit (INCLUDING THE ISSUING BANK'S OWN NEGLIGENCE); except that the Issuing Bank shall be liable to the Borrower or any Bank to the extent of any direct, as opposed to consequential, damages suffered by the Borrower or such Bank which the Borrower or such Bank proves were caused by (A) the Issuing Bank's gross negligence or willful misconduct in determining whether documents presented under a Letter of Credit comply with the terms of such Letter of Credit or (B) the Issuing Bank's willful failure to make or delay in making lawful payment under any Letter of Credit after the presentation to it of documentation strictly complying with the terms and conditions of such Letter of Credit. (g) Letter of Credit Collateral Account. (i) If the Borrower is required to deposit funds in the Letter of Credit Collateral Account pursuant to Sections 2.2(d) or 6.4, then the Borrower and the Agent shall establish the Letter of Credit Collateral Account and the Borrower shall execute any documents and agreements, including the Agent's standard form assignment of deposit accounts, that the Agent requests in connection therewith to establish the Letter of Credit Collateral Account and grant the Agent a first priority security interest in such account and the funds therein. The Borrower hereby pledges to the Agent and grants the Agent a security interest in the Letter of Credit Collateral Account, whenever established, all funds held in the -22- 27 Letter of Credit Collateral Account from time to time, and all proceeds thereof as security for the payment of the Obligations. (ii) Funds held in the Letter of Credit Collateral Account shall be held as cash collateral for obligations with respect to Letters of Credit and promptly applied by the Agent at the request of the Issuing Bank to any reimbursement or other obligations under Letters of Credit that exist or occur. To the extent that any surplus funds are held in the Letter of Credit Collateral Account above the Letter of Credit Exposure, during the existence of an Event of Default the Agent may (A) hold such surplus funds in the Letter of Credit Collateral Account as cash collateral for the Credit Obligations or (B) apply such surplus funds to any Credit Obligations in accordance with Section 6.9. If no Default exists, the Agent shall release to the Borrower at the Borrower's written request any funds held in the Letter of Credit Collateral Account above the amounts required by Section 2.2(d). (iii) Funds held in the Letter of Credit Collateral Account shall be invested in money market funds of the Agent or in another investment if mutually agreed upon by the Borrower and the Agent, but the Agent shall have no other obligation to make any other investment of the funds therein. The Agent shall exercise reasonable care in the custody and preservation of any funds held in the Letter of Credit Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Agent accords its own property, it being understood that the Agent shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any such funds. (h) Existing Letters of Credit. There are no existing letters of credit. 2.3 Fees. (a) Unused Revolving Loan Commitment Fees. The Borrower shall pay to the Agent for the ratable benefit of the Banks an unused commitment fee for each day in an amount equal to the product of the Applicable Margin for unused commitment fees in effect from time to time multiplied by the amount by which (i) the aggregate amount of the Revolving Loan Commitments exceeds (ii) the aggregate outstanding principal amount of the Revolving Loan plus the Letter of Credit Exposure. The unused commitment fee shall be due and payable in arrears on the last day of each calendar quarter and the Revolving Loan Maturity Date. (b) Fees for Letters of Credit. For each Letter of Credit issued by the Issuing Bank, the Borrower shall pay to the Agent for the ratable benefit of the Banks a letter of credit fee equal to the Applicable Margin for letter of credit fees per annum on the face amount of such Letter of Credit for the stated term of such Letter of Credit. In addition, for each Letter of Credit issued by the Issuing Bank, the Borrower shall pay to the Agent for the benefit of the Issuing Bank a fronting fee of 0.125% per annum on the face amount of such -23- 28 Letter of Credit for the stated term of such Letter of Credit, with a minimum fee of $400. The Borrower shall pay such letter of credit fees for each Letter of Credit quarterly in arrears within ten days after when billed therefor by the Issuing Bank. (c) Agent Fee Letter. The Borrower shall pay to the Agent the fees and other amounts payable under the Agent Fee Letter. 2.4 Interest. (a) Election of Interest Rate Basis. The Borrower may select the interest rate basis for the Revolving Loan in accordance with the terms of this Section 2.4(a): (i) Under the Revolving Loan Borrowing Request provided to the Agent in connection with the making of each Revolving Loan Borrowing, the Borrower shall select the amount and the Type of the Tranches, and for each LIBOR Tranche selected, any permitted Interest Period for each such LIBOR Tranche, which will comprise such Revolving Loan Borrowing, provided that (A) at no time shall there be more than five separate LIBOR Tranches outstanding and (B) each Tranche must be in a principal amount equal to or greater than the Minimum Tranche Amount and be made in multiples of the Minimum Tranche Multiple. Such interest rate elections must be provided to the Agent in writing or by telecopy not later than 1:00 p.m. (local time at the Applicable Lending Office of the Agent) on the third Business Day before the date of any proposed Revolving Loan Borrowing comprised of a LIBOR Tranche or 11:00 a.m. (local time at the Applicable Lending Office of the Agent) on the same day of any proposed Revolving Loan Borrowing comprised solely of a Base Rate Tranche. The Agent shall promptly forward copies of such interest rate elections to the Banks. In the case of any Revolving Loan Borrowing comprised of a LIBOR Tranche, upon determination by the Agent, the Agent shall promptly notify the Borrower and the Banks of the applicable interest rate for such Tranche. (ii) With respect to any Tranche, the Borrower may continue or convert any portion of any LIBOR Tranche or Base Rate Tranche to form new LIBOR Tranches or Base Rate Tranches in accordance with this paragraph. Each such continuation or conversion shall be deemed to create a new Tranche for all purposes of this Agreement. Each such continuation or conversion shall be made pursuant to a Continuation/Conversion Request given by the Borrower to the Agent in writing or by telecopy not later than 2:00 p.m. (local time at the Applicable Lending Office of the Agent) on the third Business Day before the date of the proposed continuation or conversion. Each Continuation/Conversion Request shall be fully completed and shall specify the information required therein, and shall be irrevocable and binding on the Borrower. The Agent shall promptly forward notice of the continuation or conversion to the Banks. In the case of any continuation or conversion into LIBOR Tranches, upon determination by the Agent, the Agent shall notify the Borrower and the Banks of the applicable interest rate. Continuations and conversions of Tranches shall be made in integral multiples of the Minimum Tranche Multiple. No continuation or conversion -24- 29 shall be permitted if such continuation or conversion would cause the aggregate outstanding principal amount of any LIBOR Tranche which would remain outstanding or the aggregate outstanding principal amount of all Base Rate Tranches which would remain outstanding to be less than the Minimum Tranche Amount. At no time shall there be more than five separate LIBOR Tranches outstanding. Any conversion of an existing LIBOR Tranche is subject to Section 2.5. Subject to the satisfaction of all applicable conditions precedent, the Agent and the Banks shall before close of business on the date requested by the Borrower for the continuation or conversion, make such continuation or conversion. (iii) At the end of the Interest Period for any LIBOR Tranche if the Borrower has not continued or converted such LIBOR Tranche into new Tranches as provided for in paragraph (ii) above, the Borrower shall be deemed to have continued such LIBOR Tranche as a new LIBOR Tranche with an Interest Period of one month. Each Base Rate Tranche shall continue as a Base Rate Tranche unless the Borrower converts such Base Rate Tranche as provided for in paragraph (ii) above. (b) LIBOR Tranches. Each LIBOR Tranche shall bear interest during its Interest Period at a per annum interest rate equal to the sum of the LIBOR for such Tranche plus the Applicable Margin for LIBOR Tranches in effect from time to time. The Borrower shall pay to the Agent for the ratable benefit of the Banks all accrued but unpaid interest on each LIBOR Tranche on the last day of the applicable Interest Period for such LIBOR Tranche (and with respect to LIBOR Tranches with Interest Periods of greater than three months, on the date which is three months after the first date of the Interest Period for such LIBOR Tranche), when required upon prepayment as specified elsewhere in this Agreement, on any date when such LIBOR Tranche is prepaid in full, and on the Revolving Loan Maturity Date. (c) Base Rate Tranches. Each Base Rate Tranche shall bear interest at a per annum interest rate equal to the Adjusted Base Rate in effect from time to time plus the Applicable Margin for Base Rate Tranches in effect from time to time. The Borrower shall pay to the Agent for the ratable benefit of the Banks all accrued but unpaid interest on outstanding Base Rate Tranches on the last day of each calendar quarter, when required upon prepayment as specified elsewhere in this Agreement, on any date all Base Rate Tranches are prepaid in full, and on the Revolving Loan Maturity Date. (d) Usury Protection. (i) If, with respect to any Bank and the Borrower, the effective rate of interest contracted for by such Bank with the Borrower under the Credit Documents, including the stated rates of interest contracted for hereunder and any other amounts contracted for under the Credit Documents which are deemed to be interest, at any time exceeds the Highest Lawful Rate, then the outstanding principal amount of the loans made by such Bank to the Borrower hereunder shall bear interest at a rate which would make the -25- 30 effective rate of interest on the loans made by such Bank to the Borrower under the Credit Documents equal the Highest Lawful Rate until the difference between the amounts which would have been due by the Borrower to such Bank at the stated rates and the amounts which were due by the Borrower to such Bank at the Highest Lawful Rate (the "Lost Interest") has been recaptured by such Bank. If, when the loans made hereunder are repaid in full, the Lost Interest has not been fully recaptured by such Bank pursuant to the preceding paragraph, then, to the extent permitted by law, the interest rates charged by such Bank to the Borrower hereunder shall be retroactively increased such that the effective rate of interest on the loans made by such Bank to the Borrower under the Credit Documents was at the Highest Lawful Rate since the effectiveness of this Agreement to the extent necessary to recapture the Lost Interest not recaptured pursuant to the preceding sentence and, to the extent allowed by law, the Borrower shall pay to such Bank the amount of the Lost Interest remaining to be recaptured by such Bank. (ii) In calculating all sums paid or agreed to be paid to any Bank by the Borrower for the use, forbearance, or detention of money under the Credit Documents, such amounts shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread in equal parts throughout the term of the Credit Documents. (iii) NOTWITHSTANDING THE FOREGOING OR ANY OTHER TERM IN THIS AGREEMENT AND THE CREDIT DOCUMENTS TO THE CONTRARY, it is the intention of each Bank and the Borrower to conform strictly to any applicable usury laws. Accordingly, if any Bank contracts for, charges, or receives any consideration from the Borrower which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be canceled automatically and, if previously paid, shall at such Bank's option be applied to the outstanding amount of the loans made hereunder by such Bank to the Borrower or be refunded to the Borrower. 2.5 Breakage Costs. If (i) any payment of principal on or any conversion of any LIBOR Tranche is made on any date other than the last day of the Interest Period for such LIBOR Tranche, whether as a result of any voluntary or mandatory prepayment, any acceleration of maturity, or any other cause, (ii) any payment of principal on any LIBOR Tranche is not made when due, or (iii) any LIBOR Tranche is not borrowed, converted, or prepaid in accordance with the respective notice thereof provided by the Borrower to the Agent, whether as a result of any failure to meet any applicable conditions precedent for borrowing, conversion, or prepayment, the permitted cancellation of any request for borrowing, conversion, or prepayment, the failure of the Borrower to provide the respective notice of borrowing, conversion, or prepayment, or any other cause not specified above which is created by the Borrower, then the Borrower shall pay to each Bank upon demand any amounts required to compensate such Bank for any losses, costs, or expenses, including lost profits and administrative expenses, which are reasonably allocable to such action, including losses, costs, and expenses related to the liquidation or redeployment of funds acquired or designated by such Bank to fund or maintain such Bank's ratable share of such LIBOR -26- 31 Tranche or related to the reacquisition or redesignation of funds by such Bank to fund or maintain such Bank's ratable share of such LIBOR Tranche following any liquidation or redeployment of such funds caused by such action. Such Bank need not prove matched funding of any particular funds, and a certificate as to the amount of such loss, cost, or expense detailing the calculation thereof and certifying that such Bank customarily charges such amounts to its other customers in similar circumstances submitted by such Bank to the Borrower shall be conclusive and binding for all purposes, absent manifest error. 2.6 Increased Costs. (a) Cost of Funds. If due to either (i) any introduction of, change in, or change in the interpretation of any law or regulation after the date of this Agreement or (ii) compliance with any guideline or request from any central bank or other governmental authority having appropriate jurisdiction (whether or not having the force of law) given after the date of this Agreement, there shall be any increase in the costs of any Bank allocable to (x) committing to make any Revolving Loan Advance or obtaining funds for the making, funding, or maintaining of such Bank's ratable share of any LIBOR Tranche in the relevant interbank market or (y) committing to make Letters of Credit or issuing, funding, or maintaining Letters of Credit (including any increase in any applicable reserve requirement specified by the Federal Reserve Board, including those for emergency, marginal, supplemental, or other reserves), then the Borrower shall pay to such Bank upon demand any amounts required to compensate such Bank for such increased costs, such amounts being due and payable upon demand by such Bank. A certificate as to the cause and amount of such increased cost detailing the calculation of such cost and certifying that such Bank customarily charges such amounts to its other customers in similar circumstances submitted by such Bank to the Borrower shall be conclusive and binding for all purposes, absent manifest error. No Bank may make any claim for compensation under this Section 2.6(a) for increased costs incurred before 90 days prior to the delivery of any such certificate. Each Bank agrees to use commercially reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such designation would avoid or reduce the effect of this paragraph and would not, in the reasonable judgment of the Bank, be otherwise disadvantageous to such Bank. (b) Capital Adequacy. If, due to either (i) any introduction of, change in, or change in the interpretation of any law or regulation after the date of this Agreement or (ii) compliance with any guideline or request from any central bank or other governmental authority having appropriate jurisdiction (whether or not having the force of law) given after the date of this Agreement, there shall be any increase in the capital requirements of any Bank or its parent or holding company allocable to (x) committing to make Revolving Loan Advances or making, funding, or maintaining Revolving Loan Advances or (y) committing to make Letters of Credit or issuing, funding, or maintaining Letters of Credit, as such capital requirements are allocated by such Bank, then the Borrower shall pay to such Bank upon demand any amounts required to compensate such Bank or its parent or holding company for -27- 32 such increase in costs (including an amount equal to any reduction in the rate of return on assets or equity of such Bank or its parent or holding company), such amounts being due and payable upon demand by such Bank. A certificate as to the cause and amounts detailing the calculation of such amounts and certifying that such Bank customarily charges such amounts to its other customers in similar circumstances submitted by such Bank to the Borrower shall be conclusive and binding for all purposes, absent manifest error. No Bank may make any claim for compensation under this Section 2.7(b) for increased costs incurred before 90 days prior to the delivery of any such certificate. 2.7 Illegality. Notwithstanding any other provision in this Agreement, if it becomes unlawful for any Bank to obtain deposits or other funds for making or funding such Bank's ratable share of any LIBOR Tranche in the relevant interbank market, such Bank shall so notify the Borrower and the Agent and such Bank's commitment to create LIBOR Tranches shall be suspended until such condition has passed, all LIBOR Tranches applicable to such Bank shall be converted to Base Rate Tranches as of the end of each applicable Interest Period or earlier if necessary, and all subsequent requests for LIBOR Tranches shall be deemed to be requests for Base Rate Tranches with respect to such Bank. Each Bank agrees to use commercially reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such designation would avoid or reduce the effect of this paragraph and would not, in the reasonable judgment of the Bank, be otherwise disadvantageous to such Bank. 2.8 Market Failure. Notwithstanding any other provision in this Agreement, if the Agent determines that: (a) quotations of interest rates for the relevant deposits referred to in the definition of "LIBOR" are not being provided in the relevant amounts, or maturities for purposes of determining the rate of interest referred to in the definition of "LIBOR" or (b) the relevant rates of interest referred to in the definition of "LIBOR" which are used as the basis to determine the rate of interest for LIBOR Tranches are not likely to adequately cover the cost to any Bank of making or maintaining such Bank's ratable share of any LIBOR Tranche, then if the Agent so notifies the Borrower, the Agent and the Banks' commitment to create LIBOR Tranches shall be suspended until such condition has passed, all LIBOR Tranches shall be converted to Base Rate Tranches as of the end of each applicable Interest Period or earlier if necessary, and all subsequent requests for LIBOR Tranches shall be deemed to be requests for Base Rate Tranches. 2.9 Payment Procedures and Computations. (a) Payment Procedures. Time is of the essence in this Agreement and the Credit Documents. All payment hereunder shall be made in Dollars. The Borrower shall make each payment under this Agreement and under the Revolving Loan Notes not later than 12:00 noon (local time at the Applicable Lending Office of the Agent) on the day when due to the Agent at the Agent's Applicable Lending Office in immediately available funds. All payments by the Borrower hereunder shall be made without any offset, abatement, -28- 33 withholding, or reduction. Upon receipt of payment from the Borrower of any principal, interest, or fees due to the Banks, the Agent shall promptly after receipt thereof distribute to the Banks their ratable share of such payments for the account of their respective Applicable Lending Offices. If and to the extent that the Agent shall not have so distributed to any Bank its ratable share of such payments, the Agent agrees that it shall pay interest on such amount for each day after the day when such amount is made available to the Agent by the Borrower until the date such amount is paid to such Bank by the Agent at the Federal Funds Rate in effect from time to time, provided that if such amount is not paid by the Agent by the end of the third day after the Borrower makes such amount available to the Agent, the interest rates specified above shall be increased by a per annum amount equal to 2.00% on the fourth day and shall remain at such increased rate thereafter. Interest on such amount shall be due and payable by the Agent upon demand by such Bank. Upon receipt of other amounts due solely to the Agent, the Issuing Bank, or a specific Bank, the Agent shall distribute such amounts to the appropriate party to be applied in accordance with the terms of this Agreement. (b) Agent Reliance. Unless the Agent shall have received written notice from the Borrower prior to any date on which any payment is due to the Banks that the Borrower shall not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such date an amount equal to the amount then due such Bank. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank, together with interest thereon from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at an interest rate equal to, the Federal Funds Rate in effect from time to time, provided that with respect to such Bank, if such amount is not repaid by such Bank by the end of the second day after the date of the Agent's demand, the interest rates specified above shall be increased by a per annum amount equal to 2.00% on the third day after the date of the Agent's demand and shall remain at such increased rate thereafter. (c) Sharing of Payments. Each Bank agrees that if it should receive any payment (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) in respect of any obligation of the Borrower to pay principal, interest, fees, or any other obligation incurred under the Credit Documents in a proportion greater than the total amount of such principal, interest, fees, or other obligation then owed and due by the Borrower to such Bank bears to the total amount of principal, interest, fees, or other obligation then owed and due by the Borrower to all of the Banks immediately prior to such receipt, then such Bank receiving such excess payment shall purchase for cash without recourse from the other Banks an interest in the obligations of the Borrower to such Banks in such amount as shall result in a participation by all of the Banks, in proportion with the Banks' respective pro rata shares, in the aggregate unpaid amount of principal, interest, fees, or any such other obligation, as the case may be, owed by the -29- 34 Borrower to all of the Banks; provided that if all or any portion of such excess payment is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, in proportion with the Banks' respective pro rata shares, but without interest. (d) Authority to Charge Accounts. The Agent, if and to the extent payment owed to the Agent or any Bank is not made when due, may charge from time to time against any account of the Borrower with the Agent any amount so due. The Agent agrees promptly to notify the Borrower after any such charge and application made by the Agent provided that the failure to give such notice shall not affect the validity of such charge and application. (e) Interest and Fees. Unless expressly provided for in this Agreement, (i) all computations of interest based on the Prime Rate (including the Adjusted Base Rate, when applicable) shall be made on the basis of a 365/366 day year, as the case may be, (ii) all computations of interest based on the Federal Funds Rate (including the Adjusted Base Rate, when applicable) shall be made on the basis of a 360 day year, (iii) all computations of interest based upon the LIBOR shall be made on the basis of a 360 day year, and (iv) all computations of fees shall be made on the basis of a 360 day year, in each case for the actual number of days (including the first day, but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Agent of an interest rate or fee shall be conclusive and binding for all purposes, absent manifest error. (f) Payment Dates. Whenever any payment shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be. If the time for payment for an amount payable is not specified in this Agreement or in any other Credit Document, the payment shall be due and payable on demand by the Agent or the applicable Bank. 2.10 Taxes. (a) No Deduction for Certain Taxes. Any and all payments by the Borrower shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges, or withholdings, and all liabilities with respect thereto, other than taxes imposed on the income and franchise taxes imposed on the Agent, any Bank, or the Applicable Lending Office thereof by any jurisdiction in which any such entity is a citizen or resident or any political subdivision of such jurisdiction (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable to the Agent, any Bank, or the Applicable Lending Office thereof, (i) the sum payable shall be increased as may be necessary so that, after making all required deductions (including deductions applicable to additional sums -30- 35 payable under this Section 2.10), such Person receives an amount equal to the sum it would have received had no such deductions been made; (ii) the Borrower shall make such deductions; and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) Other Taxes. The Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges, or similar levies which arise from any payment made or from the execution, delivery, or registration of, or otherwise with respect to, this Agreement or the other Credit Documents (other than those which become due as a result of any Bank joining this Agreement as a result of any Assignment and Acceptance, which shall be paid by the Bank which becomes a Bank hereunder as a result of such Assignment and Acceptance). (c) Foreign Bank Withholding Exemption. Each Bank and Issuing Bank that is not incorporated under the laws of the United States of America or a state thereof agrees that it shall deliver to the Borrower and the Agent (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, certifying in each case that such Bank is entitled to receive payments under this Agreement and the Revolving Loan Notes payable to it, without deduction or withholding of any United States federal income taxes, (ii) if applicable, an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax, and (iii) any other governmental forms which are necessary or required under an applicable tax treaty or otherwise by law to reduce or eliminate any withholding tax, which have been reasonably requested by the Borrower. Each Bank which delivers to the Borrower and the Agent a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the next preceding sentence further undertakes to deliver to the Borrower and the Agent two further copies of the said letter and Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such letter or form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent letter and form previously delivered by it to the Borrower and the Agent, and such extensions or renewals thereof as may reasonably be requested by the Borrower and the Agent certifying in the case of a Form 1001 or 4224 that such Bank is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes. If an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any delivery required by the preceding sentence would otherwise be required which renders all such forms inapplicable or which would prevent any Bank from duly completing and delivering any such letter or form with respect to it and such Bank advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax, such Bank shall not be required to deliver such letter or forms. The Borrower shall withhold tax at the rate and in the manner required by the laws of the United States with respect to payments made to a -31- 36 Bank failing to provide the requisite Internal Revenue Service forms in a timely manner. Each Bank which fails to provide to the Borrower in a timely manner such forms shall reimburse the Borrower upon demand for any penalties paid by the Borrower as a result of any failure of the Borrower to withhold the required amounts that are caused by such Bank's failure to provide the required forms in a timely manner. 2.11 Replacement of Bank in Event of Adverse Condition. In the event the Borrower becomes obligated to pay additional amounts to any Bank pursuant to Section 2.06 or Section 2.10 as a result of any condition described in either Section, then, unless such Bank has theretofore taken steps to remove or cure, and has removed or cured, the conditions creating the cause for such obligation to pay such additional amounts, the Borrower may (i) designate another bank which is reasonably acceptable to the Agent (such bank being herein called a "Replacement Bank") to purchase the Notes of such Bank and such Bank's rights hereunder, without recourse to or warranty by, or expense to, such Bank for a purchase price equal to the outstanding principal amount of the Notes payable to such Bank plus any accrued but unpaid interest on such Notes and accrued but unpaid Commitment Fees in respect of that Bank's Commitment, and any breakage costs incurred by such Bank as a result of the replacement, and such other administrative costs as are incurred by the Bank as the result of such replacement, and upon such purchase, such Bank shall no longer be a party hereto or have any rights or obligations hereunder, other than those that expressly survive the termination of this Agreement, and the Replacement Bank shall succeed to the rights and obligations of such Bank hereunder. ARTICLE 3. CONDITIONS PRECEDENT. 3.1 Conditions Precedent to Initial Extensions of Credit. The obligation of each Bank to make the initial extension of credit under this Agreement, including the making of any Revolving Loan Advances, and the issuance of any Letters of Credit, shall be subject to the following conditions precedent: (a) Documents. The Borrower shall have delivered or shall have caused to be delivered the documents and other items listed on Exhibit F, together with any other documents reasonably requested by the Agent to document the agreements and intent of the Credit Documents, each in form and with substance satisfactory to the Agent. (b) Due Diligence. The Banks shall have completed and be satisfied with due diligence with respect to the Restricted Entities, BRC, and TSG, including due diligence regarding (i) executives and directors, litigation, tax, accounting, labor, insurance, and pension matters, (ii) real estate leases, debt agreements, and property ownership rights, and (iii) such other matters as the Banks deem appropriate. -32- 37 (c) Financial Statements. (i) The Borrower shall have delivered to the Agent a copy of each annual audit report of the Borrower for fiscal years 1994, 1995, and 1996, including therein the consolidated balance sheets of the Borrower as of the applicable fiscal year end and the consolidated statements of income, stockholders' equity, and cash flows for the Borrower for such fiscal year, setting forth the consolidated financial position and results of the Borrower for such fiscal year, prepared in accordance with generally accepted accounting principles consistently applied, and certified, without any qualification or limitation of the scope of the examination of matters relevant to the financial statements, by a nationally recognized certified public accounting firm. (ii) The Borrower shall have delivered to the Agent a copy of each audit report of BRC for fiscal years 1995 and 1996, including therein the consolidated balance sheets of BRC as of the applicable periods and the consolidated statements of income, stockholders' equity, and cash flows for BRC for such periods, setting forth the financial position and results of BRC for such periods, prepared in accordance with generally accepted accounting principles consistently applied, and certified, without any qualification or limitation of the scope of the examination of matters relevant to the financial statements, by a nationally recognized certified public accounting firm. The Borrower also shall have delivered to the Agent copies of the most recent Interim Financial Statements of BRC. (iii) The Borrower shall have delivered to the Agent a copy of each audit report of TSG for fiscal years 1995, 1996, and 1997, including therein the consolidated balance sheets of TSG as of the applicable periods and the consolidated statements of income, stockholders' equity, and cash flows for TSG for such periods, setting forth the financial position and results of TSG for such periods, prepared in accordance with generally accepted accounting principles consistently applied, and certified, without any qualification or limitation of the scope of the examination of matters relevant to the financial statements, by a nationally recognized certified public accounting firm. (iv) The Borrower shall have delivered a copy of the projected financial statements of the Borrower, including BRC and TSG, for fiscal years 1997, 1998, 1999, 2000, and 2001. (d) BRC and TSG Acquisition. The Borrower shall have delivered to the Agent and the Agent shall have approved the purchase agreements and other material documents regarding the acquisition of BRC and TSG, including Approval of the financing, liability, and transaction structure set forth therein. The Borrower shall have closed or, contemporaneously with the funding of the initial extension of credit under this Agreement, will close the Acquisition of BRC and TSG. -33- 38 (e) Material Adverse Change. No Material Adverse Change shall have occurred since September 30, 1997. No material adverse change shall have occurred (i) with respect to BRC since September 30, 1997, and (ii) with respect to TSG since October 31, 1997. (f) TPI and Swan Report. The Borrower shall have delivered to the Agent, and the Agent shall have approved a written report with respect to TPI and Swan disclosing all material contingent obligations of or liabilities of any sort of either TPI or Swan, including without limitation (i) the financial condition of each, (ii) suits, claims, actions or proceedings pending or to the Borrower's knowledge threatened against either, (iii) failure of either or both to comply by either with any federal, state, or local law, which failure could reasonably be expected to cause a material adverse change, and (iv) any failure of either or both to comply with any Environmental Laws where such failure could reasonably be expected to cause a material adverse change. 3.2 Conditions Precedent to Each Extension of Credit. The obligation of each Bank to make any extension of credit under this Agreement, including the making of any Revolving Loan Advances, and the issuance, increase, or extension of any Letters of Credit, shall be subject to the further conditions precedent that on the date of such extension of credit: (a) Representations and Warranties. As of the date of the making of any extension of credit hereunder, the representations and warranties contained in each Credit Document shall be true and correct in all material respects as of such date (and the Borrower's request for the making of any extension of credit hereunder shall be deemed to be a restatement, representation, and additional warranty of the representations and warranties contained in each Credit Document as of such date); and (b) Default. As of the date of the making of any extension of credit hereunder, there shall exist no Default or Event of Default, and the making of the extension of credit would not cause or be reasonably expected to cause a Default or Event of Default. ARTICLE 4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Agent and each Bank, and with each request for any extension of credit hereunder, including the making of any Revolving Loan Advances, and the issuance, increase, or extension of any Letters of Credit, again represents and warrants to the Agent and each Bank, as follows: 4.1 Organization. As of the date of this Agreement, each Restricted Entity (a) is duly organized, validly existing, and in good standing under the laws of such Person's respective jurisdiction of organization and (b) is duly licensed, qualified to do business, and in good standing in each jurisdiction in which such Person is organized, owns property, or conducts operations to the extent that any failure to be so licensed, qualified, or in good -34- 39 standing in accordance with this clause (b) could reasonably be expected to cause a Material Adverse Change. 4.2 Authorization. The execution, delivery, and performance by each Credit Party of the Credit Documents to which such Credit Party is a party and the consummation of the transactions contemplated thereby (a) do not contravene the organizational documents of such Credit Party, (b) have been duly authorized by all necessary corporate action of each Credit Party, and (c) are within each Credit Party's corporate powers. 4.3 Enforceability. Each Credit Document to which any Credit Party is a party has been duly executed and delivered by each Credit Party which is a party to such Credit Document and constitutes the legal, valid, and binding obligation of each such Credit Party, enforceable against each such Credit Party in accordance with such Credit Document's terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws at the time in effect affecting the rights of creditors generally and subject to the availability of equitable remedies. 4.4 Absence of Conflicts and Approvals. The execution, delivery, and performance by each Credit Party of the Credit Documents to which such Credit Party is a party and the consummation of the transactions contemplated thereby, (a) do not result in any violation or breach of any provisions of, or constitute a default under, any note, indenture, credit agreement, security agreement, credit support agreement, or other similar agreement to which such Credit Party is a party or any other material contract or agreement to which such Credit Party is a party, (b) do not violate any law or regulation binding on or affecting such Credit Party, (c) do not require any authorization, approval, or other action by, or any notice to or filing with, any governmental authority, and (d) do not result in or require the creation or imposition of any Lien prohibited by this Agreement. 4.5 Investment Companies. No Restricted Entity or Affiliate thereof is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4.6 Public Utilities. No Restricted Entity or Affiliate thereof is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. No Restricted Entity or Affiliate thereof is a regulated public utility. 4.7 Financial Condition. (a) The Borrower has delivered to the Agent the Financial Statements and Interim Financial Statements, and the Financial Statements and Interim Financial Statements are accurate and complete in all material respects and present fairly the financial condition of -35- 40 Borrower, BRC, and TSG, respectively, as of their respective dates and for their periods in accordance with generally accepted accounting principles. (b) As of the respective dates of the Interim Financial Statements and the Financial Statement of TSG, there were no material contingent obligations, liabilities for taxes, unusual forward or long-term commitments, or unrealized or anticipated losses of the Borrower, BRC, and TSG, respectively, or any of the Borrower's, BRC's, or TSG's respective Subsidiaries, except as (i) disclosed therein and adequate reserves for such items have been made in accordance with generally accepted accounting principles, or (ii) with respect to TPI and Swan, have been disclosed in a written report furnished by the Borrower to the Banks prior to the funding of the initial extension of credit under this Agreement. No Material Adverse Change has occurred since the respective dates of the Interim Financial Statements and the Financial Statement of TSG. No Default exists. 4.8 Condition of Assets. Each Restricted Entity has good and indefeasible title to substantially all of its owned property and valid leasehold rights in all of its leased property, as reflected in the financial statements most recently provided to the Agent free and clear of all Liens except Permitted Liens. Each Restricted Entity possesses and has properly approved, recorded, and filed, where applicable, all permits, licenses, patents, patent rights or licenses, trademarks, trademark rights, trade names rights, and copyrights which are useful in the conduct of its business and which the failure to possess could reasonably be expected to cause a Material Adverse Change. The material properties used or to be used in the continuing operations of each Restricted Entity are in good repair, working order, and condition, normal wear and tear excepted. The properties of each Restricted Entity have not been adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of property or cancellation of contracts, permits, or concessions by a governmental authority, riot, activities of armed forces, or acts of God or of any public enemy in any manner which (after giving effect to any insurance proceeds) could reasonably be expected to cause a Material Adverse Change. 4.9 Litigation. There are no actions, suits, or proceedings pending or, to the knowledge of the Borrower, threatened against any Restricted Entity at law, in equity, or in admiralty, or by or before any governmental department, commission, board, bureau, agency, instrumentality, domestic or foreign, or any arbitrator which could reasonably be expected to cause a Material Adverse Change except, with respect to TPI and Swan, those that have been disclosed in a written report furnished by the Borrower to the Banks prior to the funding of the initial extension of credit under this Agreement. 4.10 Subsidiaries. As of the date of this Agreement, the Borrower has no Subsidiaries except as disclosed in Schedule II. The Borrower has no Subsidiaries which have not been disclosed in writing to the Agent. -36- 41 4.11 Laws and Regulations. Each Restricted Entity has been and is in compliance with all federal, state, and local laws and regulations which are applicable to the operations and property of such Person where the failure to comply with the same could reasonably be expected to cause a Material Adverse Change except, with respect to TPI and Swan, those that have been disclosed in a written report furnished by the Borrower to the Banks prior to the funding of the initial extension of credit under this Agreement. 4.12 Environmental Compliance. Each Restricted Entity has been and is in compliance with all Environmental Laws and has obtained and is in compliance with all related permits necessary for the ownership and operation of any such Person's properties where the failure to be in compliance with the same could reasonably be expected to cause a Material Adverse Change. Each Restricted Entity has not received notice of and has not been investigated for any violation or alleged violation of any Environmental Law in connection with any such Person's presently or previously owned properties which currently threaten action or suggest liabilities which could reasonably be expected to cause a Material Adverse Change. Each Restricted Entity does not and has not created, handled, transported, used, or disposed of any Hazardous Materials on or about any such Person's properties (nor has any such Person's properties been used for those purposes); has never been responsible for the release of any Hazardous Materials into the environment in connection with any such Person's operations and has not contaminated any properties with Hazardous Materials; and does not and has not owned any properties contaminated by any Hazardous Materials, in each case in any manner which could reasonably be expected to cause a Material Adverse Change except, with respect to TPI and Swan, those that have been disclosed in a written report furnished by the Borrower to the Banks prior to the funding of the initial extension of credit under this Agreement. 4.13 ERISA. Each Restricted Entity and each of their respective Commonly Controlled Entities are in compliance with all provisions of ERISA to the extent that the failure to be in compliance could reasonably be expected to cause a Material Adverse Change. No Restricted Entity nor any of their respective Commonly Controlled Entities participates in or during the past five years has participated in any employee pension benefit plan covered by Title IV of ERISA or any multiemployer plan under Section 4001(a)(3) of ERISA. With respect to the Plans of the Restricted Entities, no Material Reportable Event or Prohibited Transaction has occurred and exists that could reasonably be expected to cause a Material Adverse Change. 4.14 Taxes. Each Restricted Entity has filed all United States federal, state, and local income tax returns and all other domestic and foreign tax returns which are required to be filed by such Person and has paid, or provided for the payment before the same became delinquent of, all taxes due pursuant to such returns or pursuant to any assessment received by such Person except for tax payments being contested in good faith for which adequate reserves have been established and reported in accordance with generally accepted accounting principles which could not reasonably be expected to cause a Material Adverse Change. The -37- 42 charges, accruals, and reserves on the books of the Restricted Entities in respect of taxes are adequate in accordance with generally accepted accounting principles. 4.15 True and Complete Disclosure. All factual information furnished by or on behalf of any Credit Party in writing to the Agent or any Bank in connection with the Credit Documents and the transactions contemplated thereby is true and accurate in all material respects on the date as of which such information was dated or certified and does not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements contained therein not misleading. All projections, estimates, and pro forma financial information furnished by any Credit Party were prepared on the basis of assumptions, data, information, tests, or conditions believed to be reasonable at the time such projections, estimates, and pro forma financial information were furnished. ARTICLE 5. COVENANTS. Until the Agent and the Banks receive irrevocable payment of the Credit Obligations and have terminated this Agreement and each other Credit Document, the Borrower shall comply with and cause compliance with the following covenants: 5.1 Organization. The Borrower shall cause each Restricted Entity to (a) maintain itself as an entity duly organized, validly existing, and in good standing under the laws of such Person's respective jurisdiction of organization and (b) be duly licensed, qualified to do business, and in good standing in each jurisdiction in which such Person is organized, owns property, or conducts operations and which requires such licensing or qualification where failure to be so licensed, qualified, or in good standing as required by this clause (b) could reasonably be expected to cause a Material Adverse Change; provided, however, that nothing in this Section 5.1 shall be interpreted to be violated as a result of a transaction permitted by Section 5.9. 5.2 Reporting. The Borrower shall furnish to the Agent all of the following: (a) Annual Reports. As soon as available and in any event not later than 90 days after the end of each fiscal year of the Borrower, (i) a copy of the annual audit report for such fiscal year for the Borrower, including therein the consolidated balance sheets of the Borrower as of the end of such fiscal year and the consolidated statements of income, stockholders' equity, and cash flows for the Borrower for such fiscal year, setting forth the consolidated financial position and results of the Borrower for such fiscal year and certified, without any qualification or limitation of the scope of the examination of matters relevant to the financial statements, by a nationally recognized certified public accounting firm, (ii) a copy of the internally prepared consolidating financial schedules of the Borrower from which the consolidated financial statements of the Borrower provided to the Agent pursuant to clause (i) were prepared, (iii) a completed Compliance Certificate duly certified by a Responsible Officer of the Borrower, and (iv) to the extent required by the Borrower, an Acquisition EBITDA Certificate; -38- 43 (b) Quarterly Reports. As soon as available and in any event not later than 45 days after the end of each of the first three fiscal quarters during any fiscal year, (i) a copy of the internally prepared consolidated financial statements of the Borrower for such fiscal quarter and for the fiscal year to date period ending on the last day of such fiscal quarter, including therein the consolidated balance sheets of the Borrower as of the end of such fiscal quarter and the consolidated statements of income, and cash flows for such fiscal quarter and for such fiscal year to date period, setting forth the consolidated financial position and results of the Borrower for such fiscal quarter and fiscal year to date period, all in reasonable detail and duly certified by a Responsible Officer of the Borrower as having been prepared in accordance with generally accepted accounting principles (subject to normal year-end audit adjustments), (ii) a copy of the internally prepared consolidating financial schedules of the Borrower from which the consolidated financial statements of Borrower provided to the Agent pursuant to clause (i) were prepared, (iii) a completed Compliance Certificate duly certified by a Responsible Officer of the Borrower, (iv) an environmental report on Jersey- Tyler Foundry facility operated by Jersey-Tyler Foundry Company between 1969 and 1977, which report shall supplement the report required pursuant to Section 3.1(f) and be satisfactory to the Agent in form, and (v) to the extent required by the Borrower, an Acquisition EBITDA Certificate; (c) Acquisition Information. As soon as available prior to the closing of any Acquisition for which the aggregate, non-equity purchase price exceeds $5,000,000 but in any event at least 21 days prior to the closing of the Acquisition, (i) financial statements for the acquired assets for the two most recently completed fiscal years, including complete income and cash flow reports, prepared by an independent certified public accountant in accordance with generally accepted accounting principles consistently applied; (ii) projected cash flow reports for the acquired assets for the succeeding four fiscal quarters, adjusted for known changes (detail provided); (iii) (A) proforma consolidated historical financial statements for the most recently ended four fiscal quarters of the Borrower reflecting the proforma consolidated results and status of the Borrower as if such Acquisition had occurred prior to the beginning of such period and (B) a revised Compliance Certificate reflecting such proforma information, in each case prepared in accordance with the requirements of Section 1.3(c) regarding proforma historical financial information to reflect the consolidated status and results of the Borrower as if such Acquisition had occurred prior to the beginning of the applicable period and (iv) the acquisition documents regarding the acquired assets, including schedules reflecting litigation liabilities, environmental liabilities, and other assumed liabilities, and any other information regarding the acquired assets as the Agent may reasonably request. (d) SEC Filings. As soon as available and in any event not later than thirty days after the filing or delivery thereof, copies of all financial statements, reports, and proxy statements which the Borrower shall have sent to its stockholders generally and copies of all regular and periodic reports, if any, which any Restricted Entity shall have filed with the Securities and Exchange Commission; -39- 44 (e) Defaults. Promptly, but in any event within five Business Days after the discovery thereof, a notice of any facts known to any Restricted Entity which constitute a Default, together with a statement of a Responsible Officer of the Borrower setting forth the details of such facts and the actions which the Borrower has taken and proposes to take with respect thereto (and the Agent shall, promptly upon receipt from the Borrower of a notice pursuant to this Section 5.2(e), forward a copy of such notice to each Bank); (f) Litigation. Promptly, but in any event within 10 Business Days after the commencement thereof, notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting any Restricted Entity which, if determined adversely, could reasonably be expected to cause a Material Adverse Change or any loss greater than $500,000; (g) Material Contingent Liabilities. Promptly, but in any event within 10 Business Days after acquiring knowledge thereof, notice of any contingent liabilities which could reasonably be expected to cause a Material Adverse Change or any contingent liability greater than $500,000; (h) Material Agreement Default. Promptly, but in any event within 10 Business Days after obtaining knowledge thereof, notice of any breach by any Restricted Entity of any contract or agreement which breach could reasonably be expected to cause a Material Adverse Change; (i) Material Changes. Prompt written notice of any other condition or event of which any Restricted Entity has knowledge, which condition or event has resulted or could reasonably be expected to cause a Material Adverse Change; and (j) Other Information. Such other information respecting the business operations or property of any Restricted Entity, financial or otherwise, as the Agent or the Majority Banks may from time to time reasonably request. 5.3 Inspection. The Borrower shall cause each Restricted Entity to permit the Agent and the Banks to visit and inspect any of the properties of such Restricted Entity, to examine all of such Person's books of account, records, reports, and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances, and accounts with their respective officers, employees, and independent public accountants all at such reasonable times and as often as may be reasonably requested provided that the Borrower is given at least one Business Day advance notice thereof and reasonable opportunity to be present when independent public accountants or other third parties are contacted. 5.4 Use of Proceeds. The proceeds of the Revolving Loan Borrowings shall be used by the Borrower for Acquisitions, working capital needs, refinancing existing indebtedness, Capital Expenditures, and for other lawful corporate purposes. The Borrower -40- 45 shall not, directly or indirectly, use any part of such proceeds for any purpose which violates, or is inconsistent with, Regulations G, T, U, or X of the Board of Governors of the Federal Reserve System. 5.5 Financial Covenants. The Agent shall determine compliance with the following financial covenants based upon the most recent Compliance Certificate delivered to the Agent pursuant to Section 5.2(a) or Section 5.2(b). (a) Net Worth. The Borrower shall not permit the consolidated Net Worth of the Borrower as of the last day of each fiscal quarter to be less than the sum of (i) 90% of the consolidated Net Worth of the Borrower as of December 31, 1997, plus (ii) 50% of the quarterly consolidated net income of the Borrower for each fiscal quarter ending after such date during which the Borrower has positive consolidated net earnings; plus (iii) 100% of the net proceeds resulting from any sale or issuance of any stock of the Borrower or its Subsidiaries since December 31, 1997, plus (iv) to the extent that the required consolidated Net Worth under this Section 5.5(a) was not increased in clauses (i) through (iii) above as a result of any Acquisition, 100% of any increase in the consolidated Net Worth of the Borrower resulting from any Acquisition. (b) Debt Ratio. As of the last day of each fiscal quarter of the Borrower, the Borrower shall not permit the ratio of (i) the consolidated Debt of the Borrower as of end of the fiscal quarter then most recently ended to (ii) the consolidated EBITDA of the Borrower for the four fiscal quarters then most recently ended, to be greater than 3.00 to 1.00. If any Compliance Certificate presented by the Borrower does not fully reflect the EBITDA effects of any Acquisition that has occurred prior to the end of the applicable period covered by such Compliance Certificate, and if the addition of the EBITDA of such Acquisition was expressly approved in writing by the Majority Banks for use in determining the above ratio, then the Borrower may supplement such Compliance Certificate with an Acquisition EBITDA Certificate provided to the Agent with such Compliance Certificate, and the Agent shall determine the above ratio using the proforma historical consolidated EBITDA of the Borrower and the Acquisition set forth in the Acquisition EBITDA Certificate. (c) Fixed Charge Coverage Ratio. As of the last day of each fiscal quarter, the Borrower shall not permit the ratio of (i) the consolidated EBITDA of the Borrower for the preceding four fiscal quarters then ended less the consolidated tax expense of the Borrower during such period and less the consolidated Capital Expenditures of the Borrower during such period to (ii) the consolidated scheduled principal payments on long-term debt of the Borrower during such period plus the consolidated interest expense of the Borrower during such period (including the interest component of Capital Leases, but excluding any net effect of interest income) plus capitalized interest during such period plus the consolidated cash dividends paid by the Borrower during such period, to be less than the amounts set forth in the table below during the corresponding periods set forth in the table below. -41- 46
Period Minimum Ratio - ------ ------------- Prior to and including March 31, 1998 1.75 to 1.00 From April 1, 1998 to June 30, 1998 2.00 to 1.00 From July 1, 1998 and thereafter 2.25 to 1.00
5.6 Debt. (a) The Borrower shall not permit any Restricted Entity to create, assume, incur, suffer to exist, or in any manner become liable, directly, indirectly, or contingently in respect of, any Debt other than Permitted Debt. (b) The Borrower shall not permit any Restricted Entity to make any payment on or with respect to, or purchase, redeem, defease, or otherwise acquire or retire for value any amount of any Permitted Debt permitted pursuant to clause (b) of the definition of "Permitted Debt" prior to the stated due dates or maturities thereof. The Borrower shall not amend, supplement, or otherwise modify any of the terms or conditions of any such Permitted Debt (other than any such amendment, supplement, or modification which would extend the maturities of or reduce the amounts of any payments of principal, interest, fees, or other amounts, any modification which would render the terms of such Permitted Debt less restrictive, or any non-material administrative amendment which imposes no new restrictions). 5.7 Liens. (a) The Borrower shall not permit any Restricted Entity to create, assume, incur, or suffer to exist any Lien on any of its real or personal property whether now owned or hereafter acquired, or assign any right to receive its income, except for Permitted Liens. (b) Other than Permitted Liens, the Borrower shall not permit any Restricted Entity to be party to any agreement restricting the right of any Restricted Entity to pledge its assets to secure the Credit Obligations. 5.8 Other Obligations. (a) The Borrower shall not permit any Restricted Entity to create, incur, assume, or suffer to exist any obligations in respect of unfunded vested benefits under any pension Plan or deferred compensation agreement. (b) The Borrower shall not permit any Restricted Entity to create, incur, assume, or suffer to exist any obligations in respect of Derivatives, other than Derivatives used by any Restricted Entity in such Restricted Entity's respective business operations in aggregate notional quantities not to exceed the reasonably anticipated consumption of such -42- 47 Restricted Entity of the underlying commodity for the relevant period, but no Derivatives which are speculative in nature. 5.9 Corporate Transactions. The Borrower shall not, without the Agent's consent, permit any Restricted Entity to (a) merge, consolidate, or amalgamate with another Person, or liquidate, wind up, or dissolve itself (or take any action towards any of the foregoing), (b) convey, sell, lease, assign, transfer, or otherwise dispose of any of its property, businesses, or other assets outside of the ordinary course of business, or (c) make any Acquisition except that: (i) Any Subsidiary of the Borrower may merge, consolidate, or amalgamate into any wholly owned Subsidiary of the Borrower or convey, sell, lease, assign, transfer, or otherwise dispose of any of its assets to any wholly-owned Subsidiary of the Borrower (and if such disposition transfers all or substantially all of the assets of transferring Subsidiary, such subsidiary may then liquidate, wind up, or dissolve itself); provided that the wholly-owned Subsidiary is the surviving or acquiring Subsidiary; (ii) Any Subsidiary of the Borrower may merge, consolidate, or amalgamate with another Person with the other Person as the surviving entity or convey, sell, lease, assign, transfer, or otherwise dispose of any of its assets to another Person (and if such disposition transfers all or substantially all of the assets of transferring Subsidiary, such Subsidiary may then liquidate, wind up, or dissolve itself) provided that the result of such transaction would not cause the net book value of the assets of the Restricted Entities so merged out of the Subsidiaries of the Borrower or disposed of during any fiscal year of the Borrower to exceed 5.00% of the consolidated proforma net book value of the Borrower as of the end of the prior fiscal year of the Borrower (taking into account the effect of any Acquisitions since that date); and (iii) Any Subsidiary of the Borrower may make any Acquisition (by purchase or merger) provided that (A) the Subsidiary of the Borrower is the acquiring or surviving entity, (B) the aggregate non-equity consideration paid by the Restricted Entities in connection with any single Acquisition does not exceed $10,000,000, (C) the aggregate non- equity consideration paid by the Restricted Entities in connection with all Acquisitions (other than Acquisitions that have been expressly exempted from this requirement in writing by the Majority Banks) during any twelve months period does not exceed $30,000,000, (D) no Default or Event of Default exists and the Acquisition would not reasonably be expected to cause a Default or Event of Default (including any default under Section 5.5 with respect to historical and future proforma financial status and results), and (E) the transaction is not hostile, as reasonably determined by the Agent; -43- 48 (iv) Notwithstanding clauses (i) and (ii) of this Section 5.9, the Borrower may sell its Subsidiary, Forest City Auto Parts, Inc. (or substantially all of the assets thereof), upon 30 days prior written notice by the Borrower to the Lender, the completion of a Compliance Certificate by the Borrower, and the receipt by the Borrower of a purchase price of not less than $20,000,000. In connection with any mergers or dispositions described in paragraph (ii) or paragraph (iv) above, and provided that no Default or Event of Default exists or would be caused thereby, upon reasonable advance written notice from the Borrower of the intent to so merge or dispose of assets, (A) the Agent shall release at the Borrower's expense any obligations under the Guaranty of any Subsidiary so merged and the Lien of the Agent in any assets so disposed of and shall execute and deliver in favor of such Subsidiary any releases reasonably requested by the Borrower to evidence such release, and (B) in connection with the disposition described in paragraph (iv) above, the Borrower shall be permitted to receive and retain the proceeds of such disposition free and clear of the lien of the Pledge Agreement. 5.10 Distributions. Without the Approval of the Majority Banks, the Borrower shall not (a) declare or pay any dividends; (b) purchase, redeem, retire, or otherwise acquire for value any of its capital stock now or hereafter outstanding; or make any distribution of assets to its stockholders as such, whether in cash, assets, or in obligations of it; (c) allocate or otherwise set apart any sum for the payment of any dividend or distribution on, or for the purchase, redemption, or retirement of, any shares of its capital stock; or (d) make any other distribution by reduction of capital or otherwise in respect of any shares of its capital stock. 5.11 Transactions with Affiliates. The Borrower shall not permit any Restricted Entity to enter into any transaction directly or indirectly with or for the benefit of an Affiliate except transactions with an Affiliate for the leasing of property, the rendering or receipt of services, or the purchase or sale of inventory or other assets in the ordinary course of business if the monetary or business consideration arising from such a transaction would be substantially as advantageous to such Restricted Entity as the monetary or business consideration which such Restricted Entity would obtain in a comparable arm's length transaction. 5.12 Insurance. (a) The Borrower shall cause each Restricted Entity to maintain insurance with responsible and reputable insurance companies or associations reasonably acceptable to the Agent in such amounts and covering such risks as are usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which such Persons operate. Without limiting the foregoing, the Borrower shall maintain insurance coverage for the Restricted Entities equal to or better than, on an item by item basis for each item, the coverage for the Restricted Entities existing on the date of this Agreement. The Borrower shall deliver to the Agent certificates evidencing such policies or copies of such -44- 49 policies at the Agent's request following a reasonable period to obtain such certificates taking into account the jurisdiction where the insurance is maintained. (b) All policies representing liability insurance of the Restricted Entities shall name the Agent and the Banks as additional named insureds in a form satisfactory to the Agent. All proceeds of such liability insurance coverage for the Agent and the Banks shall be paid as directed by the Agent to indemnify the Agent or the applicable Bank for the liability covered. In the event that proceeds of property or liability insurance are paid to any Restricted Entity in violation of the foregoing, the Restricted Entity shall hold the proceeds in trust for the Agent, segregate the proceeds from the other funds of such Restricted Entity, and promptly pay the proceeds to the Agent with any necessary endorsement. The Agent shall have the right, but not the obligation, during the existence of an Event of Default, to make proof of loss under, settle and adjust any claim under, and receive the proceeds under the insurance, and the reasonable expenses incurred by the Agent in the adjustment and collection of such proceeds shall be paid by the Borrower. The Borrower irrevocably appoints the Agent as its attorney in fact to take such actions in its name. If the Agent does not take such actions, the Borrower may take such actions subject to the approval of any final action by the Agent. The Agent shall not be liable or responsible for failure to collect or exercise diligence in the collection of any proceeds. 5.13 Investments. The Borrower shall not permit any Restricted Entity to make or hold any direct or indirect investment in any Person, including capital contributions to the Person, investments in the debt or equity securities of the Person, and loans, guaranties, trade credit, or other extensions of credit to the Person, except for Permitted Investments. For the avoidance of doubt, the Borrower shall not make or hold any investment in any Subsidiary of the Borrower that is not a wholly owned Guarantor except as permitted under clause (a)(3) or clause (g) of the definition of "Permitted Investments." 5.14 Lines of Business. The Borrower shall not permit the Restricted Entities to change the character of their business as conducted on the date of this Agreement, or engage in any type of business not reasonably related to such business as presently and normally conducted except that the Borrower may enter into the lines of business carried on by BRC and TSG; provided that the Borrower may, in connection with a sale complying with Section 5.9 (iv), cease to conduct the lines of business carried on by Forest City Auto Parts, Inc. 5.15 Compliance with Laws. The Borrower shall cause each Restricted Entity to comply with all federal, state, and local laws and regulations which are applicable to the operations and property of such Persons where the failure to comply could reasonably be expected to cause a Material Adverse Change. 5.16 Environmental Compliance. The Borrower shall cause each Restricted Entity to comply with all Environmental Laws and obtain and comply with all related permits -45- 50 necessary for the ownership and operation of any such Person's properties where the failure to comply could reasonably be expected to cause a Material Adverse Change. The Borrower shall cause each Restricted Entity to promptly disclose to the Agent any notice to or investigation of such Persons for any violation or alleged violation of any Environmental Law in connection with any such Person's presently or previously owned properties which represent liabilities which could reasonably be expected to cause a Material Adverse Change. The Borrower shall not permit any Restricted Entity to create, handle, transport, use, or dispose of any Hazardous Materials on or about any such Person's properties; release any Hazardous Materials into the environment in connection with any such Person's operations or contaminate any properties with Hazardous Materials; or own properties contaminated by any Hazardous Materials, in each case except in compliance with all Environmental Laws and related permits and in such a manner that such actions could not reasonably be expected to cause a Material Adverse Change. 5.17 ERISA Compliance. The Borrower shall cause each Restricted Entity to (i) comply in all material respects with all applicable provisions of ERISA and prevent the occurrence of any Reportable Event or Prohibited Transaction with respect to, or the termination of, any of their respective Plans where the failure to do so could reasonably be expected to cause a Material Adverse Change and (ii) not create or participate in any employee pension benefit plan covered by Title IV of ERISA or any multiemployer plan under Section 4001(a)(3) of ERISA. 5.18 Payment of Certain Claims. The Borrower shall cause each Restricted Entity to pay and discharge, before the same shall become delinquent, (a) all taxes, assessments, levies, and like charges imposed upon any such Person or upon any such Person's income, profits, or property by authorities having competent jurisdiction prior to the date on which penalties attach thereto except for tax payments being contested in good faith for which adequate reserves have been established and reported in accordance with generally accepted accounting principles which could not reasonably be expected to cause a Material Adverse Change and (b) all trade payables and current operating liabilities, unless the same are less than 90 days past due or are being contested in good faith, have adequate reserves established and reported in accordance with generally accepted accounting principles, and could not reasonably be expected to cause a Material Adverse Change. 5.19 Subsidiaries. Upon the formation or acquisition of any new Subsidiary, the Borrower shall and shall cause such Subsidiary to promptly, but in any event within 30 days after the formation or acquisition of such new Subsidiary, execute and deliver to the Agent such guaranties, pledge agreements, amendment agreements and other documents and agreements as the Agent requests so that such Subsidiary guarantees and secures the Credit Obligations on the same terms as the existing Subsidiaries of the Borrower (including the execution and delivery of a Joinder Agreement in substantially the form of Exhibit G for the purpose of joining such Subsidiary as a party to the Guaranty or the execution of such new guaranties and pledge agreements as the Agent determines are necessary to have the same -46- 51 effect in different jurisdictions). In connection therewith and within 30 days after the formation or acquisition of such new Subsidiary, the Borrower shall provide corporate documentation and opinion letters reasonably satisfactory to the Agent reflecting the corporate status of such new Subsidiary of the Borrower and the enforceability of such agreements. If the combined revenues of the Subsidiaries of the Borrower that are not Guarantors exceed 5% of the consolidated revenues of the Borrower during any quarter, the Borrower shall cause a sufficient number of such non-guarantying Subsidiaries to execute guarantees, pledge agreements, and other agreements as if such non-guarantying Subsidiaries were newly acquired under this Section 5.19 to the extent necessary to reduce the revenues of the remaining non- guarantying Subsidiaries to less than 5% of the consolidated revenues of the Borrower for that quarter. Within 30 days of the termination of the Pledge Agreement and Guaranty dated as of July 31, 1997, by BRC and GRS in favor of Business Records Corporation, the Borrower shall cause (i) BRC to pledge the stock of GRS to secure the Credit Obligations and (ii) GRS to pledge the stock of Title Records Corporation to secure the Credit Obligations. ARTICLE 6. DEFAULT AND REMEDIES. 6.1 Events of Default. Each of the following shall be an "Event of Default" for the purposes of this Agreement and for each of the Credit Documents: (a) Payment Failure. The Borrower (i) fails to pay when due any principal amounts due under this Agreement or any other Credit Document or (ii) fails to pay when due any interest, fees, reimbursements, indemnifications, or other amounts due under this Agreement or any other Credit Document and such failure has not been cured within five Business Days; (b) False Representation. Any written representation or warranty made by any Credit Party or any Responsible Officer thereof in this Agreement or in any other Credit Document proves to have been false or erroneous in any material respect at the time it was made or deemed made; (c) Breach of Covenant. (i) Any breach by the Borrower of any of the covenants contained in Sections 5.1(a) (with respect to the Borrower), 5.2, 5.3, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, 5.13, 5.17, or 5.19 or (ii) any breach by any Credit Party of any other covenants contained in this Agreement, or any other Credit Document and such breach is not cured within 30 days following the earlier of knowledge of such breach by such Credit Party or the receipt of written notice thereof from the Agent; -47- 52 (d) Security and Support Documents. Any Security Document shall at any time and for any reason cease to create the Lien on the property purported to be subject to such agreement in accordance with the terms of such agreement, or cease to be in full force and effect, or shall be contested by any party thereto; (e) Guaranty. (i) the Guaranty shall at any time and for any reason cease to be in full force and effect with respect to any Guarantor (except as permitted under Section 5.9 hereof) or shall be contested by any Guarantor, or any Guarantor shall deny it has any further liability or obligation thereunder, or (ii) any breach by any Guarantor of any of the covenants contained in Sections 1.1 or 1.2 of the Guaranty; (f) Material Debt Default. (i) Any principal, interest, fees, or other amounts due on any Debt of any Restricted Entity (other than the Credit Obligations) is not paid when due, whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise, and such failure is not waived or cured within the applicable grace period, if any, and the aggregate amount of all Debt of such Persons so in default exceeds $1,000,000; (ii) any other event shall occur or condition shall exist under any agreement or instrument relating to any Debt of any such Person (other than the Credit Obligations) the effect of which is to accelerate or to permit the acceleration of the maturity of any such Debt, whether or not any such Debt is actually accelerated, and such event or condition shall not be waived or cured within the applicable grace period, if any, and the aggregate amount of all Debt of such Persons so in default exceeds $1,000,000; (iii) any Debt of any such Person shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled prepayment) prior to the stated maturity thereof, and the aggregate amount of all Debt of such Persons so accelerated exceeds $500,000; or (iv) there shall occur any "Event of Default" under any of the BRC Loan Documents; (g) Bankruptcy and Insolvency. (i) there shall have been filed against any Restricted Entity or any such Person's properties, without such Person's consent, any petition or other request for relief seeking an arrangement, receivership, reorganization, liquidation, or similar relief under bankruptcy or other laws for the relief of debtors and such request for relief (A) remains in effect for 60 or more days, whether or not consecutive, or (B) is approved by a final nonappealable order, or (ii) any such Person consents to or files any petition or other request for relief of the type described in clause (i) above seeking relief from creditors, makes any assignment for the benefit of creditors or other arrangement with creditors, or admits in writing such Person's inability to pay such Person's debts as they become due (the occurrence of any Event of Default under clause (i) or (ii) of this paragraph being a "Bankruptcy Event of Default"); (h) Adverse Judgment. The aggregate outstanding amount of judgments against the Restricted Parties not discharged or stayed pending appeal or other court action within 30 days following entry (i) is greater than 10% of the Borrower's consolidated Net Worth or (ii) could reasonably be expected to cause a Material Adverse Change; -48- 53 (i) TPI and Swan Report. The Agent shall, in its sole and absolute discretion, deem unsatisfactory any fact reported in or omitted from the report prepared by the Borrower pursuant to Section 3.1(f) or any supplement thereof pursuant to Section 5.2(b)(iv); or (j) Change of Control. There shall occur any Change of Control. 6.2 Termination of Revolving Loan Commitments. Upon the occurrence of any Bankruptcy Event of Default, all of the commitments of the Agent and the Banks hereunder shall terminate. During the existence of any Event of Default other than a Bankruptcy Event of Default, the Agent shall at the request of the Majority Banks declare by written notice to the Borrower all of the commitments of the Agent and the Banks hereunder terminated, whereupon the same shall immediately terminate. 6.3 Acceleration of Credit Obligations. Upon the occurrence of any Bankruptcy Event of Default, the aggregate outstanding principal amount of all loans made hereunder, all accrued interest thereon, and all other Credit Obligations shall immediately and automatically become due and payable. During the existence of any Event of Default other than a Bankruptcy Event of Default, the Agent shall at the request of the Majority Banks declare by written notice to the Borrower the aggregate outstanding principal amount of all loans made hereunder, all accrued interest thereon, and all other Credit Obligations to be immediately due and payable, whereupon the same shall immediately become due and payable. In connection with the foregoing, except for the notice provided for above, the Borrower waives notice of any Default or Event of Default, grace, notice of intent to accelerate, notice of acceleration, presentment, demand, notice of nonpayment, protest, and all other notices. 6.4 Cash Collateralization of Letters of Credit. Upon the occurrence of any Bankruptcy Event of Default, the Borrower shall pay to the Agent an amount equal to the Letter of Credit Exposure allocable to the Letters of Credit requested by the Borrower to be held in the Letter of Credit Collateral Account for disposition in accordance with Section 2.2(g). During the existence of any Event of Default other than a Bankruptcy Event of Default, the Agent shall at the request of the Majority Banks require by written notice to the Borrower that the Borrower pay to the Agent an amount equal to the Letter of Credit Exposure allocable to the Letters of Credit requested by the Borrower to be held in the Letter of Credit Collateral Account for disposition in accordance with Section 2.2(g), whereupon the Borrower shall pay to the Agent such amount for such purpose. 6.5 Default Interest. If any Event of Default exists, the Agent shall at the request of the Majority Banks declare by written notice to the Borrower that the Credit Obligations specified in such notice shall bear interest beginning on the date specified in such notice until paid in full at the applicable Default Rate for such Credit Obligations, whereupon the Borrower shall pay such interest to the Agent for the benefit of the Agent and the Banks, as applicable, upon demand by the Agent. -49- 54 6.6 Right of Setoff. During the existence of an Event of Default, the Agent and each Bank is hereby authorized at any time, to the fullest extent permitted by law, to set off and apply any indebtedness owed by the Agent or such Bank to the Borrower against any and all of the obligations of the Borrower under this Agreement and the Credit Documents, irrespective of whether or not the Agent or such Bank shall have made any demand under this Agreement or the Credit Documents and although such obligations may be contingent and unmatured. The Agent and each Bank, as the case may be, agrees promptly to notify the Borrower after any such setoff and application made by such party provided that the failure to give such notice shall not affect the validity of such setoff and application. 6.7 Actions Under Credit Documents. Following an Event of Default, the Agent shall at the request of the Majority Banks take any and all actions permitted under the other Credit Documents, including the Guaranty and the Security Documents. 6.8 Remedies Cumulative. No right, power, or remedy conferred to the Agent or the Banks in this Agreement and the Credit Documents, or now or hereafter existing at law, in equity, by statute, or otherwise, shall be exclusive, and each such right, power, or remedy shall to the full extent permitted by law be cumulative and in addition to every other such right, power, or remedy. No course of dealing and no delay in exercising any right, power, or remedy conferred to the Agent or the Banks in this Agreement and the Credit Documents, or now or hereafter existing at law, in equity, by statute, or otherwise, shall operate as a waiver of or otherwise prejudice any such right, power, or remedy. 6.9 Application of Payments. Prior to the Revolving Loan Maturity Date or any acceleration of the Credit Obligations, all payments made hereunder shall be applied to the Credit Obligations as directed by the Borrower, subject to the rules regarding the application of payments to certain Credit Obligations provided for hereunder and in the Credit Documents. Following the Revolving Loan Maturity Date or any acceleration of the Credit Obligations, all payments and collections shall be applied to the Credit Obligations in the following order: First, to the payment of the costs, expenses, reimbursements (other than reimbursement obligations with respect to draws under Letters of Credit), and indemnifications of the Agent that are due and payable under the Credit Documents; Then, ratably to the payment of the costs, expenses, reimbursements (other than reimbursement obligations with respect to draws under Letters of Credit), and indemnifications of the Banks that are due and payable under the Credit Documents; -50- 55 Then, ratably to the payment of all accrued but unpaid interest and fees and obligations under Interest Hedge Agreements due and payable under the Credit Documents; Then, ratably to the payment of all outstanding principal and reimbursement obligations for draws under Letters of Credit due and payable under the Credit Documents; Then, ratably to the payment of any other amounts due and owing with respect to the Credit Obligations; and Finally, any surplus held by the Agent and remaining after payment in full of all the Credit Obligations and reserve for Credit Obligations not yet due and payable shall be promptly paid over to the Borrower or to whomever may be lawfully entitled to receive such surplus. All applications shall be distributed in accordance with Section 2.9(a). ARTICLE 7. THE AGENT AND THE ISSUING BANK 7.1 Authorization and Action. Each Bank hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof and of the other Credit Documents, together with such powers as are reasonably incidental thereto. Statements under the Credit Documents that the Agent may take certain actions, without further qualification, means that the Agent may take such actions with or without the consent of the Banks or the Majority Banks, but where the Credit Documents expressly require the determination of the Banks or the Majority Banks, the Agent shall not take any such action without the prior written consent thereof. As to any matters not expressly provided for by this Agreement or any other Credit Document (including, without limitation, enforcement or collection of the Revolving Loan Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the written instructions of the Majority Banks, and such instructions shall be binding upon all Banks and all holders of Revolving Loan Notes; provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement, any other Credit Document, or applicable law. 7.2 Reliance, Etc. Neither the Agent, the Issuing Bank, nor any of their respective Related Parties (for the purposes of this Section 7.2, collectively, the "Indemnified Parties") shall be liable for any action taken or omitted to be taken by any Indemnified Party under or in connection with this Agreement or the other Credit Documents, INCLUDING ANY INDEMNIFIED PARTY'S OWN NEGLIGENCE, except for any Indemnified Party's gross negligence or willful misconduct. Without limitation of the generality of the foregoing, -51- 56 the Agent and the Issuing Bank: (a) may treat the payee of any Revolving Loan Note as the holder thereof until the Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent; (b) may consult with legal counsel (including counsel for the Borrower), independent public accountants, and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants, or experts; (c) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties, or representations made in or in connection with this Agreement or the other Credit Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants, or conditions of this Agreement or any other Credit Document on the part of the Credit Parties or to inspect the property (including the books and records) of the Credit Parties; (e) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement or any other Credit Document; and (f) shall incur no liability under or in respect of this Agreement or any other Credit Document by acting upon any notice, consent, certificate, or other instrument or writing (which may be by telecopier or telex) reasonably believed by it to be genuine and signed or sent by the proper party or parties. 7.3 Affiliates. With respect to its Revolving Loan Commitments, the Revolving Loan Advances made by it, its interests in the Letters of Credit, and the Revolving Loan Notes issued to it, the Agent and the Issuing Bank shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent. The term "Bank" or "Banks" shall, unless otherwise expressly indicated, include the Agent and the Issuing Bank in their individual capacity. The Agent, the Issuing Bank, and their respective Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, any Credit Party, and any Person who may do business with or own securities of any Credit Party, all as if the Agent were not an agent hereunder and the Issuing Bank were not the issuer of Letters of Credit hereunder and without any duty to account therefor to the Banks. 7.4 Bank Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank and based on the Financial Statements and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it shall, independently and without reliance upon the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. 7.5 Expenses. To the extent not paid by the Borrower, each Bank severally agrees to pay to the Agent and the Issuing Bank on demand such Bank's ratable share of the following: (a) all reasonable out-of-pocket costs and expenses of the Agent and the Issuing Bank in connection with the preparation, execution, delivery, administration, modification, and amendment of this Agreement and the other Credit Documents, including the reasonable -52- 57 fees and expenses of outside counsel for the Agent and the Issuing Bank with respect to advising the Agent and the Issuing Bank as to their respective rights and responsibilities under this Agreement and the Credit Documents, and (b) all out-of-pocket costs and expenses of the Agent and the Issuing Bank in connection with the preservation or enforcement of the rights of the Agent, the Issuing Bank, and the Banks under this Agreement and the other Credit Documents, whether through negotiations, legal proceedings, or otherwise, including fees and expenses of counsel for the Agent and the Issuing Bank. The provisions of this paragraph shall survive the repayment and termination of the credit provided for under this Agreement and any purported termination of this Agreement which does not expressly refer to this paragraph. 7.6 Indemnification. To the extent not reimbursed by the Borrower, each Bank severally agrees to protect, defend, indemnify, and hold harmless the Agent, the Issuing Bank, and each of their respective Related Parties (for the purposes of this Section 7.6, collectively, the "Indemnified Parties"), from and against all demands, claims, actions, suits, damages, judgments, fines, penalties, liabilities, and out-of-pocket costs and expenses, including reasonable costs of attorneys and related costs of experts such as accountants (collectively, the "Indemnified Liabilities"), actually incurred by any Indemnified Party which are related to any litigation or proceeding relating to this Agreement, the Credit Documents, or the transactions contemplated thereunder, INCLUDING ANY INDEMNIFIED LIABILITIES CAUSED BY ANY INDEMNIFIED PARTY'S OWN NEGLIGENCE, but not Indemnified Liabilities which are a result of any Indemnified Party's gross negligence or willful misconduct. The provisions of this paragraph shall survive the repayment and termination of the credit provided for under this Agreement and any purported termination of this Agreement which does not expressly refer to this paragraph. 7.7 Successor Agent and Issuing Bank. The Agent or the Issuing Bank may resign at any time by giving written notice thereof to the Banks and the Borrower and may be removed at any time with or without cause by the Majority Banks upon receipt of written notice from the Majority Banks to such effect. Upon receipt of notice of any such resignation or removal, the Majority Banks shall have the right to appoint a successor Agent or Issuing Bank with the consent of the Borrower, which consent shall not be unreasonably withheld. If no successor Agent or Issuing Bank shall have been so appointed by the Majority Banks with the consent of the Borrower, and shall have accepted such appointment, within 30 days after the retiring Agent's or Issuing Bank's giving of notice of resignation or the Majority Banks' removal of the retiring Agent or Issuing Bank, then the retiring Agent or Issuing Bank may, on behalf of the Banks and the Borrower, appoint a successor Agent or Issuing Bank, which shall be, in the case of a successor agent, a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000 and, in the case of the Issuing Bank, a Bank. Upon the acceptance of any appointment as Agent or Issuing Bank by a successor Agent or Issuing Bank, such successor Agent or Issuing Bank shall thereupon succeed to and become vested with all the rights, powers, privileges, and duties of the retiring Agent or Issuing Bank, and -53- 58 the retiring Agent or Issuing Bank shall be discharged from any duties and obligations under this Agreement and the other Credit Documents after such acceptance, except that the retiring Issuing Bank shall remain the Issuing Bank with respect to any Letters of Credit outstanding on the effective date of its resignation or removal and the provisions affecting the Issuing Bank with respect to such Letters of Credit shall inure to the benefit of the retiring Issuing Bank until the termination of all such Letters of Credit. After any Agent's or Issuing Bank's resignation or removal hereunder as Agent or Issuing Bank, the provisions of this Article 7 shall inure to such Person's benefit as to any actions taken or omitted to be taken by such Person while such Person was Agent or Issuing Bank under this Agreement and the other Credit Documents. ARTICLE 8. MISCELLANEOUS. 8.1 Expenses. The Borrower shall pay on demand of the applicable party specified herein (a) all reasonable out-of-pocket costs and expenses of the Agent and the Issuing Bank in connection with the preparation, execution, delivery, administration, modification, and amendment of this Agreement and the other Credit Documents, including the reasonable fees and expenses of outside counsel for the Agent and the Issuing Bank, and (b) all out-of-pocket costs and expenses of the Agent, the Issuing Bank, and each Bank in connection with the preservation or enforcement of their respective rights under this Agreement and the other Credit Documents, whether through negotiations, legal proceedings, or otherwise, including fees and expenses of counsel for the Agent, the Issuing Bank, and each Bank. The provisions of this paragraph shall survive the repayment and termination of the credit provided for under this Agreement and any purported termination of this Agreement which does not expressly refer to this paragraph. 8.2 Indemnification. The Borrower agrees to protect, defend, indemnify, and hold harmless the Agent, the Issuing Bank, each Bank, and each of their respective Related Parties (for the purposes of this Section 8.2, collectively, the "Indemnified Parties"), from and against all demands, claims, actions, suits, damages, judgments, fines, penalties, liabilities, and out-of- pocket costs and expenses, including reasonable costs of attorneys and related costs of experts such as accountants (collectively, the "Indemnified Liabilities"), actually incurred by any Indemnified Party which are related to any litigation or proceeding relating to this Agreement, the Credit Documents, or the transactions contemplated thereunder, INCLUDING ANY INDEMNIFIED LIABILITIES CAUSED BY ANY INDEMNIFIED PARTY'S OWN NEGLIGENCE, but not Indemnified Liabilities which are a result of any Indemnified Party's gross negligence or willful misconduct. The provisions of this paragraph shall survive the repayment and termination of the credit provided for under this Agreement and any purported termination of this Agreement which does not expressly refer to this paragraph. 8.3 Modifications, Waivers, and Consents. No modification or waiver of any provision of this Agreement or the Revolving Loan Notes, nor any consent required under -54- 59 this Agreement or the Revolving Loan Notes, shall be effective unless the same shall be in writing and signed by the Agent and Majority Banks and the Borrower, and then such modification, waiver, or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no modification, waiver, or consent shall, unless in writing and signed by the Agent, all the Banks, and the Borrower do any of the following: (a) waive any of the conditions specified in Section 3.1 or 3.2, (b) increase the Revolving Loan Commitments of the Banks, (c) forgive or reduce the amount or rate of any principal, interest, or fees payable under the Credit Documents, or postpone or extend the time for payment thereof, (d) release any Guaranty or any material collateral securing the Credit Obligations (except as otherwise permitted or required herein), or (e) change the percentage of Banks required to take any action under this Agreement, the Revolving Loan Notes, or the Security Documents, including any amendment of the definition of "Majority Banks" or this Section 8.3. No modification, waiver, or consent shall, unless in writing and signed by the Agent or the Issuing Bank affect the rights or obligations of the Agent or the Issuing Bank, as the case may be, under the Credit Documents. The Agent shall not modify or waive or grant any consent under any other Credit Document of such action would be prohibited under this Section 8.3 with respect to the Credit Agreement or the Revolving Loan Notes. 8.4 Survival of Agreements. All representations, warranties, and covenants of the Borrower in this Agreement and the Credit Documents shall survive the execution of this Agreement and the Credit Documents and any other document or agreement. 8.5 Assignment and Participation. This Agreement and the Credit Documents shall bind and inure to the benefit of the Borrower and their respective successors and assigns and the Agent and the Banks and their respective successors and assigns. The Borrower may not assign its rights or delegate its duties under this Agreement or any Credit Document. (a) Assignments. Any Bank may assign to one or more banks or other entities all or any portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Revolving Loan Commitments, the Revolving Loan Advances owing to it, the Revolving Loan Notes held by it, and the participation interest in the Letters of Credit owned by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of such Bank's rights and obligations under this Agreement, (ii) assignments of Revolving Loan Commitments shall be made in minimum amounts of $5,000,000 and be made in integral multiples of $1,000,000 and the assigning Bank, if it retains any Revolving Loan Commitments, shall maintain at least $5,000,000 in Revolving Loan Commitments, (iii) each such assignment shall be to an Eligible Assignee, (iv) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with the Revolving Loan Notes subject to such assignment, and (v) each Eligible Assignee (other than the Eligible Assignee of the Agent) shall pay to the Agent a $5,000 administrative fee. Upon such execution, delivery, acceptance and recording, from and after the effective date specified -55- 60 in each Assignment and Acceptance, which effective date shall be at least three Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto for all purposes and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and (B) such Bank thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of such Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto). (b) Term of Assignments. By executing and delivering an Assignment and Acceptance, the Bank thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency of value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or the performance or observance by any Credit Party of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the Financial Statements and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee shall, independently and without reliance upon the Agent, such Bank or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it shall perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank. (c) The Register. The Agent shall maintain at its address referred to in Section 8.6 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the Revolving Loan Commitments of each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent, the Issuing Bank, and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. -56- 61 (d) Procedures. Upon its receipt of an Assignment and Acceptance executed by a Bank and an Eligible Assignee, together with the Revolving Loan Notes subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed in the appropriate form, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower shall execute and deliver to the Agent in exchange for the surrendered Revolving Loan Notes a new Revolving Loan Note to the order of such Eligible Assignee in an amount equal to the Revolving Loan Commitment assumed by it pursuant to such Assignment and Acceptance and, if such Bank has retained any Revolving Loan Commitment hereunder, a new Revolving Loan Note to the order of such Bank in an amount equal to the Revolving Loan Commitment retained by it hereunder. Such new Revolving Loan Notes shall be dated the effective date of such Assignment and Acceptance and shall be in the appropriate form. (e) Participation. Each Bank may sell participation to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Revolving Loan Commitments, the Revolving Loan Advances owing to it, its participation interest in the Letters of Credit, and the Revolving Loan Notes held by it); provided, however, that (i) such Bank's obligations under this Agreement (including, without limitation, its Revolving Loan Commitments to the Borrower hereunder) shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Bank shall remain the holder of any such Revolving Loan Notes for all purposes of this Agreement, (iv) the Borrower, the Agent, and the Issuing Bank and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, and (v) such Bank shall not require the participant's consent to any matter under this Agreement, except for change in the principal amount of the Revolving Loan Notes, reductions in fees or interest, extending the applicable maturity date, or releasing any collateral or guarantor (except to the extent otherwise permitted herein or in any of the other Credit Documents). The Borrower hereby agrees that participants shall have the same rights under Sections 2.5, 2.6, 2.7, 2.8, 2.9, and 8.2 as a Bank to the extent of their respective participation. (f) Assignments or Pledges to Federal Reserve Banks. In addition to the foregoing rights of assignment and participation, any Bank may assign or pledge any portion of its rights under this Agreement (including the Revolving Loan Advances owed to such Bank) to any Federal Reserve Bank in accordance with applicable law without notice to or the consent of the Borrower or the Agent, provided that (i) such Bank shall not be relieved of its obligations under this Agreement as a result thereof and (ii) in no event shall the Federal Reserve Bank be entitled to direct the actions of the pledging or assigning Bank under this Agreement. -57- 62 8.6 Notice. All notices and other communications under this Agreement and the Revolving Loan Notes shall be in writing and mailed by certified mail (return receipt requested), telecopied, telexed, hand delivered, or delivered by a nationally recognized overnight courier, to the address for the appropriate party specified in Schedule I or at such other address as shall be designated by such party in a written notice to the other parties. Mailed notices shall be effective when received. Telecopied or telexed notices shall be effective when transmission is completed or confirmed by telex answerback. Delivered notices shall be effective when delivered by messenger or courier. Notwithstanding the foregoing, notices and communications to the Agent pursuant to Article 2 or 7 shall not be effective until received by the Agent. 8.7 Choice of Law. This Agreement and the Revolving Loan Notes have been prepared, are being executed and delivered, and are intended to be performed in the State of Texas, and the substantive laws of the State of Texas and the applicable federal laws of the United States shall govern the validity, construction, enforcement, and interpretation of this Agreement and the Revolving Loan Notes; provided however, except for Section 346.004 of the Texas Finance Code, neither the provisions of Chapter 346 of the Texas Finance Code, nor, except for Section 15.10(b) thereof, the provisions of Tex. Rev. Civ. Stat. Ann. art. 5069-15.01, et seq. (each pertaining to certain revolving credit loans and revolving tri-party accounts) shall apply to this Agreement, to any of the other Credit Documents, or to the loan transactions evidenced or contemplated by this Agreement. Each Letter of Credit shall be governed by the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce Publication No. 500 (1993 version). 8.8 Forum Selection. THE BORROWER IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND OF ANY FEDERAL COURT LOCATED IN SUCH STATE IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE CREDIT DOCUMENTS OR ANY TRANSACTIONS RELATED THERETO. THE BORROWER AGREES AND SHALL NOT CONTEST THAT PROPER FORUM AND VENUE FOR ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE CREDIT DOCUMENTS OR ANY TRANSACTIONS RELATING THERETO ARE IN THE COURTS OF THE STATE OF TEXAS IN HARRIS COUNTY, TEXAS, AND THE FEDERAL COURTS LOCATED IN HARRIS COUNTY, TEXAS. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE FOREGOING BASED UPON CLAIMS THAT THE FOREGOING COURTS ARE AN INCONVENIENT FORUM. 8.9 Service of Process. IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE CREDIT DOCUMENTS OR ANY TRANSACTIONS RELATING THERETO, THE BORROWER WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT, OR OTHER PROCESS OR NOTICE AND AGREES THAT SERVICE BY FIRST CLASS MAIL, RETURN RECEIPT REQUESTED, TO THE -58- 63 BORROWER AT ITS ADDRESS FOR NOTICES HEREUNDER, OR ANY OTHER FORM OF SERVICE PROVIDED FOR IN THE TEXAS CIVIL PRACTICE LAW AND RULES THEN IN EFFECT SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE UPON THE BORROWER. 8.10 Waiver of Jury Trial. THE BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE CREDIT DOCUMENTS OR ANY TRANSACTIONS RELATING THERETO. 8.11 Counterparts. This Agreement may be executed in multiple counterparts which together shall constitute one and the same instrument. [The remainder of this page is intentionally blank.] -59- 64 8.12 No Further Agreements. THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. EXECUTED as of the date first above written. BORROWER: TYLER CORPORATION By: ---------------------------------------- Brian K. Miller, Vice President AGENT: NATIONSBANK OF TEXAS, N.A., as Agent By: --------------------------------------- William T. Griffin, Jr. Vice President BANKS: NATIONSBANK OF TEXAS, N.A. By: --------------------------------------- William T. Griffin, Jr. Vice President Revolving Loan Commitment: $50,000,000 -60- 65 [Execution Version] Exhibit A FORM OF COMPLIANCE CERTIFICATE [date] NationsBank of Texas, N.A., as Agent for the financial institutions parties to the Credit Agreement referred to below 700 Louisiana, 7th Floor Houston, Texas 77002 Attention: Mr. William T. Griffin, Jr. Ladies and Gentlemen: I refer to the Credit Agreement dated as of February 13, 1998 (as the same may be modified from time to time, the "Credit Agreement"), among Tyler Corporation (the "Borrower"), the financial institutions parties thereto, and NationsBank of Texas, N.A., as Agent for such financial institutions, the defined terms of which are used herein unless otherwise defined herein. I hereby certify that I have no knowledge of any Defaults by the Borrower in the observance of any of the provisions in the Credit Agreement which existed as of [_______________] or which exist as of the date of this letter. I also certify that the accompanying consolidated Financial Statements present fairly, in all material respects, the consolidated financial condition of the Borrower as of [_______________], and the related results of operations for the [_______________] then ended, in conformity with generally accepted accounting principles (subject, with respect to financial statements furnished pursuant to Section 5.2(b) of the Credit Agreement, to normal year-end audit adjustments). The following sets forth the information and computations to demonstrate compliance with the requirements of Section 5.5 of the Credit Agreement as of [_______________]: 66 A. Section 5.5(a) Net Worth 1. Net Worth $ -------------------- 2. 90% of consolidated Net Worth of Borrower as of December 31, 1997 $ -------------------- 3. 50% of cumulative quarterly consolidated positive net income of Borrower for each fiscal quarter ending after December 31, 1997 $ -------------------- 4. 100% of net proceeds resulting from any sale or issuance of any stock of Borrower or its Subsidiaries since December 31, 1997 $ -------------------- 5. 100% of any increase in the consolidated Net Worth of the Borrower resulting from any Acquisition (which increase has not included the $ calculation of A.2, A.3 or A.4) -------------------- 6. Minimum Net Worth requirement = A.2 + A.3 + A.4 + A.5 $ -------------------- B. Section 5.5(b) Debt Ratio 1. consolidated Debt as of fiscal quarter most recently ended $ ---------------- 2. consolidated EBITDA for preceding four fiscal quarters $ ---------------- 3. ratio B.1 / B.2 to 1.00 -------- 4. maximum permitted 3.00 to 1.00 C. Section 5.5(c) Fixed Charge Coverage Ratio 1. consolidated EBITDA for preceding four fiscal quarters $ ---------------- 2. consolidated cash taxes paid for preceding four fiscal quarters $ ---------------- 3. consolidated Capital Expenditures for the preceding four fiscal quarters $ ---------------- 4. consolidated scheduled principal payments on long-term debt (including Capital Leases) for preceding four fiscal quarters $ ---------------- 5. consolidated interest expense for preceding four fiscal quarters $ ----------------
67 6. consolidated cash dividends paid for preceding four fiscal quarters $ ---------------- 7. ratio = (D.1 - D.2 - D.3) / (D.4 + D.5 + D.6) to 1.00 -------- 8. minimum required prior to and including March 31, 1998: 1.75 to 1.00 from April 1, 1998 to June 30, 1998: 2.00 to 1.00 From July 1, 1998 and thereafter: 2.25 to 1.00
Very truly yours, ------------------------------------------ Name: ------------------------------------- Title: ------------------------------------ 68 [Execution Version] Exhibit B FORM OF BORROWING REQUEST [date] NationsBank of Texas, N.A., as Agent Attn: Mr. William T. Griffin, Jr. 700 Louisiana, 7th Floor Houston, Texas 77002 Telephone: 713-247-7457 Telecopier: 713-247-7748 Ladies and Gentlemen: The undersigned, Tyler Corporation, a Delaware corporation ("Borrower"), refers to the Credit Agreement dated as of February 13, 1998 (as the same may be modified from time to time, the "Credit Agreement," the defined terms of which are used in this Borrowing Request unless otherwise defined in this Borrowing Request) among the Borrower, the financial institutions parties thereto ("Banks"), and NationsBank of Texas, N.A., as agent for the Banks ("Agent"), and hereby gives you irrevocable notice pursuant to Section 2.1(b)(i) of the Credit Agreement that the undersigned hereby requests a Revolving Loan Borrowing (the "Proposed Borrowing") on the terms set forth below: Date of Revolving Loan Borrowing(1) : Type of Tranches(2) : Aggregate Amount(3) : Interest Period(4) : - -------------------- (1) The Date of Revolving Loan Borrowing for the Proposed Borrowing must be a Business Day. The Borrower must give three Business Days' advance notice for Revolving Loan Borrowings including LIBOR Tranches or same day notice for Revolving Loan Borrowings including only Prime Rate Tranches. (2) The Type of Tranches comprising the Proposed Borrowing may be Prime Rate Tranches or LIBOR Tranches subject to the provisions of Section 2.4(a)(i). (3) The Aggregate Amount of the Proposed Borrowing must be in a minimum amount of the Minimum Borrowing Amount of $[_________________________] and in multiples of the Minimum Borrowing Multiple of $[_________________________]. (4) The Interest Period applies only to Revolving Loan Borrowings including LIBOR Tranches and may be one, two, three, or six months. Insert "N/A" for Revolving Loan Borrowings including any Prime Rate Tranches. 69 The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing: (a) the representations and warranties contained in the Credit Agreement are correct in all material respects, before and after giving effect to the Proposed Borrowing and the application of the proceeds therefrom, as though made on the date of the Proposed Borrowing; (b) no Default has occurred and remains uncured, nor would result from the Proposed Borrowing or from the application of the proceeds therefrom; and (c) following the making of the proposed Revolving Loan Borrowing and all other Revolving Loan Borrowings to be made on the same day to the Borrower, the aggregate outstanding principal amount of the Revolving Loan plus the Letter of Credit Exposure shall not exceed the aggregate amount of the Revolving Loan Commitments. Very truly yours, TYLER CORPORATION By: -------------------------------- Name: ------------------------------ Title: ----------------------------- -2- 70 [Execution Version] Exhibit C FORM OF CONTINUATION/CONVERSION REQUEST [date] NationsBank of Texas, N.A., as Agent Attn: Mr. William T. Griffin, Jr. 700 Louisiana, 7th Floor Houston, Texas 77002 Telephone: 713-247-7457 Telecopier: 713-247-7748 Ladies and Gentlemen: The undersigned, Tyler Corporation, a Delaware corporation (the "Borrower"), refers to the Credit Agreement dated as of February 13, 1998 (as the same may be modified from time to time, the "Credit Agreement," the defined terms of which are used in this Continuation/Conversion Request unless otherwise defined in this Continuation/Conversion Request), among the Borrower, the financial institutions parties thereto ("Banks"), and NationsBank of Texas, N.A., as agent for the Banks ("Agent"), and hereby gives you irrevocable notice pursuant to Section 2.4(a)(ii) of the Credit Agreement that the undersigned hereby requests a [conversion][continuation] of the outstanding Tranche(s) described below into a new Tranche (the "Proposed Tranche") on the terms set forth below: 71 Outstanding Tranche #1 ---------------------- Date of Tranche's Origination : Type of Tranche : Aggregate Amount(1) for Continuation/ Conversion : Interest Period : [Outstanding Tranche #2 ---------------------- Date of Tranche's Origination : Type of Tranche : Aggregate Amount(1) for Continuation/ Conversion : Interest Period :] Proposed Tranche ---------------- Date of Continuation or Conversion(2) : Type of Tranche(3) : Aggregate Amount(4) : Interest Period(5) : - ----------------------------------
(1) The Aggregate Amount for Conversion with respect to Tranches must be in multiples of the Minimum Tranche Multiple of $[______________________]. No continuation or conversion may be made if such continuation or conversion would cause the aggregate amount of any LIBOR Tranche or all Prime Rate Tranches to be less than the Minimum Tranche Amount of $[____________________]. (2) The Date of the proposed continuation or conversion must be a Business Day. The Borrower must give three Business Days' advance notice for conversions into or continuations of LIBOR Tranches. (3) The Type of Tranches may be Prime Rate Tranches or LIBOR Tranches. (4) The Aggregate Amount of the Proposed Tranche must be in multiples of the Minimum Tranche Multiple of $[_______________________]. No continuation or conversion may be made if such continuation or conversion would cause the aggregate amount of any LIBOR Tranche or all Prime Rate Tranches to be less than the Minimum Tranche Amount of $[________________________]. (5) The Interest Period applies only to LIBOR Tranches and may be one, two, three, or six months. Insert "N/A" for Prime Rate Tranches. -2- 72 The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Tranche: (a) the representations and warranties contained in the Credit Agreement are correct in all material respects, before and after giving effect to the Proposed Tranche/Tranches and the application of the proceeds therefrom, as though made on the date of the Proposed Tranch/Tranches; and (b) no Default has occurred and remains uncured, nor would result from the Proposed Tranche. Very truly yours, TYLER CORPORATION By: -------------------------------- Name: ------------------------------ Title: ----------------------------- -3- 73 [Execution Version] Exhibit D FORM OF PROMISSORY NOTE ([Bank Name]) $[Amount] Houston, Texas [date] For value received, the undersigned TYLER CORPORATION, a Delaware corporation ("Borrower"), hereby promises to pay to the order of [Bank Name] ("Bank"), the principal amount of [Amount] ($[ ]) or, if less, the aggregate outstanding principal amount of the Revolving Loan Advances (as defined in the Credit Agreement referred to below) made by the Bank to the Borrower, together with accrued but unpaid interest on the principal amount of each such Revolving Loan Advance from the date of such Revolving Loan Advance until such principal amount is paid in full, at such interest rates, and at such times, as are specified in the Credit Agreement. This Revolving Loan Note is one of the Revolving Loan Notes referred to in, and is entitled to the benefits of, and is subject to the terms of, the Credit Agreement dated as of February 13, 1998 (as the same may be modified from time to time, the "Credit Agreement"), among the Borrower, the financial institutions parties thereto ("Banks"), and NationsBank of Texas, N.A., as agent for the Banks ("Agent"). Capitalized terms used herein but not defined herein shall have the meanings specified by the Credit Agreement. The Credit Agreement, among other things, (a) provides for the making of Revolving Loan Advances by the Bank to the Borrower from time to time, the indebtedness of the Borrower resulting from each such Revolving Loan Advance being evidenced by this Revolving Loan Note, and (b) contains provisions for acceleration of the maturity of this Revolving Loan Note upon the happening of certain events stated in the Credit Agreement and for prepayments of principal prior to the maturity of this Revolving Loan Note upon the terms and conditions specified in the Credit Agreement. Both principal and interest are payable to the Agent in the currency, at the times, in the locations, and in the manner specified in the Credit Agreement. The Bank shall record all Revolving Loan Advances and payments of principal made under this Revolving Loan Note, but no failure of the Bank to make such recordings shall affect the Borrower's repayment obligations under this Revolving Loan Note. 74 It is contemplated that because of prepayments there may be times when no indebtedness is owed under this Revolving Loan Note. Notwithstanding such prepayments, this Revolving Loan Note shall remain valid and shall be in force as to Revolving Loan Advances made pursuant to the Credit Agreement after such prepayments. It is the intention of the Bank and the Borrower to conform strictly to any applicable usury laws. Accordingly, the terms of the Credit Agreement relating to the prevention of usury will be strictly followed. THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. EXECUTED as of the date first above written. TYLER CORPORATION By: --------------------------- Name: ------------------------- Title: ------------------------ -2- 75 [Execution Version] Exhibit E FORM OF ASSIGNMENT AND ACCEPTANCE [date] Reference is made to the Credit Agreement dated as of February 13, 1998 (as the same may be modified from time to time, the "Credit Agreement"), among Tyler Corporation, a Delaware corporation (the "Borrower"), the financial institutions parties thereto ("Banks"), and NationsBank of Texas, N.A., as agent for the Banks ("Agent"). Capitalized terms used herein but not defined herein shall have the meanings specified by the Credit Agreement. Pursuant to the terms of the Credit Agreement, [ ] ("Assignor"), wishes to assign and delegate to [ ] ("Assignee"), [ ]%(10) of its rights and obligations under the Credit Agreement. Therefore, Assignor, Assignee, and the Agent agree as follows: i. The Assignor hereby sells and assigns and delegates to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, without recourse to the Assignor and without representation or warranty except for the representations and warranties specifically set forth in clauses (i), (ii), and (iii) of this Assignment and Acceptance, a [ ]% interest in and to all of the Assignor's rights and obligations under the Credit Agreement and the other Credit Documents as of the Effective Date (as defined below), including such percentage interest in the Assignor's Revolving Loan Commitment, the Revolving Loan Advances owing to the Assignor, the Assignor's ratable participation interest in the Letters of Credit, and the Revolving Loan Note[s] held by the Assignor. ii. The Assignor (i) represents and warrants that, prior to executing this Assignment and Acceptance, its Revolving Loan Commitment is $[ ], the aggregate outstanding principal amount of Revolving Loan Advances owed by the Borrower to the Assignor is $[ ], and its ratable share of - -------------------- (1) Specify percentage to 4 decimal points. 76 the Letter of Credit Exposure is $[ ]; (ii) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (iii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with the Credit Agreement or any other Credit Document or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of the Credit Agreement or any other Credit Document or any other instrument or document furnished pursuant thereto; (iv) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Guarantor or the performance or observance by the Borrower or any Guarantor of any of its obligations under the Credit Agreement or any other Credit Document or any other instrument or document furnished pursuant thereto; and (v) attaches the Revolving Loan Note[s] referred to in Section 1 above and requests that the Agent exchange such Revolving Loan Note[s] for a new Revolving Loan Note dated [ ] made by [ ], in the principal amount of $[ ] payable to the order of the Assignee[, and a new Revolving Loan Note dated [ ], in the principal amount of $[ ] payable to the order of Assignor]. iii. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the Financial Statements referred to in Section 4.7 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor, or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement or any other Credit Document; (iii) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and any other Credit Document as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (iv) agrees that it will perform all of the obligations which by the terms of the Credit Agreement or any other Credit Document are required to be performed by it as a Bank; (v) specifies as its Applicable Lending Office and address for notices the offices set forth beneath its name on the signature pages hereof; (vi) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States -2- 77 withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement and the Revolving Loan Notes or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty(2), and (vii) represents that it is an Eligible Assignee. iv. The effective date for this Assignment and Acceptance shall be [ ] ("Effective Date")(3), and following the execution of this Assignment and Acceptance, the Agent will record it in the register. v. Upon such recording, and as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement for all purposes, and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights (other than rights against the Borrowers pursuant to Section 8.1 and 8.2 of the Credit Agreement, which shall survive this Assignment and Acceptance) and be released from its obligations (other than obligations to the Agent pursuant to Section 7.5 and 7.6 of the Credit Agreement, which shall survive this Assignment and Acceptance) under the Credit Agreement. vi. Upon such recording, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement and the Revolving Loan Notes in respect of the interest assigned hereby (including all payments of principal, interest, and fees) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments for amounts earned under the Credit Agreement and the Revolving Loan Notes for periods prior to the Effective Date directly between themselves. vii. This Assignment and Acceptance shall be governed by, and construed and enforced in accordance with, the laws of the State of Texas. - -------------------- (2) If the Assignee is organized under the laws of a jurisdiction outside the United States. (3) See Section 8.5. Such date shall be at least three Business Days after the execution of this Assignment and Acceptance. -3- 78 The parties hereto have caused this Assignment and Acceptance to be duly executed as of the date first above written. ASSIGNOR: [ASSIGNOR] By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- ASSIGNEE: [ASSIGNEE] By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- Notice Address: Address: ----------------------------- ------------------------------------- ------------------------------------- Attention: --------------------------- Telephone: -------------------------- Telecopy: ---------------------------- -4- 79 Applicable Lending Office: Address: ----------------------------- ------------------------------------- ------------------------------------- Attention: --------------------------- Telephone: --------------------------- Telecopy: ---------------------------- AGENT: NATIONSBANK OF TEXAS, N.A., as Agent By: ---------------------------------- William T. Griffin, Jr. Vice President [ACKNOWLEDGED this _____ day of _________________, ____. BORROWER: TYLER CORPORATION By: ---------------------------------------- Name: -------------------------------------- Title: ](4) ------------------------------------- - -------------------- (4) The Borrower's acknowledgement of this Assignment and Acceptance is not required. -5- 80 [Execution Version] Exhibit F CLOSING DOCUMENTS Credit Provided by NationsBank of Texas, N.A., as Agent for Tyler Corporation February 13, 1998 Agent = NationsBank of Texas, N.A. Bank = NationsBank of Texas, N.A. Borrower = Tyler Corporation B&P = Bracewell & Patterson, L.L.P.
Responsible Party Credit Documents --------------- ---------------- 1. B&P Credit Agreement dated as of February 13, 1998, among the Borrower, the Bank, and the Agent providing for a $50,000,000 senior revolving credit facility. B&P Exhibit A - Form of Compliance Certificate B&P Exhibit B - Form of Borrowing Request B&P Exhibit C - Form of Continuation/Conversion Request B&P Exhibit D - Form of Revolving Loan Note B&P Exhibit E - Form of Assignment and Acceptance B&P Exhibit F - Closing Documents List B&P Exhibit G - Form of Joinder Agreement Borrower Exhibit H - Form of Acquisition EBITDA Certificate B&P Schedule I - Administrative Information (Borrower and Bank) Borrower Schedule II - Disclosures (Existing Other Debt, Existing, and Subsidiaries Litigation)
81 2. B&P Promissory Note, dated as of February 13, 1998, made by the Borrower and payable to the order of Bank in the original principal amount of $50,000,000. 3. B&P Fee Letter dated as of February 13, 1998, between the Borrower and Agent. (Confidential) 4. B&P Pledge Agreement dated as of February 13, 1998, made by Borrower in favor of the Agent, granting the Agent a first priority perfected security interest in all of the capital stock of certain direct and indirect subsidiaries of Borrower. Borrower Schedule I - Pledged Securities 5. B&P Guaranty Agreement dated as of February 13, 1998, among subsidiaries of Borrower and Agent. Corporate Documents ------------------- 6. Borrower Opinion of Gardere & Wynne, L.L.P. regarding the existence and good standing of the Credit Parties, the authorization of the Credit Documents by the Credit Parties, the enforceability of the Credit Documents, the absence of conflicting agreements, the absence of litigation, and certain other matters as described therein. 7. Borrower Certificate of Assistant Secretary of the Borrower certifying such corporation's articles, bylaws, and resolutions and such corporation's existence and good standing in its state of incorporation and qualification and good standing in material jurisdictions where it conducts business. Exhibit A - Articles/Certificates of Incorporation Exhibit B - Bylaws Exhibit C - Resolutions Exhibit D - Certificates of Existence and Good Standing; Qualification and Good Standing 8. Borrower Certificate of Assistant Secretary of the Subsidiaries of the Borrower certifying each such corporation's articles, bylaws, and resolutions and
-2- 82 each such corporation's existence and good standing in its state of incorporation and qualification and good standing in material jurisdictions where it conducts business. Exhibit A - Articles/Certificates of Incorporation Exhibit B - Bylaws Exhibit C - Resolutions Exhibit D - Certificates of Existence and Good Standing; Qualification and Good Standing Collateral and Diligence Items ------------------------------ 9. B&P UCC-1 Financing Statement executed by the Borrower in favor of the Agent perfecting the Agent's security interests under the Pledge Agreement. 10. Borrower UCC lien searches on the name of each Credit Party in each jurisdiction where filing is necessary to perfect security interests against such Credit Party. 11. Borrower Stock Certificates of subsidiaries of Borrower pledged pursuant to the Pledge Agreement with stock power endorsed in blank. 12. Borrower Property and Liability Insurance policies and certificates showing compliance with the insurance requirements under the Credit Documents. -3- 83 [Execution Version] Exhibit G JOINDER AGREEMENT ([Subsidiary]) [Subsidiary], a [ ] corporation (the "Subsidiary"), hereby agrees with (a) NationsBank of Texas, N.A., as Agent (the "Agent"), under the Credit Agreement dated as of February 13, 1998, among Tyler Corporation, a Delaware corporation, the financial institutions parties thereto, as Banks, and the Agent (as modified from time to time, the "Credit Agreement," the capitalized terms of which are used herein unless otherwise defined herein), and (b) the other parties to the Guaranty dated as of [effective date] executed in connection with the Credit Agreement, as follows: In accordance with Section 5.19 of the Credit Agreement, the Subsidiary hereby (a) joins the Guaranty as a party thereto and assumes all the obligations of a Guarantor (as defined in the Guaranty) under the Guaranty, (b) agrees to be bound by the provisions of the Guaranty as if the Subsidiary had been an original party to the Guaranty, and (c) confirms that, after joining the Guaranty as set forth above, the representations and warranties set forth in the Credit Agreement and the Guaranty with respect to the Subsidiary are true and correct in all material respects as of the date of this Joinder Agreement. For purposes of notices under the Guaranty, the notice address for the Subsidiary is as follows: ______________________________ ______________________________ ______________________________ Attention: ________________ Telephone: ( )_________ Telecopy: ( )_________ THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. 84 THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. IN WITNESS WHEREOF this Joinder Agreement is executed and delivered as of the ___ day of ________, 19__. [SUBSIDIARY] By: -------------------------------- Name: ------------------------------ Title: ----------------------------- -2- 85 [Bracewell & Patterson Draft 12/09/97] Exhibit H [date] NationsBank of Texas, N.A., as Agent for the financial institutions parties to the Credit Agreement referred to below 700 Louisiana, 7th Floor Houston, Texas 77002 Attention: Mr. William T. Griffin, Jr. Ladies and Gentlemen: The undersigned refers to the Credit Agreement dated as of [effective date] (as modified, the "Credit Agreement"), among Tyler Corporation (the "Borrower"), the financial institutions parties thereto, and NationsBank of Texas, N.A., as Agent for such financial institutions ("Agent"), the defined terms of which are used herein unless otherwise defined herein. The Borrower intends to make an Acquisition (the "Proposed Acquisition"), and in connection therewith hereby certifies the following to the Agent and the Banks: 1. Attached hereto as Exhibit A is a summary of the Proposed Acquisition, including a description of the business operations and assets to be acquired, the consideration to be paid (including assumed indebtedness and liabilities and Debt issued in connection therewith) and such summary fairly presents the contemplated transaction. 2. Attached hereto as Exhibit B are historical financial statements regarding the operations to be acquired in the Proposed Acquisition covering the period of the most recently completed four fiscal quarters of the Borrower, the Borrower's proposed adjustments to the historical financial statements reflecting nonrecurring expenses and income, and historical proforma financial statements for the operations to be acquired in the Proposed Acquisition giving effect to such adjustments. The Borrower's proposed adjustments to the historical financial statements and the historical proforma financial statements have been 86 prepared in accordance with the requirements of the Credit Agreement, including Section 1.3 of the Credit Agreement. 3. Attached hereto as Exhibit C are consolidated historical proforma financial statements for the Borrower for the most recently completed four fiscal quarters of the Borrower giving effect to the Proposed Acquisition as set forth in the historical proforma financial statements described in paragraph 2 above. The consolidated historical proforma financial statements have been prepared in accordance with the requirements of the Credit Agreement, including Section 1.3 of the Credit Agreement. 4. Attached hereto as Exhibit D is a completed Compliance Certificate duly certified by a Responsible Officer of the Borrower, demonstrating the Borrower's compliance with the covenants contained in Section 5.5 of the Credit Agreement on a proforma basis after giving effect to the Proposed Acquisition in accordance with the consolidated historical proforma financial statements described in paragraph 3 above. The Borrower represents and warrants that there are no contingent liabilities, including environmental liabilities, litigation liabilities, and assumed contractual liabilities, associated with the Proposed Acquisition that could reasonably be expected to cause a Material Adverse Change. The Borrower hereby requests the Agent's approval of the financial methods employed by the Borrower in the preparation of the attached financial statements and Compliance Certificate as required by Section 1.3(c) of the Credit Agreement. [The Borrower hereby further requests the following waivers and consents in connection with the Proposed Acquisition:] Very truly yours, TYLER CORPORATION By: ------------------------- Name: ----------------------- Title: ---------------------- -2- 87 SCHEDULE 1 Administrative Information BANK: Mr. William T. Griffin, Jr. Vice President NationsBank of Texas, N.A. 700 Louisiana, 7th Floor Houston, Texas 77002 Telephone: (713) 247-7457 Telecopier: (713) 247-7748 BORROWER: Mr. Brian K. Miller Vice President Tyler Corporation 2121 San Jacinto Street 3200 San Jacinto Tower Dallas, Texas 75201 Telephone: (214) 754-7800 Telecopier: (214) 754-7821 EX-10.15 4 EMPLOYMENT AGREEMENT DATED 10/8/97 - RUNDELL 1 EXHIBIT 10.15 [TYLER CORPORATION LETTERHEAD] October 8, 1997 Mr. C. A. Rundell, Jr. Tyler Corporation 2121 San Jacinto Street, Suite 3200 Dallas, Texas 75201 Dear C. A.: This letter is to confirm the basis upon which you agree to serve as President and Chief Executive Officer of Tyler Corporation ("Tyler"). 1. Salary. $17,500 per month. 2. 125,000 Shares. You will also be issued, effective the date hereof, 125,000 shares of Tyler common stock, which you will forfeit and return to Tyler, to the extent your employment with Tyler terminates, as follows:
If your employment terminates: You forfeit: ---------- ----------- Prior to April 8, 1998 125,000 shares After April 7, 1998 and prior to October 8, 1998 100,000 shares After October 7, 1998, and prior to April 8, 1999 75,000 shares After April 7, 1999, and prior to October 8, 1999 50,000 shares After October 7, 1999, and prior to April 8, 2000 25,000 shares After April 7, 2000 0 shares
2 October 8, 1997 Mr. C.A. Rundell, Jr. Page 2 If there is a "change of control" of Tyler, as defined in Section 10 of your stock option agreement of even date, while your employment with Tyler continues you shall not have any further obligation to forfeit or return any of the shares. 3. Bonus. For 1998 and thereafter, you will participate in a bonus plan to be developed by the Company. 4. Options. You will receive options for 350,000 shares of Tyler common stock at $3.6875 per share, the closing price on October 8, 1997, of which (i) 132,199 will be Incentive Stock Options ("ISO's") of which 23,727 will vest and be exercisable on January 1, 1998, and 27,118 will vest and be exercisable on each of January 1, 1999-2002, and (ii) 217,801 will be non-qualified stock options ("NSO's"), of which 43,561 will vest and be exercisable on October 8, 1997, and 43,560 will vest and be exercisable on each of October 8, 1998 2001. All shares shall vest in the event of a change of control of Tyler as defined in Section 10 of your stock option agreement of even date. 5. Office. Your office will be located at the offices of Tyler in Dallas, Texas. 6. Position. You will serve as President and Chief Executive Officer of Tyler and will devote a majority of your working time to the performance of your duties in that capacity. As a compensated employee, you will not be paid for serving as a director of Tyler or on any committees of the board of directors of Tyler. 7. Perks. Tyler will pay for your initiation fee and dues at the Petroleum Club in Dallas, Texas. 8. Secretary. It is understood that your secretary will be Pat Dugan, and Tyler will pay $25,000 of her compensation. You will pay the remainder of her compensation, with the understanding that she will be handling personal and other business matters for you. 9. Effective Date. This Agreement is effective October 8, 1997, and supersedes all prior employment agreements. 3 October 8, 1997 Mr. C.A. Rundell, Jr. Page 3 If the foregoing reflects your understanding of the agreement, please sign below where indicated. Yours very truly, /s/ LOUIS A. WATERS, Louis A. Waters, Chairman of the Board Agreed and Accepted: /s/ C.A. RUNDELL, JR. - -------------------------- C. A. Rundell, Jr. Date: October 8, 1997 Copy to: Directors of the Company EX-10.16 5 EMPLOYEMENT AGREEMENT DATED 12/1/97 - MILLER 1 EXHIBIT 10.16 [TYLER CORPORATION LETTERHEAD] December 1, 1997 PRIVATE AND CONFIDENTIAL VIA HAND DELIVERY Mr. Brian K. Miller 6452 Waggoner Drive Dallas, Texas 75230 Dear Brian: We would like to offer you employment as Vice President and Chief Accounting Officer for Tyler Corporation as outlined below: 1. BEGINNING SALARY -- $140,000 per annum, starting December 1, 1997. 2. BONUS - Full eligibility into the new Tyler bonus plan to be implemented this calendar year with cash bonuses ranging from 40%-50% of base salary when Tyler and or you reach established goals of earnings, return on assets, percentage growth in earnings - whatever goals and standards are finally adopted or agreed by Tyler. 3. OPTIONS - Tyler will grant you an option for 50,000 shares at the closing price on December 1, 1997. These options will vest over five years at the rate of 20% per year. 4. CHANGE OF CONTROL - All unvested options would become immediately vested and exercisable in the event of a change in control of Tyler. 5. CORPORATE BENEFITS - Normal benefits for corporate officers of Tyler, including insurance, reimbursement of reasonable business expenses, appropriate professional fees and dues, continuing professional education programs, company long distance calling card and credit card. 6. START DATE - You will start to work on a part-time basis the week of December 1. 7. REPORTING - In your position you will report to me at this time, although Tyler's present intention is to hire a Chief Financial Officer, to whom you would then report. 2 Mr. Brian K. Miller December 1, 1997 Page Two 8. SEVERANCE - If you are terminated by Tyler for any reason other than fraud, theft, gross negligence, or personal malfeasance, you will receive a lump sum cash severance payment equal to one year, then current, base salary in release of all your claims against the Company. If you were to be terminated as a result of a change in control, you would receive a lump sum cash severance of one year's salary also in release of all your claims against the Company. In either event of termination, you would receive medical benefits, paid by the Company, up to twelve (12) months, or a shorter period should you secure comparable employment elsewhere. Brian, if you have any questions, I will be happy to discuss them with you. Sincerely, /s/ C. A. RUNDELL, JR. C. A. Rundell, Jr. Agreed and Accepted /s/ BRIAN K. MILLER - ---------------------- Brian K. Miller December 1, 1997 EX-10.17 6 EMPLOYMENT AGREEMENT DATED 1/6/98 - PARKINSON 1 EXHIBIT 10.17 OFFER PROPOSAL FOR HAROLD PARKISON AS CEO OF FOREST CITY AUTO PARTS 1. Cash Compensation Salary - $200,000 Car Allowance - 8,500 -------- Total $208,500
2. Bonus - Parkison will be eligible for the regular Tyler incentive bonus of 60% of his salary in a year which 30% RONA is achieved. Since Forest City Auto Parts is below the 30% RONA threshold today, a ramp-up bonus system as shown below will allow Parkison to receive a full 60% bonus at less than 30% RONA during the first two years of his employment. Parkison will also be eligible for a 30% of salary bonus at a lower level of performance as shown. A 30% bonus ($60,000) is guaranteed for 1997.
60% of Salary 30% Of Salary ------------------ ------------------- 1997 20% RONA Guaranteed 1998 25% RONA 22% RONA 1999 30% RONA 25% RONA 2000 30% RONA 25% RONA
3. If during the first three years of Parkison's employment there is a change of control of Forest City or Tyler Corporation which leaves him unemployed or if he is terminated for any reason other than fraud, theft, or personal malfeasance, Parkison will receive a cash payment of $200,000. 4. A moving allowance to cover transportation of household goods, disposition of current residence, acquisition of new residence, and anything else which dislocation causes, including lost bonuses or other lost benefits from present employer, of $75,000 will be paid. Forest City will pay $15,000 of this amount on the first day of employment and $60,000 upon Parkison's moving his family to Cleveland. This payment will be paid directly to Parkison and will be the only reimbursement for any type of dislocation or relocation costs. Parkison will then pay all of the above costs out of his own pocket. 5. Options - A ten-year 50,000-share option exercisable 1/4th on the first anniversary of Parkison's joining the company, and 1/4th on each successive anniversary until his fourth anniversary. On the fourth anniversary of Parkison's employment, therefore, the entire 50,000-share option will be vested. If during the four-year period there is a change of control of Tyler Corporation or a change of control of Forest City Auto Parts, the entire 50,000 shares vest on the day of the change of control. 6. All regular benefits of Forest City Auto Parts, including health insurance and profit sharing will be available to Parkison on the same basis that they are to all other executives of Forest City Auto Parts. 2 7. Forest City will provide $200,000 of term life insurance. 8. An additional bonus will be paid to Parkison if Forest City exceeds the 1997 planned operating profit of $3.4 million. To the extent that profit exceeds $3.4 million, Parkison will receive an additional bonus of 30% of all operating profit dollars over $3.4 million. For example, if Forest City earned $4.4 million, the bonus would be (assumes 20% RONA test is met): 60% of $ 200,000 = $120,000 Normal Bonus 30% of $1,000,000 = 300,000 Extra Bonus -------- $420,000 Total 1997 Bonus
9. Begin work on February 3, 1997, or earlier if possible. January 3, 1997 EX-21 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SIGNIFICANT SUBSIDIARIES
Place of Name Incorporation ---- ------------- Tyler Corporation Delaware Forest City Auto Parts Delaware
EX-23 8 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-34809) pertaining to the Tyler Corporation Stock Option Plan of our report dated March 6, 1998, with respect to the consolidated financial statements of Tyler Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 1997. ERNST & YOUNG LLP Dallas, Texas March 23, 1998 EX-27 9 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 8,877,000 0 243,000 42,000 22,901,000 36,279,000 10,339,000 4,759,000 54,895,000 11,787,000 0 0 0 233,000 37,785,000 54,895,000 76,429,000 0 43,947,000 0 0 0 85,000 1,368,000 197,000 1,171,000 (4,519,000) 0 0 (3,348,000) (.16) (.16)
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