-----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, JA2hIaxp9kLG6/2ipH2Z1jD7+ftqpaio5TOMIukXxNQSrI7aFOyN9MNeJzTcsMel yHanvRabQFturu4EiCNH4g== 0000912057-97-016947.txt : 19970513 0000912057-97-016947.hdr.sgml : 19970513 ACCESSION NUMBER: 0000912057-97-016947 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970512 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUFF & PHELPS CREDIT RATING CO CENTRAL INDEX KEY: 0000928599 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [7320] IRS NUMBER: 363569514 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13286 FILM NUMBER: 97601185 BUSINESS ADDRESS: STREET 1: 55 EAST MONROE ST CITY: CHICAGO STATE: IL ZIP: 60603 BUSINESS PHONE: 3123683100 MAIL ADDRESS: STREET 1: 55 EAST MONROE ST CITY: CHICAGO STATE: IL ZIP: 60603 10-Q 1 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 1997 Commission file number 1-13286 ------------------ DUFF & PHELPS CREDIT RATING CO. (Exact name of Registrant as specified in its Charter) ILLINOIS 36-3569514 (State of Incorporation) (I.R.S. Employer Identification No.) 55 East Monroe Street, Chicago, Illinois 60603 (312) 368-3100 (Address of principal executive offices) (Registrant's telephone number) 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. | | On April 30, 1997, the registrant had 5,072,466 shares of common stock outstanding. ================================================================================ DUFF & PHELPS CREDIT RATING CO. AND SUBSIDIARIES Quarter Ended March 31, 1997 Index PART I. - FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements Consolidated Condensed Statements of Income - 1 Three Months Ended March 31, 1997 and Three Months Ended March 31, 1996 Consolidated Balance Sheets - 2 March 31, 1997 and December 31, 1996 Consolidated Statements of Cash Flows - 3 Three Months Ended March 31, 1997 and Three Months Ended March 31, 1996 Notes to the Consolidated Financial Statements 4-6 ITEM 2. Management's Discussion and Analysis of 7 Results of Operations and Financial Condition PART II. - OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K 8 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS DUFF & PHELPS CREDIT RATING CO. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (In Thousands, Except Per Share Data) (Unaudited) Three Months Three Months Ended Ended March 31, March 31, 1997 1996 ------------ ------------ REVENUES (Note 1) $14,395 $12,238 EXPENSES Employment expense 6,124 5,161 Other operating expenses 2,942 2,379 Name usage fees--paid to former parent (Note 2) 500 500 Depreciation and amortization (Note 1) 536 502 ------------ ------------ Total expenses 10,102 8,542 OPERATING INCOME 4,293 3,696 Other income 178 37 Interest expense (Note 3) 119 125 ------------ ------------ EARNINGS BEFORE INCOME TAXES 4,352 3,608 Income taxes 1,836 1,536 ------------ ------------ NET EARNINGS $ 2,516 $ 2,072 ============ ============ Weighted average shares outstanding (Note 1) 5,665 5,871 EARNINGS PER SHARE (Note 1) $ 0.44 $ 0.35 1 The accompanying notes to the consolidated financial statements are an integral part of these statements. Duff Phelps Credit Rating Co. and Subsidiaries Consolidated Balance Sheets (In Thousands) March 31, December 31, 1997 1996 ----------- ----------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 251 $ 0 Accounts receivable, net of allowance for doubtful accounts of $246 and $219, respectively 10,363 10,298 Other current assets 497 642 ---------- ----------- Total current assets 11,111 10,940 OFFICE FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of accumulated depreciation of $3,315 and $3,042 respectively (Note 1) 4,516 4,540 OTHER ASSETS: Intangible assets, net (Note 1) 2,243 2,319 Goodwill, net (Note 1) 22,907 23,094 Other long-term investments 1,113 1,019 Other long-term assets 231 214 ---------- ----------- Total assets $42,121 $42,126 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accrued compensation and employment taxes $ 2,126 $ 5,756 Accounts payable 3,597 3,193 Accrued income tax 1,592 576 Advance service fee billings to clients (Note 1) 1,671 1,314 Other current liabilities 14 15 ---------- ----------- Total current liabilities 9,000 10,854 LONG-TERM DEBT 7,500 5,500 OTHER LONG-TERM LIABILITIES 717 717 STOCKHOLDERS' EQUITY: Preferred stock, no par value: 3,000 shares authorized, zero issued and outstanding 0 0 Common stock, no par value: 15,000 shares authorized, 5,076 and 5,152 shares issued and outstanding at March 31, 1997 and December 31, 1996, respectively 2,518 5,030 Retained earnings 22,386 20,025 ---------- ----------- Total stockholders' equity 24,904 25,055 ---------- ----------- Total liabilities and stockholders' equity $42,121 $42,126 ========== =========== 2 The accompanying notes to the consolidated financial statements are an integral part of these statements. DUFF & PHELPS CREDIT RATING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
For the Three Month Period Ended March 31, March 31, 1997 1996 -------- -------- CASH FLOWS FROM OPERATING ACTIVITES: Net earnings $ 2,516 $ 2,072 Decrease (increase) in accounts receivable (65) 1,656 Decrease in accrued compensation and employment taxes (3,630) (2,764) Increase (decrease) in advance service billings 357 (80) Depreciation and amortization 536 502 Increase in accrued income taxes payable 1,238 392 Increase in other assets and liabilities - net 564 (153) ------- ------- Cash provided by operating activities 1,516 1,625 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in other long term investments (94) (78) Purchase of office furniture, equipment and leashold improvements-net of retirements (248) (528) ------- ------- Cash used in investing activities (342) (606) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividend paid to shareholders (154) (165) Deferred financing costs (17) 7 Issuances of common stock 416 75 Repurchases of common stock & common stock equivalents (3,168) (768) Increase of long-term debt 4,000 500 Decrease of long-term debt (2,000) (500) ------- ------- Cash used in financing activities (923) (851) ------- ------- NET CHANGE IN CASH 251 168 CASH, BEGINNING OF PERIOD 0 233 ------- ------- CASH, END OF PERIOD $ 251 $ 401 ======= =======
3 The accompanying notes to the consolidated financial statements are an integral part of these statements. DUFF & PHELPS CREDIT RATING CO. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1 SIGNIFICANT ACCOUNTING POLICIES: General Duff & Phelps Credit Rating Co. (the "Company") is an internationally recognized credit rating agency which provides ratings and research on corporate, structured and sovereign financings, as well as insurance claims paying ability. The Company has offices in Chicago, New York, London and Hong Kong and operates directly or through international partners in North and South America, Europe, Asia and Africa. The Company is also a designated rating agency in Japan. On October 31, 1994, the spin-off of the Company from its former parent company, Phoenix Duff & Phelps Corporation, formerly Duff & Phelps Corporation ("D&P"), was finalized. The Company's shares, held by D&P, were distributed October 31, 1994, to D&P shareholders as a tax-free distribution. D&P shareholders received one of the Company's shares for every three shares held of D&P. The distribution resulted in the Company operating as a free standing entity whose common stock is publicly traded on the New York Stock Exchange under the ticker symbol "DCR." Basis of Presentation The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. In addition, they affect the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include those assets, liabilities, revenues and expenses directly attributable to the Company's operations in the years presented. Principles of Consolidation During July 1994, the Company organized a U.S. subsidiary, Duff & Phelps Credit Rating Co. of Europe, with an office located in London, England. In July 1996, the Company organized a U.S. subsidiary, Duff & Phelps Credit Rating Co. of Asia, with an office in Hong Kong. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Duff & Phelps Credit Rating Co. of Europe and Duff & Phelps Credit Rating Co. of Asia. All significant intercompany balances have been eliminated. Earnings Per Share Fully diluted earnings per share were computed using the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents are based on outstanding stock options under a non-qualified stock option plan. -4- Revenue Recognition Rating revenues are typically recognized when services rendered for credit ratings are complete, generally when billed. Revenues are dependent, in large part, on levels of debt issuance. The Company's fee schedule depends on the type and amount of securities rated and the complexity of securities issued. Research revenues are billed in advance and amortized over the subscription period. Goodwill and Intangible Assets In 1987, an acquisition of the former parent resulted in goodwill and intangible assets allocated to the Company of approximately $5.0 million and $6.0 million, respectively. In 1989, another acquisition of the former parent resulted in a "push-down" of goodwill to the Company of approximately $24.0 million. Goodwill and intangible assets are shown net of accumulated amortization. Goodwill is amortized over its estimated remaining life of approximately 31 years, and intangible assets are amortized over remaining lives of 4 through 12 years. The Company periodically evaluates whether significant events have occurred which may require a revision of the estimated useful life of goodwill and intangible assets or an impairment of the recoverability of remaining balances. The Company uses an estimate of future undiscounted cash flows over the remaining useful life of goodwill and intangible assets to measure recoverability as required by Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Depreciation and Amortization Office furniture and equipment are stated at cost less accumulated depreciation and are depreciated on a straight-line basis over the estimated remaining lives of the assets, which, on a composite basis, is five years. Leasehold improvements are amortized over the remaining lives of the related leases, which, on a composite basis, is 11 years. New Accounting Pronouncements Recently the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128") which changes the disclosure of earnings per share ("EPS") data. SFAS 128 replaces the presentation of "primary" EPS with "basic" EPS. Under SFAS 128 "diluted" EPS, the dilutive effect of outstanding share options is computed similarly to "fully diluted" EPS. Under SFAS 128 shares outstanding are computed using the "average share price" for the period rather than the "greater of the average share price or end of period share price." By these standards the pro forma basic EPS for this period would be $0.49 per share for 5,109,558 average shares outstanding and the pro forma diluted EPS would be $0.44 per share for 5,632,400 shares. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997. 2 RELATED PARTIES: Service Fees Paid to D&P A name use fee agreement in effect between the Company and D&P of $2 million per year is included in the Company's financial results for the periods presented. Effective September 30, 2000, the name use fee reduces to $10 thousand per year. -5- Service Fees Paid to the Company The Company and D&P are parties to service and support agreements under which the Company provides D&P with fixed income research services for an annual fee of $0.9 million and administrative services for a fee that represents actual expenses incurred by the Company on behalf of D&P. For the years presented, the fixed-income research fees are included in revenue, and the administrative support fees offset other operating expenses. The fixed income research agreement expires on September 30, 2000. 3 LONG-TERM DEBT AND SUPPLEMENTAL CASH FLOWS INFORMATION: Long-term debt obligations were $7.5 and $5.5 million, bearing interest of 6.4 percent and 6.3 percent, for the periods ended March 31, 1997 and December 31, 1996, respectively. Cash interest and fees paid were $.1 million for three months ended March 31, 1997 and 1996. Dividends paid totaled $0.2 million, and share repurchases of 120,350 amounted to $3.2 million during the first quarter of 1997. Income taxes paid were $.6 million during the first quarter of 1997 and $1.1 million in the first quarter of 1996. 4 LITIGATION MATTERS: During 1993, several legal actions were filed against the Company in federal court by holders of secured promissory notes ("Notes") of Towers Financial Corporation ("Towers") and holders of bonds ("Bonds") issued by subsidiaries of Towers in five structured financing transactions. Towers collapsed in 1993 amid allegations of massive fraud and is in bankruptcy. The Company had rated the Bonds but had not rated the Notes. It is alleged that $245 million of Notes were sold that are worthless and that $200 million of Bonds were sold that have lost much or all of their value. Directors and officers of Towers, lawyers, accountants, broker-dealers and the indenture trustee for the Bonds were also named as defendants in one or more of the actions. The plaintiffs in the actions contend that the Company and the other defendants are liable for losses the plaintiffs have suffered and for punitive damages. The holders of the Bonds also sought recovery from the Company of treble damages under the Racketeer Influenced and Corrupt Organizations Act ("RICO"). It is asserted that the Company, in its ratings and its monitoring of the transactions after ratings were issued, was either fraudulent or negligent in failing to discover the alleged fraud of Towers and its officers or in taking other action that allegedly induced purchases of the Bonds and the Notes. The Company denies these assertions. The Company's ratings were based upon (and assumed the accuracy of) the information provided to it by Towers and its officers. The Company has taken the position that it cannot be expected to detect fraud or discover variances from the structure of a rated security when the information provided to it demonstrates compliance with that structure. In 1996, the legal actions filed by the holders of the Notes were dismissed by the federal courts and the RICO claim of the holders of the Bonds was dismissed. One holder of Notes claiming to represent holders of approximately $17 million of Notes filed a class action against the Company in Illinois state court alleging the state law claims previously asserted in federal court. Management intends to vigorously defend these actions, and at this time, cannot make an assessment with regard to such litigation's effect on the Company's financial position or results of operations. The Company is involved in other litigation, which in the opinion of management, would not have a material adverse effect on the Company's financial position or results of operations. -6- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED MARCH 31, 1996 Revenues for the three months March 31, 1997, were $14.4 million, an increase of 18 percent, or $2.2 million over the $12.2 million recorded in the corresponding period in 1996. Rating revenues accounted for $2.4 million of the increase and were offset by a decline in other revenues. The growth in revenues and earnings was the result of strong performance by both the corporate and structured finance rating businesses, which posted 13 percent and 33 percent revenue increases, respectively. The Company's corporate rating business achieved higher revenues due to the addition of new clients and due to higher renewal revenues despite the continuing moderate level of financing activity. The structured finance revenue increase was primarily contributed by the on-going strong performance of the mortgage-backed and asset-backed sectors. The Company's international business, which is incorporated in the corporate and structured revenue comparisons above, also exhibited strong revenue growth. For the quarter ending March 31, 1997, operating expenses were up 18 percent primarily reflecting higher compensation expense from added staff and higher other operating expense; which includes the Hong Kong office opened in mid 1996. Net earnings for the first quarter of 1997 increased approximately 19 percent to $2.5 million, while earnings per share were $0.44 compared with $0.35 in 1996. LIQUIDITY AND CAPITAL RESOURCES Capital expenditures totaled $0.2 million for the first quarter of 1997 and are anticipated to be approximately $1.8 million for the year ending December 31, 1997. Capital expenditures are primarily for leasehold improvements to accommodate the increase in staff, computer equipment and office fixtures for office expansion. Dividends paid totaled $0.2 million in the first quarter of 1997, and share repurchases of 120,350 during the first quarter amounted to $3.2 million. The Company has in place a $20.0 million revolving credit agreement, which expires December 31, 1999. As of March 31, 1997, $7.5 million was outstanding under the facility at a floating rate of approximately 6.4 percent. Commitment fees are accrued on the unused facility at a rate of .25 percent and are paid quarterly. The credit agreement contains certain financial covenants which the Company is currently in compliance with. The Company believes that funds provided by operations and amounts available under its credit agreement will provide adequate liquidity for the foreseeable future. -7- Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 This report contains forward-looking statements that are subject to risks and uncertainties, including but not limited to the following: the Company's performance is highly dependent on corporate debt issuances and structured finance transactions, which may decrease for any number of reasons including changes in interest rates and adverse economic conditions; the Company's performance is affected by the demand for and the market acceptance of the Company's services; and the Company's performance may be impacted by changes in the performance of the financial markets and general economic conditions. Accordingly, actual results may differ materially from those set forth in the forward-looking statements. Attention is also directed to other risk factors set forth in documents filed by the Company with the Securities and Exchange Commission. PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K Exhibit No. Description ----------- ----------- 10.11 Second Amendment to Credit Agreement among Duff & Phelps Credit Rating Co., various financial institutions and Bank of America Illinois. -8- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Duff & Phelps Credit Rating Co. May 12, 1997 /s/ Marie C. Becker, Chief Accounting ------------------------------------------- Marie C. Becker, Chief Accounting Officer/Controller EX-10.11 2 EXHIBIT 10.11 SECOND AMENDMENT THIS SECOND AMENDMENT, dated as of March 31, 1997 (this "Amendment"), amends the Credit Agreement, dated as of October 31, 1994 (as amended by the First Amendment dated as of August 14, 1996, the "Credit Agreement"), among DUFF & PHELPS CREDIT RATING CO. (the "Company"), various financial institutions and BANK OF AMERICA ILLINOIS, as agent. Capitalized terms used in this Amendment and not otherwise defined herein have the meanings ascribed to such terms in the Credit Agreement. WHEREAS, the parties hereto have entered into the Credit Agreement which provides for the Banks to make Loans to the Company from time to time; and WHEREAS, the parties hereto desire to amend the Credit Agreement as hereinafter set forth; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto agree as follows: SECTION l AMENDMENT. Effective on (and subject to the occurrence of) the Second Amendment Effective Date (as defined below), the Credit Agreement shall be amended as follows: I.l Aggregate Commitment. The definition of Aggregate Commitment in Section 1 of the Credit Agreement is amended to read as follows: "Aggregate Commitment means the aggregate amount of all of the Commitments. The amount of the Aggregate Commitment on the Second Amendment Effective Date is $20,000,000." 1.2 Applicable Margin. The definition of Applicable Margin in Section 1 of the Credit Agreement is amended to read as follows: "Applicable Margin means (a) as of the Second Amendment Effective Date and continuing until adjusted pursuant to clause (b), 0.50%, and (b) on and after any date thereafter on which the Applicable Margin is to be adjusted, if the Leverage Ratio for the then applicable Calculation Period is: (a) 1.0 to 1.0 or greater, 0.75%, or (b) less than 1.0 to 1.0, 0.50%. The Applicable Margin shall be adjusted, to the extent applicable, on the 45th day (or, in the case of the last Fiscal Quarter of any Fiscal Year, the 90th day) after the end of each Fiscal Quarter; it being agreed that if the Company fails to deliver the financial statements required by Section 10.1.1 or 10.1.2(a), as applicable, or the compliance certificate required by Section 10.1.3 by the 45th day (or, if applicable, the 90th day) after any Fiscal Quarter, the Applicable Margin shall be 0.75% until such financial statements and the compliance certificate are delivered. "Calculation Period" as used in this definition means the period comprised of the four consecutive Fiscal Quarters ending with and including the most recent Fiscal Quarter for which the immediately preceding sentence requires an adjustment to be made." 1.3 Commitment. The definition of Commitment in Section 1 of the Credit Agreement is amended to read as follows: "Commitment as to any Bank means the commitment of such Bank to make loans hereunder, as adjusted from time to time pursuant to Section 6 or Section 14.9. The amount of the Commitment of each Bank on the Second Amendment Effective Date is set forth on Schedule I." 1.4 Commitment Reduction Date. The definition of Commitment Reduction Date in Section l of the Credit Agreement is deleted. 1.5 Foreign Joint Venture. Section l of the Credit Agreement is amended by adding the following definition of Foreign Joint Venture in proper alphabetical order: "'Foreign Joint Venture' means any joint venture formed under the laws of a jurisdiction other than that of the United States or any state thereof that is not a Subsidiary of the Company." 1.6 Required Banks. The definition of Required Banks in Section l of the Credit Agreement is amended to read as follows: "Required Banks means Banks having an aggregate Percentage of 51% or more." 1.7 Second Amendment Effective Date. Section l of the Credit Agreement is amended by adding the following definition of Second Amendment Effective Date in proper alphabetical order: "Second Amendment Effective Date has the meaning specified in the Second Amendment, dated as of March 31, 1997, among the Company, the Banks and the Agent." 1.8 Termination Date. The definition of Termination Date in Section l of the Credit Agreement is amended to read as follows: "Termination Date means December 31, 1999 or such other date on which the Commitments shall terminate pursuant to Section 6 or 12." 1.9 Interest Period. The last sentence of Section 4.3 of the Credit Agreement is amended to read as follows: "The Company may not select an Interest Period which would end after December 31, 1999." 1.10 Non-Use Fee. Section 5.1 of the Credit Agreement is amended to read as follows: "5.1 Non-Use Fee. The Company agrees to pay to the Agent for the accounts of the Banks (pro rata according to their respective Percentages) a non-use fee for each day in the period from and including the Second Amendment Effective Date to but excluding the Termination Date at the rate of 0.25% per annum on the daily average of the unused portion of the Aggregate Commitment. Such non-use fee shall be payable in arrears on the last day of each calendar quarter and on the Termination Date for any period then ending for which such non-use fee shall not have been theretofore paid. The non-use fee shall be computed for the actual number of days elapsed on the basis of a year of 360 days." 1.11 Reduction or Termination of Commitments. Section 6.1 of the Credit Agreement is amended to read as follows: "6.1 Voluntary Reduction or Termination. The Company may from time to time on at least five Business Days' prior written notice received by the Agent (which shall promptly advise each Bank thereof) permanently reduce the amount of the Commitments to an amount not less than the aggregate unpaid principal amount of the Loans then outstanding. Any such reduction shall be in an integral multiple of $1,000,000. All reductions of the Commitments shall be pro rata among the Banks according to their respective Percentages. The Company may at any time on like notice terminate the Commitments upon payment in full of the Notes and all other obligations of the Company hereunder." 1.12 Financial Information. Section 9.4 of the Credit Agreement is amended by (a) deleting "December 31, 1993" and inserting in its place "December 31, 1995", and (b) deleting "June 30, 1994" and inserting in its place "September 30, 1996". 1.13 Net Worth. Section 10.6.1 of the Credit Agreement amended to read as follows: "10.6.1 Minimum Net Worth. Not permit Net Worth at any time to be less than the sum of (a) $24,054,714, plus (b) the total of (l) an amount equal to the sum of 75% of Consolidated Net Income for each Fiscal Quarter then ended, commencing with the Fiscal Quarter ending March 31, 1997, without giving effect to any Fiscal Quarter in which Consolidated Net Income is negative, plus (2) 100% of stock option proceeds received by the Company after December 31, 1996, minus (3) 100% of the purchase price paid by the Company to repurchase shares of its common stock after December 31, 1996." 1.14 Maximum Leverage. Section 10.6.2 of the Credit Agreement is amended to read as follows: "10.6.2 Maximum Leverage. Not Permit the Leverage Ratio as of the last day of any Fiscal Quarter to exceed 1.75 to 1.0." 1.15 Maximum Debt/Capitalization Ratio. Section 10.6.3 of the Credit Agreement is hereby deleted. 1.16 Limitations on Debt. Clause (d) of Section 10.7 of the Credit Agreement is amended by deleting "$1,000,000" and inserting "$5,000,000" in its place. 1.17 Capital Expenditures. Section 10.9 of the Credit Agreement is amended by deleting "$1,500,000" and inserting "$2,500,000" in its place. 1.18 Guaranties. Loans. Advances. Clause (ii) (x) of Section 10.11 of the Credit Agreement is amended by deleting "$1,000,000" and inserting "$5,000,000" in its place. 1.19 Mergers; Acquisitions. Clause (iii) (d) of Section 10.12 of the Credit Agreement is amended by deleting "$2,000,000" and inserting "$5,000,000" in its place. 1.20 Investments. Clause (e) of Section 10.13 of the Credit Agreement is amended by deleting "$2,500,000" and inserting "$5,000,000" in its place. 1.21 Further Assurances. The proviso to Section 10.17 of the Credit Agreement is amended to read as follows: "provided that, (A) unless the Required Banks so request, neither D&P of Europe nor Duff & Phelps Credit Rating Co. of Asia shall be obligated to perfect the Agent's security interest in any of its tangible assets located outside the United States of America and (B) so long as such Investment is permitted under Section 10.13 and unless (l) the Required Banks so request or (2) the Investment in any such Person exceeds $500,000, the Company shall not be required to pledge its ownership interests in any Foreign Joint Venture." 1.22 Judgments. Section 12.1.8 of the Credit Agreement is amended by deleting "$2,000,000" and inserting "$5,000,000" in its place. 1.23 Litigation Expenses. Section 12.1.9 of the Credit Agreement is amended by deleting "$2,000,000" and inserting "$3,000,000" in its place. 1.24 Schedule I. Schedule I to the Credit Agreement is amended to read as set forth on Exhibit A hereto. SECTION 2 INTEREST AND FEES. Amendments set forth above that affect the rate at which interest or fees accrue or are calculated under the Credit Agreement shall not be retroactive to any period prior to the Second Amendment Effective Date. SECTION 3 REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Banks as follows: 3.1 Credit Agreement Warranties. Each warranty of the Company set forth in Section 9 of the Credit Agreement, as amended by this Amendment (as so amended, the "Amended Credit Agreement"), is true and correct as of the date of the execution and delivery of this Amendment by the Company, with the same effect as if made on such date. 3.2 Event of Default. No Event of Default or Unmatured Event of Default has occurred and is continuing. 3.3 Authorization: No Conflict. The (a) execution and delivery by (i) the Company of this Amendment, the New Note (as defined below), the Company Pledge Agreement (as defined below) and the Security Agreement Letter Agreement (as defined below), and (ii) Duff & Phelps Credit Rating Co. of Asia ("D&P of Asia") of the Guaranty and the Security Agreement and (iii) each Guarantor of the Consent of Guarantors (as defined below) and the Security Agreement Letter Agreement, and (b) performance by (i) the Company of its obligations under the Amended Credit Agreement, the New Note, and each other Loan Document to which it is a party and (ii) each Guarantor of the Guaranty and each other Loan Document to which it is a party, are within the corporate powers of the Company and such Guarantor, as applicable, have been duly authorized by all necessary corporate action on the part of the Company and such Guarantor, have received all necessary governmental approval, and do not and will not (x) violate any provision of law or of any order, decree or judgment which is binding on the Company or such Guarantor, (y) contravene or conflict with, or result in a breach of, any provision of the Certificate of Incorporation or By-Laws of the Company or such Guarantor or of any agreement, indenture, instrument or other document which is binding on the Company or such Guarantor or (z) result in, or require, the creation or imposition of any Lien on any property of the Company or such Guarantor (other than Liens arising under the Loan Documents). 3.4 Validity and Binding Nature. Upon the execution and delivery hereof by all of the parties hereto and thereto, each of this Amendment, the New Note, the Company Pledge Agreement Amendment, the Security Agreement Letter Agreement, the Amended Credit Agreement and each other Loan Document to which the Company is a party will be legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms. 3.5 Guaranty. After the effectiveness of this Amendment, the Guaranty and each other Loan Document to which each Guarantor is a party will continue in full force and effect and will continue to be the legal, valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms. SECTION 4 EFFECTIVENESS. The amendments set forth in Section l hereof shall become effective, as of the day and year first above written, on the later of (x) the date first written above and (y) the date when all of the following conditions precedent have been satisfied (such later date being the "Second Amendment Effective Date") (a) the Agent shall have received all of the following, each in form and substance satisfactory to the Agent: (i) counterparts of this Amendment executed by the Company, the Agent and the Required Banks; (ii) the Consent of Guarantors substantially in the form of Exhibit B attached hereto (the "Consent of Guarantors") executed by each Guarantor; (iii) an assignment of The Northern Trust Company's Commitment and outstanding Loans to Bank of America Illinois; (iv) a Note (the "New Note") issued to the Bank of America Illinois in the amount of $20,000,000; (v) an opinion of Lord, Bissell and Brook, counsel to the Company and the Guarantors; (vi) counterparts of the Guaranty executed by D&P of Asia; (vii) counterparts of the Security Agreement executed by D&P of Asia (with the schedules thereto completed with respect to D&P of Asia); (viii) counterparts of an amendment to the Company Pledge Agreement (the "Company Pledge Agreement Amendment"), together with all certificates evidencing the capital stock of D&P of Asia and undated stock powers relating thereto executed in blank; (ix) Uniform Commercial Code financing statements naming D&P of Asia as debtor and the Agent as secured party in appropriate form for filing in such jurisdictions as the Agent may request; (x) certified copies of resolutions of the Board of Directors of the Company authorizing or ratifying the execution and delivery of this Amendment, the New Note and the Company Pledge Agreement Amendment and the performance by the Company of its obligations under the Amended Credit Agreement, the New Note and the Company Pledge Agreement (as amended by the Company Pledge Agreement Amendment); (xi) a certificate of the Secretary or an Assistant Secretary of the Company certifying the names of the officer or officers authorized to sign this Amendment, the New Note and the Company Pledge Agreement Amendment, together with a sample of the true signature of each such officer; (xii) certified copies of resolutions of the Board of Directors of each Guarantor authorizing or ratifying the execution and delivery of the Consent of Guarantors (and, in the case of D&P of Asia, the Guaranty and the Security Agreement) and the performance by such Guarantor of its obligations under the Guaranty and the other Loan documents to which it is a party; (xiii) a certificate of the Secretary or Assistant Secretary of each Guarantor certifying the names of the officer or officers of such Guarantor authorized to sign the Consent of Guarantors (and, in the case of D&P of Asia, the Guaranty and the Security Agreement); (xiv) a letter agreement relating to the Security Agreement executed by the Company and each Guarantor (the "Security Agreement Letter Agreement") and UCC-3 amendments to the financing statements currently on file against the Company and D&P of Europe; (xv) UCC search results for financing statements naming D&P of Asia as debtor filed with the Illinois Secretary of State; (xvi) evidence of the insurance required by Section 10.3 of the Credit Agreement; and (xvii) a certificate of the Company as to the satisfaction of the conditions set forth in Section 4(c) of this Amendment; (b) the Agent shall have received a $25,000 closing fee for the account of Bank of America Illinois; and (c) the representations and warranties contained in Section 3 of this Amendment shall be true and correct in all material respects and no Event of Default or Unmatured Event of Default shall have occurred and be continuing. SECTION 5 MISCELLANEOUS. 5.1 Continuing Effectiveness. etc. Except herein amended or as amended by the agreements referred to herein, the Credit Agreement and each other Loan Document shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the Second Amendment Effective Date, all references in the Credit Agreement to "this Agreement", and all references in any Loan Document to "Credit Agreement", shall refer to the Amended Credit Agreement. 5.2 Counterparts. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. 5.3 Governing Law. This Amendment shall be a contract made under and governed by the internal laws of the State of Illinois. 5.4 Successors and Assigns. This Amendment shall be binding upon the parties hereto and their respective successors and assigns, and shall inure to the benefit of the parties hereto and the respective successors and assigns of the Banks and the Agent. 5.5 Agent's Fee. The agency fees set forth in that certain letter agreement dated October 31, 1994 between BofA that become due after the Second Amendment Effective Date shall not be payable; however, BofA shall be entitled to receive and retain all such fees that become due prior to the Second Amendment Effective Date. Delivered at Chicago, Illinois, as of the day and year first above written. DUFF & PHELPS CREDIT RATING CO. By /s/ Marie C. Becker -------------------------------------- Name Marie C. Becker Title Vice President & Secretary BANK OF AMERICA ILLINOIS, as Agent By /s/ David L. Graham -------------------------------------- Name David L. Graham Title Vice President BANK OF AMERICA ILLINOIS, ` By /s/ Paul R. Frey -------------------------------------- Name Paul R. Frey Title Senior Vice President EX-27 3 EXHIBIT 27 (FDS)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATION FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 MAR-31-1997 251 0 10,609 246 0 497 7,831 3,315 42,121 9,000 7,500 2,518 0 0 22,386 24,904 0 14,395 0 10,102 0 0 119 4,352 1,836 2,516 0 0 0 2,516 .44 .44
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