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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 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from to
___________________
Commission File No. 0-29454
POWER-ONE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-040182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
740 CALLE PLANO 93012
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (805) 987-8741
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
_________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [x] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 16, 1998 was approximately $90 million.
As of March 16, 1998, 17,059,585 shares of the Registrant's $0.001 par value
common stock were outstanding.
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1
TABLE OF CONTENTS
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PAGE
PART I ----
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holder . . . . . . . . 13
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters. . . . . . . . . . . . . . . . . . 14
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation . . . . . . . . . . . . . . . . . . . . . 19
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures . . . . . . . . . . . . . . . . . . . . 24
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . 24
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 25
Item 12. Security Ownership of Certain Beneficial Owners and Management . . 25
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . 25
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . F-1
Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . . . . . S-1
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
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UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES HEREIN TO THE COMPANY OR
POWER-ONE REFER COLLECTIVELY TO POWER-ONE, INC., ITS WHOLLY-OWNED SUBSIDIARIES
POWER-ELECTRONICS, INC. ("P-E") AND PODER UNO DE MEXICO, S.A. DE C.V. ("PODER
UNO"), AND THE COMPANY'S PREDECESSORS.
THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 THAT CAN BE IDENTIFIED BY THE
USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT,"
"ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE COMPANY CAUTIONS THAT THE
MATTERS SET FORTH UNDER "RISK FACTORS," CONSTITUTE CAUTIONARY STATEMENTS
IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS,
INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement (the "Definitive Proxy
Statement") to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A and relating to the Company's 1998 annual meeting of stockholders
are incorporated by reference into Part III.
PART I
ITEM 1 - BUSINESS
THE COMPANY
Power-One is a leading designer and manufacturer of power supplies for
electronic equipment manufacturers in the U.S. The Company manufactures a broad
line of more than 700 high-quality brand name products that it sells to both
distributors and OEMs who place a premium on quality, reliability and service.
The Company's products are sold to an installed base of more than 10,000
customers in the communications, automatic test equipment, medical equipment,
industrial and other electronic equipment industries. Power-One's customers
include OEM's which are industry leaders such as Cisco Systems, General
Electric, Hewlett-Packard, Siemens, Teradyne and Texas Instruments. The Company
is also a leading provider of power supplies to electronic distribution
customers in the U.S., including Arrow/Pemco, Future Electronics, Kent
Electronics, Pioneer Standard Electronics and Sterling/Marshall Electronics.
INDUSTRY AND MARKET OVERVIEW
Power supplies perform many essential functions relating to the supply,
regulation and distribution of electrical power within electronic equipment.
Electronic systems require a precise and constant supply of electrical power at
one or more voltage levels. Traditional power supplies, known as AC/DC, convert
alternating current ("AC") from a primary power source, such as a utility
company, into a precisely controlled direct current ("DC"). Virtually every
electronic device that plugs into an AC wall socket requires some type of AC/DC
power supply. DC/DC converters modify one DC voltage level to other DC levels to
meet the needs of various electronic subsystems and components. Power supplies
are also used to regulate and monitor voltages to protect the electronic
components from surges or drops in voltage, to perform functions that prevent
electronic equipment from being damaged by its own malfunction, or to provide
back-up power in the event that a primary power source fails.
MERCHANT AND CAPTIVE MANUFACTURERS. Merchant manufacturers like the Company
design and manufacture power supplies for use by others. Captive manufacturers
are OEMs that design and manufacture power supplies in-house for use within
their own products.
CUSTOM AND STANDARD PRODUCTS. Custom power supplies are designed for a
specific customer to meet the exact form, fit and function for a specific
application. Custom products are characterized by (i) long lead times of 4 to 12
months from initial prototype to full production; (ii) significant up-front
engineering costs; and (iii) relatively high volume
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production requirements. Standard power supplies are products designed to
appeal to a wide range of customers and applications. Standard power supplies
offer benefits to the OEM in that there are no up-front engineering charges
or minimum order quantities and the product is readily available, which
allows the OEM to reduce its time-to-market for new products. In addition,
standard products have lower risks associated with technology, production
ramps, and customer product qualification. Modified standard power supplies
are standard products that have been altered in a way that does not change
the basic product architecture. Modified standard products are characterized
by (i) short lead times; (ii) low up-front engineering costs; and (iii) small
minimum order quantities.
PRODUCTS
The Company's power supplies encompass both standard and modified standard
products, as well as a unique modular high-power product line. Standard power
supplies are not typically industry-wide standards; rather, they are power
supplies that a company manufactures as its standard catalog products that can
be used for many different applications. Unlike some technology products, power
supplies, whether standard, modified standard, or custom, can be difficult to
match exactly or replace with products manufactured by another supplier without
considerable investment. Modified standard products are the Company's standard
products that have been slightly modified to meet a customer's needs.
Power-One's unique modular designs have allowed it to create more than 1,400
configurations of high-power supplies with custom-like features that meet its
customers' diverse requirements. In contrast to custom products, Power-One's
standard and modular designs reduce time-to-market and minimize costs for new
product introductions. The Company is benefiting from the proliferation of
electronic products and services, from the increasing demand for electronic
equipment and from the shorter product life cycles brought about by today's
changing technology.
The Company has developed its extensive catalog of power supply products
over the past 20 years. The Company produces over 700 standard and modified
standard power supplies and converters, as well as unique modular power supplies
that the Company has sold in over 1,400 configurations. All of these products
are sold under the Power-One brand name. These products cover a broad range of
applications, from 1 to 30 watts for DC/DC converters and from 5 to 4,000 watts
for AC/DC power supplies.
The Company's products are divided into the following main categories:
LINEAR. Power-One is an industry leader in standard linear AC/DC products and
has manufactured linear products since the Company's founding in 1973. Linear
products offer low noise and excellent voltage regulation specifications,
characteristics required for specialized applications such as analog to digital
converters and operational amplifiers used in the instrumentation industry.
Certain applications that require low noise, such as high precision medical
equipment, will continue to use linear products. The Company, however, expects
the linear business, which accounted for approximately 23% of its revenues in
1997, to decline slightly in the coming years as customers redesign their
products to use switching power supplies.
LOW-RANGE POWER SWITCHERS. The Company developed a line of low-range power
switchers as a complement to its linear power supply products in the early 1980s
when switching technology first became stable and cost-effective. A second
generation of low-range power products was developed by Power-One in 1989. These
switchers use enhanced, smaller components and a higher quality regulation
circuitry which allows the product to work in a broad range of applications
similar to those of the mature low-range power switchers described above. These
products use a universal input voltage circuit which automatically determines if
the AC line is 110 or 220 volts, allowing the products to be used worldwide
without modification. Power-One has recently introduced a third generation of
low-range power switchers which are targeted at the higher volume customers and
the communications markets. This new series provides Power Factor Correction,
which will be required to meet European standards in the coming years and which
allows more power to be taken from a standard AC wall outlet.
MID-RANGE POWER SWITCHERS. Power-One's mid-range power switchers were
introduced in 1993.
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These modular products are configured at the Company's factories into a broad
array of voltage and current combinations, making them ideal for those
customers requiring quick turnaround without incurring charges for custom
development. In September 1994, the Company began shipping a new line of
dedicated, non-modular products to provide its customers with additional
low-cost alternatives within the mid-range power area. The Company expanded
the mid-range power line's features and options in 1995 to include Power
Factor Correction.
HIGH-RANGE POWER SWITCHERS. The Company's high-range power switchers were
introduced in 1987. This line was one of the industry's first modular products
within the high-power range. The Company has been able to meet almost all of its
customers' high-power requirements with its modular high-range power line. In
1997, the Company expanded the upper-end of its high-power range from 2,500
watts to 4,000 watts.
DC/DC CONVERTERS. The Company manufactures over 80 different types of DC/DC
converters that range in power from 1-30 watts. Unlike AC/DC products, DC/DC
converters are typically compatible with power supplies manufactured by others
and can often replace competitors' DC/DC products. DC/DC converters of more than
30 watts typically involve high density packaging techniques. The Company has
begun expanding its DC/DC line beyond 30 watts, although it has not had any
prior experience with high density packaging. There can be no assurance that
this line, if implemented, will be successful or that the Company will be able
to produce high density packaged products. See "Risk Factors-Dependence on
Electronic Equipment Industries; Technological Change."
CUSTOM PRODUCTS. Power-One designs and manufactures custom products for select
OEM customers to meet unique requirements in size, wattage or configuration. The
volume of a custom product run must be sufficiently large to offset the tooling
and design charges incurred in association with the customization. While
Power-One's emphasis has been on standard products, the Company believes its
large technology base of standard products and standard circuit designs can be
used as "platforms" to allow the Company to quickly and effectively address the
needs of the "custom" market.
CUSTOMERS
The Company sells its power supplies to OEMs and distributors and,
indirectly through its distributors, to over 10,000 customers. The percentages
of products sold by the Company to distributors and OEM customers, respectively,
in 1995, 1996 and 1997, were as follows:
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1995 1996 1997
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Distributors 48% 51% 43%
OEM Customers 52% 49% 57%
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Power-One's base of OEM customers are in diverse market segments such as
communications, automatic test equipment, medical equipment, and industrial.
Many of the OEMs are Fortune 500 companies and leaders in their respective
industries. Power-One's top 25 OEM customers include well-recognized names
such as Cisco Systems, General Electric, Hewlett-Packard, Siemens, Teradyne
and Texas Instruments. OEM sales in 1996 and 1997 were to the following
market segments:
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MARKET SEGMENT (1) 1996 1997
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Communications 26% 30%
Automatic Test Equipment/Semiconductor Equip 21% 32%
Medical Equipment 22% 12%
Industrial 10% 9%
Retail Equipment/Gaming 11% 6%
Computer and Other 10% 11%
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(1) The Company does not track the percentage of sales to each market
segment by its distributors. The Company believes, however, that the
highest percentage of such sales are to the industrial segment.
The Company has found that OEMs generally prefer not to change suppliers
once a power supply has been designed into a product, due to the fact that such
change often requires time-consuming and costly re-testing and re-certification
by one or more regulatory agencies. It is also very difficult for another
manufacturer to precisely replicate a power supply unit which is already
incorporated into a product. Thus, once the Company has supplied an end-user
with a quality product, the Company is usually able to retain the customer for
the duration of the life-cycle of that customer's particular product.
SALES AND MARKETING
At December 31, 1997, Power-One's sales department consisted of 22
professionals, including five regional sales managers strategically located
across the country, three strategic account managers, three product line
managers and a comprehensive technical support and service staff. This group
sells Power-One's products to distributors and OEMs.
The Company has contractual agreements with approximately 20 manufacturers'
representatives, who collectively have more than 200 salespeople in more than 40
offices throughout the U.S. These manufacturers' representatives, who are
indirectly managed by Power-One's regional managers, are the Company's primary
sales interface to OEMs. While the Company's manufacturers' representatives
handle a variety of products, none of them represent a competing power supply
manufacturer.
SMALL ACCOUNT SALES BY INDUSTRIAL DISTRIBUTORS. The Company estimates that
more than 10,000 customers purchased Power-One products through industrial
electronic distributors in 1997. Most of these customers are small electronics
companies who purchase their power supplies from industrial distributors, either
directly or through catalogs. Most small customers prefer to purchase all of
their electronic components, including power supplies, from distributors with
whom they have an established business relationship and terms of credit.
Power-One believes it has one of the largest domestic electronic
distribution networks in the power supply industry. The Company has contractual
agreements with over 30 distribution companies who have locations in more than
160 cities worldwide. Twenty-two of the distribution companies are located in
the U.S. and, collectively, have branches in every major city in the U.S. and
Canada. Many of these distributors have been selling Power-One's products for
over 10 years. Power-One believes that its distribution network is enhanced by
customer loyalty to the Power-One brand and the Company's wide range of
standardized products. Sales to the Company's largest distributor, Pioneer
Standard Electronics, accounted for 11%, 15% and 12% of the Company's net sales
in 1995, 1996 and 1997, respectively. No other distributor accounted for more
than 10% of the Company's annual net sales during the last three years. The
Pioneer relationship has been in existence for more than ten years. See "Risk
Factors-Reliance on Major Customers."
OEM AND STRATEGIC ACCOUNT SALES. The Company does not rely on any one customer
or industry for the majority of its sales. Teradyne, which accounted for 11% of
the Company's net sales in 1995, 8% in 1996 and 15% in 1997, and Cisco, which
accounted for 11% of net sales in 1997, are the only OEM customers to account
for more than 10% of the Company's net sales in any year since 1994. The
Company's top 25 OEM customers accounted for approximately 48% of the Company's
total sales in 1997. The percentage of the Company's OEM business is expected to
rise in the future, as more emphasis is placed on strategic accounts. In 1997,
the Company formed a strategic accounts program that specifically targets
existing and potential customers who are leaders in high-growth industries and
who have the potential of ordering over $3 million of power supplies annually.
See "Risk
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Factors-Reliance on Major Customers."
ADVERTISING. Power-One's advertising and promotional programs have helped the
Company achieve what it believes is one of the most recognized brand names in
the power supply industry. The Company regularly advertises in a variety of
industry journals to generate customer awareness and to reinforce the Power One
brand. Advertising and promotion expenses have historically been approximately
0.75% of sales. The Company also advertises through the use of press releases,
direct mail programs and catalogs. The Company maintains an Internet web site at
"www.power-one.com" which was upgraded during 1997. The web site now features
"PROBE," an interactive search engine that helps customers select the right
power supply depending on their application needs. The web site also features a
technical reference section, regulatory agency specifications, application notes
and a corporate overview section which further amplifies the Company's
capabilities.
RESEARCH AND DEVELOPMENT; ENGINEERING
The Company's product research and development is directed from its
facilities in Camarillo, which is anchored by an engineering department
staffed by 55 full-time employees that also coordinate research and
development efforts at the Company's subsidiaries Poder-Uno and P-E which
have an engineering staff of 38 and 15, respectively. The Company's research
and development activities are principally directed to the development of new
standard power supply products to satisfy general customer needs and to
"sustaining engineering" used to support existing products and customers.
Within its target markets, the Company strives to expand the number of
products using its power supplies by approaching current and potential
customers and discussing their future product directions and requirements. A
portion of the engineering activities are involved with creating custom
products, with the related expense of such work being partially reimbursed by
the customer through non-recurring engineering charges. Power-One's research
activities also focus on improved power conversion efficiency, product and
component cost reductions, improved ease of manufacturing, and reduction of
product size. Customers in the Company's target markets require product
designs to be completed quickly. Thus, the Company focuses on reducing design
cycle time without reducing the quality of the design.
MANUFACTURING
A typical power supply consists primarily of a printed circuit board,
electronic components, transformers and other electromagnetic components, and a
sheet metal chassis. The production of the Company's power supplies entails the
assembly of circuit boards using pin-through-hole and automated surface mount
interconnection technology.
Power-One generally uses the low-cost labor force available in the
Dominican Republic and Mexico to manufacture and assemble its products. The
Company typically manufactures and assembles most of its low-range power
products in the Dominican Republic; the majority of the remaining products are
manufactured in Mexico. Some of the Company's high-power products are assembled
in Camarillo. The Company also performs some light manufacturing in Puerto Rico,
a facility that is primarily used as a distribution center. After the Company
manufactures products in the Dominican Republic, it transports the finished
products to its Puerto Rico facility. The products are then shipped to either
the Company's California headquarters or directly to customers. The Company
believes that its workers produce high-quality power supplies in an efficient,
high-yield and cost-effective manner.
Many of the Company's customers and other end-users increasingly require
that their power supplies meet or exceed established international safety and
quality standards as their operations expand internationally. In response to
this need, Power-One designs and manufactures power supplies in accordance with
the certification requirements of many international agencies, such as
Underwriters Laboratories Incorporated (UL) in the U.S.; the Canadian Standards
Association (CSA) in Canada; Technischer Uberwachungs-Verein (TUV) and Verband
Deutscher Electrotechniker (VDE) in Germany; the British Approval Board for
Telecommunications (BABT) in the United Kingdom; and International
Electrotechnical Committee (IEC), a European standards organization.
QUALITY MANAGEMENT
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Quality products and responsiveness to the customer's needs are of critical
importance in Power-One's efforts to compete successfully. The Company strives
for continuous improvements in its processes, products, and services. The
Company's Camarillo facility is certified to ISO 9001, and its foreign locations
are certified to ISO 9002. Through its commitment to customer service and
quality, the Company believes it is able to provide superior value to its
customers.
SUPPLIERS
Power-One typically designs products using components readily available
from several sources and attempts to avoid components that are only attainable
through one source. Although some components are sourced from only one
manufacturer, raw materials are generally available in large quantities from a
number of different suppliers. The Company has a number of volume purchase
agreements ("VPAs") with selected suppliers of key items such as wire, fuses,
resistors, connectors, capacitors, sheet metal and semiconductors. The use of
VPAs, typically 12 to 18 months in duration, are designed to provide Power-One
constant availability of required supplies, thereby reducing inventory expense
and producing substantial cost savings from volume discounts. The Company has
never had a significant supply shortage that has materially adversely affected
the Company. There can be no assurance, however, that such a supply shortage
will not occur in the future, particularly as the expanding electronics industry
increases demand for supplies. See "Risk Factors-Supplier Dependence."
MANAGEMENT INFORMATION TECHNOLOGY; YEAR 2000 CONVERSION
Management information systems include various databases to measure and
improve delivery, process yields, quality and reliability, designs and
performance. The Mexico and Camarillo facilities are fully integrated, while the
Caribbean and Camarillo operations are partially integrated. A wide area
communications network is installed in all manufacturing facilities.
Manufacturing software is used in conjunction with MRP II.
The Company is currently in the process of planning to replace its
Enterprise Resource Planning ("ERP") system with a fully integrated Year 2000
certified system to be in place by the end of 1999. The key objectives of the
new IT systems software are to further improve the Company's IT
infrastructure by providing to management the tools available in a new
generation of systems software to facilitate rapid information retrieval, to
allow for flexibility in modifications related to business growth, to
facilitate business systems integration of acquired companies, to provide a
clear audit trail detailing the source of information, and to be fully Year
2000 compliant and certified. This ERP system conversion project will require
significant planning and implementation resources on a company-wide basis and
will compete for management's time accordingly.
Although the Company believes that it is taking appropriate measures
against disruption of its systems related to the Year 2000 issue, there can be
no assurance that the Company will identify all of the problems in advance or be
able to successfully correct all of the problems that are identified. There can
also be no assurance that the Company's suppliers and customers, or the
distributors and manufacturers' representatives with which it does business,
will not be adversely affected by the Year 2000 issue.
In the event that the Company's new ERP system does not achieve anticipated
results, orders and customer deliveries could be adversely affected, which could
have a material adverse impact on the Company's financial statements. Similarly,
to the extent that the Company's suppliers, distributors and manufacturers'
representatives do not correct their computer systems, the Company's results
could be adversely affected.
BACKLOG
Sales are made pursuant to purchase orders rather than long-term contracts.
Backlog consists of purchase orders on hand having delivery dates scheduled
within the next six months. Power-One's backlog increased 86.1% to $32.2 million
at December 31, 1997, as compared to $17.3 million at December 31, 1996.
Although customers may cancel or reschedule deliveries without penalty, the
Company's backlog has historically been a reliable
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8
indicator of future financial results. The Company does not expect backlog to
be as reliable an indicator in the future as customers switch more orders to
just-in-time deliveries. As a result, backlog may decrease even if sales
increase. See "Risk Factors-Fluctuations in Quarterly Results."
COMPETITION
The Company believes that there are more than 300 merchant power supply
manufacturers in the U.S. with Power-One being one of the 15 largest.
Power-One's competition in the highly fragmented and intensely competitive power
supply market includes companies located throughout the world, some of which
have advantages over the Company in terms of labor and component costs, and
which may offer products comparable in quality to those of the Company. Certain
of the Company's competitors have greater resources and geographic presence than
the Company. Management believes that the principal bases of competition in
Power-One's targeted market are breadth of product line, quality, reliability,
technical knowledge, flexibility, readily available products and, to a lesser
degree, price. However, in times of an economic downturn, or when dealing with
high-volume orders, the Company believes price becomes an increasingly important
competitive factor. Additionally, captive power supply manufacturers are
expected to provide minimal amounts of competition to the Company since most
OEMs focus on their core businesses; however, there can be no assurance that
OEMs will not present greater competition to the Company in the future.
INTELLECTUAL PROPERTY MATTERS
Certain equipment, processes, information and knowledge developed by
Power-One and used in the design and manufacture of its products are regarded as
proprietary by the Company. The Company relies on a combination of trade secret
and other intellectual property laws, confidentiality agreements executed by
most of its Camarillo employees, and other measures to protect its proprietary
rights. Power-One currently holds three patents in the U.S. and one related
patent registered in Europe, Japan, Taiwan, and Mexico relating to proprietary
technology used in its products, as well as four trademarks. The remaining terms
for these trademarks vary from one to six years and, subject to use, the Company
expects to renew each mark for another 10 to 20 years. The Company's U.S.
patents expire in 2006, 2007 and 2008, its patent for Europe, Japan and Mexico
expires in 2008 and its patent for Taiwan expires in 2005. Patents and other
proprietary information are of value to the Company, but they are not key
factors in determining the Company's overall success, which depends principally
on its emphasis on quality, reliability, service and value.
The Company's DC/DC converters are manufactured under a license from Calex
which was entered into in 1996. Under the license agreement Power-One, subject
to certain exceptions and Calex' right to manufacture its own products, received
the exclusive right through 2001, which extends to 2006 if the Company is not in
default, and a non-exclusive right after 2001, to manufacture all Calex standard
DC/DC products of less than 60 watts as well as all new standard DC/DC products
of less than 60 watts that may be developed prior to the end of 2001 by Calex.
The Company pays a fixed royalty for the first three years of the license and
has no payment obligations thereafter. Calex also has obtained the right to
purchase materials from the Company's suppliers and pays the Company a royalty
on such purchases.
EMPLOYEES
At December 31, 1997, the Company had a total of 2,335 full-time employees,
of whom 210 were employed in California, 29 were employed in Puerto Rico, 1,038
were employed in Mexico and 1,058 were employed in the Dominican Republic.
The Company believes that its continued success depends, in part, on its
ability to attract and retain qualified personnel. The Company considers its
relations with its employees to be good. None of the Company's employees is
represented by a union.
RISK FACTORS
DEPENDENCE ON ELECTRONIC EQUIPMENT INDUSTRIES; TECHNOLOGICAL CHANGE
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9
Many of Power-One's existing customers are in the electronic equipment
industries and produce products that are subject to rapid technological change,
obsolescence and large fluctuations in product demand. These industries are
characterized by intense competition and end-user demand for increased product
performance at lower prices. Power-One's customers make similar demands on their
suppliers, including the Company. There can be no assurance that the Company
will properly assess developments in the electronic equipment industries and
identify product groups and customers with the potential for continued and
future growth.
If the Company does not adequately anticipate significant technological
advances or develop and market product enhancements or new products that respond
to any significant technological change in a timely manner, the Company's
financial statements could be materially adversely affected. There can be no
assurance that the Company's research and development efforts will result in
commercially successful new technology and products in the future. In addition,
as the technical complexity of new products increases, it may become
increasingly difficult to introduce new products quickly and according to
schedule, and there can be no assurance that any such new products will be
accepted by the Company's customers. See "Business-Customers."
RELIANCE ON MAJOR CUSTOMERS
During 1996 and 1997, the Company's top three customers for each period,
consisting of two distributors and one OEM in 1996 and one distributor and two
OEMs in 1997, accounted for approximately 30% and 39%, respectively, of the
Company's net sales. The loss of any of the Company's major customers could have
a material adverse effect on the Company's financial statements. The Company's
customers are not contractually obligated to utilize the Company's products or
services. There can be no assurance that a customer will not transfer, reduce
the volume of, or cancel a power supply order, each of which could adversely
affect the Company's financial statements. In addition, there is a risk that a
distributor could cease distributing the Company's products, either because it
no longer desires to distribute the Company's products or because the
distributor merges with another company that distributes competing products. In
the summer of 1997, one of the Company's primary distributors, who accounted for
5.6% of the Company's total sales in 1996, merged with another distributor. As a
result, the distributor no longer carries the Company's products. While the
Company believes, based on its discussions with various distributors and other
customers, that most of the major end-users who previously purchased the
Company's products from this distributor will continue to purchase such products
through other distributors or directly from the Company, there is no assurance
that such a termination in the future will not cause a loss of sales which could
have a material adverse effect on the Company's financial statements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business-Sales and Marketing."
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly results of operations have fluctuated in the past
and may continue to fluctuate in the future. Variations in volume production
orders and in the mix of products sold by the Company have significantly
affected net sales and gross profit. Operating results generally may also be
affected by other factors, including the receipt and shipment of large orders,
plant utilization, product mix, manufacturing process yields, the timing of
expenditures in anticipation of future sales, raw material availability and
pricing, product and price competition, the length of sales cycles and economic
conditions in the electronics industry. Many of these factors are outside the
control of the Company.
The Company does not obtain long term purchase orders or commitments from
its customers, and a substantial portion of sales in a given quarter may depend
on obtaining orders for products to be manufactured and shipped in the same
quarter in which those orders are received. Sales for future quarters may be
difficult to predict. The Company relies on its estimates of anticipated future
volumes when making commitments regarding the level of business that it will
seek and accept, the mix of products that it intends to manufacture, the timing
of production schedules and the levels and utilization of
<PAGE>
10
personnel, inventory and other resources. A variety of conditions, both
specific to the individual customer and generally affecting the customer's
industry, may cause customers to cancel, reduce or delay orders that were
previously made or anticipated. At any time, a significant portion of the
Company's backlog may be subject to cancellation or postponement without
penalty. The Company cannot ensure the timely replacement of canceled,
delayed or reduced orders. Significant or numerous cancellations, as well as
reductions or delays in orders by a customer or group of customers, could
materially adversely affect the Company's financial statements. The Company's
expense levels are relatively fixed and are based, in part, on expectations
of future revenues. Consequently, if revenue levels are below expectations,
the Company's financial statements could be materially adversely affected.
Additionally, if the Company increases its percentage of high-volume
business, the Company's gross margin will decrease since high-volume power
supply sales typically have a lower gross margin than small to medium-volume
sales. High-volume orders, especially custom orders, if canceled, may
substantially increase the risk of inventory obsolescence, write-offs due to
excess manufacturing capacity and collection problems. Due to all of the
foregoing factors, in some future quarter or quarters the Company's operating
results may be below the expectations of securities analysts and investors
and the Company's gross margins may decrease. In such event, the price of the
Company's Common Stock could likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON INTERNATIONAL OPERATIONS
The Company has substantially all its manufacturing operations outside of
the U.S. and such operations are subject to certain inherent risks, including
tariffs, quotas, taxes and other market barriers, political and economic
instability including work stoppages or strikes, restrictions on the export or
import of technology, potentially limited intellectual property protection,
difficulties in staffing and managing international operations and potentially
adverse tax consequences. There can be no assurance that any of these factors
will not have a material adverse effect on the Company's financial condition or
results of operations. In addition, while the Company transacts business
predominantly in U.S. dollars and most of its revenues are collected in U.S.
dollars, a substantial portion of the Company's labor costs are denominated in
other currencies such as the Mexican peso and the Dominican Republic peso and a
portion of the Company's material costs are denominated in Asian and European
currencies. Fluctuations in the value of the U.S. dollar relative to foreign
currencies will affect the Company's cost of goods sold and operating margins
and could result in exchange losses. The impact of future exchange rate
fluctuations on the Company's financial statements cannot be accurately
predicted. Historically, the Company has not actively engaged in substantial
exchange rate hedging activities.
SUPPLIER DEPENDENCE
The Company is dependent on its suppliers for timely shipments of
components and typically uses a primary source of supply for each component used
in its products. Establishing alternate sources of supply, if needed, could take
a significant period of time which might result in supply shortages for the
Company. In some cases components are sourced from only one manufacturer and an
interruption in supply could materially adversely affect the Company. Any
shortages of particular components may adversely affect the Company's business
by increasing product delivery times, increasing costs associated with
manufacturing, and reducing gross margins. Additionally, such shortages could
cause a substantial loss of business due to shipment delays. Any significant
shortages or price increases of such components could have a material adverse
effect on the Company's financial statements. The electronic equipment industry
is currently, and for the past few years has been, experiencing significant
growth. If this industry continues to grow, it is foreseeable that a shortage of
components and a resulting increase in the price of the components may occur
which could have a material adverse effect on the Company's financial
statements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business-Suppliers."
ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL
<PAGE>
11
The success of the Company depends to a significant degree on the efforts
of the Company's senior management, especially its Chief Executive Officer,
Chief Financial Officer and other executive officers. The Company's operations
may be adversely affected if one or more members of senior management cease to
be active in the Company. The Company's ability to maintain and enhance product
and manufacturing technologies and to manage any future growth will also depend
on its success in attracting and retaining personnel with highly technical
skills, and the competition for such qualified technical personnel is intense
due to the relatively limited number of power supply engineers worldwide. There
can be no assurance that the Company will be able to attract and retain
qualified management or other highly technical personnel. See
"Business-Employees."
RISKS RELATING TO GROWTH
The Company's growth, through acquisition or otherwise, may require
additional personnel at all levels of the Company, including highly technical
personnel and management, and there can be no assurance that the Company will be
able to attract and retain such individuals. Moreover, the Company's ability to
make successful acquisitions is dependent on numerous factors including the
Company's ability to identify acceptable acquisition opportunities, obtain
adequate financing on terms acceptable to the Company, consummate acquisitions
and successfully integrate new businesses into the Company. The Company may
incur additional indebtedness in connection with a future business acquisition,
and the incurrence of substantial amounts of debt in connection with such
acquisitions could increase the risk of the Company's operations. If the
Company's cash flow and existing working capital are not sufficient to fund its
general working capital requirements or to service its indebtedness, the Company
would have to raise additional funds through the sale of its equity securities,
the refinancing of all or part of its indebtedness or the sale of assets or
subsidiaries. There can be no assurance that any of these alternatives to raise
additional funds would be available in amounts sufficient for the Company to
meet its obligations. The Company has not completed any acquisitions, and there
can be no assurance that the Company will be successful in making future
acquisitions. Failure to effectively integrate acquired businesses into the
Company could adversely affect the Company's financial statements.
MANUFACTURING CAPACITY
The Company believes its long-term competitive position depends in part on
its ability to increase manufacturing capacity and there can be no assurance
that the Company will be able to acquire sufficient capacity or successfully
integrate and manage such additional facilities. The Company is currently
utilizing approximately 85% of its manufacturing capacity and expects that, when
construction of the new facility in Mexico is completed in 1998, its present
operations would utilize approximately 65% of its manufacturing capacity.
Increasing manufacturing capacity may require substantial additional capital,
and there can be no assurance that such capital will be available. In addition,
the Company's expansion of its manufacturing capacity has increased and may
continue to increase its fixed costs, and the future profitability and gross
margins of the Company will partially depend on its ability to utilize its
manufacturing capacity in an effective manner. The failure to obtain sufficient
capacity or to successfully integrate and manage additional manufacturing
facilities could adversely impact the Company's relationships with its customers
and suppliers and materially adversely affect the Company's financial
statements. The Company has large manufacturing facilities in various locations,
and a natural disaster in any such area that results in an interruption of
manufacturing could have a material adverse effect on the Company's financial
statements. Additionally, if the Company is unable to successfully renew any of
its leases, it could be forced to relocate; any delay in relocating may result
in an interruption of manufacturing which could have a material adverse effect
on the Company's financial statements. See "Business-Manufacturing" and
"Facilities."
CONCENTRATION OF OWNERSHIP
The Stephens Group, Inc. and its affiliates (collectively, the
"Stephens Investors"), according to information obtained by the Company
including filings made by the Stephens Investors as of March 15,
<PAGE>
12
1998, own approximately 45.0% of the Company's outstanding Common Stock.
Accordingly, the Stephens Investors may effectively elect the entire Board of
Directors of the Company (the "Board" or the "Board of Directors"), approve
any action requiring stockholder approval (except as otherwise provided by
law) and otherwise control its management, operations and affairs.
RISKS RELATED TO GOVERNMENT REGULATIONS AND PRODUCT CERTIFICATION
The Company's operations, like most businesses, are subject to general
laws, regulations and government policies in the U.S. and abroad relating to
areas such as minimum wage, employee safety and other health and welfare
regulations. Additionally, the Company's product standards are certified by
agencies in various countries including the U.S., Canada, Germany, and the
United Kingdom. As many customers will not order uncertified products, changes
in such certification standards could negatively affect the demand for the
Company's products, result in the need to modify its existing products or affect
the development of new products, each of which may involve substantial costs or
delays in sales and could have a material adverse effect on the Company's
financial statements.
ENVIRONMENTAL RISKS
Power-One is subject to federal, state and local environmental laws and
regulations (in both the U.S. and abroad) that govern the handling,
transportation and discharge of materials into the environment, including into
the air, water and soil. Environmental laws could become more stringent over
time, imposing greater compliance costs and increasing risks and penalties
associated with violations. Should there be an environmental occurrence,
incident or violation, the Company's financial results may be adversely
affected. The Company could be held liable for significant damages for violation
of environmental laws and could also be subject to a revocation of certain
licenses or permits, thereby materially adversely affecting the Company's
financial statements.
ITEM 2 - PROPERTIES
The Company's facilities, all of which are leased by the Company, are
summarized as follows:
<TABLE>
<CAPTION>
FACILITY PRIMARY ACTIVITY APPROXIMATE EXPIRATION
-------- ---------------- SQUARE FOOTAGE OF LEASE
-------------- -------------
<S> <C> <C> <C>
Camarillo, CA Administration, Research 98,000 August 2004
and Development,
Manufacturing, Sheet
Metal Fabrication,
Central Storage,
Marketing and Sales
Santo Domingo, Dominican Low Power Manufacturing 65,000 January 2000(1)
Republic and Assembly
Isabela, Puerto Rico Assembly and 46,000 March 1998(2)
Administration
San Luis, Mexico Manufacturing and 33,000 July 1999(3)
Assembly
San Luis, Mexico Manufacturing and 11,000 May 1999(4)
Assembly
San Luis, Mexico Manufacturing and 22,000 May 1999(4)
Assembly
</TABLE>
(1) Subject to the Company's three consecutive two-year renewal options.
(2) Subject to an option for an additional 5 years which, it is anticipated,
will be exercised.
(3) Subject to the Company's three consecutive one-year renewal options.
(4) Subject to an option for one additional year.
In April 1996, Power-One purchased approximately 404,000 square feet of
land in San Luis, Mexico. The Company commenced construction of a new 110,000
square foot manufacturing facility on this land in early 1998, with an expected
completion before the end of 1998.
<PAGE>
13
Upon completion, the current leased facilities in San Luis would be phased
out. As with any construction project, this new facility will involve many
risks and uncertainties, including, but not limited to, material and labor
shortages, work stoppages, legal challenges, design changes and weather.
Further, engineering, environmental or geological problems and governmental
regulations and approvals could give rise to delays or cost overruns.
ITEM 3 - LEGAL PROCEEDINGS
The Company is involved in routine litigation arising in the ordinary
course of its business. While the outcome of lawsuits against the company cannot
be predicted with certainty, in the opinion of the Company's management, none of
the pending litigation will have a material adverse effect on the Company's
consolidated financial condition or results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive officers of
the Company.
<TABLE>
<CAPTION>
NAME AGE (1) POSITION
---- ------ --------
<S> <C> <C>
Steven J. Goldman 40 President, Chief Executive Officer and
Chairman of the Board
Eddie K. Schnopp 39 Vice President-Finance and Logistics, Chief
Financial Officer and Secretary
Dennis R. Roark 51 Executive Vice President
Brad W. Godfrey 38 Vice President-Worldwide Manufacturing
David J. Hage 51 Vice President-Sales and Marketing
Donna M. Koep 37 Vice President-Human Resources
John A. Martins 38 Vice President-Quality Assurance
</TABLE>
___________
(1) As of March 31, 1998.
STEVEN J. GOLDMAN. Mr. Goldman became the President and Chief Executive
Officer of the Company in 1990 and was named Chairman of the Board in February
1997. Mr. Goldman, who joined the Company in 1982, held several positions in the
Company from 1982 through 1988, including Vice President of Engineering. From
1988 to 1990, Mr. Goldman was a Senior Vice President and the Chief Financial
Officer of the Company. He received his B.S. degree in electrical engineering
from the University of Bridgeport and his M.B.A. degree from Pepperdine
University's Executive program. Mr. Goldman is a contributing member and
co-membership chairman of the San Fernando Valley Chapter of the Young
President's Organization.
EDDIE K. SCHNOPP. Mr. Schnopp was appointed Vice President of Finance and
Logistics of the Company in 1993 and Secretary and Chief Financial Officer of
the Company in 1995. Mr. Schnopp joined Power-One as a member of its Finance
department in 1981 and became its Controller in 1990. He received his B.S.
degree in Accounting from California State University Northridge and is
currently pursuing his M.B.A. degree. Mr. Schnopp is married to Ms. Koep.
DENNIS R. ROARK. Mr. Roark was appointed Executive Vice President of the
Company in 1990. Mr. Roark joined Power-One in 1988 and held the positions of
Director of Research & Development and Vice President of Engineering from 1988
to 1993. Prior to joining Power-One, Mr. Roark co-owned and managed California
D.C. Power Supplies, Inc., a designer and manufacturer of power supplies. He
received his B.S. degree in Engineering from California
<PAGE>
14
Polytechnic University-Pomona.
BRAD W. GODFREY. Mr. Godfrey was appointed Vice President of Worldwide
Manufacturing for Power-One in 1993. He joined PE in 1988 as Plant Manager and
held that position until being appointed President of PE in 1990, a position he
held until he became a Vice President of the Company in 1993. Prior to joining
Power-One, Mr. Godfrey was the owner of Reflections Manufacturing, a furniture
and glass manufacturing company in Canada.
DAVID J. HAGE. Mr. Hage was appointed Vice President of Sales and Marketing
when he joined the Company in 1993. Prior to joining Power-One, Mr. Hage was the
Executive Vice President of Power Convertibles Corporation, a subsidiary of
Burr/Brown, Inc. His previous experience includes Marketing Manager of
International Electric Utility and Field Systems Support Manager at Honeywell,
and Director of Marketing Systems and Director of Marketing Planning at
SGS-Thomson Semiconductors. Mr. Hage received his B.S. degree in Electrical
Engineering from Northern Arizona University and his M.B.A. degree from Arizona
State University.
DONNA M. KOEP. Ms. Koep was appointed Vice President of Human Resources for
the Company in 1995. She joined Power-One as a member of the Human Resource
staff in 1978 and has worked in various positions of increasing responsibility
within the Company. From 1986 to 1995 Ms. Koep served as the Company's Director
of Human Resources. Ms. Koep is married to Mr. Schnopp.
JOHN A. MARTINS. Mr. Martins joined the Company in 1992 as the Director of
Quality Assurance and was appointed Vice-President of Quality Assurance in 1995.
Prior to joining the Company, Mr. Martins held the position of Director of
Quality Assurance for Deltec and PowerMate. He received his B.S. degree in
Industrial Engineering from New Jersey Institute of Technology and is certified
as an ISO-9000 Assessor.
The officers of the Company serve at the discretion of the Board. Each
director of the Company serves until such director's successor is elected and
qualified or until the director's death, retirement, resignation or removal.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is listed on the National Market System of
the National Association of Securities Dealers Automated Quotation ("NASDAQ")
System and is traded under the symbol "PWER." The following table sets forth,
for the quarterly periods indicated, the range of high and low closing sale
prices for the Common Stock as reported by NASDAQ since October 1, 1997, the
date on which the Company's shares first became publicly traded. Prior to
October 1, 1997, there was no established public trading market for the
Company's Common Stock.
<TABLE>
<CAPTION>
1997 HIGH LOW
- ---- ---- ---
<S> <C> <C>
Fourth Quarter 19 5/8 13 7/8
</TABLE>
The number of holders of record of the Company's Common Stock as of March 15,
1998, was 135.
DIVIDEND POLICY
The Company anticipates that all future earnings will be retained to
finance the continuing development of its business and does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. The payment
of any future cash dividends will be at the discretion of the Board and will
depend upon, among other things, future earnings, capital requirements, the
general financial condition of the Company and general business conditions. In
addition, the Company's credit facility restricts the Company's ability to pay
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results
<PAGE>
15
of Operations-Liquidity and Capital Resources."
The Company's subsidiary, P-E, does not currently intend to declare any
dividends. If P-E does declare and pay a dividend to the Company, the Company
may be forced to pay taxes at the statutory rates on such amount. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Certain Income Tax Matters."
ITEM 6 - SELECTED FINANCIAL DATA
GENERAL
Prior to September 27, 1995, Power-One, Inc., a California corporation
("Power CA"), Power-Electronics, Inc., a Puerto Rico corporation ("P-E"), and
Poder Uno de Mexico, S.A. de C.V., a Mexican corporation ("Poder Uno"), were
owned by a small group of investors, including management, each in similar
ownership percentages, and were operated collectively by management located
primarily in California. The financial statements contained in this Annual
Report for periods prior to October 1, 1995 reflect the combined results and
financial condition of Power CA, P-E and Poder Uno (collectively referred to for
the period prior to September 30, 1995 as the "Predecessor Company"). On
September 27, 1995, Power-One LLC, a Delaware limited liability company
("Power-One LLC"), acquired the assets of Power CA and the stock of P-E and
Poder Uno in an arms-length transaction that was negotiated between the Stephens
Investors and the Company's previous owners (collectively, the "Acquisition").
The Stephens Investors acquired approximately 65% of the membership interests of
Power-One LLC, with the remainder being acquired by the Company's senior
management. The aggregate amount of consideration paid by the Stephens Investors
and by the Company's senior management was approximately $15 million as well as
the deferral of approximately $5.3 million that was owed to the Company's senior
management. After the total consideration was determined, the Company's senior
management participated on the same pricing as the Stephens Investors. As of
February 1, 1996, Power-One LLC was reorganized (the "Reorganization") when it
was merged with and into Power-Merger, Inc., a Delaware corporation, which
changed its name to Power-One, Inc. When this merger occurred, there was no
change in the ownership percentages. Power-One was incorporated in Delaware in
January 1996, and Power CA was incorporated in California in 1973.
Power CA had elected to be taxed as an S corporation under the Internal
Revenue Code of 1986, as amended (the "Code"). No federal income tax liability
was incurred by either Power CA (when it was an S corporation) or Power-One LLC,
and the stockholders and members of those entities were directly subject to
federal income taxes on their respective interests in the entities' taxable
income. Power-One is a C corporation and following the Reorganization has paid
federal and state taxes on its income.
<PAGE>
16
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY(1)(2) COMPANY(1)
--------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED NINE MONTHS THREE MONTHS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, ENDED ENDED DECEMBER 31, DECEMBER 31,
1993 1994 SEPTEMBER 30, DECEMBER 31, 1996 1997
---- ---- 1995 1995 ---- ----
---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $50,846 $55,702 $52,732 $20,670 $74,210 $91,583
Cost of goods sold 34,078 35,751 31,525 14,348 45,305 55,481
-------- -------- -------- -------- -------- --------
Gross profit 16,768 19,951 21,207 6,322 28,905 36,102
Selling expense 6,366 6,283 5,680 1,778 6,865 7,023
General and administrative expense 4,222 4,626 4,348 1,760 5,873 6,778
Engineering expense 2,655 2,725 2,397 1,064 3,964 3,754
Quality Assurance expense 972 1,053 919 345 1,585 1,901
Amortization of intangibles 472 2,003 2,029
Other expense 613
-------- -------- -------- -------- -------- --------
Total expense 14,215 14,792 13,344 5,419 20,903 21,485
Income from operations 2,553 5,159 7,863 903 8,002 14,617
Interest expense (543) (629) (494) (1,026) (4,222) (3,181)
Other, net 233 8 33 (36) 12 340
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes 2,243 4,538 7,402 (159) 3,792 11,776
Income taxes (3) 126 75 155 12 396 3,542
-------- -------- -------- -------- -------- --------
Net income (loss) $2,117 $4,463 $7,247 $(171) $3,396 $8,234
-------- -------- -------- -------- -------- --------
-------- -------- --------
Less: Preferred stock accretion
and dividends 0 $1,415 $1,514
-------- -------- --------
Net income (loss) attributable to
common stockholders $(171) $1,981 $6,720
-------- -------- --------
-------- -------- --------
Basic earnings (loss) per
common share(6) $(0.02) $0.20 $0.58
-------- -------- --------
-------- -------- --------
Diluted earnings (loss) per
common share(6) $(0.02) $0.20 $0.56
-------- -------- --------
-------- -------- --------
Pro forma amounts:(3)(4)
Income (loss) before income taxes
as reported $2,243 $4,538 $7,402 $(159) $3,792 $11,776
Pro forma income tax (benefit)
provision 209 1,179 2,767 (121) 923 3,542
-------- -------- -------- -------- -------- --------
Pro forma net income (loss) $2,034 $3,359 $4,635 $(38) $2,869 $8,234
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
<PAGE>
17
Pro forma earnings per share data:(6)
Basic earnings per share $0.65
--------
Diluted earnings per share $0.64
--------
--------
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY(1)(2) COMPANY(1)
------------ ------------- ----------
YEAR ENDED YEAR ENDED NINE MONTHS THREE MONTHS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, ENDED ENDED DECEMBER 31, DECEMBER 31,
1993 1994 SEPTEMBER 30, DECEMBER 31, 1996 1997
---- ---- 1995 1995 ---- ----
---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Gross profit margin 33.0% 35.8% 40.2% 30.6% 39.0% 39.4%
EBITDA(5) $3,368 $5,957 $8,564 $1,718 $12,215 $18,833
Cash flows from (used in):
Operating activities 1,738 4,049 6,420 (2,152) 4,249 8,481
Investing activities (785) (1,663) (1,945) (49,840) (3,457) (5,332)
Financing activities (476) (620) (688) 55,743 (2,859) 27,185
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
--------------- ---------------
1996 1997
---- ----
<S> <C> <C>
BALANCE SHEET DATA:
Working capital $9,511 $61,363
Total assets 72,705 112,637
Total debt 46,578 326
Redeemable preferred stock 16,287 0
Total stockholders' equity 1,125 100,214
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
<PAGE>
18
___________
(1) The Company's and the Predecessor Company's fiscal year is the 52- or
53-week period ending on the Sunday nearest to December 31. For clarity of
presentation the Company has described year-ends presented as if the year
ended on December 31. As such, the years ended December 31, 1993 through
1997 represent 52-week years.
(2) Effective September 27, 1995, the Company acquired substantially all of the
assets and liabilities of the Predecessor Company. For financial reporting
purposes, this acquisition has been treated as if it were effective on
October 1, 1995, the beginning of the Company's fourth quarter. See Note 1
of Notes to Consolidated Financial Statements.
(3) Pro forma information reflects the provision for U.S. federal and state
income taxes as if the Company and the Predecessor Company had been subject
to federal and state income taxation as a C corporation, prior to
January 29, 1996, the date the Company converted from a limited liability
company to a C corporation. Prior to January 29, 1996, net income of the
Company and the Predecessor Company flowed through to their
stockholders/members. For presentation purposes, U.S. federal and state
income taxes have not been provided on earnings of P-E as there is no
intention to remit these earnings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Certain Income
Tax Matters," and Notes 2 and 15 of Notes to Consolidated Financial
Statements.
(4) Gives effect to the exchange of (i) 14,950,848 shares of the Redeemable
Preferred Stock of the Company and accrued dividends thereon with a
liquidation value of $17,558,000, and (ii) $776,000 owed to the executive
officers, each at $14 per share, the initial public offering price of the
Company's stock, into 1,309,585 shares of Common Stock at the closing of
the Offering. Pursuant to applicable rules, pro forma earnings per share
information is presented only for the most recent fiscal year. See Note 2
of Notes to Consolidated Financial Statements.
(5) EBITDA, which the Company calculates as income from operations before
depreciation, amortization and compensation charges for stock option
plans, is a supplemental financial measurement used by the Company in
the evaluation of its business and by many analysts in the Company's
industry. However, EBITDA should only be read in conjunction with all of
the Company's financial data summarized above and its financial
statements prepared in accordance with generally accepted accounting
principles appearing elsewhere herein, and should not be construed as an
alternative either to income from operations (as determined in
accordance with generally accepted accounting principles) as an
indicator of the Company's operating performance or to cash flows from
operating activities (as determined in accordance with generally
accepted accounting principles) as a measure of liquidity.
(6) See Note 2 of Notes to Consolidated Financial Statements, "Earnings Per
Share".
<PAGE>
19
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES AS WELL AS THE SECTION UNDER
THE HEADING "RISK FACTORS."
GENERAL
Power-One is a leading designer and manufacturer of power supplies for
electronic equipment manufacturers in the U.S. The Company manufactures a broad
line of more than 700 high-quality brand name products that it sells to both
distributors and OEMs who place a premium on quality, reliability and service.
The Company's products are sold to an installed base of more than 10,000
customers in the communications, automatic test equipment, medical equipment,
industrial and other electronic equipment industries.
The Company is a successor to Power CA, which was incorporated in 1973 as a
manufacturer of AC/DC power supplies. The Predecessor Company operated solely
from its Southern California facility until 1981, at which time it commenced
additional operations in Isabela, Puerto Rico. In 1988, the Predecessor Company
commenced operations in San Luis, Mexico. These foreign facilities were
established to take advantage of certain labor, manufacturing and, in Puerto
Rico, tax efficiencies. From 1994 to 1996, substantially all Puerto Rican
manufacturing operations were moved to Santo Domingo, Dominican Republic to
capitalize on certain labor benefits, while maintaining the tax benefits
associated with its Puerto Rican subsidiary. In September 1995, the Stephens
Investors and management of the Company purchased the Predecessor Company from
its previous owners and implemented a more aggressive growth strategy for the
Company. In April 1996, the Company further broadened its product offering
through the licensing of certain technology and associated rights from Calex
Manufacturing Company ("Calex"), providing the Company with a line of DC/DC
products.
RESULTS OF OPERATIONS
There are two statements of operations for the 1995 fiscal year. The
first statement of operations presents combined information for the
Predecessor Company during the nine months ended September 30, 1995, while
the second presents consolidated information for the Company for the three
months ended December 31, 1995. For ease of reference, information in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the 1995 fiscal year is presented based upon the sum of
various amounts set forth in the two income statements. The numbers are not
reflective of the results that would have occurred if the Acquisition had
occurred as of January 1, 1995.
The following table sets forth, for the periods indicated, certain Combined
and Consolidated Statements of Operations data as a percentage of net sales:
<PAGE>
20
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 62.5 61.0 60.6
------ ------ ------
Gross profit 37.5 39.0 39.4
Selling expense 10.2 9.3 7.6
General and administrative 8.3 7.9 7.4
Engineering expense 4.7 5.4 4.1
Quality assurance expense 1.7 2.1 2.1
Amortization of intangibles 0.6 2.7 2.2
Other expense 0.0 0.8 0.0
------ ------ ------
Income from operations 12.0 10.8 16.0
Interest expense (2.1) (5.7) (3.5)
Other, net 0.0 0.0 0.4
------ ------ ------
Income before income taxes 9.9 5.1 12.9
Income taxes 3.6 (1) 1.2 (1) 3.9
------ ------ ------
Net income 6.3% (1) 3.9% (1) 9.0%
------ ------ ------
------ ------ ------
</TABLE>
(1) Pro forma for 1995 and 1996.
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996.
NET SALES. Net sales increased $17.4 million, or 23.4%, to $91.6 million for
the year ended December 31, 1997 from $74.2 million for the year ended December
31, 1996. The increase in revenue resulted primarily from strong growth in unit
shipments of standard, modified standard and custom power supplies in both
low-range and high-range power configurations during the third and fourth
quarter of 1997. Price changes in 1997 were not a significant contributor to
overall sales growth. Mirroring the sales increase, Power-One's backlog grew to
$32.2 million at December 31, 1997, compared to $17.3 million at December 31,
1996.
Power conversion product sales increased over 1996 as the result of the
Company's wide range of product offerings, continued growth in existing OEM
customer accounts and distributors, as well as an increased focus by the
Company's strategic national accounts team on key OEM customers.
GROSS PROFIT. Gross profit increased $7.2 million, or 24.9%, to $36.1 million
for the year ended December 31, 1997 from $28.9 million for the year ended
December 31, 1996, primarily as a result of higher sales. For the year ended
December 31, 1997, gross profit margin as a percent of sales increased slightly
to 39.4%, up from 39.0% for the prior year ended December 31, 1996. The
improvement in gross profit margin was primarily due to lower costs of
production following the transfer of manufacturing from the Company's Puerto
Rico facility to its Dominican Republic facility, which was completed towards
the end of 1996.
SELLING EXPENSE. Selling expense increased $158,000, or 2.3%, to $7.0 million
for the year ended December 31, 1997 from $6.9 million for the year ended
December 31, 1996. The increase of $158,000 is primarily due to higher payroll
costs related to an increase in bonuses to the company's sales force of
$465,000, reclassification of certain distribution expense from manufacturing to
selling expense related to the Company's operations in the Dominican Republic
totaling $340,000 and other operating costs aggregating $497,000. These
increases were partially offset by a $639,000 reduction in commissions paid to
manufacturers' representatives as a result of the Company's renegotiating these
commission agreements and an increase in reimbursements from customers for
product repairs of $505,000. As a percent of net sales, selling expense
decreased to 7.6% for the year ended December 31, 1997 from 9.3% for the year
ended December 31, 1996, which is primarily attributable to higher sales volume.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased $905,000, or 15.4%, to $6.8 million for the year ended December 31,
1997 from $5.9 million for the year ended December 31, 1996. As a percent of net
sales, general and administrative expense decreased to 7.4% in 1997 from 7.9% in
1996. The increase of $905,000 is primarily
<PAGE>
21
due to an $861,000 increase in employee performance bonuses as well as growth
in staffing levels of administrative personnel.
ENGINEERING EXPENSE. Engineering expense declined $210,000, or 5.3%, to
$3.8 million for the year ended December 31, 1997 from $4.0 million for the year
ended December 31, 1996. As a percent of net sales, engineering expense
decreased to 4.1% for the year ended December 31, 1997 from 5.4% for the year
ended December 31, 1996. Certain engineering expenses, which had been increased
in the first half of 1996 based upon anticipated sales increases, were reduced,
primarily by the reduction of administrative personnel as well as a reduction in
the use of consultants, in the last half of 1996 as sales declined. The Company
believes that no strategic business was affected by this reduction. The Company
refilled many of these positions by the end of the third quarter of 1997, and
management expects its investment in engineering to increase in 1998.
QUALITY ASSURANCE EXPENSE. Quality assurance expense increased $316,000, or
19.9%, to $1.9 million for the year ended December 31, 1997 from $1.6 million
for the year ended December 31, 1996. As a percent of net sales, quality
assurance expense was 2.1% for both 1997 and 1996. The increase of $316,000 is
primarily due to higher payroll costs related to growth in staffing levels to
support the increase in quality activities generated by the increase in sales
volume and due to lower reimbursements from customers for safety agency fees.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations increased $6.6 million, or 82.7%, to $14.6 million for the year ended
December 31, 1997 from $8.0 million for the year ended December 31, 1996. As a
percent of sales, income from operations increased to 16.0% for the year ended
December 31, 1997 from 10.8% for the year ended December 31, 1996.
INTEREST EXPENSE. Interest expense decreased $1.0 million, or 24.7%, to
$3.2 million for the year ended December 31, 1997 from $4.2 million for the year
ended December 31, 1996. This decrease was the result of lower bank borrowings
and the repayment of all amounts outstanding under the Company's existing bank
credit facility with the net proceeds from the Company's initial public offering
("IPO") in the fourth quarter.
OTHER INCOME. Other income increased $328,000, to $340,000 for the year ended
December 31, 1997, from $12,000 for the year ended December 31, 1996, and is due
to interest income generated from investment of a portion of the proceeds from
the initial public offering in short-term, interest bearing instruments.
INCOME TAXES. The provision for income taxes increased $2.6 million, to $3.5
million for the year ended December 31, 1997, from the pro forma tax expense of
$923,000 for the year ended December 31, 1996. Income taxes as a percent of net
sales increased to 3.9% in 1997 from a pro forma 1.2% in 1996. The percentage
increase primarily reflects an increase in the Company's effective tax rate from
24.3% in 1996 to 30.1% in 1997 resulting from a higher proportion of the
Company's earnings being generated in the U.S. rather than in Puerto Rico.
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
NET SALES. Net sales increased $808,000, or 1.1%, to $74.2 million in 1996
from $73.4 million in 1995. The Company believes that revenues did not grow at
historical rates because of the downturn in certain electronic equipment
markets, especially in the semiconductor industry, in the second half of 1996.
As a result, certain OEM customers reduced their purchasing levels from the
Company. Additionally, electronics distributors began experiencing lower sales
and higher inventory levels, and orders from the Company were significantly
reduced in the fourth quarter of 1996.
GROSS PROFIT. Gross profit increased $1.4 million, or 5.0%, to $28.9 million
in 1996 from $27.5 million in 1995. Gross profit margins increased to 39.0% in
1996 from 37.5% in 1995. Gross profit margins in 1995 were adversely affected by
approximately two percentage points as a result of the sale of certain inventory
in the fourth quarter of 1995, the carrying value of which had been increased by
approximately $1.5 million as a result of the
<PAGE>
22
Acquisition. After normalizing the gross margins for this increase, gross
profit margins decreased 0.5% in 1996. This 0.5% decrease resulted primarily
from a different product mix.
SELLING EXPENSE. Selling expense decreased $593,000, or 8.0%, to $6.9 million
in 1996 from $7.5 million in 1995. As a percent of net sales, selling expense
decreased to 9.3% in 1996 from 10.2% in 1995. These decreases resulted primarily
from decreases in bonuses of $220,000, a decrease in freight expense of $215,000
and an increase in reimbursements from customers for product repairs of
$197,000. These savings were offset in part by an increase in general office
expenses aggregating $39,000.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
decreased $235,000, or 3.8%, to $5.9 million in 1996 from $6.1 million in 1995.
As a percent of net sales, general and administrative expense decreased to 7.9%
in 1996 from 8.3% in 1995. These decreases resulted primarily from a decrease in
bonuses of $1.0 million and the elimination of $363,000 in payments to the
executive committee of the Predecessor Company which were partially offset by an
increase in bad debt expense of $335,000, higher expenses relating to the
expansion of the Company's operations in the Dominican Republic totaling
$767,000 and general costs aggregating $26,000.
ENGINEERING EXPENSE. Engineering expense increased $503,000, or 14.5%, to
$4.0 million in 1996 from $3.5 million in 1995. As a percent of net sales,
engineering expense increased to 5.4% in 1996 from 4.7 % in 1995. These
increases were primarily the result of the increase in certain engineering
expenses in the first half of 1996 based upon anticipated sales increases,
offset in part by reductions in these expenses as sales declined in the last
half of the year.
QUALITY ASSURANCE EXPENSE. Quality assurance expense increased $321,000, or
25.4%, to $1.6 million in 1996 from $1.3 million in 1995. As a percent of net
sales, quality assurance expense increased to 2.1% in 1996 from 1.7% in 1995.
These increases are primarily due to a reclassification of quality assurance
expense from manufacturing costs to quality assurance expense related to the
Company's operations in the Dominican Republic.
AMORTIZATION OF INTANGIBLES. The amortization of intangibles, as a percent of
net sales, increased to 2.7% in 1996 from 0.6% in 1995. The $2.0 million in 1996
reflects a full year of amortization of intangible assets incurred in connection
with the Acquisition and a partial year's amortization of the license for DC/DC
power supplies entered into in April 1996. The $472,000 in 1995 reflects the
amortization for the fourth quarter of 1995 of intangible assets incurred in
connection with the Acquisition.
OTHER EXPENSE. Other expense was $613,000, or 0.8% of net sales in 1996. This
expense reflects costs incurred in connection with the transfer of production
from Puerto Rico to the Dominican Republic.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations decreased $764,000, or 8.7%, to $8.0 million in 1996 from
$8.8 million in 1995. As a percent of net sales, income from operations
decreased to 10.8% in 1996 from 12.0% in 1995.
INTEREST EXPENSE. Net interest expense increased $2.7 million, to $4.2 million
in 1996 from $1.5 million in 1995. This increase relates primarily to the full
year effect in 1996 versus a partial year effect in 1995, of the debt incurred
in connection with the Acquisition in September 1995.
PRO FORMA INCOME TAXES. The pro forma income tax rate decreased in 1996 to
24.3% from 36.5% in 1995. The 1995 effective tax rate was higher than historical
pro forma levels because of lower earnings in Puerto Rico as a result of certain
duplicative expenses incurred while production was transferred to the Dominican
Republic, causing a disproportionate share of the Company's profits to be
generated and taxed in the U.S.
CERTAIN INCOME TAX MATTERS
The Company has operated in Puerto Rico since 1981 under various exemptions
that
<PAGE>
23
provide for lower taxes on profits attributable to Puerto Rico. These
exemptions most recently have been granted pursuant to the Puerto Rico
Industrial Incentives Act of 1987. Under the provisions of the most recent
exemption, which was granted in 1994 when the Company's manufacturing activities
in Puerto Rico were moved to the Dominican Republic, the Company has been
granted a 90% partial tax exemption from property or income taxes on income
derived from distributing products from Puerto Rico and a 60% exemption on
municipal license taxes. This exemption is valid through 2010. Additionally, P-E
has operations in the Dominican Republic in a tax-free enterprise zone and,
accordingly, pays no income taxes in connection with its operations in that
country. The Company does not provide for U.S. federal and state income tax that
would be paid on earnings of its Puerto Rico operation if such earnings were
remitted to the U.S., as there is no intention to remit these earnings. At
December 31, 1997, accumulated unremitted earnings totaled approximately
$6.3 million for the Puerto Rico operation. In the event that the Company does
remit earnings to the U.S., it may be required to pay taxes at the normal U.S.
rate. The Company's operations in Mexico are subject to various income and
corporate taxes on earnings generated in Mexico. These taxes have not been
material to date.
The Predecessor Company operated as a Subchapter S corporation for tax
reporting purposes until the Acquisition on September 27, 1995. At such time,
the Company was organized as a limited liability company. Effective January 29,
1996, the Company converted from a limited liability company to a C corporation,
which is subject to both U.S. federal and state income taxes. During the periods
in which the Predecessor Company operated as an S corporation and the Company
operated as a limited liability company, taxes for federal and most state income
tax purposes on earnings were paid directly by the owners.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's cash position had increased to $32.0
million from $1.7 million at December 31, 1996. The increase in cash of $30.3
million was attributable to the Company's initial public offering of 5,750,000
shares of Common Stock on September 30, 1997. The net proceeds of the offering
to the Company, after deducting related expenses, were $73.8 million. The
Company used $36.7 million of the net proceeds from the IPO to repay all
outstanding bank borrowings under the Company's then existing bank credit
facility. An additional $5.6 million of the net proceeds were used to pay
amounts owed to certain of the Company's officers pursuant to their employment
and compensation agreements and another $242,000 was used to redeem the
Redeemable Preferred that was not exchanged for Common Stock. The remainder of
the net proceeds of the IPO will be used for general corporate purposes,
including capital expenditures, working capital and possible future
acquisitions. Pending use of the net proceeds for the above purposes, the
Company has invested such funds in short-term and medium-term, interest-bearing
investment-grade obligations.
During the year ended December 31, 1997, the Company had cash flow from
operations of $8.5 million compared to cash flow from operations of $4.2 million
in the comparable period in 1996. Cash flow from operations increased primarily
due to higher net income and a $1.6 million increase in accounts payable and
accrued expenses that were partially offset by increases in accounts receivable
of $2.8 million and increases in inventories of $3.5 million. Accounts payable
and accrued expenses increased as a function of higher sales. The increase in
accounts receivable primarily resulted from a change in billing terms with the
Company's distributors which increased days sales outstanding from its
distributors to an average of 45 days from an average of 15 days, as well as
higher sales. The growth in inventories is directly related to sales growth with
inventory turnover remaining stable.
The Company historically has funded its operations primarily from cash flow
provided by operations and short and long-term borrowings. Major cash
expenditures in 1997 included the purchase of $5.2 million of capital equipment.
Additionally, in 1997 the Company repaid $36.7 million of bank borrowings and
$5.6 million in amounts owed to certain officers of the Company in conjunction
with the Company's IPO.
The Company currently anticipates that its capital expenditures for 1998
will be approximately $8.9 million, of which approximately $4.5 million
represents the cost of the new manufacturing facility in Mexico, $0.9 million
represents investments in surface mount
<PAGE>
24
manufacturing equipment and the balance represents investments in property,
plant and equipment in line with the continued upgrading of the Company's
manufacturing facilities. The amount of these anticipated capital
expenditures will frequently change based on future changes in business plans
and condition of the Company and changes in economic conditions.
On December 10, 1997, the Company amended its credit agreement with a
syndicate of banks led by NationsBank of Texas, N.A, which previously provided
the Company with a revolving line of credit and a term loan aggregating
approximately $47.0 million in available credit into a revolving line of credit
of up to $50.0 million. The amended credit agreement has a maturity date of
December 10, 2002, and will be used to finance acquisitions, working capital,
and capital expenditure requirements.
The Company's revolving line of credit bears interest on amounts
outstanding payable quarterly based on the Company's leverage ratio and one of
the following rates as selected by the Company: LIBOR plus 1.0% to 2.25%, or the
bank's base rate plus 0% to 1.25%. As of December 31, 1997, no amounts were
outstanding under the credit agreement. Borrowings are collateralized by
substantially all of the Company's assets.
The credit agreement (i) provides for restrictions on additional
borrowings, dividends, leases and capital expenditures; (ii) prohibits the
Company, without prior approval, from paying dividends, liquidating, merging,
consolidating or selling its assets or business; and (iii) requires the Company
to maintain a specified net worth, minimum working capital and certain ratios of
current liabilities and total debt to net worth. At December 31, 1997, the
Company was in compliance with all debt covenants.
In connection with the credit agreement the Company entered into an
interest rate swap and swaption agreement. These agreements were terminated
concurrently with the repayment of the outstanding borrowings under the credit
facilities at a nominal value to the Company.
The Company believes its existing working capital and borrowing capacity,
coupled with the funds generated from the Company's operations, the net proceeds
remaining from the IPO and the $50.0 million credit line with NationsBank will
be sufficient to fund its anticipated working capital, capital expenditures and
debt payment requirements for the foreseeable future. However, if the Company
makes a large acquisition, it may be necessary to raise debt or equity in the
private or public securities markets.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in Item 14(a)(1)
hereof are incorporated herein by reference and are filed as part of this Annual
Report on Form 10-K beginning on page F-1.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information relating to directors required by this item will be
contained under the captions "Board of Directors" and "Election of Directors"
in the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not
later than 120 days after the close of the fiscal year ended December 28,
1997, (the "Proxy Statement") and is incorporated herein by reference.
The information relating to executive officers required by this item is
included in Part I under the caption "Executive Officers."
The information required by Item 405 will be contained under the caption
"16(a) Beneficial Ownership Reporting" contained in the Company's Proxy
Statement and is incorporated herein by reference.
<PAGE>
25
ITEM 11 - EXECUTIVE COMPENSATION
The information called for by this item will be contained under the caption
"Executive Compensation" in the Company's Proxy Statement and is incorporated
herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item will be contained under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item will be contained under the caption
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement and is incorporated herein by reference.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
(a)(1) FINANCIAL STATEMENTS
The following financial statements are filed as a part of this report:
<TABLE>
<CAPTION>
POWER-ONE, INC. PAGE
--------------- ----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated and Combined Statements of Operations F-3
Consolidated Statements of Redeemable Preferred Stock and
Stockholders'/Members' Equity F-5
Combined Statement of Stockholders' Equity--Predecessor Company F-6
Consolidated and Combined Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
</TABLE>
(a)(2) SCHEDULES
The following financial statement schedule is filed as a part of this
report.
<TABLE>
<CAPTION>
POWER-ONE, INC. PAGE
--------------- ----
<S> <C>
Schedule II: Valuation and Qualifying Accounts S-1
</TABLE>
(b) REPORTS ON FORM 8-K
During the three months ended December 31, 1997, the registrant did not
file any reports on Form 8-K.
(c) EXHIBITS
The exhibits listed below are filed as part of, or incorporated by
reference, into this report.
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<S> <C>
1.1* Form of Underwriting Agreement
3.1* Form of Restated Certificate of Incorporation of the Company
3.2* Form of Amended and Restated Bylaws of the Company
4.1* Specimen of Common Stock Certificate
10.1* Form of Indemnification Agreement between the Company and its
directors, executive officers and certain other officers
10.2* Form of Employment and Compensation Agreements between the Company and
Mr. Goldman, Mr. Schnopp, Mr. Roark, Mr. Hage, and Mr. Godfrey
10.3* Form of Amendment to Employment and Compensation Agreements
</TABLE>
<PAGE>
26
<TABLE>
<S> <C>
10.5* 1996 Stock Incentive Plan
10.6* Amended and Restated 1996 Stock Incentive Plan
10.7* Form of Management Bonus Plan
10.11* Security Agreement between the Company and NationsBank of Texas, N.A.,
dated February 1, 1996
10.12* Form of Pledge Agreement
10.13* Product and Component Agreement, including the related License
Agreement, between the Company and Calex Manufacturing Company dated
April 2, 1996
10.14* P-E Tax Exemption Grant dated January 4, 1995
10.16* Form of Employee Stock Purchase Plan
10.17* Form of Selection Letter between Company and each executive officer
10.18* Amendment to Employment and Compensation Agreement dated September 11,
1997
10.19* Letter Explaining Selection Letter between Company and each executive
officer
10.20 Amended and Restated Credit Agreement among the Company, NationsBank of
Texas, N.A. and certain lenders, dated December 10, 1997
21* List of Subsidiaries
23 Independent Auditors' Consent
24 Power of Attorney (contained on Signature Page)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
</TABLE>
___________
* Previously filed as an exhibit to the Registration Statement on Form S-1
of Power-One, Inc. (File No. 333-32889).
<PAGE>
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this annual report Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
POWER-ONE, INC.
Date: March 27, 1998 By: /s/ Steven J. Goldman
Steven J. Goldman
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Act of 1934, this annual
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated below.
We the undersigned directors and officers of Power-One, Inc. hereby
constitute and appoint Steven J. Goldman and Eddie K. Schnopp, or any of them,
our true and lawful attorneys and agents, to do any and all acts and things in
our name and behalf in our capacities as directors and officers and to execute
any and all instruments for us and in our names in the capacities indicated
below, that said attorneys and agents, or either of them, may deem necessary or
advisable to enable said corporation to comply with the Securities and Exchange
Act of 1934, as amended, any rules, regulations, and requirements of the SEC, in
connection with this Report, including specifically, but not limited to, power
and authority to sign for us or any of us in our names and in the capacities
indicated below, any and all amendments and supplements to this Report, and we
hereby ratify and confirm all that the said attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman of the Board, Chief
/s/ Steven J. Goldman Executive Officer and President March 27, 1998
(Steven J. Goldman) (Principal Executive Officer)
Vice President, Finance and
/s/ Eddie K. Schnopp Logistics, Chief Financial Officer March 27, 1998
(Eddie K. Schnopp) and Secretary (Principal Financial
and Accounting Officer)
/s/ Jon E. M. Jacoby Director March 27, 1998
(Jon E. M. Jacoby)
/s/ Douglas H. Martin Director March 27, 1998
(Douglas H. Martin)
/s/ Dr. Albert Y. C. Yu Director March 27, 1998
(Dr. Albert Y. C. Yu)
</TABLE>
<PAGE>
F-1
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
POWER-ONE, INC. PAGE
--------------- ----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated and Combined Statements of Operations F-3
Consolidated Statements of Redeemable Preferred Stock and
Stockholders'/Members' Equity F-5
Combined Statement of Stockholders' Equity--Predecessor Company F-6
Consolidated and Combined Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Power-One, Inc.:
We have audited the accompanying consolidated balance sheets of Power-One, Inc.
and its subsidiaries (the "Company") as of December 31, 1996 and 1997 and the
related consolidated and combined statements of operations, redeemable preferred
stock and stockholders'/members' equity, and of cash flows of the Company and
its Predecessor Company for each of the periods in the three years ended
December 31, 1997. Our audit also includes the financial statement schedule
listed at Item 14. These financial statements and financial statement schedule
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 audits 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as of
December 31, 1996 and 1997, and the consolidated and combined results of the
Company's and its Predecessor Company's operations and cash flows for each of
the periods in the three years ended December 31, 1997 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As described in Note 1 to the financial statements, on September 27, 1995, the
net assets of the Predecessor Company were acquired by the Company. The
acquisition has been accounted for by the purchase method of accounting, and
accordingly, the acquisition price has been allocated to the assets acquired and
liabilities assumed based on the estimated fair values on the date of
acquisition. As such, the amounts reported for the Company are not comparable
to the amounts shown for the Predecessor Company in prior periods.
Deloitte & Touche LLP
Los Angeles, California
February 23, 1998
<PAGE>
F-2
POWER-ONE, INC.
CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
ASSETS (Notes 6 and 7) 1996 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,684 $ 32,018
Accounts receivable:
Trade, less allowance for doubtful
accounts: $638 - 1996; $825 - 1997 10,391 13,268
Other 397 328
Inventories (Note 3) 18,840 22,369
Refundable income taxes 29 2,411
Deferred tax assets - current (Notes 2 and 15) 834 976
Prepaid expenses and other current assets 380 467
-------- ---------
Total current assets 32,555 71,837
PROPERTY AND EQUIPMENT, Net (Note 4) 8,884 11,898
INTANGIBLE ASSETS, Net (Note 2) 29,210 27,181
OTHER ASSETS 1,574 1,721
DEFERRED TAX ASSETS, Noncurrent (Notes 2 and 15) 482
-------- ---------
TOTAL $ 72,705 $ 112,637
-------- ---------
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank (Note 6) $ 10,400 $
Current portion of long-term debt (Note 7) 3,929 326
Bank overdraft 656
Accounts payable 2,892 4,465
Accrued payroll and related expenses 536 652
Other accrued expenses (Note 8) 4,631 5,031
-------- ---------
Total current liabilities 23,044 10,474
-------- ---------
LONG-TERM DEBT, Less current portion (Note 7) 26,326
--------
DEFERRED TAX LIABILITY, Noncurrent (Notes 2 and 15) 1,949
-------- ---------
OTHER LIABILITIES (Note 9) 5,923
--------
COMMITMENTS AND CONTINGENCIES (Notes 10 and 13)
REDEEMABLE PREFERRED STOCK, Stated value $1.00; aggregate
liquidation value of $16,543 at December 31, 1996 and $0
at December 31, 1997 (Note 11) 16,287
--------
STOCKHOLDERS' EQUITY (Notes 11 and 12):
Common stock, par value $0.001, 60,000,000 shares authorized;
10,000,000 shares issued and outstanding at December 31, 1996 and
17,059,585 issued and outstanding at December 31, 1997,
respectively 10 17
Additional paid-in capital 90 92,227
Notes receivable from stockholders (Note 5) (225)
Retained earnings 1,250 7,970
-------- ---------
Total stockholders' equity 1,125 100,214
-------- ---------
TOTAL $ 72,705 $ 112,637
-------- ---------
-------- ---------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
F-3
POWER-ONE, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
-----------------------------------------
PERIOD FROM
NINE OCTOBER 1, 1995
MONTHS (INCEPTION) YEAR ENDED
ENDED THROUGH DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, ------------------------
1995 1995 1996 1997
<S> <C> <C> <C> <C>
NET SALES (Note 14) $ 52,732 $ 20,670 $ 74,210 $ 91,583
COST OF GOODS SOLD (Note 1) 31,525 14,348 45,305 55,481
-------- -------- -------- --------
GROSS PROFIT 21,207 6,322 28,905 36,102
-------- -------- -------- --------
EXPENSES:
Selling 5,680 1,778 6,865 7,023
General and administrative 3,985 1,760 5,873 6,778
Engineering 2,397 1,064 3,964 3,754
Quality assurance 1,282 345 1,585 1,901
Amortization of intangible assets 472 2,003 2,029
Other 613
-------- -------- -------- --------
Total expenses 13,344 5,419 20,903 21,485
-------- -------- -------- --------
INCOME FROM OPERATIONS 7,863 903 8,002 14,617
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 65 24 28 358
Interest expense (Notes 6 and 7) (494) (1,026) (4,222) (3,181)
Other income (expense) (32) (60) (16) (18)
-------- -------- -------- --------
Total other expense (461) (1,062) (4,210) (2,841)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 7,402 (159) 3,792 11,776
INCOME TAXES (Notes 2 and 15) 155 12 396 3,542
-------- -------- -------- --------
NET INCOME (LOSS) $ 7,247 (171) 3,396 8,234
--------
--------
PREFERRED STOCK ACCRETION
AND DIVIDENDS (Note 11) - 1,415 1,514
-------- -------- --------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (171) $ 1,981 $ 6,720
-------- -------- --------
-------- -------- --------
BASIC EARNINGS (LOSS) PER COMMON
SHARE $ (0.02) $ 0.20 $ 0.58
-------- -------- --------
-------- -------- --------
DILUTED EARNINGS (LOSS) PER
COMMON SHARE $ (0.02) $ 0.20 $ 0.56
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
(Continued)
<PAGE>
F-4
POWER-ONE, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
-----------------------------------------
PERIOD FROM
NINE OCTOBER 1, 1995
MONTHS (INCEPTION) YEAR ENDED
ENDED THROUGH DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, ------------------------
1995 1995 1996 1997
<S> <C> <C> <C> <C>
PRO FORMA INFORMATION (Note 2):
Income (loss) before income tax as reported $ 7,402 $ (159) $ 3,792 $ 11,776
Pro forma income tax (benefit) provision
(Unaudited) 2,767 (121) 923 3,542
-------- -------- -------- --------
Pro forma net income (loss) (Unaudited) $ 4,635 $ (38) $ 2,869 $ 8,234
-------- -------- -------- --------
-------- -------- -------- --------
PRO FORMA EARNINGS PER SHARE DATA
(Note 2):
Basic earnings per share $ 0.65
-------
-------
Diluted earnings per share $ 0.64
-------
-------
</TABLE>
See notes to consolidated financial statements.
(Concluded)
<PAGE>
F-5
POWER-ONE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'/MEMBERS'
EQUITY
PERIOD FROM OCTOBER 1, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995,
YEAR ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 (Notes 9 and 11) (Dollars in
thousands)
<TABLE>
<CAPTION>
STOCKHOLDERS'/MEMBERS' EQUITY
-----------------------------------------------------------------------
REDEEMABLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE RETAINED
--------------------- MEMBERS' -------------------- PAID-IN FROM EARNINGS
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL STOCKHOLDERS (DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1995 (Inception) $ - $ - $ - $ -
Contribution of members capital 14,972 (200) 14,772
Interest on notes receivable from
stockholders (5) (5)
Net loss (171) (171)
-------- ------ ------ -------
BALANCE, DECEMBER 31, 1995 14,972 (205) (171) 14,596
Net distribution to members of
Power-One LLC (560) (560)
Effect of conversion from
limited liability
company to C corporation 15,153,698 $ 14,872 (14,972) 10,000,000 $ 10 $ 90 (14,872)
Interest on notes receivable
from stockholders (20) (20)
Accretion of preferred stock to
redemption value 26 (26) (26)
Accrual of preferred stock
dividend 1,389 (1,389) (1,389)
Net income 3,396 3,396
---------- -------- --------- ---------- ----- ------ ------- ------ -------
BALANCE, DECEMBER 31, 1996 15,153,698 16,287 - 10,000,000 10 90 (225) 1,250 1,125
Interest on notes receivable
from stockholders (15) (15)
Accrual of preferred stock
dividend 1,258 (1,258) (1,258)
Accretion of preferred stock to
redemption value 256 (256) (256)
Stock option compensation expense 16 16
Conversion of other liabilities to
common stock 55,408 776 776
Conversion of preferred stock to
common stock (14,950,848) (17,559) 1,254,177 1 17,558 17,559
Repurchase of preferred stock (202,850) (242)
Payment on notes receivable
from stockholders 240 240
Stock issuance to public 5,750,000 6 80,494 80,500
Stock issuance costs (6,707) (6,707)
Net income 8,234 8,234
---------- -------- --------- ---------- ----- ------- ------- ------ --------
BALANCE, DECEMBER 31, 1997 - $ - $ - 17,059,585 $ 17 $92,227 $ - $ 7,970 $100,214
---------- -------- --------- ---------- ----- ------- ------- ------ --------
---------- -------- --------- ---------- ----- ------- ------- ------ --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
F-6
POWER-ONE INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY - PREDECESSOR COMPANY
NINE MONTHS ENDED SEPTEMBER 30, 1995 (Dollars in Thousands)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
POWER-ELECTRONICS, INC.
-----------------------------------
POWER-ONE, INC. VOTING NONVOTING PODER-UNO NOTES
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK RECEIVABLE
--------------- --------------- ------------------ ----------------- FROM RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1994 718,335 $ 157 72,580 $ 42 7,117,300 $ 3 $11,253 $11,455
Notes receivable
from stockholders $ (789) (789)
Net income 7,247 7,247
------- ------ ------ ----- ------ ------ --------- ------- -------- ------- -------
BALANCE,
SEPTEMBER 30, 1995 718,335 $ 157 72,580 $ 42 - $ - 7,117,300 $ 3 $ (789) $18,500 $17,913
------- ------ ------ ----- ------ ------ --------- ------- -------- ------- -------
------- ------ ------ ----- ------ ------ --------- ------- -------- ------- -------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
F-7
POWER-ONE, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
----------------------------------------
PERIOD FROM
NINE OCTOBER 1, 1995
MONTHS (INCEPTION) YEAR ENDED
ENDED THROUGH DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, -----------------------
1995 1995 1996 1997
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,247 $ (171) $ 3,396 $ 8,234
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 701 815 4,213 4,216
Deferred income taxes (1,316) 2,289
Changes in operating assets and liabilities:
Accounts receivable, net (2,726) (928) (1,501) (2,808)
Inventories (5,443) (733) 946 (3,529)
Refundable income taxes (4) 21 25 (2,382)
Prepaid expenses and other current assets (75) (140) 148 (87)
Accounts payable 3,937 (499) (1,771) 1,573
Accrued expenses 2,783 (517) (415) 516
Other liabilities 524 459
-------- ------- -------- --------
Net cash provided by (used in)
operating activities 6,420 (2,152) 4,249 8,481
-------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,928) (1,480) (2,903) (5,185)
Purchase of Power-One, net of acquired cash
of $4,452 (42,158)
Payment to Power-Electronics, Inc. shareholders (5,000)
Payments for purchased technology (391)
Other assets (17) (1,202) (163) (147)
-------- ------- -------- --------
Net cash used in investing activities (1,945) (49,840) (3,457) (5,332)
-------- ------- -------- --------
</TABLE>
See notes to consolidated financial statements.
(Continued)
<PAGE>
F-8
POWER-ONE, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
----------------------------------------
PERIOD FROM
NINE OCTOBER 1, 1995
MONTHS (INCEPTION) YEAR ENDED
ENDED THROUGH DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, -----------------------
1995 1995 1996 1997
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligations $ (113)
Proceeds from borrowings on notes payable
to bank $ 11,200 $ 2,300
Repayments of note payable to bank 1,193 (3,100) $ (10,400)
Bank overdraft 385 (229) (749) (656)
Proceeds from borrowings on long-term debt 30,000 3,250
Repayments of long-term debt (414) (4,000) (29,929)
Dividends paid (950)
Proceeds from issuance of members capital 14,772
Net distributions to members of Power-One LLC (560)
Increase in notes receivable from
shareholders (789)
Proceeds from sale of common stock - net 73,793
Proceeds from notes receivable from
stockholders 225
Repurchase of preferred stock (242)
Payment of other liabilities (5,606)
-------- -------- -------- ---------
Net cash (used in) provided by
financing activities (688) 55,743 (2,859) 27,185
-------- -------- -------- ---------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS 3,787 3,751 (2,067) 30,334
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,765 3,751 1,684
-------- -------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,552 $ 3,751 $ 1,684 $ 32,018
-------- -------- -------- ---------
-------- -------- -------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION -
Cash paid for:
Interest $ 501 $ 929 $ 3,841 $ 3,181
Income taxes $ 119 $ - $ 765 $ 4,340
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
On October 6, 1997, the Company exchanged 14,950,848 shares of redeemable preferred stock plus accrued
dividends to 1,254,177 shares of common stock at the initial public offering price of $14 per share, a
value of $17,559,000.
On October 6, 1997, the Company issued 55,408 shares of common stock to extinguish $776,000 in other
liabilities.
</TABLE>
See notes to consolidated financial statements.
(Concluded)
<PAGE>
F-9
POWER-ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 1995 AND DECEMBER 31, 1995,
YEARS ENDED DECEMBER 31, 1996 AND 1997
- ------------------------------------------------------------------------------
1. GENERAL INFORMATION
The accompanying financial statements of Power-One, Inc. (the "Company")
reflect the consolidated results of its operations since its inception
on October 1, 1995 and include the accounts of Power-One, Inc.
("Power-One"), located in Camarillo, California, and its wholly owned
subsidiaries, Power-Electronics, Inc. ("P-E") in Puerto Rico and its
Division located in the Dominican Republic, and Poder Uno de Mexico,
S.A. de C.V. ("Poder Uno"), a company located in Mexico under the
MAQUILADORA program.
Substantially all of the Company's products are manufactured in the
Dominican Republic and Mexico. These foreign operations represent
captive manufacturing facilities of the Company and for reporting
purposes the U.S. dollar is considered to be the functional currency.
The Company's reporting period coincides with the 52- to 53-week period
ending on the Sunday closest to December 31 and its fiscal quarters are
the 13 or 14 week periods ending on the Sunday nearest to March 31, June
30, September 30 and December 31. The years ended December 31, 1995,
1996 and 1997 all represent 52-week years. For simplicity of
presentation, the Company has described year-ends presented as of
December 31.
ORGANIZATION - Effective September 27, 1995, the Company and its
management acquired substantially all of the assets and liabilities of
Power-One, Inc. and the outstanding capital stock of P-E and Poder Uno
(collectively the "Predecessor Company"). For financial reporting
purposes, the agreement has been treated as if it was effective on
October 2, 1995, the beginning of the Company's fourth quarter.
Transactions associated with the Company's operations during the period
from September 28 through October 1, 1995 are insignificant when
considered in relation to the consolidated financial statements taken as
a whole and have been included in the Predecessor Company financial
statements. The accompanying financial statements reflect the combined
results of operations of the Predecessor Company for the nine-month
period ended September 30, 1995.
The acquisition price included approximately $46,610,000 in cash and
$8,100,000 in distributions from P-E. The acquisition has been
accounted for by the purchase method of accounting, and accordingly, the
acquisition price has been allocated to the assets acquired and
liabilities assumed based on the estimated fair values on the date of
acquisition. The excess purchase price over the fair value of the net
assets acquired of $30,289,000 was allocated to intangible assets (see
Note 2). Consequently, the amounts reported in the accompanying
financial statements for the Company are not comparable to the amounts
shown for the Predecessor Company in the prior periods.
Included in cost of goods sold for the period ended December 31, 1995 is
$1,525,000, which primarily represents the difference between the fair
value of inventory acquired and the recorded carrying value of the
inventory at the acquisition date.
Power-One, Inc., formerly Power-One, LLC, converted from a limited
liability company to a C corporation on January 29, 1996. To effect the
conversion, the Company formed a new corporation and transferred all of
the assets and liabilities into the newly formed entity. The new
corporation, Power-One, Inc., simultaneously issued 10,000,000 shares of
common stock, with a par value of $0.001 per share, and 15,153,698
shares of Series A redeemable preferred stock in exchange for each
existing member's respective percentage ownership interest in Power-One
LLC. The exchange has been recorded at the Company's historical
carrying values on the date of conversion (see Note 11).
OPERATIONS - The Company operates primarily in one industry segment
which includes the design, development and manufacture of open frame
D.C. power supplies for the commercial electronics industry. The
Company sells its products and grants credit to customers in this
industry, primarily in the United States. Sales to the Company's
<PAGE>
F-10
largest customers amounted to 11% each to two customers throughout 1995,
15% to a single customer in 1996 and 15%, 12% and 11% each to three
customers in 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying financial statements
include the consolidated accounts of the Company and its wholly owned
subsidiaries and the combined operations of the Predecessor Company.
The majority of P-E's and all of Poder Uno's sales are to Power-One,
Inc. All intercompany accounts and transactions have been eliminated in
the accompanying financial statements.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include time
deposits and commercial paper with an original maturity of three months
or less.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Provision for depreciation has been made based upon the estimated useful
lives of the assets, which range from three to ten years, using
principally the double declining balance and straight-line methods.
Provision for amortization of leasehold improvements is made based upon
the estimated lives of the assets or terms of the leases, whichever is
shorter.
ENGINEERING - Engineering costs include sustaining product engineering,
custom product development and research and development costs which are
expensed in the period incurred.
INTANGIBLE ASSETS - Intangible assets includes cost in excess of net
assets acquired in connection with the acquisition of the Company (see
Note 1) which have been allocated among certain intangible items
determined by management to have value such as the company name,
distribution network and product lines. Provision for amortization has
been made based upon the estimated useful lives of the intangible asset
categories, which range from 5 to 25 years, using the straight-line
method. At December 31, 1996 and 1997, accumulated amortization related
to these intangible assets totaled $2,370,000 and $4,259,000,
respectively.
Intangible assets include purchased technology related to a technology
and license agreement (the "Agreement") with a company entered into on
April 2, 1996. The Agreement calls for total cash payments of
$1,500,000 over approximately two years in return for exclusive rights
to specified technical information. The obligation and asset were
recorded at present value using an implicit interest rate of 8.5%. The
asset is being amortized over the term of the licensing agreement, ten
years, using the straight-line method. Accumulated amortization was
$105,000 and $244,000 at December 31, 1996 and 1997, respectively.
The Company periodically reviews the carrying value of intangible
assets, and if future cash flows are believed insufficient to recover
the remaining carrying value of an intangible asset, the carrying value
is written down in the period the impairment is identified to its future
recoverable value.
MEMBERS' CAPITAL - At December 31, 1995, no class of stock had been
issued, and members' capital was composed of percentage ownership
interests as agreed upon at the time of the Company's formation (see
Note 1).
INCOME TAXES - Until January 29, 1996, Power-One, LLC was a limited
liability company, and accordingly, the taxable income or loss until
that date was allocated to members in accordance with their respective
percentage ownership. Additionally, the Predecessor Company had elected
to be taxed as an S corporation, for which the taxable income of the
entity was allocated to the stockholders and reflected on their
respective tax returns.
Upon conversion to a C corporation on January 29, 1996, the Company
recorded a net deferred tax asset of $456,000, computed based on the
difference between the book and tax bases of its assets and liabilities
as of that date.
<PAGE>
F-11
Income taxes for Power-One, Inc. are provided for taxes currently
payable or refundable, and deferred income taxes arising from future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns. The effects of income taxes are
measured based on enacted tax laws or rates.
Under the provisions of the Puerto Rico Industrial Incentives Act of
1987, the Company has been granted a 90% partial tax exemption from the
payment of Puerto Rico taxes on income derived from marketing the
products manufactured by the Company in Puerto Rico. In addition, the
grant also provides for a 90% exemption on property taxes and a 60%
exemption on municipal license taxes. The Company has received similar
tax exemptions in Puerto Rico in connection with the distribution of its
products, all of these exemptions are valid thorugh 2010. Additionally,
P-E operates in the Dominican Republic in a tax-free enterprise zone
and, accordingly, pays no income taxes in connection with its operations
in that country. The Company has not provided for the U.S. federal and
state income tax that would be paid on unremitted earnings of
approximately $6,310,000 at December 31, 1997 from P-E, as there is no
intention to remit the earnings.
The Company's operations in Mexico are subject to various income and
corporate taxes on earnings generated in Mexico under the MAQUILADORA
program. These taxes have not been material to date.
EARNINGS PER SHARE - As required by Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings Per Share" the Company adopted the
new standard effective in its fourth quarter of 1997, early adoption of
this standard was not permitted. Additionally, effective in February
1998 the Securities and Exchange Commission issued Staff Accounting
Bulletin 98 which revised previously promulgated regulations regarding
presentation of earnings per share data. As a result, the Company's
previous method of reporting pro forma earnings per share data is no
longer applicable and all prior periods have been restated to conform
with the new guidelines.
<PAGE>
F-12
The following is a reconciliation of the earnings per share data (in
thousands, except per share data):
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1996 December 31, 1997
------------------- ------------------- -----------------
Average Per Average Per Average Per
(Loss) Shares Share Income Shares Share Income Shares Share
------ ------ ------ ------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income attributable to
common stockholders $ (171) $ 1,981 $ 6,720
Basic EPS:
Shares outstanding
beginning of period 10,000 10,000 10,000
Shares issuances 1,659
------ ------ ------- ------ ------
Basic EPS (171) 10,000 $ (.02) 1,981 10,000 $ .20 6,720 11,659 $ .58
------ ------ ------
------ ------ ------
Dilutive securities -
Stock options 153 275
------ ------ ------- ------ ------ ------
Diluted EPS $ (171) 10,000 $ (.02) $ 1,981 10,153 $ .20 6,720 11,934 $ .56
------ ------ ------ ------- ------ ------ ------
------ ------ ------ ------- ------ ------ ------
Pro Forma -
Assumed conversion:
Preferred stock 1,494 968
Obligation to officers 30 43
------ ------
Pro forma diluted EPS 8,244 12,945 $ .64
------
------
Dilutive securities -
Stock options (275)
------ ------
Pro forma basic EPS $ 8,244 12,670 $ .65
------ ------ ------
------ ------ ------
</TABLE>
For earnings per share presentation purposes Power One, Inc.'s
reorganization from a limited liability company, with no outstanding
stock, into a C corporation effective January 29, 1996 has been adjusted
retroactively and, accordingly, is reflected as if the common stock was
outstanding from the acquisition date, October 1, 1995. Earnings per
share for periods prior to October 1, 1995 have not been presented as
such periods relate to a predecessor entity and is not indicative of the
Company as an on-going entity.
Pro forma earnings per share have been determined based on assuming the
redeemable preferred stock and other liabilities owed to certain
officers was converted into common stock as of the beginning of the
period. Accordingly, the applicable portions of the accrued preferred
stock dividends and net interest costs have been added back to income
attributable to common stockholders in the computation.
UNAUDITED PRO FORMA INFORMATION - Prior to January 29, 1996, net income
of the Company and Predecessor Company flowed through to their
stockholders/members. Consequently, income taxes were the
responsibility of the stockholders/members. The unaudited pro forma
income tax provisions included in the statements of operations are
determined as if the Company and Predecessor Company were taxable
entities for all periods presented. For pro forma presentation purposes
federal income taxes have not been provided on earnings of P-E as there
is no intention to remit these earnings.
REVENUE RECOGNITION - Revenue is recognized upon shipment of product.
<PAGE>
F-13
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Due to the inherent
uncertainty involved in making estimates, actual results reported in
future periods may differ from those estimates.
DERIVATIVE INSTRUMENTS - The Company enters into derivative instruments
to manage exposure to fluctuations in interest rates. The interest rate
differential and any gains and losses resulting from interest rate swap
or swaption contracts all of which are used to hedge underlying debt
obligations are reflected as an adjustment to interest expense over the
life of the swaps. At December 31, 1997, no derivative instruments were
held by the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The recorded values of accounts
receivable, accounts payable and accrued expenses approximate their fair
value based on their short-term nature. The recorded values of notes
payable to bank, long-term debt and other liabilities approximate fair
value, as interest is tied to or approximates market rates. The fair
value of the Company's previous interest rate swap and interest swaption
agreements were based on a termination value and approximated $107,000
in favor of the Company at December 31, 1996.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily
of cash, placed with high credit quality institutions, and trade
receivables. The Company sells products and extends credit to
customers, primarily in the United States, periodically monitors its
exposure to credit losses, and maintains allowances for anticipated
losses.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997
<S> <C> <C>
Raw materials $ 11,885 $ 11,809
Subassemblies-in-process 4,257 3,343
Finished goods 2,698 7,217
--------- ---------
$ 18,840 $ 22,369
--------- ---------
--------- ---------
</TABLE>
<PAGE>
F-14
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
<S> <C> <C>
Land $ 583 $ 583
Factory and office equipment 7,911 12,336
Autos 508 631
Leasehold improvements 1,468 1,857
Construction in progress 920 1,111
------- -------
11,390 16,518
Less accumulated depreciation
and amortization 2,506 4,620
------- -------
$ 8,884 $11,898
------- -------
------- -------
</TABLE>
5. NOTES RECEIVABLE FROM STOCKHOLDERS
The Company advanced cash of $200,000 to two of its stockholders in
exchange for notes receivable, which accrued interest at 10% per annum
with all principal and interest due on September 27, 2005. The notes
and related accrued interest are shown as a reduction of stockholders'
equity as of December 31, 1996. The notes and related accrued interest
were paid on October 6, 1997.
6. NOTE PAYABLE TO BANK
At December 31, 1996, Power-One had a credit agreement with a bank that
provided the Company with a revolving line of credit of up to
$17,500,000 with interest on amounts outstanding payable monthly based
on one of the following rates, as selected by the Company: LIBOR plus
2.00% or the bank's base rate plus 1.00%. The interest rate was 7.875%
at December 31, 1996. Borrowings were collateralized by substantially
all of the Company's assets.
On December 10, 1997, the Company amended its credit agreement with the
bank which previously provided the Company with a revolving line of
credit and a term loan aggregating approximately $47,000,000 in
available credit into a revolving line of credit of up to $50,000,000
with interest on amounts outstanding payable quarterly based on one of
the following rates, as selected by the Company: LIBOR plus 1.00% to
2.25% or the bank's base rate plus 0% to 1.25%. At December 31, 1997,
no amounts were outstanding under the credit agreement. Borrowings are
collateralized by substantially all of the Company's assets.
The amended credit agreement (a) provides for restrictions on additional
borrowings, dividends, leases and capital expenditures; (b) prohibits
the Company, without prior approval, from paying dividends, liquidating,
merging, consolidating or selling its assets or business; and (c)
requires the Company to maintain a specified net worth, minimum working
capital and certain ratios of current liabilities and total debt to net
worth. At December 31, 1997 the Company was in compliance with all debt
covenants.
In connection with the credit agreement the Company entered into an
interest rate swap and swaption agreement. These agreements were
terminated concurrently with the repayment of the outstanding borrowings
under the credit facilities at a nominal value to the Company.
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<PAGE>
F-15
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
<S> <C> <C>
Term loan due September 30, 2002, payable to a bank requiring
quarterly principal payments starting at $625,000 on January 1,
1996, increasing to $1,750,000. Interest on amounts outstanding
is payable monthly based on one of the following rates as selected
by the Company, LIBOR plus 2.50% or the bank's base rate plus
1.50%. The interest rate was 7.875% at December 31, 1996. The
loan is collateralized by substantially all of the Company's assets
and is subject to the restrictive covenants described in Note 6.
The term loan was repaid on October 6, 1997 $29,250
Present value of technology and license agreement obligation at 8.5%
(Note 2) 1,005 $ 326
------- ------
30,255 326
Less current portion 3,929 326
------- ------
Long-term debt, less current portion $26,326 $ -
------- ------
------- ------
</TABLE>
Principal repayment requirements for long-term debt at December 31, 1997
are all due in 1998.
8. OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
<S> <C> <C>
Accrued bonuses $ 317 $ 1,463
Accrued sales commissions 1,307 1,100
Accrued sales discounts 585 535
Income taxes payable 809 -
Other accrued expenses 1,613 1,933
------- -------
$ 4,631 $ 5,031
------- -------
------- -------
</TABLE>
9. OTHER LIABILITIES
Under the terms of employment and compensation agreements with key
members of management entered into at the time of the Company's
acquisition in 1995, the Company was obligated to pay in aggregate
$5,264,000 plus accrued interest at 10% per annum on the balance. The
agreements specified that the Company would pay the balance due in 20
quarterly installments beginning on the first of the month following (i)
retirement or termination (other than by voluntary action or discharge
for cause during a specified period) or, in the event of death, to the
designated beneficiary; or (ii) upon completion of an initial public
offering. In addition, if employment continued through December 31,
1997, under certain provisions as specified in the agreements, payments
under similar terms may have begun on September 30, 1998. A lump-sum
payment would be paid to each employee in the event of a greater than
50% change in ownership of the Company. In connection with the
Company's completion of its initial public offering on October 6, 1997,
the total obligation of $6,382,360 was settled with a lump sum cash
payment of $5,606,648 and the issuance of 55,408 shares of common stock
valued at the initial public offering price of $14 per share.
<PAGE>
F-16
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - Power-One, Inc. leases its production and office
facilities under a lease agreement expiring on September 1, 2004. The
lease provides for increases each five years under a formula based upon
changes in the consumer price index.
The Company also leases manufacturing facilities in Puerto Rico, the
Dominican Republic and Mexico. The leases expire at various dates
through 2001 and provide for renewal options of five years in Puerto
Rico, six years in the Dominican Republic and one year for certain of
its facilities in Mexico.
Future minimum lease payments for operating leases as of December 31,
1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 1,485
1999 1,281
2000 924
2001 828
2002 803
Thereafter 1,338
--------
$ 6,659
--------
--------
</TABLE>
Total rent expense was $907,000, $342,000, $1,352,000 and $1,407,000 for
the nine-months ended September 30, 1995, the period October 1, 1995
through December 31, 1995, the years ended December 31, 1996 and 1997,
respectively.
PURCHASE AND SALES COMMITMENT - On April 2, 1996, the Company entered
into an agreement to purchase and sell certain products from and to a
company for a period extending for ten years. The value of these
commitments is based on approved transactions according to the terms of
the agreements at prices based on existing company pricing policies on
the date of the related purchase or sale.
LEGAL PROCEEDINGS - The Company is involved in routine litigation
arising in the ordinary course of its business. In the opinion of the
Company's management, none of the pending litigation will have a
material adverse effect on the Company's consolidated financial
condition or results of operations.
11. REDEEMABLE PREFERRED STOCK
Upon conversion from a limited liability company to a C corporation on
January 29, 1996, the Company issued 10,000,000 shares of common stock
with a par value of $0.001 and 15,153,698 shares of Series A redeemable
preferred stock with a stated value of $1.00 in a proportionate exchange
for each member's interest in Power One, LLC, with an aggregate
historical value of $14,972,000. The historical book value of equity
has been allocated $100,000 to common stock with the remaining
$14,872,000 allocated to preferred stock. The difference between the
stated par value and the assigned historical value of the preferred
stock was being accreted into the preferred stock value over ten years.
In 1997, the remaining unamortized balance was accreted into the
preferred stock in conjunction with the conversion and repayment of the
preferred stock on October 6, 1997 as discussed below. For financial
presentation purposes the accretion has been included with preferred
stock dividends in the statement of operations.
Preferred stockholders were entitled to 10% cumulative dividends, if
declared. At December 31, 1996, undeclared dividends totaled
$1,389,000, which had been recorded to redeemable preferred stock.
Preferred shares were redeemable on February 1, 2006, or such earlier
date as determined by the Company's board of directors, with the
redemption price being computed at the original issuance price of $1.00
per share plus any unpaid dividends, declared or undeclared. On October
6, 1997 in conjunction with the Company's initial public offering,
14,950,848 shares of preferred stock were converted into 1,254,177
shares of common stock at the initial public offering price of $14 per
share.
<PAGE>
F-17
The remaining 202,850 shares of preferred stock were repurchased from a
stockholder for a lump sum payment of $242,000. The conversion and
repurchase was based on the liquidation value of the preferred stock on
October 6, 1997 of approximately $17,800,000, which included accrued
undeclared dividends of $2,648,000.
12. COMMON STOCK
Effective in September 1997, the Company increased its authorized
capital stock to 60,000,000 shares of Common Stock with a par value of
$.001, and 30,000,000 shares of Preferred Stock.
On October 6, 1997, the Company completed its initial public offering of
5,000,000 shares of the Company's Common Stock. In conjunction with the
Offering the Company granted the underwriters an overallotment option to
purchase up to 750,000 additional shares of the Common Stock at the
public offering price of $14.00 per share. On October 20, 1997, the
underwriters exercised their overallotment option. All of these shares
were newly issued and sold on behalf of the Company. The gross proceeds
of the 5,750,000 shares sold by the Company were $80,500,000. The
Company incurred $6,707,000 in costs in connection with the offering
consisting of underwriter commissions and expenses, printing costs,
legal, accounting and other fees. After offering costs the Company's
net proceeds totaled $73,793,000.
The Company used the net proceeds from the offering to repay bank
borrowings totaling $36,600,000 and approximately $5,600,000 in
obligations owed to certain executive officers. The remaining net
proceeds of approximately $31,600,000 has been added to the Company's
working capital.
STOCK OPTIONS - In February 1996, the Board of Directors approved a
stock option plan for the issuance of 1,000,000 shares of common stock.
In September 1997, the Plan was amended to increase the shares issuable
under the plan from 1,000,000 shares to 1,000,000 shares plus 10% of any
increase in outstanding shares that occur after August 31, 1997 and
provided that Non-Employee Directors are eligible for certain stock
options. The Company can issue either qualified or non-qualified stock
options under the Plan. At December 31, 1997, 1,705,958 shares of
common stock are issuable under the Plan. The option price is
determined by the Board of Directors based on the estimated fair market
value of the Company's common stock on the date of grant. The options
vest over seven years and include accelerated vesting provisions that
allow for vesting over five years if certain performance measures are
met. No options were exercisable as of December 31, 1997. In
connection with the issuance of stock options in March and June of 1997,
the Company has computed compensation cost for the difference between
the estimated fair market values and the option exercise prices at the
date of grant totaling approximately $190,000, which is being amortized
over the seven year vesting period of the options. For the year ended
December 31, 1997, $16,000 in compensation expense was recognized.
Stock option activity of the Company is as follows:
<TABLE>
<CAPTION>
Weighted
Number Exercise Price Average
of Options per Option Exercise Price
<S> <C> <C> <C>
Options granted - February, 1996 483,000 $1.00 $ 1.00
Options canceled (15,500) $1.00 $ 1.00
-------
Options outstanding - December 31, 1996 467,500 $1.00 $ 1.00
Options granted 317,150 $1.50 - $19.00 $12.80
Options canceled (7,750) $1.50 - $14.00 $ 1.98
------- --------------
Options outstanding - December 31, 1997 776,900 $1.00 - $19.00 $ 5.81
------- -------------- ------
------- -------------- ------
</TABLE>
The Company accounts for its plans in accordance with Accounting
Principles Board Opinion No. 25. Had compensation cost been determined
on the basis of fair value pursuant to SFAS No. 123, "Accounting for
Stock-
<PAGE>
F-18
Based Compensation," net income would have been $3,380,000 in 1996 and
$8,141,000 in 1997. The change in net income would not have an effect
on earnings per share in 1996, but would reduce basic earnings per share
to $0.57 in 1997, a reduction of $0.01. For 1997, the change in net
income would not have an effect on diluted earnings per share. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes model, with the following assumptions used in 1996 and
1997: risk-free interest rate range of 5.84% to 6.9%, expected
volatility of 40.8% and 44.6%, an expected option life ranging from 7 to
8.5 years, and no expected dividends. The fair value of stock options
granted were $217,000 in 1996 and $2,599,000 in 1997.
The following table summarizes information regarding options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
RANGE OF OUTSTANDING AT REMAINING WEIGHTED
EXERCISES DECEMBER 31, CONTRACTUAL AVERAGE
PRICES 1997 LIFE EXERCISE PRICE
<S> <C> <C> <C>
$1.00 - $2.00 494,750 8.32 yrs $ 1.05
$14.00 270,150 9.75 yrs 14.00
$17.50 - $19.00 12,000 9.90 yrs 17.63
------- -------- -------
$1.00 - $19.00 776,900 8.84 yrs $ 5.81
------- -------- -------
------- -------- -------
</TABLE>
There are no options which are exercisable as of December 31, 1997.
EMPLOYEE STOCK PURCHASE PLAN - The Company has adopted, effective
January 1, 1998, an Employee Stock Purchase Plan, under which 3,000,000
shares are reserved for purchase by employees. Substantially all of the
Company's employees may contribute from two to eight percent of their
qualified earnings toward the purchase of Company common stock. The
plan provides the participants the opportunity to purchase shares at 85%
of the fair market value on either the grant date or the closing price
at the end of each six month offering period, which generally runs from
January 1 through June 30, whichever is lower. No shares have been
issued under this plan at December 31, 1997.
13. PROFIT SHARING PLAN
Power-One, Inc. has a 401(k) profit sharing plan covering all employees,
subject to certain participation and vesting requirements. The plan
provides that Power-One, Inc. will partially match employee
contributions up to specified percentages. Total contributions were
$110,000, $33,000, $143,000 and $79,000 for the nine-months ended
September 30, 1995, the period October 1, 1995 through December 31,
1995, the years ended December 31, 1996 and 1997, respectively.
14. BUSINESS GEOGRAPHICAL LOCATIONS
The Company has manufacturing and distribution facilities in the United
States, Puerto Rico, Dominican Republic, and Mexico. The Company's
operations in Puerto Rico are considered part of the United States and
are included as North America. The following table summarizes the
Company's operations in different geographic locations (in thousands):
<PAGE>
F-19
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
NINE MONTHS OCTOBER 2, YEAR ENDED
ENDED 1995 THROUGH DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, -----------------------
1995 1995 1996 1997
<S> <C> <C> <C> <C>
North America:
Sales to unaffiliated customers $ 52,732 $ 20,670 $ 74,210 $ 91,553
Intercompany sales and transfers 28,392 10,756 42,748 56,814
--------- --------- --------- ---------
81,124 31,426 116,958 148,367
--------- --------- --------- ---------
Mexico and Dominican Republic:
Sales to unaffiliated customers 30
Intercompany sales and transfers 6,639 3,254 19,865 26,155
--------- --------- --------- ---------
6,639 3,254 19,865 26,185
--------- --------- --------- ---------
Total sales and transfers 87,763 34,680 136,823 174,552
Eliminations (35,031) (14,010) (62,613) (82,969)
--------- --------- --------- ---------
Net sales $ 52,732 $ 20,670 $ 74,210 $ 91,583
--------- --------- --------- ---------
--------- --------- --------- ---------
North American operating income $ 7,770 $ 1,874 $ 9,857 $ 18,917
Mexico and Dominican Republic
operating income 908 97 4,583 1,926
Eliminations (815) (1,068) (6,438) (6,226)
--------- --------- --------- ---------
Operating income $ 7,863 $ 903 $ 8,002 $ 14,617
--------- --------- --------- ---------
--------- --------- --------- ---------
North American identified assets $ 62,310 $ 95,129
Mexico and Dominican Republic
identified assets 10,395 17,508
--------- ---------
Total assets $ 72,705 $ 112,637
--------- ---------
--------- ---------
</TABLE>
Intercompany transfers between geographic locations are accounted for at
cost. Intercompany sales between geographic locations are accounted for
at prices which, in general, provide a profit after coverage of all
manufacturing costs. Operating income is total sales less operating
expenses.
The identifiable assets by geographic location are those assets used in
the Company's operations in each area.
15. INCOME TAXES
The components of income tax expense for the period from January 29,
1996, the date on which the Company converted to a tax paying entity
(see Notes 1 and 2), to December 31, 1996 and for the year ended
December 31, 1997 are as follows (in thousands):
<PAGE>
F-20
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Current:
Federal $ 1,221 $ 758
State 334 117
Foreign 157 378
-------- -------
Total current 1,712 1,253
-------- -------
Deferred:
Federal (675) 1,779
State (185) 510
-------- -------
Total deferred (860) 2,289
-------- -------
Provision for income taxes 852 3,542
Recordation of deferred income tax benefits
upon conversion from limited liability
company to C corporation (456)
-------- -------
Income taxes $ 396 $ 3,542
-------- -------
-------- -------
</TABLE>
<PAGE>
F-21
The components of deferred tax assets (liabilities) at December 31, 1996
and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------------------------- ----------------------
FEDERAL STATE FEDERAL STATE
<S> <C> <C> <C> <C>
Current:
Uniform capitalization $ 250 $ 69 $ 61 $ 16
Sales discount reserve 157 43 140 36
Bad debt reserve 144 40 208 54
Inventory reserve 103 28 206 54
Other 171 30
Noncurrent:
Deferred compensation 1,790 490
Intangible assets (1,693) (463) (1,609) (418)
Accrued interest 224 61
Other 58 15 78
-------- ------ ------- ------
Net deferred tax assets (liabilities) $ 1,033 $ 283 $ (745) $ (228)
-------- ------ ------- ------
-------- ------ ------- ------
</TABLE>
A reconciliation of the Company's provision for income taxes for the
year ended December 31, 1996 (the initial year the Company became a tax
paying entity) and December 31, 1997 to the U.S. federal statutory rate
is as follows:
<TABLE>
<CAPTION>
1996 1997
-------------------------- ---------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
<S> <C> <C> <C> <C>
Provision for income taxes at statutory rate $ 1,289 34 % $ 4,004 $ 34 %
Foreign income taxed at lower rates (521) (14) (1,137) (10)
State taxes net of federal benefit 116 3 414 4
Tax benefit of limited liability company from
January 1 to January 29, 1996 (97) (3)
Other 65 2 261 2
-------- ------ -------- ------
852 22 3,542 30
Recordation of net deferred tax assets upon
conversion to C corporation (456) (12)
-------- ------ -------- ------
$ 396 10 % $ 3,542 30 %
-------- ------ -------- ------
-------- ------ -------- ------
</TABLE>
******
<PAGE>
S-1
Power-One, Inc.
Schedule II: Valuation and Qualifying Accounts
For Each of the Periods in the Years Ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance
beginning Costs and Other at End of
Description of Period Expenses (1) Accounts Deductions (2) Period
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Nine Months Ended September 30, 1995 (3) 208,000 100,000 308,000
Three Months Ended December 31, 1995 308,000 (105,000) 203,000
Year Ended December 31, 1996 203,000 435,000 638,000
Year Ended December 31, 1997 638,000 296,000 (109,000) 825,000
Accrued sales discounts and returns:
Nine Months Ended September 30, 1995 (3) 365,000 365,000
Three Months Ended December 31, 1995 365,000 73,000 438,000
Year Ended December 31, 1996 438,000 147,000 585,000
Year Ended December 31, 1997 585,000 (50,000) 535,000
Accrued Warranties:
Nine Months Ended September 30, 1995 (3) 400,000 239,000 (239,000) 400,000
Three Months Ended December 31, 1995 400,000 98,000 (98,000) 400,000
Year Ended December 31, 1996 400,000 300,000 (300,000) 400,000
Year Ended December 31, 1997 400,000 141,000 (141,000) 400,000
</TABLE>
(1) For the allowance for doubtful accounts, represents charges to bad debt
expense for the year. For the accrued sales discounts and returns,
represents the provision for estimated discounts and returns.
(2) For the allowance for doubtful accounts, represents bad debt charge offs.
(3) Data of the Predecessor Company.
<PAGE>
S-2
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<S> <C>
1.1* Form of Underwriting Agreement
3.1* Form of Restated Certificate of Incorporation of the Company
3.2* Form of Amended and Restated Bylaws of the Company
4.1* Specimen of Common Stock Certificate
10.1* Form of Indemnification Agreement between the Company and its
directors, executive officers and certain other officers
10.2* Form of Employment and Compensation Agreements between the Company
and Mr. Goldman, Mr. Schnopp, Mr. Roark, Mr. Hage,
and Mr. Godfrey
10.3* Form of Amendment to Employment and Compensation Agreements
10.5* 1996 Stock Incentive Plan
10.6* Amended and Restated 1996 Stock Incentive Plan
10.7* Form of Management Bonus Plan
10.11* Security Agreement between the Company and NationsBank of Texas,
N.A., dated February 1, 1996
10.12* Form of Pledge Agreement
10.13* Product and Component Agreement, including the related License
Agreement, between the Company and Calex Manufacturing
Company
dated April 2, 1996
10.14* P-E Tax Exemption Grant dated January 4, 1995
10.16* Form of Employee Stock Purchase Plan
10.17* Form of Selection Letter between Company and each executive officer
10.18* Amendment to Employment and Compensation Agreement dated September
11, 1997
10.19* Letter Explaining Selection Letter between Company and each executive
officer
10.20 Amended and Restated Credit Agreement among the Company, NationsBank
of Texas, N.A. and certain lenders, dated December
10, 1997
21* List of Subsidiaries
23 Independent Auditors' Consent
24 Power of Attorney (contained on Signature Page)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
</TABLE>
___________
* Previously filed as an exhibit to the Registration Statement on Form S-1 of
Power-One, Inc. (File No. 333-32889).
<PAGE>
- ------------------------------------------------------------------------------
$50,000,000
AMENDED AND RESTATED
CREDIT AGREEMENT
AMONG
POWER-ONE, INC.
CERTAIN LENDERS
AND
NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER
December 10, 1997
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 AMENDMENTS AND RENEWALS. . . . . . . . . . . . . . . . . . . . 19
Section 1.3 CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 2
REVOLVING CREDIT ADVANCES
Section 2.1 THE REVOLVING CREDIT ADVANCES. . . . . . . . . . . . . . . . . 19
Section 2.2 MANNER OF BORROWING AND DISBURSEMENT . . . . . . . . . . . . . 20
Section 2.3 INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.4 FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.5 PREPAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.6 REDUCTION OF REVOLVING CREDIT COMMITMENT . . . . . . . . . . . 24
Section 2.7 NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE LENDER. . . . . . . 25
Section 2.8 PAYMENT OF PRINCIPAL OF REVOLVING CREDIT ADVANCES. . . . . . . 25
Section 2.9 REIMBURSEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.10 MANNER OF PAYMENT. . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.11 LIBOR LENDING OFFICES. . . . . . . . . . . . . . . . . . . . . 26
Section 2.12 SHARING OF PAYMENTS. . . . . . . . . . . . . . . . . . . . . . 27
Section 2.13 CALCULATION OF LIBOR RATE. . . . . . . . . . . . . . . . . . . 27
Section 2.14 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.15 LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 3
CONDITIONS PRECEDENT
Section 3.1 CONDITIONS PRECEDENT TO CLOSING, THE INITIAL REVOLVING
CREDIT ADVANCE AND THE INITIAL LETTERS OF CREDIT . . . . . . . 37
Section 3.2 CONDITIONS PRECEDENT TO ALL REVOLVING CREDIT ADVANCES AND
LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.3 CONDITIONS PRECEDENT TO CONVERSIONS AND CONTINUATIONS. . . . . 40
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 40
Section 4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. . . . . . . . 47
ARTICLE 5
GENERAL COVENANTS
Section 5.1 PRESERVATION OF EXISTENCE AND SIMILAR MATTERS. . . . . . . . . 48
Section 5.2 BUSINESS; COMPLIANCE WITH APPLICABLE LAW . . . . . . . . . . . 48
Section 5.3 MAINTENANCE OF PROPERTIES. . . . . . . . . . . . . . . . . . . 48
Section 5.4 ACCOUNTING METHODS AND FINANCIAL RECORDS . . . . . . . . . . . 48
Section 5.5 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 5.6 PAYMENT OF TAXES AND CLAIMS. . . . . . . . . . . . . . . . . . 49
Section 5.7 VISITS AND INSPECTIONS . . . . . . . . . . . . . . . . . . . . 49
Section 5.8 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . 49
Section 5.9 INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 5.10 ENVIRONMENTAL LAW COMPLIANCE . . . . . . . . . . . . . . . . . 51
Section 5.11 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 6
INFORMATION COVENANTS
Section 6.1 QUARTERLY FINANCIAL STATEMENTS AND INFORMATION . . . . . . . . 52
Section 6.2 ANNUAL FINANCIAL STATEMENTS AND INFORMATION; CERTIFICATE
OF NO DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.3 COMPLIANCE CERTIFICATE . . . . . . . . . . . . . . . . . . . . 53
Section 6.4 COPIES OF OTHER REPORTS AND NOTICES. . . . . . . . . . . . . . 53
Section 6.5 NOTICE OF LITIGATION, DEFAULT AND OTHER MATTERS. . . . . . . . 54
Section 6.6 ERISA REPORTING REQUIREMENTS . . . . . . . . . . . . . . . . . 54
ARTICLE 7
NEGATIVE COVENANTS
Section 7.1 INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.2 LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.3 INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.4 LIQUIDATION, MERGER, NEW SUBSIDIARIES. . . . . . . . . . . . . 57
Section 7.5 SALES OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.6 ACQUISITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 58
- ii -
<PAGE>
Section 7.7 CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . . . 58
Section 7.8 RESTRICTED PAYMENTS. . . . . . . . . . . . . . . . . . . . . . 59
Section 7.9 AFFILIATE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . 59
Section 7.10 COMPLIANCE WITH ERISA. . . . . . . . . . . . . . . . . . . . . 59
Section 7.11 MAXIMUM LEVERAGE RATIO . . . . . . . . . . . . . . . . . . . . 59
Section 7.12 MINIMUM FIXED CHARGE COVERAGE RATIO. . . . . . . . . . . . . . 59
Section 7.13 MINIMUM NET WORTH. . . . . . . . . . . . . . . . . . . . . . . 59
Section 7.14 SALE AND LEASEBACK . . . . . . . . . . . . . . . . . . . . . . 60
Section 7.15 SALE OR DISCOUNT OF RECEIVABLES. . . . . . . . . . . . . . . . 60
Section 7.16 BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 7.17 FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 7.18 BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE 8
DEFAULT
Section 8.1 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 60
Section 8.2 REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE 9
CHANGES IN CIRCUMSTANCES
Section 9.1 LIBOR BASIS DETERMINATION INADEQUATE . . . . . . . . . . . . . 64
Section 9.2 ILLEGALITY . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 9.3 INCREASED COSTS. . . . . . . . . . . . . . . . . . . . . . . . 65
Section 9.4 EFFECT ON BASE RATE ADVANCES . . . . . . . . . . . . . . . . . 67
Section 9.5 CAPITAL ADEQUACY . . . . . . . . . . . . . . . . . . . . . . . 67
Section 9.6 REPLACEMENT LENDER . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE 10
AGREEMENT AMONG LENDERS
Section 10.1 AGREEMENT AMONG LENDERS. . . . . . . . . . . . . . . . . . . . 68
Section 10.2 LENDER CREDIT DECISION . . . . . . . . . . . . . . . . . . . . 70
Section 10.3 BENEFITS OF ARTICLE. . . . . . . . . . . . . . . . . . . . . . 71
- iii -
<PAGE>
ARTICLE 11
MISCELLANEOUS
Section 11.1 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 11.2 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 11.3 WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 11.4 CALCULATION BY THE LENDERS CONCLUSIVE AND BINDING. . . . . . . 73
Section 11.5 SET-OFF. . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 11.6 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 11.7 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 11.8 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 11.9 INTEREST AND CHARGES . . . . . . . . . . . . . . . . . . . . . 75
Section 11.10 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 11.11 AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . 76
Section 11.12 EXCEPTION TO COVENANTS . . . . . . . . . . . . . . . . . . . . 76
Section 11.13 NO LIABILITY OF ISSUING BANK . . . . . . . . . . . . . . . . . 76
Section 11.14 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . 77
Section 11.15 AMENDMENT, RESTATEMENT, EXTENSION, AND RENEWAL . . . . . . . . 77
Section 11.16 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 11.17 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . 78
Section 11.18 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 78
</TABLE>
- iv -
<PAGE>
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule 1: LIBOR Lending Offices
Schedule 2: Existing Liens
Schedule 3: Existing Litigation and Material Liabilities
Schedule 4: Subsidiaries
Schedule 5: Existing Investments
Schedule 6: Existing Indebtedness
Schedule 7: Qualification and Good Standing
Schedule 8: Existing Letters of Credit
Exhibit A: Revolving Credit Note
Exhibit B: Pledge Agreement
Exhibit C: Compliance Certificate
Exhibit D: Assignment Agreement
Exhibit E: Subsidiary Guaranty
Exhibit F: Subordination Agreement
</TABLE>
- v -
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is dated as of December 10,
1997, among POWER-ONE, INC., a corporation organized and existing under the
laws of the State of Delaware (the "BORROWER"), the Lenders from time to time
party hereto, and NATIONSBANK OF TEXAS, N.A., a national banking association,
as administrative agent for the Lenders.
BACKGROUND
The Borrower has requested that the Lenders make a credit facility
available to the Borrower in the maximum principal amount of $50,000,000 to
(a) refinance existing debt of the Borrower outstanding pursuant to the terms
of that certain Credit Agreement, dated as of September 27, 1995, among the
Borrower, the lenders party thereto, and NationsBank of Texas, N.A., as
Administrative Lender, as amended, modified, supplemented and restated from
time to time (the "EXISTING CREDIT AGREEMENT"), (b) finance Acquisitions (as
hereinafter defined) permitted hereunder, and (c) finance the ongoing working
capital and general corporate requirements of the Borrower and its
Subsidiaries (as hereinafter defined). The Lenders have agreed to do so,
subject to the terms and conditions set forth below.
In consideration of the mutual covenants and agreements contained
herein, and other good and valuable consideration hereby acknowledged, the
parties hereto agree that the Existing Credit Agreement shall be amended,
restated and superseded as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINED TERMS. For purposes of this Agreement:
"ACQUISITION" shall mean any transaction pursuant to which the Borrower
or any of its Subsidiaries, (i) whether by means of a capital contribution or
purchase or other acquisition of stock or other securities or other equity
participation or interest, (A) acquires more than 50% of the equity interest
in any Person pursuant to a solicitation by the Borrower or such Subsidiary
of tenders of equity securities of such Person, or through one or more
negotiated block, market, private or other transactions not involving an
unfriendly tender offer, or a combination of any of the foregoing, or (B)
makes any corporation a Subsidiary of the Borrower or such Subsidiary, or
causes any corporation, other than a Subsidiary of the Borrower or such
Subsidiary, to be merged into the Borrower or such Subsidiary (or agrees to
be merged into any other corporation other than a wholly-owned Subsidiary
(excluding directors' qualifying shares) of the Borrower or such Subsidiary),
or (ii) in one transaction or a series of related transactions, purchases or
acquires any business or assets of any Person other than in the ordinary
course of business.
<PAGE>
"ACQUISITION CONSIDERATION" means the consideration given by the
Borrower or any of its Subsidiaries for an Acquisition, including but not
limited to the fair market value of any cash, property, stock or services
given, and the amount of any Indebtedness in respect of debt for borrowed
money, Synthetic Leases and Capitalized Lease Obligations assumed or incurred
by the Borrower or any of its Subsidiaries in connection with such
Acquisition.
"ADMINISTRATIVE LENDER" means NationsBank of Texas, N.A., a national
banking association, as administrative agent for Lenders, or such successor
administrative agent appointed pursuant to SECTION 10.1(b) hereof.
"ADVANCE" means any amount advanced by the Lenders to the Borrower
pursuant to ARTICLE 2 hereof on the occasion of any borrowing.
"AFFILIATE" means, as applied to any Person, any other Person that,
directly or indirectly, through one or more Persons, Controls or is
Controlled By or Under Common Control with, that Person.
"AGREEMENT" means this Credit Agreement, as amended, modified,
supplemented or restated from time to time.
"AGREEMENT DATE" means the date of this Agreement.
"APPLICABLE ENVIRONMENTAL LAWS" means applicable laws pertaining to
health or the environment, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
by the Superfund Amendments and Reauthorization Act of 1986 (as amended from
time to time, "CERCLA"), the Resource Conservation and Recovery Act of 1976,
as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal
Act amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984
(as amended from time to time, "RCRA").
"APPLICABLE LAW" means (a) in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and orders of governmental bodies
or regulatory agencies applicable to such Person and its properties,
including, without limiting the foregoing, all orders and decrees of all
courts and arbitrators in proceedings or actions to which the Person in
question is a party, and (b) in respect of contracts relating to interest or
finance charges that are made or performed in the State of Texas, "APPLICABLE
LAW" shall mean the laws of the United States of America, including without
limitation 12 USC Sections 85 and 86, as amended from time to time, and any
other statute of the United States of America now or at any time hereafter
prescribing the maximum rates of interest on loans and extensions of credit,
and the laws of the State of Texas, including, without limitation, Article
5069-1.04, Title 79, Revised Civil Statutes of Texas, 1925, as amended ("ART.
1.04"), and any other statute of the State of Texas now or at any time
hereafter prescribing maximum rates of interest on loans and extensions of
credit; provided that the parties hereto agree that the provisions of Chapter
15, Title 79, Revised Civil Statutes of
- 2 -
<PAGE>
Texas, 1925, as amended, shall not apply to Advances, the Reimbursement
Obligations, this Agreement, the Notes or any other Loan Documents.
"APPLICABLE MARGIN" means the following per annum percentages,
applicable in the following situations:
<TABLE>
<CAPTION>
Base Rate LIBOR
Applicability Basis Basis
------------- --------- -----
<S> <C> <C>
(a) INITIAL PRICING PERIOD 0.00 1.00
SUBSEQUENT PRICING PERIOD
(b) The Leverage Ratio is greater than 2.50 to 1 1.25 2.25
(c) The Leverage Ratio is less than or equal to
2.50 to 1 but greater than 1.75 to 1 0.75 1.75
(d) The Leverage Ratio is less than or equal to
1.75 to 1 but greater than 1.00 to 1 0.25 1.25
(e) The Leverage Ratio is less than or equal to
1.00 to 1 0.00 1.00
</TABLE>
- 3 -
<PAGE>
The Applicable Margin payable by the Borrower on the Advances outstanding
hereunder shall be subject to reduction or increase, as applicable and as set
forth in the table above, on a quarterly basis according to the performance
of the Borrower as tested by using the Leverage Ratio calculated as of the
end of each fiscal quarter during the Subsequent Pricing Period; PROVIDED,
that each adjustment in the LIBOR Rate shall be effective with respect to
LIBOR Advances (i) made following receipt by the Administrative Lender of the
financial statements required to be delivered pursuant to SECTION 6.1 or 6.2
hereof, as applicable, for each such fiscal quarter, and the corresponding
Compliance Certificate required pursuant to SECTION 6.3 hereof, on the date
of making of such LIBOR Advance and (ii) outstanding on the date of receipt
of such financial statements and Compliance Certificate referred to in clause
(i) immediately preceding, on the date which is 2 Business Days following the
date of receipt of such financial statements and Compliance Certificate. If
such financial statements and Compliance Certificate are not received by the
Administrative Lender by the date required, the Applicable Margin shall be
determined as if the Leverage Ratio is greater than 2.50 to 1 until such time
as such financial statements and Compliance Certificate are received.
"ART. 1.04" has the meaning specified in the definition of "APPLICABLE
LAW."
"ASSIGNEES" means any assignee of a Lender pursuant to an Assignment
Agreement and shall have the meaning ascribed thereto in SECTION 11.6 hereof.
"ASSIGNMENT AGREEMENT" has the meaning specified in SECTION 11.6 hereof.
"AUTHORIZED SIGNATORY" means such senior personnel of the Borrower as
may be duly authorized and designated in writing by the Borrower to execute
documents, agreements and instruments on behalf of the Borrower, and to
request Advances and Letters of Credit hereunder.
"BASE RATE ADVANCE" means any Advance bearing interest at the Base Rate
Basis.
"BASE RATE BASIS" means, for any day, a per annum interest rate equal to
the higher of (a) the sum of (i) 0.50% plus (ii) the Federal Funds Rate on
such day plus (iii) the Applicable Margin or (b) the sum of (i) the Prime
Rate on such day plus (ii) the Applicable Margin. The Base Rate Basis shall
be adjusted automatically without notice to Borrower as of the opening of
business on the effective date of each change in the Prime Rate to account
for such change.
"BORROWER" means Power-One, Inc., a corporation organized and existing
under the laws of the State of Delaware, successor by merger with Power-One
LLC, a limited liability company.
"BUSINESS DAY" means a day on which banks are open (a) for the
transaction of business in Dallas, Texas and Los Angeles, California and, (b)
with respect to any LIBOR Advance, for the transaction of international
business (including dealings in U.S. Dollar deposits) in London, England.
- 4 -
<PAGE>
"CAPITAL EXPENDITURES" means, for any period, expenditures made by the
Borrower and its Subsidiaries to acquire or construct fixed assets, plant and
equipment (including renewals, improvements and replacements during such
period and the aggregate amount of items leased or acquired under Capital
Leases at the cost of the item) computed in accordance with GAAP,
consistently applied.
"CAPITAL STOCK" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital
stock in any Person that is a corporation, each class of partnership interest
(including, without limitation, general, limited and preference units) in any
Person that is a partnership, and each member interest in any Person that is
a limited liability company.
"CAPITALIZED LEASE OBLIGATIONS" means that portion of any obligation of
the Borrower or any Subsidiary of the Borrower as lessee under a lease which
at the time would be required to be capitalized on a balance sheet of the
Borrower or such Subsidiary prepared in accordance with GAAP.
"CASH AND CASH EQUIVALENTS" means with respect to the Borrower and each
Subsidiary of the Borrower (i) cash (which after the occurrence of an Event
of Default shall exclude any cash proceeds of accounts), (ii) securities
issued or directly and fully guaranteed or insured by the United States
Government or any agency or instrumentality thereof having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any
Lender or with any domestic commercial bank having capital and surplus in
excess of $500,000,000, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses
(ii) and (iii) entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper issued
by any Lender or the parent corporation of any Lender, and commercial paper
rated A-1 or the equivalent thereof by Standard & Poor's Ratings Group, a
Division of McGraw-Hill, Inc., a New York corporation, or P-1 or the
equivalent thereof by Moody's Investors Service, Inc., and in each case
maturing within six months after the date of acquisition, and (vi) a readily
redeemable "money market mutual fund" advised by a bank described in clause
(iii) hereof, or an investment advisor registered under Section 203 of the
Investment Advisors Act of 1940, that has and maintains an investment policy
limiting its investments primarily to instruments of the types described in
clauses (i) through (v) hereof and having on the date of such Investment
total assets of at least One Hundred Million Dollars ($100,000,000.00).
"CASH COLLATERALIZED LETTERS OF CREDIT" means Letters of Credit with
respect to which cash in the amount of such Letters of Credit has been
deposited in the L/C Cash Collateral Account as provided in SECTION
2.15(g)(i) hereof.
- 5 -
<PAGE>
"CHANGE OF CONTROL" means (a) any merger or consolidation of the
Borrower with or into any Person (other than a merger or consolidation in
which the Borrower is a surviving corporation) or any sale, transfer or other
conveyance, whether direct or indirect, of all or substantially all of the
assets of the Borrower, on a consolidated basis, in one transaction or a
series of related transactions, (b) any "person" or "group" (as such terms
are used for purposes of Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended, whether or not applicable) is or becomes the
"beneficial owner", directly or indirectly, of more than 50% of the total
voting power in the aggregate of all classes of capital stock of the Borrower
then outstanding normally entitled to vote in elections of directors, or (c)
during any period of 24 consecutive months after the Agreement Date,
individuals who at the beginning of such 24-month period constituted the
board of directors of the Borrower (together with any new directors whose
election by such board of directors or whose nomination for election by the
shareholders of the Borrower was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the board of
directors of the Borrower then in office.
"COBRA" has the meaning specified in SECTION 4.1(l) hereof.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" means any collateral hereafter granted by any Person to the
Administrative Lender for the benefit of the Lenders to secure the
Obligations.
"COLLATERAL DOCUMENT" means any document under which Collateral is
granted and any document related thereto.
"COMPLIANCE CERTIFICATE" means a certificate, signed by an Authorized
Signatory, in substantially the form of EXHIBIT C, appropriately completed.
"CONTROL" or "CONTROLLED BY" or "UNDER COMMON CONTROL" means possession,
directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of voting securities, by
contract or otherwise); provided, however, that in any event any Person which
beneficially owns, directly or indirectly, 10% or more (in number of votes)
of the securities having ordinary voting power for the election of directors
of a corporation shall be conclusively presumed to control such corporation.
"CONTROLLED GROUP" means as of the applicable date, as to any Person not
an individual, all members of a controlled group of corporations and all
trades or businesses (whether or not incorporated) which are under common
control with such Person and which, together with such Person, are treated as
a single employer under Section 414(b), (c), (m) or (o) of the Code;
provided, however, that the Subsidiaries of the Borrower shall be deemed to
be members of the Borrower's Controlled Group.
- 6 -
<PAGE>
"DEBTOR RELIEF LAWS" means any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
debtor relief Laws affecting the rights of creditors generally from time to
time in effect.
"DEFAULT" means an Event of Default and/or any of the events specified
in SECTION 8.1, regardless of whether there shall have occurred any passage
of time or giving of notice that would be necessary in order to constitute
such event an Event of Default.
"DEFAULT RATE" means a simple per annum interest rate equal to (a) with
respect to Base Rate Advances the lesser of (i) the Highest Lawful Rate or
(ii) the Prime Rate plus two percent or (b) with respect to LIBOR Advances,
the lesser of (i) the Highest Lawful Rate or (ii) the LIBOR Basis plus two
percent.
"DEFERRED COMPENSATION" means the "Deferred Compensation" as defined in,
and payable pursuant to each executive of the Borrower pursuant to the terms
of, the Employment and Compensation Agreements, each dated September 27, 1995
between the Borrower and each such executive.
"DETERMINING LENDERS" means, on any date of determination, any
combination of the Lenders having at least 60% of the aggregate amount of the
Advances then outstanding; provided, however, that if there are no Advances
outstanding hereunder, "Determining Lenders" shall mean any combination of
Lenders whose Specified Percentages aggregate at least 60%.
"DIVIDEND" means, as to any Person, (a) any declaration or payment of
any dividend (other than a stock dividend) on, or the making of any
distribution on account of, any shares of Capital Stock of, or other similar
interest in, such Person and (b) any purchase, redemption, or other
acquisition or retirement for value of any shares of Capital Stock of, or
similar interest in, such Person.
"DOLLAR" or "$" means the lawful currency of the United States of
America.
"DOMESTIC SUBSIDIARY" means any Subsidiary of the Borrower other than a
Foreign Subsidiary.
"EBIT" means, for any period, determined in accordance with GAAP on a
consolidated basis for the Borrower and its Subsidiaries, the sum of (a)
Pretax Net Income (excluding therefrom, to the extent included in determining
Pretax Net Income, any items of extraordinary gain, including net gains on
the sale of assets other than asset sales in the ordinary course of business,
and adding thereto, to the extent included in determining Pretax Net Income,
any items of extraordinary loss, including net losses on the sale of assets
other than asset sales in the ordinary course of business), plus (b) interest
expense.
"EBITA" means, for any period, determined in accordance with GAAP on a
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) EBIT
plus (b) amortization.
- 7 -
<PAGE>
"EBITDA" means, for any period, determined in accordance with GAAP on a
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) EBIT
plus (b) depreciation and amortization.
"EQUITY" means shares of capital stock or partnership, profits, capital
or member interest, or options, warrants or any other right to subscribe for
or otherwise acquire capital stock or a partnership, profits, capital or
member interest, of the Borrower or any Subsidiary of the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation promulgated thereunder.
"ERISA EVENT" means, with respect to the Borrower and its Subsidiaries,
(a) a Reportable Event (other than a Reportable Event not subject to the
provision for 30-day notice to the PBGC under regulations issued under
Section 4043 of ERISA), (b) the withdrawal of any such Person or any member
of its Controlled Group from a Plan subject to Title IV of ERISA during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate under
Section 4041(c) of ERISA, (d) the institution of proceedings to terminate a
Plan by the PBGC, (e) the failure to make required contributions which could
result in the imposition of a lien under Section 412 of the Code or Section
302 of ERISA, or (f) any other event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan or
the imposition of any liability under Title IV of ERISA other than PBGC
premiums due but not delinquent under Section 4007 of ERISA; PROVIDED,
HOWEVER, that ERISA Event shall not include the termination by Service Supply
of its employee stock option plan.
"EVENT OF DEFAULT" means any of the events specified in SECTION 8.1,
provided that any requirement for notice or lapse of time has been satisfied.
"EXISTING LETTERS OF CREDIT" means those Letters of Credit issued under
the Existing Credit Agreement and outstanding on the Agreement Date which are
set forth on SCHEDULE 8 hereto.
- 8 -
<PAGE>
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upwards if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding
Business Day, and (b) if no such rate is so published on such next succeeding
Business Day, the Federal Funds Rate for such day shall be the average rate
quoted to the Administrative Lender on such day on such transactions as
reasonably determined by Administrative Lender.
"FEE LETTER" has the meaning specified in SECTION 2.4(b) hereof.
"FISCAL YEAR" means each period of 52 or 53 weeks ending on the Sunday
closest to December 31 of each year.
"FIXED CHARGES" means, for any date of calculation, calculated for
Borrower and its Subsidiaries on a consolidated basis, the sum of, without
duplication, (a) scheduled principal payments in respect of Indebtedness,
plus (b) interest expense (including interest expense pursuant to Capitalized
Lease Obligations), plus (c) lease expense under Operating Leases.
"FIXED CHARGE COVERAGE RATIO" means the ratio of Pretax Cash Flow to
Fixed Charges, calculated for the four consecutive fiscal quarters
immediately preceding the date of calculation.
"FOREIGN SUBSIDIARY" means any Subsidiary of the Borrower which is not
organized under the laws of any state of the United States of America or the
District of Columbia.
"GAAP" means generally accepted accounting principles applied on a
consistent basis, set forth in the Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants, or their
successors which are applicable in the circumstances as of the date in
question. The requirement that such principles be applied on a consistent
basis shall mean that the accounting principles applied in a current period
are comparable in all material respects to those applied in a preceding
period.
"GUARANTY" or "GUARANTEED", as applied to an obligation of another
Person, means (a) a guaranty, direct or indirect, in any manner, of any part
or all of such obligation, and (b) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any
way the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation, including, without
limiting the foregoing, any reimbursement obligations with respect to amounts
which may be drawn by beneficiaries of outstanding letters of credit;
provided, however, Guaranty does not mean (A) the endorsement of instruments
for collection or deposit in the ordinary course of business and (B)
customary indemnities given in connection with asset sales in the ordinary
course of business.
- 9 -
<PAGE>
"HIGHEST LAWFUL RATE" means at the particular time in question the
maximum rate of interest which, under Applicable Law, the Lenders are then
permitted to charge on the Obligations. If the maximum rate of interest
which, under Applicable Law, the Lenders are permitted to charge on the
Obligations shall change after the date hereof, the Highest Lawful Rate shall
be automatically increased or decreased, as the case may be, from time to
time as of the effective time of each change in the Highest Lawful Rate
without notice to the Borrower. For purposes of determining the Highest
Lawful Rate under the Applicable Law of the State of Texas, the applicable
rate ceiling shall be (a) the indicated rate ceiling described in and
computed in accordance with the provisions of Section (a)(1) of Art. 1.04, or
(b) if the parties subsequently contract as allowed by Applicable Law, the
quarterly ceiling or the annualized ceiling computed pursuant to Section (d)
of Art. 1.04; provided, however, that at any time the indicated rate ceiling,
the quarterly ceiling or the annualized ceiling shall be less than 18% per
annum or more than 24% per annum, the provisions of Sections (b)(1) and (2)
of said Art. 1.04 shall control for purposes of such determination, as
applicable.
"INDEBTEDNESS" means, with respect to any Person, (a) all items, except
accounts payable arising in the normal course of business, which in
accordance with GAAP would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person, (b) all
obligations secured by any Lien on any property or asset owned by such Person
(other than accounts payable arising in the ordinary course of business),
whether or not the obligation secured thereby shall have been assumed, (c) to
the extent not otherwise included, all Capitalized Lease Obligations of such
Person, all obligations in respect of letters of credit, bankers' acceptances
and similar instruments, and all obligations under Interest Hedge Agreements,
(d) any "withdrawal liability" of the Borrower or any Subsidiary of the
Borrower, as such term is defined under Part I of Subtitle E of Title IV of
ERISA, (e) all preferred Capital Stock issued by such Person and required by
the terms thereof to be redeemed, or for which mandatory sinking fund
payments are due, by a fixed date, and (f) any Guaranty of such Person of any
obligation of another Person constituting obligations of a type set forth
above.
"INDEMNIFIED MATTERS" has the meaning specified in SECTION 5.9(a) hereof.
"INDEMNITEES" has the meaning specified in SECTION 5.9(a) hereof.
"INITIAL PRICING PERIOD" means that period from the Agreement Date to
and including the Rate Adjustment Date.
"INITIAL PUBLIC OFFERING" means an initial underwritten offering of
common Capital Stock of the Borrower for cash pursuant to an effective
registration statement under the Securities Act of 1933, as amended, as a
consequence of which common Capital Stock of the Borrower is listed on a
national securities exchange or quoted on the national market system of
NASDAQ.
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"INTEREST HEDGE AGREEMENTS" means any and all agreements, devices or
arrangements designed to protect at least one of the parties thereto from the
fluctuations of interest rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange transactions, including, but not
limited to, dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest rate cap, swap or
collar protection agreements, and forward rate currency or interest rate
options, as the same may be amended or modified and in effect from time to
time, and any and all cancellations, buy backs, reversals, terminations or
assignments of any of the foregoing.
"INTEREST PERIOD" means the period beginning on the day any LIBOR
Advance is made and ending one, two, three, six or, subject to availability
and agreement by each Lender, twelve months thereafter (as the Borrower shall
select).
"INVESTMENT" means any direct or indirect purchase or other acquisition
of, or beneficial interest in, capital stock or other securities of any other
Person, or any direct or indirect loan, advance (other than advances to
employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution to,
or investment in any other Person, including without limitation the purchase
of accounts receivable of any other Person that are not current assets or do
not arise in the ordinary course of business.
"ISSUING BANK" means NationsBank of Texas, N.A., a national banking
association, in its capacity as issuer of the Letters of Credit.
"LAW" means any statute, law, ordinance, regulation, rule, order, writ,
injunction, or decree of any Tribunal.
"LENDER" means each financial institution shown on the signature pages
hereof so long as such financial institution maintains a portion of the
Revolving Credit Commitment or is owed any part of the Obligations (including
the Administrative Lender in its individual capacity), and each Assignee that
hereafter becomes a party hereto pursuant to SECTION 11.6 hereof, subject to
the limitations set forth therein.
"L/C RELATED DOCUMENTS" has the meaning specified in SECTION 2.15(e)
hereof.
"LETTER OF CREDIT" has the meaning specified in SECTION 2.15(a) hereof.
"LETTER OF CREDIT AGREEMENT" has the meaning specified in SECTION
2.15(b) hereof.
"LETTER OF CREDIT FACILITY" has the meaning specified in SECTION 2.15(a)
hereof.
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"LEVERAGE RATIO" means, for any date of calculation, the ratio of Total
Debt as of the date of determination to EBITDA calculated for the four
consecutive fiscal quarters immediately preceding the date of calculation.
For purpose of calculation of the Leverage Ratio only, with respect to assets
not owned at all times during the four fiscal quarters immediately preceding
the date of calculation of EBITDA, there shall be (i) included in EBITDA the
EBITDA of any assets acquired during any such four fiscal quarters for the
twelve months preceding the date of calculation and (ii) excluded from EBITDA
the EBITDA of any assets disposed of during any of such fiscal quarters for
the twelve months preceding the date of calculation.
"LIBOR ADVANCE" means an Advance which the Borrower requests to be made
as a LIBOR Advance or which is reborrowed as a LIBOR Advance, in accordance
with the provisions of SECTION 2.2 hereof.
"LIBOR BASIS" means a simple per annum interest rate equal to the lesser
of (a) the Highest Lawful Rate, or (b) the sum of the LIBOR Rate plus the
Applicable Margin. The LIBOR Basis shall, with respect to LIBOR Advances
subject to reserve or deposit requirements, be subject to premiums for such
reserve or deposit requirements assessed by each Lender to the extent
incurred by such Lender, which are payable directly to each Lender. Once
determined, the LIBOR Basis shall remain unchanged during the applicable
Interest Period.
"LIBOR LENDING OFFICE" means, with respect to a Lender, the office
designated as its LIBOR Lending Office on SCHEDULE 1 attached hereto, and
such other office of the Lender or any of its Affiliates hereafter designated
by notice to the Borrower and the Administrative Lender.
"LIBOR RATE" means, for any LIBOR Advance for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100th 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 RATE" shall mean, for any LIBOR
Advance for any Interest Period therefor, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100th 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 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
(rounded upwards, if necessary, to the nearest 1/100th of 1%).
"LIEN" means, with respect to any property, any mortgage, lien, pledge,
collateral assignment, hypothecation, charge, security interest, title
retention agreement, levy, execution, seizure, attachment, garnishment or
other similar encumbrance of any kind in respect of such property, whether or
not choate, vested or perfected.
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"LITIGATION" means any proceeding, claim, lawsuit, arbitration, and/or
investigation by or before any Tribunal, including, without limitation,
proceedings, claims, lawsuits, and/or investigations under or pursuant to any
environmental, occupational, safety and health, antitrust, unfair
competition, securities, Tax or other Law, or under or pursuant to any
contract, agreement or other instrument.
"LOAN DOCUMENTS" means this Agreement, the Notes, any Subsidiary
Guaranty, any Pledge Agreement, any Subordination Agreement, the Fee Letter,
any Interest Hedge Agreements entered into with any Lender or any Affiliate
of any Lender, and any other document or agreement executed or delivered from
time to time by the Borrower, any Subsidiary of the Borrower or any other
Person in connection herewith or as security for the Obligations.
"MATERIAL ADVERSE EFFECT" means any act or circumstance or event that
(a) causes a Default, (b) otherwise could reasonably be expected to be
material and adverse to the business, financial condition, results of
operations, or business prospects of the Borrower and its Subsidiaries taken
as a whole, or (c) in any manner whatsoever does or could reasonably be
expected to materially and adversely affect the validity or enforceability of
any Loan Documents.
"MATERIAL SUBSIDIARY" means each Subsidiary of the Borrower or of a
Subsidiary of the Borrower (a) the gross revenues of which for the then most
recently completed four fiscal quarters constituted (or, with respect to any
such Subsidiary acquired during such fiscal quarters, would have constituted
had the gross revenues of such Subsidiary been included for such period) 5%
or more of the consolidated gross revenues of the Borrower and its
Subsidiaries for such period or (b) the assets of which as of the end of any
fiscal quarter constituted 5% or more of the consolidated assets of the
Borrower and its Subsidiaries as of the end of such fiscal quarter.
"MATURITY DATE" means December 10, 2002, or the earlier date of
termination in whole of the Revolving Credit Commitment pursuant to SECTION
2.6 or 8.2 hereof.
"MAXIMUM AMOUNT" means the maximum amount of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations.
"MEMBER CONTRIBUTION" means any contribution of cash to the Borrower or
any Subsidiary of the Borrower made by any member of the Borrower or any of
its Affiliates which is used by the Borrower for Capital Expenditures or
Acquisitions or pursuant to SECTION 8.1(c) or 8.1(q) hereof.
"MULTIEMPLOYER PLAN" means, as to any Person, at any time, a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which such Person or any member of its Controlled Group is making, or is
obligated to make contributions or has made, or been obligated to make,
contributions.
"NATIONSBANK" means NationsBank of Texas, N.A., a national banking
association, in its capacity as a Lender.
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"NECESSARY AUTHORIZATION" means any right, franchise, license, permit,
consent, approval or authorization from, or any filing or registration with,
any Tribunal or any Person necessary or appropriate to enable the Borrower or
any Subsidiary of the Borrower to maintain and operate its business and
properties.
"NEGATIVE PLEDGE" means any agreement, contract or other arrangement
whereby the Borrower is prohibited from, or would otherwise be in default as
a result of, creating, assuming, incurring or suffering to exist, directly or
indirectly, any Lien on any of its assets.
"NET CASH PROCEEDS" means, with respect to any sale, lease, transfer or
other disposition of any asset, Capital Stock or Indebtedness by or of any
Person, the amount of cash received by such Person in connection with such
transaction (including cash proceeds of any property received in
consideration of any such sale, lease, transfer or other disposition) after
deducting therefrom the aggregate, without duplication, of the following
amounts to the extent properly attributable to such transaction or to the
asset that is the subject thereof: (i) reasonable brokerage commissions,
legal fees, finder's fees, financial advisory fees, accounting fees,
underwriting fees, investment banking fees and other similar commissions and
fees, in each case, to the extent paid or payable by such Person; (ii)
filing, recording or registration fees or charges or similar fees or charges
paid by such Person; and (iii) without duplication, taxes paid or payable by
such Person or any shareholder, partner or member of such Person to
governmental taxing authorities as a result of such sale or other disposition.
"NET INCOME" means, net earnings (or deficit) after taxes of the
Borrower and its Subsidiaries, on a consolidated basis, determined in
accordance with GAAP.
"NET WORTH" means, for the Borrower and its Subsidiaries, on a
consolidated basis, determined in accordance with GAAP, total assets minus
total liabilities.
"NOTICE OF ISSUANCE" has the meaning specified in SECTION 2.15(b) hereof.
"OBLIGATIONS" means (a) all obligations of any nature (whether matured
or unmatured, fixed or contingent, including the Reimbursement Obligations)
of the Borrower, any Subsidiary of the Borrower or any other Obligor to any
Lender or any Affiliate of any Lender under the Loan Documents as they may be
amended from time to time, and (b) all obligations of the Borrower, any
Subsidiary of the Borrower or any other Obligor for losses, damages, expenses
or any other liabilities of any kind that any Lender may suffer by reason of
a breach by the Borrower, any Subsidiary of the Borrower or any other Obligor
of any obligation, covenant or undertaking with respect to any Loan Document
payable by the Borrower, any Subsidiary of the Borrower or any other Obligor
under any Loan Document.
"OBLIGOR" means the Borrower or any other Person liable for performance
of any of the Obligations or the property of which secures any of the
Obligations.
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"OPERATING LEASE" means any operating lease, as defined in the Financial
Accounting Standard Board Statement of Financial Accounting Standards No. 13,
dated November, 1976 or otherwise in accordance with GAAP.
"PARTICIPANT" has the meaning specified in SECTION 11.6(c) hereof.
"PARTICIPATION" has the meaning specified in SECTION 11.6(c) hereof.
"PAYMENT DATE" means the last day of the Interest Period for any LIBOR
Advance.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PEI" means Power-Electronics, Inc., a corporation organized under the
laws of the Commonwealth of Puerto Rico.
"PERMITTED LIENS" means, as applied to any Person:
(a) Any Lien in favor of the Lenders to secure the Obligations
hereunder;
(b) (i) Liens on real estate for ad valorem taxes not yet delinquent,
(ii) Liens created by lease agreements to secure the payment of rental
amounts and other sums not yet due thereunder, (iii) Liens on leasehold
interests created by the lessor in favor of any mortgagee of the leased
premises, and (iv) Liens for taxes, assessments, governmental charges, levies
or claims that are not yet delinquent or that are being diligently contested
in good faith by appropriate proceedings in accordance with SECTION 5.6
hereof and for which adequate reserves shall have been set aside on such
Person's books, but only so long as no foreclosure, restraint, sale or
similar proceedings have been commenced with respect thereto;
(c) Liens of carriers, warehousemen, landlords, mechanics, laborers and
materialmen and other similar Liens incurred in the ordinary course of
business for sums not yet due or being contested in good faith, if such
reserve or appropriate provision, if any, as shall be required by GAAP shall
have been made therefor;
(d) Liens incurred in the ordinary course of business in connection
with worker's compensation, unemployment insurance or similar legislation;
(e) Easements, right-of-way, restrictions and other similar
encumbrances on the use of real property which do not interfere in any
material respect with the ordinary conduct of the business of such Person;
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(f) Liens created to secure the purchase price of assets acquired by
such Person or created to secure Indebtedness permitted by SECTION 7.1(c)
hereof, which is incurred solely for the purpose of financing the acquisition
of such assets and incurred at the time of acquisition, so long as each such
Lien shall at all times be confined solely to the asset or assets so acquired
(and proceeds thereof), and refinancings thereof so long as any such Lien
remains solely on the asset or assets acquired and the amount of Indebtedness
related thereto is not increased;
(g) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been
secured, provided that (i) such Person shall have established adequate
reserves for such judgments or awards, (ii) such judgments or awards shall be
fully insured (subject to customary deductibles) and the insurer shall not
have denied coverage, or (iii) such judgments or awards shall have been
bonded to the satisfaction of the Determining Lenders;
(h) Any Liens which are described on SCHEDULE 2 hereto, and Liens
resulting from the refinancing of the related Indebtedness, provided that the
Indebtedness secured thereby shall not be increased and the Liens shall not
cover additional assets of the Borrower;
(i) Leases or subleases granted to others not interfering in any
material respect with the ordinary conduct of the business of the Borrower or
any of its Subsidiaries;
(j) Liens arising from filing Uniform Commercial Code financing
statements for precautionary purposes relating solely to true leases of
personal property permitted by this Agreement under which the Borrower or any
of its Subsidiaries is a lessee;
(k) Any zoning or similar law or right reserved to or vested in any
Tribunal to control or regulate the use of any real property;
(l) Any other title exception with respect to real property assets
disclosed by any preliminary title report, title commitment report or other
search of title provided to the Administrative Lender in accordance with this
Agreement unless disapproved by the Administrative Lender prior to the
Agreement Date; and
(m) Any Lien in favor of any Lender or any Affiliate of any Lender to
secure any obligations owed to such Lender in respect of any Interest Hedge
Agreement.
"PERSON" means an individual, corporation, partnership, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"PLAN" means an employee benefit plan as defined in Section 3(3) of
ERISA (including a Multiemployer Plan) pursuant to which any employees of
the Borrower, its Subsidiaries or any member of their Controlled Group
participate.
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"PLEDGE AGREEMENT" means any pledge agreement, substantially in the form
of EXHIBIT B hereto, as amended, modified, renewed, supplemented or restated
from time to time, executed by the Borrower with respect to 66% of the issued
and outstanding Capital Stock of each Foreign Subsidiary.
"PRETAX CASH FLOW" means, for any date of calculation, calculated for
the Borrower and its Subsidiaries on a consolidated basis, an amount equal to
the sum of (a) EBITA, plus (b) lease expense under Operating Leases.
"PRETAX NET INCOME" means net profit (or loss) before taxes of the
Borrower and its Subsidiaries, on a consolidated basis, determined in
accordance with GAAP.
"PRIME RATE" means, at any time, the prime interest rate announced or
published by the Reference Lender from time to time as its reference rate for
the determination of interest rates for loans of varying maturities in United
States dollars to United States residents of varying degrees of
creditworthiness and being quoted at such time by the Reference Lender as its
"prime rate;" it being understood that such rate may not be the lowest rate
of interest charged by the Reference Lender.
"PUM" shall mean Poder Uno de Mexico, S.A. de C.V., a corporation
organized under the laws of the United Mexican States.
"QUARTERLY DATE" means the last day of each March, June, September and
December, beginning December 31, 1997.
"RATE ADJUSTMENT DATE" means the date that the Lenders receive the
financial statements for the fiscal quarter ending September 30, 1997
required to be delivered pursuant to SECTION 6.1.
"REIMBURSEMENT OBLIGATIONS" means, in respect of any Letter of Credit as
at any date of determination, the sum of (a) the maximum aggregate amount
which is then available to be drawn under such Letter of Credit plus (b) the
aggregate amount of all drawings under such Letter of Credit not theretofore
reimbursed by the Borrower.
"RELEASE DATE" means the date on which the Notes have been paid, all
other Obligations due and owing have been paid and performed in full, and the
Revolving Credit Commitment has been terminated.
"REPORTABLE EVENT" has the meaning set forth in Section 4043(b) of ERISA.
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"RESTRICTED PAYMENTS" means, collectively, (i) Dividends, (ii) Deferred
Compensation, (iii) Stephens Fees, and (iv) any (A) payment or prepayment of
principal, premium or penalty on any Subordinated Debt of the Borrower or any
Subsidiary of the Borrower or any defeasance, redemption, purchase,
repurchase or other acquisition or retirement for value, in whole or in part,
of any Subordinated Debt (including, without limitation, the setting aside of
assets or the deposit of funds therefor) and (B) prepayment of interest on
any Subordinated Debt.
"REVOLVING COMMITMENT FEE" has the meaning specified in SECTION 2.4(a)
hereof.
"REVOLVING CREDIT ADVANCE" means an Advance made pursuant to SECTION
2.1(a) hereof.
"REVOLVING CREDIT COMMITMENT" means $50,000,000.00.
"REVOLVING CREDIT NOTE" means the Promissory Note of Borrower evidencing
Revolving Credit Advances hereunder, substantially in the form of EXHIBIT A
hereto, together with any extension, renewal, or amendment thereof, or
substitution therefor.
"RIGHTS" means rights, remedies, powers and privileges.
"SOLVENT" means, with respect to any Person, that the fair value of the
assets of such Person (both at fair valuation and at present fair saleable
value) is, on the date of determination, greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such
Person as of such date and that, as of such date, such Person is able to pay
all liabilities of such Person as such liabilities mature and such Person
does not have unreasonably small capital with which to carry on its business.
In computing the amount of contingent or unliquidated liabilities at any
time, such liabilities will be computed at the amount which, in light of all
the facts and circumstances existing at such time, represents the amount that
can reasonably be expected to become an actual or matured liability
discounted to present value at rates believed to be reasonable by such Person.
"SPECIAL COUNSEL" means the law firm of Donohoe, Jameson & Carroll,
P.C., or such other legal counsel as the Administrative Lender may select.
"SPECIFIED PERCENTAGE" means, as to any Lender, the percentage indicated
beside its name on the signature pages hereof, or if applicable, specified in
its most recent Assignment Agreement.
"STEPHENS FEES" means any investment banking fees paid to Stephens, Inc.
by the Borrower with respect to investment banking services rendered to the
Borrower by Stephens, Inc.
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"SUBORDINATED DEBT" means Indebtedness of the Borrower or any Subsidiary
of the Borrower having maturities and terms, and which is subordinated to
payment of the Obligations in a manner, approved in writing by the
Administrative Lender and the Determining Lenders, with only such changes or
amendments as are approved by the Administrative Lender and the Determining
Lenders.
"SUBORDINATION AGREEMENT" means any Subordination Agreement, executed by
one or more Subsidiaries of the Borrower, substantially in the form of
EXHIBIT F hereto, as amended, modified, renewed, supplemented or restated
from time to time.
"SUBSEQUENT PRICING PERIOD" means the period from the date which is the
first day following the end of the Initial Pricing Period to the Maturity
Date.
"SUBSIDIARY" of any Person means any corporation, partnership, joint
venture, trust or estate or other Person of which (or in which) more than 50%
of:
(a) the outstanding capital stock having voting power to elect a
majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency),
(b) the interest in the capital or profits of such partnership or
joint venture,
(c) the beneficial interest of such trust or estate, or
(d) the equity interest of such other Person,
is at the time directly or indirectly owned by such Person, by such Person
and one or more of its Subsidiaries or by one or more of such Person's
Subsidiaries.
"SUBSIDIARY GUARANTY" means any Subsidiary Guaranty, executed by one or
more Domestic Subsidiaries, substantially in the form of EXHIBIT E hereto, as
amended, modified, renewed, supplemented or restated from time to time.
"SYNTHETIC LEASES" means any synthetic lease, tax retention operating
lease, off-balance sheet loan or similar off-balance sheet financing product
where such transaction is considered borrowed money indebtedness for tax
purposes but which is classified as an Operating Lease pursuant to GAAP.
"TAXES" has the meaning specified in SECTION 2.14 hereof.
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"TOTAL DEBT" means, as of any date of determination, determined for the
Borrower and its Subsidiaries on a consolidated basis, (i) indebtedness for
borrowed money, (ii) obligations evidenced by bonds, debentures, notes or
other similar instruments, (iii) obligations to pay the deferred purchase
price of property or services other than trade payables incurred in the
ordinary course of business (excluding any Deferred Compensation), and (iv)
Capitalized Lease Obligations.
"TRIBUNAL" means any state, commonwealth, federal, foreign, territorial,
or other court or government body, subdivision, agency, department,
commission, board, bureau, or instrumentality of a governmental or other
regulatory body or authority.
"UCC" means the Uniform Commercial Code of Texas, as amended from time
to time, and the Uniform Commercial Code applicable in such other states as
any Collateral may be located.
"UNUSED PORTION" means an amount equal to the result of (i) the
Revolving Credit Commitment minus (ii) the sum of (A) the outstanding
Revolving Credit Advances plus (B) outstanding Reimbursement Obligations in
respect of the Letters of Credit less the amount of Cash Collateralized
Letters of Credit.
Section 1.2 AMENDMENTS AND RENEWALS. Each definition of an agreement
in this ARTICLE 1 shall include such agreement as amended to date, and as
amended or renewed from time to time in accordance with its terms, but only
(other than with respect to Power-One Acquisition Documents) with the prior
written consent of the Determining Lenders or all the Lenders as required
pursuant to SECTION 11.11 hereof.
Section 1.3 CONSTRUCTION. The terms defined in this ARTICLE 1
(except as otherwise expressly provided in this Agreement) for all purposes
shall have the meanings set forth in SECTION 1.1 hereof, and the singular
shall include the plural, and vice versa, unless otherwise specifically
required by the context. All accounting terms used in this Agreement which
are not otherwise defined herein shall be construed in accordance with GAAP
on a consolidated basis for the Borrower and its Subsidiaries, unless
otherwise expressly stated herein.
ARTICLE 2
REVOLVING CREDIT ADVANCES
Section 2.1 THE REVOLVING CREDIT ADVANCES.
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(a) Each Lender severally agrees, upon the terms and subject to the
conditions of this Agreement, to make Revolving Credit Advances to the
Borrower from time to time in an aggregate amount not to exceed its Specified
Percentage of the Revolving Credit Commitment less its Specified Percentage
of the remainder of (i) the aggregate amount of all Reimbursement Obligations
then outstanding (assuming compliance with all conditions to drawing) minus
(ii) the outstanding amount of Cash Collateralized Letters of Credit for the
purposes set forth in SECTION 5.9 hereof. Subject to SECTION 2.9 hereof,
Revolving Credit Advances may be repaid and then reborrowed. Notwithstanding
any provision in any Loan Document to the contrary, in no event shall the
principal amount of all outstanding Revolving Credit Advances exceed the
Revolving Credit Commitment minus the remainder of (i) the outstanding
Reimbursement Obligations minus (ii) the outstanding amount of Cash
Collateralized Letters of Credit.
(b) Any Revolving Credit Advance shall, at the option of the Borrower
as provided in SECTION 2.2 hereof (and, in the case of LIBOR Advances,
subject to the provisions of ARTICLE 9 hereof), be made as a Base Rate
Advance or a LIBOR Advance; provided that there shall not be outstanding to
any Lender, at any one time, more than five LIBOR Advances.
Section 2.2 MANNER OF BORROWING AND DISBURSEMENT.
(a) In the case of Base Rate Advances, the Borrower, through an
Authorized Signatory, shall give the Administrative Lender prior to 11:00
a.m., Dallas, Texas time, on the date of any proposed Base Rate Advance
irrevocable written notice, or irrevocable telephonic notice followed
immediately by written notice (provided, however, that the Borrower's failure
to confirm any telephonic notice in writing shall not invalidate any notice
so given), of its intention to borrow a Base Rate Advance hereunder. Such
notice of borrowing shall specify the requested funding date, which shall be
a Business Day, and the amount of the proposed aggregate Base Rate Advances
to be made by Lenders.
(b) In the case of LIBOR Advances, the Borrower, through an Authorized
Signatory, shall give the Administrative Lender at least three Business Days'
irrevocable written notice, or irrevocable telephonic notice followed
immediately by written notice (provided, however, that the Borrower's failure
to confirm any telephonic notice in writing shall not invalidate any notice
so given), of its intention to borrow a LIBOR Advance hereunder. Notice
shall be given to the Administrative Lender prior to 11:00 a.m., Dallas,
Texas time, in order for such Business Day to count toward the minimum number
of Business Days required. LIBOR Advances shall in all cases be subject to
ARTICLE 9 hereof. For LIBOR Advances, the notice of borrowing shall specify
the requested funding date, which shall be a Business Day, the amount of the
proposed aggregate LIBOR Advances to be made by Lenders and the Interest
Period selected by the Borrower, provided that no such Interest Period shall
extend past the Maturity Date, or prohibit or impair the Borrower's ability
to comply with SECTION 2.8 hereof.
(c) Subject to SECTIONS 2.1 and 2.9 hereof, the Borrower shall have the
option (i) to convert at any time all or any part of the outstanding Base
Rate Advances to LIBOR Advances and all or any part of the outstanding LIBOR
Advances to Base Rate Advances or (ii) upon
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expiration of any Interest Period applicable to a LIBOR Advance, to continue
all or any portion of such LIBOR Advance equal to $500,000 and integral
multiples of $100,000 in excess of that amount as a LIBOR Advance and the
succeeding Interest Period(s) of such continued LIBOR Advance shall commence
on the last day of the Interest Period of the LIBOR Advance to be continued;
provided, however, (a) LIBOR Advances may only be converted into Base Rate
Advances on the expiration date of the Interest Period applicable thereto and
(b) notwithstanding anything in this Agreement to the contrary, no
outstanding Advance may be continued as, or converted into, a LIBOR Advance
when any Default or Event of Default has occurred and is continuing. At
least three Business Days prior to a proposed conversion/continuation date,
the Borrower, through an Authorized Signatory, shall give the Administrative
Lender irrevocable written notice, or irrevocable telephonic notice followed
immediately by written notice (provided, however, that the Borrower's failure
to confirm any telephonic notice in writing shall not invalidate any notice
so given), stating (i) the proposed conversion/continuation date (which shall
be a Business Day), (ii) the amount of the Advance to be converted/continued,
(iii) in the case of a conversion to, or a continuation of, a LIBOR Advance,
the requested Interest Period, and (iv) in the case of a conversion of a Base
Rate Advance to a LIBOR Advance or continuation of a LIBOR Advance, stating
that no Default or Event of Default has occurred and is continuing. If the
Borrower shall fail to give any notice in accordance with this SECTION
2.2(c), the Borrower shall be deemed irrevocably to have requested that such
LIBOR Advance be converted to a Base Rate Advance in the same principal
amount. Notice shall be given to the Administrative Lender prior to 11:00
a.m., Dallas, Texas time, in order for such Business Day to count toward the
minimum number of Business Days required.
(d) The aggregate amount of Base Rate Advances to be made by the
Lenders on any day shall be in a principal amount which is at least $250,000
and which is an integral multiple of $100,000; provided, however, that such
amount may equal the unused amount of the Revolving Credit Commitment. The
aggregate amount of LIBOR Advances having the same Interest Period and to be
made by the Lenders on any day shall be in a principal amount which is at
least $500,000 and which is an integral multiple of $100,000.
(e) The Administrative Lender shall promptly notify the Lenders of each
notice received from the Borrower pursuant to this Section. Each Lender
shall, not later than noon, Dallas, Texas time, on the date of any Revolving
Credit Advance, deliver to the Administrative Lender, at its address set
forth herein, such Lender's Specified Percentage of such Revolving Credit
Advance in immediately available funds in accordance with the Administrative
Lender's instructions. Prior to 2:00 p.m., Dallas, Texas time, on the date
of any Revolving Credit Advance hereunder, the Administrative Lender shall,
subject to satisfaction of the conditions set forth in ARTICLE 3, disburse
the amounts made available to the Administrative Lender by the Lenders by (i)
transferring such amounts by wire transfer pursuant to the Borrower's
instructions, or (ii) in the absence of such instructions, crediting such
amounts to the account of the Borrower maintained with the Administrative
Lender. All Revolving Credit Advances shall be made by each Lender according
to its Specified Percentage.
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<PAGE>
Section 2.3 INTEREST.
(a) ON BASE RATE ADVANCES.
(i) The Borrower shall pay interest on the outstanding unpaid
principal amount of the Base Rate Advances outstanding from time to time,
until such Base Rate Advances are due (whether at maturity, by reason of
acceleration, by scheduled reduction, or otherwise) and repaid at a simple
interest rate per annum equal to the Base Rate Basis for the Base Rate
Advances as in effect from time to time, provided that interest on the Base
Rate Advances shall not exceed the Maximum Amount. If at any time the Base
Rate Basis would exceed the Highest Lawful Rate, interest payable on the
Base Rate Advances shall be limited to the Highest Lawful Rate, but the
Base Rate Basis shall not thereafter be reduced below the Highest Lawful
Rate until the total amount of interest accrued on the Base Rate Advances
equals the amount of interest that would have accrued if the Base Rate
Basis had been in effect at all times.
(ii) Interest on the Base Rate Advances shall be computed on the basis
of a year of 365 or 366 days, as appropriate, for the actual number of days
elapsed, and shall be payable in arrears on each Quarterly Date and on the
Maturity Date.
(b) ON LIBOR ADVANCES.
(i) The Borrower shall pay interest on the unpaid principal amount of
each LIBOR Advance, from the date such Advance is made until it is due
(whether at maturity, by reason of acceleration, by scheduled reduction, or
otherwise) and repaid, at a rate per annum equal to the LIBOR Basis for
such LIBOR Advance. The Administrative Lender, whose determination shall
be controlling in the absence of manifest error, shall determine the LIBOR
Basis on the second Business Day prior to the applicable funding date and
shall notify the Borrower and the Lenders of such LIBOR Basis.
(ii) Subject to SECTION 11.9 hereof, interest on each LIBOR Advance
shall be computed on the basis of a 360-day year for the actual number of
days elapsed, and shall be payable in arrears on the applicable Payment
Date and on the Maturity Date; provided, however, that if the Interest
Period for such LIBOR Advance exceeds three months, interest shall also be
due and payable in arrears on each three-month anniversary of the
commencement of such Interest Period during such Interest Period.
(c) INTEREST AFTER AN EVENT OF DEFAULT. (i) After an Event of Default
(other than an Event of Default specified in SECTION 8.1(f) or (g) hereof) and
during any continuance thereof, at the option of Determining Lenders and
provided that the Administrative Lender has given notice of the decision to
charge interest at the Default Rate, and (ii) after an Event of Default
specified in SECTION 8.1(f) or (g) hereof and during any continuance thereof,
automatically and without any action or notice by the Administrative Lender or
any Lender, the Obligations shall bear interest
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at a rate per annum equal to the Default Rate. Such interest shall be
payable on the earlier of demand or the Maturity Date, and shall accrue until
the earlier of (i) waiver or cure (to the satisfaction of the Determining
Lenders) of the applicable Event of Default, (ii) agreement by the Lenders to
rescind the charging of interest at the Default Rate, or (iii) payment in
full of the Obligations. The Lenders shall not be required to accelerate the
maturity of the Advances, to exercise any other rights or remedies under the
Loan Documents, or in case of an Event of Default specified in clause (ii)
hereof, to give notice to the Borrower of the decision to charge interest at
the Default Rate.
Section 2.4 FEES.
(a) REVOLVING COMMITMENT FEE. Subject to SECTION 11.9 hereof, the
Borrower agrees to pay to the Administrative Lender, for the ratable account
of the Lenders, a commitment fee on the daily average Unused Portion at the
following per annum percentages, applicable in the following situations:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C>
(a) INITIAL PRICING PERIOD 0.250
(b) SUBSEQUENT PRICING PERIOD
(i) If the Leverage Ratio is greater
than 2.50 to 1 0.500
(ii) If the Leverage Ratio is greater
than 1.75 to 1 but is less than
or equal to 2.50 to 1 0.375
(iii) If the Leverage Ratio is less than
or equal to 1.75 to 1 0.250
</TABLE>
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<PAGE>
Such fee shall be (i) payable in arrears on each Quarterly Date and on the
Maturity Date, (ii) fully earned when due and, subject to SECTION 11.9
hereof, nonrefundable when paid and (iii) subject to SECTION 11.9 hereof,
computed on the basis of a year of 365 or 366 days, as appropriate, for the
actual number of days elapsed. The commitment fee shall be subject to
reduction or increase, as applicable and as set forth in the table above, on
a quarterly basis according to the performance of the Borrower as tested by
using the Leverage Ratio calculated as of the end of each fiscal quarter
during the Subsequent Pricing Period. Any such increase or decrease in the
commitment fee shall be effective two Business Days after the date of receipt
of the financial statements required to be delivered pursuant to SECTION 6.1
or 6.2 hereof, as applicable, for each such fiscal quarter, and the
Compliance Certificate required pursuant to SECTION 6.3 hereof. If such
financial statements and Compliance Certificate are not received by the date
required hereunder, the commitment fee shall be determined as if the Leverage
Ratio is greater than 2.50 to 1 until such time as such financial statements
and Compliance Certificate are received.
(b) OTHER FEES. Subject to SECTION 11.9 hereof, the Borrower agrees to
pay to the Administrative Lender, the fees on the dates and in the amounts
specified in the letter agreement (the "FEE LETTER"), dated as of October 21,
1997, between the Borrower and the Administrative Lender.
Section 2.5 PREPAYMENTS.
(a) VOLUNTARY LIBOR ADVANCE PREPAYMENTS. Upon three Business Days'
prior telephonic notice (to be promptly followed by written notice) by an
Authorized Signatory to the Administrative Lender, LIBOR Advances may be
voluntarily prepaid but only so long as the Borrower concurrently reimburses
the Lenders in accordance with SECTION 2.9 hereof. Any notice of prepayment
shall be irrevocable.
(b) MANDATORY PREPAYMENT. On or before the date of any reduction of
the Revolving Credit Commitment, the Borrower shall prepay applicable
outstanding Revolving Credit Advances and cash collateralize outstanding
Letters of Credit in an amount necessary to reduce the sum of outstanding
Revolving Credit Advances and Reimbursement Obligations less Cash
Collateralized Letters of Credit to an amount less than or equal to the
Revolving Credit Commitment as so reduced. To the extent required by the
preceding sentence, the Borrower shall first prepay all Base Rate Advances
and shall thereafter prepay LIBOR Advances. To the extent that any prepayment
requires that a LIBOR Advance be repaid on a date other than the last day of
its Interest Period, the Borrower shall reimburse each Lender in accordance
with SECTION 2.9 hereof. To the extent that outstanding Revolving Credit
Advances exceed the Revolving Credit Commitment after any reduction thereof,
the Borrower shall repay any such excess amount and all accrued interest
attributable to such excess Revolving Credit Advances on the date of such
reduction.
(c) PREPAYMENTS FROM SALES OF ASSETS. Concurrently with the receipt of
Net Cash
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<PAGE>
Proceeds from the sale or disposition by the Borrower or any Subsidiary of
the Borrower of any assets (other than the sale or disposition of (i)
inventory in the ordinary course of business, (ii) obsolete or worn-out
equipment in the ordinary course of business, (iii) assets, the Net Cash
Proceeds of which are reinvested as provided in SECTION 7.5(c) hereof, and
(iv) assets or a series of related assets of a value (determined at the
greater or book or fair market value) in an aggregate amount during any
Fiscal Year not in excess of $1,000,000, the Borrower shall prepay Revolving
Credit Advances in a principal amount equal to the amount of such Net Cash
Proceeds. Any such prepayments shall be applied to permanently reduce the
Revolving Credit Commitment.
(d) PAYMENTS, GENERALLY. Any prepayment of any Revolving Credit
Advance shall be accompanied by interest accrued on the principal amount
being prepaid. Any voluntary partial payment of a Base Rate Advance shall be
in a principal amount which is at least $250,000 and which is an integral
multiple of $100,000. Any voluntary partial payment of a LIBOR Advance shall
be in a principal amount which is at least $500,000 and which is an integral
multiple of $100,000, and to the extent that any prepayment of a LIBOR
Advance is made on a date other than the last day of its Interest Period, the
Borrower shall reimburse each Lender in accordance with SECTION 2.9 hereof.
Section 2.6 REDUCTION OF REVOLVING CREDIT COMMITMENT.
(a) VOLUNTARY REDUCTION. The Borrower shall have the right, upon not
less than 5 Business Days' notice by an Authorized Signatory to the
Administrative Lender (if telephonic, to be confirmed by telex or in writing
on or before the date of reduction or termination), which shall promptly
notify the Lenders, to terminate or reduce the Revolving Credit Commitment,
in whole or in part. Each partial termination shall be in an aggregate
amount which is at least $1,000,000 and which is an integral multiple of
$100,000, and no voluntary reduction in the Revolving Credit Commitment shall
cause any LIBOR Advance to be repaid prior to the last day of its Interest
Period unless the Borrower shall reimburse each Lender in accordance with
SECTION 2.9 hereof.
(b) MANDATORY REDUCTION. The Revolving Credit Commitment shall be
automatically reduced to zero on the Maturity Date.
(c) GENERAL REQUIREMENTS. Upon a reduction of the Revolving Credit
Commitment pursuant to this Section, the Borrower shall immediately make a
repayment of the Revolving Credit Advances in accordance with SECTION 2.5(b)
hereof. The Borrower shall reimburse each Lender in connection with any such
payment in accordance with SECTION 2.9 hereof to the extent applicable. The
Borrower shall not have any right to rescind any termination or reduction.
Once reduced, the Revolving Credit Commitment may not be increased or
reinstated.
Section 2.7 NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE LENDER. Unless
the Administrative Lender shall have been notified by a Lender prior to the
date of any proposed Revolving Credit Advance (which notice shall be
effective upon receipt) that such Lender does
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<PAGE>
not intend to make the proceeds of such Revolving Credit Advance available to
the Administrative Lender, the Administrative Lender may assume that such
Lender has made such proceeds available to the Administrative Lender on such
date, and the Administrative Lender may in reliance upon such assumption (but
shall not be required to) make available to the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the
Administrative Lender by such Lender, the Administrative Lender shall be
entitled to recover such amount on demand from such Lender (or, if such
Lender fails to pay such amount forthwith upon such demand, from the
Borrower) together with interest thereon in respect of each day during the
period commencing on the date such amount was available to the Borrower and
ending on (but excluding) the date the Administrative Lender receives such
amount from the Lender, with interest thereon at a per annum rate equal to
the lesser of (i) the Highest Lawful Rate or (ii) the Federal Funds Rate. No
Lender shall be liable for any other Lender's failure to fund a Revolving
Credit Advance hereunder.
Section 2.8 PAYMENT OF PRINCIPAL OF REVOLVING CREDIT ADVANCES. To
the extent not otherwise required to be paid earlier as provided herein, the
principal amount of the Revolving Credit Advances, all accrued interest and
fees thereon, and all other Obligations related thereto, shall be due and
payable in full on the Maturity Date.
Section 2.9 REIMBURSEMENT. Whenever any Lender shall sustain or
incur (other than through a default by that Lender) any losses or reasonable
out-of-pocket expenses in connection with (a) failure by the Borrower to
borrow any LIBOR Advance after having given notice of its intention to borrow
in accordance with SECTION 2.2 hereof (whether by reason of the Borrower's
election not to proceed or the non-fulfillment of any of the conditions set
forth in Article 3 hereof), (b) any prepayment for any reason of any LIBOR
Advance in whole or in part (including a prepayment pursuant to SECTION
9.3(b) hereof) on other than the last day of an Interest Period applicable to
such LIBOR Advance or (c) any prepayment of any of its LIBOR Advances that is
not made on any date specified in a notice of prepayment given by the
Borrower, the Borrower agrees to pay to any such Lender, within 30 days after
demand by such Lender, an amount sufficient to compensate such Lender for all
such losses and out-of-pocket expenses, subject to SECTION 11.9 hereof. Such
losses shall include, without limiting the generality of the foregoing,
reasonable expenses incurred by such Lender in connection with the
re-employment of funds prepaid, repaid, converted or not borrowed, converted
or paid, as the case may be. A certificate as to any amounts payable to any
Lender under this SECTION 2.9 submitted to the Borrower by such Lender shall
certify that such amounts were actually incurred by such Lender and shall
show in reasonable detail an accounting of the amount payable and the
calculations used to determine in good faith such amount and shall be
conclusive absent manifest or demonstrable error. Nothing in this SECTION
2.9 shall provide the Borrower or any Subsidiary of the Borrower the right to
inspect the records, files or books of any Lender.
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<PAGE>
Section 2.10 MANNER OF PAYMENT.
(a) Each payment (including prepayments) by the Borrower of the
principal of or interest on the Revolving Credit Advances, fees, and any
other amount owed under this Agreement or any other Loan Document shall be
made not later than 12:00 noon (Dallas, Texas time) on the date specified for
payment under this Agreement to the Administrative Lender at the
Administrative Lender's office, in lawful money of the United States of
America constituting immediately available funds.
(b) If any payment under this Agreement or any other Loan Document
shall be specified to be made upon a day which is not a Business Day, it
shall be made on the next succeeding day which is a Business Day, unless,
with respect to a payment due in respect of a LIBOR Advance, such Business
Day falls in another calendar month, in which case payment shall be made on
the preceding Business Day. Any extension of time shall in such case be
included in computing interest and fees, if any, in connection with such
payment.
(c) The Borrower agrees to pay principal, interest, fees and all other
amounts due under the Loan Documents without deduction for set-off or
counterclaim or any deduction whatsoever.
(d) If some but less than all amounts due from the Borrower are
received by the Administrative Lender, the Administrative Lender shall apply
such amounts in the following order of priority: (i) to the payment of the
Administrative Lender's expenses incurred on behalf of the Lenders then due
and payable, if any; (ii) to the payment of all other fees then due and
payable; (iii) to the payment of interest then due and payable on the
Revolving Credit Advances; (iv) to the payment of all other amounts not
otherwise referred to in this clause (d) then due and payable under the Loan
Documents; and (v) to the payment of principal then due and payable on the
Revolving Credit Advances.
Section 2.11 LIBOR LENDING OFFICES. Each Lender's initial LIBOR
Lending Office is set forth opposite its name in SCHEDULE 1 attached hereto.
Each Lender shall have the right at any time and from time to time to
designate a different office of itself or of any Affiliate of such Lender as
such Lender's LIBOR Lending Office, and to transfer any outstanding LIBOR
Advance to such LIBOR Lending Office. No such designation or transfer shall
result in any liability on the part of the Borrower for increased costs or
expenses resulting solely from such designation or transfer (except any such
transfer which is made by a Lender pursuant to SECTION 9.2 or 9.3 hereof, or
otherwise for the purpose of complying with Applicable Law). Increased costs
for expenses resulting from a change in law occurring subsequent to any such
designation or transfer shall be deemed not to result solely from such
designation or transfer.
Section 2.12 SHARING OF PAYMENTS. Any Lender obtaining a payment
(whether voluntary or involuntary, due to the exercise of any right of
set-off, or otherwise) on account of its Advances (other than pursuant to
SECTIONS 2.14, 2.15(d), 2.15(f)(ii), 9.3 or 9.5) in excess of its Specified
Percentage of all payments made by the Borrower with respect to Revolving
Credit
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<PAGE>
Advances shall purchase from each other Lender such participation in the
Revolving Credit Advances made by such other Lender as shall be necessary to
cause such purchasing Lender to share the excess payment pro rata according
to Specified Percentages with each other Lender; provided, however, that if
all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section, to the fullest extent permitted by law, may
exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.
Section 2.13 CALCULATION OF LIBOR RATE. The provisions of this
Agreement relating to calculation of the LIBOR Rate are included only for the
purpose of determining the rate of interest or other amounts to be paid
hereunder that are based upon such rate, it being understood that each Lender
shall be entitled to fund and maintain its funding of all or any part of a
LIBOR Advance as it sees fit.
Section 2.14 TAXES.
(a) Any and all payments by the Borrower hereunder shall be made, in
accordance with SECTION 2.10, free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges and
withholdings, and all liabilities with respect thereto, EXCLUDING, in the
case of each Lender and the Administrative Lender, taxes imposed on, based
upon or measured by its overall net income, net worth or capital, and
franchise taxes, doing business taxes or minimum taxes imposed on it, (i) by
the jurisdiction under the laws of which such Lender or the Administrative
Lender (as the case may be) is organized and in which it has its applicable
lending office or any political subdivision thereof; (ii) by any other
jurisdiction, or any political subdivision thereof, other than those imposed
by reason of (A) an asserted relation of such jurisdiction to the
transactions contemplated by this Agreement, (B) the activities of the
Borrower in such jurisdiction, or (C) the activities in connection with the
transactions contemplated by this Agreement of a Lender or the Administrative
Lender; (iii) by reason of failure by the Lender or the Administrative Lender
to comply with the requirements of paragraph (e) of this SECTION 2.14; and
(iv) in the case of any Lender, any Taxes in the nature of transfer, stamp,
recording or documentary taxes resulting from a transfer (other than as a
result of foreclosure) by such Lender of all or any portion of its interest
in this Agreement, the Notes or any other Loan Documents (all such
non-excluded 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
hereunder to any Lender or the Administrative Lender, (x) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this SECTION 2.14) such Lender or the Administrative Lender (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (y) the Borrower shall make such deductions and (z) the
Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
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<PAGE>
(b) In addition, the Borrower agrees to pay any and all stamp and
documentary taxes and any and all other excise and property taxes, charges
and similar levies (other than Taxes described in clause (iv) of the first
sentence of SECTION 2.14(a)) that arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect
to, this Agreement or any other Loan Document (hereinafter referred to as
"OTHER TAXES").
(c) The Borrower will indemnify each Lender and the Administrative
Lender for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this SECTION 2.14) paid by such Lender or the Administrative
Lender (as the case may be) and all liabilities (including penalties,
additions to tax, interest and reasonable expenses) arising therefrom or with
respect thereto whether or not such Taxes or Other Taxes were correctly or
legally asserted, other than penalties, additions to tax, interest and
expenses arising as a result of gross negligence or wilful misconduct on the
part of such Lender or the Administrative Lender, PROVIDED, HOWEVER, that the
Borrower shall have no obligation to indemnify such Lender or the
Administrative Lender unless and until such Lender or the Administrative
Lender shall have delivered to the Borrower a certificate certifying that
such Taxes or Other Taxes (and/or penalties, additions to tax, interest and
reasonable expenses) were actually incurred by such Lender or the
Administrative Lender and showing in reasonable detail an accounting of the
amount payable and the calculations used to determine in good faith such
amount, which certificate shall be conclusive absent manifest or demonstrable
error. Nothing in this SECTION 2.14 shall provide the Borrower or any
Subsidiary of the Borrower the right to inspect the records, files or books
of any Lender or the Administrative Lender. This indemnification shall be
made within 30 days from the date such Lender or the Administrative Lender
(as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
will furnish to the Administrative Lender the original or a certified copy of
a receipt evidencing payment thereof. For purposes of this SECTION 2.14 the
terms "UNITED STATES" and "UNITED STATES PERSON" shall have the meanings set
forth in Section 7701 of the Code.
(e) Each Lender which is not a United States Person hereby agrees that:
(i) it shall, no later than the Agreement Date (or, in the case of a
Lender which becomes a party hereto pursuant to SECTION 11.6 after the
Agreement Date, the date upon which such Lender becomes a party hereto)
deliver to the Borrower through the Administrative Lender, with a copy to
the Administrative Lender:
(A) if any lending office is located in the United States of America,
two (2) accurate and complete signed originals of Internal
Revenue Service Form 4224 or any successor thereto ("FORM 4224"),
(B) if any lending office is located outside the United States of
America, two (2) accurate and complete signed originals of
Internal Revenue Service
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Form 1001 or any successor thereto ("FORM 1001").
in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the
account of such lending office or lending offices under this Agreement free
from withholding of United States Federal income tax;
(ii) if at any time such Lender changes its lending office or lending
offices or selects an additional lending office it shall, at the same time
or reasonably promptly thereafter but only to the extent the forms
previously delivered by it hereunder are no longer effective, deliver to
the Borrower through the Administrative Lender, with a copy to the
Administrative Lender, in replacement for the forms previously delivered by
it hereunder:
(A) if such changed or additional lending office is located in the
United States of America, two (2) accurate and complete signed
originals of Form 4224; or
(B) otherwise, two (2) accurate and complete signed originals of
Form 1001, in each case indicating that such Lender is on the
date of delivery thereof entitled to receive payments of
principal, interest and fees for the account of such changed or
additional lending office under this Agreement free from
withholding of United States Federal income tax;
(iii) it shall, before or promptly after the occurrence of any
event (including the passing of time but excluding any event mentioned in
clause (ii) above) requiring a change in the most recent Form 4224 or
Form 1001 previously delivered by such Lender and if the delivery of the
same be lawful, deliver to the Borrower through the Administrative Lender
with a copy to the Administrative Lender, two (2) accurate and complete
original signed copies of Form 4224 or Form 1001 in replacement for the
forms previously delivered by such Lender;
(iv) it shall, promptly upon the request of the Borrower to that
effect, deliver to the Borrower such other forms or similar documentation
as may be required from time to time by any applicable law, treaty, rule or
regulation in order to establish such Lender's tax status for withholding
purposes; and
(v) it shall notify the Borrower within 30 days after any event
(including an amendment to, or a change in any applicable law or regulation
or in the written interpretation thereof by any regulatory authority or any
judicial authority, or by ruling applicable to such Lender of any
governmental authority charged with the interpretation or administration of
any law) shall occur that results in such Lender no longer being capable of
receiving payments without any deduction or withholding of United States
federal income tax.
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<PAGE>
(f) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained
in this SECTION 2.14 shall survive the payment in full of principal and
interest hereunder.
(g) Each Lender (and the Administrative Lender with respect to payments
to the Administrative Lender for its own account) agrees that (i) it will
take all reasonable actions by all usual means to maintain all exemptions, if
any, available to it from United States withholding taxes (whether available
by treaty, existing administrative waiver or by virtue of the location of any
Lender's lending office), (ii) it will use reasonable best efforts
(consistent with its internal policy and legal and regulatory restrictions)
to change the jurisdiction of its lending office, if the making of such a
change would avoid the need for, or reduce the amount of, any such additional
amounts which may thereafter accrue and would not, in the reasonable judgment
of such Lender, be materially disadvantageous to such Lender, and (iii)
otherwise cooperate with the Borrower to minimize amounts payable by the
Borrower under this SECTION 2.14; PROVIDED, HOWEVER, the Lenders and the
Administrative Lender shall not be obligated by reason of this SECTION
2.14(g) to contest the payment of any Taxes or Other Taxes or to disclose any
information regarding its tax affairs or tax computations or reorder its tax
or other affairs or tax or other planning. Subject to the foregoing, to the
extent the Borrower pays sums pursuant to this SECTION 2.14 and the Lender or
the Administrative Lender receives a refund of any or all of such sums, such
refund shall be applied to reduce any amounts then due and owing under this
Agreement or, to the extent that no amounts are due and owing under this
Agreement at the time such refunds are received, the party receiving such
refund shall promptly pay over all such refunded sums to the Borrower,
provided that no Default or Event of Default is in existence at such time.
(h) If the Borrower becomes obligated to pay additional amounts
described in this SECTION 2.14 to any Lender, the Borrower may designate a
financial institution reasonably acceptable to the Administrative Lender to
replace such Lender by purchasing for cash and receiving an assignment of
such Lender's pro rata share of the Revolving Credit Commitment and the
Rights of such Lender under the Loan Documents without recourse to or
warranty by, or expense to, such Lender, for a purchase price equal to the
outstanding amounts owed to such Lender (including such additional amounts
owing to such Lender pursuant to this SECTION 2.14). Upon execution of an
Assignment Agreement, such other financial institution shall be deemed to be
a "Lender" for all purposes of this Agreement as set forth in SECTION 11.6
hereof.
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Section 2.15 LETTERS OF CREDIT.
(a) THE LETTER OF CREDIT FACILITY. The Borrower may request the
Issuing Bank, on the terms and conditions hereinafter set forth, to issue,
and the Issuing Bank shall, if so requested, issue, letters of credit (the
"LETTERS OF CREDIT") for the account of the Borrower from time to time on any
Business Day from the date of the initial Advance until the Maturity Date in
an aggregate maximum amount (assuming compliance with all conditions to
drawing) not to exceed, at any time outstanding (less Cash Collateralized
Letters of Credit), the lesser of (i) $5,000,000 (the "LETTER OF CREDIT
FACILITY"), and (ii) the result of (1) the Revolving Credit Commitment MINUS
(2) the aggregate principal amount of Revolving Credit Advances then
outstanding. No Letter of Credit shall have an expiration date (including
all rights of renewal) later than the earlier of (i) the Maturity Date or
(ii) one year after the date of issuance thereof. Immediately upon the
issuance of each Letter of Credit (or on the Agreement Date, with respect to
Existing Letters of Credit), the Issuing Bank shall be deemed to have sold
and transferred to each Lender, and each Lender shall be deemed to have
purchased and received from the Issuing Bank, in each case irrevocably and
without any further action by any party, an undivided interest and
participation in such Letter of Credit, each drawing thereunder and the
obligations of the Borrower under this Agreement in respect thereof in an
amount equal to the product of (x) such Lender's Specified Percentage times
(y) the maximum amount available to be drawn under such Letter of Credit
(assuming compliance with all conditions to drawing). Within the limits of
the Letter of Credit Facility, and subject to the limits referred to above,
the Borrower may request the issuance of Letters of Credit under this SECTION
2.15(a), repay any Revolving Credit Advances resulting from drawings
thereunder pursuant to SECTION 2.15(c) and request the issuance of additional
Letters of Credit under this SECTION 2.15(a).
(b) REQUEST FOR ISSUANCE. Each Letter of Credit shall be issued upon
notice, given not later than 11:00 a.m. (Dallas time) on the third Business
Day prior to the date of the proposed issuance of such Letter of Credit, by
the Borrower to the Issuing Bank. Each Letter of Credit shall be issued upon
notice given in accordance with the terms of any separate agreement between
the Borrower and the Issuing Bank in form and substance reasonably
satisfactory to the Borrower and the Issuing Bank providing for the issuance
of Letters of Credit pursuant to this Agreement and containing terms and
conditions not inconsistent with this Agreement (a "LETTER OF CREDIT
AGREEMENT"), PROVIDED that if any such terms and conditions are inconsistent
with this Agreement, this Agreement shall control. Each such notice of
issuance of a Letter of Credit by the Borrower (a "NOTICE OF ISSUANCE") shall
be by telex, telecopier or cable, specifying therein, in the case of a Letter
of Credit, the requested (A) date of such issuance (which shall be a Business
Day), (B) maximum amount of such Letter of Credit, (C) expiration date of
such Letter of Credit, (D) name and address of the beneficiary of such Letter
of Credit, and (E) form of such Letter of Credit and specifying such other
information as shall be required pursuant to the relevant Letter of Credit
Agreement. If the requested terms of such Letter of Credit are acceptable to
the Issuing Bank in its reasonable discretion, the Issuing Bank will, upon
fulfillment of the applicable conditions set forth in ARTICLE 3 hereof, make
such Letter of Credit available to the Borrower at its office referred to in
SECTION 11.1 or as otherwise agreed with the Borrower in connection with such
issuance.
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<PAGE>
(c) DRAWING AND REIMBURSEMENT. The payment by the Issuing Bank of a
draft drawn under any Letter of Credit shall constitute for all purposes of
this Agreement the making by the Issuing Bank of a Revolving Credit Advance,
which shall bear interest at the Base Rate Basis, in the amount of such draft
(but without any requirement for compliance with the conditions set forth in
ARTICLE 3 hereof). In the event that a drawing under any Letter of Credit is
not reimbursed by the Borrower by 11:00 a.m. (Dallas time) on the first
Business Day after such drawing, the Issuing Bank shall promptly notify
Administrative Lender and each other Lender. Each such Lender shall, on the
first Business Day following such notification, make a Revolving Credit
Advance, which shall bear interest at the Base Rate Basis, and shall be used
to repay the applicable portion of the Issuing Bank's advance with respect to
such Letter of Credit, in an amount equal to the amount of its participation
in such drawing for application to reimburse the Issuing Bank (but without
any requirement for compliance with the applicable conditions set forth in
ARTICLE 3 hereof) and shall make available to the Administrative Lender for
the account of the Issuing Bank, by deposit at the Administrative Lender's
office, in same day funds, the amount of such Revolving Credit Advance. In
the event that any Lender fails to make available to the Administrative
Lender for the account of the Issuing Bank the amount of such Revolving
Credit Advance, the Issuing Bank shall be entitled to recover such amount on
demand from such Lender together with interest thereon at a rate per annum
equal to the lesser of (i) the Highest Lawful Rate or (ii) the Federal Funds
Rate.
(d) INCREASED COSTS. If (a) the applicability of any law, rule,
regulation or guideline adopted pursuant to or arising out of the July 1988
report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and
Capital Standards" or (b) any change in any Law or in the interpretation
thereof by any court or administrative or governmental authority charged with
the administration thereof shall either (i) impose, modify or deem applicable
any reserve, special deposit or similar requirement against letters of credit
or guarantees issued by, or assets held by, or deposits in or for the account
of, the Issuing Bank or any Lender or any corporation controlling the Issuing
Bank or any Lender or (ii) impose on the Issuing Bank or any Lender or any
corporation controlling the Issuing Bank or any Lender any other condition
regarding this Agreement or any Letter of Credit, and the result of any event
referred to in the preceding clause (i) or (ii) shall be to increase the cost
to the Issuing Bank or any corporation controlling the Issuing Bank of
issuing or maintaining any Letter of Credit or to any Lender or any
corporation controlling such Lender of purchasing any participation therein
or making any Revolving Credit Advance pursuant to SECTION 2.15(c), then,
within 30 days after demand by the Issuing Bank or such Lender, the Borrower
shall, subject to SECTION 11.9 hereof, pay to the Issuing Bank or such
Lender, from time to time as specified by the Issuing Bank or such Lender,
additional amounts that shall be sufficient to compensate the Issuing Bank or
such Lender or any corporation controlling such Lender for such increased
cost. A certificate as to the amount of such increased cost, submitted to
the Borrower by the Issuing Bank or such Lender, shall certify that such
increased costs were actually incurred by the Issuing Bank or such Lender and
shall show in reasonable detail an accounting of the amount payable and the
calculation used to determine in good faith such amount and shall be
conclusive absent manifest or demonstrable error. In determining such
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<PAGE>
amount, the Issuing Bank or such Lender may use any reasonable averaging or
attribution method. Nothing in this SECTION 2.15(d) shall provide the
Borrower or any Subsidiary of the Borrower the right to inspect the records,
files or books of the Issuing Bank or any Lender. If the Borrower becomes
obligated to pay additional amounts described in this SECTION 2.15(d) to any
Lender, the Borrower may designate a financial institution reasonably
acceptable to the Administrative Lender to replace such Lender by purchasing
for cash and receiving an assignment of such Lender's pro rata share of the
Revolving Credit Commitment and the Rights of such Lender under the Loan
Documents without recourse to or warranty by, or expenses to, such Lender,
for a purchase price equal to the outstanding amounts owing to such Lender
(including such additional amounts owing to such Lender pursuant to this
SECTION 2.15(d). Upon execution of an Assignment Agreement, such other
financial institution shall be deemed to be a "Lender" for all purposes of
this Agreement as set forth in SECTION 11.6 hereof. The obligations of the
Borrower under this SECTION 2.15(d) shall survive termination of this
Agreement. The Issuing Bank or any Lender claiming any additional
compensation under this SECTION 2.15(d) shall use reasonable efforts
(consistent with legal and regulatory restrictions) to reduce or eliminate
any such additional compensation which may thereafter accrue and which
efforts would not, in the reasonable judgment of the Issuing Bank or such
Lender, be otherwise disadvantageous.
(e) OBLIGATIONS ABSOLUTE. The obligations of the Borrower under this
Agreement with respect to any Letter of Credit, any Letter of Credit
Agreement and any other agreement or instrument relating to any Letter of
Credit or any Revolving Credit Advance pursuant to SECTION 2.15(c) shall be
unconditional and irrevocable, and shall be paid strictly in accordance with
the terms of this Agreement, such Letter of Credit Agreement and such other
agreement or instrument under all circumstances, including, without
limitation, the following circumstances:
(i) any lack of validity or enforceability of this Agreement, any
other Loan Document, any Letter of Credit Agreement, any Letter of Credit
or any other agreement or instrument relating thereto (collectively, the
"L/C RELATED DOCUMENTS");
(ii) (A) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations of the Borrower in respect
of the Letters of Credit or any Revolving Credit Advance pursuant to
SECTION 2.15(c) or (B) any other amendment or waiver of or any consent to
departure from all or any of the L/C Related Documents;
(iii) the existence of any claim, set-off, defense or other right
that the Borrower may have at any time against any beneficiary or any
transferee of a Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank, any
Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the L/C Related Documents or any
unrelated transaction;
(iv) any statement or any other document presented under a Letter of
Credit
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<PAGE>
proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect;
(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not comply with the terms
of the Letter of Credit, except for any payment made upon the Issuing
Bank's gross negligence or wilful misconduct;
(vi) any exchange, release or non-perfection of any Collateral, or any
release or amendment or waiver of or consent to departure from any
guarantee, for all or any of the Obligations of the Borrower in respect of
the Letters of Credit or any Revolving Credit Advance pursuant to
SECTION 2.15(c); or
(vii) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including, without limitation, any
other circumstance that might otherwise constitute a defense available to,
or a discharge of, the Borrower or a guarantor, other than the Issuing's
Bank gross negligence or wilful misconduct.
(f) COMPENSATION FOR LETTERS OF CREDIT.
(i) CREDIT FEE. Subject to SECTION 11.9 hereof, the Borrower shall
pay to the Administrative Lender for the account of each Lender a fee
(which shall be payable quarterly in arrears on each Quarterly Date and on
the Maturity Date) on the average daily amount available for drawing under
all outstanding Letters of Credit at the following per annum percentages,
applicable in the following situations:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C>
(a) INITIAL PRICING PERIOD 1.00
(b) SUBSEQUENT PRICING PERIOD
(1) If the Leverage Ratio is
greater than 2.50 to 1 2.25
(2) If the Leverage Ratio is
less than or equal to 2.50
to 1 but greater than 1.75
to 1 1.75
(3) If the Leverage Ratio is less
than or equal to 1.75 to 1 but
greater than 1.00 to 1 1.25
(4) If the Leverage Ratio is less
than or equal to 1.00 to 1 1.00
</TABLE>
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<PAGE>
The fee payable in respect of the Letters of Credit shall be subject to
reduction or increase, as applicable and as set forth in the table
above, on a quarterly basis according to the performance of the Borrower
as tested by using the Leverage Ratio calculated as of the end of each
fiscal quarter during the Subsequent Pricing Period. Any such increase
or reduction in such fee shall be effective within 2 Business Days of
the date of receipt by the Administrative Lender of the financial
statements required pursuant to SECTION 6.1 or 6.2 hereof, as
applicable, for each such fiscal quarter and the Compliance Certificate
required pursuant to SECTION 6.3 hereof. If such financial statements
and Compliance Certificate are not received by the date required, the
fee payable in respect of the Letters of Credit shall be determined as
if the Leverage Ratio is greater than 2.50 to 1 until such time as such
financial statements and Compliance Certificate are received. Subject
to SECTION 11.9 hereof, such fee shall be computed on the basis of a
360-day year for the actual number of days elapsed.
(ii) ISSUANCE FEE. Subject to SECTION 11.9 hereof, the Borrower
shall pay to the Administrative Lender for the account of the Issuing
Bank an issuance fee (which shall be payable on the date of issuance of
each Letter of Credit) in an amount equal to the greater of (a) $250 or
(b) the product of (x) 0.25% times (y) the face amount of the Letter of
Credit being issued.
(iii) ADMINISTRATIVE FEE. Subject to SECTION 11.9 hereof, the
Borrower shall pay, with respect to each amendment, renewal or transfer
of each Letter of Credit and each drawing made thereunder, reasonable
documentary and processing charges in accordance with the Issuing Bank's
standard schedule for such charges in effect at the time of such
amendment, renewal, transfer or drawing, as the case may be.
(g) L/C CASH COLLATERAL ACCOUNT.
(i) Upon the occurrence of an Event of Default and demand by the
Administrative Lender pursuant to SECTION 8.2(c) (but in the case of an
Event of Default specified in SECTION 8.1(f) or (g) hereof, without any
demand or taking of any other action by the Administrative Lender or any
other Lender), the Borrower will promptly pay to the Administrative
Lender in immediately available funds an amount equal to the maximum
amount then available to be drawn under the Letters of Credit then
outstanding. Any amounts so received by the Administrative Lender shall
be deposited by the Administrative Lender in a deposit account
maintained by the Issuing Bank (the "L/C CASH COLLATERAL ACCOUNT"). In
addition, as provided in SECTION 2.5(b) hereof, the Borrower will also
deposit in the L/C Cash Collateral Account immediately available funds
to cash collateralize Letters of Credit.
(ii) As security for the payment of all Reimbursement Obligations
and for any other Obligations, the Borrower hereby grants, conveys,
assigns, pledges, sets over and transfers to the Administrative Lender
(for the benefit of the Issuing Bank and Lenders), and creates in the
Administrative Lender's favor (for the benefit of the Issuing Bank and
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Lenders) a Lien in, all money, instruments and securities at any time
held in or acquired in connection with the L/C Cash Collateral Account,
together with all proceeds thereof. The L/C Cash Collateral Account
shall be under the sole dominion and control of the Administrative
Lender and the Borrower shall have no right to withdraw or to cause the
Administrative Lender to withdraw any funds deposited in the L/C Cash
Collateral Account. At any time and from time to time, upon the
Administrative Lender's request, the Borrower promptly shall execute and
deliver any and all such further instruments and documents, including
UCC financing statements, as may be necessary, appropriate or desirable
in the Administrative Lender's judgment to obtain the full benefits
(including perfection and priority) of the security interest created or
intended to be created by this paragraph (ii) and of the rights and
powers herein granted. The Borrower shall not create or suffer to exist
any Lien on any amounts or investments held in the L/C Cash Collateral
Account other than the Lien granted under this paragraph (ii) and Liens
arising by operation of Law and not by contract which secure amounts not
yet due and payable.
(iii) The Administrative Lender shall (A) apply any funds in the L/C
Cash Collateral Account on account of Reimbursement Obligations when the
same become due and payable, (B) if at any time prior to the occurrence
of a Default or Event of Default, the amount in the L/C Cash Collateral
Account exceeds the amount of the Cash Collateralized Letters of Credit,
pay such excess to the Borrower, and (C) after the Maturity Date or if
at any time the amount in the L/C Cash Collateral Account exceeds the
amount of the Reimbursement Obligations, apply any proceeds remaining in
the L/C Cash Collateral Account FIRST to pay any unpaid Obligations then
outstanding hereunder and THEN to refund any remaining amount to the
Borrower.
(iv) The Borrower, no more than once in any calendar month, may
direct the Administrative Lender to invest the funds held in the L/C
Cash Collateral Account (so long as the aggregate amount of such funds
exceeds any relevant minimum investment requirement) in (A) Cash
Equivalents or direct obligations of the United States or any agency
thereof, or obligations guaranteed by the United States or any agency
thereof and (B) one or more other types of investments permitted by the
Determining Lenders, in each case with such maturities as the Borrower,
with the consent of the Determining Lenders, may specify, pending
application of such funds on account of Reimbursement Obligations or on
account of other Obligations, as the case may be. In the absence of any
such direction from the Borrower, the Administrative Lender shall invest
the funds held in the L/C Cash Collateral Account (so long as the
aggregate amount of such funds exceeds any relevant minimum investment
requirement) in one or more types of investments with the consent of the
Determining Lenders with such maturities as the Borrower, with the
consent of the Determining Lenders, may specify, pending application of
such funds on account of Reimbursement Obligations or on account of
other Obligations, as the case may be. All such investments shall be
made in the Administrative Lender's name for the account of the Lenders,
subject to the ownership interest therein of the Borrower. The Borrower
recognizes that any losses or taxes with respect to such investments
shall be borne solely by the Borrower, and the Borrower
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<PAGE>
agrees to hold the Administrative Lender and the Lenders harmless from
any and all such losses and taxes. Administrative Lender may liquidate
any investment held in the L/C Cash Collateral Account in order to apply
the proceeds of such investment on account of the Reimbursement
Obligations as provided in SECTION 2.15(g)(iii) hereof (or on account of
any other Obligation then due and payable, as the case may be) without
regard to whether such investment has matured and without liability for
any penalty or other fee incurred (with respect to which the Borrower
hereby agrees to reimburse the Administrative Lender) as a result of
such application.
(v) After the establishment of the L/C Cash Collateral Account
pursuant to SECTION 2.15(g)(i) hereof, the Borrower shall pay to the
Administrative Lender the fees customarily charged by the Issuing Bank
with respect to the maintenance of accounts similar to the L/C Cash
Collateral Account.
ARTICLE 3
CONDITIONS PRECEDENT
Section 3.1 CONDITIONS PRECEDENT TO CLOSING, THE INITIAL REVOLVING
CREDIT ADVANCE AND THE INITIAL LETTERS OF CREDIT. The obligation of each
Lender to make any Revolving Credit Advance and the obligation of the Issuing
Bank to issue Letters of Credit is subject to (i) receipt by the
Administrative Lender of the following items which are to be delivered, in
form and substance satisfactory to each Lender, with a copy (except for the
Notes) for each Lender, and (ii) satisfaction of the following conditions
which are to be satisfied:
(a) A loan certificate of the Borrower certifying as to the accuracy of
its representations and warranties in the Loan Documents, certifying that no
Default has occurred, and including a certificate of incumbency with respect
to each Authorized Signatory, and including (i) a copy of the Certificate of
Incorporation of the Borrower, certified to be true, complete and correct by
the Secretary of State of Delaware, (ii) a copy of its Bylaws, as in effect
on the Agreement Date, and (iii) a copy of a certificate of good standing and
a certificate of existence for its state of organization and each state in
which the nature of its business requires it to be qualified to do business
except where the failure to be in good standing would not have a Material
Adverse Effect;
(b) a duly executed Revolving Credit Note payable to the order of each
Lender and in an amount for each Lender equal to its Specified Percentage of
the Revolving Credit Commitment;
(c) UCC-11 searches in appropriate jurisdictions where Collateral is
located;
(d) opinions of counsel to the Borrower and each Subsidiary addressed
to the Lenders and in form and substance satisfactory to the Lenders, dated
the Agreement Date, and covering
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<PAGE>
the matters set forth in SECTIONS 4.1(a), (b), (c), (h), (m), (n) and (p) and
such other matters incident to the transactions contemplated hereby as the
Administrative Lender or Special Counsel may reasonably request;
(e) reimbursement for the Administrative Lender for Special Counsel's
reasonable and customary fees (on an hourly basis) and expenses rendered
through the date hereof;
(f) evidence that all proceedings of the Borrower and its Subsidiaries
taken in connection with the transactions contemplated by this Agreement and
the other Loan Documents shall be reasonably satisfactory in form and
substance to the Lenders and Special Counsel; and the Lenders shall have
received copies of all documents or other evidence which the Administrative
Lender, Special Counsel or any Lender may reasonably request in connection
with such transactions;
(g) any fees or expenses required to be paid pursuant to the Fee Letter;
(h) duly executed and completed Pledge Agreements, dated as of the
Agreement Date granting a Lien, subject only to Permitted Liens, in all
Collateral covered thereby, together with related financing statements, stock
powers, stock certificates evidencing ownership of 66% of the issued and
outstanding Capital Stock of each Foreign Subsidiary;
(i) simultaneously with the making of the initial Advance, executed
UCC-3 Termination Statements to be filed in appropriate jurisdictions to
terminate all Liens against assets of the Borrower and its Subsidiaries other
than Permitted Liens;
(j) the Initial Public Offering shall have occurred on terms and
conditions acceptable to the Lenders, including but not limited to the
condition that the Borrower shall have received at least $50,000,000 in Net
Cash Proceeds thereof;
(k) there shall have occurred no material adverse change in the
business, assets or financial condition of the Borrower and its Subsidiaries,
taken as a whole, since the date of the financial statements referred to in
SECTION 4.1(j)(i) hereof;
(l) simultaneously with the making of the initial Advance, all
Indebtedness of the Borrower under the Existing Credit Agreement (other than
in respect of the Existing Letters of Credit) shall have been refinanced in
full pursuant to the terms hereof and all Liens granted with respect thereto
(other than with respect to the Capital Stock of each Foreign Subsidiary)
shall be terminated and released;
(m) duly executed Subordination Agreements executed by each Subsidiary
of the Borrower, dated as of the Agreement Date; and
(n) in form and substance reasonably satisfactory to the Lenders and
Special Counsel, such other documents, instruments and certificates as the
Administrative Lender or any Lender
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<PAGE>
may reasonably require in connection with the transactions contemplated
hereby, including without limitation, evidence of the status, organization or
authority of the Borrower or any Subsidiary of the Borrower, and the
enforceability of the Obligations.
Section 3.2 CONDITIONS PRECEDENT TO ALL REVOLVING CREDIT ADVANCES AND
LETTERS OF CREDIT. The obligation of each Lender to make each Revolving
Credit Advance hereunder and the obligation of the Issuing Bank to issue each
Letter of Credit is subject to fulfillment of the following conditions
immediately prior to or contemporaneously with each such Revolving Credit
Advance or issuance:
(a) With respect to each Revolving Credit Advance and each issuance of
a Letter of Credit, all of the representations and warranties of the Borrower
under this Agreement, which, pursuant to SECTION 4.2 hereof, are made at and
as of the time of each such Revolving Credit Advance or issuance, shall be
true and correct at such time in all material respects, both before and after
giving effect to the application of the proceeds of the Revolving Credit
Advance, except as otherwise expressly provided in said SECTION 4.2 hereof;
(b) The incumbency of the Authorized Signatories shall be as stated in
the certificate of incumbency delivered in the Borrower's loan certificate
pursuant to SECTION 3.1(a) or as subsequently modified and reflected in a
certificate of incumbency delivered to the Administrative Lender. The
Lenders may, without waiving this condition, consider it fulfilled and a
representation by the Borrower made to such effect if no written notice to
the contrary, dated on or before the date of such Revolving Credit Advance,
is received by the Administrative Lender from the Borrower prior to the
making of such Revolving Credit Advance;
(c) There shall not exist a Default or Event of Default hereunder, and,
with respect to each Revolving Credit Advance and Letter of Credit, the
Administrative Lender shall have received written or telephonic certification
thereof by an Authorized Signatory (which certification, if telephonic, shall
be followed promptly by written certification);
(d) The aggregate Revolving Advances and Letters of Credit, after
giving effect to such proposed Revolving Credit Advance or Letter of Credit,
shall not exceed the maximum principal amount then permitted to be
outstanding hereunder;
(e) No order, judgment, injunction or decree of any Tribunal shall
purport to enjoin or restrain any Lender or the Issuing Bank from making any
Revolving Credit Advance or issuing any Letter of Credit;
(f) There shall not be pending, or to the knowledge of the Borrower,
threatened any Litigation against or affecting the Borrower or any Subsidiary
of the Borrower or any property of the Borrower or any Subsidiary of the
Borrower that has not been disclosed in writing by the Borrower pursuant to
SECTION 4.1(h), 6.4(d) or 6.5(a) prior to the making of the last preceding
Revolving Credit Advance or the issuance of the last preceding Letter of
Credit (or in the case of the initial Revolving Credit Advances and Letters
of Credit, prior to the Agreement Date) and
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<PAGE>
there shall have occurred no development not so disclosed in any such
Litigation that, in either event, would reasonably be expected to have a
Material Adverse Effect; and
(g) There shall have occurred no material adverse change in the
business, financial condition, results of operations or business prospects of
the Borrower and its Subsidiaries, taken as a whole, since June 30, 1997.
Section 3.3 CONDITIONS PRECEDENT TO CONVERSIONS AND CONTINUATIONS.
The obligation of the Lenders to convert any existing Base Rate Advance into
a LIBOR Advance or to continue any existing LIBOR Advance is subject to the
condition precedent that on the date of such conversion or continuation no
Default or Event of Default shall have occurred and be continuing or would
result from the making of such conversion or continuation. The acceptance of
the benefits of each such conversion and continuation shall constitute a
representation and warranty by the Borrower to each of the Lenders that no
Default or Event of Default shall have occurred and be continuing or would
result from the making of such conversion or continuation.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.1 REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to each Lender as follows:
(a) ORGANIZATION; POWER; QUALIFICATION. The respective jurisdiction of
organization or incorporation and percentage ownership by the Borrower of the
Subsidiaries listed on SCHEDULE 4 are true and correct as of the Agreement
Date. SCHEDULE 4 is a complete and accurate listing as of the Agreement Date,
showing with respect to each Subsidiary of the Borrower (a) its mailing
address, which is its principal place of business, (b) the classes of its
Capital Stock and the number of amount of its Capital Stock authorized and
outstanding, (c) each record and beneficial owner of its outstanding Capital
Stock, and (d) all outstanding options, rights, rights of conversion,
redemption, purchase or repurchase, rights of first refusal and similar
rights relating to the Capital Stock. All of the outstanding Capital Stock
of the Borrower and each Subsidiary of the Borrower is validly issued, fully
paid and non-assessable. Each of the Borrower and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of its state, county or province of organization. Each of the Borrower
and its Subsidiaries has the legal power and authority to own its properties
and to carry on its business as now being and hereafter proposed to be
conducted. Each of the Borrower and its Subsidiaries is authorized to do
business, duly qualified and in good standing as set forth in SCHEDULE 7 and
no qualification or authorization is necessary in any other jurisdictions in
which the character of its properties or the nature of its business requires
such qualification or authorization except where the failure to be so
qualified or authorized would not have a Material Adverse Effect.
(b) AUTHORIZATION. The Borrower has legal power and has taken all
necessary legal
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action to authorize it to borrow and request Letters of Credit hereunder.
Each of the Borrower and its Subsidiaries has legal power and has taken all
necessary legal action to execute, deliver and perform the Loan Documents to
which it is party in accordance with the terms thereof, and to consummate the
transactions contemplated thereby. Each Loan Document has been duly executed
and delivered by the Borrower or the Subsidiary of the Borrower executing it.
Each of the Loan Documents to which the Borrower or any of its Subsidiaries
is a party is a legal, valid and binding obligation of the Borrower or such
Subsidiary, as applicable, enforceable in accordance with its terms, subject,
to enforcement of remedies, to the following qualifications: (i) equitable
principles generally, and (ii) Debtor Relief Laws (insofar as any such law
relates to the bankruptcy, insolvency or similar event of the Borrower or any
Subsidiary of the Borrower).
(c) COMPLIANCE WITH OTHER LOAN DOCUMENTS AND CONTEMPLATED TRANSACTIONS.
The execution, delivery and performance by the Borrower and its Subsidiaries
of the Loan Documents to which they are respectively a party, and the
consummation of the transactions contemplated thereby, do not and will not
(i) require any consent or approval necessary on or prior to the Agreement
Date not already obtained, except to the extent that the failure to obtain
any such consent or approval could not reasonably be expected to have a
Material Adverse Effect, (ii) violate any Applicable Law, except to the
extent that any such violation could not reasonably be expected to have a
Material Adverse Effect, (iii) conflict with, result in a breach of, or
constitute a default under the certificate of incorporation or by-laws of the
Borrower or any Subsidiary of the Borrower, (iv) conflict with, result in a
breach of, or constitute a default under any Necessary Authorization,
indenture, agreement or other instrument, to which the Borrower or any
Subsidiary of the Borrower is a party or by which they or their respective
properties may be bound, the result of which could reasonably be expected to
have a Material Adverse Effect, or (v) result in or require the creation or
imposition of any Lien upon or with respect to any property now owned or
hereafter acquired by the Borrower or any Subsidiary of the Borrower, except
Permitted Liens.
(d) BUSINESS. The Borrower and its Subsidiaries are engaged primarily
in the business of designing, manufacturing and marketing direct current
power supplies and activities directly related thereto.
(e) LICENSES, ETC. All Necessary Authorizations have been duly
obtained, and are in full force and effect without any known conflict with
the rights of others and free from any unduly burdensome restrictions, unless
the failure to obtain or have in effect such Necessary Authorizations would
not result in a Material Adverse Effect. The Borrower and its Subsidiaries
are and will continue to be in compliance in all material respects with all
provisions thereof. No circumstance exists which could reasonably be
expected to impair the utility of the Necessary Authorization or the right to
renew such Necessary Authorization the effect of which would have a Material
Adverse Effect. No Necessary Authorization is the subject of any pending or,
to the best of the Borrower's knowledge, threatened challenge, suspension,
cancellation or revocation, the effect of which could reasonably be expected
to have a Material Adverse Effect.
(f) COMPLIANCE WITH LAW. The Borrower and its Subsidiaries are in
compliance in all
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respects with all Applicable Laws, except where the failure to so comply
could not reasonably be expected to have a Material Adverse Effect.
(g) TITLE TO PROPERTIES. The Borrower and its Subsidiaries have good
and indefeasible title to, or a valid leasehold interest in, all of their
material assets. None of their assets are subject to any Liens, except
Permitted Liens. No financing statement or other Lien filing (except relating
to Permitted Liens) is on file in any state or jurisdiction that names the
Borrower or any of its Subsidiaries as debtor or covers (or purports to
cover) any assets of the Borrower or any of its Subsidiaries. The Borrower
and its Subsidiaries have not signed any such financing statement or filing,
nor any security agreement authorizing any Person to file any such financing
statement or filing (except relating to Permitted Liens).
(h) LITIGATION. Except as reflected on SCHEDULE 3 hereto, as of the
Agreement Date there is no Litigation pending against, or, to the Borrower's
current actual knowledge, threatened against the Borrower, or in any other
manner relating directly and adversely to the Borrower or any of its
Subsidiaries, or any of their respective properties, in any court or before
any arbitrator of any kind or before or by any governmental body in which the
amount claimed (in excess of applicable insurance) exceeds $500,000.
(i) TAXES. All federal, state and other tax returns of the Borrower
and its Subsidiaries required by law to be filed have been duly filed or
extensions have been timely filed, and all federal, state and other Taxes
upon the Borrower, its Subsidiaries or any of their properties, income,
profits and assets, which are due and payable, have been paid, unless the
same are being diligently contested in accordance with SECTION 5.6 hereof.
The charges, accruals and reserves on the books of the Borrower and its
Subsidiaries in respect of their Taxes or their obligations in respect of the
Tax Distributions are, in the judgment of the Borrower, adequate.
(j) FINANCIAL STATEMENTS; MATERIAL LIABILITIES.
(i) Borrower has heretofore delivered to Lenders (a) the audited
combined balance sheets of the Borrower and its Subsidiaries as at
December 31, 1996, and the related statements of earnings and changes in
investment and statement of cash flows for the twelve-month period then
ended, and (b) unaudited combined balance sheets of the Borrower and its
Subsidiaries as at June 30, 1997, and the related statements of earnings
and changes in investment and statement of cash flows for the six-month
period then ended. Such financial statements were prepared in conformity
with GAAP (except for the absence of footnotes) and fairly present, in all
material respects, the financial position of the Borrower and its
Subsidiaries as at the date thereof and the combined results of operations
and cash flows for the period covered thereby.
(ii) The projected financial statements of the Borrower and its
Subsidiaries delivered to the Lenders prior to or on the Agreement Date
were prepared in good faith and management of the Borrower believes them to
be based on reasonable assumptions and to fairly present in all material
respects the projected financial condition of the
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Borrower and its Subsidiaries and the projected results of operations as
of the dates and for the periods shown for the Borrower and its
Subsidiaries, it being recognized by the Lenders that such projections
as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may
differ from the projected results.
(iii) The financial statements of the Borrower and its Subsidiaries
delivered to the Lenders pursuant to SECTION 6.1 and 6.2 hereof fairly
present in all material respects their respective financial condition
and their respective results of operations as of the dates and for the
periods shown, all in accordance with GAAP, subject to normal year-end
adjustments. The latest of such financial statements reflects all
material liabilities, direct and contingent, of the Borrower and each
Subsidiary of the Borrower that are required to be disclosed in
accordance with GAAP. As of the date of the latest of such financial
statements, there were no Guaranties, liabilities for Taxes, forward or
long-term commitments or unrealized or anticipated losses from any
unfavorable commitments that are substantial in amount that are required
to be reflected but that are not reflected on such financial statements.
(k) NO ADVERSE CHANGE. Since the date of the last financial statements
delivered to the Lenders pursuant to SECTION 6.1 or 6.2 hereof, no event or
circumstance has occurred or arisen which is reasonably likely to have a
Material Adverse Effect.
(l) ERISA. None of the Borrower or its Controlled Group maintains or
contributes to any Plan subject to Title IV of ERISA other than those
disclosed to the Administrative Lender in writing. Each such Plan (other
than any Multiemployer Plan) is in compliance in all material respects with
the applicable provisions of ERISA, the Code, and any other applicable Law,
except to the extent that failure to so comply would not reasonably be
expected to have a Material Adverse Effect. With respect to each Plan (other
than any Multiemployer Plan) of the Borrower and each member of its
Controlled Group, all reports required under ERISA or any other Applicable
Law to be filed with any governmental authority, the failure of which to file
could reasonably result in liability of the Borrower or any member of its
Controlled Group in excess of $500,000, have been duly filed. All such
reports are true and correct in all material respects as of the date given.
No Plan of the Borrower or any member of its Controlled Group has been
terminated under Section 4041(c) of ERISA nor has any accumulated funding
deficiency (as defined in Section 412(a) of the Code) been incurred (without
regard to any waiver granted under Section 412 of the Code), nor has any
funding waiver from the Internal Revenue Service been received or requested
the result of which could reasonably be expected to have Material Adverse
Effect. None of the Borrower or any member of its Controlled Group has
failed to make any contribution or pay any amount due or owing as required
under the terms of any such Plan, or by Section 412 of the Code or Section
302 of ERISA by the due date under Section 412 of the Code and Section 302 of
ERISA, the result of which could reasonably be expected to have a Material
Adverse Effect. There has been no ERISA Event or any event requiring
disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA with respect to
any Plan or its related trust of the Borrower or any member of its Controlled
Group since the effective date of ERISA. The
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present value of the benefit liabilities, as defined in Title IV of ERISA, of
each Plan subject to Title IV of ERISA (other than a Multiemployer Plan) of
the Borrower and each member of its Controlled Group does not exceed by more
than $500,000 the present value of the assets of each such Plan as of the
most recent valuation date using each such Plan's actuarial assumptions at
such date. There are no pending, or to the best of the Borrower's knowledge
threatened, claims, lawsuits or actions (other than routine claims for
benefits in the ordinary course) asserted or instituted against, and neither
the Borrower nor any member of its Controlled Group has knowledge of any
threatened litigation or claims against, the assets of any Plan or its
related trust or against any fiduciary of a Plan with respect to the
operation of such Plan, the result of which could reasonably be expected to
have a Material Adverse Effect. None of the Borrower or, to the best of the
Borrower's knowledge, any member of its Controlled Group has engaged in any
prohibited transactions, within the meaning of Section 406 of ERISA or
Section 4975 of the Code, in connection with any Plan the result of which
could reasonably be expected to have Material Adverse Effect. None of the
Borrower or any member of its Controlled Group has withdrawn from any
Multiemployer Plan, nor has incurred or reasonably expects to incur (A) any
liability under Title IV of ERISA (other than premiums due under Section 4007
of ERISA to the PBGC), (B) any withdrawal liability (and no event has
occurred which with the giving of notice under Section 4219 of ERISA would
result in such liability) under Section 4201 of ERISA as a result of a
complete or partial withdrawal (within the meaning of Section 4203 or 4205 of
ERISA) from a Multiemployer Plan, or (C) any liability under Section 4062 of
ERISA to the PBGC or to a trustee appointed under Section 4042 of ERISA.
None of the Borrower, any member of its Controlled Group, or any organization
to which the Borrower or any member of its Controlled Group is a successor or
parent corporation within the meaning of ERISA Section 4069(b), has engaged
in a transaction within the meaning of ERISA Section 4069, the result of
which could reasonably be expected to have a Material Adverse Effect. None
of the Borrower or any member of its Controlled Group maintains or has
established any Plan, which is a welfare benefit plan within the meaning of
Section 3(1) of ERISA and which provides for continuing benefits or coverage
for any participant or any beneficiary of any participant after such
participant's termination of employment, except as may be required by the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
the result of which could reasonably be expected to have a Material Adverse
Effect. Each of Borrower and its Controlled Group which maintains a Plan
which is a welfare benefit plan within the meaning of Section 3(1) of ERISA
has complied in all material respects with any applicable notice and
continuation requirements of COBRA and the regulations thereunder. None of
the Borrower or any member of its Controlled Group maintains, has
established, or has ever participated in a multiemployer welfare benefit
arrangement within the meaning of Section 3(40)(A) of ERISA.
(m) COMPLIANCE WITH REGULATIONS G, T, U AND X. The Borrower is not
engaged principally or as one of its important activities in the business of
extending credit for the purpose of purchasing or carrying any margin stock
within the meaning of Regulations G, T, U and X of the Board of Governors of
the Federal Reserve System, and no part of the proceeds of the Advances or
Letters of Credit will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock. No more than 25% of the assets of the Borrower and its Subsidiaries
are margin stock. None of the Borrower and
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its Subsidiaries nor any agent acting on their behalf, have taken or will
knowingly take any action which would cause this Agreement or any other Loan
Documents to violate any regulation of the Board of Governors of the Federal
Reserve System or to violate the Securities Exchange Act of 1934, in each
case as in effect now or as the same may hereafter be in effect.
(n) GOVERNMENTAL REGULATION. The Borrower and its Subsidiaries are not
required to obtain any Necessary Authorization on or prior to the Agreement
Date that has not already been obtained from, or effect any material filing
or registration that has not already been effected with, any Tribunal in
connection with the execution and delivery of this Agreement or any other
Loan Document, or the performance thereof, in accordance with their
respective terms, including any borrowings hereunder.
(o) ABSENCE OF DEFAULT. The Borrower and its Subsidiaries are in
compliance in all material respects with all of the provisions of their
certificates of incorporation and by-laws, and no event has occurred or
failed to occur, which has not been remedied or waived, the occurrence or
non-occurrence of which constitutes, or which with the passage of time or
giving of notice or both would constitute, (i) an Event of Default or (ii) a
default by the Borrower or any of its Subsidiaries under any material
indenture, agreement or other instrument, or any judgment, decree or order to
which the Borrower or any of its Subsidiaries or by which they or any of
their respective properties is bound, except to the extent that such default
could not reasonably be expected to have a Material Adverse Effect.
(p) GOVERNMENTAL REGULATION. Neither the Borrower nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or
the Investment Company Act of 1940, or any other Law, domestic or foreign,
limiting its ability to incur Indebtedness for money borrowed or to create
Liens on any of its properties or assets to secure such Indebtedness.
Neither the entering into or performance by the Borrower of this Agreement
nor the issuance of the Notes violates any provision of such act or requires
any consent, approval, or authorization of, or registration with, the
Securities and Exchange Commission or any other governmental or public body
of authority pursuant to any provisions of such act.
(q) ENVIRONMENTAL MATTERS. Neither the Borrower nor any Subsidiary has
any current actual knowledge that any substance deemed hazardous by any
Applicable Environmental Law, has been installed (i) on any real property fee
title to which is now owned by the Borrower or any of its Subsidiaries or
(ii) by Borrower or any of its Subsidiaries on any real property leased by
the Borrower or any of its Subsidiaries, in either case in a manner which
does not comply with Applicable Environmental Laws, except to the extent that
the failure to so comply could not reasonably be expected to have a Material
Adverse Effect. The Borrower and its Subsidiaries are not in violation of or
subject to any existing, pending or, to the best of the Borrower's knowledge,
threatened investigation or inquiry by any Tribunal or to any material
remedial obligations under any Applicable Environmental Laws, the effect of
which could reasonably be expected to have a Material Adverse Effect. The
Borrower and its Subsidiaries have not obtained and are not required to
obtain any permits, licenses or similar authorizations other than
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certificates of occupancy and building permits and other authorizations that
have been obtained to construct, occupy, operate or use any buildings,
improvements, fixtures, and equipment forming a part of any real property
owned or leased by the Borrower or any Subsidiary of the Borrower by reason
of any Applicable Environmental Laws, except to the extent that the failure
to so obtain could not reasonably be expected to have a Material Adverse
Effect. The Borrower and its Subsidiaries undertook, at the time of
acquisition of fee title to any real property, reasonable inquiry into the
previous ownership and uses of such real property consistent with good
commercial or customary practice. The Borrower and its Subsidiaries have
taken reasonable steps to determine, and the Borrower and its Subsidiaries
have no current actual knowledge, that any hazardous substances or solid
wastes have been disposed of or otherwise released (i) on or to the real
property fee title to which is owned by the Borrower or any of its
Subsidiaries or (ii) by Borrower or any of its Subsidiaries on or to any real
property leased by Borrower or any of its Subsidiaries, all within the
meaning of the Applicable Environmental Laws, the effect of which could
reasonably be expected to have a Material Adverse Effect.
(r) CERTAIN FEES. No broker's, finder's or other fee or commission
will be payable by the Borrower (other than to the Lenders hereunder) with
respect to the making of the Revolving Credit Commitment or the Revolving
Credit Advances hereunder. The Borrower agrees to indemnify and hold
harmless the Administrative Lender and each Lender from and against any
claims, demand, liability, proceedings, costs or expenses asserted with
respect to or arising in connection with any such fees or commissions.
(s) NECESSARY AUTHORIZATIONS. No event has occurred which permits (or
with the passage of time would permit) the revocation or termination of any
Necessary Authorization, or which could reasonably be expected to result in
the imposition of any restriction thereon of such a nature that could
reasonably be expected to be classified as a Material Adverse Effect.
(t) PATENTS, ETC. The Borrower and its Subsidiaries have collectively
obtained or applied for all patents, trademarks, service marks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions,
that are necessary for the operation of their business as presently conducted
and as proposed to be conducted, except to the extent that the failure to so
obtain or apply could not reasonably be expected to have a Material Adverse
Effect. Nothing has come to the current actual knowledge of the Borrower or
any of its Subsidiaries to the effect that (i) any process, method, part or
other material presently contemplated to be employed by the Borrower or any
Subsidiary of the Borrower may infringe any patent, trademark, service mark,
trade name, copyright, license or other right owned by any other Person, or
(ii) there is pending or overtly threatened any claim or litigation against
or affecting the Borrower or any Subsidiary of the Borrower contesting its
right to sell or use any such process, method, part or other material, which
could reasonably be expected to be classified as a Material Adverse Effect.
(u) DISCLOSURE. Neither this Agreement nor any other document,
certificate or statement which has been furnished to any Lender by or on
behalf of the Borrower or any Subsidiary of the Borrower in connection
herewith contained any untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statement contained
herein
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and therein not misleading at the time it was furnished, unless such
statements were corrected in writing and delivered to the Lenders prior to
the Agreement Date. The representation and warranty made in the immediately
preceding sentence shall be qualified to the best of the Borrower's knowledge
to the extent the information referred to therein was prepared or furnished
to the Borrower by another Person on their behalf. As of the Agreement Date,
there is no fact known to the Borrower and not known to the public generally
that could reasonably be expected to have a Material Adverse Effect, which
has not been set forth in this Agreement or in the documents, certificates
and statements furnished to the Lenders by or on behalf of the Borrower prior
to the date hereof in connection with the transaction contemplated hereby.
(v) SOLVENCY. The Borrower is, and Borrower and its Subsidiaries on a
consolidated basis are, Solvent.
(w) LABOR RELATIONS. Neither the Borrower nor any Subsidiary is a
party to a collective bargaining agreement or similar agreement, and the
Borrower and each Subsidiary is in compliance in all material respects with
all Laws respecting employment and employment practices, terms and conditions
of employment, wages and hours and other laws related to the employment of
its employees, and there are no arrears in the payment of wages, withholding
or social security taxes, unemployment insurance premiums or other similar
obligations of the Borrower or any Subsidiary or for which the Borrower or
any Subsidiary may be responsible other than in the ordinary course of
business. There is no strike, work stoppage or labor dispute with any union
or group of employees pending or overtly threatened involving Borrower or any
Subsidiary that would have a Material Adverse Effect.
(x) CONSOLIDATED BUSINESS ENTITY. The Borrower and its Subsidiaries
are operated as a part of one consolidated business entity and are directly
dependent upon each other for and in connection with their respective
business activities.
Section 4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made at and as of the Agreement Date and at
and as of the date of each Revolving Credit Advance and the date of issuance
of each Letter of Credit, and each shall be true and correct in all material
respects when made, except to the extent (a) previously fulfilled in
accordance with the terms hereof, (b) previously waived in writing by the
Determining Lenders with respect to any particular factual circumstance or
permitted by the terms of this Agreement or (c) such representations and
warranties specifically relate to an earlier date, in which case such
representations and warranties shall have been true and correct in all
material respects on and as of such date. All such representations and
warranties shall survive, and not be waived by, the execution hereof by any
Lender, any investigation or inquiry by any Lender, or by the making of any
Revolving Credit Advance or the issuance of any Letter of Credit under this
Agreement.
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ARTICLE 5
GENERAL COVENANTS
So long as any of the Obligations are outstanding and unpaid or the
Revolving Credit Commitment is outstanding (whether or not the conditions to
borrowing have been or can be fulfilled):
Section 5.1 PRESERVATION OF EXISTENCE AND SIMILAR MATTERS. The
Borrower shall, and shall cause each Subsidiary of the Borrower to:
(a) except as otherwise permitted pursuant to SECTION 7.4 hereof,
preserve and maintain, or timely obtain and thereafter preserve and maintain,
its existence, rights, franchises, licenses, authorizations, consents,
privileges and all other Necessary Authorizations from any Tribunal, the loss
of which could reasonably be expected to have a Material Adverse Effect; and
(b) except as otherwise permitted pursuant to SECTION 7.4 hereof,
qualify and remain qualified and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization, unless the failure to
do so could not reasonably be expected to have a Material Adverse Effect.
Section 5.2 BUSINESS; COMPLIANCE WITH APPLICABLE LAW. The Borrower
and its Subsidiaries shall (a) engage primarily in the businesses set forth
in SECTION 4.1(d) hereof, and (b) comply in all respects with the
requirements of all applicable Law, except where the failure to so comply
could not reasonably be expected to have a Material Adverse Effect.
Section 5.3 MAINTENANCE OF PROPERTIES. The Borrower shall, and shall
cause each Subsidiary of the Borrower to, maintain or cause to be maintained
all its properties (whether owned or held under lease) in reasonably good
repair, working order and condition, taken as a whole, and from time to time
make or cause to be made all appropriate (in the reasonable judgment of the
Borrower) repairs, renewals, replacements, additions, betterments and
improvements thereto, except where the failure to so maintain, repair, renew,
replace or improve could not reasonably be expected to have a Material
Adverse Effect.
Section 5.4 ACCOUNTING METHODS AND FINANCIAL RECORDS. The Borrower
shall, and shall cause each Subsidiary of the Borrower to, maintain a system
of accounting established and administered in accordance with GAAP, keep
adequate records and books of account in which complete entries will be made
and all transactions reflected in accordance with GAAP, and keep accurate and
complete records of its respective assets. The Borrower and each of its
Subsidiaries shall maintain a fiscal year ending on the last day of December.
Section 5.5 INSURANCE. The Borrower shall, and shall cause each
Subsidiary of the Borrower to, maintain insurance from responsible companies
in such amounts and against such risks as shall be customary and usual in the
industry for companies of similar size and capability,
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but in no event less than the amount and types insured as of the Agreement
Date to the extent available at reasonable cost. Each insurance policy shall
(i) provide for at least 30 days' prior notice to the Administrative Lender
of any proposed termination or cancellation of such policy, whether on
account of default or otherwise and (ii) otherwise contain the requirements
for insurance set forth in the Security Agreements.
Section 5.6 PAYMENT OF TAXES AND CLAIMS. The Borrower shall, and
shall cause each Subsidiary of the Borrower to, pay and discharge all
material Taxes upon it or its income or properties prior to the date on which
penalties attach thereto, and all lawful material claims for labor, materials
and supplies which, if unpaid, might become a Lien upon any of its
properties; except that no such Tax or claim need be paid which is being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on the appropriate books, but
only so long as no Lien (other than a Permitted Lien) shall attach with
respect thereto and no foreclosure, distraint, sale or similar proceedings
shall have been commenced. The Borrower shall, and shall cause each
Subsidiary of the Borrower to, timely file all information returns (or
extensions of such filing deadlines) required by federal, state or local tax
authorities.
Section 5.7 VISITS AND INSPECTIONS. The Borrower shall, and shall
cause each Subsidiary of the Borrower to, promptly permit representatives of
the Administrative Lender or any Lender from time to time after notice by the
Administrative Lender or any Lender no later than the previous Business Day
to (a) visit and inspect the properties of the Borrower and its Subsidiaries
as often as the Administrative Lender or any Lender shall reasonably deem
advisable, (b) audit, inspect and make extracts from and copies of the
Borrower's and each such Subsidiary's books and records, and (c) discuss with
the Borrower's and each such Subsidiary's directors, officers, employees and
auditors its business, assets, liabilities, financial positions, results of
operations and business prospects. The Borrower shall pay the reasonable
expenses related to inspections and audits performed by the Administrative
Lender. Prior to the occurrence of an Event of Default, all such visits and
inspections shall be conducted during normal business hours. Following the
occurrence and during the continuance of an Event of Default, such visits and
inspections shall be conducted at any time requested by the Administrative
Lender or any Lender without any requirement for advance notice.
Section 5.8 USE OF PROCEEDS. The Borrower shall use the proceeds of
Revolving Credit Advances and Letters of Credit for refinancing of certain
Indebtedness of the Borrower (including in respect of the Existing Credit
Agreement), for Acquisitions permitted hereunder and for working capital and
other general corporate purposes.
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SECTION 5.9 INDEMNITY.
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(a) THE BORROWER AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD HARMLESS
THE ADMINISTRATIVE LENDER, EACH LENDER, EACH OF THEIR RESPECTIVE AFFILIATES,
AND EACH OF THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES') OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, SHAREHOLDERS AND CONSULTANTS
(INCLUDING, WITHOUT LIMITATION, THOSE RETAINED IN CONNECTION WITH THE
SATISFACTION OR ATTEMPTED SATISFACTION OF ANY OF THE CONDITIONS SET FORTH
HEREIN) OF EACH OF THE FOREGOING (COLLECTIVELY, "INDEMNITEES") FROM AND
AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, CLAIMS, REASONABLE COSTS, REASONABLE EXPENSES AND
REASONABLE DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT
LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL FOR SUCH
INDEMNITEES IN CONNECTION WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL
PROCEEDING, WHETHER OR NOT SUCH INDEMNITEES SHALL BE DESIGNATED A PARTY
THERETO), IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST SUCH INDEMNITEES
(WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL AND WHETHER BASED ON ANY FEDERAL,
STATE, OR LOCAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE CAUSE,
OR ON CONTRACT, TORT OR OTHERWISE, ARISING FROM OR CONNECTED WITH THE PAST,
PRESENT OR FUTURE OPERATIONS OF THE BORROWER OR ITS PREDECESSORS IN INTEREST,
OR THE PAST, PRESENT OR FUTURE ENVIRONMENTAL CONDITION OF PROPERTY OF THE
BORROWER), IN ANY MANNER RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, OR ANY ACT, EVENT OR TRANSACTION OR ALLEGED ACT, EVENT
OR TRANSACTION RELATING OR ATTENDANT THERETO, THE MANAGEMENT OF THE ADVANCES,
INCLUDING IN CONNECTION WITH, OR AS A RESULT, IN WHOLE OR IN PART, OF ANY
ORDINARY OR MERE NEGLIGENCE OF ADMINISTRATIVE LENDER OR ANY LENDER (OTHER
THAN THOSE MATTERS RAISED EXCLUSIVELY BY A PARTICIPANT AGAINST THE
ADMINISTRATIVE LENDER OR ANY LENDER AND NOT THE BORROWER), OR THE USE OR
INTENDED USE OF THE PROCEEDS OF THE ADVANCES HEREUNDER, OR IN CONNECTION WITH
ANY INVESTIGATION OF ANY POTENTIAL MATTER COVERED HEREBY, BUT EXCLUDING (I)
ANY CLAIM OR LIABILITY THAT ARISES AS THE RESULT OF THE GROSS NEGLIGENCE OR
WILFUL MISCONDUCT OF ANY INDEMNITEE, AS FINALLY JUDICIALLY DETERMINED BY A
COURT OF COMPETENT JURISDICTION, AND (II) MATTERS RAISED BY ONE LENDER
AGAINST ANOTHER LENDER OR BY ANY SHAREHOLDERS OF A LENDER AGAINST A LENDER OR
ITS MANAGEMENT (COLLECTIVELY, "INDEMNIFIED MATTERS"). TO THE EXTENT THAT ANY
INDEMNIFIED MATTER INVOLVES ONE OR MORE INDEMNITEES, SUCH INDEMNITEES SHALL
USE THE SAME LEGAL COUNSEL UNLESS ANY INDEMNITEE IN ITS REASONABLE DISCRETION
DETERMINES THAT CONFLICTS EXIST OR MAY ARISE IN CONNECTION WITH SUCH
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REPRESENTATION.
(b) IN ADDITION, THE BORROWER SHALL PERIODICALLY, UPON REQUEST,
REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE LEGAL AND OTHER ACTUAL
REASONABLE EXPENSES (INCLUDING THE REASONABLE COST OF ANY INVESTIGATION AND
PREPARATION) INCURRED IN CONNECTION WITH ANY INDEMNIFIED MATTER. THE
REIMBURSEMENT, INDEMNITY AND CONTRIBUTION OBLIGATIONS UNDER THIS SECTION
SHALL BE IN ADDITION TO ANY LIABILITY WHICH THE BORROWER MAY OTHERWISE HAVE,
SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO EACH INDEMNITEE, AND SHALL
BE BINDING UPON AND INURE TO THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS
AND PERSONAL REPRESENTATIVES OF THE BORROWER, THE ADMINISTRATIVE LENDER, THE
LENDERS AND ALL OTHER INDEMNITEES. THIS SECTION SHALL SURVIVE ANY TERMINATION
OF THIS AGREEMENT AND PAYMENT OF THE OBLIGATIONS.
Section 5.10 ENVIRONMENTAL LAW COMPLIANCE. The use which the Borrower
or any Subsidiary of the Borrower intends to make of any real property which
is owned or leased by it will not result in the disposal or other release of
any hazardous substance or solid waste on or to such real property which is
in violation of Applicable Environmental Laws, the effect of which could
reasonably be expected to have a Material Adverse Effect. As used herein,
the terms "hazardous substance" and "release" as used in this Section shall
have the meanings specified in CERCLA (as defined in the definition of
Applicable Environmental Laws), and the terms "solid waste" and "disposal"
shall have the meanings specified in RCRA (as defined in the definition of
Applicable Environmental Laws); provided, however, that if CERCLA or RCRA is
amended so as to broaden or lessen the meaning of any term defined thereby,
such broader or lesser meaning shall apply subsequent to the effective date
of such amendment; and provided further, to the extent that any other law
applicable to the Borrower, any Subsidiary or any of their properties
establishes a meaning for "hazardous substance," "release," "solid waste," or
"disposal" which is broader or lesser than that specified in either CERCLA or
RCRA, such broader or lesser meaning shall apply. The Borrower agrees to
indemnify and hold the Administrative Lender and each Lender harmless from
and against, and to reimburse them with respect to, any and all claims,
demands, causes of action, loss, damage, liabilities, reasonable costs and
reasonable expenses (including reasonable attorneys' fees and courts costs)
of any kind or character, known or unknown, fixed or contingent, asserted
against or incurred by any of them at any time and from time to time by
reason of or arising out of (a) the failure of the Borrower or any Subsidiary
to perform any of their obligations hereunder regarding asbestos or
Applicable Environmental Laws, (b) any violation on or before the Release
Date of any Applicable Environmental Law in effect on or before the Release
Date, and (c) any act, omission, event or circumstance existing or occurring
on or prior to the Release Date (including without limitation the presence on
such real property or release from such real property of hazardous substances
or solid wastes disposed of or otherwise released on or prior to the Release
Date), resulting from or in connection with the ownership of the real
property, regardless of whether the act, omission, event or circumstance
constituted a violation of any Applicable Environmental Law at the time of
its existence or
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occurrence; provided that, the Borrower shall not be under any obligation to
indemnify the Administrative Lender or any Lender to the extent that any such
liability arises as the result of the negligence or wilful misconduct of such
Person, as finally judicially determined by a court of competent
jurisdiction. The provisions of this paragraph shall survive the Release
Date and shall continue thereafter in full force and effect.
Section 5.11 FURTHER ASSURANCES. At any time or from time to time
upon reasonable request by the Administrative Lender, the Borrower or any
Subsidiary of the Borrower shall execute and deliver such further documents
and do such other acts and things as the Administrative Lender may reasonably
request in order to effect fully the purposes of this Agreement and the other
Loan Documents and to provide for payment of the Obligations in accordance
with the terms of this Agreement and the other Loan Documents. Without
limiting the generality of the foregoing, the Borrower agrees to update and
deliver to the Administrative Lender SCHEDULES 3 AND 4 hereto at the time of
delivery of the financial statements set forth in SECTIONS 6.1 and 6.2 hereof
if the information provided therein is not complete and correct.
ARTICLE 6
INFORMATION COVENANTS
So long as any of the Obligations are outstanding and unpaid or the
Revolving Credit Commitment is outstanding (whether or not the conditions to
borrowing have been or can be fulfilled), the Borrower shall furnish or cause
to be furnished to each Lender:
Section 6.1 QUARTERLY FINANCIAL STATEMENTS AND INFORMATION. Within
45 days after the end of each fiscal quarter, the consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries as at the
end of such fiscal quarter and the related consolidated and consolidating
statements of income for such fiscal quarter and for the elapsed portion of
the year ended with the last day of such fiscal quarter, and consolidated and
consolidating statements of cash flow for the elapsed portion of the year
ended with the last day of such fiscal quarter, all of which shall be
certified by the president or chief financial officer or other officer of the
Borrower acceptable to the Administrative Lender, to be, in his or her
opinion acting solely in his or her capacity as an officer of the Borrower,
present fairly in all material respects, in accordance with GAAP (except for
the absence of footnotes), the financial position and results of operations
of the Borrower and its Subsidiaries as at the end of and for such fiscal
quarter, and for the elapsed portion of the year ended with the last day of
such fiscal quarter, subject only to normal year-end adjustments.
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Section 6.2 ANNUAL FINANCIAL STATEMENTS AND INFORMATION; CERTIFICATE
OF NO DEFAULT.
(a) Within 90 days after the end of each fiscal year, a copy of (i) the
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries, as of the end of the current and prior fiscal years and (ii)
the consolidated and consolidating statements of earnings and consolidated
statements of changes in shareholders' equity, and statements of cash flow as
of and through the end of such fiscal year, all of which are prepared in
accordance with GAAP, and certified by independent certified public
accountants reasonably acceptable to the Lenders (provided, however, any big
six public accounting firm shall be acceptable to the Lenders), whose opinion
shall be in scope and substance in accordance with generally accepted
auditing standards and shall be unqualified as to scope of audit and going
concern.
(b) Simultaneously with the delivery of the statements required by this
SECTION 6.2, a letter from the Borrower's public accountants certifying that
no Default was detected during the examination of the Borrower and its
Subsidiaries.
(c) As soon as available, but in any event within 90 days following the
end of each fiscal year, a copy of the annual consolidated operating budget
of the Borrower and its Subsidiaries for the succeeding fiscal year.
Section 6.3 COMPLIANCE CERTIFICATE. At the time financial statements
are furnished pursuant to SECTIONS 6.1 and 6.2 hereof, the Compliance
Certificate, completed as provided therein.
Section 6.4 COPIES OF OTHER REPORTS AND NOTICES.
(a) Promptly upon their becoming available, a copy of (i) all material
reports or letters submitted to the Borrower or any Subsidiary of the
Borrower by accountants in connection with any annual, interim or special
audit, including without limitation any report prepared in connection with
the annual audit referred to in SECTION 6.2 hereof, and, if requested by the
Administrative Lender, any other comment letter submitted to management in
connection with any such audit, (ii) each financial statement, report, notice
or proxy statement sent by the Borrower to stockholders generally, (iii) each
regular, periodic or other report and any registration statement (other than
statements on Form S-8) or prospectus (or material written communication in
respect of any thereof) filed by the Borrower or any Subsidiary of the
Borrower with any securities exchange, with the Securities and Exchange
Commission or any successor agency, and (iv) all press releases concerning
material financial aspects of the Borrower or any Subsidiary of the Borrower;
(b) Promptly upon becoming aware that (i) the holder(s) of any note(s)
or other evidence of indebtedness or other security of the Borrower or any
Subsidiary of the Borrower in excess of $250,000 in the aggregate has given
notice or taken any action with respect to a breach, failure to perform,
claimed default or event of default thereunder, (ii) any occurrence or
non-occurrence of any event which constitutes or which with the passage of
time or giving of notice or both could constitute a material breach by the
Borrower or any Subsidiary of the
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Borrower under any material agreement or instrument other than this Agreement
to which the Borrower or any Subsidiary of the Borrower is a party or by
which any of their properties may be bound, or (iii) any event, circumstance
or condition which could reasonably be expected to be classified as a
Material Adverse Effect, a written notice specifying the details thereof (or
the nature of any claimed default or event of default) and what action is
being taken or is proposed to be taken with respect thereto;
(c) Promptly upon becoming aware that any party to any Capitalized
Lease Obligations or Operating Lease, in each case, in excess of $250,000,
has given notice or taken any action with respect to a breach, failure to
perform, claimed default or event of default thereunder, a written notice
specifying the details thereof (or the nature of any claimed default or event
of default) and what action is being taken or is proposed to be taken with
respect thereto;
(d) Promptly upon receipt thereof, information with respect to and
copies of any notices received from any Tribunal relating to any order,
ruling, law, information or policy that relates to a breach of or
noncompliance with any Law, or could reasonably be expected to result in the
payment of money by the Borrower or any Subsidiary of the Borrower in an
amount of $250,000 or more in the aggregate, or otherwise have a Material
Adverse Effect, or result in the loss or suspension of any Necessary
Authorization where such loss could reasonably be expected to have a Material
Adverse Effect; and
(e) From time to time and promptly upon each request, such data,
certificates, reports, statements, documents or further information regarding
the assets, business, liabilities, financial position, projections, results
of operations or business prospects of the Borrower and its Subsidiaries, as
the Administrative Lender or any Lender may reasonably request.
Section 6.5 NOTICE OF LITIGATION, DEFAULT AND OTHER MATTERS. Prompt
notice of the following events after the Borrower has knowledge or notice
thereof:
(a) The commencement of all Litigation and investigations by or before
any Tribunal, and all actions and proceedings in any court or before any
arbitrator involving claims for damages (including punitive damages) in
excess of $250,000 (after deducting the amount with respect to the Borrower
or any Subsidiary of the Borrower is insured), against or in any other way
relating directly to the Borrower, any Subsidiary of the Borrower, or any of
their respective properties or businesses; and
(b) Promptly upon the happening of any condition or event of which the
Borrower has current actual knowledge which constitutes a Default, a written
notice specifying the nature and period of existence thereof and what action
is being taken or is proposed to be taken with respect thereto.
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Section 6.6 ERISA REPORTING REQUIREMENTS.
(a) Promptly and in any event (i) within 30 days after the Borrower or
any member of its Controlled Group has current actual knowledge that any
ERISA Event described in clause (a) of the definition of ERISA Event or any
event described in Section 4063(a) of ERISA with respect to any Plan of the
Borrower or any member of its Controlled Group has occurred, and (ii) within
10 days after the Borrower or any member of its Controlled Group has current
actual knowledge that any other ERISA Event with respect to any Plan of the
Borrower or any member of its Controlled Group has occurred or a request for
a minimum funding waiver under Section 412 of the Code with respect to any
Plan of the Borrower or any member of its Controlled Group, a written notice
describing such event and describing what action is being taken or is
proposed to be taken with respect thereto, together with a copy of any notice
of event that is given to the PBGC;
(b) Promptly and in any event within three Business Days after receipt
thereof by the Borrower or any member of its Controlled Group from the PBGC,
copies of each notice received by the Borrower or any member of its
Controlled Group of the PBGC's intention to terminate any Plan or to have a
trustee appointed to administer any Plan;
(c) Promptly and in any event within 30 days after the filing thereof
by the Borrower or any member of its Controlled Group with the United States
Department of Labor or the Internal Revenue Service, copies of each annual
report (including Schedule B thereto, if applicable) with respect to each
Plan subject to Title IV of ERISA of which Borrower or any member of its
Controlled Group is the "plan sponsor";
(d) Promptly, and in any event within 10 Business Days after receipt
thereof, a copy of any correspondence the Borrower or any member of its
Controlled Group receives from the Plan Sponsor (as defined by Section
4001(a)(10) of ERISA) of any Plan concerning potential withdrawal liability
pursuant to Section 4219 or 4202 of ERISA, and a statement from the chief
financial officer of the Borrower or such member of its Controlled Group
setting forth details as to the events giving rise to such potential
withdrawal liability and the action which the Borrower or such member of its
Controlled Group is taking or proposes to take with respect thereto;
(e) Notification within 30 days of any material increases in the
benefits of any existing Plan which is not a Multiemployer Plan, or the
establishment of any new Plans, or the commencement of contributions to any
Plan to which the Borrower or any member of its Controlled Group was not
previously contributing which would in either case result in a material
liability to the Borrower;
(f) Notification within three Business Days after the Borrower or any
member of its Controlled Group knows that the Borrower or any such member of
its Controlled Group has filed or intends to file a notice of intent to
terminate any Plan under a distress termination within the meaning of Section
4041(c) of ERISA and a copy of such notice; and
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(g) Within three Business Days after receipt of written notice of
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 the Borrower or any member of
its Controlled Group with respect to any Plan, except those which, in the
aggregate, if adversely determined could not have a Material Adverse Effect.
ARTICLE 7
NEGATIVE COVENANTS
So long as any of the Obligations are outstanding and unpaid or the
Revolving Credit Commitment is outstanding (whether or not the conditions to
borrowing have been or can be fulfilled):
Section 7.1 INDEBTEDNESS. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, create, assume, incur or otherwise
become or remain obligated in respect of, or permit to be outstanding, or
suffer to exist any Indebtedness, except:
(a) Indebtedness under the Loan Documents;
(b) Accounts payable and accrued liabilities incurred in the ordinary
course of business; PROVIDED, HOWEVER, all obligations of the Borrower to any
of its Subsidiaries in respect of accounts payable and accrued liabilities
shall be subject to a Subordination Agreement;
(c) Indebtedness, including in respect of Capitalized Lease
Obligations, incurred to purchase, or to finance the purchase of, assets
which constitute property, plant and equipment in an aggregate principal
amount not in excess of $500,000 outstanding at any time;
(d) Interest hedging obligations under Interest Hedge Agreements
entered into with any Lender or any Affiliate of any Lender;
(e) Indebtedness existing on the Agreement Date which is described on
SCHEDULE 6 hereto, including renewals (but no increases) thereof;
(f) Indebtedness in respect of endorsement of negotiable instruments in
the ordinary course of business; and
(g) Other Indebtedness not to exceed $5,000,000 in aggregate principal
amount outstanding at any time.
Section 7.2 LIENS. The Borrower shall not, and shall not permit any
Subsidiary of Borrower to, create, assume, incur, permit or suffer to exist,
directly or indirectly, any Lien on any of its assets, whether now owned or
hereafter acquired, except Permitted Liens. The
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Borrower shall not, and shall not permit any Subsidiary to, agree with any
other Person that it shall not create, assume, incur, permit or suffer to
exist or to be created, assumed, incurred or permitted to exist, directly or
indirectly, any Lien on any of its assets.
Section 7.3 INVESTMENTS. The Borrower shall not, and shall not
permit any Subsidiary of Borrower to, make any Investment, except that the
Borrower and any Subsidiary of the Borrower may purchase or otherwise acquire
and own:
(a) Cash and Cash Equivalents;
(b) Accounts receivable that arise in the ordinary course of business
and are payable on standard terms;
(c) Investments in existence on the Agreement Date which are described
on SCHEDULE 5 hereto;
(d) Investments which are Acquisitions permitted pursuant to SECTION
7.6 hereof;
(e) Investments in the form of Interest Hedge Agreements permitted by
SECTION 7.1(d) hereof;
(f) Investments (excluding accounts receivable from Foreign
Subsidiaries created in the ordinary course of business) in, and expenditures
in respect of Acquisitions of, Foreign Subsidiaries by the Borrower in an
aggregate amount not to exceed (calculated immediately prior to the date of
each such Investment or Acquisition) 50% of Net Worth at any time
outstanding; and
(g) Other Investments not to exceed $500,000 in aggregate amount
outstanding at any time.
Section 7.4 LIQUIDATION, MERGER, NEW SUBSIDIARIES. The Borrower
shall not, and shall not permit any Subsidiary of Borrower to, at any time:
(a) liquidate or dissolve itself (or suffer any liquidation or
dissolution) or otherwise wind up, except that a Subsidiary of the Borrower
may liquidate or dissolve into the Borrower or a Subsidiary of the Borrower;
(b) enter into any merger or consolidation unless (i) with respect to a
merger or consolidation involving the Borrower, the Borrower shall be the
surviving corporation, or if the merger or consolidation involves a
Subsidiary of the Borrower and not the Borrower, such Subsidiary shall be the
surviving corporation, (ii) such transaction shall not be utilized to
circumvent compliance with any term or provision herein and (iii) no Default
or Event of Default shall then be in existence or occur as a result of such
transaction; or
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(c) create or acquire any Subsidiary except as permitted pursuant to
SECTION 7.6 hereof.
Section 7.5 SALES OF ASSETS. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, sell, lease, transfer or otherwise
dispose of, any of its assets except (a) inventory in the ordinary course of
business, (b) obsolete or worn-out assets, (c) asset sales in which the Net
Cash Proceeds from the disposition thereof are reinvested, within 90 days
before or after such disposition, in productive tangible assets of a similar
nature of the Borrower and its Subsidiaries, (d) asset sales the Net Cash
Proceeds of which are applied in accordance with SECTION 2.5(d) hereof and
(e) any asset or series of related assets of a value (determined at the
greater of book or fair market value) during any Fiscal Year in an aggregate
amount not in excess of $1,000,000.
Section 7.6 ACQUISITIONS. The Borrower shall not, and shall permit
any Subsidiary of Borrower to, make any Acquisitions; provided, however, if
immediately prior to and after giving effect to the proposed Acquisition
there shall not exist a Default or Event of Default, the Borrower or any
Subsidiary of the Borrower may make Acquisitions so long as (a) Lenders shall
have received written notice at least 30 Business Days prior to the date of
such Acquisition, (b) if the Acquisition Consideration for such Acquisition
exceeds $20,000,000, the Administrative Lender shall have received at least
20 Business Days prior to the date of such Acquisition a Compliance
Certificate setting forth the covenant calculations both immediately prior to
and after giving effect to the proposed Acquisition, (c) the assets, property
or business acquired shall be in the business described in SECTION 4.1(d)
hereof, (d) if such Acquisition results in a Domestic Subsidiary, (A) such
Subsidiary shall execute a Subsidiary Guaranty and (B) the Lenders receive
such board resolutions, officer's certificates and opinions of counsel as the
Administrative Lender shall reasonably request in connection with the
Subsidiary Guaranty, and (e) if such Acquisition results in a Foreign
Subsidiary, (A) 66% of such Subsidiary's Capital Stock shall be pledged to
secure the Obligations pursuant to a Pledge Agreement and (B) the Lenders
receive such board resolutions, officer's certificates and opinions of
counsel as the Administrative Lender shall reasonably request in connection
with clause (A) immediately preceding. Notwithstanding anything in this
SECTION 7.6 or any other provision of this Agreement to the contrary, the
Acquisition Consideration for any single Acquisition shall not exceed
$40,000,000, and (b) the aggregate amount of expenditures in respect of
Acquisitions of, and Investments in, Foreign Subsidiaries by the Borrower
shall not exceed (calculated immediately prior to the date of each such
Investment or Acquisition) 50% of Net Worth at any time outstanding.
Section 7.7 CAPITAL EXPENDITURES. The Borrower shall not, and shall
not permit any Subsidiary of the Borrower to, make or commit to make any
Capital Expenditures (a) during any Fiscal Year in excess of $5,000,000 in
aggregate amount (the "Maximum Amount") PROVIDED, HOWEVER, that the Maximum
Amount for each fiscal year shall be increased by an amount equal to the
excess, if any, of the Maximum Amount for the previous fiscal year (before
making any adjustments in accordance with this proviso) over the actual
aggregate Capital Expenditures for such previous fiscal year and (b) in
excess of $7,500,000 in aggregate amount in respect of the building owned by
PUM at Avenida Rio Mayo Calle Salvatierra Col. La Mesa, San Luis Rio
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Colorado, Sonora, Mexico.
Section 7.8 RESTRICTED PAYMENTS. The Borrower shall not, and shall
not permit any Subsidiary of the Borrower to, directly or indirectly declare,
pay or make any Restricted Payments except (i) any Subsidiary may declare and
pay Dividends to the Borrower, and (ii) the Borrower shall be permitted to
pay Stephens Fees; provided, further, however, the Borrower shall not pay or
make any Restricted Payments permitted by this SECTION 7.8 unless there shall
exist no Default or Event of Default prior to or after giving effect to any
such proposed Restricted Payment.
Section 7.9 AFFILIATE TRANSACTIONS. The Borrower shall not, and
shall not permit any Subsidiary of the Borrower to, at any time engage in any
transaction with an Affiliate on terms materially less advantageous to the
Borrower or such Subsidiary than would be the case if such transaction had
been effected with a non-Affiliate (other than compensation and advances to
employees in the ordinary course of business). The Borrower shall not, and
shall not permit any Subsidiary of Borrower to, in any event incur or suffer
to exist any Indebtedness or Guaranty in favor of any Affiliate, unless such
Affiliate shall subordinate the payment and performance thereof to the
Obligations on terms, conditions and documentation satisfactory to the
Determining Lenders.
Section 7.10 COMPLIANCE WITH ERISA. The Borrower shall not, and shall
not permit any Subsidiary to, directly or indirectly, or permit any member of
its Controlled Group to directly or indirectly, (a) terminate any Plan so as
to result in any material (in the opinion of the Determining Lenders)
liability to the Borrower or any member of its Controlled Group taken as a
whole, (b) permit to exist any ERISA Event, or any other event or condition
which could reasonably be expected to have a Material Adverse Effect, (c)
make a complete or partial withdrawal (within the meaning of Section 4201 of
ERISA) from any Multiemployer Plan so as to result in any material (in the
opinion of the Determining Lenders) liability to the Borrower or any member
of its Controlled Group taken as a whole, (d) enter into any new Plan or
modify any existing Plan so as to increase its obligations thereunder which
could reasonably be expected to have a Material Adverse Effect, or (e) permit
the present value of all benefit liabilities, as defined in Title IV of
ERISA, under each Plan (other than a Multiemployer Plan) of the Borrower or
any member of its Controlled Group (using the actuarial assumptions utilized
by each such Plan) to exceed the fair market value of Plan assets allocable
to such benefits by more than $100,000, all determined as of the most recent
valuation date for each such Plan.
Section 7.11 MAXIMUM LEVERAGE RATIO. The Borrower shall not permit
the Leverage Ratio to be greater than 3.00 to 1 at the end of any fiscal
quarter.
Section 7.12 MINIMUM FIXED CHARGE COVERAGE RATIO. The Borrower shall
not permit the Fixed Charge Coverage Ratio to be less than (a) 1.50 to 1 at
the end of any fiscal quarter through the last fiscal quarter of Fiscal Year
1998 and (b) 1.75 to 1 at the end of any fiscal quarter thereafter.
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Section 7.13 MINIMUM NET WORTH. The Borrower shall not permit the Net
Worth at any time to be less than the sum of (a) $82,000,000, plus (b) 50% of
cumulative Net Income for the period from September 30, 1997 to the date of
calculation (but excluding from the calculation of such cumulative Net Income
the effect, if any, of any fiscal quarter, or a portion of a fiscal quarter
not yet ended, for which the Net Income was a negative number) plus (c) an
amount equal to the net worth of any Person that, on or after the Agreement
Date, becomes a Subsidiary of the Borrower or any of its Subsidiaries or is
merged into or consolidated with the Borrower or any of its Subsidiaries or
substantially all of the assets of which are acquired by the Borrower or any
of its Subsidiaries to the extent that the purchase price therefore is paid
in Capital Stock of the Borrower or any of its Subsidiaries, plus (d) an
amount equal to 85% of any increase in Net Worth pursuant to offerings of
Capital Stock of the Borrower or any of its Subsidiaries or pursuant to the
conversion or exchange of any convertible subordinated debt or redeemable
preferred stock into Capital Stock of the Borrower or any of its Subsidiaries.
Section 7.14 SALE AND LEASEBACK. The Borrower shall not, and shall
not permit any Subsidiary of the Borrower to, enter into any arrangement
whereby it sells or transfers any of its assets, and thereafter rents or
leases such assets.
Section 7.15 SALE OR DISCOUNT OF RECEIVABLES. The Borrower shall not,
and shall not permit any Subsidiary of the Borrower to, directly or
indirectly, sell, with or without recourse, for discount or otherwise, any
notes or accounts receivable.
Section 7.16 BUSINESS. Neither the Borrower nor any Subsidiary of the
Borrower shall conduct any business other than the business described in
SECTION 4.1(d) hereof.
Section 7.17 FISCAL YEAR. Neither the Borrower nor any Subsidiary of
the Borrower shall change its fiscal year.
Section 7.18 BUSINESS. Notwithstanding anything herein to the
contrary, neither PUM nor PEI or any other Foreign Subsidiary shall (i)
transact any business other than the manufacturing and assembling of direct
current power supplies for the benefit of the Borrower or (ii) sell any goods
to any Person other than the Borrower or a Domestic Subsidiary of the
Borrower; provided, however, notwithstanding anything in this SECTION 7.19 to
the contrary, Foreign Subsidiaries may sell goods to Persons other than the
Borrower or a Domestic Subsidiary of the Borrower so long as the aggregate
amount of such sales during any fiscal year does not exceed 5% of the
consolidated gross revenues of the Borrower and its Subsidiaries for the
immediately preceding fiscal year.
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ARTICLE 8
DEFAULT
Section 8.1 EVENTS OF DEFAULT. Each of the following shall
constitute an Event of Default, whatever the reason for such event, and
whether voluntary, involuntary, or effected by operation of law or pursuant
to any judgment or order of any court or any order, rule or regulation of any
governmental or non-governmental body:
(a) Any representation or warranty made under any Loan Document shall
prove to have been incorrect or misleading in any material respect when made;
(b) The Borrower shall fail to pay any (i) principal under any Note
when due or (ii) interest under any Note or any fees payable hereunder or any
other costs, fees, expenses or other amounts payable hereunder or under any
other Loan Document within 3 days after the date due;
(c) The Borrower or any Subsidiary of the Borrower shall default in the
performance or observance of any agreement or covenant contained in SECTION
5.1 or ARTICLE 7 hereof and, if such default is capable of being cured by the
payment of cash, such default is not cured within three Business Days after
discovery thereof by the Borrower by the making of a Member Contribution;
(d) The Borrower or any Subsidiary of the Borrower shall default in the
performance or observance of any other agreement or covenant contained in
this Agreement not specifically referred to elsewhere in this SECTION 8.1,
and such default shall not be cured within a period of 30 days after the
earlier of notice from the Administrative Lender thereof or actual notice
thereof by the Borrower or such Subsidiary;
(e) There shall occur any default or breach in the performance or
observance of any agreement or covenant in any of the Loan Documents (other
than this Agreement) and such default shall not be cured within a period of
30 days after the earlier of notice from the Administrative Lender thereof or
actual notice thereof by the Borrower or a Subsidiary of the Borrower;
(f) There shall be entered a decree or order by a court having
competent jurisdiction constituting an order for relief in respect of the
Borrower or any Material Subsidiary, under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other applicable
Federal, state or foreign bankruptcy law or other similar law, or appointing
a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar
official of the Borrower or any Material Subsidiary, or of any substantial
part of their respective properties, or ordering the winding-up or
liquidation of the affairs of the Borrower or any Material Subsidiary, and
any such decree or order shall continue unstayed and in effect for a period
of 45 consecutive days;
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(g) The Borrower or any Material Subsidiary shall file a petition,
answer or consent seeking relief under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other applicable Federal, state
or foreign bankruptcy law or other similar law, or the Borrower or any
Material Subsidiary shall consent to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment or
taking of possession of a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Borrower or any Material
Subsidiary or of substantially all of its properties, or the Borrower or any
Material Subsidiary shall make a general assignment for the benefit of
creditors, or take any action in furtherance of any such action;
(h) A final judgment or judgments shall be entered by any court against
the Borrower or any Subsidiary of the Borrower for the payment of money which
exceeds $250,000 in the aggregate, or a warrant of attachment or execution or
similar process shall be issued or levied against property of the Borrower or
any Subsidiary of the Borrower which, together with all other such property
of the Borrower and its Subsidiaries subject to other such process, exceeds
in value $250,000 in the aggregate, and if such judgment or award is not
insured or, within 30 days after the entry, issue or levy thereof, such
judgment, warrant or process shall not have been paid or discharged or stayed
pending appeal, or if, after the expiration of any such stay, such judgment,
warrant or process shall not have been paid or discharged;
(i) With respect to any Plan of the Borrower or any member of its
Controlled Group: (i) the Borrower, any such member, or any other
party-in-interest or disqualified person shall engage in transactions which
in the aggregate would reasonably result in a direct or indirect liability to
the Borrower or any member of its Controlled Group under Section 409 or 502
of ERISA or Section 4975 of the Code; (ii) the Borrower or any member of its
Controlled Group shall incur any accumulated funding deficiency, as defined
in Section 412 of the Code, or request a funding waiver from the Internal
Revenue Service for contributions; (iii) the Borrower or any member of its
Controlled Group shall incur any withdrawal liability as a result of a
complete or partial withdrawal within the meaning of Section 4203 or 4205 of
ERISA, or any other liability with respect to a Plan, unless the amount of
such liability has been funded within the Plan or pursuant to one or more
insurance contracts; (iv) the Borrower or any member of its Controlled Group
shall fail to make a required contribution by the due date under Section 412
of the Code or Section 302 of ERISA which would result in the imposition of a
lien under Section 412 of the Code or Section 302 of ERISA; (v) the Borrower,
any member of its Controlled Group or any Plan sponsor shall notify the PBGC
of an intent to terminate, or the PBGC shall institute proceedings to
terminate, or the PBGC shall institute proceedings to terminate, any Plan
subject to Title IV of ERISA; (vi) a Reportable Event shall occur with
respect to a Plan subject to Title IV of ERISA, and within 15 days after the
reporting of such Reportable Event to the Administrative Lender, the
Administrative Lender shall have notified the Borrower in writing that the
Determining Lenders have made a determination that, on the basis of such
Reportable Event, there are reasonable grounds for the termination of such
Plan by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer such Plan and as a result thereof
an Event of Default shall have occurred hereunder; (vii) a trustee shall be
appointed by a court of competent jurisdiction to administer any Plan or the
assets thereof;
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(viii) the benefits of any Plan shall be increased, or the Borrower or any
member of its Controlled Group shall begin to maintain, or begin to
contribute to, any Plan, without the prior written consent of the Determining
Lenders; or (ix) any ERISA Event with respect to a Plan subject to Title IV
of ERISA shall have occurred, and 30 days thereafter (A) such ERISA Event,
other than such event described in clause (f) of the definition of ERISA
Event herein, (if correctable) shall not have been corrected and (B) the then
present value of such Plan's benefit liabilities, as defined in Title IV of
ERISA, shall exceed the then current value of assets accumulated in such
Plan; PROVIDED, HOWEVER, that the events listed in subsections (i) - (ix)
above shall constitute Events of Default only if the maximum aggregate
liability which the Borrower or any member of its Controlled Group has a
reasonable likelihood of incurring under the applicable provisions of ERISA
resulting from an event or events exceeds $250,000;
(j) All or any material portion of the Collateral or the Loan Documents
shall be the subject of any proceeding instituted by any Person other than a
Lender (except in connection with any Lender's exercise of any remedies under
the Loan Documents);
(k) The Borrower or any Subsidiary of the Borrower shall default in the
payment of any Indebtedness or any lease obligations in an aggregate amount
of $500,000 or more beyond any grace period provided with respect thereto, or
shall default in the performance of any agreement or instrument under which
such Indebtedness is created or evidenced beyond any applicable grace period,
if the effect of such default is to permit or cause the holder of such
Indebtedness (or a trustee on behalf of any such holder) to (i) cause such
Indebtedness to become due prior to its date of maturity or (ii) require the
Borrower or any Subsidiary of the Borrower to purchase or redeem such
Indebtedness;
(l) Any lease where the Borrower or any Subsidiary of the Borrower is
the lessee shall terminate or cease to be effective, and termination or
cessation thereof, together with all other leases, if any, which have been
terminated or cease to be effective, could reasonably be expected to have a
Material Adverse Effect; provided, however, that termination or cessation of
a lease shall not constitute an Event of Default if another lease reasonably
satisfactory to the Determining Lenders is contemporaneously substituted
therefor;
(m) Any material provision of any Loan Document shall for any reason
cease to be valid and binding on or enforceable against any party to it
(other than the Administrative Lender or any Lender) in all material
respects, or any such party (other than the Administrative Lender or any
Lender) shall so assert in writing;
(n) The Borrower shall fail to own (i) 99% of the Capital Stock of PUM
or (ii) 100% of the Capital Stock of PEI;
(o) Except as a result of the Administrative Lender's gross negligence
or wilful misconduct, the Administrative Lender shall fail to have a valid
and perfected first priority Lien in 66% of the Capital Stock of PUM and PEI;
or
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(p) A Change of Control shall occur.
Section 8.2 REMEDIES. If an Event of Default shall have occurred and
shall be continuing:
(a) With the exception of an Event of Default specified in SECTION
8.1(f) or (g) hereof, the Administrative Lender shall, upon the direction of
the Determining Lenders, terminate the Revolving Credit Commitment and/or
declare the principal of and interest on the Advances and all Obligations and
other amounts owed under the Loan Documents to be forthwith due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, anything in the Loan Documents to the contrary
notwithstanding.
(b) Upon the occurrence of an Event of Default specified in SECTION
8.1(f) or (g) hereof, such principal, interest and other amounts shall
thereupon and concurrently therewith become due and payable and the Revolving
Credit Commitment shall forthwith terminate, all without any action by the
Administrative Lender, any Lender or any holders of the Notes and without
presentment, demand, protest or other notice of any kind, all of which are
expressly waived, anything in the Loan Documents to the contrary
notwithstanding.
(c) If any Letter of Credit shall be then outstanding, the
Administrative Lender may demand upon the Borrower to, and forthwith upon
such demand (but in the case of an Event of Default specified in SECTION
8.1(f) or (g) hereof, without any demand or taking of any other action by the
Administrative Lender or any other Lender), the Borrower shall, pay to the
Administrative Lender in same day funds at the office of the Administrative
Lender for deposit in the L/C Cash Collateral Account, an amount equal to the
maximum amount available to be drawn under the Letters of Credit then
outstanding.
(d) The Administrative Lender and the Lenders may exercise all of the
Rights granted to them under the Loan Documents or under Applicable Law.
(e) The Rights of the Administrative Lender and the Lenders hereunder
shall be cumulative, and not exclusive.
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ARTICLE 9
CHANGES IN CIRCUMSTANCES
Section 9.1 LIBOR BASIS DETERMINATION INADEQUATE. If with respect to
any proposed LIBOR Advance for any Interest Period, (i) any Lender determines
that deposits in dollars (in the applicable amount) are not being offered to
that Lender in the relevant market for such Interest Period or (ii) the
Determining Lenders determine that the LIBOR Rate for such proposed LIBOR
Advance does not adequately cover the cost to such Lender of making and
maintaining such proposed LIBOR Advance for such Interest Period, such Lender
or Determining Lenders, as the case may be, shall forthwith give notice
thereof to the Borrower, whereupon until such Lender or Determining Lenders,
as the case may be, notify the Borrower that the circumstances giving rise to
such situation no longer exist, the obligation of such Lender to make LIBOR
Advances shall be suspended; PROVIDED, HOWEVER, such Lender or the
Determining Lenders, as the case may be, shall promptly notify the Borrower
if the circumstances giving rise to such situation no longer exist.
Section 9.2 ILLEGALITY. If any change in applicable law, rule or
regulation, or adoption thereof, or any change in any interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof,
or compliance by any Lender (or its LIBOR Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency, shall make it unlawful or impossible for
such Lender (or its LIBOR Lending Office) to make, maintain or fund its LIBOR
Advances, such Lender shall so notify the Borrower and the Administrative
Lender. Before giving any notice to the Borrower pursuant to this Section,
the notifying Lender shall designate a different LIBOR Lending Office or
other lending office if such designation will avoid the need for giving such
notice and will not, in the sole judgment of the Lender, be materially
disadvantageous to the Lender. Upon receipt of such notice, notwithstanding
anything contained in ARTICLE 2 hereof, the Borrower shall repay in full the
then outstanding principal amount of each LIBOR Advance owing to the
notifying Lender, together with accrued interest thereon and any
reimbursement required under SECTION 2.9 hereof, on either (a) the last day
of the Interest Period applicable to such Advance, if the Lender may lawfully
continue to maintain and fund such Advance to such day, or (b) immediately,
if the Lender may not lawfully continue to fund and maintain such Advance to
such day or if the Borrower so elects. Concurrently with repaying each
affected LIBOR Advance owing to such Lender if the Borrower does not
terminate this Agreement, notwithstanding anything contained in ARTICLE 2
hereof, the Borrower shall, without any requirement to satisfy the conditions
precedent set forth in SECTION 3.1, 3.2 or 3.3, borrow a Base Rate Advance
from such Lender, and such Lender shall make such Base Rate Advance, in an
amount such that the outstanding principal amount of the Revolving Credit
Advances owing to such Lender shall equal the outstanding principal amount of
the Revolving Credit Advances owing immediately prior to such repayment.
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Section 9.3 INCREASED COSTS.
(a) If (a) the applicability of any law, rule, regulation or guideline
adopted pursuant to or arising out of the July 1988 report of the Basle
Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards" or
(b) any change in or adoption of any law, rule or regulation, or any change
in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation
or administration thereof or compliance by any Lender (or its LIBOR Lending
Office) with any request or directive (whether or not having the force of
law) of any such authority, central bank or compatible agency:
(i) shall subject a Lender (or its LIBOR Lending Office) to any
Tax (net of any tax benefit engendered thereby) with respect to its
LIBOR Advances or its obligation to make such Advances, or shall change
the basis of taxation of payments to a Lender (or to its LIBOR Lending
Office) of the principal of or interest on its LIBOR Advances or in
respect of any other amounts due under this Agreement, as the case may
be, or its obligation to make such Advances (except for changes in the
rate of tax on the overall net income, net worth or capital of the
Lender and franchise taxes, doing business taxes or minimum taxes
imposed upon such Lender); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, a Lender's LIBOR Lending Office or shall impose on the
Lender (or its LIBOR Lending Office) or on the London interbank market
any other condition affecting its LIBOR Advances or its obligation to
make such Advances (but excluding any reserves or deposits that are
included in the calculation of LIBOR Basis);
and the result of any of the foregoing is to increase the cost to a Lender
(or its LIBOR Lending Office) of making or maintaining any LIBOR Advances, or
to reduce the amount of any sum received or receivable by a Lender (or its
LIBOR Lending Office) with respect thereto, by an amount deemed by a Lender
to be material, then, within 30 days after demand by a Lender, the Borrower
agrees to pay to such Lender such additional amount as will compensate such
Lender for such increased costs or reduced amounts, subject to SECTION 11.9
hereof. The affected Lender will as soon as practicable notify the Borrower
of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Lender to compensation pursuant to this Section and
will designate a different LIBOR Lending Office or other lending office if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the reasonable judgment of the affected Lender
made in good faith, be disadvantageous to such Lender.
(b) A certificate of any Lender claiming compensation under this
Section and setting forth the additional amounts to be paid to it hereunder
shall certify that such amounts or costs were actually incurred by such
Lender and shall show in reasonable detail an accounting of
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the amount payable and the calculations used to determine in good faith such
amount and shall be conclusive absent manifest or demonstrable error. In
determining such amount, a Lender may use any reasonable averaging and
attribution methods. Nothing in this SECTION 9.3 shall provide the Borrower
or any Subsidiary of the Borrower the right to inspect the records, files or
books of any Lender. If a Lender demands compensation under this Section,
the Borrower may at any time, upon at least five Business Days' prior notice
to the Lender, after reimbursement to the Lender by the Borrower in
accordance with this Section of all costs incurred, prepay in full the then
outstanding LIBOR Advances of the Lender, together with accrued interest
thereon to the date of prepayment, along with any reimbursement required
under SECTION 2.9 hereof. Concurrently with prepaying such LIBOR Advances,
the Borrower shall borrow a Base Rate Advance from the Lender, and the Lender
shall make such Base Rate Advance, in an amount such that the outstanding
principal amount of the Revolving Credit Advances owing to such Lender shall
equal the outstanding principal amount of the Revolving Credit Advances owing
immediately prior to such prepayment.
Section 9.4 EFFECT ON BASE RATE ADVANCES. If notice has been given
pursuant to SECTION 9.1, 9.2 or 9.3 hereof suspending the obligation of a
Lender to make LIBOR Advances, or requiring LIBOR Advances of a Lender to be
repaid or prepaid, then, unless and until the Lender notifies the Borrower
that the circumstances giving rise to such repayment no longer apply, all
Advances which would otherwise be made by such Lender as LIBOR Advances shall
be made instead as Base Rate Advances.
Section 9.5 CAPITAL ADEQUACY. If (a) the applicability of any law,
rule, regulation or guideline adopted pursuant to or arising out of the July
1988 report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and
Capital Standards", (b) the introduction of or any change in or in the
interpretation of any law, rule or regulation or (c) compliance by a Lender
with any law, rule or regulation or any guideline or request from any central
bank or other governmental authority (whether or not having the force of law)
adopted or promulgated after the Agreement Date affects or would affect the
amount of capital required or expected to be maintained by a Lender or any
corporation controlling such Lender, and such Lender determines that the
amount of such capital is increased by or based upon the existence of such
Lender's commitment or Advances hereunder and other commitments or advances
of such Lender of this type, then, within 30 days after demand by such
Lender, subject to SECTION 11.9, the Borrower shall immediately pay to such
Lender, from time to time as specified by such Lender, additional amounts
sufficient to compensate such Lender with respect to such circumstances, to
the extent that such Lender reasonably determines in good faith such increase
in capital to be allocable to the existence of such Lender's share of the
Revolving Credit Commitment hereunder. A certificate as to any additional
amounts payable to any Lender under this SECTION 9.5 submitted to the
Borrower by such Lender shall certify that such amounts were actually
incurred by such Lender or corporation controlling such Lender and shall show
in reasonable detail an accounting of the amount payable and the calculations
used to determine in good faith such amount and shall be conclusive absent
manifest or demonstrable error. In determining such amount, such Lender or a
corporation controlling such Lender may use any reasonable averaging and
attribution methods.
<PAGE>
Notwithstanding the foregoing, nothing in this SECTION 9.5 shall provide the
Borrower or any Subsidiary of the Borrower the right to inspect the records,
files or books of any Lender or any corporation controlling such Lender.
Section 9.6 REPLACEMENT LENDER. If the Borrower becomes obligated to
pay additional amounts to any Lender described in SECTION 9.3 or 9.5, the
Borrower may designate a financial institution reasonably acceptable to the
Administrative Lender to replace such Lender by purchasing for cash and
receiving an assignment of such Lender's pro rata share of such Lender's
share of the Revolving Credit Commitment and the Rights of such Lender under
the Loan Documents without recourse to or warranty by, or expense to, such
Lender, for a purchase price equal to the outstanding amounts owing to such
Lender (including such additional amounts owing to such Lender pursuant to
SECTION 9.3 or 9.5). Upon execution of an Assignment Agreement, such other
financial institution shall be deemed to be a "Lender" for all purposes of
this Agreement as set forth in SECTION 11.6 hereof.
ARTICLE 10
AGREEMENT AMONG LENDERS
Section 10.1 AGREEMENT AMONG LENDERS. The Lenders agree among
themselves that:
(a) ADMINISTRATIVE LENDER. Each Lender hereby appoints the
Administrative Lender as its nominee in its name and on its behalf, to
receive all documents and items to be furnished hereunder; to act as nominee
for and on behalf of all Lenders under the Loan Documents; to, except as
otherwise expressly set forth herein, take such action as may be requested by
the Determining Lenders, provided that, (i) unless and until the
Administrative Lender shall have received such requests, the Administrative
Lender may take such administrative action, or refrain from taking such
administrative action, as it may deem advisable and in the best interests of
the Lenders, and (ii) the Administrative Lender shall not be required to take
any action that exposes the Administrative Lender to personal liability or
that is contrary to any Loan Document or Applicable Law; to arrange the means
whereby the proceeds of the Revolving Credit Advances of the Lenders are to
be made available to the Borrower; to distribute promptly to each Lender
information, requests and documents received from the Borrower, and each
payment (in like funds received) with respect to any of such Lender's
Revolving Credit Advances, fee or other amount; and to deliver to the
Borrower requests, demands, approvals and consents received from the Lenders.
Administrative Lender agrees to promptly distribute to each Lender, at such
Lender's address set forth below information, requests, documents and
payments received from the Borrower. The Administrative Lender shall have no
fiduciary relationship in respect of any Lender by reason of this Agreement
or any other Loan Document. The Administrative Lender shall have no duties
or responsibilities except those expressly set forth in this Agreement. The
duties of the Administrative Lender under the Loan Documents are merely
mechanical and administrative in nature.
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(b) REPLACEMENT OF ADMINISTRATIVE LENDER. Should the Administrative
Lender or any successor Administrative Lender ever cease to be a Lender
hereunder, or should the Administrative Lender or any successor
Administrative Lender ever resign as Administrative Lender, or should the
Administrative Lender or any successor Administrative Lender ever be removed
with cause or without cause by the action of all Lenders (other than the
Administrative Lender), then the Lender appointed by the other Lenders (with
the consent of the Borrower, which consent shall not be unreasonably
withheld) shall forthwith become the Administrative Lender, and the Borrower
and the Lenders shall execute such documents as any Lender may reasonably
request to reflect such change at no cost to the Borrower. Any resignation
or removal of the Administrative Lender or any successor Administrative
Lender shall become effective upon the appointment by the Lenders of a
successor Administrative Lender; provided, however, if no successor
Administrative Lender shall have been so appointed and shall have accepted
such appointment within 30 days after the retiring Administrative Lender's
giving of notice of resignation or the Lenders' removal of the retiring
Administrative Lender, then the retiring Administrative Lender may, on behalf
of the Lenders, appoint a successor Administrative Lender, which shall be 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
$250,000,000. Upon the acceptance of any appointment as the Administrative
Lender hereunder by a successor Administrative Lender, such successor
Administrative Lender shall thereupon succeed to and become vested with all
the rights and duties of the retiring Administrative Lender, and the retiring
Administrative Lender shall be discharged from its duties and obligations
under the Loan Documents, provided that if the retiring or removed
Administrative Lender is unable to appoint a successor Administrative Lender,
the Administrative Lender shall, after the expiration of a 60 day period from
the date of notice, be relieved of all obligations as Administrative Lender
hereunder. Notwithstanding any Administrative Lender's resignation or
removal hereunder, the provisions of this Article shall continue to inure to
its benefit as to any actions taken or omitted to be taken by it while it was
the Administrative Lender under this Agreement.
(c) EXPENSES. Each Lender shall pay its pro rata share, based on its
Specified Percentage, of any expenses paid by the Administrative Lender
directly and solely in connection with any of the Loan Documents if
Administrative Lender does not receive reimbursement therefor from other
sources within 60 days after the date incurred. Any amount so paid by the
Lenders to the Administrative Lender shall be returned by the Administrative
Lender pro rata to each paying Lender to the extent later paid by the
Borrower or any other Person on the Borrower's behalf to the Administrative
Lender.
(d) DELEGATION OF DUTIES. The Administrative Lender may execute any of
its duties hereunder by or through officers, directors, employees, attorneys
or agents, and shall be entitled to (and shall be protected in relying upon)
advice of counsel concerning all matters pertaining to its duties hereunder.
(e) RELIANCE BY ADMINISTRATIVE LENDER. The Administrative Lender and
its officers, directors, employees, attorneys and agents shall be entitled to
rely and shall be fully protected in
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relying on any writing, resolution, notice, consent, certificate, affidavit,
letter, cablegram, telegram, telex or teletype message, statement, order, or
other document or conversation reasonably believed by it or them in good
faith to be genuine and correct and to have been signed or made by the proper
Person and, with respect to legal matters, upon opinions of counsel selected
the Administrative Lender. The Administrative Lender may, in its reasonable
judgment, deem and treat the payee of any Note as the owner thereof for all
purposes hereof.
(f) LIMITATION OF ADMINISTRATIVE LENDER'S LIABILITY. Neither the
Administrative Lender nor any of its officers, directors, employees,
attorneys or agents shall be liable for any action taken or omitted to be
taken by it or them hereunder in good faith and believed by it or them to be
within the discretion or power conferred to it or them by the Loan Documents
or be responsible for the consequences of any error of judgment, except for
its or their own gross negligence or wilful misconduct. Except as aforesaid,
the Administrative Lender shall be under no duty to enforce any rights with
respect to any of the Revolving Credit Advances, or any security therefor.
The Administrative Lender shall not be compelled to do any act hereunder or
to take any action towards the execution or enforcement of the powers hereby
created or to prosecute or defend any suit in respect hereof, unless
indemnified to its satisfaction against loss, cost, liability and expense.
The Administrative Lender shall not be responsible in any manner to any
Lender for the effectiveness, enforceability, genuineness, validity or due
execution of any of the Loan Documents, or for any representation, warranty,
document, certificate, report or statement made herein or furnished in
connection with any Loan Documents, or be under any obligation to any Lender
to ascertain or to inquire as to the performance or observation of any of the
terms, covenants or conditions of any Loan Documents on the part of the
Borrower. TO THE EXTENT NOT REIMBURSED BY THE BORROWER, EACH LENDER HEREBY
SEVERALLY INDEMNIFIES AND HOLDS HARMLESS THE ADMINISTRATIVE LENDER, PRO RATA
ACCORDING TO ITS SPECIFIED PERCENTAGE, FROM AND AGAINST ANY AND ALL
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES AND/OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER
WHICH MAY BE IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY THE ADMINISTRATIVE
LENDER IN ANY WAY WITH RESPECT TO ANY LOAN DOCUMENTS OR ANY ACTION TAKEN OR
OMITTED BY THE ADMINISTRATIVE LENDER UNDER THE LOAN DOCUMENTS (INCLUDING ANY
NEGLIGENT ACTION OF THE ADMINISTRATIVE LENDER), EXCEPT TO THE EXTENT THE SAME
ARE FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION TO RESULT FROM
GROSS NEGLIGENCE OR WILFUL MISCONDUCT BY THE ADMINISTRATIVE LENDER. THE
INDEMNITY PROVIDED IN THIS SECTION 10.1(f) SHALL SURVIVE TERMINATION OF THIS
AGREEMENT.
(g) LIABILITY AMONG LENDERS. No Lender shall incur any liability
(other than the sharing of expenses and other matters specifically set forth
herein and in the other Loan Documents) to any other Lender, except for acts
or omissions in bad faith.
(h) RIGHTS AS LENDER. With respect to its commitment hereunder, the
Advances made
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by it and the Notes issued to it, the Administrative Lender shall have the
same rights as a Lender and may exercise the same as though it were not the
Administrative Lender, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Lender in its
individual capacity. The Administrative Lender or any Lender may accept
deposits from, act as trustee under indentures of, and generally engage in
any kind of business with, the Borrower and any of its Affiliates, and any
Person who may do business with or own securities of the Borrower or any of
its Affiliates, all as if the Administrative Lender were not the
Administrative Lender hereunder and without any duty to account therefor to
the Lenders.
Section 10.2 LENDER CREDIT DECISION. Each Lender acknowledges that it
has, independently and without reliance upon the Administrative Lender or any
other Lender and based upon the financial statements referred to in SECTIONS
4.1(j), 6.1, and 6.2 hereof, and such other documents and information as it
has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will,
independently and without reliance upon the Administrative Lender or any
other Lender and based upon 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 and the other Loan Documents. Each
Lender also acknowledges that its decision to fund the initial Revolving
Credit Advance shall constitute evidence to the Administrative Lender that
such Lender has deemed all of the conditions set forth in SECTION 3.1 to have
been satisfied.
Section 10.3 BENEFITS OF ARTICLE. None of the provisions of this
Article shall inure to the benefit of any Person other than Lenders and, with
respect to SECTION 10.1(b), the Borrower; consequently, no such other Person
shall be entitled to rely upon, or to raise as a defense, in any manner
whatsoever, the failure of the Administrative Lender or any Lender to comply
with such provisions.
ARTICLE 11
MISCELLANEOUS
Section 11.1 NOTICES.
(a) All notices and other communications under this Agreement shall be
in writing (except in those cases where giving notice by telephone is
expressly permitted) and shall be deemed to have been given on the date
personally delivered or sent by telecopy (answerback received), or three days
after deposit in the mail, designated as certified mail, return receipt
requested, postage-prepaid, or one day after being entrusted to a reputable
commercial overnight delivery service, or one day after being delivered to
the telegraph office or sent out by telex addressed to the party to which
such notice is directed at its address determined as provided in this
Section. All notices and other communications under this Agreement shall be
given to the parties hereto at the following addresses:
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(i) If to the Borrower, at:
Power-One, Inc.
740 Calle Plano
Camarillo, California 93012-8583
Attn: Eddie K. Schnopp
(ii) If to the Administrative Lender, at:
NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Timothy M. O'Connor, Vice President
(iii) If to a Lender, at its address shown below its name on the
signature pages hereof, or if applicable, set forth in its
Assignment Agreement.
(b) Any party hereto may change the address to which notices shall be
directed by giving 10 days' written notice of such change to the other
parties.
Section 11.2 EXPENSES. The Borrower shall promptly pay:
(a) all reasonable out-of-pocket expenses of the Administrative Lender
in connection with the preparation, negotiation, execution and delivery of
this Agreement and the other Loan Documents, the transactions contemplated
hereunder and thereunder, and the making of Advances hereunder, including
without limitation the reasonable fees and disbursements of Special Counsel;
(b) all reasonable out-of-pocket expenses and reasonable attorneys'
fees of the Administrative Lender in connection with the administration of
the transactions contemplated in this Agreement and the other Loan Documents
and the preparation, negotiation, execution and delivery of any waiver,
amendment or consent by the Administrative Lender relating to this Agreement
or the other Loan Documents; and
(c) all costs, out-of-pocket expenses and reasonable attorneys' fees of
the Administrative Lender and each Lender incurred for enforcement,
collection, restructuring, refinancing and "work-out", or otherwise incurred
in obtaining performance under the Loan Documents, which in each case shall
include without limitation fees and expenses of consultants, counsel for the
Administrative Lender and any Lender, and administrative fees for the
Administrative Lender.
Section 11.3 WAIVERS. The rights and remedies of the Lenders under
this Agreement and the other Loan Documents shall be cumulative and not
exclusive of any rights or remedies which they would otherwise have. No
failure or delay by the Administrative Lender or any
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Lender in exercising any right shall operate as a waiver of such right. The
Lenders expressly reserve the right to require strict compliance with the
terms of this Agreement in connection with any funding of a request for a
Revolving Credit Advance. In the event that any Lender decides to fund a
Revolving Credit Advance at a time when the Borrower is not in strict
compliance with the terms of this Agreement, such decision by such Lender
shall not be deemed to constitute an undertaking by the Lender to fund any
further requests for Revolving Credit Advances or preclude the Lenders from
exercising any rights available under the Loan Documents or at law or equity.
Any waiver or indulgence granted by the Lenders shall not constitute a
modification of this Agreement, except to the extent expressly provided in
such waiver or indulgence, or constitute a course of dealing by the Lenders
at variance with the terms of the Agreement such as to require further notice
by the Lenders of the Lenders' intent to require strict adherence to the
terms of the Agreement in the future. Any such actions shall not in any way
affect the ability of the Administrative Lender or the Lenders, in their
discretion, to exercise any rights available to them under this Agreement or
under any other agreement, whether or not the Administrative Lender or any of
the Lenders are a party thereto, relating to the Borrower.
Section 11.4 CALCULATION BY THE LENDERS CONCLUSIVE AND BINDING. Any
mathematical calculation required or expressly permitted to be made by the
Administrative Lender or any Lender under this Agreement shall be made in its
reasonable judgment and in good faith, and shall when made, absent manifest
error, be controlling.
Section 11.5 SET-OFF. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
upon the occurrence of an Event of Default, each Lender and any subsequent
holder of any Note, and any assignee of any Note is hereby authorized by the
Borrower at any time or from time to time, without notice to the Borrower or
any other Person, any such notice being hereby expressly waived, to set-off,
appropriate and apply any deposits (general or special (except trust and
escrow accounts), time or demand, including without limitation Indebtedness
evidenced by certificates of deposit, in each case whether matured or
unmatured) and any other Indebtedness at any time held or owing by such
Lender or holder to or for the credit or the account of the Borrower, against
and on account of the Obligations and other liabilities of the Borrower to
such Lender or holder, irrespective of whether or not (a) the Lender or
holder shall have made any demand hereunder, or (b) the Lender or holder
shall have declared the principal of and interest on the Revolving Credit
Advances and other amounts due hereunder to be due and payable as permitted
by SECTION 8.2. Any sums obtained by any Lender or by any assignee or
subsequent holder of any Note shall be subject to pro rata treatment of all
Obligations and other liabilities hereunder.
Section 11.6 ASSIGNMENT.
(a) The Borrower may not assign or transfer any of its rights or
obligations hereunder or under the other Loan Documents without the prior
written consent of the Lenders.
(b) No Lender shall be entitled to assign its interest in this
Agreement, its Notes or its Advances, except as hereinafter set forth.
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(c) Without the consent of the Borrower, any Lender may at any time
sell participations in all or any part of its Advances and Reimbursement
Obligations (collectively, "PARTICIPATIONS") to any banks or other financial
institutions ("PARTICIPANTS") provided that such Participation shall not
confer on any Person (other than the parties hereto) any right to vote on,
approve or sign amendments or waivers, or any other independent benefit or
any legal or equitable right, remedy or other claim under this Agreement or
any other Loan Documents, other than the right to vote on, approve, or sign
amendments or waivers or consents with respect to items that would result in
(i) any increase in the commitment of any Participant; or (ii)(A) the
extension of the date of maturity of, or (B) the extension of the due date
for any payment of principal, interest or fees respecting, or (C) the
reduction of the amount of any installment of principal or interest on or the
change or reduction of any mandatory reduction required hereunder, or (D) a
reduction of the rate of interest on, the Revolving Credit Advances, the
Letters of Credit, or the Reimbursement Obligations; or (iii) the release of
security for the Obligations, including without limitation any guarantee; or
(iv) the reduction of any fees payable hereunder. Notwithstanding the
foregoing, the Borrower agrees that the Participants shall be entitled to the
benefits of ARTICLE 9 hereof as though they were Lenders and the Lenders may
provide copies of all financial information received from the Borrower to
such Participants.
(d) Each Lender may assign to one or more financial institutions
organized under the laws of the United States, or any state thereof, or under
the laws of any other country that is a member of the Organization for
Economic Cooperation and Development, or a political subdivision of any such
country, which is engaged in making, purchasing or otherwise investing in
commercial loans in the ordinary course of its business (each, an "ASSIGNEE")
its rights and obligations under this Agreement and the other Loan Documents;
PROVIDED, HOWEVER, that (i) each such assignment shall be subject to the
prior written consent of the Administrative Lender and Borrower, which
consent shall not be unreasonably withheld (PROVIDED, HOWEVER,
notwithstanding anything herein to the contrary, no consent of the Borrower
is required for any assignment during any time that an Event of Default has
occurred and is continuing), (ii) no such assignment shall be in an amount of
the Revolving Credit Commitment less than $5,000,000, (iii) the applicable
Lender, Administrative Lender and applicable Assignee shall execute and
deliver to the Administrative Lender an Assignment and Acceptance Agreement
(an "ASSIGNMENT AGREEMENT") in substantially the form of EXHIBIT D hereto,
together with the Revolving Credit Notes subject to such assignment and (iv)
the Assignee executing the Assignment, shall deliver to the Administrative
Lender a processing fee of $2,500. Upon such execution, delivery and
acceptance from and after the effective date specified in each Assignment,
which effective date shall be at least three Business Days after the
execution thereof, (A) the Assignee thereunder shall be party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment, have the rights and obligations of a Lender
hereunder and (B) the applicable Lender shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment,
relinquish such rights and be released from such obligations under this
Agreement.
(e) Notwithstanding anything in clause (d) above to the contrary, any
Lender may
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assign and pledge all or any portion of its Revolving Credit Advances and
Revolving Credit Notes to any Federal Reserve Bank as collateral security
pursuant to Regulation A of F.R.S. Board and any Operating Circular issued by
such Federal Reserve Bank; provided, however, that no such assignment under
this clause (e) shall release the assignor Lender from its obligations
hereunder.
(f) Upon its receipt of an Assignment Agreement executed by a Lender
and an Assignee, and any Revolving Credit Note or Revolving Credit Notes
subject to such assignment, the Borrower shall, within five Business Days
after its receipt of such Assignment Agreement, at no expense to the
Borrower, execute and deliver to the Administrative Lender in exchange for
the surrendered Notes new Notes to the order of such Assignee in an amount
equal to the portion of the Revolving Credit Advances and Revolving Credit
Commitment assigned to it pursuant to such Assignment Agreement and new
Revolving Credit Notes to the order of the assignor Lender in an amount equal
to the portion of the Revolving Credit Advances and Revolving Credit
Commitment retained by it hereunder. Such new Revolving Credit Notes shall
be in an aggregate principal amount equal to the aggregate principal amount
of such surrendered Revolving Credit Notes, shall be dated the effective date
of such Assignment Agreement and shall otherwise be in substantially the form
of EXHIBIT A hereto.
(g) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this SECTION 11.6,
disclose to the assignee or Participant or proposed assignee or participant,
any information relating to the Borrower furnished to such Lender by or on
behalf of the Borrower, provided such Person agrees to handle such
information in accordance with the standards set forth in SECTION 11.14
hereof.
(h) Except as specifically set forth in this SECTION 11.6, nothing in
this Agreement or any other Loan Documents, expressed or implied, is intended
to or shall confer on any Person other than the respective parties hereto and
thereto and their successors and assignees permitted hereunder and thereunder
any benefit or any legal or equitable right, remedy or other claim under this
Agreement or any other Loan Documents.
(i) Notwithstanding anything in this SECTION 11.6 to the contrary, no
Assignee or Participant shall be entitled to receive any greater payment
under SECTION 2.15 or SECTION 9.3 than such assigning or participating Lender
would have been entitled to receive with respect to the interest assigned or
participated to such Assignee or Participant.
Section 11.7 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all such separate counterparts shall together constitute but one and the same
instrument.
Section 11.8 SEVERABILITY. Any provision of this Agreement which is
for any reason prohibited or found or held invalid or unenforceable by any
court or governmental agency shall be ineffective to the extent of such
prohibition or invalidity or unenforceability without invalidating the
remaining provisions hereof in such jurisdiction or affecting the validity or
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<PAGE>
enforceability of such provision in any other jurisdiction.
Section 11.9 INTEREST AND CHARGES. It is not the intention of any
parties to this Agreement to make an agreement in violation of the laws of
any applicable jurisdiction relating to usury. Regardless of any provision
in any Loan Documents, no Lender shall ever be entitled to receive, collect
or apply, as interest on the Obligations, any amount in excess of the Maximum
Amount. If any Lender or participant ever receives, collects or applies, as
interest, any such excess, such amount which would be excessive interest
shall be deemed a partial repayment of principal and treated hereunder as
such; and if principal is paid in full, any remaining excess shall be paid to
the Borrower. In determining whether or not the interest paid or payable,
under any specific contingency, exceeds the Maximum Amount, the Borrower and
the Lenders shall, to the maximum extent permitted under Applicable Law, (a)
characterize any nonprincipal payment as an expense, fee or premium rather
than as interest, (b) exclude voluntary prepayments and the effect thereof,
and (c) amortize, prorate, allocate and spread in equal parts, the total
amount of interest throughout the entire contemplated term of the Obligations
so that the interest rate is uniform throughout the entire term of the
Obligations; provided, however, that if the Obligations are paid and
performed in full prior to the end of the full contemplated term thereof, and
if the interest received for the actual period of existence thereof exceeds
the Maximum Amount, the Lenders shall refund to the Borrower the amount of
such excess or credit the amount of such excess against the total principal
amount of the Obligations owing, and, in such event, the Lenders shall not be
subject to any penalties provided by any laws for contracting for, charging
or receiving interest in excess of the Maximum Amount. This Section shall
control every other provision of all agreements pertaining to the
transactions contemplated by or contained in the Loan Documents.
Section 11.10 HEADINGS. Headings used in this Agreement are for
convenience only and shall not be used in connection with the interpretation
of any provision hereof.
Section 11.11 AMENDMENT AND WAIVER. The provisions of this Agreement
may not be amended, modified or waived except by the written agreement of the
Borrower and the Determining Lenders; provided, however, that no such
amendment, modification or waiver shall be made (a) without the consent of
all Lenders, if it would (i) increase the Specified Percentage, the Revolving
Credit Commitment, or commitment of any Lender, or (ii) extend or postpone
the date of maturity of, extend the due date for any payment of principal or
interest on, reduce the amount of any installment of principal or interest
on, or reduce the rate of interest on, any Advance, the Reimbursement
Obligations or other amount owing under any Loan Documents, or (iii) release
any security for or guaranty of the Obligations (except pursuant to this
Agreement), or (iv) reduce the fees payable hereunder, or (v) revise this
SECTION 11.11, or (vi) waive the date for payment of any principal, interest
or fees hereunder, or (vii) amend the definition of Determining Lenders; (b)
without the consent of the Administrative Lender, if it would alter the
rights, duties or obligations of the Administrative Lender; or (c) without
the consent of the Issuing Bank, if it would alter the rights, duties or
obligations of the Issuing Bank. Neither this Agreement nor any term hereof
may be amended orally, nor may any provision hereof be waived orally but only
by an instrument in writing signed by the Administrative Lender and, in the
case
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of an amendment, by the Borrower.
Section 11.12 EXCEPTION TO COVENANTS. Neither the Borrower nor any
Subsidiary of the Borrower shall be deemed to be permitted to take any action
or fail to take any action which is permitted as an exception to any of the
covenants contained herein or which is within the permissible limits of any
of the covenants contained herein if such action or omission would result in
the breach of any other covenant contained herein.
Section 11.13 NO LIABILITY OF ISSUING BANK. The Borrower assumes all
risks of the acts or omissions of any beneficiary or transferee of any Letter
of Credit with respect to its use of such Letter of Credit. Neither the
Issuing Bank nor any Lender nor any of their respective officers or directors
shall be liable or responsible for: (a) the use that may be made of any
Letter of Credit or any acts or omissions of any beneficiary or transferee in
connection therewith; (b) the validity, sufficiency or genuineness of
documents, or of any endorsement thereon, even if such documents should prove
to be in any or all respects invalid, insufficient, fraudulent or forged; (c)
payment by the Issuing Bank against presentation of documents that do not
comply with the terms of a Letter of Credit, including failure of any
documents to bear any reference or adequate reference to the Letter of
Credit, except for any payment made upon the Issuing Bank's gross negligence
or wilful misconduct; or (d) any other circumstances whatsoever in making or
failing to make payment under any Letter of Credit, EXCEPT that the Borrower
shall have a claim against the Issuing Bank, and the Issuing Bank shall be
liable to the Borrower, to the extent of any direct, but not consequential,
damages suffered by the Borrower that a court of competent jurisdiction
determines were caused by (i) the Issuing Bank's wilful misconduct or gross
negligence or (ii) the Issuing Bank's wilful failure to make lawful payment
under a Letter of Credit after the presentation to it of a draft and
certificates strictly complying with the terms and conditions of the Letter
of Credit. In furtherance and not in limitation of the foregoing, the
Issuing Bank may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any notice or
information to the contrary.
Section 11.14 CONFIDENTIALITY. Each Lender and the Administrative
Lender agrees (on behalf of itself and each of its Affiliates, directors,
officers, employees and representatives) to use reasonable precautions to
keep confidential, in accordance with customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking practices, any non-public information supplied to it by the Borrower
pursuant to this Agreement which is identified by the Borrower as being
confidential at the time the same is delivered to the Lenders or the
Administrative Lender, provided that nothing herein shall limit the
disclosure of any such information (a) to the extent required by statute,
rule, regulation or judicial process, (b) to counsel for any Lender or the
Administrative Lender, (c) to bank examiners, auditors or accountants of any
Lender, (d) to the Administrative Lender or any other Lender, (e) in
connection with any Litigation to which any one or more of Lenders is a
party, (f) to the extent necessary in connection with the enforcement of any
Rights under this Agreement or any other Loan Document, provided, further,
that, unless specifically prohibited by Applicable Law or court order, each
Lender shall, prior to disclosure thereof, notify Borrower of any request for
disclosure of any such non-public information (i) by any Tribunal or
representative thereof (other
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than any such request in connection with an examination of such Lender's
financial condition by such governmental agency) or (ii) pursuant to legal
process, or (f) to any Assignee or Participant (or prospective Assignee or
Participant) so long as such Assignee or Participant (or prospective Assignee
or Participant) agrees to handle such information in accordance with the
provisions of this SECTION 11.14.
Section 11.15 AMENDMENT, RESTATEMENT, EXTENSION, AND RENEWAL. This
Agreement is a renewal, extension, amendment and restatement of the Existing
Credit Agreement, and is not a novation of the "Obligations" (as defined in
the Existing Credit Agreement) thereunder. All terms and provisions of this
Agreement supersede in their entirety the Existing Credit Agreement. All
Liens covering the Collateral (as defined in the Existing Credit Agreement)
are hereby terminated and released, except with respect to the Liens against
the Capital Stock of PUM and PEI pledged pursuant to the Existing Credit
Agreement (the "STOCK LIENS"), which Stock Liens shall remain valid, binding
and enforceable Liens against the Borrower.
SECTION 11.16 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE
5069-15.10(B), TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED,
IT IS AGREED THAT THE PROVISIONS OF CHAPTER 15, TITLE 79, REVISED CIVIL
STATUTES OF TEXAS, 1925, AS AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS. THE LOAN DOCUMENTS ARE PERFORMABLE
IN DALLAS, DALLAS COUNTY, TEXAS, AND BORROWER AND EACH SURETY, GUARANTOR,
ENDORSER AND ANY OTHER PARTY EVER LIABLE FOR PAYMENT OF ANY MONEY PAYABLE
WITH RESPECT TO THE LOAN DOCUMENTS, JOINTLY AND SEVERALLY WAIVE THE RIGHT TO
BE SUED ELSEWHERE. THE BORROWER, THE ADMINISTRATIVE LENDER AND EACH LENDER
EACH AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS,
TEXAS SHALL HAVE EXCLUSIVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND HEREBY SUBMITS WITH RESPECT
TO ITSELF AND ITS PROPERTY TO THE EXCLUSIVE JURISDICTION OF ANY SUCH COURT
FOR THE PURPOSE OF ANY SUIT, ACTION, PROCEEDING OR JUDGMENT RELATING TO OR
ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. THE PARTIES HERETO
IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS THAT
ANY OF THE PARTIES MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION OR PROCEEDING IN DALLAS, TEXAS.
SECTION 11.17 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY,
IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE
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MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A MATERIAL
INDUCEMENT TO EACH LENDER ENTERING INTO THIS AGREEMENT AND MAKING ANY
ADVANCES HEREUNDER.
SECTION 11.18 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH
THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
REGARDING THE SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
- -----------------------------------------------------------------------------
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- -----------------------------------------------------------------------------
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<PAGE>
IN WITNESS WHEREOF, this Credit Agreement is executed as of the date
first set forth above.
BORROWER: POWER-ONE, INC.
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
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ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By:
-----------------------------------
Timothy M. O'Connor
Vice President
LENDERS: NATIONSBANK OF TEXAS, N.A.,
as a Lender and Issuing Bank
Specified Percentage:
30%
By:
-----------------------------------
Timothy M. O'Connor
Vice President
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Timothy M. O'Connor
Vice President
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<PAGE>
UNION BANK OF CALIFORNIA, N.A.
Specified Percentage:
30%
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
445 South Figueroa Street, 16th Floor
Los Angeles, California 90071-1100
Attn: Catherine Abe
Vice President
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<PAGE>
CITY NATIONAL BANK
Specified Percentage:
20%
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
400 North Roxbury Street, 3rd Floor
Beverly Hills, California 90210
Attn: Rebecca L. Lombino
Vice President
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<PAGE>
SUMITOMO BANK OF CALIFORNIA
Specified Percentage:
20%
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
611 West 6th Street, Suite 3900
Los Angeles, California 90017
Attn: Steve Sloan
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<PAGE>
SCHEDULE 1
LIBOR LENDING OFFICES
NATIONSBANK OF TEXAS, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
UNION BANK OF CALIFORNIA, N.A.
445 South Figueroa Street, 16th Floor
Los Angeles, California 90071-1100
CITY NATIONAL BANK
400 North Roxbury Street, 3rd Floor
Beverly Hills, California 90210
SUMITOMO BANK OF CALIFORNIA
611 West 6th Street, Suite 3900
Los Angeles, California 90017
<PAGE>
SCHEDULE 2
EXISTING LIENS
<TABLE>
<CAPTION>
PROPERTY SUBJECT AMOUNT OF
TO LIEN LIENHOLDER DEBT SECURED LIENHOLDER
- ---------------- ---------- ------------ ----------
<S> <C> <C> <C>
</TABLE>
<PAGE>
SCHEDULE 3
EXISTING LITIGATION
AND MATERIAL LIABILITIES
<PAGE>
SCHEDULE 4
SUBSIDIARIES
<TABLE>
<CAPTION>
State of
Incorporation Percentage
Name or Organization of Ownership Owner
---- --------------- ------------ -----
<S> <C> <C> <C>
</TABLE>
<PAGE>
SCHEDULE 5
EXISTING INVESTMENTS
<PAGE>
SCHEDULE 6
EXISTING INDEBTEDNESS
<PAGE>
SCHEDULE 7
AUTHORIZATION, QUALIFICATION AND GOOD STANDING
<PAGE>
SCHEDULE 8
EXISTING LETTERS OF CREDIT
<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
Dallas, Texas $ December 1, 1997
POWER-ONE, INC., a Delaware corporation (the "Borrower"), for value
received, promises to pay to the order of _______________________ ("Lender"),
at the principal office of NationsBank of Texas, N.A., in lawful money of the
United States of America, the principal sum of _____________________________
___________________________________ ($______________), or such lesser sum as
shall be due and payable from time to time hereunder, as hereinafter
provided. All terms used but not defined herein shall have the meanings set
forth in the Credit Agreement described below.
Principal of and interest on the unpaid principal balance of Revolving
Credit Advances under this Revolving Credit Note (the "Note") from time to
time outstanding shall be due and payable as set forth in the Credit
Agreement.
This Note is issued pursuant to and evidences Revolving Credit Advances
under an Amended and Restated Credit Agreement, dated as of December 1, 1997,
among the Borrower, NationsBank of Texas, N.A., as Administrative Lender, and
the lenders parties thereto (as amended, restated, supplemented, renewed,
extended or otherwise modified from time to time, "Credit Agreement"), to
which reference is made for a statement of the rights and obligations of the
Lender and the duties and obligations of the Borrower in relation thereto;
but neither this reference to the Credit Agreement nor any provision thereof
shall affect or impair the absolute and unconditional obligation of the
Borrower to pay the principal sum of and interest on this Note when due.
Except as provided in the Credit Agreement, the Borrower and all
endorsers, sureties and guarantors of this Note hereby severally waive
demand, presentment for payment, protest, notice of protest, notice of
acceleration, notice of intention to accelerate the maturity of this Note,
and all other notices of any kind, diligence in collecting, the bringing of
any suit against any party and any notice of or defense on account of any
extensions, renewals, partial payments or changes in any manner of or in this
Note or in any of its terms, provisions and covenants, or any releases or
substitutions of any security, or any delay, indulgence or other act of any
trustee or any holder hereof, whether before or after maturity.
THIS NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS; PROVIDED,
HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(b), TITLE 79, REVISED CIVIL
STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT THE PROVISIONS OF
CHAPTER 15, TITLE 79,
<PAGE>
REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, SHALL NOT APPLY TO THE
ADVANCES, THIS NOTE AND THE OTHER LOAN DOCUMENTS. THE BORROWER AGREES THAT
THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE
EXCLUSIVE JURISDICTION OVER THE PROCEEDINGS IN CONNECTION WITH THIS NOTE AND
THE OTHER LOAN DOCUMENTS.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
POWER-ONE, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT D
ASSIGNMENT AND ACCEPTANCE
Dated _______________, _____
Reference is made to the Amended and Restated Credit Agreement dated as
of December 1, 1997 (the "Credit Agreement") among POWER-ONE, INC., a
Delaware corporation ("Borrower"), NationsBank of Texas, N.A. as
Administrative Lender ("Administrative Lender"), and the lenders parties
thereto (as amended, the "Credit Agreement"). Terms defined in the Credit
Agreement are used herein with the same meaning.
_________________________________ ("Assignor") and _________________________
("Assignee") agree as follows:
Assignor hereby sells and assigns to Assignee, and Assignee hereby
purchases and assumes from Assignor, a ______% interest in and to all of
Assignor's rights and obligations under the Credit Agreement as of the
Effective Date (as defined below), with respect to such percentage interest
in Assignor's Revolving Credit Commitment as in effect on the Effective Date,
the principal amount of Revolving Credit Advances owing to Assignor on the
Effective Date, and the Revolving Credit Note held by Assignor, and
Assignor's participation in any Letters of Credit and Reimbursement
Obligations outstanding on the Effective Date, subject to the terms and
conditions of this Assignment and Acceptance.
Assignor (a) represents and warrants that (i) as of the date hereof its
Revolving Credit Commitment (without giving effect to assignments thereof
which have not yet become effective) is $__________ and, as of the date
hereof, the outstanding principal amount of the Revolving Credit Advances
owing to it (without giving effect to assignments thereof which have not yet
become effective) is $_________, (ii) 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; (b) makes no representation or warranty and
assumes no responsibility with respect to (i) any statements, warranties, or
representations made in or in connection with the Credit Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency, or
value of the Credit Agreement or any other instrument or document furnished
pursuant thereto or (ii) the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant
thereto; and (c) attaches the Revolving Credit Note referred to in Paragraph
1 above to exchange such Revolving Credit Note for new Revolving Credit Notes
as follows: a Revolving Credit Note dated ____________, 199___, in the
principal amount of $_________ payable to the order of Assignee, and a
Revolving Credit Note dated _____________, 199___, in the principal amount of
$_________ payable to the order of Assignor.
Assignee (a) confirms that it has received a copy of the Credit
Agreement and
<PAGE>
the other Loan Documents, together with copies of the financial statements
referred to in Sections 4.1(j), 6.1 and 6.2 of the Credit Agreement 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;
(b) agrees that it will, independently and without reliance upon the
Administrative Lender, Assignor, or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking action under the
Credit Agreement and the other Loan Documents; (c) appoints and authorizes
the Administrative Lender to take such action as agent on its behalf and to
exercise such powers under the Credit Agreement, the other Loan Documents,
and this Assignment and Acceptance as are delegated to the Administrative
Lender by the terms thereof and hereof, together with such powers as are
reasonably incidental thereto and hereto; (d) agrees that it will perform in
accordance with its terms all of the obligations which by the terms of the
Credit Agreement, the other Loan Documents, and this Assignment and
Acceptance are required to be performed by it as a Lender; and (e) specifies
the addresses set forth in Schedule I attached hereto as its address for the
receipt of notices and as its initial LIBOR Lender Office, respectively[;
and (f) attaches the forms prescribed by the IRS certifying as to Assignee's
status for purposes of determining exception from United States withholding
taxes with respect to all payments to be made to Assignee under the Credit
Agreement, the other Loan Documents, and this Assignment and Acceptance or
such other documents as are necessary to indicate that all such payments are
subject to such taxes at a rate reduced by an applicable tax treaty].
The effective date for this Assignment and Acceptance shall be ________
_____________, ______ (the "Effective Date").
Upon such acceptance as of the Effective Date and upon the remittance of
a $2,500 processing fee to the Administrative Lender, (a) Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment
and Acceptance, have the rights and obligations of a Lender thereunder and
(b) Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
Upon such acceptance from and after the Effective Date, whenever the
Administrative Lender shall receive a payment, or whenever the Administrative
Lender shall make an application of funds, in respect of any aggregate
outstanding principal amount of the Revolving Credit Advances or in respect
of any aggregate amount of interest accrued on the Revolving Credit Advances,
or in respect of the commitment fee (other than a payment or an application
of funds in respect of any amount due and owing to any Lender or the
Administrative Lender under Sections 2.4(b), 2.9, 2.15(d), 2.15(f)(ii), 5.9,
9.3, 9.5, or 11.2 of the Credit Agreement), the Administrative Lender shall
pay over to each of the Lenders an amount equal to (i) such Lender's Pro Rata
Share (as defined below) of such aggregate amount of principal, (ii) such
Lender's Pro Rata Share of such aggregate amount of interest, and (iii) such
Lender's Pro Rata Share of such aggregate amount of the commitment fee.
<PAGE>
The "Pro Rata Share" of any aggregate amount means, with respect to such
Lender, the amount equal to the product obtained by multiplying (i) such
aggregate amount and (ii) a fraction, the numerator of which is such Lender's
portion of the Revolving Credit Commitment, or after the Revolving Credit
Advances have been made, the principal amount of the Advances owing to such
Lender and the denominator of which is the sum of the Revolving Credit
Commitment, or after the Advances have been made, the aggregate principal
amount of the Revolving Credit Advances owing to all of the Lenders.
In the event that, after the Administrative Lender has paid to any
Lender its Pro Rata Share of any such payment received by the Administrative
Lender or any such application made by the Administrative Lender, such
payment or application is rescinded or must otherwise be returned or must be
paid over by the Administrative Lender for any reason, such Lender shall,
upon notice by the Administrative Lender, forthwith pay back to the
Administrative Lender such Lender's Pro Rata Share of the amount so rescinded
or so returned or paid over.
This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of Texas and the United States of
America. Without excluding any other jurisdiction, Assignee agrees that the
courts of Texas will have jurisdiction over proceedings in connection
herewith.
Assignee's Specified Percentage shall be _____%.
This Assignment and Acceptance may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same
instrument.
[NAME OF ASSIGNOR]
By:
Name:
Title:
[NAME OF ASSIGNEE]
By:
Name:
Title:
<PAGE>
Accepted this ___ day of ____________, _____
NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By:
Name:
Title:
POWER-ONE, INC.
By:
Name:
Title:
<PAGE>
Schedule I
ASSIGNEE'S ADDRESS
1. ADDRESS FOR THE ADVANCES AND RECEIPT OF NOTICES
2. INITIAL LIBOR LENDING OFFICE
<PAGE>
EXHIBIT 23
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statements
Nos. 333-42079 and 333-48197 of Power-One, Inc. on Form S-8 of our report
dated February 23, 1998 appearing in this Annual Report on Form 10-K of
Power-One, Inc. for the fiscal year ended December 28, 1997.
Deloitte & Touche LLP
Los Angeles, California
March 25, 1998
<PAGE>
EXHIBIT 24
Power of Attorney
We the undersigned directors and officers of Power-One, Inc. hereby
constitute and appoint Steven J. Goldman and Eddie K. Schnopp, or any of them,
our true and lawful attorneys and agents, to do any and all acts and things
in our name and behalf in our capacities as directors and officers and to
execute any and all instruments for us and in our names in the capacities
indicated below, that said attorneys and agents, or either of them, may deem
necessary or advisable to enable said corporation to comply with the
Securities and Exchange Act of 1934, as amended, any rules, regulations, and
requirements of the SEC in connection with this Report, including
specifically, but not limited to, power and authority to sign for us or any
of us in our names and in the capacities indicated below, any and all
amendments and supplements to this Report, and we hereby ratify and confirm
all that the said attorneys and agents, or any of them, shall do or cause to
be done by virtue hereof.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Steven J. Goldman Chairman of the Board, Chief March 27, 1998
(Steven J. Goldman) Executive Officer and President
(Principal Executive Officer)
/s/ Eddie K. Schnopp Vice President, Finance and March 27, 1998
(Eddie Schnopp) Logistics, Chief Financial
Officer and Secretary (Principal
Financial and Accounting Officer)
/s/ Jon E. M. Jacoby Director March 27, 1998
(Jon E. M. Jacoby)
/s/ Douglas H. Martin Director March 27, 1998
(Douglas H. Martin)
/s/ Dr. Albert Y. C. Yu Director March 27, 1998
(Dr. Albert Y. C. Yu)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 32,018
<SECURITIES> 0
<RECEIVABLES> 14,093
<ALLOWANCES> 825
<INVENTORY> 22,369
<CURRENT-ASSETS> 71,837
<PP&E> 16,518
<DEPRECIATION> 4,620
<TOTAL-ASSETS> 112,637
<CURRENT-LIABILITIES> 10,474
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 100,197
<TOTAL-LIABILITY-AND-EQUITY> 112,637
<SALES> 91,583
<TOTAL-REVENUES> 91,583
<CGS> 55,481
<TOTAL-COSTS> 55,481
<OTHER-EXPENSES> 21,485
<LOSS-PROVISION> 296
<INTEREST-EXPENSE> 3,181
<INCOME-PRETAX> 11,776
<INCOME-TAX> 3,542
<INCOME-CONTINUING> 8,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,234
<EPS-PRIMARY> .58
<EPS-DILUTED> .56
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,819
<SECURITIES> 0
<RECEIVABLES> 15,159
<ALLOWANCES> 800
<INVENTORY> 20,646
<CURRENT-ASSETS> 38,705
<PP&E> 13,174
<DEPRECIATION> 4,035
<TOTAL-ASSETS> 78,282
<CURRENT-LIABILITIES> 26,307
<BONDS> 0
0
17,544
<COMMON> 10
<OTHER-SE> 4,550
<TOTAL-LIABILITY-AND-EQUITY> 78,282
<SALES> 64,639
<TOTAL-REVENUES> 64,639
<CGS> 39,127
<TOTAL-COSTS> 39,127
<OTHER-EXPENSES> 16,172
<LOSS-PROVISION> 270
<INTEREST-EXPENSE> 2,925
<INCOME-PRETAX> 6,446
<INCOME-TAX> 1,748
<INCOME-CONTINUING> 4,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,698
<EPS-PRIMARY> .32
<EPS-DILUTED> .31
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,
1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997, (UNAUDITED) AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> JAN-01-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 1,684 2,052
<SECURITIES> 0 0
<RECEIVABLES> 11,029 15,096
<ALLOWANCES> 638 754
<INVENTORY> 18,840 19,617
<CURRENT-ASSETS> 32,556 37,833
<PP&E> 11,390 12,147
<DEPRECIATION> 2,506 3,506
<TOTAL-ASSETS> 72,705 76,939
<CURRENT-LIABILITIES> 23,044 26,490
<BONDS> 0 0
16,287 17,122
0 0
<COMMON> 10 10
<OTHER-SE> 1,115 2,842
<TOTAL-LIABILITY-AND-EQUITY> 72,705 76,939
<SALES> 74,210 40,173
<TOTAL-REVENUES> 74,210 40,173
<CGS> 45,305 24,348
<TOTAL-COSTS> 45,305 24,348
<OTHER-EXPENSES> 20,903 10,430
<LOSS-PROVISION> 435 180
<INTEREST-EXPENSE> 4,222 2,009
<INCOME-PRETAX> 3,792 3,434
<INCOME-TAX> 396 866
<INCOME-CONTINUING> 3,396 2,568
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,396 2,568
<EPS-PRIMARY> .20 .17
<EPS-DILUTED> .20 .17
</TABLE>
