FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-5631
WATKINS-JOHNSON COMPANY
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1402710
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3333 Hillview Avenue, Palo Alto, California 94304-1223
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(Address of principal executive offices) (Zip Code)
(415) 493-4141
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(Registrant's telephone number, including area code)
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
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Common stock, no par value, outstanding as of September 27, 1996 8,325,000
shares
Page 1
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PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
The interim financial statements are unaudited; however,
Watkins-Johnson Company believes that all adjustments necessary to a
fair statement of results for such interim periods have been included
and all such adjustments are of a normal recurring nature. The results
for the nine months ended September 27, 1996, are not necessarily
indicative of the results for the full year 1996.
Supplementary information to the financial statements:
A dividend of twelve cents per share was declared and paid during
the third quarter of 1996 and 1995.
Net income per share is computed based on the weighted average
number of common and common equivalent shares (dilutive stock
options) outstanding during the period, see Exhibit 11.
The consolidated financial statements required by Rule 10-01 of
Regulation S-X are included in this report beginning on the next page.
Page 2
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<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS*
For the periods ended September 27, 1996 and September 29, 1995
<CAPTION>
Three Months Ended Nine Months Ended
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(Dollars in thousands, except per share amounts) 1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Sales $ 94,962 $ 95,550 $ 344,151 $ 290,537
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Costs and expenses:
Cost of goods sold 60,921 54,978 222,712 168,439
Selling and administrative 16,535 17,565 62,428 56,386
Research and development 13,629 11,217 44,661 35,379
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91,085 83,760 329,801 260,204
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Income from operations 3,877 11,790 14,350 30,333
Interest and other income (expense)--net 784 455 768 1,346
Interest expense (556) (232) (1,169) (638)
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Income from operations before Federal and
foreign income taxes 4,105 12,013 13,949 31,041
Federal and foreign income taxes (1,273) (3,103) (4,325) (9,002)
- ------------------------------------------------------------------------------------------------------------
Net income $ 2,832 $ 8,910 $ 9,624 $ 22,039
============================================================================================================
Fully diluted net income per share
(difference between fully diluted and
primary earnings per share is not $ .33 $ .98 $ 1.12 $ 2.48
material)
Average common and equivalent shares
outstanding 8,458,000 9,083,000 8,560,000 8,881,000
*Unaudited
</TABLE>
Page 3
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<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 27, 1996 and December 31, 1995
<CAPTION>
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(Dollars in thousands) 1996* 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 14,772 $ 34,556
Receivables 103,313 86,311
Inventories:
Finished goods 5,896 3,623
Work in process 42,028 45,092
Raw materials and parts 35,490 31,120
Other 15,033 16,263
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Total current assets 216,532 216,965
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Property, plant, and equipment 226,279 185,379
Accumulated depreciation and amortization (126,421) (120,243)
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Property, plant, and equipment--net 99,858 65,136
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Other assets 15,638 5,573
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$ 332,028 $ 287,674
=========================================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Payables $ 26,226 $ 23,162
Accrued liabilities 64,803 51,590
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Total current liabilities 91,029 74,752
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Long-term obligations 40,154 21,669
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Shareowners' equity:
Common stock 37,788 34,307
Retained earnings 163,057 156,946
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Total shareowners' equity 200,845 191,253
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$ 332,028 $ 287,674
=========================================================================================
*Unaudited
</TABLE>
Page 4
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<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS*
For the periods ended September 27, 1996 and September 29, 1995
<CAPTION>
Nine Months Ended
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(Dollars in thousands) 1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 9,624 $ 22,039
Reconciliation of net income to cash flows
Depreciation and amortization 8,782 7,325
Net changes in:
Receivables (17,002) (9,841)
Inventories (3,579) (10,355)
Other assets 1,043 (3,280)
Accruals and payables 9,828 5,227
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Net cash provided by operating activities 8,696 11,114
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INVESTING ACTIVITIES:
Additions of property, plant, and equipment (43,774) (19,186)
Restricted plant construction funds (9,878)
Other 289 680
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Net cash (used) in investing activities (53,363) (18,506)
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FINANCING ACTIVITIES:
Long-term borrowing 21,219
Proceeds from issuance of stock 3,482 12,467
Dividends paid (2,973) (2,855)
Other 3,155 546
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Net cash provided by financing activities 24,883 10,158
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Net increase (decrease) in cash and equivalents (19,784) 2,766
Cash and equivalents at beginning of period 34,556 34,469
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Cash and equivalents at end of period $ 14,772 $ 37,235
=======================================================================================
*Unaudited
</TABLE>
Page 5
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PART I--FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
During the first three quarters of 1996, the company's operations
required additional cash to finance strong working capital needs and
infrastructure expansion. Cash and equivalents decreased $19.8 million
from $34.6 million to $14.8 million. Although net income was $9.6
million, net cash provided by operations trailed by nearly $1 million,
reflecting the need to fund working capital, particularly receivables
and inventory. The slowdown in business in the third quarter caused
working capital needs to ease from their peak level of the second
quarter and they are anticipated to decline further for the remainder
of the year. As a result, the company paid off the $10 million in
borrowings under the company's $100 million line-of-credit which we
reported at the end of the second quarter. The company is now
forecasting an insignificant drawdown on its credit line for the
remainder of 1996. During the first three quarters of 1996, $3.5
million was provided by stock issuances from stock option exercises
which offsets the $3 million in dividends paid.
Despite the slowdown in business anticipated for the remainder of 1996,
the company invested $43.8 million in new capital plant and equipment
in order to support long-term growth for the semiconductor equipment
and wireless communications operations. Long-term financing up to about
$30 million is anticipated for the construction of a new facility and
related capital equipment in Kawasaki, Japan, for the Semiconductor
Equipment Group. The total cost of the project was initially projected
to be $38 million, but due to the slowdown in the chip market the
amount of capital equipment in the facility will be reduced. Thus far
$18.4 million has been incurred on the project. During the year, over
$21 million in external financing was funded for the land and building.
The amount funded is denominated in Yen, of which approximately $9
million is amortizable over 15 years, bearing interest at 2.5%. The
additional funding calls for a balloon payment in 10 years, bearing
interest at 3.1%.
Current Operations and Business Outlook
Semiconductor Equipment Group
Shipments of chemical-vapor-deposition systems declined from their
record level in the second quarter, reflecting the universal downturn
in the semiconductor-equipment industry. During the third quarter,
Semiconductor Equipment Group sales accounted for only 62% of total
company revenue compared to 71% in the second quarter. Orders also fell
below expectations, and many customers delayed future deliveries for
one or two quarters for systems already on order. Although revenues
were nearly the same as in the third quarter of 1995, orders for the
third quarter of 1996 were down 65% compared to the same period last
year with the current quarter book-to-bill ratio at less than 0.5 to 1.
Although the long range industry forecast for the semiconductor
industry remains bright, management sees a continuing soft orders
picture for semiconductor equipment for the remainder of the year and
into 1997. With the current DRAM oversupply and resulting 75% price
declines, customers have been reviewing their capacity and capital
expansion plans. Even for fabs where customers are definitely moving
forward, they appear to be delaying orders until they must be placed.
At the end of the quarter, the Semiconductor Equipment Group further
reduced its staff and is working to reduce and control other costs. The
group's current expenses are sized break-even at a revenue level of
about $45 million per quarter. Looking forward, with the present
backlog and low third quarter orders, the group is expected to be below
the break-even point for the coming fourth quarter and force the
company into a loss position for that quarter. The company expects to
continue to reduce costs if the market slump deepens, but will maintain
the core strength needed to respond quickly to increased demand when
the market turns upward again.
Page 6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The group continues to be on schedule with the construction of a new
36,000-square-foot facility in Japan which will serve primarily as an
applications laboratory for the cooperative development of new
deposition processes with all Asia-Pacific customers. Management
expects to be moving in some equipment by the end of the year in
preparation for early 1997 occupancy. The company is reviewing the
planned personnel and equipment growth rate in light of the chip
slowdown. We will keep expenses on the facility to a minimum, yet
consistent with the mission of establishing a direct quality impact in
Japan.
It now is apparent that the group has developed a new platform for the
company and that the WJ-2000P high-density-plasma (HDP) process module
is the introductory product for this platform. We are developing a road
map for additional process modules, adding to the cluster tool platform
capabilities. The WJ-2000P high-density-plasma reactor, first
introduced in July 1995, is aimed at devices such as the 256 Megabit
DRAM and 7th generation microprocessors expected to enter production in
the 1998-1999 timeframe. We are positioning this tool to expand our
overall semiconductor equipment market. The HDP tools are not intended
to replace current lines. The group believes their current continuous
deposition platform tools will have good sales performance into the
quarter-micron process era and beyond. WJ-999 and WJ-1000
atmospheric-pressure systems lead the market for premetal dielectric
films while the HDP systems are designed to compete in the market for
intermetal dielectric layer films, especially for the smaller feature
sizes expected for future chip designs. We have had several successful
sample runs for various customers and are now starting the first
beta-site experiment phase with the initial work at our facility while
the customer prepares its facility. Looking forward, we expect
customers to be placing small orders for their engineering efforts for
late 1997 delivery.
It is recognized that the semiconductor equipment business is cyclical,
and uncertainty increases significantly when projecting demand for
semiconductor equipment products more than 6 months into the future.
The semiconductor market may slow more than currently anticipated, thus
requiring additional downsizing and associated reductions in profits.
In addition, inherent risks and uncertainties associated with the
development of the WJ-2000P could cause delays in its availability for
sale and expected revenues.
Wireless Communications
The company's range of products for the wireless telecommunications
industry showed strength in the third quarter, exceeding previous
levels. The company's technological leadership in microwave integrated
circuits, multifunction assembly integration and wideband receiver
design gives its products a technical edge in many wireless
communications applications. The company continues to receive orders
for high-fidelity cellular fraud RF receiver modules with over 5,100
receivers ordered this quarter, bringing the total to over 7,500
ordered this year. They are being delivered smoothly with good customer
satisfaction. The company booked additional orders in the third quarter
for its advanced converter assemblies used in personal communications
systems (PCS).
Current research and development effort centers on the development of a
demonstration base station to exhibit wide-band DSP systems technology
meeting carrier desires to see an open systems approach to the base
station design. Looking forward, laboratory test prototypes will be
placed with two customers in the fourth quarter. If these tests are
successful, field trials are expected in early 1997.
Page 7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Although our wireless communications segment showed strength in the
third quarter, customer demand for components and subassemblies
continues to be softer than expected due to the slow build-out of the
PCS infrastructure. Slowness by certain customers to obtain base
station site permits from various municipalities and to move existing
users of PCS frequency bands to other frequencies is preventing them
form erecting base stations as quickly as earlier predictions. This
slowdown of the telecom market will lead to lower-than-expected
revenues and disproportionately larger loss because of the high
research and development spending associated with entering the telecom
market.
Government Electronics
The company's government electronics operations enjoyed a good quarter
for orders. Bookings for intelligence receiver and signal-analysis
equipment were healthy as the company captured orders at the close of
the government fiscal year. The success of the company's microwave
subsystems production capabilities as demonstrated on the Advanced
Medium-Range Air-to-Air Missile project (AMRAAM), has led several prime
contractors to show interest in the company taking over the production
of modules which they produce internally. These order wins will assist
the government electronics segment in stabilizing future sales.
Production ramping is now beginning on the two wins of such modules
reported last quarter.
Management continues to review costs to improve profitability. Although
shipments and profit levels were adversely effected this quarter by
converting to a new MRP (materials requirement planning) computer
system, it is clear that the system will contribute to our goal of
improving profitability, although we may not see this benefit
immediately.
Third Quarter 1996 Compared to Third Quarter 1995
Semiconductor Equipment Group sales and wireless communications sales
increased 3.7% and 64.1%, respectively, while government electronics
sales decreased 22.2%, resulting in overall company sales remaining
flat. Although government electronics sales decreased due mostly to
inefficiencies discussed above, orders were higher. Gross margins
decreased from 42.5% to 35.9% due mostly to an increased fixed cost
base associated with earlier anticipation of higher semiconductor
equipment revenue growth and inefficiencies in the government
electronics segment stemming from the conversion to a new materials
planning computer system. Selling and administrative expenses decreased
slightly as a percentage of sales due mostly to cost cutting efforts in
the government electronics segment and lower foreign sales commissions
resulting from our direct sales efforts. Research and development
expenses increased from 11.7% to 14.4% of sales due to continuing
efforts to develop next-generation products, particularly for the
Semiconductor Equipment Group and wireless communications segment.
Although research and development costs are at a historical high, the
company is at critical points on key developmental programs on which
management believes the earnings growth opportunities outweighs the
near term benefits of slowing the development efforts. As business
slows for the remainder of the year we will need to review other less
critical research and development projects and prioritize them. Due to
the above factors, third quarter 1996 net income decreased by 68.2%
compared to the same period in 1995.
Page 8
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Third Quarter Year-to-Date 1996 Compared to Third Quarter Year-to-Date
1995
Semiconductor Equipment Group sales and wireless communications sales
increased 41.9% and 31.6%, respectively, while government electronics
sales decreased 21.2%, resulting in an overall company increase of
18.5%. The $22.1 million decrease in government electronics sales was
due in part to the divestiture of certain product lines in the second
quarter of 1995. Gross margins decreased from 42% to 35.3% due in part
to termination costs, inventory write-offs, and early 1996 expansion
efforts in anticipation of increased business by the Semiconductor
Equipment Group. Although selling and administrative expenses decreased
as a percentage of sales expenses were higher due to the increased
volume and infrastructure development for higher 1996 sales we had
projected earlier. Research and development expenses increased from
12.2% to 13% of sales. Due to the above factors, net income for the
first three quarters of 1996 decreased 56.3% compared to the same
period in 1995.
Risks and Uncertainties That May Affect Future Results
Statements included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which are not historical
facts are forward-looking statements that involve risks and
uncertainties that may materially affect future results, including but
not limited to: product demand and market acceptance risks, the effect
of economic conditions, the impact of competitive products and pricing,
product development, commercialization and technological difficulties,
capacity and supply constraints or difficulties, business cycles, the
results of financing efforts, actual purchases under agreements, the
effect of the company's accounting policies, U.S. Government export
policies, geographic concentrations, natural disasters and other risks.
Page 9
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PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. A list of the exhibits required to be filed as part of this
report is set forth in the Exhibit Index, which immediately
precedes such exhibits. The exhibits are number according to Item
601 of Regulation S-K. Exhibits incorporated by reference to a
prior filing are designated by an asterisk.
b. Report on Form 8-K was filed on October 1, 1996. The report
contains the company's Rights Agreement dated as of September 30,
1996 Between Watkins-Johnson Company and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent.
Page 10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WATKINS-JOHNSON COMPANY
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(Registrant)
Date: October 30, 1996 By: /s/ W. Keith Kennedy, Jr.
---------------- -------------------------------------------
W. Keith Kennedy, Jr.
President and Chief Executive Officer
Date: October 30, 1996 By: /s/ Scott G. Buchanan
---------------- -------------------------------------------
Scott G. Buchanan
Vice President and Chief Financial Officer
Page 11
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EXHIBIT INDEX
The Exhibits below are numbered according to Item 601 of Regulation S-K.
Exhibits incorporated by reference to a prior filing are designated by an
asterisk.
Exhibit
Number Exhibit
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10 Material Contracts:
10-a Watkins-Johnson Company Credit Agreement covering
the period of November 30, 1995 through December
8, 1998, ABN-AMRO BANK N.V. as Agent.
10-b Loan Agreement dated as of February 9, 1996
(English Translation) between Watkins-Johnson
International Japan K.K. and The Bank of Yokohama,
LTD (Includes Loan Guaranty Agreement with
Watkins-Johnson Company dated January 31, 1996).
10-c Loan Agreement dated as of June 12, 1996 (English
Translation) between Watkins-Johnson International
Japan K.K. and The Japan Development Bank
(Includes Loan Guaranty Agreement with
Watkins-Johnson Company dated June 12, 1996).
10-d * Shareowners' Rights Agreement dated as of
September 30, 1996 Between Watkins-Johnson Company
and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent (Report on Form 8-K, filed on October
1, 1996, Commission File No.1-5631).
11 Statement re Computation of Per Share Earnings.
27 Financial Data Schedule
Page 12
INDEX TO DOCUMENTS
WATKINS-JOHNSON COMPANY
CREDIT AGREEMENT
Dated as of November 30, 1995
ABN-AMRO BANK N.V.
as Agent
Tab No.
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1. Credit Agreement
Schedule 1: Commitments and Commitment Percentages
Schedule 2: Investment Policy
Schedule 3: Existing Liens
Schedule 4: Subsidiaries
Schedule 5: Litigation
Schedule 6: Certain Environmental Matters
Exhibit A: Form of Note
Exhibit B: Form of Compliance Certificate
Schedule 1 to the Compliance Certificate
Exhibit C: Form of Opinion of Counsel to the Borrower
Exhibit D: Form of Auditor's Letter
2. Notes
ABN-AMRO Bank N.V. ($30,000,000)
Union Bank ($20,000,000)
First National Bank of Boston ($17,500,000)
First National Bank of Maryland ($17,500,000)
Bank of America National Trust and
Savings Association ($15,000,000)
1.
<PAGE>
Execution Copy
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WATKINS-JOHNSON COMPANY
$100,000,000.00
CREDIT AGREEMENT
Dated as of November 30, 1995
ABN AMRO BANK N.V.,
as Agent, Arranger and Issuing Bank
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<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS .............................................. 1
SECTION 1.01 Certain Defined Terms .................................... 1
SECTION 1.02 Accounting Terms; GAAP Changes ........................... 14
(a) Accounting Terms ................................... 14
(b) GAAP Changes ....................................... 14
SECTION 1.03 Interpretation ........................................... 14
ARTICLE II THE LOANS ................................................ 15
SECTION 2.01 The Loans ................................................ 15
SECTION 2.02 Borrowing Procedure ...................................... 16
(a) Notice to the Agent ................................ 16
(b) Notice to the Banks ................................ 16
(c) Net Funding ........................................ 16
SECTION 2.03 Non-Receipt of Funds ..................................... 17
SECTION 2.04 Lending Officies ......................................... 17
SECTION 2.05 Evidence of Indebtedness ................................. 17
(a) Notes .............................................. 17
(b) Recordkeeping ...................................... 17
SECTION 2.06 Minimum Amounts .......................................... 17
SECTION 2.07 Required Notice .......................................... 18
ARTICLE III THE LETTERS OF CREDIT .................................... 18
SECTION 3.01 The Letter of Credit Subfacility ......................... 18
(a) Letters of Credit .................................. 18
(b) Conditions to Issuance ............................. 19
SECTION 3.02 Issuance, Amendment and Renewal of Letters of Credit ..... 20
(a) Notice to Issuing Bank of Issuance Request ......... 20
(b) Issuance of Letters of Credit ...................... 20
(c) Notice to Issuing Bank of Amendment Request ........ 20
(d) Notice to Issuing Bank of Renewal Request .......... 21
(e) Expiry of Letters of Credit ........................ 21
(f) Conflicts with L/C-Related Documents ............... 22
i.
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Page
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SECTION 3.03 Participations, Drawings and Reimbursements .............. 22
(a) Participations of Banks in Letters of Credit ....... 22
(b) Drawing and Reimbursement .......................... 22
(c) Funding by Banks ................................... 22
(d) L/C Unreimbursed Draws ............................. 23
(e) Obligation of Banks Absolute ....................... 23
SECTION 3.04 Repayment of Participations .............................. 23
SECTION 3.05 Role of the Issuing Bank ................................. 24
(a) No Responsibility of Issuing Bank .................. 24
(b) No Liability of Agent/IB-Related Persons ........... 24
SECTION 3.06 Obligations of Borrower Absolute ......................... 25
SECTION 3.07 Cash Collateral Pledge ................................... 26
SECTION 3.08 Letter of Credit Fees .................................... 26
(a) Certain Letter of Credit Fees ...................... 26
(b) Certain Additional Fees and Charges ................ 27
(c) Fees Nonrefundable ................................. 27
SECTION 3.09 Uniform Customs and Practice ............................. 27
ARTICLE IV INTEREST AND FEES; CONVERSION OR
CONTINUATION ............................................. 27
SECTION 4.01 Interest ................................................. 27
(a) Interest Rate ...................................... 27
(b) Interest Periods ................................... 28
(c) Interest Payment Dates ............................. 28
(d) Notice to the Borrower and the Banks ............... 29
SECTION 4.02 Default Rate of Interest ................................. 29
SECTION 4.03 Fees ..................................................... 29
(a) Commitment Fee ..................................... 29
(b) Agency and Arranger's Fee .......................... 29
(c) Fees Nonrefundable ................................. 29
SECTION 4.04 Computations ............................................. 29
SECTION 4.05 Conversion or Continuation ............................... 30
(a) Election ........................................... 30
(b) Automatic Conversion ............................... 30
(c) Notice to the Agent ................................ 30
(d) Notice to the Banks ................................ 31
SECTION 4.06 Highest Lawful Rate ...................................... 31
ii.
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ARTICLE V REDUCTION OF COMMITMENTS; REPAYMENT;
PREPAYMENT ............................................... 31
SECTION 5.01 Reduction or Termination of the Commitments .............. 31
(a) Optional Reduction or Termination .................. 31
(b) Notice ............................................. 31
(c) Adjustment of Commitment Fee; No Reinstatement ..... 31
SECTION 5.02 Repayment of the Loans ................................... 32
SECTION 5.03 Prepayments .............................................. 32
(a) Optional Prepayments ............................... 32
(b) Notice; Application ................................ 32
ARTICLE VI YIELD PROTECTION AND ILLEGALITY .......................... 32
SECTION 6.01 Inability to Determine Rates ............................. 32
SECTION 6.02 Funding Losses ........................................... 32
SECTION 6.03 Regulatory Changes ....................................... 33
(a) Increased Costs .................................... 33
(b) Capital Requirements ............................... 33
(c) Requests ........................................... 34
SECTION 6.04 Illegality ............................................... 34
SECTION 6.05 Funding Assumptions ...................................... 34
SECTION 6.06 Obligation to Mitigate ................................... 34
ARTICLE VII PAYMENTS ................................................. 35
SECTION 7.01 Pro Rata Treatment ....................................... 35
SECTION 7.02 Payments ................................................. 35
(a) Payments ........................................... 35
(b) Authorization to Agent ............................. 35
(c) Extension .......................................... 35
SECTION 7.03 Taxes .................................................... 35
(a) No Reduction of Payments ........................... 35
(b) Deduction or Withholding; Tax Receipts ............. 36
(c) Indemnity .......................................... 36
(d) Forms 1001 and 4224 ................................ 36
(e) Mitigation ......................................... 36
SECTION 7.04 Non-Receipt of Funds ..................................... 37
SECTION 7.05 Sharing of Payments ...................................... 37
iii.
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ARTICLE VIII CONDITIONS PRECEDENT ..................................... 37
SECTION 8.01 Conditions Precedent to the Effectiveness of Agreement ... 37
(a) Fees and Expenses .................................. 38
(b) Loan Documents ..................................... 38
(c) Additional Closing Documents and Actions ........... 38
(d) Corporate Documents ................................ 38
(e) Legal Opinions ..................................... 39
(f) Auditor's Letter ................................... 39
SECTION 8.02 Conditions Precedent to All Credit Extensions ............ 39
(a) Notice ............................................. 39
(b) Material Adverse Effect ............................ 39
(c) Representations and Warranties; No Default ......... 39
(d) Additional Documents ............................... 40
ARTICLE IX REPRESENTATIONS AND WARRANTIES ........................... 40
SECTION 9.01 Representations and Warranties ........................... 40
(a) Organization and Powers ............................ 40
(b) Authorization; No Conflict ......................... 40
(c) Binding Obligation ................................. 40
(d) Consents ........................................... 40
(e) No Defaults ........................................ 41
(f) Title to Properties; Liens ......................... 41
(g) Litigation ......................................... 41
(h) Compliance with Environmental Laws ................. 41
(i) Governmental Regulation ............................ 41
(j) ERISA .............................................. 41
(k) Subsidiaries ....................................... 42
(l) Margin Regulations ................................. 42
(m) Taxes .............................................. 42
(n) Patents and Other Rights ........................... 42
(o) Insurance .......................................... 42
(p) Financial Statements ............................... 43
(q) Liabilities ........................................ 43
(r) Labor Disputes, Etc. ............................... 43
(s) Disclosure ......................................... 43
iv.
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Page
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ARTICLE X COVENANTS ................................................ 43
SECTION 10.01 Reporting Covenants ...................................... 43
(a) Financial Statements and Other Reports ............. 43
(b) Additional Information ............................. 45
SECTION 10.02 Financial Covenants ...................................... 46
(a) Leverage Ratio ..................................... 46
(b) Minimum Consolidated Net Worth ..................... 47
(c) Quick Ratio ........................................ 47
(d) Profitability ...................................... 47
(e) Senior Debt to Total Capitalization ................ 47
SECTION 10.03 Additional Affirmative Covenants ......................... 47
(a) Preservation of Existence, Etc. .................... 47
(b) Payment of Taxes, Etc. ............................. 47
(c) Maintenance of Insurance ........................... 47
(d) Keeping of Records and Books of Account ............ 48
(e) Inspection Rights .................................. 48
(f) Compliance with Laws, Etc. ......................... 48
(g) Maintenance of Properties, Etc. .................... 48
(h) Licenses ........................................... 48
(i) Action Under Environmental Laws .................... 49
(j) Use of Proceeds .................................... 49
(k) Further Assurances and Additional Acts ............. 49
SECTION 10.04 Negative Covenants ....................................... 49
(a) Liens; Negative Pledges ............................ 49
(b) Change in Nature of Business ....................... 49
(c) Restrictions on Fundamental Changes ................ 49
(d) Sales of Assets .................................... 50
(e) Loans and Investments .............................. 51
(f) Distributions ...................................... 51
(g) Transactions with Related Parties .................. 52
(h) Hazardous Substances ............................... 52
(i) Accounting Changes ................................. 52
(j) Regulations G, T, U, and X ......................... 52
ARTICLE XI EVENTS OF DEFAULT ........................................ 53
SECTION 11.01 Events of Default ........................................ 53
(a) Payments ........................................... 53
(b) Representations and Warranties ..................... 53
v.
<PAGE>
Page
----
(c) Failure by Borrower to Perform Certain Covenants ... 53
(d) Failure by Borrower to Perform Other Covenants ..... 53
(e) Bankruptcy ......................................... 53
(f) Involuntary Bankruptcy ............................. 54
(g) Default Under Other Indebtedness ................... 54
(h) Judgments .......................................... 54
(i) ERISA .............................................. 54
(j) Dissolution, Etc. .................................. 55
(k) Material Adverse Change ............................ 55
(l) Change in Ownership or Control ..................... 55
SECTION 11.02 Effect of Event of Default ............................... 55
ARTICLE XII THE AGENT ................................................ 56
SECTION 12.01 Authorization and Action ................................. 56
SECTION 12.02 Limitation on Liability; Notices ......................... 56
(a) Limitation on Liability of Agent and Issuing Bank .. 56
(b) Notices ............................................ 57
SECTION 12.03 Agent and Affiliates ..................................... 57
SECTION 12.04 Notice of Defaults ....................................... 57
SECTION 12.05 Non-Reliance on Agent and Issuing Bank ................... 58
(a) Non-Reliance ....................................... 58
(b) Bank Consent ....................................... 58
SECTION 12.06 Indemnification .......................................... 58
SECTION 12.07 Delegation of Duties ..................................... 59
SECTION 12.08 Successor Agent .......................................... 59
ARTICLE XIII MISCELLANEOUS ............................................ 60
SECTION 13.01 Amendments and Waivers ................................... 60
SECTION 13.02 Notices .................................................. 61
(a) Notices ............................................ 61
(b) Facsimile and Telephonic Notice .................... 61
SECTION 13.03 No Waiver; Cumulative Remedies ........................... 62
SECTION 13.04 Costs and Expenses; Indemnification ...................... 62
(a) Costs and Expenses ................................. 62
(b) Indemnification .................................... 62
(c) Other Charges ...................................... 63
SECTION 13.05 Right of Set-Off ......................................... 63
vi.
<PAGE>
Page
----
SECTION 13.06 Survival ................................................. 63
SECTION 13.07 Obligations Several ...................................... 64
SECTION 13.08 Benefits of Agreement .................................... 64
SECTION 13.09 Binding Effect; Assignment ............................... 64
(a) Binding Effect ..................................... 64
(b) Assignments and Participations ..................... 64
SECTION 13.10 Governing Law ............................................ 66
SECTION 13.11 Waiver of Jury Trial ..................................... 66
SECTION 13.12 Limitation on Liability .................................. 66
SECTION 13.13 Entire Agreement ......................................... 66
SECTION 13.14 Interpretation ........................................... 67
SECTION 13.15 Severability ............................................. 67
SECTION 13.16 Counterparts ............................................. 67
SCHEDULES
Schedule 1 Commitments and Commitment Percentages (Section 1)
Schedule 2 Investment Policy (Section 1)
Schedule 3 Existing Liens (Section 1)
Schedule 4 Subsidiaries (Section 9.01(k))
Schedule 5 Litigation (Section 9.01(g))
Schedule 6 Certain Environmental Matters (Section 9.01(h))
EXHIBITS
Exhibit A Form of Note
Exhibit B Form of Compliance Certificate
Exhibit C Form of Opinion of Counsel to the Borrower
Exhibit D Form of Auditor's Letter
vii.
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement"), dated as of November
30, 1995, is made among Watkins-Johnson Company, a California corporation (the
"Borrower"), the financial institutions listed on the signature pages of this
Agreement under the heading "BANKS" (each a "Bank" and, collectively, the
"Banks"), ABN AMRO Bank N.V., as letter of credit issuing bank (in such
capacity, the "Issuing Bank"), and ABN AMRO Bank N.V., as agent for the Banks
hereunder (in such capacity, the "Agent").
The Borrower has requested that the Banks, and the Banks have
agreed to, make a revolving credit facility (including a letter of credit
subfacility) available to the Borrower, upon the terms and subject to the
conditions set forth in this Agreement.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Certain Defined Terms. As used in this Agreement
(including in the recitals hereof), the following terms shall have the following
meanings:
"ABN" means ABN AMRO Bank N.V.
"Adjusted LIBO Rate" means for each Interest Period the rate
per annum (rounded upward, if necessary, to the nearest 1/100 of 1%) determined
by the Agent pursuant to the following formula:
Adjusted LIBO. LIBO Rate
= ------------------------------------
Rate 100% - Eurodollar Reserve Percentage
The Adjusted LIBO Rate shall be adjusted automatically as of the effective date
of any change in the Eurodollar Reserve Percentage.
"Affiliate" means any Person which, directly or indirectly,
controls, is controlled by or is under common control with another Person. For
purposes of the foregoing, "control" with respect to any Person shall mean the
possession, directly or indirectly, of the power (i) to vote 10% or more of the
securities having ordinary voting power for the election of directors of such
Person, or (ii) to direct or cause the direction of the management and policies
of such Person, whether through the ownership of voting securities or by
contract or otherwise.
"Agent" has the meaning set forth in the introduction to this
Agreement.
1.
<PAGE>
"Agent/IB-Related Persons" means ABN as Agent and Issuing Bank
and any successor Agent arising under Section 12.08, together with their
respective Affiliates, and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
"Agent's Account" means the account of the Agent maintained at
the Federal Reserve Bank of New York (ABA No. 026009580; for account of ABN AMRO
Bank San Francisco) bearing the number 651001054541 or such other account as the
Agent from time to time may designate in a written notice to the Borrower and
the Banks.
"Applicable Margin" means, as determined under Section 4.04,
the applicable "Pricing Margin" set forth below opposite such range:
Debt/EBITDA Ratio Pricing Margin
----------------- --------------
greater than or
equal to 1.00 to 1.00 1.00%
less than
1.00 to 1.00 0.75%
"Banks" has the meaning specified in the introductory clause
hereto. References to the Banks shall include references to ABN in its capacity
as the Issuing Bank.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978.
"Base Rate" means, for any day, the higher of:
(a) the Prime Commercial Lending Rate of ABN as announced from
time to time by ABN at its Chicago office; and
(b) one-half percent per annum above the latest Federal Funds
Rate.
Any change in the Prime Commercial Lending Rate announced by
ABN shall take effect at the opening of business on the day specified in the
public announcement of such change. Each change in the interest rate on the
Loans or Other Obligations bearing interest at the Base Rate based on a change
in the Base Rate shall be effective as of the effective date of such change in
the Base Rate.
"Base Rate Loan" means a Loan bearing interest based on the
Base Rate.
"Borrower" has the meaning set forth in the recitals to this
Agreement.
"Borrower's Account" means the account of the Borrower
maintained at Bank of America National Trust and Savings Association, bearing
the number 14847-
2.
<PAGE>
04040, or such other account as the Borrower from time to time shall designate
in a written notice to the Agent for the deposit of funds borrowed under this
Agreement.
"Borrowing" means a borrowing consisting of simultaneous Loans
made at any one time to the Borrower from the Banks pursuant to Article II or
Article III.
"Business Day" means a day (i) other than Saturday or Sunday,
and (ii) on which commercial banks are open for business in New York, New York,
and San Francisco, California.
"Capital Lease" means, for any Person, any lease of property
(whether real, personal or mixed) in respect of which such Person is liable as
lessee and which, in accordance with GAAP, would, at the time a determination is
made, be required to be recorded as a capital lease.
"Closing Date" means the effective date of this Agreement, on
or prior to which the conditions precedent set forth in Section 8.01 shall have
been satisfied or waived by all of the Banks.
"Commitment" means, when used with reference to any Bank at
the time any determination thereof is to be made, the amount set forth opposite
the name of such Bank on Schedule 1, as from time to time reduced pursuant to
Section 5.01, or, where the context so requires, the obligation of such Bank to
make Loans up to such amount on the terms and conditions set forth in this
Agreement.
"Commitment Percentage" means, as to any Bank, the percentage
equivalent of such Bank's Commitment divided by the aggregate Commitments. The
initial Commitment Percentage of each Bank is set forth opposite such Bank's
name in Schedule 1 under the heading "Commitment Percentage."
"Compliance Certificate" means a certificate of a Responsible
Officer of the Borrower, in substantially the form of Exhibit B, with such
changes thereto as the Agent or any Bank may from time to time reasonably
request.
"Consolidated Adjusted Current Assets" means, as of any date
of determination, the sum of cash, cash equivalents, Permitted Investments
having a term of less than one year, and net accounts receivable (including
unbilled accounts receivable in an amount not exceeding $5,000,000) of the
Borrower and its Subsidiaries on a consolidated basis, as determined in
accordance with GAAP.
"Consolidated Adjusted Current Liiabilities" means, as of any
date of determination, without duplication, the sum of (a) current liabilities
and (b) outstanding Indebtedness under any revolving line of credit of the
Borrower and its Subsidiaries on a consolidated basis, as determined in
accordance with GAAP.
3.
<PAGE>
"Consolidated EBITDA" means, for any period, Consolidated Net
Income plus Consolidated Interest Expense plus income tax expense plus
depreciation expense and amortization expense which were deducted in determining
Consolidated Net Income, of the Borrower and its Subsidiaries on a consolidated
basis, as determined in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, interest
expense (including that attributable to Capital Leases) of the Borrower and its
Subsidiaries on a consolidated basis, and all commissions, discounts and other
fees and charges owed with respect to standby letters of credit, as determined
in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income
of the Borrower and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period, as determined in accordance with GAAP.
"Consolidated Net Worth" means, as of any date of
determination, Consolidated Total Assets minus Consolidated Total Liabilities.
"Consolidated Tangible Net Worth" means, as of any date of
determination, Consolidated Total Assets minus Consolidated Total Liabilities,
minus (i) all assets which would be classified as intangible assets in
accordance with GAAP, including goodwill, organizational expense, research and
development expense, patent applicatiom, patents, trademarks, trade names,
brands, copyrights, trade secrets, customer lists, licenses, franchises and
covenants not to compete; (ii) all unamortized debt discount and expense; and
(iii) all treasury stock.
"Consolidated Total Assets" means, as of any date of
determination, the total assets of the Borrower and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP.
"Consolidated Total Liabilities" means, as of any date of
determination, the total liabilities of the Borrower and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP, plus all off-balance
sheet liabilities (including, without limitation, Indebtedness of the type
described in clause (vi) of the definition of "Indebtedness."
"Credit Extension" means each of (a) the making of any
Revolving Loans hereunder; (b) the continuation or conversion of any Loan
pursuant to Section 4.05; (c) the issuance of any Letters of Credit hereunder;
and (d) the amendment or renewal of any Letters of Credit hereunder.
"Debt/EBITDA Ratio" means the ratio of (a) consolidated Funded
Debt of the Borrower and its Subsidiaries as of the last day of any fiscal
quarter of the Borrower to (b) Consolidated EBITDA for the four consecutive
fiscal quarters ending with such fiscal quarter, as determined in accordance
with GAAP.
4.
<PAGE>
"Default" means an Event of Default or an event or condition
which with notice or lapse of time or both would constitute an Event of Default.
"Dollars" and the sign "$" each means lawful money of the
United States.
"Effective Amount" means (i) with respect to any Revolving
Loans on any date the aggregate outstanding principal amount thereof after
giving effect to any Borrowings and prepayments or repayments of Revolving Loans
occurring on such date; and (ii) with respect to any outstanding L/C Obligations
on any date the amount of such L/C Obligations on such date after giving effect
to any issuances, amendments and renewals of Letters of Credit occurring on such
date and any other changes in the aggregate amount of the L/C Obligations as of
such date, including as a result of any reimbursements of outstanding unpaid
drawings under any Letters of Credit or any reductions in the maximum amount
available for drawing under Letters of Credit taking effect on such date.
"Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directives, requests, licenses, authorizations
and permits of, and agreements with (including consent decrees), any
Governmental Authorities, in each case relating to or imposing liability or
standards of conduct concerning public health, safety and environmental
protection matters, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Clean Air Act, the Federal Water
Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal
Resource Conservation and Recovery Act, the Toxic Substances Control Act, the
Emergency Planning and Community Right-to-Know Act, the California Hazardous
Waste Control Law, the California Solid Waste Management, Resource Recovery and
Recycling Act, the California Water Code and the California Health and Safety
Code.
"ERISA" means the Employee Retirement Income Security Act of
1974, including (unless the context otherwise requires) any rules or regulations
promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which is under common control with the Borrower within the meaning
of Section 4001(a)(14) of ERISA and Sections 414(b), (c) and (m) of the Internal
Revenue Code.
"ERISA Event" means (i) a Reportable Event with respect to a
Pension Plan; (ii) a withdrawal by the Borrower from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial employer
(as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which
is treated as such a withdrawal under Section 4062(e) of ERISA; (iii) the filing
of a notice of intent to terminate, the treatment of a plan amendment as a
termination under Section 4041 or 4041A of ERISA or the commencement of
proceedings by the PBGC to terminate a Pension Plan subject to Title IV of
ERISA; (iv) a failure by the Borrower to make
5.
<PAGE>
required contributions to a Pension Plan or other Plan subject to Section 412 of
the Code; (v) an 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 Pension Plan; (vi) the imposition of
any liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon the Borrower; or (vii) an
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code with respect to any Pension Plan.
"Eurodollar Reserve Percentage" means the maximum reserve
requirement percentage (including any ordinary, supplemental, marginal and
emergency reserves), if any, as determined by the Agent, then applicable under
Regulation D in respect of Eurocurrency funding (currently referred to as
"Eurocurrency Liabilities") of a member bank in the Federal Reserve System with
deposits exceeding $1,000,000,000.
"Event of Default" has the meaning set forth in Section 11.01.
"Event of Loss" means with respect to any asset of the
Borrower or its Subsidiaries any of the following: (i) any loss, destruction or
damage of such asset; (ii) any pending or threatened institution of any
proceedings for the condemnation or seizure of such asset or of any right of
eminent domain; or (iii) any actual condemnation, seizure or taking, by exercise
of the power of eminent domain or otherwise, of such asset, or confiscation of
such asset or requisition of the use of such asset.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100 of 1%), as determined by the
Agent, 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, as published for any day of determination (or if such day of
determination is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by the Agent.
"Final Maturity Date" means December 8, 1998.
"FRB" means the Board of Governors of the Federal Reserve
System, or any entity succeeding to any of its principal functions.
"Funded Debt" means, without duplication, (a) Indebtedness of
the Borrower or any of its Subsidiaries and (b) off-balance sheet liabilities
(other than obligations under standby performance letters of credit) of the
Borrower or any of its Subsidiaries.
"GAAP" means generally accepted accounting principles in the
U.S. as in effect from time to time.
6.
<PAGE>
"Governmental Authority" means any federal, state, local or
other governmental department, commission, board, bureau, agency, central
bank, court, tribunal or other instrumentality or authority, domestic or
foreign, exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guaranty Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person (i) to purchase, repurchase
or otherwise acquire such primary obligations or any property constituting
direct or indirect security therefor, or (ii) to advance or provide funds (A)
for the payment or discharge of any such primary obligation, or (B) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet item, level of income or
financial condition of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless the holder
of any such primary obligation against loss in respect thereof.
"Hazardous Substances" means any hazardous or toxic substance,
material or waste, defined, listed, classified or regulated as such in or under
any Environmental Laws, including asbestos, petroleum or petroleum products
(including gasoline, crude oil or any fraction thereof), polychlorinated
biphenyls and ureaformaldehyde insulation.
"IRS" means the Internal Revenue Service, or any successor
thereto.
"Indebtedness" means, for any Person: (i) all indebtedness or
other obligations of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced incurred
in connection with the acquisition of property, assets or businesses; (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property); (iv)
all obligations under Capital Leases; (v) all reimbursement or other obligations
of such Person under or in respect of letters of credit and bankers acceptances,
and all net obligations in respect of Rate Contracts; (vi) all obligations of
such Person with respect to accounts receivable sold, assigned or transferred by
such Person, to the extent they were sold, assigned or transferred with recourse
to such Person; (vii) all Guaranty Obligations; and (vi) all indebtedness of
another Person secured by any Lien upon or in property owned by the Person for
whom Indebtedness is being determined, whether or not such Person has assumed or
become liable for the payment of such indebtedness of such other Person.
7.
<PAGE>
"Insolvency Proceeding" means any proceeding of the type
described in Section 11.01(e) or (f).
"Interest Payment Date" means a date specified for the payment
of interest pursuant to Section 4.01(c).
"Interest Period" means, with respect to any LIBOR Loan, the
period determined in accordance with Section 4.01(b) applicable thereto.
"Internal Revenue Code" means the Internal Revenue Code of
1986, including (unless the context otherwise requires) any rules or regulations
promulgated thereunder.
"Issuing Bank" has the meaning set forth in the introduction to
this Agreement.
"L/C Advance" means each Bank's participation in any L/C
Unreimbursed Draw in accordance with its Commitment Percentage.
"L/C Amendment Application" means an application form for
amendments of outstanding standby letters of credit as shall at any time be in
use at the Issuing Bank, as the Issuing Bank shall request.
"L/C Application" means such application form for issuances of
standby letters of credit as shall at any time be in use at the Issuing Bank, as
the Issuing Bank shall request.
"L/C Commitment" means, when used with reference to any Bank
at the time any determination thereof is to be made, the obligation of such Bank
to participate in Letters of Credit issued or outstanding pursuant to Article
III and to make L/C Advances, in an aggregate amount not to exceed on any date
the amount set forth opposite such Bank's name under the heading "L/C
Commitment" on Schedule 1, as from time to time reduced pursuant to Section
5.01; provided that each Bank's L/C Commitment is a part of its Commitment
rather than a separate, independent commitment.
"L/C Obligations" means at any time the sum of (a) the
aggregate undrawn amount of all Letters of Credit, plus (b) the amount of all
unreimbursed drawings under all Letters of Credit, including all L/C
Unreimbursed Draws.
"L/C-Related Documents" means (i) the Letters of Credit and
(ii) the L/C Applications, the L/C Amendment Applications and any other
document, agreement and instrument executed and delivered by the Borrower
relating to any Letter of Credit, including any of the Issuing Bank's standard
form documents for letter of credit issuances.
8.
<PAGE>
"L/C Unreimbursed Draw" means a drawing under any Letter of
Credit which shall not have been reimbursed on the date when made nor converted
into a Borrowing of Revolving Loans, as provided in Section 3.03(b).
"Lending Office" has the meaning set forth in Section 2.04.
"Letters of Credit" means any standby letter of credit issued
by the Issuing Bank pursuant to Article III.
"LIBO Rate" means, for each Interest Period with respect to
LIBOR Loans comprising part of the same Borrowing, the rate per annum as
determined by the Agent to be the arithmetic mean (rounded upwards if necessary
to the nearest 1/16 of one percent) of the rates per annum appearing on Telerate
Page 3750 (or any successor publication) on the second LIBOR Business Day prior
to the commencement of such Interest Period at or about 11:00 a.m. (London time)
(for delivery on the first day of such Interest Period) for a term comparable to
such Interest Period and in an amount approximately equal to the amount of the
LIBOR Loan to be made or funded by the Agent as part of such Borrowing. If for
any reason rates are not available as provided in the preceding sentence, the
rate to be used shall be the rate per annum at which Dollar deposits are offered
to the Agent in the London interbank eurodollar market on the second LIBOR
Business Day prior to the commencement of such Interest Period at or about 11:00
a.m. (London time) for delivery on the first day of such Interest Period and in
an amount approximately equal to the amount of the LIBOR Loan to be made or
funded by the Agent as part of such Borrowing.
"LIBOR Business Day" means a Business Day on which dealings in
Dollar deposits are carried on in the London interbank market.
"LIBOR Loan" means a Revolving Loan bearing interest based on
the Adjusted LIBO Rate.
"Lien" means any mortgage, deed of trust, pledge, security
interest, assignment, deposit arrangement, charge or encumbrance, lien
(statutory or other), or other preferential arrangement (including any
conditional sale or other title retention agreement, or any financing lease
having substantially the same economic effect as any of the foregoing or any
agreement to give any security interest).
"Loan" means an extension of credit, in the form of a
Revolving Loan or L/C Advance, by a Bank to the Borrower pursuant to Article II
or III.
"Loan Documents" means this Agreement, the Notes and all other
certificates, documents, agreements and instruments delivered to the Agent, the
Issuing Bank and the Banks under or in connection with this Agreement, and all
L/C-Related Documents.
9.
<PAGE>
"Majority Banks" means at any time Banks holding at least
66-2/3% of the then aggregate unpaid principal amount of the Revolving Loans and
L/C Obligations, or, if neither such principal amount nor Letters of Credit are
then outstanding, Banks having at least 66-2/3% of the aggregate Commitments.
"Material Adverse Effect" means (i) a material adverse change
in, or a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Borrower or the Borrower
and its Subsidiaries taken as a whole; (ii) a material impairment of the ability
of the Borrower to perform under any Loan Document or any loan document relating
to any Indebtedness described in Section 11.01(g); or (iii) a material adverse
effect upon the legality, validity, binding effect or enforceability of any Loan
Document.
"Material Subsidiaries" means all Subsidiaries of the
Borrower, but excluding each of the following: Watkins Johnson Limited, Watkins
Johnson (UK) Ltd., Watkins Johnson Associates and Watkins Johnson Environmental;
provided, however, that each such Subsidiary shall be deemed a "Material
Subsidiary" from and after any time that such Subsidiary's (a) total assets
exceed $100,000 or (b) net income per year exceeds $1,000,000.
"Minimum Amount" has the meaning set forth in Section 2.06.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Sections 3(37) and 4001(a)(3) of ERISA.
"Note" means a Promissory Note of the Borrower payable to the
order of a Bank, in substantially the form of Exhibit A.
"Notice" means a Notice of Borrowing, a Notice of Conversion or
Continuation or a Notice of Prepayment.
"Notice of Borrowing" has the meaning set forth in Section
2.02(a).
"Notice of Conversion or Continuation" has the meaning set
forth in Section 4.05(c).
"Notice of Prepayment" has the meaning set forth in Section
5.03(b).
"Obligations" means the indebtedness, liabilities and other
obligations of the Borrower to the Agent or any Bank under or in connection with
the Loan Documents, including all Loans, all interest accrued thereon, all fees
due under this Agreement and all other amounts payable by the Borrower to the
Agent or any Bank thereunder or in connection therewith, whether now or
hereafter existing or arising, and whether due or to become due, absolute or
contingent, liquidated or unliquidated, determined or undetermined.
10.
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Pension Plan" means a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA, which the Borrower sponsors or
maintains, or to which it makes, is making, or is obligated to make
contributions, or in the case of a multiple employer plan (as described in
Section 4064(a) of ERISA) has made contributions at any time during the
immediately preceding five plan years.
"Performance Letter of Credit" means a performance standby
letter of credit which, for risk-based capital purposes, is characterized as a
transaction-related contingency and subject to a credit conversion factor of 50
percent in accordance with the risk-based capital adequacy guidelines of the
FRB, as determined by the Issuing Bank in its sole discretion.
"Permitted Investments" means any investment by the Borrower
meeting the standards prescribed by the Board of Directors of the Borrower for
the types of securities which are permitted for investment by the Company, as
set forth in the resolutions of the Board of Directors of the Borrower adopted
on February 27, 1995 and attached hereto as Schedule 2.
"Permitted Liens" means:
(i) security interests and deeds of trust that may
at any time be granted in favor of the Agent on behalf of the Banks;
(ii) liens, security interests and encumbrances in
existence as of the date of this Agreement listed on Schedule 3, and any
substitutions or renewals thereof, provided that the principal amount of the
obligations secured thereby is not increased;
(iii) liens for current taxes, assessments or other
governmental charges which are not delinquent or remain payable without any
penalty;
(iv) liens in connection with workers' compensation,
unemployment insurance or other social security obligations;
(v) mechanics', workers', materialmen's, landlords',
carriers' or other like liens arising in the ordinary and normal course of
business with respect to obligations which are not due;
(vi) purchase money security interests in personal or
real property hereafter acquired when the security interest does not extend
beyond the property purchased;
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(vii) construction liens in favor of a construction
lender when the lien does not extend beyond the improvements being constructed
and the underlying real property; and
(viii) liens arising in connection with any sale of
accounts receivable permitted under Section 10.04(d), when the lien does not
extend beyond the accounts receivable so sold.
"Person" means an individual, corporation, limited liability
company, partnership, joint venture, trust, unincorporated organization or any
other entity of whatever nature or any Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA) which the Borrower sponsors or maintains, or to which the
Borrower makes, is making, or is obligated to make contributions, and includes
any Pension Plan.
"Premises" means any and all real property, including all
buildings and improvements now or hereafter located thereon and all
appurtenances thereto, now or hereafter owned, leased, occupied or used by the
Borrower or any of its Subsidiaries.
"Rate Contracts" means interest rate swaps, caps, floors and
collars, currency swaps, or other similar financial products designed to provide
protection against fluctuations in interest, currency or exchange rates.
"Regulation D" means Regulation D of the FRB.
"Regulatory Change" has the meaning set forth in Section
6.03(a).
"Reportable Event" means any of the events set forth in
Section 4043(b) of ERISA or the regulations promulgated thereunder, other than
any such event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC.
"Required Notice Date" has the meaning set forth in Section
2.07.
"Responsible Officer" means, with respect to any Person, the
chief executive officer, the president, the chief financial officer or the
treasurer of such Person, or any other senior officer of such Person having
substantially the same authority and responsibility; or, with respect to
compliance with financial covenants, the chief financial officer or the
treasurer of such Person, or any other senior officer of such Person involved
principally in the financial administration or controllership function of such
Person and having substantially the same authority and responsibility.
"Revolving Loan" has the meaning set forth in Section 2.01.
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"SEC" means the Securities and Exchange Commission, or any
successor thereto.
"Senior Debt" means all Funded Debt but excluding Subordinated
Debt.
"Subordinated Debt" means Indebtedness of the Borrower or any
Subsidiary under which principal payments will become due and payable no earlier
than the first anniversary of the Final Maturity Date and are otherwise
subordinated on terms and conditions reasonably acceptable to the Majority
Banks.
"Subsidiary" means any corporation, limited liability company,
association, partnership, joint venture or other business entity of which more
than 50% of the voting stock or other equity interest is owned directly or
indirectly by any Person or one or more of the other Subsidiaries of such Person
or a combination thereof.
"Taxes" has the meaning set forth in Section 7.03.
"Termination Event" means any of the following:
(i) with respect to a Pension Plan, a reportable event
described in Section 4043 of ERISA and the regulations issued thereunder (other
than a reportable event not subject to the provisions for 30-day notice to the
PBGC under such regulations);
(ii) the withdrawal of the Borrower or an ERISA
Affiliate from a Pension Plan during a plan year in which the withdrawing
employer was a "substantial employer" as defined in Section 4001(a)(2) or
4062(e) of ERISA;
(iii) the taking of any actions (including the filing
of a notice of intent to terminate) by the Borrower, an ERISA Affiliate, the
PBGC, a Plan Administrator, or any other Person to terminate a Pension Plan
or the treatment of a Plan amendment as a termination of a Pension Plan under
Section 4041 of ERISA;
(iv) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan; or
(v) the complete or partial withdrawal of the
Borrower or an ERISA Affiliate from a Multiemployer Plan.
"Total Capitalization" means the sum of Senior Debt,
Consolidated Tangible Net Worth and Subordinated Debt.
"UCP" has the meaning set forth in Section 3.09.
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"Unfunded Pension Liability" means the excess of a Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the current value
of that Plan's assets, determined in accordance with the assumptions used for
funding the Plan pursuant to Section 412 of the Code for the applicable plan
year.
"United States" and "U.S." each means the United States of
America.
SECTION 1.02 Accounting Terms; GAAP Changes.
(a) Accounting Terms. Unless otherwise defined or the context
otherwise requires, all accounting terms not expressly defined herein shall be
construed, and all accounting determinations and computations required under the
Loan Documents shall be made, in accordance with GAAP, consistently applied.
(b) GAAP Changes. If any changes in GAAP from those used in
the preparation of the financial statements referred to in Section 9.01(p)
("GAAP Changes") hereafter occasioned by the promulgation of rules, regulations,
pronouncements and opinions by or required by the Financial Accounting Standards
Board of the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions) result in a change in the method of
calculation of, or in different components in, any of the financial covenants,
definitional provisions, standards or other terms or conditions found in this
Agreement, (i) the parties hereto agree to enter into negotiations with respect
to amendments to this Agreement to conform those covenants, definitional
provisions, standards or other terms and conditions as criteria for evaluating
the Borrower's financial condition and performance to substantially the same
criteria as were effective prior to such GAAP Change, and (ii) the Borrower
shall be deemed to be in compliance with the affected covenant or other
provision during the 60-day period following any such GAAP Change if and to the
extent that the Borrower would have been in compliance therewith under GAAP as
in effect immediately prior to such GAAP Change; provided, however, that this
Section 1.02(b) shall not be deemed to require the Borrower, the Agent or the
Banks to agree to modify any provision of this Agreement or any other Loan
Document to reflect any such GAAP Change and, if the parties, in their sole
discretion, fail to reach agreement on such modifications prior to the end of
the 60-day period referred to in clause (ii), the terms of this Agreement shall
remain unchanged and the compliance of the Borrower with the covenants and other
provisions contained herein shall, upon the expiration of such 60-day period, be
calculated in accordance with GAAP-giving effect to such GAAP Change.
SECTION 1.03 Interpretation. In the Loan Documents, except to
the extent the context otherwise requires:
(i) Any reference to an Article, a Section, a Schedule
or an Exhibit is a reference to an article or section thereof, or a schedule or
an exhibit thereto, respectively, and to a subsection or a clause is, unless
otherwise stated, a reference to a subsection or a clause of the Section or
subsection in which the reference appears.
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(ii) The words "hereof," "herein," "hereto,"
"hereunder" and the like mean and refer to this Agreement or any other Loan
Document as a whole and not merely to the specific Article, Section,
subsection, paragraph or clause in which the respective word appears.
(iii) The meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include"
shall be deemed to be followed by the words "without limitation."
(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of the Loan Documents.
(vi) References to statutes or regulations are to be
construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation referred to.
(vii) Any table of contents, captions and headings are
for convenience of reference only and shall not affect the construction of this
Agreement or any other Loan Document.
(viii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding"; and the
word "through" means "to and including."
(ix) The use of a word of any gender shall include
each of the masculine, feminine and neuter genders.
ARTICLE II
THE LOANS
SECTlON 2.01 The Loans. Each Bank severally agrees, on the
terms and conditions hereinafter set forth, to make revolving loans (each a
"Revolving Loan" and, collectively, the "Revolving Loans") to the Borrower from
time to time on any Business Day during the period from the Closing Date until
the Final Maturity Date, in an aggregate principal amount up to but not
exceeding at any time outstanding such Bank's Commitment; provided, that the
Effective Amount of all Revolving Loans plus the Effective Amount of all L/C
Obligations shall not exceed the aggregate Commitments; and provided further,
that the Effective Amount of the Revolving Loans of any Bank plus the
participation of such Bank in the Effective Amount of all L/C Obligations shall
not exceed such Bank's Commitment. Within the foregoing limits and subject to
the other terms and conditions hereof, during such period the Borrower may
borrow, repay
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the Revolving Loans in whole or in part, and reborrow, all in accordance with
the terms and conditions hereof.
SECTION 2.02 Borrowing Procedure.
(a) Notice to the Agent. Each Borrowing shall be made upon
written or telephonic notice (in the latter case to be confirmed promptly in
writing) from the Borrower to the Agent, which notice shall be received by the
Agent not later than 10:00 A.M. (California time) on the Required Notice Date.
Each such notice (a "Notice of Borrowing") shall, except as provided in Sections
6.01 and 6.04, be irrevocable and binding on the Borrower, shall refer to this
Agreement and shall specify: (A) the proposed date of the Borrowing, which shall
be a Business Day (or a LIBOR Business Day, for Borrowings consisting of LIBOR
Loans); (B) whether the Borrowing consists of Base Rate Loans or LIBOR Loans;
(C) the aggregate amount of the Borrowing, which shall be in a Minimum Amount;
(D) if the Borrowing consists of any LIBOR Loans, the duration of the initial
Interest Period with respect thereto; and (E) payment instructions with respect
to the funds to be made available to the Borrower as a result of such Borrowing.
If any Notice of Borrowing shall fail to specify the duration of the Interest
Period for any Borrowing comprised of LIBOR Loans, the Borrower shall be deemed
to have selected an Interest Period of three months.
(b) Notice to the Banks. The Agent shall give each Bank prompt
notice by telephone (confirmed promptly in writing) or by facsimile of each
Borrowing, specifying the information contained in the Borrower's Notice and
such Bank's ratable portion of the Borrowing. On the date of each Borrowing,
each Bank shall make available such Bank's ratable portion of such Borrowing, in
accordance with its Commitment Percentage, in same day or immediately available
funds, to the Agent for the Agent's Account, not later than 12:00 Noon
(California time). Upon fulfillment of the applicable conditions set forth in
Article VIII and after receipt by the Agent of any such funds, and unless other
payment instructions are provided by the Borrower, the Agent shall make such
funds available to the Borrower by crediting the Borrower's Account with same
day or immediately available funds on such Borrowing date, unless on the date of
the Borrowing all or any portion of the proceeds thereof shall then be required
to be applied to the reimbursement of any outstanding drawings under Letters of
Credit pursuant to Section 3.03, in which case such proceeds or portion thereof
shall be applied to the reimbursement of such Letter of Credit drawings.
(c) Net Funding. If any Bank shall make a new Loan hereunder
on a day on which the Borrower is to repay all or any part of an outstanding
Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make
such payment, and only an amount equal to the difference (if any) between the
amount being borrowed and the amount being repaid shall be made available by
such Bank to the Agent as provided in subsection (b), or remitted by the
Borrower to the Agent as provided in 7.02, as the case may be.
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SECTION 2.03 Non-Receipt of Funds. Unless the Agent shall have
received notice from a Bank prior to the date of any Borrowing that such Bank
shall not make available to the Agent such Bank's ratable portion of such
Borrowing, the Agent may assume that such Bank has made such portion available
to the Agent on the date of such Borrowing in accordance with Section 2.02(b)
and the Agent may, in reliance upon such assumption, make available to the
Borrower on such date a corresponding amount. If and to the extent such Bank
shall not have so made such ratable portion available to the Agent, such Bank
and the Borrower severally agree to repay to the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Agent, at the Federal Funds Rate. If such Bank shall repay to the
Agent such corresponding amount, such amount so repaid shall constitute such
Bank's Loan as part of such Borrowing for purposes of this Agreement.
SECTION 2.04 Lending Offices. The Loans made by each Bank may
be made from and maintained at such offices of such Bank (each a "Lending
Office") as such Bank may from time to time designate (whether or not such
office is specified on the signature pages hereof). A Bank shall not elect a
Lending Office (other than that set forth on the signature pages hereof) that,
at the time of making such election, increases the amounts which would have been
payable by the Borrower to such Bank under this Agreement in the absence of such
election. With respect to LIBOR Loans made from and maintained at any Bank's
foreign offices, the obligation of the Borrower to repay such LIBOR Loans shall
nevertheless be to such Bank and shall, for all purposes of this Agreement
(including for purposes of the definition of the term "Majority Banks") be
deemed made or maintained by it, for the account of any such office.
SECTION 2.05 Evidence of Indebtedness.
(a) Notes. As additional evidence of the Indebtedness of the
Borrower to each Bank resulting from the Revolving Loans made by such Bank, the
Borrower shall execute and deliver for the account of each Bank pursuant to
Article VIII a Note, dated the Closing Date, setting forth such Bank's
Commitment as the maximum principal amount thereof.
(b) Recordkeeping. Each Bank shall record in its internal
records the date and amount of each Loan made, each conversion to a different
interest rate, each relevant Interest Period, the amount of principal and
interest due and payable from time to time hereunder, each payment thereof and
the resulting unpaid principal balance of such Loan. Any such recordation shall
be rebuttable presumptive evidence of the accuracy of the information so
recorded. Any failure so to record or any error in doing so shall not, however,
limit or otherwise affect the obligations of the Borrower hereunder and under
any Note to pay any amount owing with respect to the Loan.
SECTION 2.06 Minimum Amounts. Any Borrowing, conversion,
continuation, Commitment reduction or prepayment of Revolving Loans hereunder
shall be in an aggregate amount determined as follows (each such specified
amount a
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"Minimum Amount"): (i) any Borrowing or partial prepayment of Base Rate Loans
shall be in the amount of $250,000 or a greater amount which is an integral
multiple of $50,000; (ii) any Borrowing, continuation or partial prepayment of,
or conversion into, LIBOR Loans shall be in the amount of $2,500,000 or a
greater amount which is an integral multiple of $100,000; (iii) any partial
Commitment reduction under Section 5.01(a) shall be in the amount of $5,000,000
or a greater amount which is an integral multiple of $1,000,000; and (iv) any
partial L/C Commitment reduction under Section 5.01(a) shall be in the amount of
$2,000,000 or a greater amount which is an integral multiple of $1,000,000.
SECTION 2.07 Required Notice. Any Notice hereunder shall be
given not later than the date determined as follows (each such specified date a
"Required Notice Date"): (i) any Notice with respect to a Borrowing of, or
conversion into, Base Rate Loans shall be given at least one Business Day prior
to the date of the proposed borrowing or conversion; (ii) any Notice with
respect to any Borrowing or continuation of, or conversion into, LIBOR Loans
shall be given at least three LIBOR Business Days prior to the date of the
proposed Borrowing, conversion or continuation; (iii) any Notice with respect to
any prepayment under Section 5.03(a) with respect to a Base Rate Loan shall be
given at least one Business Day prior to the date of the proposed prepayment;
(iv) any Notice with respect to any prepayment under Section 5.03(a) with
respect to a LIBOR Loan shall be given at least three LIBOR Business Days prior
to the date of the proposed prepayment; (v) any Notice with respect to any
Commitment reduction under Section 5.01(a) shall be given at least five Business
Days prior to the proposed reduction date; (vi) any notice with respect to the
issuance of any Letter of Credit shall be given at least three Business Days
prior to the proposed issuance date; and (vii) any notice with respect to the
amendment or renewal of any Letter of Credit shall be given at least three
Business Days prior to the proposed amendment or renewal date.
ARTICLE III
THE LETTERS OF CREDIT
SECTION 3.01 The Letter of Credit Subfacility.
(a) Letters of Credit. On the terms and conditions hereinafter
set forth, (i) the Issuing Bank hereby agrees (A) from time to time on any
Business Day during the period from the Closing Date to the Final Maturity Date
to issue Letters of Credit for the account of the Borrower in accordance with
Section 3.02(a), and to amend or renew Letters of Credit previously issued by
it, in accordance with subsections 3.02(c) and 3.02(d), in an aggregate amount
not to exceed at any time the aggregate L/C Commitments, and (B) to honor drafts
under the Letters of Credit; and (ii) the Banks severally agree to participate
in Letters of Credit issued for the account of the Borrower; provided, that the
Issuing Bank shall not be obligated to issue any Letter of Credit if (1) the
Effective Amount of all L/C Obligations plus the Effective Amount of all
Revolving Loans shall exceed the aggregate Commitments, (2) the participation of
any Bank in the Effective Amount of all L/C Obligations plus the Effective
Amount of the
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Revolving Loans of such Bank shall exceed such Bank's Commitment, or (3) the
Effective Amount of L/C Obligations shall exceed the aggregate L/C Commitments.
Within the foregoing limits, and subject to the other terms and conditions
hereof, the Borrower's ability to obtain Letters of Credit shall be fully
revolving, and, accordingly, the Borrower may, during the foregoing period,
obtain Letters of Credit to replace Letters of Credit which have expired or
which have been drawn upon and reimbursed.
(b) Conditions to Issuance. The Issuing Bank shall be under no
obligation to issue, amend or reinstate any Letter of Credit if:
(i) any order, judgment or decree of any Governmental
Authority or arbitrator shall by its terms purport to enjoin or restrain the
Issuing Bank from issuing, amending or reinstating such Letter of Credit, or any
law, rule or regulation applicable to the Issuing Bank or any request, guideline
or directive (whether or not having the force of law) from any Governmental
Authority with jurisdiction over the Issuing Bank shall prohibit, or request
that the Issuing Bank refrain from, the issuance, amendment or reinstatement of
letters of credit generally or such Letter of Credit in particular or shall
impose upon the Issuing Bank with respect to such Letter of Credit any
restriction, reserve or capital requirement (for which the Issuing Bank is not
otherwise compensated) not in effect on the Closing Date, or shall impose upon
the Issuing Bank any unreimbursed loss, cost or expense which was not applicable
on the Closing Date and which the Issuing Bank in good faith deems material to
it;
(ii) the Issuing Bank has received written notice
from any Bank, the Agent or the Borrower, at least one Business Day prior to the
requested date of issuance, amendment or reinstatement of such Letter of Credit,
that one or more of the applicable conditions contained in Article VIII is not
then satisfied;
(iii) the expiry date of any requested Letter of
Credit is (A) more than three years after the date of issuance, unless the
Majority Banks have approved such expiry date in writing, provided that a Letter
of Credit may state that the expiry date thereof is extendible for an additional
term as shall be satisfactory to the Issuing Bank (either upon prior notice or
automatically) so long as the next succeeding additional term at any time is not
more than one year; or (B) after the Final Maturity Date;
(iv) any requested Letter of Credit does not provide
for drafts, or is not otherwise in form and substance acceptable to the Issuing
Bank;
(v) the issuance, amendment or renewal of a Letter of
Credit shall violate any applicable policies of the Issuing Bank;
(vi) any Letter of Credit is for the purpose of
supporting the issuance of any letter of credit by any other Person;
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(vii) such Letter of Credit, if a Performance Letter
of Credit, is to be used for a purpose other than to support the Borrower's
performance obligations under contracts of sale, including obligations under
contracts of sale with respect to equipment sold by the Borrower pending final
acceptance of such equipment by the buyer; or
(viii) such Letter of Credit is denominated in a
currency other than Dollars.
SECTION 3.02 Issuance, Amendment and Renewal of Letters of
Credit.
(a) Notice to Issuing Bank of Issuance Request. Each Letter of
Credit shall be issued upon the irrevocable written request of the Borrower
received by the Issuing Bank (with a copy sent by the Borrower to the Agent) not
later than the Required Notice Date. Each such request for issuance of a Letter
of Credit shall be in writing, in the form of an L/C Application, and shall
specify in form and detail satisfactory to the Issuing Bank: (i) the proposed
date of issuance of the Letter of Credit (which shall be a Business Day); (ii)
the face amount of the Letter of Credit; (iii) the expiry date of the Letter of
Credit; (iv) the name and address of the beneficiary thereof; (v) the documents
to be presented by the beneficiary of the Letter of Credit in case of any
drawing thereunder; (vi) the full text of any certificate to be presented by the
beneficiary in case of any drawing thereunder; and (vii) such other matters as
the Issuing Bank may require in accordance with the Issuing Bank's usual and
customary business practices.
(b) Issuance of Letters of Credit. Unless the Issuing Bank has
received notice on or before the Business Day immediately preceding the date the
Issuing Bank is to issue, amend or renew a requested Letter of Credit from the
Agent (i) directing the Issuing Bank not to issue, amend or renew such Letter of
Credit because such issuance, amendment or renewal is not then permitted under
Section 3.01(a) as a result of the limitations set forth in clauses (1) through
(3) thereof or clause (iii) of Section 3.01(b); or (ii) that one or more
conditions specified in Article VIII are not then satisfied; then, subject to
the terms and conditions hereof, the Issuing Bank shall, on the requested date,
issue a Letter of Credit for the account of the Borrower or amend or renew a
Letter of Credit, as the case may be, in accordance with the Issuing Bank's
usual and customary business practices. The Issuing Bank shall promptly give
notice to each Bank of each issuance, amendment or renewal of a Letter of
Credit, but the Issuing Bank's failure to give any such notice shall not relieve
any Bank from its obligations under this Article III or otherwise under this
Agreement.
(c) Notice to Issuing Bank of Amendment Request. From time to
time while a Letter of Credit is outstanding and prior to the Final Maturity
Date, the Issuing Bank shall, upon the written request of the Borrower received
by the Issuing Bank (with a copy sent by the Borrower to the Agent) not later
than the Required Notice Date, amend any Letter of Credit issued by it. Each
such request for amendment of a Letter
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of Credit shall be made in writing, in the form of an L/C Amendment Application,
and shall specify in form and detail satisfactory to the Issuing Bank: (i) the
Letter of Credit to be amended; (ii) the proposed date of amendment of the
Letter of Credit (which shall be a Business Day); (iii) the nature of the
proposed amendment; and (iv) such other matters as the Issuing Bank may require
in accordance with the Issuing Bank's usual and customary business practices.
The Issuing Bank shall be under no obligation to amend any Letter of Credit, and
shall not permit the amendment of a Letter of Credit, if: (A) the Issuing Bank
would have no obligation at such time to issue such Letter of Credit in its
amended form under the terms of this Agreement; or (B) the beneficiary of any
such Letter of Credit does not accept the proposed amendment to the Letter of
Credit.
(d) Notice to Issuing Bank of Renewal Request. The Issuing
Bank and the Banks agree that, while a Letter of Credit is outstanding and prior
to the Final Maturity Date, at the option of the Borrower and upon the written
request of the Borrower received by the Issuing Bank (with a copy sent by the
Borrower to the Agent) not later than the Required Notice Date, the Issuing Bank
shall be entitled to authorize the renewal of any Letter of Credit issued by it.
Each such request for renewal of a Letter of Credit shall be made in writing, in
the form of an L/C Amendment Application, and shall specify in form and detail
satisfactory to the Issuing Bank: (i) the Letter of Credit to be renewed; (ii)
the proposed date of notification of renewal of the Letter of Credit (which
shall be a Business Day); (iii) the revised expiry date of the Letter of Credit;
and (iv) such other matters as the Issuing Bank may require. The Issuing Bank
shall be under no obligation so to renew any Letter of Credit, and shall not
permit any renewal (including any automatic renewal of a Letter of Credit), in
each case with respect to any Letter of Credit under which the Issuing Bank may
elect not to renew, if: (A) the Issuing Bank would have no obligation at such
time to issue or amend such Letter of Credit in its renewed form under the terms
of this Agreement; or (B) the beneficiary of any such Letter of Credit does not
accept the proposed renewal of the Letter of Credit. If any outstanding Letter
of Credit shall provide that it shall be automatically renewed unless the
beneficiary thereof receives notice from the Issuing Bank that such Letter of
Credit shall not be renewed, and if at the time of renewal the Issuing Bank
would be entitled to authorize the automatic renewal of such Letter of Credit in
accordance with this subsection (d) upon the request of the Borrower but the
Issuing Bank shall not have received any L/C Amendment Application from the
Borrower with respect to such renewal or other written direction by the Borrower
with respect thereto, the Issuing Bank shall nonetheless be permitted to allow
such Letter of Credit to renew, and the Borrower and the Banks hereby authorize
such renewal, and, accordingly, the Issuing Bank shall be deemed to have
received an L/C Amendment Application from the Borrower requesting such renewal.
(e) Expiry of Letters of Credit. The Issuing Bank may, at its
election (or shall, when required by the Agent at the direction of the Majority
Banks), deliver any notices of termination or other communications to any Letter
of Credit beneficiary or transferee, or take any other action as necessary or
appropriate, at any time and from time to time, in order to cause the expiry
date of such Letter of Credit to be a date not
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later than the Final Maturity Date, subject in all cases to the terms of the
Letter of Credit.
(f) Conflicts with L/C-Related Documents. This Agreement shall
control in the event of any conflict with any L/C-Related Document (other than
any Letter of Credit).
SECTION 3.03 Participations, Drawings and Reimbursements.
(a) Participations of Banks in Letters of Credit. Immediately
upon the issuance of each Letter of Credit, the Issuing Bank shall be deemed
irrevocably to have sold and transferred to each Bank without recourse or
warranty, and each Bank shall be deemed to, and hereby irrevocably and
unconditionally agrees to, purchase and accept from the Issuing Bank, for such
Bank's own account and risk, an undivided interest and a participation in such
Letter of Credit (and each drawing thereunder) in an amount equal to the product
of (i) the Commitment Percentage of such Bank, times (ii) the maximum amount
available to be drawn under such Letter of Credit (or, in the case of a drawing,
the amount of such drawing). For purposes of Section 3.01(a), each issuance of a
Letter of Credit shall be deemed to utilize the Commitment of each Bank by an
amount equal to the amount of such participation.
(b) Drawing and Reimbursement. In the event of any request for
a drawing under a Letter of Credit by the beneficiary thereof, the Issuing Bank
shall immediately notify the Borrower and the Agent. The Borrower shall
reimburse the Issuing Bank prior to 10:00 a.m. (California time), on each date
that any amount is paid by the Issuing Bank under any Letter of Credit, in an
amount equal to the amount paid by the Issuing Bank on such date under such
Letter of Credit. In the event the Borrower shall fail to reimburse the Issuing
Bank for the full amount of any drawing under any Letter of Credit by 10:00 a.m.
(California time) on the same date such drawing is honored by the Issuing Bank,
the Issuing Bank shall promptly notify the Agent and the Agent shall promptly
notify the Borrower and each Bank thereof (including the amount of the drawing
and such Bank's Commitment Percentage thereof), and the Borrower shall be deemed
to have requested that Base Rate Loans be made by the Banks to be disbursed on
the date of payment by the Issuing Bank under such Letter of Credit, subject to
the amount of the unutilized portion of the Commitment and subject to the
conditions set forth in clauses (b) and (c) of Section 8.02. The Borrower hereby
directs that the proceeds of any such Loans deemed to be made by it shall be
used to pay its reimbursement obligations in respect of any such drawing. Solely
for the purposes of making such Loans, the Minimum Amount limitations set forth
in Section 2.06 shall not be applicable. Any notice given by the Issuing Bank or
the Agent pursuant hereto may be telephonic if immediately confirmed in writing;
provided that the lack of such an immediate confirmation shall not affect the
conclusiveness or binding effect of such notice.
(c) Funding by Banks. Each Bank shall upon receipt of any
notice pursuant to subsection (b) make available to the Agent for the account of
the Issuing
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Bank an amount in Dollars and in same day or immediately available funds equal
to its Commitment Percentage of the amount of the drawing, whereupon the
participating Banks shall (subject to subsection (e)) each be deemed to have
made a Revolving Loan consisting of a Base Rate Loan to the Borrower in that
amount. If any Bank so notified shall fail to make available to the Agent for
the account of the Issuing Bank the amount of such Bank's Commitment Percentage
of the amount of the drawing by no later than 12:00 noon (California time) on
the date such drawing was honored by the Issuing Bank (the "Participation
Date"), then interest shall accrue on such Bank's obligation to make such
payment, from the Participation Date to the date such Bank makes such payment,
at a rate per annum equal to (i) the Federal Funds Rate in effect from time to
time during the period commencing on the Participation Date and ending on the
date three Business Days thereafter, and (ii) thereafter at the Base Rate as in
effect from time to time. The Agent shall promptly give notice of the occurrence
of the Participation Date, but failure of the Agent to give any such notice on
the Participation Date or in sufficient time to enable any Bank to effect such
payment on such date shall not relieve such Bank from its obligations under this
Section 3.03.
(d) L/C Unreimbursed Draws. With respect to any unreimbursed
drawing that is not converted into Revolving Loans consisting of Base Rate Loans
because of the Borrower's failure to satisfy the conditions set forth in clauses
(b) and (c) of Section 8.02 or for any other reason, the Borrower shall be
obligated to the Issuing Bank for an L/C Unreimbursed Draw in the amount of such
drawing, which L/C Unreimbursed Draw shall be due and payable on demand,
together with interest, and shall bear interest at a rate per annum equal to the
Base Rate, plus 2% per annum, and each Bank's payment to the Issuing Bank
pursuant to subsection (c) shall be deemed payment in respect of its
participation in such L/C Unreimbursed Draw and shall constitute an L/C Advance
from such Bank in satisfaction of its participation obligation under this
Section 3.03.
(e) Obligation of Banks Absolute. Each Bank's obligation in
accordance with this Agreement to make the Revolving Loans or L/C Advances, as
contemplated by this Section 3.03, as a result of a drawing under a Letter of
Credit shall be absolute and unconditional and shall not be affected by any
circumstance, including (i) any set-off, counterclaim, recoupment, defense or
other right which such Bank may have against the Issuing Bank, the Borrower or
any other Person for any reason whatsoever; (ii) the occurrence or continuance
of a Default, an Event of Default or a Material Adverse Effect; or (iii) any
other circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing.
SECTION 3.04 Repayment of Participations. Upon (and only upon)
receipt by the Agent for the account of the Issuing Bank of funds from the
Borrower (i) in reimbursement of any payment made by the Issuing Bank under the
Letter of Credit with respect to which any Bank has theretofore paid the Agent
for the account of the Issuing Bank for such Bank's participation in the Letter
of Credit pursuant to Section 3.03, or (ii) in payment of interest thereon, the
Agent shall pay to each Bank, in the same funds as those received by the Agent
for the account of the Issuing Bank, the
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amount of such Bank's Commitment Percentage of such funds, and the Issuing Bank
shall receive the amount of the Commitment Percentage of such funds of any Bank
that did not so pay the Agent for the account of the Issuing Bank. If the Agent
or the Issuing Bank is required at any time to return to the Borrower or to a
trustee, receiver, liquidator, custodian, or any official in any Insolvency
Proceeding, any portion of the payments made by the Borrower in reimbursement of
a payment made under the Letter of Credit or interest thereon, each Bank shall,
on demand of the Agent, forthwith return to the Agent or the Issuing Bank the
amount of its Commitment Percentage of any amounts so returned by the Agent or
the Issuing Bank plus interest thereon from the date such demand is made to the
date such amounts are returned by such Bank to the Agent or the Issuing Bank, at
a rate per annum equal to the Federal Funds Rate in effect from time to time.
SECTION 3.05 Role of the Issuing Bank.
(a) No Responsibility of Issuing Bank. Each Bank and the
Borrower agree that, in paying any drawing under a Letter of Credit, the Issuing
Bank shall not have any responsibility to obtain any document (other than any
sight draft, certificates and other documents expressly required by the Letter
of Credit) or to ascertain or inquire as to the validity or accuracy of any such
document or the authority of the Person executing or delivering any such
document. The Borrower hereby assumes all risks of the acts or omissions of any
beneficiary or transferee with respect to its use of any Letter of Credit;
provided, however, that this assumption is not intended to, and shall not,
preclude the Borrower's pursuing such rights and remedies as it may have against
the beneficiary or transferee at law or under any other agreement. No
Agent/IB-Related Person, nor any of the respective correspondents, participants
or assignees of the Issuing Bank, shall be liable or responsible for any of the
matters described in clauses (i) through (vi) of Section 3.06; provided,
however, anything in such clauses to the contrary notwithstanding, that the
Borrower may have a claim against the Issuing Bank, and the Issuing Bank may be
liable to the Borrower, to the extent, but only to the extent, of any direct, as
opposed to consequential or exemplary, damages suffered by the Borrower which
the Borrower proves were caused by the Issuing Bank's willful misconduct or
gross negligence or the Issuing Bank's willful failure to pay under any Letter
of Credit after the presentation to it by the beneficiary of a sight draft and
certificate(s) or other document(s) strictly complying with the terms and
conditions of a Letter of Credit. In furtherance and not in limitation of the
foregoing: (i) 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; and (ii) the Issuing Bank shall not
be responsible for the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign a Letter of Credit or the rights
or benefits thereunder or proceeds thereof, in whole or in part, which may prove
to be invalid or ineffective for any reason.
(b) No Liability of Agent/IB-Related Persons. No
Agent/IB-Related Person nor any of the respective correspondents, participants
or assignees of the Issuing Bank shall be liable to any Bank for: (i) any action
taken or omitted in connection
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herewith at the request or with the approval of the Banks (including the
Majority Banks, as applicable); (ii) any action taken or omitted in the absence
of gross negligence or willful misconduct; or (iii) the due execution,
effectiveness, validity or enforceability of any L/C-Related Document.
SECTION 3.06 Obligations of Borrower Absolute. The obligations
of the Borrower under this Agreement and any L/C-Related Document to reimburse
the Issuing Bank for a drawing under a Letter of Credit, and to repay any L/C
Unreimbursed Draw and any drawing under a Letter of Credit converted into
Revolving Loans, shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement and each such other
L/C-Related Document under all circumstances, including the following:
(i) any lack of validity or enforceability of this
Agreement or any L/C-Related Document;
(ii) 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 any Letter of Credit or any other amendment or waiver of
or any consent to departure from all or any of the L/C-Related Documents, in
each case in accordance with the terms of this Agreement and each L/C Related
Document;
(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 any Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank 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 draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(v) any payment by the Issuing Bank under any Letter
of Credit against presentation of a draft, certificate or other document that
does not strictly comply with the terms of any Letter of Credit; or any payment
made by the Issuing Bank under any Letter of Credit to any Person purporting to
be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of
creditors, liquidator, receiver or other representative of or successor to any
beneficiary or any transferee of any Letter of Credit, including any arising in
connection with any bankruptcy, reorganization or other insolvency proceeding;
or
(vi) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to departure
from any other guarantee, for all or any of the obligations of the Borrower in
respect of any Letter of Credit.
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SECTION 3.07 Cash Collateral Pledge. Upon the request of the
Agent, if the Issuing Bank has honored any full or partial drawing request on
any Letter of Credit and such drawing has resulted in an L/C Unreimbursed Draw
hereunder, the Borrower shall immediately pay over cash in an amount equal to
the L/C Obligations to the Agent for the benefit of the Banks, to be held by the
Agent as cash collateral subject to the terms of this Section 3.07. Such amount,
together with any amount received by the Agent in respect of outstanding Letters
of Credit pursuant to Section 11.02, when received by the Agent, shall be held
by the Agent as cash collateral for the reimbursement obligations of the
Borrower under this Agreement in respect of the L/C Obligations and for the
other Obligations. Such cash collateral shall not bear interest. Amounts held in
such cash collateral account shall be applied by the Agent to the reimbursement
of the Issuing Bank for any payment made by it of drafts drawn under the
outstanding Letters of Credit, and the unused portion thereof after all such
Letters of Credit shall have expired or been fully drawn upon, if any, shall be
applied to repay other Obligations of the Borrower hereunder. After all such
Letters of Credit shall have expired or been fully drawn upon, all L/C
Obligations shall have been satisfied and all other Obligations of the Borrower
hereunder shall have been paid in full, the balance, if any, in such cash
collateral account shall be returned to the Borrower. The Borrower hereby grants
the Agent (for itself and on behalf of and for the ratable benefit of the
Issuing Bank and the Banks) a security interest in all such cash collateral. The
Borrower shall execute such further agreements, documents, instruments or
financing statements as the Agent reasonably deems necessary in connection
therewith.
SECTION 3.08 Letter of Credit Fees.
(a) Certain Letter of Credit Fees. The Borrower shall pay to
the Agent for the account of each of the Banks a letter of credit fee as
follows:
(i) with respect to each Performance Letter of Credit,
the Borrower shall pay a letter of credit fee equal to
(A) 0.50% per annum of the average daily maximum
amount available to be drawn on such Letter of Credit, during any period when
the Debt/EBITDA Ratio (determined in accordance with Section 4.04) is greater
than or equal to 1.00 to 1.00, or
(B) 0.40% per annum of the average daily maximum
amount available to be drawn on such outstanding Letter of Credit, during
any period when the Debt/EBITDA Ratio (determined in accordance with Section
4.04) is less than 1.00 to 1.00; and
(ii) with respect to each Letter of Credit other than a
Performance Letter of Credit, the Borrower shall pay a letter of credit fee
equal to
(A) 1.00% per annum of the average daily maximum
amount available to be drawn on such Letter of Credit, during any period when
the
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Debt/EBITDA Ratio (determined in accordance with Section 4.04) is greater than
or equal to 1.00 to 1.00, or
(B) 0.75% per annum of the average daily maximum
amount available to be drawn on such Letter of Credit, during any period when
the Debt/EBITDA Ratio (determined in accordance with Section 4.04) is less than
1.00 to 1.00;
provided, that the Borrower shall pay a minimum per annum fee of $250 for each
Letter of Credit.
Such letter of credit fee shall be due and payable quarterly
in arrears on the last Business Day of each calendar quarter during which
Letters of Credit are outstanding, commencing on the first such quarterly date
to occur after the Closing Date, through the Final Maturity Date (or such later
date upon which the outstanding Letters of Credit shall expire), with the final
payment to be made on the Final Maturity Date (or such expiration date).
(b) Certain Additional Fees and Charges. The Borrower shall pay
to the Issuing Bank upon the issuance of each Letter of Credit (other than a
Performance Letter of Credit) a fronting fee of 0.125% of the stated amount
thereof. The Borrower shall pay to the Issuing Bank from time to time on demand
the normal issuance, presentation, amendment and other processing fees, and
other standard costs and charges, of the Issuing Bank relating to standby
letters of credit as from time to time in effect.
(c) Fees Nonrefundable. All fees and charges payable under this
Section 3.08 shall be nonrefundable.
SECTION 3.09 Uniform Customs and Practice. The Uniform Customs
and Practice for Documentary Credits as most recently published by the
International Chamber of Commerce ("UCP") shall in all respects be deemed a part
of this Article III as if incorporated herein and shall apply to the Letters of
Credit.
ARTICLE IV
INTEREST AND FEES; CONVERSION OR CONTINUATION
SECTION 4.01 Interest.
(a) Interest Rate. The Borrower shall pay interest on the
unpaid principal amount of each Revolving Loan from the date of such Revolving
Loan until the maturity thereof, at the following rates:
(i) during such periods as such Revolving Loan is a
Base Rate Loan, at a rate per annum equal at all times to the Base Rate; and
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(ii) during such periods as such Revolving Loan is a
LIBOR Loan, at a rate per annum equal at all times during each Interest Period
for such LIBOR Loan to the Adjusted LIBO Rate for such Interest Period plus the
Applicable Margin.
(b) Interest Periods. The initial and each subsequent Interest
Period shall be a period of one, two, three or six months. The determination of
Interest Periods shall be subject to the following provisions:
(i) in the case of immediately successive Interest
Periods, each successive Interest Period shall commence on the day on which the
next preceding Interest Period expires;
(ii) if any Interest Period would otherwise end
on a day which is not a LIBOR Business Day, that Interest Period shall be
extended to the next succeeding LIBOR Business Day, unless the result of such
extension would be to carry such Interest Period into another calendar month,
in which event such Interest Period shall end on the immediately preceding
LIBOR Business Day;
(iii) no Interest Period shall extend beyond the
Final Maturity Date;
(iv) any Interest Period that begins on the last
LIBOR Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the ending calendar month of such Interest
Period) shall end on the last LIBOR Business Day of the ending calendar month
of such Interest Period; and
(v) there shall be no more than 12 Interest Periods
in effect at any one time.
(c) Interest Payment Dates. Subject to Section 4.02, interest
on the Revolving Loans shall be payable in arrears at the following times:
(i) interest on each Base Rate Loan shall be payable
quarterly on the last day of each calendar quarter, on the date of any
prepayment or conversion of any such Base Rate Loan, and at maturity; and
(ii) interest on each LIBOR Loan shall be payable on
the last day of each Interest Period for such LIBOR Loan, provided that (A) in
the case of any Interest Period which is greater than three months, interest on
such LIBOR Loan shall be payable on the date three months after the beginning of
such Interest Period and on the last day of such Interest Period and (B) if any
prepayment, conversion, or continuation is effected other than on the last day
of such Interest Period, accrued interest on such LIBOR Loan shall be due on
such prepayment, conversion or continuation date as to the principal amount of
such LIBOR Loan prepaid, converted or continued.
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(d) Notice to the Borrower and the Banks. Each determination
by the Agent hereunder of a rate of interest and of any change therein,
including any changes in (i) the Applicable Margin, (ii) the Base Rate during
any periods in which Base Rate Loans shall be outstanding, and (iii) the
Eurodollar Reserve Percentage (if any) during any periods in which LIBOR Loans
shall be outstanding, shall be conclusive and binding in the absence of manifest
error on the parties hereto and shall be promptly notified by the Agent to the
Borrower and the Banks. Such notice shall set forth in reasonable detail the
basis for any such determination or change. The failure of the Agent to give any
such notice specified in this subsection shall not affect the Borrower's
obligation to pay such interest or fees.
SECTION 4.02 Default Rate of Interest. In the event that any
amount of principal of or interest on any Loan, or any other amount payable
hereunder or under the Loan Documents, is not paid in full when due (whether at
stated maturity, by acceleration or otherwise), the Borrower shall pay interest
on such unpaid principal, interest or other amount, from the date such amount
becomes due until the date such amount is paid in full, payable on demand, at a
rate per annum equal at all times to the Base Rate plus 2%.
SECTION 4.03 Fees.
(a) Commitment Fee. The Borrower agrees to pay to the Agent
for the account of each Bank a commitment fee on the average daily unused
portion (taking into account outstanding Revolving Loans and outstanding L/C
Obligations) of such Bank's Commitment as in effect from time to time from the
Closing Date until the Final Maturity Date at the rate of (A) 0.35% per annum,
for any period when the Debt/EBITDA Ratio is greater than or equal to 1.00 to
1.00 or (B) 0.25% per annum, for any period when the Debt/EBITDA Ratio is less
than 1.00 to 1.00, in each case payable quarterly in arrears on the last
Business Day of each calendar quarter in each year, commencing on the first such
date after the Closing Date, and on the earlier of the date such Commitment is
terminated hereunder or the Final Maturity Date.
(b) Agency and Arranger's Fee. The Borrower agrees to pay to
the Agent for its own account such fee for agency and arranger's services
rendered by it as shall be separately agreed upon between the Borrower and the
Agent.
(c) Fees Nonrefundable. All fees payable under this Section
4.03 shall be nonrefundable.
SECTION 4.04 Computations. Each change in the Applicable
Margin, the applicable commitment fee or the applicable letter of credit fee as
a result of a change in the Debt/EBITDA Ratio shall become effective on the
first day of the month following the month in which financial statements
reporting such change are required to be delivered pursuant to Section
10.01(a)(i). All computations of interest based upon the Base Rate shall be made
on the basis of a year of 365 or 366 days, as the case may be, for the actual
number of days occurring in the period for which such interest is
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payable. All computations of the commitment fee, letter of credit fee and of
interest based upon the Federal Funds Rate or LIBO Rate shall be made on the
basis of a year of 360 days for the actual number of days occurring in the
period for which such commitment fee, letter of credit fee or interest is
payable, which results in more interest being paid than if computed on the basis
of a 365-day year. Notwithstanding the foregoing, if any Loan is repaid on the
same day on which it is made, such day shall be included in computing interest
on such Loan.
SECTION 4.05 Conversion or Continuation.
(a) Election. The Borrower may elect (i) to convert all or any
part of outstanding Base Rate Loans into LIBOR Loans; or (ii) to continue all or
any part of a Loan with one type of interest rate as such; provided, however,
that if the aggregate amount of LIBOR Loans in respect of any Borrowing shall
have been reduced, by payment, prepayment, or conversion of part thereof to be
less than $2,500,000, such LIBOR Loans shall automatically convert into Base
Rate Loans, and on and after such date the right of the Borrower to continue
such Loans as, and convert such Loans into, LIBOR Loans shall terminate. The
continued or converted Base Rate and LIBOR Loans shall be allocated to the Banks
ratably in accordance with their respective Commitments. Any conversion or
continuation of LIBOR Loans shall be made on the last day of the current
Interest Period for such LIBOR Loans. No outstanding Loan may be converted into
or continued as a LIBOR Loan if any Default has occurred and is continuing.
(b) Automatic Conversion. On the last day of any Interest
Period for any LIBOR Loans, such LIBOR Loans shall, if not repaid, automatically
convert into Base Rate Loans unless the Borrower shall have made a timely
election to continue such LIBOR Loans as such for an additional Interest Period
or to convert such LIBOR Loans, in each case as provided in subsection (a).
(c) Notice to the Agent. The conversion or continuation of any
Loans contemplated by subsection (a) shall be made upon written or telephonic
notice (in the latter case to be confirmed promptly in writing) from the
Borrower to the Agent, which notice shall be received by the Agent not later
than 10:00 A.M. (California time) on the Required Notice Date. Each such notice
(a "Notice of Conversion or Continuation") shall, except as provided in Sections
6.01 and 6.04, be irrevocable and binding on the Borrower, shall refer to this
Agreement and shall specify: (i) the proposed date of the conversion or
continuation, which shall be a Business Day (or a LIBOR Business Day, for
conversions into or continuations of LIBOR Loans); (ii) the outstanding Loans
(or parts thereof) to be converted into or continued as Base Rate or LIBOR
Loans; (iii) the aggregate amount of the Loans which are the subject of such
continuation or conversion, which shall be in a Minimum Amount; (iv) if the
conversion or continuation consists of any LIBOR Loans, the duration of the
Interest Period with respect thereto; and (v) that no Default exists hereunder.
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(d) Notice to the Banks. The Agent shall give each Bank prompt
notice by telephone (confirmed promptly in writing) or by facsimile of (i) the
proposed conversion or continuation of any Loans, specifying the information
contained in the Borrower's Notice and such Bank's ratable portion thereof or
(ii), if timely notice was not received from the Borrower, the details of any
automatic conversion under subsection (b).
SECTION 4.06 Highest Lawful Rate. Anything herein to the
contrary), notwithstanding, if during any period for which interest is computed
hereunder, the applicable interest rate, together with all fees, charges and
other payments which are treated as interest under applicable law, as provided
for herein or in any other Loan Document, would exceed the maximum rate of
interest which may be charged, contracted for, reserved, received or collected
by any Bank in connection with this Agreement under applicable law (the "Maximum
Rate"), the Borrower shall not be obligated to pay, and such Bank shall not be
entitled to charge, collect, receive, reserve or take, interest in excess of the
Maximum Rate, and during any such period the interest payable hereunder shall
be limited to the Maximum Rate.
ARTICLE V
REDUCTION OF COMMITMENTS;
REPAYMENT; PREPAYMENT
SECTION 5.01 Reduction or Termination of the Commitments.
(a) Optional Reduction or Termination. The Borrower may, upon
prior notice to the Agent as provided herein, terminate in whole or reduce
ratably in part, as of the date specified by the Borrower in such notice, any
then unused portion of the respective Commitments (including the L/C
Commitments); provided, however, that each partial reduction shall be in a
Minimum Amount; and provided further, however, that no such reduction or
termination shall be permitted if the Effective Amount of Revolving Loans and
L/C Obligations would exceed the amount of the aggregate Commitments thereafter
in effect. The amount of any such Commitment reductions shall not be applied to
the L/C Commitments unless otherwise specified by the Borrower. All accrued
commitment and letter of credit fees to, but not including, the effective date
of any such reduction or termination shall be payable on the effective date of
such reduction or termination.
(b) Notice. The Agent shall give each Bank prompt notice of
any termination or reduction of its Commitments under this Section 5.01.
(c) Adjustment of Commitment Fee; No Reinstatement. From the
effective date of any reduction or termination prior to the Final Maturity Date,
the commitment fee payable under Section 4.03(a) shall be computed on the basis
of the Commitments as so reduced or terminated. Once reduced or terminated, the
Commitments may not be increased or otherwise reinstated.
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SECTION 5.02 Repayment of the Loans. The Borrower shall
repay to the Banks in full on the Final Maturity Date the aggregate principal
amount of the Loans outstanding on such date.
SECTION 5.03 Prepayments.
(a) Optional Prepayments. The Borrower may, upon prior notice
to the Agent not later than the Required Notice Date, prepay the outstanding
amount of the Loans in whole or ratably in part, without premium or penalty;
provided that any prepayments of LIBOR Loans other than on the last day of the
applicable Interest Period shall be subject to Section 6.02. Partial prepayments
shall be in Minimum Amounts.
(b) Notice; Application. The notice given of any prepayment (a
"Notice of Prepayment") shall specify the date and amount of the prepayment and
whether the prepayment is of Base Rate or LIBOR Loans or a combination thereof,
and if of a combination thereof the amount of the prepayment allocable to each.
Upon receipt of the Notice of Prepayment the Agent shall promptly notify each
Bank thereof. If the Notice of Prepayment is given, the Borrower shall make such
prepayment and the prepayment amount specified in such Notice shall be due and
payable on the date specified therein, with accrued interest to such date on the
amount prepaid.
ARTICLE VI
YIELD PROTECTION AND ILLEGALITY
SECTION 6.01 Inability to Determine Rates. If the Agent shall
determine that adequate and reasonable means do not exist to ascertain the
Adjusted LIBO Rate, or the Majority Banks shall determine that the Adjusted LIBO
Rate does not accurately reflect the cost to the Banks of making or maintaining
LIBOR Loans, then the Agent shall give telephonic notice (promptly confirmed in
writing) to the Borrower and each Bank of such determination. Such notice shall
specify the basis for such determination and shall, in the absence of manifest
error, be conclusive and binding for all purposes. Thereafter, the obligation of
the Banks to make or maintain LIBOR Loans hereunder shall be suspended until the
Agent (upon the instructions of the Majority Banks) revokes such notice. Upon
receipt of such notice, the Borrower may revoke any Notice then submitted by it.
If the Borrower does not revoke such Notice, the Banks shall make, convert or
continue Loans, as proposed by the Borrower, in the amount specified in the
Notice submitted by the Borrower, but such Loans shall be made, converted or
continued as Base Rate Loans instead of LIBOR Loans.
SECTION 6.02 Funding Losses. In addition to such amounts as
are required to be paid by the Borrower pursuant to Section 6.03, the Borrower
shall compensate each Bank, promptly upon receipt of such Bank's written request
made to the Borrower (with a copy to the Agent), for all losses, costs and
expenses (including any loss or expense incurred by such Bank in obtaining,
liquidating or re-employing deposits or
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other funds to fund or maintain its LIBOR Loans), if any, which such Bank
sustains: (i) if the Borrower repays, converts or prepays any LIBOR Loan on a
date other than the last day of an Interest Period for such LIBOR Loan (whether
as a result of an optional prepayment, mandatory prepayment, a payment as a
result of acceleration or otherwise); (ii) if the Borrower fails to borrow a
LIBOR Loan after giving its Notice (other than as a result of the operation of
Section 6.01 or 6.04); (iii) if the Borrower fails to convert into or continue a
LIBOR Loan after giving its Notice (other than as a result of the operation of
Section 6.01 or 6.04); or (iv) if the Borrower fails to prepay a LIBOR Loan
after giving its Notice of Prepayment. Any such request for compensation shall
set forth the basis for requesting such compensation and shall, in the absence
of manifest error, be conclusive and binding for all purposes.
SECTON 6.03 Regulatory Changes.
(a) Increased Costs. If after the date hereof, the adoption
of, or any change in, any applicable law, role or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration thereof
(a "Regulatory Change"), or compliance by any Bank (or its Lending Office) with
any request, guideline or directive (whether or not having the force of law) of
any Governmental Authority shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including any such requirement imposed
by the Board of Governors of the Federal Reserve System, but excluding with
respect to any LIBOR Loan any such requirement included in the calculation of
the Adjusted LIBO Rate) against assets of, deposits with or for the account of,
or credit extended by, any Bank's Lending Office or shall impose on any Bank (or
its Lending Office) or the interbank eurodollar market any other condition
affecting any Bank's LIBOR Loans or its obligation to make LIBOR Loans or its
other obligations hereunder, and the result of any of the foregoing is to
increase the cost to such Bank (or its Lending Office) of agreeing to make or
making, funding or maintaining any Loan or participating in any L/C Obligation,
or increase the cost to any Issuing Bank of agreeing to issue or issuing or
maintaining any Letter of Credit or of agreeing to make or making, funding or
maintaining any unpaid drawing under any Letter of Credit, or to reduce the
amount of any sum received or receivable by such Bank (or its Lending Office) or
such Issuing Bank under this Agreement with respect thereto, by an amount deemed
by such Bank to be material, then from time to time, within 15 days after demand
by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank
such additional amounts as shall compensate such Bank for such increased cost
or reduction; provided, however, that no Bank shall be entitled to obtain
compensation with respect to any period prior to one year prior to making such
demand.
(b) Capital Requirements. If any Bank shall have determined
that any Regulatory Change regarding capital adequacy, or compliance by such
Bank (or any corporation controlling such Bank), with any request, guideline or
directive regarding capital adequacy (whether or not having the force of law) of
any Governmental Authority, has or shall have the effect of reducing the rate of
return on such Bank's or such corporation's capital as a consequence of such
Bank's obligations hereunder to a
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level below that which such Bank or such corporation would have achieved but for
such adoption, change or compliance (taking into consideration such Bank's or
corporation's policies with respect to capital adequacy), by an amount deemed by
such Bank to be material, then from time to time, within 15 days after demand
by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank
such additional amounts (to the extent such additional amounts are not reflected
in the Base Rate or the Adjusted LIBO Rate) as shall compensate such Bank for
such reduction.
(c) Requests. Any request for compensation by a Bank under
this Section 6.03 shall set forth the basis of calculation thereof and shall, in
the absence of manifest error, be conclusive and binding for all purposes. In
determining the amount of such compensation, such Bank may use any reasonable
averaging and attribution methods.
SECTION 6.04 Illegality. If any Bank shall determine that it
has become unlawful, as a result of any Regulatory Change, for such Bank to
make, convert into or maintain LIBOR Loans as contemplated by this Agreement,
such Bank shall promptly give notice of such determination to the Borrower
(through the Agent), and (i) the obligation of such Bank to make or convert into
LIBOR Loans shall be suspended until such Bank gives notice that the
circumstances causing such suspension no longer exist; and (ii) each of such
Bank's outstanding LIBOR Loans shall, if requested by such Bank, be convened
into a Base Rate Loan not later than upon expiration of the Interest Period
related to such LIBOR Loan, or, if earlier, on such date as may be required by
the applicable Regulatory Change, as shall be specified in such request. Any
such determination shall, in the absence of manifest error, be conclusive and
binding for all purposes.
SECTlON 6.05 Funding Assumptions. Solely for purposes of
calculating amounts payable by the Borrower to the Banks under this Article VI,
each LIBOR Loan made by a Bank (and any related reserve, special deposit or
similar requirement) shall be conclusively deemed to have been funded at the
LIBO Rate used in determining the Adjusted LIBO Rate for such LIBOR Loan by a
matching deposit or other borrowing in the interbank eurodollar market for a
comparable amount and for a comparable period, whether or not such LIBOR Loan is
in fact so funded.
SECTION 6.06 Obligation to Mitigate. Each Bank agrees that as
promptly as practicable after it becomes aware of the occurrence of an event
that would entitle it to give notice pursuant to Section 6.03(a) or 6.04, and in
any event if so requested by the Borrower, each Bank shall use reasonable
efforts to make, fund or maintain its affected LIBOR Loans through another
Lending Office if as a result thereof the increased costs would be avoided or
materially reduced or the illegality would thereby cease to exist and if, in the
reasonable opinion of such Bank, the making, funding or maintaining of such
LIBOR Loans through such other Lending Office would not in any material respect
be disadvantageous to such Bank or contrary to such Bank's normal banking
practices.
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ARTICLE VII
PAYMENTS
SECTION 7.01 Pro Rata Treatment. Except as otherwise provided
in this Agreement, each Borrowing hereunder, each Commitment reduction, each
payment (including each prepayment) by the Borrower on account of the principal,
interest, drawings under Letters of Credit, fees and other amounts required
hereunder shall be made without set-off or counterclaim and, except as otherwise
expressly provided with respect to drawings under Letters of Credit, shall be
made ratably in accordance with the Commitment Percentages. Each conversion or
continuation of Loans shall also be made ratably in accordance with the
Commitment Percentages.
SECTION 7.02 Payments.
(a) Payments. The Borrower shall make each payment under the
Loan Documents, unconditionally in full without set-off, counterclaim or other
defense, not later than 11:00 A.M. (California time) on the day when due to the
Agent in Dollars and in same day or immediately available funds, to the Agent's
Account. The Agent shall on such date distribute like funds relating to the
payment on account of principal, interest, drawings under Letters of Credit, the
letter of credit fee, commitment fee or any other amounts payable to the Banks
or to the Issuing Bank, as the case may be, ratably (except as a result of the
operation of Article IV) to the Banks in accordance with their Commitment
Percentages, or to the Issuing Bank, as the case may be.
(b) Authorization to Agent. The Agent may (but shall not be
obligated to), and the Borrower hereby authorizes the Agent to, charge any
deposit account of the Borrower with the Agent for the amount of such payment
which is not made by the time specified in subsection (a). The Agent shall
promptly notify the Borrower after charging any such account.
(c) Extension. Whenever any payment hereunder shall be stated
to be due, or whenever any Interest Payment Date or any other date specified
hereunder would otherwise occur, on a day other than a Business Day, then,
except as otherwise provided herein, such payment shall be made, and such
Interest Payment Date or other date shall occur, on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of payment of interest, letter of credit fee or commitment fee
hereunder.
SECTION 7.03 Taxes.
(a) No Reduction of Payments. The Borrower shall pay all
amounts of principal, interest, fees and other amounts due under the Loan
Documents free and clear of, and without reduction for or on account of, any
present and future taxes, levies, imposts, duties, fees, assessments, charges,
deductions or withholdings and all liabilities with respect thereto excluding,
in the case of each Bank and the Agent, income and franchise taxes imposed on it
by the jurisdiction under the laws of which such Bank or
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the Agent is organized or in which its principal executive offices may be
located or any political subdivision or taxing authority thereof or therein,
and by the jurisdiction of such Bank's Lending Office and any political
subdivision or taxing authority thereof or therein (all such nonexcluded taxes,
levies, imposts, duties, fees, assessments, charges, deductions, withholdings
and liabilities being hereinafter referred to as "Taxes"). If any Taxes shall be
required by law to be deducted or withheld from any payment, the Borrower shall
increase the amount paid so that the respective Bank or the Agent receives when
due (and is entitled to retain), after deduction or withholding for or on
account of such Taxes (including deductions or withholdings applicable to
additional sums payable under this Section 7.03), the full amount of the payment
provided for in the Loan Documents.
(b) Deduction or Withholding; Tax Receipts. If the Borrower
makes any payment hereunder in respect of which it is required by law to make
any deduction or withholding, it shall pay the full amount to be deducted or
withheld to the relevant taxation or other authority within the time allowed for
such payment under applicable law and promptly thereafter shall furnish to the
Agent (for itself or for redelivery to the Bank to or for the account of which
such payment was made) an original or certified copy of a receipt evidencing
payment thereof, together with such other information and documents as the Agent
or any Bank (through the Agent) may reasonably request.
(c) Indemnity. If any Bank or the Agent is required by law to
make any payment on account of Taxes, or any liability in respect of any Tax is
imposed, levied or assessed against any Bank or the Agent, the Borrower shall
indemnify the Agent and the Banks for and against such payment or liability,
together with any incremental taxes, interest or penalties, and all costs and
expenses, payable or incurred in connection therewith, including Taxes imposed
on amounts payable under this Section 7.03, whether or not such payment or
liability was correctly or legally asserted. A certificate of the Agent or any
Bank as to the amount of any such payment shall, in the absence of manifest
error, be conclusive and binding for all purposes.
(d) Forms 1001 and 4224. Each Bank that is incorporated under
the laws of any jurisdiction outside the United States agrees to deliver to the
Agent and the Borrower on or prior to the Closing Date, and in a timely fashion
thereafter, Form 1001, Form 4224 or such other documents and forms of the IRS,
duly executed and completed by such Bank, as are required under United States
law to establish such Bank's status for United States withholding tax purposes.
(e) Mitigation. Each Bank agrees that as promptly as
practicable after it becomes aware of the occurrence of an event that would
cause the Borrower to make any payment in respect of Taxes to such Bank or a
payment in indemnification with respect to any Taxes, and in any event if so
requested by the Borrower following such occurrence, each Bank shall use
reasonable efforts to make, fund or maintain its affected Loan (or relevant part
thereof) through another Lending Office if as a result thereof the additional
amounts so payable by the Borrower would be avoided or materially reduced and
if, in the reasonable opinion of such Bank, the making, funding or maintaining
of such Loan (or relevant part thereof) through such other Lending Office would
not in any
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material respect be disadvantageous to such Bank or contrary to such Bank's
normal banking practices.
SECTION 7.04 Non-Receipt of Funds. Unless the Agent shall have
received notice from the Borrower prior to the date on which any payment is due
to any of the Banks hereunder that the Borrower shall not make such payment in
full, the Agent may assume that the Borrower has made such payment in full to
the Agent on such date and the Agent may, in reliance upon such assumption,
cause to be distributed to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent the Borrower shall not have so
made such payment in full to the Agent, each Bank shall repay to the Agent
forthwith on demand such amount distributed to such Bank together with interest
thereon, for each day from the date such amount is distributed to such Bank
until the date such Bank repays such amount to the Agent, at the Federal Funds
Rate.
SECTION 7.05 Sharing of Payments. If any Bank shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Loans made by it (other than pursuant
to a provision hereof providing for non-pro rata treatment) in excess of its
ratable share of payments on account of the Loans obtained by all the Banks,
such Bank shall forthwith advise the Agent of the receipt of such payment, and
within five Business Days of such receipt purchase from the other Banks (through
the Agent), without recourse, such participations in the Loans made by them as
shall be necessary to cause such purchasing Bank to share the excess payment
ratably with each of them; provided, however, that if all or any portion of
such excess payment is thereafter recovered by or on behalf of the Borrower from
such purchasing Bank, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest. The Borrower
agrees that any Bank so purchasing a participation from another Bank pursuant to
this Section 7.05 may exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Bank were the
direct creditor of the Borrower in the amount of such participation. No
documentation other than notices and the like referred to in this Section 7.05
shall be required to implement the terms of this Section 7.05. The Agent shall
keep records (which shall be conclusive and binding in the absence of manifest
error) of participations purchased pursuant to this Section 7.05 and shall in
each case notify the Banks following any such purchases.
ARTICLE VIII
CONDITIONS PRECEDENT
SECTION 8.01 Conditions Precedent to the Effectiveness of
Agreement. The obligation of each Bank to make its initial Credit Extension
hereunder shall be subject to the satisfaction of each of the following
conditions precedent on or before the Closing Date:
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(a) Fees and Expenses. The Borrower shall have paid (i) all
fees then due in accordance with Section 4.03 and (ii) all invoiced costs and
expenses then due in accordance with Section 13.04(a).
(b) Loan Documents. The Agent shall have received the Notes,
executed by the Borrower, and (in sufficient copies for each of the Banks and
the Borrower) counterparts of this Agreement executed by all the parties hereto.
(c) Additional Closing Documents and Actions. The Agent shall
have received the following, in form and substance satisfactory to it and each
Bank:
(i) evidence of completion to the satisfaction of the
Agent and each Bank of such investigations, reviews and audits with respect to
the Borrower and its operations as the Agent or any Bank may deem appropriate;
(ii) certificates of one or more nationally
recognized insurance brokers or other insurance specialists acceptable to the
Agent, dated as of a recent date prior to the Closing Date, stating that all
insurance required under this Agreement is in full force and effect;
(iii) if applicable, evidence that all (A)
authorizations or approvals of any Governmental Authority and (B) approvals or
consents of any other Person, required in connection with the execution,
delivery and performance of the Loan Documents shall have been obtained;
(iv) (in sufficient copies for the Banks) the audited
consolidated balance sheet of the Borrower and its Subsidiaries as at December
31, 1994, and the related consolidated statements of income, shareholders'
equity and cash flows for the fiscal year then ended, and the unaudited
consolidated balance sheet of the Borrower and its Subsidiaries as at September
29, 1995, and the related consolidated statements of income, shareholders'
equity and cash flows, for the quarter then ended and the nine-month period then
ended; and
(v) a certificate of a Responsible Officer of the
Borrower, dated the Closing Date, stating that (A) the representations and
warranties contained in Section 9.01 and in the other Loan Documents are true
and correct on and as of the date of such certificate as though made on and as
of such date and (B) on and as of the Closing Date, no Default shall have
occurred and be continuing.
(d) Corporate Documents. The Agent shall have received the
following, in form and substance satisfactory to it and each Bank:
(i) certified copies of the certificate or articles,
as the case may be, of incorporation of the Borrower, together with certificates
as to good standing and tax status, from the Secretary of State or other
Governmental Authority, as applicable, of the Borrower's state of incorporation
and certificates from the Secretary of State or
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other Governmental Authority, as applicable, of Maryland and each other state
where the Borrower is qualified to do business as a foreign corporation as to
the Borrower's status as a foreign corporation and tax status, each dated as of
a recent date prior to the Closing Date;
(ii) a certificate of the Secretary or Assistant
Secretary of the Borrower, dated the Closing Date, certifying (A) copies of the
bylaws of the Borrower and the resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of the Loan
Documents and (B) the incumbency, authority and signatures of each officer of
the Borrower authorized to execute and deliver the Loan Documents and act with
respect thereto, upon which certificate the Agent and the Banks may conclusively
rely until the Agent shall have received a further certificate of the Secretary
or an Assistant Secretary of the Borrower cancelling or amending such prior
certificate.
(e) Legal Opinions. The Agent shall have received the opinion
of Richard G. Bell, General Counsel to the Borrower, dated the Closing Date, in
substantially the form of Exhibit C.
(f) Auditor's Letter. The Agent shall have received a letter
from Deloitte & Touche LLP substantially in the form of Exhibit D, acknowledged
and agreed to by the Borrower and such auditors.
SECTION 8.02 Conditions Precedent to All Credit Extensions.
The obligation of each Bank to make any Credit Extension to be made by it
hereunder (including its initial Credit Extension) is subject to the
satisfaction of the following conditions precedent on the relevant Credit
Extension date:
(a) Notice. The Agent shall have received a Notice of
Borrowing; or in the case of any issuance, amendment or renewal of any Letter of
Credit, the Issuing Bank and the Agent shall have received an L/C Application or
L/C Amendment Application, as required under Section 3.02.
(b) Material Adverse Effect. On and as of the date of such
Credit Extension, there shall have occurred no Material Adverse Effect since the
date of this Agreement.
(c) Representations and Warranties; No Default. On the date of
such Credit Extension date, both before and after giving effect thereto and to
the application of proceeds therefrom:. (i) the representations and warranties
contained in Section 9.01 and in the other Loan Documents shall be true, correct
and complete on and as of the date of such Credit Extension date as though made
on and as of such date (giving effect to (A) such updates of Schedule 4 as the
Borrower may have delivered to the Agent prior to such Credit Extension date and
(B) with respect to Section 9.01(q), the most recent financial statements
delivered to the Agent in compliance with Section 10.01(a)(ii)); and (ii) no
Default shall have occurred and be continuing or shall result
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from such Credit Extension. The giving of any Notice of Borrowing, the
submission of any L/C Application or L/C Amendment Application, and the
acceptance by the Borrower of the proceeds of each Borrowing following the
Closing Date, shall each be deemed a certification to the Agent and the Banks
that on and as of the date of such Credit Extension such statements are true.
(d) Additional Documents. The Agent shall have received, in
form and substance satisfactory to it, such additional approvals, opinions,
documents and other information as the Agent or any Bank (through the Agent) may
reasonably request.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
SECTION 9.01 Representations and Warranties. The Borrower
represents and warrants to each Bank and the Agent that:
(a) Organization and Powers. Each of the Borrower and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the law of the jurisdiction of its incorporation, is qualified to
do business and is in good standing in each jurisdiction in which the failure so
to qualify or be in good standing would result in a Material Adverse Effect and
has all requisite power and authority to own its assets and carry on its
business and, with respect to the Borrower, to execute, deliver and perform its
obligations under the Loan Documents.
(b) Authorization; No Conflict. The execution, delivery and
performance by the Borrower of the Loan Documents have been duly authorized by
all necessary corporate action of the Borrower and do not and will not (i)
contravene the terms of the certificate or articles, as the case may be, of
incorporation and the bylaws of the Borrower or result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which the Borrower is a party or by
which it or its properties may be bound or affected; (ii) violate any provision
of any law, role, regulation, order, writ, judgment, injunction, decree or the
like binding on or affecting the Borrower; or (iii) result in, or require, the
creation or imposition of any Lien upon or with respect to any of the properties
of the Borrower.
(c) Binding Obligation. The Loan Documents constitute, or when
delivered under this Agreement will Constitute, legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance with
their respective terms.
(d) Consents. No authorization, consent, approval, license,
exemption of, or filing or registration with, any Governmental Authority, or
approval or consent of any other Person, is required for the due execution,
delivery or performance by the Borrower of any of the Loan Documents.
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(e) No Defaults. Neither the Borrower nor any of its
Subsidiaries is in default under any material contract, lease, agreement,
judgment, decree or order to which it is a party or by which it or its
properties may be bound.
(f) Title to Properties; Liens. The Borrower and its
Subsidiaries have good and marketable title to, or valid and subsisting
leasehold interests in, their properties and assets, and there is no Lien upon
or with respect to any of such properties or assets, except for Permitted Liens.
(g) Litigation. Except as set forth on Schedule 5, there are
no actions, suits or proceedings pending or, to the best of the Borrower's
knowledge, threatened against or affecting the Borrower or any of its
Subsidiaries or the properties of the Borrower or any of its Subsidiaries before
any Governmental Authority or arbitrator which if determined adversely to the
Borrower or any such Subsidiary would result in a Material Adverse Effect.
(h) Compliance with Environmental Laws. Except as set forth on
Schedule 6, to the best of Borrower's knowledge after due investigation, (i) the
properties of the Borrower and its Subsidiaries do not contain and have not
previously contained (at, under, or about any such property) any Hazardous
Substances or other contamination (A) in amounts or concentrations that
constitute or constituted a violation of, or could give rise to liability under,
any Environmental Laws, in either case where such violation or liability could
reasonably be expected to result in a Material Adverse Effect, (B) which could
interfere with the continued operation of such property, or (c) which could
materially impair the fair market value thereof; and (ii) there has been no
transportation or disposal of Hazardous Substances from, nor any release or
threatened release of Hazardous Substances at or from, any property of the
Borrower or any of its Subsidiaries in violation of or in any manner could give
rise to liability under any Environmental Laws, where such violation or
liability, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect.
(i) 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 Investment Company Act of 1940,
the Interstate Commerce Act, any state public utilities code or any other
federal or state statute or regulation limiting its ability to incur
Indebtedness.
(j) ERISA. Except as specifically disclosed to the Banks in
writing prior to the Closing Date: (i) each Plan is in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
federal or state law; (ii) there are no pending, or to the best knowledge of
Borrower, threatened claims, actions or lawsuits, or action by any governmental
authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect; (iii) there has been no
prohibited transaction or other violation of the fiduciary responsibility rule
with respect to any Plan which could reasonably result in a Material Adverse
Effect; (iv) no ERISA Event has occurred or is reasonably expected to occur
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with respect to any Pension Plan; (v) no Pension Plan has any Unfunded Pension
Liability; (vi) the Borrower has not incurred, nor does it reasonably expect to
incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (vii)
no trade or business (whether or not incorporated under common control with the
Borrower within the meaning of Section 414(b), (c), (m) or (o) of the Code)
maintains or contributes to any Pension Plan or other Plan subject to Section
412 of the Code; and (viii) neither the Borrower or entity under common control
with the Borrower in the preceding sentence has ever contributed to any
multiemployer plan within the meaning of Section 4001(a)(3) of ERISA.
(k) Subsidiaries. The name, capital structure and ownership of
each Subsidiary of the Borrower on the date of this Agreement is as set forth in
Schedule 4. All of the outstanding capital stock of, or other interest in, each
such Subsidiary has been validly issued, and is fully paid and nonassessable.
Except as set forth in such Schedule, on the date of this Agreement the Borrower
has no material equity interest in any Person.
(1) Marin Regulations. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying "margin
stock" (within the meaning of Regulations G or U of the Board of Governors of
the Federal Reserve System of the United States). No part of the proceeds of the
Loans or other extensions of credit hereunder 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.
(m) Taxes. Each of the Borrower and its Subsidiaries has duly
filed all tax and information returns required to be filed, and has paid all
taxes, fees, assessments and other governmental charges or levies that have
become due and payable, except to the extent such taxes or other charges are
being contested in good faith and are adequately reserved against in accordance
with GAAP.
(n) Patents and Other Rights. Each of the Borrower and its
Subsidiaries possesses all permits, franchises, licenses, patents, trademarks,
trade names, service marks, copyrights and all rights with respect thereto, free
from burdensome restrictions, that are necessary for the ownership, maintenance
and operation of its business. Neither the Borrower nor any such Subsidiary is
in violation of any rights of others with respect to the foregoing, except where
such violation is not reasonably expected to result in a Material Adverse
Effect.
(o) Insurance. The properties of the Borrower and its
Subsidiaries are insured in such amounts, with such deductibles and covering
such risks as is customarily carried by companies engaged in similar businesses
and owning similar properties in the localities where the Borrower or such
Subsidiary operates, and such insurance is maintained with financially sound and
reputable insurance companies or pursuant to a plan or plans or self-insurance
to such extent as is usual for companies of similar size engaged in the same or
similar businesses and owning similar properties,
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(p) Financial Statements. The audited consolidated balance
sheet of the Borrower and its Subsidiaries as at December 31, 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for the fiscal year then ended, and the unaudited consolidated balance sheet of
the Borrower and its Subsidiaries as at September 29, 1995, and the related
consolidated statements of income, shareholders' equity and cash flows, for the
quarter then ended and the nine-month period then ended, are complete and
correct and fairly present the financial condition of the Borrower and its
Subsidiaries as at such dates and the results of operations of the Borrower and
its Subsidiaries for the periods covered by such statements, in each case in
accordance with GAAP consistently applied, subject, in the case of the September
29, 1995 financial statements, to normal year-end adjustments and the absence of
notes. Since December 31, 1994, there has been no Material Adverse Effect.
(q) Liabilities. Neither the Borrower nor any of its
Subsidiaries has any material liabilities, fixed or contingent, that are not
reflected in the financial statements referred to in subsection (p), in the
notes thereto or otherwise disclosed in writing to the Banks, other than
liabilities arising in the ordinary course of business since December 31, 1994.
(r) Labor Disputes, Etc. There are no strikes, lockouts or
other labor disputes against the Borrower or any of its Subsidiaries, or, to the
best of the Borrower's knowledge, threatened against or affecting the Borrower
which may result in a Material Adverse Effect.
(s) Disclosure. None of the representations or warranties made
by the Borrower or any of its Subsidiaries in the Loan Documents as of the date
of such representations and warranties, and none of the statements contained in
each exhibit or report furnished by or on behalf of the Borrower or any of its
Subsidiaries to the Agent and the Banks in connection with the Loan Documents,
contains any untrue statement of a material fact or omits any material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they are made, not misleading.
ARTICLE X
COVENANTS
SECTION 10.01 Reporting Covenants. So long as any of the
Obligations shall remain unpaid, any Letter of Credit shall remain outstanding
or any Bank shall have any Commitment, the Borrower agrees that:
(a) Financial Statements and Other Reports. The Borrower will
furnish to the Agent in sufficient copies for distribution to the Banks:
(i) as soon as available and in any event within
60 days after the end of the first three fiscal quarters of each fiscal year
of the Borrower, a consolidated
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balance sheet of the Borrower and its Subsidiaries as of the end of such
quarter, and the related consolidated statements of income, shareholders'
equity and cash flows of the Borrower and its Subsidiaries for such quarter and
the portion of the fiscal year through the end of such quarter, prepared in
accordance with GAAP consistently applied, all in reasonable detail and setting
forth in comparative form the figures for the corresponding period in the
preceding fiscal year, together with a certificate of a Responsible Officer of
the Borrower stating that such financial statements fairly present the financial
condition of the Borrower and its Subsidiaries as at such date and the results
of operations of the Borrower and its Subsidiaries for the period ended on such
date and have been prepared in accordance with GAAP consistently applied,
subject to changes resulting from normal, year-end audit adjustments and except
for the absence of notes;
(ii) as soon as available and in any event within 120
days after the end of each fiscal year of the Borrower, a consolidated balance
sheet of the Borrower and its Subsidiaries as of the end of such fiscal year,
and the related consolidated statements of income, shareholders' equity and cash
flows of the Borrower and its Subsidiaries for such fiscal year, prepared in
accordance with GAAP consistently applied, all in reasonable detail and setting
forth in comparative form the figures for the previous fiscal year, and (A) in
the case of such consolidated financial statements, accompanied by a report
thereon of Deloitte & Touche LLP or another firm of independent certified public
accountants of recognized national standing acceptable to the Majority Banks,
which report shall be unqualified as to scope of audit or the status of the
Borrower and its Subsidiaries as a going concern, together with a certificate of
such independent public accountants stating that (1) their audit examination of
the Borrower and its Subsidiaries has included a review of the terms of this
Agreement as they relate to accounting matters; (2) in the course of such audit
examination, which audit was conducted by such accountants in accordance with
generally accepted auditing standards, such accountants have obtained no
knowledge that any Default has occurred and is continuing, or, if such Default
has occurred and is continuing, indicating the nature thereof; provided that
such accountants shall not be liable by reason of any failure to obtain
knowledge of any Default that would not be disclosed in the course of their
audit examination; and (3) based on their audit examination nothing has come to
their attention which causes them to believe that the matters set forth in the
Compliance Certificate delivered pursuant to clause (iii) for the applicable
fiscal year with respect to compliance with the provisions of Section 10.02 and
subsection (f) of Section 10.04 are not stated in accordance with the terms of
this Agreement;
(iii) together with the financial statements required
pursuant to clauses (i) and (ii), a Compliance Certificate of a Responsible
Officer as of the end of the applicable accounting period; and
(iv) promptly after the giving, sending or filing
thereof, copies of all reports, if any, which the Borrower or any of its
Subsidiaries sends to the holders of its respective capital stock or other
securities and of all reports or filings, if any, by the Borrower or any of its
Subsidiaries with the SEC or any national securities exchange.
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(b) Additional Information. The Borrower wi11 furnish to the
Agent:
(i) promptly after the Borrower has knowledge or
becomes aware thereof, notice of the occurrence of any Event of Loss
with respect to its property or assets aggregating $1,000,000 or more (in excess
of amounts covered by third-party insurance);
(ii) promptly after the Borrower has knowledge or
becomes aware thereof, notice of the occurrence or existence of any Default;
(iii) prompt written notice of (A) any proposed
acquisition of stock, assets or property by the Borrower or any of its
Subsidiaries that could reasonably be expected to result in a Material Adverse
Effect due to environmental liability under Environmental Laws, and (B)(1) any
spillage, leakage, discharge, disposal, leaching, migration or release of any
Hazardous Substances required to be reported to any Governmental Authority under
applicable Environmental Laws, and (2) all actions, suits, claims, notices of
violation, hearings, investigations or proceedings pending, or to the best of
the Borrower's knowledge, threatened against or affecting the Borrower or any of
its Subsidiaries or with respect to the ownership, use, maintenance and
operation of the Premises, relating to Environmental Laws or Hazardous
Substances and which could reasonably be expected to result in a Material
Adverse Effect;
(iv) prompt written notice of each action, suit and
proceeding before any Governmental Authority or arbitrator pending, or to the
best of the Borrower's knowledge, threatened against or affecting the Borrower
or any of its Subsidiaries which (A) if adversely determined would involve an
aggregate liability of $1,000,000 or more in excess of amounts covered by
third-party insurance, or (B) otherwise may have a Material Adverse Effect;
(v) promptly after the Borrower has knowledge or
becomes aware thereof, (A) notice of the occurrence of any Termination Event,
together with a copy of any notice of such Termination Event to the PBGC, and
(B) the details concerning any action taken or proposed to be taken by the IRS,
PBGC, Department of Labor or other Person with respect thereto;
(vi) promptly upon the commencement or increase of
contributions to, the adoption of, or an amendment to, a Plan by the Borrower
or an ERISA Affiliate, if such commencement or increase of contributions,
adoption, or amendment could reasonably be expected to result in a net increase
in unfunded liability to Borrower or an ERISA Affiliate in excess of $1,000,000,
a calculation of the net increase in unfunded liability;
(vii) promptly after filing or receipt thereof by the
Borrower or any ERISA Affiliate, copies of the following:
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(A) any notice received from the PBGC of intent to terminate
or have a trustee appointed to administer any Pension Plan;
(B) any notice received from the sponsor of a Multiemployer
Plan concerning the imposition, delinquent payment, or amount of withdrawal
liability;
(c) any demand by the PBGC under Subtitle D of Title IV of
ERISA; and
(D) any notice received from the IRS regarding the
disqualification of a Plan intended to qualify under Section 401(a) of the
Internal Revenue Code;
(viii) the information regarding insurance maintained
by the Borrower and its Subsidiaries as required under Section 10.03(c);
(ix) within 3.0 days of the date thereof, or, if
earlier, on the date of delivery of any financial statements pursuant to
subsection (a), notice of any material change in accounting policies or
financial reporting practices by the Borrower or any of its Subsidiaries;
(x) promptly after the occurrence thereof, notice of
any labor controversy resulting in or threatening to result in any strike, work
stoppage, boycott, shutdown or other material labor disruption against or
involving the Borrower or any of its Subsidiaries which could result in a
Material Adverse Effect;
(xi) prompt written notice of any other condition or
event which has resulted, or that could reasonably be expected to result, in a
Material Adverse Effect; and
(xii) such other information respecting the
operations, properties, business or condition (financial or otherwise) of the
Borrower or its Subsidiaries as any Bank (through the Agent) may from time to
time reasonably request.
Each notice pursuant to this subsection (b) shall be accompanied by a written
statement by a Responsible Officer of the Borrower setting forth details of the
occurrence referred to therein, and stating what action the Borrower proposes to
take with respect thereto.
SECTION 10.02 Financial Covenants. So long as any of the
Obligations shall remain unpaid, any Letter of Credit shall remain outstanding
or any Bank shall have any Commitment, the Borrower agrees that:
(a) Leverage Ratio. The Borrower will maintain a ratio of
Consolidated Total Liabilities to Consolidated Tangible Net Worth as of the end
of each of the Borrower's fiscal quarters of not more than 1.0 to 1.0;
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(b) Minimum Consolidated Net Worth. The Borrower will maintain
Consolidated Net Worth as of the end of each of the Borrower's fiscal quarters
of not less than $135,000,000 plus 100% of the net proceeds received by the
Borrower or any Subsidiary from the sale or issuance of equity securities to any
Person other than the Borrower or any Subsidiary after June 30, 1995 plus 50% of
positive Consolidated Net Income, if any, for each fiscal quarter elapsed after
June 30, 1995;
(c) Quick Ratio. The Borrower will maintain a ratio of
Consolidated Adjusted Current Assets to Consolidated Adjusted Current
Liabilities of not less than 1.0 to 1.0 as of the end of any fiscal quarter;
(d) Profitability. During any period of four consecutive
fiscal quarters, the Borrower, on a consolidated basis, shall not incur (a) more
than two quarterly net or operating losses or (b) net or operating losses in
excess of $10,000,000 in the aggregate for any one or two quarters. The
Borrower, on a consolidated basis, shall be profitable for any period of four
consecutive fiscal quarters; and
(e) Senior Debt to Total Capitalization. The Borrower will
maintain a ratio of Senior Debt to Total Capitalization (i) of not more than
0.40 to 1.0, as of the end of each of the Borrower's fiscal quarters in 1995 and
1996, and (ii) of not more than 0.375 to 1.0, as of the end of each of the
Borrower's fiscal quarters thereafter.
SECTION 10.03 Additional Affirmative Covenants. So long as any
of the Obligations shall remain unpaid, any Letter of Credit shall remain
outstanding or any Bank shall have any Commitment, the Borrower agrees that:
(a) Preservation of Existence, Etc. The Borrower will, and
will cause each of its Material Subsidiaries to, maintain and preserve its
corporate existence, its rights to transact business and all other rights,
franchises and privileges necessary or desirable in the normal course of its
business and operations and the ownership of its properties, except in
connection with transactions permitted by Section 10.04(c) and (d).
(b) Payment of Taxes, Etc. The Borrower will, and will cause
each of its Material Subsidiaries to, pay and discharge all taxes, fees,
assessments and governmental charges or levies imposed upon it or upon its
properties or assets prior to the date on which penalties attach thereto, and
all lawful claims for labor, materials and supplies which, if unpaid, might
become a Lien upon any properties or assets of the Borrower or any Subsidiary,
except to the extent such taxes, fees, assessments or governmental charges or
levies, or such claims, are being contested in good faith by appropriate
proceedings and are adequately reserved against in accordance with GAAP.
(c) Maintenance of Insurance. The Borrower will, and will
cause each of its Material Subsidiaries to, carry and maintain in full force and
effect, at its own expense and with financially sound and reputable insurance
companies, insurance in such amounts, with such deductibles and covering such
risks as is customarily carried by companies engaged in the same or similar
businesses and owning similar properties in the
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localities where the Borrower or such Subsidiary operates, including fire,
extended coverage, business interruption, public liability, property damage and
worker's compensation. Notwithstanding the foregoing, the Borrower and its
Subsidiaries may maintain a plan or plans of self-insurance to such extent and
coveting such risks as is usual for companies of similar size engaged in the
same or similar businesses and owning similar properties. Upon the request of
the Agent or any Bank, the Borrower shall furnish the Agent from time to time
with full information as to the insurance carried by it. All insurance policies
required under this subsection (c) shall provide that they shall not be
terminated or cancelled nor shall any such policy be materially changed without
at least 30 days' prior written notice to the Borrower and the Agent.
(d) Keeping of Records and Books of Account. The Borrower
will, and will cause each of its Subsidiaries to, keep adequate records and
books of account, in which complete entries will be made in accordance with
GAAP, reflecting all financial transactions of the Borrower and its
Subsidiaries.
(e) Inspection Rights. Upon reasonable prior notice, the
Borrower will at any reasonable time and from time to time permit the Agent and
the Banks or any of their respective agents or representatives to visit and
inspect any of the properties of the Borrower and its Material Subsidiaries and
to examine and make copies of and abstracts from the records and books of
account of the Borrower and its Material Subsidiaries, and to discuss the
business affairs, finances and accounts of the Borrower and any such Subsidiary
with any of the officers, employees or accountants of the Borrower or such
Subsidiary.
(f) Compliance with Laws, Etc. The Borrower will, and will
cause each of its Subsidiaries to, comply with the requirements of all
applicable laws, rules, regulations and orders of any Governmental Authority
(including all Environmental Laws) and the terms of any indenture, contract or
other instrument to which it may be a party or under which it or its properties
may be bound, except in each case if noncompliance therewith is not reasonably
expected to result in a Material Adverse Effect.
(g) Maintenance of Properties, Etc. The Borrower will, and
will cause each of its Material Subsidiaries to, maintain and preserve all of
its properties necessary or useful in the proper conduct of its business in good
working order and condition in accordance with the general practice of other
corporations of similar character and size, ordinary wear and tear excepted.
(h) Licenses. The Borrower will, and will cause each of its
Material Subsidiaries to, obtain and maintain all licenses, authorizations,
consents, filings, exemptions, registrations and other governmental approvals
necessary in connection with the execution, delivery and performance of the Loan
Documents, the consummation of the transactions therein contemplated or the
operation and conduct of its business and ownership of its properties.
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(i) Action Under Environmental Laws. The Borrower will, and
will cause each of its Subsidiaries to, upon becoming aware of the presence of
any Hazardous Substance or the existence of any environmental liability under
applicable Environmental Laws with respect to the Premises, take all actions, at
their cost and expense, as shall be necessary or advisable to investigate and
clean up the condition of the Premises, including all removal, containment and
remedial actions, and restore the Premises to a condition in compliance with
applicable Environmental Laws.
(j) Use of Proceeds. The Borrower will use the proceeds of the
Loans solely for general corporate purposes.
(k) Further Assurances and Additional Acts. The Borrower will
execute, acknowledge, deliver, file, notarize and register at its own expense
all such further agreements, instruments, certificates, documents and assurances
and perform such acts as the Agent or the Majority Banks shall reasonably deem
necessary or appropriate to effectuate the purposes of the Loan Documents, and
promptly provide the Agent with evidence of the foregoing satisfactory in form
and substance to the Agent or the Majority Banks.
SECTON 10.04 Negative Covenants. So long as any of the
Obligations shall remain unpaid, any Letter of Credit shall remain outstanding
or any Bank shall have any Commitment, the Borrower agrees that:
(a) Liens; Negative Pledges.
(i) The Borrower will not, and will not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or
with respect to any of its properties, revenues or assets, whether now owned or
hereafter acquired, other than Permitted Liens.
(ii) The Borrower will not, and will not permit any
of its Subsidiaries to, enter into any agreement (other than this Agreement and
any other Loan Document) prohibiting the creation or assumption of any Lien upon
any of its properties, revenues or assets, whether now owned or hereafter
acquired.
(b) Change in Nature of Business. The Borrower will not, and
will not permit any of its Subsidiaries to, engage in any material line of
business substantially different from those lines of business carried on by it
at the date hereof.
(c) Restrictions on Fundamental Changes. The Borrower will
not, and will not permit any of its Subsidiaries to, merge with or consolidate
into, or acquire all or substantially all of the assets of, any Person, or sell,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets, except that:
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(i) any of the Borrower's wholly owned Subsidiaries
may merge with, consolidate into or transfer all or substantially all of its
assets to another of the Borrower's wholly owned Subsidiaries or to the Borrower
and in connection therewith such Subsidiary may be liquidated or dissolved;
(ii) the Borrower or any of its Subsidiaries may sell
or dispose of assets in accordance with the provisions of subsection (d);
(iii) the Borrower or any of its Subsidiaries may
make any investment permitted by subsection (e); and
(iv) the Borrower may merge with or consolidate into
any other Person, provided that (A) the Borrower is the surviving corporation,
and (B) no such merger or consolidation shall be made while there exists a
Default or if a Default would occur as a result thereof.
(d) Sales of Assets. The Borrower will not, and will not
permit any of its Subsidiaries to, convey, sell, lease, transfer, or otherwise
dispose of, or part with control of (whether in one transaction or a series of
transactions) any assets (including any shares of stock in any Subsidiary or
other Person), except:
(i) sales or other dispositions of inventory in the
ordinary course of business;
(ii) sales or other dispositions in the ordinary
course of business of assets which have become worn out or obsolete or which are
promptly being replaced;
(iii) sales of accounts receivable to financial
institutions not affiliated with the Borrower, provided that (A) the applicable
discount rate shall be no greater than 15% per annum at any time, (B) the amount
of all accounts receivable permitted to be sold in any fiscal quarter shall not
exceed 35% of the Borrower's total accounts receivable, determined as of the end
of the next preceding fiscal quarter (or fiscal year, as the case may be), and
no more than 50% of such accounts receivable permitted to be sold shall be
domestic accounts receivable of the Borrower; and (c) the sole consideration
received for such sales shall be cash;
(iv) the sale of the property located at 2525 North
First Street, San Jose, California and the property located at Dedworth Road,
Oakley Green, Windsor, Berkshire, England; and
(v) sales or other dispositions of assets outside the
ordinary course of business which do not constitute Substantial Assets.
For purposes of clause (v), a sale, lease, transfer or other disposition of
assets shall be deemed to be of "Substantial Assets" if such assets conveyed,
sold, leased, transferred or
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otherwise disposed of in any fiscal year of the Borrower (other than assets sold
in the ordinary course of business or pursuant to clauses (iii) or (iv)), shall
exceed 7-1/2% of Consolidated Total Assets as determined as of the end of the
next preceding fiscal year of the Borrower.
(e) Loans and Investments. The Borrower will not, and will not
permit any of its Subsidiaries to, purchase or otherwise acquire the capital
stock, assets, obligations or other securities of or any interest in any Person
(including by merger or consolidation), or otherwise extend any credit to or
make any additional investments in any Person, other than in connection with:
(i) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sales of goods or services in
the ordinary course of business;
(ii) Permitted Investments;
(iii) additional purchases of or investments in the
stock of Subsidiaries; or
(iv) purchases of or investments in the capital
stock, assets, obligations or other securities of or interest in other Persons
not exceeding in any fiscal year of the Borrower an amount equal to 20% of
Consolidated Net Worth, determined as of the last day of the fiscal quarter (or
fiscal year) of the Borrower most recently ended, as to all such investments in
the aggregate within such year.
(f) Distributions.
(i) The Borrower will not declare or pay any
dividends in respect of the Borrower's capital stock, or purchase, redeem,
retire or otherwise acquire for value any of its capital stock now or hereafter
outstanding, return any capital to its shareholders as such, or make any
distribution of assets to its shareholders as such, or permit any of its
Subsidiaries to purchase, redeem, retire, or otherwise acquire for value any
stock of the Borrower, except that the Borrower may:
(A) declare and deliver dividends and
distributions payable only in common stock of the Borrower;
(B) declare and deliver cash dividends in an
amount not to exceed $7,000,000 in any fiscal year of the Borrower;
(C) purchase, redeem, retire, or otherwise
acquire shares of its capital stock with the proceeds received from a
substantially concurrent issue of new shares of its capital stock; and
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(D) purchase shares of its capital stock
from time to time, in connection with the issuance of shares of such capital
stock to its employees under the Borrower's employee stock option plans or to
the members of its board of directors; provided that the number of such shares
purchased shall not at any time, in the aggregate, exceed the aggregate number
of such shares issued to such employees and board members.
(ii) The Borrower will not permit any Subsidiary of
the Borrower to grant or otherwise agree to or suffer to exist any consensual
restrictions on the ability of such Subsidiary to pay dividends and make other
distributions to the Borrower, or to pay any Indebtedness owed to the Borrower
or transfer properties and assets to the Borrower.
(g) Transactions with Related Parties. The Borrower will not,
and will not permit any of its Subsidiaries to, enter into any transaction,
including the purchase, sale or exchange of property or the rendering of any
services, with any Affiliate, any officer or director thereof or any Person
which beneficially owns or holds 5% or more of the equity securities, or 5% or
more of the equity interest, thereof (a "Related Party"), or enter into, assume
or suffer to exist, or permit any Subsidiary to enter into, assume or suffer to
exist, any employment or consulting contract with any Related Party, except a
transaction or contract which is in the ordinary course of the Borrower's or
such Subsidiary's business and which is upon fair and reasonable terms not less
favorable to the Borrower or such Subsidiary than it would obtain in a
comparable arm's length transaction with a Person not a Related Party.
(h) Hazardous Substances. The Borrower will not, and will not
permit any of its Subsidiaries to, use, generate, manufacture, install, treat,
release, store or dispose of any Hazardous Substances, except in compliance with
all applicable Environmental Laws.
(i) Accounting Changes. The Borrower will not, and will not
suffer or permit any of its Subsidiaries to, make any significant change in
accounting treatment or reporting practices, except as required or permitted by
GAAP, or change the fiscal year of the Borrower or of any of its consolidated
Subsidiaries.
(j) Regulations G, T, U, and X. The Borrower shall not, and
shall not permit any of its Subsidiaries to, use any portion of the proceeds of
any Loans or extensions of credit hereunder, directly or indirectly, (i) to
purchase or carry margin stock (within the meanings of Regulations G, T, U, and
X of the FRB), (ii) to repay or otherwise refinance indebtedness of the Borrower
or others incurred to purchase or carry any such margin stock, (iii) to extend
credit for the purpose of purchasing or carrying any such margin stock, or (iv)
to acquire any security in any transaction that is subject to Section 13 or 14
of the Securities Exchange Act of 1934, as amended.
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ARTICLE XI
EVENTS OF DEFAULT
SECTON 11.01 Events of Default. Any of the following events
which shall occur shall constitute an "Event of Default":
(a) Payments. The Borrower shall fail to pay when due (i) any
amount of principal of any Loan or Note or any amount of any L/C Obligation
(other than an amount deemed to be made or converted into a Borrowing of
Revolving Loans under Section 3.03(b)), and such failure continues for a period
of three days after the due date, or (ii) any interest on any Loan or Note or
any fee or other amount payable hereunder or under any of the other Loan
Documents, and such failure continues for a period of five days after the due
date.
(b) Representations and Warranties. Any representation or
warranty by the Borrower under or in connection with the Loan Documents shall
prove to have been incorrect in any material respect when made or deemed made.
(c) Failure by Borrower to Perform Certain Covenants. The
Borrower shall fail to perform or observe any term, covenant or agreement
contained in Section 10.02 or Section 10.04.
(d) Failure by Borrower to Perform Other Covenants. The
Borrower shall fail to perform or observe any term, covenant or agreement
contained in this Agreement or any other Loan Document on its part to be
performed or observed (other than those described in paragraphs (a), (b) and (c)
above) and any such failure shall remain unremedied for a period of 20 days from
the occurrence thereof (unless the Majority Banks determine that such failure is
not capable of remedy, in which case the Event of Default shall occur upon such
failure, or unless the Majority Banks, in their sole discretion, shall have
determined that more time is required to effect a cure and, in their sole
discretion, shall have granted, in writing, an additional period for such cure;
provided that the Borrower shall have commenced such cure within such 20-day
period).
(e) Bankruptcy. The Borrower or any of its Subsidiaries shall
admit in writing its inability to, or shall fail generally or be generally
unable to, pay its debts (including its payrolls) as such debts become due, or
shall make a general assignment for the benefit of creditors; or the Borrower or
any such Subsidiary shall file a voluntary petition in bankruptcy or a petition
or answer seeking reorganization, to effect a plan or other arrangement with
creditors or any other relief under the Bankruptcy Code or under any other state
or federal law relating to bankruptcy or reorganization granting relief to
debtors, whether now or hereafter in effect, or shall file an answer admitting
the jurisdiction of the court and the material allegations of any involuntary
petition filed against the Borrower or any such Subsidiary pursuant to the
Bankruptcy Code or any such other state or federal law; or the Borrower or any
such Subsidiary shall be adjudicated a bankrupt, or shall make an assignment for
the benefit of creditors, or shall apply for or consent to the appointment of
any custodian, receiver or trustee for all or
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any substantial part of the Borrower's or any such Subsidiary's property, or
shall take any action to authorize any of the actions or events set forth above
in this subsection; or any order for relief shall be entered against the
Borrower or any such Subsidiary in any involuntary proceeding under the
Bankruptcy Code or any such other state or federal law referred to in this
subsection (e).
(f) Involuntary Bankruptcy. An involuntary petition is filed
under any bankruptcy or similar statute against the Borrower or any Subsidiary,
or a receiver, trustee, liquidator, assignee, custodian, sequestrator or other
similar official is appointed to take possession of the properties of the
Borrower or any Subsidiary; provided, however, that such Event of Default shall
be deemed cured if such petition or appointment is set aside or withdrawn or
ceases to be in effect within 60 days from the date of said filing or
appointment.
(g) Default Under Other Indebtedness. The Borrower or any of
its Subsidiaries shall fail (i) to make any payment of any principal of, or
interest or premium on, any Indebtedness (other than in respect of the Loans) in
an aggregate principal amount outstanding of at least $2,000,000 when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace period, if
any, specified in the agreement or instrument relating to such Indebtedness as
of the date of such failure, or (ii) to perform or observe any term, covenant or
condition on its part to be performed or observed under any agreement or
instrument relating to any such Indebtedness, when required to be performed or
observed, and such failure shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such failure to
perform or observe is to accelerate, or to permit the acceleration of, the
maturity of such Indebtedness; or any such Indebtedness shall be declared to be
due and payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof.
(h) Judgments. (i) A final judgment or order for the payment
of money of $2,000,000 or more in excess of the amount covered by third-party
insurance shall be rendered against the Borrower or any of its Subsidiaries and
shall not be paid or otherwise satisfied within 20 days after such judgment or
order is entered; or (ii) any non-monetary judgment or order shall be rendered
against the Borrower or any such Subsidiary which has or would reasonably be
expected to have a Material Adverse Effect;
(i) ERISA. (i) an ERISA Event shall occur with respect to a
Pension Plan which has resulted or could reasonably be expected to result in
liability of the Borrower under Title IV of ERISA to the Pension Plan or PBGC in
an aggregate amount in excess of $2,000,000; (ii) the commencement or increase
of contributions to, or the adoption of or the amendment of a Pension Plan by
the Borrower which has resulted or could reasonably be expected to result in an
increase in Unfunded Pension Liability among all Pension Plans in an aggregate
amount in excess of $2,000,000; or (iii) any of the representations and
warranties contained in Section 5.12 hereof shall
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cease to be true and correct which, individually or in combination, has resulted
or could reasonably be expected to result in a Material Adverse Effect.
(j) Dissolution, Etc. The Borrower or any of its Subsidiaries
shall (i) liquidate, wind up or dissolve (or suffer any liquidation, wind-up or
dissolution), except to the extent expressly permitted by Section 10.04, (ii)
suspend its operations other than in the ordinary course of business, or (iii)
take any corporate action to authorize any of the actions or events set forth
above in this subsection (j).
(k) Material Adverse Change. A material adverse change in the
business, results of operations or condition (financial or otherwise) of the
Borrower and its Subsidiaries, shall have occurred.
(l) Change in Ownership or Control. (i) Any Person, or two or
more Persons acting in concert, shall acquire beneficial ownership, directly or
indirectly, or shall enter into a contract or arrangement (A) for the
acquisition of the securities of the Borrower (or other securities convertible
into such securities) representing 20% or more of the combined voting power of
all securities of the Borrower entitled to vote in the election of directors, or
(B) which upon consummation will result in its or their acquisition of, or
control over, securities of the Borrower (or other securities convertible into
such securities) representing 30% or more of the combined voting power of all
securities of the Borrower entitled to vote in the election or directors; or
(ii) during any period of up to 12 consecutive months, commencing after the
Closing Date, individuals who at the beginning of such 12-month period were
directors of the Borrower shall cease for any reason to constitute a majority of
the Board of Directors of the Borrower, unless the Persons replacing such
individuals were nominated by the Board of Directors of the Borrower.
SECTION 11.02 Effect of Event of Default. If any Event of
Default shall occur and be continuing, the Agent shall, at the request of the
Majority Banks, or may, with the consent of the Majority Banks, (i) (A) declare
the Commitments of the Banks (other than their respective L/C Commitments with
respect to outstanding Letters of Credit) and any obligations of the Issuing
Bank to issue, amend or renew Letters of Credit, to be terminated, whereupon the
same shall forthwith terminate, and (B) declare an amount equal to the maximum
aggregate amount that is or at any time thereafter may become available for
drawing under any outstanding Letters of Credit (whether or not any beneficiary
shall have presented, or shall be entitled at such time to present, the drafts
or other documents required to draw under such Letters of Credit) to be
immediately due and payable; and declare the entire unpaid principal amount of
the Loans and the Notes, all interest accrued and unpaid thereon and all other
Obligations to be forthwith due and payable, whereupon such amount with respect
to Letters of Credit, the Loans and the Notes, all such accrued interest and all
such other Obligations shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower; provided that if an event described in
Section 11.01(e) or (f) shall occur, the result which would otherwise occur only
upon giving of notice by the Agent to the Borrower as
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specified in this clause (i) shall occur automatically, without the giving of
any such notice; and (ii) whether or not the actions referred to in clause (i)
have been taken, proceed to enforce all other rights and remedies available to
the Agent and the Banks under the Loan Documents and applicable law.
ARTICLE XII
THE AGENT
SECTION 12.01 Authorization and Action. Each Bank hereby
appoints ABN as Agent and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers and perform such duties under this
Agreement and the other Loan Documents as are delegated to the Agent by the
terms hereof or thereof, together with such powers as are reasonably incidental
thereto. The duties and obligations of the Agent are strictly limited to those
expressly provided for herein, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Agent. As to any matters not expressly
provided for by the Loan Documents (including enforcement of the Loan Documents
or collection of any amounts due thereunder), the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Majority Banks, and such instructions
shall be binding upon all Banks; provided, however, that except for action
expressly required of the Agent hereunder, the Agent shall in all cases be fully
justified in failing or refusing to act under any Loan Document unless it shall
be indemnified to its satisfaction by the Banks against any and all liability
and expense which may be incurred by reason of taking or continuing to take any
such action, and that the Agent shall not in any event be required to take any
action which exposes the Agent to liability or which is contrary to any Loan
Document or applicable law. Nothing in any Loan Document shall, or shall be
construed to, constitute the Agent a trustee or fiduciary for any Bank or the
Issuing Bank. In performing its functions and duties hereunder, the Agent shall
act solely as the agent of the Banks and does not assume and shall not be
deemed to have assumed any obligation towards or relationship of agency or trust
with or for the Borrower.
SECTION 12.02 Limitation on Liability; Notices.
(a) Limitation on Liability of Agent and Issuing Bank. None of
the Agent/IB-Related Persons shall be liable for any action taken or omitted to
be taken by it or them under or in connection with any Loan Document, except for
its or their own gross negligence or willful misconduct. Without limitation of
the generality of the foregoing, the Agent (i) may treat a Bank as the holder of
its Loan for all purposes hereof unless and until the Agent receives written
notice of the assignment thereof signed by such Bank and the Agent receives the
written agreement of the assignee that such assignee is bound hereby as it would
have been if it had been an original Bank party hereto, in each case in form
satisfactory to the Agent, (ii) may consult with legal counsel (including
counsel to the Borrower, independent public accountants and other experts
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selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts, and (iii) shall incur no liability to any Bank under or
in respect of any Loan Document by acting upon any notice, consent, certificate,
telegram, facsimile, telex or teletype message, statement or other instrument or
writing believed by it to be genuine and signed or sent by the proper party or
parties or by acting upon any representation or warranty made or deemed to be
made hereunder or under any other Loan Document. Further, neither the Agent nor
the Issuing Bank (A) makes any warranty or representation to any Bank and shall
not be responsible to any Bank for the accuracy or completeness of any
information, exhibit or report furnished under any Loan Document, for any
statements, warranties or representations (whether written or oral) made or
deemed made in or in connection with any Loan Documents, (B) shall have any duty
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement or any other Loan Document on
the part of the Borrower or any other Person or to inspect the property, books
or records of the Borrower or any other Person, or (c) shall be responsible to
any Bank for the due execution, legality, validity, enforceability, genuineness,
sufficiency, value or collectibility of this Agreement or any other Loan
Document.
(b) Notices. Promptly upon receipt thereof, the Agent shall
forward to each Bank originals or copies, as specified in this Agreement or any
other Loan Document, of all agreements, instruments, opinions, financial
statements, notices and other documents delivered by the Borrower or any other
Person to the Agent pursuant to any Loan Document for distribution to the Banks.
Except for any of the foregoing expressly required to be furnished to the Banks
by the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of the Borrower which may come into the possession of the Agent
or any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
SECTON 12.03 Agent and Affiliates. With respect to its
Commitment, the Loans made by it, the Notes issued to it, any Letters of Credit
issued by it, and all other Obligations owing to it as a Bank, the Agent shall
have the same rights and powers under the Loan Documents as any other Bank and
may exercise the same as though it were not the Agent; and the term "Bank" or
"Banks" shall, unless otherwise expressly indicated, include the Agent in its
individual capacity. The Agent and its Affiliates may accept deposits from, lend
money to, issue letters of credit for the account of, act as trustee under
indentures of and generally engage in any kind of business with the Borrower and
any Affiliate thereof, all as if the Agent were not the Agent hereunder and
without any duty to account therefor to the Banks.
SECTON 12.04 Notice of Defaults. The Agent shall not be deemed
to have knowledge or notice of the occurrence of a Default hereunder (other than
nonpayment of principal of or interest on the Loans or of any fees or any of its
costs and expenses) unless the Agent has actual knowledge thereof or has
received notice in
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writing from a Bank or the Borrower referring to this Agreement, describing such
event or condition and expressly stating that such notice is a "notice of
default." Should the Agent receive such notice of the occurrence of a Default,
the Agent shall promptly give notice thereof to the Banks. The Agent thereupon
shall take such action with respect to such Default as shall be reasonably
directed by the Majority Banks; provided that, unless and until the Agent shall
have received such directions, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default as it shall deem advisable in the best interests of the Banks.
SECTON 12.05 Non-Reliance on Agent and Issuing Bank.
(a) Non-Reliance. Each Bank has itself been, and will continue
to be, based on such documents and information as it has deemed appropriate,
solely responsible for making its own independent appraisal of and
investigations into the financial condition, creditworthiness, condition,
affairs, status and nature of the Borrower or any of its Subsidiaries.
Accordingly, each Bank confirms to the Agent and the Issuing Bank that it has
not relied, and will not hereafter rely, on the Agent or the Issuing Bank (i) to
check or inquire on such Bank's behalf into the adequacy, accuracy or
completeness of any information provided by the Borrower or any other Person
under or in connection with the Loan Documents or the transactions herein
contemplated (whether or not such information has been or is hereafter
distributed to such Bank by the Agent or the Issuing Bank), or (ii) to assess or
keep under review on such Bank's behalf the financial condition,
creditworthiness, condition, affairs, status or nature of the Borrower or any
Subsidiary.
(b) Bank Consent. For purposes of determining compliance with
the conditions specified in Sections 8.01 and 8.02, each Bank that has executed
this Agreement shall be deemed to have consented to, approved or accepted or to
be satisfied with each document or other matter either sent or made available
by the Agent to such Bank for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Bank, unless an officer of the Agent responsible for the
transactions contemplated by the Loan Documents shall have received notice from
the Bank prior to the applicable Credit Extension specifying its objection
thereto and either (i) such objection shall not have been withdrawn by notice to
the Agent to that effect on or prior to the Credit Extension date or (ii) if any
Borrowing or other Credit Extension has been requested, the Bank shall not have
made, or shall not make, available to the Agent on or prior to the Credit
Extension date the Bank's ratable portion thereof.
SECTION 12.06 Indemnification. The Banks agree to indemnify
each Agent/IB-Related Person (to the extent not reimbursed by the Borrower),
ratably according to their respective Commitment Percentages, against and hold
each of them harmless from any and all liabilities, obligations, losses, claims,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever, including the reasonable fees and
disbursements of counsel to such Agent/IB-Related Person (including allocated
costs of internal counsel), which may be imposed
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on, incurred by, or asserted against any Agent/IB-Related Person in any way
relating to or arising out of the Loan Documents, the use or intended use of the
proceeds of the Loans, the Letters of Credit or the transactions contemplated
hereby or thereby or any action taken or omitted by any Agent/IB-Related Person
in connection with any of the foregoing; provided that no Bank shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements to the extent they
are found by a final decision of a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of any Agent/IB-Related
Person. Without limitation of the foregoing, each Bank agrees to reimburse each
Agent/IB-Related Person promptly upon demand for such Bank's ratable share of
any costs and expenses or other charges incurred by the Agent, the Issuing Bank
or their respective Affiliates and payable by the Borrower pursuant to Section
13.04(a) or any other Loan Document, in each case to the extent that the Agent,
the Issuing Bank or their respective Affiliates is not reimbursed for such
expenses or charges, or payment of such fee is not made, by the Borrower.
SECTION 12.07 Delegation of Duties. The Agent may, in its
discretion, employ from time to time one or more agents or attorneys-in-fact
(including any of the Agent's Affiliates) to perform any of the Agent's duties
under the Loan Documents. The Agent shall not be responsible for the negligence
or misconduct of any agents or attorneys-in-fact selected by it with reasonable
care.
SECTON 12.08 Successor Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving written notice thereof to the Banks and the Borrower and may be
removed at any time with or without cause by the Majority Banks. Upon any such
resignation or removal, the Majority Banks shall have the right to appoint a
successor Agent, subject (unless a Default shall have occurred and be
continuing) to the consent of the Borrower, which consent shall not be
unreasonably withheld, and the Banks shall use their best efforts so to appoint
a successor Agent. If no successor Agent shall have been so appointed by the
Majority Banks, and shall have accepted such appointment, within 30 days after
the retiring Agent's giving of notice of resignation or the Majority Banks'
removal of the retiring Agent, the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which in each case shall be (a) a bank organized or
licensed under the laws of the United States or of any state thereof, or any
Affiliate of such bank, and having a combined capital and surplus of at least
$100,000,000 and (b) unless a Default shall have occurred and be continuing,
reasonably acceptable to the Borrower. Upon the effectiveness of the acceptance
of any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges, duties and obligations of the retiring Agent, and the retiring Agent
shall be discharged from its duties and obligations under the Loan Documents.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Article XII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under the Loan Documents.
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ARTICLE XIII
MISCELLANEOUS
SECTION 13.01 Amendments and Waivers. Except as otherwise
provided herein or in any other Loan Document, (i) no amendment to any provision
of this Agreement or any of the other Loan Documents shall in any event be
effective unless the same shall be in writing and signed by the Borrower (or
other party thereto), the Agent and the Majority Banks (or the Agent with the
written consent of the Majority Banks); and (ii) no waiver of any provision of
this Agreement or any other Loan Document, or consent to any departure by the
Borrower or other party therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Agent and the Majority Banks (or the
Agent with the consent of the Majority Banks). Any such amendment, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. Notwithstanding the foregoing provisions of this
Section 13.01,
(A) any term or provision of any such other Loan Document may
be amended without the agreement or consent of, or prior notice to, the Borrower
or other party thereto, to the extent such Loan Document provides for notices
without the agreement or consent of the Borrower or such other party,
(B) any term or provision of Article XII (other than the
provisions of Section 12.08 pertaining to Borrower consent) may be amended
without the agreement or consent of, or prior notice to, the Borrower; and
(C) unless in writing and signed by all of the Banks (or by
the Agent with the written consent of all the Banks), no amendment, waiver or
consent shall do any of the following:
(1) increase the amount, or extend the stated
expiration or termination date, of the Commitments of the Banks;
(2) reduce the principal of, or interest on, the
Loans or any fee or other amount payable to the Banks hereunder;
(3) postpone any date fixed for any payment in
respect of principal of, or interest on, the Loans or any fee or other amount
payable to the Banks hereunder;
(4) change the definition of "Majority Banks" or an
definition or provision of this Agreement requiring the approval of Majority
Banks or some other specified amount of Banks;
(5) consent to the assignment or transfer by the
Borrower of any of its rights and obligations under the Loan Documents;
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(6) amend, modify or waive the provisions of Section
7.01, 7.05 or 13.07; or
(7) amend, modify or waive the provisions of this
Section 13.01; and
(D) no amendment, waiver or consent shall, unless in writing
and signed by the Agent in addition to the Banks required hereinabove to take
such action, affect the rights, obligations or duties of the Agent under any
Loan Document; and
(E) no amendment, waiver or consent shall, unless in writing
and signed by the Issuing Bank in addition to the Banks required hereinabove to
take such action, affect the rights or duties of such Issuing Bank under this
Agreement or any L/C-Related Document to which it is a party.
SECTON 13.02 Notices.
(a) Notices. All notices and other communications provided for
hereunder and under the other Loan Documents shall, unless otherwise stated
herein, be in writing (including by facsimile transmission) and mailed, sent or
delivered to the respective parties hereto at or to their respective addresses
or facsimile numbers set forth below their names on the signature pages hereof,
or at or to such other address or facsimile number as shall be designated by any
party in a written notice to the other parties hereto. All such notices and
communications shall be effective (i) if delivered by hand, when delivered; (ii)
if sent by mail, upon the earlier of the date of receipt or five Business Days
after deposit in the mail, first class (or air mail, with respect to
communications to be sent to or from the United States), postage prepaid; and
(iii) if sent by facsimile transmission, when sent; provided, however, that
notices and communications to the Agent shall not be effective until actually
received by the Agent, and notices to the Issuing Bank pursuant to Article III
shall not be effective until actually received by such Issuing Bank.
(b) Facsimile and Telephonic Notice. The Borrower acknowledges
and agrees that the agreement of the Agent and the Banks herein and in any other
Loan Document to receive certain notices by telephone and facsimile is solely
for the convenience and at the request of the Borrower. The Agent and the Banks
shall be entitled to rely on the authority of any Person purporting to be a
Person authorized by the Borrower to give such notice and the Agent and the
Banks shall not have any liability to the Borrower or other Person on account of
any action taken or not taken by the Agent and the Banks in reliance upon such
telephonic or facsimile notice. The obligation of the Borrower to repay the
Loans, the drawings under Letters of Credit and the other Obligations shall not
be affected in any way or to any extent by any failure by the Agent and the
Banks to receive written confirmation of any telephonic or facsimile notice or
the receipt by the Agent and the Banks of a confirmation which is at variance
with the terms understood by the Agent and the Banks to be contained in the
telephonic or facsimile notice.
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SECTION 13.03 No Waiver; Cumulative Remedies. No failure on
the part of the Agent or any Bank to exercise, and no delay in exercising, any
right, remedy, power or privilege under any Loan Document shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights and
remedies under the Loan Documents are cumulative and not exclusive of any
rights, remedies, powers and privileges that may otherwise be available to the
Agent or any Bank.
SECTON 13.04 Costs and Expenses; Indemnification.
(a) Costs and Expenses. The Borrower agrees to pay on demand,
whether or not the transactions contemplated hereby shall be consummated:
(i) the reasonable out-of-pocket costs and expenses
of the Agent, the Issuing Bank and any of their respective Affiliates, and the
reasonable fees and disbursements of counsel to the Agent and the Issuing Bank,
in connection with the negotiation, preparation, execution, delivery and
administration of the Loan Documents, and any amendments, modifications or
waivers of the terms thereof; and
(ii) all costs and expenses of the Agent, the Issuing
Bank, their respective Affiliates and the Banks, and the reasonable fees and
disbursements of counsel (including allocated costs of internal counsel), in
connection with (A) any Default, (B) the enforcement or attempted enforcement
of, and preservation of any rights or interests under, the Loan Documents, and
(C) any out-of-court workout or other refinancing or restructuring or any
bankruptcy case, including any losses, reasonable costs and expenses sustained
by the Agent, the Issuing Bank and any Bank as a result of any failure by the
Borrower to perform or observe its obligations contained in the Loan Documents.
(b) Indemnification. Whether or not the transactions
contemplated hereby shall be consummated, the Borrower hereby agrees to
indemnify the Agent, each Bank, any Affiliate thereof, and their respective
directors, officers, employees, agents, counsel and other advisors (each an
"Indemnified Person") against, and hold each of them harmless from, any and all
liabilities, obligations, losses, claims, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever, including the reasonable fees and disbursements of counsel to an
Indemnified Person (including allocated costs of internal counsel), which may be
imposed on, incurred by, or asserted against any Indemnified Person, (i) by any
Governmental Authority or other third party in any way relating to or arising
out of any of the Loan Documents, the Letters of Credit, the use or intended use
of the proceeds of the Loans or the transactions contemplated hereby or thereby,
(ii) with respect to any investigation, litigation or other proceeding relating
to any of the foregoing, irrespective of whether the Indemnified Person shall be
designated a party thereto, or (iii) in any way relating to or arising out of
the use, generation, manufacture, installation, treatment, storage or presence,
or the spillage, leakage, leaching, migration, dumping, deposit,
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discharge, disposal or release, at any time, of any Hazardous Substances on,
under, at or from any premises owned or occupied by the Borrower, including any
personal injury or property damage suffered by any Person, and any
investigation, site assessment, environmental audit, feasibility study,
monitoring, clean-up, removal, containment, restoration, remedial response or
remedial work undertaken by or on behalf of any Indemnified Person at any time,
voluntarily or involuntarily, with respect to such premises (the "Indemnified
Liabilities"); provided that the Borrower shall not be liable to any Indemnified
Person for any portion of such Indemnified Liabilities to the extent they are
found by a final decision of a court of competent jurisdiction to have resulted
from such Indemnified Person's gross negligence or willful misconduct. If and to
the extent that the foregoing indemnification is for any reason held
unenforceable, the Borrower agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
(c) Other Charges. The Borrower agrees to indemnify the Agent
and each of the Banks against and hold each of them harmless from any and all
present and future stamp, transfer, documentary and other such taxes, levies,
fees, assessments and other charges made by any jurisdiction by reason of the
execution, delivery, performance and enforcement of the Loan Documents.
SECTON 13.05 Right of Set-Off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) obtaining the prior
written consent of the Agent, each Bank hereby is authorized at any time and
from time to time, without notice to the Borrower (any such notice being
expressly waived by the Borrower), to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Bank to or for the credit or the
account of the Borrower against any and all of the Obligations of the Borrower
now or hereafter existing under this Agreement and the other Loan Documents,
irrespective of whether or not such Bank shall have made any demand under this
Agreement or any such other Loan Document and although such Obligations may be
unmatured. Each Bank agrees promptly to notify the Borrower (through the Agent)
after any such set-off and application made by such Bank; provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Bank under this Section 13.05 are in addition to
other rights and remedies (including other rights of set-off) which such Bank
may have.
SECTION 13.06 Survival. All covenants, agreements,
representations and warranties made in any Loan Documents shall, except to the
extent otherwise provided therein, survive the execution and delivery of this
Agreement, the making of the Credit Extensions and the execution and delivery of
the Notes, and shall continue in full force and effect so long as the Banks have
any Commitments, any Loans or Letters of Credit remain outstanding or any other
Obligations remain unpaid or any obligation to perform any other act under any
Loan Document remains unsatisfied. Without limiting the generality of the
foregoing, the obligations of the Borrower under Sections 6.02, 6.03, 7.03 and
13.04, and of the Banks under Sections 7.03 and 12.06, and all similar
obligations under the other Loan Documents (including all obligations to pay
costs and
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expenses and all indemnity obligations), shall survive the repayment of the
Loans, the termination of the Letters of Credit and the termination of the
Commitments.
SECTION 13.07 Obligations Several. The obligations of the
Banks under the Loan Documents are several. The failure of any Bank or the Agent
to carry out its obligations thereunder shall not relieve any other Bank or the
Agent of any obligation thereunder, nor shall any Bank or the Agent be
responsible for the obligations of, or any action taken or omitted by, any
other Person hereunder or thereunder. Nothing contained in any Loan Document
shall be deemed to cause any Bank or the Agent to be considered a partner of or
joint venturer with any other Bank or Banks, the Agent or the Borrower.
SECTION 13.08 Benefits of Agreement. The Loan Documents are
entered into for the sole protection and benefit of the parties hereto and their
successors and assigns, and no other Person shall be a direct or indirect
beneficiary of, or shall have any direct or indirect cause of action or claim in
connection with, any Loan Document.
SECTION 13.09 Binding Effect; Assignment.
(a) Binding Effect. This Agreement shall become effective when
it shall have been executed by the Borrower, the Issuing Bank and the Agent and
when the Agent shall have been notified by each Bank that such Bank has executed
it and thereafter shall be binding upon, inure to the benefit of and be
enforceable by the Borrower, the Issuing Bank, the Agent and each Bank and their
respective successors and assigns.
(b) Assignments and Participations. The Borrower shall not
have the right to assign its rights and obligations hereunder or under the other
Loan Documents or any interest herein or therein without the prior written
consent of the Banks. Each Bank may sell, assign, transfer or grant
participations in all or any portion of such Bank's rights and obligations
hereunder and under the other Loan Documents to any Bank or other bank or
financial institution on the basis set forth below in this subsection (b).
(i) Any assignment by a Bank shall be subject to the
prior written consent of the Issuing Bank, which consent shall not be
unreasonably withheld. Except in the case of assignments to an Affiliate of any
Bank or to another Bank, any assignment shall be subject to the prior written
consent of the Agent and Bank and, at all times other than during the existence
of an Event of Default, the Borrower, which consents, in each case, shall not be
unreasonably withheld. Each partial assignment shall be in an amount of at least
$5,000,000, and, after giving effect to such assignment, the assigning Bank's
Commitment shall not be less than $10,000,000.
(ii) In the event of any such assignment, unless and
until (A) the conditions for the Agent's treating such assignee as a Bank
pursuant to clause (i) of Section 12.02(a) shall have been satisfied, (B) the
Agent shall have received payment of an administrative transfer charge of $2,500
from the assigning Bank or the assignee, and
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(c) the Agent and the Borrower shall have received all tax forms and documents
required under Section 7.03(d), such assignee shall not be entitled to exercise
the rights of a Bank under this Agreement and the other Loan Documents with
respect to such assignment and the Agent shall not be obligated to make payment
of any amount to which such assignee may become entitled thereunder other than
to the assigning Bank. Subject to satisfaction of the foregoing conditions in
connection with any assignment, upon the effectiveness of such assignment the
assignee shall be deemed a "Bank" for all purposes of this Agreement and the
other Loan Documents with respect to the rights and obligations assigned to it,
and the obligations of the assigning Bank so assigned shall thereupon terminate.
(iii) In connection with any partial assignment, upon
the request of the assigning Bank or the assignee, (A) the Borrower shall
execute and deliver substitute Notes to the assigning Bank or the assignee,
dated the effective date of such assignment, setting forth the respective
Commitments of such assigning Bank and assignee as the maximum principal amount
thereof, and containing other appropriate insertions, and the assigning Bank
shall thereupon return the Notes previously held by it; and (B) if such
assignment occurs prior to the Final Maturity Date, this Agreement shall be
deemed amended to reflect the adjustment of the Commitments of the Banks
resulting therefrom.
(iv) Except in the case of a grant of a participation
to an Affiliate of any Bank or to any other Bank, the grant of any participation
shall be subject to the prior written consent of the Agent and, at all times
other than during the existence of an Event of Default, the Borrower (which
consents, in each case, shall not be unreasonably withheld). In the event of any
grant of a participation, the granting Bank shall remain a "Bank" for purposes
of this Agreement, the Borrower, the other Banks, the Issuing Bank and the Agent
shall continue to deal solely and directly with such Bank in connection with
this Agreement and the other Loan Documents, and no Bank shall transfer or grant
any participating interest under which the participant shall have rights to
approve any amendment to, or any consent or waiver with respect to, this
Agreement or any other Loan Document, except to the extent such amendment,
consent or waiver would require unanimous consent as described in clause (c) of
Section 13.01. In the case of any such participation, the participant shall not
have any of the rights of a Bank under this Agreement or the other Loan
Documents, except that the participant shall (A) be deemed to have a right of
setoff under Section 13.05 in respect of its participation to the same extent as
if it were a "Bank" hereunder, provided that such participant shall also be
considered a "Bank" for purposes of Section 7.05; and (B) such participant shall
also be entitled to the benefits of Sections 6.02, 6.03, 7.03 and 13.04. Each
participating interest shall be in an amount of at least $5,000,000, and, after
giving effect to such participation, the amount of the granting Bank's retained
interest shall be at least $10,000,000.
(v) The Borrower agrees that in connection with any
such grant or assignment, such Bank may deliver to the prospective participant
or assignee financial statements and other relevant information relating to the
Borrower and its Subsidiaries.
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SECTON 13.10 Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA EXCEPT,
IN THE CASE OF ARTICLE III, TO THE EXTENT THAT SUCH LAWS ARE INCONSISTENT WITH
THE UCP.
SECTION 13.11 Waiver of Jury Trial. THE BORROWER, THE BANKS
AND THE AGENT HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY
OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER, THE BANKS AND THE
AGENT HEREBY AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT IN ANY WAY LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM, OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. A COPY OF THIS
SECTION 13.11 MAY BE FILED WITH ANY COURT AS WRITTEN EVIDENCE OF THE WAIVER OF
THE RIGHT TO TRIAL BY JURY AND CONSENT TO TRIAL BY COURT. THIS SECTION 13.11
MAY NOT BE AMENDED, MODIFIED, TERMINATED OR WAIVED EXCEPT BY A WRITING WHICH
MAKES SPECIFIC REFERENCE TO THIS SECTION 13.11.
SECTION 13.12 Limitation on Liability. No claim shall be made
by the Borrower or its Affiliates against the Agent, the Banks or any of their
respective Affiliates, directors, employees, attorneys or agents for any
special, indirect, exemplary, consequential or punitive damages in respect of
any breach or wrongful conduct (whether or not the claim therefor is based on
contract, tort or duty imposed by law), in connection with, arising out of or in
any way related to the transactions contemplated by the Loan Documents or any
act or omission or event occurring in connection therewith; and the Borrower
hereby waives, releases and agrees not to sue upon any such claim for any such
damages, whether or not accrued and whether or not known or suspected to exist
in its favor.
SECTON 13.13 Entire Agreement. The Loan Documents reflect the
entire agreement among the Borrower, the Banks and the Agent with respect to the
matters set forth herein and therein and supersede any prior agreements,
commitments, drafts, communications, discussions and understandings, oral or
written, with respect thereto.
66.
<PAGE>
SECTION 13.14 Interpretation. The Loan Documents are the
result of negotiations between and have been reviewed by counsel to the Agent,
the Borrower and other parties, and are the product of all parties thereto.
Accordingly, the Loan Documents shall not be construed against any of the Banks
or the Agent merely because of the Agent's or any Bank's involvement in the
preparation thereof.
SECTION 13.15 Severability. Whenever possible, each provision
of the Loan Documents shall be interpreted in such manner as to be effective and
valid under all applicable laws and regulations. If, however, any provision of
any of the Loan Documents shall be prohibited by or invalid under any such law
or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed
modified to conform to the minimum requirements of such law or regulation, or,
if for any reason it is not deemed so modified, it shall be ineffective and
invalid only to the extent of such prohibition or invalidity without affecting
the remaining provisions of such Loan Document, or the validity or effectiveness
of such provision in any other jurisdiction.
SECTION 13.16 Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed -----------------------------------
- -------------------------------------------------------------------------------
67.
<PAGE>
shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
THE BORROWER
WATKINS-JOHNSON COMPANY
By /s/ Scott G. Buchanan
-----------------------------------
Title: Vice President and CFO
By /s/ W. Keith Kennedy
-----------------------------------
Title: President and CEO
Address:
3333 Hillview Avenue
Palo Alto, California 94304-1223
Attn.: Treasurer
Fax No.: (415) 813-2960
<PAGE>
THE AGENT
ABN AMRO BANK N.V.
By /s/ Robin S. Yim
-----------------------------------
Title: Vice President
By /s/ Robert N. Hartinger
-----------------------------------
Title: Group Vice President
Address:
101 California Street, Suite 4550
San Francisco, California 94111-5812
Attn.: Robin S. Yim
Fax No.: (415) 362-3524
<PAGE>
THE BANKS
ABN AMRO BANK N.V., as Bank and
Issuing Bank
By /s/ Robin S. Yim
-----------------------------------
Title: Vice President
By /s/ Robert N. Hartinger
-----------------------------------
Title: Group Vice President
Address for Notices:
355 Madison Avenue
New York, New York 10017
Attn.: Linda Boardman
Fax No.: (212) 682-0364
Lending Office:
101 California Street, #4550
San Francisco, CA 94111
<PAGE>
UNION BANK
By /s/ Wade Schlueter
-----------------------------------
Title: Wade Schlueter
Vice President
Address for Notices:
1980 Saturn Street
P.O. Box 30770
Monterey Park, CA 90030-0866
Attn.: Mercy Martinez
Note Department
Fax No.: (213) 724-6198
Lending Office:
350 California Street (H-1040)
San Francisco, CA 94104
<PAGE>
THE FIRST NATIONAL BANK OF
BOSTON
By /s/ Daniel F. Wheeler
-----------------------------------
Title: Division Executive
Address for Notices:
High Technology Division
100 Federal Street
Mail Stop 01-08-04
Boston, MA 02110
Attn.: Daniel F. Wheeler
Fax No. (617) 434-0819
With a Copy to:
435 Tasso Street
Suite 250
Palo Alto, CA 94301
Attn. Maia D. Heymann
Fax No. (415) 853-1425
Lending Office:
100 Federal Street
Boston, MA 02110
<PAGE>
THE FIRST NATIONAL BANK
OF MARYLAND
By /s/ Carol A. Dalton
-----------------------------------
Carol A. Dalton
Vice President
Address for Notices:
National Division, 18th Floor
25 South Charles Street; 101745
Baltimore, MD 21201
Attn.: Carol A. Dalton
Fax No. (415) 244-4294
Lending Office:
25 South Charles Street; 101745
Baltimore, MD 21201
<PAGE>
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION
By /s/ Christopher R. Gerhard
-----------------------------------
Title: Vice President
Address for Notices:
Corporate Banking-High Technology-
Palo Alto #3537
530 Lytton Avenue, 2nd Floor
Palo Alto, CA 94301
Attn.: Debra G. Staiger
Assistant Vice President
Fax No.: (415) 853-4687
Lending Office:
1850 Gateway Boulevard, Fourth Floor
Concord, CA 94520
<PAGE>
<TABLE>
Schedule 1
to Credit Agreement
(Commitment and Commitment Percentages)
<CAPTION>
Bank Commitment L/C Commitment Commitment Percentage
- ---- ---------- -------------- ---------------------
<S> <C> <C> <C>
ABN AMRO Bank N.V. $ 30,000,000 $ 6,000,000 30.0%
Union Bank $ 20,000,000 $ 4,000,000 20.0%
The First National Bank of Boston $ 17,500,000 $ 3,500,000 17.5%
The First Natinal Bank of Maryland $ 17,500,000 $ 3,500,000 17.5%
Bank of America National Trust and Savings Association $ 15,000,000 $ 3,000,000 15.0%
TOTALS $100,000,000 $20,000,000 100%
</TABLE>
<PAGE>
Schedule 2
to Credit Agreement
(Investment Policy)
[see attached]
<PAGE>
CERTIFIED COPY OF RESOLUTON OF
THE BOARD OF DIRECTORS
OF WATKINS-JOHNSON COMPANY
WHEREAS, the need exists for Watkins-Johnson Company ("the Company") to conduct
banking and financing operations, with the provisions as outlined in the
memorandum dated February 15, 1995 from Scott G. Buchanan to the Board of
Directors.
NOW THEREFORE BE IT RESOLVED, that in order to conduct the banking and financial
operations of the Company, certain Designated Officers, which are the Chairman
of the Board, the President, the Vice President and Chief Financial Officer, and
the Treasurer, are granted the following authorities:
1) Any Designated Officer is authorized to open and close accounts with
brokers and financial institutions in the name of the Company or its
subsidiaries, and to withdraw funds from any such account by check,
draft, wire transfer, electronic funds transfer, or other orders for
payment of money issued in the name of the Company or its subsidiaries.
Any two Designated Officers acting jointly and in writing may delegate
to others the authority to withdraw funds from any such account by
check, draft, wire transfer, electronic funds transfer, or other orders
for payment of money issued in the name of the Company or its
subsidiaries, with such controls and limitations as they may find
appropriate. Any Designated Officer is authorized to sign safekeeping,
money transfer, facsimile signature, and similar agreements as
appropriate to conduct the business of the Company.
2) Any Designated Officer is authorized to invest the funds of the
Company or its subsidiaries in readily marketable financial instruments
denominated in U.S. Dollars. Financial instruments shall be rated by
Standard and Poors or Moody's with either an A1 or P1 short-term
rating and/or an AA long-term rating or an equivalent rating from
another rating agency.
No investment shall be made in any security with a maturity of over
three years provided that the overall maturity schedule be maintained
in order to meet the anticipated cash needs of the Company. All
investment holdings shall also have enough liquidity to allow for
prompt transactions at minimum cost. The Company shall, in no event,
invest more than $5 Millon, or 10% of the investment portfolio
(whichever is greater), with any one issuer except for the U.S.
Government or any agency thereof (where there is no limit on the amount
invested). The Company shall in no event invest in derivative
instruments.
The types of securities which are permitted for investment shall
include (but not be limited to) the following obligations, provided
that they meet the credit quality stated above:
a) Direct obligations of, and obligations fully guaranteed by,
the U.S. Government, its agencies and instrumentalities.
b) Obligations of state, county or local governmental bodies
within the United States including but not limited to
municipal-auction-preferred stock with maximum maturities of
six months and with the highest credit rating.
<PAGE>
In addition, any supporting bank letters of credit or
guarantees of these securities must be from a financial
institution whose debt rating meets the credit criteria set
out above.
c) Debt securities of U. S. corporations, such as commercial
paper, floating-rate notes, medium-term notes, bonds, and
auction-preferred stock whose dividend rate is set via Dutch
Auction.
In addition, any supporting bank letters of credit or
guarantees of these securities must be from a financial
institution whose debt rating meets the credit criteria set
out above.
d) Bankers acceptances, certificates of deposit, time deposits,
bonds and notes offered by major U.S. and foreign banks whose
obligations meet the credit criteria set out above.
e) Repurchase agreements of up to seven days maturity that are
fully collateralized by securities as listed in a) through d)
that meet the credit criteria set out above, and are entered
into with financial institutions whose obligations also meet
the credit criteria set out above.
f) Any other securities with similar characteristics.
g) Money market funds that invest in securities deemed acceptable
for outright purchase according to the terms of this policy.
An "Analysis of Investments" shall be prepared monthly by Accounting
and shall cover all marketable securities outstanding.
Any two Designated Officers acting jointly and in writing may delegate
to others the authority to invest the funds of the Company or its
subsidiaries within the limits as outlined above.
3) The Chairman or President, together with either the Vice President and
Chief Financial Officer or the Treasurer, are authorized to commit the
credit of the Company or its subsidiaries on a secured or unsecured
basis, and to execute notes or such other documents or instruments as
may be required for payment of amounts borrowed or in satisfaction of
credit facilities established. This authority shall include but not be
restricted to leases and contingent liabilities such as guarantees or
letter of credit lines. Total secured and unsecured credit facilities
available to the Company shall at no time exceed the equivalent of $125
Millon. While only the Chairman or the President, acting together with
either the Vice President and Chief Financial Offier or the Treasurer,
may initially commit the credit of the Company, any two Designated
Officers acting jointly and in writing may delegate to others limited
authority for loan drawdowns, security agreements, letter of credit
applications, and similar actions.
4) Any Designated Officer is authorized to enter into contracts to buy or
sell foreign currencies, limited for operational and hedging purposes
only. Any two Designated Officers acting jointly or in writing may
delegate this foreign currency exchange authority to others, with such
controls and limitations as they may find appropriate.
<PAGE>
Schedule 3
to Credit Agreement
(Existing Liens)
UCC-1 Financing Statement No. 88312607 filed December 15, 1988:
Lease of PBX Equipment. Lessor/Secured Party: Fleet Credit Corporation
as assignee of Signal Capital Corporation, as assignee of Argonaut Computer
Sales, Inc.
UCC-1 Financing Statement No. 91234808 filed November 4, 1991:
Lease of PBX Equipment. Lessor/Secured Party: First Security Bank of
Utah, as Trustee, and Icon Cash Flow Partners, L.P., Series D, as assignees of
Pactel Finance.
UCC-1 Financing Statement No. 93239602 filed November 29, 1993:
Lease of PBX Equipment. Lessor/Secured Party: Icon Cash Flow Partners,
L.P., Series D.
UCC-1 Financing Statement No. 91117537 filed May 30, 1991:
Lease of computer equipment. Lessor/Secured Party: Manufacturers Bank,
as assignee of Skyline Computer Corporation.
Tax lien filed April 11, 1991 in office of County Recorder, San Francisco
County, San Francisco, California against Watkins Johnson Co. shows an address
for the taxpayer in San Francisco, California (not the Borrower's) and an
Identifying Number for the taxpayer that is not the Borrower's. The Borrower is
attempting to correct this apparently erroneous filing, and denies that it has
any outstanding tax liability relating to this filing.
<PAGE>
<TABLE>
Schedule 4
to Credit Agreement
(Subsidiaries)
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation Capital Structure; Ownership
- ------------------ --------------- ----------------------------
<S> <C> <C>
Watkins-Johnson Associates California Wholly owned subsidiary of Watkins-Johnson Company
Watkins-Johnson Environmental, Inc. California Wholly owned subsidiary of Watkins-Johnson Company
Watkins-Johnson Europe, Ltd. United Kingdom Wholly owned subsidiary of Watkins-Johnson International
Watkins-Johnson FSC Guam Wholly owned subsidiary of Watkins-Johnson Company
Watkins-Johnson International California Wholly owned subsidiary of Watkins-Johnson Company
Watkins-Johnson International Japan, K.K. Japan Wholly owned subsidiary of Watkins-Johnson International
Watkins-Johnson International Korea, Ltd. Korea Wholly owned subsidiary of Watkins-Johnson International
Watkins-Johnson International Singapore Pte., Ltd. Singapore Wholly owned subsidiary of Watkins-Johnson International
Watkins-Johnson International Taiwan Taiwan Wholly owned subsidiary of Watkins-Johnson International
Watkins-Johnson Italiana, S.p.A. Italy Wholly owned subsidiary of Watkins-Johnson International
Watkins-Johnson Limited California Wholly owned subsidiary of Watkins-Johnson Company
</TABLE>
<PAGE>
SCHEDULE 5
Litigation and Asserted Claims
1. In 1991 the Borrower entered into a fixed price contract, MPO Contract No.
MDA 904-91-C-3061 with the Maryland Procurement Office at Fort George G. Meade,
Maryland for forty-five (45) digitally refreshed displays (DRD's), with an
option to purchase twenty-three (23) additional units. The option was exercised
fully and the total contract value was $2,102,575. A certificate of current cost
or pricing data was executed on January 31, 1991 and was transmitted to the
government on that date. Based upon a post-award audit, the Defense Contract
Audit Agency ("DCAA") issued two reports dated September 24 and November 10,
1993, recommending a price adjustment to the contract of $558,317.00, alleging
noncompliance with the provisions of the Truth in Negotiations Act ("TINA") 10
U.S. Code Section 2306(a). The basis of the alleged noncompliance was the
Borrower's decision to purchase certain parts used in the manufacture of the
DRD's from outside vendors rather than fabricating them internally. In 1994, the
Borrower responded that while the decision to purchase the parts resulted in a
cost savings to the Borrower, there was no knowledge of such potential savings
because the Borrower had received no responses to requests for quotation at the
time the cost data was prepared and certified. The procurement office has not
issued a final decision in the matter following receipt of the Borrower's
response to the audit reports. If an adverse decision is rendered, the Borrower
will vigorously contest the same and believes it has a meritorious position.
Nonetheless, it is not yet possible to predict the outcome of such an adverse
decision.
2. A claim of defective pricing was, in 1994, asserted by the DCAA in
connection with Contract F33600-87-G-5039, Delivery Order No. 2. In an audit
report dated August 10, 1992 DCAA took the position that the Borrower had failed
to provide certain "actual lot history" cost data to the Contracting Officer in
connection with the negotiation of the delivery order price. DCAA contended that
this alleged failure constituted defective pricing and that the contract price
should therefore be reduced
<PAGE>
-2-
in the amount of $1,040,247. The Borrower responded to DCAA's audit report in
November 1992 and then heard nothing further from the procuring activity, the
Wright-Patterson Air Force Base ("WPAFB"), Dayton, OH, concerning the DCAA
allegation until it received a letter from WPAFB Contracting Officer dated
November 21, 1994, which indicated that he intended to find that defective
pricing had occurred in the amount recommended by DCAA unless WJ were able to
provide additional rebuttal that persuaded him to the contrary. Such rebuttal
has been submitted and nothing further has been received from the government.
3. On October 31, 1993, the U.S. District Court for the Northern
District of California entered a Consent Decree in the case entitled United
States of America vs. Watkins-Johnson Borrower, No. C91-20423. Prior to entry of
the Consent Decree, the Borrower conducted a Remedial Investigation/Feasibility
Study ("RI/FS") which was submitted to and approved by the U.S. Environmental
Protection Agency ("EPA"). The RI/FS had been undertaken pursuant to an
administrative consent agreement with the EPA. The Consent Decree negotiated
between the Borrower and the EPA sets forth the remedial action to be undertaken
by the Borrower in clearing up contamination which occurred at the Borrower's
Scotts Valley facility. The Decree also specifies penalties to be incurred for
failure to timely submit required reports or to complete the cleanup. There is
no action or report by the Borrower presently pending, which is late, or which
would otherwise give rise to a penalty. In 1991, the Borrower established a
reserve for expected costs associated with the cleanup effort, and nothing has
occurred since that time which would cause the Borrower to change that reserve.
4. The California EPA issued an order finding that the Borrower is a
responsible party for groundwater contamination which flows through the
Borrower's Palo Alto Plant site and on the site itself. A number of other
companies in the area as well as Stanford University, the land owner, have been
included in the order which required the responsible parties to conduct an
investigation into the cause of the contamination. The order further required
the parties to submit recommendations on the actions to remediate the
contamination. This regional order applies to what has been designated by the
State as the "Hillview/Porter Site." The primary sources of contamination
<PAGE>
-3-
were found to have migrated onto Borrower property from off-site. Subsequent to
a mediation among the responsible parties to the Hillview/Porter site, a formula
for allocation of costs for investigation and remediation based on a
determination of liability for such costs was developed. The parties are in
compliance with orders relating to this cleanup effort. In 1991 the Borrower
established a reserve for expected costs associated with this effort, and
nothing has occurred since that time which would cause the Borrower to change
that reserve.
5. The California EPA also ordered responsible or potentially
responsible parties to the Hillview/Porter site, in addition to participating in
the total site remediation, to investigate and remediate contamination that is
specific to their properties ("site specific"). The State has, in that regard,
ordered the Borrower to take necessary measures to clean up certain
contamination which the State believes was caused by the Borrower and not by
contaminants flowing on-site from other sources. The Borrower has likewise
established a reserve for expected costs associated with this effort, and
nothing has occurred since that time which would cause the Borrower to change
that reserve.
6. On December 30, 1994, Dennis E. Shaw, an employee at the Borrower's
Gaithersburg, Maryland facility filed suit in U.S. District Court, for the
District of Maryland, case number DKC-94-3632, alleging discrimination based on
race and age, breach of contract, infliction of emotional and physical distress
and retaliation for opposing unlawful employment practices. The plaintiff seeks
damages according to proof for failure to promote him, that any resulting award
be doubled, for $250,000 in damages for emotional distress and mental anguish,
for $100,000 for injury to reputation and $500,000 in punitive damages. He
further seeks an injunction to end practices he alleges are improper or
unlawful. The Borrower has retained Covington and Burling to assist in the
defense of the suit. A motion for summary judgment is pending. Even if the same
is not granted, the likelihood of a material unfavorable result is deemed
remote.
7. On February 26, 1992 the DCAA held an exit conference with
representatives of the Borrower to present preliminary audit findings on
Purchase Order No. 6-991010-B-F2 issued by Hughes
<PAGE>
-4-
Aircraft Borrower and Purchase Order No. 75-R###-##-#### and 2561 issued by
Raytheon Corporation. Both of these contracts are for Lot III data links and RF
processors in the AMRAAM missile program.
The DCAA contends that the Borrower failed to provide data that was
current, complete and accurate as of the date of final agreement on price
between the government and the prime contractors, Hughes and Raytheon. The
preliminary findings indicate claims in the amount of $141,168 on the Hughes
contract and $566,541 on the Raytheon contract. The Raytheon amount has now been
finalized by DCAA at $520,211. The Borrower filed a reply to the findings issued
by DCAA. A contracting officer's final decision has not been issued. We believe
the Borrower has meritorious defenses to the DCAA allegations.
8. A dispute with the Naval Air Warfare Center ("NAWC"), Pt. Mugu, CA,
has arisen under Contract N00123-87-C-0059. For several years NAWC had taken the
position that certain frequency monitoring and direction-finding equipment that
the Borrower had supplied to NAWC in 1991 had failed to demonstrate compliance
with Contract requirements. On August 25, 1994 NAWC issued a Contracting
Officer's final decision terminating the Contract for default. On September 6,
1994 the Borrower submitted a certified claim to NAWC for payment of the balance
due under the Contract in the amount of $620,030. On November 9, 1994 the
Borrower filed an appeal from the default termination decision with the Armed
Services Board of Contract Appeals ("ASBCA"). NAWC has issued a final decision
in response to the Borrower's September 6, 1994 claim denying the claim and the
Borrower also filed an appeal with the ASBCA from that final decision. NAWC
filed a claim against the Borrower for return of the progress payments made to
the Borrower under the Contract in the amount of $1,699,802. Discovery is
pending. A material adverse result is unlikely.
To our knowledge, there are no material unasserted claims or assessments not
disclosed here which are probable of assertion against the Borrower, and if
asserted, would have at least a reasonable possibility of an unfavorable
outcome.
<PAGE>
Schedule 6
to Credit Agreement
(Certain Environmental Matters)
The company remains in compliance with the remedial action plans being monitored
by various regulatory agencies at its Scotts Valley and Palo Alto sites. In
1994, the company reached agreement with the other potential responsible parties
regarding allocations of the remediation costs at the Palo Alto site. The
company is involved, as a dc minimus party, in four remediation projects at
disposal sites used in the past. None of these four sites are material in
nature.
In l991, the company recorded a $15 million charge for estimated remediation
actions and cleanup costs. No additional provision has been recorded since 1991.
Expenditures of $2,727,000, $1,676,000, and $1,581,000 were incurred for the
years 1994, 1993. and 1992, respectively. While the timing and ultimate amount
of expenditures of restoring the sites cannot be predicted with certainty, the
company believes that the provision taken is adequate based on facts known at
this time. Changes in environmental regulations, improvements in cleanup
technology and discovery of additional information concerning these sites and
other sites could affect the estimated costs in the future
In addition to the above environmental matters, the company is involved in
various legal actions which arose in the ordinary course of its business
activities. Although the environmental provision was not reduced by any
potential recoveries from insurers or other responsible parties, the company
will continue to vigorously pursue such recoveries. Except for the environmental
provision noted above, the company believes the final resolution of these
matters should not have a material impact on its results of operations, cash
flows, and financial position.
<PAGE>
Exhibit A
to Credit Agreement
FORM OF NOTE
$___________________ Dated December ____, 1995
FOR VALUE RECEIVED, the undersigned WATKINS-JOHNSON COMPANY, a
California corporation (the "Borrower"), HEREBY UNCONDITIONALLY PROMISES TO PAY
to the order of ______________________ (the "Bank" on the Final Maturity Date
the principal sum of ____________________ DOLLARS ($______________________) or,
if less, the aggregate outstanding principal amount of the Loans made by the
Bank to the Borrower pursuant to the Credit Agreement referred to below.
The Borrower further promises to pay interest on the Loans
outstanding hereunder from time to time at the interest rates, and payable on
the dates, set forth in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America and in same day or immediately available funds to ABN
AMRO Bank N.V., as Agent under the Credit Agreement (the "Agent"), at 101
California Street, Suite 4550, San Francisco, California 94111, or at such other
address as the Agent may designate from time to time.
The Bank shall record the date and amount of each Loan made,
each conversion to a different interest rate, each relevant Interest Period, the
amount of principal and interest due and payable from time to time hereunder,
each payment thereof and the resulting unpaid principal balance hereof, in the
Bank's internal records, and any such recordation shall be rebuttable
presumptive evidence of the accuracy of the information so recorded; provided,
however, that the Bank's failure so to record shall not limit or otherwise
affect the obligations of the Borrower hereunder and under the Credit Agreement
to repay the principal of and interest on the Revolving Loans.
This promissory note is one of the Notes referred to in, and
is subject to and entitled to the benefits of, the Credit Agreement dated as of
November 30, 1995 (as amended, modified, renewed or extended from time to time,
the "Credit Agreement") among the Borrower, the financial institutions named
therein as Banks (including the Bank), the letter of credit issuing bank named
therein as the Issuing Bank, and the Agent. Capitalized terms used herein shall
have the respective meanings assigned to them in the Credit Agreement.
1
<PAGE>
The Credit Agreement provides, among other things, for
acceleration (which in certain cases shall be automatic) of the maturity hereof
upon the occurrence of certain stated events, in each case without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived.
This promissory note is subject to prepayment in whole or in
part as provided in the Credit Agreement.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
WATKINS-JOHNSON COMPANY
By: ____________________________________
Title: _________________________________
By: ____________________________________
Title: _________________________________
2
<PAGE>
EXHIBIT B
to the Credit Agreement
FORM OF COMPLIANCE CERTIFICATE
ABN AMRO Bank N.V., as Agent
101 California Street, Suite 4550
San Francisco, CA 94111
Re: Watkins-Johnson Company
-----------------------
Gentlemen:
This Compliance Certificate is made and delivered pursuant to
the Credit Agreement dated as of November 30, 1995 (as amended, modified,
renewed or extended from time to time, the "Credit Agreement") among
Watkins-Johnson Company (the "Borrower"), certain financial institutions named
therein as Banks, the letter of credit issuing bank named therein as the Issuing
Bank and ABN AMRO Bank N.V., as Agent, and reference is made thereto for full
particulars of the matters described therein. All capitalized terms used in this
Compliance Certificate and not otherwise defined herein shall have the meanings
assigned to them in the Credit Agreement. This Compliance Certificate relates to
the accounting period ending _____________, 199_.
I am the vice president and [chief financial officer]
[treasurer] [controller] of the Borrower. I have reviewed the terms of the
Credit Agreement and I have made, or caused to be made under my supervision, a
detailed review of the transactions and conditions of the Borrower and its
Subsidiaries during such accounting period. I hereby certify that the
information set forth on Schedule I hereto (and on any additional schedules
hereto setting forth further supporting detail) is true, accurate and complete
as of the end of such accounting period. Schedule I uses certain shorthand
terminology for convenience and should be read in connection with the fuller
language in detail set forth in the Credit Agreement. In the event of any
inconsistency between Schedule I and the Credit Agreement, the terms of the
Credit Agreement shall govern.
I hereby further certify that (i) as of the date hereof no
Default has occurred and is continuing, and (ii) on and as of the date hereof,
there has occurred no Material Adverse Effect since the date of the Credit
Agreement, except in each case as may be set forth in a separate attachment
hereto describing in detail the nature of each condition or event constituting
an exception to the foregoing statements, the period
<PAGE>
during which it has existed and the action which the Borrower is taking or
proposes to take with respect to each such condition or event.
IN WITNESS WHEREOF, the undersigned officer has signed this
Compliance Certificate this _________ day of ___________________, 199_______.
_______________________________
Vice President and [Chief
Financial Officer] [Treasurer]
[Controller]
<PAGE>
<TABLE>
SCHEDULE I
to the Compliance Certificate
Dated _________________________, 19____
For the fiscal quarter ended _________________, 199____
<CAPTION>
<S> <C> <C> <C>
Section 10.02(a)--Leverage Ratio Actual Required/Permitted
- -------------------------------- ------ ------------------
(A) Consolidated Total Liabilities (including off-balance $___________
sheet liabilities)
(B) Consolidated Tangible Net Worth calculation:
Consolidated Total Assets $___________
minus Consolidated Total Liabilities $___________
minus intangible assets $___________
minus unamortized debt discount and expense $___________
minus treasury stock $___________
Consolidated Tangible Net Worth $___________
Ratio of (A) to (B) ___________ Not more than
1.0 to 1.0
Section 10.02(b)--
Minimum Consolidated Net Worth
- ------------------------------
(A) Consolidated Net Worth calculation:
Consolidated Total Assets $___________
minus Consolidated Total Liabilities $___________
Consolidated Net Worth $___________
(B) Minimum Consolidated Net Worth calculation:
beginning minimum $135,000,000
plus 100% of net proceeds from sale or issuance $___________
of equity securities after 6/30/95
plus 50% of positive Consolidated Net Income after $___________
June 30, 1995 (on quarterly basis)
Minimum Consolidated Net Worth Not less than
$___________
1.
<PAGE>
Section 10.02(c)--Quick Ratio Actual Required/Permitted
- ----------------------------- ------ ------------------
(A) Consolidated Adjusted Current Assets calculation:
Cash and cash equivalents $___________
plus short term investments $___________
plus net accounts receivable (including unbilled $___________
accounts receivable up to $5,000,000)
Consolidated Adjusted Current Assets $___________
(B) Consolidated Adjusted Current Liabilities
calculation:
Current liabilities $___________
Outstanding revolver indebtedness $___________
Consolidated Adjusted Current Liabilities $___________
Ratio of (A) to (B) Not less than
_____to_____ 1.0 to 1.0
Section 10.02(d)--Profitability
- -------------------------------
(A) Income [or loss] this quarter $___________
Income [or loss] prior three quarters:
(B) _______________________________________ $___________
(C) _______________________________________ $___________
(D) _______________________________________ $___________
(E) Income [or loss] four quarters $___________ No more than two
losses; no more
than $10,000,000
aggregate losses in
any one or two
quarters; profitable
over four quarters
2.
<PAGE>
Section 10.02(e)--Senior Debt Total Capitalization Actual Required/Permitted
- ------------------------------------------------- ------ ------------------
(A) Senior Debt calculation:
Indebtedness $___________
plus off-balance sheet liabilities $___________
minus Subordinated Debt $___________
Senior Debt $___________
(B) Total Capitalization calculation:
Senior Debt $___________
plus Consolidated Tangible Net Worth (from $___________
ss.10.02(a))
plus Subordinated Debt $___________
Total Capitalization $___________
Ratio of (A) to (B)
Not more than 0.40
to 1.0 for 1995 and
1996; Not more than
0.375 to 1.0 thereafter
Section 4.04--Debt/EBITDA Ratio
- -------------------------------
(A) Consolidated Funded Debt calculation:
Indebtedness $___________
plus off-balance sheet liabilities (other than $___________
obligations under standby letters of credit)
Consolidated Funded Debt $___________
(B) Consolidated EBITDA calculation:
EBITDA for period ending
__________________________, 199___:
(1) Consolidated Net Income $___________
(2) plus Consolidated Interest Expense $___________
(3) plus income tax expense $___________
(4) plus amortization expense $___________
3.
<PAGE>
Actual Required/Permitted
------ ------------------
EBITDA for period ending
__________________________, 199___:
(1) Consolidated Net Income $___________
(2) plus Consolidated Interest Expense $___________
(3) plus, income tax expense $___________
(4) plus amortization expense $___________
EBITDA for period ending
__________________________, 199___:
(1) Consolidated Net Income $___________
(2) plus Consolidated Interest Expense $___________
(3) plus income tax expense $___________
(4) plus amortization expense $___________
EBITDA for period ending
__________________________, 199___:
(1) Consolidated Net Income $___________
(2) plus Consolidated Interest Expense $___________
(3) plus income tax expense $___________
(4) plus amortization expense $___________
(A) Consolidated EBITDA for four quarters ending $___________
__________________________, 199___:
Ratio of (A) to (B) ___________
</TABLE>
4.
<PAGE>
Exhibit C to the Credit Agreement
WATKINS-JOHNSON COMPANY
3333 HILLVIEW AVENUE
STANFORD RESEARCH PARK
PALO ALTO, CALIFORNIA 94304-1223
(415) 813-2570
FACSIMILE (415) 813-2578
RICHARD G BELL
Vice President
and
General Counsel
December 8, 1995
To each of the Banks named in the
Credit Agreement referred to below, and
ABM AMRO Bank N.V.,
as Agent for such Banks
Ladies and Gentlemen:
The undersigned is Vice President and General Counsel for
Watkins-Johnson Company, a California corporation (the "Borrower"). I have acted
as counsel in connection with the execution and delivery of the Credit
Agreement, dated as of November 30, 1995 (the "Credit Agreement"), among the
Borrower, the several financial institutions named therein as Banks (the
"Banks"), the letter of credit issuing bank named therein as the Issuing Bank
(the "Issuing Bank"), and ABN AMRO Bank N.V., as Agent for the Banks.
This opinion is provided to the Agent and the Banks pursuant to Section
8.01(e) of the Credit Agreement. Capitalized terms not otherwise defined herein
have the respective meanings set forth in the Credit Agreement.
In connection with this opinion letter, we have examined executed
copies of the Credit Agreement and the Notes (collectively, the "Loan
Documents"), the articles of incorporation and by-laws of the Borrower, as
amended to date; and the records of proceedings of the Board of Directors of the
Borrower during or by which resolutions were adopted relating to matters covered
by this opinion and certificates of officers of the Borrower as to certain
factual matters. In addition to California, the Borrower is qualified to do
business in the states of Arizona, Florida, Illinois, and Maryland. Of these
<PAGE>
Page 2
states, the Borrower has manufacturing facilities in California and Maryland. In
the remaining states listed, the Borrower either maintains or has previously
maintained an office or has transacted sufficient business to require
qualification. We have examined the documents described as "certificates of good
standing" from all of these states.
In addition, we have made such other investigations as we have deemed
necessary to enable us to express the opinions hereinafter set forth. In the
course of this examination we have assumed the genuineness of all signatures of
persons signing the Loan Documents on behalf of parties thereto other than the
Borrower, the authenticity of all documents submitted to us as originals and the
conformity to authentic original documents of all documents submitted to us as
certified, conformed or photostatic copies.
Based upon the foregoing, and further subject to the assumptions,
qualifications and exceptions set forth below, we hereby advise you that in our
opinion:
1. The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and has the corporate
power and authority to own or lease, as the case may be, and operate its
properties and to carry on its business as it is now conducted. The Borrower is
qualified as a foreign corporation and in good standing in each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except to the extent that the failure to
be so qualified and in good standing would not have a Material Adverse Effect.
2. The Borrower has the corporate power and authority to enter into
and perform the Loan Documents, and has taken all necessary corporate action to
authorize the execution, delivery and performance of the Loan Documents to which
it is a party.
3. No authorization, consent, approval, license, exemption of, or
filing or registration with, any Governmental Authority, or approval or consent
of any other person, is required for the due execution, delivery or performance
by the Borrower of the Loan Documents to which it is a party.
<PAGE>
Page 3
4. The Loan Documents to which the Borrower is a party are the legal,
valid and binding obligations of the Borrower enforceable against the Borrower
in accordance with their respective terms.
5. The execution, delivery and performance by the Borrower of the Loan
Documents to which it is a party do not and will not (I) violate or be in
conflict with any provision of the articles of incorporation or by-laws of the
Borrower, (ii) violate or be in conflict with any law or regulation having
applicability to the Borrower, (iii) violate or contravene any judgment, decree,
injunction, writ or order of any court, or any arbitrator or other governmental
Authority, having jurisdiction over the Borrower or the Borrower's properties or
by which the Borrower may be bound, or (iv) violate or conflict with, or
constitute a default under or result in the termination of, or accelerate the
performance required by, any indenture, any loan or credit agreement, or any
other agreement for borrowed money or any other material agreement, lease or
instrument to which the Borrower is a party or by which it or the Borrower's
properties may be bound, or result in the creation of any Lien upon any of the
assets or properties of the Borrower except as contemplated under the Loan
Documents.
6. Except as set forth in Schedule 5 to the Credit Agreement, no
litigation or other proceedings are pending or threatened against the Borrower
or any of its Subsidiaries or their properties before any court, arbitrator or
Governmental Authority with respect to the Loan Documents or which, if
determined adversely to the Borrower or such Subsidiary, would be likely to have
a Material Adverse Effect.
7. The extension of credit under the Credit Agreement does not violate
the provisions of Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System.
8. The Borrower is not an "investment Borrower," or a Borrower
"controlled" by an "investment Borrower," within the meaning of the Investment
Borrower Act of 1940, as amended.
<PAGE>
Page 4
Our opinion set forth in paragraph 4 above is subject to the
qualification that the enforceability of the Loan Documents may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally and by general equity
principles.
We express no opinion herein concerning any law other than the law of
the State of California, the federal law of the United States, and the laws of
the states listed in the third paragraph of this letter; provided that our
opinion in Paragraph 1 as to due qualification of the Borrower as a foreign
cooperation is based solely on certificates of public officials in such states.
This letter has been furnished to you at the request of the Borrower
pursuant to Section 8.01(e) of the Credit Agreement for your use in connection
with the Credit Agreement, and may not be relied upon by you or any other person
for any other purpose without our consent; provided any Bank may deliver a copy
to any Assignee or Participant of such Bank, and any such Assignee or
Participant shall be entitled to rely hereon.
Very truly yours,
/s/ Richard G. Bell
<PAGE>
NOTE
----
$30,000,000 Dated December 8, 1995
FOR VALUE RECEIVED, the undersigned WATKINS-JOHNSON COMPANY, a
California corporation (the "Borrower"), HEREBY UNCONDITIONALLY PROMISES TO PAY
to the order of ABN AMRO BANK N.V. (the "Bank") on the Final Maturity Date the
principal sum of THIRTY MILLION DOLLARS ($30,000,000) or, if less, the aggregate
outstanding principal amount of the Loans made by the Bank to the Borrower
pursuant to the Credit Agreement referred to below.
The Borrower further promises to pay interest on the Loans
outstanding hereunder from time to time at the interest rates, and payable on
the dates, set forth in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America and in same day or immediately available funds to ABN
AMRO Bank N.V., as Agent under the Credit Agreement (the "Agent"), at 101
California Street, Suite 4550, San Francisco, California 94111, or at such other
address as the Agent may designate from time to time.
The Bank shall record the date and amount of each Loan made,
each conversion to a different interest rate, each relevant Interest Period, the
amount of principal and interest due and payable from time to time hereunder,
each payment thereof and the resulting unpaid principal balance hereof, in the
Bank's internal records, and any such recordation shall be rebuttable
presumptive evidence of the accuracy of the information so recorded; provided,
however, that the Bank's failure so to record shall not limit or otherwise
affect the obligations of the Borrower hereunder and under the Credit Agreement
to repay the principal of and interest on the Revolving Loans.
This promissory note is one of the Notes referred to in, and
is subject to and entitled to the benefits of, the Credit Agreement dated as of
November 30, 1995 (as amended, modified, renewed or extended from time to time,
the "Credit Agreement") among the Borrower, the financial institutions named
therein as Banks (including the Bank), the letter of credit issuing bank named
therein as the Issuing Bank, and the Agent. Capitalized terms used herein shall
have the respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides, among other things, for
acceleration (which in certain cases shall be automatic) of the maturity hereof
upon the occurrence of
1
<PAGE>
certain stated events, in each case without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived.
This promissory note is subject to prepayment in whole or in
part as provided in the Credit Agreement.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
WATKINS-JOHNSON COMPANY
By: /s/ Scott G. Buchanan
-----------------------------
Title: Vice President and CFO
-----------------------------
By: /s/ W. Keith Kennedy
-----------------------------
Title: President and CEO
-----------------------------
2
<PAGE>
NOTE
----
$20,000,000 Dated December 8, 1995
FOR VALUE RECEIVED, the undersigned WATKINS-JOHNSON COMPANY, a
California corporation (the "Borrower"), HEREBY UNCONDITIONALLY PROMISES TO PAY
to the order of UNION BANK (the "Bank") on the Final Maturity Date the principal
sum of TWENTY MILLION DOLLARS ($20,000,000) or, if less, the aggregate
outstanding principal amount of the Loans made by the Bank to the Borrower
pursuant to the Credit Agreement referred to below.
The Borrower further promises to pay interest on the Loans
outstanding hereunder from time to time at the interest rates, and payable on
the dates, set forth in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America and in same day or immediately available funds to ABN
AMRO Bank N.V., as Agent under the Credit Agreement (the "Agent"), at 101
California Street, Suite 4550, San Francisco, California 94111, or at such other
address as the Agent may designate from time to time.
The Bank shall record the date and amount of each Loan made,
each conversion to a different interest rate, each relevant Interest Period, the
amount of principal and interest due and payable from time to time hereunder,
each payment thereof and the resulting unpaid principal balance hereof, in the
Bank's internal records, and any such recordation shall be rebuttable
presumptive evidence of the accuracy of the information so recorded; provided,
however, that the Bank's failure so to record shall not limit or otherwise
affect the obligations of the Borrower hereunder and under the Credit Agreement
to repay the principal of and interest on the Revolving Loans.
This promissory note is one of the Notes referred to in, and
is subject to and entitled to the benefits of, the Credit Agreement dated as of
November 30, 1995 (as amended, modified, renewed or extended from time to time,
the "Credit Agreement") among the Borrower, the financial institutions named
therein as Banks (including the Bank), the letter of credit issuing bank named
therein as the Issuing Bank, and the Agent. Capitalized terms used herein shall
have the respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides, among other things, for
acceleration (which in certain cases shall be automatic) of the maturity hereof
upon the occurrence of
1
<PAGE>
certain stated events, in each case without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived.
This promissory note is subject to prepayment in whole or in
part as provided in the Credit Agreement.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
WATKINS-JOHNSON COMPANY
By: /s/ Scott G. Buchanan
-----------------------------
Title: Vice President and CFO
-----------------------------
By: /s/ W. Keith Kennedy
-----------------------------
Title: President and CEO
-----------------------------
2
<PAGE>
NOTE
----
$17,500,000 Dated December 8, 1995
FOR VALUE RECEIVED, the undersigned WATKINS-JOHNSON COMPANY, a
California corporation (the "Borrower"), HEREBY UNCONDITIONALLY PROMISES TO PAY
to the order of THE FIRST NATIONAL BANK OF BOSTON (the "Bank") on the Final
Maturity Date the principal sum of SEVENTEEN MILLION FIVE HUNDRED THOUSAND
DOLLARS ($17,500,000) or, if less, the aggregate outstanding principal amount of
the Loans made by the Bank to the Borrower pursuant to the Credit Agreement
referred to below.
The Borrower further promises to pay interest on the Loans
outstanding hereunder from time to time at the interest rates, and payable on
the dates, set forth in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America and in same day or immediately available funds to ABN
AMRO Bank N.V., as Agent under the Credit Agreement (the "Agent"), at 101
California Street, Suite 4550, San Francisco, California 94111, or at such other
address as the Agent may designate from time to time.
The Bank shall record the date and amount of each Loan made,
each conversion to a different interest rate, each relevant Interest Period, the
amount of principal and interest due and payable from time to time hereunder,
each payment thereof and the resulting unpaid principal balance hereof, in the
Bank's internal records, and any such recordation shall be rebuttable
presumptive evidence of the accuracy of the information so recorded; provided,
however, that the Bank's failure so to record shall not limit or otherwise
affect the obligations of the Borrower hereunder and under the Credit Agreement
to repay the principal of and interest on the Revolving Loans.
This promissory note is one of the Notes referred to in, and
is subject to and entitled to the benefits of, the Credit Agreement dated as of
November 30, 1995 (as amended, modified, renewed or extended from time to time,
the "Credit Agreement") among the Borrower, the financial institutions named
therein as Banks (including the Bank), the letter of credit issuing bank named
therein as the Issuing Bank, and the Agent. Capitalized terms used herein shall
have the respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides, among other things, for
acceleration (which in certain cases shall be automatic) of the maturity hereof
upon the occurrence of
1
<PAGE>
certain stated events, in each case without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived.
This promissory note is subject to prepayment in whole or in
part as provided in the Credit Agreement.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
WATKINS-JOHNSON COMPANY
By: /s/ Scott G. Buchanan
-----------------------------
Title: Vice President and CFO
-----------------------------
By: /s/ W. Keith Kennedy
-----------------------------
Title: President and CEO
-----------------------------
2
<PAGE>
NOTE
----
$17,500,000 Dated December 8, 1995
FOR VALUE RECEIVED, the undersigned WATKINS-JOHNSON COMPANY, a
California corporation (the "Borrower"), HEREBY UNCONDITIONALLY PROMISES TO PAY
to the order of THE FIRST NATIONAL BANK OF MARYLAND (the "Bank") on the Final
Maturity Date the principal sum of SEVENTEEN MILLION FIVE HUNDRED THOUSAND
DOLLARS ($17,500,000) or, if less, the aggregate outstanding principal amount of
the Loans made by the Bank to the Borrower pursuant to the Credit Agreement
referred to below.
The Borrower further promises to pay interest on the Loans
outstanding hereunder from time to time at the interest rates, and payable on
the dates, set forth in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America and in same day or immediately available funds to ABN
AMRO Bank N.V., as Agent under the Credit Agreement (the "Agent"), at 101
California Street, Suite 4550, San Francisco, California 94111, or at such other
address as the Agent may designate from time to time.
The Bank shall record the date and amount of each Loan made,
each conversion to a different interest rate, each relevant Interest Period, the
amount of principal and interest due and payable from time to time hereunder,
each payment thereof and the resulting unpaid principal balance hereof, in the
Bank's internal records, and any such recordation shall be rebuttable
presumptive evidence of the accuracy of the information so recorded; provided,
however, that the Bank's failure so to record shall not limit or otherwise
affect the obligations of the Borrower hereunder and under the Credit Agreement
to repay the principal of and interest on the Revolving Loans.
This promissory note is one of the Notes referred to in, and
is subject to and entitled to the benefits of, the Credit Agreement dated as of
November 30, 1995 (as amended, modified, renewed or extended from time to time,
the "Credit Agreement") among the Borrower, the financial institutions named
therein as Banks (including the Bank), the letter of credit issuing bank named
therein as the Issuing Bank, and the Agent. Capitalized terms used herein shall
have the respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides, among other things, for
acceleration (which in certain cases shall be automatic) of the maturity hereof
upon the occurrence of
1
<PAGE>
certain stated events, in each case without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived.
This promissory note is subject to prepayment in whole or in
part as provided in the Credit Agreement.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
WATKINS-JOHNSON COMPANY
By: /s/ Scott G. Buchanan
-----------------------------
Title: Vice President and CFO
-----------------------------
By: /s/ W. Keith Kennedy
-----------------------------
Title: President and CEO
-----------------------------
2
<PAGE>
NOTE
----
$15,000,000 Dated December 8, 1995
FOR VALUE RECEIVED, the undersigned WATKINS-JOHNSON COMPANY, a
California corporation (the "Borrower"), HEREBY UNCONDITIONALLY PROMISES TO PAY
to the order of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the
"Bank") on the Final Maturity Date the principal sum of FIFTEEN MILLION DOLLARS
($15,000,000) or, if less, the aggregate outstanding principal amount of the
Loans made by the Bank to the Borrower pursuant to the Credit Agreement referred
to below.
The Borrower further promises to pay interest on the Loans
outstanding hereunder from time to time at the interest rates, and payable on
the dates, set forth in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America and in same day or immediately available funds to ABN
AMRO Bank N.V., as Agent under the Credit Agreement (the "Agent"), at 101
California Street, Suite 4550, San Francisco, California 94111, or at such other
address as the Agent may designate from time to time.
The Bank shall record the date and amount of each Loan made,
each conversion to a different interest rate, each relevant Interest Period, the
amount of principal and interest due and payable from time to time hereunder,
each payment thereof and the resulting unpaid principal balance hereof, in the
Bank's internal records, and any such recordation shall be rebuttable
presumptive evidence of the accuracy of the information so recorded; provided,
however, that the Bank's failure so to record shall not limit or otherwise
affect the obligations of the Borrower hereunder and under the Credit Agreement
to repay the principal of and interest on the Revolving Loans.
This promissory note is one of the Notes referred to in, and
is subject to and entitled to the benefits of, the Credit Agreement dated as of
November 30, 1995 (as amended, modified, renewed or extended from time to time,
the "Credit Agreement") among the Borrower, the financial institutions named
therein as Banks (including the Bank), the letter of credit issuing bank named
therein as the Issuing Bank, and the Agent. Capitalized terms used herein shall
have the respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides, among other things, for
acceleration (which in certain cases shall be automatic) of the maturity hereof
upon the occurrence of
1
<PAGE>
certain stated events, in each case without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived.
This promissory note is subject to prepayment in whole or in
part as provided in the Credit Agreement.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
WATKINS-JOHNSON COMPANY
By: /s/ Scott G. Buchanan
-----------------------------
Title: Vice President and CFO
-----------------------------
By: /s/ W. Keith Kennedy
-----------------------------
Title: President and CEO
-----------------------------
2
(Translation)
Loan Agreement Deed
Dated: February 9, 1996
To: The Bank of Yokohama, Ltd.
Borrower: Watkins-Johnson International Japan K.K.
D-842, 2-1, Sakado 3-chome
Takatsu-ku, Kawasaki
(stamp signature and seal)
--------------------------
Stephen E. Chelberg
Representative Director
Article 1.
The Borrower hereby agrees to perform in accordance with the terms and
conditions set forth in the Agreement of Bank Transactions separately executed
and delivered to the Bank of Yokohama, Ltd. (hereinafter referred to as the
"Bank"). The Borrower hereby confirms that, in accordance with the Summary of
Loans hereinafter provided, the Bank has lent the Borrower the funds described
below, and the Borrower has received such funds.
Article 2.
(1) With regard to any and all obligations which the Borrower may owe to the
Bank under this Agreement, the Guarantor shall be jointly and severally
liable with the Borrower for the performance of such obligations, and the
Guarantor hereby agrees to abide by the terms and conditions of this
Agreement in addition to those of the
<PAGE>
Agreement of Bank Transactions separately executed and delivered to the
Bank by the Borrower with regard to the performance of any and all such
obligations.
(2) Even if the Bank, at its discretion, modifies or releases either the
security or other guarantees it has received, the Guarantor shall not claim
exemption from any of its obligations.
(3) The Guarantor shall not set off its obligations by using either the
Borrower's deposits and/or other credits against the Bank.
(4) If and when the Guarantor performs any of its obligations under the
Guarantee, the Guarantor shall then not exercise any rights obtained from
the Bank by subrogation without the prior approval of the Bank as long as
transactions between the Borrower and the Bank continue. Upon the Bank's
demand, the Guarantor shall assign such rights and priority to the Bank
without compensation.
(5) If the Guarantor has already executed and delivered other guarantees for
the Borrower's transactions with the Bank, such other guarantees shall in
no way be modified by this Guarantee.
Summary of Loans
Amount One Billion Yen (Y1,000,000,000)
Maturity Date January 20, 2011
Purpose of Borrowing Plant and equipment fund (for
land purchases)
<PAGE>
Interest Rate Fixed rate of two point five percent
(2.5%) per annum.
Repayment The Borrower shall repay the Loan in
installments, and each of the installments
other than the final installment shall be
of an amount equal to Five Million Nine
Hundred Twenty Thousand Yen (Y5,920,000),
which are scheduled to be paid on the
twentieth (20th) day of each month
commencing on January 20, 1997, and the
final installment, of an amount equal to
Five Million Four Hundred Forty Thousand
Yen (Y5,440,000), shall be payable on the
Maturity Date.
Payment of Interest The first payment of interest, which shall
consist of the amount accrued between the
date of this Agreement and March 20, 1997,
shall be made upon March 20, 1997.
Thereafter, payment of interest accrued
between each payment date shall be made on
the twentieth (20th) day of
<PAGE>
each month in arrears.
Interest shall be computed per diem on the
basis of 365-days per year.
If any payment of the principal of, or interest on, the Loan falls due
on a non-business day of the Bank, such payment shall be made on the next
succeeding business day.
<PAGE>
[LOGO]
WATKINS-JOHNSON COMPANY
3333 Hillview Avenue, Stanford Research Park, Palo Alto, California 94304-1223
Telephone: (415) 493-4141 Fax: (415) 813-~2402 TWX: 910-373-1253
AGREEMENT OF GUARANTEE
To: Bank of Yokohama
In regard to any and all obligations of Watkins-Johnson International
Japan, K.K. (hereinafter referred to as "the Principle") may owe the Bank of
Yokohama Ltd. (hereinafter referred to as "your Bank") as a result of the Loan
of which amount is 1,000,000,000 yen made on the 31st day of January 1996:
Watkins-Johnson Company (hereinafter referred to as "the Guarantor") do hereby
agree to the terms and conditions set forth in Agreement of Bank Transactions
and the Agreement of the Loans on Deed separately executed and delivered to your
Bank by the Principle, shall be jointly and severally liable with the Principle,
and shall not cause any trouble or inconvenience to your Bank.
The Guarantee Period shall commence on the date hereof and continue in
force until the expiration of the above mentioned agreements between the Bank
and the Principle.
Dated this 31 day of January, Nineteen Hundred and Ninety Six.
Revenue Stamp
By Watkins-Johnson Company:
Signature: /s/ W. Keith Kennedy Signature: /s/ Scott G. Buchanan
-------------------- ---------------------
Name: W. Keith Kennedy Name: Scott G. Buchanan
Title: President Title: Vice President and
Chief Financial Officer
(All questions that may arise within or without courts of law in regard to the
meaning of the words, provisions and stipulations of this Agreement shall be
decided in accordance with the Japanese text)
(Translation)
Loan Aqreement Deed
-------------------
This document certifies that the Japan Development Bank (hereinafter
referred to as the "Bank") has loaned the funds set forth in the following
summary of loans (hereinafter referred to as the "Summary") to Watkins-Johnson
International Japan K.K. (hereinafter referred to as the "Borrower"), and that
the Borrower has acknowledged both the Summary and the terms and conditions set
forth in the Annex (hereinafter referred to as the "Conditions"), and that the
Borrower has received such funds.
The execution, validity, interpretation and performance of this Agreement
shall be governed by the laws of Japan.
IN WITNESS WHEREOF, the parties hereto have executed one original of this
Agreement in Japanese, and the Bank shall keep the original and the Borrower
shall keep a copy thereof respectively.
Dated: June 12, 1996
A: The Japan Development Bank
9-1, Otemachi 1-chom
Chiyoda-ku, Tokyo
(stamp signature and seal)
--------------------------
Yoshihiko Yoshino
Governor
B: Watkins-Johnson International
Japan K.K.
D-842, 2-1, Sakado 3-chome,
Takatsu-ku, Kawasaki, Kanagawa
(stamp signature and seal)
--------------------------
Stephen E. Chelberg
Representative Director
<PAGE>
Summary of Loans
Principal: One Billion Three Hundred Fifty Million Yen (Y1,350,000,000)
Name of and expenses for the project for which the loan is required
(hereinafter referred to as the "Project"):
Construction of Technology Center for Semiconductor-Manufacturing Equipment
Two Billion Seven Hundred Million Yen (Y2,700,000,000)
Repayment of the principal:
The full repayment shall be made on the 28th day of November, 2006.
Interest rate:
Three point one percent (3.1%) per annum (subject to per diem calculation
on the basis of 365 days per year).
Method of payment of interest:
The first payment shall be made on the 28th day of November, 1996, and
thereafter payment shall be made on the 28th day of May and November of each
year. Interest accrued between each payment date shall be paid at the end of the
accrual period.
<PAGE>
ANNEX
Terms and Conditions
(Purpose of the Borrowed Funds)
Article 1.
The Borrower shall perform the Project in accordance with the Project
plan as it exists as of the date of this Agreement and shall use the borrowed
money under this Agreement only for such Project.
(Installment Schedule for Payment of the Borrowed Funds)
Article 2.
The Borrower shall initially keep the borrowed funds under this
Agreement on deposit with the Bank and the Bank shall deliver such deposited
funds (hereinafter referred to as the "Deposited Funds") to the Borrower in
installments based upon the progress of the Project, the payment of expenses for
the Project and related matter.
2. When the Borrower withdraws the Deposited Funds from the Bank, the
Borrower shall, in advance, notify the Bank of such payment of expenses for the
Project and other related matters in a form prescribed by the Bank and shall
obtain the Bank's consent to such withdrawal.
3. The Bank shall pay no interest on the Deposited Funds to the
Borrower, and the Borrower shall pay no interest on the borrowed money up to the
amount of the Deposited Funds in the Bank.
4. The Borrower shall not assign or create a pledge on
<PAGE>
the right to deliver the Deposited Funds to a third party.
(Delivery of the Deposited Funds by Bank Transfer)
Article 3.
If the Bank delivers the Deposited Funds under this Agreement by transfer
to the Borrower's bank account, then the delivery of the Deposited Funds to the
Borrower shall be deemed to be fulfilled upon completion of the Bank's procedure
requesting the transfer of the Deposited Funds to the Borrower's bank account.
Even if the Borrower thereafter suffers a loss for reasons including but not
limited to accidents or procedural delays which occur after completion of the
Bank's procedure and for which the Bank is not responsible, the Borrower shall
not then demand compensation from or make other claims on the Bank.
(Repayment of the Obligations by Bank Transfer)
Article 4.
If the Borrower repays its obligations by transfer to the Bank's account
with checks, notes or other securities (hereinafter collectively referred to as
"Securities"), the Borrower shall then ensure that the Securities are paid in
full by the due dates of the Borrower's obligations.
(Repayment of the Obligations by Delivering Securities)
Article 5.
If the Borrower repays its obligations by delivering the Securities to the
Bank, such Securities shall be negotiable
<PAGE>
for settlement through the clearing house consented to by the Bank and the
Borrower shall ensure that the Securities are paid in full by the due dates of
the Borrower's obligations.
2. If any of the Securities in the preceding paragraph is dishonored and
returned to the Borrower by the Bank, then the Borrower agrees that the Bank is
not responsible for taking any steps to preserve any rights relating to such
Securities.
(Prepayment)
Article 6.
If the expenses for the Project decrease to less than those set forth in
the Summary (hereinafter referred to as the "Summary Amount") because of a
change in the Project plan or other reasons, and the Bank so requests, the
Borrower shall then, notwithstanding the maturity date of the loan set forth in
the Summary, prepay the borrowed money under this Agreement in proportion equal
to the percentage of the reduction of the Summary Amount.
2. If the Bank finds that the fulfillment of the Project's aim is rendered
impracticable because the decreased amount referred to in the preceding
paragraph amounts to a substantial percentage of the Summary Amount, and the
Bank so requests, the Borrower shall then prepay the borrowed money received
under this Agreement in full.
3. If (i) the Borrower does not perform the Project without a justifiable
reason, despite the Bank's instructions, even after a reasonable period which
the Bank has deemed
<PAGE>
necessary for performance of the Project, or (ii) if the Borrower does not apply
the money delivered under paragraph 1 of Article 2 to satisfy the payments due
for the expenses of the Project, or (iii) if the Bank finds that the purpose of
the Project will not be completed on the ground that the Borrower has assigned
or leased an object which the Borrower obtained as a result of the Project to a
third party immediately after the Borrower obtained it or for other reasons and
the Bank so requests, the Borrower shall then, notwithstanding the maturity date
set forth in the Summary, prepay the borrowed money received under this
Agreement to the Bank either in whole or in part.
4. The Borrower may prepay the borrowed money under this Agreement in whole
or in part with the Bank's prior consent.
5. In addition to the preceding paragraph, the Borrower may prepay the
borrowed money under this Agreement in whole or in part by giving the Bank
written notice of prepayment at least ninety (90) days prior to the date of
prepayment.
6. In case the preceding paragraph applies, the Borrower may not cancel the
prepayment without the Bank's consent after the Bank's receipt of such
prepayment notice.
Article 7.
When the Borrower prepays the borrowed money, the Borrower shall pay the
amounts set forth in each of the following upon such prepayment:
(1) Interest on the prepaid amount accrued up until the
<PAGE>
date of such prepayment.
(2) In case of the prepayment arising under paragraph 5 of the preceding
Article, if the interest rate under this Agreement (hereinafter referred to as
the "Agreed Interest Rate") exceeds the Bank's standard interest rate as of the
date of such prepayment (hereinafter referred to as the "Standard Interest
Rate"), in addition to the preceding item, the difference between (i) the amount
equal to interest which is calculated on the basis of the Agreed Interest Rate
on the prepaid amount for the period during the date of such prepayment and the
maturity date set forth in the Summary and (ii) the amount equal to interest
which is calculated on the basis of the Standard Interest Rate for the same
period (with the method of such calculation to be determined by the Bank).
Article 8.
The Bank may set off the Deposited Funds against any funds, including
interest thereon and any other obligation pertaining to such funds, which the
Borrower should prepay.
(Appropriation of Repayment)
Article 9.
(i) If the Borrower prepays the borrowed money under this Agreement to the
Bank in part, or (ii) if the Bank sets off the Deposited Funds against the funds
which the Borrower should prepay under this Agreement, or (iii) if the amount of
the repayment of obligations under this Agreement or under other loan agreements
between the Bank and the Borrower is
<PAGE>
less than the amount which the Borrower should repay under such agreements, then
the Bank may appropriate the amount due in such manner as decided upon by the
Bank.
(Inspection of Books, Etc.)
Article 10.
The Bank may at any time inspect the status of the Project as well as the
Borrower's assets, documents, books and other materials as the Bank deems
necessary based on reasonable grounds, such as to confirm the use of the loaned
funds under this Agreement or for the preservation of the Bank' s rights.
2. The Borrower shall offer assistance as needed to the Bank for the
inspection set forth in the preceding paragraph.
(Matters to be Filed)
Article 11.
If the. Borrower changes its name, corporate name, address, representative,
filed seal or other matters filed with the Bank, the Borrower shall then notify
the Bank thereof in writing forthwith.
(Matters to be Reported)
Article 12.
The Borrower shall report to the Bank, in accordance with the method as
instructed by the Bank, the matters mentioned in (1) and (2) below upon the
Bank's request and the matter mentioned in (3) below without delay upon the
occurrence of
<PAGE>
such event.
(1) Progress status of the Project and payment status of the expenses of
the Project.
(2) Each settlement of account (including mid-year settlements if the
company/companies which choose(s) yearly settlement make(s) such a mid-year
settlement) and decisions as to dividends (including interim dividends) of the
Borrower and Watkins Johnson Company (hereinafter referred to as the
"Guarantor").
(3) Other important events concerning management, finance or business.
(Acceleration of Payment)
Article 13.
If any one of the following events should occur and be continuing, and the
Bank so requests, the Borrower's obligations to the Bank shall then immediately
become due and payable and the Borrower shall forthwith pay the entire amount of
its obligations under this Agreement.
(1) When the Borrower does not perform the Project and uses the borrowed
money under this Agreement for a purpose other than that of the Project;
(2) When the Borrower fails to perform any of its obligations under
Articles 11 or 12 and continues not to perform such obligations despite the
Bank's request, or when the Borrower makes a false statement or report
thereunder;
(3) When the Borrower fails to pay any part of the principal or interest
under this Agreement;
<PAGE>
(4) When the Borrower fails to perform any of its obligations under this
Agreement other than those set forth in each of the preceding items, or fails to
perform any of its obligations to the Bank under any other agreements;
(5) When the Borrower dishonors any note or check;
(6) When an order or notice of provisional attachment, preservative
attachment or attachment with respect to the Deposited Funds is issued or given
to the Borrower;
(7) When attachment with respect to assets which the Borrower furnishes or
agrees to furnish to the Bank as security is made;
(8) When the Borrower or the Guarantor stops payment or an application is
filed by or against the Borrower or the Guarantor for bankruptcy, composition,
corporate reorganization or corporate arrangement;
(9) When the Borrower or the Guarantor is dissolved or its business is
closed;
(10) When any event reasonably requiring the preservation of the Bank's
rights other than those set forth in each of the preceding items occurs to the
Borrower;
(11) When the Guarantor fails to perform any of its obligations under the
guaranty agreement with the Bank dated June 12, 1996 (hereinafter referred to as
the "Guaranty Agreement" in this Article) and, if the Bank reasonably determines
that such failure can be cured, such failure to perform such obligation
continues unremedied for a period of thirty (30) days; or
(12) When any event of default occurs under or in
<PAGE>
connection with any obligation of the Guarantor to the Bank other than those
incurred under the Guaranty Agreement.
(Security)
Article 14.
The Borrower shall, upon a request by the Bank based on reasonable and
probable cause to preserve the Bank's rights under this Agreement, furnish the
Bank with security or additional security as may be approved by the Bank,
whether or not there is any security or a guarantor under this Agreement or any
other agreements.
(Execution of Notarial Deed)
Article 15.
The Borrower shall, at any time upon the Bank's request (with the
Guarantor, if the Bank so instructs), commission a notary public in Japan and
take all necessary actions to execute a notarial deed containing an
acknowledgement of the obligations under this Agreement and a statement of
acceptance of enforcement thereof.
(Burden of Expenses)
Article 16.
The Borrower shall bear any expenses for preparation of this Agreement,
registration, and all other expenses in connection with the performance of this
Agreement.
<PAGE>
(Post Default Interest)
Article 17.
The Borrower shall pay post default interest equivalent to 14.5% per annum
(subject to per diem calculation on the basis of 365 days per year) on the
principal, interest and any other amounts payable in the event of default of any
payment obligation, or on advance money the Bank paid for the expenses under the
preceding Article.
(Court Jurisdiction)
Article 18.
In the event of any litigation or controversies in connection with this
Agreement, the Borrower hereby submits and consents to the non-exclusive
jurisdiction of the Tokyo District Court.
<PAGE>
Guaranty Agreement
Date: 29 May 1996
To: Mr. Yoshihiko Yoshino, Governor
The Japan Development Bank
The undersigned (hereinafter referred to as the "Guarantor"), after having
accepted the following terms and conditions, hereby guarantees all the
obligations of Watkins-Johnson International Japan K.K.(hereinafter referred to
as the "Debtor") to The Japan Development Bank (hereinafter referred to as "the
Bank") arising out of the agreement made by and between the Bank and the Debtor
dated June 12, 1996 (hereinafter referred to as the "Original Agreement"),
certain basic provisions of which are more fully described in Attachment A.
Article 1.
The Guarantor hereby confirms the obligations of the Debtor under the
Original Agreement, and agrees to each article and paragraph of the Original
Agreement.
Article 2.
1. The Guarantor shall be jointly and severally responsible with the Debtor
(this Guaranty being Rentaihosho under the laws of Japan) for the full payment
to the Bank of the entire amount of the Debtor's obligations under, and in
accordance with the terms of, the Original Agreement, notwithstanding the
validity or invalidity of the agreement on commissioning guaranty entered into
by and between the Debtor and the Guarantor. Even if any change or amendment is
made to the Original Agreement, the Guarantor shall perform its guaranty
obligations in
<PAGE>
accordance with the Debtor's obligations as changed thereby.
2. The Guarantor shall not claim any exemption from its obligations
hereunder even if there occurs any increase, decrease, replacement, release of,
or any other change with respect to the security described in the Original
Agreement.
Article 3.
In the event the Guarantor performs its guaranty obligations, any rights it
acquires from the Bank by virtue of subrogation shall not be exercised without
the Bank's consent until the Debtor has paid in full all of its obligations to
the Bank under the Original Agreement, as it may be amended from time to time.
Further, upon the Bank's request, such rights or ranking thereof shall be
assigned to the Bank free of charge and all the procedures required therefor
shall be taken.
Article 4.
On or prior to the date of the execution of this Guaranty Agreement, the
Bank shall have confirmed that the Guarantor is able to provide the documents
listed in Attachment B and has executed those documents to which it is a party;
and all such documents shall be dated the date of the execution of this Guaranty
Agreement and shall otherwise be in form and substance satisfactory to the Bank.
In any event, the Bank shall have received the originals of such documents at
its Tokyo head office by the date to be designated by the Bank.
Article 5.
If any change occurs in the name, the authorized signatories (including the
specimen signature(s) thereof), the address, or any other matters designated by
the Bank, notification thereof shall immediately be given to the Bank in
writing, and such change shall become effective upon receipt thereof by the
Bank.
<PAGE>
Article 6.
All expenses incurred in the preparation of this Guaranty Agreement and all
other expenses otherwise incurred in connection with the performance of this
Guaranty Agreement shall be borne by the Guarantor.
Article 7.
1. This Guaranty Agreement shall be deemed to be a contractual obligation
under, and shall be governed by and construed and interpreted in accordance
with, the laws of Japan.
2. In the event of any litigation in connection with this Guaranty
Agreement, the Guarantor hereby submits and consents to the non-exclusive
jurisdiction of the Tokyo District Court. The Guarantor hereby irrevocably
appoints Stephen E. Chelberg, Tokyo, Japan as its agent to receive service of
process in Japan in connection with any suit, action or proceeding relating to
this Guaranty Agreement. In the event that agent ceases to be able to act as
agent of the Guarantor hereunder or ceases to have an office in Tokyo, Japan and
the Guarantor fails to appoint a successor agent acceptable to the Bank, the
Guarantor agrees that the Bank shall automatically serve as its agent to receive
service of process in Japan.
3. Nothing herein shall in any way be deemed to limit the ability of the
Bank to obtain jurisdiction over the Guarantor in such other jurisdictions, and
in such manner, as may be permitted by applicable law.
Article 8.
The Guarantor agrees that this Guaranty Agreement shall be binding upon it
and its successors and assigns and may not be assigned without the prior written
consent of the Bank.
<PAGE>
Article 9.
This Guaranty Agreement shall be prepared in English.
Watkins-Johnson Company
By /s/ W. Keith Kennedy
---------------------
Name: W. Keith Kennedy
Title: President and Chief
Executive Officer
Address: 3333 Hillview Ave.
Palo Alto, CA 94304
/s/ Scott G. Buchanan
-----------------------
Name: Scott G. Buchanan
Title: Vice President and
Chief Financial
Officer
<PAGE>
ATTACHMENT A
Description of the Original Agreement and
Summary of Borrowing Conditions
The Original Agreement:
Date:
Parties: The Japan Development Bank and
Watkins-Johnson International Japan K.K.
Summary of the Borrowing Conditions thereof
(1) Principal:
Yen 1,350,000,000-
(2) Project for which the loan is required:
Construction of Technology Center for Semiconductor-Manufacturing
Equipment
(3) Repayment schedule of principal:
The repayment shall be made in full on the 28th day of November, 2006,
(4) Interest rate:
3.2% per annum (subject to per diem calculation on the basis of 365 days
a year.)
(5) Method of payment of interest:
The first payment shall be made on the 28th day of November, 1996 and
thereafter payment shall be made on the 28th day of May and November of
every year. Interest accrued between each payment day shall be paid at
the end of the accrual period.
<PAGE>
ATTACHMENT B
Documents Required Under Article 4
1. Copies, certified by a duly authorized officer of the Guarantor, of the
Guarantor's articles of incorporation and by-laws.
2. Copy, certified by a duly authorized officer of the Guarantor, of a
resolution of the board of directors of the Guarantor approving and
authorizing the execution, delivery, and performance of the Guaranty
Agreement by the Guarantor and authorizing specified officer(s) and/or
other representative(s) of the Guarantor to execute and deliver the
Guaranty Agreement on behalf of the Guarantor.
3. A certificate signed by a duly authorized officer of the Guarantor as to
the incumbency of those officers or other representatives of the Guarantor
authorized to sign the Guaranty Agreement and as to the specimen signatures
of such persons.
EXHIBIT 11
<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(Dollars in thousands, except per share amounts)
The following table illustrates the potential dilution of outstanding stock
options on net income per share computations:
<CAPTION>
Three Months Ended Nine Months Ended
- ---------------------------------------------------------------------------------------------------------------------------------
Sept. 27, 1996 Sept. 29, 1995 Sept. 27, 1996 Sept. 29, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For primary net income per share:
Weighted average shares outstanding 8,321,000 8,079,000 8,242,000 7,877,000
Equivalent shares--dilutive stock
options--based on treasury stock
method using average market price
137,000 939,000 315,000 939,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total 8,458,000 9,018,000 8,557,000 8,816,000
=================================================================================================================================
For fully diluted net income per share:
Weighted average shares outstanding 8,321,000 8,079,000 8,242,000 7,877,000
Equivalent shares--dilutive stock
options--based on treasury stock
method using greater of closing
market price or average price 137,000 1,004,000 318,000 1,004,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total 8,458,000 9,083,000 8,560,000 8,881,000
=================================================================================================================================
Net income $ 2,832 $ 8,910 $ 9,624 $ 22,039
=================================================================================================================================
Primary net income per share $ .33 $ .99 $ 1.12 $ 2.50
=================================================================================================================================
Fully diluted net income per share $ .33 $ .98 $ 1.12 $ 2.48
=================================================================================================================================
<FN>
This calculation is submitted in accordance with Regulation S-K, Item 601(b)(11).
</FN>
</TABLE>
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-29-1996
<PERIOD-END> SEP-27-1996
<CASH> 14,772
<SECURITIES> 0
<RECEIVABLES> 103,313
<ALLOWANCES> 0
<INVENTORY> 83,414
<CURRENT-ASSETS> 216,532
<PP&E> 215,531
<DEPRECIATION> 126,421
<TOTAL-ASSETS> 332,028
<CURRENT-LIABILITIES> 91,029
<BONDS> 40,154
<COMMON> 37,788
0
0
<OTHER-SE> 163,057
<TOTAL-LIABILITY-AND-EQUITY> 332,028
<SALES> 94,962
<TOTAL-REVENUES> 94,962
<CGS> 60,921
<TOTAL-COSTS> 91,085
<OTHER-EXPENSES> (784)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 556
<INCOME-PRETAX> 4,105
<INCOME-TAX> 1,273
<INCOME-CONTINUING> 2,832
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,832
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
