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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD _______________ TO _______________.
COMMISSION FILE NUMBER 0-07428
CALIFORNIA MICROWAVE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-1668412
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
555 TWIN DOLPHIN DRIVE, REDWOOD CITY, CALIFORNIA 94065
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 596-9000
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.10 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates
of the registrant was approximately $278,383,685 as of September 8, 1997.
Indicate the number of shares outstanding of the issuer's common
stock, as of the latest practicable date: On September 8, 1997, there were
16,496,811 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's Annual Report to Stockholders for fiscal
year ended June 30, 1997. (Part II of Form 10-K)
(2) Portions of definitive proxy statement filed with Securities and
Exchange Commission relating to the registrant's 1997 Annual Meeting
of Stockholders. (Part III of Form 10-K)
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ITEM 1. BUSINESS
GENERAL
California Microwave, Inc. (the "Company") designs, manufactures and
markets sophisticated systems, products and services used worldwide in
satellite and wireless communications for the transmission of data, video and
voice. The Company applies its expertise in microwave radio and digital signal
processing technologies to: satellite ground equipment, microwave radios for
wireless communications, and information collection and communications systems.
Users of the Company's products and services include private networks, broadcast
and cable television operators, utilities and other major corporations, and
municipal, state and national governments.
During the second and third quarters of fiscal 1997, the Company
recorded operating reserves of approximately $39.3 million and restructuring
reserves of $7.8 million. These charges were principally a result of a
comprehensive review of the Microwave Networks Division ("MN") and the
Satellite Transmission System Division ("STS") and their disappointing
operating performance during 1997. This review included an evaluation of
inventory, product development and migration plans, utilization of facilities,
head count requirements and other matters.
STS is a turnkey supplier of satellite communications earth stations
and networks and provides systems engineering and integration capabilities.
Microwave Networks is a combination of Microwave Networks, Inc. (MNI) acquired
in May 1995, TeleSciences Transmission Systems, Inc. (TTS) acquired in October
1993 and the digital radio product line of Microwave Radio Corporation,
acquired in April 1992. MN designs and manufactures microwave radio systems
for cellular, personal communication services and public and private
communications networks. In June 1997, the Company announced its plans to
divest MN and STS and the financial statements of the Company have been
restated to reflect the accounts of MN and STS as discontinued operations. For
financial information relating to the discontinued operations, see the selected
financial data, management's discussion and analysis of financial condition and
results of operations and financial statements incorporated by reference in
Items 6, 7 and 8 of this Report.
The six business units that constitute the continuing operations of
the Company--EFData, Microwave Data Systems, Microwave Radio Communications,
Airborne Systems Integration Division, Government Electronics Division and
Services Division--participate in point-to-point and point-to-multipoint data
transmission markets. Products and systems sold by the continuing businesses
include satellite communications products and up-link services, terrestrial
video and data radio products and information collection, analysis and
communication systems.
For its fiscal year ended June 30, 1997, the Company had income from
continuing operations of $2.6 million and losses (net of tax) from its
discontinued operations of $59.3 million. Included in the discontinued
operations results were $14.4 million (net of tax) and $8.4 million (net of
tax), respectively, for the write-off of the unamortized balance of goodwill on
the books of the discontinued operations and for the estimated losses, fees and
expenses associated with the divestiture process.
The description of the business of the Company that follows in this
Form 10-K Annual Report will be confined to a description of the Company's
continuing operations.
On July 17, 1997, the Company announced that its Board of Directors
had appointed Frederick D. Lawrence to the position of Chairman of the Board,
Chief Executive Officer and President.
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INFORMATION REGARDING FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides companies with a "safe harbor" when making forward looking statements.
Statements of the Company that are not historical facts, including statements
about management's expectations for fiscal year 1998 and beyond, are forward
looking statements and involve certain risks and uncertainties. Factors that
could cause the Company's actual results to differ materially from management's
projections, forecasts, estimates and expectations include, but are not limited
to, the following:
(a) The timing of receipt of significant orders and of deliveries
of new and existing products and systems;
(b) The time it takes to successfully execute the Company's
divestiture plans; and the amount of net proceeds from the
sale of the divested business units.
(c) Fluctuating market demand, price competition and new product
introductions by competitors and the ability to develop and
introduce competitive products and bring them to market in a
timely manner;
(d) Cost overruns and contract terminations or adjustments;
(e) With regard to international sales, fluctuations in foreign
currency exchange rates, the availability of suitable export
financing, political instability and the ability to retain
stable and experienced in-country partners to provide sales
and support services;
(f) The availability of quality components and subsystems used by
the Company in its products and the dependence upon
subcontractors to manufacture and deliver certain items in a
timely and satisfactory manner;
(g) The limitation on the ability to reduce inventory and expenses
if forecasts and demand are not realized;
(h) The risk of nonpayment of accounts receivable arising out of
customer dissatisfaction or insolvency;
(i) The reliance of certain of the Company's operations upon major
orders from a small number of customers; and
(j) Changes in industry or general economic conditions.
TELECOMMUNICATIONS INDUSTRY OVERVIEW
Telecommunications Market. The demand for improved telecommunications
is increasing worldwide as emerging economies seek to modernize, and as
increasingly information intensive developed countries introduce new
telecommunications services. The telecommunications industry has expanded
rapidly during the last decade, principally due to technological advances and
regulatory changes in the United States and internationally. Advances in
technology have lowered per-unit communications costs, increased product
reliability, and encouraged a proliferation of new and enhanced communications
products and services. Regulatory initiatives such as the breakup of the Bell
system, the assignment of radio frequency spectrum for cellular telephone
services and the transition from analog to digital television have enhanced
competition, permitted the opening of new markets and provided incentives for
the development of new products.
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Alternative Transmission Media. Customers for telecommunications
equipment must weigh the relative costs and advantages of the four presently
available transmission media: copper cable, fiber optic cable, satellite
systems and terrestrial microwave radio systems.
- Copper cable, the traditional transmission medium most
familiar to consumers, is being replaced and supplemented by
the other media, particularly for high-volume and
long-distance transmissions where it has substantial capacity,
cost and reliability limitations.
- Fiber optic cable is best suited to high-volume,
point-to-point, short- or long-distance links where its
advantages -- capacity, quality and security -- justify the
long lead time and high cost to equip and install a network.
- Satellite systems are often a preferred medium for
transmitting to a large geographical or multipoint area.
These systems, which use microwave technology, are well suited
for rapid introduction of service in remote areas or where
terrestrial alternatives are unavailable, such as mobile,
shipboard or military applications. Satellite systems require
a sizeable initial capital investment by service providers to
build and launch one or more satellites. Once the satellites
are in orbit, however, there are substantial incentives to use
this capacity, which typically requires continued investment
in satellite earth stations.
- Terrestrial microwave radio systems can be quickly and easily
installed, require relatively low initial capital investment
and can be upgraded and expanded over time. There are a wide
variety of microwave radios offering different frequencies,
modulation techniques (analog or digital), and transmission
capacities. However, microwave radio applications typically
require government licensing and frequency coordination in
order to prevent signal interference among various users, and
require a line of sight between the transmitting and receiving
antennas. Unavailability of sufficient frequency spectrum has
historically inhibited sales in developed countries, although
this constraint is being alleviated by the actions of various
governments and the availability of radios that do not require
governmental licensing prior to use.
Rarely is a complete communications system based solely on one of
these media. Transmission is normally routed through a combination of media,
each employed where it fits most cost-effectively within the communications
network. For example, a microwave radio studio-to- transmitter link used by a
television broadcaster may connect to a satellite system used to distribute
programs domestically and overseas. In addition, the various media provide
routing alternatives for the other media, as in the case of satellite backup
facilities for undersea fiber optic cables.
STRATEGY
California Microwave's strategy is to apply its expertise in microwave
technologies to systems and products for the satellite communications, radio and
information collection and communications markets. The Company works closely
with existing and potential customers to specify and develop new products and
product enhancements that have long-term growth potential. The Company
considers its ability to create and maintain long-term customer relationships an
important component of its overall strategy in each of its markets.
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California Microwave's mission is to provide radio-based bandwidth
solutions to send and receive complex data, through the design and manufacture
of capital equipment products for public and private communications systems.
The Company has concentrated its efforts on sales of products and services for
communications infrastructure rather than on consumer terminals and equipment.
Under the leadership of the Company's newly hired chief executive
officer, the executive team is beginning to formulate a new, integrated,
long-term strategy, which will take advantage of the Company's existing strong
market positions and current and next-generation technologies. It is expected
that this effort will be completed before the end of fiscal 1998. This
strategy will include the following key elements:
Global Information Technology Bandwidth Requirements. The Company
believes that the wireless telecommunications market offers numerous
opportunities for profitable growth because of the growing need for increasing
bandwidth, or carrying capacity, for digital data--a need that corresponds well
with the unique qualities of radio. In particular, continuous improvements in
computing technology create increasingly sophisticated bandwidth requirements
for moving data around the world in ways that align well with the Company's
radio technology products and services. For instance, telecommunications
infrastructure requires increasing and ever more complex data types-such as
audio, video and graphics files-for computer users. "Burst transactions," such
as point-of-sale or ATM activities, create peaks of data-transmission activity
that are well suited for multiple address satellite and terrestrial radio
systems. "Asymmetrical" and one-way data movement, common in Internet usage,
create patterns that take advantage of radio's bandwidth-on-demand
capabilities. The Company's present position as a radio-based bandwidth
solutions provider is solid, and the Company anticipates strong long-term
market need for both existing and new radio-based bandwidth solutions in the
future. Those solutions will address Internet usage, digital TV, remote data
collection, new mobile air, sea, and terrestrial systems, as well as a host of
commercial data transmission applications for financial networks and inventory
management systems.
Market Leaders. The Company's six continuing divisions concentrate on
satellite communications, information collection and communications, and radio
products. In each category, the Company holds a leading market share, meeting
customers' special needs with application-specific products. These market
positions provide a strong base from which to grow and improve profitability.
The Company expects that each division can deepen and broaden the niches they
are serving.
Value-Focused Operations. The Company is currently implementing
near-term managerial and operational adjustments to strengthen financial
performance. The internal focus includes the following operational issues:
shortening the product development cycle; eliminating redundant products with
low customer demand; completing fault-tolerant software applications; reducing
inventories; and filling market needs adjacent to current niches. These issues
are all part of developing internal processes that will result in high customer
satisfaction.
Integrated Independence. California Microwave's divisions have,
historically, been highly decentralized. This organizational structure has
allowed each division to be responsive to particular markets and customers.
Each division typically maintains its own sales, marketing, product development
and manufacturing functions. The Company is shifting from that model to one of
"integrated independence," where the divisions will have more strategic value
to one another, sharing critical resources and cooperatively pursuing common
markets. Each of the division presidents now reports directly to the chief
executive officer and is part of the corporate executive team. The executive
team will constantly examine a multitude of cross-divisional opportunities
relating to sales, joint product development and operational improvements. The
team is also at work on the long-term, integrated California Microwave strategy.
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International Expansion. The Company's products are marketed on a
worldwide basis. International sales represented approximately 29% of total
sales in the fiscal year ended June 30, 1997. The Company believes that a
majority of its sales growth in future years will come from the international
sector due to communications infrastructure requirements in developing
countries and the growing worldwide need for radio-based bandwidth solutions.
Leveraging Divisional Technology. The Company's products employ both
analog and digital applications of radio frequency technologies, enhanced by
digital signal processing and appropriate networking software. A key objective
of the executive team is to leverage, on a company-wide basis, divisional
technology and management strengths to address large emerging market
opportunities, especially in Asia and Latin America. There will also be
increased emphasis on ad hoc interdivisional team collaboration to resolve
technical issues in order to get products to market faster.
Products and Markets. The Company's sales are summarized below:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
1997 1996 1995
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(dollars in millions)
<S> <C> <C> <C>
Sales by Product Class:
Satellite communications ......................................... $ 85.7 $ 91.5 $ 79.8
Radio products ................................................... 76.9 69.8 70.8
Information collection and communications ........................ 91.6 78.7 65.8
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Total ........................................................ $ 254.2 $ 240.0 $ 216.4
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Sales by Market Sector:
International .................................................... $ 72.9 $ 72.7 $ 59.4
U.S. commercial .................................................. 75.6 72.2 65.5
U.S. government .................................................. 105.7 95.1 91.5
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Total ........................................................ $ 254.2 $ 240.0 $ 216.4
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</TABLE>
SATELLITE COMMUNICATIONS
California Microwave is a leader in the design of satellite earth
station products, such as modems and frequency converters, which are
incorporated into earth stations. The Company's line of digital and analog
earth station equipment provides point-to-point and point-to-multipoint
transmission of voice, data, facsimile and video.
Satellite Earth Station Products. Through its EFData division,
California Microwave manufactures a broad line of electronic products used in
earth stations. The products are sold to earth station suppliers and to
operators of communication networks to upgrade existing earth stations. EFData
is a leading producer of high speed (up to 155 million bits per second) digital
modems, RF transceivers and frequency converters used in satellite
communications networks. Since 1988, EFData has delivered more than 50,000
satellite modems, RF transceivers and frequency converters for use in INTELSAT
systems, satellite backup facilities for undersea fiber optic cable, digital
video and for many private network applications. EFData also manufactures a
completely self-contained earth station electronics package for low-cost rural
and infrastructure networks.
Satellite Teleport Services. The Company, through its Services
division, provides both data broadcast and interactive data, video, fax, voice
and internet access services to corporations and government agencies worldwide.
Services division also provides satellite ground equipment to teleport
customers.
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Turnkey Satellite Earth Stations. The Company, through its Government
Communications Systems operation, manufactures, integrates and installs
mobile, portable and fixed satellite transmit/receive earth stations for U.S.
government applications worldwide.
The Company's principal satellite communications products are
summarized in the following table:
<TABLE>
<CAPTION>
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SATELLITE COMMUNICATIONS
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TYPICAL SELECTED CUSTOMERS
PRODUCTS APPLICATION PRICE RANGE OR END USERS
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<S> <C> <C> <C>
C and Ku-band C- and Ku-band RF terminals in $10,000 Hughes Network Systems, MCI, Globecomm,
Transceivers power levels up to 400 watts for to $100,000 IDB Communications, Impsat, Embratel,
antenna-mounted applications U.S. Government, governments of India
and China
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High Speed Modems For connecting telecommunication $5,000 AT&T, GTE, MCI, Sprint, British
4.8Kbps to 155Mbps lines to international satellite to $80,000 Telecom, PBS, CBS, Impsat SA, and
networks; optical fiber backup; Embratel
broadband data; digital video;
and private networks
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C and Ku-band Key components in earth stations $8,000 AT&T, MCI, Telefonica (Spain), U.S.
Frequency for converting satellite to $70,000 Government, Communications Authority of
Converters frequencies Thailand, Singapore Telecommunications,
Entel (Chile)
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DAMA Network Bandwidth on demand, automatic Networks from Globecomm, El Marine, Pinzone
Products circuit restoral, ISDN on $200,000
demand, business and medical to $10,000,000
video teleconferencing
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Monitor and PC-based color graphics monitor $5,000 COMSAT, government of China,
Control Systems and control system for networks to $95,000 Telefonica, Impsat S.A.
and earth stations
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Networks Provides voice, data, video and $1,000,000 SALNET and Worldcomm
facsimile services for to $5,000,000
corporations, telephone
companies and governments
domestically
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Very Small Transmits data used by $2,000 Sprint, SkyTel, NYSE, National Weather
Aperture Terminals retailers, car dealers, hotels, to $2,000,000 Service, Xinhua News Agency (China),
("VSAT") and Hubs news agencies, financial EFE (Spain)
quotation services, and weather
tracking services in VSAT
networks
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Turnkey Earth Manufactures, integrates and $500,000 U.S. Government
Stations installs mobile, portable and to $5,000,000
fixed transmit/receive earth
stations (2-18 meter antenna)
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</TABLE>
RADIO
California Microwave designs, manufactures and markets digital and
analog microwave radios and other equipment used in land-based point-to-point
and point-to-multipoint communications links. The Company is a leading
manufacturer of microwave radios for private voice and data communications
networks and portable electronic news gathering and broadcasting
studio-to-transmitter links. The Company believes that wireless is one of the
fastest growing areas of the telecommunications industry due to technological
advances, regulatory initiatives and the expanding requirements for
connectivity between people and computers and other electronic devices.
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Television Broadcast. The Company's MRC division is a leading
supplier of microwave radios to U.S. and international broadcast and
cable television markets for use principally in portable electronic news
gathering and analog and digital studio-to-transmitter applications.
Wireless Data Networking. The Company, through its MDS division,
manufactures point-to-point and point-to-multipoint microwave data radios. MDS
point-to-point radios are used to extend the reach of a communications system
in areas where low capacity, multi-channel voice or data communications links
are required. Point-to-multipoint radio systems are used principally to
connect central computers to remote computer terminals or to physical
measurement and control devices. Typical applications include remote
monitoring and automated operation of oil and gas production and distribution,
water-wastewater treatment systems, and control of electric utility power
generation facilities. Over 150,000 MDS data radios have been sold since MDS
commenced the sale of radios in 1986.
The Company's principal wireless products are summarized in the
following table:
<TABLE>
<CAPTION>
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WIRELESS
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TYPICAL SELECTED CUSTOMERS
PRODUCTS APPLICATION PRICE RANGE OR END USERS
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<S> <C> <C> <C>
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Television Broadcast
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Analog radios (portable) Electronic news gathering; $8,000 to ABC, CBS, NBC, CNN, FOX,
(2-40 GHz) electronic field $20,000 C-SPAN
production
Analog/digital radios Studio-to-transmitter $18,000 to PBS and major domestic
(2-23 GHz) links, regional networks $100,000 television networks and major
broadcast group ownership
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Wireless Data Networking
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Analog and digital data Point-to-point and $1,000 to Mobil, Phillips Petroleum,
radios (450 and 900 MHz) point-to-multipoint, $10,000 Florida Power & Light, PG&E,
remote monitoring, data Georgia Power, El Paso Gas,
collection Amoco, China National
Petroleum Corporation, Gtech
Corporation
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</TABLE>
INFORMATION COLLECTION AND COMMUNICATIONS SYSTEMS
The Company participates in selected areas of the U.S. government
market which are closely related to the Company's commercial technological and
product base. In recent years, as U.S. defense spending has declined, the
Company has competed effectively by offering adaptations of its technologies
and commercially available "off-the-shelf" products to stable and growing
segments of the Department of Defense market at significantly less cost than
would be the case under military specification procurement procedures. The
Company integrates electronic and electro-optical systems for both airborne and
ground-based applications. These systems collect, process and disseminate
intelligence and reconnaissance information using advanced radio communications
hardware and both special-purpose and off-the-shelf computers and software.
The Company maintains and upgrades these systems throughout their useful lives,
which can be a decade or more. The Company has developed a series of products
with secure, portable, ruggedized suitcase-sized packaging that incorporate key
intelligence information collection, processing, analysis and communications
capabilities contained in its larger systems. A principal capability of the
Company is in the area of military communications, for which a variety of
communication systems have been developed and sold to U.S. military customers.
The company has recently been awarded a key contract on the new generation U.S.
Government DMS (Defense Message System) program.
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The Company also designs and develops state-of-the-art multisensor
imaging systems and sophisticated electronic intelligence collection systems
which it integrates into inexpensive commercial aircraft. In fiscal 1991, the
Company received its initial prime contract for the U.S. Army's Air
Reconnaissance Low ("ARL") program. The ARL program employs both imagery and
signal intelligence sensors mounted on deHavilland-7 aircraft. These sensors
collect information which can be immediately transmitted to designated
receiving locations. The ARL aircraft can be rapidly deployed anywhere in the
world. The Company completed its initial ARL contracts and made final delivery
of the first aircraft to the Army in 1993. The Company has received
significant follow-on ARL contracts involving additional aircraft and sensors.
In early 1993, the Company introduced its new airborne intercept and
direction finding and geo-location system. The Company believes that this
system locates signals from over a wide range of frequencies more rapidly and
accurately than do other systems.
The Company's intelligence projects typically involve multi-year,
multi-million dollar contracts. In addition, the Company sells subsystems and
other equipment to U.S. government agencies on a short-term delivery basis. The
Company is actively pursuing opportunities to introduce its data collection and
communications networking technology to foreign governments and non-governmental
applications. The price of a project depends on a number of factors, including
the amount of development involved, quantities ordered, maintenance requirements
and whether an aircraft is to be modified and supplied by the Company in
connection with the contract.
SALES, MARKETING AND CUSTOMER SUPPORT
California Microwave directs its sales and marketing efforts toward
major users of its systems and products through a well established
international distribution network. The sales and marketing strategy of the
Company varies with the particular market served and involves direct sales by
the Company's own sales force, sales through representatives, value-added
resellers, or a combination of the foregoing. The Company also has entered
into sales distribution agreements with respect to certain of its satellite
communications and wireless products.
The Company considers its ability to create and maintain long-term
customer relationships an important component of its overall strategy in each
of its markets. Relationships with customers are established and maintained by
the Company's divisional area managers and their technical and marketing
staffs. The Company's strategy also includes its commitment to provide ongoing
customer support for its systems and products. This support involves providing
direct access to the Company's engineering staff or trained technical
representatives located throughout the world to resolve technical or
operational problems. The Company intends to continue to expand its marketing
efforts and distribution channels worldwide.
MANUFACTURING
Manufacturing operations consist principally of assembly and testing
of electronic systems built from fabricated parts, printed circuits and
electronic components. Both manual and various automated methods are employed,
depending primarily upon production volume. The Company employs formal Total
Quality Management programs and other training programs, and each of its five
product divisions have qualified for International Standards Organization
("ISO") quality procedure registration to ISO 9001, a standard sometimes imposed
by foreign buyers.
Electronic components and raw materials used in the Company's products
are generally obtained from a large number of suppliers. Some components are
standard items and others are manufactured to the Company's specifications by
subcontractors. The Company obtains certain components and subsystems from a
single, or a limited number of, sources. The Company operates without a
substantial inventory of components and subsystems but believes that most
components and subsystems are available from existing or alternative suppliers
and subcontractors. A significant interruption in the delivery of such items
could have a material adverse effect on the Company's results of operations.
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COMPETITION
California Microwave is engaged in a highly competitive business and
the number of potential customers for the Company's products is limited. Many
of the Company's competitors have significantly greater financial, marketing
and operating resources than the Company. In addition, certain of the
Company's customers have technological capabilities in the Company's product
areas and could choose to replace the Company's products with their own. The
Company's major competitors by product area include: NEC, Alcatel Telespace,
ComStream, SSE-Telecom, and Raydyne--satellite communications; Continental
Microwave, MAS Technologies and Motorola--radio products; TRW Inc., Lockheed
Martin Corporation, Sterling Software, Inc. and E-Systems, Inc.--information
collection and communications systems.
The Company believes that competition in its markets is based
primarily on price, performance, reputation, on-time delivery, reliability and
customer support. The Company believes that it has the ability to develop and
produce satellite and radio products faster than many of its competitors. In
the information collection and communications area, the Company believes that
it has the ability to solve customers' problems with proprietary solutions and
to offer cost-effective approaches using commercially available products. In
the information collection and communications area, the company believes that
an additional key competitive factor is the in-depth technical expertise which
enables the solution of loosely defined customer problems by application of
the correct proprietary or commercially available solutions.
RESEARCH AND DEVELOPMENT
Research and development expenses were $18.2 million, $16.6 million
and $13.2 million in fiscal 1997, 1996 and 1995, respectively, representing
7.2%, 6.9% and 6.1% of total sales, respectively, for the same periods.
Approximately 90% of the research and development expense in each year
represented investment in new radio and satellite products and associated
software. The Company expects that research and development expense as a
percentage of sales will remain in the 7% of sales range as it focuses its
efforts on developing the products that will provide unique radio-based
solutions to the growing shortage of bandwidth for digital data and digital
video.
PATENTS AND LICENSES
Due to the rapidly changing nature of technology in the Company's
business, patents and licenses have been of substantially less significance in
the Company's business than have been the timely application of its technology
and the design, development and marketing capabilities of its personnel.
EMPLOYEES
At June 30, 1997, California Microwave had 1,412 employees, 673 of
whom were engaged in production and production support, 453 in research and
development and other engineering support, 156 in marketing and 130 in general
and administration functions. None of the employees is represented by a labor
union. The Company believes that its employee relations are good.
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REGULATION
Radio communications, including satellite communications, are subject
to regulation by United States and foreign laws and international treaty. The
Company's equipment must conform to domestic and international requirements
established to avoid interference among users of microwave frequencies and to
permit interconnection of equipment.
The use of microwave signals depends upon the availability of
frequencies that permit interference-free operation. In many developed
countries, the unavailability of frequency spectrum has historically inhibited
the growth of microwave systems. However, two factors are alleviating this
problem. First, the proliferation of fiber optics for high capacity systems
has reduced the demand for microwave frequencies for such systems, thus freeing
up frequency spectrum for new types of services. Second, many government
regulatory agencies are reallocating frequencies from one type of use to
another, thus providing incentive for new communications services.
BACKLOG
At June 30, 1997, the Company's backlog of undelivered orders was
$91.1 million (approximately 95% of which is expected to be delivered during
fiscal 1998) compared with $97.1 million at June 30, 1996. In the Company's
experience, its backlog at any given time is not necessarily indicative of
prospective period revenues. The Company generally records an order in backlog
when the Company receives a firm contract or purchase order which identifies
product quantities and delivery dates, and in the case of government contracts,
when such contracts have been funded by the government. While from time to
time a substantial portion of the Company's backlog has been comprised of large
orders, the cancellation of any of which could have a material adverse effect
on the Company's operating results, the Company historically has not
experienced significant changes in its backlog from cancellations or revisions
of orders.
ITEM 2. PROPERTIES
The table below describes the location and general character of the
principal plants and materially important physical properties that are owned or
leased by the Company and its subsidiaries as of June 30, 1997:
-10-
<PAGE> 12
<TABLE>
<CAPTION>
Lease No. of Square
Occupant Expires Buildings Footage Location
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Corporate Headquarters 2000 1 16,800 Redwood City, CA
2. Services Division 1999 1 20,000 Mountain View, CA
2000 1 40,000 Sunnyvale, CA
3. Government Electronics Division 1998 2 28,490 Woodland Hills, CA
1999 1 29,260 Woodland Hills, CA
1998 2 2,836 Stafford, VA
4. Airborne Systems Integration 1998 1 100,200 Hagerstown, MD
Division 1999 1 45,000 Belcamp, MD
1998 1 18,203 Baltimore, MD
5. EFData Corporation 2006 2 115,000 Tempe, AZ
6. Microwave Data Systems (owned) 1 56,060 Rochester, NY
7. Microwave Radio Communications 1997 1 71,500 Chelmsford, MA
8. Government Communications 1996 1 15,000 Annapolis Junction, MD
Systems
9. Government Group 1997 1 1,750 Arlington, VA
Discontinued Operations
-----------------------
10. Satellite Transmission Systems (owned) 2 90,000 Hauppauge, NY
1997 1 11,700 Hauppauge, NY
11. Microwave Networks Systems 1998-2001 3 64,000 Houston, TX*
2000-2006 2 5,200 High Wycombe, UK
2000 1 36,704 Chelmsford, MA*
2002 1 164,600 Stafford, TX
2006 1 50,000 Glendale Heights, IL*
2009 1 107,048 Bloomingdale, IL*
Monthly 1 1,650 Atlanta, GA
</TABLE>
* Liabilities provided for in restructure charges.
The Company believes that its facilities are adequate for its present
needs.
ITEM 3. LEGAL PROCEEDINGS
On November 9, 1995, and December 12, 1995, putative class action
lawsuits entitled Rick Fairchild v. California Microwave, Inc. et al. and Mark
E. McKinney v. California Microwave, Inc. et al. were filed in the United
States District Court for the Northern District of California. The plaintiffs
in these two cases, which have been consolidated, purport to represent a class
of all persons who purchased common stock of California Microwave, Inc. (the
"Company") between September 6, 1994, and June 29, 1995 (the "Class Period").
Named as defendants are the Company and certain of its former executive
officers. The complaints allege that defendants violated various federal
securities laws through material misrepresentations and omissions during the
Class Period. Defendants filed motions to dismiss the complaints, which the
court granted on April 19, 1996, with leave to amend. Plaintiffs filed an
amended complaint; in August, 1996, defendants filed a motion to dismiss those
complaints and the motion was denied. California Microwave, Inc. believes that
it has meritorious defenses to the claims alleged in these lawsuits and intends
to defend the actions vigorously.
-11-
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of all executive officers of the Company, and all
positions with the Company held by such persons, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Frederick D. Lawrence 49 Chairman of the Board, President and Chief Executive Officer
Leon F. Blachowicz 57 Executive Vice President-Operations
George L. Spillane 63 Vice President, Chief Financial Officer and Secretary
Michael L. Foster 51 Vice President and Treasurer
</TABLE>
Frederick D. Lawrence joined the Company as Chairman of the Board,
President and Chief Executive Officer in July 1997. From May 1996 to July,
1997, Mr. Lawrence served as Chief Executive Officer of ComStream, Inc., an
international supplier of satellite communications networks and products and
from February 1994 to April 1996, he served as President of the Transmission
Group for ADC Telecommunications, which included five independent business
units producing products for high speed video, voice, data and wireless
communications. From 1982 to 1994, Mr. Lawrence held executive positions in
networks operations and engineering at Sprint Corporation and its operating
companies, dealing in local telephone, cellular and long distance. Prior to
this, Mr. Lawrence worked at AT&T from 1970 to 1982 in a variety of positions.
He holds a BSEE degree from Western Michigan University.
Leon F. Blachowicz joined the Company in January 1995 as President of
the Satellite Communications Group, became President of the combined Wireless
and Satellite Communications Group in March 1996, and became Executive Vice
President-Operations in September, 1997. From 1989 to January 1995 he was Vice
President/General Manager of Varian's Microwave Equipment Products division.
Prior to 1989 he was Vice President of the Business Communications System
Division of Harris Corporation for the last three of his 20 years at Harris
Corporation. He holds a BSEE and an MSEE from the University of Florida.
George L. Spillane became Vice President-Finance and Chief Financial
Officer of the Company in November 1980 and Secretary of the Company in October
1981. When Garrett E. Pierce became Chief Financial Officer in April 1994, Mr.
Spillane's title was changed to Vice President and Secretary and when Mr.
Pierce resigned in January 1996 Mr. Spillane served as Chief Financial Officer
until Dennis R. Raney joined the Company in May 1996. When Mr. Raney resigned
as Chief Financial Officer in February 1997, Mr. Spillane again became Chief
Financial Officer. From 1975 to March 1980, Mr. Spillane was Treasurer of
Farinon Corporation (now a part of Harris Corporation). Prior thereto, Mr.
Spillane was employed by Arthur Andersen & Co.
-12-
<PAGE> 14
Michael L. Foster became a Vice President of the Company in October
1990. Mr. Foster joined California Microwave in 1979 as Manager- Corporate
Planning, was promoted to Director-Finance and Planning in 1980 and to Staff
Vice President in 1983. Prior thereto, Mr. Foster was with Watkins Johnson,
where he held the position of financial manager for one of the systems
divisions. Mr. Foster holds a BA and MBA from Stanford University.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The stock and stock price information on page 32 of California
Microwave's 1997 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data on page 31 of California Microwave's 1997
Annual Report to Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The management's discussion and analysis of financial condition and
results of operations on pages 27 through 30 of California Microwave's 1997
Annual Report to Stockholders is incorporated herein by reference. For factors
affecting any forward-looking statements contained in such discussion and
analysis, see "Business - Information Regarding Forward Looking Statements" in
Item 1 of Part 1 of this Form 10-K Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements on pages 14 through 25, and the
financial results by fiscal quarter information on page 32, of California
Microwave's 1997 Annual Report to Stockholders are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to directors of California Microwave
required to be furnished pursuant to this item is incorporated by reference
from portions of the Company's definitive Proxy Statement for its annual
meeting of shareholders to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after June 30, 1997 (the "Proxy
Statement") under the caption "Election of Directors." Certain information
relating to executive officers of the Company is set forth in Item 4A of Part I
of this Form 10-K under the caption "Executive Officers of the Registrant."
-13-
<PAGE> 15
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from portions of the Proxy Statement under
the caption "Compensation of Directors and Executive Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
CALIFORNIA MICROWAVE, INC.
Incorporated by reference from portions of the Proxy Statement under
the captions "Certain Shareholders" and "Compensation of Directors and
Executive Officers."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Included in Part II of this report by incorporation by
reference from the California Microwave 1997 Annual Report to
Stockholders
Report of Ernst & Young LLP, Independent Auditors (page 26 of
1997 Annual Report to Stockholders)
Consolidated statements of income for each of the three years
in the period ended June 30, 1997 (page 14 of 1997 Annual
Report to Stockholders)
Consolidated balance sheets as of June 30, 1997 and 1996 (page
15 of 1997 Annual Report to Stockholders)
Consolidated statements of stockholders' equity for each of
the three years in the period ended June 30, 1997 (page 16 of
1997 Annual Report to Stockholders)
Consolidated statements of cash flows for each of the three
years in the period ended June 30, 1997 (page 17 of 1997
Annual Report to Stockholders)
Notes to Consolidated Financial Statements (pages 18 through
25 of 1997 Annual Report to Stockholders)
With the exception of the information incorporated by reference into Items 5,
6, 7 and 8 of this Form 10-K, the California Microwave 1997 Annual Report to
Stockholders is not deemed filed as part of this report.
-14-
<PAGE> 16
(a) 2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Schedules for the three years ended June 30, 1997 Schedule II --
Valuation and Qualifying Accounts
All other schedules are omitted because they are not required, or are
not applicable, or the information is included in the consolidated financial
statements or notes to consolidated financial statements.
(A) 3. EXHIBITS
3.1 Restated Certificate of Incorporation. (Exhibit to the
Company's Form 8 dated February 19, 1993, constituting
Amendment No. 1 to the Company's Registration Statement on
Form 8-A for the Common Stock; incorporated herein by
reference.)
3.2 Bylaws. (Exhibit to the Company's Form 10-K for its fiscal
year ended June 30, 1994; incorporated by reference herein.)
4.1 Indenture of Trust, amended, as relating to 1987 Industrial
Development Revenue Refunding Bonds of Satellite Transmission
Systems, Inc.*
4.2 Reimbursement Agreement between Satellite Transmission
Systems, Inc. and The Bank of Tokyo, Ltd., San Francisco
Agency, relating to Satellite Transmission Systems, Inc.
Indenture.*
4.3 Guarantee of California Microwave, Inc. in favor of The Bank
of Tokyo, Ltd., San Francisco Agency, relating to Satellite
Transmission Systems, Inc. Indenture.*
4.4 Rights Agreement, dated July 27, 1989. (Exhibit to the
Company's Form 8-A filed on August 2, 1989; incorporated
herein by reference.)
4.5 Master Indenture of Trust (First Program), relating to County
of Monroe Industrial Development Bonds.*
4.6 Series F Supplemental Indenture, dated as of June 1, 1992,
relating to $2,800,000 of County of Monroe Industrial
Development Bonds.*
4.7 Guaranty of California Microwave, Inc. in favor of Security
Pacific National Trust Company (New York), as Trustee, dated
as of June 1, 1992, relating to $2,800,000 of County of Monroe
Industrial Development Bonds.*
4.8 Letter of Credit Reimbursement Agreement, between California
Microwave, Inc. and Marine Midland Bank, N.A., dated as of
June 1, 1992, relating to $2,800,000 of County of Monroe
Industrial Development Bonds.*
10.1 Employee Stock Purchase Plan, as amended through September
1996.**
_______________________
*Registrant agrees to file such exhibits upon request by the Commission.
**Compensatory plan or arrangement.
-15-
<PAGE> 17
10.2 Lease dated March 10, 1977, of the premises at 990 Almanor
Avenue in Sunnyvale, California. (Exhibit for the Company's
Form 10-K for its fiscal year ended June 30, 1994;
incorporated herein by reference.)
10.3 1986 Stock Option Plan, as amended.** (Exhibit to the
Company's Form 10-K for its fiscal year ended June 30, 1991;
incorporated herein by reference.)
10.4 1988 Restricted Stock Plan.** (Exhibit to the Company's Form
10-K for its fiscal year ended June 30, 1994; incorporated
herein by reference.)
10.5 Lease of the property located at 2105 West Fifth, Tempe,
Arizona. (Exhibit to the Company's Form 10-K for its fiscal
year ended June 30, 1991; incorporated herein by reference.)
10.6 Lease of the premises located at 20 Alpha Road, Chelmsford,
MA. (Exhibit to the Company's Form 10-K for the fiscal year
ended June 30, 1992; incorporated herein by reference.)
10.7 Letter agreement with Philip F. Otto** dated September 22,
1992. (Exhibit to the Company's Form 10-K for its fiscal year
ended June 30, 1992; incorporated herein by reference.)
10.8 Amendment to letter agreement with Philip F. Otto**, dated
July 30, 1993. (Exhibit to Company's Form 10-K for its fiscal
year ended June 30, 1993; incorporated herein by reference.)
10.9 Lease of the property located at 55 Commerce Drive, Hauppauge,
N.Y. (Exhibit to this Company's Form 10-K for its fiscal year
ended June 30, 1993; incorporated herein by reference).
10.10 Shareholders' Agreement among California Microwave, Inc.,
Cornix Systems, Harry F. Eustace, Barbara Eustace, Garber
International Associates and Dr. F.V. Garber, dated March 8,
1994. (Exhibit to the Company's Form 10-K for its fiscal year
ended June 30, 1994; incorporated herein by reference.)
10.11 Amendment to letter agreement with Philip F. Otto**, dated
August 15, 1994. (Exhibit to the Company's Form 10-K for its
fiscal year ended June 30, 1994; incorporated herein by
reference.)
10.12 Letter Agreement with Leon F. Blachowicz, dated December 2,
1994.** (Exhibit to the Company's Form 10-K for its fiscal
year ended June 30, 1995; incorporated herein by reference).
10.13 Lease of premises located at 2114 West 7th Street, Tempe,
Arizona. (Exhibit to the Company's Form 10-K for the fiscal
year ended June 30, 1996; incorporated herein by this
reference.)
_______________________
**Compensatory plan or arrangement.
-16-
<PAGE> 18
10.14 Lease of premises known as Top Flight Airport on Showalter
Road, Washington County, Maryland. (Exhibit to the Company's
Form 10-K for its fiscal year ended June 30, 1996;
incorporated herein by this reference.)
10.15 Lease of premises located at 4000 Greenbriar, Stafford, Texas.
(Exhibit to the Company's Form 10-K for its fiscal year ended
June 30, 1996; incorporated herein by this reference.)
10.16 Lease of premises located at 175 West Wall Street, Glendale
Heights, Illinois. (Exhibit to the Company's Form 10-K for
its fiscal year ended June 30, 1996; incorporated herein by
this reference.)
10.17 1992 Stock Option Plan, as amended.
10.18 Stock Repurchase Agreement among California Microwave, Inc.,
California Microwave Navigation System, Inc., Harry F.
Eustace, Barbara Eustace, Garber International Associates and
Dr. F.V. Garber, dated March 7, 1996.
10.19 Loan and Security Agreement among BANKAMERICA Business Credit,
Inc., California Microwave, Inc. and EF Data Corp, dated as of
June 30, 1997.
10.20 Amendment to letter agreement with Philip F. Otto**, dated
January 10, 1997.
10.21 Letter Agreement with Frederick D. Lawrence**, dated July 16,
1997.
10.22 Form of Severance Agreement with Leon F. Blachowitz, George L.
Spillane, and Michael L. Foster**, dated March 20, 1997
10.23 Letter Agreement with Gilbert F. Johnson**, dated March 18,
1997.
11 Computation of Per Share Earnings.
13 Annual Report to Stockholders (pages incorporated by
reference).
21 List of Subsidiaries.
23 Consent of Ernst & Young LLP, Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
Exhibits are available from the Registrant upon request.
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the last
fiscal quarter of fiscal 1997:
Form 8-K filed on June 20, 1997, announcing under Item 5 the
decision to sell the Satellite Transmission Systems and Microwave Networks
business units.
_______________________
**Compensatory plan or arrangement.
-17-
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: September 26, 1997 CALIFORNIA MICROWAVE, INC.
By /s/ FREDERICK D. LAWRENCE
--------------------------------
Frederick D. Lawrence
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ FREDERICK D. LAWRENCE Executive Officer (principal executive
- --------------------------------- officer)
FREDERICK D. LAWRENCE
/s/ GEORGE L. SPILLANE Vice President and Chief September 26, 1997
- --------------------------------- Financial Officer (principal financial
GEORGE L. SPILLANE and accounting officer)
/s/ DAVID B. LEESON* Director September 26, 1997
- ---------------------------------
DAVID B. LEESON
/s/ ARTHUR H. HAUSMAN* Director September 26, 1997
- ---------------------------------
ARTHUR H. HAUSMAN
/s/ EDWARD E. DAVID, JR.* Director September 26, 1997
- ---------------------------------
EDWARD E. DAVID, JR.
/s/ ALFRED M. GRAY* Director September 26, 1997
- ---------------------------------
ALFRED M. GRAY
/s/ WILLIAM B. MARX, JR.* Director September 26, 1997
- ---------------------------------
WILLIAM B. MARX, JR.
/s/ TERRY W. WARD* Director September 26, 1997
- ---------------------------------
TERRY W. WARD
/s/ FREDERICK W. WHITRIDGE, JR.* Director September 26, 1997
- ---------------------------------
FREDERICK W. WHITRIDGE, JR.
*By /s/ GEORGE L. SPILLANE
- ---------------------------------
Attorney-in-fact
</TABLE>
-18-
<PAGE> 20
CALIFORNIA MICROWAVE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at Additions Other(1) Balance
beginning charged additions at end
of year to income (transfers) Deductions of year
----------- --------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
1997
----
Allowance for doubtful accounts ........... $ 798 $ 465 $ $ 320 $ 943
Estimated liability for warranties ........ 1,084 3,780 3,023 1,841
Allowance for excess facilities ........... 2,876 5,520 1,305 7,091
Estimated liability for contract costs .... 3,252 734 2,419 1,567
Estimated loss on disposal of discontinued
operations ................................ 12,538 12,538
1996
-------
Allowance for doubtful accounts ........... 806 177 185 798
Estimated liability for warranties ........ 962 2,261 2,139 1,084
Allowance for excess facilities ........... 3,930 1,054 2,876
Estimated liability for contract costs .... 3,538 286 3,252
1995
-------
Allowance for doubtful accounts ........... 694 179 67 806
Estimated liability for warranties ........ 751 1,373 1,162 962
Allowance for excess facilities ........... 1,969 500 3,430 1,969 3,930
</TABLE>
(1) Balance sheet transfers from discontinued operations.
-19-
<PAGE> 21
INDEX OF EXHIBITS
Number Description
10.17 1992 Stock Option Plan, as amended.
10.18 Stock Repurchase Agreement among California Microwave, Inc.,
California Microwave Navigation System, Inc., Harry F. Eustace,
Barbara Eustace, Garber International Associates and Dr. F.V.
Garber, dated March 7, 1997.
10.19 Loan and Security Agreement among Bankamerica Business Credit,
Inc., California Microwave, Inc. and EF Data Corp, dated as of
June 30, 1997.
10.20 Amendment to letter agreement with Philip F. Otto, dated January
10, 1997.
10.21 Letter Agreement with Frederick D. Lawrence, dated July 16, 1997.
10.22 Form of Severance Agreement with Leon F. Blachowitz, George L.
Spillane, and Michael L. Foster, dated March 20, 1997
10.23 Letter Agreement with Gilbert F. Johnson, dated March 18,
1997.
11 Computation of Per Share Earnings.
13 Annual Report to Stockholders (pages incorporated by reference).
21 List of Subsidiaries.
23 Consent of Ernst & Young LLP, Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 10.17
1992 STOCK OPTION PLAN
OF
CALIFORNIA MICROWAVE, INC.
(as amended through July 11, 1997)
1. PURPOSE
The purpose of the 1992 Stock Option Plan (the "Plan") is to
enable California Microwave, Inc. (the "Company") and its subsidiaries to
attract and retain officers and other key employees, directors, and consultants
and to provide them with additional incentive to advance the interests of the
Company. Options qualifying as incentive stock options under Section 422 of the
Internal Revenue Code of 1954, as amended, and non-qualified options may be
granted under the Plan.
2. ADMINISTRATION
(a) The Plan shall be administered by the Board of Directors of
the Company, or by a committee (the "Committee") of two or more directors
selected by the Board.
(b) The Board of Directors or the Committee shall have the power,
subject to the express provisions of the Plan:
(1) To determine the recipients of options under the Plan,
the time of grant of the options, and the number of shares covered by the grant.
(2) To prescribe the terms and provisions of each option
granted (which need not be identical).
(3) To construe and interpret the Plan and options, to
establish, amend, and revoke rules and regulations for the Plan's
administration, and to make all other determinations necessary or advisable for
the administration of the Plan.
3. SHARES SUBJECT TO THE PLAN
Subject to the provisions of Paragraph 7 (relating to the
adjustment upon changes in stock), the number of shares which may be sold
pursuant to options granted under the Plan shall not exceed in the aggregate
3,100,000 shares of Common Stock of the Company. Shares sold pursuant to options
granted under the Plan may be unissued shares or reacquired shares.
-1-
<PAGE> 2
If any options granted under the Plan shall for any reason terminate or expire
without having been exercised in full, the shares not purchased under such
options shall be available again for the purposes of the Plan.
4. ELIGIBILITY
(a) Options under this Plan may be granted to officers and other
key employees and consultants of the Company and/or of its subsidiaries,
provided that incentive stock options may be granted hereunder only to officers
and other key employees (including directors who are also officers or
employees). No officer or key employee may receive options under this Plan
covering in excess of 100,000 shares in any fiscal year of the Company (subject
to adjustment in accordance with the provisions of paragraph 7 of the Plan),
except that such limit is 200,000 shares with respect to options granted in
connection with inducing an individual to become an employee of the Company.
(b) Each director of the Company who is not an employee of the
Company shall receive a non-qualified stock option under the Plan immediately
following each annual meeting of shareholders of the Company. The first option
received by a director under this paragraph 4(b) shall cover 10,000 shares of
common stock of the Company and each option received by a director under this
Plan thereafter shall cover 5,000 shares of common stock in the case of a
director who is a chair of a committee of the Board of Directors and 3,000
shares in the case of a director who is not. Each such option shall have an
exercise price equal to the fair market value of the common stock of the Company
on the date of the annual meeting of shareholders to which it relates,
determined in accordance with the provisions of paragraph 5(a)(2) of this Plan.
The number of options that directors may receive pursuant to this paragraph 4(b)
shall be appropriately adjusted in accordance with the provisions of paragraph 7
of this Plan. This paragraph 4(b) shall not be amended more than once every six
months, other than to comply with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act or the rules or regulations thereunder.
(c) Persons to whom options to purchase shares are granted are
hereinafter referred to as "optionee(s)."
5. TERMS OF OPTION AGREEMENTS
(a) All Option Agreements. Options granted pursuant to the Plan
shall be evidenced by agreements specifying the number of shares covered
thereby, in such form as the Board of Directors or Committee shall from
time to time establish, which agreements may incorporate all or any of
-2-
<PAGE> 3
the terms hereof by reference and shall comply with and be subject to the
following terms and conditions:
(1) The Board of Directors or Committee shall have the
power to set the time or times within which each option shall be exercisable and
to at any time accelerate the time or times of exercise (notwithstanding the
terms of the option). Unless the stock option agreement executed by the optionee
expressly otherwise provides, (i) an option granted to an officer or other key
employees or consultant shall become exercisable on a cumulative basis as to
one-quarter of the total number of shares covered thereby on each of the first,
second, third, and fourth anniversary dates of the date of grant of the option,
(ii) an option granted to a director who is not an employee of the Company shall
vest fully on the date of grant, and (iii) an option shall not be exercisable
after the expiration of ten years from the date of grant. Any option granted to
an executive officer or director of the Company shall in no event be exercisable
until the elapse of six months from the date of its grant.
(2) Except as provided in Paragraph 5(b) below, the
exercise price of any stock option granted under this Plan shall not be less
than 100% of the fair market value of the shares of common stock of the Company
on the date of the granting of the option. The fair market value per share shall
be the last sale price on the day the option is granted as reported on the
National Market System, or, if such stock is not then reported on the National
Market System but quotations are reported on the National Association of
Securities Dealers Automated Quotations System, the average of the bid and asked
prices on the day the option is granted, in either event as such price quotes
are listed in The Wall Street Journal, Western Edition (or if not so reported in
The Wall Street Journal, any other listing service or publication known to the
Board of Directors). If the stock is listed upon an established stock exchange
or exchanges, such fair market value shall be deemed to be the closing price of
the common stock on the largest such stock exchange upon which such stock is
listed on the day the option is granted.
(3) To the extent that the right to purchase shares has
accrued hereunder, options may be exercised from time to time by written notice
to the Company, stating the number of shares being purchased and accompanied by
the payment in full of the option price for such shares. Such payment shall be
made in cash or in shares of the outstanding common stock of the Company which
have been held by the optionee for at least six months or in a combination of
cash and such stock, except that the Board of Directors or the Committee in its
sole discretion may authorize payment by any optionee (for all or part of his or
her purchase price) by a promissory note or such other from of legal
consideration that may be acceptable to the Board or Committee.
-3-
<PAGE> 4
If shares of common stock are used in part or full payment for
the shares to be acquired upon exercise of the option, such shares shall be
valued for the purpose of such exchange as of the date of exercise of the option
in accordance with the provisions of Subparagraph (2) above. Any certificates
for shares of outstanding common stock used to pay the option price shall be
accompanied by stock powers duly endorsed in blank by the registered holder of
the certificate (with the signature thereon guaranteed). In the event the
certificates tendered by the optionee in such payment cover more shares than are
required for such payment, the certificates shall also be accompanied by
instructions from the optionee to the Company's transfer agent with regard to
disposition of the balance of the shares covered thereby.
If payment by promissory note is authorized, the interest rate,
term, repayment schedule and other provisions of such note shall be as specified
by the Board of Directors or the Committee; provided, however, that such note
shall bear interest at a rate not less than the applicable test rate of interest
prescribed by Regulation 1.483-1(d)(1) of the Income Tax Regulations, as in
effect at the time the stock is purchased. The Board of Directors or Committee
may require that the optionee pledge his or her stock to the Company for the
purpose of securing the payment of such note, and the Company may hold the
certificate(s) representing such stock in order to perfect its security
interest.
An option may be exercised by a securities broker acting on
behalf of an optionee pursuant to authorization instructions approved by the
Company, provided that the notice of exercise of such option shall be delivered,
and the exercise price of such option shall be paid in full, as specified above.
(4) The Company at all times shall keep available the
number of shares of stock required to satisfy options granted under the Plan.
(5) The Company may require any person to whom an option
is granted, his or her legal representative, heir, legatee, or distributee, as a
condition of exercising any option granted hereunder, to give written assurance
satisfactory to the Company to the effect that such person is acquiring the
shares subject to the option for his or her own account for investment and not
with any present intention of selling or otherwise distributing the same. The
Company reserves the right to place a legend on any share certificate issued
pursuant to this Plan to assure compliance with this paragraph. No shares of
common stock of the Company shall be required to be distributed until the
Company shall have taken such action, if any, as is then required to comply with
the provisions of the Securities Act of 1933 or any other then applicable
securities law.
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<PAGE> 5
(6) Neither a person to whom an option is granted, nor
such person's legal representative, heir, legatee, or distributee, shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such option unless and until such person has
exercised his or her option pursuant to the terms thereof.
(7) No stock option shall be transferrable by the optionee
otherwise than by will, or if the optionee dies intestate, by the laws of
descent and distribution of the state of domicile of the optionee at the time of
death, provided that a non-qualified stock option may be transferred by the
optionee to a trust or other entity established by the optionee for estate
planning purposes. Except for exercises of non-qualified stock options by trusts
or entities established by the optionee for estate planning purposes, all stock
options shall be exercisable during the lifetime of the optionee only by the
optionee.
(8) An option granted to an employee or director shall
terminate and may not be exercised if the person to whom it is granted ceases to
be employed by the Company or by a subsidiary of the Company, or ceases to be a
director (unless such person continues as an employee), with the following
exceptions:
(i) If the employment or directorship is terminated
for any reason other than the person's death or disability, he or she may at any
time within not more than three months after such termination exercise the
option, but only to the extent that it was exercisable by such person on the
date of such termination, or
(ii) If such person dies or becomes disabled while
in the employ of the Company or of a subsidiary, or while a director, his or her
option may be exercised by his or her personal representatives, heirs or
legatees at any time within not more than twelve (12) months following the date
of death or disability, but only to the extent such option was exercisable by
such person on the date of death or disability.
An option granted to a consultant shall terminate in accordance
with the terms specified in the option.
(9) In no event may an option be exercised by anyone after
the expiration of the term of the option established pursuant to Subparagraph
5(a)(1) hereof.
(10) Each option granted pursuant to this Plan shall
specify whether it is a non-qualified or an incentive stock option, provided
that
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<PAGE> 6
the Board of Directors or Committee may give the optionee the right to elect to
receive either an incentive or a non-qualified stock option.
(11) An option granted pursuant to this Plan may have such
other terms as the Board of Directors or Committee in its discretion may deem
necessary or appropriate and shares issued upon exercise of any option hereunder
may be subject to such restrictions as the Board of Directors or Committee deems
appropriate.
(b) Incentive Stock Options. In addition to the terms and
conditions specified above, incentive stock options granted under this Plan
shall be subject to the following terms and conditions:
(1) The aggregate fair market value (determined as of the
time the option is granted) of the stock with respect to which incentive stock
options are exercisable for the first time by any optionee during any calendar
year (under all option plans of the Company or its parent and subsidiary
corporations) shall not exceed $100,000.
(2) As to individuals otherwise eligible under this Plan
who own more than 10 percent of the total combined voting power of all classes
of stock of the Company and its parent and subsidiary corporations, an incentive
option can be granted under this Plan to any such individual only if at the time
such option is granted the option price is at least 110 percent of the fair
market value of the stock subject to the option and such option by its terms is
not exercisable after the expiration of five years from the date such option is
granted.
6. USE OF PROCEEDS FROM SHARES
Proceeds from the sale of shares pursuant to options granted
under the Plan shall be used for general corporate purposes.
7. ADJUSTMENT UPON CHANGES IN SHARES
(a) If any change is made in the shares subject to the Plan, or
subject to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), appropriate adjustments
shall be made by the Board of Directors or Committee in the maximum number of
shares subject to the Plan and the number of shares and price per share of stock
subject to outstanding options.
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<PAGE> 7
(b) Other than in the case of a reincorporation of the Company in
another state, in the event of (i) dissolution or liquidation of the Company,
(ii) a transaction in which more than 50 percent of the shares of the Company
that are entitled to vote are exchanged, or (iii) any merger or consolidation or
other reorganization in which the Company is not the surviving corporation (or
in which the Company becomes a subsidiary of another corporation), outstanding
options under this Plan shall become fully exercisable immediately prior to any
such event.
8. RIGHTS AS AN EMPLOYEE.
Nothing in this Plan or in any options awarded hereunder shall
confer upon any employee any right to continue in the employ of the Company or
of any of its subsidiaries or interfere in any way with the right of the Company
or any such subsidiary to terminate such employee's employment at any time.
9. WITHHOLDING TAX
There shall be deducted from the compensation of any employee
holding options under this Plan the amount of any tax required by any
governmental authority to be withheld and paid over by the Company to such
governmental authority for the account of the person with respect to such
options.
10. TERMINATION AND AMENDMENT OF PLAN
The Board of Directors may at any time terminate this Plan or
make such modifications of the Plan as it shall deem advisable. Any modification
which increases the number of shares which may be issued under the Plan (other
than pursuant to Paragraph 7 hereof ), or changes the requirements as to
eligibility for participation in the Plan, and any repricing of outstanding
options (other than pursuant to Paragraph 7 hereof), shall become effective only
upon approval of the holders of a majority of the securities of the Company
present, or represented, and entitled to vote at a meeting duly held in
accordance with the laws of the State of Delaware.
11. INDEMNIFICATION
In addition to such other rights of indemnification as they may
have as directors, the members of the Board of Directors or Committee
administering the Plan shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees actually and necessarily incurred
in connection with the defense of any action, suit or proceeding, or in
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<PAGE> 8
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such member is liable
for negligence or misconduct in the performance of his duties; provided that
within 60 days after institution of any such action, suit or proceeding, the
member shall in writing offer the Company the opportunity, at its own expense,
to handle and defend the same.
12. EFFECTIVE DATE AND DURATION OF THE PLAN
The 1992 Stock Option Plan shall become effective on July 23,
1992. Any rights granted under this Plan must be granted within ten (10) years
of such effective date.
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<PAGE> 1
EXHIBIT 10.18
STOCK REPURCHASE AGREEMENT
This Stock Repurchase Agreement ("Agreement") is entered into as
of this 7th day of March, 1997 by and among California Microwave, Inc., a
Delaware corporation ("CMI"), California Microwave Navigation System, Inc., a
Delaware corporation, Harry F. Eustace, Barbara Eustace, Garber International
Associates, and Dr. V. Garber. All of the parties hereto, other than CMI and
California Microwave Navigation System, Inc., are collectively referred to
herein as the "Shareholders." Harry F. Eustace and Barbara Eustace are
collectively referred to herein as the "Eustace Group." Garber International
Associates and Dr. V. Garber are collectively referred to herein as the "Garber
Group."
R E C I T A L S
A. CMI, the Shareholders and Cornix Systems entered into that
certain Shareholders' Agreement as of the 8th day of March, 1994 (the
"Shareholders' Agreement"), pursuant to which, among other things, the parties
formed California Microwave Navigation Systems, Inc. and the Shareholders and
Cornix Systems purchased shares of Common Stock of California Microwave
Navigation Systems, Inc. Cornix Systems subsequently transferred its shares of
Common Stock of California Microwave Navigation Systems, Inc. to the Eustace
Group. As of the date of this Agreement, the Common Stock of California
Microwave Navigation Systems, Inc. (other than shares of Common Stock owned by
CMI) is owned by the Shareholders in the amounts set forth opposite their names
on Exhibit A hereto.
B. The Shareholders desire to sell their shares of Common Stock
of California Microwave Navigation Systems, Inc. to CMI and CMI desires to
purchase such shares, all on the terms and conditions stated hereinafter.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereby agree as follows:
1. Certain Definitions. In addition to certain terms defined
elsewhere herein, the following defined terms have the meaning stated below:
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<PAGE> 2
EXHIBIT 10.18
After Tax Cash Flow in any given period prior to the end of
Fiscal Year 2000 means the cash receipts of the Company from Ukraine Projects or
Non-Ukraine Projects (including, for this purpose, all cash receipts earned by
CMI business units other than the Company that are performing services in
connection with Ukraine Projects or Non-Ukraine Projects), as applicable, minus
the cash payments paid by or on behalf of the Company (including, for this
purpose, cash payments made by CMI business units other than the Company that
are performing services in connection with Ukraine Projects or Non-Ukraine
Projects) with respect to such projects. Cash receipts shall include success
fees, interest received in CMI sponsor loans and repayments of CMI sponsor loans
or guarantees. Cash payments shall include direct cost expenditures, direct
operating expenses, standard overhead, capital expenditures (net of
depreciation) of the Company, financing and bonding costs, CMI sponsor loan
disbursements, direct material costs, other direct costs of sales and income
taxes paid. The parties have agreed that After Tax Cash Flow for the period
March 8, 1994 through June 30, 1996 was $(2,080,000). The parties further agreed
that the $300,000 TDA Grant, recorded as an offset to expenses in Fiscal Year
1996, shall be considered as part of After Tax Cash Flow from a Ukraine Project.
Beginning in Fiscal Year 2001, After Tax Cash Flow shall only include cash
receipts from collections of receivables of the Company outstanding at June 30,
2000, cash receipts from loan repayments, cash receipts of interest payments,
cash payments of accounts payable at June 30, 2000 and cash payments for
associated income taxes; i.e., operating results are excluded. General
allocations of CMI or group expenses and goodwill amortization shall not be
reflected in calculating After Tax Cash Flow. Guarantees issued by CMI, whether
in the form of standby letter of credit, surety bonds or corporate guarantee,
shall be treated as CMI sponsor loan disbursements and elimination of such
guarantees shall be accounted as CMI sponsor loan repayments. All After Tax Cash
Flows of the Company in Fiscal Years 1994, 1995 and 1996 shall be considered as
After Tax Cash Flow for Ukraine Projects. Calculation of After Tax Cash Flow
shall be made by the controller of CMI, whose determination shall be final.
Backlog means, at any point in time, the cumulative amount of
orders which have not been converted into sales, as determined by the controller
of CMI based on the then-current accounting policies of CMI.
Booked Amount means the amount of new orders which have
been added to the Backlog in any given Fiscal Year for Ukraine Projects or
Non-Ukraine Projects, as determined by the controller of CMI based on the
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<PAGE> 3
EXHIBIT 10.18
then-current accounting policies of CMI. Bookings shall be recorded in
accordance with then-current CMI accounting policies.
CMI sponsor loans means loans made by CMI to specia purpose
entities responsible for completing a Ukraine Project or a Non-Ukraine
Project (or CMI guarantees of loans made by third parties to such entities for
such purposes).
Company means California Microwave Navigation Systems,
Inc., a Delaware corporation, unless and until that corporation or substantially
all of its assets are liquidated, sold or merged into CMI, after which Company
means the business unit which conducts the business operations formerly
conducted by California Microwave Navigation Systems, Inc.
Eustace Factor means 0.833333 (i.e., 4000 divided by 4800).
Final Determination Date means the later of June 30, 2000, or
the date when all CMI sponsor loans, if any, have been repaid and all CMI
sponsor guarantees, if any, have been discharged.
Fiscal Year means each period commencing July 1 and ending
on June 30 of the next calendar year. CMI's 1997 Fiscal Year ends June 30,
1997.
Garber Factor means 0.166667 (i.e., 800 divided by 4800).
Non-Ukraine Projects means all projects of the Company other
than Ukraine Projects.
Operating Profit in any given period means the gross margin of
the Company from Ukraine Projects or Non-Ukraine Projects (including, for this
purpose, all gross margin earned by CMI business units other than the Companies
that are performing services in connection with Ukraine or non-Ukraine
Projects) plus success fee receipts (such as the Rockwell success fee) minus the
operating expenses (direct cost expenditures, direct operating expenses,
standard overhead, direct material costs and other direct costs of sale) of the
Company. Operating Profit shall exclude interest income and expense and
non-recurring revenues (e.g., revenues from the sale of a product line).
Insurance and other employee benefits provided to the Company by CMI and letter
of credit charges shall be charged to the Company on the same
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<PAGE> 4
EXHIBIT 10.18
basis as is applicable to other subsidiaries of CMI, provided that there shall
be no allocation of general and administrative expenses of CMI to the Company.
Calculation of Operating Profit shall be made by the controller of CMI, whose
determination shall be final.
Ukraine Projects means any project in the Country of Ukraine
booked by the Company.
2. Acquisition of Shares of the Eustace Group. Subject to the
terms and conditions stated in this Agreement, at the Closing CMI shall purchase
from the Eustace Group, and the Eustace Group shall sell to CMI, all of the
outstanding shares, options or warrants or other rights to acquire shares of
Common Stock of the Company owned of record or beneficially by the Eustace
Group. The purchase price shall be one dollar per share plus the contingent
payments provided for in Section 2(a) herein.
(a) Subject to the provisions of Sections 2(c) and 4(c)
below, CMI shall pay the Eustace Group contingent payments equal, in the
aggregate, to the amount determined by the following formula:
PAYMENT = Eustace Factor x ((0.25 x After Tax
Cash Flow from Non-Ukraine Projects)
+ (0.1625 x After Tax Cash Flow from
Ukraine Projects)).
(b) Subject to the provisions of Section 4(c) below, CMI
shall pay the Eustace Group the following advance payments:
i) for each of CMI's Fiscal Years 1997, 1998 or 1999, the
amount determined by the following formula:
PAYMENT = Eustace Factor X ((0.02 X Booked
Amount for Non-Ukraine Projects
booked in that Fiscal Year) + (0.012
X Booked Amount for Ukraine Projects
booked in that Fiscal Year)).
Of each amount payable under this subsection, 50% shall be paid
in cash by the end of the month following the month in which the
particular project was booked and the remainder shall be paid in
cash within sixty days following the end of the CMI Fiscal Year
in which the particular project was booked.
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<PAGE> 5
EXHIBIT 10.18
ii) for each of CMI's Fiscal Years 1997, 1998, 1999
and 2000, the amount determined by the following formula:
PAYMENT = Eustace Factor X ((0.06 X Operating
Profit for Non-Ukraine Projects in
that Fiscal Year) + (0.038 X
Operating Profit for Ukraine Projects
in that Fiscal Year)).
Of each amount payable under this subsection for each respective
CMI Fiscal Year, 50% shall be paid in cash within sixty days
after the end of such Fiscal Year and the remainder of each such
amount shall be paid in cash within sixty days following the end
of the following CMI Fiscal Year, together with 8% simple
interest on such latter amount.
iii) for each Fiscal Year up to and including the
Fiscal Year ending on the Final Determination Date, the amount
determined by CMI's controller at the end of each Fiscal Year to
be payable with respect to such Fiscal Year using the following
formula:
PAYMENT = (Eustace Factor X ((0.25 X A) +
(0.1625 X B))) - C, where
A = the cumulative After Tax Cash Flow for Non-Ukraine
Projects through the end of the relevant Fiscal Year, plus
X.
B = the sum of $300,000 plus the cumulative After Tax Cash
Flow for Ukraine Projects through the end of the relevant
Fiscal Year, plus Y.
C = the cumulative amount advanced to the Eustace Group
through the end of such Fiscal Year pursuant to
subsections 2(b) i) and ii) above and this subsection 2(b)
iii), after giving effect to any payments required to be
made by CMI (but not yet made) for such Fiscal Year
pursuant to subsections 2(b) i) and ii), but prior to
giving effect to any payment required to be made by CMI
for the current Fiscal Year pursuant to this subsection
2(b) iii).
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<PAGE> 6
EXHIBIT 10.18
X = 0.0 during Fiscal Years 1997, 1998 and 1999. Beginning
in Fiscal Year 2000, X = 0.06 times Backlog for
Non-Ukraine Projects as of June 30, 2000.
Y = 0.0 during Fiscal Years 1997, 1998 and 1999. Beginning
in Fiscal Year 2000, Y =0.039 times Backlog for Ukraine
Projects as of June 30, 2000.
Amounts payable under this subsection for each respective CMI
Fiscal Year shall be paid in cash or CMI Common Stock within
sixty days after the end of such Fiscal Year. If, as of the end
of any Fiscal Year the amount determined to be the amount payable
under this subsection would be a negative number, no payment
shall be made under this subsection iii) in respect of such
Fiscal Year. All advance payments made by CMI under this Section
2(b) shall be credited against the aggregate amount required to
be paid by CMI pursuant to Section 2(a).
(c) Each member of the Eustace Group agrees that CMI may
offset any advance payment otherwise required to be made under Section 2
against any amount due under the existing promissory notes in favor of
CMI, until such notes have been repaid in full. Each member of the
Eustace Group agrees that, upon termination of this Agreement, CMI's
controller shall calculate the aggregate amount payable under Section
2(a) and the Eustace Group shall promptly repay CMI on demand the
excess, if any, of the amount previously advanced to the Eustace Group
under Section 2(b) over the aggregate amount payable under Section 2(a).
3. Acquisition of Shares of the Garber Group. Subject to the
terms and conditions stated in this Agreement, at the Closing CMI shall purchase
from the Garber Group, and the Garber Group shall sell to CMI, all of the
outstanding shares, options or warrants or other rights to acquire shares of
Common Stock of the Company owned of record or beneficially by the Garber Group.
The purchase price shall be one dollar per share plus the contingent payments
provided for in Section 3(a) herein. Of the contingent payments, 62.5% shall be
allocated to Garber International Associates and the remaining 37.5% of the
contingent payments shall be allocated to Dr. V. Garber.
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<PAGE> 7
EXHIBIT 10.18
(a) Subject to the provisions of Section 4(c) below, CMI
shall pay the Garber Group contingent payments equal, in the aggregate,
to the amount determined by the following formula:
PAYMENT = Garber Factor X ((0.25 X After Tax
Cash Flow from Non-Ukraine Projects)
+ (0.1625 X After Tax Cash Flow from
Ukraine Projects)) + (0.0875 X After
Tax Cash Flow from Ukraine Projects).
(b) Subject to the provisions of Sections 3(c) and 4(c)
below, CMI shall pay the Garber Group the following advance payments:
i) for each of CMI's Fiscal Years 1997, 1998 or 1999,
the amount determined by the following formula:
PAYMENT = Garber Factor X ((0.02 X Booked
Amount for Non-Ukraine Projects
booked in that Fiscal Year) + (0.012
X Booked Amount for Ukraine Projects
booked in that Fiscal Year)) + (0.008
X Booked Amount for Ukraine Projects
booked in that Fiscal Year).
Of each amount payable under this subsection, 50% shall be paid
in cash by the end of the month following the month in which the
particular project was booked and the remainder shall be paid in
cash within sixty days following the end of the CMI Fiscal Year
in which the particular project was booked.
ii) for each of CMI's Fiscal Years 1997, 1998, 1999
and 2000, the amount determined by the following formula:
PAYMENT = Garber Factor X ((0.06 X Operating
Profit for Non-Ukraine Projects in
that Fiscal Year) + (0.038 X
Operating Profit for Ukraine Projects
in that Fiscal Year)) + (0.022 X
Operating Profit for Ukraine Projects
in that Fiscal Year).
Of each amount payable under this subsection for each respective
CMI Fiscal Year, 50% shall be paid in cash within sixty days
after
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<PAGE> 8
EXHIBIT 10.18
the end of such Fiscal Year and the remainder of each such amount
shall be paid in cash within sixty days following the end of the
following CMI Fiscal Year, together with 8% simple interest on
such latter amount.
iii) for each Fiscal Year up to and including the
Fiscal Year ending on the Final Determination Date, the amount
determined by CMI's controller at the end of each Fiscal Year to
be payable with respect to such Fiscal Year using the following
formula:
PAYMENT = (Garber Factor X ((0.25 X A) +
(0.1625 X B))) + (0.0875 X C) - D,
where
A = the cumulative After Tax Cash Flow for Non-Ukraine
Projects through the end of the relevant Fiscal Year, plus
X.
B = the sum of $300,000 plus the cumulative After Tax Cash
Flow for Ukraine Projects through the end of the relevant
Fiscal Year, plus Y.
C = the sum of $300,000 plus the cumulative After Tax Cash
Flow for Ukraine Projects through the end of the relevant
Fiscal Year, plus Z.
D = the cumulative amounts advanced to the Garber Group
through the end of such Fiscal Year pursuant to
subsections 3(b) i) and ii) above and this subsection 3(b)
iii), after giving effect to any payments required to be
made by CMI for such Fiscal Year pursuant to subsections
3(b) i) and ii) but not yet paid, but prior to giving
effect to any payment required to be made by CMI for the
current Fiscal Year pursuant to this subsection 3(b) iii).
X = 0.0 during Fiscal Years 1997, 1998 and 1999. Beginning
in Fiscal Year 2000, X = 0.06 times Backlog for
Non-Ukraine Projects as of June 30, 2000.
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<PAGE> 9
EXHIBIT 10.18
Y = 0.0 during Fiscal Years 1997, 1998 and 1999. Beginning
in Fiscal Year 2000, Y = 0.039 times Backlog for Ukraine
Projects as of June 30, 2000.
Z = 0.0 during Fiscal Years 1997, 1998 and 1999. Beginning
in Fiscal Year 2000, Z = 0.021 times Backlog for Ukraine
Projects as of June 30, 2000.
Amounts payable under this subsection for each respective CMI
Fiscal Year shall be paid in cash or CMI Common Stock within
sixty days after the end of such Fiscal Year. If, as of the end
of any Fiscal Year the amount determined to be the amount payable
under this subsection would be a negative number, no payment
shall be made under this subsection iii) in respect of such
Fiscal Year. All advance payments made under this Section 3(b)
shall be credited against the aggregate amount required to be
paid by CMI pursuant to Section 3(a).
(c) Each member of the Garber Group agrees that CMI may
offset any advance payment otherwise required to be made under Section 3
against any amount due under the existing promissory notes in favor of
CMI, until such notes have been repaid in full. Each member of the
Garber Group agrees that, upon termination of this Agreement, CMI's
controller shall calculate the aggregate amount payable under Section
3(a) and the Garber Group shall promptly repay CMI on demand the excess,
if any, of the aggregate amount previously advanced to the Garber Group
under Section 3(b) over the amount payable under Section 3(a).
4. Certain Matters Applicable to the Stock Repurchases and
Payments. For purposes of Sections 2 and 3 above:
(a) After Tax Cash Flow, Operating Profit and Backlog
shall be determined in accordance with generally accepted accounting
principles and CMI accounting policies by CMI's controller. The $267,000
advanced by CMI prior to March 8, 1994, shall be disregarded in making
the calculations under the formulas contained in this Agreement. The
Company shall keep accounting records sufficient to calculate bookings,
Backlog, sales, expenses, After Tax Cash Flow and Operating Profit for
Ukraine Projects and Non-Ukraine Projects. All operations of the
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<PAGE> 10
EXHIBIT 10.18
Company through the end of Fiscal Year 1996 shall be attributed to
Ukraine Projects.
(b) With respect to payments required to be made under
Sections 2(b)iii) and 3(b)iii), CMI has the right to make payment in
cash or in CMI Common Shares or in a combination of cash and CMI Common
Shares. If CMI uses CMI Common Shares, the value of such shares shall be
the average closing sales price for CMI Common Shares in the Nasdaq
National Market as reported in the Wall Street Journal (or if listed,
the closing sales price on the largest exchange on which CMI Common
Shares are listed) for the ten (10) trading days immediately succeeding
the date of the event giving rise to the required payment. The CMI
Common Shares to be so used shall, within four months of delivery, be
covered by an effective registration statement on form S-1, S- 3 or S-4
(or other equivalent forms) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. No fractional
CMI Common Shares shall be issued; any fractional interest shall be
rounded off to the nearest whole share.
(c) Notwithstanding anything in this Agreement to the
contrary, CMI's obligation to make any further payments to the Eustace
Group under Section 2 hereof shall terminate under the circumstances
provided in Section 12. Similarly, and notwithstanding anything in this
Agreement to the contrary, CMI's obligation to make any further payments
to the Garber Group under Section 3 hereof shall terminate under the
circumstances provided in Section 12. There shall be no payments made
under Section 2 or Section 3 with respect to orders which are booked
after the date of termination of this Agreement, but termination shall
not affect any rights to payment with respect to orders booked before
termination. Any dispute over whether CMI's obligation to make such
payments has been properly terminated shall be submitted to and
determined by binding arbitration pursuant to Section 17 below.
(d) Sample calculations of potential contingent payments
and advances under Sections 2 and 3 are attached as Exhibit B. These
samples are merely illustrative and do not constitute projections or
likely scenarios. No party makes any representation or warranty
whatsoever to any other party about the validity of the samples or the
likelihood that actual results will resemble the samples.
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EXHIBIT 10.18
5. Closing and Closing Procedure. The closing of the transaction
contemplated by this Agreement shall take place at the corporate headquarters of
CMI, or at such other place as is agreed to by the parties, on March 14, 1997,
at 10:00 a.m. The date and time of the closing are herein called the "Closing
Date." At the closing on the Closing Date:
(a) Each Shareholder shall deliver to CMI stock
certificates of the Company owned by such Shareholder as indicated on
Exhibit A, duly endorsed for transfer and blank; and
(b) CMI shall deliver to each Shareholder $1 for each
share of Common Stock of the Company sold to CMI pursuant to this
Agreement.
6. Representations and Warranties of CMI. CMI represents and
warrants that the following facts and circumstances are, and, as at the Closing
Date shall be, true and correct and acknowledges that such facts and
circumstances constitute the basis upon which the Shareholders are induced to
enter into this Agreement:
(a) Organization, Standing, Etc. CMI is a corporation duly
organized and validly existing and in good standing under the laws of
the State of Delaware. It has all requisite corporate power and
authority to carry on its business, to enter into this Agreement, to
loan money as contemplated hereby, and to carry out the provisions
hereof.
(b) Authorization. All corporate action on the part of CMI
necessary for the performance of its obligations hereunder has been
taken. This Agreement is a valid and binding obligation of CMI,
enforceable against it in accordance with its terms.
7. Representations and Warranties of Shareholders. Each
Shareholder represents and warrants that the following facts and circumstances
are, and, as at the Closing Date shall be, true and correct and acknowledges
that such facts and circumstances constitute the basis upon which CMI is induced
to enter into this Agreement:
(a) Shares. The number of shares of Common Stock of the
Company set forth opposite such Shareholder's name on Exhibit A are
owned of record and beneficially by such Shareholder free and clear of
any and all covenants, conditions, restrictions, voting trust
arrangements,
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<PAGE> 12
EXHIBIT 10.18
liens, pledges, charges, claims, encumbrances, options and rights
whatsoever. Upon the Closing, CMI shall own, of record and beneficially,
all of such shares of Common Stock, free and clear of any and all
covenants, conditions, restrictions, voting trust arrangements, liens,
pledges, charges, claims, encumbrances, options and rights whatsoever.
(b) Authorization. This Agreement is a valid and binding
obligation of such Shareholder, enforceable in accordance with its
terms.
(c) Independent Decision. CMI has made no representations
or warranties whatsoever as to the legal, financial or tax consequences
to the Shareholder arising from or in connection with this Agreement.
Such Shareholder has consulted with his own attorneys and financial and
tax advisors and independently decided to enter into this Agreement.
8. Covenants of the Shareholders. Each Shareholder agrees that
prior to the Final Determination Date or December 31, 2001, whichever is later:
(a) Such Shareholder shall not, in the geographic areas
where the Company does business or plans to do business, on behalf of
other than the Company or CMI (or its subsidiaries), engage or be
interested, directly or indirectly, for himself or herself or for any
other person, as principal, agent, employer, employee, officer,
director, partner, salesman, supervisor, consultant or otherwise, in any
business or activity which is competitive with the principal business
conducted by the Company, namely, manufacturing and selling equipment
for airways modernization and vessel traffic navigation. The provisions
of this paragraph (a) shall expire as to the Eustace Group if the active
involvement in the business of the Company of Harry F. Eustace is
terminated other than for cause (as defined hereinafter). Similarly, the
provisions of this paragraph (a) shall expire as to the Garber Group if
the active involvement in the business of the Company of Dr. V. Garber
is terminated other than for cause (as defined hereinafter).
(b) All trade secrets, confidential or proprietary
information with respect to products, plans, marketing, and internal
business and financial matters (collectively "Trade Secrets") which were
learned by him or her in the course of his or her involvement with the
Company or CMI, and any other Trade Secrets received, developed or
learned in the course
-12-
<PAGE> 13
EXHIBIT 10.18
of such employment, or received, developed or learned hereafter in the
course of his or her future employment by or in association with the
Company or CMI (or its subsidiaries) shall be treated as confidential
and shall never be disclosed, other than as expressly authorized by CMI
or the Company, or if the same become generally available to the public
otherwise than by disclosure by him or her.
(c) He or she shall not induce any person who is an
employee of CMI (or its subsidiaries) or the Company on this date or who
shall become or continue as an employee of the Company or CMI (or its
subsidiaries) hereafter to leave said employ for the period of this
Covenant.
Each Shareholder acknowledges that the remedy at law for any breach of this
Covenant is inadequate and CMI and the Company shall be entitled to
injunctive relief. This Covenant may be assigned by CMI to, or devolve upon,
any successor in interest to all or substantially all of its business and
assets. It is the intent of the parties hereto that in the event one or more
provisions, or any part thereof of this Covenant shall be held unenforceable
for any reason, this Covenant shall be construed to the maximum extent permitted
by law in a manner consistent with the intent of the parties as herein
expressed.
9. No Brokerage Fee. No party to this Agreement has committed or
agreed on behalf of itself or himself, or any other party hereto, to pay any
brokerage or finder's fees or commissions. Each party hereto agrees to indemnify
and hold the other parties hereto harmless against and in respect of any
obligations or liabilities such party may have incurred, contingent or
otherwise, for brokerage or finders' fees or agents commissions or other like
payment in connection with this Agreement or the transactions contemplated
hereby.
10. Expenses. CMI, the Company, the Garber Group and the Eustace
Group shall pay all their own respective expenses in connection herewith,
including, without limiting the foregoing, legal and accounting fees.
11. Survival of Representations and Warranties. All
representations, warranties, and agreements contained herein or made in writing
by or on behalf of any of the parties in connection with the transaction
contemplated hereby shall survive the execution and delivery of this
-13-
<PAGE> 14
EXHIBIT 10.18
Agreement, any investigation at any time made by or on behalf of any party, and
the closing of the transaction contemplated hereby.
12. Termination.
(a) CMI may terminate all of its obligations under this
Agreement effective upon written notice at any time from and after the
occurrence of either of the following: (i) the Company fails to have
Booked Amounts of an aggregate of $10,000,000 or more on or before June
30, 1997; or (ii) Backlog falls below $500,000 at any time from and
after July 1, 1998. Upon termination pursuant to this paragraph (a),
there shall be no further payments under either Section 2 or Section 3
of this Agreement.
(b) CMI may terminate its obligations to the Eustace Group
under this Agreement effective upon written notice if Harry F. Eustace's
active involvement in the business of the Company (as an employee or
consultant) is terminated by the Company (or CMI) "for cause." Upon
termination pursuant to this paragraph (b), there shall be no further
payments under Section 2 of this Agreement.
(c) CMI may terminate its obligations to the Garber Group
under this Agreement effective upon written notice if Dr. V. Garber's
active involvement in the business of the Company (as an employee or
consultant) is terminated by the Company (or CMI) "for cause." Upon
termination pursuant to this paragraph (b), there shall be no further
payments under Section 3 of this Agreement.
(d) For purposes of this Agreement, the following shall
constitute grounds to terminate the active involvement in the business
of the Company of Mr. Eustace or Dr. Garber, as the case may be, "for
cause":
i) his death, disability for 90 or more days, or
voluntary resignation as an employee or a consultant;
ii) his failure, refusal or neglect to perform his
duties or obligations to the Company or CMI, provided he is given
written notice of intent to terminate and fails to cure the same
within 30 days after such written notice is given;
-14-
<PAGE> 15
EXHIBIT 10.18
iii) his gross negligence in the performance of his
duties to the Company or CMI in a manner which is materially
adverse, monetarily or otherwise, to CMI or its subsidiaries or
affiliates;
iv) a finding by a court or other governmental body
that one or more of his acts constituted a felony or other crime
involving theft, fraud or dishonesty under the laws of the United
States, any state thereof or any other country;
v) his violation of any law or regulation, or his
engaging in dishonesty intended to cause personal enrichment at
the expense of CMI or its subsidiaries, and in either case a good
faith determination by CMI that his continued involvement in the
business of the Company would be seriously detrimental to the
company or CMI and its business or reputation; or
vi) his material breach of any provision of Section 8.
If there is a dispute about whether a termination "for cause" is proper
or improper and the parties fail to resolve the dispute, either involved
party may submit the matter to binding arbitration pursuant to Section
17.
(e) CMI covenants that until the earliest to occur of (i)
the Final Determination Date, (ii) the date on which Backlog of the
Company falls below $250,000, or (iii) the date, if any, on which the
active involvement of Harry F. Eustace or Dr. V. Garber, as the case may
be, has been terminated "for cause," CMI may not terminate the rights of
the Eustace Group or Garber Group, respectively, to additional payments
provided for in Sections 2 and 3 above, as the case may be. However, and
notwithstanding anything to the contrary, the Company or CMI may
terminate the active involvement in the business of the Company of Mr.
Eustace, Dr. Garber or both, without cause; provided that, and in either
such event, termination would not affect the rights of the Eustace Group
or Garber Group, respectively, to the additional payments provided for
in Sections 2 and 3 above, as the case may be.
13. Notices. All notices, requests, demands and other
communications which are required to be given or which may be given under this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered or mailed, first class mail, postage prepaid:
-15-
<PAGE> 16
EXHIBIT 10.18
(a) if to Harry F. Eustace or the Eustace Group, to Harry F.
Eustace, 2809 Northglade Street, N.W., Washington, D.C. 20016;
(b) if to Dr. V. Garber or the Garber Group, to Dr. F. V.
Garber, 1800 Diagonal Road, Suite 510, Alexandria, VA 22314;
(c) if to CMI, to the attention of President, Government
Group, California Microwave, Inc., 555 Twin Dolphin Drive, Redwood City,
CA 94065; or
(d) to such other address as any other party shall have
specified by notice in writing to the other party.
14. Entire Agreement. This writing contains the entire agreement
of the parties hereto and expressly supersedes the Shareholders' Agreement, the
terms of which are hereby terminated and extinguished. This Agreement may not be
modified, altered or changed in any manner whatsoever, except by a written
agreement signed by the parties hereto.
15. Binding Effect, Benefits. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns; nothing in this Agreement, expressed or
implied, is intended to confer on any other person other than the parties hereto
or their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reasons of this Agreement.
16. Assignability. Notwithstanding anything in Section 15 above
to the contrary, this Agreement shall not be assignable by any party hereto
without the prior written consent of the other parties, provided that this
Agreement shall be assignable to any person or entity that acquires
substantially all of the assets of CMI, the Government Group of CMI or the
Company.
17. Arbitration. Any dispute, controversy or claim between the
parties arising out of or in connection with Section 4(c) or Section 12 of this
Agreement which the parties fail to resolve by negotiation shall be resolved in
accordance with the provisions of this Section 17. Any party may demand, by
written notice to the other parties, that any covered dispute be submitted to
arbitration conducted according to the provisions of this Section. If the
parties mutually agree upon one or more individual(s) to arbitrate the dispute,
such
-16-
<PAGE> 17
EXHIBIT 10.18
individuals shall arbitrate the dispute. If the parties mutually agree upon the
rules for conducting the arbitration, such rules shall govern the arbitration.
If, however, the parties cannot agree upon the identity of the arbitrators
and/or the rules for conducting the arbitration within fifteen (15) days after
the notice demanding arbitration, either parties may request the American
Arbitration Association (the "AAA"), to appoint, on an expedited basis, an
arbitrator who shall have substantial experience as an arbitrator, be
experienced in the subject matter of the dispute and be able to commence the
arbitration proceedings (with at least an initial hearing), according to the
requirements of this Section and other complimentary rules of the American
Arbitration Association, within thirty (30) days after appointment. The parties
shall exchange demands for relief and responses thereto, and may serve their
requests for production of documents pursuant to the Uniform Arbitration Act,
prior to the initial hearing. The arbitration proceedings shall be completed
within thirty (30) days after the initial hearing and the arbitrator's decision
shall be provided to the parties within thirty (30) days thereafter. The
decision of the arbitrator shall be final and binding provided such decision is
set forth in a writing by the arbitrator which recites the decision and all
findings and orders relative to the implementation thereof including, without
limitation, the amount and/or nature of any awards and the allocation of
responsibility among the parties to pay the AAA fees and the fees of the
attorneys and other professionals incurred by the parties, in accordance with
this Section. The arbitrator's decision may be enforced by any court of
competent jurisdiction. The place of arbitration shall be San Francisco,
California.
18. Paragraph and Other Headings. The paragraph and other
headings contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
20. California Law. This Agreement shall be construed and
interpreted in accordance with the laws of the State of California.
-17-
<PAGE> 18
EXHIBIT 10.18
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
-18-
<PAGE> 19
EXHIBIT 10.18
21. Attorneys Fees. In the event of any dispute under this
Agreement, the prevailing party shall be entitled to recovery of reasonable
attorneys fees.
IN WITNESS WHEREOF, this Agreement was executed as of the date
first above written.
CALIFORNIA MICROWAVE, INC.
By:_____________________________
Title:__________________________
CALIFORNIA MICROWAVE
NAVIGATION SYSTEMS, INC.
By:_____________________________
Title:__________________________
GARBER INTERNATIONAL
ASSOCIATES
By:_____________________________
Title:__________________________
________________________________
HARRY F. EUSTACE
________________________________
BARBARA EUSTACE
________________________________
DR. V. GARBER
-19-
<PAGE> 20
EXHIBIT 10.18
EXHIBIT A
Name Shares
---- ------
Harry F. Eustace and Barbara Eustace 4,000
Garber International Associates 500
Dr. V. Garber 300
-i-
<PAGE> 21
EXHIBIT 10.18
EXHIBIT B
(Page 1 of 2)
EXAMPLE - UKRAINE PROJECTS
<TABLE>
<CAPTION>
($Millions)
FY96 FY97 FY98 FY99 FY00 FY01 FY02 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UKRAINE PROJECTS
- ----------------
BOOKINGS 22.00 0.00 0.00 0.00 22.00
ENDING BACKLOG 22.00 10.00 0.00 0.00
SALES 0.00 12.00 10.00 0.00 22.00
GROSS MARGIN 0.00 3.00 2.50 0.00 5.50
EXPENSES -2.00 -0.63 -0.60 -0.60 0.00 -3.83
SUCCESS FEES 1.60 0.00 0.00 0.00 1.60
----- ----- ----- ----- ----
OPERATING PROFIT -2.00 0.97 2.40 1.90 0.00 0.00 3.27
SPONSOR LOAN -4.00 -4.00 2.00 3.00 3.00 0.00
INTEREST INCOME 0.00 0.00 0.85 0.63 1.32 2.80
----- ----- ----- ----- ----- ----
PRETAX PROFIT -2.00 0.97 -1.60 -2.1 2.85 3.63 4.32 6.07
CUMM PRETAX -2.00 -1.03 -2.63 -4.73 -1.88 1.75 6.07
TAX PAYMENTS 0.61 1.51 2.12
NET ASSETS 0.08 1.65 2.60 1.00 0.00 0.00 0.00
CASH FLOW -2.08 -0.60 -2.55 -0.50 3.85 3.02 2.81 3.95
CUMM CASH FLOW -2.68 -5.23 -5.73 -1.88 1.14 3.95
<CAPTION>
PAYMENTS EARNED
FY96 FY97 FY98 FY99 FY00 FY01 FY02 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2b[i] Eustace 0.220 0.000 0.000 0.220
3b[i] Garber 0.220 0.000 0.000 0.220
2b[ii] Eustace 0.031 0.076 0.060 0.000 0.167
3b[ii] Garber 0.027 0.068 0.054 0.000 0.149
2b[iii] Eustace 0.147 0.147
3b[iii] Garber 0.083 0.083
----- -----
Year Total 0.498 0.144 0.114 0.000 0.000 0.230 0.986
TOTAL EUSTACE 0.251 0.076 0.060 0.000 0.000 0.147 0.534
TOTAL GARBER 0.247 0.068 0.054 0.000 0.000 0.083 0.452
</TABLE>
<PAGE> 22
EXHIBIT 10.18
EXHIBIT B
(Page 2 of 2)
EXAMPLE - NON-UKRAINE PROJECTS
<TABLE>
<CAPTION>
($Millions)
FY96 FY97 FY98 FY99 FY00 FY01 TOTAL
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
NON-UKRAINE
PROJECTS
- -----------
BOOKINGS 2.00 8.00 10.00 12.00 32.00
ENDING BACKLOG 0.00 5.00 7.00 9.00
SALES 2.00 3.00 8.00 10.00 23.00
GROSS MARGIN 0.50 0.75 2.00 2.50 5.75
EXPENSES -0.15 -0.55 -0.70 -1.20 -2.60
SUCCESS FEES 0.00 0.00 0.00 0.00 0.00
----- ----- ----- ----- ----
OPERATING PROFIT 0.35 0.20 1.30 1.30 3.15
SPONSOR LOAN 0.00 0.00 0.00 0.00 0.00 0.00
INTEREST INCOME 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ----- ----
PRETAX PROFIT 0.35 0.20 1.30 1.30 0.00 3.15
CUMM PRETAX 0.35 0.55 1.85 3.15 3.15
TAX PAYMENTS 0.12 0.07 0.46 0.46 0.00 1.10
NET ASSETS 0.00 1.50 1.30 2.60 1.00 0.00
CASH FLOW 0.00 -1.27 0.33 -0.46 2.45 1.00 2.05
CUMM CASH FLOW -1.27 -0.94 -1.40 1.05 2.05
CCF + 6% BACKLOG 2.59
<CAPTION>
PAYMENTS EARNED
FY96 FY97 FY98 FY99 FY00 FY01 TOTAL
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
2b[i] Eustace 0.033 0.133 0.167 0.333
3b[i] Garber 0.007 0.027 0.033 0.067
2b[ii] Eustace 0.017 0.010 0.065 0.065 0.157
3b[ii] Garber 0.004 0.002 0.013 0.013 0.032
2b[iii] Eustace 0.048 0.048
3b[iii] Garber 0.010 0.010
----- -----
Year Total 0.061 0.172 0.278 0.078 0.058 0.647
TOTAL EUSTACE 0.051 0.143 0.232 0.065 0.048 0.539
TOTAL GARBER 0.010 0.029 0.046 0.013 0.010 0.108
</TABLE>
<PAGE> 1
EXHIBIT 10.19
LOAN AND SECURITY AGREEMENT
DATED AS OF JUNE 30, 1997
AMONG
BANKAMERICA BUSINESS CREDIT, INC.
AS THE LENDER
AND
CALIFORNIA MICROWAVE, INC.
AND
EFDATA CORP.
AS JOINT AND SEVERAL BORROWERS
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DEFINITIONS........................................................ 1
1.1 Defined Terms............................................... 1
1.2 Accounting Terms............................................ 24
1.3 Other Terms................................................. 24
2. LOANS, LETTERS OF CREDIT AND BELGIAN GUARANTIES.................... 25
2.1 Total Facility.............................................. 25
2.2 Revolving Loans............................................. 25
2.3 Letters of Credit........................................... 27
2.4 Belgian Guaranties.......................................... 31
2.5 ACH Transactions and FX Transactions........................ 32
3. INTEREST AND OTHER CHARGES......................................... 33
3.1 Interest.................................................... 33
3.2 Conversion and Continuation Elections....................... 34
3.3 Maximum Interest Rate....................................... 35
3.4 Facility Fee................................................ 36
3.5 Collateral Management Fee................................... 36
3.6 Letter of Credit Fee........................................ 36
3.7 Belgian Guaranty Fee and Dollar Equivalent Amounts.......... 36
4. PAYMENTS........................................................... 37
4.1 Repayments.................................................. 37
4.2 Place and Form of Payments; Extension of Time............... 37
4.3 Application and Reversal of Payments........................ 37
4.4 INDEMNITY FOR RETURNED PAYMENTS............................. 38
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS..................... 38
6. TAXES, YIELD PROTECTION AND ILLEGALITY............................. 38
6.1 Taxes....................................................... 38
6.2 Illegality.................................................. 39
6.3 Increased Costs and Reduction of Return..................... 40
6.4 Funding Losses.............................................. 40
6.5 Inability to Determine Rates................................ 41
6.6 Survival.................................................... 41
7. COLLATERAL......................................................... 41
7.1 Grant of Security Interest.................................. 41
7.2 Perfection and Protection of Security Interest.............. 42
7.3 Location of Collateral...................................... 43
</TABLE>
i.
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
7.4 Title to, Liens on, and Sale and Use of Collateral.......... 43
7.5 Appraisals.................................................. 43
7.6 Access and Examination...................................... 43
7.7 Insurance................................................... 44
7.8 Collateral Reporting........................................ 44
7.9 Accounts.................................................... 45
7.10 Collection of Accounts; Payments............................ 46
7.11 Inventory................................................... 47
7.12 Equipment................................................... 47
7.13 Documents, Instruments, and Chattel Paper................... 48
7.14 Right to Cure............................................... 48
7.15 Power of Attorney........................................... 48
7.16 Lender's Rights, Duties, and Liabilities.................... 49
7.17 Site Visits, Observations and Testing....................... 49
7.18 Release of Security Interest in Equipment................... 50
8. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.................. 50
8.1 Books and Records........................................... 50
8.2 Financial Information....................................... 50
8.3 Notices to Lender........................................... 52
8.4 Sharing of Information...................................... 54
9. GENERAL WARRANTIES AND REPRESENTATIONS............................. 54
9.1 Authorization, Validity, and Enforceability of this
Agreement and the Loan Documents.......................... 54
9.2 Validity and Priority of Security Interest.................. 54
9.3 Organization and Qualification.............................. 55
9.4 Corporate Name; Prior Transactions.......................... 55
9.5 Subsidiaries and Affiliates................................. 55
9.6 Financial Statements and Projections........................ 55
9.7 Capitalization.............................................. 56
9.8 Solvency.................................................... 56
9.9 Debt........................................................ 56
9.10 Distributions............................................... 56
9.11 Title to Property........................................... 56
9.12 Adequate Assets............................................. 56
9.13 Real Property; Leases....................................... 57
9.14 Proprietary Rights.......................................... 57
9.15 Trade Names and Terms of Sale............................... 57
9.16 Litigation.................................................. 57
9.17 Restrictive Agreements...................................... 57
9.18 Labor Disputes.............................................. 57
9.19 Environmental Laws.......................................... 58
</TABLE>
ii.
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
9.20 No Violation of Law.......................................... 59
9.21 No Default................................................... 59
9.22 ERISA Compliance............................................. 59
9.23 Taxes........................................................ 60
9.24 Use of Proceeds.............................................. 60
9.25 Private Offerings............................................ 60
9.26 Broker's Fees................................................ 60
9.27 Patent and Trademark Assignments............................. 60
9.28 No Material Adverse Change................................... 61
9.29 Disclosure................................................... 61
9.30 Motorola Letter.............................................. 61
10. AFFIRMATIVE AND NEGATIVE COVENANTS.................................. 61
10.1 Taxes and Other Obligations.................................. 61
10.2 Corporate Existence and Good Standing........................ 61
10.3 Compliance with Law and Agreements........................... 61
10.4 Maintenance of Property and Insurance........................ 61
10.5 Environmental Laws........................................... 62
10.6 ERISA........................................................ 62
10.7 Mergers, Consolidations, Acquisitions, or Sales.............. 62
10.8 Distributions; Capital Changes............................... 62
10.9 Transactions Affecting Collateral or Obligations............. 62
10.10 Guaranties................................................... 62
10.11 Debt......................................................... 63
10.12 Prepayment................................................... 63
10.13 Transactions with Affiliates................................. 63
10.14 Joint Ventures............................................... 63
10.15 Business Conducted........................................... 63
10.16 Liens........................................................ 63
10.17 Sale and Leaseback Transactions.............................. 63
10.18 New Subsidiaries............................................. 64
10.19 Restricted Investments....................................... 64
10.20 Subsidiaries................................................. 64
10.21 Operating Lease Obligations.................................. 64
10.22 Minimum Fixed Coverage....................................... 64
10.23 Adjusted Tangible Net Worth.................................. 64
10.24 Further Assurances........................................... 65
10.25 ABN AMRO Agreement, Maturity Factoring Agreement,
Permitted Equipment Sale Financing
and Subordinated Note Agreements........................... 65
10.26 ABN AMRO Agreement Sales..................................... 65
10.27 Maturity Factoring Agreement UCC Forms....................... 65
10.28 Belgian Guaranties........................................... 65
</TABLE>
iii.
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
11. CONDITIONS TO CLOSING............................................... 65
11.1 Conditions Precedent to Making of Loans and Issuance
of Letters of Credit on the Closing Date................... 65
11.2 Conditions Precedent to Each Loan............................ 67
12. DEFAULT............................................................. 68
12.1 Events of Default............................................ 68
13. REMEDIES............................................................ 70
14. TERM AND TERMINATION................................................ 71
15. MISCELLANEOUS....................................................... 72
15.1 Cumulative Remedies; No Prior Recourse to Collateral......... 72
15.2 No Implied Waivers........................................... 72
15.3 Severability................................................. 72
15.4 Governing Law................................................ 72
15.5 Consent to Jurisdiction and Venue; Service of Process........ 73
15.6 Waiver of Jury Trial......................................... 73
15.7 Arbitration; Reference Proceeding............................ 73
15.8 Survival of Representations and Warranties................... 74
15.9 Other Security and Guaranties................................ 74
15.10 Fees and Expenses............................................ 75
15.11 Notices...................................................... 75
15.12 Indemnification.............................................. 76
15.13 Waiver of Notices............................................ 77
15.14 Binding Effect; Assignment................................... 78
15.15 Modification................................................. 78
15.16 Counterparts................................................. 78
15.17 Captions..................................................... 78
15.18 Right of Set-Off............................................. 78
15.19 Participating Lender's Security Interests.................... 78
15.20 Joint and Several Obligations; Obligations Absolute.......... 79
</TABLE>
iv.
<PAGE> 6
LOAN AND SECURITY AGREEMENT, dated as of June 30, 1997, among
BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, with offices at 55
South Lake Avenue, Suite 900, Pasadena, CA 91101 (the "Lender"), CALIFORNIA
MICROWAVE, INC., a Delaware corporation with offices at 555 Twin Dolphin Drive,
Redwood City, CA 94065 ("CMI") and EFDATA CORP., a California corporation with
offices at 2105 West 5th Place, Tempe, AZ 85281 ("EFData") (EFData and CMI each
a "Borrower" and together the "Borrowers").
W I T N E S S E T H
WHEREAS, CMI was a party to that certain First Amended and
Restated Credit Agreement dated as of December 31, 1996 (as amended to date)
(the "Syndicated Facility") among CMI, as borrower, the financial institutions
referred to therein as banks (the "Syndicate Banks") and Bank of America NT&SA
as agent for the Syndicate Banks (in such capacity the "Syndicate Agent"),
Issuing Bank and Belgian Guarantor Bank (as defined in the Syndicated Facility);
and
WHEREAS, the Borrowers wish to replace the Syndicated Facility
and have requested the Lender to enter into this Agreement; and
WHEREAS, the Lender is prepared to extend to the Borrowers, on a
joint and several basis, a revolving line of credit for loans, letters of credit
and Belgian Guaranties (as defined herein) in an amount not to exceed
$40,000,000 in the aggregate; and
WHEREAS, upon repayment of the Syndicated Facility, such
Syndicated Facility will be terminated; and
WHEREAS, the Lender has agreed to indemnify the Bank in respect
of the Existing Letters of Credit and the Existing Belgian Guaranties;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable consideration,
the receipt of which is hereby acknowledged, the Borrowers and the Lender hereby
agree as follows:
1. DEFINITIONS.
1.1 Defined Terms. As used herein:
"ABN AMRO Agreement" means that certain Master Purchase Agreement
dated as of June 24, 1996 between CMI and ABN AMRO Bank N.V. (as amended or
otherwise altered) pursuant to which ABN AMRO Bank N.V. has, among other things,
agreed to purchase accounts receivable of CMI up to a total available program
amount of $15,000,000, and any successor agreement thereto consented to by the
Lender in writing.
"ABN AMRO Default" means any event of default under the terms of
the ABN AMRO Agreement or any other event requiring CMI to repurchase, or
otherwise indemnify ABN AMRO Bank N.V. with respect to, any ABN AMRO
Receivables.
1.
<PAGE> 7
"ABN AMRO Receivables" means the Obligations (as defined in the
ABN AMRO Agreement) (i) acquired by ABN AMRO prior to the date of this Agreement
and listed in Schedule 1.1, and (ii) acquired by ABN AMRO from CMI pursuant to
the ABN AMRO Agreement on or after the date hereof with the approval, in the
manner provided for in this Agreement, of BABC.
"Account" with respect to any Persons means such Person's right
to payment for a sale or lease and delivery of goods or rendition of services.
"Account Debtor" means each Person obligated in any way on or in
connection with an Account.
"ACH Settlement Risk Reserve" means any and all reserves which
the Lender from time to time establishes, in its sole discretion, with respect
to ACH Transactions.
"ACH Transactions" means all debts, liabilities and obligations
now or hereafter owing from a Borrower to the Bank arising from or related to
cash management services including the automatic clearing house transfer of
funds by the Bank for the account of such Borrower pursuant to agreement or
overdrafts.
"Adjusted Net Earnings from Operations" means, with respect to
any fiscal period CMI's net income on a consolidated basis, as determined in
accordance with GAAP and reported on the Financial Statements for such period.
"Adjusted Tangible Assets" means all of CMI's assets, determined
on a consolidated basis in accordance with GAAP, except: (a) deferred assets,
other than prepaid insurance and prepaid taxes; (b) patents, copyrights,
trademarks, trade names, franchises, goodwill, and other similar intangibles;
(c) Restricted Investments; (d) unamortized debt discount and expense; (e)
assets of CMI constituting Intercompany Accounts; (f) fixed assets to the extent
of any write-up in the book value thereof resulting from a revaluation effective
after the Closing Date; and (g) deferred tax assets.
"Adjusted Tangible Net Worth" means, at any date: (a) the book
value (after deducting related depreciation, obsolescence, amortization,
valuation, and other proper reserves as determined in accordance with GAAP) at
which the Adjusted Tangible Assets would be shown on a balance sheet of CMI and
its consolidated Subsidiaries at such date prepared in accordance with GAAP;
less (b) the amount at which CMI's liabilities would be shown on such balance
sheet, including as liabilities all reserves for contingencies and other
potential liabilities which would be required to be shown on such balance sheet.
"Affiliate" means with respect to any Person: (a) any other
Person which, directly or indirectly, controls, is controlled by or is under
common control with, such Person; (b) any other Person which beneficially owns
or holds, directly or indirectly, five percent or more of any class of voting
stock of such Person; or (c) any other Person in which five percent of any class
of the voting stock is beneficially owned or held, directly or indirectly, by
such Person. The term control
2.
<PAGE> 8
(including the terms "controlled by" and "under common control with"), means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the Person in question.
"Aggregate Availability" means, at any time, the lesser of:
(1) the amount of forty million and 0/100 Dollars
($40,000,000) (the "Maximum Revolving Credit Line"); or
(2) the aggregate of the (i) CMI Availability, (ii) EFData
Availability, (iii) Inventory Loans Limits of the
Borrowers and (iv) Equipment Loans Limits of the
Borrowers.
"Aggregate Belgian Guaranty Amount" means the Dollar Equivalent
of BF 269,571,669 or such lesser amount as may be certified to the Lender, from
time to time thereafter and in a form satisfactory to the Lender, by CMI and the
Belgian Beneficiary as being the then maximum exposure under the Belgian
Guaranties, following a permanent reduction of the total aggregate amount
available to be claimed under all Belgian Guaranties.
"A/R Loans" means Revolving Loans advanced against the Net Amount
of Eligible Accounts (as adjusted pursuant to this Agreement) of a Borrower.
"Availability Limits" means the Aggregate Availability, CMI
Availability, EFData Availability, CMI Inventory Loans Limit, EFData Inventory
Loans Limit, CMI Equipment Loans Limit, EFData Equipment Loans Limit, CMI
Eligible Permitted Accounts Limit and EFData Eligible Permitted Accounts Limit.
"Bank" means Bank of America National Trust and Savings
Association.
"Bank Indemnity" means that certain indemnity agreement between
the Lender and Bank dated as of even date herewith, in form and substance
satisfactory to the Lender.
"Belgian Beneficiary" means the Direction des Telecommunications
of the Belgian Army.
"Belgian Guaranties" means guaranties issued in favor of the
Belgian Beneficiary by the Bank for the account of CMI pursuant to this
Agreement and pursuant to the commitment to issue guaranties provided by the
Bank to the Belgian Beneficiary.
"Belgian Guaranty Fee" means has the meaning specified in Section
3.7.
"Belgian Guaranty Fee Percentage" means 2.5% per annum.
"Belgian Guaranty Obligations" means, without duplication, the
sum of (a) the aggregate unpaid Dollar Equivalent amount of all outstanding
Belgian Guaranties, and (b) the Dollar Equivalent amount of all unreimbursed
payments made by the Bank under the Belgian Guaranties.
3.
<PAGE> 9
"BF" means Belgian Francs.
"Borrowing" means a borrowing hereunder consisting of Revolving
Loans, the issuance or maintenance of Letters of Credit or the issuance or
maintenance of Belgian Guaranties.
"Broker" has the meaning ascribed to it in Section 8102 of the
UCC.
"Business Day" means (a) any day that is not a Saturday, Sunday,
or a day on which banks in San Francisco, California, are required or permitted
to be closed, (b) with respect to all notices, determinations, fundings and
payments in connection with the LIBOR Rate or LIBOR Rate Loans, any day that is
a Business Day pursuant to clause (a) above and that is also a day on which
trading is carried on by and between banks in the London interbank market and
(c) with respect to actions arising in connection with a Belgian Guaranty
additionally a day on which banks are customarily open for the transaction of
business in Belgium.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Public Authority, or any other law, rule
or regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"Capital Expenditures" means all payments due (whether or not
paid) in respect of the cost of any fixed asset or improvement, or replacement,
substitution, or addition thereto, which has a useful life of more than one
year, including, without limitation, those arising in connection with the direct
or indirect acquisition of such assets by way of increased product or service
charges or offset items or in connection with Capital Leases.
"Capital Lease" means any lease of Property by the Borrowers
that, in accordance with GAAP, should be reflected as a capital lease on the
balance sheet of the relevant Borrower.
"Change of Control" means (a) any "person" (as such term is used
in subsections 13(d) and 14(d) of the Exchange Act) or group of persons on or
after the Closing Date, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under said Act), directly or indirectly, of securities of a corporation
representing 20% or more of the combined voting power of the Corporation's
then-outstanding voting securities, or (b) the existing directors of a
corporation for any reason cease to constitute a majority of such corporation's
board of directors. "Existing directors" means (x) individuals constituting such
corporation's board of directors on the Closing Date, and (y) any subsequent
director whose election by the board of directors or nomination for election by
such corporation's shareholders was approved by a vote of at least two-thirds of
the directors then in office, which directors either were directors on the
Closing Date or whose election or nomination for election was previously so
approved.
"Chattel Paper" means all writings of whatever sort which
evidence a monetary obligation and a security interest in or lease of specific
goods, whether now existing or hereafter arising.
4.
<PAGE> 10
"Closing Date" means the date of this Agreement.
"CMFS" means California Microwave Foreign Sales Corporation, a
Barbados corporation.
"CMI Availability" means, at any time, an amount equal to
eighty-five percent (85%) of CMI's aggregate Net Amount of Eligible Accounts,
provided, however, that at all times CMI's Availability shall be reduced by the
sum of:
(a) the unpaid balance of A/R Loans made for the account
of CMI outstanding at that time;
(b) the aggregate undrawn face amount of all outstanding
Letters of Credit which the Lender has caused to be issued, obtained or
maintained for CMI's account (including the Existing Letters of Credit issued
for the account of CMI);
(c) the Aggregate Belgian Guaranty Amount;
(d) reserves for accrued interest on the Revolving Loans
made for the account of CMI;
(e) the Environmental Compliance Reserve relevant to CMI;
(f) the ACH Settlement Risk Reserve relevant to CMI;
(g) the FX Settlement Risk Reserve relevant to CMI;
(h) reserves for performance bonds outstanding (without
duplication of the obligations described in clause (b) above) with respect to
Eligible Accounts and Eligible Permitted Accounts of CMI;
(i) reserves with respect to warranty claims relating to
CMI's Eligible Accounts and Eligible Permitted Accounts;
(j) a reserve equal to the amount of any deductibles for
foreign credit insurance should any Eligible Accounts or Eligible Permitted
Accounts be considered eligible by virtue of the existence of such foreign
credit insurance; and
(k) all other reserves which the Lender in its reasonable
discretion deems necessary or desirable to maintain with respect to CMI's
account, including, without limitation, any amounts which the Lender may be
obligated to pay in the future for the account of CMI.
"CMNS" means California Microwave Navigation Systems, Inc., a
Delaware corporation.
5.
<PAGE> 11
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning set forth in Section 7.1.
"Collateral Management Fee" has the meaning specified in Section
3.5.
"Commodity Account" has the meaning ascribed to it in Section
9115 of the UCC.
"Commodity Contract" has the meaning ascribed to it in Section
9115 of the UCC.
"Commodity Intermediary" has the meaning ascribed to it in
Section 9115 of the UCC.
"Contaminant" means any waste, pollutant, hazardous substance,
toxic substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"), or other substance or material, the handling, release, or possession
of which is regulated to protect health, safety, or environment, or any
constituent of any such substance or waste.
"Debt" means, with respect to any Person, all liabilities,
obligations and indebtedness of such Person to any other Person, of any kind or
nature, now or hereafter owing, arising, due or payable, howsoever evidenced,
created, incurred, acquired or owing, whether primary, secondary, direct,
contingent, fixed or otherwise, and including, without in any way limiting the
generality of the foregoing: (a) a Person's liabilities and obligations to trade
creditors; (b) all Obligations; (c) all obligations and liabilities of any other
Person secured by any Lien on a Person's Property, even though the Person shall
not have assumed or become liable for the payment thereof; provided, however,
that all such obligations and liabilities which are limited in recourse to such
Property shall be included in Debt only to the extent of the book value of such
Property as would be shown on a balance sheet of the Person prepared in
accordance with GAAP; (d) all obligations or liabilities created or arising
under any Capital Lease or conditional sale or other title retention agreement
with respect to Property used or acquired by such Person, even if the rights and
remedies of the lessor, seller or lender thereunder are limited to repossession
of such Property; provided, however, that all such obligations and liabilities
which are limited in recourse to such Property shall be included in Debt only to
the extent of the book value of such Property as would be shown on a balance
sheet of such Person prepared in accordance with GAAP; (e) all accrued pension
fund and other employee benefit plan obligations and liabilities; (f) all
obligations and liabilities under Guaranties; and (g) deferred taxes.
"Distribution" means, in respect of any corporation: (a) the
payment or making of any dividend or other distribution of Property in respect
of capital stock of such corporation, other than distributions in capital stock
of the same class; or (b) the redemption or other acquisition by such
corporation of any capital stock of such corporation.
"DOL" means the United States Department of Labor or any
successor department or agency.
6.
<PAGE> 12
"Dollars" means United States Dollars.
"Dollar Equivalent" means, at any time, (a) as to any amount
denominated in Dollars, the amount thereof at such time, and (b) as to any
amount denominated in any other currency, the equivalent amount in Dollars as
determined by the Lender or Bank, as the case may be, at such time on the basis
of the Spot Rate for the purchase of Dollars with such other currency.
"EBITDA" means, with respect to any fiscal period of CMI: (a)
CMI's consolidated net income after provision for income taxes for such fiscal
period, as determined in accordance with GAAP and reported on the Financial
Statements for such period; plus (b) all of the following of the CMI: (i)
consolidated interest expense; (ii) income tax expense; (iii) depreciation and
amortization (including amortization of any goodwill or other intangibles, which
includes, but is not limited to, FASB 109); (iv) LIFO expense; (v) FASB 106 post
retirement expense; and (vi) extraordinary losses, considered extraordinary in
accordance with GAAP, so long as such losses arise from non-cash expenses; minus
(c) all of the following: (i) gain arising from the CMI's sale of any capital
asset; (ii) gain arising from any write-up in the book value of any asset of the
CMI; (iii) earnings of any corporation, substantially all the assets of which
have been acquired by the CMI in any manner, to the extent realized by such
other corporation prior to the date of acquisition; (iv) earnings of any
business entity in which the CMI has an ownership interest (other than its
Subsidiaries) unless (and only to the extent) such earnings shall actually have
been received by the CMI in the form of cash distributions; (v) earnings of any
Person to which assets of the CMI shall have been sold, transferred or disposed
of, or into which the CMI shall have been merged, or which has been a party with
the CMI to any consolidation or other form of reorganization, prior to the date
of such transaction; (vi) gain arising from the acquisition of Debt or equity
securities of the CMI or from cancellation or forgiveness of Debt; (vii) gain
arising from extraordinary items, as determined in accordance with GAAP, or any
other non-recurring transaction; and (viii) LIFO income.
"EFData Availability" means, at any time, an amount equal to
eighty-five percent (85%) of EFData's aggregate Net Amount of Eligible Accounts,
provided, however, that at all times EFData's Availability shall be reduced by
the sum of:
(a) the unpaid balance of A/R Loans outstanding at that
time made for the account of EFData;
(b) the aggregate undrawn face amount of all outstanding
Letters of Credit which the Lender has caused to be issued, obtained or
maintained for EFData's account (including the Existing Letters of Credit issued
for the account of EFData);
(c) reserves for accrued interest on the Revolving Loans
made for the account of EFData;
(d) the Environmental Compliance Reserve relevant to
EFData;
(e) the ACH Settlement Risk Reserve relevant to EFData;
7.
<PAGE> 13
(f) the FX Settlement Risk Reserve relevant to EFData;
(g) reserves for performance bonds outstanding (without
duplication of the obligations described in clause (b)) with respect to Eligible
Accounts and Eligible Permitted Accounts of EFData;
(h) reserves with respect to warranty claims relating to
EFData's Eligible Accounts and Eligible Permitted Accounts;
(i) a reserve equal to the amount of any deductibles for
foreign credit insurance should any Eligible Accounts or Eligible Permitted
Accounts be considered eligible by virtue of the existence of such foreign
credit insurance; and
(j) all other reserves which the Lender in its reasonable
discretion deems necessary or desirable to maintain with respect to the EFData's
account, including, without limitation, any amounts which the Lender may be
obligated to pay in the future for the account of EFData.
"Eligible Accounts" means, with respect to any Person, those
Accounts which are not ineligible as the basis for Borrowings, based on the
following criteria and on such other criteria as the Lender may from time to
time establish in its reasonable commercial discretion. Without intending to
limit the Lender's discretion to establish other criteria of eligibility,
Eligible Accounts shall not include any Account:
(a) which is more than 60 days past its original due date;
provided that no Account may be outstanding for more than 120 days past its
original invoice date;
(b) with respect to which any of the representations,
warranties, covenants, and agreements contained in this Agreement are not or
have ceased to be complete and correct or have been breached;
(c) with respect to which, in whole or in part, a check,
promissory note, draft, trade acceptance or other instrument for the payment of
money has been received, presented for payment and returned uncollected for any
reason;
(d) which represents a progress billing (as hereinafter
defined) or as to which the Person has extended the time for payment without the
consent of the Lender; for the purposes hereof, "progress billing" means any
invoice for goods sold or leased or services rendered under a contract or
agreement pursuant to which the Account Debtor's obligation to pay such invoice
is conditioned upon the Person's completion of any further performance under the
contract or agreement;
(e) as to which any one or more of the following events
has occurred with respect to the Account Debtor on such Account: death or
judicial declaration of incompetency of an Account Debtor who is an individual;
the filing by or against the Account Debtor of a request or
8.
<PAGE> 14
petition for liquidation, reorganization, arrangement, adjustment of debts,
adjudication as a bankrupt, winding-up, or other relief under the bankruptcy,
insolvency, or similar laws of the United States, any state or territory
thereof, or any foreign jurisdiction, now or hereafter in effect; the making of
any general assignment by the Account Debtor for the benefit of creditors; the
appointment of a receiver or trustee for the Account Debtor or for any of the
assets of the Account Debtor, including, without limitation, the appointment of
or taking possession by a "custodian," as defined in the Federal Bankruptcy
Code; the institution by or against the Account Debtor of any other type of
insolvency proceeding (under the bankruptcy laws of the United States or
otherwise) or of any formal or informal proceeding for the dissolution or
liquidation of, settlement of claims against, or winding up of affairs of, the
Account Debtor; the sale, assignment, or transfer of all or any material part of
the assets of the Account Debtor; the nonpayment generally by the Account Debtor
of its debts as they become due; or the cessation of the business of the Account
Debtor as a going concern;
(f) owed by an Account Debtor if the aggregate dollar
amount of all Accounts owed by such Account Debtor exceeds a credit limit
determined by Lender in its sole discretion, but only to the extent such
Accounts exceed such limit;
(g) owed by an Account Debtor which: (i) does not maintain
its chief executive office in the United States; or (ii) is not organized under
the laws of the United States or any state thereof; or (iii) is the government
of any foreign country or sovereign state, or of any state, province,
municipality, or other political subdivision thereof, or of any department,
agency, public corporation, or other instrumentality thereof; except to the
extent that such Account is secured or payable by a letter of credit or foreign
credit insurance acceptable to Lender;
(h) owed by an Account Debtor which is an Affiliate or
employee of such Person;
(i) except as provided in (g) above and (k) below, as to
which either the perfection, enforceability, or validity of the Security
Interest in such Account, or the Lender's right or ability to obtain direct
payment to the Lender of the Proceeds of such Account, is governed by any
federal, state, or local statutory requirements other than those of the UCC;
(j) which is owed by an Account Debtor to which such
Person is indebted in any way, or which is subject to any right of setoff or
recoupment by the Account Debtor, unless the Account Debtor has entered into an
agreement acceptable to the Lender to waive setoff and recoupment rights; if the
Account Debtor thereon has disputed liability or made any claim with respect to
any other Account due from such Account Debtor to such Person; or if commissions
are payable on any such account to the extent of any such commissions, but in
each such case only to the extent of such indebtedness, setoff, recoupment,
dispute, claim or commissions;
(k) which is owed by the government of the United States
of America, or any department, agency, public corporation, or other
instrumentality thereof, unless the Federal Assignment of Claims Act of 1940, as
amended, and any other steps necessary to perfect the Security Interest and
protect the Lender's rights therein, have been complied with to the Lender's
satisfaction with respect to such Account;
9.
<PAGE> 15
(l) which arises out of a sale to an Account Debtor on a
bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment,
or other repurchase or return basis;
(m) which is evidenced by a promissory note or other
instrument or by chattel paper;
(n) if fifty percent (50%) or more of the aggregate dollar
amount of outstanding Accounts owed at such time by the Account Debtor to such
Person is classified as ineligible under the other criteria set forth herein;
(o) to the extent that the dollar amount of such Account
when aggregated with the dollar amount of outstanding Accounts (if any) of
either Borrower to the same Account Debtor would exceed ten percent (10%) of the
aggregate dollar amount of all Eligible Accounts and all Eligible Permitted
Accounts of the Borrowers;
(p) with respect to which the Account Debtor is located in
any state requiring the filing of a Notice of Business Activities Report or
similar report in order to permit such Person to seek judicial enforcement in
such state of payment of such Account, unless such Person has qualified to do
business in such state or has filed a Notice of Business Activities Report or
equivalent report for the then current year; or
(q) which arises out of a sale not made in the ordinary
course of such Person's business;
(r) with respect to which the goods giving rise to such
Account have not been shipped and delivered to and accepted by the Account
Debtor or the services giving rise to such Account have not been performed by
such Person, and, if applicable, accepted by the Account Debtor, or the Account
Debtor revokes its acceptance of such goods or services;
(s) which is not subject to a first priority and perfected
security interest in favor of the Lender;
(t) with respect to Accounts that do not comply with any
applicable legal requirements, including all laws, rules, regulations and orders
of any Governmental Authority;
(u) if Lender believes, in its reasonable credit judgment,
that the prospect of collection of such Account is impaired or that the Account
may not be paid by reason of the Account Debtor's financial inability to pay;
(v) which is an ABN AMRO Receivable; or
(w) which is owed by an Account Debtor to which the
Lender, in its reasonable credit judgment, otherwise deems to be uncreditworthy.
10.
<PAGE> 16
If any Account at any time ceases to be an Eligible Account or Eligible
Permitted Account by reason of any of the foregoing exclusions or any failure to
meet any other eligibility criteria established by the Lender in the exercise of
its reasonable discretion then such Account shall promptly be excluded from the
calculation of Eligible Accounts or Eligible Permitted Account (as appropriate).
"Eligible Permitted Accounts" means an Account of an Account
Debtor listed in Schedule 1.2 (as such list, in the sole discretion of the
Lender, may be amended from time to time) which would be an Eligible Account but
for the provisions of paragraph (a) of the definition of Eligible Accounts and
which is payable within 120 to 180 days from invoice; provided that (i) no such
Account shall be permitted if it has been outstanding more than 180 days from
the original invoice date, and (ii) with respect to accounts of foreign account
debtors, no such Account shall be permitted unless it is secured or payable by
letter of credit or foreign credit insurance acceptable to the Lender.
"Eligible Permitted Accounts Limit" means with respect to any
Borrower, an amount equal to such portion (if any) of the Eligible Permitted
Accounts Subfacility Amount as may be allocated to such Borrower by the Lender,
from time to time, in its sole discretion.
"Eligible Permitted Accounts Subfacility Amount" means
$5,000,000.
"Environmental Compliance Reserve" means all reserves which the
Lender from time to time establishes for CMI and/or any of its Subsidiaries for
amounts that are reasonably required to be expended in order for CMI and/or its
Subsidiaries or CMI's and/or its Subsidiaries' operations and Property to comply
with Environmental Laws or in order to correct any violation by CMI and/or its
Subsidiaries or CMI's and/or its Subsidiaries' operations or Property of
Environmental Laws.
"Environmental Laws" means all present and future federal, state
and local laws, rules, regulations, ordinances, programs, permits, guidance,
orders and consent decrees relating to health, safety, hazardous substances, and
environmental matters applicable to CMI's or its Subsidiaries' business and
facilities (whether or not owned). Such laws and regulations include but are not
limited to the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq., as amended; the Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., as amended; the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq., as amended; the Clean Water Act, 33
U.S.C. Section 466 et seq., as amended; the Clean Air Act, 42 U.S.C. Section
7401 et seq., as amended; state and federal lien and environmental cleanup
programs; and U.S. Department of Transportation regulations.
"Environmental Lien" means a Lien in favor of any Public
Authority for (a) any liability under any Environmental Laws, or (b) damages
arising from, or costs incurred by such Public Authority in response to, a
Release or threatened Release of a Contaminant into the environment.
"Equipment" means, with respect to any Person, all of such
Person's now owned and hereafter acquired machinery, equipment, furniture,
furnishings, fixtures, and other tangible personal
11.
<PAGE> 17
property (except Inventory), including, without limitation, data processing
hardware and software, motor vehicles, aircraft, dies, tools, jigs, and office
equipment, as well as all of such types of property leased by such Person and
all of such Person's rights and interests with respect thereto under such leases
(including, without limitation, options to purchase); together with all present
and future additions and accessions thereto, replacements therefor, component
and auxiliary parts and supplies used or to be used in connection therewith, and
all substitutes for any of the foregoing, and all manuals, drawings,
instructions, warranties and rights with respect thereto; wherever any of the
foregoing is located.
"Equipment Loans" means Revolving Loans advanced against the
value of the Equipment of the Borrowers.
"Equipment Loans Limit" means with respect to any Borrower, an
amount equal to such portion (if any) of the Equipment Loans Subfacility Amount
as may be allocated to such Borrower by the Lender, from time to time, in its
sole discretion.
"Equipment Loans Subfacility Amount" means $5,000,000.
"ERISA" means the Employee Retirement Income Security Act of
1974., as amended.
"ERISA Affiliate" means, with respect to any Person, any trade or
business (whether or not incorporated) which is a member of a controlled group
or under common control with such Person within the meaning of Section 414(b) or
(c) of the Code (and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code).
"ERISA Event" means with respect to any Person, any ERISA
Affiliate or any Pension Plan, the occurrence of any of the following: (a) a
Reportable Event; (b) a withdrawal by a substantial employer (as defined in
Section 4001(a)(12) of ERISA) subject to Section 4063 of ERISA; (c) a cessation
of operations which is treated as a withdrawal under Section 4062(e) of ERISA;
(d) a complete or partial withdrawal under Section 4203 or 4205 of ERISA from a
Multiemployer Plan; (e) a notification that a Multiemployer Plan is in
reorganization under Section 4242 of ERISA; (f) the filing of a notice of intent
to terminate a Pension Plan under 4041 of ERISA; (g) the treatment of an
amendment of a Pension Plan as a termination under 4041 of ERISA; (h) the
termination of a Multiemployer Plan under Section 4041A of ERISA; (i) the
commencement of proceedings by the PBGC to terminate a Pension Plan under 4042
of ERISA; (j) an event or condition which could reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, a Pension Plan; or (k) the imposition of
any liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA.
"Event" means any event or condition which, with notice, the
passage of time, the happening of any other condition or event, or any
combination thereof, would constitute an Event of Default.
"Event of Default" has the meaning specified in Section 12.1.
12.
<PAGE> 18
"Existing Belgian Guaranties" means the Belgian Guaranties
described in Schedule 2.4.
"Existing Collateral Documents" means the (i) the Guaranty dated
as of December 31, 1996, executed by CMNS in favor of the Syndicate Agent, (ii)
the Security Agreement dated as of December 31, 1996, between CMNS and the
Syndicate Agent, (iii) the Guaranty dated as of December 31, 1996, executed by
EFData in favor of the Syndicate Agent, (iv) the Security Agreement dated as of
December 31, 1996, between EFData and the Syndicate Agent and (v) the Security
Agreement dated as of December 31, 1996, between CMI and the Syndicate Agent.
"Existing Letters of Credit" means the letters of credit
described in Schedule 2.3.
"Existing Syndicate Debt" means the outstanding revolving loans
under the Syndicated Facility as of the Closing Date.
"FX Settlement Risk Reserve" means any and all reserves which the
Lender from time to time establishes, in its sole discretion, with respect to FX
Transactions.
"FX Transactions" means all debts, liabilities and obligations
now or hereafter owing from a Borrower to the Bank arising from or related to
the foreign exchange facilities provided by the Bank to and for the account of
such Borrower.
"Facility Fee" has the meaning specified in Section 3.4.
"Financial Statements" means, according to the context in which
it is used, the financial statements attached hereto as Exhibit A-1, and the pro
forma balance sheet attached hereto as Exhibit A-2 or any financial statements
required to be given to the Lender pursuant to Section 8.2(a) (b) and (c), or
any combination thereof.
"Fiscal Year" means the Borrowers' fiscal year for financial
accounting purposes (which fiscal year shall be the same for both Borrowers).
The current Fiscal Year of the Borrowers will end on June 30, 1997.
"Fixed Charge Coverage Ratio" means, the ratio, determined for
CMI and its Subsidiaries on a consolidated basis, of (a) EBITDA for the period
in question, to (b) the sum of (i) the regular and scheduled cash principal
payments on its Debt for borrowed money during such period, plus (ii) interest
expense (whether or not paid in cash) paid on Debt for borrowed money during
such period, plus (iii) actual Capital Expenditures (net of amounts financed)
during such period, plus (iv) cash paid from restructuring charges in excess of
$3,000,000 per fiscal quarter, plus (v) actual cash taxes paid during such
period.
"Funding Date" means the date on which a Borrowing occurs.
"GAAP" means at any particular time generally accepted accounting
principles as in effect at such time.
13.
<PAGE> 19
"General Intangibles" with respect to any Person, means all
general intangibles of such Person, now existing or hereafter acquired or
arising, and in any event includes: (a) all tax and other refunds, rebates or
credits of every kind and nature to which such Person is now or hereafter may
become entitled; (b) all good will, choses in action and causes of action,
whether legal or equitable, whether in contract or tort and however arising; (c)
all interests in limited and general partnerships and limited liability
companies; (d) all rights of stoppage in transit, replevin and reclamation; (e)
all licenses, permits, consents, indulgences and rights of whatever kind issued
in favor of or otherwise recognized as belonging to such Person by any Public
Authority; and (f) all indemnity agreements, guaranties, insurance policies and
other contractual, equitable and legal rights of whatever kind or nature; in
each case whether now existing or hereafter acquired or arising.
"Guaranty" by any Person means all obligations of such Person
which in any manner directly or indirectly guarantee or assure, or in effect
guarantee or assure, the payment or performance of any indebtedness, dividend or
other obligation of any other Person (the "guaranteed obligations"), or to
assure or in effect assure the holder of the guaranteed obligations against loss
in respect thereof, including, without limitation, any such obligations incurred
through an agreement, contingent or otherwise: (a) to purchase the guaranteed
obligations or any Property constituting security therefor; (b) to advance or
supply funds for the purchase or payment of the guaranteed obligations or to
maintain a working capital or other balance sheet condition; or (c) to lease
Property or to purchase any debt or equity securities or other Property or
services.
"Intercompany Accounts" means all assets and liabilities, however
arising, which are due to either Borrower from which are due from either
Borrower to, or which otherwise arise from any transaction by either Borrower
with, any Affiliate.
"Intercreditor Agreement" means that certain Intercreditor
Agreement dated of even date herewith between the Lender and ABN AMRO Bank N.V.
relating to the operation of the ABN AMRO Agreement (as amended or otherwise
altered).
"Interest Period" means, as to any LIBOR Rate Loan, the period
commencing on the Funding Date of such Loan or on the Conversion/Continuation
Date on which the Loan is converted into or continued as a LIBOR Rate Loan, and
ending on the date one, two, or three months thereafter as selected by the
relevant Borrower in its Notice of Borrowing or Notice of
Conversion/Continuation; provided, however, that:
(i) if any Interest Period would otherwise end on a day
that is not a Business Day, that Interest Period shall be
extended to the following 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 preceding Business Day;
(ii) any Interest Period pertaining to a LIBOR Rate Loan
that begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the
calendar month at the end of such Interest
14.
<PAGE> 20
Period) shall end on the last Business Day of the calendar month
at the end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Stated
Termination Date or any renewal term.
"Inventory" means with respect to any Person all of such Person's
now owned and hereafter acquired inventory, goods (including goods in transit)
and merchandise, wherever located, to be furnished under any contract of service
or held for sale or lease or consignment or other disposition rejected and
repossessed, all display or demonstration goods, all raw materials,
work-in-process, finished goods, returned goods, and materials and supplies of
any kind, nature or description which are or might be used or consumed in such
Person's business or used in connection with the manufacture, production,
packing, shipping, advertising, selling or finishing of such goods, merchandise
and such other personal property, and all items hereafter acquired by such
Person by way of substitution or replacement and all additions and accessions
thereto, and all documents of title or other documents representing them.
"Inventory Loans" means Revolving Loans advanced against the
value of the Inventory of a Borrower.
"Inventory Loans Limit" means with respect to any Borrower, an
amount equal to 10% of the value of Inventory of such Borrower (located within
the United States in a State in which a first priority security interest in such
Inventory in favor of the Lender has been perfected) as disclosed on the most
recent inventory report for such Borrower delivered pursuant to Section 7.8(f);
provided that at no time may the Inventory Limit of a Borrower exceed such
portion (if any) of the Inventory Loans Subfacility Amount as may be allocated
to the relevant Borrower by the Lender, from time to time, in its sole
discretion.
"Inventory Loans Subfacility Amount" means $5,000,000.
"Investment Property" has the meaning ascribed to it in Section
9115 of the UCC.
"IRS" means the Internal Revenue Service or any successor agency.
"Latest Projections" means: (a) on the Closing Date and
thereafter until the Lender receives new projections pursuant to Section 8.2(f),
the projections of CMI and its consolidated Subsidiaries quarterly financial
condition, results of operations, and cash flow for the one-year period ending
June 30, 1998, attached hereto as Exhibit A-3; and (b) thereafter, the
projections most recently received by the Lender pursuant to Section 8.2(f).
"Letter of Credit" has the meaning specified in Section 2.3.
"Letter of Credit Fee" has the meaning specified in Section 3.6.
15.
<PAGE> 21
"Letter of Credit Fee Percentage" has the meaning specified in
Section 3.6.
"LIBOR Interest Rate Determination Date" means each date of
calculating the LIBOR Rate for purposes of determining the interest rate with
respect to an Interest Period. The LIBOR Interest Rate Determination Date for
any LIBOR Rate Loan shall be the second Business Day prior to the first day of
the related Interest Period for such LIBOR Rate Loan.
"LIBOR Rate" means, for any Interest Period, with respect to
LIBOR Rate Loans comprising part of the same Borrowing, the rate of interest per
annum (rounded upward to the next 1/1000th of 1.0%) determined as follows:
LIBOR Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any
Interest Period the maximum reserve percentage (expressed as a decimal,
rounded upward to the next 1/100th of 1.0%) in effect on such day
(whether or not applicable to the Lender) under regulations issued from
time to time by the Board of Governors of the Federal Reserve for
determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to
Eurocurrency funding (currently referred to as "Eurocurrency
liabilities"); and
"LIBOR" means the rate of interest per annum (rounded
upward to the next 1/16 of 1%) notified to the Lender by Bank as the
rate of interest at which United States Dollar deposits in the
approximate amount of the Loan to be made or continued as, or converted
into, a LIBOR Rate Loan and having a maturity comparable to such
Interest Period would be offered by Bank's applicable lending office to
major banks in the London interbank market at their request at
approximately 11:00 a.m. (London time) two Business Days prior to the
commencement of such Interest Period.
The LIBOR Rate shall be adjusted automatically as to all LIBOR Rate
Loans then outstanding as of the effective date of any change in the
Eurodollar Reserve Percentage.
"LIBOR Rate Loans" means Revolving Loans during any period in
which they bear interest based on the LIBOR Rate.
"Lien" means: (a) any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute, or contract, and including
without limitation, a security interest, charge, claim, or lien arising from a
mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit
arrangement, agreement, security agreement, conditional sale or trust receipt or
a lease, consignment or bailment for security purposes; and (b) to the extent
not included under clause (c), any reservation,
16.
<PAGE> 22
exception, encroachment, easement, right-of-way, covenant, condition,
restriction, lease or other title exception or encumbrance affecting Property.
"Loans" means, collectively, all loans and advances provided for
in Section 2.
"Loan Documents" means this Agreement, the Patent and Trademark
Assignments, the Intercreditor Agreement, and all other agreements, instruments,
and documents heretofore, now or hereafter evidencing, securing, guaranteeing or
otherwise relating to the Obligations, the Collateral, the Security Interest, or
any other aspect of the transactions contemplated by this Agreement.
"Maturity Factoring Agreement" means that certain Agreement for
Maturity Factoring Accounts Receivable dated as of July 31, 1987 between
Microwave Radio Corporation and BancBoston Financial Company, as amended by that
letter agreement dated April 19, 1995 between Microwave Radio Corporation and
BNY Financial Corporation, as set forth in Exhibit C.
"Motorola Debt" means the $5,700,000 California Microwave, Inc.
5% Convertible Subordinated Notes Due October 1, 1998.
"Motorola Letter" means the letter or other document evidencing
the agreement of the holders of the Motorola Debt to waive any rights of setoff
or counterclaim in respect of any indebtedness or obligations of such holders
against the Motorola Debt or other indebtedness of CMI to such holders.
"Multiemployer Plan" means with respect to any Person a
multiemployer plan as defined in Section 4001(a)(3) of ERISA to which such
Person or any ERISA Affiliate makes, is making, made, or was at any time during
the current year or the immediately preceding six (6) years obligated to make
contributions.
"Net Amount of Eligible Accounts" with respect to any Person
means the gross amount of Eligible Accounts and Eligible Permitted Accounts of
such Person less sales, excise or similar taxes, and less returns, discounts,
claims, credits and allowances of any nature at any time issued, owing, granted,
outstanding, available or claimed in respect of such Eligible Accounts or
Eligible Permitted Accounts.
"Notice of Borrowing" has the meaning specified in Section
2.2(d).
"Notice of Conversion/Continuation" has the meaning specified in
Section 3.2(b).
"Obligations" means all present and future loans, advances,
liabilities, obligations, covenants, duties, and Debt owing by either Borrower
to the Lender, whether or not arising under this Agreement, whether or not
evidenced by any note, or other instrument or document, whether arising from an
extension of credit, opening of a letter of credit, acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment from others, and any participation by
the Lender in either Borrower's debts owing to
17.
<PAGE> 23
others), absolute or contingent, due or to become due, primary or secondary, as
principal or guarantor, and including, without limitation, all interest,
charges, expenses, fees, attorneys' fees, filing fees and any other sums
chargeable to either Borrower hereunder, under another Loan Document, or under
any other agreement or instrument with the Lender. "Obligations" includes,
without limitation, (a) all debts, liabilities, and obligations now or hereafter
owing from the Borrowers to Lender under or in connection with the Letters of
Credit or Belgian Guaranties and (b) all debts, liabilities and obligations now
or hereafter owing from the Borrowers to the Lender arising from or related to
ACH Transactions or FX Transactions pursuant to the indemnity provided in
Section 2.5 hereof and (c) all amounts which may be payable to the Bank pursuant
to the Bank Indemnity.
"Other Taxes" means any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Documents.
"Participating Lender" means any Person who shall have been
granted the right by the Lender to participate in the Loans and who shall have
entered into a participation agreement in form and substance satisfactory to the
Lender.
"Patent and Trademark Assignments" means the assignment of
patents and assignment of trademarks, each to be dated as of the date hereof and
each in form and substance satisfactory to the Lender, evidencing and perfecting
the Lender's Security Interest in the Borrowers' present or future patents,
trademarks and related licenses and rights.
"Payment Account" means each blocked bank account or bank account
associated with a lock box, established pursuant to Section 7.7, to which the
funds of the Borrowers (including, without limitation, Proceeds of Accounts and
other Collateral) are deposited or credited, and which is maintained in the name
of the Lender or either or both of the Borrowers, as the Lender may determine,
on terms acceptable to the Lender.
"PBGC" means the Pension Benefit Guaranty Corporation or any
Person succeeding to the functions thereof.
"Pension Plan" means a pension plan (as defined in Section 3(2)
of ERISA) subject to Title IV of ERISA which the Borrowers or any ERISA
Affiliate of the Borrowers sponsors, maintains, or to which it makes, is making,
or is obligated to make contributions or, in the case of a Multiemployer Plan,
has made contributions at any time during the current year or the immediately
preceding six (6) plan years.
"Permitted Debt" means the Debt listed in Schedule 10.11;
provided that such instruments or agreements shall not be amended, supplemented,
replaced or altered without the prior consent of the Lender.
18.
<PAGE> 24
"Permitted Disposition" means sales of chattel paper and/or
contract rights as part of any Permitted Equipment Sales Financing or, to the
extent permitted by the Intercreditor Agreement and this Agreement, sales of
accounts receivable pursuant to the ABN AMRO Agreement.
"Permitted Equipment Sale Financing" means any transaction (a)
pursuant to that certain Financing Program Agreement dated as of May 9, 1996 (as
amended), by and between BA Credit Corporation, by which certain equipment
provided by CMI to third party users and related contracts are purchased or
financed by BA Credit Corporation, or (b) pursuant to similar arrangements to
finance the acquisition or leasing by third parties of equipment provided by CMI
without recourse to CMI.
"Permitted Guaranties" means:
(a) the Guaranties of the Borrowers and their Subsidiaries
existing on the Closing Date and listed on Schedule 10.10; provided that such
Guaranties shall not be amended or altered without the prior consent of the
Lender; and
(b) Guaranties undertaken as part of a Permitted Equipment
Sales Financing or with respect to recourse obligations under the ABN AMRO
Agreement relating to a Permitted Disposition.
"Permitted Liens" means:
(a) Liens for taxes not yet delinquent or Liens for taxes
in an amount not to exceed $100,000 being contested in good faith by appropriate
proceedings diligently pursued, provided that a reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made therefor on
the applicable Financial Statements and that a stay of enforcement of any such
Lien is in effect;
(b) Liens in favor of the Lender;
(c) Liens arising by operation of law in favor of
warehousemen, landlords, carriers, mechanics, materialmen, laborers, employees
or suppliers, incurred in the ordinary course of business of CMI or its
Subsidiaries and not in connection with the borrowing of money, for sums not yet
delinquent or which are being contested in good faith and by proper proceedings
diligently pursued, provided that a reserve or other appropriate provision, if
any, required by GAAP shall have been made therefor on the applicable Financial
Statements and a stay of enforcement of any such Lien is in effect;
(d) Liens arising from cash deposits in connection with
workers' compensation or other unemployment insurance incurred in the ordinary
course of the CMI's or its Subsidiaries' business;
(e) Liens created by deposits of cash to secure
performance of bids, tenders, leases (to the extent permitted under this
Agreement), or trade contracts, incurred in the
19.
<PAGE> 25
ordinary course of business of CMI or its Subsidiaries and not in connection
with the borrowing of money;
(f) Liens (other than Liens with respect to Collateral) of
or resulting from any judgment or award, the time for the appeal or petition for
rehearing of which has not yet expired, or in respect of which CMI or any of its
Subsidiaries, as appropriate, is in good faith prosecuting an appeal or
proceeding for a review, and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured;
(g) Easements, rights of way, zoning and similar covenants
and restrictions and similar encumbrances which customarily exist on real
property and which do not materially interfere with or impair the use or
operation of the Collateral by CMI or its Subsidiaries or the value of the
Lender's Security Interest therein, or materially interfere with the ordinary
conduct of the business of CMI or its Subsidiaries;
(h) purchase money security interests in Equipment and
liens of lessors under Capital Leases to the extent that the acquisition or
lease of the underlying asset was permitted under Section 10.11, the security
interest or lien only encumbers the asset purchased or leased, and so long as
the security interest or lien only secures the purchase price of the asset;
(i) Liens (other than Liens on Collateral) existing on
Property of the Borrowers or their Subsidiaries on the Closing Date as set forth
in Schedule 10.16 securing Permitted Debt outstanding on such date;
(j) Liens granted as part of any Permitted Equipment Sales
Financing; and
(k) Liens granted in connection with the ABN AMRO
Agreement to the extent permitted pursuant to the Intercreditor Agreement.
"Permitted Rentals" has the meaning specified in Section 10.21.
"Permitted Sale" means the disposal by CMI of its Satellite
Transmission Systems Division and/or Microwave Network Systems Division, on
terms acceptable to the Lender in its sole discretion.
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, limited liability company
association, corporation, Public Authority, or any other entity.
"Plan" means an employee benefit plan (as defined in Section 3(3)
of ERISA) which the Borrowers or an ERISA Affiliate of the Borrowers sponsors or
maintains or to which the Borrowers or an ERISA Affiliate of the Borrowers
makes, is making, or is obligated to make contributions and includes any Pension
Plan.
20.
<PAGE> 26
"Premises" means the land identified by addresses on Schedule
9.13 together with all buildings, improvements, and fixtures thereon and all
tenements, hereditaments, and appurtenances belonging or in any way appertaining
thereto, and which constitutes all of the real property in which CMI or any of
its Subsidiaries has any interests on the Closing Date.
"Proceeds" means all products and proceeds of any Collateral
(including, without limitation, "proceeds" as defined in UCC Section 9306), and
all proceeds of such proceeds and products, including, without limitation, all
cash and credit balances, all payments under any indemnity, warranty, or
guaranty payable with respect to any Collateral, all awards for taking by
eminent domain, all proceeds of fire or other insurance, and all money and other
Property obtained as a result of any claims against third parties or any legal
action or proceeding with respect to Collateral.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Proprietary Rights" with respect to any Person, means all of
such Person's now owned and hereafter arising or acquired: licenses, franchises,
permits, patents, patent rights, copyrights, works which are the subject matter
of copyrights, trademarks, trade names, trade styles, patent and trademark
applications and licenses and rights thereunder, including without limitation
those patents, trademarks and copyrights set forth on Schedule 9.14, and all
other rights under any of the foregoing, all extensions, renewals, reissues,
divisions, continuations, and continuations-in-part of any of the foregoing, and
all rights to sue for past, present, and future infringement of any of the
foregoing; inventions, trade secrets, formulae, processes, compounds, drawings,
designs, blueprints, surveys, reports, manuals, and operating standards;
goodwill; customer and other lists in whatever form maintained; and trade secret
rights, copyright rights, rights in works of authorship, and contract rights
relating to computer software programs, in whatever form created or maintained.
"Public Authority" means the government of any country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or any department, agency, public corporation or other
instrumentality of any of the foregoing.
"Receivables" with respect to any Person, means all of such
Person's now owned and hereafter arising or acquired: Accounts (whether or not
earned by performance), including Accounts owed to such Person by any of its
Subsidiaries or Affiliates, together with all interest, late charges, penalties,
collection fees, and other sums which shall be due and payable in connection
with any Account; proceeds of any letters of credit naming such Person as
beneficiary; contract rights, chattel paper, instruments, documents, investment
property, security entitlements, General Intangibles (including, without
limitation, Reversions and other amounts payable to such Person from or with
respect to any Plan), and all forms of obligations owing to such Person
(including, without limitation, in respect of loans, advances, and extensions of
credit by such Person to its Subsidiaries and Affiliates); guarantees and other
security for any of the foregoing; goods represented by or the sale, lease or
delivery of which gave rise to any of the foregoing; merchandise returned to or
repossessed by such Person; and other rights or remedies of an unpaid vendor,
lienor, or secured party.
21.
<PAGE> 27
"Reference Rate" means the rate of interest publicly announced
from time to time by the Bank as its reference rate. It is a rate set by the
Bank based upon various factors including the Bank's costs and desired return,
general economic conditions, and other factors, and is used as a reference point
for pricing some loans. However, the Bank may price loans at, above, or below
such announced rate. Any changes in the Reference Rate shall take effect on the
day specified in the public announcement of such change.
"Reference Rate Loans" means a Revolving Loan during any period
in which it bears interest based on the Reference Rate.
"Release" means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any real
estate or other property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or real estate or other property.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC.
"Requirement of Law" means any law (statutory or common), treaty,
rule or regulation or determination of an arbitrator or of a Public Authority.
"Restricted Investment" means any acquisition of Property by
either of the Borrowers or any of their Subsidiaries in exchange for cash or
other Property, whether in the form of an acquisition of stock, debt security,
or other indebtedness or obligation, or the purchase or acquisition of any other
Property, or a loan, advance, capital contribution, or subscription, except
acquisitions of the following: (a) fixed assets to be used in the business of
the Borrowers or their Subsidiaries, so long as the acquisition costs thereof
constitute Capital Expenditures permitted hereunder; (b) goods held for sale or
lease or to be used in the rendition of services by the Borrowers or their
Subsidiaries in the ordinary course of business; (c) direct obligations of the
United States of America, or any agency thereof, or obligations guaranteed by
the United States of America, provided that such obligations mature within one
year from the date of acquisition thereof; (d) certificates of deposit maturing
within one year from the date of acquisition, bankers acceptances, Eurodollar
bank deposits, or overnight bank deposits, in each case issued by, created by,
or with a bank or trust company organized under the laws of the United States or
any state thereof having capital and surplus aggregating at least $100,000,000;
and (e) commercial paper given the highest rating by a national credit rating
agency and maturing not more than 270 days from the date of creation thereof.
"Reversions" with respect to any Person, means any funds which
may become due to such Person in connection with the termination of any Plan or
other employee benefit plan.
"Revolving Loans" means revolving loans made to the Borrowers
pursuant to Section 2.2; consisting of A/R Loans, Inventory Loans or Equipment
Loans.
22.
<PAGE> 28
"Sale Request" means a notification and request by CMI for
approval to sell ABN AMRO Receivables, substantially in the form of Exhibit B.
"Securities Account" has the meaning ascribed to it in Section
8501 of the UCC.
"Security Agreements" means the Patent and Trademark Assignments
and any other security agreements and guaranties, or similar documents, which
may be executed by any Person in favor of the Lender as security for the
Obligations.
"Security Interest" means collectively the Liens granted to the
Lender in the Collateral pursuant to the Loan Documents, or any other agreement
or instrument.
"Securities Intermediary" has the meaning ascribed to it in
Section 8102 of the UCC.
"Solvent" means when used with respect to any Person that at the
time of determination:
(i) the assets of such Person, at a fair valuation, are in
excess of the total amount of its debts (including, without limitation,
contingent liabilities); and
(ii) the present fair saleable value of its assets is
greater than its probable liability on its existing debts as such debts
become absolute and matured; and
(iii) it is then able and expects to be able to pay its
debts (including, without limitation, contingent debts and other
commitments) as they mature; and
(iv) it has capital sufficient to carry on its business as
conducted and as proposed to be conducted.
For purposes of determining whether a Person is Solvent, the amount of any
contingent liability shall be computed as the amount that, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Spot Rate" for a currency means the rate quoted by Bank as the
spot rate for the purchase by Bank of such currency with another currency
through its FX Trading Office (i) at approximately 8:00 a.m. (Los Angeles,
California time) on the date two Banking Days prior to the relevant
determination date.
"Stated Termination Date" has the meaning specified in Section
14.
"Subordinated Note Agreements" means (i) the Indenture dated as
of December 15, 1993 between CMI and Union Bank (as Trustee) relating to the 5
1/4% Convertible Subordinated Notes due 2003 and (ii) the Purchase Agreement
dated as of October 26, 1993 between CMI and Motorola, Inc. relating to the 5%
Convertible Subordinated Notes due 1998.
23.
<PAGE> 29
"Subsidiary" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than 50% of
the voting stock or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the Person, or
one or more of the Subsidiaries of the Person, or a combination thereof.
"Syndicate Banks" has the meaning ascribed to it in the recitals
to this Agreement.
"Syndicate Agent" has the meaning ascribed to it in the recitals
to this Agreement.
"Syndicated Facility" has the meaning ascribed to it in the
recitals to this Agreement.
"Taxes" means any and all present or future taxes, assessments,
levies, imposts, impositions, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of the Lender, such
taxes (including income taxes or franchise taxes) as are imposed on or measured
by the Lender's net income by the jurisdiction (or any political subdivision
thereof) under the laws of which the Lender is organized or maintains a lending
office.
"UCC" means the Uniform Commercial Code (or any successor
statute) of the State of California or of any other state the laws of which are
required by Section 9-103 thereof to be applied in connection with the issue of
perfection of security interests.
"United States" and US" each means the United States of America.
"Unused Line Fee" has the meaning specified in Section 3.1(c).
1.2 Accounting Terms. Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied and using the same method for
inventory valuation as used in the preparation of the Financial Statements.
1.3 Other Terms. All other undefined terms contained in this
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein.
Wherever appropriate in the context, terms used herein in the singular also
include the plural, and vice versa, and each masculine, feminine, or neuter
pronoun shall also include the other genders.
2. LOANS, LETTERS OF CREDIT AND BELGIAN GUARANTIES.
2.1 Total Facility. Subject to all of the terms and conditions of
this Agreement, the Lender shall make available a total credit facility of up to
$40,000,000 for the Borrowers' use from time to time during the term of this
Agreement. The credit facility shall be comprised of a revolving line of credit
up to the limits of the Aggregate Availability, consisting of Revolving Loans,
Letters of Credit and Belgian Guaranties as described in Sections 2.2, 2.3 and
2.4.
24.
<PAGE> 30
2.2 Revolving Loans.
(a) Subject to the terms of paragraph (b) below, the
Lender shall, upon the request of a Borrower from time to time, make Revolving
Loans to such Borrower; provided that at no time may the aggregate amount of
Revolving Loans exceed the Aggregate Availability (with the Aggregate
Availability determined for this purpose as if the amount of the Revolving Loans
were zero). The commitment of the Lender to make Inventory Loans or Equipment
Loans shall terminate upon a Permitted Sale.
(b) At no time may the aggregate amount of: (i) A/R Loans
of a Borrower exceed: (x) in the case of CMI, the CMI Availability or (y) in the
case of EFData, the EFData Availability; and provided further that the aggregate
principal amount of A/R Loans advanced against Eligible Permitted Accounts of a
Borrower may at no time exceed the Eligible Permitted Accounts Limit applicable
to such Borrower; (ii) Inventory Loans of a Borrower exceed the Inventory Loans
Limit applicable to such Borrower; or (iii) Equipment Loans of a Borrower exceed
the Equipment Loans Limit applicable to such Borrower. The Lender shall be under
no obligation to make any Equipment Loan to a Borrower if, as at the date such
Loan is to be made, the net book value of the Equipment of the Borrowers as
disclosed in the most-recent balance sheet delivered pursuant to Section 8.2(c)
is less than $35,000,000. The Lender, in its discretion, may elect to exceed an
Availability Limit on one or more occasions, but if it does so, the Lender shall
not be deemed thereby to have changed any such limit or to be obligated to
exceed such limit on any other occasion. If the unpaid balance of the Revolving
Loans exceeds the Aggregate Availability (with Aggregate Availability determined
for this purpose as if the amount of the Revolving Loans were zero), then the
Lender may refuse to make or otherwise restrict Revolving Loans on such terms as
the Lender determines until such excess has been eliminated.
(c) The Borrowers, to the extent required or permitted by
Sections 2.2(d) and (e) below, may request Revolving Loans either telephonically
or in writing. Each oral request for a Revolving Loan shall be conclusively
presumed to be made by a person authorized by the relevant Borrower to do so and
the crediting of a Revolving Loan to such Borrower's deposit account, or
transmittal to such Person as such Borrower shall direct, shall conclusively
establish the obligation of the Borrowers to repay such Revolving Loan as
provided herein. If, and to the extent, at the time the requested Revolving Loan
is to be made there is insufficient CMI Availability or EFData Availability (as
applicable) to permit the Revolving Loan to be made as an A/R Loan, such
Revolving Loan shall be made as an Inventory Loan, provided that if, at such
time, the CMI Inventory Limit or EFData Inventory Limit (as applicable) would be
exceeded such Revolving Loan shall, subject to applicable Equipment Loan Limits,
be made as an Equipment Loan. If at any time after an Equipment Loan or
Inventory Loan is made, CMI Availability or EFData Availability (as applicable)
shall become available, then to the extent of such availability the Equipment
Loans or, if there are no Equipment Loans, Inventory Loans outstanding shall be
deemed converted into A/R Loans. If at any time while A/R Loans are outstanding
the CMI Availability or EFData Availability (as applicable) shall be reduced
below the outstanding amount of such A/R Loans, such A/R Loans shall be deemed,
subject to applicable Inventory Loans Limits or Equipment Loans Limits, to be
converted into Inventory Loans or Equipment Loans (as appropriate). The Lender
will charge all Revolving Loans and other Obligations to a loan account of the
Borrowers maintained with the
25.
<PAGE> 31
Lender. All fees, commissions, costs, expenses, and other charges under or
pursuant to the Loan Documents, and all payments made and out-of-pocket expenses
incurred by the Lender pursuant to the Loan Documents, will be charged as
Revolving Loans to the relevant Borrower's loan account as of the date due from
such Borrower or the date paid or incurred by the Lender, as the case may be.
(d) Procedure for Borrowing.
(i) Each Borrowing of Revolving Loans shall be made
upon a Borrower's irrevocable written notice ("Notice of Borrowing")
delivered to the Lender which notice must be received by the Lender (A)
not later than 11:00 a.m. (Los Angeles, California time) three Business
Days prior to the requested Funding Date, in the case of LIBOR Rate
Loans, and (B) no later than 10:00 a.m. (Los Angeles, California time)
on the requested Funding Date, in the case of Reference Rate Loans,
specifying:
(ii) the amount of the Borrowing;
(iii) the requested Funding Date, which shall be a
Business Day;
(iv) in the case of A/R Loans, whether the
Revolving Loans requested are to be Reference Rate Loans or LIBOR Rate
Loans;
(v) the duration of the Interest Period if the
requested Revolving Loans are to be LIBOR Rate Loans. If the Notice of
Borrowing fails to specify the duration of the Interest Period for any
Borrowing comprised of LIBOR Rate Loans, such Interest Period shall be
three months; provided, however, that with respect to the Borrowings to
be made on the Closing Date, such Borrowings will consist of Reference
Rate Loans only; and
(vi) which Borrower will make the Borrowing.
(vii) after giving effect to any Borrowing, the
Borrowers collectively may not have more than three different Interest
Periods in effect.
(viii) with respect to any request for Reference
Rate Loans, in lieu of delivering the above-described Notice of
Borrowing a Borrower may give the Lender telephonic notice of such
request by the required time, with such telephonic notice to be
confirmed in writing within 24 hours of the giving of such notice but
Lender shall be entitled to rely on the telephonic notice in making such
Revolving Loans.
2.3 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement,
the Lender shall, upon a Borrower's request from time to time, cause merchandise
or standby letters of credit to be issued for such Borrower's account (such
letters of credit the "Letters of Credit"). Letters of Credit shall be issued
through an issuer acceptable, in its sole discretion, to and nominated by the
26.
<PAGE> 32
Lender. The Lender will not be required to cause to be issued any Letter of
Credit if: (i) the maximum face amount of the requested Letter of Credit, plus
the aggregate undrawn face amount of all outstanding Letters of Credit and
maximum exposure under outstanding Belgian Guaranties, would exceed $20,000,000;
(ii) the maximum face amount of the requested Letter of Credit and all
commissions, fees, and charges due from the Borrowers to Lender in connection
with the issuance thereof would cause the Borrowings to exceed the Aggregate
Availability or (iii) the expiration date of the Letter of Credit would exceed
the Stated Termination Date or any renewal term or be greater than thirty (30)
months from the date of issuance. All payments made and expenses incurred by the
Lender pursuant to or in connection with Letters of Credit will be charged to
the loan account of the Borrower requesting the relevant Letter of Credit as
Revolving Loans.
(b) Other Conditions. In addition to being subject to the
satisfaction of the applicable conditions precedent contained in Section 11, the
obligation of the Lender to cause to be issued any Letter of Credit is subject
to the following conditions precedent having been satisfied in a manner
satisfactory to the Lender:
(i) The relevant Borrower requesting issuance of
the Letter of Credit shall have delivered to the proposed issuer of such
Letter of Credit, at such times and in such manner as such proposed
issuer may prescribe, an application in form and substance satisfactory
to such proposed issuer and the Lender for the issuance of the Letter of
Credit and such other documents as may be required pursuant to the terms
thereof, and the form and terms of the proposed Letter of Credit shall
be satisfactory to the Lender and such proposed issuer; and
(ii) As of the date of issuance, no order of any
court, arbitrator or Public Authority shall purport by its terms to
enjoin or restrain money center banks generally from issuing letters of
credit of the type and in the amount of the proposed Letter of Credit,
and no law, rule or regulation applicable to money center banks
generally and no request or directive (whether or not having the force
of law) from any Public Authority with jurisdiction over money center
banks generally shall prohibit, or request that the proposed issuer of
such Letter of Credit refrain from, the issuance of letters of credit
generally or the issuance of such Letters of Credit.
(c) Issuance of Letters of Credit.
(i) Request for Issuance. The Borrower requesting
issuance of a Letter of Credit shall give the Lender four (4) Business
Days' prior written notice of such Borrower's request for the issuance
of a Letter of Credit. Such notice shall be irrevocable and shall
specify the original face amount of the Letter of Credit requested, the
effective date (which date shall be a Business Day) of issuance of such
requested Letter of Credit, whether such Letter of Credit may be drawn
in a single or in partial draws, the date on which such requested Letter
of Credit is to expire (which date shall be a Business Day), the purpose
for which such Letter of Credit is to be issued, and the beneficiary of
the requested Letter of Credit. The relevant Borrower shall attach to
such notice the proposed form of the Letter of Credit that the Lender is
requested to cause to be issued.
27.
<PAGE> 33
(ii) No Extensions or Amendment. The Lender shall
not be obligated to cause any Letter of Credit to be extended or amended
unless the requirements of this Section 2.3 are met as though a new
Letter of Credit were being requested and issued.
(d) Payments Pursuant to Letters of Credit.
(i) Payment of Letter of Credit Obligations. The
Borrowers jointly and severally agree to reimburse the issuer for any
draw under any Letter of Credit immediately upon demand, and to pay the
issuer of the Letter of Credit the amount of all other obligations and
other amounts payable to such issuer under or in connection with any
Letter of Credit immediately when due, irrespective of any claim,
setoff, defense or other right which either Borrower may have at any
time against such issuer or any other Person.
(ii) Revolving Loans to Satisfy Reimbursement
Obligations. In the event that the issuer of any Letter of Credit honors
a draw under such Letter of Credit and the Borrowers shall not have
repaid such amount to the issuer of such Letter of Credit pursuant to
Section 2.3(d)(i), the Lender shall pay the issuer and such amount when
paid shall constitute a Revolving Loan which shall be deemed to have
been requested by the Borrower originally requesting the relevant Letter
of Credit.
(e) Compensation for Letters of Credit.
(i) Letter of Credit Fee. The Borrowers jointly and
severally agree to pay to the Lender with respect to each Letter of
Credit, the Letter of Credit Fee specified in, and in accordance with
the terms of, Section 3.6.
(ii) Issuer Fees and Charges. The Borrowers shall
pay to the issuer of any Letter of Credit, or to the Lender, for the
account of the issuer of any such Letter of Credit, solely for such
issuer's account, such fees and other charges as are charged by such
issuer for letters of credit issued by it, including, without
limitation, its standard fees for issuing, administering, amending,
renewing, paying and canceling letters of credit and all other fees
associated with issuing or servicing letters of credit, as and when
assessed.
(f) Indemnification; Exoneration; Power of Attorney.
(i) Indemnification. In addition to amounts payable
as elsewhere provided in this Section 2.3, each Borrower hereby agrees
to protect, indemnify, pay and save the Lender harmless from and against
any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys' fees) which the
Lender may incur or be subject to as a consequence, direct or indirect,
of the issuance of any Letter of Credit or the provision of any credit
support or enhancement in connection therewith. The agreement in this
Section 2.3(f)(i) shall survive payment of all Obligations and the
termination of this Agreement.
28.
<PAGE> 34
(ii) Assumption of Risk by the Borrowers. As among
a Borrower and the Lender, the Borrowers assume all risks of the acts
and omissions of, or misuse of any of the Letters of Credit by, the
respective beneficiaries of such Letters of Credit. In furtherance and
not in limitation of the foregoing, the Lender shall not be responsible
for: (A) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any document submitted by any Person in connection with the
application for and issuance of and presentation of drafts with respect
to any of the Letters of Credit, even if it should prove to be in any or
all respects invalid, insufficient, inaccurate, fraudulent or forged;
(B) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any 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; (C)
the failure of the beneficiary of any Letter of Credit to comply duly
with conditions required in order to draw upon such Letter of Credit;
(D) errors, omissions, interruptions, or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher; (E) errors in interpretation of
technical terms; (F) any loss or delay in the transmission or otherwise
of any document required in order make a drawing under any Letter of
Credit or of the proceeds thereof; (G) the misapplication by the
beneficiary of any Letter of Credit of the proceeds of any drawing under
such Letter of Credit; or (H) any consequences arising from causes
beyond the control of the Lender, including, without limitation, any act
or omission, whether rightful or wrongful, of any present or future de
jure or de facto Public Authority. None of the foregoing shall affect,
impair or prevent the vesting of any rights or powers of the Lender
under this Section 2.3.
(iii) Exoneration. In furtherance and extension,
and not in limitation, of the specific provisions set forth above, any
action taken or omitted by the Lender under or in connection with any of
the Letters of Credit or any related certificates, if taken or omitted
in the absence of gross negligence or willful misconduct, shall not put
the Lender under any resulting liability to either Borrower or relieve
either Borrower of any of its obligations hereunder to any such Person.
(iv) Power of Attorney. In connection with all
Inventory financed by Letters of Credit, each Borrower hereby appoints
the Lender, or the Lender's designee, as its attorney, with full power
and authority: (A) to sign and/or endorse such Borrower's name upon any
warehouse or other receipts; (B) to sign such Borrower's name on bills
of lading and other negotiable and non-negotiable documents; (C) to
clear Inventory through customs in the Lender's or such Borrower's name,
and to sign and deliver to customs officials powers of attorney in such
Borrower's name for such purpose; (D) to complete in such Borrower's or
the Lender's name, any order, sale, or transaction, obtain the necessary
documents in connection therewith, and collect the proceeds thereof; and
(E) to do such other acts and things as are necessary in order to enable
the Lender to obtain possession of the Inventory and to obtain payment
of the Obligations. Neither the Lender nor its designee, as such
Borrower's attorney, will be liable for any acts or omissions, nor for
any error of judgement or mistakes of fact or law. These powers, being
coupled with an interest, are irrevocable until all Obligations have
been paid and satisfied.
29.
<PAGE> 35
(v) Account Party. The Borrowers hereby each
authorize and direct any issuer of a Letter of Credit to name such
Borrower as the "Account Party" in any Letter of Credit requested by
such Borrower and to deliver to the Lender all instruments, documents
and other writings and property received by the issuer pursuant to a
Letter of Credit, and to accept and rely upon the Lender's instructions
and agreements with respect to all matters arising in connection with a
Letter of Credit or the application therefor.
(vi) Control of Inventory. In connection with all
Inventory financed by Letters of Credit, the Borrowers will, at the
Lender's request, instruct all suppliers, carriers, forwarders,
warehouses or others receiving or holding cash, checks, Inventory,
documents or instruments in which the Lender holds a security interest
to deliver them to the Lender and/or subject to the Lender's order, and
if they shall come into a Borrower's possession, to deliver them, upon
request, to the Lender in their original form. Each Borrower shall also,
at the Lender's request, designate the Lender as the consignee on all
bills of lading and other negotiable and non-negotiable documents.
(g) Supporting Letter of Credit; Cash Collateral. If,
notwithstanding the provisions of this Section 2.3 and Section 14 any Letter of
Credit is outstanding upon the termination of this Agreement, then upon such
termination the Borrowers shall deposit with the Lender, at its discretion, with
respect to each Letter of Credit then outstanding, either (i) a standby letter
of credit (a "Supporting Letter of Credit") in form and substance satisfactory
to the Lender, issued by an issuer satisfactory to the Lender in an amount equal
to the greatest amount for which such Letter of Credit may be drawn, under which
Supporting Letter of Credit the Lender is entitled to draw amounts necessary to
reimburse the Lender for payments made by the Lender under such Letter of Credit
or under any credit support or enhancement provided through the Lender with
respect thereto, or (ii) cash in amounts necessary to reimburse the Lender for
payments made by the Lender under such Letter of Credit or under any credit
support or enhancement provided through the Lender. Such Supporting Letter of
Credit or deposit of cash shall be held by the Lender, as security for, and to
provide for the payment of, the aggregate undrawn amount of such Letters of
Credit remaining outstanding.
(h) Existing Letters of Credit. On and after the Closing
Date the Existing Letters of Credit shall be deemed for all purposes (including
determination of Aggregate Availability and fees to be collected pursuant to
Section 3.6 and the reimbursement of costs and expenses) to be Letters of Credit
outstanding under this Agreement and shall be governed by and subject to the
application of this Agreement and the other Loan Documents.
2.4 Belgian Guaranties.
(a) On the terms and conditions set forth herein the
Lender shall, upon CMI's request from time to time, cause Belgian Guaranties to
be issued by the Bank for the account of CMI; provided, that the Lender shall
not be obliged to cause the Bank to issue any Belgian Guaranty if: (i) the date
for issue of the relevant Belgian Guaranty is not a Business Day, (ii) as of the
date of its issue the maximum exposure under the requested Belgian Guaranty
(together with all fees, charges, commissions and expenses in connection
therewith) (A) exceeds the Aggregate
30.
<PAGE> 36
Belgian Guaranty Amount or (B) when aggregated with the undrawn amount of all
outstanding Letters of Credit and the maximum exposure under outstanding Belgian
Guaranties would exceed $20,000,000, (iii) the aggregate amount of Borrowings of
the Borrowers advanced against Eligible Permitted Accounts would exceed the
Eligible Permitted Accounts Subfacility Amount, and (iv) such requested Belgian
Guaranty relates to a contract with the Belgian Beneficiary whose terms have not
been approved by the Lender.
(b) The Lender is under no obligation to cause the Bank to
execute and deliver any Belgian Guaranty if: (i) any order, judgment or decree
of any court arbitrator or Public Authority shall by its terms purport to enjoin
or restrain the Lender and/or Bank from executing and delivering such Belgian
Guaranty, or any law, rule or regulation applicable to the Lender and/or the
Bank or any request or directive (whether or not having the force of law) from
any Public Authority with jurisdiction over the Lender and/or the Bank shall
prohibit, or request that the Lender and/or the Bank refrain from, the execution
and delivery of guaranties generally or such Belgian Guaranty in particular or
shall impose upon the Lender and/or the Bank with respect to such Belgian
Guaranty any restriction, reserve or capital requirement (for which the Lender
and/or the Bank is not otherwise compensated hereunder), or shall impose upon
the Lender and/or the Bank any unreimbursed loss, cost or expense; or (ii) the
Bank has received written notice from the Lender or CMI, on or prior to the
Business Day prior to the requested date of issue of such Belgian Guaranty, that
one or more of the applicable conditions contained in Article 11 is not then
satisfied; or (iii) the issue of a Belgian Guaranty shall violate any applicable
policies of the Bank; or (iv) any requested Belgian Guaranty is not otherwise in
form and substance acceptable to the Lender or the Bank.
(c) Issuance of Belgian Guaranties. CMI shall give Lender
and the Bank at least four (4) Business Days (or such shorter period as the
Lender and Bank may agree) prior written notice of CMI's request for the
issuance of a Belgian Guaranty. Such notice shall be irrevocable and shall
specify the amount of the Belgian Guaranty requested, the date of issue of the
Belgian Guaranty, the type and nature of Belgian Guaranty requested and such
other information as the Lender or Bank may require.
(d) Payments Pursuant to Belgian Guaranties.
(i) Payment of Belgian Guaranty Obligations. The
Borrowers jointly and severally undertake to reimburse the Bank the Dollar
Equivalent of any payment under a Belgian Guaranty and other amounts payable
under or in connection with the Belgian Guaranties immediately upon demand,
irrespective of any claim, setoff, defense or other right which the Borrowers
may have at any time against the Bank, the beneficiary of the relevant Belgian
Guaranty or any other Person.
(ii) Revolving Loans to Satisfy Reimbursement
Obligations. In the event that the Bank honors a request for payment by a
beneficiary under a Belgian Guaranty and the Borrowers shall not have reimbursed
the Bank pursuant to Section 2.4(d)(i), the Lender shall pay the Bank the Dollar
Equivalent of such amount due and such payment shall constitute a Revolving
Loan, which shall be deemed to be a Reference Rate Loan requested by CMI.
31.
<PAGE> 37
(e) Existing Belgian Guaranties. On and after the Closing
Date, the Existing Belgian Guaranties shall be deemed for all purposes to be
Belgian Guaranties outstanding under this Agreement and shall be governed by and
subject to the application of this Agreement and the other Loan Documents.
(f) Role of the Bank.
(i) The Lender and each Borrower agree that, in
making any payment under a Belgian Guaranty, the Lender and the Bank shall not
have any responsibility to obtain any document or to ascertain or inquire as to
the validity or accuracy of any such document or the authority of the Person
executing or delivery any such document.
(ii) The Lender and the Bank shall not be liable:
(A) in respect of the Bank, for any action taken or omitted in connection
herewith at the request of the Lender; (B) for any action taken or omitted in
the absence of gross negligence or willful misconduct; or (C) for the due
execution, effectiveness, validity or enforceability of any document related to
a Belgian Guaranty.
2.5 ACH Transactions and FX Transactions. Either Borrower may
request and the Lender may, in its sole and absolute discretion, arrange for
either Borrower to obtain from the Bank ACH Transactions and FX Transactions.
The Borrowers agree to indemnify and hold the Lender harmless from all losses,
liabilities, costs, expenses and claims incurred by the Lender arising from or
related to such ACH Transactions and FX Transactions pursuant to the indemnity
referred to in clause (c) below. The Borrowers agree to pay to the Bank all
amounts owing to the Bank pursuant to ACH Transactions and FX Transactions. In
the event that the Borrowers shall not have paid to the Bank such amounts, the
Lender shall pay the Bank and such amounts when paid by the Lender shall
constitute a Revolving Loan requested by the Borrowers. The Borrowers
acknowledge and agree that the obtaining of ACH Transactions and FX Transactions
from the Bank (a) is in the sole and absolute discretion of the Bank, (b) is
subject to all rules and regulations of the Bank, and (c) is due to the Bank
relying on the indemnity of the Lender to the Bank with respect to all risks of
loss associated with the ACH Transactions and FX Transactions.
3. INTEREST AND OTHER CHARGES.
3.1 Interest.
(a) All Obligations shall bear interest on the unpaid principal
amount thereof from the date made until paid in full in cash at a rate
determined by reference to the Reference Rate or the LIBOR Rate and Sections 3.1
(a)(i) or (ii), as applicable, but not to exceed the Maximum Rate. Subject to
the provisions of Section 3.2, A/R Loans may be converted into, or continued as,
Reference Rate Loans or LIBOR Rate Loans in the manner provided in Section 3.2.
Inventory Loans and Equipment Loans may only be maintained as Reference Rate
Loans. If at any time A/R Loans are outstanding with respect to which notice has
not been delivered to Lender in accordance with the terms of this Agreement
specifying the basis for determining the interest rate applicable thereto, then
those A/R Loans shall be Reference Rate Loans and shall bear interest at a
32.
<PAGE> 38
rate determined by reference to the Reference Rate until notice to the contrary
has been given to the Lender and such notice has become effective. Except as
otherwise provided herein, the Obligations shall bear interest at: (i) a
fluctuating rate per annum equal to the Reference Rate plus the Reference Rate
Margin (as set forth below) for Obligations other than LIBOR Rate Loans,
Inventory Loans or Equipment Loans and (ii) at a rate per annum equal to the
LIBOR Rate plus the LIBOR Margin (as set forth below) for Obligations
constituting LIBOR Rate Loans and (iii) at a fluctuating rate per annum equal to
the Reference Rate plus the Inventory/Equipment Margin (as set forth below) for
Obligations constituting Inventory Loans or Equipment Loans. The initial
Reference Rate Margin, Inventory/Equipment Margin and LIBOR Margin for the six
month period following the Closing Date shall be 0.50%, 1.00% and 2.50%,
respectively. Thereafter the Reference Rate Margin, the Inventory/ Equipment
Margin and the LIBOR Margin shall be determined based upon the aggregate average
daily amount of Borrowings outstanding during the month preceding the borrowing
of the relevant Revolving Loan in accordance with the table set forth below:
<TABLE>
<CAPTION>
INVENTORY/
AGGREGATE OF BORROWINGS REFERENCE EQUIPMENT LIBOR
OUTSTANDING (X) RATE MARGIN MARGIN
$ (%) (%) (%)
----------------------- --------- --------- -----
<S> <C> <C> <C> <C>
x <= 5,000,000 0.00 0.50 2.00
5,000,000 > x < = 10,000,000 0.25 0.75 2.25
x > 10,000,000 0.50 1.00 2.50
</TABLE>
Each change in the Reference Rate shall be reflected in the interest
rate described above as of the effective date of such change. All interest
charges shall be computed on the basis of a year of three hundred sixty (360)
days and actual days elapsed. All interest shall be payable to Lender on the
first day of each month hereafter.
(b) If any Event of Default occurs, then, from the date
such Event of Default occurs until it is cured, or if not cured until all
Obligations are paid and performed in full, the Borrowers, upon demand of
Lender, will pay interest on the unpaid principal balances of the Revolving
Loans at a per annum rate 2% greater than the rate of interest otherwise
specified herein, and the applicable Letter of Credit Fee and Belgian Guaranty
Fee shall be increased by 2%.
(c) Unused Line Fee. For every month during the term of
this Agreement, the Borrowers shall pay the Lender a fee (the "Unused Line Fee")
in an amount equal to 0.25% per annum, multiplied by the average daily amount by
which the Maximum Revolving Credit Line exceeds the sum of (i) the average daily
outstanding amount of Revolving Loans during such month, (ii) the average daily
undrawn face amount of all outstanding Letters of Credit during such month, and
(iii) the Aggregate Belgian Guaranty Amount with the outstanding amount of
Revolving Loans calculated for this purpose by applying payments immediately
upon receipt. Such a fee, if any, shall be calculated on the basis of a year of
three hundred sixty (360) days and actual days elapsed, and shall be payable to
the Lender on the first day of each month and on the termination of this
Agreement, in each case, with respect to the prior month or portion thereof.
33.
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3.2 Conversion and Continuation Elections.
(a) Each Borrower may, with respect to any Borrowing of
A/R Loans made by such Borrower, upon irrevocable written notice to the Lender
in accordance with Subsection 3.2(b):
(i) elect, as of any Business Day, in the case of
A/R Loans which are Reference Rate Loans, to convert any such Loans (or
any part thereof in an amount not less than $2,000,000, or that is in an
integral multiple of $1,000,000 in excess thereof) into LIBOR Rate
Loans; or
(ii) elect, as of the last day of the applicable
Interest Period, to continue any A/R Loans which are LIBOR Rate Loans
having Interest Periods expiring on such day (or any part thereof in an
amount not less than $2,000,000, or that is in an integral multiple of
$1,000,000 in excess thereof);
provided, that if at any time the aggregate amount of LIBOR Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $1,000,000, such LIBOR Rate Loans shall
automatically convert into Reference Rate Loans, and on and after such date the
right of the Borrowers to continue such Loans as, and convert such Loans into,
LIBOR Rate Loans, as the case may be, shall terminate.
(b) The relevant Borrower shall deliver a notice of
conversion or continuation ("Notice of Conversion/Continuation") to be received
by the Lender (A) not later than 11:00 a.m.(Los Angeles, California time) at
least three (3) Business Days in advance of the date of conversion or
continuation, if the Loans are to be converted into or continued as LIBOR Rate
Loans and (B) not later than 10:00 a.m. (Los Angeles, California time) on the
date of conversion or continuation if the A/R Loans are to be converted into or
continued as Reference Rate Loans and specifying:
(i) the proposed Conversion/Continuation Date;
(ii) the aggregate amount of A/R Loans to be
converted or continued;
(iii) the type of A/R Loans resulting from the
proposed conversion or continuation;
(iv) the Borrower in respect of whom such Borrowing
was made.
(c) If upon the expiration of any Interest Period
applicable to LIBOR Rate Loans, the relevant Borrower has failed to select
timely a new Interest Period to be applicable to LIBOR Rate Loans or if any
Event or Event of Default then exists, the relevant Borrower shall be deemed to
have elected to convert such LIBOR Rate Loans into Reference Rate Loans
effective as of the expiration date of such Interest Period.
34.
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(d) During the existence of a Event or Event of Default,
the Borrowers may not elect to have a Loan converted into or continued as a
LIBOR Rate Loan.
(e) After giving effect to any conversion or continuation
of Loans, there may not be more than three different Interest Periods in effect
for the Borrowers collectively.
3.3 Maximum Interest Rate. In no event shall any interest rate
provided for hereunder exceed the maximum rate permissible for corporate
borrowers under applicable law for loans of the type provided for hereunder (the
"Maximum Rate"). If, in any month, any interest rate, absent such limitation,
would have exceeded the Maximum Rate, then the interest rate for that month
shall be the Maximum Rate, and, if in future months, that interest rate would
otherwise be less than the Maximum Rate, then that interest rate shall remain at
the Maximum Rate until such time as the amount of interest paid hereunder equals
the amount of interest which would have been paid if the same had not been
limited by the Maximum Rate. In the event that, upon payment in full of the
Obligations, the total amount of interest paid or accrued under the terms of
this Agreement is less than the total amount of interest which would, but for
this Section 3.3, have been paid or accrued if the interest rates otherwise set
forth in this Agreement had at all times been in effect, then the Borrowers
shall, to the extent permitted by applicable law, pay the Lender, an amount
equal to the excess of (a) the lesser of (i) the amount of interest which would
have been charged if the Maximum Rate had, at all times, been in effect or (ii)
the amount of interest which would have accrued had the interest rates otherwise
set forth in this Agreement, at all times, been in effect over (b) the amount of
interest actually paid or accrued under this Agreement. In the event that a
court determines that the Lender has received interest and other charges
hereunder in excess of the Maximum Rate, such excess shall be deemed received on
account of, and shall automatically be applied to reduce, the Obligations other
than interest, in the inverse order of maturity, and if there are no Obligations
outstanding, the Lender shall refund to the Borrowers such excess.
3.4 Facility Fee. The Borrowers will pay the Lender on the
Closing Date a facility fee in the amount of $150,000 (the "Facility Fee"). The
Lender and the Borrowers agree that the Facility Fee shall be financed by the
Lender as a Revolving Loan.
3.5 Collateral Management Fee. The Borrowers will pay the Lender
an annual fee (the "Collateral Management Fee") on the Closing Date and each
anniversary thereafter prior to the termination of this Agreement, in the amount
of $25,000 for each year or portion thereof.
3.6 Letter of Credit Fee. The Borrowers agree to pay to the
Lender a fee (the "Letter of Credit Fee") equal to the rate per annum equal to
the Letter of Credit Fee Percentage of the undrawn face amount of each Letter of
Credit issued for either Borrowers' account at either Borrowers' request, plus
all out-of-pocket costs, fees and expenses incurred by the Lender in connection
with the application for, issuance of, or amendment to any Letter of Credit,
which costs, fees and expenses could include a "fronting fee" required to be
paid by the Lender to such issuer for the assumption of the settlement risk in
connection with the issuance of such Letter of Credit. The initial Letter of
Credit Fee Percentage applicable during the six month period following the
Closing Date shall be 1.50%. Thereafter the applicable Letter of Credit Fee
Percentage shall be determined
35.
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based upon the aggregate average daily amount of Borrowings outstanding during
the month preceding the date of payment in accordance with the table set forth
below:
<TABLE>
<CAPTION>
LETTER OF CREDIT
AGGREGATE BORROWINGS (X) FEE PERCENTAGE
($) (%)
------------------------ ----------------
<S> <C>
x <= 10,000,000 1.00
x >= 10,000,000 1.25
</TABLE>
To the extent, at any time, a Letter of Credit if being issued would be
treated for the purposes of the Availability Limits pursuant to Section 2.3(a)
as being advanced against the Inventory Loan Limit or Equipment Loan Limit of a
Borrower, the Letter of Credit fee applicable to such portion of such Letter of
Credit shall be increased by 0.50%.
The Letter of Credit Fee shall be payable monthly in arrears on the
first day of each month following any month in which a Letter of Credit was
issued and/or in which a Letter of Credit remains outstanding. The Letter of
Credit Fee shall be computed on the basis of a 360- day year for the actual
number of days elapsed.
3.7 Belgian Guaranty Fee and Dollar Equivalent Amounts.
(a) During the term of this Agreement, the Borrowers agree
to pay to the Lender a fee (the "Belgian Guaranty Fee"), payable on the first
day of each month, equal to the product of (i) the Belgian Guaranty Fee
Percentage multiplied by the maximum exposure under outstanding Belgian
Guaranties (as determined by the Lender in its sole discretion) plus (ii) all
out-of-pocket costs, fees and expenses of the Lender and the Bank in connection
with the application for, issuance of, or amendment to any Belgian Guaranty,
which costs, fees and expenses could include a "fronting fee" required to be
paid by the Lender to the Bank in connection with the issuance of such Belgian
Guaranty.
(b) The Belgian Guaranty Fee shall be payable monthly in
advance on the first day of each month hereafter; provided that the first
payment on account of the Belgian Guaranty Fee shall be payable on the Closing
Date in respect of the period from the Closing Date to the first day of the
month following the Closing Date. Such fee shall be calculated on the basis of a
year of three hundred and sixty (360) days and the actual days elapsed.
(c) The Lender may, from time to time in its sole
discretion, determine the Dollar Equivalent amount of Belgian Guaranty
Obligations, proposed Belgian Guaranties and the Aggregate Belgian Guaranty
Amount. Absent manifest error, any such determination by the Lender shall be
conclusive and binding on the Borrowers. Subject to Section 6.3, if the Lender
shall have determined that, due to a change in applicable rates of exchange
between Dollars and Belgian Francs, (A) the aggregate principal amount of all
Revolving Loans and outstanding Letters of Credit exceeds the Aggregate
Availability or (B) the Belgian Guaranty Obligations exceeds the Aggregate
36.
<PAGE> 42
Belgian Guaranty Amount, then the Lender shall give notice to CMI which states
the Dollar Equivalent amount of any such excess and requires the Borrowers to
cash collateralize or to make mandatory prepayments so as to eliminate such
excess.
4. PAYMENTS.
4.1 Repayments. The Borrowers shall repay the outstanding
principal balance of the Revolving Loans, plus all accrued but unpaid interest
thereon, upon the termination of this Agreement for any reason. In addition, and
without limiting the generality of the foregoing, the Borrowers shall pay to the
Lender, on demand, (a) the amount by which the unpaid principal balance of the
Revolving Loans at any time exceeds the Aggregate Availability at such time
(determined for this purpose as if the amount of the Revolving Loans were zero)
and (b) the amount by which the aggregate amount of any Borrowings exceeds any
other applicable Availability Limit. Upon any Permitted Sale the Borrowers shall
immediately repay any Inventory Loans or Equipment Loans then outstanding.
4.2 Place and Form of Payments; Extension of Time. All payments
of principal, interest, premium, and other sums due to the Lender shall be made
at the Lender's address set forth in Section 15.11. Except for Proceeds received
directly by the Lender, all such payments shall be made in Dollars in
immediately available funds. If any payment of principal, interest, premium, or
other sum to be made hereunder becomes due and payable on a day other than a
Business Day, the due date of such payment shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the applicable
interest rate during such extension.
4.3 Application and Reversal of Payments. The Lender shall
determine in its sole discretion the order and manner in which Proceeds of
Collateral and other payments that the Lender receives are applied to any type
of Revolving Loan, interest thereon, and any other Obligations, and the
Borrowers hereby irrevocably waive the right to direct the application of any
payment or Proceeds. The Lender shall have the continuing and exclusive right to
apply and reverse and reapply any and all such Proceeds and payments to any
portion of the Obligations.
4.4 INDEMNITY FOR RETURNED PAYMENTS. IF AFTER RECEIPT OF ANY
PAYMENT WHICH IS APPLIED TO THE PAYMENT OF ALL OR ANY PART OF THE OBLIGATIONS,
THE LENDER IS FOR ANY REASON COMPELLED TO SURRENDER SUCH PAYMENT TO ANY PERSON
BECAUSE SUCH PAYMENT IS INVALIDATED, DECLARED FRAUDULENT, SET ASIDE, DETERMINED
TO BE VOID OR VOIDABLE AS A PREFERENCE, IMPERMISSIBLE SETOFF, OR A DIVERSION OF
TRUST FUNDS, OR FOR ANY OTHER REASON, THEN: THE OBLIGATIONS OR PART THEREOF
INTENDED TO BE SATISFIED SHALL BE REVIVED AND CONTINUE AND THIS AGREEMENT SHALL
CONTINUE IN FULL FORCE AS IF SUCH PAYMENT HAD NOT BEEN RECEIVED BY THE LENDER
AND THE BORROWERS SHALL BE LIABLE TO PAY TO THE LENDER AND HEREBY DO INDEMNIFY
THE LENDER AND HOLD THE LENDER HARMLESS FOR THE AMOUNT OF SUCH PAYMENT
SURRENDERED. The provisions of this Section 4.4 shall be and remain effective
notwithstanding any contrary action which may have been taken by the Lender in
reliance upon such payment, and any such contrary
37.
<PAGE> 43
action so taken shall be without prejudice to the Lender's rights under this
Agreement and shall be deemed to have been conditioned upon such payment having
become final and irrevocable. The provisions of this Section 4.4 shall survive
the termination of this Agreement.
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS. The Borrowers agree
that the Lender's books and records showing the Obligations and the transactions
pursuant to this Agreement and the other Loan Documents shall be admissible in
any action or proceeding arising therefrom, and shall constitute prima facie
proof thereof, irrespective of whether any Obligation is also evidenced by a
promissory note or other instrument. The Lender will provide to Borrowers a
monthly statement of Loans, payments, and other transactions pursuant to this
Agreement. Such statement shall be deemed correct, accurate, and binding on the
Borrowers and as an account stated (except for reversals and reapplications of
payments made as provided in Section 4.3 and corrections of errors discovered by
the Lender), unless the Borrowers notify the Lender in writing to the contrary
within thirty (30) days after such statement is rendered. In the event a timely
written notice of objections is given by the Borrowers only the items to which
exception is expressly made will be considered to be disputed by the Borrowers.
6. TAXES, YIELD PROTECTION AND ILLEGALITY.
6.1 Taxes.
(a) Any and all payments by the Borrowers to the Lender
under this Agreement and any other Loan Document shall be made free and clear
of, and without deduction or withholding for any Taxes. In addition, the
Borrowers shall pay all Other Taxes.
(b) The Borrowers agree to indemnify and hold harmless the
Lender for the full amount of Taxes or Other Taxes (including any Taxes or Other
Taxes imposed by any jurisdiction on amounts payable under this Section) paid by
the Lender and any liability (including penalties, interest, additions to tax
and expenses) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted. Payment under this
indemnification shall be made within 30 days after the date the Lender makes
written demand therefor.
(c) If the Borrowers shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to Lender, then:
(i) the sum payable shall be increased as necessary
so that after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under
this Section) the Lender receives an amount equal to the sum it would
have received had no such deductions or withholdings been made;
(ii) the relevant Borrower shall make such
deductions and withholdings;
38.
<PAGE> 44
(iii) the relevant Borrower shall pay the full
amount deducted or withheld to the relevant taxing authority or other
authority in accordance with applicable law; and
(iv) the relevant Borrower shall also pay to the
Lender at the time interest is paid, all additional amounts which the
Lender specifies as necessary to preserve the after-tax yield the Lender
would have received if such Taxes or Other Taxes had not been imposed.
(d) Within 30 days after the date of any payment by a Borrower of
Taxes or Other Taxes, such Borrower shall furnish the Lender the original or a
certified copy of a receipt evidencing payment thereof, or other evidence of
payment satisfactory to the Lender.
6.2 Illegality.
(a) If the Lender determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Public Authority has asserted that
it is unlawful, for the Lender or its applicable lending office to make LIBOR
Rate Loans, then, on notice thereof by the Lender to the Borrowers, any
obligation of the Lender to make LIBOR Rate Loans shall be suspended until the
Lender notifies the Borrowers that the circumstances giving rise to such
determination no longer exist.
(b) If the Lender determines that it is unlawful to
maintain any LIBOR Rate Loan, each Borrower shall, upon its receipt of notice of
such fact and demand from the Lender, prepay in full such LIBOR Rate Loans then
outstanding to it, together with interest accrued thereon and amounts required
under Section 6.4, either on the last day of the Interest Period thereof, if the
Lender may lawfully continue to maintain such LIBOR Rate Loans to such day, or
immediately, if the Lender may not lawfully continue to maintain such LIBOR Rate
Loan. If the Borrowers are required to so prepay any LIBOR Rate Loan, then
concurrently with such prepayment, the Borrowers shall borrow from the Lender,
in the amount of such repayment, a Reference Rate Loan.
6.3 Increased Costs and Reduction of Return.
(a) If the Lender determines that, due to either (i) the
introduction of or any change in the interpretation of any law or regulation or
(ii) the compliance by the Lender with any guideline or request from any central
bank or other Public Authority (whether or not having the force of law), there
shall be any increase in the cost to the Lender of agreeing to make or making,
funding or maintaining any LIBOR Rate Loans, then the Borrowers shall be liable
for, and shall from time to time, upon demand, pay to the Lender, additional
amounts as are sufficient to compensate the Lender for such increased costs.
(b) If the Lender shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or
39.
<PAGE> 45
other Public Authority charged with the interpretation or administration
thereof, or (iv) compliance by the Lender or any corporation controlling the
Lender with any Capital Adequacy Regulation, affects or would affect the amount
of capital, reserves, or special deposits required or expected to be maintained
by the Lender or any corporation controlling the Lender and (taking into
consideration such Lender's or such corporation's policies with respect to
capital adequacy and such Lender's desired return on capital) determines that
the amount of such capital, reserves, or special deposits is increased as a
consequence of its loans, credits or obligations under this Agreement, then,
upon demand of the Lender to the Borrowers, the Borrowers shall pay to the
Lender, from time to time as specified by the Lender, additional amounts
sufficient to compensate the Lender for such increase. Notwithstanding the
foregoing, all such amounts shall be subject to the provisions of Section 3.3.
6.4 Funding Losses. The Borrowers shall reimburse the Lender and
hold the Lender harmless from any loss or expense which the Lender may sustain
or incur as a consequence of:
(a) the failure of a Borrower to make on a timely basis
any payment of principal of any LIBOR Rate Loan;
(b) the failure of a Borrower to borrow, continue or
convert a Loan after such Borrower has given (or is deemed to have given) a
Notice of Borrowing or a Notice of Conversion/Continuation;
(c) the prepayment or other payment (including after
acceleration thereof) of an LIBOR Rate Loan on a day that is not the last day of
the relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBOR Rate Loans or from fees payable to
terminate the deposits from which such funds were obtained.
6.5 Inability to Determine Rates. If the Lender determines that
for any reason adequate and reasonable means do not exist for determining the
LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR
Rate Loan, or that the LIBOR Rate for any requested Interest Period with respect
to a proposed LIBOR Rate Loan does not adequately and fairly reflect the cost to
the Lender of funding such Loan, the Lender will promptly so notify the Borrower
requesting the LIBOR Rate Loan. Thereafter, the obligation of the Lender to make
or maintain LIBOR Rate Loans hereunder shall be suspended until the Lender
revokes such notice in writing. Upon receipt of such notice, such Borrower may
revoke any Notice of Borrowing or Notice of Conversion/Continuation then
submitted by it. If such Borrower does not revoke such Notice, the Lender shall
make, convert or continue the Loans, as proposed by such Borrower, in the amount
specified in the applicable notice submitted by such Borrower, but such Loans
shall be made, converted or continued as Reference Rate Loans instead of LIBOR
Rate Loans.
6.6 Survival. The agreements and obligations of the Borrowers in
this Section 6 shall survive the payment of all other Obligations.
40.
<PAGE> 46
7. COLLATERAL.
7.1 Grant of Security Interest.
(a) As security for the Obligations, each of the Borrowers
hereby grants to the Lender a continuing security interest in, lien on, and
assignment of all of their respective: (i) Receivables, Inventory, Investment
Property, Proprietary Rights, Equipment and Proceeds thereof, wherever located
and whether now existing or hereafter arising or acquired; (ii) moneys,
securities and other property and the Proceeds thereof, now or hereafter held or
received by, or in transit to, the Lender from or for either Borrower, whether
for safekeeping, pledge, custody, transmission, collection or otherwise,
including, without limitation, all of the Borrowers' deposit accounts, credits,
and balances with the Lender and all claims of the Borrowers against the Lender
at any time existing; (iii) Borrowers' deposit accounts with any financial
institutions with which either Borrower maintains deposits; and (iv) Borrowers'
books, records and other Property relating to or referring to any of the
foregoing, including, without limitation, all books, records, ledger cards, data
processing records, computer software and other property and general intangibles
at any time evidencing or relating to the Receivables, Inventory, Investment
Property, Proprietary Rights, Equipment, Proceeds, and other property referred
to above (all of the foregoing, and all other property of either Borrower in
which the Lender may at any time be granted a Lien, being herein collectively
referred to as the "Collateral"). The Lender shall have all of the rights of a
secured party with respect to the Collateral under the UCC and other applicable
laws.
(b) All Obligations shall constitute a single loan secured
by the Collateral. The Lender may, in its sole discretion, (i) exchange, waive,
or release any of the Collateral, (ii) apply Collateral and direct the order or
manner of sale thereof as the Lender may determine, and (iii) settle,
compromise, collect, or otherwise liquidate any Collateral in any manner, all
without affecting the Obligations or the Lender's right to take any other action
with respect to any other Collateral.
7.2 Perfection and Protection of Security Interest. The
Borrowers shall, at their expense, perform all steps requested by the Lender at
any time to perfect, maintain, protect, and enforce the Security Interest
including, without limitation: (a) executing and recording of the Patent and
Trademark Assignments and executing and filing financing or continuation
statements, and amendments thereof, in form and substance satisfactory to the
Lender; (b) delivering to the Lender the originals of all instruments,
documents, and chattel paper, and all other Collateral of which the Lender
determines it should have physical possession in order to perfect and protect
the Security Interest therein, duly endorsed or assigned to the Lender without
restriction; (c) delivering to the Lender warehouse receipts covering any
portion of the Collateral located in warehouses and for which warehouse receipts
are issued; (d) transferring Inventory to warehouses designated by the Lender;
(e) placing notations on either Borrower's books of account to disclose the
Security Interest; (f) executing and delivering to the Lender a security
agreement relating to the Reversions in form and substance satisfactory to the
Lender; (g) delivering to the Lender all letters of credit on which either
Borrower is named beneficiary; (h) executing and delivering or procuring the
execution and delivery of additional security agreements relating to foreign
assets of the Borrowers and their Subsidiaries or domestic assets not covered by
this Agreement or the then-existing Security Agreements, in form and substance
satisfactory to the Lender; (i) enter, and procure the entry of any
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Securities Intermediary or Commodity Intermediary of either Borrower, into an
agreement with the Lender providing for the operation and "control" (as defined
in Section 8106 of the UCC) of Securities Accounts, Commodity Accounts and
Investment Property of either Borrower; and (j) taking such other steps as are
deemed necessary by the Lender to maintain the Security Interest. To the extent
permitted by applicable law, the Lender may file, without either Borrower's
signature, one or more financing statements disclosing the Security Interest.
The Borrowers agree that a carbon, photographic, photostatic, or other
reproduction of this Agreement or of a financing statement is sufficient as
financing statement. If any Collateral is at any time in the possession or
control of any warehouseman, bailee or either Borrower's agents or processors,
then the Borrowers shall notify the Lender thereof and shall notify such Person
of the Security Interest in such Collateral and, upon the Lender's request, if
an Event of Default has occurred and is continuing, instruct such Person to hold
all such Collateral for the Lender's account subject to the Lender's
instructions. If at any time any Collateral is located on any Premises that are
not owned by the Borrowers, then the Borrowers shall obtain written waivers, in
form and substance satisfactory to the Lender, of all present and future Liens
to which the owner or lessor or any mortgagee of such Premises may be entitled
to assert against the Collateral. The Borrowers shall upon request of Lender
notify the Lender of all Security Accounts and Commodity Accounts of the
Borrowers (from time to time) and their contents and shall identify any Brokers,
Securities Intermediaries or Commodity Intermediaries acting for either
Borrower. The Borrowers shall upon request of Lender notify any such Brokers,
Securities Intermediaries and Commodity Intermediaries of the Lender's security
interest in the Borrowers' Investment Property and of the authority of the
Lender to issue directions and entitlement orders with respect to such Property
and procure that such Persons show on their books that Lender is an entitlement
holder with respect to the Investment Property of the Borrowers. The Borrowers
shall ensure that, except for the Lender, Securities Intermediaries and
Commodity Intermediaries acting for the Borrowers, no Person shall at any time
be given "control" (as defined in Section 8106 of the UCC) over any Investment
Property of the Borrowers. From time to time, the Borrowers shall, upon the
Lender's request, execute and deliver confirmatory written instruments pledging
to the Lender the Collateral, but the Borrowers' failure to do so shall not
affect or limit the Security Interest or the Lender's other rights in and to the
Collateral. So long as this Agreement is in effect and until all Obligations
have been fully satisfied, the Security Interest shall continue in full force
and effect in all Collateral (whether or not deemed eligible for the purpose of
calculating the Aggregate Availability or as the basis for any advance, loan,
extension or credit, or other financial accommodation).
7.3 Location of Collateral. Each of the Borrowers jointly and
severally represents to the Lender that as of the Closing Date: (a) Schedule 7.3
hereto is a correct and complete list of each Borrower's chief executive office,
the location of their respective books and records, the locations of the
Collateral, and the locations of all of their other places of business, and (b)
Schedule 7.3 correctly identifies any of such facilities and locations that are
not owned by the Borrowers and sets forth the names of the owners and lessors or
sub-lessors of, and, to the best of the Borrowers' knowledge, the holders of any
mortgages on, such facilities and locations. The Borrowers covenant and agree
that they will not maintain any Collateral at any location other than those
listed on Schedule 7.3, and they will not otherwise change or add to any of such
locations, unless they give the Lender at least thirty (30) days prior written
notice thereof and execute any and all financing statements and other documents
that the Lender requests in connection therewith.
42.
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7.4 Title to, Liens on, and Sale and Use of Collateral. The
Borrowers jointly and severally represent and warrant to the Lender that: (a)
all Collateral is and will continue to be owned by the Borrowers or their
Subsidiaries, free and clear of all Liens whatsoever, except for the Security
Interest and other Permitted Liens; (b) neither Borrower has entered into any
agreement with any Person (other than pursuant to this Agreement) providing for
the exercise of direction or control (within the meaning of Section 8106 of the
UCC) over any Investment Property; (c) the Security Interest will not be subject
to any prior Lien except for the Liens described in (c), (e), (h) and (i) of the
definition of Permitted Liens; (d) the Borrowers or their Subsidiaries, owning
Collateral will use, store, and maintain the Collateral with all reasonable care
and will use the Collateral for lawful purposes only; and (e) the Borrowers and
their Subsidiaries will not, without the Lender's prior written approval, sell,
lease, or dispose of or permit the sale or disposition of the Collateral or any
portion thereof, except for sales of Inventory in the ordinary course of
business and as permitted by Section 7.9. The inclusion of Proceeds in the
Collateral shall not be deemed the Lender's consent to any sale or other
disposition of the Collateral except as expressly permitted herein.
7.5 Appraisals. Whenever an Event or Event of Default exists,
the Borrowers shall, at their expense and upon the Lender's request, provide the
Lender with appraisals or updates thereof of any or all of the Collateral from
an appraiser acceptable to Lender.
7.6 Access and Examination. The Lender may at all reasonable
times have access to, examine, audit, make extracts from and inspect the
records, files, and books of account of the Borrowers or any of their
Subsidiaries and the Collateral and may discuss the Borrowers' and any of their
Subsidiaries' affairs with the Borrowers' or such Subsidiaries' officers and
management. The Borrowers and their Subsidiaries will deliver to the Lender any
instrument necessary for the Lender to obtain records from any service bureau
maintaining records for a Borrower or any of their Subsidiaries. The Lender may,
at any time when an Event of Default exists and at the Borrowers' expense, make
copies of all of the Borrowers' books and records, or require the Borrowers or
any of their Subsidiaries to deliver such copies to the Lender. The Lender may,
without expense to the Lender, use such of a Borrowers' or any of their
Subsidiaries' personnel, supplies, and Premises as may be reasonably necessary
for maintaining or enforcing the Security Interest. The Lender shall have the
right, at any time, in Lender's name or in the name of a nominee of the Lender,
to verify the validity, amount or any other matter relating to the Accounts of
the Borrowers or their Subsidiaries, by mail, telephone, or otherwise.
7.7 Insurance. The Borrowers shall insure the Collateral against
loss or damage by fire with extended coverage, theft, burglary, pilferage, loss
in transit, and such other hazards as the Lender shall specify, in amounts,
under policies and by insurers acceptable to the Lender. Borrowers shall also
maintain flood insurance for Inventory and Equipment located in an area
designated as a "flood prone" or a "flood risk area" (hereinafter "SFHA"), as
defined by the Flood Disaster Protection At of 1973, in an amount to be
reasonably determined by the Lender, and shall comply with the additional
requirements of the National Flood Insurance Program as set forth therein. The
Borrowers shall cause the Lender to be named in each insurance policy as secured
party and loss payee or additional insured, in a manner acceptable to the
Lender. Each policy of insurance shall contain a clause or endorsement requiring
the insurer to give not less than thirty (30) days prior written notice to the
Lender in the event of cancellation of the policy for any reason whatsoever and
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<PAGE> 49
a clause or endorsement stating that the interest of the Lender shall not be
impaired or invalidated by any act or neglect of the Borrowers or the owner of
any premises where collateral is located nor by the occupation of such premises
for purposes more hazardous than are permitted by such policy. The Borrowers
shall pay all premiums for such insurance when due, and shall deliver to the
Lender certificates of insurance and, if requested, photocopies of the policies.
If the Borrowers fail to pay such fees or to procure such insurance or the
premiums therefor when due, the Lender may (but shall not be required to) do so
and charge the costs thereof to the either Borrower's loan account as a
Revolving Loan. The Borrowers shall promptly notify the Lender of any loss,
damage, or destruction to the Collateral or arising from its use, whether or not
covered by insurance. The Lender is hereby authorized to collect all insurance
proceeds directly. After deducting from such proceeds the expenses, if
any,incurred by Lender in the collection or handling thereof, Lender may apply
such proceeds to the reduction of the Obligations in such order as Lender
determines, or at the Lender's option may permit or require the Borrowers to use
such money, or any part thereof, to replace, repair, restore or rebuild the
Collateral in a diligent and expeditious manner.
7.8 Collateral Reporting. The Borrowers will provide the Lender
with the following documents, for each of the Borrowers, at the following times
in form satisfactory to the Lender: (a) on a daily basis, a schedule of credit
memos and reports, a schedule of collections of accounts receivable, and a
schedule of Accounts created since the last such schedule; (b) on a daily basis
a detailed list of invoices and remittances for each account; (c) on a monthly
basis, a copy of the final page of both cash and sales journals reconciled to
schedules received on a daily basis; (d) upon request, copies of invoices,
credit memos, shipping and delivery documents; (e) detailed monthly agings of
accounts receivable to be delivered no later than the 10th day of each month
respecting the immediately preceding month; (f) monthly inventory reports by
category (including valuations determined on a valuation method acceptable to
Lender) for all inventory located in the United States in a State in which a
first priority security interest in favor of the Lender has been perfected, to
be delivered by the 20th day of each month with respect to the immediately
preceding month; (g) upon request, monthly perpetual inventory reports; (h)
monthly agings of accounts payable no later than the 10th day of the following
month; (i) upon request, copies of purchase orders, invoices, and delivery
documents for Inventory and Equipment acquired by the Borrowers; (j) copies of
invoices issued against the Belgian Guaranties and copies of the Guarantees
issued; (k) other such reports as to the Collateral as the Lender shall request
from time to time; and (l) certificates of an officer or appropriate approved
employee designated by the chief executive officer, chief financial officer or
treasurer of the relevant Borrower and reasonably acceptable to Lender,
certifying as to the foregoing.
7.9 Accounts.
(a) The Borrowers hereby jointly and severally represent
and warrant to the Lender and agree with the Lender that: (i) each existing
Account represents, and each future Account will represent, a bona fide sale or
lease and delivery of goods by the Borrowers, or rendition of services by the
Borrowers, in the ordinary course of the Borrowers' business; (ii) each existing
Account of the Borrowers is, and each future Account of the Borrowers will be a
valid, binding and enforceable obligation of its relevant Account Debtor for a
liquidated amount payable by the Account Debtor thereon on the terms set forth
in the invoice therefor or in the schedule thereof
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delivered to the Lender, without offset, deduction, defense, or counterclaim;
(iii) no payment will be received with respect to any Account of the Borrowers,
and no credit, discount, or extension, or agreement therefor will be granted on
any Account of the Borrowers, except as reported to the Lender in accordance
with this Agreement; (iv) each copy of an invoice delivered to the Lender by the
Borrowers will be a genuine copy of the original invoice sent to the Account
Debtor named therein; and (v) all goods described in any invoice representing a
sale of goods will have been delivered to the Account Debtor and all services of
the Borrowers described in any invoice will have been performed.
(b) The Borrowers shall not re-date any invoice or sale or
make sales on extended dating beyond that customary in the relevant Borrower's
business or extend or modify any Account. If a Borrower becomes aware of any
matter affecting any Account of either Borrower, including information regarding
the Account Debtor's creditworthiness, such Borrower will promptly so advise the
Lender.
(c) The Borrowers shall not accept any note or other
instrument (except a check or other instrument for the immediate payment of
money) with respect to any Account (other than an ABN AMRO Receivable) of either
Borrower without the Lender's written consent. If the Lender consents to the
acceptance of any such note or other instrument, it shall be considered as
evidence of the such Account and not payment thereof, and the relevant Borrower
will promptly deliver such note or instrument to the Lender appropriately
endorsed. Regardless of the form of presentment, demand, notice of dishonor,
protest, and notice of protest with respect thereto, the Borrowers will remain
liable thereon until such note or instrument is paid in full.
(d) The Borrowers shall notify the Lender promptly of all
disputes and claims with any of their Account Debtors and settle or adjust them
at no expense to the Lender, but no discount, credit or allowance shall be
granted to any such Account Debtor without the Lender's consent, except for
discounts, credits and allowances made or given in the ordinary course of the
relevant Borrower's business when no Event of Default exists hereunder. The
Borrowers shall send the Lender a copy of each credit memoranda in excess of
$25,000 as soon as issued and copies of all credit memorandum on a weekly basis.
The Lender may at all times when an Event of Default exists hereunder settle or
adjust disputes and claims directly with customers or Account Debtors of the
Borrowers for amounts and upon terms which the Lender considers advisable and,
in all cases, the Lender will credit the Borrower's loan accounts with only the
net amounts received by the Lender in payment of any Accounts of the Borrowers.
(e) If an Account Debtor of either Borrower returns any
Inventory to a Borrower when no Event of Default exists, then the relevant
Borrower shall promptly determine the reason for such return and shall issue a
credit memorandum to such Account Debtor in the appropriate amount. The
Borrowers shall immediately report to the Lender any return involving an amount
in excess of $25,000 and shall report all returns to the Lender on a weekly
basis. Each such report shall indicate the reasons for the returns and the
locations and condition of the returned Inventory. In the event any Account
Debtor of a Borrower returns Inventory to such Borrower when an Event of Default
exists, such Borrower shall: (i) hold the returned Inventory in trust for the
Lender; (ii) segregate all returned Inventory from all of its other Property;
(iii) dispose of the
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returned Inventory solely according to the Lender's written instructions; and
(iv) not issue any credits or allowances with respect thereto without the
Lender's prior written consent. All returned Inventory shall remain subject to
the Security Interest. Whenever any Inventory is returned, the related Account
of the relevant Borrower shall be deemed ineligible, and Aggregate Availability,
CMI Availability and EFData Availability shall be adjusted accordingly.
7.10 Collection of Accounts; Payments.
(a) Until the Lender notifies the Borrowers to the
contrary, the Borrowers shall make collection of all Accounts (other than ABN
AMRO Receivables) of the Borrowers and other Collateral for the Lender, shall
receive all payments in respect thereto as the Lender's trustee, and shall
immediately deliver all such payments to the Lender in their original form duly
endorsed in blank or deposit them into a Payment Account established at the
Lender's request, as the Lender may direct. If the Lender requests, the
Borrowers shall establish a lock-box service for collections of their Accounts
(other than ABN AMRO Receivables) at a bank mutually acceptable to the Lender
and the Borrowers and pursuant to documentation satisfactory to the Lender. If
such lock-box service is established, the Borrowers shall instruct all their
relevant Account Debtors to make all payments directly to the address
established for such service. If, notwithstanding such instructions, the
Borrowers receive any Proceeds of their Accounts (other than ABN AMRO
Receivables), they shall receive such payments as the Lender's trustee, and
shall immediately deliver such payments to the Lender in their original form
duly endorsed in blank or deposit them into a Payment Account, as the Lender may
direct. All collections received in any such lock box or Payment Account or
directly by the Borrowers or the Lender, and all funds in any Payment Account or
other account to which such collections are deposited, shall be the sole
property of the Lender and subject to the Lender's sole control. The Lender or
the Lender's designee may, at any time after the occurrence of an Event of
Default, notify obligors that the Borrowers' Accounts (other than the ABN AMRO
Receivables) have been assigned to the Lender and of the Security Interest
therein, and may collect them directly and charge the collection costs and
expenses to the Borrowers' loan accounts as a Revolving Loan. At the Lender's
request, the Borrowers shall execute and deliver to the Lender such documents as
the Lender shall require to grant the Lender access to any post office box in
which collections of their Accounts (other than the ABN AMRO Receivables) are
received.
(b) If sales of the Borrowers' Inventory are made or
services are rendered for cash, the Borrowers shall immediately deliver to the
Lender the identical checks, cash, or other forms of payment which the Borrowers
receive.
(c) All payments received by the Lender on account of
Accounts (other than the ABN AMRO Receivables) or as Proceeds of other
Collateral will be the Lenders' sole property and will be immediately credited
to the Borrowers' loan accounts (conditional upon final collection) to reduce
Obligations. From and after the Closing Date, the Agent shall be entitled to
charge the Borrower interest on all such collections deemed to have been
received on a particular Business Day, in an amount equal to one-half (1/2) of
the amount that would be applicable (at the rates specified in Section 3.1) if
such collections have been in fact received at or before 12:00 (Los Angeles,
California time) on the next succeeding Business Day. This one-half (1/2)
Business Day
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"clearance charge" shall be due and payable irrespective of whether such
collections were provisionally applied to reduce the Obligations.
(d) In the event the Borrowers repay all of the
Obligations upon the termination of this Agreement, other than through the
Lender's receipt of payments on account of the Borrowers' Accounts or Proceeds
of other Collateral, such payment will be credited (conditional upon final
collection) to the Borrowers' loan accounts.
7.11 Inventory. The Borrowers jointly and severally represent
and warrant to the Lender that all of their Inventory is and will be held for
sale or lease, or to be furnished in connection with the rendition of services
in the ordinary course of the Borrowers' business and is and will be fit for
such purposes. The Borrowers will keep their Inventory in good and marketable
condition, at their own expense. The Borrowers will not, without prior written
notice to the Lender, acquire or accept any Inventory on consignment or
approval. The Borrowers agree that all their Inventory will be produced in
accordance with the Federal Fair Labor Standards Act of 1938, as amended, and
all rules, regulations, and orders thereunder. The Borrowers will maintain a
perpetual inventory reporting system at all times. The Borrowers will conduct a
physical count of their Inventory at least once per Fiscal Year, and at such
other times as the Lender requests, and shall promptly, upon completion, supply
the Lender with a copy of such count accompanied by a report of the value of
such Inventory (valued at the lower of cost, on a first-in, first-out basis, or
market value). The Borrowers will not without the Lender's prior written
consent, sell any of their Inventory on a bill-and-hold, guaranteed sale, sale
and return, sale on approval, consignment, or other repurchase or return basis.
7.12 Equipment. The Borrowers jointly and severally represent
and warrant to the Lender that all of their Equipment is and will be used or
held for use in the Borrowers' businesses and is and will be fit for such
purposes. The Borrowers shall keep and maintain their Equipment in good
operating condition and repair (ordinary wear and tear excepted) and shall make
all necessary replacements thereof. The Borrowers shall promptly inform the
Lender of any material additions to or deletions from their Equipment. The
Borrowers shall not permit any of their Equipment to become a fixture to real
property or an accession to other personal property, unless the Lender has a
valid, perfected, and first priority Security Interest in such real or personal
property. The Borrowers will not, without the Lender's prior written consent,
alter or remove any identifying symbol or number on the Equipment. The Borrowers
shall not, without the Lender's prior written consent, sell, lease as a lessor,
or otherwise dispose of any of the Equipment; provided, however, that the
Borrowers may dispose of Equipment pursuant to a Permitted Sale and the
Borrowers may dispose without the Lender's consent, subject to the conditions
set forth below, of obsolete or unusable Equipment having an orderly liquidation
value no greater than $100,000 individually and $1,000,000 in the aggregate in
any Fiscal Year. In the event any of the Borrowers' Equipment is sold,
transferred or otherwise disposed of with the Lender's prior written consent or
as otherwise permitted hereby and: (a) such sale, transfer or disposition is
effected without replacement of such Equipment, or such Equipment is replaced by
Equipment leased by either Borrower, or by Equipment purchased by either
Borrower subject to a lien or other right constituting a Permitted Lien, then
the relevant Borrower shall deliver all of the cash proceeds of any such sale,
transfer or disposition to the Lender, which proceeds shall be applied to the
repayment of the Obligations; or
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(b) such sale, transfer or disposition is made in connection with the purchase
by either Borrower of replacement Equipment (other than subject to a Permitted
Lien), then the Borrowers shall use the proceeds of such sale, transfer or
disposition to finance the purchase by either Borrower of replacement Equipment
and shall deliver to the Lender written evidence of the use of the proceeds for
such purchase. All replacement Equipment purchased by the Borrowers shall be
free and clear of all liens, claims and encumbrances, except for the Security
Interest and other Permitted Liens.
7.13 Documents, Instruments, and Chattel Paper. The Borrowers
jointly and severally represent and warrant to the Lender that: (a) all
documents, instruments, and chattel paper describing, evidencing, or
constituting Collateral, and all signatures and endorsements thereon, are and
will be complete, valid, and genuine; and (b) all goods evidenced by such
documents, instruments, and chattel paper are and will be owned by the Borrowers
free and clear of all Liens other than Permitted Liens.
7.14 Right to Cure. The Lender may, in its sole discretion and
at any time, pay any amount or do any act required of either of the Borrowers
hereunder to preserve, protect, maintain or enforce the Obligations, the
Collateral or the Security Interest, which such Borrower fails to pay or do,
including, without limitation, payment of any judgment against such Borrower,
any insurance premium, any warehouse charge, any finishing or processing charge,
any landlord's claim, and any other Lien upon or with respect to the Collateral.
All payments that the Lender makes under this Section 7.11 and all out-of-pocket
costs and expenses that the Lender pays or incurs in connection with any action
taken by it hereunder shall be charged to the Borrowers' loan account as a
Revolving Loan. Any payment made or other action taken by the Lender under this
Section 7.11 shall be without prejudice to any right to assert an Event of
Default hereunder.
7.15 Power of Attorney. Each of the Borrowers hereby appoints
the Lender and the Lender's designees as such Borrower's attorney, with power:
(a) to endorse such Borrower's name on any checks, notes, acceptances, money
orders, or other forms of payment or security that come into the Lender's
possession; (b) to sign such Borrower's name on any invoice, bill of lading, or
other document of title relating to any Collateral, on drafts against customers,
on assignments of Accounts, on notices of assignment, financing statements and
other public records, on verifications of Accounts and on notices to Account
Debtors and to file any such financing statements by electronic means with or
without a signature as authorized or required by applicable law or filing
procedure; (c) to notify the post office authorities, when an Event of Default
exists, to change the address for delivery of such Borrower's mail to an address
designated by the Lender and to receive, open and dispose of all mail addressed
to such Borrower; (d) to send requests for verification of Accounts to Account
Debtors; (e) to give directions (including entitlement orders) to any Securities
Intermediary or Commodity Intermediary of the Borrowers, or other Person, as to
the disposition of any Investment Property of the Borrowers and to exercise
dominion and control over any Securities Account and Commodity Account of either
Borrower and to enter into agreements with any Securities Intermediary or
Commodity Intermediary as to the operation and control of such Securities
Accounts or Commodity Accounts; (f) to collect, receive, give receipt for and
otherwise deal with any dividends or other distributions and proceeds resulting
from any Investment Property; and (g) to do all things necessary to carry out
this Agreement. Each of the Borrowers ratifies and
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approves all acts of such attorney. Neither the Lender nor the attorney will be
liable for any acts or omissions or for any error of judgment or mistake of fact
or law. These powers, being coupled with an interest, shall be irrevocable until
this Agreement has been terminated and the Obligations have been fully
satisfied.
7.16 Lender's Rights, Duties, and Liabilities. The Borrowers
assume all responsibility and liability arising from or relating to the use,
sale, or other disposition of the Collateral. The Obligations shall not be
affected by any failure of the Lender to take any steps to perfect the Security
Interest or to collect or realize upon the Collateral, nor shall loss of or
damage to the Collateral release the Borrowers from any of the Obligations.
Following the occurrence of and continuation of an Event of Default, the Lender
may (but shall not be required to), without notice to or consent from either
Borrower, sue upon or otherwise collect, extend the time for payment of, modify
or amend the terms of, compromise or settle for cash, credit, or otherwise upon
any terms, grant other indulgences, extensions, renewals, compositions, or
releases, and take or omit to take any other action with respect to the
Collateral, any security therefor, any agreement relating thereto, any insurance
applicable thereto, or any Person liable directly or indirectly in connection
with any of the foregoing, without discharging or otherwise affecting the
liability of the Borrowers for the Obligations or under this Agreement or any
other agreement now or hereafter existing between the Lender and the Borrowers.
7.17 Site Visits, Observations and Testing. The Lender and its
agents and representatives will have the right at any reasonable time to enter
and visit the Premises and any other place where any property of the Borrowers
is located for the purposes of observing the Premises, taking and removing soil
or groundwater samples, and conducting tests on any part of the Premises. The
Lender is under no duty, however, to visit or observe the Premises or to conduct
tests, and any such acts by the Lender will be solely for the purposes of
protecting the Lender's security and preserving the Lender's rights under this
Agreement. No site visit, observation or testing by the Lender will result in a
waiver of any default of the Borrowers or impose any liability on the Lender. In
no event will any site visit, observation or testing by the Lender be a
representation that hazardous substances are or are not present in, on or under
the Premises, or that there has been or will be compliance with any law,
regulation or ordinance pertaining to hazardous substances or any other
applicable governmental law. Neither the Borrowers nor any other party is
entitled to rely on any site visit, observation or testing by the Lender. The
Lender owes no duty of care to protect the Borrowers or any other party against,
or to inform the Borrowers or any other party of, any hazardous substances or
any other adverse condition affecting the Premises. The Lender may in its
discretion disclose to the Borrowers or any other party any report or findings
made as a result of, or in connection with, any site visit, observation or
testing by the Lender. The Borrowers understand and agree that the Lender makes
no warranty or representation to the Borrowers or any other party regarding the
truth, accuracy or completeness of any such report or findings that may be
disclosed. The Borrowers also understand that depending on the results of any
site visit, observation or testing by the Lender and disclosed to the Borrowers,
the Borrowers may have a legal obligation to notify one or more environmental
agencies of the results, that such reporting requirements are site-specific, and
are to be evaluated by the Borrowers without advice or assistance from the
Lender. In each instance, the Lender will give the relevant Borrower reasonable
notice before entering the Premises
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or any other place the Lender is permitted to enter under this Section 7.17. The
Lender will make reasonable efforts to avoid interfering with the Borrower's use
of the Premises or any other property in exercising any rights provided
hereunder.
7.18 Release of Security Interest in Equipment. Upon a Permitted
Sale, the repayment of all Inventory Loans and Equipment Loans pursuant to
Section 4.1 and the termination of the Lender's commitment to make Inventory
Loans and Equipment Loans pursuant to Section 2.2(a), the Lender agrees, at the
cost and expense of the Borrowers, to release the Security Interest to the
extent, and solely to the extent, that it relates to the Equipment. At the
expense of the Borrowers the Lender agrees to execute and deliver all documents
which the Borrowers may reasonably request to evidence the termination of such
Security Interest in so far as it relates to the Equipment.
8. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.
8.1 Books and Records. The Borrowers shall maintain, at all
times, correct and complete books, records and accounts in which complete,
correct and timely entries are made of their and their Subsidiaries transactions
in accordance with GAAP consistent with those applied in the preparation of the
Financial Statements. The Borrowers shall, by means of appropriate entries,
reflect in such accounts and in all Financial Statements proper liabilities and
reserves for all taxes and proper provision for depreciation and amortization of
Property and bad debts, all in accordance with GAAP. The Borrowers shall
maintain at all times books and records pertaining to the Collateral in such
detail, form, and scope as the Lender shall reasonably require, including
without limitation records of: (a) all payments received and all credits and
extensions granted with respect to the Borrowers' respective Accounts; (b) the
return, rejection, repossession, stoppage in transit, loss, damage, or
destruction of any of the Borrowers' respective Inventory; and (c) all other
dealings affecting the Collateral.
8.2 Financial Information. The Borrowers shall promptly furnish
to the Lender or its agents all such financial information as the Lender shall
reasonably request, and notify its auditors and accountants that the Lender is
authorized to obtain such information directly from them. Without limiting the
foregoing, the Borrowers and their Subsidiaries will furnish to the Lender, in
such detail as the Lender shall request, the following:
(a) As soon as available, but in any event not later than
90 days after the close of each Fiscal Year, consolidated and consolidating
audited balance sheets, and statements of income and expense, retained earnings,
and changes in financial position and stockholders equity for CMI and its
consolidated Subsidiaries for such Fiscal Year, and the accompanying notes
thereto, setting forth in each case in comparative form figures for the previous
Fiscal Year, all in reasonable detail, fairly presenting the financial position
and the results of operations of CMI and its consolidated Subsidiaries as at the
date thereof and for the Fiscal Year then ended, and prepared in accordance with
GAAP. Such statements shall be examined in accordance with generally accepted
auditing standards and accompanied by a report thereon unqualified as to scope
by independent certified public accountants selected by CMI and reasonably
satisfactory to the Lender.
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(b) As soon as available, but in any event not later than
50 days after the close of each fiscal quarter other than the fourth quarter of
a Fiscal Year, consolidated and consolidating unaudited balance sheets of CMI
and its consolidated Subsidiaries, as at the end of such quarter, and
consolidated and consolidating unaudited statements of income and expense and
changes in financial position for CMI and its consolidated Subsidiaries, for
such quarter and for the period from the beginning of the Fiscal Year to the end
of such quarter, together with the accompanying notes thereto, all in reasonable
detail, fairly presenting the financial position and results of operation of CMI
and its consolidated Subsidiaries, respectively, as at the date thereof and for
such periods, prepared in accordance with GAAP consistent with the audited
Financial Statements required pursuant to Section 8.2(a). Such statements shall
be certified to be fairly stated in all material respects by the chief
financial, treasurer or chief accounting officer of CMI subject to normal
year-end adjustments.
(c) As soon as available, but in any event not later than
30 days after the end of each month (except for the month of June which shall be
not later than 45 days after the end of such month), consolidated and
consolidating unaudited balance sheets of CMI and its consolidated Subsidiaries,
as at the end of such month, and consolidated and consolidating unaudited
statements of income and expenses and statement of cash flow for CMI and its
consolidated Subsidiaries, for such month and for the period from the beginning
of the Fiscal Year to the end of such month, all in reasonable detail, fairly
presenting the financial position and results of operation of CMI and its
consolidated Subsidiaries as at the date thereof and for such periods, and
prepared in accordance with GAAP consistent with the audited Financial
Statements required pursuant to Section 8.2(a). Such statements shall be
certified to be correct by the chief financial officer, treasurer or chief
accounting officer of CMI subject to normal year-end adjustments.
(d) With each of the audited Financial Statements
delivered pursuant to Section 8.2(a), a certificate of the independent certified
public accountants that examined such statements to the effect that they have
reviewed and are familiar with the Loan Documents and that, in examining such
Financial Statements, they did not become aware of any fact or condition which
then constituted an Event or Event of Default, except for those, if any,
described in reasonable detail in such certificate.
(e) With each of the annual audited and quarterly
unaudited Financial Statements delivered pursuant to Sections 8.2(a) and 8.2(b),
a certificate of the chief executive officer, chief financial officer or
treasurer of CMI (i) setting forth in reasonable detail the calculations
required to establish that the Borrowers were in compliance with their covenants
set forth in Sections 10.22 through 10.23 during the period covered in such
Financial Statements, and (ii) stating that, except as explained in reasonable
detail in such certificate, (A) all of the representations and warranties of the
Borrowers contained in this Agreement and the other Loan Documents are correct
and complete as at the date of such certificate as if made at such time, (B) no
Event or Event of Default then exists or existed during the period covered by
such Financial Statements and (iii) describing and analyzing in reasonable
detail all material trends, changes and developments in such Financial
Statements. If such certificate discloses that a representation or warranty is
not correct or complete, or that a covenant has not been complied with, or that
an Event
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or Event of Default existed or exists, such certificate shall set forth what
action the Borrowers have taken or propose to take with respect thereto.
(f) No sooner than 90 days and no later than 30 days prior
to the beginning of each Fiscal Year, consolidated and consolidating projected
balance sheets, statements of income and expense, and statements of cash flow
for CMI and its consolidated Subsidiaries, as at the end of and for each quarter
of such Fiscal Year.
(g) Within 45 days after the end of each fiscal quarter, a
report of the Capital Expenditures of CMI and its consolidated Subsidiaries for
such quarter and a statement of cash flow for CMI and its consolidated
Subsidiaries for the period from the beginning of the then current Fiscal Year
to the end of such quarter, prepared in accordance with GAAP consistent with the
audited Financial Statements required pursuant to Section 8.2(a).
(h) Promptly after their preparation, copies of any and
all proxy statements, financial statements, and reports which the Borrowers make
available to their stockholders and regular or special reports that the
Borrowers or any of their Subsidiaries file with the Securities and Exchange
Commission.
(i) Promptly after filing with the PBGC, DOL, or IRS, a
copy of each annual report or other filing or notice filed with respect to each
Plan of the Borrowers or any ERISA Affiliate of the Borrowers.
(j) Such additional information as the Lender may from
time to time reasonably request regarding the financial and business affairs of
the Borrowers or any of their Subsidiaries, including, without limitation,
projections of future operations on both an individual and a consolidated and
consolidating basis (as requested by the Lender).
8.3 Notices to Lender. The Borrowers shall notify the Lender in
writing of the following matters at the following times:
(a) Immediately after either of them becomes aware of the
existence of any Event or Event of Default.
(b) Immediately after becoming aware that the holder of
any capital stock or Debt of either of the Borrowers or their Subsidiaries has
given notice or taken any action with respect to a claimed default.
(c) Immediately after becoming aware of any material
adverse change in either Borrower's or any of their Subsidiaries' Property,
business, operations, or condition (financial or otherwise).
(d) Immediately after becoming aware of any pending or
threatened action, suit, proceeding, or counterclaim by any Person, or any
pending or threatened investigation
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by a Public Authority, which may materially and adversely affect the Collateral,
the repayment of the Obligations, the Lender's rights under the Loan Documents,
or the Borrowers' or any of their Subsidiaries' respective Property, business,
operations, or condition (financial or otherwise).
(e) Immediately after becoming aware of any pending or
threatened strike, work stoppage, material unfair labor practice claim, or other
material labor dispute affecting the Borrowers or any of their Subsidiaries.
(f) Immediately after becoming aware of any violation of
any law, statute, regulation, or ordinance of a Public Authority applicable to
either Borrower, any of their Subsidiaries, or their respective Properties which
may materially and adversely affect the Collateral, the repayment of the
Obligations, the Lender's rights under the Loan Documents, or the Borrowers' or
any of their Subsidiaries' respective Property, business, operations, or
condition (financial or otherwise).
(g) Immediately after becoming aware of any violation by
either Borrower of Environmental Laws or immediately upon receipt of any notice
that a Public Authority has asserted that a Borrower is not in compliance with
Environmental Laws or that its compliance is being investigated.
(h) Thirty (30) days prior to either Borrower changing its
name or the address of its chief executive office.
(i) Immediately after becoming aware of any ERISA Event
affecting either Borrower or an ERISA Affiliate of either Borrower, accompanied
by any materials required to be filed with the PBGC with respect thereto;
immediately after the receipt by either Borrower of any notice concerning the
imposition of any withdrawal liability under Section 4042 of ERISA with respect
to a Plan; immediately upon the establishment of any Pension Plan not existing
at the Closing Date or the commencement of contributions by a Borrower to any
Pension Plan to which such Borrower was not contributing at the Closing Date;
and immediately upon becoming aware of any other event or condition regarding a
Plan or a Borrower's or an ERISA Affiliate of a Borrower's compliance with
ERISA, which may materially and adversely affect such Borrower's or any of their
Subsidiaries' business, operation, or condition (financial or otherwise).
(j) Any change in the accounting policies or financial
reporting practices of CMI.
Each notice given under this Section 8.3 shall describe the subject matter
thereof in reasonable detail and shall set forth the action that the Borrowers
have taken or propose to take with respect thereto.
8.4 Sharing of Information. The Borrowers hereby acknowledge and
consent to the sharing of information concerning the Borrowers, the Collateral
and the Loan Documents between the Lender and ABN AMRO Bank N.V. in connection
with the operation of the Intercreditor Agreement.
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9. GENERAL WARRANTIES AND REPRESENTATIONS. The Borrowers jointly and
severally and continuously warrant and represent to the Lender, at all times
during the term of this Agreement and until all Obligations have been satisfied,
that, except as hereafter disclosed to and accepted by the Lender in writing:
9.1 Authorization, Validity, and Enforceability of this Agreement
and the Loan Documents. Each of the Borrowers has the corporate power and
authority to execute, deliver and perform this Agreement and the other Loan
Documents, to incur the Obligations, and to grant the Security Interest. Each of
the Borrowers has taken all necessary corporate action (including, without
limitation, obtaining approval of its stockholders) to authorize its execution,
delivery, and performance of this Agreement and the other Loan Documents. No
consent, approval, or authorization of, or declaration or filing with, any
Public Authority, and no consent of any other Person, is required in connection
with the Borrowers' execution, delivery, and performance of this Agreement and
the other Loan Documents, except for those already duly obtained. This Agreement
and the other Loan Documents have been duly executed and delivered by each of
the Borrowers and constitute the legal, valid and binding obligations of each of
the Borrowers, enforceable against them in accordance with their respective
terms without defense, setoff, or counterclaim. The Borrowers' execution,
delivery, and performance of this Agreement and the other Loan Documents do not
and will not conflict with, or constitute a violation or breach of, or
constitute a default under, or result in the creation or imposition of any Lien
upon the Property of either Borrower or any of their Subsidiaries (except as
contemplated by this Agreement and the other Loan Documents) by reason of the
terms of (a) any mortgage, lease, agreement, or instrument to which either
Borrower or any of their Subsidiaries is a party or which is binding upon them,
(b) any judgment, law, statute, rule or governmental regulation applicable to
either Borrower or any of their Subsidiaries, or (c) the certificate or articles
of incorporation or bylaws of either Borrower or any of their Subsidiaries.
9.2 Validity and Priority of Security Interest. The provisions of
this Agreement, the Existing Collateral Documents, and the other Loan Documents
create legal and valid Liens on all the Collateral in the Lender's favor, and
when all proper filings, recordings, and other actions necessary to perfect such
Liens have been made or taken, such Liens will constitute perfected and
continuing Liens on all the Collateral, having priority over all other Liens on
the Collateral except for the Permitted Liens identified in Section 7.2 and
enforceable against the Borrowers and all third parties. All representations and
warranties by the Borrowers or any of their Subsidiaries in the Existing
Collateral Documents are true and correct in all material respects on and as of
the date made or deemed made.
9.3 Organization and Qualification.
CMI: (a) is duly incorporated and organized and validly existing
in good standing under the laws of the State of Delaware; (b) is qualified to do
business as a foreign corporation and is in good standing in the States of
Arizona, California, New York, Maryland, Texas, Massachusetts, Georgia, New
Jersey and Virginia, which are the only states in which qualification is
necessary in order for it to own or lease its Property and conduct its business;
and (c) has all requisite power and authority to conduct its business and to own
its Property.
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EFData:
(a) is duly incorporated and organized and validly existing in good standing
under the laws of the State of California; (b) is qualified to do business as a
foreign corporation in the State of Arizona, which is the only state in which
qualification is necessary in order for it to own or lease its Property and
conduct its business; and (c) has all requisite power and authority to conduct
its business and to own its Property.
CMNS:
(a) is duly incorporated and organized and validly existing in good standing
under the laws of the State of Delaware; (b) is qualified to do business as a
foreign corporation and is in good standing in the Commonwealth of Virginia,
which is the only district or State in which qualification is necessary in order
for it to own or lease its Property and conduct its business; and (c) has all
requisite power and authority to conduct its business and to own its Property.
CMFS:
(a) is duly incorporated and organized and validly existing in good standing
under the laws of Barbados; (b) is not required to be qualified to do business
as a foreign corporation in any State; and (c) has all requisite power and
authority to conduct its business and to own its Property.
9.4 Corporate Name; Prior Transactions. The Borrowers have not,
during the past five years, been known by or used any other corporate or
fictitious name, or been a party to any merger or consolidation, or acquired all
or substantially all of the assets of any Person, or acquired any of their
Property out of the ordinary course of business, except as set forth on Schedule
9.4.
9.5 Subsidiaries and Affiliates. Schedule 9.5 is a correct and
complete list of the name and relationship to CMI of each and all of CMI's
Subsidiaries and other Affiliates.
9.6 Financial Statements and Projections.
(a) CMI has delivered to the Lender the audited balance
sheet and related statements of income, retained earnings, cash flows, and
changes in stockholders equity for CMI and its consolidated Subsidiaries as of
June 30, 1996 and for the Fiscal Year then ended, accompanied by the report
thereon of CMI's independent certified public accountants, Ernst & Young LLP.
CMI has also delivered to the Lender the unaudited balance sheet and related
statements of income and cash flows as of March 31, 1997 and for the nine months
then ended. Such financial statements are attached hereto as Exhibit A-1. All
such financial statements have been prepared in accordance with GAAP and present
accurately and fairly CMI's and its consolidated Subsidiaries' financial
position as at the dates thereof and their results of operations for the periods
then ended.
(b) The Latest Projections represent the Borrowers' best
estimate of the Borrowers' future financial performance for the periods set
forth therein. The Latest Projections have been prepared on the basis of the
assumptions set forth therein, which the Borrowers believe are fair and
reasonable in light of current and reasonably foreseeable business conditions.
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(c) The pro forma consolidated balance sheet of the
Borrower as at March 31, 1997 attached hereto as Exhibit A-2, presents fairly
and accurately the financial condition of CMI and its consolidated Subsidiaries
at such date and has been prepared in accordance with GAAP.
9.7 Capitalization. The authorized capital stock of the Borrowers
is as set forth in Schedule 9.7.
9.8 Solvency. The Borrowers and each of their Subsidiaries are
Solvent and the Borrowers will be Solvent prior to and after giving effect to
the making of each Revolving Loan.
9.9 Debt. The Borrowers have no Debt, except (a) the Obligations,
(b) Debt set forth in the most recent Financial Statements delivered to the
Lender, or the notes thereto, (c) trade payables and other contractual
obligations arising in the ordinary course of business since the date of such
Financial Statements, (d) Permitted Debt and (e) Debt incurred since the date of
such Financial Statements to finance Capital Expenditures permitted hereby.
9.10 Distributions. Since June 30, 1996 no Distribution has been
declared, paid, or made upon or in respect of any capital stock or other
securities of either Borrower.
9.11 Title to Property. Except for Property which the Borrowers
or their Subsidiaries lease, the Borrowers and their Subsidiaries have good and
marketable title in fee simple to the Premises and good, indefeasible, and
merchantable title to all of their other Property including, without limitation,
the assets reflected on the most recent Financial Statements delivered to the
Lender, except as disposed of since the date thereof in the ordinary course of
business.
9.12 Adequate Assets. Each of the Borrowers and their
Subsidiaries possesses adequate assets for the conduct of their respective
business.
9.13 Real Property; Leases. Schedule 9.13 contains a correct and
complete list of all real property owned by the Borrowers and their
Subsidiaries, all leases and subleases of real or personal property by the
Borrowers and their Subsidiaries as lessee or sublessee, and all leases and
subleases of real or personal property by the Borrowers and their Subsidiaries
as lessor or sublessor in each case which are material to the Borrowers and
their Subsidiaries. Each of such leases and subleases is valid and enforceable
in accordance with its terms and is in full force and effect and no default by
any party to any such lease or sublease exists.
9.14 Proprietary Rights. Schedule 9.14 contains a correct and
complete list of all the Borrowers' and their Subsidiaries' Proprietary Rights.
None of such Proprietary Rights are subject to any licensing agreement or
similar arrangement except as set forth on Schedule 9.14. None of such
Proprietary Rights infringe on or conflict with any other Person's Property and
no other Person's Property infringes on or conflicts with the Proprietary
Rights, except to the extent such infringement is not material to any Borrower
or its Subsidiaries. The Proprietary Rights described on Schedule 9.14
constitute all of the Property of such type necessary to the current and
anticipated future conduct of the Borrowers' and their Subsidiaries' respective
businesses.
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9.15 Trade Names and Terms of Sale. All trade names or styles
under which the Borrowers will sell their Inventory or create any Accounts, or
to which instruments in payment of their Accounts may be made payable, are
listed on Schedule 9.15.
9.16 Litigation. Except as set forth on Schedule 9.16, there is
no pending or, to the best of the Borrowers' knowledge, threatened action, suit,
proceeding, or counterclaim by any Person, or investigation by any Public
Authority, or any basis for any of the foregoing, which may materially and
adversely affect the Collateral, the repayment of the Obligations, the Lender's
rights under the Loan Documents, or the Borrowers' or their Subsidiaries
Property, business, operations, or condition (financial or otherwise).
9.17 Restrictive Agreements. The Borrowers are not a party to any
contract or agreement, and are not subject to any charter or other corporate
restriction, which affects its ability to execute, deliver, and perform the Loan
Documents and repay the Obligations or which materially and adversely affects
the Borrowers' or their Subsidiaries' Property, business, operations, or
condition (financial or otherwise).
9.18 Labor Disputes. Except as set forth on Schedule 9.18: (a)
there is no collective bargaining agreement or other labor contract covering
employees of the Borrowers or any of their Subsidiaries; (b) no such collective
bargaining agreement or other labor contract is scheduled to expire during the
term of this Agreement; (c) no union or other labor organization is seeking to
organize, or to be recognized as, a collective bargaining unit of employees of
either of the Borrowers or any of their Subsidiaries or for any similar purpose;
and (d) there is no pending or, to the best of the Borrowers' knowledge,
threatened strike, work stoppage, material unfair labor practice claim, or other
material labor dispute against or affecting the Borrowers or any of their
Subsidiaries or their respective employees.
9.19 Environmental Laws. Except as otherwise disclosed on
Schedule 9.19:
(a) The Borrowers and their Subsidiaries have complied in
all material respects with all Environmental Laws applicable to their Premises
and business, and neither the Borrowers nor any of their Subsidiaries nor any of
their present Premises or operations, nor their past property or operations, is
subject to any enforcement order from or liability agreement with any Public
Authority or private Person respecting (i) compliance with any Environmental Law
or (ii) any potential liabilities and costs or remedial action arising from the
Release or threatened Release of a Contaminant.
(b) The Borrowers and their Subsidiaries have obtained all
permits necessary for their current operations under Environmental Laws, and all
such permits are in good standing and the Borrowers and their Subsidiaries are
in compliance with all terms and conditions of such permits.
(c) Neither the Borrowers nor any of their Subsidiaries,
nor, to the best of the Borrowers' knowledge, any of their predecessors in
interest, has in violation of applicable law
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stored, treated or disposed of any Contaminant on any Premises, as defined
pursuant to 40 CFR Part 261 or any equivalent Environmental Law.
(d) Neither the Borrowers nor any of their Subsidiaries
has received any summons, complaint, order or similar written notice that it is
not currently in compliance with, or that any Public Authority is investigating
its compliance with, any Environmental Laws or that it is or may be liable to
any other Person as a result of a Release or threatened Release of a
Contaminant.
(e) None of the present or past operations of the
Borrowers and their Subsidiaries is the subject of any investigation by any
Public Authority evaluating whether any remedial action is needed to respond to
a Release or threatened Release of a Contaminant.
(f) To the best of the Borrowers' knowledge there is not
now, nor has there ever been on or in the Premises:
(i) any underground storage tanks or surface
impoundments,
(ii) any asbestos-containing material, or
(iii) any polychlorinated biphenyls (PCB's) used in
hydraulic oils, electrical transformers or other equipment.
(g) Neither the Borrowers nor any of their Subsidiaries
has filed any notice under any requirement of Environmental Law reporting a
spill or accidental and unpermitted release or discharge of a Contaminant into
the environment.
(h) Neither the Borrowers nor any of their Subsidiaries
has entered into any negotiations or settlement agreements with any Person
(including, without limitation, the prior owner of their property) imposing
material obligations or liabilities on the Borrowers or any of their
Subsidiaries with respect to any remedial action in response to the Release of a
Contaminant or environmentally related claim.
(i) None of the products manufactured, distributed or sold
by the Borrowers or any of their Subsidiaries contains asbestos material except
as disclosed to Bank prior to the date hereof.
(j) No Environmental Lien has attached to any Premises of
the Borrowers or any of their Subsidiaries.
9.20 No Violation of Law. The Borrowers are not in violation of
any law, statute, regulation, ordinance, judgment, order, or decree applicable
to it which violation would in any respect materially and adversely affect the
Collateral, the repayment of the Obligations, the Lender's rights under the Loan
Documents, or the Borrowers' or their Subsidiaries' Property, business,
operations, or condition (financial or otherwise).
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9.21 No Default. Neither the Borrowers nor their Subsidiaries are
in default with respect to any note, indenture, loan agreement, mortgage, lease,
deed, or other agreement to which such Borrower is a party or bound, which
default could reasonably be expected to materially and adversely affect the
Collateral, the repayment of the Obligations, the Lender's rights under the Loan
Documents, or the Borrowers' or their Subsidiaries' Property, business,
operations, or condition (financial or otherwise).
9.22 ERISA Compliance.
(a) Each Plan is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other federal or state
law. Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS and to the best knowledge
of the Borrowers, nothing has occurred which would cause the loss of such
qualification. Each Borrower and each ERISA Affiliate of a Borrower has made all
required contributions to any Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of each
Borrower, threatened claims, actions or lawsuits, or action by any Public
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a material adverse effect on the Borrowers' business or
operations. There has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan which has resulted or
could reasonably be expected to result in a material adverse effect on the
Borrower's business or operations.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Pension Plan has any unfunded liability; (iii)
neither the Borrowers nor any of their ERISA Affiliates has incurred, or
reasonably expects 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); (iv) neither the Borrowers nor any of their ERISA Affiliates has
incurred, or reasonably expects to incur, any liability (and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in such liability) under Section 4201 or 4243 of ERISA with respect to a
Multiemployer Plan; and (v) neither the Borrowers nor any of their ERISA
Affiliates has engaged in a transaction that could subject any Person to Section
4069 or 4212(c) of ERISA.
9.23 Taxes. The Borrowers and their Subsidiaries have filed all
tax returns and other reports required to be filed and have paid all Taxes,
assessments, fees and other governmental charges levied or imposed upon them or
their properties, income or assets that are otherwise due and payable. There is
no proposed tax assessment against the Borrowers or any of their Subsidiaries
that would, if made, have a material adverse effect on the Property, business,
operations or condition (financial or otherwise) of the Borrowers or any of
their Subsidiaries.
9.24 Use of Proceeds. None of the transactions contemplated in
this Agreement (including, without limitation, the use of proceeds from the
Loans) will violate or result in the
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violation of Section 7 of the Securities Exchange Act of 1934, as amended, or
any regulations issued pursuant thereto, including without limitation,
Regulations G,T,U and X of the Board of Governors of the Federal Reserve System
("Federal Reserve Board"), 12 CFR, Chapter II. The Borrowers do not own or
intend to carry or purchase any "margin stock" within the meaning of said
Regulation U or G. None of the proceed of the loans will be used, directly or
indirectly, to purchase or carry (or refinance any borrowing, the proceeds of
which were used to purchase or carry) any "security" within the meaning of the
Securities Exchange Act of 1934, as amended.
9.25 Private Offerings. The Borrowers have not, directly or
indirectly, offered the Loans for sale to, or solicited offers to buy part
thereof from, or otherwise approached or negotiated with respect thereto with
any prospective purchaser other than Lender. The Borrowers hereby agree that
neither they nor anyone acting on their behalf has offered or will offer the
Loans or any part thereof or any similar securities for issue or sale to or
solicit any offer to acquire any of the same from anyone so as to bring the
issuance thereof within the provisions of Section 5 of the Securities Act of
1933, as amended.
9.26 Broker's Fees. No Person is entitled to any brokerage or
finder's fee with respect to the transactions described in this Agreement.
9.27 Patent and Trademark Assignments.
(a) The provisions of the Patent and Trademark Assignments
are effective to create in favor of the Lender, legal, valid and enforceable
first priority security interest in all right, title and interest of the
Borrowers in the collateral described therein.
(b) All representations and warranties of the Borrowers
contained in the Patent and Trademark Assignments are true and correct in all
material respects on or as of the date made or deemed made.
9.28 No Material Adverse Change. No material adverse change has
occurred in the Property, business, operations, or conditions (financial or
otherwise) of the Borrowers or their Subsidiaries since the date of the
Financial Statements delivered to the Lender.
9.29 Disclosure. Neither this Agreement nor any document or
statement furnished to the Lender by or on behalf of the Borrowers or any of
their Subsidiaries hereunder contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
contained herein or therein not misleading.
9.30 Motorola Letter. The Motorola Letter delivered pursuant to
Section 11.1(r) represents the legal, valid and binding obligation of the
holders of the Motorola Debt, enforceable against them in accordance with its
terms.
10. AFFIRMATIVE AND NEGATIVE COVENANTS. The Borrowers covenant that, so
long as any of the Obligations remain outstanding or this Agreement is in
effect:
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10.1 Taxes and Other Obligations. Each of the Borrowers and each
of their Subsidiaries shall: (a) file when due all tax returns and other reports
which it is required to file, pay, or provide for the payment, when due, of all
Taxes, fees, assessments and other governmental charges against it or upon its
Property, income, and franchises, make all required withholding and other tax
deposits, and establish adequate reserves for the payment of all such items, and
shall provide to the Lender, upon request, satisfactory evidence of its timely
compliance with the foregoing; and (b) pay when due all Debt owed by it and
perform and discharge in a timely manner all other obligations undertaken by it;
provided, however that each of the Borrowers and their Subsidiaries need not pay
any tax, fee, assessment, governmental charge, or Debt, or perform or discharge
any other obligation, that it is contesting in good faith by appropriate
proceedings diligently pursued.
10.2 Corporate Existence and Good Standing. Each of the Borrowers
and each of their Subsidiaries shall maintain its corporate existence and its
qualification and good standing in all states and other jurisdictions necessary
to conduct its business and own its Property, and shall obtain and maintain all
licenses, permits, franchises and governmental authorizations necessary to
conduct its business and own its Property.
10.3 Compliance with Law and Agreements. Each of the Borrowers
and each of their Subsidiaries shall comply with the terms and provisions of
each judgment, law, statute, rule, and governmental regulation applicable to it
and each contract, mortgage, lien, lease, indenture, order, instrument,
agreement, or document to which it is a party or by which it is bound.
10.4 Maintenance of Property and Insurance. Each of the Borrowers
and each of their Subsidiaries shall: (a) maintain all of its Property necessary
or useful in its business in good operating condition and repair, ordinary wear
and tear excepted; (b) maintain with financially sound and reputable insurers
such other insurance with respect to its Property and business against
casualties and contingencies of such types (including, without limitation,
business interruption, environmental liability, public liability, product
liability, and larceny, embezzlement or other criminal misappropriation) and in
such amounts as is customary for Persons of established reputation engaged in
the same or a similar business and similarly situated, naming the Lender, at its
request, as additional insured under each such policy; and (c) preserve and
renew all Proprietary Rights which could reasonably be expected to be materially
necessary or useful in the conduct of its business.
10.5 Environmental Laws. Each of the Borrowers and their
Subsidiaries shall conduct its business in full compliance with all
Environmental Laws applicable to it, including, without limitation, those
relating to the generation, handling, use, storage, and disposal of
contaminants. Each of the Borrowers and their Subsidiaries shall take prompt and
appropriate action to respond to and remediate any non-compliance with
Environmental Laws and shall regularly report to the Lender on such response and
remediation. Without limiting the generality of the foregoing, whenever a
Borrower gives notice to the Lender pursuant to Section 8.3(g) the Borrowers
shall, at the Lender's request and the Borrowers' expense: (a) cause an
independent environmental engineer acceptable to the Lender to conduct such
tests of the site where a Borrower's or its Subsidiary's
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noncompliance or alleged non-compliance with Environmental Laws has occurred and
prepare and deliver to the Lender a report setting forth the results of such
tests, a proposed plan for responding to any environmental problems described
therein, and an estimate of the costs thereof; and (b) provide to the Lender a
supplemental report of such engineer whenever the scope of the environmental
problems, or response of the relevant Borrower or Subsidiary of a Borrower
thereto or the estimated costs thereof, shall change.
10.6 ERISA. The Borrowers shall cause each Plan, which has been
designated to be so, to be qualified within the meaning of Section 401(a) of the
Code and to be administered in all respects in compliance with Section 401(a) of
the Code. The Borrowers shall cause each Plan to be administered in all respect
in compliance with ERISA.
10.7 Mergers, Consolidations, Acquisitions, or Sales. Other than
with the prior written consent of the Lender, neither the Borrowers nor any of
their Subsidiaries shall enter into any transaction of merger, reorganization,
or consolidation, or transfer, sell, assign, lease, or otherwise dispose of all
or any part of their Property, or wind up, liquidate or dissolve, or agree to do
any of the foregoing, except sales of Inventory in the ordinary course of its
business, sales of Equipment permitted pursuant to Section 7.12, or Permitted
Dispositions.
10.8 Distributions; Capital Changes. Neither of the Borrowers nor
any of their Subsidiaries shall: (a) directly or indirectly declare or make, or
incur any liability to make, any Distribution, except Distributions to CMI by a
Subsidiary wholly owned by CMI or (b) make any change in its capital structure
which could adversely affect the repayment of the Obligations.
10.9 Transactions Affecting Collateral or Obligations. Neither
Borrower nor any of their Subsidiaries shall enter into any transaction which
materially and adversely affects the Collateral or a Borrower's ability to repay
the Obligations.
10.10 Guaranties. Neither Borrower nor any of their Subsidiaries
shall make, issue, or become liable on any Guaranty, except Guaranties in favor
of the Lender and endorsements of instruments for deposit or the Permitted
Guaranties.
10.11 Debt. Neither Borrower nor any of their Subsidiaries shall
incur or maintain any Debt, other than: (a) the Obligations; (b) trade payables
and contractual obligations to suppliers and customers incurred in the ordinary
course of business; (c) Permitted Debt; and (d) other Debt existing on the
Closing Date and reflected in the Financial Statements attached as Exhibit A-1;
provided that no amendment or alteration shall be permitted to such Debt.
10.12 Prepayment. Neither Borrower nor any of their Subsidiaries
shall voluntarily prepay, redeem or retire any Debt, except the Obligations in
accordance with their terms.
10.13 Transactions with Affiliates. Except as set forth below,
neither Borrower nor any of their Subsidiaries shall: (a) sell, transfer,
distribute, or pay any money or Property to any Affiliate (other than to
officers and directors of either Borrower and its Subsidiaries in the ordinary
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course of business), (b) lend or advance money or Property to any Affiliate
(other than to officers and directors of either Borrower and its Subsidiaries in
the ordinary course of business), (c) except as set forth in Section 10.20,
invest in (by capital contribution or otherwise) or purchase or repurchase any
stock or indebtedness or any Property of any Affiliate, or (d) become liable on
any Guaranty of the indebtedness, dividends, or other obligations of any
Affiliate. Notwithstanding the foregoing, if no Event of Default has occurred
and is continuing, the Borrowers and their Subsidiaries may engage in
transactions with Affiliates in the ordinary course of business in amounts and
upon terms fully disclosed to the Lender and no less favorable to the Borrowers
and their Subsidiaries than would obtain in a comparable arm's length
transaction with a third party who is not an Affiliate.
10.14 Joint Ventures. Other than with the prior written consent
of the Lender, either Borrower nor any of their Subsidiaries shall enter into
any joint venture or similar arrangements with any Person for the purpose of
conducting a common venture or purpose with such Person.
10.15 Business Conducted. Other than with the prior written
consent of the Lender, the Borrowers and their Subsidiaries shall not engage,
directly or indirectly, in any line of business other than the businesses in
which the Borrowers and their Subsidiaries are engaged on the Closing Date.
10.16 Liens. Neither the Borrowers nor any of their Subsidiaries
shall create, incur, assume, or permit to exist any Lien on any Property now
owned or hereafter acquired by any of them, except Permitted Liens.
10.17 Sale and Leaseback Transactions. Other than with the
written consent of the Lender, neither the Borrowers nor any of their
Subsidiaries shall, directly or indirectly, enter into any arrangement with any
Person providing for a Borrower or any of their Subsidiaries to lease or rent
Property that a Borrower or such Subsidiary has or will sell or otherwise
transfer to such Person.
10.18 New Subsidiaries. Other than with the written consent of
the Lender, the Borrowers shall not, directly or indirectly, organize or acquire
any Subsidiary other than those listed on Schedule 9.5.
10.19 Restricted Investments. Other than with the written consent
of the Lender, neither Borrower nor any of its Subsidiaries shall make any
Restricted Investment.
10.20 Subsidiaries. Neither Borrower shall make investments in,
transfer assets to, lend or advance money or Property to CMNS or CMFS; provided
that such investment, transfers, loans or advances shall be permitted up to a
maximum aggregate amount of $300,000 for each fiscal quarter of CMI. Neither
Borrower shall form any additional Subsidiaries. CMI shall dissolve CMNS by
December 31, 1997.
10.21 Operating Lease Obligations. Neither Borrower nor any of
their Subsidiaries shall enter into any lease of real or personal property as
lessee or sublessee (other than Capital
63.
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Leases), if, after giving effect thereto, the aggregate amount of Rentals (as
hereinafter defined) payable by the Borrowers and their Subsidiaries in any
Fiscal Year in respect of such lease and all other such leases would exceed
$8,000,000 (such amount being referred to herein as "Permitted Rentals"). The
term "Rentals" means all payments due from the lessee or sublessee under a
lease, including, without limitation, basic rent, percentage rent, property
taxes, utility or maintenance costs, and insurance premiums.
10.22 Minimum Fixed Coverage. CMI will maintain a Fixed Charge
Coverage Ratio of not less than the correlative ratio for each of the following
periods.
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
The fiscal quarter ending June 30, 1997 0.1
The two fiscal quarters ending September 30, 1997 0.3
The three fiscal quarters ending December 31, 1997 0.6
The four fiscal quarters ending March 31, 1998 0.9
The four fiscal quarters ending June 30, 1998 1.3
The four fiscal quarters ending September 30, 1998 1.0
The four fiscal quarters ending December 31, 1998 1.0
The four fiscal quarters ending March 31, 1999 1.0
The four fiscal quarters ending June 30, 1999 1.0
The immediately preceding four fiscal 1.3
quarters ending on the last day of each
successive fiscal quarter after June 30, 1998
</TABLE>
10.23 Adjusted Tangible Net Worth. CMI will maintain an Adjusted
Tangible Net Worth of not less than the following amounts as determined at the
end of each calendar month during the following periods (commencing on the first
day of such period):
<TABLE>
<CAPTION>
Period Amount ($)
------ ----------
<S> <C>
June 30, 1997 to May 31, 1998 61,500,000
June 30, 1998 to May 31, 1999 66,000,000
June 30, 1999 to May 31, 2000 75,000,000
June 30, 2000 and each month thereafter 80,000,000
</TABLE>
10.24 Further Assurances. The Borrowers shall execute and
deliver, or cause to be executed and delivered, to the Lender such documents and
agreements, and shall take or cause to be taken such actions, as the Lender may,
from time to time, request to carry out the terms and conditions of this
Agreement and the other Loan Documents.
64.
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10.25 ABN AMRO Agreement, Maturity Factoring Agreement, Permitted
Equipment Sale Financing and Subordinated Note Agreements. The Borrowers shall
not agree to any amendment, renewal, supplement, or other alteration of any of
the provisions of or terms relating to the ABN AMRO Agreement, Maturity
Factoring Agreement, Permitted Equipment Sale Financing or Subordinated Note
Agreements without the prior written consent of the Lender.
10.26 ABN AMRO Agreement Sales. CMI shall not make any sales of
any ABN AMRO Receivables in a manner inconsistent with the terms of the
Intercreditor Agreement. For the avoidance of doubt, and without limitation, CMI
shall not dispose of any account receivable pursuant to the ABN AMRO Agreement
unless it shall first have obtained the prior written consent of the Lender to
such sale. Should CMI desire to make a sale CMI shall deliver to the Lender a
written Sale Request, in form and substance satisfactory to the Lender and
Lender shall promptly respond to such Sale Request.
10.27 Maturity Factoring Agreement UCC Forms. CMI will use its
best efforts to cause the UCC forms filed with respect to the Maturity Factoring
Agreement to be amended in a manner satisfactory to Lender or terminated within
30 days of the Closing Date.
10.28 Belgian Guaranties. CMI shall not enter into any contract
or other binding agreement with the Belgian Beneficiary for the supply of
equipment and/or services unless the terms of such contract or agreement have
been approved by the Lender.
11. CONDITIONS TO CLOSING. The Lender will not be obligated to make the
initial Loans or to issue, obtain or maintain any Letters of Credit or Belgian
Guaranties on the Closing Date, unless the following conditions precedent have
been satisfied in a manner satisfactory to Lender:
11.1 Conditions Precedent to Making of Loans and Issuance of
Letters of Credit on the Closing Date.
(a) Representations and Warranties; Covenants. The
Borrowers' representations and warranties contained in this Agreement and the
other Loan Documents shall be correct and complete; the Borrowers shall have
performed and complied with all covenants, agreements, and conditions contained
herein and in the other Loan Documents which are required to have been performed
or complied with.
(b) Delivery of Documents. In addition to any documents
specifically listed in this Section 11.1, the Borrowers shall have delivered, or
caused to be delivered, to the Lender such documents, instruments and agreements
as the Lender shall request in connection herewith, duly executed by all parties
thereto other than the Lender, and in form and substance satisfactory to the
Lender and its counsel.
(c) Facility Fee. The Borrowers shall have paid in full
the Facility Fee.
65.
<PAGE> 71
(d) Payment of Fees and Expenses. The Borrowers shall have
paid all fees and expenses of the Lender's outside counsel, Brobeck, Phleger &
Harrison LLP, and all other fees and expenses of the Lender incurred in
connection with any of the Loan Documents and the transactions contemplated
thereby.
(e) Required Approvals. The Lender shall have received
certified copies of all consents or approvals of any Public Authority or other
Person which the Lender determines is required in connection with the
transactions contemplated by this Agreement.
(f) No Material Adverse Change. There shall have occurred
no material adverse change in the Borrowers' business or financial condition or
in the Collateral since February 28, 1997, and the Lender shall have received a
certificate of the Borrowers' chief executive officer, chief financial officer
or treasurer to such effect.
(g) Proceedings. All proceedings to be taken in connection
with the transactions contemplated by this Agreement, and all documents,
contemplated in connection herewith, shall be satisfactory in form and substance
to the Lender and its counsel.
(h) Excess Aggregate Availability. After taking into
account the Revolving Loans, the Letters of Credit and Belgian Guaranties issued
or outstanding on the Closing Date and with all obligations of the Borrowers
being current, there shall be remaining Aggregate Availability of at least ten
percent (10%) calculated prior to the making of such Revolving Loans and the
issuance or maintenance of such Letters of Credit and Belgian Guaranties.
(i) Repayment of Existing Syndicate Debt. On or before the
Closing Date the Existing Syndicate Debt shall be repaid or discharged by the
Borrowers and all obligations under the Syndicated Facility (save for
indemnities in favor of the Syndicate Agent and Syndicate Banks expected to
survive termination) shall be terminated.
(j) Existing Collateral Documents. The Existing Collateral
Documents shall have been terminated and signed releases of all financing
statements in connection therewith shall have been delivered to the Lender and
shall be in form and substance satisfactory to the Lender and its counsel.
(k) Security Agreements. The Security Agreements, executed
by the appropriate parties thereto, in appropriate form for recording, where
necessary, together with: (i) acknowledgment copies of filings, registrations
and recordings necessary and advisable to perfect the Liens in accordance with
applicable law; (ii) evidence that all other actions necessary or, in the
opinion of the Lender, desirable to perfect and protect the security interest
created by the Security Agreements have been taken; and (iii) evidence that all
other actions necessary or, in the opinion of the Lender, desirable to perfect
and protect the first priority Lien created by the Security Agreements, and to
enhance the Lender's ability to preserve and protect its interests in and access
to the Collateral, have been taken.
66.
<PAGE> 72
(l) Insurance Certificates. The Borrowers shall have
provided the Lender with insurance certificates evidencing that the Borrowers
have obtained insurance coverage in an amount and of a nature acceptable to the
Lender.
(m) Legal Opinions. The Borrowers shall have procured the
delivery of legal opinions addressed to the Lender in a form and substance
satisfactory to the Lender and its counsel.
(n) Bank Indemnity. The Bank Indemnity shall have been
executed and delivered by the respective parties thereto.
(o) Intercreditor Agreement. The Intercreditor Agreement
shall have been executed and delivered by the parties thereto.
(p) Maturity Factoring Agreement. The Maturity Factoring
Agreement shall have been amended in a manner satisfactory to the Lender.
(q) Industrial Development Bonds. The Borrower shall have
obtained, in a form and substance satisfactory to the Lender, a permanent waiver
or discharge from the operation of any negative pledge, or similar covenant
restricting the ability of the Borrowers to grant liens over their property,
contained in the Reimbursement Agreement dated as of November 1, 1987 (as
amended) between CMI (as successor to Satellite Transmission Systems, Inc.) and
The Bank of Tokyo - Mitsubishi, Ltd., San Francisco Branch (successor to Bank of
Tokyo Limited, San Francisco Branch).
(r) Motorola Letter. The Borrower shall have obtained and
delivered to the Lender, in form and substance satisfactory to the Lender in its
sole discretion, the Motorola Letter.
11.2 Conditions Precedent to Each Loan. The obligation of the
Lender to make each Loan or to provide for the issuance or maintenance of any
Letter of Credit or Belgian Guaranty shall be subject to the conditions
precedent that on the date of any such extension of credit the following
statements shall be true, and the acceptance by the Borrowers of any extension
of credit shall be deemed to be a statement to the effect set forth in clauses
(a) and (b), with the same effect as the delivery to the Lender of a certificate
signed by the chief executive officer, chief financial officer or treasurer of
the Borrowers, dated the date of such extension of credit, stating that:
(a) The representations and warranties contained in this
Agreement and the other Loan Documents are correct in all material respects on
and as of the date of such extension of credit as though made on and as of such
date, except to the extent the Lender has been notified by the Borrowers that
any representation or warranty is not correct and the Lender has explicitly
waived in writing compliance with such representation or warranty;
67.
<PAGE> 73
(b) No Event or Event of Default has occurred and is
continuing, or would result from such extension of credit;
(c) The Lender shall have received a Notice of Borrowing
or Notice of Continuation/Conversion or request to obtain a Letter of Credit or
Belgian Guaranty, as appropriate, in the manner and form required by this
Agreement.
12. DEFAULT.
12.1 Events of Default. It shall constitute an event of default
("Event of Default") if any one or more of the following shall occur for any
reason:
(a) failure to make payment of principal, interest, fees
or premium on any of the Obligations when due;
(b) any representation or warranty made or deemed made by
any of the Borrowers in this Agreement, any of the other Loan Documents, any
Financial Statement, or any certificate furnished by the Borrowers or any of
their Subsidiaries at any time to the Lender shall prove to be untrue in any
material respect as of the date when made, deemed made, or furnished;
(c) (i) default shall occur in the observance or
performance by any of the Borrowers of any of Sections 7.2, 7.4, 7.9, 7.10,
10.2, 10.4, 10.7 through 10.23, 10.25 and 10.26, (ii) default shall occur (which
shall not have been cured within 10 Business Days) in the observance or
performance by any of the Borrowers of any of the covenants and agreements
contained in the Loan Documents, or any other agreement entered into at any time
to which any of the Borrowers and the Lender are party, or (iii) if any such
agreement or document referred to in clause (ii) shall terminate (other than in
accordance with its terms or with the written consent of the Lender) or become
void or unenforceable without the written consent of the Lender;
(d) default shall occur by any of the Borrowers in the
payment of any principal or interest on any indebtedness for borrowed money with
a principal amount of $1,000,000 or more (other than the Obligations) beyond any
period of grace provided with respect thereto;
(e) any of the Borrowers or any of their Subsidiaries
shall: (i) file a voluntary petition in bankruptcy or file a voluntary petition
or an answer or otherwise commence any action or proceeding seeking
reorganization, arrangement or readjustment of its debts or for any other relief
under the Federal Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency act or law, state or federal, now or hereafter existing, or consent
to, approve of, or acquiesce in, any such petition, action or proceeding; (ii)
apply for or acquiesce in the appointment of a receiver, assignee, liquidator,
sequestrator, custodian, trustee or similar officer for it or for all or any
part of its Property; (iii) make an assignment for the benefit of creditors; or
(iv) be unable generally to pay its debts as they become due;
68.
<PAGE> 74
(f) an involuntary petition shall be filed or an action or
proceeding otherwise commenced (which shall not have been dismissed, withdrawn
or terminated within 60 days of the date filed or commenced) seeking
reorganization, arrangement or readjustment of a Borrower's or any of the
Borrowers' Subsidiary's debts or for any other relief under the Federal
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency act or
law, state or federal, now or hereafter existing;
(g) a receiver, assignee, liquidator, sequestrator,
custodian, trustee or similar officer for any Borrower or any of their
Subsidiaries or for all or any part of their Property shall be appointed
involuntarily; or a warrant of attachment, execution or similar process shall be
issued against any part of the Property of any Borrower or any of their
Subsidiaries;
(h) the Borrowers or any of their Subsidiaries shall file
a certificate of dissolution under applicable state law or shall be liquidated,
dissolved or wound-up or shall commence or have commenced against it any action
or proceeding for dissolution, winding-up or liquidation, or shall take any
corporate action in furtherance thereof; provided that CMNS may be liquidated or
dissolved pursuant to Section 10.20;
(i) all or any material part of the Property of the
Borrowers shall be nationalized, expropriated or condemned, seized or otherwise
appropriated, or custody or control of such Property or of the Borrowers shall
be assumed by any Public Authority or any court of competent jurisdiction at the
instance of any Public Authority, except where contested in good faith by proper
proceedings diligently pursued where a stay of enforcement is in effect;
(j) any guaranty of the Obligations shall be terminated,
revoked or declared void, cease to be in full force and effect or otherwise
invalid, or a guarantor of the Obligations shall fail to perform or observe any
material covenant or agreement contained in such guaranty;
(k) one or more final judgments for the payment of money
aggregating in excess of $5,000,000 (whether or not covered by insurance) shall
be rendered against the Borrowers or any of their Subsidiaries and the Borrowers
or such Subsidiary shall fail to discharge the same within thirty (30) days from
the date of notice of entry thereof or to appeal therefrom;
(l) any loss, theft, damage or destruction of any item or
items of Collateral occurs which: (i) materially and adversely affects the
operation of the Borrowers' businesses or (ii) is material in amount and is not
adequately covered by insurance;
(m) there shall occur any Change of Control with respect
to either Borrower;
69.
<PAGE> 75
(n) any event or condition shall occur or exist with
respect to a Plan that could, in the Lender's reasonable judgment, subject the
Borrowers or any of their Subsidiaries to any tax, penalty or liability under
ERISA, the Code or otherwise which in the aggregate is material in relation to
the business, operations, Property or financial or other condition of the
Borrowers;
(o) there occurs any material adverse change in either of
the Borrower's Property, business, operations, or condition (financial or
otherwise);
(p) there occurs an ABN AMRO Default; or
(q) the Motorola Letter shall be terminated, revoked or
declared void, cease to be in full force and effect or otherwise invalid, or the
holders of the Motorola Debt shall fail to perform or observe any material
covenant contained in the Motorola Letter.
13. REMEDIES.
(a) If an Event of Default has occurred and is continuing,
the Lender may, without notice to or demand on the Borrowers except for Events
of Default under Sections 12.1(b), (c), (d), and (k) through (p) for which
Lender agrees to provide notice to the applicable Borrower) do one or more of
the following at any time or times and in any order: (i) reduce the Aggregate
Availability or one or more of the elements thereof; (ii) restrict the amount of
or refuse to make Revolving Loans and restrict or refuse to arrange for Letters
of Credit; (iii) terminate this Agreement; (iv) declare any or all Obligations
to be immediately due and payable (provided however that upon the occurrence of
any Event of Default described in Sections 12.1(e). 12.1(f), 12.1(g), or
12.1(h), all Obligations shall automatically become immediately due and
payable); and (v) pursue its other rights and remedies under the Loan Documents
and applicable law.
(b) If an Event of Default has occurred and is continuing:
(i) the Lender shall have, in addition to all other rights, the rights and
remedies of a secured party under the UCC; (ii) the Lender may, at any time,
take possession of the Collateral and keep it on the Borrowers' Premises, at no
cost to the Lender, or remove any part of it to such other place or places as
the Lender may desire, or the Borrowers shall, upon the Lender's demand, at the
Borrowers' cost, assemble the Collateral and make it available to the Lender at
a place reasonably convenient to the Lender; (iii) the Lender may sell and
deliver any Collateral at public or private sales, for cash, upon credit or
otherwise, at such prices and upon such terms as the Lender deems advisable, in
its sole discretion, and may, if the Lender deems it reasonable, postpone or
adjourn any sale of the Collateral by an announcement at the time and place of
sale or of such postponed or adjourned sale without giving a new notice of sale;
and (iv) the Lender may collect receive, dispose of and realize any Investment
Property and withdraw Investment Property from any Securities Accounts or
Commodity Accounts of the Borrowers. Without in any way requiring notice to be
given in the following manner, the Borrowers agree that any notice by the Lender
of sale, disposition or other intended action hereunder or in connection
herewith, whether required by the UCC or otherwise, shall constitute reasonable
notice to the Borrowers if such notice is mailed by registered or certified
mail, return receipt requested, postage prepaid, or is delivered personally
against receipt, at least five (5)
70.
<PAGE> 76
days prior to such action to the Borrowers' addresses specified in or pursuant
to Section 15.11. If any Collateral is sold on terms other than payment in full
at the time of sale, no credit shall be given against the Obligations until the
Lender receives payment, and if the buyer defaults in payment, the Lender may
resell the Collateral without further notice to the Borrowers. In the event the
Lender seeks to take possession of all or any portion of the Collateral by
judicial process, each of the Borrowers irrevocably waives: (a) the posting of
any bond, surety or security with respect thereto which might otherwise be
required; (b) any demand for possession prior to the commencement of any suit or
action to recover the Collateral; and (c) any requirement that the Lender retain
possession and not dispose of any Collateral until after trial or final
judgment. The Borrowers recognize that (due to securities laws or otherwise) the
Lender may be unable to make a public sale of Investment Property and expressly
agree that a private sale to a restricted group of persons, for investment
purposes rather than general distribution, shall be considered a commercially
reasonable sale. The Borrowers agree that the Lender has no obligation to
preserve rights to the Collateral or marshal any Collateral for the benefit of
any Person. The Lender is hereby granted a license or other right to use,
without charge, the Borrowers' labels, patents, copyrights, name, trade secrets,
trade names, trademarks, and advertising matter, or any similar property, in
completing production of, advertising or selling any Collateral, and the
Borrowers' rights under all licenses and all franchise agreements shall inure to
the Lender's benefit. The proceeds of sale shall be applied first to all
expenses of sale, including attorney's fees, and second, in whatever order the
Lender elects, to all Obligations. The Lender will return any excess to the
Borrower or such other Person as shall be legally entitled thereto and the
Borrower shall remain liable for any deficiency.
(c) If an Event of Default occurs, each of the Borrowers
hereby waives (i) all rights to notice and hearing prior to the exercise by the
Lender of the Lender's rights to repossess the Collateral without judicial
process or to replevy, attach or levy upon the Collateral without notice or
hearing, and (ii) all rights of set-off and counterclaim against Lender.
(d) If the Lender terminates this Agreement upon an Event
of Default, the Borrowers shall pay the Lender, immediately upon termination, a
fee equal to the early termination fee that would have been payable under
Section 14 if this Agreement had been terminated on that date pursuant to the
Borrowers' election.
14. TERM AND TERMINATION. This Agreement shall expire on June 30, 2000
(the "Stated Termination Date") unless earlier terminated or automatically
extended as provided in this Section. This Agreement shall automatically be
renewed on the Stated Termination Date and at the end of any renewal term for
successive one-year terms, unless this Agreement is terminated as provided
below. The Lender and the Borrowers shall have the right to terminate this
Agreement, without premium or penalty, on the Stated Termination Date or at the
end of any renewal term by giving the other written notice not less than sixty
(60) days prior to the end of such term by registered or certified mail. The
Borrowers may also terminate this Agreement at any time prior to the Stated
Termination Date or during any renewal term if: (a) they give the Lender sixty
(60) days prior written notice of termination by registered or certified mail;
(b) they pay and perform all Obligations on or prior to the effective date of
termination; and (c) they pay the Lender, on or prior to the effective date of
termination, and in addition to any other prepayment premium required
71.
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hereunder and the fees required by Section 6.4, (i) two percent (2%) of the
average amount of the Revolving Loans, Letters of Credit and Belgian Guaranties
outstanding during the prior 180 day period (or lesser period if within 180 days
of the Closing Date) if such termination is made on or prior to the first
Anniversary Date; and (ii) one percent (1%) of the average amount of the
Revolving Loans, Letters of Credit and Belgian Guaranties outstanding during the
prior 180 day period if such termination is after the first Anniversary Date;
provided that should such termination after the first Anniversary Date result
from a refinancing by the Bank (either as sole lender or as Agent for a
syndicate of Lenders) of the credit facility constituted by this Loan Agreement,
such fee shall be waived. The Lender may also terminate this Agreement without
notice while an Event of Default exists. Upon the effective date of termination
of this Agreement for any reason whatsoever, all Obligations shall become
immediately due and payable and Borrowers shall immediately arrange for the
cancellation as of such termination date of Letters of Credit and Belgian
Guaranties then outstanding. Notwithstanding the termination of this Agreement,
until all Obligations (other than, to the extent that such rights remain
inchoate, the rights of the Lender pursuant to Section 6.6) are paid and
performed in full, the Lender shall retain all its rights and remedies hereunder
(including, without limitation, in all then existing and after-arising
Collateral).
15. MISCELLANEOUS.
15.1 Cumulative Remedies; No Prior Recourse to Collateral. The
enumeration herein of the Lender's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Lender may have under the
UCC or other applicable law. The Lender shall have the right, in its sole
discretion, to determine which rights and remedies are to be exercised and in
which order. The exercise of one right or remedy shall not preclude the exercise
of any others, all of which shall be cumulative. The Lender may, without
limitation, proceed directly against the Borrowers to collect the Obligations
without any prior recourse to the Collateral.
15.2 No Implied Waivers. No act, failure or delay by the Lender
shall constitute a waiver of any of its rights and remedies. No single or
partial waiver by the Lender of any provision of this Agreement or any other
Loan Document, or of breach or default hereunder or thereunder, or of any right
or remedy which the Lender may have, shall operate as a waiver of any other
provision, breach, default, right or remedy or of the same provision, breach,
default, right or remedy on a future occasion. No waiver by the Lender shall
affect its rights to require strict performance of this Agreement.
15.3 Severability. If any provision of this Agreement shall be
prohibited or invalid, under applicable law, it shall be ineffective only to
such extent, without invalidating the remainder of this Agreement.
15.4 Governing Law. This Agreement shall be deemed to have been
made in the State of California and shall be governed by and interpreted in
accordance with the laws of such state, except that no doctrine of choice of law
shall be used to apply the laws of any other state or jurisdiction.
72.
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15.5 Consent to Jurisdiction and Venue; Service of Process. Each
of the Borrowers agrees that, in addition to any other courts that may have
jurisdiction under applicable laws, any action or proceeding to enforce or
arising out of this Agreement or any of the other Loan Documents may be
commenced in the Courts of the State of California for San Francisco County, or
in the United States District Court for the Northern District of California, and
the Borrowers consent and submit in advance to such jurisdiction and agree that
venue will be proper in such courts on any such matter. Each of the Borrowers
hereby waives personal service of process and agrees that a summons and
complaint commencing an action or proceeding in any such court shall be properly
served and shall confer personal jurisdiction if served by registered or
certified mail to the Borrowers. Should the Borrowers fail to appear or answer
any summons, complaint, process or papers so served within thirty (30) days
after the mailing or other service thereof, it shall be deemed in default and an
order or judgment may be entered against it as demanded or prayed for in such
summons, complaint, process or papers. The choice of forum set forth in this
section shall not be deemed to preclude the enforcement of any judgment obtained
in such forum, or the taking of any action under this Agreement to enforce the
same, in any appropriate jurisdiction.
15.6 Waiver of Jury Trial. THE BORROWERS EACH HEREBY WAIVE TRIAL
BY JURY, RIGHTS OF SETOFF, AND THE RIGHT TO IMPOSE COUNTERCLAIMS IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL, OR
ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO, OR ANY OTHER
CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN THE BORROWERS AND THE LENDER. THE
BORROWERS EACH CONFIRM THAT THE FOREGOING WAIVERS ARE INFORMED AND FREELY MADE.
15.7 Arbitration; Reference Proceeding.
(a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES,
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY AGREEMENTS OR INSTRUMENTS RELATING HERETO OR DELIVERED IN CONNECTION
HEREWITH AND ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL AT THE
REQUEST OF ANY PARTY BE DETERMINED BY ARBITRATION. THE ARBITRATION SHALL BE
CONDUCTED IN ACCORDANCE WITH THE UNITED STATES ARBITRATION ACT (TITLE 9, U.S.
CODE), NOTWITHSTANDING ANY CHOICE OF LAW PROVISION IN THIS AGREEMENT, AND UNDER
THE COMMERCIAL RULES OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). THE
ARBITRATION SHALL BE CONDUCTED WITHIN SAN FRANCISCO COUNTY, CALIFORNIA. THE
ARBITRATOR(S) SHALL GIVE EFFECT TO STATUTES OF LIMITATION IN DETERMINING ANY
CLAIM. ANY CONTROVERSY CONCERNING WHETHER AN ISSUE IS ARBITRABLE SHALL BE
DETERMINED BY THE ARBITRATOR(S). JUDGMENT UPON THE ARBITRATION AWARD MAY BE
ENTERED IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND
73.
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MAINTENANCE OF AN ACTION FOR JUDICIAL RELIEF OR PURSUIT OF A PROVISIONAL OR
ANCILLARY REMEDY SHALL NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION IF
ANY OTHER PARTY CONTESTS SUCH ACTION FOR JUDICIAL RELIEF.
(b) Notwithstanding the provisions of subparagraph (a), no
controversy or claim shall be submitted to arbitration without the consent of
all parties if, at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation to the Lender which is secured by
real property collateral located in California. If all parties do not consent to
submission of such a controversy or claim to arbitration, the controversy or
claim shall be determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted to
arbitration as provided and limited in subparagraphs (a) and (b) shall, at the
request of any party, be determined by a reference in accordance with California
Code of Civil Procedure Section 638 et seq. If such an election is made, the
parties shall designate to the court a referee or referees selected under the
auspices of the AAA in the same manner as arbitrators are selected in
AAA--sponsored proceedings. The presiding referee of the panel, or the referee
if there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee or referees shall be entered in
the court in which such proceeding was commenced in accordance with California
Code of Civil Procedure Sections 644 and 645.
(d) No provision of this paragraph shall limit the right
of any party to this Agreement to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security,
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party to
resort to arbitration or reference. At the Lender's option, foreclosure under a
deed of trust or mortgage may be accomplished either by exercise of power of
sale under the deed of trust or mortgage or by judicial foreclosure.
15.8 Survival of Representations and Warranties. All of the
Borrowers' representations and warranties contained in this Agreement shall
survive the execution, delivery, and acceptance thereof by the parties,
notwithstanding any investigation by the Lender or its agents.
15.9 Other Security and Guaranties. The Lender may, without
notice or demand and without affecting the Borrowers' obligations hereunder,
from time to time: (a) take from any Person and hold collateral (other than the
Collateral) for the payment of all or any part of the Obligations and exchange,
enforce or release such collateral or any part thereof; and (b) accept and hold
any endorsement or guaranty of payment of all or any part of the Obligations and
release or substitute any such endorser or guarantor, or any Person who has
given any Lien in any other collateral as security for the payment of all or any
part of the Obligations, or any other Person in any way obligated to pay all or
any part of the Obligations.
74.
<PAGE> 80
15.10 Fees and Expenses. The Borrowers shall pay to the Lender on
demand all costs and expenses that the Lender pays or incurs in connection with
the negotiation, preparation, consummation, administration, enforcement, and
termination of this Agreement and the other Loan Documents, including, without
limitation: (a) attorneys' and paralegals' fees and disbursements of counsel to
the Lender (including, without limitation, a reasonable estimate of the
allocable cost of in-house counsel and staff); (b) costs and expenses including
attorneys' and paralegals' fees and disbursements (including, without
limitation, a reasonable estimate of the allocable cost of in-house counsel and
staff) for any amendment, supplement, waiver, consent, or subsequent closing in
connection with the Loan Documents and the transactions contemplated thereby;
(c) costs and expenses of lien and title searches and title insurance; (d)
Taxes, fees and other charges for recording the mortgages, filing financing
statements and continuations, and other actions to perfect, protect, and
continue the Security Interest; (e) sums paid or incurred to pay any amount or
take any action required of the Borrowers under the Loan Documents that the
Borrowers fail to pay or take; (f) costs of appraisals, inspections, and
verifications of the Collateral, including, without limitation, travel, lodging,
meals, and other expenses together with an allocated charge of $575 per day for
each auditor employed by the Lender for inspections of the Collateral and the
Borrowers' operations; (g) costs and expenses of forwarding loan proceeds,
collecting checks and other items of payment, and establishing and maintaining
Payment Accounts and lock boxes; (h) all amounts that the Borrowers are required
to pay in connection with the Letters of Credit or Belgian Guaranties; (i) costs
and expenses of preserving and protecting the Collateral; and (j) costs and
expenses including attorneys' and paralegals' fees and disbursements (including,
without limitation, a reasonable estimate of the allocable cost of in-house
counsel and staff) paid or incurred to obtain payment of the Obligations,
enforce the Security Interest, sell or otherwise realize upon the Collateral,
and otherwise enforce the provisions of the Loan Documents, or to defend any
claims made or threatened against the Lender arising out of the transactions
contemplated hereby (including without limitation, preparations for and
consultations concerning any such matters). The foregoing shall not be construed
to limit any other provisions of the Loan Documents regarding costs and expenses
to be paid by the Borrowers. All of the foregoing costs and expenses shall be
charged to the Borrowers' loan account as Revolving Loans.
15.11 Notices.
(a) The Borrowers agree that all notices, requests or
other communications (including pursuant to Section 15.5) with respect to the
Borrowers may be made by notice to or from CMI individually whether or not any
copy is also sent to EFData.
(b) Except as otherwise provided herein, all notices,
demands, and requests that either party is required or elects to give to the
other shall be in writing, shall be delivered personally against receipt, or
sent by recognized overnight courier services, or mailed by registered or
certified mail, return receipt requested, postage prepaid, and shall be
addressed to the party to be notified as follows:
75.
<PAGE> 81
If to the Lender: BankAmerica Business Credit, Inc.
55 South Lake Avenue, Suite 900
Pasadena, CA 91101
Attention: Charles Burtch
with a copy to: Bank of America N.T. & S.A., Legal Department
10124 Old Grove Road
San Diego, California 92131
Attention: Thomas Montgomery, Esq.
If to the Borrowers: California Microwave, Inc.
555 Twin Dolphin Drive
Redwood City, CA 94065
Attention: Treasurer
EFData Corp.
2105 West Sun Place
Tempe, AZ 85281
Attention: President
with a copy to: Howard Rice Nemerovski Canady Falk & Rabkin
Three Embarcadero Center, 7th Floor
San Francisco, CA 94111
Attention: James L. Lopes, Esq.
or to such other address as each party may designate for itself by like notice.
Any such notice, demand, or request shall be deemed given when received if
personally delivered or sent by overnight courier, or when deposited in the
United States mails, postage paid, if sent by registered or certified mail.
15.12 Indemnification.
(a) THE BORROWERS HEREBY INDEMNIFY, DEFEND AND HOLD THE
LENDER, AND ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL, HARMLESS
FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, DEFICIENCIES,
JUDGMENTS, PENALTIES OR EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY
OF THEM, WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL ARISING OUT OF OR BY REASON
OF ANY LITIGATION, INVESTIGATIONS, CLAIMS, OR PROCEEDINGS (WHETHER BASED ON ANY
FEDERAL, STATE OR LOCAL LAWS OR OTHER STATUTES OR REGULATIONS, INCLUDING,
WITHOUT LIMITATION, SECURITIES, ENVIRONMENTAL, OR COMMERCIAL LAWS AND
REGULATIONS, UNDER COMMON LAW OR AT EQUITY, OR ON CONTRACT OR OTHERWISE)
COMMENCED OR THREATENED, WHICH ARISE OUT OF OR ARE IN ANY WAY
76.
<PAGE> 82
BASED UPON THE NEGOTIATION, PREPARATION, EXECUTION, DELIVERY, ENFORCEMENT,
PERFORMANCE OR ADMINISTRATION OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY
UNDERTAKING OR PROCEEDING RELATED TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY
OR ANY ACT, OMISSION TO ACT, EVENT OR TRANSACTION RELATED OR ATTENDANT THERETO,
INCLUDING, WITHOUT LIMITATION, AMOUNTS PAID IN SETTLEMENT, COURT COSTS, AND THE
FEES AND EXPENSES OF COUNSEL REASONABLY INCURRED IN CONNECTION WITH ANY SUCH
LITIGATION, INVESTIGATION, CLAIM OR PROCEEDING AND FURTHER INCLUDING, WITHOUT
LIMITATION, ALL LOSSES, DAMAGES (INCLUDING CONSEQUENTIAL DAMAGES), EXPENSES OR
LIABILITIES SUSTAINED BY THE LENDER IN CONNECTION WITH ANY ENVIRONMENTAL
INSPECTION, MONITORING, SAMPLING, OR CLEANUP OF THE ENCUMBERED REAL ESTATE
REQUIRED OR MANDATED BY ANY ENVIRONMENTAL LAW; PROVIDED, HOWEVER, THAT THE
BORROWERS SHALL NOT INDEMNIFY THE LENDER, ITS DIRECTORS, OFFICERS, AGENTS,
EMPLOYEES AND COUNSEL FROM SUCH DAMAGES RESULTING FROM THEIR GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.
(b) The Borrowers hereby indemnify, defend and hold
harmless the Lender from any loss or liability directly or indirectly arising
out of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of a hazardous substance.
This indemnity will apply whether the hazardous substance is on, under or about
the Borrowers' or their Subsidiaries' property or operations or property leased
to the Borrowers or their Subsidiaries. The indemnity includes but is not
limited to attorneys' fees (including the reasonable estimate of the allocated
cost of in-house counsel and staff). The indemnity extends to the Lender, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. "Hazardous substances" means any substance,
material or waste that is or becomes designated or regulated as "toxic,"
"hazardous," "pollutant," or "contaminant" or a similar designation or
regulation under any federal, state or local law (whether under common law,
statute, regulation or otherwise) or judicial or administrative interpretation
of such, including without limitation petroleum or natural gas.
(c) Without limiting the foregoing, if, by reason of any
suit or proceeding of any kind, nature, or description against the Borrowers, or
by the Borrowers or any other party against the Lender, which in the Lender's
sole discretion makes it advisable for the Lender to seek counsel for protection
and preservation of its liens and security assets, or to defend its own
interest, such expenses and counsel fees shall be allowed to the Lender. To the
extent that the undertaking to indemnify, pay and hold harmless set forth in
this Section 15.12 may be unenforceable because it is violative of any law or
public policy, the Borrowers shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all indemnified matters incurred by the Lender. The indemnity
contained in Section 15.12 shall survive the payment of the Obligations and the
termination of this Agreement. All of the foregoing costs and expenses shall be
part of the Obligations and secured by the Collateral.
77.
<PAGE> 83
15.13 Waiver of Notices. Unless otherwise expressly provided
herein, the Borrowers waive presentment, protest and notice of demand or
dishonor and protest as to any instrument, as well as any and all other notices
to which it might otherwise be entitled. No notice to or demand on the Borrowers
which the Lender may elect to give shall entitle the Borrowers to any or further
notice or demand in the same, similar or other circumstances.
15.14 Binding Effect; Assignment. The provisions of this
Agreement shall be binding upon and inure to the benefit of the respective
representatives, successors and assigns of the parties hereto; provided,
however, that no interest herein may be assigned by the Borrowers without the
prior written consent of the Lender. The rights and benefits of the Lender
hereunder shall, if the Lender so agrees, inure to any assignee of the
Obligations or any part thereof.
15.15 Modification. This Agreement is intended by the Borrowers
and the Lender to be the final, complete, and exclusive expression of the
agreement between them. This Agreement supersedes any and all prior oral or
written agreements relating to the subject matter hereof and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements
of the parties. There are no oral agreements between the parties. No
modification, rescission, waiver, release, or amendment of any provision of this
Agreement shall be made, except by a written agreement signed by the Borrowers
and a duly authorized officer of the Lender (provided that revised schedules may
be substituted for existing schedules to the extent the Lender consents in
writing to any request therefor by the Borrower).
15.16 Counterparts. This Agreement may be executed in any number
of counterparts, and by the Lender and the Borrowers in separate counterparts,
each of which shall be an original, but all of which shall together constitute
one and the same agreement.
15.17 Captions. The captions contained in this Agreement are for
convenience only, are without substantive meaning and should not be construed to
modify, enlarge, or restrict any provision.
15.18 Right of Set-Off. Whenever an Event of Default exists, the
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, 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 the Lender or any affiliate of the Lender to
or for the credit or the account of the Borrowers against any and all of the
Obligations, whether or not then due and payable. The Lender agrees promptly to
notify the Borrowers after any such set-off and application made by the Lender,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
15.19 Participating Lender's Security Interests. The Lender may,
without notice to or consent by the Borrowers, grant one or more participations
in the Loans to Participating Lenders. If a Participating Lender shall at any
time with the Borrowers' knowledge participate with the Lender in the Loans, the
Borrowers hereby grant to such Participating Lender, and the Lender and such
Participating Lender shall have and are hereby given, a continuing lien on and
security interest in
78.
<PAGE> 84
any money, securities and other property of the Borrowers in the custody or
possession of the Participating Lender, including the right of setoff, to the
extent of the Participating Lender's participation in the Obligations, and such
Participating Lender shall be deemed to have the same right of setoff to the
extent of Participating Lender's participation in the Obligations under this
Agreement as it would have it were a direct lender.
15.20 Joint and Several Obligations; Obligations Absolute.
(a) Each Borrower hereby agrees that all of the
Obligations set forth herein are the joint and several obligations of the
Borrowers and acknowledges that each Loan to, each Letter of Credit and each
Belgian Guaranty issued for the account of, either Borrower will benefit each of
the Borrowers. Each Borrower hereby further agrees and unconditionally
guarantees to the Lender that the obligations of the other Borrower under this
Agreement, to the extent such obligations are the joint and several obligations
of the Borrowers (such obligations of the other Borrower being referred to
herein, with respect to each Borrower, as the "Other Borrower's Obligations")
will be paid strictly in accordance with the terms of this Agreement, regardless
of any law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Lender with respect thereto.
The liability of each Borrower for the Other Borrower's Obligations shall be
absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of this
Agreement, the other Loan Documents or any other agreement or instrument
relating hereto or thereto;
(ii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the Other Borrower's
Obligations, or any other amendment or waiver of or any consent to
departure from this Agreement or the other Loan Documents;
(iii) any exchange, release or non-perfection of
any Collateral, or any release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Other Borrower's
Obligations; or
(iv) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, any Borrower other
than such Borrower or a guarantor.
Each Borrower's obligations under this Agreement shall continue to be effective
or be reinstated, as the case may be, if at any time any payment of any of the
Other Borrower's Obligations is rescinded or must otherwise be returned by the
Lender upon the insolvency, bankruptcy or reorganization of a Borrower or
otherwise, all as though such payment had not been made.
(b) Each Borrower hereby waives, to the extent permitted
by applicable law, with respect to the Other Borrower's Obligations:
79.
<PAGE> 85
(i) any requirement that the Lender secure or
insure any security interest or lien on any property subject thereto or
exhaust any right or take any action against the other Borrower or any
other Person or any Collateral;
(ii) any defense arising by reason of any claim or
defense based upon an election of remedies by the Lender (including,
without limitation, an election to nonjudicially foreclose on any real
or personal property Collateral) which in any manner impairs, reduces,
releases or otherwise adversely affects its subrogation, reimbursement
or contribution rights or other rights to proceed against the other
Borrower or any other Person or any Collateral;
(iii) any defense arising by reason of the failure
of the other Borrower or any of its Subsidiaries to properly execute any
Loan Document or otherwise comply with applicable legal formalities;
(iv) any defense or benefits that may be derived
from California Civil Code Section 2808, 2809, 2810, 2819, 2845 or 2850,
or California Code of Civil Procedure Section 580a, 580d or 726, or
comparable provisions of the laws of any other jurisdiction and all
other suretyship defenses it would otherwise have under the laws of
California or any other jurisdiction. Accordingly, each of the Borrowers
waives all rights and defenses that such Borrower may have because the
other Borrower's Obligations are secured by real property. This means,
among other things: (A) the Lender may collect from a Borrower without
first foreclosing on any real or personal property Collateral pledged by
a Borrower; and (B) if the Lender forecloses on any real property
Collateral pledged by a Borrower: (1) the amount of the debt may be
reduced only by the price for which that Collateral is sold at the
foreclosure sale, even if the Collateral is worth more than the sale
price, and (2) the Lender may collect from a Borrower even if the
Lender, by foreclosing on the real property Collateral, has destroyed
any right such Borrower may have to collect from the other Borrower.
This is an unconditional and irrevocable waiver of any rights and
defenses the Borrowers may have because the other Borrower's debt is
secured by real property;
(v) any duty on the part of the Lender to disclose
to such Borrower any matter, fact or thing relating to the business,
operation or condition of the other Borrower and its respective assets
now known or hereafter known by the Lender;
(vi) all benefits of any statute of limitations
affecting such Borrower's liability in respect of the Other Borrower's
Obligations;
= (vii) all setoffs and counterclaims;
(viii) promptness, diligence, presentment, demand
for performance and protest;
80.
<PAGE> 86
(ix) notice of nonperformance, default,
acceleration, protest or dishonor;
(x) except for any notice otherwise required by
applicable laws that may not be effectively waived by such Borrower,
notice of sale or other disposition of any Collateral; and
(xi) notice of the existence, creation, renewal,
modification, execution or incurring of any Other Borrower's
Obligations.
81.
<PAGE> 87
IN WITNESS WHEREOF, the parties have entered into this Agreement
on the date first above written.
CALIFORNIA MICROWAVE, INC.
By:
-------------------------------------
Title:
EFDATA CORP.
By:
-------------------------------------
Title:
BANKAMERICA BUSINESS CREDIT INC.
By:
-------------------------------------
Title:
82.
<PAGE> 88
<TABLE>
<CAPTION>
List of Exhibits/Schedules
--------------------------
<S> <C>
Exhibit A Financial Statements and Projections
Exhibit A-1 Financial Statement
Exhibit A-2 Proforma Financial Statements
Exhibit A-3 Projections
Exhibit B Form of Sale Request
Exhibit C Maturity Factoring Accounts Receivable Agreement
Schedule 1.1 Existing ABN AMRO Receivables
Schedule 1.2 Eligible Permitted Accounts
Schedule 2.3 Existing Letters of Credit
Schedule 2.4 Existing Belgian Guaranties
Schedule 7.3 Locations of Collateral
Schedule 9.4 Names of Borrowers and Trade Styles
Schedule 9.5 Subsidiaries and Affiliates
Schedule 9.7 Capitalization of Borrowers
Schedule 9.13 Real Estate - Owned and Leased
Schedule 9.14 Proprietary Rights (patents, trademarks,
and copyrights)
Schedule 9.15 Trade Names
Schedule 9.16 Litigation
Schedule 9.18 Labor Disputes
Schedule 9.19 Environmental Laws
Schedule 10.10 Permitted Guaranties
Schedule 10.11 Permitted Debt
Schedule 10.16 Permitted Liens
</TABLE>
<PAGE> 1
EXHIBIT 10.20
January 10, 1997
Mr. Philip F. Otto
2626 Green Street
San Francisco, California 94123
Dear Phil:
This is to confirm in writing the following with regard to the letter agreement
between you and California Microwave, Inc. (the "Company"), dated September 22,
1992, as amended on July 30, 1993 and August 15, 1994 (the "Agreement"):
1. You resigned as an officer and director of the Company on December
12, 1996. Notice was duly given you on that date of termination of your
employment as an employee of the Company, with such termination to be effective
at the close of business on January 12, 1997.
2. You will continue to be paid at your present salary rate and receive
health benefits as an employee through January 12, 1997 and shall be entitled to
participate in the Employee Stock Purchase Plan of the Company through
December 31, 1996.
3. In full satisfaction of all amounts and benefits to which you are
entitled under the Agreement, you shall receive the following:
(a) A lump sum payment for all accrued vacation and holiday credits
through December 12, 1996, payable on February 1, 1997.
(b) On the first day of each of 35 consecutive months, commencing on
February 1, 1997, payment of the amount of $30,416.67, subject to any required
withholding for applicable Federal or State taxes.
(c) Reimbursement of your costs for the health benefits described in
subparagraph 1 of paragraph 11 of the Agreement for a period that ends on the
earlier of (i) the date on which you obtain health benefits from a new employer,
or (ii) the expiration of 23 months from January 12, 1997, subject to the
limitations on such reimbursement contained in that subparagraph (which shall be
based upon costs in effect as of December 12, 1996).
4. All other benefits provided for under the Agreement, including
without limitation the benefits provided for in paragraph 10 of the Agreement,
ceased as of December 12, 1996.
-1-
<PAGE> 2
5. Without the payment of further consideration therefor, you have
agreed to make yourself available for 15 business days of consulting (excluding
travel time) over the 120 days immediately succeeding January 12, 1997, such
consulting to be at reasonable times as agreed upon between you and the Chairman
of the Board or President of the Company. You will be reimbursed by the Company
for reasonable expenses incurred by you in connection with performing such
consulting services.
6. You have acknowledged that the Company has fully complied with the
provisions of the last sentence of paragraph 12 of the Agreement and that you
shall not use the trade secrets or confidential information that is the subject
of paragraph 12, to either directly or indirectly solicit CMI employees or to
compete with CMI.
7. The provisions of the first sentence of paragraph 12 of the Agreement
shall remain in full force and effect except that disclosure shall not be a
breach of the Agreement or this letter agreement if made pursuant to court order
or as required by law. The provisions of paragraph 13 of the Agreement shall
remain in full force and effect.
8. The Company specifically acknowledges and reaffirms its obligations
contained in those certain Indemnification Agreements between you and the
Company dated January 20, 1992.
9. The agreements contained in this letter shall be binding upon and
shall inure to the benefit of you and the Company.
If the foregoing is in accordance with your understanding, please so indicate by
signing and returning to me the attached copy of this letter.
Sincerely yours,
CALIFORNIA MICROWAVE, INC.
By
-----------------------------------
David B. Leeson
Chairman of the Board
AGREED:
-----------------------------------
Philip F. Otto
-2-
<PAGE> 1
EXHIBIT 10.21
July 16, 1997
Mr. Frederick D. Lawrence
13904 San Sebastian Way
Poway, CA 92064
Dear Mr. Lawrence:
California Microwave, Inc. (the "Company") is pleased to offer you employment as
the Company's President, Chief Executive Officer and Chairman of the Board of
Directors. Details of this offer, including compensation, benefits, relocation
assistance and other perquisites are defined below. Because of the complexity of
certain aspects of these employment provisions, a set of definitions defining
terms capitalized in this letter is attached hereto as Exhibit A.
1. Your titles during your employment by the Company under this agreement shall
be President and Chief Executive Officer and you will report directly to the
Board of Directors of the Company. You have been elected to the position of
Chairman of the Board of Directors, subject to your acceptance of this agreement
and effective on the Effective Date.
2. The period of employment covered by this agreement will commence on the
Effective Date and will terminate four years from the Effective Date.
3. You will be provided with the following compensation and benefits, commencing
on the Effective Date:
(a) Base salary at the annual rate of $450,000, with annual salary and
bonus plan reviews following receipt of audited financial statements for
each fiscal year during the term hereof that ends after the Effective
Date.
(b) A performance bonus under the Executive Incentive Plan ("EIP") for
fiscal year 1998 which is currently pending approval by the Board
targeted at $300,000 or 67% of your base salary, with multipliers up to
2.7 times the targeted
<PAGE> 2
Mr. Frederick D. Lawrence
July 16, 1997
Page 2
amount, based upon meeting or exceeding objectives approved by the Board
of Directors. For fiscal year 1998, a minimum EIP bonus of $200,000 will
be paid to you on or before January 31, 1998, irrespective of meeting
objectives, to cover an anticipated bonus of the same amount which we
understand you will forfeit by leaving ComStream; however, you agree
that you will repay such amount to the Company within fourteen days of
your termination if you voluntarily terminate your employment or are
terminated for Cause prior to July 1, 1998. The EIP is attached hereto
as Exhibit B.
(c) Standard benefits available to all Company employees, as described
in the Employee Benefits Summary attached hereto as Exhibit C, with the
exception that your vacation will be accrued on the basis of four weeks
per calendar year.
(d) Participation in a non-qualified deferred compensation program,
permitting deferral of up to 80% of base salary and/or bonus
compensation.
(e) An additional amount of cash compensation, in lieu of traditional
executive perquisites, equal to 9% of your targeted cash compensation
(base salary plus targeted bonus) and payable semi-monthly with your
base salary.
4. The Company will provide you with the following loans to be represented by
promissory notes in form and substance satisfactory to the Company:
(a) A loan of $316,667 to repay a $475,000 loan made to you by
ComStream, one third of which was forgiven by ComStream on May 1, 1997.
The Company's loan will bear an interest rate equal to the Company's
borrowing rate on the Effective Date. One-half of the principal amount
and accrued interest will be forgiven on each of the first two
anniversary dates of your employment with the Company, subject only to
your being in the employment of the Company on each of such dates, and
you will receive a bonus equal to the result of multiplying the amount
forgiven by your estimated state and federal tax rates. In the event of
a Termination Upon a Change in Control or any termination other than
your voluntary termination or termination for Cause, the existing
balance of the loan, including both principal and interest, will be
forgiven and you will receive a bonus equal to the result of multiplying
the
091797/1-113514:/W1/363036
<PAGE> 3
Mr. Frederick D. Lawrence
July 16, 1997
Page 3
amount forgiven by your estimated state and federal tax
rates.
(b) A loan of $150,000 to repay a loan made to you by ComStream under a
second loan agreement with ComStream. This loan will also bear an
interest rate equal to the Company's borrowing rate on the Effective
Date, with principal and accrued interest due in a lump sum two years
from the Effective Date or upon a termination for Cause. One-half of the
accrued interest will be forgiven on each of the first two anniversary
dates of your employment with the Company, subject only to your being in
the employment of the Company on each of such dates, and you will
receive a bonus equal to the result of multiplying the forgiven interest
by your estimated state and federal tax rates.
5. You will be granted two stock options as of the Effective Date. One option
for 200,000 shares will be issued under the Company's 1992 Stock Option Plan,
attached hereto as Exhibit D. The other option for 300,000 shares will be
granted as a special, non-qualified option, with the same exercise and vesting
terms as those defined in the 1992 Stock Option Plan. Both options will vest
over a period of four (4) years at the rate of 25% at the end of each year and
will be exercisable for a period of ten years from the date of the grant. The
exercise price of both options will be equal to the closing price of the
Company's stock on the Effective Date.
6. If, during the period of employment covered by this agreement, there is a
Termination Upon a Change in Control or if the Company terminates your
employment other than for Cause, you will receive (a) any unpaid salary and
other benefits that have accrued as of the date of termination and (b) in full
satisfaction of all other amounts or benefits to which you may have been
entitled hereunder an amount equal to three years of your initial base salary
(i.e., $1,350,000) to be paid to you over the three years immediately following
termination under normal payroll terms.
7. You will be provided with relocation assistance benefits consisting of the
following:
(a) Reimbursement for the difference between the sale price received for
your home in San Diego and $720,000, which we understand was the
purchase price for the home.
091797/1-113514:/W1/363036
<PAGE> 4
Mr. Frederick D. Lawrence
July 16, 1997
Page 4
(b) Reimbursement of expenses associated with both the sale of your San
Diego home (up to 6% commission, plus incidentals), and the purchase of
a new home (title insurance, closing costs, etc.), plus an amount equal
to the result of multiplying such expenses by your estimated state and
federal tax rates.
(c) Payment for moving your household goods.
(d) Payment for your reasonable temporary living costs, for a period of
up to three months following the Effective Date.
(e) House-hunting trip(s) for you and your spouse.
8. You will be indemnified by the Company with respect to any previously filed
class-action shareholder lawsuits against the Company, its directors, and/or
officers.
9. Your employment hereunder will terminate upon your death and may be
terminated by the Company for Cause or in the event of your Disability. Upon any
such termination, you shall be entitled to receive only any unpaid salary and
other benefits that have accrued as of the date of termination.
10. You agree that during your employment and after the termination of your
employment you will not disclose to any person or use, directly or indirectly,
any trade secrets or confidential information obtained by reason of or in
connection with your employment by the Company, except to the extent that such
information is generally available to the public other than as a result of
disclosure by you.
11. This agreement constitutes our entire agreement regarding your employment
and may not be modified or amended except by a written agreement signed by you
and the Company.
12. This agreement shall be governed by and construed in accordance with the
domestic laws of the State of California without giving effect to any choice or
conflict of law provision or rule that would cause the application of laws of
any jurisdiction other than the State of California.
13. Should any legal action be necessary to enforce the provisions of this
agreement, the prevailing party will be
091797/1-113514:/W1/363036
<PAGE> 5
Mr. Frederick D. Lawrence
July 16, 1997
Page 5
entitled to recover costs and expenses, including reasonable attorney fees,
incurred in connection with such action.
14. This agreement shall inure to the benefit of and be binding upon the
successors and assigns of the parties hereto.
15. In order to avoid adverse tax consequences to the Company and you from the
applications of Sections 280G and 4999 of the Internal Revenue Code of 1986 (the
"IRC"), if there is an event described in Section 280G(b)(2)(A)(i) of the IRC
(an "IRC, Defined Change in Control") and if Company's accountant or tax counsel
notifies Employee that any payment or transfer by the Company to or for you
under this agreement and any other agreement or arrangement between the Company
and you (a "Payment") would constitute an excess parachute payment, as defined
in Section 280G(b) of the IRC (an "Excess Parachute Payment"), then the
aggregate present value, as determined under Section 280G(d)(4)) (the "Present
Value"), of all Payments shall be reduced to the maximum whole dollar amount
which may be paid to you without resulting in any Excess Parachute Payment;
provided, however, that such reduction in the Present Value of the Payments
otherwise due you may be accomplished, at the Employee's option, by altering the
Payments in one or more of the following ways:
(a) Reduce the amount of any Payment otherwise due you;
(b) Extend the period over which any Payment otherwise due you is
made, and/or adjust the amount of each installment of such
Payment; or
(c) Delay and/or waive the vesting of any unvested Payment which
would otherwise vest upon the IRC Defined Change in Control.
16. You represent and warrant (a) that performance of your duties on behalf of
the Company pursuant to this agreement does not and will not violate, breach or
constitute a default under any employment contract, employee policy, bond,
confidentiality or nondisclosure agreement, noncompetition agreement, trade
secret agreement or any other obligation (contractual or legal) to which you are
a party or are subject, (b) that you have not agreed or committed to perform any
duties or other obligations that would divert your attention from your duties to
the Company under the agreement, and (c) you have not brought and will not bring
with you to the Company for use in the performance of your
091797/1-113514:/W1/363036
<PAGE> 6
Mr. Frederick D. Lawrence
July 16, 1997
Page 6
duties at the Company any materials or documents of a former employer that are
not generally available to the public unless you have obtained express written
authorization from the former employer for their possession and use.
Please indicate your acceptance of the terms of this agreement by signing this
letter and returning it to me no later than Monday, July 21, 1997.
CALIFORNIA MICROWAVE, INC.
- ---------------------------
Alfred M. Gray
Chairman of the Board
Agreed and Accepted:
- --------------------------- -------------------------------
Frederick D. Lawrence Date
<PAGE> 7
Exhibit A
DEFINITIONS
For purposes of this Agreement, the following terms will have the meanings set
forth below.
1. "Cause" shall mean (a) your willful misconduct or your dishonesty towards,
fraud upon, crime against or deliberate or attempted injury or bad faith
action with respect to the Company; (b) your conviction for a felony
(whether in connection with the Company's affairs or otherwise); or (c)
neglect of your duties, obligations and responsibilities on behalf of the
Company (after having received reasonable notice of such neglect).
2. A "Change in Control" will occur if (a) any person, as that term is used in
Section 13(d) and 14(d)(2) of the Securities and Exchange Act of 1934 (the
"Exchange Act"), other than the Company, is or becomes the beneficial owner,
as defined in Rule 13(d)(3) under the Exchange Act, directly or indirectly
(including by holding securities which are exercisable for or convertible
into shares of capital stock of the Company), of 30 percent or more of the
combined voting power of the outstanding shares of capital stock of the
Company entitled to vote generally in the election of directors (calculated
as provided in Rule 13(d) under the Exchange Act in the case of rights to
acquire capital stock), whether by means of a tender offer or exchange offer
or open-market purchases or a combination thereof; (b) a Transaction is
consummated; (c) Continuing Directors cease to constitute at least a
majority of the Board; or (d) a majority of the Company's Outside Directors
determine that a Change in Control has occurred.
3. "Continuing Directors" shall mean the directors of the Company in office on
July 1, 1997 and any successor to any such director whose nomination or
selection was approved by a majority of the Continuing Directors in office
at the time of the director's nomination or selection and who is not an
"affiliate" or "associate" (as defined in Regulation 12B under the
Securities Exchange Act of 1934, as amended) of any person who is the
beneficial owner, directly or indirectly, of securities representing ten
percent (10%) or more of the combined voting power of the Company's
outstanding securities then entitled ordinarily to vote for the election of
directors.
4. "Disability" means that you have met the qualifications for the Company's
long-term disability benefit.
5. "Effective Date" shall mean the date on which you sign this agreement and
notify the Company that you have done so.
<PAGE> 8
6. "Good Reason" includes any of the following:
(a) the assignment to you of duties inconsistent with, or a substantial
alteration in the nature or status of, of your responsibilities
immediately before a Change in Control;
(b) a reduction in your salary or other benefits as in effect on the date
of a Change in Control;
(c) a breach by the Company of this Agreement if the breach has not been
cured within 30 days after written notice by you to the Company setting
forth with specificity the nature of the breach.
7. "Outside Director" is a member of the Company's Board of Directors who is
not, and who during the past six months was not, an employee or officer of
the Company.
8. "Termination Upon a Change in Control" is (a) termination by you of your
employment for Good Reason within one year after the occurrence of a Change
in Control; or (b) termination by the Company of your employment within one
year after the occurrence of a Change in Control other than a termination
for Cause or a termination resulting from your death or Disability. The
one-year period provided for herein shall be six months in the event a
Change in Control arises out of a Transaction defined in Paragraph 9
hereof.
9. "Transaction" is (a) a consolidation or merger of the Company if the
shareholders of the Company immediately before the merger or consolidation
do not immediately after the merger or consolidation own equity securities
of the surviving or acquiring corporation or a parent party possessing 50%
or more of the voting power of the surviving or acquiring corporation or
parent party; (b) a sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of 50% or more of the
assets of the Company; or (c) the sale or other disposition of business
units, within any 12-month period that contributed for that 12-month period
more than 45% of the Company's revenues; provided, however, that in
determining whether the provision of subparagraph (b) or (c) are
applicable, the assets and revenues of the Microwave Networks and Satellite
Transmissions Systems divisions of the Company shall be excluded from both
the numerator and denominator of the equation.
<PAGE> 1
EXHIBIT 10.22
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT is entered into as of March 20, 1997 (the "Effective
Date"), between CALIFORNIA MICROWAVE, INC., a Delaware corporation ("CMI") and
______________ (the "Employee").
RECITAL
The Employee serves as CMI's Chief Financial Officer, Vice President and
Secretary. CMI and the Employee desire to set forth the terms of the Employee's
severance compensation if the Employee's employment is ended as a result of a
Change in Control. If a Change in Control occurs, the Employee and other key
employees may be more vulnerable to dismissal or other negative consequences
without regard to the quality of their past or prospective service. The Board of
Directors (the "Board") believes that it is in the best interest of CMI and its
stockholders to ensure fair treatment to CMI's key employees and to reduce the
adverse effects upon their performance that may be caused by an acquisition or
change in control.
The parties agree as follows:
1. Definitions. For purposes of this Agreement, the following terms will
have the meanings set forth below.
1.1 A "Change in Control" will occur if (a) any person, as that term
is used in Section 13(d) and 14(d)(2) of the Securities and
Exchange Act of 1934 (the "Exchange Act"), other than CMI, is or
becomes the beneficial owner, as defined in Rule 13(d)(3) under
the Exchange Act, directly or indirectly (including by holding
securities which are exercisable for or convertible into shares
of capital stock of CMI), of 30 percent or more of the combined
voting power of the outstanding shares of capital stock of CMI
entitled to vote generally in the election of directors
(calculated as provided in Rule 13(d) under the Exchange Act in
the case of rights to acquire capital stock), whether by means
of a tender offer or exchange offer or open-market purchases or
a combination thereof; (b) a Transaction is consummated; (c)
Continuing Directors cease to constitute at least a majority of
the Board; or (d) a majority of the CMI's Outside Directors
determine that a Change in Control has occurred.
1.2 "Continuing Directors" shall mean the directors of CMI in office
on January 1, 1997 and any successor to any such director whose
nomination or selection was approved by a majority of the
Continuing Directors in office at the time of the director's
nomination or selection and who is not an "affiliate" or
"associate" (as defined in Regulation 12B under the Securities
Exchange Act
<PAGE> 2
of 1934, as amended) of any person who is the beneficial owner, directly
or indirectly, of securities representing ten percent (10%) or more of
the combined voting power of CMI's outstanding securities then entitled
ordinarily to vote for the election of directors.
1.3 "Disability" means that the Employee has met the qualifications for
CMI's long-term disability benefit.
1.4 "Good Reason" includes any of the following:
(a) the assignment to the Employee of duties inconsistent with, or a
substantial alteration in the nature or status of, the Employee's
responsibilities immediately before a Change in Control;
(b) a reduction in the Employee's salary or other benefits as in effect
on the date of a Change in Control;
(c) the Employee's relocation to a work site requiring an increase in
one-way commute from Employee's residence of more than thirty-five
(35) miles; or
(d) a breach by CMI of this Agreement if the breach has not been cured
within 30 days after written notice by the Employee to CMI setting
forth with specificity the nature of the breach.
1.5 "Outside Director" is a member of CMI's Board of Directors who is not,
and who during the past six months was not, an employee or officer of
CMI.
1.6 "Termination for Cause" is termination of the Employee's employment as a
result of (a) the Employee's willful misconduct or the Employee's
dishonesty towards, fraud upon, crime against or deliberate or attempted
injury or bad faith action with respect to CMI; or (b) the Employee's
conviction for a felony (whether in connection with CMI's affairs or
otherwise).
1.7 "Termination Upon a Change in Control" is (a) termination by the
Employee of his employment for Good Reason within one year after the
occurrence of a Change in Control; or (b) termination by CMI of the
Employee's employment within one year after the occurrence of a Change
in Control other than a Termination for Cause or a termination resulting
from the Employee's death or
<PAGE> 3
Disability. The one-year period provided for herein shall be six
months in the event a Change in Control arises out of a
Transaction defined in Section 1.8(c) hereof.
1.8 "Transaction" is (a) a consolidation or merger of CMI if the
shareholders of CMI immediately before the merger or
consolidation do not immediately after the merger or
consolidation own equity securities of the surviving or
acquiring corporation or a parent party possessing 50% or more
of the voting power of the surviving or acquiring corporation or
parent party; (b) a sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of 50% or
more of the assets of CMI; or (c) the sale or other disposition
of business units within any 12-month period that contributed
for that 12-month period more than 45% of CMI's revenues.
2. Term. If no Change in Control has occurred, this Agreement will expire
one year from its Effective Date. If a Change in Control occurs within
one year of such Effective Date, this Agreement will continue in effect
and will not terminate, until either the Employee has received the
severance compensation provided for below or has ceased to be eligible
for such compensation by reason of there not having been a Termination
Upon a Change in Control.
3. Termination Upon a Change in Control. If a Termination Upon a Change in
Control occurs, the Employee will immediately be paid all accrued
salary, bonus compensation to the extent earned, vested deferred
compensation (other than pension plan or profit sharing plan benefits,
which will be paid in accordance with the applicable plan), any benefits
then due under any plans of CMI in which the Employee is a participant,
accrued vacation pay and any appropriate business expenses incurred by
the Employee in connection with his duties, all to the date of
termination ("Accrued Compensation"). The Employee will also be entitled
to the severance compensation described in Section 4.
4. Severance Compensation. If a Termination Upon a Change in Control
occurs, CMI shall pay monthly severance compensation to the Employee for
a period ending 12 months after termination, or ending six months after
termination if the Termination Upon a Change in Control is by reason of
a Transaction defined in Section 1.8(c), in an aggregate amount
determined by adding (a) the Employee's monthly base salary at the time
of termination, (b) a proportionate amount of the Employee's targeted
bonus, determined by multiplying the Employee's targeted bonus by the
number of complete months from the start of the then current fiscal year
to the Employee's termination date and dividing the product by 144, and
(c) an amount equal to the monthly `Perk Pot' benefit to which the
Employee is entitled as an officer of the company at the time of
termination, and (d) the amount of $2,080.00 in lieu of other employee
benefits (including health benefits) the Employee was receiving from
CMI. If the Employee become employed prior to the expiration of the
aforesaid twelve month period, or six months if the Termination Upon a
Change in Control is by reason of a
<PAGE> 4
Transaction defined in Section 1.8(c), the payments provided for in
this Section 4 shall cease as of the date of such employment; Employee
agrees to promptly notify CMI of any such employment and to reimburse
CMI for any payments made by CMI hereunder that cover any period during
which the Employee was employed.
5. Acceleration of Options. If a Termination Upon a Change in Control
occurs, all stock options and restricted stock held by the Employee
immediately before the termination will become fully vested and the
stock options will be exercisable for the periods specified with respect
to termination of employment in the plans covering the options.
6. Other Benefits. Neither this Agreement nor the severance compensation
that it provides for will reduce any amounts otherwise payable, or in
any way diminish the Employee's rights as an employee of CMI, whether
existing now or hereafter, under any benefit, incentive, retirement,
stock option, stock bonus or stock purchase plan or under any employment
agreement or other plan or arrangement, provided, however, that the
rights granted to the Employee and the obligations assumed by CMI under
this Agreement will be in lieu of, and not in addition to, any severance
or other termination payments to which the Employee may be entitled
under any employment agreement or other plan or arrangement that the
Employee may now or hereafter have with CMI.
7. Employment Status. This Agreement does not constitute a contract of
employment. It does not impose on CMI any obligation to retain the
employee as an employee, to change the status of the Employee's
employment or to change CMI's policies regarding termination of
employment.
8. Miscellaneous.
a. Severability. If a court or other body of competent jurisdiction
determines that any provision of this Agreement is invalid or
unenforceable, that provision will be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent
possible, and all other provisions of the Agreement will be deemed
valid and enforceable to the fullest extent possible.
b. Withholding. Compensation and benefits to the Employee under this
Agreement will be reduced by all federal, state, local and other
withholdings or similar taxes as required by applicable law.
c. Arbitration. The parties will submit all controversies, claims and
matters of difference in any way related to this Agreement, its
performance or breach, to arbitration in San Francisco, California,
according to the rules and practices of the American Arbitration
Association from time to time in effect. Any awards in such
arbitration shall be final and binding on all parties. The
arbitrators shall allocate the costs of the arbitration in such
manner as they deem equitable. The arbitrators may require the
reimbursement of all or a portion of
<PAGE> 5
the reasonable legal fees incurred by the prevailing party in the
arbitration proceeding and any legal proceedings which are taken to
enforce the arbitral award.
d. Entire Agreement; Modifications. This Agreement is the entire agreement
between the parties with respect to the matters covered hereby, and may
be amended, modified, superseded or canceled, or its terms waived, only
by a written instrument executed by each party or, in the case of a
waiver, by the party waiving compliance. Failure of a party at any time
to require performance of any provision of this Agreement will not
affect the right at a later time to enforce the same. No waiver of a
breach of this Agreement, whether by conduct or otherwise, in any one or
more instances will be construed as a further or continuing waiver of
the breach or of any other term of this Agreement. This Agreement shall
inure to the benefit of and be binding upon the successors and assigns
of the parties hereto.
e. Confidential Information. The Employee agrees not to disclose, either
while in the Company's employ or at any time thereafter, to any person
not employed by CMI any confidential information obtained while in the
employ of CMI (including, without limitation, any of CMI's inventions,
processes, methods of distribution, customers or trade secrets). This
shall not preclude the employee from the use or disclosure of
information known generally to the public or from making disclosures
required by law or court order.
f. Applicable Law. This Agreement will be construed under and governed by
the laws of the State of California without regard or reference to the
rules of conflicts of law that would require the application of the laws
of any other jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
CALIFORNIA MICROWAVE, INC.
- ------------------------------------- -------------------------------------
Gilbert F. Johnson
President and Chief Operating Officer
<PAGE> 1
EXHIBIT 10.23
[CALIFORNIA MICROWAVE LOGO]
March 18, 1997
Gilbert F. Johnson
President
California Microwave, Inc.
555 Twin Dolphin Drive
Redwood City, CA 94065
Dear Mr. Johnson:
The purpose of this letter is to memorialize the terms of the agreement
relating to your employment by California Microwave, Inc. (the "Company") that
became effective as of October 1, 1996 (the "Agreement"), as follows:
1. The term of your employment under the Agreement commenced as of
October 1, 1996 and will end on September 30, 1999.
2. For the period from October 1, 1996 to October 1, 1997, you
agree to devote your full business time and attention to
performing competently and diligently such duties as may be
reasonably required from time to time by the Board of Directors
or Chief Executive Officer of the Company and which are
commensurate with your position as President of the Company.
During such period, you shall be entitled to receive (a) salary
at the annual rate of $300,000, payable on the Company's regular
paydays, (b) a minimum discretionary bonus for fiscal year 1997
in the amount of $125,000, subject only to your employment not
being terminated for any of the reasons specified in paragraph 5
below, and to your not voluntarily terminating your employment
with the Company prior to July 1, 1997, and (c) the other
benefits to which officers of the Company are entitled,
including a "Perk Pot" payment at the rate of 8.5% based upon
the aggregate of $300,000 of annual compensation and the
$125,000 minimum bonus.
<PAGE> 2
3. In consideration for your agreeing to the terms hereof, you
received on October 24, 1996 an option under the 1992 Incentive
Stock Plan of the Company covering 5,000 shares of common stock
and exercisable at a price of $14.25 per share.
4. On October 1, 1997 you will resign as an officer of the Company,
but shall remain employed by the Company under the Agreement
through September 30, 1999. During the period October 1, 1997
through September 30, 1999, you shall perform such services as
are reasonably requested from time to time by the Chief
Executive Officer or President of the Company upon the receipt
of reasonable notice relating to the time of performance and
nature of such services; provided, however, that you shall not
during such period be required to devote more than 12 hours per
month to the performance of such services. During the period
October 1, 1997 through September 30, 1999, you shall be
entitled (a) to receive a salary at the annual rate of $50,000
per year, payable on the Company's regular paydays and (b) to
participate in all employee benefit plans that are in effect for
the Company's non-officer employees.
5. Your employment hereunder shall terminate upon your death,
permanent disability or termination for cause by the Company.
"Disability" as used herein means that you have met the
qualifications for the Company's long-term disability benefit
and "termination for cause" shall mean termination of your
employment as a result of (a) your willful misconduct or
dishonesty towards, fraud upon, crime against or deliberate or
attempted injury or bad faith action with respect to the Company
or (b) your conviction for a felony (whether in connection with
the Company's affairs or otherwise). Upon termination for any of
the reasons specified in this paragraph, you shall be entitled
to only your salary and other accrued benefits through the date
of termination and to reimbursement for such expenses as you may
have accrued on behalf of the Company prior to the date of
termination.
2
<PAGE> 3
6. Subject to receipt of appropriate documentation with respect
thereto, the Company shall reimburse you for any and all travel
and other out-of-pocket expenses reasonably incurred by you in
the performance of your services hereunder.
7. Compensation and benefits to you under this Agreement shall be
reduced by all federal, state, local and other withholdings or
similar taxes as required by applicable law.
8. All controversies, claims and matters of difference in any way
related to the Agreement, its performance or breach, shall be
submitted to arbitration in San Francisco, California, according
to the rules and practices of the American Arbitration
Association from time to time in effect. Any awards in such
arbitration shall be final and binding on all parties. The
arbitrators shall allocate the costs of the arbitration in such
manner as they deem equitable. The arbitrators may require the
reimbursement of all or any portion of the reasonable legal fees
incurred by the prevailing party in the arbitration proceeding
and any legal proceedings which are taken to enforce the
arbitral award.
9. This Agreement is the entire agreement between us with respect
to the matters covered hereby, and may be amended, modified,
superseded or canceled, or its terms waived, only by a written
instrument executed by both of us or, in the case of a waiver,
by the party waiving compliance.
10. This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company and you.
11. You agree not to disclose, either while in the Company's employ
or at any time thereafter, to any person not employed by the
Company any confidential information obtained while in the
employ of the Company (including, without limitation, any of the
Company's inventions, processes, methods of distribution,
customers or trade secrets). This shall not preclude you from
the
3
<PAGE> 4
use or disclosure of information known generally to the public or from
making disclosures required by law or court order.
12. This Agreement will be construed under and governed by the laws of the
State of California, without regard or reference to the rules of
conflicts of law that would require the application of the law of any
other jurisdiction.
If the foregoing is in accordance with your understanding as to our agreement,
please so indicate by signing and returning to the undersigned the attached
copy of this letter.
Sincerely yours,
/s/ GEN. ALFRED M. GRAY
- ----------------------------------
Gen. Alfred M. Gray, USMC (Retired)
Chairman, Compensation Committee
AGREED;
/s/ GILBERT F. JOHNSON
- -------------------------
Gilbert F. Johnson
4
<PAGE> 1
CALIFORNIA MICROWAVE, INC.
EXHIBIT 11
COMPUTATION OF INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Years ended June 30
------------------------------------------------
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
PRIMARY EARNINGS:
Income from continuing operations $ 2,579,000 $ 13,358,000 $ 15,029,000
Loss from discontinued operations (59,345,000) (1,735,000) (22,924,000)
------------------------------------------------
Net income (loss) $(56,766,000) $ 11,623,000 $ (7,895,000)
================================================
Shares:
Weighted average shares 16,226,000 15,911,928 15,533,000
Dilutive stock option equivalents 107,000 288,232 698,000
------------------------------------------------
Weighted average shares and equivalents 16,333,000 16,200,160 16,231,000
================================================
Income (loss) per share:
Income from continuing operations $ 0.16 $ 0.82 $ 0.93
Loss from discontinued operations (3.66) (0.11) (1.48)
------------------------------------------------
Net income (loss) $ (3.50) $ 0.72 $ (0.51)
================================================
FULLY DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 2,579,000 $ 13,358,000 $ 15,029,000
Net interest expense related to convertible debt 2,353,040 2,247,680 2,444,352
------------------------------------------------
Income from continuing operations, as adjusted $ 4,932,040 $ 15,605,680 $ 17,473,352
Loss from discontinued operations (59,345,000) (1,735,000) (22,924,000)
------------------------------------------------
Net income (loss) $(54,412,960) $ 13,870,680 $ (5,450,648)
================================================
Shares:
Weighted average shares and equivalents 16,333,000 16,200,160 16,231,000
Assuming conversion of convertible debt 2,221,978 2,221,978 2,221,978
Additional dilutive stock option equivalents 294,702
------------------------------------------------
Weighted average shares and equivalents, 18,554,978 18,716,840 18,452,978
as adjusted ================================================
Income (loss) per share: (not reported as results
are anti-dilutive)
Income from continuing operations $ 0.27 $ 0.83 $ 0.95
Loss from discontinued operations (3.20) (0.09) (1.24)
------------------------------------------------
Net income (loss) $ (2.93) $ 0.74 $ (0.30)
================================================
</TABLE>
<PAGE> 1
EXHIBIT 13
CONSOLIDATED STATEMENTS OF OPERATIONS CALIFORNIA MICROWAVE, INC.
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Years ended June 30, 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales $254,161 $239,964 $216,419
Costs of products sold 181,404 158,042 135,506
-------- -------- --------
Gross margin 72,757 81,922 80,913
-------- -------- --------
Expenses:
Research and development 18,214 16,608 13,242
Marketing and administration 46,107 38,747 39,497
Amortization of intangible assets 1,394 1,381 1,294
Restructuring charges 1,500
-------- -------- --------
Total expenses 65,715 56,736 55,533
-------- -------- --------
Operating income 7,042 25,186 25,380
Interest expense (5,944) (4,314) (4,279)
Interest income 5 446
Gain on sale of subsidiary 2,744
-------- -------- --------
Income from continuing operations before income taxes 3,847 20,872 21,547
Provision for income taxes 1,268 7,514 6,518
-------- -------- --------
Income from continuing operations 2,579 13,358 15,029
-------- -------- --------
Discontinued operations:
Loss from operations of discontinued businesses (50,974) (1,735) (22,924)
Loss on disposal of discontinued businesses (8,371)
-------- -------- --------
(59,345) (1,735) (22,924)
-------- -------- --------
Net income (loss) $ (56,766) $ 11,623 $ (7,895)
========= ========= =========
Per share data
Income from continuing operations $ .16 $ .82 $ .93
Loss from discontinued operations (3.66) (.11) (1.48)
-------- -------- --------
Net income (loss) $ (3.50) $ .72 $ (.51)
========= ========= =========
Average shares 16,226 15,912 15,533
Average shares and equivalents 16,333 16,200 16,231
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 2
CONSOLIDATED BALANCE SHEETS CALIFORNIA MICROWAVE, INC.
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, 1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,974 $ 4,560
Short-term investments 2,097 1,504
Refundable income taxes 10,085
Accounts receivable, less $943 allowance
for doubtful accounts ($798 in 1996) 35,701 36,664
Inventories 50,353 50,026
Deferred tax assets 18,359 10,387
Prepaid expenses 1,391 1,182
Net current assets of discontinued operations 60,604 82,359
-------- --------
Total current assets 183,564 186,682
-------- --------
Property, plant and equipment (at cost) 53,460 58,191
Less accumulated depreciation and amortization (30,648) (34,594)
-------- --------
Net property, plant and equipment 22,812 23,597
-------- --------
Intangible assets of businesses acquired, less
accumulated amortization of $7,769 ($6,375 in 1996) 29,488 30,882
Deferred tax assets 7,411 1,973
Other assets 4,046 4,610
Net long-term assets of discontinued operations 19,052 44,631
-------- --------
$266,373 $292,375
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 333 $ 325
Accounts payable 26,681 15,066
Accrued income taxes 3,211 3,406
Other accrued liabilities 41,833 26,433
-------- --------
Total current liabilities 72,058 45,230
-------- --------
Long-term liabilities:
Long-term debt 9,101 13,933
Convertible subordinated notes 63,200 63,200
Other long-term liabilities 3,990
-------- --------
Total long-term liabilities 76,291 77,133
-------- --------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value, 29,200,000 shares authorized;
16,406,473 shares issued and outstanding (16,031,048
shares in 1996) 1,641 1,603
Capital in excess of par value 93,249 88,788
Retained earnings 23,577 80,343
Unamortized restricted stock plan expense (443) (722)
-------- --------
Total stockholders' equity 118,024 170,012
-------- --------
$266,373 $292,375
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CALIFORNIA MICROWAVE, INC.
<TABLE>
<CAPTION>
Three years ended June 30, 1997 (In thousands, except for shares)
--------------------------------------------------------------------------------------
Unamortized
Capital restricted Total stock-
Common Stock in excess of Retained stock plan holders'
Shares Amount par value earnings expense equity
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 15,257,094 $ 1,526 $ 77,165 $ 76,615 $ (775) $ 154,531
---------- ----------- ----------- ----------- ---------- -----------
Common stock issued under:
Stock option, restricted stock
and stock purchase plans 465,028 47 6,941 313 7,301
Other (3,250) (1) (72) (73)
Net loss (7,895) (7,895)
---------- ----------- ----------- ----------- ---------- -----------
Balance at June 30, 1995 15,718,872 1,572 84,034 68,720 (462) 153,864
---------- ----------- ----------- ----------- ---------- -----------
Common stock issued under:
Stock option, restricted stock
and stock purchase plans 312,176 31 4,754 (260) 4,525
Net income 11,623 11,623
---------- ----------- ----------- ----------- ----------- ----------
Balance at June 30, 1996 16,031,048 1,603 88,788 80,343 (722) 170,012
---------- ----------- ----------- ----------- ----------- ----------
Common stock issued under:
Stock option, restricted stock
and stock purchase plans 375,425 38 4,461 279 4,778
Net loss (56,766) (56,766)
---------- ----------- ----------- ----------- ----------- ----------
Balance at June 30, 1997 16,406,473 $ 1,641 $ 93,249 $ 23,577 $ (443) $ 118,024
========== =========== =========== =========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS CALIFORNIA MICROWAVE, INC.
<TABLE>
<CAPTION>
(In thousands)
-----------------------------------------
Years ended June 30, 1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 2,579 $13,358 $15,029
Adjustments to reconcile income from continuing
operations to net cash provided
by (used in) operating activities:
Gain from sale of subsidiary (2,744)
Depreciation and amortization 8,064 5,789 6,070
Amortization of intangible assets 1,394 1,381 1,294
Non-cash portion of restructuring charge 355
Other adjustments (1,474)
Deferred taxes 2,096 5,577 (1,592)
Debt issuance costs 378 210 210
Net effect of changes in:
Accounts receivable, less amounts
transferred to long-term 520 (4,270) (1,352)
Inventories (414) (10,393) (10,795)
Prepaid expenses (209) (907) 199
Accounts payable 11,672 3,093 1,268
Accrued income taxes (77) 1,201 (1,910)
Other accrued liabilities and other
long-term liabilities 2,101 (14,589) 18,917
-------- ------- -------
Net cash provided by continuing operations 25,360 450 26,219
Net cash provided by (used in) discontinued operations (21,384) 11,686 (11,028)
-------- ------- -------
Net cash provided by (used in) operating activities 3,976 12,136 15,191
-------- ------- -------
INVESTING ACTIVITIES
Capital expenditures (7,141) (16,907) (7,564)
Acquisition of Microwave Radio Corporation (9,600)
Proceeds from sale of subsidiary 3,501
Proceeds from sale of assets 50 4,833 123
Other (766) (1,218) (4,318)
-------- ------- -------
Net cash (used in) continuing operations
investing activities (4,356) (13,292) (21,359)
Net cash provided by (used in) discontinued
operations investing activities 1,336 (11,052) (6,279)
-------- ------- -------
Net cash provided by (used in) investing activities (3,020) (24,344) (27,638)
-------- ------- -------
FINANCING ACTIVITIES
Payments on long-term debt (325) (328) (1,156)
Net borrowings (repayments) under bank
credit facilities (4,500) 10,500 (3,400)
Borrowings of long-term debt 1,124
Issuance of common stock 4,483 3,589 5,237
-------- ------- -------
Net cash provided by (used in) continuing
operations financing activities (342) 14,885 681
Net cash provided by (used in) discontinued
operations financing activities (200) (100) (200)
-------- ------- -------
Net cash provided by (used in) financing activities (542) 14,785 481
-------- ------- -------
Net increase (decrease) in cash and cash equivalents 414 2,577 (11,966)
Cash and cash equivalents at beginning of year 4,560 1,983 13,949
-------- ------- -------
Cash and cash equivalents at end of year $ 4,974 $ 4,560 $ 1,983
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 5,874 $ 4,247 $ 4,546
Income taxes 57 2,353 9,808
Supplemental disclosure of non-cash discontinued
operations activities:
Purchased intangibles written off 17,939 10,000
Accrued loss on disposal of discontinued operations 12,538
Supplemental disclosure of non-cash investing
and financing activities:
Tax benefit of stock options exercised 118 687 1,772
Note canceled in connection with the purchase
of TeleSciences Transmission Systems, Inc.'s assets (2,000)
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CALIFORNIA MICROWAVE, INC.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
California Microwave, Inc. and all subsidiaries (the company). All significant
intercompany balances and transactions have been eliminated. The financial
statements have been restated to reflect the accounts of Microwave Networks (MN)
and Satellite Transmission Systems (STS) as discontinued operations (See Note
2).
USE OF ESTIMATES; RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Significant estimates are used in determining the collectibility of accounts
receivable, warranty costs, inventory realization, profitability on long-term
contracts, accounting for income taxes, restructuring reserves, recoverability
of property, plant, and equipment, recoverability of purchased intangibles,
amounts to be realized on a sale of discontinued operations, and contingencies.
Actual results could differ from estimates.
FISCAL YEAR
The company's fiscal year ends on the Saturday closest to June 30, and includes
53 weeks in fiscal 1996 and 52 weeks in fiscal 1997 and 1995. For clarity of
presentation, all fiscal periods are reported as ending on a calendar month end.
REVENUE RECOGNITION, RECEIVABLES AND CREDIT RISK
Generally, sales are recorded at the time individual items are shipped. Sales on
certain long-term, small quantity, high unit value contracts are recognized at
the completion of significant project milestones, which are generally contract
line items.
The company manufactures and sells satellite communication and radio products
and information collection and communications systems to commercial customers in
the telecommunication, broadcast and related industries and to the U.S.
government. The company generally requires no collateral, but generally requires
letters of credit denominated in U.S. dollars from its foreign customers, most
of whom are customers of the two discontinued operations. Further, beginning in
fiscal 1996, the company entered a credit insurance program to insure certain
receivables from foreign customers where a confirmed letter of credit was not
cost effective or available. Additionally, from time to time, the company sells
certain insured receivables, without recourse, at prevailing discount rates.
In fiscal 1997, 1996 and 1995, the company charged to operations $465,000,
$177,000 and $179,000, respectively, for its provision for doubtful accounts.
INVENTORIES AND COST OF PRODUCTS SOLD
Inventories are recorded at the lower of cost or market. Project inventories are
transferred to cost of products sold at the time revenue is recognized based on
the estimated total manufacturing costs and total contract prices under each
contract. Losses on contracts are recognized in full when the losses become
determinable. The cost of other inventories is generally based on standard costs
which approximate actual costs determined by the first-in, first-out method.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents are carried at cost which approximates market and consist of
highly liquid investments with maturities when purchased of 90 days or less.
Short-term investments consist of money market instruments, investments in
municipal bonds and mutual funds with carrying values which approximate their
market values. The company has not experienced losses from these investments.
FOREIGN CURRENCY EXCHANGE CONTRACTS
The company has entered into forward currency exchange contracts to hedge
foreign currency transactions for periods consistent with its committed
exposures. This hedging minimizes the impact of foreign currency exchange rate
movements on the company's operating results. The company's foreign exchange
contracts do not subject the company's results of operations to risk due to
exchange movements because gains and losses on these contracts generally offset
losses and gains on the assets being hedged. Gains and losses on hedges of firm
commitments are deferred and included in the basis of the hedged transaction
when it is completed. No foreign currency exchange contracts were outstanding at
June 30, 1997. The net gains and losses resulting from foreign currency
transactions have not been material.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and
<PAGE> 6
amortization charges are computed under the straight-line method based on the
estimated useful lives of the related assets.
INTANGIBLE ASSETS OF BUSINESSES ACQUIRED
The excess of purchase price over the fair value of net assets acquired
generally is amortized on a straight line basis over periods of 5 to 30 years.
The carrying value of this excess purchase price is reviewed if the facts and
circumstances suggest that the asset may be impaired. If this review indicates
that the excess purchase price is not recoverable, the company's carrying value
is reduced appropriately. Due to significant operating losses, the remaining
purchased intangible assets ($17,939,000) of the two discontinued operations
were determined to be impaired and were expensed in the fourth quarter of fiscal
1997. During fiscal 1995, purchased intangibles of TeleSciences Transmission
Systems (TTS), which is a part of MN, were written down by $10,000,000. Both of
these amounts have been included in the loss from discontinued operations, net
of the related tax benefit.
INCOME (LOSS) PER SHARE
Net income and income from continuing operations per share are based on the
weighted average number of common shares outstanding plus the effect of the
assumed exercise of stock options which are dilutive common stock equivalents.
Net loss and loss on discontinued operations per share are computed using the
weighted average number of common shares outstanding. Fully diluted net income
per share has not been presented in fiscal 1996 because there was no material
additional dilution.
In February 1997, The Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in an increase
in primary earnings per share in those periods in which the company has net
income.
2. DISCONTINUED OPERATIONS
In June 1997, the company's Board of Directors adopted a formal plan to sell two
of its business units, Microwave Networks (MN) and Satellite Transmission
Systems (STS).
Microwave Networks is a combination of Microwave Networks, Inc. (MNI) acquired
in May 1995, TeleSciences Transmission Systems, Inc. (TTS) acquired in October
1993 and the digital radio product line of Microwave Radio Corporation acquired
in April 1992.
On May 31, 1995, MNI was acquired in a merger effected by exchanging 3,342,653
shares of the company's common stock and options to acquire 132,347 shares of
the company's common stock for all of the outstanding MNI capital stock (defined
as the then-outstanding MNI common and preferred stock and MNI common stock
issuable under then-outstanding options, warrants, or other convertible
securities). MNI was engaged in the design, manufacture, sale and installation
of high performance microwave radios and transmission products for cellular and
personal communication network applications. The merger was accounted for as a
pooling of interests, and accordingly, the discontinued operations include the
results of MNI for all periods presented.
On October 26, 1993, the company acquired substantially all of the assets and
certain of the liabilities of TTS, a wholly-owned subsidiary of TeleSciences,
Inc. TTS' product line consisted of digital and analog microwave radios for
cellular, personal communications network and private network markets. The
company paid $23.7 million for those net assets. The acquisition of TTS was
accounted for as a purchase transaction and accordingly, the acquired assets and
liabilities of TTS were recorded at their estimated fair value at the date of
acquisition. The excess of the purchase price over the valuation of the net
assets acquired was being amortized on a straight line basis over initially 30
years and after December 31,1996, over 15 years. During fiscal 1997 and 1995,
the excess purchase price was reduced by $9.9 million and $10.0 million,
respectively, as a result of impairment adjustments to the TTS purchased
intangible assets. In addition, in June 1997, the remaining purchased intangible
assets of the MRC digital radio product line ($6.2 million) and STS ($1.9
million) were also expensed as a result of impairment adjustments.
STS was acquired in 1980 and includes the much smaller business of Mobile
Satellite Products acquired in 1991. STS is a supplier of turnkey satellite
transmit/receive earth stations and networks for domestic, international and
government applications.
Summarized results and financial position of the discontinued operations are
presented below for information purposes only and do not necessarily reflect
what the results of operation and financial position would have been had they
operated on a stand-alone basis.
SUMMARIZED OPERATIONS DATA
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CALIFORNIA MICROWAVE, INC.
<TABLE>
<CAPTION>
(In thousands)
Years ended June 30 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 170,301 $ 220,689 $ 251,509
========= ========= =========
Special charges (See Note 3):
Inventory write-downs
and other charges $ 32,167 $ 15,450
Restructure 7,780 9,446
Write-down of
intangible assets 17,939 10,000
--------- ---------
$ 57,886 $ 34,896
========= =========
Loss from operations before
income tax benefit $ (72,398) $ (2,711) $ (32,889)
Income tax benefit (21,424) (976) (9,965)
--------- --------- ---------
Net loss from operations $ (50,974) $ (1,735) $ (22,924)
========= ========= =========
Loss on disposal before
income tax benefit $ (12,538)
Income tax benefit (4,167)
---------
Net loss on disposal $ (8,371)
=========
</TABLE>
SUMMARIZED FINANCIAL POSITION
<TABLE>
<CAPTION>
(In thousands)
1997 1996
--------- ---------
<S> <C> <C>
Accounts receivable $ 51,912 $ 69,702
Inventories 43,514 53,430
Accounts payable and accruals (35,897) (41,905)
Other 1,075 1,132
--------- ---------
Net current assets $ 60,604 $ 82,359
--------- ---------
Net property, plant and
equipment $ 20,557 $ 25,165
Intangible assets 18,249
Long term debt (1,530) (1,630)
Other 25 2,847
--------- ---------
Net noncurrent assets $ 19,052 $ 44,631
--------- ---------
Total net assets $ 79,656 $ 126,990
========= =========
</TABLE>
3. SPECIAL CHARGES APPLICABLE PRINCIPALLY TO DISCONTINUED OPERATIONS
During fiscal 1997, the company recorded inventory write-downs, contract
expenses and other charges of approximately $39.3 million and restructuring
charges of $7.8 million. These charges were principally a result of a
comprehensive review of MN and STS as a result of continuing disappointing
operating performance during 1997. This review included an evaluation of
inventory, product development and migration plans, utilization of facilities,
headcount requirements and other matters. The restructuring charges of $7.8
million were largely identified within the MN operations where additional
facility consolidations and employee severances were required.
Inventory and related commitments were the largest exposure items and resulted
in charges of $31.7 million, a major retrofit program was identified and
included in contract charges of $5.8 million, and charges for other items of
$1.9 million were also recorded. The company also wrote-off the remaining $17.9
million of purchased intangible assets related to the discontinued operations.
In June 1995, the company recorded restructuring charges of approximately $10.9
million, a write-down of TTS-purchased intangible assets of $10 million and
inventory write-downs, contract expenses and other charges of approximately
$15.5 million, for a total of approximately $36.4 million in connection with a
program to reduce costs and improve operating efficiencies. The program
included, among other things: the integration of MN and TTS wireless operations
and the exit by TTS from the short-haul radio market, which included certain
short-haul radio contracts and the shifting of short-haul radio sales to MRC;
the recording of certain contract costs at Satellite Transmission Systems (STS)
division; the elimination of excess facilities; the reduction of employees at
STS; the write-off of excess inventory and capital equipment; and the write-down
of intangible assets. During 1996, the program was expanded, without a net
charge to operations, to include
merging the operations of TTS and MNI with certain operations of MRC into a new
unit, Microwave Networks (MN), resulting in the write-off of additional excess
inventories and other assets and reducing the number of employees at MN.
The following table summarizes these charges: (In thousands)
<TABLE>
<CAPTION>
Asset
write-offs
and
payments Future
1997 1995 through cash
provision provision June 30,1997 outlays
--------- --------- ----------- --------
<S> <C> <C> <C> <C>
Other charges:
Inventory write-downs 31,677 2,950 33,227 1,400
Contract termination and
related costs 5,770 10,500 12,477 3,793
Other 1,850 2,000 3,330 520
------- ------- ------- -------
39,297 15,450 49,034 5,713
------- ------- ------- -------
Restructuring:
Excess facilities 5,520 3,930 2,359 7,091
Severance costs 500 4,026 4,327 199
Capital equipment write-offs 1,460 1,063 2,523
Other 300 1,927 1,806 421
------- ------- ------- -------
7,780 10,946 11,015 7,711
------- ------- ------- -------
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C> <C> <C>
Intangible assets write-down 17,939 10,000 27,939
-------- ------- ------- -------
$ 65,016 $36,396 $87,988 $13,424
======== ======= ======= =======
Applicable to:
Continuing operations $ 7,130 $ 1,500
Discontinued operations 57,886 34,896
------- -------
$65,016 $36,396
======= =======
</TABLE>
4. SALES
A breakdown of sales by product class and by market sector for the last three
years were as follows:
<TABLE>
<CAPTION>
(In thousands)
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Satellite communications $ 85,662 $ 91,494 $ 79,763
Radio products 76,895 69,835 70,831
Information collection
and communications 91,604 78,635 65,825
-------- -------- --------
$254,161 $239,964 $216,419
======== ======== ========
International $ 72,890 $ 72,731 $ 59,363
U.S. commercial 75,623 72,175 65,532
U.S. government 105,648 95,058 91,524
-------- -------- --------
$254,161 $239,964 $216,419
======== ======== ========
</TABLE>
International sales by geographic area were as follows:
<TABLE>
<CAPTION>
(In thousands)
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Latin America $30,172 $24,806 $19,230
Asia-Pacific 24,306 27,026 23,150
Europe 9,470 9,952 5,766
Africa and Middle East 4,565 3,484 2,106
Other - principally Canada 4,377 7,463 9,111
------- ------- -------
$72,890 $72,731 $59,363
======= ======= =======
</TABLE>
5. INVENTORIES
The components of inventories were as follows at June 30:
<TABLE>
<CAPTION>
(In thousands)
-----------------
1997 1996
------- -------
<S> <C> <C>
Projects in process $ 7,795 $23,437
Less: Progress billings 1,938 9,760
------- -------
5,857 13,677
Work-in process and finished goods 21,915 19,652
Raw materials and parts 22,581 16,697
------- -------
$50,353 $50,026
======= =======
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at June 30:
<TABLE>
<CAPTION>
(In thousands)
----------------------------------
Life
(in years) 1997 1996
----------------------------------
<S> <C> <C> <C>
Land $ 449 $ 449
Buildings 30-40 3,135 3,135
Machinery and equipment 3-10 27,074 33,717
Office and computer
equipment 5-10 17,906 16,214
Leasehold improvements Lease term 4,345 3,852
Vehicles 3-5 551 824
------- -------
$53,460 $58,191
======= =======
</TABLE>
Included in other assets at June 30, 1997, is approximately $1.3
million of test equipment to be completed and placed in service. Included in
other assets at June 30, 1996, was approximately $1.4 million of land and
buildings held for sale, which were sold in fiscal 1997.
Depreciation and amortization expense on property, plant and equipment was $7.9
million, $5.6 million, and $5.8 million for the years ended June 30, 1997, 1996
and 1995, respectively.
7. OTHER LIABILITIES
Other accrued liabilities and other long-term liabilities consisted of the
following at June 30:
<TABLE>
<CAPTION>
(In thousands)
-----------------
1997 1996
------- -------
<S> <C> <C>
Salaries, bonuses and commissions $ 7,541 $ 6,168
Vacation 3,345 3,086
Other payroll related 4,170 3,872
Warranties 1,841 1,084
Contract costs 1,567 3,252
Advance payments 2,030 1,619
Accrued restructuring expense 7,512 3,568
</TABLE>
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CALIFORNIA MICROWAVE, INC.
<TABLE>
<S> <C> <C>
Accrued loss on disposal of
discontinued operations 12,538
Other 5,279 3,784
------- -------
$45,823 $26,433
======= =======
</TABLE>
At June 30, 1997, approximately $4.0 million of other long-term liabilities
represented accrued restructuring expenses, principally relating to excess
facilities.
8. CREDIT LINE AND LONG-TERM DEBT Long-term debt consisted of the following at
June 30:
<TABLE>
<CAPTION>
(In thousands)
-----------------
1997 1996
------- -------
<S> <C> <C>
Bank credit facilities $ 6,000 $10,500
Industrial development bonds and other 3,101 3,433
------- -------
$ 9,101 $13,933
------- -------
Convertible subordinated notes:
5 1/4% notes due 2003 $57,500 $57,500
5% notes due 1999 5,700 5,700
------- -------
$63,200 $63,200
======= =======
</TABLE>
Debt maturing in each of the next five years and thereafter is as follows: 1998
- - $333,000; 1999 - $6,054,000; 2000 - $6,314,000; 2001 - $259,000; 2002 -
$271,000; 2003 and thereafter $59,402,000.
The company has a committed asset-based bank credit facility totaling $40
million. The facility is secured by the company's accounts receivable,
inventory, intangible assets and capital equipment not previously encumbered.
The facility expires in June 2000. Availability is calculated daily based on a
formula of eligible accounts receivable. The facility requires a 0.25% annual
commitment fee and interest rates for borrowings will not exceed the bank's
reference rate plus 1% (9.0% at June 30, 1997). At June 30, 1997, there were
$6.0 million of borrowings and $16.1 million of standby letters of credit and
bank guarantees outstanding under this facility. The calculated borrowing limit
at June 30, 1997 was approximately $37 million, leaving $15 million of available
credit. Over 90% of the standby letters of credit and bank guarantees relate to
discontinued operations. Because of the company's ability to defer payment of
the borrowings until June 2000, the amount outstanding at June 30, 1997, has
been classified as a long-term liability. The carrying value of the amount
borrowed at June 30, 1997, approximated fair value based on prevailing interest
rates.
The industrial development bonds are payable in annual installments through June
2013, may be prepaid at any time without penalty and bear interest at a floating
rate (4.4% at June 30, 1997), based upon prevailing market conditions, which is
redetermined every seven days. The other long-term debt represents notes which
are payable through 2005. The industrial development bonds and the other
long-term debt are secured by mortgages on the equipment and properties
involved.
At June 30, 1997, the company was not in compliance with certain covenants of
its bank and other debt agreements. These lenders have waived such
non-compliance at June 30, 1997 and the company expects to amend the agreements
following the disposition of the discontinued operations.
On December 15, 1993, the company issued $57.5 million of 51/4%, convertible
subordinated notes due December 15, 2003. These notes are convertible at any
time prior to maturity, at the option of the holder, into shares of the
company's common stock at a price of $28.4375 per share. These notes are
redeemable at the option of the company. Interest is payable semi-annually. The
notes are subordinated to all existing and future senior indebtedness of the
company. These notes are quoted on the Nasdaq National Market. At June 30,1997,
the fair value of the outstanding notes was $48.6 million, based on the quoted
market prices (which reflect the market value of the underlying securities into
which the notes are convertible, as well as current prevailing interest rates).
Concurrent with the closing of the acquisition of TTS in October 1993, the
company issued for cash to Motorola, Inc., an investor in TeleSciences, Inc., a
$5.7 million, five year, 5% convertible subordinated note, convertible at
Motorola's option into the company's common stock at a price of $28.50 per
share. At its option, the company may redeem the note without penalty. The note
is subordinated to all existing and future senior indebtedness of the company.
9. COMMON STOCK
STOCKHOLDER RIGHTS
In October 1989, the stockholders of the company approved a rights agreement
under which there was distributed to the company's stockholders the right to
buy, for $35, one share
<PAGE> 10
of common stock for each share of common stock held by such stockholders. The
rights will become exercisable only if a person or group acquires 20% or more of
the company's common stock or announces an offer to acquire 30% or more of the
company's common stock. In the event the company is acquired, or upon the
occurrence of certain other events, each right may under certain circumstances
entitle the holder to purchase, for $35, $70 worth of common stock. Until such
events occur, the rights are redeemable at any time by the company for $0.01 per
right.
OPTIONS AND OTHER STOCK PLANS
Stock options have been granted to officers, directors, key employees and
consultants under the company's stock option plans with exercise prices equal to
the fair market value of the company's common stock on the date of grant. Most
options currently outstanding become exercisable in annual installments of 25%
beginning one year after the date of grant. Options granted to the company's
directors become 100% exercisable upon grant. Options granted under the 1986 and
1992 stock option plans expire after ten years. Options assumed by the company
that were granted under MNI's stock option plans (the MNI plans) generally
become exercisable in annual installments of 25% beginning on the date of grant.
In April 1996, the Board of Directors offered non-officer employees holding
stock options with exercise prices over $21 per share (the current option) the
opportunity of canceling those stock options in exchange for new options (the
replacement options) issued with exercise prices of $21 per share, which
exercise price was approximately 120% of the then current fair market value of
the company's common stock. The number of shares covered by the replacement
option was equal to the number of outstanding shares covered by the current
option reduced in the same proportion as the reduction in the exercise price.
Included in the table below are options for 425,672 shares that were granted and
options for 513,707 shares that were canceled under this program during fiscal
1996. In May 1997, the Board of Directors approved an increase of 1,500,000
shares for the 1992 Stock Option Plan which was approved by the stockholders in
July, 1997.
A summary of activity for 1997, 1996 and 1995, under the 1986 and 1992 Stock
Option Plans and the MNI plans is presented below:
<TABLE>
<CAPTION>
Outstanding shares under option
Years ended June 30
---------------------------------------------------
1997 1996 1995 1997
--------- --------- --------- ----------
Weighted-
Average
Price per
Share
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Beginning of year 1,902,123 1,716,824 1,663,947 $ 18.40
Granted 614,500 1,170,986 628,695 $ 14.92
Exercised (181,234) (128,214) (376,712) $ 10.84
Canceled (642,971) (857,473) (199,106) $ 19.26
--------- --------- --------- ---------
End of year 1,692,418 1,902,123 1,716,824 $ 17.65
========= ========= ========= =========
Exercisable 753,428 769,496 517,306 $ 17.23
Available for grant 169,583 237,573 581,388
Additional authorized 500,000
</TABLE>
The following table summarizes information about the company's stock options
outstanding at June 30, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted
Range of Remaining Weighted Average
Exercise Number Contractual Average Number Exercise
Price Outstanding Life Exercise Prices Exercisable Price
- ------------ ----------- ----------- --------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$ 0.64-$0.64 2,301 3.37 $ 0.64 2,301 $ 0.64
1.50-2.60 31,881 1.37 $ 2.42 31,854 $ 2.42
3.92-4.50 15,440 1.22 $ 4.25 10,830 $ 4.38
6.25-8.88 41,097 2.25 $ 7.93 41,097 $ 47.93
10.00-14.88 540,700 8.62 $13.54 144,800 $ 12.12
15.12-21.00 873,599 7.50 $19.26 432,220 $ 19.06
23.25-34.25 187,400 7.49 $27.98 90,326 $ 28.09
- ------------ --------- ---- ------ ------- ---------
$0.64-$34.25 1,692,418 7.55 $17.65 753,428 $ 17.23
============ ========= ==== ====== ======= =========
</TABLE>
The company has adopted the disclosure only provisions of Statement of Financial
Accounting Standard No. 123 "Accounting for Stock Based Compensation." ("SFAS
No. 123") Accordingly, no compensation cost has been recognized for the stock
option plans. Had compensation cost for the company's stock option and purchase
plans been determined based on the fair value at the grant date under SFAS No.
123, the company's net loss and net loss per share would have been increased and
net income and net income per share decreased to the pro forma amounts below:
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CALIFORNIA MICROWAVE, INC.
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
- -----------------------------------------------------------
1997 1996
--------- --------
<S> <C> <C>
Net income (loss) - as reported $(56,766) $11,623
Net income (loss) - pro forma $(59,712) $ 6,886
Net income (loss) per share -
as reported $ (3.50) $ 0.72
Net income (loss) per share -
pro forma $ (3.69) $ 0.43
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
The assumptions used to estimate the fair value of these options at the date of
grant using the Black-Scholes option pricing model were: weighted average risk
free interest rate of 5.8%; dividend yields of 0%; an expected volatility factor
of the market price of California Microwave's common stock of .51; and a
weighted-average expected life of the options of 4.2 years.
The effects of the above pro forma disclosures of applying SFAS No. 123 are not
likely to be representative of future pro forma disclosures as it is only
applicable to options granted during fiscal 1996 and fiscal 1997.
Stock grants have been made to officers and other key employees under the 1988
restricted stock plan at no charge to the employees. These grants generally vest
20% per year, beginning one year after the date of issue. The fair market value
of the shares, at the date of grant, is charged to compensation expense over the
five year period. Compensation expense relating to this plan was:
1997 - $178,000; 1996 - $250,000; 1995 - $298,000.
A summary of activity in the restricted stock plan was as follows:
<TABLE>
<CAPTION>
Outstanding restricted shares
-------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Beginning of year 52,320 44,330 83,300
Granted 800 34,250 3,450
Canceled (7,160) (5,150) (10,600)
Vested (17,380) 21,110 (31,820)
------- ------- -------
End of year 28,580 52,320 44,330
------- ------- -------
Available for grant 9,310 2,950 32,050
======= ======= =======
Weighted average fair value
of shares on date of grant $ 12.50 $ 17.45 $ 32.82
</TABLE>
The company has an employee stock purchase plan under which employees may
purchase shares, subject to certain limitations, at no less than 85% of the
lower of the fair market value of the shares at the beginning or end of a
six-month purchase period. During 1997, 200,551 shares were issued for
$2,503,000, 154,862 shares were issued for $2,555,000 during 1996 and 95,466
shares for $1,880,000 during 1995. In October 1996, the shareholders approved an
additional 400,000 shares for distribution under this plan. Shares available for
future issuances at June 30, 1997 were 332,044.
10. RETIREMENT PLANS
The company has a defined contribution retirement plan covering substantially
all employees. One part of the plan is a 401(K) savings plan which allows
employees to contribute pre-tax compensation up to the lesser of 20% of total
annual compensation or the statu-tory limit (currently $9,500). The company
contributes up to $1,200 to each employee based on employee contributions up to
$1,900. The second part of the plan arises out of the conversion by the company
of its previous cash profit sharing plan to a defined contribution plan.
Contributions are allocated based on each employee's salary and length of
employment. No profit sharing amounts were authorized for fiscal 1997. All of
the above employer contributions are determined by and subject to the approval
of the company's Board of Directors. Contributions to these plans for employees
of the continuing operations were $801,000 in 1997, $768,000 in 1996, and
$566,000 in 1995.
11. INCOME TAXES
The continuing operations provision for (benefit from) income taxes consisted of
the following:
<PAGE> 12
<TABLE>
<CAPTION>
(In thousands)
-------------------------
1997 1996 1995
------ ------ --------
<S> <C> <C> <C>
Current:
Federal $7,925 $2,615 $15,294
State 961 298 2,781
------ ------ --------
8,886 2,913 18,075
------ ------ --------
Deferred:
Federal (6,734) 4,074 (9,779)
State (884) 527 (1,778)
------ ------ --------
(7,618) 4,601 (11,557)
------ ------ --------
$1,268 $7,514 $ 6,518
====== ====== ========
</TABLE>
The differences between the U.S. federal statutory income tax rate and the
company's effective rate for continuing operations were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ------
<S> <C> <C> <C>
U.S. federal statutory
income tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit 2.0 2.6 3.0
Intangible assets 8.6 2.3 2.2
Foreign Sales Corporation
tax benefits (7.0) (4.2) (6.6)
Research and development
tax credits (6.1) 0.0 (3.6)
Other 0.5 0.3 0.3
----- ---- ------
33.0% 36.0% 30.3%
===== ==== ======
</TABLE>
Deferred taxes reflect the net effects of temporary differences between the
carrying amounts of assets and liabilities used for financial reporting purposes
and the amounts used for income tax purposes. The components of net deferred
tax assets are as follows:
<TABLE>
<CAPTION>
(In thousands)
-----------------
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory $1,756 $1,755
Warranty 753 779
Contracts in progress 1,353 915
Allowance for bad debts 248 594
Compensation related 2,427 1,526
Net operating loss 5,631 0
Credits 1,535 0
Other 541 661
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C>
Discontinued operations 13,675 7,883
-------- --------
27,919 14,113
-------- --------
Deferred tax liabilities:
Depreciation 1,934 1,496
Other 215 257
-------- --------
2,149 1,753
-------- --------
Net deferred tax assets $ 25,770 $ 12,360
======== ========
</TABLE>
Although realization of the deferred tax assets is not assured, the company
believes that it is more likely than not that all of the deferred tax assets
will be realized.
At June 30, 1997, the company had federal net operating loss
carryforwards of approximately $14.5 million to offset future taxable income.
These net operating loss carryforwards expire in the year 2012. The company also
has various tax credit carryforwards of approximately $1.5 million. The majority
of the tax credits consists of alternative minimum tax credits ($1.1 million)
which can be carried forward indefinitely.
12. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Substantially all of the buildings occupied by the company are occupied under
operating leases which expire in one to eleven years. Certain of these leases
contain escalation clauses. Total lease expense for the three years ended June
30, 1997, 1996 and 1995 was $3,405,000, $2,919,000 and $2,915,000, respectively.
Lease commitments which are payable by the company, exclusive of property taxes,
will be due as follows: 1998 - $3,148,000; 1999 - $2,403,000; 2000 - $1,526,000;
2001 - $847,000; 2002 - $838,000; 2003 and thereafter - $3,033,000.
Discontinued operations have lease commitments of approximately $10.3 million of
which the company has reserved $7.4 million for non-utilized facilities. The
balance represents current lease obligations due over a six-year period.
CONTINGENT LIABILITIES
On November 9, 1995, and December 12, 1995, two putative class action lawsuits
were filed in the United States District Court for the Northern District of
California. The plaintiffs in these two cases, which have been consolidated,
purport to represent a class of all persons who purchased common stock of the
company between September 6, 1994, and June 29, 1995 (the class period). Named
as defendants are the company and certain of its former executive officers. The
Complaints allege that defendants violated various federal securities laws
through material misrepresentations and omissions during the class period.
Defendants filed motions to dismiss the complaints, which the court granted on
April 19, 1996, with leave to amend. Plaintiffs filed an amended consolidated
complaint and in August 1996 defendants filed a motion to dismiss that
complaint. On November 1, 1996, the motion to dismiss was denied. Although the
ultimate outcome of these proceedings cannot be determined, the company believes
that it has meritorious defenses to the claims alleged in these lawsuits and
intends to defend the actions vigorously.
The company is subject to other legal proceedings and claims that arise in the
normal course of its business. The company believes these proceedings will not
have a material adverse effect on the financial position or results of
operations of the company.
<PAGE> 14
REPORT OF ERNST AND YOUNG LLP, INDEPENDENT AUDITORS CALIFORNIA MICROWAVE INC.
The Board of Directors and Stockholders
California Microwave, Inc.
We have audited the accompanying consolidated balance sheets of California
Microwave, Inc. at June 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1997. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of California
Microwave, Inc. at June 30, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.
Palo Alto, California
August 7, 1997
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CALIFORNIA MICROWAVE, INC.
Statements made below and elsewhere in this Annual Report that are not
historical facts, including any statements about expectations for fiscal year
1998 and beyond, involve risks and uncertainties. Factors that could cause the
company's actual results to differ materially from management's projections,
estimates and expectations include, but are not limited to, delays in the
receipt of orders or in the shipment of products, delays in the disposal of
discontinued operations and other factors referred to under "Information
Regarding Forward Looking Statements" in the company's Form 10-K Annual Report
for its fiscal year ended June 30, 1997, and in the company's Consolidated
Financial Statements and Notes to Consolidated Financial Statements. The
Consolidated Financial Statements should be read in conjunction with this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Overview
In December 1996, California Microwave, Inc. initiated a comprehensive business
review that culminated in a June 1997 decision to divest its Satellite
Transmission Systems (STS) and Microwave Networks (MN) business units. The
company decided to focus on maintaining and expanding product areas where it has
earned leading market share positions. Retained businesses include satellite
communications products and up-link services, terrestrial video and data radio,
and information collection, analysis and communication systems. In each of these
areas, California Microwave supplies differentiated capital equipment and
services incorporating radio technologies.
The STS and MN businesses are accounted for as discontinued operations in the
accompanying consolidated financial statements. Accordingly, the discussion that
follows this overview section concerns only the results of continuing
operations. The 1996 and 1995 amounts have been reclassified to conform to this
presentation.
During the second and third quarters of fiscal 1997, the company recorded $39.3
million of inventory write-downs and other charges and $7.8 million of
restructuring charges. Of the combined $47.1 million of charges, $7.1 million
related to continuing operations and $39.9 million was attributable to STS and
MN. The charges for continuing operations are discussed under Gross Margin and
Marketing and Administration Expenses.
Net sales from discontinued operations were $170.3 million, $220.7 million and
$251.5 million in fiscal 1997, 1996 and 1995, respectively, representing
decreases of 13% in 1996 and 23% in 1997. These declines were due to the impact
of increased competition, delays in new product introduction, loss of key staff,
and, in the case of MN, significant disruption from efforts to integrate
operations from three divisions with overlapping products and markets. Net loss
from discontinued operations was $51.0 million, $1.7 million and $22.9 million
in 1997, 1996 and 1995, respectively. The 1997 loss (net of income tax benefit)
included write-off of purchased intangible assets ($14.4 million), write-down of
excess and obsolete inventory ($16.2 million), reserves for contract losses,
warranty and bad debts ($5.4 million), and restructuring charges ($5.2 million).
In addition, $8.4 million was provided for the estimated losses, fees and
expenses associated with the divestiture process.
The 1995 loss from discontinued operations after income tax benefit was $22.9
million and included $13.5 million of restructuring charges and $10.8 million of
reserves, principally for a loss contract at TTS, a part of MN.
COMPARISON OF FISCAL YEARS 1997, 1996, AND 1995
The following table sets forth, for continuing operations and for the periods
indicated, certain income and expense items expressed as a percentage of total
sales:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross margin 28.6% 34.1% 37.4%
Research and development 7.2% 6.9% 6.1%
Marketing and administration 18.1% 16.1% 18.2%
Amortization of intangible
assets 0.5% 0.6% 0.6%
Restructuring charges 0.7%
Operating income 2.8% 10.5% 11.7%
Interest expense, net 2.3% 1.8% 1.8%
Gain on sale of subsidiary -1.1%
Income from continuing
operations before income taxes 1.5% 8.7% 10.0%
Income from continuing
operations 1.0% 5.6% 6.9%
</TABLE>
BOOKINGS AND BACKLOG Bookings from continuing operations were $248.1 million,
$217.5 million and $214.0 million in fiscal 1997, 1996 and 1995, respectively,
representing year-to-year increases of 14% in 1997 and 2% in 1996.
Bookings increased in each major product and market sector in 1997. The three
areas generating most of this increase were satellite modem and transceiver
products, radio for data communications in developing countries, and information
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CALIFORNIA MICROWAVE, INC.
collection and communication systems. By product area, bookings were up 17% in
satellite communications, up 6% in radio products and up 19% in information
collection and communications. By market sector, bookings increased by 17% in
both international and U.S. government markets, and by 8% in U.S. commercial
markets. Major factors contributing to these increases were the successful
introduction of new satellite modem and transceiver products, a significant
radio order from Brazil for lottery communications and the addition of new radar
sensors to the U.S. Army Airborne Reconnaissance Low (ARL) program.
Bookings in 1996 compared to 1995 increased in the radio and satellite
communications product areas and in the U.S. commercial sector, and decreased in
the other categories. Over the two year period, bookings increased in each major
product and market sector, with the largest growth in radio and satellite
communications products and in the U.S. commercial market.
Backlog was $91.1 million, $97.1 million and $110.5 million at June 30, 1997,
1996, and 1995, respectively, representing decreases of 6% in 1997 and 12% in
1996. The proportion of such backlog that was expected to be delivered within 12
months was 95%, 95% and 70% as of the end of 1997, 1996 and 1995, respectively.
NET SALES Net sales from continuing operations were $254.2 million, $240.0
million and $216.4 million in fiscal 1997, 1996, and 1995, respectively,
representing year-to-year increases of 6% in 1997 and 11% in 1996.
The company operates in one industry -- the manufacture of electronics equipment
for wireless communications, including telephone, data, control, detection,
ranging and surveillance. A breakdown of sales by product class and by market
sector for the last three years is shown below. Satellite communications
includes ground equipment and uplink services for satellite communications.
Radio products includes point-to-multipoint and point-to-point radios and
components used in radios. Information collection and communications includes
systems which collect and analyze radio, optical, infrared and radar data and
equipment providing information protocol processing and gateway communications.
<TABLE>
<CAPTION>
In Millions
--------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Satellite communications $ 85.7 $ 91.5 $ 79.8
Radio products 76.9 69.8 70.8
Information collection and
communications 91.6 78.7 65.8
-------- -------- --------
$ 254.2 $ 240.0 $ 216.4
======== ======== ========
International $ 72.9 $ 72.7 $ 59.4
U.S. Commercial 75.6 72.2 65.5
U.S. Government 105.7 95.1 91.5
-------- -------- --------
$ 254.2 $ 240.0 $ 216.4
======== ======== ========
</TABLE>
In 1997, sales increased 16% and 10% in the information collection and
communications and radio product areas, respectively, offsetting a 6% decrease
in satellite products. The increase in information collection and communications
sales was driven by record bookings for strategic intelligence projects and
funding for new ARL program sensors. Management does not foresee comparable
sales increases from this area in fiscal 1998. The major factor in the radio
product increase was the growing need for data communications in developing
countries. The decrease in satellite communications was due to a 5-10% decline
in prices for satellite modems and transceivers, and the fact that new, lower
cost modem products introduced in 1997 have lower average sales prices. Because
of the continuing growth in unit shipments, record 1997 bookings and customer
acceptance of new products, management believes that satellite communications
will be the company's fastest growing area in fiscal 1998.
Sales increased in each market sector in 1997, with 75% of the growth generated
by sales to U.S. government customers, reflecting record sales into long-term
programs in information collection, analysis and communications. International
sales were level in 1997 as increased sales into Latin America and Middle
East/Africa were offset by decreases in Asia/Pacific and Canada. Due to the
growing need for information technology bandwidth, management believes that a
large majority of 1998's sales growth will come from commercial markets. The
company's international sales are generally denominated in U.S. dollars. During
the three years ended June 30, 1997, fluctuations of currency exchange rates did
not have a material effect on the company's results of operation.
Sales increased in all major product and market sectors, except radio products,
in 1996. The two areas generating most of this increase were satellite product
sales into developing countries and expansion of the company's role in the ARL
program. Radio product sales were even due to
<PAGE> 17
completion of a U.S. government program which contributed heavily to 1995 sales.
Reported sales exclude sales by continuing California Microwave businesses to
STS and MN, principally satellite products, of $8.3 million, $10.8 million and
$12.0 million in 1997, 1996 and 1995, respectively.
The only customer that accounted for more than 10% of sales in 1997, 1996 or
1995 was the U.S. government. The company's sales to all departments and
agencies of the U.S. government represented 41%, 40% and 42% of total sales in
1997, 1996 and 1995, respectively.
GROSS MARGIN Gross margin from continuing operations was $72.8 million, $81.9
million and $80.9 million in fiscal 1997, 1996 and 1995, respectively,
representing a decrease of 11% in 1997 and an increase of 1% in 1996. Gross
margin as a percentage of sales was 28.6%, 34.1% and 37.4% in 1997, 1996 and
1995, respectively. The gross margin in 1997 includes $6.6 million of charges to
cost of sales in December 1996 for the write-down of satellite and radio product
inventories to amounts expected to be realized. Excluding these charges, the
1997 gross margin would have been 31.2%. The major reason for the decrease in
gross margin in 1997, excluding the inventory write-down, was the reduction in
average prices for satellite modems and transceivers and video broadcast radios.
Management expects that the company's gross margin will rebound in fiscal 1998
due to the impact of new, lower cost satellite modems and transceivers, and a
higher mix of satellite product sales, which earn higher margins.
Gross margin as a percent of sales decreased in 1996 compared to 1995
principally due to a change in sales mix from higher margin radio products to
lower margin information collection and communication systems.
RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses from
continuing operations were $18.2 million, $16.6 million and $13.2 million in
fiscal 1997, 1996 and 1995, respectively, representing year-to-year increases of
10% in 1997 and 26% in 1996. Research and development expenses as a percentage
of sales were 7.2%, 6.9% and 6.1% in 1997, 1996 and 1995, respectively. Almost
90% of the research and development expense in each year represented investment
in new radio and satellite products and associated software. The company expects
that research and development expense as a percentage of sales will remain in
the 7% of sales range as it focuses its efforts on developing the products that
will provide unique radio-based solutions to the growing shortage of bandwidth
for digital data and digital video.
MARKETING AND ADMINISTRATION EXPENSES Marketing and administration expenses
from continuing operations were $46.1 million, $38.7 million and $39.5 million
in 1997, 1996 and 1995, respectively, representing a year-to-year increase of
19% in 1997 and a 2% decrease in 1996. Marketing and administration expenses as
a percentage of sales were 18.1%, 16.1% and 18.2% in 1997, 1996 and 1995,
respectively. Included in these expenses for the second quarter of fiscal 1997
were approximately $1.3 million of severance charges for the company's former
chief executive officer. Other significant factors in the 1997 increase were the
expenses of the class action lawsuit, the hiring of a new chief executive
officer and the establishment of corporate sales offices in Beijing and
Singapore. Management expects that marketing and administration expenses, as a
percentage of sales, will be lower in fiscal 1998.
AMORTIZATION OF INTANGIBLE ASSETS Amortization expense associated with
intangible assets in the continuing businesses was $1.4 million in 1997 and
1996, and $1.3 million in 1995.
RESTRUCTURING CHARGES In June 1995, the company recorded restructuring charges
of $1.5 million for continuing operations. These charges reflect the cost of
facility consolidations.
INTEREST EXPENSES Net interest expense was $5.9 million, $4.3 million and $3.8
million in 1997, 1996 and 1995, respectively. The significant increase in net
interest expense in 1997 reflects the need for the company to borrow against its
credit lines to fund operations and capital expenditures throughout the company,
including the discontinued operations. No interest expense has been allocated to
the discontinued operations. In fiscal 1997, negative cash flow from
discontinued operations, including the impact of investing activities, was
approximately $20 million. This offset an approximately $21 million positive
cash flow, including the impact of investing activities, from continuing
operations.
GAIN ON SALE OF SUBSIDIARY During fiscal 1997, the company recognized a $2.7
million gain from the sale of its Digital Radio Technology subsidiary.
PROVISION FOR INCOME TAXES The provision for income taxes was $1.3 million,
$7.5 million and $6.5 million in 1997, 1996 and 1995, respectively. The
effective tax rate was 33%, 36% and 30% for such years. The variation in tax
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CALIFORNIA MICROWAVE, INC.
rates is principally the effect of tax credits and other permanent items on
lower total tax provisions.
At June 30, 1997, the company had refundable income taxes of $10.1 million and a
cumulative net deferred tax asset of $25.8 million that will be available to
reduce payments on future federal and state tax liabilities. Management believes
it is more likely than not that the asset will be realized based on the
company's operating history in its continuing operations and projected future
results. Management expects to receive the income tax refund prior to December
1997 and intends to utilize the deferred tax assets associated with the
discontinued operations to reduce the need to make income tax payments in fiscal
1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the company had working capital of $111.5 million, including
cash and cash equivalents of $5.0 million, compared to working capital of $141.5
million, including cash and cash equivalents of $4.6 million, at June 30, 1996.
Net cash provided by continuing operating activities was $25.4 million, $0.5
million and $26.2 million in 1997, 1996 and 1995, respectively. In 1997, cash
was principally provided by operating profit, depreciation and an increase in
accounts payable. Cash flow was low in 1996 as increases in accounts receivable
and inventory, and a reduction in accrued liabilities offset the favorable
impact of profitable operations.
Days receivable in the continuing operations at June 30, 1997 were approximately
46 days compared to 52 days at June 30, 1996 and June 30, 1995. This improvement
includes the impact of discounting insured receivables. Beginning in June 1996,
the company has sold certain qualified export receivables to a bank. These
receivables are insured for 95% of their value and the company retains the risk
for the remaining uninsured 5%. At June 30, 1997, the outstanding balance of
sold and uncollected receivable balances was approximately $15.7 million, of
which $8.7 million relates to discontinued operations. Average inventory turns
were 3.6, 3.5 and 4.0 in 1997, 1996 and 1995, respectively. Inventories
increased in all major product areas in 1997.
The company's investing activities in the continuing businesses included capital
expenditures of $7.1 million, $16.9 million and $7.6 million in 1997, 1996 and
1995, respectively. In 1996, a portion of this investment was offset by receipt
of $4.8 million for the sale and lease-back of the company's Tempe, Arizona
facility. In 1997, the company received proceeds of $3.5 million from the sale
of its Digital Radio Technology subsidiary. In 1995, the company made a final
payment of $9.6 million related to the acquisition of Microwave Radio
Corporation. Total cash used in investing activities in the continuing
businesses was $4.4 million, $13.3 million and $21.4 million in 1997, 1996 and
1995, respectively.
The company's principal financing activities in 1997 were receipts of $4.5
million from sale of the company's common stock under on-going stock plans and
repayment of $4.8 million of debt. Sales of the company's common stock were $3.6
million in 1996 and $5.2 million in 1995. In 1996, the company borrowed $10.5
million from its bank credit facilities and $1.1 million from the state of New
York. The latter loan
<PAGE> 19
was associated with expansion of the company's Rochester, New York facility. In
1995, the company repaid $3.4 million of notes payable acquired in the
acquisition of MNI.
The company has available a committed asset-based bank credit facility totaling
$40 million. The facility is secured by the company's accounts receivable,
inventory, intangible assets and capital equipment not previously encumbered.
The facility expires in June 2000. Availability is calculated daily based on a
formula of eligible accounts receivable. The facility requires a 0.25% annual
commitment fee and interest rates for borrowings will not exceed the bank's
reference rate plus 1%. At June 30, 1997, there were $6.0 million of borrowings
and $16.1 million of standby letters of credit and bank guarantees outstanding
under this facility. The calculated availability at June 30, 1997 was
approximately $37 million, leaving $15 million of available credit. Over 90% of
the standby letters of credit and bank guarantees relate to discontinued
operations. At June 30, 1997, the company was not in compliance with certain
covenants of its bank and other debt agreements. These lenders have waived such
non-compliance and amended such covenants as necessary to bring the company into
compliance at June 30, 1997. The company expects to negotiate amendments to its
debt agreements following the disposition of the discontinued operations.
The company believes that its current cash position, funds generated from
operations, anticipated income tax refunds and funds available from its credit
facility will be adequate to meet the company's requirements for working
capital, capital expenditures and debt service for the foreseeable future.
<PAGE> 20
SELECTED FINANCIAL DATA (UNAUDITED) CALIFORNIA MICROWAVE, INC.
Five years ended June 30, 1997
(Dollars in thousands, except per share amounts)
- ------------------------------------------------
<TABLE>
<CAPTION>
1997(A)(B) 1996 1995(C)(D) 1994(E) 1993
--------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net sales $ 254,161 $ 239,964 $ 216,419 $ 180,379 $ 142,896
Operating income 7,042 25,186 25,380 25,567 15,251
Income from continuing operations 2,579 13,358 15,029 14,968 8,871
Net income (loss) (H) (56,766) 11,623 (7,895) 16,598 13,705
Income from continuing operations per share 0.16 0.82 0.93 0.94 0.66
Net income (loss) per share (H) $ (3.50) $ 0.72 $ (0.51) $ 1.04 $ 1.02
Average shares and equivalents 16,333 16,200 16,231 15,890 13,380
PERCENT OF SALES:
Gross margin 28.6% 34.1% 37.4% 38.4% 35.6%
Operating income 2.8% 10.5% 11.7% 14.2% 10.7%
Income from continuing operations 1.0% 5.6% 6.9% 8.3% 6.2%
Net income (loss) (H) (22.3%) 4.8% (3.6%) 9.2% 9.6%
Return on average assets N/M 4.1% N/M 7.8% 9.1%
Return on average stockholders' equity N/M 7.2% N/M 11.6% 12.8%
FINANCIAL POSITION:
Total assets $ 266,373 $ 292,375 $ 280,495 $ 261,630 $ 164,809
Long-term debt (excluding current portion) 72,301 77,133 69,721 72,533 3,060
Debt to capitalization (F) .38 .31 .31 .32 .02
Stockholders' equity per share $ 7.19 $ 10.60 $ 9.78 $ 10.13 $ 8.86
Ratio of earnings to fixed charges(G) N/M 4.02 N/M 6.88 6.78
Other (continuing operations only):
Year-end backlog $ 91,082 $ 97,108 $ 110,518 $ 112,549 $ 87,816
Year-end employees 1,412 1,359 1,112 947 824
Year-end facilities (thousands of square feet) 515 544 421 429 396
</TABLE>
(A) In June 1997 the company approved a plan to dispose of Microwave Networks
(MN), a business unit combining Microwave Networks, Inc. (MNI), TeleSciences
Transmission Systems (TTS) and the radio products of Microwave Radio
Corporation ( MRC) and Satellite Transmission Systems ( STS). These units
are being accounted for as discontinued operations for all periods.
(B) In fiscal 1997, the company recorded approximately $47.1 million of
restructuring, inventory and other charges, of which $39.9 million is
included in discontinued operations. In addition, the company expensed $17.9
million of unamortized purchase intangibles associated with MN and STS and
accrued losses on disposal of discontinued operations of $12.5 million.
(C) In May 1995, the company acquired MNI for 3,475,000 shares of the company's
common stock and options to acquire common stock. The acquisition was
accounted for as a pooling of interests.
(D) In fiscal 1995, the company recorded approximately $36.4 million of
restructuring and other charges, of which $34.9 million is included in
discontinued operations.
(E) In October 1993, the company acquired substantially all the assets and
certain of the liabilities of TTS for $23.7 million in cash. The acquisition
was accounted for as a purchase transaction.
(F) Debt to capitalization is year-end debt divided by year-end debt plus
stockholders' equity.
(G) The ratio of earnings to fixed charges is income before income taxes plus
fixed charges divided by fixed charges.
(H) Includes discontinued operations.
N/M Not meaningful
<PAGE> 21
FINANCIAL RESULTS BY FISCAL QUARTER (UNAUDITED) CALIFORNIA MICROWAVE, INC.
<TABLE>
<CAPTION>
Earnings (Loss) Per Share
------------------------------------
Income (Loss) Income (Loss) Net Net
Fiscal Gross from Continuing from Discontinued Income Continuing Discontinued Income
Quarter Sales Margin Operations Operations (Loss) Operations Operations (Loss)
- ------- ----- --------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
Q1 $ 61,777 $18,277 $ 990 $ (2,863) $ (1,873) $ 0.06 $ (0.18) $(0.12)
Q2 62,754 12,371 (2,828) (22,567) (25,395) (0.18) (1.40) (1.57)
Q3 58,559 18,362 1,855 (7,859) (6,004) 0.11 (0.48) (0.37)
Q4 71,071 23,747 2,562 (26,056) (23,494) 0.16 (1.59) (1.44)
- -------------------------------------------------------------------------------------------------------------
$254,161 $72,757 $ 2,579 $(59,345) $(56,766) $ 0.16 $ (3.66) $(3.50)
=============================================================================================================
1996
Q1 $ 58,044 $19,944 $ 3,222 $ 1,885 $ 5,107 $0.20 $ 0.12 $ 0.31
Q2 61,564 21,125 4,370 (722) 3,648 0.27 (0.04) 0.23
Q3 56,534 19,788 3,005 (1,680) 1,325 0.19 (0.10) 0.08
Q4 63,822 21,065 2,761 (1,218) 1,543 0.17 (0.08) 0.10
- -------------------------------------------------------------------------------------------------------------
$239,964 $81,922 $13,358 $ (1,735) $ 11,623 $0.82 $(0.11) $ 0.72
=============================================================================================================
</TABLE>
FISCAL 1997 SPECIAL CHARGES
Special charges affecting the 1997 quarterly data were as follows:
(1) Second-quarter gross margin was reduced by $6.6 million due to inventory
charges related to continuing operations. Similarly, income from continuing
operations was reduced by $4.8 million ($7.1 million pre-tax).
(2) Discontinued operations incurred the following charges on an after-tax
basis:
(a) $26.7 million in the second quarter for inventory and other special
charges.
(b) $5.2 million in the third quarter for restructuring charges.
(c) $14.4 million in the fourth quarter for write-downs of purchased
intangible assets and $8.4 million for estimated loss on disposal of
discontinued operations.
STOCK AND QUARTERLY DATA (UNAUDITED)
California Microwave, Inc. has one series of common stock, $0.10 par value
common stock. Holders of common stock have full voting rights and have the right
to cumulate votes for the election of directors. California Microwave follows
the policy of reinvesting all earnings to finance expansion of its business and
has paid no cash dividends. No change in this policy is contemplated in the
foreseeable future. At June 30, 1997, the number of California Microwave
shareholders totaled approximately 13,500, of whom approximately 2,000 were
holders of record. California Microwave stock is traded in the Nasdaq Stock
Market, is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation System (Nasdaq National Market) under the trading symbol
CMIC, and is listed in the Wall Street Journal and in other newspapers. The
following table sets forth for the fiscal periods indicated the high and low
stock prices.
STOCK PRICES BY QUARTER FISCAL YEARS 1997 AND 1996
<TABLE>
<CAPTION>
1997 Q1 Q2 Q3 Q4
- ----- ------ ------ ------- -------
<S> <C> <C> <C> <C>
High 15 5/8 18 1/4 19 15
Low 11 7/8 12 5/8 13 9/16 11 3/4
1996 Q1 Q2 Q3 Q4
- ----- ------ ------ ------- -------
High 32 1/2 25 1/4 20 3/4 20 1/4
Low 23 1/2 16 1/4 13 1/2 14 7/8
</TABLE>
<PAGE> 1
Exhibit 21
List of Subsidiaries
<TABLE>
<CAPTION>
Name Place of Incorporation
- ---- ----------------------
<S> <C>
EFData Corp. California
California Microwave Foreign Barbados,
Sales Corporation West Indies
California Microwave Navigation
Systems, Inc. Delaware
</TABLE>
-1-
<PAGE> 1
Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of California Microwave, Inc. of our report dated August 8, 1997 included in
the 1997 Annual Report to Shareholders of California Microwave, Inc.
Our audits also included the financial statement schedule of California
Microwave, Inc. listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 No.'s 33-09117, 33-24517, 33-44397, 33-58108, 33-73584,
33-86968, 333-19015 and 333-35025) pertaining to the 1992 Stock Option Plan,
1992 Restricted Stock Plan, Employee Stock Purchase Plan, and 1986 Stock Option
Plan of California Microwave, Inc.; the Non-Qualified Stock Option Agreement
between California Microwave, Inc. and Frederick Lawrence dated effective as of
July 16, 1997; and the Registration Statement (Form S-8 No. 33-60957)
pertaining to the Microwave Networks Incorporated 1990 Non-Qualified Stock
Option Plan for Employees and 1990 Non-Qualified Stock Option Plan for
non-Employed Directors and Consultants of our report dated August 8, 1997, with
respect to the financial statements incorporated herein by reference.
/s/ Ernst & Young LLP
----------------------
Ernst & Young LLP
Palo Alto, California
September 26, 1997
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below, being a member of the Board of Directors of California
Microwave, Inc. (the "Company"), hereby constitutes and appoints Frederick D.
Lawrence and George L. Spillane, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for and in his name, place and stead, in any and all capacities, to sign on his
behalf the Company's Annual Report on Form 10-K for its fiscal year ended June
30, 1997, and to execute any amendments thereto, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, with the full power and authority to do and
perform each and every act and thing necessary or advisable to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
DATED: July 24, 1997
/s/ Edward E. David, Jr. /s/ David B. Leeson
- ----------------------- -----------------------
EDWARD E. DAVID, JR. DAVID B. LEESON
/s/ Alfred M. Gray /s/ Arthur H. Hausman
- ----------------------- -----------------------
ALFRED M. GRAY ARTHUR H. HAUSMAN
/s/ William B. Marx, Jr. /s/ Terry W. Ward
- ----------------------- -----------------------
WILLIAM B. MARX, Jr. TERRY W. WARD
/s/ Frederick W. Whitridge, Jr. /s/ J.J. Adorjan
- ----------------------- -----------------------
FREDERICK W. WHITRIDGE, JR. J. J. ADORJAN
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 4,974
<SECURITIES> 2,097
<RECEIVABLES> 35,701
<ALLOWANCES> 943
<INVENTORY> 18,359
<CURRENT-ASSETS> 183,564
<PP&E> 53,460
<DEPRECIATION> 30,648
<TOTAL-ASSETS> 266,373
<CURRENT-LIABILITIES> 72,058
<BONDS> 76,291
0
0
<COMMON> 1,641
<OTHER-SE> 116,383
<TOTAL-LIABILITY-AND-EQUITY> 266,373
<SALES> 254,161
<TOTAL-REVENUES> 254,161
<CGS> 181,404
<TOTAL-COSTS> 181,404
<OTHER-EXPENSES> 65,715
<LOSS-PROVISION> 450
<INTEREST-EXPENSE> 5,944
<INCOME-PRETAX> 3,847
<INCOME-TAX> 1,268
<INCOME-CONTINUING> 2,579
<DISCONTINUED> (59,345)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (56,766)
<EPS-PRIMARY> (3.50)
<EPS-DILUTED> (3.50)<F1>
<FN>
<F1>The above accounts reflect the accounts of Microwave Networks (MN) and
Satellite Transmission Systems (STS) as discontinued operations.
</FN>
</TABLE>
