<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-4298
COHU, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-1934119
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
5755 KEARNY VILLA ROAD, SAN DIEGO, CALIFORNIA 92123
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (619) 277-6700
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
----- -----
As of June 30, 1996, the Registrant had 9,272,201 shares of its $1.00 par value
common stock outstanding.
<PAGE> 2
COHU, INC.
INDEX
FORM 10-Q
JUNE 30, 1996
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets
June 30, 1996 (Unaudited) and December 31, 1995.................... 3
Condensed Consolidated Statements of Income (Unaudited)
Three and Six Months Ended June 30, 1996 and 1995................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1996 and 1995............................. 5
Notes to Unaudited Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 7
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................ 10
Item 6. Exhibits and Reports on Form 8-K................................... 10
Signatures.................................................................. 11
2
<PAGE> 3
COHU, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 33,040 $ 28,874
Accounts receivable, less allowance
for doubtful accounts 26,724 27,572
Inventories, at lower of average cost or market:
Finished goods 5,829 3,466
Work in process 6,519 7,759
Raw materials and purchased parts 9,340 10,019
-------- --------
21,688 21,244
Deferred income taxes 9,413 9,413
Prepaid expenses 1,058 973
-------- --------
Total current assets 91,923 88,076
Property, plant and equipment, at cost:
Land and land improvements 2,114 1,150
Buildings and building improvements 11,661 10,355
Machinery and equipment 13,683 11,697
-------- --------
27,458 23,202
Less accumulated depreciation and amortization 10,735 10,031
-------- --------
Net property, plant and equipment 16,723 13,171
Goodwill, net 2,547 2,626
Other assets 61 61
-------- --------
$111,254 $103,934
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,426 $ 7,453
Income taxes payable 1,638 7,062
Other accrued liabilities 15,847 16,333
-------- --------
Total current liabilities 22,911 30,848
Accrued retiree medical benefits 903 859
Deferred income taxes 198 198
Stockholders' equity:
Preferred stock -- --
Common stock 9,272 9,092
Paid in excess of par 4,734 4,252
Retained earnings 73,236 58,685
-------- --------
Total stockholders' equity 87,242 72,029
-------- --------
$111,254 $103,934
======== ========
</TABLE>
See accompanying notes.
3
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COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 45,864 $ 45,212 $ 96,096 $ 77,394
Cost and expenses:
Cost of sales 24,798 27,944 52,146 47,845
Research and development 3,823 2,690 7,351 4,925
Selling, general and administrative 5,430 6,529 12,303 10,919
-------- -------- -------- --------
Income from operations 11,813 8,049 24,296 13,705
Interest income 369 93 780 127
Interest expense -- (2) -- (12)
-------- -------- -------- --------
Income before income taxes 12,182 8,140 25,076 13,820
Provision for income taxes 4,600 3,200 9,600 5,400
-------- -------- -------- --------
Net income $ 7,582 $ 4,940 $ 15,476 $ 8,420
======== ======== ======== ========
Net income per share $ .78 $ .52 $ 1.59 $ .89
======== ======== ======== ========
Average common shares and equivalents 9,703 9,538 9,704 9,467
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,476 $ 8,420
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 812 870
Daymarc earnout to be paid in stock 662 --
Increase in accrued retiree medical benefits 44 29
Changes in assets and liabilities:
Accounts receivable 848 (4,472)
Inventories (444) 997
Prepaid expenses (85) 24
Accounts payable (2,027) 5,390
Income taxes payable (5,424) (942)
Other accrued liabilities (1,148) 273
-------- --------
Net cash provided from operating activities 8,714 10,589
Cash flows from investing activities:
Purchases of property, plant, equipment and other assets (4,285) (381)
-------- --------
Net cash used for investing activities (4,285) (381)
Cash flows from financing activities:
Reduction in long-term borrowings -- (1,400)
Issuance of stock, net 662 487
Cash dividends (925) (672)
-------- --------
Net cash used for financing activities (263) (1,585)
-------- --------
Net increase in cash and cash equivalents 4,166 8,623
Cash and cash equivalents at beginning of period 28,874 3,096
-------- --------
Cash and cash equivalents at end of period $ 33,040 $ 11,719
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 15,004 $ 6,312
Interest -- 12
</TABLE>
See accompanying notes.
5
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COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1 - The accompanying interim financial statements are unaudited but include all
adjustments (consisting of normal recurring adjustments) which the Company
considers necessary for a fair statement of the results for the period. The
operating results for the three and six months ended June 30, 1996 are not
necessarily indicative of the operating results for the entire year or any
future period. These financial statements should be read in conjunction with
the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995. Reclassification
has been made to certain prior year and period amounts to conform to the
1996 presentation.
2 - Per share information is based on the weighted average number of shares
outstanding during each period and the dilutive effect of the assumed
exercise of stock options.
3 - In May 1996, the Company entered into a $5,000,000 unsecured bank line of
credit agreement with its primary bank. The agreement expires in May 1998
and requires compliance with certain financial covenants. No borrowings were
outstanding at June 30, 1996.
4 - In May 1996, Cohu, Inc. stockholders approved an increase in the Company's
authorized shares of common stock from 10,000,000 to 25,000,000 shares and
the adoption of the Cohu, Inc. 1996 Stock Option Plan providing for the
issuance of up to 450,000 shares of common stock.
6
<PAGE> 7
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1996
RESULTS OF OPERATIONS
SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995
Net sales increased 1% to $45.9 million in the second quarter of 1996 compared
to net sales of $45.2 million in the second quarter of 1995. Sales of
semiconductor test handling equipment were essentially unchanged in the second
quarter of 1996 compared to the second quarter of 1995 and accounted for 81% of
consolidated net sales in the second quarter of 1996. Sales of television
cameras and equipment increased 9% while the combined sales of metal detection
and microwave equipment increased 2% over 1995. Gross margin as a percentage of
net sales in the second quarter of 1996 was approximately 46% versus 38% in
1995, primarily as a result of improved margins in the semiconductor equipment
business. Within the semiconductor equipment segment margins improved due to
significantly reduced provisions for excess and obsolete inventories and, to a
lesser extent, production efficiencies. Research and development expense as a
percentage of net sales was 8% in the second quarter of 1996 up from 6% in 1995
and reflected the Company's continued investment in new product development in
the semiconductor equipment business. Selling, general and administrative
expense decreased as a percentage of net sales from 14% to 12% in part due to
the inclusion of charges for certain reserves in the 1995 period that were not
recurring in the 1996 period. Interest income in the quarter increased to $.4
million due to the significant increase in cash and cash equivalents. The
provision for income taxes expressed as a percentage of pre-tax income was 38%
in the second quarter of 1996 and 39% for the year ended December 31, 1995. For
the second quarter, as a result of the factors set forth above, net income
increased 53% to $7.6 million in 1996 from $4.9 million in 1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net sales increased 24% to $96.1 million in the first six months of 1996
compared to net sales of $77.4 million in the first six months of 1995. Sales of
semiconductor test handling equipment by the Company's Delta Design and Daymarc
subsidiaries increased an aggregate of 29% over sales in the first six months of
1995 and accounted for 82% of consolidated net sales in the first six months of
1996. Sales of television cameras and equipment and the combined sales of metal
detection and microwave equipment each increased 7% over 1995. Gross margin as a
percentage of net sales in the first six months 1996 was approximately 46%
versus 38% in the first six months of 1995. The increase in margin was due to
the increased percentage of total net sales attributable to semiconductor
equipment in 1996 which has higher margins than television and other equipment.
Within the semiconductor equipment segment margins improved primarily due to
significantly reduced provisions for excess and obsolete inventories as a
percentage of net sales in 1996 and, to a lesser extent, production
efficiencies, volume material purchase discounts and price increases in certain
product lines. Research and development expense as a percentage of net sales was
7.6% in the first six months of 1996 versus 6.4% in 1995 and reflected the
Company's continued investment in new product development in the semiconductor
equipment business. Selling, general and administrative expense decreased as a
percentage of net sales from 14% to 13% in part due to the inclusion of charges
for certain reserves in the 1995 period that were not recurring in the 1996
period. Interest income in the period increased to $.8 million due to the
significant increase in cash and cash equivalents. The provision for income
taxes expressed as a percentage of pre-tax income was 38% in the first six
months of 1996 down from 39% for the year ended December 31, 1995. For the six
month period, as a result of the factors set forth above, net income increased
84% to $15.5 million in 1996 from $8.4 million in 1995.
7
<PAGE> 8
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (cont.)
JUNE 30, 1996
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows generated from operating activities in the first
six months of 1996 totaled $8.7 million. The major components of cash flows from
operating activities were net income of $15.5 million offset by decreases in
accounts payable, income taxes payable and other accrued liabilities totaling
$8.6 million. Net cash used for investing activities was $4.3 million and was
used for the purchase of property, plant and equipment. Net cash used for
financing activities was $.3 million. Cash used for financing activities
included $.9 million for the payment of dividends offset by $.7 million received
from the issuance of stock upon the exercise of stock options. The Company has
$5 million available under its bank line of credit and working capital of $69
million at June 30, 1996. It is anticipated that present working capital, cash
generated from operations and available borrowings under the line of credit will
be sufficient to meet the Company's 1996 operating requirements and the
remaining anticipated capital expenditures for 1996 of approximately $2 million.
BUSINESS RISKS AND UNCERTAINTIES
The Company's operating results are substantially dependent on the semiconductor
test handling equipment business conducted through its Delta Design and Daymarc
subsidiaries. This capital equipment business is in turn highly dependent on the
overall strength of the semiconductor industry. Historically, the semiconductor
industry has been highly cyclical with recurring periods of oversupply, which
often have had a significant effect on the semiconductor industry's demand for
capital equipment, including equipment of the type manufactured and marketed by
the Company. The Company believes that the markets for newer generations of
semiconductors may also be subject to similar fluctuations. In recent periods,
the semiconductor industry has experienced significant growth which, in turn,
has caused significant growth in the semiconductor capital equipment industry.
There can be no assurance that such growth can be sustained. A reduction in
capital equipment investment by semiconductor manufacturers would adversely
affect the Company's results of operations.
The Company's order backlog declined to $38.1 million at June 30, 1996 from
$45.4 million at December 31, 1995. This reduction in backlog is primarily
related to the Company's semiconductor equipment business. The decline in the
Company's backlog and recent announcements by certain semiconductor and
semiconductor equipment manufacturers indicate there has been a slowdown in
demand for certain semiconductors and related equipment. In addition, continued
DRAM price declines in recent months have negatively impacted the profitability
of DRAM manufacturers which may impact future capital equipment purchases. These
factors may negatively affect the Company's operating results in the second half
of 1996.
During this period of uncertainty in the semiconductor equipment industry the
Company will attempt to keep its production capacity, labor force and other
aspects of its cost structure in line with expected demand. If the slowdown in
the semiconductor equipment industry continues, it is likely that the Company
will reduce its current work force. Cost reduction programs may have a temporary
negative impact on the Company's operations and operating results. Furthermore,
no assurance can be made that such cost reduction programs will be implemented
successfully.
8
<PAGE> 9
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (cont.)
JUNE 30, 1996
As is common in the industry, the Company relies on a limited number of
customers for a substantial percentage of its net sales (two customers accounted
for 32% of net sales in the first six months of 1996 and also 35% of net sales
for the year ended December 31, 1995). The loss of or a significant reduction in
orders by either of these or other significant customers not compensated for by
other customer orders could adversely impact the Company's annual and quarter to
quarter results of operations.
Semiconductor equipment and processes are subject to rapid technological change.
The Company believes that its future success will depend in part on its ability
to enhance existing products and develop new products that enable semiconductor
manufacturers to more efficiently handle and test semiconductors. Failure to
introduce new products in a timely manner, the introduction by competitors of
products with perceived or actual advantages or disputes over rights of the
Company or its competitors to use certain intellectual property or technology
could result in a loss of competitive position and reduced sales of existing
products. The Company expects to continue to invest heavily in research and
development and must manage product transitions successfully as introductions of
new products could adversely impact sales of existing products.
Due to these and other factors, historical results may not necessarily be
indicative of results of operations for any future period. In addition, certain
matters discussed above are forward looking statements that are subject to the
risks and uncertainties noted herein and the other risks and uncertainties
listed from time to time in the Company's filings with the Securities and
Exchange Commission, including but not limited to the 1995 Annual Report on Form
10-K, that could cause actual results to differ materially from those projected
or forecasted.
9
<PAGE> 10
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 7, 1996. At the meeting, the
following directors were elected:
<TABLE>
<CAPTION>
Director Number of Common Shares Voted
- -------- ------------------------------------
For Against Abstain
--------- ------- -------
<S> <C> <C> <C>
Charles A. Schwan 8,322,806 2,138 389,964
Gene E. Leary 8,322,806 2,138 389,964
</TABLE>
The directors continuing in office until 1997 or 1998 are James W. Barnes, Harry
L. Casari, Frank W. Davis, and William S. Ivans.
In addition, the stockholders approved the following proposals:
<TABLE>
<CAPTION>
Proposal Number of Common Shares Voted
- -------- -------------------------------------
For Against Abstain
--------- --------- -------
<S> <C> <C> <C>
To increase the Company's authorized
shares of Common Stock 7,036,709 1,639,286 38,912
To approve the Cohu, Inc. 1996
Stock Option Plan 7,815,780 818,327 77,500
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits:
10.1 - Credit Agreement between Cohu, Inc. and Bank of America
National Trust and Savings Association.
27.1 - Financial Data Schedule (Filed electronically)
(B) Reports on Form 8-K: The Company did not file any reports on Form
8-K during the quarter ended June 30, 1996.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COHU, INC.
------------------------------
(Registrant)
Date: July 30, 1996 /s/ Charles A. Schwan
------------- ------------------------------
Charles A. Schwan
President & Chief Executive Officer
Date: July 30, 1996 /s/ John H. Allen
------------- ------------------------------
John H. Allen
Vice President, Finance & Chief Financial Officer
11
<PAGE> 12
(A) Exhibits:
10.1 - Credit Agreement between Cohu, Inc. and Bank of America National
Trust and Savings Association.
27.1 - Financial Data Schedule (Filed electronically)
(B) Reports on Form 8-K: The Company did not file any reports on Form 8-K
during the quarter ended June 30, 1996.
<PAGE> 1
EXHIBIT 10.1
================================================================================
[LOGO] BANK OF AMERICA AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 4 TO BUSINESS LOAN AGREEMENT
This Amendment No. 4 (the "Amendment") dated as of May 15, 1996, is
between BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank") and
COHU, INC. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of June 11, 1994, as previously amended (the "Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 In subparagraph 1.1(a) of the Agreement, the amount "Five
Million Dollars ($5,000,000)" is substituted for the amount
"Three Million Dollars ($3,000,000)."
2.2 In Paragraph 1.2 of the Agreement, the date "May 1, 1998" is
substituted for the date "May 31, 1996."
2.3 Subparagraphs 1.1 (b) and (c) of the Agreement are amended to
read in their entirety as follows:
(b) This is a revolving line of credit with within line
facilities for the issuance by the Bank's London Branch of
a performance bank guaranty for the account of the
Borrower (the "PBG") and letters of credit. During the
availability period, the Borrower may repay principal
amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding
principal balance of the line of credit plus the stated
amount of the PBG, including amounts paid under the PBG
not yet reimbursed, plus the outstanding amounts of any
letters of credit, including amounts drawn on letters of
credit and not yet reimbursed, to exceed the Facility No.
1 Commitment.
2.4 A new Paragraph 1.5A is added to the Agreement, which reads in
its entirety as follows:
1.5A LETTERS OF CREDIT. This line of credit may be used
for financing:
(i) commercial letters of credit with a maximum
maturity of 365 days but not to extend more
than 180 days beyond the Facility No. 1
Expiration Date. Each commercial letter of
credit will require drafts payable at sight.
(ii) standby letters of credit with a maximum
maturity of 365 days but not to extend more
than 180 days beyond the Facility No. 1
Expiration Date.
(iii) The amount of letters of credit outstanding
at any one time, (including amounts drawn on
letters of credit and not yet reimbursed),
may not exceed Two Hundred Fifty Thousand
Dollars ($250,000).
The Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option
of the Bank, be added to the principal amount outstanding
under this Agreement. The amount will bear interest and
be due as described elsewhere in this Agreement.
- --------------------------------------------------------------------------------
-1-
<PAGE> 2
(b) if there is a default under this Agreement, to
immediately prepay and make the Bank whole for any
outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to
a letter of credit is subject to the Bank's written
approval and must be in form and content satisfactory to
the Bank and in favor of a beneficiary acceptable to the
Bank.
(d) to sign the Bank's form Application and Agreement for
Commercial Letter of Credit or Application and Agreement
for Standby Letter of Credit.
(e) to pay any issuance and/or other fees that the Bank
notifies the Borrower will be charged for issuing and
processing letters of credit for the Borrower.
(f) to allow the Bank to automatically charge its checking
account for applicable fees, discounts, and other
charges.
2.5 In subparagraph 7.2(a) of the Agreement, the term "90 days" is
substituted for the term "150 days."
2.6 In subparagraph 7.2(c) of the Agreement, the term "90 days" is
substituted for the term "150 days."
2.7 Paragraph 7.3 of the Agreement is amended to read in its
entirety as follows:
"7.3 QUICK RATIO. To maintain on a consolidated basis a ratio
of quick assets to current liabilities of at least 1.20:1.00,
measured quarterly.
'Quick assets' means cash, short-term cash investments, net
trade receivables and marketable securities not classified as
long-term investments."
2.8 In Paragraph 7.4 of the Agreement, the amount "Sixty Five
Million Dollars ($65,000,000)" is substituted for the amount
"Thirty Million Dollars ($30,000,000)."
2.9 The first sentence of Paragraph 7.5 of the Agreement is
amended to read as follows:
"To maintain on a consolidated basis a ratio of total
liabilities to tangible net worth not exceeding .60:1.00,
measured on a quarterly basis."
2.10 Paragraph 7.6 of the Agreement is deleted in its entirety.
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS COHU, INC.
ASSOCIATION
/s/ Paul M. Tuomainen /s/ Charles A. Schwan
- ----------------------------- -----------------------------------
BY: PAUL M. TUOMAINEN BY: CHARLES A. SCHWAN, PRESIDENT
JR., VICE PRESIDENT AND CHIEF EXECUTIVE OFFICER
- --------------------------------------------------------------------------------
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<PAGE> 3
================================================================================
[LOGO] Bank of America
National Trust and Savings Association Business Loan Agreement
- --------------------------------------------------------------------------------
This Agreement dated as of 6-11-1994, is between Bank of America National Trust
and Savings Association (the "Bank") and Cohu, Inc. (the "Borrower").
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Facility No. 1" Commitment) is Three Million Dollars Dollars ($3,000,000).
(b) This is a revolving line of credit with a within line facility for the
issuance by the Bank's London Branch of a performance bank guaranty for the
account of the Borrower (the "PBG"). During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of the
line of credit plus the stated amount of the PBG, including amounts paid
under the PBG not yet reimbursed, to exceed the Facility No. 1 Commitment.
1.2 AVAILABILITY PERIOD.
The line of credit is available between the date of this Agreement and April 30,
1996 (the "Facility No. 1 Expiration Date") unless the Borrower is in default.
1.3 INTEREST RATE.
(a) The Facility No. 1 interest rate is the Bank's Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced from time to
time by the Bank in San Francisco, California, as its Reference Rate. The
Reference Rate is set by the Bank based on 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. The Bank
may price loans to its customers at, above, or below the Reference Rate.
Any change in the Reference Rate shall take effect at the opening of
business on the day specified in the public announcement of a change in the
Bank's Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on June 30, 1994, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Expiration Date.
1.5 PERFORMANCE BANK GUARANTY. This line of credit may be used for financing
the PBG issued at the Bank's London Branch for the account of the Borrower
in favor of Eastern Bechtel Corporation in the stated amount of Ninety Six
Thousand Twenty One Dollars and 90/100 ($96,021.90) with a maximum maturity
of June 27, 1997.
- --------------------------------------------------------------------------------
-1-
<PAGE> 4
The Borrower agrees:
(a) any amount paid by the Bank under the PBG may be added to the principal
amount outstanding under the Facility No. 1 Commitment of this Agreement.
The amount will bear interest and be due as described elsewhere in this
Agreement.
(b) if there is a default under this Agreement, to immediately prepay and make
the Bank whole for the outstanding PBG.
(c) to sign all documentation required by the Bank's London Branch for the
issuance of the PBG.
(d) to pay any issuance and/or other fees that the Bank notifies the Borrower
will be charged for issuing the PBG.
2. FACILITY NO. 2: LINE OF CREDIT AMOUNT AND TERMS
2.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Facility No. 2 Commitment") is Six Million Dollars ($6,000,000).
(b) This is a non-revolving line of credit with a term repayment option. Any
amount borrowed, even if repaid before the end of the availability period,
permanently reduces the remaining available line of credit.
(c) The Borrower agrees not to permit the outstanding principal balance of the
line of credit to exceed the Facility No. 2 Commitment.
2.2 AVAILABILITY PERIOD.
The line of credit is available between the date of this Agreement and September
30, 1994 (the "Facility No. 2 Expiration Date") unless the Borrower is in
default.
2.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as described below,
the Facility No. 2 interest rate is the Bank's Reference Rate plus .25 of a
percentage points.
2.4 REPAYMENT TERMS.
(a) The Borrower must reduce the Facility No. 2 outstandings to no greater than
Five Million Dollars ($5,000,000) prior to term out of Facility No. 2.
(b) The Borrower will pay interest on June 30, 1994, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(c) The Borrower will repay the principal amount outstanding on the Facility
No. 2 Expiration Date in 48 successive equal monthly installments starting
October 30, 1994. On September 30, 1998, the Borrower will repay the
remaining principal balance plus any interest then due.
- --------------------------------------------------------------------------------
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(d) The Borrower may prepay the loan in full or in part at any time. The
prepayment will be applied to the most remote installment of principal due
under this Agreement.
2.6 OPTIONAL INTEREST RATES. Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect to have all or portions of the line of
credit (during the availability period) bear interest at the rate(s) described
below during an interest period agreed to by the Bank and the Borrower. Each
interest rate is a rate per year. Interest will be paid on the last day of each
month during the interest period. At the end of any interest period, the
interest rate will revert to the rate based on the Reference Rate, unless the
Borrower has designated another optional interest rate for the portion.
2.7 LONG TERM RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Long Term Rate,
subject to the following requirements:
(a) The interest period during which the Long Term Rate will be in effect will
be one year or more. The interest period must begin on or after the last
day of the availability period specified above.
(b) The "Long Term Rate" means the fixed interest rate the Bank and the
Borrower agree will apply to the portion during the applicable interest
period.
(c) Each Long Term Rate portion will be for an amount not less than One Million
Dollars ($1,000,000).
(d) Any portion of the principal balance of the line of credit already bearing
interest at the Long Term Rate will not be converted to a different rate
during its interest period.
(e) The Borrower may prepay the Long Term Rate portion in whole or in part in
the minimum amount of One Hundred Thousand Dollars ($100,000). The Borrower
will give the Bank irrevocable written notice of the Borrower's intention
to make the prepayment, specifying the date and amount of the prepayment.
The notice must be received by the Bank at least 5 banking days in advance
of the prepayment. All prepayments of principal on the Long Term Rate
portion will be applied on the most remote principal installment or
installments then unpaid.
(f) Each prepayment of a Long Term Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by payment of all accrued
interest on the amount of the prepayment and the prepayment fee described
below.
(g) The prepayment fee will be the sum of fees calculated separately for each
Prepaid Installment, as follows:
(i) The Bank will first determine the amount of interest which would have
accrued each month for the Prepaid Installment had it remained
outstanding until the applicable Original Payment Date, using the Long
Term Rate;
(ii) The Bank will then subtract from each monthly interest amount
determined in (i), above, the amount of interest which would accrue
for that Prepaid Installment if it were reinvested from the date of
prepayment through the Original Payment Date, using the following
rate:
(A) If the Original Payment Date is more than 5 years after the date
of prepayment: the Treasury Rate plus one-quarter of one
percentage point;
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(B) If the Original Payment Date is 5 years or less after the date of
prepayment: the Money Market Rate.
(iii) If (i) minus (ii) for the Prepaid Installment is greater than zero,
the Bank will discount the monthly differences to the date of
prepayment by the rate used in (ii) above. The sum of the discounted
monthly differences is the prepayment fee for that Prepaid
Installment.
(h) The following definitions will apply to the calculation of the prepayment
fee:
"Money Market" means the domestic certificate of deposit market, the
Eurodollar deposit market or other appropriate money market selected by the
Bank.
"Money Market Rate" means the fixed interest rate per annum which the Bank
determines could be obtained by reinvesting a specified Prepaid Installment
in the Money Market from the date of prepayment through the Original
Payment Date.
"Original Payment Dates" mean the dates on which principal of the Long Term
Rate portion would have been paid if there had been no prepayment. If a
portion of the principal would have been paid later than the end of the
interest period in effect at the time of prepayment, then the Original
Payment Date for that portion will be the last day of the interest period.
"Prepaid Installment" means the amount of the prepaid principal of the Long
Term Rate portion which would have been paid on a single Original Payment
Date.
"Treasury Rate" means the interest rate yield for U.S. Government Treasury
Securities which the Bank determines could be obtained by reinvesting a
specified Prepaid Installment in such securities from the date of
prepayment through the Original Payment Date.
(i) The Bank may adjust the Treasury Rate and Money Market Rate to reflect the
compounding, accrual basis, or other costs of the Long Term Rate portion.
Each of the rates is the Bank's estimate only and the Bank is under no
obligation to actually reinvest any prepayment. The rates will be based on
information from either the Telerate or Reuters information services, The
Wall Street Journal, or other information sources the Bank deems
appropriate.
3. UNUSED COMMITMENT FEE (FACILITY NO. 1). The Borrower agrees to pay a fee on
any difference between the Facility No. 1 Commitment and the amount of credit it
actually uses, determined by the weighted average loan balance maintained during
the specified period. The fee will be calculated at .125% per year. This fee is
due on July 31, 1994 and quarterly thereafter until the Facility No. 1
Expiration Date.
4. DISBURSEMENTS, PAYMENTS AND COSTS
4.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made in
writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.
4.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each payment
by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from time
to time;
(b) made for the account of the Bank's branch selected by the Bank from time to
time;
(c) made in immediately available funds, or such other type of funds selected by
the Bank;
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(d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrower to sign one or more promissory notes.
4.3 TELEPHONE AUTHORIZATION.
(a) The Bank may honor telephone instructions for advances or repayments or for
the designation of optional interest rates given by any one of the
individuals authorized to sign loan agreements on behalf of the Borrower,
or any other individual designated by any one of such authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 14505-50312, or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection
with any act resulting from telephone instructions it reasonably believes
are made by any individual authorized by the Borrower to give such
instructions.
4.4 DIRECT DEBIT.
(a) The Borrower agrees that interest, principal payments and any fees will be
deducted automatically on the due date from checking account number
14505-50312.
(b) The Bank will debit the account on the dates the payments become due. If a
due date does not fall on a banking day, the Bank will debit the account on
the first banking day following the due date.
(c) The Borrower will maintain sufficient funds in the account on the dates the
Bank enters debits authorized by this Agreement. If there are insufficient
funds in the account on the date the Bank enters any debit authorized by
this Agreement, the debit will be reversed.
4.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day is
a day other than a Saturday or a Sunday on which the Bank is open for business
in California. All payments and disbursements which would be due on a day which
is not a banking day will be due on the next banking day. All payments received
on a day which is not a banking day will be applied to the credit on the next
banking day.
4.6 TAXES. The Borrower will not deduct any taxes from any payments it makes to
the Bank. If any government authority imposes any taxes on any payments made by
the Borrower, the Borrower will pay the taxes and will also pay to the Bank, at
the time interest is paid, any additional amount which the Bank specifies as
necessary to preserve the after-tax yield the Bank would have received if such
taxes had not been imposed. Upon request by the Bank, the Borrower will confirm
that it has paid the taxes by giving the Bank official tax receipts (or
notarized copies) within 30 days after the due date. However, the Borrower will
not pay the Bank's net income taxes.
4.7 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used.
4.8 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance, any
amount not paid when due under this Agreement (including interest) shall bear
interest from the due date at the Bank's Reference Rate plus 1.00 percentage
point. This may result in compounding of interest.
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4.9 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is 2.00 percentage points
higher than the rate of interest otherwise provided under this Agreement. This
will not constitute a waiver of any default.
5. CONDITIONS
The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement:
5.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by the
Borrower (and any guarantor) of this Agreement and any instrument or agreement
required under this Agreement have been duly authorized.
5.2 OTHER ITEMS. Any other items that the Bank reasonably requires.
6. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation.
6.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
6.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
6.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
6.4 GOOD STANDING. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
6.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
6.6 FINANCIAL INFORMATION. All financial and other information that has been or
will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the Borrower's
(and any guarantor's) financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
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6.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or that of the Borrower's business, or would impair the
Borrower's ability to repay the loan, except as have been disclosed in writing
to the Bank.
6.8 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
6.9 INCOME TAX RETURNS. The Borrower has no knowledge of any pending assessments
or adjustments of its income tax for any year.
6.10 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse of
time or both would be, a default under this Agreement.
6.11 ERISA PLANS.
(a) The Borrower has fulfilled its obligations, if any, under the minimum
funding standards of ERISA and the Code with respect to each Plan and is in
compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of ERISA for which
the PBGC requires 30 day notice.
(c) No action by the Borrower to terminate or withdraw from any Plan has been
taken and no notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under Section 4042
of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of this
Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(ii) "ERISA" means the Employee Retirement Income Act of 1974, as amended
from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by the Borrower and insured by the Pension Benefit
Guaranty Corporation under Title IV of ERISA.
6.12 LOCATION OF BORROWER. The Borrower's place of business (or, if the Borrower
has more than one place of business, its chief executive office) is located at
the address listed under the Borrower's signature on this Agreement.
7. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
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<PAGE> 10
7.1 USE OF PROCEEDS. To use the proceeds of Facility No. 1 for short term
working capital needs and of Facility No. 2 to finance the acquisition of
Daymarc Corporation for Facility No. 2.
7.2 FINANCIAL INFORMATION. To provide the following financial information and
statements and such additional information as requested by the Bank from time to
time:
(a) Within 150 days of the Borrower's fiscal year end, the Borrower's annual
financial statements. These financial statements must be audited (with an
unqualified opinion) by a Certified Public Accountant ("CPA") acceptable to
the Bank. The statements shall be prepared on a consolidated basis.
(b) Within 45 days of the period's end, the Borrower's quarterly financial
statements. These financial statements may be Borrower prepared. The
statements shall be prepared on a consolidating and consolidated basis.
(c) Within 150 days after the filing with the Securities and Exchange
Commission, copies of the Borrower's Form 10-K Annual Report.
(d) Within 60 days after the filing with the Securities and Exchange
Commission, copies of the Borrower's Form 10-Q Quarterly Report.
7.3 WORKING CAPITAL. To maintain on a consolidated basis current assets in
excess of current liabilities by at least Twenty Million Dollars ($20,000,000).
7.4 TANGIBLE NET WORTH. To maintain on a consolidated basis tangible net worth
equal to at least Thirty Million Dollars ($30,000,000), increasing by not less
than 50% of net profit after taxes, measured annually.
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles) less
total liabilities, including but not limited to accrued and deferred income
taxes, and any reserves against assets.
7.5 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. To maintain on a
consolidated basis a ratio of total liabilities to tangible net worth not
exceeding .6:1.0 through 12/31/94 and .5:1.0 thereafter.
"Total liabilities" means the sum of current liabilities plus long term
liabilities.
7.6 DEBT SERVICE COVERAGE RATIO. To maintain on a consolidated basis a Debt
Service Coverage Ratio of at least 2.5:1.0.
"Debt Service Coverage Ratio" means the ratio of net profits after taxes plus
depreciation, amortization and interest expense to the current portion of
long-term debt plus interest expense and dividends.
7.7 OTHER DEBTS. Borrower or any wholly owned subsidiary not to have
outstanding or incur any direct or contingent debts (other than those to the
Bank), or become liable for the debts of others without the Bank's written
consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of business.
(c) Obtaining surety bonds in the usual course of business.
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7.8 OTHER LIENS. Not to create, assume, or allow any security interest or lien
(including judicial liens) on property the Borrower now or later owns, except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
7.9 CAPITAL EXPENDITURES. Not to spend (including the total amount of any
capital leases) more than Two Million Dollars ($2,000,000) in fiscal years 1994
and 1995 and Two Million Five Hundred Thousand Dollars ($2,500,000) in fiscal
years 1996 and 1997 to acquire fixed or capital assets.
7.10 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over Five Million Dollars ($5,000,000) against the Borrower (or
any guarantor).
(b) any substantial dispute between the Borrower (or any guarantor) and any
government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's (or any guarantor's)
financial condition or operations.
(e) any change in the Borrower's name, legal structure, place of business, or
chief executive office if the Borrower has more than one place of business.
7.11 BOOKS AND RECORDS. To maintain adequate books and records.
7.12 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
7.13 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
7.14 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges,
and franchises the Borrower now has.
7.15 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or replacements
to keep the Borrower's properties in good working condition.
7.16 COOPERATION. To take any action requested by the Bank to carry out the
intent of this Agreement.
7.17 GENERAL BUSINESS INSURANCE. To maintain insurance as is usual for the
business it is in.
7.18 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
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<PAGE> 12
(c) enter into any consolidation, merger, pool, joint venture, syndicate, or
other combination.
(d) lease, or dispose of all or a substantial part of the Borrower's business
or the Borrower's asset.
(e) acquire or purchase a business or its assets.
(f) sell or otherwise dispose of its subsidiaries.
(g) voluntarily suspend its business for more than 5 days in any 30 day period.
7.19 ERISA PLANS. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b) of ERISA for
which the PBGC requires 30 day notice.
(b) Any action by the Borrower to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to a Plan under Section
4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under Section
4042 of ERISA.
8. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank 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 Borrower's property or
operations or property leased to the Borrower. 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 Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. For these purposes, the term "hazardous
substances" means any substance which is or becomes designated as "hazardous" or
"toxic" under any federal, state or local law. This indemnity will survive
repayment of the Borrower's obligations to the Bank.
9. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.
9.1 FAILURE TO PAY. The Borrower fails to make a payment under this Agreement
when due.
9.2 FALSE INFORMATION. The Borrower has given the Bank false or misleading
information or representations.
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9.3 BANKRUPTCY. The Borrower (or any guarantor) files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower (or any guarantor), or the
Borrower (or any guarantor) makes a general assignment for the benefit of
creditors.
9.4 RECEIVERS. A receiver or similar official is appointed for the Borrower's
(or any guarantor's) business, or the business is terminated.
9.5 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more trade
creditors against the Borrower in an aggregate amount of Five Million Dollars
($5,000,000) or more.
9.6 JUDGMENTS. Any judgments or arbitration awards are entered against the
Borrower (or any guarantor), or the Borrower (or any guarantor) enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Two Million Dollars ($2,000,000) or more.
9.7 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's (or any guarantor's)
financial condition or ability to repay.
9.8 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the Borrower's
(or any guarantor's) financial condition, properties or prospects, or ability to
repay the loan.
9.9 CROSS-DEFAULt. Any default occurs under any agreement in connection with any
credit the Borrower (or any guarantor) has obtained from anyone else or which
the Borrower (or any guarantor) has guaranteed.
9.10 OTHER BANK AGREEMENTS. The Borrower (or any guarantor) fails to meet the
conditions of, or fails to perform any obligation under any other agreement the
Borrower (or any guarantor) has with the Bank or any affiliate of the Bank.
9.11 ERISA Plans. The occurrence of any one or more of the following events with
respect to the Borrower, provided such event or events could reasonably be
expected, in the judgment of the Bank, to subject the Borrower to any tax,
penalty or liability (or any combination of the foregoing) which, in the
aggregate, could have a material adverse effect on the financial condition of
the Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan which is, in the
reasonable judgment of the Bank likely to result in the termination of such
Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings to terminate a Plan)
or the Borrower's full or partial withdrawal from a Plan.
9.12 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the conditions of,
or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article.
10. ENFORCING THIS AGREEMENT; MISCELLANEOUS
10.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
10.2 CALIFORNIA LAW. This Agreement is governed by California law.
10.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and the
Bank's successors and assignees. The Borrower agrees that it may not assign this
Agreement without the Bank's prior consent.
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10.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those that
arise from:
(i) This Agreement (including any renewals, extensions or modifications
of this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted between
the Borrower and the Bank, including claims for injury to persons,
property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though
this Agreement provides that it is governed by California law.
(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.
(d) For purposes of the application of the statute of limitations, the filing
of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated
under this paragraph is subject to any applicable statute of limitations.
The arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss
the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the arbitrators
will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be submitted
to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or claim,
at the time of the proposed submission to arbitration, arises from or
relates to an obligation to the Bank secured by real property located in
California. In this case, both the Borrower and the Bank must consent to
submission of the claim or controversy to arbitration. If both parties do
not consent to arbitration, the controversy or claim will be settled as
follows:
(i) The Borrower and the Bank will designate a referee (or a panel of
referees) selected under the auspices of the American Arbitration
Association in the same manner as arbitrators are selected in
Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will be appointed
by a court as provided in California Code of Civil Procedure Section
638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be an
active attorney or a retired judge; and
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(iv) The award that results from the decision of the referee (or the
panel) will be entered as a judgment in the court that appointed the
referee, in accordance with the provisions of California Code of
Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property collateral;
or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including the
suing party, to submit the controversy or claim to arbitration if the other
party contests the lawsuit. However, if the controversy or claim arises
from or relates to an obligation to the Bank which is secured by real
property located in California at the time of the proposed submission to
arbitration, this right is limited according to the provision above
requiring the consent of both the Borrower and the Bank to seek resolution
through arbitration.
(j) If the Bank forecloses against any real property securing this Agreement,
the Bank has the option to exercise the power of sale under the deed of
trust or mortgage, or to proceed by judicial foreclosure.
10.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.
10.6 ADMINISTRATION COSTS. The Borrower shall pay the Bank for all reasonable
costs incurred by the Bank in connection with administering this Agreement.
10.7 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any reasonable
costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver, "workout" or restructuring under this Agreement. In the
event of a lawsuit or arbitration proceeding, the prevailing party is entitled
to recover costs and reasonable attorneys' fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or arbitrator. As
used in this paragraph, "attorneys' fees" includes the allocated costs of
in-house counsel.
10.8 ONE AGREEMENT. This Agreement and any related security or other agreements
required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank and
the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
- --------------------------------------------------------------------------------
-13-
<PAGE> 16
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
10.9 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.
10.10 HEADINGS. Article and paragraph headings are for reference only and shall
not affect the interpretation or meaning of any provisions of this Agreement.
10.11 PRIOR AGREEMENT SUPERSEDED. This Agreement supersedes the Business Loan
Agreement entered into as of July 1, 1993 between the Bank and the Borrower, and
any credit outstanding thereunder shall be deemed to be outstanding under this
Agreement.
This Agreement is executed as of the date stated at the top of the first page.
[LOGO]
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION COHU, INC.
/S/ PAUL M. TUOMAINEN, JR. /S/ CHARLES A. SCHWAN
-------------------------------- ----------------------------------
BY: PAUL M. TUOMAINEN, JR. BY: CHARLES A. SCHWAN
TITLE: VICE PRESIDENT TITLE: VICE PRESIDENT-FINANCE
ADDRESS WHERE NOTICES TO THE BANK ADDRESS WHERE NOTICES TO THE BORROWER
ARE TO BE SENT: ARE TO BE SENT:
450 B. St. 5755 Kearny Villa Rd.
San Diego, CA 92101 San Diego, CA 92123
- --------------------------------------------------------------------------------
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1995 AND
1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 33040
<SECURITIES> 0
<RECEIVABLES> 26724
<ALLOWANCES> 0
<INVENTORY> 21688
<CURRENT-ASSETS> 91923
<PP&E> 27458
<DEPRECIATION> 10735
<TOTAL-ASSETS> 111254
<CURRENT-LIABILITIES> 22911
<BONDS> 0
0
0
<COMMON> 9272
<OTHER-SE> 77970
<TOTAL-LIABILITY-AND-EQUITY> 111254
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<CGS> 52146
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<INCOME-TAX> 9600
<INCOME-CONTINUING> 15476
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<NET-INCOME> 15476
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
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