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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
***
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________________ to ______________________
Commission File Number 0-1649
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NEWPORT CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 094-0849175
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1791 Deere Avenue, Irvine, CA 92714
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 863-3144
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Stated Value $0.35 per Share
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(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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $76,485,105 as of March 8, 1996.
The number of shares outstanding of each of the issuer's classes of common stock
as of March 8, 1996, was 8,743,266.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on June 5, 1996, are incorporated by reference into Part
III.
Page 1 of 95 Pages
Exhibit Index on Sequentially Numbered Page 33
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INTRODUCTORY NOTE
This Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934 and the
Company intends that such forward-looking statements be subject to the
safe harbors created thereby. These forward-looking statements include
(i) the existence and development of the Company's technical and
manufacturing capabilities, (ii) anticipated competition, (iii) potential
future growth in revenues and income, (iv) potential future decreases in
costs, and (v) the need for, and availability of, additional financing.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that the Company will
not lose a significant customer or customers or experience increased
fluctuations of demand or rescheduling of purchase orders, that the
Company's markets will continue to grow, that the Company's products will
remain accepted within their respective markets and will not be replaced
by new technology, that competitive conditions within the Company's
markets will not change materially or adversely, that the Company will be
successful in integrating the operations of its RAM Optical
Instrumentation, Inc., Light Control Instruments, Inc. and MikroPrecision
Instruments, Inc. subsidiaries with the rest of the Company's operations,
that the Company will retain key technical and management personnel, that
the Company's forecasts will accurately anticipate market demand, that
there will be no material adverse change in the Company's operations or
business and that the Company will not experience significant supply
shortages with respect to purchased components, sub-systems or raw
materials. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control
of the Company. Although the Company believes that the assumptions
underlying the forward-looking statements will be realized. In addition,
the business and operations of the Company are subject to substantial
risks which increase the uncertainty inherent in the forward-looking
statements. In light of the significant uncertainties inherent in the
forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be
achieved.
PART I
ITEM 1 BUSINESS
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GENERAL DESCRIPTION OF BUSINESS
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Newport Corporation (the "Company" or "Newport") operates in one business
segment. It designs, develops, manufactures and markets on a worldwide
basis precision equipment for scientists and engineers who develop and
apply technology involving lasers, optics and integrated motion control.
The Company designs and manufactures a broad line of vibration isolation
systems, electronic and optical instruments and precision mechanical,
electronic and optical components and systems. These products are used
predominantly in research laboratories and test and measurement
applications for industrial, government and university customers,
domestically and internationally.
In June 1991, the Company acquired the micro-positioning business of
Micro-Controle S.A. ("Micro-Controle"), a privately held company
headquartered in Evry, France for a total purchase price of $43.0 million
cash financed through $23.9 million in debt and $19.1 million in cash,
and the assumption of $16.0 million of existing liabilities. The
acquisition included the purchase of the assets and liabilities
associated with the manufacture, sale, maintenance, marketing and
distribution of its high-precision mechanical components and optics,
motion devices, high stability materials and microscopy equipment.
Although Newport and Micro-Controle served similar markets, the acquired
Micro-Controle business complemented the Company's geographic strengths,
products, distribution and customer bases.
In response to the low level of sales experienced in Europe in 1993, the
Company recorded restructuring and other special charges totaling $6.3
million ($5.1 million after taxes) a majority of which was related to its
European operations. These charges included $3.3 million of non-cash
charges to revalue surplus real estate in the U.S. and Europe, $2.2
million for severance and related costs and $0.8 million for
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equipment relocation costs, and carrying and selling costs associated
with the real estate. Cash items totaled $3.0 million of which $1.2
million and $1.3 million were expended during 1995 and 1994,
respectively, for severance and other related payroll liabilities, and
costs to close facilities. It is expected that the balance of $0.5
million will be expended by March 31, 1996.
In February 1995, the Company acquired all the outstanding capital stock
of RAM Optical Instrumentation, Inc. ("ROI"), a manufacturer of video
inspection systems, in exchange for 1,251,000 shares of its common stock.
Additionally, an option to purchase ROI common shares was exchanged for
an option to purchase 72,975 shares of the Company's common stock. In
March 1995, the Company acquired all the outstanding stock of Light
Control Instruments, Inc. ("LCI"), a manufacturer of laser-diode
instruments, in exchange for 128,000 shares of the Company's common
stock.
These transactions have been accounted for as poolings of interests.
Costs associated with these acquisitions totaling $0.1 million were
charged to operations in the first quarter of 1995.
On January 2, 1996, the Company acquired, for cash plus additional
consideration based upon future operating profit, substantially all the
assets and selected liabilities of MikroPrecision Instruments, Inc.
("MikroPrecision"), a manufacturer of precision equipment for high
technology industries such as semiconductor and disk drive markets. The
company is located in a suburb of Minneapolis, Minnesota. The
acquisition will be accounted for as a purchase.
The Company's products are sold to thousands of companies and
institutions throughout the world and are marketed primarily by means of
a technical catalog, a technically trained marketing staff and a
worldwide network of subsidiary sales offices and sales representatives.
The Company manufactures its products in Irvine, California and several
locations in France. With the acquisition of ROI and LCI, the Company
acquired manufacturing facilities in Huntington Beach, California and San
Luis Obispo, California.
The Company resells some components and sub-systems purchased from other
vendors. Raw materials are purchased from several sources. Certain of
such components, sub-systems and raw materials are purchased from sole
source suppliers. These and other sources are, and management believes
will continue to be, adequate to meet its currently foreseeable needs.
However, the Company does not have guaranteed supply agreements from its
sole source suppliers and there is no assurance that the Company will not
experience supply shortages for such material.
Manufacturing, sales, technical and administrative personnel employed
worldwide by Newport totaled 662 persons at December 31, 1995.
PRODUCTS
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The Company manufactures and distributes two major product groups to its
laboratory and industrial customers. These product groups are broadly
defined by the Company as Laser Electro-Optical equipment and peripherals
and Precision Systems.
Laser Electro-Optical equipment and peripherals consist of Vibration
Isolation Products, Components, Optics and Instruments and account for
approximately one-half of the Company's annual sales.
Vibration Isolation Products. Laser and certain other high technology
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experiments and applications require a relatively vibration-free
environment. The Newport isolation systems provide a working surface
for experiments and applications with greatly reduced vibration
environment due to noise, ground motion and excitations caused by
external forces or active components mounted to the table itself. The
Company's isolation systems provide dynamically rigid surfaces using
internally damped honeycomb tops mounted on pneumatic supports. The
Company also distributes active vibration isolation systems.
The Company believes that its technology and its ability to
manufacture competitively priced quality products have allowed it to
become a major supplier of isolation systems for laser research and
development and other applications requiring a high degree of
stability. The Company's product line
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includes over 350 standard isolation systems in addition to the
capability to manufacture custom systems. While these products are
built to rigid quality standards, they are comprised of standard
materials and consequently, there are no unusual supply requirements.
Components. Newport offers a comprehensive line of mechanical
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components compatible with, and complementary to, its vibration
isolation systems. These mechanical components include products such
as mirror mounts, holders, positioners, and other accessories which
are basic building blocks for experimental or prototype laser and
optical systems. The Company has developed and sells components for
fiber optics, telecommunications and sensors experimentation.
Newport's products include a micro interferometer, laser-to-fiber
couplers and fiber-optic positioners. The Company's line of fiber-
optic components includes selected products manufactured by others.
While the Company encounters substantial competition in the related
accessory component area, Newport is one of the leading suppliers of
such accessory components.
Optics. The Company manufactures and markets a line of laser-quality
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optics and optomechanical components. This includes lenses, mirrors,
prisms, laser beam expanders, collimators, attenuators, variable
beamsplitters and spatial filters. The Company has the capability to
provide custom coatings for specific applications.
Instruments. Newport offers several lines of electronic instruments
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to complement its other products in serving the optical laboratory.
These products are concentrated in the areas of light measurement and
control, light sources and holography. The Company not only designs
and manufactures a majority of its electronic products but also
distributes the products of others. Examples of these products
include power meters, laser diode instruments, spectrum analyzers,
electronic shutters and modulators, lasers, lamps and accessories.
Precision Systems consist primarily of Motion Control Devices and
Systems, Process Automation Workstations for Photonics Packaging and
Video-Based Measurement and Inspection Systems. These products account
for approximately one-half of the Company's annual sales.
Motion Control Devices and Systems. Newport offers an extensive line
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of manually operated and motorized positioning devices serving both
the research laboratory and industrial application areas. Examples of
these products include linear and rotational stages; elevational
devices and actuators, as well as simple and programmable motion
controllers for stepping and DC motors. The Company also manufactures
a line of positioning sub-systems, serving both laboratory and
industrial application areas. Newport's system integration capability
allows it to serve application-specific research, test and
measurement, and inspection markets and to satisfy a wide variety of
industrial process application needs.
Process Automation Workstations for Photonics Manufacturing. Newport
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has developed several advanced process automation workstations for
packaging and testing of photonics devices used in communications and
sensing applications. Integrating core vibration control, motion
control, and light measurement instrumentation technologies, the
AutoAlign(TM) system utilizes sophisticated control software to
completely automate fiber-optic alignment and device characterization
for any photonic device. The LaserWeld(TM) system adds laser-welded
attachment capability and is the industry's only industrial-class
laser welding workstation for automated pigtailing of opto-electronic
components, and features Newport's proprietary LaserHammer(TM) weld-
adjustment technology and fully automated process sequencing
capabilities.
Video-Based Measurement and Inspection Systems. With the acquisition
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of ROI, Newport offers a line of video-based measurement and
inspection systems and accessories. These products include video
direct microscopes, Sprint, OMIS II(TM) and OMIS III(TM) optical
measurement inspection systems, Polaris(TM) magnetic head pole
geometry system and LaserMAP(TM) software. The Polaris(TM) magnetic
head pole geometry system is specifically designed to measure pole
geometry features on thin film disk drive sliders. The LaserMAP(TM)
software integrates video and laser technology for electronic
packaging applications.
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MARKETING
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Newport believes that it is one of the leading suppliers of products in
the laser research field. No single unaffiliated customer accounted for
more than 5% of the Company's sales in 1995. Approximately 42% of its
1995 sales were to domestic industrial users, 7% to educational
institutions in the United States, 5% to domestic governmental agencies
and 46% to foreign purchasers. This compares with 38%, 9%, 6% and 47%
for 1994, respectively. Foreign purchasers in 1995 were located in
France (35%), other European countries (37%), Pacific Rim (20%), and
other areas of the world (8%). This compares in 1994 with France (32%),
other European countries (34%), Pacific Rim (25%), and other areas of the
world (9%). The market focus for products manufactured in France has
been industrial, which is complementary to the United States emphasis on
the laboratory market. The Company's ability to provide customized
integrated solutions for the industrial customer augments its
capabilities in serving the general needs of the laser electro-optical
laboratory market worldwide.
Newport uses a Company-employed marketing staff domestically and
internationally in France, Germany, the United Kingdom, Switzerland,
Italy, the Netherlands, Canada and Taiwan. Elsewhere, Newport uses
approximately twenty independent sales representatives. ROI products are
distributed utilizing independent distributors throughout the United
States and other countries in the world. During 1994 the Company closed
its subsidiaries in Spain and Belgium and sold its Japanese subsidiary to
its independent sales representative in that country. The Company also
opened a branch in Taiwan at the end of 1994.
The Company's products compete with products from a large number of
companies domestically and internationally, none of which has a dominant
worldwide market position.
Sales and orders for the Company's products historically were generally
not affected by seasonal demand; however, the Company anticipates that
future patterns may experience more of a seasonal variation as a
significant portion of the Company's sales and orders now come from
Europe where business activity during the summer has traditionally been
slower than other times of the year.
Newport's principal marketing tool is its comprehensive catalog of
products. This document, numbering approximately 600 pages, provides
detailed product information as well as extensive technical and
applications data. The catalog is mailed to more than 100,000 potential
customers worldwide.
The Company also publishes separate short-form catalogs that emphasize
product and market areas, such as comprehensive German- and Japanese-
language catalogs, a newly issued photonics catalog, optics catalogs and
components catalogs. These materials are further augmented by new
product brochures and customer newsletters. Newport advertises in
technical journals serving many technical disciplines. Selected product
literature is published in Chinese, French, German and Japanese. Further
product exposure and contact with existing and potential clients are
developed and maintained at trade shows and technical conferences.
The Company has initiated a number of new marketing efforts aimed both
inside and outside the traditional laboratory market. One such
initiative is a telemarketing initiative. This new program targets new
product brochures to potential customers, coordinates new order leads
with salesmen and utilizes focused mailing lists for selected niche
markets. In addition, the Company is focusing its advertising into new
market niches related to high growth, high technology industries such as
fiber optic communications for which the Company has developed the
AutoAlign(TM) and LaserWeld(TM) fiber alignment and packaging systems.
The Company has also initialized an interactive homepage within the World
Wide Web (http://www.newport.com). This marketing venture specifically
addresses the large Internet-savvy portion of the Company's customer base
- those in academia and research. As the World Wide Web gains acceptance
within our other core markets, this tool will provide even greater
advantages to the Company and our customers. Available on the Company's
World Wide Web page are the latest products, a literature and information
request format, technical/tutorial and application related material,
market surveys, sales information and comprehensive company and financial
overviews.
5
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RESEARCH AND PRODUCT DEVELOPMENT
--------------------------------
The Company is developing a number of new products and product
enhancements to complement its AutoAlign fiber alignment system for the
fiber optic communications market. During 1995 the Company developed a
prototype LaserWeld(TM) packaging system for manufacturing optoelectronic
devices for the high growth fiber optic communication industry. The
Company's ROI subsidiary introduced the PolarisTM magnetic head pole
geometry measurement system for the disk drive industry and LaserMAP
software which integrates laser metrology into its video inspection
systems for applications in the electronics packaging industry. The
Company also introduced a series of X-ray goniometers for sale to the
high energy physics research market. In addition, during 1995 the
Company introduced a number of new products for the photonics research
market and the traditional Laser Electro-Optical market. Management is
committed to continued product development and intends to increase R&D
spending by approximately one million dollars in 1996 over 1995 for
development of new products and product improvements.
PATENTS
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The Company has a number of patents, trademarks, exclusive marketing
rights and licenses. Although these rights are considered to have value
and the Company intends to defend such rights vigorously, the Company
believes that its business relies primarily on its product performance,
experience and marketing skill, and is not dependent upon patent rights.
BACKLOG
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The consolidated backlog of all the Company's products was $19.3 million,
$16.7 million and $14.6 million at December 31, 1995, 1994 and 1993,
respectively. Approximately 31% of the consolidated backlog at December
31, 1995 was attributable to products manufactured in France.
A significant portion of the products manufactured by the Company are
manufactured for inventory with the goal of being able to make shipments
upon receipt of an order. The remainder of the Company's products are
made to order with typical lead times of three to twelve weeks. Because
of these short response times and because orders are cancelable with
little or no penalty, the Company does not believe that its backlog of
orders at any particular date is a meaningful indicator of the Company's
sales for any succeeding period.
OPERATIONS BY GEOGRAPHIC AREA
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Upon the acquisition of the micro-positioning business of Micro-Controle
in 1991, the existing Company European operations were supplemented by
the Micro-Controle manufacturing operations in France and sales offices
in France, Germany, the United Kingdom, Belgium, Italy and Spain. The
Company closed its Spanish subsidiary and began distributing its products
in Spain through a distributor during the fourth quarter of 1994. The
Company also closed its subsidiary in Belgium during the fourth quarter
of 1994 and is serving those customers with its sales personnel in the
Netherlands and France. During the fourth quarter of 1994 the Company
opened a branch office in Taiwan.
The Newport European Distribution Company ("NEDCO") was established in
the Netherlands in May 1991 to serve as a centralized distribution
service for customers in Europe. In addition, the Company has a
subsidiary in Canada, which operates primarily as a sales office. The
Company reached an agreement with Hakuto Company, Limited, for the
distribution of its products in Japan and as a consequence, the Company
closed its sales office in Japan during the second quarter of 1994.
In the United States the Company has manufacturing operations in
Huntington Beach, Irvine and San Luis Obispo, California. Subsequent to
the end of 1995 the Company acquired MikroPrecision with its
manufacturing operations in a suburb of Minneapolis, Minnesota. The
Company intends to relocate the ROI Huntington Beach operation into its
Irvine, California facility during the second quarter of 1996.
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For information regarding the Company's operations by geographic area
refer to Note 14 of Notes to Consolidated Financial Statements on page
30.
INVESTMENTS
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Marketable securities at December 31, 1994 and 1993 consisted of shares
of common stock of publicly traded companies which were sold during 1995
and/or 1994. The shares were stated at fair market value in accordance
with Statement of Financial Accounting Standards 115, Accounting for
Certain Investments in Debt and Equity Securities (refer to Note 8 of
Notes to Consolidated Financial Statements on page 26). Apart from the
ownership of subsidiaries detailed in Exhibit 21 of this Form 10-K,
Newport has minority ownership interests in several domestic companies
involved in manufacturing laser-related and other high technology
products.
ITEM 2 PROPERTIES
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The Company's headquarters and principal California manufacturing
operations are located at 1791 Deere Avenue, Irvine, California. The
Company entered into a fifteen-year lease for the Deere Avenue property
commencing in March 1992. In addition, the Company has manufacturing
operations in leased facilities at Huntington Beach and San Luis Obispo,
California and leases office space in Mountain View, California for its
Western Region sales, service and application center. The company leases
sales and service offices in Germany, England, Switzerland, Italy, the
Netherlands, Canada and Taiwan, with leases expiring at various dates
through 2011. The Company's centralized European distribution center is
located at leased facilities in the Netherlands. The Company acquired in
1991, in connection with the acquisition of Micro-Controle, a building
and land in Garden City, New York and several properties and buildings at
various locations in France. During the first quarter of 1995 the
Company relocated its New York manufacturing operations to Irvine,
California and has leased the Garden City, New York property.
ITEM 3 LEGAL PROCEEDINGS
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The Company is not a party to any material legal proceedings other than
ordinary routine litigation incidental to its business.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1995.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
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HOLDER MATTERS
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Price Range of Common Stock
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The Company's common stock is traded on the Nasdaq National Market under
Nasdaq symbol NEWP. As of December 31, 1995, the Company had 1,659
common stockholders of record. Refer to Note 16, Supplementary Quarterly
Consolidated Financial Data (Unaudited), of Notes to Consolidated
Financial Statements on page 31 for quarterly share price and dividend
payments.
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ITEM 6 SELECTED FINANCIAL DATA
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The following table presents selected financial data of the Company and
its subsidiaries as of and for the years ended December 31, 1995, 1994
and 1993, the five months ended December 31, 1992 and the years ended
July 31, 1992, and 1991 restated to include financial information of ROI
and LCI which were accounted for as poolings of interests (In thousands,
except percent, per share and employment information):
<TABLE>
<CAPTION>
1995 1994 1993 1992T* 1992 1991
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<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR:
Net sales $101,961 $94,201 $93,573 $39,398 $ 94,925 $65,109
Cost of sales 55,421 51,811 51,747 21,887 53,378 35,882
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Gross margin 46,540 42,390 41,826 17,511 41,547 29,227
Selling, general and administrative 34,441 32,240 31,735 14,161 34,699 20,814
Research and development 6,765 5,371 5,219 2,498 6,471 4,194
Restructuring expense and other special charges - - 6,263 - 13,795 -
-------- ------- ------- ------- -------- -------
Income (loss) from operations 5,334 4,779 (1,391) 852 (13,418) 4,219
Interest expense (1,593) (1,782) (2,321) (1,540) (2,911) (570)
Other income (expense) 1,137 1,839 1,463 905 2,021 1,431
-------- ------- ------- ------- -------- -------
Income (loss) before income taxes 4,878 4,836 (2,249) 217 (14,308) 5,080
Provision (benefit) for taxes 1,003 1,654 951 744 (333) 1,398
-------- ------- ------- ------- -------- -------
Net income (loss) $ 3,875 $ 3,182 $(3,200) $ (527) $(13,975) $ 3,682
======== ======= ======== ======== ======== =======
Percent to sales:
Gross margin 45.6 45.0 44.7 44.4 43.8 44.9
Selling, general and administrative 33.8 34.2 33.9 35.9 36.6 32.0
Research and development 6.6 5.7 5.6 6.3 6.8 6.4
Income (loss) from operations 5.2 5.1 (1.5) 2.2 (14.1) 6.5
Net income (loss) 3.8 3.4 (3.4) (1.3) (14.7) 5.7
PER SHARE:
Earnings (loss) per share $ 0.45 $ 0.38 $ (0.38) $ (0.06) $ (1.67) $ 0.44
Dividends paid per share 0.04 0.04 0.04 0.04 0.16 0.16
Equity per share 6.06 5.53 5.20 5.66 5.78 7.79
AT YEAR END:
Cash and marketable securities $ 1,524 $ 3,624 $ 4,311 $ 3,436 $ 6,593 $20,601
Customer receivables 20,547 18,755 16,946 18,678 21,065 16,009
Inventories 22,744 21,432 21,655 24,531 27,452 20,322
Other current assets 4,088 4,512 4,941 5,939 7,603 6,122
-------- ------- ------- ------- -------- -------
Current assets 48,903 48,323 47,853 52,584 62,713 63,054
Investments and other assets 4,557 4,441 5,185 5,177 5,074 12,340
Property, plant and equipment 22,327 23,044 24,145 30,415 31,175 14,189
Goodwill, net 8,161 8,846 8,852 9,747 10,893 -
-------- ------- ------- ------- -------- -------
Total assets $ 83,948 $84,654 $86,035 $97,923 $109,855 $89,583
======== ======= ======= ======= ======== =======
Current liabilities $ 20,330 $26,604 $24,085 $29,358 $ 34,893 $19,019
Deferred taxes 1,032 282 2,302 2,083 2,054 1,531
Long-term debt 9,899 11,117 16,005 19,246 24,704 4,047
Stockholders' equity 52,687 46,651 43,643 47,236 48,204 64,986
-------- ------- ------- ------- -------- -------
Total liabilities and equity $ 83,948 $84,654 $86,035 $97,923 $109,855 $89,583
======== ======= ======= ======= ======== =======
MISCELLANEOUS STATISTICS
Working capital $ 28,573 $21,719 $23,768 $23,226 $ 27,820 $44,035
Average equivalent shares 8,679 8,469 8,385 8,345 8,345 8,456
Common stock outstanding 8,699 8,441 8,400 8,345 8,345 8,345
Worldwide employment at end of period 662 650 676 743 805 552
Sales per employee (annualized) $ 155 $ 142 $ 132 $ 122 $ 140 $ 126
</TABLE>
* Transition period of five months ended December 31, 1992 because of
change in year end.
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS
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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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OVERVIEW
- --------
The following is management's discussion and analysis of certain significant
factors which have affected the results of operations and financial condition of
the Company during the period included in the accompanying financial statements.
This discussion should be read in conjunction with the financial statements and
associated notes. This discussion includes the impact of the acquisition of RAM
Optical Instrumentation, Inc. ("ROI") and Light Control Instruments, Inc.
("LCI") which were accounted for using the pooling of interests method,
described more fully in Note 3 to the financial statements on page 23 of this
Form 10-K. The discussion herein is qualified by reference to the Introductory
Note above.
ACQUISITIONS In February 1995, the Company acquired all the outstanding
- ------------
capital stock of RAM Optical Instrumentation, Inc. ("ROI"), a manufacturer of
video inspection systems, in exchange for 1,251,000 shares of its common stock.
Additionally, an option to purchase ROI common shares was exchanged for an
option to purchase 72,975 shares of the Company's common stock. In March 1995,
the Company acquired all the outstanding stock of Light Control Instruments,
Inc. ("LCI"), manufacturer of laser-diode instruments, in exchange for 128,000
shares of the Company's common stock.
These transactions have been accounted for as poolings of interests. Costs
associated with these acquisitions totaling $0.1 million were charged to
operations in the first quarter of 1995.
On January 2, 1996, the Company acquired, for cash plus additional consideration
based upon future operating profit, substantially all the assets and selected
liabilities of MikroPrecision Instruments, Inc. ("MikroPrecision"), a
manufacturer of precision equipment for high technology industries such as
semiconductor and disk drive markets. The company is located in a suburb of
Minneapolis, Minnesota. The acquisition will be accounted for as a purchase.
RESTRUCTURING In response to the low level of sales experienced in Europe in
- -------------
1993, the Company recorded restructuring and other special charges totaling $6.3
million ($5.1 million after taxes) a majority of which was related to its
European operations. These charges included $3.3 million of non-cash charges to
revalue surplus real estate in the U.S. and Europe, $2.2 million for severance
and related costs and $0.8 million for equipment relocation costs, and carrying
and selling costs associated with the real estate. Cash items totaled $3.0
million of which $1.2 million and $1.3 million were expended during 1995 and
1994, respectively, for severance and other related payroll liabilities, and
costs to close facilities. It is expected that the balance of $0.5 million will
be expended by March 31, 1996.
RESULTS OF OPERATIONS
- ---------------------
FINANCIAL ANALYSIS The following table sets forth, for the periods indicated,
- ------------------
certain income and expense items expressed as a percentage of the Company's
total sales:
<TABLE>
<CAPTION>
PERIOD-TO-PERIOD
PERCENTAGE OF TOTAL SALES INCREASE (DECREASE)
------------------------- -------------------
1995 1994 1993 1995 1994
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 8.2% 0.1%
Cost of sales 54.4 55.0 55.3 7.0 -
Gross margin 45.6 45.0 44.7 9.8 1.3
Selling, general and
administrative expense 33.8 34.2 33.9 6.8 1.6
Research and
development expense 6.6 5.7 5.6 26.0 2.9
Restructuring expense - - 6.7 - (100.0)
Income from operations 5.2 5.1 (1.5) 11.6 443.6
Interest expense (1.5) (1.9) (2.5) (10.6) (23.2)
Other income, net 1.1 2.0 1.6 (38.2) 25.7
Income taxes 1.0 1.8 1.0 (39.4) 73.9
Net income 3.8 3.4 (3.4) 21.8 199.4
</TABLE>
9
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------ ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CON'T)
--------------------------------------------------------
NET SALES For 1995, 1994 and 1993, the Company's net sales totaled $102.0
- ---------
million, $94.2 million and $93.6 million, respectively. Net sales for 1995
increased $7.8 million compared with 1994, represented by increases of $5.6
million in domestic markets and $0.6 million in international markets combined
with a favorable exchange rate effect of $1.6 million on sales denominated in
foreign currencies. Net sales for 1994 increased modestly versus 1993,
reflecting improvements in both domestic and international markets.
Domestic sales totaled $55.5 million, $49.9 million and $49.5 million for 1995,
1994 and 1993, respectively. Sales for 1995 increased $5.6 million compared
with sales for 1994. The increase was attributable principally to increased
sales revenue at ROI and LCI and to growth across core product lines. For 1994,
domestic sales increased modestly compared with sales for 1993, primarily the
result of strengthening sales of core precision micropositioning systems and
continued improvement in newer growth markets.
International sales totaled $46.5 million, $44.3 million and $44.1 million for
1995, 1994 and 1993, respectively. The increase in 1995 compared with 1994 was
attributable principally to strengthened sales in the major markets of Europe
and the $1.6 million favorable exchange rate effect offset in park by declines
in sales to the Pacific Rim. The Company believes the international sales
decline in the Pacific Rim resulted primarily from the weak economic environment
in Japan. International sales for 1994 increased compared with 1993 primarily
the result of the growth in sales of ROI's products internationally.
The order rate in the U.S. continues to show moderate strength in response to
the increasing sales and marketing emphasis on higher growth market niches in
such industries as fiber optic communications, semiconductor and disk drive
industries and on new products introduced in 1995. Management expects
improvements in sales to the Pacific Rim (primarily Japan) as these economies
strengthen in 1996. However, the order rate in Europe is not showing strength.
Overall, management anticipates continued sales growth through 1996 from
acquisitions, an improving U.S. economy and increased sales of ultrahigh
precision positioning products.
OPERATING INCOME Total costs and expenses for 1995, 1994 and 1993, were $96.6
- ----------------
million, $89.4 million and $95.0 million (including $6.3 million of
restructuring and other special charges), respectively.
Gross margin when stated as a percentage of sales was 45.6%, 45.0% and 44.7% for
1995, 1994 and 1993, respectively. The improvements in gross margin were
primarily attributable to restructuring activities and increased sales volume.
Management anticipates that gross margin will improve further in 1996 as a
result of increased sales volume and continued productivity improvements.
Selling, general and administrative (SG&A) expenses totaled $34.4 million, $32.2
million and $31.7 million for 1995, 1994 and 1993, respectively. SG&A expenses
represented 33.8%, 34.2% and 33.9% of net sales in 1995, 1994 and 1993,
respectively. Although SG&A expenses increased in 1995, they decreased as a
percentage of sales. The increase in dollars was attributable in large part to
non-recurring expenses related to an acquisition which was not consummated ($0.5
million), severance expenses ($0.4 million), the strengthening of the Company's
operating management in Europe ($0.3 million) and an unfavorable exchange rate
effect ($0.7 million). The increase in 1994 was attributable to the costs
associated with strengthening the operating management of the Company.
Management anticipates SG&A expenses in total will increase in 1996 but will be
reduced further as a percent of sales as a result of increased sales volume.
Research and development (R&D) expenses totaled $6.8 million, $5.4 million and
$5.2 million for 1995, 1994 and 1993, respectively. R&D expenses represented
6.6%, 5.7% and 5.6% of net sales in 1995, 1994 and 1993, respectively. The
increases in R&D expenses in 1995 compared with 1994 and 1994 compared with
1993, were attributable primarily to the development of a number of new products
and product enhancements to complement the AutoAlign(TM) fiber alignment system
for the fiber optic communications market, a prototype LaserWeld(TM) packaging
workstation and new products and software by the Company's ROI subsidiary.
Management is committed to continued product development and intends to
10
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------ ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CON'T)
--------------------------------------------------------
increase R&D spending by approximately one million dollars in 1996 over 1995 for
development of new products and product improvements.
Excluding the restructuring and other special charges, operating income totaled
$5.3 million, $4.8 million and $4.9 million for 1995, 1994 and 1993,
respectively. Operating income excluding restructuring and other special
charges represented 5.2%, 5.1% and 5.2% of net sales in 1995, 1994 and 1993,
respectively. Management anticipates that operating income will improve in 1996
primarily as a result of the anticipated sales growth.
During the past three years, inflation has not had any material effect on the
Company's net sales, operating income or other results of operations.
INTEREST EXPENSE Interest expense totaled $1.6 million, $1.8 million and $2.3
- ----------------
million for 1995, 1994 and 1993, respectively. The decreases in interest
expense for the years 1995 and 1994 were attributable to a reduction in the
average debt outstanding and reduced interest rates offset in part by the impact
of the strengthening of the French franc against the US dollar. The Company
anticipates interest expense will increase in 1996 primarily because of funds
expended on the acquisition of MikroPrecision Instruments, Inc. offset in part
by lower interest rates primarily as a result of the new credit agreement signed
in the fourth quarter of 1995. This new credit agreement is described more
fully in Note 9 to the financial statements on page 27 of this Form 10-K.
OTHER INCOME (EXPENSE) Interest and dividend income totaled $0.1 million,
- ----------------------
$0.1 million and $0.2 million for 1995, 1994 and 1993, respectively.
Realized exchange gains (losses) were less than $0.1 million, and totaled $0.2
million, and $(0.2) million for 1995, 1994 and 1993, respectively. The gain in
1994 and the loss in 1993 were attributable primarily to the strengthening in
1994, and the weakening in 1993, of the European currencies compared with the
U.S. dollar on current receivables denominated in European currencies.
The Company recorded investment gains and other income totaling $1.0 million,
$1.5 million and $1.4 million in 1995, 1994 and 1993, respectively. The gains
were attributable primarily to the sale of investments.
TAXES BASED ON INCOME The effective tax rates for 1995, 1994 and 1993 were
- ---------------------
20.6%, 34.2% and 142.3%, respectively. The decrease in the 1995 effective tax
rate was due in part to a $0.4 million reduction in the valuation reserve
attributable to the net operating loss carryforwards of certain of its European
subsidiaries because of an improvement in earnings. Approximately $0.4 million
and $0.5 million of foreign income tax benefit was recorded because of the
utilization of foreign losses in 1995 and 1994, respectively. Prior to 1994,
net losses, principally in Europe, did not have a tax benefit recorded.
EMPLOYMENT Worldwide employment of the Company totaled 662, 650 and 676 at
- ----------
December 31, 1995, 1994 and 1993, respectively. The increase in employment at
December 31, 1995, was a result of the increased sales volume. The declines in
employment at December 31, 1994 and 1993 were primarily the result of the
restructuring activities. Sales per employee approximated $155,000, $142,000
and $132,000 during 1995, 1994 and 1993, respectively.
STOCKHOLDER'S EQUITY The Company paid dividends totaling $0.3 million during
- --------------------
1995, 1994 and 1993, respectively. This represents 4 cents per share during
each of the respective periods.
Stockholders' equity increased from $43.6 million ($5.20 per share), at December
31, 1993 to $46.7 million ($5.53 per share) as of December 31, 1994 and to $52.7
million ($6.06 per share) as of December 31, 1995. The increases in 1995 and
1994 were attributable to the respective year earnings, issuance of stock under
stock option and stock purchase plans, and unrealized exchange gains, offset in
part by dividend payments.
11
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------ ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CON'T)
--------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
WORKING CAPITAL AND LIQUIDITY Net cash provided by operating activities of
- -----------------------------
$5.7 million in 1995 was primarily attributable to the Company's operating
income for 1995, non-cash items principally depreciation and amortization, and
changes in operating assets and liabilities.
Net cash used in investing activities of $1.0 million in 1995 was attributable
principally to the Company's purchases of property, plant and equipment,
partially offset by proceeds from sales of investments and marketable
securities.
Net cash used in financing activities of $6.0 million in 1995 was attributable
principally to cash paid to reduce debt, partially offset by proceeds from the
issuance of common stock under employee agreements.
Cash paid to reduce debt totaled $7.4 million, $2.9 million and $3.5 million
during 1995, 1994 and 1993, respectively. The debt reductions in 1995 and 1994
were offset in part by translation losses of $1.2 million in 1995 and $1.7
million in 1994 as a result of the weakening of the U.S. dollar versus the
French franc.
On December 20, 1995, the Company signed a credit agreement with a bank for a
$15.0 million unsecured line of credit to support the Company's domestic
operation and a $2.0 million unsecured line of credit to support the Company's
European requirements. This new credit agreement with interest at prime plus
0.5%, or LIBOR plus 2.0%, was used to repay amounts owed on credit agreements
with two U.S. financial institutions and provide funds for the acquisition of
MikroPrecision Instruments, Inc. on January 2, 1996. At December 31, 1995, the
amount outstanding under this line of credit was $7.0 million with the remaining
$9.8 million available after reflecting outstanding letters of credit. During
the first quarter of 1996, the Company reached an agreement in principle for
$20.0 million of long-term financing from an insurance company which, if
consummated, would refinance a significant portion of its outstanding debt
during the first half of 1996 and could reduce its after-tax borrowing.
The Company believes its current working capital position together with
estimated cash flows from operations, its existing financing availability and
anticipated refinancing are adequate for operations in the ordinary course of
business, acquisitions, anticipated capital expenditures and debt payment
requirements.
CAPITAL EXPENDITURES Capital expenditures for plant improvements and new
- --------------------
equipment, aggregated $2.5 million, $2.1 million, and $2.1 million for 1995,
1994 and 1993, respectively. The Company anticipates significant increases in
capital expenditures in 1996 compared with 1995 primarily for capacity expansion
at MikroPrecision.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
Consolidated financial statements of the Company as of December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995, the
report of independent auditors thereon and the Company's unaudited quarterly
financial data for 1995 and 1994 are referenced in Item 14 herein.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
- ------ -------------------------------------------------------------------------
DISCLOSURE
----------
Not applicable.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
The information required hereunder is incorporated by reference to the Company's
Proxy Statement to be filed within 120 days of December 31, 1995 in connection
with its June 5, 1996, Annual Meeting of Stockholders.
12
<PAGE>
ITEM 11 EXECUTIVE COMPENSATION
------- ----------------------
The information required hereunder is incorporated by reference to the
Company's Proxy Statement to be filed within 120 days of December 31,
1995 in connection with its June 5, 1996, Annual Meeting of Stockholders.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------- --------------------------------------------------------------
The information required hereunder is incorporated by reference to the
Company's Proxy Statement to be filed within 120 days of December 31,
1995 in connection with its June 5, 1996, Annual Meeting of Stockholders.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
------- ----------------------------------------------
There were no relationships or transactions required to be reported
under Item 404 of Regulation S-K.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
------- ----------------------------------------------------------------
(a) 1. Financial Statements and Financial Statement Schedules
---------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors 16
FINANCIAL STATEMENTS:
---------------------
Consolidated statement of operations for the years
ended December 31, 1995, 1994 and 1993 17
Consolidated balance sheet at December 31, 1995 and
1994 18
Consolidated statement of cash flows for the years
ended December 31, 1995, 1994 and 1993 19
Consolidated statement of stockholders' equity for
the years ended December 31, 1995, 1994 and 1993 20
Notes to consolidated financial statements 21 - 31
FINANCIAL STATEMENT SCHEDULES:
------------------------------
II - Consolidated valuation accounts 32
</TABLE>
All other schedules are omitted as the required information is not
present or is not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
consolidated financial statements or notes thereto.
2. Exhibits
-----------
The exhibits set forth below are filed as part of this Annual
Report:
<TABLE>
<CAPTION>
<S> <C>
Exhibit 3.1 Restated Articles of Incorporation of Newport Corporation,
a Nevada corporation, as amended to date (incorporated by
reference to exhibit in the Company's 1987 Proxy
Statement).
Exhibit 3.2 Restated Bylaws of Newport Corporation, a Nevada
corporation, as amended to date (incorporated by
reference to Exhibit 3.2 of the Company's Annual Report on
Form 10-K for the year ended July 31, 1992).
</TABLE>
13
<PAGE>
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
------------------------------------------------------
FORM 10-K (CON'T)
-----------------
<TABLE>
<CAPTION>
<S> <C>
Exhibit 10.1 Lease Agreement dated March 27, 1991, as amended,
pertaining to premises located in Irvine, California
(incorporated by reference to Exhibit 10.1 of the Company's
Annual Report on Form 10-K for the year ended July 31,
1992).
Exhibit 10.3 1992 Incentive Stock Plan (incorporated by reference to
exhibit in the Company's 1992 Proxy Statement).
Exhibit 10.4 Loan and Security Agreement dated June 23, 1993, with
exhibits and Promissory Note (incorporated by reference to
Exhibit 10.4 of the Company's Form 10-Q for the quarter
ended June 30, 1993).
Exhibit 10.5 Acquisition of subsidiaries of Micro-Controle S.A.,
with exhibits (incorporated by reference to Form 8-K filed
June 28, 1991, and amended July 23, 1992).
Exhibit 10.6 Acquisition of Micro-Controle S.A., with exhibits
(incorporated by reference to Form 8-K filed September 18,
1991, and amended July 23, 1992).
Exhibit 10.7 Form of Severance Compensation Agreement between Newport
Corporation and certain Executive Officers (incorporated
by reference to Exhibit 10.7 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1993).
Exhibit 10.8 Severance Compensation Agreement dated as of April 1,
1994, between Newport Corporation, a Nevada Corporation,
and Edmund K. Langley, Executive Vice President and Chief
Operating Officer (incorporated by reference to Exhibit
10.8 of the Company's Form 10-Q for the quarter ended June
30, 1994).
Exhibit 10.9 Stock Purchase Agreement dated as of February 14, 1995,
among Newport Corporation as Purchaser, RAM Optical
Instrumentation, Inc. and Mark G. Arenal, Harry J. Brown,
The Harry & Patricia Brown Living Trust 1994, John G.
Hartwell, and The John G. Hartwell Family Trust Established
1/3/90 as Sellers (incorporated by reference to Exhibit 2.1
of the Company's Form 8-K filed March 15, 1995).
Exhibit 10.10 Credit Agreement dated as of December 20, 1995 between
Newport Corporation and ABN AMRO Bank N.V., Los Angeles
International Branch 34
Exhibit 21 Subsidiaries of Registrant 93
Exhibit 23 Consent of Independent Auditors 94
Exhibit 27 Financial Data Schedule (Article 5 of Regulation S-X) 95
</TABLE>
(b) Reports on Form 8-K
-------------------
The Company filed no Reports on Form 8-K during the quarter ended
December 31, 1995.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
NEWPORT CORPORATION
/s/ RICHARD E. SCHMIDT
---------------------
Richard E. Schmidt, Chairman of the Board
(Principal Executive Officer)
/s/ ROBERT C. HEWITT
--------------------
Robert C. Hewitt, Vice President, Chief Financial Officer, Secretary and
Treasurer
(Chief Financial Officer)
/s/ GERALD A. DECICCIO
---------------------
Gerald A. DeCiccio, Corporate Controller
(Principal Accounting Officer)
Date: March 28,1996
-------------
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 dates indicated.
/s/ R. JACK APLIN March 28, 1996
----------------- --------------
R. Jack Aplin, Member of the Board Date
/s/ ROBERT L. GUYETT March 28, 1996
-------------------- --------------
Robert L. Guyett, Member of the Board Date
/s/ LOUIS B. HORWITZ March 28, 1996
-------------------- --------------
Louis B. Horwitz, Member of the Board Date
/s/ DAN L. MCGURK March 28, 1996
----------------- --------------
Dan L. McGurk, Member of the Board Date
/s/ C. KUMAR N. PATEL March 28, 1996
--------------------- --------------
C. Kumar N. Patel, Member of the Board Date
/s/ JOHN T. SUBAK March 28, 1996
----------------- --------------
John T. Subak, Member of the Board Date
15
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Newport Corporation
We have audited the accompanying consolidated balance sheet of Newport
Corporation as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995.
Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Newport Corporation at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Orange County, California
February 9, 1996
16
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
(In thousands except
per share amounts)
Years Ended December 31,
-------------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Net sales $101,961 $94,201 $93,573
Cost of sales 55,421 51,811 51,747
-------- ------- -------
Gross profit 46,540 42,390 41,826
Selling, general and administrative expense 34,441 32,240 31,735
Research and development expense 6,765 5,371 5,219
Restructuring and other special charges - - 6,263
-------- ------- -------
Income (loss) from operations 5,334 4,779 (1,391)
Interest expense (1,593) (1,782) (2,321)
Other income, net 1,137 1,839 1,463
-------- ------- -------
Income (loss) before income taxes 4,878 4,836 (2,249)
Income tax provision 1,003 1,654 951
-------- ------- -------
Net income (loss) $ 3,875 $ 3,182 $(3,200)
======== ======= =======
Net income (loss) per share $0.45 $0.38 $(0.38)
======== ======= =======
Number of shares used to calculate
net income (loss) per share 8,679 8,469 8,385
======== ======= =======
Dividends per share $0.04 $0.04 $0.04
======== ======= =======
</TABLE>
See accompanying notes.
17
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Dollars in thousands, except stated value per share)
December 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,524 $ 3,014
Marketable securities -- 610
Customer receivables, net 19,767 18,755
Other receivables 780 1,912
Inventories 22,744 21,432
Deferred tax assets 2,570 693
Other current assets 1,518 1,907
------- -------
Total current assets 48,903 48,323
Investments, notes receivable and other assets 4,557 4,441
Property, plant and equipment, at cost, net 22,327 23,044
Goodwill, net 8,161 8,846
------- -------
$83,948 $84,654
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,054 $ 5,393
Accrued payroll and related expenses 5,143 4,679
Taxes based on income 1,261 1,308
Accrued restructuring liabilities, net 513 2,364
Current portion of long-term debt 5,286 10,316
Other accrued liabilities 3,073 2,544
------- -------
Total current liabilities 20,330 26,604
Deferred taxes 1,032 282
Long-term debt 9,899 11,117
Commitments (Note 10)
Stockholders' equity:
Common stock, $.35 stated value, 20,000,000 shares authorized;
8,699,000 shares issued and outstanding at December 31, 1995;
8,441,000 shares at December 31, 1994 3,045 2,954
Capital in excess of stated value 7,609 5,771
Unamortized deferred compensation (369) (251)
Unrealized gain on marketable securities -- 343
Unrealized translation loss (1,773) (2,778)
Retained earnings 44,175 40,612
------- -------
Total stockholders' equity 52,687 46,651
------- -------
$83,948 $84,654
======= =======
</TABLE>
See accompanying notes.
18
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
Years Ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 3,875 $ 3,182 $(3,200)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 4,940 4,622 5,638
Net gains from sales of investments (832) (1,685) (1,260)
Increase in provision for losses on
receivables, inventories and investments 1,940 1,129 1,366
Deferred income taxes (889) (1,126) (2)
Realized foreign currency (gains) losses, net (8) (175) 158
Restructuring and other special charges - - 6,263
Other non-cash (income) loss (86) 79 -
Changes in operating assets and liabilities:
Receivables 561 (1,799) 1,471
Inventories (2,492) 234 1,660
Other current assets 232 (517) 171
Accounts payable and other accrued expenses (2,488) (3,358) (6,807)
Taxes based on income (50) 2,203 (19)
Translation gain (loss) related to operating activities 1,127 (19) (1,989)
Other, net (132) 222 (207)
------- ------- -------
Net cash provided by operating activities 5,698 2,992 3,243
------- ------- -------
INVESTING ACTIVITIES:
Proceeds from sales of investments
and marketable securities 1,319 2,205 1,386
Purchases of property, plant and equipment (2,513) (2,142) (2,139)
Disposition of property, plant and equipment 50 434 454
Other, net 97 164 20
------- ------- -------
Net cash provided by (used in) investing activities (1,047) 661 (279)
------- ------- -------
FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings (5,512) 2,450 (76)
Repayment of long-term borrowings (1,859) (5,394) (3,455)
Cash dividends paid (312) (299) (304)
Issuance of common stock under
employee agreements including
associated tax benefit 1,675 99 91
------- ------- -------
Net cash used in financing activities (6,008) (3,144) (3,744)
Effect of foreign exchange rate changes on cash (133) (32) (119)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,490) 477 (899)
Cash and cash equivalents at beginning of year 3,014 2,537 3,436
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,524 $ 3,014 $ 2,537
======= ======= =======
</TABLE>
See accompanying notes.
19
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Amounts in thousands, except
share and per share amounts) Unrealized
Capital in Unamortized gain on Unrealized
Common excess of deferred marketable translation Retained
stock stated value compensation securities adjustments earnings Total
---------------- ------------- ------------- ----------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $2,920 $5,265 $ - $ - $(2,181) $41,233 $47,237
- ----------------------------
Cash dividends to Newport
shareholders ($0.04 per share) - - - - - (280) (280)
Cash dividends to ROI
shareholders - - - - - (24) (24)
Issuance of common stock
under employee agreements
for cash 6 85 - - - - 91
Grants of restricted stock 13 204 (217) - - - -
Amortization of deferred
compensation - - 43 - - - 43
Unrealized gain on marketable
equity securities, net of
income taxes - - - 979 - - 979
Net loss - - - - - (3,200) (3,200)
Unrealized translation loss - - - - (1,203) - (1,203)
---------------- ------------- ------------- ----------- ------------ --------- --------
Balance at December 31, 1993 2,939 5,554 (174) 979 (3,384) 37,729 43,643
- ----------------------------
Cash dividends to Newport
shareholders ($0.04 per share) - - - - - (281) (281)
Cash dividends to ROI
shareholders - - - - - (18) (18)
Issuance of common stock
under employee agreements
for cash 7 92 - - - - 99
Grants of restricted stock 11 169 (180) - - - -
Forfeiture of restricted
stock grants (3) (44) 47 - - - -
Amortization of deferred
compensation - - 56 - - - 56
Reduction in unrealized gain
on marketable equity
securities, net of income
taxes - - - (636) - - (636)
Net income - - - - - 3,182 3,182
Unrealized translation gain - - - - 606 - 606
---------------- ------------- ------------- ----------- ------------ --------- --------
Balance at December 31, 1994 2,954 5,771 (251) 343 (2,778) 40,612 46,651
- ----------------------------
Cash dividends ($0.04 per share) - - - - - (312) (312)
Issuance of common stock
under employee agreements
for cash including
associated tax benefit 55 1,134 - - - - 1,189
Issuance of common stock
under employee stock purchase
plan for cash 25 461 - - - - 486
Grants of restricted stock 14 293 (307) - - - -
Forfeiture of restricted
stock grants (3) (50) 53 - - - -
Amortization of deferred
compensation - - 136 - - - 136
Reduction in unrealized gain on
marketable equity securities,
net of income taxes (note 8) - - - (343) - - (343)
Net income - - - - - 3,875 3,875
Unrealized translation gain - - - - 1,005 - 1,005
---------------- ------------- ------------- ----------- ------------ --------- --------
BALANCE AT DECEMBER 31, 1995 $3,045 $7,609 $(369) $ - $(1,773) $44,175 $52,687
================ ============= ============= =========== ============ ========= ========
</TABLE>
See accompanying notes.
20
<PAGE>
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization Newport Corporation (the "Company") is a leading
worldwide manufacturer and marketer of precision equipment for
scientists and engineers who develop and apply technology involving
lasers and optics. The Company also uses its precision positioning
expertise to serve such high technology industries as semiconductor
manufacturing, telecommunications, data storage, life science and
health care and analytical instrumentation. Customers include Fortune
500 corporations, national research laboratories, government and
educational institutions.
Consolidation The accompanying financial statements consolidate the
accounts of the Company and its wholly-owned subsidiaries and have been
restated for all periods presented to reflect the acquisitions of ROI
and LCI (Note 3) which have been accounted for using the pooling of
interests method. The accounts of the Company's subsidiaries in Europe,
and for 1993 in Japan, have been consolidated using a one-month lag.
All significant intercompany transactions and balances have been
eliminated. Certain reclassifications have been made to prior year
amounts to conform to current year presentation.
Use of estimates 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. Actual results could
differ from those estimates. Significant estimates made in preparing
the consolidated financial statements include the allowance for
doubtful accounts, inventory obsolescence reserves, income tax
valuation allowance, investment reserves, litigation settlement costs
and future undiscounted cash flows used in the analysis of the
impairment of long-lived assets.
Sales A sale is recorded when title passes to customers.
Income taxes The Company recognizes the amount of current and deferred
taxes payable or refundable at the date of the financial statements as
a result of all events that have been recognized in the financial
statements and as measured by the provisions of enacted laws.
Depreciation and amortization The cost of buildings, machinery and
equipment, and leasehold improvements is depreciated generally using an
accelerated method based on a declining balance formula over estimated
useful lives ranging from three to thirty one years. Leasehold
improvements are generally amortized over the term of the lease.
Net income (loss) per share Net income (loss) per share is based on
the weighted average number of shares of common stock, and for periods
with income, the dilutive effects of common stock equivalents (stock
options), determined using the treasury stock method, outstanding
during the periods.
Cash and cash equivalents Cash and cash equivalents consist of cash-
on-hand, short-term certificates of deposit and other securities
readily convertible to cash.
Fair Values of Financial Instruments Fair values of cash and cash
equivalents, short-term borrowings and the current portion of long-term
debt approximate the carrying value because of the short period of time
to maturity. The fair value of long-term debt approximates its carrying
value because of their variable rates of interest. The carrying amounts
of the forward exchange contracts, if any, equal fair value and are
adjusted each balance sheet date for changes in exchange rates.
Investments Marketable securities are considered available-for-sale
and are stated at fair market value. The excess of fair market value
over cost is included as a separate component of Stockholders' Equity.
Nonmarketable investments are stated at cost, adjusted for the
Company's proportionate share of undistributed earnings or losses.
21
<PAGE>
Intangible Assets Goodwill, representing the excess of the purchase
price over the fair value of the net assets of the acquired entities,
is amortized on a straight-line basis over its estimated useful life of
twenty years. Patents are amortized using the straight-line method over
the lives of the patents. Licenses are amortized on a straight-line
basis over the estimated economic lives of the related assets. At
December 31, 1995, accumulated amortization of intangible assets,
principally goodwill, aggregated $2.7 million.
Long-Lived Assets The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (SFAS No. 121), in March 1995. The Company adopted SFAS
No. 121 during 1995. In accordance with SFAS No. 121, the Company
reviewed its long-lived assets and certain identifiable intangibles for
impairment. Based on its analysis, the Company believes that no
impairment of the carrying value of its long-lived assets, including
goodwill, existed at December 31, 1995.
Foreign currency Balance sheet accounts denominated in foreign
currency are translated at exchange rates as of the date of the balance
sheet and income statement accounts are translated at average exchange
rates for the period. Translation gains and losses are accumulated as a
separate component of Stockholders' Equity. The Company has adopted
local currencies as the functional currencies for its subsidiaries
because their principal economic activities are most closely tied to
the respective local currencies.
The Company may enter into foreign exchange contracts as a hedge
against foreign currency denominated receivables. It does not engage in
currency speculation. Market value gains and losses on contracts are
recognized currently, offsetting gains or losses on the associated
receivables. Foreign currency transaction gains and losses are included
in current earnings. There were no foreign exchange contracts at
December 31, 1995.
Stock Option Plans The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123), in October 1995. SFAS No. 123
establishes financial accounting and reporting standards for stock-
based compensation plans and for transactions in which an entity issues
its equity instruments to acquire goods and services from nonemployees.
The new accounting standards prescribed by SFAS No. 123 are optional,
and the Company may continue to account for its plans under previous
accounting standards. The Company does not expect to adopt the new
accounting standards, consequently, SFAS No. 123 will not have an
impact on the Company's consolidated results of operations or financial
position. However, pro forma disclosures of net earnings and earnings
per share will be made in 1996 as if the SFAS No. 123 accounting
standards had been adopted.
NOTE 2 RESTRUCTURING
In response to the low level of sales experienced in Europe in 1993,
the Company recorded restructuring and other special charges totaling
$6.3 million ($5.1 million after taxes) a majority of which was related
to its European operations. These charges included $3.3 million of non-
cash charges to revalue surplus real estate in the U.S. and Europe,
$2.2 million for severance and related costs and $0.8 million for
equipment relocation costs, and carrying and selling costs associated
with the real estate. Cash items totaled $3.0 million of which $1.2
million and $1.3 million were expended during 1995 and 1994,
respectively, for severance and other related payroll liabilities, and
costs to close facilities. It is expected that the balance of $0.5
million will be expended by March 31, 1996.
22
<PAGE>
NOTE 3 ACQUISITIONS
In February 1995, the Company acquired all the outstanding capital
stock of RAM Optical Instrumentation, Inc. ("ROI"), a manufacturer of
video inspection systems, in exchange for 1,251,000 shares of its
common stock. Additionally, an option to purchase ROI common shares was
exchanged for an option to purchase 72,975 shares of the Company's
common stock. In March 1995, the Company acquired all the outstanding
stock of Light Control Instruments, Inc. ("LCI"), a manufacturer of
laser-diode instruments, in exchange for 128,000 shares of the
Company's common stock.
These transactions have been accounted for as poolings of interests.
Costs associated with these acquisitions totaling $0.1 million were
charged to operations in the first quarter of 1995.
Net sales and net income (loss) of Newport, ROI and LCI for the periods
preceding the acquisitions were:
<TABLE>
<CAPTION>
(In thousands)
Newport ROI LCI Combined
-------- ------- -------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Net sales $85,637 $8,039 $ 525 $94,201
Net income (loss) 3,339 (145) (12) 3,182
Year ended December 31, 1993:
Net sales 84,147 9,069 357 93,573
Net income (loss) (3,746) 566 (20) (3,200)
</TABLE>
NOTE 4 CUSTOMER RECEIVABLES
Customer receivables consist of the following:
<TABLE>
<CAPTION>
(In thousands) December 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Customer receivables $20,304 $19,215
Less allowance for doubtful accounts 537 460
------- -------
$19,767 $18,755
======= =======
</TABLE>
The Company maintains adequate reserves for potential credit losses.
Such losses have been minimal and within management's estimates.
Receivables from customers are generally unsecured.
NOTE 5 INVENTORIES
Inventories are stated at cost, determined on either a first-in, first-
out (FIFO) or average cost basis and do not exceed net realizable
value.
Inventories consist of the following:
<TABLE>
<CAPTION>
(In thousands) December 31,
----------------------
1995 1994
------- ------------
<S> <C> <C>
Raw materials and purchased parts $ 6,027 $ 7,350
Work in process 4,103 3,541
Finished goods 12,614 10,541
------- -------
$22,744 $21,432
======= =======
</TABLE>
23
<PAGE>
NOTE 6 INCOME TAXES
The provision (benefit) for taxes based on income (loss) consists of
the following:
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
------------------------------------
1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
Current:
Federal $ 935 $ 2,615 $ 877
State 85 (35) 90
Foreign 303 200 (7)
Deferred:
Federal 74 (1,114) (364)
State 14 (12) 355
Foreign (408) - -
------ ------- -----
$1,003 $ 1,654 $ 951
====== ======= =====
</TABLE>
The provision (benefit) for taxes based on income (loss) differs from
the amount obtained by applying the statutory tax rate as follows:
<TABLE>
<CAPTION>
(In thousands)
Years Ended December 31,
---------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Income tax provision (benefit) at statutory rate $1,658 $1,644 $ (765)
Increase (decrease) in taxes resulting from:
Foreign losses not currently benefited 90 432 1,508
Non deductible goodwill amortization 191 182 174
Utilization of foreign loss carryforwards (422) (527) -
Reduction in valuation allowance (408) - -
State income taxes, net of federal income tax benefit 65 (31) 294
Foreign Sales Corporation income (156) (79) (14)
Other, net (15) 33 (246)
------ ------ ------
$1,003 $1,654 $ 951
====== ====== ======
</TABLE>
Deferred tax assets and liabilities determined in accordance with SFAS
109 reflect the impact of temporary differences between amounts of assets
and liabilities for tax and financial reporting purposes. Such amounts
are measured by tax laws and the expected future tax consequences of net
operating loss carryforwards.
In 1995, the Company reduced the valuation allowance applicable to
foreign net operating loss carryforwards by $408,000 due to an
improvement in earnings of certain of its European subsidiaries.
24
<PAGE>
Temporary differences and net operating loss carryforwards which give
rise to deferred tax assets and liabilities recognized in the balance
sheet are as follows:
<TABLE>
<CAPTION>
(In thousands) December 31,
---------------------
1995 1994
------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 9,834 $ 10,677
Accrued restructuring liabilities 188 785
Accruals not currently deductible for tax purposes 1,958 1,932
Other 100 142
Valuation allowance (9,375) (11,462)
------- --------
Total deferred tax asset 2,705 2,074
Deferred tax liabilities:
Accelerated depreciation methods used for tax purposes 922 1,033
Unrealized gain on marketable securities - 228
Other 245 402
------- --------
Total deferred tax liability 1,167 1,663
------- --------
Net deferred tax asset $ 1,538 $ 411
======= ========
</TABLE>
The Company has foreign net operating loss carryforwards totaling
approximately $25.8 million at December 31, 1995, of which
approximately $0.2 million expires in 1996, $0.1 million expires in
1998, with the balance principally expiring in the years 2007 through
2010. The Company also has California net operating loss carryforwards
totaling approximately $0.8 million, which expire in 1998. For
financial reporting purposes, a valuation allowance has been recorded
primarily to offset the deferred tax asset related to foreign net
operating loss carryforwards. Approximately $2.9 million of the
valuation allowance will be allocated to reduce goodwill when realized.
Approximately $0.2 million and $0.4 million of the valuation allowance
realized was allocated to goodwill for 1995 and 1994, respectively.
Net income taxes paid for 1995, 1994 and 1993 totaled $1.0 million,
$0.3 million and $1.1 million, respectively.
NOTE 7 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, including capitalized lease
assets, consist of the following:
<TABLE>
<CAPTION>
(In thousands) December 31,
------------------
1995 1994
------- --------
<S> <C> <C>
Land $ 2,238 $ 2,115
Buildings 13,366 12,671
Leasehold improvements 7,500 7,176
Machinery and equipment 19,510 19,119
Office equipment 8,865 7,596
------- -------
51,479 48,677
Less accumulated depreciation 29,152 25,633
------- -------
$22,327 $23,044
======= =======
</TABLE>
25
<PAGE>
NOTE 8 INVESTMENTS, NOTES RECEIVABLE AND OTHER ASSETS
Investments, notes receivable and other assets consist of the
following:
<TABLE>
<CAPTION>
(In thousands) December 31,
---------------------
1995 1994
------ ------
<S> <C> <C>
Marketable securities available-for-sale $ - $ 610
Nonmarketable investments 3,966 3,840
Notes receivable - 97
Other assets 591 504
------ ------
4,557 5,051
Less current portion - 610
------ ------
4,557 $4,441
====== ======
</TABLE>
Marketable securities available-for-sale which consisted of shares of
common stocks of publicly traded companies, were sold in 1995. At
December 31, 1994 they were stated at fair market which resulted in
gross unrealized gains of $0.5 million. The excess of fair market value
over cost (net of deferred income taxes of $0.2 million at December 31,
1994) is included as a separate component of Stockholders' Equity.
Gross proceeds resulting from the sale of these securities were $0.9
million, $1.2 million and $1.4 million 1995, 1994 and 1993,
respectively. Realized gains and losses on sale of these securities are
based on the difference between the selling price and historical cost.
Realized gains of $0.8 million, $1.1 million and $1.3 million are
reflected as other income for 1995, 1994 and 1993, respectively.
Nonmarketable investments consist primarily of investments in private
companies, including a 25% interest in a US supplier and a 29% interest
in a company active in laser and electro-optical technology, stated at
cost, adjusted for the Company's proportionate share of undistributed
earnings or losses. The Company made purchases of approximately $3.8
million, $3.8 million, and $4.2 million from that supplier during 1995,
1994 and 1993, respectively.
Notes receivable are carried at lower of amortized cost or net
realizable value. Other assets consist primarily of patents and license
agreements.
26
<PAGE>
NOTE 9 LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) December 31,
------------------
1995 1994
------- --------
<S> <C> <C>
Credit agreements:
Prime + 0.5%, maturing December 1997 $ 4,555 $ -
Prime + 1%, maturing June 1996 - 6,378
PIBOR + 1%, maturing March 31, 1996, payable in French francs $ - 2,434
Prime + 1%, maturing August 1995 - 249
Term notes:
PIBOR + 1.35%, maturing October 1997, payable in French francs 5,097 7,024
LIBOR + 2%, maturing March 1996 2,448 -
Prime + 1%, maturing June 1996 - 1,185
Capitalized lease obligations, payable in varying installments to 2005,
in French francs 2,991 3,015
Equipment loans 94 -
Mortgages payable:
Various (9.2% to 12.75%), maturing from 1995 to 1999,
payable in French francs - 1,148
------- -------
15,185 21,433
Less current portion 5,286 10,316
------- -------
$ 9,899 $11,117
======= =======
</TABLE>
On December 20, 1995, the Company signed a credit agreement with a bank
for a $15.0 million unsecured line of credit to support the Company's
domestic operations and a $2.0 million unsecured line of credit to
support the Company's European requirements. This new credit agreement
provides for interest at prime plus 0.5%, or LIBOR (London Interbank
Offered Rate) plus 2.00%, proceeds from the line were used to repay
amounts owed on credit agreements with two U.S. financial institutions
as well as provide funds for the acquisition of MikroPrecision
Instruments, Inc. on January 2, 1996. The line has no annual facility
fee and an unused line fee of 0.375 percent. At December 31, 1995, the
amount outstanding under this line of credit was $7.0 million and
amounts available for borrowing under the line totaled $9.8 million
after reflecting outstanding letters of credit. The prime rate was 8.5%
at December 31, 1995. The weighted average interest rate was 9.9% and
10.2% for 1995 and 1994, respectively. Under the terms of the
agreement, the Company is required to comply with various covenants,
including covenants limiting the ability of the Company and its
subsidiaries to pledge assets or incur liens on assets, requiring the
Company to maintain specified ratios, and levels of tangible net worth
and net income, and limiting the amount of capital expenditures and
dividends.
The Company has a line of credit with a consortium of foreign banks
which provides for advances up to a limit of 25.0 million French francs
(approximately $5.1 million) with interest at 1% above PIBOR (Paris
Interbank Offered Rate), collateralized by eligible receivables. There
were no borrowings outstanding under this agreement at December 31,
1995. During the first quarter of 1996, the Company anticipates that
this line will be replaced by the $2 million available under the new
credit agreement. The weighted average interest rate was 8.5% and 7.6%
for 1995 and 1994, respectively.
The Company has term notes with the same consortium of foreign banks
which, at December 31, 1995, totaled 25.0 million French francs
(approximately $5.1 million) with interest at 1.6% above PIBOR prior to
October 1, 1995 and 1.35% above PIBOR after that date, secured
generally by assets of Micro-Controle with a carrying value of 110.8
million French francs (approximately $22.6 million) at December 31,
1995. The six-month PIBOR was 6.3% at December 31, 1995. Repayment is
due in two annual installments commencing in October 1996.
27
<PAGE>
Capitalized lease obligations of 14.7 million French francs
(approximately $3.0 million) relate to real estate and equipment. The
book value of assets under capital leases at December 31, 1995, was
19.1 million French francs (approximately $2.5 million), net of
accumulated amortization of 6.7 million French francs (approximately
$1.4 million).
Required annual payments are as follows:
<TABLE>
<CAPTION>
(In thousands) Capitalized Borrowings,
Lease Mortgages and
For years ending December 31, Obligations Term Notes
----------- -------------
<S> <C> <C>
1996 $ 519 $ 4,997
1997 523 7,103
1998 527 94
1999 531 -
2000 464 -
Thereafter 1,561 -
------ -------
4,125 $12,194
=======
Less interest 1,134
------
$2,991
======
</TABLE>
Interest paid for 1995, 1994 and 1993, totaled $1.4 million, $1.5
million and $2.4 million, respectively.
NOTE 10 COMMITMENTS
The Company leases certain of its manufacturing and office facilities
and equipment under non-cancelable operating leases. Minimum rental
commitments under terms of these leases are as follows (in thousands):
<TABLE>
<CAPTION>
For years ending December 31,
<S> <C>
1996 $ 2,297
1997 2,114
1998 1,882
1999 1,745
2000 1,641
Thereafter 10,624
</TABLE>
The principal lease expires in 2007. Future sublease income is
estimated at $1.6 million. Rental expense under all leases totaled $2.6
million, $2.6 million and $2.4 million for 1995, 1994 and 1993,
respectively.
NOTE 11 STOCK OPTION PLANS
The Company's stock option plan provides that the number of shares
available for issuance as either stock options or restricted stock
increases on the last day of each fiscal year by an amount equal to 2%
of the then outstanding shares. Options have been granted to directors,
officers and key employees at a price not less than fair market value
at the dates of grants. Accordingly, no charges have been made to
income in accounting for these options. The tax benefits, if any,
resulting from the exercise of options are credited to capital in
excess of stated value. The fair market value of restricted stock at
date of grant is amortized to expense over the vesting period of five
years.
28
<PAGE>
The following table summarizes option plan and restricted stock
activity for the years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Restricted
Stock Options Total
----------- ---------- -----------
<S> <C> <C> <C>
Amounts outstanding at December 31, 1993 37,000 970,900 1,007,900
Granted 32,000 181,470 213,470
Exercised (10,250) (16,750) (27,000)
Canceled (8,000) (132,864) (140,864)
----------- ---------- -----------
Amounts outstanding at December 31, 1994 50,750 1,002,756 1,053,506
Granted 41,000 320,475 361,475
Exercised (10,000) (155,520) (165,520)
Canceled (8,250) (149,196) (157,446)
----------- ---------- -----------
Amounts outstanding at December 31, 1995 73,500 1,018,515 1,092,015
=========== ========== ===========
At December 31, 1995:
Exercise prices of outstanding options $5.00 to $13.50
Shares available for future grants 540,190
Options exercisable 648,265
</TABLE>
Effective January 1, 1995 the Company adopted an Employee Stock
Purchase Plan (the "Purchase Plan") to provide employees of the Company
and selected subsidiaries with an opportunity to purchase common stock
through payroll deductions. The purchase price is the lower of 85% of
the fair market value of the stock on the first or last day of each
quarter. The Purchase Plan expires on December 31, 2005. An aggregate
of 250,000 shares of common stock is available for purchase under the
Purchase Plan. There were 70,850 shares issued under the Purchase Plan
during 1995.
NOTE 12 OTHER INCOME
Other income consisted of the following:
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
-------------------------------
1995 1994 1993
------ --------- --------
<S> <C> <C> <C>
Interest and dividend income $ 95 $ 143 $ 229
Realized foreign currency gains (losses), net 8 175 (158)
Gains on sale of investments, net 832 1,404 1,260
Other 202 117 132
------ ------ ------
$1,137 $1,839 $1,463
====== ====== ======
</TABLE>
NOTE 13 ADVERTISING
The Company expenses the costs of advertising as incurred, except for
direct-response advertising, which is capitalized and amortized over
its expected period of future benefits.
Direct-response advertising consists primarily of sales brochures and
catalogues. The capitalized costs are amortized over estimated future
benefit periods ranging from three months to two years.
Advertising materials of $0.6 million and $0.3 million were reported as
assets at December 31, 1995 and 1994, respectively. Advertising expense
was $1.6 million, $1.6 million and $1.3 million for 1995, 1994 and
1993, respectively.
29
<PAGE>
NOTE 14 BUSINESS SEGMENT INFORMATION
The Company operates in one business segment. It designs, manufactures
and markets on a worldwide basis precision equipment for scientists and
engineers who develop and apply technology involving lasers, optics and
integrated motion control. The Company designs and manufactures a broad
line of vibration isolation systems, electronic and optical instruments
and precision mechanical, electronic and optical components and
systems. These products are used predominately in research laboratories
and test and measurement applications for industrial, government and
university customers, domestically and internationally.
Information concerning the Company's operations by geographic segment
is as follows:
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
-----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States $ 64,769 $ 59,211 $ 55,469
Europe 35,087 30,926 32,595
Other areas 2,105 4,064 5,509
-------- -------- --------
$101,961 $ 94,201 $ 93,573
======== ======== ========
Sales between geographic areas (based on invoiced prices):
United States $ 7,233 $ 7,784 $ 8,951
Europe 11,489 9,095 8,251
Intercompany eliminations (18,722) (16,879) (17,202)
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
Income (loss) before taxes:
United States $ 4,215 $ 4,693 $ 2,501
Europe 735 (244) (5,446)
Other areas (46) 493 282
Intercompany eliminations (26) (106) 414
-------- -------- --------
$ 4,878 $ 4,836 $ (2,249)
======== ======== ========
Assets:
United States $ 94,376 $ 91,129 $ 86,950
Europe 40,160 48,516 50,577
Other areas 770 720 2,145
Intercompany eliminations (51,358) (55,711) (53,637)
-------- -------- --------
$ 83,948 $ 84,654 $ 86,035
======== ======== ========
</TABLE>
The Company's manufacturing facilities are located in the United States
and France. United States revenues include exports to unaffiliated
customers totaling $9.3 million, $9.2 million and $5.9 million for
1995, 1994 and 1993, respectively.
NOTE 15 DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan. Generally, all U.S.
employees are eligible to participate and contribute in this plan.
Contributions to the plan are determined based on a percentage of
contributing employees' compensation.
Expense recognized for the plan totaled $0.8 million, $0.9 million and
$0.9 million for 1995, 1994 and 1993, respectively.
30
<PAGE>
NOTE 16 SUPPLEMENTARY QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Net Dividends High Low
Net Gross Net Income Per Per Share Share
Three months ended Sales Profit Income Share Share Price Price
------- ------- ------ ---------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1995 $27,867 $12,973 $1,450 $0.17 $ -- $ 9 1/2 $ 7 1/2
SEPTEMBER 30, 1995 24,253 11,174 743 0.08 0.02 12 3/8 8 7/8
JUNE 30, 1995 25,525 11,597 854 0.10 -- 9 3/8 7 1/2
MARCH 31, 1995 24,316 10,796 828 0.10 0.02 9 1/8 7
December 31, 1994 25,285 11,332 1,090 0.13 -- 8 1/8 6 7/8
September 30, 1994 23,031 10,590 698 0.08 0.02 8 1/4 5 7/8
June 30, 1994 23,596 10,675 862 0.10 -- 6 1/4 5 1/4
March 31, 1994 22,289 9,794 532 0.06 0.02 6 5
</TABLE>
Net income per share is computed independently for each of the quarters
presented and the summation of quarterly amounts may not equal the
total net income per share reported for the year.
NOTE 17 SUBSEQUENT EVENT (UNAUDITED)
On January 2, 1996, the Company acquired, for cash plus additional
consideration based upon future operating profit, substantially all the
assets and selected liabilities of MikroPrecision Instruments, Inc.
("MikroPrecision"), a manufacturer of precision equipment for high
technology industries such as semiconductor and disk drive markets. The
company is located in a suburb of Minneapolis, Minnesota. The
acquisition will be accounted for as a purchase.
31
<PAGE>
NEWPORT CORPORATION
Schedule II
Consolidated Valuation Accounts
<TABLE>
<CAPTION>
(In thousands)
Balance at Additions Balance
Beginning Charged to Costs Other Charges at End
Description of Period and Expenses Write-Offs (1) Add (Deduct) (2) of Period
----------- ---------- ---------------- --------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $ 460 $ 190 $ (138) $ 25 $ 537
Reserve for inventory obsolescence 3,380 1,750 (1,984) 149 3,295
Reserve on investments 457 - - - 457
------ ------ ------- ----- ------
Total $4,297 $1,940 $(2,122) $ 174 $4,289
====== ====== ======= ===== ======
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $ 717 $ 90 $ (203) $(144) $ 460
Reserve for inventory obsolescence 2,786 715 (313) 192 3,380
Reserve on investments 133 324 - - 457
------ ------ ------- ----- ------
Total $3,636 $1,129 $ (516) $ 48 $4,297
====== ====== ======= ===== ======
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts $1,439 $ 150 $ (786) $ (86) $ 717
Reserve for inventory obsolescence 2,298 1,216 (625) (103) 2,786
Reserve on investments 133 - - - 133
------ ------ ------- ----- ------
Total $3,870 $1,366 $(1,411) $(189) $3,636
====== ====== ======= ===== ======
</TABLE>
(1) Amounts are net of recoveries.
(2) Amounts reflect the effect of exchange rate changes on
translating valuation accounts of foreign subsidiaries in
accordance with FASB Statement No. 52, "Foreign Currency
Translation" and certain reclassifications between balance sheet
accounts.
32
<PAGE>
NEWPORT CORPORATION
FORM 10-K
Exhibit Index
-------------
<TABLE>
<CAPTION>
Sequential
Page Number
-----------
<S> <C> <C>
Exhibit 10.10 Credit Agreement dated as of December 20,
1995 between Newport Corporation and ABN
AMRO Bank N.V., Los Angeles International
Branch 34
Exhibit 21 Subsidiaries of Registrant 93
Exhibit 23 Consent of Independent Auditors 94
Exhibit 27 Financial Data Schedule (Article 5 of
Regulation S-X) 95
</TABLE>
33
<PAGE>
================================================================================
EXHIBIT 10.10
Credit Agreement
Dated as of
December 20, 1995
between
Newport Corporation
and
ABN AMRO Bank N.V., Los Angeles International Branch
================================================================================
<PAGE>
35
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Description Page
<S> <C> <C>
Section 1. The Credits.......................................................................... 1
Section 1.1. Revolving Credit................................................................. 1
Section 1.2. Revolving Credit Loans........................................................... 1
Section 1.3. Letters of Credit................................................................ 2
Section 1.4. Manner and Disbursement of Loans................................................. 3
Section 2. Interest and Change In Circumstances................................................. 3
Section 2.1. Interest Rate Options............................................................ 3
Section 2.2. Minimum Amounts.................................................................. 4
Section 2.3. Computation of Interest.......................................................... 5
Section 2.4. Manner of Rate Selection......................................................... 5
Section 2.5. Change of Law.................................................................... 5
Section 2.6. Unavailability of Deposits or Inability to Ascertain Adjusted LIBOR.............. 5
Section 2.7. Taxes and Increased Costs........................................................ 5
Section 2.8. Change in Capital Adequacy Requirements.......................................... 7
Section 2.9. Funding Indemnity................................................................ 7
Section 2.10. Lending Branch................................................................... 7
Section 2.11. Discretion of Bank as to Manner of Funding....................................... 7
Section 3. Fees, Prepayments, Terminations and Applications..................................... 8
Section 3.1. Fees............................................................................. 8
Section 3.2. Voluntary Prepayments............................................................ 8
Section 3.3. Mandatory Prepayments............................................................ 9
Section 3.4. Terminations..................................................................... 9
Section 3.5. Place and Application of Payments................................................ 9
Section 3.6. Notations........................................................................ 9
Section 4. [intentionally left blank]........................................................... 10
Section 5. Definitions; Interpretation.......................................................... 10
Section 5.1. Definitions...................................................................... 10
Section 5.2. Interpretation................................................................... 18
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Section Description Page
<S> <C> <C>
Section 6. Representations and Warranties....................................................... 18
Section 6.1. Organization and Qualification................................................... 18
Section 6.2. Subsidiaries..................................................................... 18
Section 6.3. Corporate Authority and Validity of Obligations.................................. 18
Section 6.4. Use of Proceeds; Margin Stock.................................................... 19
Section 6.5. Financial Reports................................................................ 19
Section 6.6. No Material Adverse Change....................................................... 19
Section 6.7. Full Disclosure.................................................................. 20
Section 6.8. Good Title....................................................................... 20
Section 6.9. Litigation and Other Controversies............................................... 20
Section 6.10. Taxes............................................................................ 20
Section 6.11. Approvals........................................................................ 20
Section 6.12. Affiliate Transactions........................................................... 20
Section 6.13. Investment Company; Public Utility Holding Company............................... 21
Section 6.14. ERISA............................................................................ 21
Section 6.15. Compliance with Laws............................................................. 21
Section 6.16. Other Agreements................................................................. 21
Section 6.17. No Default....................................................................... 21
Section 7. Conditions Precedent................................................................. 21
Section 7.1. All Advances...................................................................... 21
Section 7.2. Initial Advance................................................................... 22
Section 8. Covenants............................................................................ 23
Section 8.1. Maintenance of Business........................................................... 23
Section 8.2. Maintenance of Properties......................................................... 23
Section 8.3. Taxes and Assessments............................................................. 24
Section 8.4. Insurance......................................................................... 24
Section 8.5. Financial Reports................................................................. 24
Section 8.6. Inspection........................................................................ 26
Section 8.7. Quick Ratio....................................................................... 26
Section 8.8. Leverage Ratio.................................................................... 26
Section 8.9. Tangible Net Worth................................................................ 26
Section 8.10. Net Income........................................................................ 26
Section 8.11. Interest Coverage Ratio........................................................... 26
Section 8.12. Capital Expenditures.............................................................. 26
Section 8.13. Indebtedness for Borrowed Money................................................... 26
Section 8.14. Liens............................................................................. 27
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Section Description Page
<S> <C> <C>
Section 8.15. Investments, Acquisitions, Loans, Advances and Guaranties....................... 28
Section 8.16. Mergers, Consolidations and Sales............................................... 29
Section 8.17. Maintenance of Subsidiaries..................................................... 30
Section 8.18. Dividends and Certain Other Restricted Payments................................. 30
Section 8.19. ERISA........................................................................... 30
Section 8.20. Compliance with Laws............................................................ 30
Section 8.21. Burdensome Contracts With Affiliates............................................ 30
Section 8.22. No Changes in Fiscal Year....................................................... 30
Section 8.23. Formation of Subsidiaries....................................................... 31
Section 8.24. Change in the Nature of Business................................................ 31
Section 8.25. Limitation on Certain Restrictions on Subsidiaries.............................. 31
Section 9. Events of Default and Remedies...................................................... 31
Section 9.1. Events of Default............................................................... 31
Section 9.2. Non-Bankruptcy Defaults......................................................... 33
Section 9.3. Bankruptcy Defaults............................................................. 33
Section 9.4. Collateral for Undrawn Letters of Credit........................................ 33
Section 10. Miscellaneous....................................................................... 34
Section 10.1. Non-Business Day................................................................ 34
Section 10.2. No Waiver, Cumulative Remedies.................................................. 34
Section 10.3. Amendments, Etc................................................................. 34
Section 10.4. Costs and Expenses.............................................................. 34
Section 10.5. Documentary Taxes............................................................... 35
Section 10.6. Survival of Representations..................................................... 35
Section 10.7. Survival of Indemnities......................................................... 35
Section 10.8. Notices......................................................................... 35
Section 10.9. Headings........................................................................ 36
Section 10.10. Severability of Provisions...................................................... 36
Section 10.11. Counterparts.................................................................... 36
Section 10.12. Binding Nature, Governing Law, Etc.............................................. 36
Section 10.13. Submission to Jurisdiction; Appointment of Agent for Process;
Waiver of Jury Trial............................................................ 37
Signature.................................................................................................. 37
</TABLE>
Exhibit A - Revolving Credit Note
38
<PAGE>
Exhibit B - Borrowing Base Certificate
Exhibit C - Compliance Certificate
Exhibit D - Permitted Liens
Exhibit E - Letter of Credit Application
Exhibit F - Disclosure Schedule
Schedule 6.2 - Subsidiaries
39
<PAGE>
CREDIT AGREEMENT
ABN AMRO Bank N.V.
Los Angeles International Branch
Los Angeles, California
Ladies and Gentlemen:
The undersigned, Newport Corporation, a Nevada corporation (the "Company"),
applies to you (the "Bank") for your commitment, subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, to extend credit to the Company, all as more fully
hereinafter set forth.
Section 1. The Credits.
Section 1.1. Revolving Credit. Subject to the terms and conditions
hereof, the Bank agrees to extend a revolving credit (the "Revolving Credit") to
the Company which may be availed of by the Company from time to time during the
period from and including the date hereof to but not including the Termination
Date, at which time the commitment of the Bank to extend credit under the
Revolving Credit shall expire. The Revolving Credit may be utilized by the
Company in the form of Loans and Letters of Credit, all as more fully
hereinafter set forth, provided that the aggregate principal amount of Loans and
Letters of Credit outstanding at any one time shall not exceed the lesser of (i)
$15,000,000 (the "Commitment", as such amount may be reduced pursuant to Section
3.4 hereof) and (ii) the Borrowing Base as then determined and computed. During
the period from and including the date hereof to but not including the
Termination Date, the Company may use the Commitment by borrowing, repaying and
reborrowing Loans in whole or in part and/or by having the Bank issue Letters of
Credit, having such Letters of Credit expire or otherwise terminate without
having been drawn upon or, if drawn upon, reimbursing the Bank for each such
drawing, and having the Bank issue new Letters of Credit, all in accordance with
the terms and conditions of this Agreement.
Section 1.2. Revolving Credit Loans. Subject to the terms and
conditions hereof, the Revolving Credit may be availed of by the Company in the
form of loans (individually a "Loan" and collectively the "Loans"). Each Loan
shall be in a minimum amount of $100,000. Each Loan shall be made against and
evidenced by a single promissory note of the Company in the form (with
appropriate insertions) attached hereto as Exhibit A (the "Note") payable to the
order of the Bank in the principal amount of $15,000,000. The Note shall be
dated the date of issuance thereof, be expressed to bear interest as set forth
in Section 2 hereof, and be expressed to mature
40
<PAGE>
on the Termination Date. Without regard to the principal amount of the Note
stated on its face, the actual principal amount at any time outstanding and
owing by the Company on account of the Note shall be the sum of all Loans made
hereunder less all payments of principal actually received by the Bank.
Section 1.3. Letters of Credit.
(a) General Terms. Subject to the terms and conditions hereof, the
Revolving Credit may be availed of by the Company in the form of standby and
commercial letters of credit issued by the Bank for the account of the Company
(individually a "Letter of Credit" and collectively the "Letters of Credit"),
provided that the aggregate amount of Letters of Credit issued and outstanding
hereunder shall not at any one time exceed $7,500,000. For purposes of this
Agreement, a Letter of Credit shall be deemed outstanding as of any time in an
amount equal to the maximum amount which could be drawn thereunder under any
circumstances and over any period of time plus any unreimbursed drawings then
outstanding with respect thereto. If and to the extent any Letter of Credit
expires or otherwise terminates without having been drawn upon, the availability
under the Commitment shall to such extent be reinstated.
(b) Term. Each Letter of Credit issued hereunder shall expire not
later than the earlier of (i) twelve (12) months from the date of issuance (or
be cancelable not later than twelve (12) months from the date of issuance and
each renewal) or (ii) the Termination Date.
(c) General Characteristics. Each Letter of Credit issued hereunder
shall be payable in U.S. Dollars, conform to the general requirements of the
Bank for the issuance of a standby or commercial letter of credit, as the case
may be, as to form and substance, and be a letter of credit which the Bank may
lawfully issue.
(d) Applications. At the time the Company requests each Letter of
Credit to be issued (or prior to the first issuance of a Letter of Credit in the
case of a continuing application), the Company shall execute and deliver to the
Bank an application for such Letter of Credit substantially in the form attached
hereto as Exhibit E (individually an "Application" and collectively the
"Applications"). Subject to the other provisions of this subsection, the
obligation of the Company to reimburse the Bank for drawings under a Letter of
Credit shall be governed by the Application for such Letter of Credit. If the
Bank shall receive any draft presented under any Letter of Credit, the Bank
shall, promptly following its receipt thereof, examine all documents purporting
to represent such demand for payment to ascertain that the same appear on their
face to be in substantial conformity with the terms and conditions of such
Letter of Credit. The Bank shall, as soon as reasonably practicable, give
notification (which may be oral or written) to the Company of such demand for
payment and the determination by the Bank as to whether such demand for payment
was in accordance with the terms and conditions of such Letter of Credit and
41
<PAGE>
whether the Bank has made or will make a disbursement thereunder, provided that
the failure to give such notice shall not relieve the Company of its obligation
to reimburse the Bank for the amount of such draft paid. In the event the Bank
is not reimbursed by the Company for the amount the Bank pays on any draft drawn
under a Letter of Credit issued hereunder by 11:00 a.m. (Los Angeles time) on
the date when such drawing is paid, the obligation of the Company to reimburse
the Bank for the amount of such draft paid shall bear interest (which the
Company hereby promises to pay on demand) from and after the date the draft is
paid until payment in full thereof at the fluctuating rate per annum determined
by adding 2% to the Domestic Rate as from time to time in effect (provided,
however, that if and so long as Bank shall have not given the Company notice of
its payment of such draft, such rate per annum shall equal the Domestic Rate as
from time to time in effect). Notwithstanding the foregoing but subject to
Section 7 hereof, the Company may, but shall not be obligated to, satisfy its
reimbursement obligation to the Bank by requesting the Bank to make a Loan in
the amount of such reimbursement obligation. Anything contained in the
Applications to the contrary notwithstanding, (i) the Company shall pay fees in
connection with each Letter of Credit as set forth in Section 3 hereof, (ii)
except as otherwise provided in Section 3.3 hereof, prior to the occurrence of a
Default or an Event of Default the Bank will not call for additional collateral
security for the obligations of the Company under the Applications other than
collateral security consisting of rights in goods (or documents of title
evidencing the same) financed under such Applications, and (iii) except as
otherwise provided in Section 3.3 hereof, prior to the occurrence of a Default
or an Event of Default the Bank will not call for the funding of a Letter of
Credit by the Company prior to being presented with a draft drawn thereunder
(or, in the event the draft is a time draft, prior to its due date). In the
event any drafts are drawn under a Letter of Credit and are not repaid by the
Company within the period set forth above, the Company hereby irrevocably
authorizes the Bank, upon prior notice to the Company, to charge any of the
Company's deposit accounts maintained with the Bank for the amount necessary to
reimburse the Bank for any drafts drawn under Letters of Credit issued
hereunder.
Section 1.4. Manner and Disbursement of Loans. The Company shall
give written or telephonic notice to the Bank (which notice shall be irrevocable
once given and, if given by telephone, shall be promptly confirmed in writing)
by no later than 11:00 a.m. (Los Angeles time) on the date the Company requests
the Bank to make a Loan hereunder. Each such notice shall specify the date of
the Loan requested (which must be a Business Day) and the amount of such Loan.
Each Loan shall initially constitute part of the Domestic Rate Portion except to
the extent the Company has otherwise timely elected as provided in Section 2
hereof. The Company agrees that the Bank may rely upon any written or
telephonic notice given by any person the Bank in good faith believes is an
Authorized Representative without the necessity of independent investigation
and, in the event any telephonic notice conflicts with the written confirmation,
such telephonic notice shall govern if the Bank has acted in reliance thereon.
Subject to the provisions
42
<PAGE>
of Section 7 hereof, the proceeds of each Loan shall be made available to the
Company at the principal office of the Bank in New York, New York, in
immediately available funds.
Section 2. Interest and Change In Circumstances.
Section 2.1. Interest Rate Options.
(a) Subject to all of the terms and conditions of this Section 2,
portions of the principal indebtedness evidenced by the Note (all of the
indebtedness evidenced by the Note bearing interest at the same rate for the
same period of time being hereinafter referred to as a "Portion") may, at the
option of the Company, bear interest with reference to the Domestic Rate (the
"Domestic Rate Portion") or with reference to an Adjusted LIBOR ("LIBOR
Portions"), and Portions may be converted from time to time from one basis to
the other. All of the indebtedness evidenced by the Note which is not part of a
Fixed Rate Portion shall constitute a single Domestic Rate Portion. All of the
indebtedness evidenced by the Note which bears interest with reference to a
particular Adjusted LIBOR for a particular Interest Period shall constitute a
single LIBOR Portion. Anything contained herein to the contrary
notwithstanding, the obligation of the Bank to create, continue or effect by
conversion any Fixed Rate Portion shall be conditioned upon the fact that at the
time no Default or Event of Default shall have occurred and be continuing. The
Company hereby promises to pay interest on each Portion at the rates and times
specified in this Section 2.
(b) Domestic Rate Portion. The Domestic Rate Portion shall bear
interest at the rate per annum determined by adding 1/2 of 1% to the Domestic
Rate as in effect from time to time, provided that if the Domestic Rate Portion
or any part thereof is not paid when due (whether by lapse of time, acceleration
or otherwise) such Portion shall bear interest, whether before or after
judgment, until payment in full thereof at the rate per annum determined by
adding 2% to the interest rate which would otherwise be applicable thereto from
time to time. Interest on the Domestic Rate Portion shall be payable monthly on
the last day of each month in each year (commencing January 31, 1996) and at
maturity of the Note, and interest after maturity (whether by lapse of time,
acceleration or otherwise) shall be due and payable upon demand. Any change in
the interest rate on the Domestic Rate Portion resulting from a change in the
Domestic Rate shall be effective on the date of the relevant change in the
Domestic Rate.
(c) Libor Portions. Each LIBOR Portion shall bear interest for each
Interest Period selected therefor at a rate per annum determined by adding 2% to
the Adjusted LIBOR for such Interest Period, provided that if any LIBOR Portion
is not paid when due (whether by lapse of time, acceleration or otherwise) such
Portion shall bear interest, whether before or after judgment, until payment in
full thereof through the end of the Interest Period then applicable thereto at
the rate per annum determined by adding 2% to the interest rate which would
otherwise be applicable
43
<PAGE>
thereto, and effective at the end of such Interest Period such LIBOR Portion
shall automatically be converted into and added to the Domestic Rate Portion and
shall thereafter bear interest at the interest rate applicable to the Domestic
Rate Portion after default. Interest on each LIBOR Portion shall be due and
payable on the last day of each Interest Period applicable thereto and, with
respect to any Interest Period applicable to a LIBOR Portion in excess of three
(3) months, on the date occurring every three (3) months after the date such
Interest Period began and at the end of such Interest Period, and interest after
maturity (whether by lapse of time, acceleration or otherwise) shall be due and
payable upon demand. The Company shall notify the Bank on or before 11:00 a.m.
(Los Angeles time) on the third Business Day preceding the end of an Interest
Period applicable to a LIBOR Portion whether such LIBOR Portion is to continue
as a LIBOR Portion, in which event the Company shall notify the Bank of the new
Interest Period selected therefor, and in the event the Company shall fail to so
notify the Bank, such LIBOR Portion shall automatically be converted into and
added to the Domestic Rate Portion as of and on the last day of such Interest
Period.
Section 2.2. Minimum Amounts. Each Fixed Rate Portion shall be in an
amount equal to $1,000,000 or such greater amount which is an integral multiple
of $100,000.
Section 2.3. Computation of Interest. All interest on the Note shall
be computed on the basis of a year of 360 days for the actual number of days
elapsed.
Section 2.4. Manner of Rate Selection. The Company shall notify the
Bank by 11:00 a.m. (Los Angeles time) at least three (3) Business Days prior to
the date upon which the Company requests that any LIBOR Portion be created or
that any part of the Domestic Rate Portion be converted into a LIBOR Portion
(each such notice to specify in each instance the amount thereof and the
Interest Period selected therefor). If any request is made to convert a Fixed
Rate Portion into another type of Portion available hereunder, such conversion
shall only be made so as to become effective as of the last day of the Interest
Period applicable thereto. All requests for the creation, continuance and
conversion of Portions under this Agreement shall be irrevocable. Such requests
may be written or oral and the Bank is hereby authorized to honor telephonic
requests for creations, continuances and conversions received by it from any
person the Bank in good faith believes to be an Authorized Representative
without the necessity of independent investigation, the Company hereby
indemnifying the Bank from any liability or loss ensuing from so acting.
Section 2.5. Change of Law. Notwithstanding any other provisions of
this Agreement or the Note, if at any time the Bank shall determine that any
change in applicable laws, treaties or regulations or in the interpretation
thereof makes it unlawful for the Bank to create or continue to maintain any
Fixed Rate Portion, it shall promptly so notify the Company and the obligation
of the Bank to create, continue or maintain any such Fixed Rate Portion under
this Agreement shall
44
<PAGE>
terminate until it is no longer unlawful for the Bank to create, continue or
maintain such Fixed Rate Portion. The Company, on demand, shall, if the
continued maintenance of any such Fixed Rate Portion is unlawful, thereupon
prepay the outstanding principal amount of the affected Fixed Rate Portion,
together with all interest accrued thereon and all other amounts payable to the
Bank with respect thereto under this Agreement; provided, however, that the
Company may elect to convert the principal amount of the affected Portion into
another type of Portion available hereunder, subject to the terms and conditions
of this Agreement.
Section 2.6. Unavailability of Deposits or Inability to Ascertain
Adjusted LIBOR. Notwithstanding any other provision of this Agreement or the
Note, if prior to the commencement of any Interest Period, the Bank shall
determine that deposits in the amount of any LIBOR Portion scheduled to be
outstanding during such Interest Period are not readily available to the Bank in
the relevant market or, by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining Adjusted
LIBOR, then the Bank shall promptly give notice thereof to the Company and the
obligations of the Bank to create or effect by conversion any such Fixed Rate
Portion in such amount and for such Interest Period shall terminate until
deposits in such amount and for the Interest Period selected by the Company
shall again be readily available in the relevant market and adequate and
reasonable means exist for ascertaining Adjusted LIBOR.
Section 2.7. Taxes and Increased Costs. With respect to any Fixed
Rate Portion, if the Bank shall determine that any change in any applicable law,
treaty, regulation or guideline (including, without limitation, Regulation D of
the Board of Governors of the Federal Reserve System) or any new law, treaty,
regulation or guideline, or any interpretation of any of the foregoing by any
governmental authority charged with the administration thereof or any central
bank or other fiscal, monetary or other authority having jurisdiction over the
Bank or its lending branch or the Fixed Rate Portions contemplated by this
Agreement (whether or not having the force of law), shall:
(i) impose, increase, or deem applicable any reserve,
special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, or any other
acquisition of funds or disbursements by, the Bank which is not in any
instance already accounted for in computing the interest rate
applicable to such Fixed Rate Portion;
(ii) subject the Bank, any Fixed Rate Portion or the Note
to the extent it evidences such a Portion to any tax (including,
without limitation, any United States interest equalization tax or
similar tax however named applicable to the acquisition or holding of
debt obligations and any interest or penalties with respect thereto),
duty, charge, stamp tax, fee, deduction or withholding in respect of
this Agreement, any Fixed Rate Portion or the Note to the extent it
evidences such a Portion, except such taxes as
45
<PAGE>
may be measured by the overall net income or gross receipts of the
Bank or its lending branches and imposed by the jurisdiction, or any
political subdivision or taxing authority thereof, in which the Bank's
principal executive office or its lending branch is located;
(iii) change the basis of taxation of payments of principal
and interest due from the Company to the Bank hereunder or under the
Note to the extent it evidences any Fixed Rate Portion (other than by
a change in taxation of the overall net income or gross receipts of
the Bank); or
(iv) impose on the Bank any penalty with respect to the
foregoing or any other condition regarding this Agreement, any Fixed
Rate Portion, or its disbursement, or the Note to the extent it
evidences any Fixed Rate Portion;
and the Bank shall determine that the result of any of the foregoing is to
increase the cost (whether by incurring a cost or adding to a cost) to the Bank
of creating or maintaining any Fixed Rate Portion hereunder or to reduce the
amount of principal or interest received or receivable by the Bank (without
benefit of, or credit for, any prorations, exemption, credits or other offsets
available under any such laws, treaties, regulations, guidelines or
interpretations thereof), then the Company shall pay on demand to the Bank from
time to time as specified by the Bank such additional amounts as the Bank shall
reasonably determine are sufficient to compensate and indemnify it for such
increased cost or reduced amount. If the Bank makes such a claim for
compensation, it shall provide to the Company a certificate setting forth the
computation of the increased cost or reduced amount as a result of any event
mentioned herein in reasonable detail and such certificate shall be conclusive
if reasonably determined.
Section 2.8. Change in Capital Adequacy Requirements. If the Bank
shall determine that the adoption after the date hereof of any applicable law,
rule or regulation regarding capital adequacy, or any change in any existing
law, rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the Bank (or
any of its branches) with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Bank's capital as a consequence of its obligations hereunder or for the
credit which is the subject matter hereof to a level below that which the Bank
could have achieved but for such adoption, change or compliance (taking into
consideration the Bank's policies with respect to liquidity and capital
adequacy) by an amount deemed by the Bank to be material, then from time to
time, within fifteen (15) days after demand by the Bank, the Company shall pay
to the Bank such additional amount or amounts reasonably determined by the Bank
as will compensate the Bank for such reduction.
46
<PAGE>
Section 2.9. Funding Indemnity. In the event the Bank shall incur
any loss, cost or expense (including, without limitation, any loss (including
loss of profit), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired or contracted to be acquired by
the Bank to fund or maintain any Fixed Rate Portion or the relending or
reinvesting of such deposits or other funds or amounts paid or prepaid to the
Bank) as a result of:
(i) any payment of a Fixed Rate Portion on a date other than
the last day of the then applicable Interest Period for any reason,
whether before or after default, and whether or not such payment is
required by any provision of this Agreement; or
(ii) any failure by the Company to create, borrow, continue
or effect by conversion a Fixed Rate Portion on the date specified in
a notice given pursuant to this Agreement;
then upon the demand of the Bank, the Company shall pay to the Bank such amount
as will reimburse the Bank for such loss, cost or expense. If the Bank requests
such a reimbursement, it shall provide to the Company a certificate setting
forth the computation of the loss, cost or expense giving rise to the request
for reimbursement in reasonable detail and such certificate shall be conclusive
if reasonably determined.
Section 2.10. Lending Branch. The Bank may, at its option, elect to
make, fund or maintain Portions of the Loans hereunder at such of its branches
or offices as the Bank may from time to time elect.
Section 2.11. Discretion of Bank as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, the Bank shall
be entitled to fund and maintain its funding of all or any part of the Note in
any manner it sees fit, it being understood, however, that for the purposes of
this Agreement all determinations hereunder (including, without limitation,
determinations under Sections 2.6, 2.7 and 2.9 hereof) shall be made as if the
Bank had actually funded and maintained each Fixed Rate Portion during each
Interest Period applicable thereto through the purchase of deposits in the
relevant market in the amount of such Fixed Rate Portion, having a maturity
corresponding to such Interest Period, and bearing an interest rate equal to the
LIBOR for such Interest Period.
Section 3. Fees, Prepayments, Terminations and Applications.
Section 3.1. Fees.
(a) Closing Fee. The Company shall pay to the Bank on the date hereof
a non-refundable closing fee in the amount of $37,500.
47
<PAGE>
(b) Commitment Fee. For the period from and including the date hereof
to but not including the Termination Date, the Company shall pay to the Bank a
commitment fee at the rate of 3/8 of 1% per annum (computed on the basis of a
year of 360 days for the actual number of days elapsed) on the average daily
unused portion of the Commitment. Such commitment fee shall be payable quarter-
annually in arrears on the last day of each March, June, September and December
in each year (commencing March 31, 1996) and on the Termination Date.
(c) Letter of Credit Fees. On the date of issuance of each standby
Letter of Credit, and as a condition thereto, and annually thereafter, the
Company shall pay to the Bank a letter of credit fee computed at the rate of
1.50% per annum (computed on the basis of a year of 360 days for the actual
number of days elapsed) on the maximum amount of the related Letter of Credit
which is scheduled to be outstanding during the immediately succeeding twelve
(12) months. In connection with the issuance of each commercial Letter of
Credit, the Company further agrees to pay to the Bank such fees as the Bank from
time to time customarily imposes in connection with the issuance of commercial
letters of credit. In addition to the letter of credit fees called for above,
the Company further agrees to pay to the Bank such processing and transaction
fees and charges as the Bank from time to time customarily imposes in connection
with any amendment, cancellation, negotiation and/or payment of letters of
credit and drafts drawn thereunder.
Section 3.2. Voluntary Prepayments.
(a) Domestic Rate Portion. The Company may prepay without premium or
penalty and in whole or in part (but if in part, then in an amount not less than
$100,000 or the total amount then outstanding, whichever is less) the Domestic
Rate Portion of the Note at any time upon notice to the Bank prior to 11:00 a.m.
(Los Angeles time) on the date fixed for prepayment, each such prepayment to be
made by the payment of the principal amount to be prepaid.
(b) Fixed Rate Portions. The Company may prepay any Fixed Rate
Portion of the Note only on the last date of the then applicable Interest
Period, in whole or in part (but if in part, then in an amount not less than
$100,000 or such greater amount which is an integral multiple of $100,000), upon
three (3) Business Days prior notice to the Bank (which notice shall be
irrevocable once given, must be received by the Bank no later than 11:00 a.m.
(Los Angeles time) on the third Business Day preceding the date of such
prepayment, and shall specify the principal amount to be repaid); provided,
however, that the outstanding principal amount of any Fixed Rate Portion of the
Note prepaid in part shall not be less than $1,000,000 or such greater amount
which is an integral multiple of $100,000 after giving effect to such
prepayment. Any such prepayment shall be effected by payment of the principal
amount to be prepaid and accrued interest thereon to the end of the applicable
Interest Period.
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Section 3.3. Mandatory Prepayments. The Company covenants and agrees
that if at any time the sum of the then unpaid principal balance of the Note
plus the then outstanding amount of Letters of Credit shall be in excess of the
Borrowing Base as then determined and computed, the Company shall immediately
and without notice or demand pay over the amount of the excess to the Bank as
and for a mandatory prepayment on such Obligations, with each such prepayment
first to be applied to the Note until payment in full thereof with any remaining
balance to be held by the Bank as collateral security for the Obligations owing
under the Applications. Each such prepayment shall be accompanied by any
amounts due to the Bank under Section 2.9 hereof.
Section 3.4. Terminations. The Company shall have the right at any
time and from time to time, upon three (3) Business Days' prior notice to the
Bank, to terminate without premium or penalty and in whole or in part (but if in
part, then in an amount not less than $1,000,000) the Commitment, provided that
the Commitment may not be reduced to an amount less than the aggregate principal
amount of the Loans and Letters of Credit then outstanding. Any termination of
the Commitment pursuant to this Section may not be reinstated.
Section 3.5. Place and Application of Payments. All payments of
principal, interest, fees and all other Obligations payable hereunder and under
the other Loan Documents shall be made to the Bank at its principal office in
Los Angeles, California (or at such other place as the Bank may specify) no
later than 11:00 a.m. (Los Angeles time) on the date any such payment is due and
payable. Payments received by the Bank after 11:00 a.m. (Los Angeles time)
shall be deemed received as of the opening of business on the next Business Day.
All such payments shall be made in lawful money of the United States of America,
in immediately available funds at the place of payment, without set-off or
counterclaim and without reduction for, and free from, any and all present or
future taxes, levies, imposts, duties, fees, charges, deductions, withholdings,
restrictions and conditions of any nature imposed by any government or any
political subdivision or taxing authority thereof (but excluding any taxes
imposed on or measured by the net income of the Bank). Unless the Company
otherwise directs, principal payments shall be applied first to the Domestic
Rate Portion until payment in full thereof, with any balance applied to the
Fixed Rate Portions in the order in which their Interest Periods expire.
Section 3.6. Notations. All Loans made against the Note, the status
of all amounts evidenced by the Note as constituting part of the Domestic Rate
Portion or a LIBOR Portion and, in the case of any Fixed Rate Portion, the rates
of interest and Interest Periods applicable to such Portions shall be recorded
by the Bank on its books and records or, at its option in any instance, endorsed
on a schedule to the Note and the unpaid principal balance and status, rates and
Interest Periods so recorded or endorsed by the Bank shall be prima facie
evidence in any court or other proceeding brought to enforce the Note of the
principal amount remaining unpaid thereon, the status of the Loans evidenced
thereby and the interest rates and Interest Periods applicable
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thereto; provided that the failure of the Bank to record any of the foregoing
shall not limit or otherwise affect the obligation of the Company to repay the
principal amount of the Note together with accrued interest thereon. Prior to
any negotiation of the Note, the Bank shall record on a schedule thereto the
status of all amounts evidenced thereby as constituting part of the Domestic
Rate Portion or a LIBOR Portion and, in the case of any Fixed Rate Portion, the
rates of interest and the Interest Periods applicable thereto.
Section 4. [intentionally left blank]
Section 5. Definitions; Interpretation.
Section 5.1. Definitions. The following terms when used herein shall
have the following meanings:
"Acquisition" shall mean any transaction, or any series of related
transactions, consummated after the date of this Agreement, by which the Company
or any of its Subsidiaries (i) acquires any ongoing business or all or
substantially all of the assets of any Person or division thereof, whether
through purchase of assets, merger or otherwise, or (ii) directly or indirectly
acquires (in one transaction or as the most recent transaction in a series of
transactions) at least a majority (in number of votes) of the voting stock of a
corporation or other firm.
"Adjusted LIBOR" means a rate per annum determined by the Bank in
accordance with the following formula:
Adjusted LIBOR = LIBOR
-----------------------
100%-Reserve Percentage
"Reserve Percentage" means, for the purpose of computing Adjusted LIBOR, the
daily average for the applicable Interest Period of the maximum rate at which
reserves (including, without limitation, any marginal, emergency, supplemental
or other special reserves) are imposed during such Interest Period by the Board
of Governors of the Federal Reserve System (or any successor) under Regulation D
on "eurocurrency liabilities" (as such term is defined in Regulation D) (or in
respect of any other category of liabilities that includes deposits by reference
to which the interest rate on LIBOR Portions is determined or any category of
extensions of credit or other assets that include loans by non-United States
offices of the Bank to United States residents), but subject to any amendments
to such reserve requirement by such Board or its successor, and taking into
account any transitional adjustments thereto becoming effective during such
Interest Period. For purposes of this definition, LIBOR Portions shall be
deemed to be Eurocurrency liabilities as defined in Regulation D without benefit
of or credit for prorations, exemptions or offsets under Regulation D. "LIBOR"
means, for each Interest Period, the arithmetic average of the rates of
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interest per annum (rounded upward, if necessary, to the nearest 1/100th of 1%)
at which deposits in U.S. Dollars in immediately available funds are offered to
the Bank at 11:00 a.m. (London, England time) two (2) Business Days before the
beginning of such Interest Period by three (3) or more major banks in the
interbank eurodollar market selected by the Bank for a period equal to such
Interest Period and in an amount equal or comparable to the applicable LIBOR
Portion scheduled to be outstanding from the Bank during such Interest Period.
Each determination of LIBOR made by the Bank shall be conclusive and binding
absent manifest error.
"Affiliate" means any Person directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another Person.
A Person shall be deemed to control another Person for the purposes of this
definition if such Person possesses, directly or indirectly, the power to
direct, or cause the direction of, the management and policies of the other
Person, whether through the ownership of voting securities, common directors,
trustees or officers, by contract or otherwise; provided that, in any event for
purposes of this definition, any Person that owns, directly or indirectly, 5% or
more of the securities having the ordinary voting power for the election of
directors or governing body of a corporation or 5% or more of the partnership or
other ownership interests of any other Person (other than as a limited partner
of such other Person) will be deemed to control such corporation or other
Person.
"Agreement" means this Credit Agreement, as the same may be amended,
modified or restated from time to time in accordance with the terms hereof.
"Application" is defined in Section 1.3 hereof.
"Authorized Representative" means those persons shown on the lists of
officers provided by the Company pursuant to Section 7.2(a) hereof or on any
update of any such list provided by the Company to the Bank, or any further or
different officer of the Company so named by any Authorized Representative of
the Company in a written notice to the Bank.
"Bank" is defined in the introductory paragraph hereof.
"Borrowing Base" means, as of any time it is to be determined, 80% of the
then outstanding unpaid amount of Eligible Accounts.
provided that the Borrowing Base shall be computed only as against and on so
much of the Eligible Accounts as are included on the certificates to be
furnished from time to time by the Company pursuant to Section 8.5(a) hereof
and, if required by the Bank pursuant to any of the terms hereof, as verified by
such other evidence reasonably required to be furnished to the Bank pursuant
hereto.
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"Business Day" means any day other than a Saturday or Sunday on which the
Bank is not authorized or required to close in Los Angeles, California and New
York, New York and, when used with respect to LIBOR Portions, a day on which the
Bank is also dealing in United States Dollar deposits in the interbank market in
London, England.
"Capital Lease" means any lease of Property which in accordance with GAAP
is required to be capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligation" means the amount of the liability shown on
the balance sheet of any Person in respect of a Capital Lease determined in
accordance with GAAP.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.
"Commitment" is defined in Section 1.1 hereof.
"Company" is defined in the introductory paragraph hereof.
"Consolidated Subsidiary" means any Subsidiary whose accounts are required
to be consolidated with those of the Company in accordance with GAAP.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Company or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
"Default" means any event or condition the occurrence of which would, with
the passage of time or the giving of notice, or both, constitute an Event of
Default.
"Domestic Rate" means, for any day, the greater of (i) the rate of interest
announced by the Bank from time to time as its prime rate for U.S. dollar loans,
as in effect on such day; and (ii) the sum of (x) the Federal Funds Rate plus
(y) 1/2 of 1% (.500%).
"Domestic Rate Portion" is defined in Section 2.1(a) hereof.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary which is
organized under the laws of the United States or any State thereof and which
conducts substantially all of its business and has substantially all of its
assets within the United States.
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"EBITDA" means, with reference to any period, Net Income for such period
plus all amounts deducted in arriving at such Net Income amount in respect of
(i) Interest Expense for such period, plus (ii) federal, state and local income
taxes for such period, plus (iii) all amounts properly charged for depreciation
of fixed assets and amortization of intangible assets during such period on the
books of the Company and its Subsidiaries.
"Eligible Account" means each account receivable of the Company or any
Consolidated Subsidiary that:
(a) arises out of the sale by the Company or such
Consolidated Subsidiary of finished goods inventory delivered to and
accepted by, or out of the rendition of services fully performed by
the Company or such Consolidated Subsidiary and accepted by, the
account debtor on such account receivable, and such account receivable
otherwise represents a final sale;
(b) is the valid, binding and legally enforceable
obligation of the account debtor obligated thereon and such account
debtor is not (i) a Subsidiary or an Affiliate of the Company or such
Consolidated Subsidiary, (ii) a shareholder, director, officer or
employee of the Company or any Subsidiary, (iii) a debtor under any
proceeding under the United States Bankruptcy Code, as amended, or any
other comparable bankruptcy or insolvency law, or (iv) an assignor for
the benefit of creditors;
(c) is an asset of the Company to which it has good and
marketable title, is freely assignable, and is free and clear of any
other Lien other than Liens permitted by Section 8.14(a) and (b)
hereof;
(d) is net of any credit or allowance given by the Company
or such Consolidated Subsidiary to such account debtor;
(e) is not subject to any offset, counterclaim or other
defense with respect thereto;
(f) is not unpaid more than 120 days after the due date
thereof; and
(g) does not arise from a sale to an account debtor on a
bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment or any other repurchase or return basis.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.
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"Event of Default" means any event or condition identified as such in
Section 9.1 hereof.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (ii) if no such rate is so published on such next succeeding Business Day
(as provided in clause (i)), the Federal Funds Rate for such day shall be the
average rate quoted to ABN AMRO Bank N.V., Los Angeles Branch on such day on
such transactions as determined by the Bank.
"Fixed Rate Portions" means and includes the LIBOR Portions.
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied by the Company and its Subsidiaries on a basis consistent
with the preparation of the Company's most recent financial statements furnished
to the Bank pursuant to Section 6.4 hereof.
"Indebtedness for Borrowed Money" means for any Person (without
duplication) all of the obligations of such Person which, in accordance with
GAAP, would be included on the liability side of the balance sheet of such
Person prepared at such time, and shall include (i) all indebtedness created,
assumed or incurred in any manner by such Person representing money borrowed
(including by the issuance of debt securities), (ii) all indebtedness for the
deferred purchase price of property or services (other than trade accounts
payable arising in the ordinary course of business which are not more than 90
days past due), (iii) all indebtedness secured by any Lien upon Property of such
Person, whether or not such Person has assumed or become liable for the payment
of such indebtedness, (iv) all Capitalized Lease Obligations of such Person and
(v) all obligations of such Person on or with respect to letters of credit,
bankers' acceptances and other extensions of credit whether or not representing
obligations for borrowed money.
"Interest Expense" means, with reference to any period, the sum of all
interest charges (including imputed interest charges with respect to Capitalized
Lease Obligations and all amortization of debt discount and expense) of the
Company and its Subsidiaries for such period determined in accordance with GAAP.
"Interest Period" means, with respect to any LIBOR Portion, the period
commencing on, as the case may be, the creation, continuation or conversion date
with respect to such LIBOR Portion and ending one (1), two (2), three (3) or
six (6) months thereafter as selected by the
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Company in its notice as provided herein; provided that all of the foregoing
provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day
which is not a Business Day, that Interest Period shall be extended to
the next succeeding Business Day, unless in the case of an Interest
Period for a LIBOR Portion the result of such extension would be to
carry such Interest Period into another calendar month in which event
such Interest Period shall end on the immediately preceding Business
Day;
(ii) no Interest Period may extend beyond the final maturity
date of the Note;
(iii) the interest rate to be applicable to each Portion for
each Interest Period shall apply from and including the first day of
such Interest Period to but excluding the last day thereof; and
(iv) no Interest Period may be selected if after giving
effect thereto the Company will be unable to make a principal
payment scheduled to be made during such Interest Period without
paying part of a Fixed Rate Portion on a date other than the last day
of the Interest Period applicable thereto.
For purposes of determining an Interest Period, a month means a period starting
on one day in a calendar month and ending on a numerically corresponding day in
the next calendar month, provided, however, if an Interest Period begins on the
last day of a month or if there is no numerically corresponding day in the month
in which an Interest Period is to end, then such Interest Period shall end on
the last Business Day of such month.
"Letter of Credit" is defined in Section 1.3 hereof.
"LIBOR Portions" is defined in Section 2.1(a) hereof.
"Lien" means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property, including the interests of a
vendor or lessor under any conditional sale, Capital Lease or other title
retention arrangement.
"Loan" is defined in Section 1.2 hereof.
"Loan Documents" means this Agreement, the Note and the Applications.
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"Materially Adverse Effect" means, in relation to any event or occurrence
of whatever nature (including any adverse determination in any litigation,
arbitration or governmental investigation or proceeding),
(a) a materially adverse effect on the business, Property,
operations, prospects or condition, financial or otherwise, of the
Company and its Subsidiaries, taken as a whole;
(b) an adverse effect on the ability of the Company to
perform any of its payment or other material Obligations under any
Loan Document; or
(c) an impairment of the validity or enforceability of
any Loan Document or any material impairment of the rights, remedies
or benefits available to the Bank under any Loan Document.
"Net Income" means, with reference to any period, the net income (or net
loss) of the Company and its Subsidiaries for such period as computed on a
consolidated basis in accordance with GAAP, and, without limiting the foregoing,
after deduction from gross income of all expenses and reserves, including
reserves for all taxes on or measured by income, but excluding any extraordinary
profits and also excluding any taxes on such profits.
"Note" is defined in Section 1.2 hereof.
"Obligations" means all obligations of the Company to pay principal and
interest on the Loans, all reimbursement obligations owing under the
Applications, all fees and charges payable hereunder, and all other payment
obligations of the Company and the Guarantors arising under or in relation to
any Loan Document, in each case whether now existing or hereafter arising, due
or to become due, direct or indirect, absolute or contingent, and howsoever
evidenced, held or acquired.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, association, trust,
unincorporated organization or any other entity or organization, including a
government or agency or political subdivision thereof.
"Plan" means any employee pension benefit plan covered by Title IV of ERISA
or subject to the minimum funding standards under Section 412 of the Code that
either (i) is maintained by a member of the Controlled Group for employees of a
member of the Controlled Group or (ii) is
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maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions.
"Portion" is defined in Section 2.1(a) hereof.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Quick Ratio" means, as of any time the same is to be determined, the ratio
of current assets minus inventory of the Company and its Subsidiaries to current
liabilities of the Company and its Subsidiaries, all as determined on a
consolidated basis in accordance with GAAP, but subject nevertheless to the
express limitations and restrictions hereinafter set forth. There shall be
excluded from current assets all deferred assets, prepaid expenses, the
surrender value of insurance and investments in and loans and advances to any
Person, other than investments permitted by Section 8.15(a)-(c), both inclusive,
of this Agreement and further provided that there shall be excluded from current
liabilities all obligations of the Company with respect to the Loans hereunder.
"Restricted Subsidiary" means any Subsidiary the total assets of which
constitutes 10% or more of total assets of the Company and its Subsidiaries
computed on a consolidated basis in accordance with GAAP, and of which 100% (by
number of votes) of the voting stock is at all times owned by the Company and/or
one or more Restricted Subsidiaries.
"Revolving Credit" is defined in Section 1.1 hereof.
"Subsidiary" means any corporation or other Person more than 50% of the
outstanding ordinary voting shares or other equity interests of which is at the
time directly or indirectly owned by the Company, by one or more of its
Subsidiaries, or by the Company and one or more of its Subsidiaries.
"Tangible Net Worth" means, as of any time the same is to be determined,
the total shareholders' equity (including capital stock, additional paid-in-
capital and retained earnings after deducting treasury stock, but excluding
minority interests in Subsidiaries) which would appear on the balance sheet of
the Company and its Subsidiaries determined on a consolidated basis in
accordance with GAAP, less the sum of (i) all notes receivable from officers and
employees of the Company and its Subsidiaries, (ii) the aggregate book value of
all assets which would be classified as intangible assets under GAAP, including,
without limitation, goodwill, patents, trademarks, trade names, copyrights,
franchises and deferred charges (including, without limitation,
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unamortized debt discount and expense, organization costs and deferred research
and development expense) and similar assets and (iii) the write-up of assets
above cost.
"Termination Date" means December 31, 1997, or such earlier date on which
the Commitment is terminated in whole pursuant to Section 3.4, 9.2 or 9.3
hereof.
"Total Liabilities" means, as of any time the same is to be determined, the
aggregate of all indebtedness, obligations, liabilities, reserves and any other
items which would be listed as a liability on a balance sheet of the Company and
its Subsidiaries determined on a consolidated basis in accordance with GAAP, and
in any event including all indebtedness and liabilities of any other Person
which the Company or any Subsidiary may guarantee or otherwise be responsible or
liable for (other than any liability arising out of the endorsement of
commercial paper for deposit or collection received in the ordinary course of
business), all indebtedness and liabilities secured by any Lien on any Property
of the Company or any Subsidiary, whether or not the same would be classified as
a liability on a balance sheet, the liability of the Company or any Subsidiary
in respect of banker's acceptances and letters of credit, and the aggregate
amount of rentals or other consideration payable by the Company or any
Subsidiary in accordance with GAAP over the remaining unexpired term of all
Capital Leases, but excluding all general contingency reserves and reserves for
deferred income taxes and investment credit.
"Unfunded Vested Liabilities" means, for any Plan at any time, the amount
(if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.
"Welfare Plan" means a "welfare plan" as defined in Section 3(1) of ERISA.
"Wholly-Owned Subsidiary" means a Subsidiary of which all of the issued and
outstanding shares of capital stock (other than directors' qualifying shares as
required by law) or other equity interests are owned by the Company and/or one
or more Wholly-Owned Subsidiaries within the meaning of this definition.
Section 5.2. Interpretation. The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. The
words "hereof", "herein", and "hereunder" and words of like import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. All references to time of day herein
are references to Chicago, Illinois time unless otherwise specifically provided.
Where the character or amount of any asset or liability or item of income or
expense is required to be determined or any consolidation or other accounting
computation is required to be made for the
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purposes of this Agreement, it shall be done in accordance with GAAP except
where such principles are inconsistent with the specific provisions of this
Agreement.
Section 6. Representations and Warranties.
The Company represents and warrants to the Bank as follows:
Section 6.1. Organization and Qualification. The Company is duly
organized, validly existing and in good standing as a corporation under the laws
of the State of Nevada, has full and adequate corporate power to own its
Property and conduct its business as now conducted, and is duly licensed or
qualified and in good standing in each jurisdiction in which the nature of the
business conducted by it or the nature of the Property owned or leased by it
requires such licensing or qualifying except where the failure to so qualify or
be licensed would not result in a Materially Adverse Effect.
Section 6.2. Subsidiaries. Each Subsidiary is duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated or organized, as the case may be, has full and adequate
power to own its Property and conduct its business as now conducted, and is duly
licensed or qualified and in good standing in each jurisdiction in which the
nature of the business conducted by it or the nature of the Property owned or
leased by it requires such licensing or qualifying except where the failure to
so qualify or be licensed would not result in a Materially Adverse Effect.
Schedule 6.2 hereto identifies each Subsidiary, the jurisdiction of its
incorporation or organization, as the case may be, the percentage of issued and
outstanding shares of each class of its capital stock or other equity interests
owned by the Company and the Subsidiaries and, if such percentage is not 100%
(excluding directors' qualifying shares as required by law), a description of
each class of its authorized capital stock and other equity interests and the
number of shares of each class issued and outstanding. All of the outstanding
shares of capital stock and other equity interests of each Subsidiary are
validly issued and outstanding and fully paid and nonassessable and all such
shares and other equity interests indicated on Schedule 6.2 as owned by the
Company or a Subsidiary are owned, beneficially and of record, by the Company or
such Subsidiary free and clear of all Liens. There are no outstanding
commitments or other obligations of any Subsidiary to issue, and no options,
warrants or other rights of any Person to acquire, any shares of any class of
capital stock or other equity interests of any Subsidiary.
Section 6.3. Corporate Authority and Validity of Obligations. The
Company has full right and authority to enter into this Agreement and the other
Loan Documents and to perform all of its obligations hereunder and under the
other Loan Documents. The Loan Documents delivered by the Company have been
duly authorized, executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable in accordance with their
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terms except as enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting creditors' rights generally and
general principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law); and this
Agreement and the other Loan Documents do not, nor does the performance or
observance by the Company of any of the matters and things herein or therein
provided for, contravene or constitute a default under any provision of law or
any judgment, injunction, order or decree binding upon the Company or any
provision of the charter, articles of incorporation or by-laws of the Company
or, except as disclosed on Exhibit F hereto, any covenant, indenture or
agreement of or affecting the Company or any of its Properties, except where
such default would not constitute a Materially Adverse Effect or result in the
creation or imposition of any Lien on any Property of the Company.
Section 6.4. Use of Proceeds; Margin Stock. The Company shall use
the proceeds of the Loans and other extensions of credit made available
hereunder solely for the refinancing of the indebtedness owing to the lenders
described in Section 7.2(g) hereof and for its general working capital purposes
and shall use standby Letters of Credit issued hereunder solely in connection
with performance bonding requirements in the ordinary course of its business.
Neither the Company nor any Subsidiary is engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Loan or any other extension of
credit made hereunder will be used to purchase or carry any such margin stock or
to extend credit to others for the purpose of purchasing or carrying any such
margin stock.
Section 6.5. Financial Reports. The consolidated balance sheet of
the Company and its Subsidiaries as at December 31, 1994 and the related
consolidated statements of income, retained earnings and cash flows of the
Company and its Subsidiaries for the fiscal year then ended, and accompanying
notes thereto, which financial statements are accompanied by the audit report of
Ernst & Young, independent public accountants, and the unaudited interim
consolidated balance sheet of the Company and its Subsidiaries as at
September 30, 1995 and the related consolidated statements of income, retained
earnings and cash flows of the Company and its Subsidiaries for the nine (9)
months then ended, heretofore furnished to the Bank, fairly present the
consolidated financial condition of the Company and its Subsidiaries as at said
dates and the consolidated results of their operations and cash flows for the
periods then ended in conformity with generally accepted accounting principles
applied on a consistent basis. Neither the Company nor any Subsidiary has
contingent liabilities which are material to it other than as indicated on such
financial statements or, with respect to future periods, on the financial
statements furnished pursuant to Section 8.5 hereof.
Section 6.6. No Material Adverse Change. Since September 30, 1995,
there has been no change in the condition (financial or otherwise) or business
prospects of the Company or any
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Subsidiary except those occurring in the ordinary course of business, none of
which individually or in the aggregate constitute a Materially Adverse Effect.
Section 6.7. Full Disclosure. The statements and information
furnished to the Bank in connection with the negotiation of this Agreement and
the other Loan Documents and the commitment by the Bank to provide all or part
of the financing contemplated hereby do not contain any untrue statements of a
material fact or omit a material fact necessary to make the material statements
contained herein or therein not misleading, the Bank acknowledging that as to
any projections furnished to the Bank, the Company only represents that the same
were prepared on the basis of information and estimates the Company believed to
be reasonable at the time made.
Section 6.8. Good Title. The Company and its Subsidiaries each have
good and valid title to their assets as reflected on the most recent
consolidated balance sheet of the Company and its Subsidiaries furnished to the
Bank (except for sales of assets by the Company and its Subsidiaries in the
ordinary course of business), subject to no Liens other than such thereof as are
permitted by Section 8.14 hereof.
Section 6.9. Litigation and Other Controversies. Except as disclosed
on Exhibit F hereto, there is no litigation or governmental proceeding or labor
controversy pending, nor to the knowledge of the Company threatened, against the
Company or any Subsidiary which if adversely determined would result in a
Materially Adverse Effect.
Section 6.10. Taxes. Except as disclosed on Exhibit F hereto, all
tax returns required to be filed by the Company or any Subsidiary in any
jurisdiction have, in fact, been filed, and all taxes, assessments, fees and
other governmental charges upon the Company or any Subsidiary or upon any of
their respective Properties, income or franchises, which are shown to be due and
payable in such returns, have been paid. The Company does not know of any
proposed additional tax assessment against it or its Subsidiaries for which
adequate provision in accordance with GAAP has not been made on its accounts.
Adequate provisions in accordance with GAAP for taxes on the books of the
Company and each Subsidiary have been made for all open years, and for its
current fiscal period.
Section 6.11. Approvals. No authorization, consent, license, or
exemption from, or filing or registration with, any court or governmental
department, agency or instrumentality, nor any approval or consent of the
stockholders of the Company or any other Person, is or will be necessary to the
valid execution, delivery or performance by the Company of this Agreement or any
other Loan Document except as have been made or obtained prior to the date
hereof.
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Section 6.12. Affiliate Transactions. Neither the Company nor any
Subsidiary is a party to any contracts or agreements with any of its Affiliates
(other than with Wholly-Owned Subsidiaries) on terms and conditions which are
less favorable to the Company or such Subsidiary than would be usual and
customary in similar contracts or agreements between Persons not affiliated with
each other.
Section 6.13. Investment Company; Public Utility Holding Company.
Neither the Company nor any Subsidiary is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "public utility holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 6.14. ERISA. The Company and each other member of its
Controlled Group has fulfilled its obligations under the minimum funding
standards of and is in compliance in all material respects with ERISA and the
Code to the extent applicable to it and has not incurred any liability to the
PBGC or a Plan under Title IV of ERISA other than a liability to the PBGC for
premiums under Section 4007 of ERISA. Neither the Company nor any Subsidiary
has any contingent liabilities with respect to any post-retirement benefits
under a Welfare Plan, other than liability for continuation coverage described
in article 6 of Title I of ERISA.
Section 6.15. Compliance with Laws. The Company and each of its
Subsidiaries are in compliance with the requirements of all federal, state and
local laws, rules and regulations applicable to or pertaining to their
Properties or business operations (including, without limitation, the
Occupational Safety and Health Act of 1970, the Americans with Disabilities Act
of 1990, and laws and regulations establishing quality criteria and standards
for air, water, land and toxic or hazardous wastes and substances), non-
compliance with which could result in a Materially Adverse Effect. Neither the
Company nor any Subsidiary has received notice to the effect that its operations
are not in compliance with any of the requirements of applicable federal, state
or local environmental, health and safety statutes and regulations or are the
subject of any governmental investigation evaluating whether any remedial action
is needed to respond to a release of any toxic or hazardous waste or substance
into the environment, which non-compliance or remedial action could result in a
Materially Adverse Effect.
Section 6.16. Other Agreements. Neither the Company nor any
Subsidiary is in default under the terms of any covenant, indenture or agreement
of or affecting the Company, any Subsidiary or any of their Properties, which
default if uncured would have a material adverse effect on the financial
condition, Properties, business or operations of the Company or any Subsidiary.
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Section 6.17. No Default. No Default or Event of Default has occurred
and is continuing.
Section 7. Conditions Precedent.
The obligation of the Bank to make any Loan or to issue any Letter of
Credit under this Agreement is subject to the following conditions precedent:
Section 7.1. All Advances. As of the time of the making of each
extension of credit (including the initial extension of credit) hereunder:
(a) each of the representations and warranties set forth in
Section 6 hereof and in the other Loan Documents shall be true and
correct as of such time, except to the extent the same expressly
relate to an earlier date;
(b) the Company shall be in full compliance with all of
the terms and conditions of this Agreement and of the other Loan
Documents, and no Default or Event of Default shall have occurred and
be continuing or would occur as a result of making such extension of
credit;
(c) after giving effect to such extension of credit the
aggregate principal amount of all Loans and Letters of Credit
outstanding under this Agreement shall not exceed the lesser of (i)
the Commitment and (ii) the Borrowing Base;
(d) such extension of credit shall not violate any order,
judgment or decree of any court or other authority or any provision of
law or regulation applicable to the Bank (including, without
limitation, Regulation U of the Board of Governors of the Federal
Reserve System) as then in effect; and
(e) in the case of the issuance of any Letter of Credit, the
Bank shall have received a properly completed Application therefor
together with the fees called for hereby.
The Company's request for any Loan or Letter of Credit shall constitute its
warranty as to the facts specified in subsections (a) through (d), both
inclusive, above.
Section 7.2. Initial Advance. At or prior to the making of the initial
extension of credit hereunder, the following conditions precedent shall also
have been satisfied:
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(a) the Bank shall have received the following (each to be
properly executed and completed) and the same shall have been approved
as to form and substance by the Bank:
(i) the Note;
(ii) copies of resolutions of the Board of Directors or
other appropriate body of the Company authorizing the execution and
delivery of the Loan Documents to which it is a party, certified by
the Secretary or Assistant Secretary of the Company and of all other
legal documents or proceedings taken in connection with the execution
and delivery of this Agreement and the other Loan Documents to the
extent the Bank or its counsel may reasonably request;
(iii) an incumbency certificate containing the name,
title and genuine signatures of each of the Company's Authorized
Representatives; and
(iv) certified copies of the articles of incorporation or
charter and bylaws of the Company;
(b) the Bank shall have received the initial fees called for
hereby;
(c) the Bank shall have received such valuations and
certifications as it may reasonably require in order to satisfy itself
as to the value and computation of the Borrowing Base, the financial
condition of the Company and its Subsidiaries, and the lack of
material contingent liabilities of the Company and its Subsidiaries;
(d) legal matters incident to the execution and delivery of this
Agreement and the other Loan Documents and to the transactions
contemplated hereby shall be reasonably satisfactory to the Bank and
its counsel; and the Bank shall have received the favorable written
opinion of counsel for the Company in form and substance reasonably
satisfactory to the Bank and its counsel;
(e) the Bank shall have received a Borrowing Base certificate in
the form attached hereto as Exhibit B showing the computation of the
Borrowing Base in reasonable detail as of the last day of the
preceding fiscal month of the Company;
(f) the Bank shall have received a good standing certificate for
the Company (dated as of the date no earlier than thirty (30) days
prior to the date hereof) from the office of the secretary of state of
the state of its incorporation and each state in which it is qualified
to do business as a foreign corporation;
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(g) payoff letters from the holders of indebtedness to be
satisfied with proceeds of initial Loan hereunder together with
releases and terminations of all liens and security interests securing
such indebtedness, in each case reasonably satisfactory to the Bank;
and
(h) the Bank shall have received such other agreements,
instruments, documents, certificates and opinions as the Bank may
reasonably request.
Section 8. Covenants.
The Company agrees that, so long as any credit is available to or in use by
the Company hereunder, except to the extent compliance in any case or cases is
waived in writing by the Bank:
Section 8.1. Maintenance of Business. The Company shall, and shall
cause each Subsidiary to, preserve and maintain its existence. The Company
shall, and shall cause each Subsidiary to, preserve and keep in force and effect
all licenses, permits and franchises necessary to the proper conduct of its
business.
Section 8.2. Maintenance of Properties. The Company shall maintain,
preserve and keep its property, plant and equipment in good repair, working
order and condition (ordinary wear and tear excepted) and shall from time to
time make all needful and proper repairs, renewals, replacements, additions and
betterments thereto so that at all times the efficiency thereof shall be fully
preserved and maintained, and shall cause each Subsidiary to do so in respect of
Property owned or used by it.
Section 8.3. Taxes and Assessments. The Company shall duly pay and
discharge, and shall cause each Subsidiary to duly pay and discharge, all taxes,
rates, assessments, fees and governmental charges upon or against it or its
Properties, in each case before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings which prevent enforcement of the
matter under contest and adequate reserves are provided therefor.
Section 8.4. Insurance. The Company shall insure and keep insured,
and shall cause each Subsidiary to insure and keep insured, with good and
responsible insurance companies, all insurable Property owned by it which is of
a character usually insured by Persons similarly situated and operating like
Properties against loss or damage from such hazards and risks, and in such
amounts, as are insured by Persons similarly situated and operating like
Properties; and the Company shall insure, and shall cause each Subsidiary to
insure, such other hazards and risks (including employers' and public liability
risks) with good and responsible insurance companies as and to the extent
usually insured by Persons similarly situated and conducting similar businesses.
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The Company shall upon request furnish to the Bank a certificate setting forth
in summary form the nature and extent of the insurance maintained pursuant to
this Section.
Section 8.5. Financial Reports. The Company shall, and shall cause
each Subsidiary to, maintain a standard system of accounting in accordance with
GAAP and shall furnish to the Bank and its duly authorized representatives such
information respecting the business and financial condition of the Company and
its Subsidiaries as the Bank may reasonably request; and without any request,
shall furnish to the Bank:
(a) as soon as available, and in any event within twenty
(20) days after the last day of each calendar month, a Borrowing Base
certificate in the form attached hereto as Exhibit B showing the
computation of the Borrowing Base in reasonable detail as of the close
of business on the last day of such month, prepared by the Company and
certified to by the chief financial officer of the Company;
(b) as soon as available, and in any event within forty-
five (45) days after the close of each quarterly accounting period of
the Company, a copy of the consolidated and consolidating balance
sheet of the Company and its Subsidiaries as of the last day of such
period and the consolidated and consolidating statements of income,
retained earnings and cash flows of the Company and its Subsidiaries
for the quarter and the fiscal year-to date period then ended, each in
reasonable detail showing in comparative form the figures for the
corresponding date and period in the previous fiscal year, prepared by
the Company in accordance with GAAP and certified to by the President
or chief financial officer of the Company;
(c) as soon as available, and in any event within one
hundred twenty (120) days after the close of each annual accounting
period of the Company, a copy of the consolidated balance sheet of the
Company and its Subsidiaries as of the close of such period and the
consolidated statements of income, retained earnings and cash flows of
the Company and its Subsidiaries for such period, and accompanying
notes thereto, each in reasonable detail showing in comparative form
the figures for the previous fiscal year, accompanied by an
unqualified opinion thereon of Ernst & Young or another firm of
independent public accountants of recognized national standing,
selected by the Company and satisfactory to the Bank, to the effect
that the financial statements have been prepared in accordance with
GAAP and present fairly in all material respects in accordance with
GAAP the consolidated financial condition of the Company and its
Subsidiaries as of the close of such fiscal year and the results of
their operations and cash flows for the fiscal year then ended;
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(d) within the period provided in subsection (c) above,
the written statement of the accountants who certified the audit
report thereby required that in the course of their audit they have
obtained no knowledge of any Default or Event of Default, or, if such
accountants have obtained knowledge of any such Default or Event of
Default, they shall disclose in such statement the nature and period
of the existence thereof;
(e) promptly upon the filing or making thereof, copies
of each filing and report made by the Company or any Subsidiary with
or to any securities exchange or the Securities and Exchange
Commission, and of each communication from the Company or any
Subsidiary to shareholders generally;
(f) promptly after receipt thereof, any additional written
reports, management letters or other detailed information contained in
writing concerning significant aspects of the Company's or any
Subsidiary's operations and financial affairs given to it by its
independent public accountants;
(g) as soon as available, and in any event within thirty
(30) days following the end of each fiscal year of the Company, a copy
of the Company's consolidated and consolidating business plan for the
following fiscal year, such business plan to show the Company's
projected consolidated and consolidating revenues, expenses, and
balance sheet on month-by-month basis, such business plan to be in
reasonable detail prepared by the Company and in form reasonably
satisfactory to the Bank; and
(h) promptly after knowledge thereof shall have come to the
attention of any responsible officer of the Company, written notice of
any threatened or pending litigation or governmental proceeding or
labor controversy against the Company or any Subsidiary which, if
adversely determined, would constitute a Materially Adverse Effect or
of the occurrence of any Default or Event of Default hereunder.
Each of the financial statements furnished to the Bank pursuant to
subsections (b) and (c) of this Section shall be accompanied by a written
certificate in the form attached hereto as Exhibit C signed by the President or
chief financial officer of the Company to the effect that to the best of such
officer's knowledge and belief no Default or Event of Default has occurred
during the period covered by such statements or, if any such Default or Event of
Default has occurred during such period, setting forth a description of such
Default or Event of Default and specifying the action, if any, taken by the
Company to remedy the same. Such certificate shall also set forth the
calculations supporting such statements in respect of Sections 8.7, 8.8, 8.9,
8.10, 8.11 and 8.12 of this Agreement.
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Section 8.6. Inspection. The Company shall, and shall cause each
Subsidiary to, permit the Bank and its duly authorized representatives and
agents to visit and inspect any of the Properties, corporate books and financial
records of the Company and each Subsidiary, to examine and make copies of the
books of accounts and other financial records of the Company and each
Subsidiary, and to discuss the affairs, finances and accounts of the Company and
each Subsidiary with, and to be advised as to the same by, its officers,
employees and independent public accountants (and by this provision the Company
hereby authorizes such accountants to discuss with the Bank the finances and
affairs of the Company and of each Subsidiary) at such reasonable times and
reasonable intervals as the Bank may designate.
Section 8.7. Quick Ratio. The Company will at all times maintain a
Quick Ratio of not less than 1.0 to 1.0.
Section 8.8. Leverage Ratio. The Company will at all times maintain
a ratio of Total Liabilities to Tangible Net Worth (the "Leverage Ratio") of not
more than 1.35 to 1.00.
Section 8.9. Tangible Net Worth. The Company will at all times
maintain Tangible Net Worth at not less than the sum of $32,000,000 plus, on a
cumulative basis, 75% of positive Net Income for each fiscal year subsequent to
the fiscal year ended December 31, 1994.
Section 8.10. Net Income. The Company will not permit Net Income to
be less than $0 for any two consecutive fiscal quarters nor will it permit any
negative Net Income for any single fiscal quarter to exceed the negative
equivalent of 10% of Tangible Net Worth.
Section 8.11. Interest Coverage Ratio. The Company will, as of the
last day of each fiscal quarter of the Company, maintain the ratio of EBITDA for
the four fiscal quarters of the Company then ended to Interest Expense for the
same four fiscal quarters then ended (the "Interest Coverage Ratio") of not less
than 3.5 to 1.0.
Section 8.12. Capital Expenditures. The Company will not, nor will
it permit any Subsidiary to, expend or become obligated for capital expenditures
(as determined in accordance with GAAP) in an aggregate amount in excess of
$7,000,000 during any fiscal year of the Company.
Section 8.13. Indebtedness for Borrowed Money. The Company shall
not, nor shall it permit any Subsidiary to, issue, incur, assume, create or have
outstanding any Indebtedness for Borrowed Money; provided, however, that the
foregoing shall not restrict nor operate to prevent any of the following
("Permitted Indebtedness"):
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(a) the Obligations of the Company owing to the Bank and
other indebtedness and obligations of the Company or any Subsidiary
from time to time owing to the Bank;
(b) purchase money indebtedness and Capitalized Lease
Obligations secured by Liens permitted by Section 8.14(e) hereof in an
aggregate amount not to exceed $7,000,000 at any one time outstanding;
(c) Indebtedness secured by Liens of carriers, warehousemen,
mechanics, landlords or materialmen that constitute Permitted Liens
under Section 8.14(a) below;
(d) Indebtedness in respect of liabilities permitted under
Section 8.14(c) below; and
(e) unsecured term debt owed by Micro-Controle, S.A. to
financial institutions as of the date of this Agreement.
Section 8.14. Liens. The Company shall not, nor shall it permit any
Subsidiary to, create, incur or permit to exist any Lien of any kind on any
Property owned by the Company or any Subsidiary; provided, however, that the
foregoing shall not apply to nor operate to prevent:
(a) Liens arising by statute in connection with worker's
compensation, unemployment insurance, old age benefits, social
security obligations, taxes, assessments, statutory obligations or
other similar charges, good faith cash deposits in connection with
tenders, contracts or leases to which the Company or any Subsidiary is
a party or other cash deposits required to be made in the ordinary
course of business, provided in each case that the obligation is not
for borrowed money and that the obligation secured is not overdue or,
if overdue, is being contested in good faith by appropriate
proceedings which prevent enforcement of the matter under contest and
adequate reserves have been established therefor;
(b) mechanics', workmen's, materialmen's, landlords',
carriers', or other similar Liens arising in the ordinary course of
business with respect to obligations which are not due or which are
being contested in good faith by appropriate proceedings which prevent
enforcement of the matter under contest;
(c) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding,
provided that the aggregate amount of liabilities of the Company and
its Subsidiaries secured by a pledge of assets permitted under this
subsection, including interest and penalties thereon, if any, shall
not be in excess of $1,000,000 at any one time outstanding;
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(d) the Liens existing as of the date hereof and disclosed
on Exhibit D hereto;
(e) Liens on property of the Company or any of its
Subsidiaries created solely for the purpose of securing indebtedness
permitted by Section 8.13(b) hereof, representing or incurred to
finance, refinance or refund the purchase price of Property, provided
that no such Lien shall extend to or cover other Property of the
Company or such Subsidiary other than the respective Property so
acquired, and the principal amount of indebtedness secured by any such
Lien shall at no time exceed the original purchase price of such
Property; and
(f) easements, right-of-way, zoning and similar restrictions
and other similar encumbrances or title defects which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the Property subject thereto or
interfere with the ordinary conduct of the business of the Company.
Section 8.15. Investments, Acquisitions, Loans, Advances and
Guaranties. The Company shall not, nor shall it permit any Subsidiary to,
directly or indirectly, make, retain or have outstanding any investments
(whether through purchase of stock or obligations or otherwise) in, or loans or
advances (other than for travel advances and other similar cash advances made to
employees in the ordinary course of business) to, any other Person, or acquire
all or any substantial part of the assets or business of any other Person or
division thereof, or be or become liable as endorser, guarantor, surety or
otherwise for any debt, obligation or undertaking of any other Person, or
otherwise agree to provide funds for payment of the obligations of another, or
supply funds thereto or invest therein or otherwise assure a creditor of another
against loss, or apply for or become liable to the issuer of a letter of credit
which supports an obligation of another, or subordinate any claim or demand it
may have to the claim or demand of any other Person; provided, however, that the
foregoing shall not apply to nor operate to prevent:
(a) investments in direct obligations of the United States
of America or of any agency or instrumentality thereof whose
obligations constitute full faith and credit obligations of the United
States of America, provided that any such obligations shall mature
within one year of the date of issuance thereof;
(b) investments in commercial paper rated at least P-1
by Moody's Investors Services, Inc. and at least A-1 by Standard &
Poor's Corporation maturing within 270 days of the date of issuance
thereof;
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(c) investments in certificates of deposit issued by any
United States commercial bank having capital and surplus of not less
than $100,000,000 which have a maturity of one year or less;
(d) endorsement of items for deposit or collection of
commercial paper received in the ordinary course of business;
(e) the present investments, loans and advances by the
Company in its Subsidiaries as disclosed on Schedule 6.2 hereof and
additional investments, loans and advances by the Company of up to
$12,000,000 in and to Subsidiaries;
(f) the Company's guarantee of the indebtedness permitted
under Section 8.13(c) hereof;
(g) Acquisitions by the Company of substantially all of
the assets of corporations or Acquisitions of Wholly-Owned Domestic
Restricted Subsidiaries from and after the date hereof so long as (i)
the aggregate amount of cash consideration payable in connection with
such Acquisitions does not exceed $1,000,000, (ii) the aggregate
amount of stock consideration payable in connection with such
Acquisitions does not exceed $3,000,000, (iii) the Acquisition of a
Domestic Restricted Subsidiary shall have been approved by the board
of directors of such Person prior to such Acquisition and (iv) such
acquired Domestic Restricted Subsidiary shall have complied with the
provisions of Section 8.23 hereof, it being agreed that the
acquisition of substantially all of the assets of MikroPrecision
Instruments, Inc. by the Company shall not be subject to such limits;
(h) investments in the form of accounts receivable arising
from sales of goods or services in the ordinary course of business;
and
(i) investments in the form of advances or prepayments to
suppliers in the ordinary course of business.
In determining the amount of investments, acquisitions, loans, advances and
guarantees permitted under this Section 8.15, investments and acquisitions shall
always be taken at the original cost thereof (regardless of any subsequent
appreciation or depreciation therein), loans and advances shall be taken at the
principal amount thereof then remaining unpaid, and guarantees shall be taken at
the amount of obligations guaranteed thereby.
Section 8.16. Mergers, Consolidations and Sales. The Company shall
not, nor shall it permit any Subsidiary to, be a party to any merger or
consolidation, or sell, transfer, lease or otherwise dispose of all or any
substantial part of its Property, including any disposition of a
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substantial part of its Property as part of a sale and leaseback transaction,
or in any event sell or discount (with or without recourse) any of its notes or
accounts receivable; provided, however, that this Section shall not apply to nor
operate to prevent the Company or any Subsidiary from (a) selling its inventory
in the ordinary course of its business, (b) selling its equipment or other
tangible Property that is obsolete or no longer useful or necessary to its
business in the ordinary course of its business, or (c) selling its cash
equivalents or marketable securities in the ordinary course of its business and
in a manner consistent with its customary and usual cash management practices.
As used in this Section 8.16, a sale, lease, transfer or disposition of assets
shall be deemed to be of a "substantial part" of the Company's or any
Subsidiary's Property if the book value of such assets, when added to the book
value of all other assets sold, leased, transferred or disposed of by the
Company or such Subsidiary exceeds 5% of its tangible assets and, further
provided, that any Subsidiary of the Company may merge or consolidate with or
into or sell, lease or otherwise convey all or a substantial part of its assets
to the Company or any Wholly-Owned Domestic Restricted Subsidiary; provided
that, in any such merger or consolidation involving the Company, the Company
shall be the surviving or continuing corporation.
Section 8.17. Maintenance of Subsidiaries. The Company shall not
assign, sell or transfer, or permit any Subsidiary to issue, assign, sell or
transfer, any shares of capital stock of a Subsidiary; provided that the
foregoing shall not operate to prevent the issuance, sale and transfer to any
person of any shares of capital stock of a Subsidiary solely for the purpose of
qualifying, and to the extent legally necessary to qualify, such person as a
director of such Subsidiary.
Section 8.18. Dividends and Certain Other Restricted Payments. The
Company shall not during any fiscal year (a) declare or pay any dividends on or
make any other distributions in respect of any class or series of its capital
stock (other than dividends payable on its common stock of up to $.04 per share
per annum and dividends payable solely in its capital stock and repurchases of
up to 50,000 shares of its capital stock per year) or (b) directly or indirectly
purchase, redeem or otherwise acquire or retire any of its capital stock.
Section 8.19. ERISA. The Company shall, and shall cause each
Subsidiary to, promptly pay and discharge all obligations and liabilities
arising under ERISA of a character which if unpaid or unperformed might result
in the imposition of a Lien against any of its Properties. The Company shall,
and shall cause each Subsidiary to, promptly notify the Bank of (i) the
occurrence of any reportable event (as defined in ERISA) with respect to a Plan,
(ii) receipt of any notice from the PBGC of its intention to seek termination of
any Plan or appointment of a trustee therefor, (iii) its intention to terminate
or withdraw from any Plan, and (iv) the occurrence of any event with respect to
any Plan which would result in the incurrence by the Company or any Subsidiary
of any material liability, fine or penalty, or any material increase in the
contingent liability of the Company or any Subsidiary with respect to any post-
retirement Welfare Plan benefit.
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Section 8.20. Compliance with Laws. The Company shall, and shall
cause each Subsidiary to, comply in all respects with the requirements of all
federal, state and local laws, rules, regulations, ordinances and orders
applicable to or pertaining to their Properties or business operations, non-
compliance with which could result in a Materially Adverse Effect.
Section 8.21. Burdensome Contracts With Affiliates. The Company
shall not, nor shall it permit any Subsidiary to, enter into any contract,
agreement or business arrangement with any of its Affiliates (other than with
Wholly-Owned Subsidiaries) on terms and conditions which are less favorable to
the Company or such Subsidiary than would be usual and customary in similar
contracts, agreements or business arrangements between Persons not affiliated
with each other.
Section 8.22. No Changes in Fiscal Year. Neither the Company nor any
Subsidiary shall change its fiscal year from its present basis without the prior
written consent of the Bank.
Section 8.23. Formation of Subsidiaries. Except for existing
Subsidiaries designated on Schedule 6.2 hereto, the Company shall not, nor shall
it permit any Subsidiary to, form or acquire any Subsidiary without the prior
written consent of the Bank, such consent not to be unreasonably withheld.
Section 8.24. Change in the Nature of Business. The Company shall
not, and shall not permit any Subsidiary to, engage in any business or activity
if as a result the general nature of the business of the Company or any
Subsidiary would be changed in any material respect from the general nature of
the business engaged in by the Company or such Subsidiary on the date of this
Agreement.
Section 8.25. Limitation on Certain Restrictions on Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries to, directly
or indirectly, create or otherwise permit to exist or become effective any Lien
or restriction on the ability of any such Subsidiary to (a) pay dividends or
make any other distributions on its capital stock or any other interest or
participation in profits owned by the Company or any Subsidiary or pay any
indebtedness owed to the Company or (b) make loans or advances to the Company or
any of its Subsidiaries, except for such Liens or restrictions existing under or
by reason of (i) applicable law or (ii) this Agreement and the other Loan
Documents.
Section 9. Events of Default and Remedies.
Section 9.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" hereunder:
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(a) default in the payment when due of all or any part of
any Obligation payable by the Company hereunder or under any other
Loan Document (whether at the stated maturity thereof or at any other
time provided for in this Agreement), or default shall occur in the
payment when due of any other indebtedness or obligation (whether
direct, contingent or otherwise) of the Company owing to the Bank; or
(b) default in the observance or performance of any
covenant set forth in Sections 8.7 through 8.12 or 8.16, 8.18, 8.19,
8.24 or 8.25 hereof; or
(c) default in the observance or performance of any other
provision hereof or of any other Loan Document which is not remedied
within thirty (30) days after the earlier of (i) the date on which
such failure shall first become known to any officer of the Company or
(ii) written notice thereof is given to the Company by the Bank; or
(d) any representation or warranty made by the Company
herein or in any other Loan Document, or in any statement or
certificate furnished by it pursuant hereto or thereto, or in
connection with any extension of credit made hereunder, proves untrue
in any material respect as of the date of the issuance or making
thereof; or
(e) any event occurs or condition exists (other than
those described in subsections (a) through (d) above) which is
specified as an event of default under any of the other Loan
Documents, or any of the Loan Documents shall for any reason not be or
shall cease to be in full force and effect, or any of the Loan
Documents is declared to be null and void, or the Company or any
Person acting on its behalf or any shall challenge the validity of any
Loan Document or the obligations of the Company thereunder; or
(f) default shall occur under any Indebtedness for Borrowed
Money in an aggregate principal amount of $500,000 or more issued,
assumed or guaranteed by the Company or any Subsidiary, or under any
indenture, agreement or other instrument under which the same may be
issued, and such default shall continue for a period of time
sufficient to permit the acceleration of the maturity of any such
Indebtedness for Borrowed Money (whether or not such maturity is in
fact accelerated), or any such Indebtedness for Borrowed Money shall
not be paid when due (whether by lapse of time, acceleration or
otherwise); or
(g) any judgment or judgments, writ or writs, or warrant or
warrants of attachment, or any similar process or processes in an
aggregate amount in excess of $500,000 shall be entered or filed
against the Company or any Subsidiary or against any of their Property
and which remains unvacated, unbonded, unstayed or unsatisfied for a
period of thirty (30) days; or
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<PAGE>
(h) the Company or any member of its Controlled Group
shall fail to pay when due an amount or amounts aggregating in excess
$250,000 which it shall have become liable to pay to the PBGC or to a
Plan under Title IV of ERISA; or notice of intent to terminate a Plan
or Plans having aggregate Unfunded Vested Liabilities in excess of
$250,000 (collectively, a "Material Plan") shall be filed under
Title IV of ERISA by the Company or any other member of its Controlled
Group, any plan administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of ERISA to
terminate or to cause a trustee to be appointed to administer any
Material Plan or a proceeding shall be instituted by a fiduciary of
any Material Plan against the Company or any member of its Controlled
Group to enforce Section 515 or 4219(c)(5) of ERISA and such
proceeding shall not have been dismissed within thirty (30) days
thereafter; or a condition shall exist by reason of which the PBGC
would be entitled to obtain a decree adjudicating that any Material
Plan must be terminated; or
(i) dissolution or termination of the existence of the
Company or any Subsidiary; or
(j) the Company or any Restricted Subsidiary shall (i) have
entered involuntarily against it an order for relief under the United
States Bankruptcy Code, as amended, (ii) not pay, or admit in writing
its inability to pay, its debts generally as they become due, (iii)
make an assignment for the benefit of creditors, (iv) apply for, seek,
consent to, or acquiesce in, the appointment of a receiver, custodian,
trustee, examiner, liquidator or similar official for it or any
substantial part of its Property, (v) institute any proceeding seeking
to have entered against it an order for relief under the United States
Bankruptcy Code, as amended, to adjudicate it insolvent, or seeking
dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail
to file an answer or other pleading denying the material allegations
of any such proceeding filed against it, (vi) take any corporate
action in furtherance of any matter described in parts (i) through (v)
above, or (vii) fail to contest in good faith any appointment or
proceeding described in Section 9.1(k) hereof; or
(k) a custodian, receiver, trustee, examiner, liquidator or
similar official shall be appointed for the Company or any Restricted
Subsidiary or any substantial part of any of their Property, or a
proceeding described in Section 9.1(j)(v) shall be instituted against
the Company or any Restricted Subsidiary, and such appointment
continues undischarged or such proceeding continues undismissed or
unstayed for a period of sixty (60) days.
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<PAGE>
Section 9.2. Non-Bankruptcy Defaults. When any Event of Default
described in subsection (a) through (i), both inclusive, of Section 9.1 has
occurred and is continuing, the Bank may, by notice to the Company, take one or
more of the following actions:
(a) terminate the obligation of the Bank to extend any
further credit hereunder on the date (which may be the date thereof)
stated in such notice;
(b) declare the principal of and the accrued interest on
the Note to be forthwith due and payable and thereupon the Note,
including both principal and interest and all fees, charges and other
Obligations payable hereunder and under the other Loan Documents,
shall be and become immediately due and payable without further
demand, presentment, protest or notice of any kind; and
(c) enforce any and all rights and remedies available to it
under the Loan Documents or applicable law.
Section 9.3. Bankruptcy Defaults. When any Event of Default
described in subsection (j) or (k) of Section 9.1 has occurred and is
continuing, then the Note, including both principal and interest, and all fees,
charges and other Obligations payable hereunder and under the other Loan
Documents, shall immediately become due and payable without presentment, demand,
protest or notice of any kind, and the obligation of the Bank to extend further
credit pursuant to any of the terms hereof shall immediately terminate. In
addition, the Bank may exercise any and all remedies available to it under the
Loan Documents or applicable law.
Section 9.4. Collateral for Undrawn Letters of Credit. When any
Event of Default, other than an Event of Default described in subsection (j) or
(k) of Section 9.1, has occurred and is continuing, the Company shall, upon
demand of the Bank, and when any Event of Default described in subsection (j) or
(k) of Section 9.1 has occurred the Company shall, without notice or demand from
the Bank, immediately pay to the Bank the full amount of each Letter of Credit
then outstanding, the Company agreeing to immediately make such payment and
acknowledging and agreeing that the Bank would not have an adequate remedy at
law for failure of the Company to honor any such demand and that the Bank shall
have the right to require the Company to specifically perform such undertaking
whether or not any draws have been made under any such Letters of Credit.
Section 10. Miscellaneous.
Section 10.1. Non-Business Day. If any payment hereunder becomes due
and payable on a day which is not a Business Day, the due date of such payment
shall be extended to the next succeeding Business Day on which date such payment
shall be due and payable. In the case of
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<PAGE>
any payment of principal falling due on a day which is not a Business Day,
interest on such principal amount shall continue to accrue during such extension
at the rate per annum then in effect, which accrued amount shall be due and
payable on the next scheduled date for the payment of interest.
Section 10.2. No Waiver, Cumulative Remedies. No delay or failure on
the part of the Bank or on the part of the holder of the Obligations in the
exercise of any power or right shall operate as a waiver thereof or as an
acquiescence in any default, nor shall any single or partial exercise of any
power or right preclude any other or further exercise thereof or the exercise of
any other power or right. The rights and remedies hereunder of the Bank and of
the holder of the Obligations are cumulative to, and not exclusive of, any
rights or remedies which any of them would otherwise have.
Section 10.3. Amendments, Etc. No amendment, modification,
termination or waiver of any provision of this Agreement or of any other Loan
Document, nor consent to any departure by the Company therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Bank
and the Company. No notice to or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or other
circumstances.
Section 10.4. Costs and Expenses. The Company agrees to pay on
demand the reasonable costs and expenses of the Bank in connection with the
negotiation, preparation, execution and delivery of this Agreement, the other
Loan Documents and the other instruments and documents to be delivered hereunder
or thereunder, and in connection with the transactions contemplated hereby or
thereby, and in connection with any consents hereunder or waivers or amendments
hereto or thereto, including the fees and expenses of Messrs. Chapman and
Cutler, counsel for the Bank, with respect to all of the foregoing (whether or
not the transactions contemplated hereby are consummated). The Company further
agrees to pay to the Bank or any other holder of the Obligations all costs and
expenses (including court costs and attorneys' fees), if any, incurred or paid
by the Bank or any other holder of the Obligations in connection with any
Default or Event of Default or in connection with the enforcement of this
Agreement or any of the other Loan Documents or any other instrument or document
delivered hereunder or thereunder. The Company further agrees to indemnify the
Bank, and any security trustee, and their respective directors, officers and
employees, against all losses, claims, damages, penalties, judgments,
liabilities and expenses (including, without limitation, all expenses of
litigation or preparation therefor, whether or not the indemnified Person is a
party thereto) which any of them may pay or incur arising out of or relating to
any Loan Document or any of the transactions contemplated thereby or the direct
or indirect application or proposed application of the proceeds of any extension
of credit made available hereunder, other than those which arise from the gross
negligence or willful misconduct of the party claiming indemnification. The
Company, upon demand by the Bank at any time, shall reimburse the Bank for any
legal or other expenses incurred
77
<PAGE>
in connection with investigating or defending against any of the foregoing
except if the same is directly due to the gross negligence or willful misconduct
of the party to be indemnified. The obligations of the Company under this
Section 10.4 shall survive the termination of this Agreement.
Section 10.5. Documentary Taxes. The Company agrees to pay on demand
any documentary, stamp or similar taxes payable in respect of this Agreement or
any other Loan Document, including interest and penalties, in the event any such
taxes are assessed, irrespective of when such assessment is made and whether or
not any credit is then in use or available hereunder.
Section 10.6. Survival of Representations. All representations and
warranties made herein or in any of the other Loan Documents or in certificates
given pursuant hereto or thereto shall survive the execution and delivery of
this Agreement and the other Loan Documents, and shall continue in full force
and effect with respect to the date as of which they were made as long as any
credit is in use or available hereunder.
Section 10.7. Survival of Indemnities. All indemnities and other
provisions relative to reimbursement to the Bank of amounts sufficient to
protect the yield of the Bank with respect to the Loans, including, but not
limited to, Sections 2.7 and 2.9 hereof, shall survive the termination of this
Agreement and the payment of the Note.
Section 10.8. Notices. Except as otherwise specified herein, all
notices hereunder shall be in writing (including cable, telecopy or telex) and
shall be given to the relevant party at its address, telecopier number or telex
number set forth below, or such other address, telecopier number or telex number
as such party may hereafter specify by notice to the other given by United
States certified or registered mail, by telecopy or by other telecommunication
device capable of creating a written record of such notice and its receipt.
Notices hereunder shall be addressed:
to the Company at:
Newport Corporation
1791 Deere Avenue
Irvine, California 92714
Attention: Robert C. Hewitt
Telephone: (714) 253-1405
Telecopy: (714) 253-1671
Telex: n/a
to the Bank at:
ABN AMRO Bank N.V.
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Los Angeles International Branch
300 South Grand Avenue
Suite 1115
Los Angeles, California 90071-7519
Attention: Mr. John A. Miller
Telephone: (213) 687-2072
Telecopy: (213) 687-2061
Telex: n/a
Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section 10.8 and a confirmation of such telecopy has been
received by the sender, (ii) if given by telex, when such telex is transmitted
to the telex number specified in this Section 10.8 and the answer back is
received by sender, (iii) if given by mail, five (5) days after such
communication is deposited in the mail, certified or registered with return
receipt requested, addressed as aforesaid or (iv) if given by any other means,
when delivered at the addresses specified in this Section 10.8; provided that
any notice given pursuant to Section 1 or Section 2 hereof shall be effective
only upon receipt.
Section 10.9. Headings. Section headings used in this Agreement are
for convenience of reference only and are not a part of this Agreement for any
other purpose.
Section 10.10. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 10.11. Counterparts. This Agreement may be executed in any
number of counterparts, and by different parties hereto on separate counterpart
signature pages, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
Section 10.12. Binding Nature, Governing Law, Etc. This Agreement
shall be binding upon the Company and its successors and assigns, and shall
inure to the benefit of the Bank and the benefit of its successors and assigns,
including any subsequent holder of the Obligations. The Company may not assign
its rights hereunder without the written consent of the Bank. This Agreement
constitutes the entire understanding of the parties with respect to the subject
matter hereof and any prior agreements, whether written or oral, with respect
thereto are superseded hereby. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE
PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
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<PAGE>
Section 10.13. Submission to Jurisdiction; Appointment of Agent for
Process; Waiver of Jury Trial. The Company hereby submits to the nonexclusive
jurisdiction of the Federal or State courts sitting in Orange County, California
for purposes of all legal proceedings arising out of or relating to this
Agreement, the other Loan Documents or the transactions contemplated hereby or
thereby. The Company irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
THE COMPANY AND THE BANK EACH HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY.
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this 20th day of December, 1995.
Newport Corporation
By:
Name:_______________________________
Title:______________________________
Accepted and agreed to at Chicago, Illinois as of the day and year last
above written.
ABN AMRO Bank N.V., Los Angeles
International Branch
By:
Name:_______________________________
Title:______________________________
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EXHIBIT A
NEWPORT CORPORATION
REVOLVING CREDIT NOTE
Chicago, Illinois
$15,000,000 December 20, 1995
On the Termination Date, for value received, the undersigned, Newport
Corporation, a Nevada corporation (the "Company"), hereby promises to pay to the
order of ABN AMRO Bank N.V. (the "Bank") at its office at 300 South Grand
Avenue, Los Angeles, California, the principal sum of (i) Fifteen Million and
no/100 Dollars ($15,000,000), or (ii) such lesser amount as may at the time of
the maturity hereof, whether by acceleration or otherwise, be the aggregate
unpaid principal amount of all Loans owing from the Company to the Bank under
the Revolving Credit provided for in the Credit Agreement hereinafter mentioned.
This Note evidences Loans made and to be made to the Company by the Bank
under the Revolving Credit provided for under that certain Credit Agreement
dated as of December 20, 1995 between the Company and the Bank (said Credit
Agreement, as the same may be amended, modified or restated from time to time,
being referred to herein as the "Credit Agreement"), and the Company hereby
promises to pay interest at the office described above on such Loans evidenced
hereby at the rates and at the times and in the manner specified therefor in the
Credit Agreement.
Each Loan made under the Revolving Credit against this Note, any repayment
of principal hereon, the status of each such Loan from time to time as part of
the Domestic Rate Portion or a LIBOR Portion and, in the case of any Fixed Rate
Portion, the interest rate and Interest Period applicable thereto shall be
endorsed by the holder hereof on a schedule to this Note or recorded on the
books and records of the holder hereof (provided that such entries shall be
endorsed on a schedule to this Note prior to any negotiation hereof). The
Company agrees that in any action or proceeding instituted to collect or enforce
collection of this Note, the entries endorsed on a schedule to this Note or
recorded on the books and records of the holder hereof shall be prima facie
evidence of the unpaid principal balance of this Note, the status of each Loan
from time to time as part of the Domestic Rate Portion or a LIBOR Portion and,
in the case of any Fixed Rate Portion, the interest rate and Interest Period
applicable thereto.
This Note is issued by the Company under the terms and provisions of the
Credit Agreement and this Note and the holder hereof are entitled to all of the
benefits and security
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<PAGE>
provided for thereby or referred to therein, to which reference is hereby made
for a statement thereof. This Note may be declared to be, or be and become, due
prior to its expressed maturity, voluntary prepayments may be made hereon, and
certain prepayments are required to be made hereon, all in the events, on the
terms and with the effects provided in the Credit Agreement. All capitalized
terms used herein without definition shall have the same meanings herein as such
terms are defined in the Credit Agreement.
The Company hereby promises to pay all costs and expenses (including
attorneys' fees) suffered or incurred by the holder hereof in collecting this
Note or enforcing any rights in any collateral therefor. The Company hereby
waives presentment for payment and demand. THIS NOTE SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
Newport Corporation
By:
Name:_______________________________
Title:______________________________
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EXHIBIT B
BORROWING BASE CERTIFICATE
To: ABN AMRO Bank N.V.
Pursuant to the terms of the Credit Agreement dated as of December 20, 1995
between us (the "Credit Agreement"), we submit this Borrowing Base Certificate
to you and certify that the information set forth below and on any attachments
to this certificate is true, correct and complete as of the date of this
certificate.
I. Borrowing Base calculations
<TABLE>
<CAPTION>
A. Accounts in Borrowing Base
<S> <C> <C>
1. Gross Accounts _________
A1
2. Less Ineligible Accounts _________
A1
3. Eligible Accounts _________
(line A1 minus line A2) A3
4. Accounts in Borrowing Base
=========
(line A3 x .80) A4
II. Borrowing Base
=========
(Line A4) II
III. Revolving Credit Outstanding
A. Loans _________
B. Letters of Credit _________
</TABLE>
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<PAGE>
Total Revolving Credit Outstanding
(line III A plus III B)
=========
III
IV. Unused Availability
(line II minus line III)
=========
IV
Dated as of this ___________ day of __________________, 19____.
___________________________________________________
______________________________, ___________________
(Type or Print Name) (Title)
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EXHIBIT C
COMPLIANCE CERTIFICATE
This Compliance Certificate is furnished to ABN AMRO Bank N.V. (the "Bank")
pursuant to that certain Credit Agreement dated as of December 20, 1995, by and
between Newport Corporation (the "Company") and the Bank (the "Credit
Agreement"). Unless otherwise defined herein, the terms used in this Compliance
Certificate have the meanings ascribed thereto in the Credit Agreement.
The Undersigned hereby certifies that:
1. I am the duly elected ____________________________ of the
Company;
2. I have reviewed the terms of the Credit Agreement and I
have made, or have caused to be made under my supervision, a detailed
review of the transactions and conditions of the Company and its
Subsidiaries during the accounting period covered by the attached financial
statements;
3. The examinations described in paragraph 2 did not disclose,
and I have no knowledge of, the existence of any condition or the
occurrence of any event which constitutes a Default or Event of Default
during or at the end of the accounting period covered by the attached
financial statements or as of the date of this Certificate, except as set
forth below;
4. The financial statements required by Section 8.5 of the
Credit Agreement and being furnished to you concurrently with this
certificate are, to the best of my knowledge, true, correct and complete as
of the dates and for the periods covered thereby; and
5. The Attachment hereto sets forth financial data and
computations evidencing the Company's compliance with certain covenants of
the Credit Agreement, all of which data and computations are, to the best
of my knowledge, true, complete and correct and have been made in
accordance with the relevant Sections of the Credit Agreement.
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<PAGE>
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Company has taken, is taking, or proposes to
take with respect to each such condition or event:
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
The foregoing certifications, together with the computations set forth in
the Attachment hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this _________ day of
__________________, 19___.
___________________________________________________
______________________________, ___________________
(Type or Print Name) (Title)
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<PAGE>
ATTACHMENT TO COMPLIANCE CERTIFICATE
NEWPORT CORPORATION
Compliance Calculations for Credit Agreement
Dated as of December 20, 1995
Calculations as of _____________, 19___
- ------------------------------------------------------------------------------
A. Quick Ratio (Section 8.7)
-------------------------
1. Current assets $__________
A1
2. Inventory $__________
A2
3. Line A1 minus Line A2 $__________
A3
4. Current liabilities (excluding Loans) $__________
A4
5. Ratio of Line A3 to Line A4 ______: 1.0
6. Line A5 ratio must not be less than 1.0 : 1.0
Company in compliance? yes/no
B. Tangible Net Worth (Section 8.9)
--------------------------------
1. Total shareholder's equity $__________
B1
2. Sum of:
(i) intangibles $___________
(ii) write-up of assets $___________ $__________
B2
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3. Line B1 minus Line B2 $=========
(Tangible Net Worth) B3
4. Line B3 must be greater than or equal to $_________
Company in compliance? yes/no
C. Leverage Ratio (Section 8.8)
----------------------------
1. Total liabilities $_________
C1
2. Tangible Net Worth (line B3 above) $_________
C2
3. Ratio of Line C1 to Line C2 _____: 1.0
4. Line C3 ratio must not be greater than 1.35 : 1.0
Company in compliance? yes/no
D. Interest Coverage Ratio (Section 8.11)
--------------------------------------
1. Net Income for past 4 quarters $_________
D1
2. Interest Expense for past 4 quarters $_________
D2
3. Federal, state and local income $_________
taxes for past 4 quarters D3
4. Depreciation and amortization for $_________
past 4 quarters D4
5. Add Lines D1, D2, D3 and D4 $=========
(EBITDA) D5
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6. Ratio of Line D5 to Line D2 _____: 1.0
7. Line D6 ratio must not be less than 3.5 : 1.0
Company in compliance? yes/no
E. Net Income (Section 8.10)
-------------------------
1. Net Income for past quarter __________
E1
2. Net Income for fiscal quarter preceding __________
Line E1 quarter E2
3. 10% of Tangible Net Worth (Line B3 above) __________
E3
4. Line E1 amount must not exceed Line E3
5. Line E2 amount must exceed $0
Company in compliance? yes/no
F. Capital Expenditures (Section 8.12)
-----------------------------------
1. Capital expenditures fiscal year to date __________
F1
2. Line F1 amount must not exceed $7,000,000
Company in compliance? yes/no
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<PAGE>
EXHIBIT D
PERMITTED LIENS
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<PAGE>
SCHEDULE 6.2
SUBSIDIARIES
<TABLE>
<CAPTION>
Amount of Interco.
Jurisdiction of Percentage Investment Loans at
Name Incorporation Ownership (9/30/95) 9/30/95
<S> <C> <C> <C> <C>
Micro-Controle Benelux S.A. Belgium 100* 43,000 -
Light Control Instruments, Inc. California 100 - -
Newport Domestic International Sales California 100 - -
Corp. (Inactive)
Newport European Distribution Company California 100 9,000,000 -
Newport Government Systems, Inc. California 100 - -
(Inactive)
RAM Optical Instrumentation, Inc. California 100 - -
Newport Instruments Canada Corporation Canada 100 - -
MC Holding S.A. France 100* 1,016,000 9,948,000
Micro-Controle S.A./(1)/ France 100* - 16,461,000
Micro-Controle GmbH Germany 100 70,000 -
Newport GmbH Germany 100 771,000 1,601,000
Micro-Controle Italia Italy 100 710,000 -
Newport BV Netherlands 100 25,000 213,000
Klinger Scientific Corporation New York 100 1,578,000 -
Newport Instruments AG Switzerland 100 43,000 461,000
Newport Taiwan Taiwan 100 185,000 -
Micro-Controle Holdings Ltd. United Kingdom 100 - -
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Amount of Interco.
Jurisdiction of Percentage Investment Loans at
Name Incorporation Ownership (9/30/95) 9/30/95
<S> <C> <C> <C> <C>
(Inactive)/(2)/
Micro-Controle Ltd. United Kingdom 100 - -
(Inactive)/(2)/
Micro-Controle UK Ltd. United Kingdom 100 - -
(Inactive)/(2)/
Newport Ltd. United Kingdom 100 1,254,000 236,000
Newport Foreign Sales U.S. Virgin Islands 100 - -
Corporation
MPI Acquisition Corp. Nevada 100 - -
</TABLE>
* Director's Shares exist for Micro-Controle Benelux S.A., MC Holding S.A. and
Micro-Controle S.A.
/(1)/Owned directly by MC Holding S.A.
/(2)/Owned directly by Newport Ltd.
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EXHIBIT 21
NEWPORT CORPORATION
Subsidiaries of Registrant
<TABLE>
<CAPTION>
State or Country of
Name of Subsidiary Incorporation
------------------ -------------------
<S> <C>
Newport Domestic International Sales Corporation (Inactive) California
Newport European Distribution Company California
Newport Government Systems, Inc. (Inactive) California
RAM Optical Instrumentation, Inc. California
MikroPrecision Instruments, Inc. (Effective January 2, 1996) Nevada
Klinger Scientific Corporation New York
Micro-Controle Benelux S.A. (Inactive) Belgium
Newport Instruments Canada Corporation Canada
MC Holding S.A. France
Micro-Controle S.A. France
Newport GmbH Germany
Micro-Controle Italia S.r.l. Italy
Newport BV Netherlands
Newport Instruments AG Switzerland
Newport Ltd. United Kingdom
Micro-Controle Holdings Ltd. (Inactive) United Kingdom
Micro-Controle Ltd. (Inactive) United Kingdom
Micro-Controle UK Ltd. (Inactive) United Kingdom
Newport Foreign Sales Corporation U.S. Virgin Islands
</TABLE>
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
pertaining to the 1992 Incentive Stock Plan (Form S-8 No. 33-58564), the
Employee Stock Purchase Plan (Form S-8 No. 33-87062) and the resale of shares of
common stock by certain stockholders (Form S-3, No. 33-59413) of Newport
Corporation of our report dated February 9, 1996, with respect to the
consolidated financial statements and schedule of Newport Corporation included
in the Annual Report (Form 10-K) for the year ended December 31, 1995.
ERNST & YOUNG LLP
Orange County, California
March 25, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF OPERATIONS, BALANCE SHEETS AND STATEMENTS
OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,524
<SECURITIES> 0
<RECEIVABLES> 20,304
<ALLOWANCES> 537
<INVENTORY> 22,744
<CURRENT-ASSETS> 48,903
<PP&E> 51,479
<DEPRECIATION> 29,152
<TOTAL-ASSETS> 83,948
<CURRENT-LIABILITIES> 20,330
<BONDS> 9,899
<COMMON> 3,045
0
0
<OTHER-SE> 49,642
<TOTAL-LIABILITY-AND-EQUITY> 83,948
<SALES> 101,961
<TOTAL-REVENUES> 101,961
<CGS> 55,421
<TOTAL-COSTS> 55,421
<OTHER-EXPENSES> 6,765
<LOSS-PROVISION> 171
<INTEREST-EXPENSE> 1,593
<INCOME-PRETAX> 4,878
<INCOME-TAX> 1,003
<INCOME-CONTINUING> 3,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,875
<EPS-PRIMARY> $0.45
<EPS-DILUTED> $0.45
</TABLE>
