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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________
Commission File Number 0-1649
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NEWPORT CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 94-0849175
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1791 Deere Avenue, Irvine, CA 92606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949) 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 $1,193,966,000 as of March 17, 2000.
The number of shares outstanding of each of the issuer's classes of common stock
as of March 17, 2000, was 9,379,475.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 17, 2000 are incorporated by reference into Part
III.
Page 1 of 45 Pages
Exhibit Index on Sequentially Numbered Page 24
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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 we intend that such forward-looking
statements be subject to the safe harbors created thereby. For this purpose,
any statements contained in this Annual Report on Form 10-K except for
historical information may be deemed to be forward-looking statements. Without
limiting the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "estimate," or "continue" or the
negative or other variations thereof or comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, certain of which are beyond our control,
and actual results may differ depending on a variety of important factors,
including those described below in "Risks Relating To Our Business."
PART I
ITEM 1 Business
General Description of Business
Newport Corporation is a global supplier of high-precision test, measurement and
automation systems and subsystems that enable manufacturers of fiber optic
components, semiconductor capital equipment, industrial metrology, aerospace and
other high-precision products to automate their manufacturing processes, enhance
product performance, and improve manufacturing efficiencies and yields.
Manufacturers of high-precision products increasingly require third party
expertise to develop, engineer and build automated systems and subsystems to
produce, assemble and test their products. Our products enhance the productivity
and capabilities of assembly, test and measurement functions by leveraging our
expertise in high precision automated positioning and vibration isolation
technology and high resolution non-contact visual measurement and inspection. By
combining our proven technology with advanced computer software and imaging
technology and our in-depth industry and process expertise, we are able to offer
comprehensive, integrated solutions to manufacturers of fiber optic components.
In the semiconductor capital equipment market we supply high-performance value-
added subsystems that enhance the performance of our customers' products. We
also provide sophisticated high-precision equipment to commercial, academic and
governmental research institutions worldwide that engage in advanced research
and development activities.
For nearly three decades we have serviced the needs of research laboratories for
precision equipment. In 1991, we acquired the micro-positioning business of
Micro-Controle S.A. and commenced our evolution from a provider of discrete
components for research applications to a company that manufactures both
components and integrated systems for research and commercial applications. The
acquisition also provided us with a significant manufacturing and distribution
base in Europe. In February 1995, we acquired RAM Optical Instrumentation, Inc.
("ROI") in order to increase our participation in the computer peripherals and
semiconductor test and measurement markets. The acquisition of ROI also
increased our expertise in developing software and manufacturing integrated
systems. In March 1995, we acquired Light Control Instruments, Inc. ("LCI"), a
participant in the fiber optic test and measurement market. The acquisition of
LCI expanded our fiber optic product offering by adding laser diode test
equipment to our internally developed product line. In January 1996, we
acquired MikroPrecision Instruments, Inc. ("MPI") further increasing our
participation in the semiconductor equipment and computer peripherals markets.
In October 1998, we acquired Environmental Optical Sensors, Inc ("EOSI"),
further strengthening our position as a leading provider of high precision
assembly and test equipment for the fast growing fiber optic communications
marketplace. In October 1999, we acquired the west coast commercial optics
operation of Corning OCA Corporation, a subsidiary of Corning Incorporated
(renamed Newport Precision Optics Corporation or "NPOC"). The commercial optics
operation manufactures specialized precision optical products and systems. As a
result of our internal growth and strategic acquisitions, we are a leading
supplier of high precision optics, instruments, micro-positioning and
measurement products and systems to manufacturers of fiber optic communications
equipment, computer peripherals and semiconductor equipment worldwide. In
addition, we continue to focus on our core strengths in research test and
measurement equipment to provide ultra-precision motion and measurement
technologies for research
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applications. We seek to leverage our expertise in research laboratory
equipment to continue to expand our product offerings for commercial
applications.
Products and Services
We develop and sell a broad range of components, instruments and manufacturing,
micropositioning and measurement systems and subsystems to markets where ultra-
high precision is critical. Our products are used in mission-critical
applications in industries including fiber optic device manufacturing,
semiconductor and computer peripheral manufacturing and life and health
sciences. We develop and manufacture our products within three distinct
business units, organized around customer and manufacturing requirements. This
structure enables us to quickly incorporate customer feedback into new products
and to respond more rapidly to changing market requirements.
Fiber Optics and Photonics
Our fiber optics and photonics division offers a complete suite of automated
manufacturing solutions. These products address a broad spectrum of
applications in the fiber optic component manufacturing process, from Pre-Test
to Assembly and Packaging to Final Device Testing and Burn-In. Our integrated
solutions enable component manufacturers to significantly increase the
productivity and capacity of their manufacturing operations. In addition, we
provide our customers with value-added product and process engineering services,
as well as device manufacturing and packaging services.
Pre-Test. Our pre-test products automate verification of devices used in
manufacturing fiber optic components, such as laser diodes, to ensure their
integrity prior to the start of the assembly process. We offer a range of
products that increase the efficiency of the pre-test process, including:
. Automated Laser Diode Bar Test Stations
. Automated Broad Area Test Stations
. Photonics Test Instrumentation
. AutoAlign(TM) Characterization Workstations
Assembly and Packaging. The assembly and packaging of fiber optic devices
requires a high degree of precision. Manufacturers have traditionally used
manual assembly techniques for fiber optic components, which are costly, result
in low production yields and produce inconsistent quality. We offer a line of
integrated assembly and packaging solutions which automate these processes and
thereby reduce manufacturing times, increase yields and enhance quality. Our
assembly and packaging products include:
. AutoAlign(TM) Waveguide Assembly Workstations
. Orion(TM) Semi-Automated Fiber Optic Alignment Systems
. LaserWeld(TM) Automated Photonics Packaging Systems
Final Device Testing and Burn-In. Fiber optic devices must meet rigorous
reliability and performance specifications, including a requirement for 20 to 30
year life cycles and the ability to perform in harsh weather conditions or even
underwater. These performance standards require manufacturers to perform
extensive testing of the completed devices. We offer standardized solutions
which automate the burn-in and test process, including:
. Laser Diode Life and Age Test Stations
. High-Power Laser Diode Test Systems
. Automated Passive Component Test Systems and Instrumentation
. Model 8800 Photonics Test System
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Instruments. We offer several lines of electronic instruments to complement our
other products serving optical laboratories. These products are concentrated in
the areas of light measurement and control, and light sources. We design and
manufacture a majority of our electronic products and also distribute the
products of others. Examples of the electronic instruments which we manufacture
or distribute include:
. Power Meters
. Laser Diode Instruments
. Spectrum Analyzers
. Electronic Shutters and Modulators
. Lasers, Lamps and Accessories
Engineering and Manufacturing Services. Our experience as a pioneer in fiber
optic device assembly, packaging and testing technology has given us a great
volume of knowledge and expertise in these areas, which we use to create value-
added solutions for our customers. We assist our customers in designing device
packaging, developing manufacturing processes, developing and producing tooling
and in the customized programming of process automation software. These services
help our customers significantly reduce the development cycle for their products
and improve the productivity, yields and quality of their manufacturing
processes. In addition to helping our customers become more productive, our
services assist us in establishing a long-term relationship with our customers
and allow us to identify additional opportunities for new products. We also
provide device manufacturing and packaging services on an outsourced basis to
enable emerging customers to design and test new products.
Video Metrology
As semiconductor manufacturers move to increasingly complex circuit design and
deep sub-micron process technology, they are experiencing a greater need to
monitor and measure the performance of their fabrication systems because of the
increased number of parts included on an individual wafer and the increased size
of wafers themselves. Our Video Metrology systems and subsystems provide a
broad range of non-contact video-based measurement and inspection products for
the semiconductor equipment manufacturing market as well as other industrial
markets, such as computer peripherals and life and health sciences markets. Our
video metrology systems and subsystems incorporate our experience and expertise
in core technologies such as precision motion, vibration control and
measurement.
Our Video Metrology product line includes:
. video direct microscopes
. Sprint(TM), DataStar(TM), OMIS(TM) II and OMIS(TM) III
. Polaris magnetic head pole geometry system
. LaserMAP and Galaxy(TM) software
The Polaris magnetic head pole geometry system is specifically designed to
measure pole geometry features on thin film disk drive heads. The LaserMAP
software integrates video and laser technology for critical dimensional
measurement applications in the semiconductor, electronic packaging, computer
peripherals and medical device markets.
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Industrial and Scientific Technologies
Our Industrial and Scientific Technologies division sells elements of our core
technology such as micropositioning, vibration isolation and optical components,
systems, and accessories. These products are used across a wide range of
industrial markets for applications that range from basic research and
development activities to high-precision, low-volume manufacturing. In
addition, we sell systems and subsystems to third parties that will integrate
our products into larger systems, particularly for semiconductor manufacturing.
These products and technologies form the foundation of our integrated, automated
solutions that we sell in our other divisions. Our Industrial and Scientific
Technologies customers develop an appreciation for the quality of our products
that we believe makes them more likely to buy integrated, automated systems from
us as their need for production and test systems grows.
Motion Control Devices and Systems. We offer an extensive line of manually
operated and motorized positioning devices for both industrial and research
applications. These products include linear and rotational stages,
elevational devices and actuators, as well as simple and programmable
motion controllers for linear, stepping and DC motors. We also manufacture
a line of positioning sub-systems, for both industrial and research
applications. Our system integration capability allows us to satisfy a
wide variety of industrial process application needs to serve the
application-specific research, test and measurement, and inspection
markets.
Vibration Isolation Products. Laser and other high technology applications
require a virtually vibration-free environment. Our isolation systems
provide a stable working environment by greatly reducing vibrations due to
noise, ground motion and excitations caused by external forces or system-
mounted active components. Our isolation systems provide rigid surfaces
using an internally damped honeycomb structure mounted on pneumatic
supports. Our product line includes over 350 standard vibration isolation
systems and we have the capability to manufacture custom systems.
Optics. We manufacture and market a line of high-precision optics and
optomechanical components. These products include lenses, mirrors, prisms,
laser beam expanders, collimators, attenuators, variable beamsplitters and
spatial filters. We have the capability to produce custom optical designs
and coatings for specific applications.
Manual Positioning Components. We offer a comprehensive line of mechanical
components compatible with, and complementary to, our vibration isolation
systems. These mechanical components include products such as mirror
mounts, holders, positioners, and other accessories which are essential
elements for prototype laser and optical systems.
Subassemblies. We manufacture subassemblies that consist of a combination
of our standard products drawn from our components, optics, motion control
and vibration control product lines and custom products. We combine these
items with additional engineering to create more highly integrated
solutions to meet customer needs or for integration into our OEM customers'
products. This product line offers a strategic competitive advantage
allowing us to differentiate ourselves from competitors who only offer a
limited product selection.
Sales and Marketing
We sell our products to thousands of companies and institutions throughout the
world by means of our technically trained marketing staff, our worldwide network
of subsidiary sales offices and sales representatives, and our technical
catalogs.
We market our components and systems through our internal sales and marketing
staff, our internal field sales organization and our international network of
distributors and sales representatives. As of December 31, 1999, we had 25
company-employed field sales persons and 40 independent representatives and
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distributors located in the United States. In our international markets, we
have 25 field sales personnel based in France, Germany, the United Kingdom,
Switzerland, Italy, the Netherlands, Canada and Taiwan, together with 35
independent representatives and distributors located in countries where we do
not have a direct presence. Our customers often have unique technical
specifications and manufacturing processes, and may require specific system,
subsystem or component designs. This requires close cooperation between our
sales representatives and distributors and our engineering staff, and results in
long sales cycles for our products, up to 12 months.
We have written agreements with each of our representatives and distributors.
In some cases we have granted representatives and distributors exclusive
authorization to sell certain of our products to a specific geographic area.
These agreements generally have terms of one year and are renewable on an annual
basis. Either party can terminate the agreement without cause by 90 days
written notice to the other party or immediately by written notice to the other
party, upon the occurrence of certain specified events. These agreements are
generally not assignable without our prior approval. Most agreements are
structured to provide distributors with sales discounts off of our domestic list
price. Representatives are generally paid commissions for sales of our
products. No single independent representative or distributor accounted for
more than 4% of our revenues in 1999 and all independent representatives and
distributors combined accounted for less than 10% of our revenues in 1999.
In addition to our sales representatives and distributors, we also market our
standard products through our product catalogs and our website. Our principal
marketing tool for the scientific market is our comprehensive set of product
catalogs. These documents, numbering approximately 1100 pages in total, provide
detailed product information as well as extensive technical and applications
data. We publish these catalogs in English, French, German and Japanese and
mail them annually to more than 100,000 potential customers. Our site on the
World Wide Web (http://www.newport.com) addresses the large and rapidly growing
Internet-savvy portion of our customer base. As the World Wide Web continues to
gain acceptance within our core markets, this tool will provide us and our
customers with even greater advantages. Our Web site provides our customers
with access to our latest products, a literature and information request form,
technical/tutorial and application related material, market surveys, sales
information (including our catalogs), the ability to purchase a majority of our
standard products and comprehensive company and financial overviews.
Research and Product Development
We continually seek to improve our technological position through internal
research and product development and licensing and acquisitions of complementary
technologies. We currently have 149 employees engaged in research and
development. We continually work to enhance our existing products and to
develop and introduce innovative new products to satisfy the needs of our
customers. In addition, we regularly investigate new ways to combine components
manufactured by our various divisions to produce innovative technological
solutions for the markets we serve. Our research and development expenses were
$13.3 million, or 9.4% of net sales, in 1999 and $11.7 million, or 8.7% of net
sales, in 1998. We are committed to continued product development and expect
that R&D expenditures will increase in absolute dollars in future periods.
Our research and development efforts may not be successful, our new products may
not be developed on a timely basis or achieve customer acceptance, and our
customers' products may not achieve market acceptance. Failure to develop, or
introduce on a timely basis, new products or product enhancements that achieve
market acceptance could materially adversely affect our business, operating
results or financial condition.
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Competition
The markets for our products are intensely competitive and characterized by
rapidly changing technology. We believe that the primary competitive factors in
our markets are:
. product features and performance;
. quality and reliability;
. customer relationships;
. ability to manufacture and deliver products on a timely basis;
. pricing; and
. ability to customize products to customer specifications.
We believe that we currently compete effectively with respect to each of these
factors. However, we may not be able to compete successfully in the future
against existing or new competitors.
We compete in our various markets against a number of companies, many of which
have longer operating histories, greater name recognition and significantly
greater technical, financial, manufacturing and marketing resources than we do.
In addition, some of these companies have long established relationships with
our customers and potential customers in our markets. In the fiber optic
communications market, our primary competition currently comes from certain of
our existing and potential customers, who have developed or may develop their
own manufacturing and test equipment. In the video metrology market, our
primary competitors are currently Optical Gauging Products, Mitutoyo, View
Engineering and Deltronic.
In addition to our current competitors, we believe that new competitors, some of
which may have substantially greater financial, technical and marketing
resources than us, will seek to provide products to one or more of our markets
in the future. Such future competition could harm our business.
Intellectual Property and Proprietary Rights
We have a number of patents, trademarks, exclusive marketing rights and
licenses. We believe that our business relies primarily on our product
performance, experience and marketing skill, and is not dependent upon patent
rights. Although we continue to implement protective measures, including
requiring all of our employees and certain key suppliers and consultants to sign
nondisclosure agreements, and we intend to defend our proprietary rights,
policing unauthorized use of our technology or products is difficult and these
measures may not be successful. In addition, infringement, invalidity, right to
use or ownership claims by third parties may be asserted against us in the
future, which claims could materially harm our business, operating results or
financial condition, regardless of the outcome.
Manufacturing
We assemble, test and package our components and systems at our domestic
manufacturing facilities located in Irvine, Garden Grove and San Luis Obispo,
California, Longmont, Colorado and Plymouth, Minnesota. Our international
manufacturing facilities are located in France. A portion of our research and
development facilities, our corporate headquarters and other critical business
operations are located near major earthquake faults. Operating results could be
materially affected in the event of an earthquake or other natural disasters.
Our manufacturing processes are diverse and consist of: purchasing raw
materials, principally stainless steel, aluminum and glass; processing the raw
materials into components, subassemblies and finished products; purchasing
components, assembling and testing components and subassemblies; and, for our
larger products, assembling the subassemblies and components into integrated
systems. We seek to design and manufacture components internally for our
integrated systems, although on a limited basis we purchase
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completed products from certain suppliers and resell those products through our
distribution system. Most of these completed products are produced to our
specifications and carry our logo.
We currently procure various components from single-sources due to unique
component designs as well as certain quality and performance requirements. If
single-sourced components were to become unavailable or were to become
unavailable on terms satisfactory to us, we would be required to purchase
comparable components from other sources. If for any reason we could not obtain
comparable replacement components from other sources in a timely manner, our
business, results of operations or financial condition could be adversely
affected.
Employees
As of December 31, 1999, we had 903 employees worldwide. None of our employees
are represented by a union. We believe that our relationship with our employees
is good.
Backlog
The consolidated backlog of all our products totaled $31.7 million, $22.5
million and $22.6 million at December 31, 1999, 1998 and 1997, respectively. We
manufacture a significant portion of our products for inventory to provide the
capability to make shipments upon receipt of an order. The remainder of our
products are made to order with typical lead times of three to twelve weeks.
Because of these short response times and because orders are generally
cancelable with little or no penalty, we do not believe that our backlog of
orders at any particular date is a meaningful indicator of our sales for any
succeeding period.
As a result of manufacturing products in advance of receiving orders, we may at
any given time have excess levels of inventory. Such excess levels of
inventories increase our expenses and the amount of our resources invested in
working capital. In addition, as our markets are characterized by rapid
technological change, excess inventory levels increase the risk of product
obsolescence.
Investments
Apart from the ownership of subsidiaries detailed in Exhibit 21 of this Form 10-
K, we have minority ownership interests in several domestic companies involved
in manufacturing laser-related and other high technology products.
ITEM 2 Properties
Our headquarters and principal California manufacturing operations are located
in Irvine, California. We lease this facility under a fifteen-year lease
expiring in March 2007. In addition, we have manufacturing operations in owned
facilities at Beaune and La Boulonnie, France and in leased facilities at Garden
Grove, California, San Luis Obispo, California, Longmont, Colorado and Plymouth,
Minnesota. We lease office space in Santa Clara, California for our Western
Region sales, service and application center. We own a sales and administration
office in Evry, France and lease sales and service offices in Germany, England,
Switzerland, Italy, the Netherlands, Canada and Taiwan, with leases expiring at
various dates through 2011. Our centralized European distribution center,
formerly located at leased facilities in the Netherlands, was relocated to our
facility in Beaune, France during the second quarter of 1999. We believe that
these facilities are adequate for our current needs and that suitable additional
or substitute space will be available in the future to accommodate expansion of
our operations. In 1991, we acquired, 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 we relocated our Garden City, New York manufacturing operations
to Irvine, California and leased the New York property. In 1998, we sold this
property for approximately $2.0 million.
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ITEM 3 Legal Proceedings
In August 1999 Newport Electronics, a manufacturer of electronic devices, filed
suit against us in Federal District Court in Connecticut, claiming that our use
of the "Newport" trademark infringes their rights with respect to such mark. We
have filed a counterclaim, and have filed an opposition to their trademark
before the Trademark Trial and Appeal Board. We intend to vigorously defend
this litigation, however, due to the fact that discovery has not yet occurred,
we are unable to predict the outcome of the cases. These cases, if adversely
determined, could have certain adverse effects on our business, including
potential monetary damages and being enjoined from using the "Newport" mark in
conjunction with certain classes of products.
Other than the foregoing, we are not a party to any material litigation.
ITEM 4 Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1999.
PART II
ITEM 5 Market For the Registrant's Common Equity and Related Security Holder
Matters
Price Range of Common Stock
Our common stock is traded on the NASDAQ National Market under NASDAQ symbol
NEWP. As of December 31, 1999, we had 1,408 common stockholders of record.
Refer to Note 15, Supplementary Quarterly Consolidated Financial Data
(Unaudited), of Notes to Consolidated Financial Statements on page 44 for
quarterly share price and dividend payments.
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ITEM 6 Selected Financial Data
The following table presents selected financial data of the Company and its
subsidiaries as of and for the years ended December 31, 1999, 1998, 1997, 1996,
and 1995, restated to include financial information of ROI and LCI which were
accounted for as poolings of interests
(In thousands, except percent, per share and worldwide employment):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FOR THE YEAR:
Net sales $141,945 $134,359 $132,594 $119,910 $101,961
Cost of sales 80,194 75,491 74,844 67,103 55,421
-------- -------- -------- -------- --------
Gross profit 61,751 58,868 57,750 52,807 46,540
Selling, general and administrative 35,593 33,017 35,825 36,741 34,441
Research and development 13,300 11,738 9,490 8,204 6,765
-------- -------- -------- -------- --------
Income from operations 12,858 14,113 12,435 7,862 5,334
Interest expense (1,785) (1,891) (1,992) (1,931) (1,593)
Other income (expense), net 166 121 (349) 477 1,137
-------- -------- -------- -------- --------
Income before income taxes 11,239 12,343 10,094 6,408 4,878
Income tax provision 2,956 3,365 3,030 1,705 1,003
-------- -------- -------- -------- --------
Net income $ 8,283 $ 8,978 $ 7,064 $ 4,703 $ 3,875
======== ======== ======== ======== ========
Percent of net sales:
Gross profit 43.5% 43.8% 43.6% 44.0% 45.6%
Selling, general and administrative 25.1 24.6 27.0 30.6 33.8
Research and development 9.4 8.7 7.2 6.9 6.6
Income from operations 9.1 10.5 9.4 6.5 5.2
Net income 5.8 6.7 5.3 3.9 3.8
PER SHARE: (1)
Net income
Basic $ 0.91 $ 1.00 $ 0.80 $ 0.54 $ 0.47
Diluted 0.88 0.96 0.77 0.52 0.45
Dividends paid 0.04 0.04 0.04 0.04 0.04
Equity (diluted) 8.16 7.56 6.61 6.39 6.18
AT YEAR END:
Cash and marketable securities $ 2,721 $ 5,335 $ 7,456 $ 3,375 $ 1,524
Customer receivables, net 32,239 25,798 23,372 23,418 19,767
Inventories 36,386 31,260 28,326 28,954 22,744
Other current assets 5,794 6,713 7,850 6,782 4,868
-------- -------- -------- -------- --------
Current assets 77,140 69,106 67,004 62,529 48,903
Investments and other assets 8,461 6,451 5,830 5,191 4,557
Property, plant and equipment 25,738 22,696 22,994 24,045 22,327
Goodwill, net 10,914 12,220 10,133 11,612 8,161
-------- -------- -------- -------- --------
Total assets $122,253 $110,473 $105,961 $103,377 $ 83,948
======== ======== ======== ======== ========
Current liabilities $ 30,968 $ 20,608 $ 22,689 $ 20,787 $ 20,330
Long-term debt 12,715 17,536 21,027 23,464 9,899
Other liabilities 1,407 1,359 1,587 1,697 1,032
Stockholders' equity 77,163 70,970 60,658 57,429 52,687
-------- -------- -------- -------- --------
Total liabilities and equity $122,253 $110,473 $105,961 $103,377 $ 83,948
======== ======== ======== ======== ========
MISCELLANEOUS STATISTICS
Working capital $ 46,172 $ 48,498 $ 44,315 $ 41,742 $ 28,573
Common shares outstanding 9,232 9,119 8,951 8,890 8,699
Annual average worldwide employment 827 803 766 728 640
Sales per employee $ 172 $ 167 $ 173 $ 165 $ 159
</TABLE>
(1) Net income and equity per share (diluted) for all periods prior to 1997
have been restated as necessary to conform with the requirements of Statement of
Financial Accounting Standards No. 128, Earnings Per Share.
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ITEM 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Item contains forward-looking statements that involve risks and
uncertainties and our actual results could differ materially from those
anticipated in such statements, as a result of various factors including those
described below in "Risks Relating To Our Business."
OVERVIEW
The following is a discussion and analysis of certain significant factors that
have affected our results of operations and financial condition during the
period included in the accompanying financial statements. This discussion
should be read in conjunction with the financial statements and associated
notes.
In October 1998, we acquired Environmental Optical Sensors, Inc ("EOSI"), a
provider of high precision assembly and test equipment for the fiber optic
communications market. In October 1999, we acquired the west coast commercial
optics operation of Corning OCA Corporation, a subsidiary of Corning
Incorporated (renamed Newport Precision Optics Corporation or "NPOC"), which
manufactures specialized precision optical products and systems. These
acquisitions were accounted for using the purchase method, as described more
fully in Note 2 to the consolidated financial statements on page 34 of this Form
10-K. This discussion includes the effect of our acquisitions of EOSI for 1999
and 1998, and the effect of our acquisition of NPOC for 1999.
Amounts in 1999 include net sales of $2.5 million representing one extra month
of sales from our European operations. The additional net sales stem from a
reporting change in the second quarter of 1999 that eliminated a one-month lag
in the reporting of European results. Without the change, 1999 net sales would
have been $139.4 million, while net income would not have been materially
different. Earnings per share were not impacted by the change.
RESULTS OF OPERATIONS
Financial Analysis The following table sets forth, for the periods indicated,
certain income and expense items expressed as a percent of our net sales and as
period-to-period percent increases or decreases:
<TABLE>
<CAPTION>
Period-to-Period
Percent of Net Sales Increase (Decrease)
-------------------- -------------------
1999 1998 1997 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 5.6% 1.3%
Cost of sales 56.5 56.2 56.4 6.2 0.9
----- ----- -----
Gross profit 43.5 43.8 43.6 4.9 1.9
Selling, general and
administrative expense 25.1 24.6 27.0 7.8 (7.8)
Research and
development expense 9.4 8.7 7.2 13.3 23.7
----- ----- -----
Income from operations 9.1 10.5 9.4 (8.9) 13.5
Interest expense (1.3) (1.4) (1.5) (5.6) (5.1)
Other income (expense), net 0.1 0.1 (0.3) 37.2 134.7
----- ----- -----
Income before income taxes 7.9 9.2 7.6 (8.9) 22.3
Income tax provision 2.1 2.5 2.3 (12.2) 11.1
----- ----- -----
Net income 5.8 6.7 5.3 (7.7) 27.1
===== ===== =====
</TABLE>
Net Sales For 1999, 1998 and 1997, our net sales totaled $141.9 million, $134.4
million and $132.6 million, respectively. Net sales for 1999 increased $7.5
million, or 5.6%, as compared with 1998, due
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primarily to sales increases in the fiber optic communications and semiconductor
markets, offset partially by decreases in sales to the computer peripherals and
aerospace and research markets. Net sales for 1998 increased $1.8 million, or
1.3%, as compared with 1997, due primarily to sales increases in the fiber optic
communications and research markets, offset in part by sales declines in the
semiconductor and computer peripherals markets.
Our sales to the fiber optic communications market segment in 1999 were $34.3
million, an increase of $13.3 million, or 63.0%, as compared with 1998. Our
sales to the industrial metrology market in 1999 were $67.4 million, an increase
of $1.1 million, or 1.8%, as compared with the prior year. Our 1999 sales to the
aerospace and research market were $40.2 million, a decrease of $6.9 million, or
14.6%, as compared with 1998. In 1998, our sales to the fiber optic
communications market were $21.0 million, an increase of $7.2 million, or 52.3%,
over 1997. Our 1998 sales to the industrial metrology market segment were $66.3
million, a decrease of $5.8 million, or 8.2%, versus 1997. Our 1998 sales to the
aerospace and research market were $47.1 million, an increase of $0.4 million,
or 1.0%, over 1997.
For 1999, 1998 and 1997, domestic sales were $90.2 million, $87.6 million and
$85.7 million, respectively. Domestic sales in 1999 increased $2.6 million, or
3.0%, versus 1998, due primarily to sales increases in the fiber optic
communications and semiconductor markets of $10.5 million, or 89.6%, and $1.5
million, or 16.4%, respectively, offset partially by a decrease of $4.6 million,
or 35.6%, in sales to the computer peripherals market and a decrease of $4.5
million, or 16.4%, in sales to the aerospace and research market. Domestic sales
in 1998 increased $1.9 million, or 2.1%, as compared with 1997, due principally
to sales increases of $5.4 million, or 86.0%, and $2.1 million, or 8.4%, to the
fiber optic communications and aerospace and research markets, respectively,
offset partially by sales declines in the semiconductor and computer peripherals
markets of $3.6 million, or 27.8%, and $2.1 million, or 13.9%, respectively. The
domestic semiconductor and computer peripherals markets were negatively impacted
by the economic situation in Asia and overcapacity throughout much of 1998, both
of which resulted in lower demand for the capital equipment we supply to these
markets.
International sales totaled $51.7 million, $46.8 million and $46.9 million for
1999, 1998 and 1997, respectively. For 1999, international sales increased $4.9
million, or 10.7%, versus 1998. International sales in 1999 included net sales
of $2.5 million representing one extra month of sales from our European
operations, due to a reporting change in the second quarter of 1999 that
eliminated a one-month lag in the reporting of European results. Without such
change, 1999 international sales would have been $49.2 million. The increase in
international sales in 1999 as compared with 1998 was due primarily to an
increase of $2.8 million, or 29.9%, in sales to international fiber optic
communications customers, an increase of $4.3 million, or 31.9%, in sales of
metrology products to international life and health science OEM customers, and
an increase in international sales to the semiconductor market of $0.3 million,
or 12.2%, offset in part by a decline in sales to international aerospace and
research customers of $2.4 million, or 12.1%. Geographically, European, Canadian
and Pacific Rim sales in 1999 increased $2.2 million, or 7.1%, $2.5 million, or
65.3%, and $1.5 million, or 16.2%, respectively, over 1998, while sales to Latin
American customers decreased $1.2 million, or 53.1%. International sales in 1998
decreased $0.1 million versus 1997. Sales in 1998 to European markets,
reflecting our efforts to expand commercial market penetration, grew $2.7
million, or 10%, over 1997, with sales in France, Germany, the Netherlands, the
United Kingdom and Switzerland accounting for most of the increase. Negative
foreign exchange rate effects on European sales in 1998 totaled $0.7 million.
Sales to Asian markets in 1998 declined $5.5 million, or 37%, as compared with
1997, with Hong Kong, Korea, Taiwan and the ASEAN countries accounting for most
of the decrease and sales into Japan increasing $0.7 million. Sales into Canada
and Latin America grew $2.7 million, or 82%, over 1997. Canada and Latin America
sales were also negatively impacted by a foreign exchange rate effect, which
totaled $0.2 million.
Gross Margin Gross margin was 43.5%, 43.8% and 43.6% for 1999, 1998 and 1997,
respectively. Our gross margin remained essentially unchanged for all three
years. A mix shift in sales towards our photonics product lines, which generally
have higher margins, have been offset primarily by higher growth rates in sales
to OEM customers, which generally have lower margins, and lower sales and
marketing
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expenses. We anticipate that these offsetting trends are likely to continue in
future periods.
Selling, General and Administrative (SG&A) Expense SG&A expenses totaled $35.6
million, $33.0 million and $35.8 million for 1999, 1998 and 1997, respectively,
representing 25.1%, 24.6% and 27.0% of net sales in the respective years. Our
SG&A expenses in 1999 increased $2.6 million, or 7.8%, versus 1998, due in part
to the inclusion of an additional month of expenses from the change in European
reporting, which added $0.9 million of expenses to 1999, and to the inclusion of
EOSI for a full year in 1999 and the acquisition of NPOC, which collectively
added $0.6 million of expenses in 1999 for which there were no comparable
expenses in 1998. Finally, higher international trade show activity and
increased sales commissions also contributed to the increase in expenses versus
1998. SG&A expenses in 1998 decreased by $2.8 million, or 7.8% versus 1997, due
primarily to decreased costs for incentive compensation programs, lower
advertising expenses, reduced sales and marketing expenses in Europe that
resulted from changes made in 1997 to the European sales organization and to a
favorable exchange rate effect in Europe of $0.3 million.
Research and Development (R&D) Expense R&D expenses totaled $13.3 million,
$11.7 million and $9.5 million for 1999, 1998 and 1997, respectively. R&D
expenses represented 9.4%, 8.7% and 7.2% of net sales in 1999, 1998 and 1997,
respectively. Our R&D expenses in 1999 increased $1.6 million, or 13.3%, and our
R&D expenses in 1998 increased $2.2 million, or 23.7%, as compared with 1997.
The increases in both years were attributable primarily to increased personnel
costs related to the development of a number of new products and product
enhancements including extending the range of our automated packaging and test
equipment product lines for the fiber optic communications market, technology
enhancements to the LaserWeld and AutoAlign packaging workstation, development
of laser diode burn-in and characterization systems and new products and
software for our Video Metrology Division. We are committed to continued product
development and expect that R&D expenditures will increase in absolute dollars
in future periods.
Interest Expense Our interest expense totaled $1.8 million, $1.9 million and
$2.0 million for 1999, 1998 and 1997, respectively. Although a majority of our
debt is at fixed interest rates, we anticipate that interest expense for 2000
will decrease slightly from 1999 because our long term debt will be reduced by
principal payments of $1.5 million in the second quarter and $2.5 million in the
fourth quarter.
Taxes Based On Income The effective tax rates for 1999, 1998 and 1997 were
26.3%, 27.3% and 30.0%, respectively. The decrease in the effective tax rate for
1999 compared with 1998 and 1998 compared with 1997 was primarily the result of
improved profitability at our European operations resulting in the increased
utilization of foreign tax loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by our operating activities in 1999 of $3.7 million was
primarily attributable to our operating income plus non-cash items, principally
depreciation and amortization, offset in part by changes in operating assets and
liabilities. Our customer receivables increased by $6.4 million, or 25.0%, in
1999, while our sales grew by 5.6% during the same period. Substantially all of
this sales growth occurred in the fourth quarter of 1999, thus resulting in a
disproportionate increase in customer receivables relative to sales. Our
inventories increased 16.4% in 1999 over 1998 levels, due primarily to
production planning associated with our goal of maintaining competitive
manufacturing lead times, maintaining higher levels of certain inventory items
in conjunction with our Year 2000 preparation, and to the inclusion of inventory
from NPOC in 1999 for which there was no comparable inventory in 1998. We
believe that we must maintain certain levels of inventory in order to ensure
that the lead times to our customers remain competitive. Our accounts payable
increased $0.6 million, or 10.3%, in 1999 compared with 1998, primarily as a
result of higher inventory levels.
Net cash used in investing activities in 1999 of $13.4 million was attributable
principally to our purchases of property, plant and equipment ($4.8 million),
costs associated with our acquisitions of businesses ($6.6
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million), payments for an equity investment ($1.1 million) and capitalization of
software development costs ($2.3 million), partially offset by the net proceeds
on the sale of an equity investment and other property ($1.3 million).
Net cash provided by financing activities in 1999 of $6.9 million was
attributable principally to an increase in the utilization of our line of credit
and the issuance of common stock in connection with stock option and purchase
plans. This increase was offset in part by a decrease in long-term borrowings
and the repurchase of stock under our share repurchase program. During 1999, we
repurchased 111,000 shares under our share repurchase program for an aggregate
purchase price of $1.6 million.
At December 31, 1999, we had in place a $15.0 million unsecured line of credit
expiring October 29, 2002 and a $10.0 million unsecured line of credit expiring
October 27, 2000. Both lines bear interest at either the prevailing prime rate,
or the prevailing London Interbank Offered Rate plus 1.0%, at our option, plus
an unused line fee of 0.2% per year. At December 31, 1999, there was $10.0
million outstanding under the $15.0 million line of credit, with $14.4 million
available under the combined lines, after considering outstanding letters of
credit.
We believe our current working capital position together with estimated cash
flows from operations and existing credit availability are adequate to fund
operations in the ordinary course of business, anticipated capital expenditures,
debt payment requirements, and continuation of the share repurchase program over
at least the next year. However, this belief is based upon many assumptions and
is subject to numerous risks (see "Risks Relating To Our Business," below), and
there can be no assurance that we will not require additional funding in the
future.
Although we have no present agreements or commitments with respect to any
material acquisitions of other businesses, products, product rights or
technologies, we continue to evaluate acquisitions of products, technologies or
companies that complement our business and may make such acquisitions in the
future. Accordingly, there can be no assurance that we will not need to obtain
additional sources of capital to finance any such acquisitions.
Impact of Year 2000
In prior years, we have discussed the nature and progress of our plans to become
Year 2000 ready. In late 1999, we completed our remediation and testing of
systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believe that those systems
successfully responded to the Year 2000 date change. Our remediation efforts
consisted primarily of upgrading the hardware and software of our primary
enterprise systems and were accomplished as part of the normal course of
upgrading our systems to support current and anticipated growth. Accordingly,
the $1.5 million cost of acquiring the upgraded computer hardware and software
has been capitalized. We are not aware of any material problems resulting from
Year 2000 issues, either with our products, our internal systems, or the
products and services of third parties. We will continue to monitor our mission
critical computer applications and those of our suppliers and vendors throughout
the year 2000 to ensure that any residual Year 2000 matters that may arise are
addressed promptly.
European Economic and Monetary Union (EMU) - New European Currency
On January 1, 1999, member countries of the European Economic and Monetary Union
established fixed conversion rates between their existing national currencies
and one common currency - the euro. The euro
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trades on currency exchanges and, during a three-year dual-currency transition
period, either the euro or the national currencies may be used in business
transactions. Beginning in January 2002, new euro-denominated bills and coins
will be issued, and the national currencies will be withdrawn from circulation.
Our operating subsidiaries affected by the euro conversion have implemented and
are implementing plans to address the systems and business issues raised by the
euro currency conversion. These issues include, among others, (1) the need to
adapt computer and other business systems and equipment to accommodate euro-
denominated transactions; and (2) the competitive impact of cross-border price
transparency, which may make it more difficult for businesses to charge
different prices for the same products on a country-by-country basis,
particularly once the euro currency is issued in 2002. While we anticipate that
the euro conversion will not have a material adverse impact on our financial
condition or results of operations, there can be no assurance that our key
vendors, customers and distributors will not be affected by such euro currency
issues, which could have an adverse effect on our business, operating results
and financial condition. Further, there can be no assurance that the currency
market volatility will not increase, which could have an adverse effect on our
euro exposures.
Pending Adoption of Statement of Financial Accounting Standards No. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133). SFAS No. 133 establishes new standards
for recording derivatives in interim and annual financial reports requiring that
all derivative instruments be recorded as assets or liabilities, measured at
fair value. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000, and therefore we will adopt the new requirements effective with the filing
of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001. We do
not anticipate that the adoption of SFAS No. 133 will have a significant impact
on our results of operations, financial position or cash flow.
RISKS RELATING TO OUR BUSINESS
Our markets and industry are subject to rapid technological change, and if we do
not introduce new innovative products nor improve our existing products, our
business and results of operations will be negatively affected.
Our markets are characterized by rapid technological advances, evolving industry
standards, shifting customer needs, and new product introductions and
enhancements. Products in our markets often become outdated quickly and without
warning. We depend to a significant extent upon our ability to enhance and
improve our existing products, to meet the demands of the marketplace for new
and improved technology, and be price competitive. We may not be successful in
selecting, developing, manufacturing or marketing new products on a timely or
cost-effective basis. If we fail to adequately achieve any one of these
objectives, our business and results of operations would be harmed.
We face significant and unpredictable risks from doing business in foreign
countries.
Our business is subject to risks inherent in conducting business
internationally. In 1999, 1998 and 1997, our international revenues accounted
for approximately 36.5%, 34.8% and 35.3%, respectively, of our total net sales,
with a substantial portion of this in Europe. We expect that international
revenues will continue to account for a significant percentage of our total net
sales for the foreseeable future. A significant portion of our operations are
located in Europe. As a result of our international sales and presence, we face
various risks, which include:
. changes in the political or economic conditions in a country or region where
we manufacture or sell our products;
. currency fluctuations;
. a greater difficulty of administering our business globally;
. difficulties in staffing and managing each of our individual foreign
operations;
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<PAGE>
. compliance with multiple and potentially conflicting regulatory requirements
such as export requirements, tariffs, and other barriers;
. longer accounts receivable cycles;
. overlapping or differing tax structures;
. differing protection of intellectual property; and
. trade restrictions and licensing requirements.
As a result of our international sales and operations, our exposure to
fluctuations in foreign exchange rates is particularly acute and could affect
the sales price in local currencies of our products in foreign markets. In
addition, exchange rate fluctuations could increase the costs and expenses of
our foreign operations or require us to modify our current business practices.
Significant negative changes in exchange rates could significantly harm our
results of operations.
Our quarterly operating results are difficult to predict, and if we fail to meet
the expectations of investors or securities analysts, the market price of our
common stock would likely decline significantly.
Our operating results in any given quarter have fluctuated and will likely
continue to fluctuate. The fluctuations are typically unpredictable, and are
the result of numerous factors including:
. the timing of customer orders within a given quarter;
. fluctuations in economic conditions in the markets for our products;
. our timing in introducing new products;
. the demand for our products and the products sold by our customers;
. changes in our pricing policies, or in the pricing policies of our
competitors or suppliers;
. market acceptance of any new or enhanced versions of our products;
. the mix of products we sell in each of the markets in which we do business;
. the availability and cost of key components we require to manufacture and
distribute our products;
. fluctuations in foreign currency exchange rates;
. the timing of our competitors in introducing new products;
. levels of expenses; and
. our manufacturing capacity.
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In addition, we may in the future choose to reduce prices, increase spending, or
add or eliminate products in response to actions by our competitors or as an
effort to pursue new market opportunities. This may also adversely affect our
operating results and may cause our quarterly results to be lower than the
results of previous quarters. We believe that quarter-to-quarter comparisons of
results from operations, or any other similar period-to-period comparisons, are
not meaningful and should not be construed as reliable indicators of our future
performance. Given all of the factors that can affect quarterly revenue
results, our results may be below the expectations of market analysts and
investors in any given future quarter, which would likely cause the trading
price of our common stock to drop.
Cyclical declines in the markets for our products could negatively affect our
business.
We do business in several cyclical industries and we are susceptible to any
downturns in each. In particular, the semiconductor industry, where we do a
substantial amount of our business, is particularly prone to abrupt downward
turns, as was the case in 1998 and 1999. When the business cycle of one of
these industries is in decline, the businesses of companies that supply products
to that particular industry, such as our company, also generally experience a
downturn since the demand for capital equipment to manufacture the products of
that industry is also generally reduced. Other industries in which we do
business can be seasonal in the demand for products. If one or more of the
industries in which we operate experiences a downturn, our business and results
of operations could be significantly harmed.
We are highly dependent on the growth of the fiber optic communications industry
and on our customers who serve this industry.
A substantial portion of our current and future business comes from sales to
companies that manufacture components for fiber optic communications systems.
The fiber optics communications market is characterized by rapid technological
change, frequent product introductions, changing customer requirements and
evolving industry standards. Because our customers face uncertainties with
regard to the growth and requirements of this market, their products and
components may not achieve or continue to achieve anticipated levels of market
acceptance. If our customers are unable to deliver products that gain market
acceptance with fiber optic systems vendors, it is likely that such customers
will not purchase our products or will purchase smaller quantities of our
products. We often invest substantial resources in helping our customers
develop products and manufacturing processes in advance of significant sales of
our products to such customers. A failure on the part of our customers'
products to gain market acceptance, or a failure of the fiber optic
communications market as a whole to grow, would have a significant negative
effect on our business and results of operations.
We offer products for multiple industries and must face the challenges of
supporting the distinct needs of each of our markets.
We market products for the fiber optic component, semiconductor capital
equipment, industrial metrology, aerospace and research markets. Because we
operate in multiple markets, we must work constantly to understand the product
needs, required standards and technical challenges of several different
industries and must devote significant resources to developing different
products for these industries. Product development is costly and time
consuming, and if our product offerings in any particular market are not
competitive, our business and results of operations would be harmed.
Furthermore, our decision to continue to offer products for a given market or to
enter new markets is based in part on our judgment of the size, growth rate and
other factors that determine the attractiveness of a particular market. If our
analyses of a market are incorrect, our business and results of operations would
be harmed. Many of our products are used by our customers to develop,
manufacture and test their own products. As a result, we must anticipate trends
in our customers' industries and develop products before our customers' products
are commercialized. If we do not accurately predict our customers' needs and
future activities, we may invest substantial resources in developing products
that do not achieve broad market acceptance, which would have a negative effect
on our business and results of operations.
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If we are unable to attract, retain and motivate our employees, our business and
results of operations will suffer.
Our ability to maintain and grow our business is directly related to the service
of our employees in each area of our operations. Our future performance will be
directly tied to our ability to hire, train, motivate and retain qualified
personnel. Competition for personnel in the technology marketplace is intense,
particularly for employees with expertise in fiber optics. If we are unable to
hire sufficient numbers of employees with the experience and skills we need, our
business and results of operations would be harmed.
Any decline in our customers' research budgets will negatively impact our
operating results.
A significant amount of our revenues are derived from selling our products to
research institutions in the United States and various foreign countries. We
anticipate that sales to such institutions will continue to account for a
significant portion of our revenues in the foreseeable future. Thus, our future
performance is directly dependent in part upon the capital expenditure budgets
of our research institution customers and the continued demand by such customers
for our products. Domestic and foreign research institutions could experience
constraints on their capital expenditure budgets due to factors such as reduced
governmental funding of research activities, changes in research focus and
reduced defense spending. Our operating results may be subject to fluctuations
as a consequence of funding constraints. If funding constraints are imposed and
if they persist for an extended period of time, our business and results of
operations would be harmed.
We face substantial competition and if we fail to compete effectively, our
operating results will suffer.
The markets for our products are intensely competitive, and we believe that
competition from both new and existing competitors will increase in the future.
We compete in several specialized market segments, against a limited number of
companies. We also face competition in some of our markets from our existing
and potential customers who have developed or may develop solutions on their
own. Many of our existing and potential competitors are more established, enjoy
higher name recognition and possess greater financial, technological and
marketing resources. Other competitors are relatively small and highly
specialized firms, which enjoy the ability to focus on only one aspect of a
market. We compete on the basis of product features, quality, reliability and
price and on our ability to manufacture and deliver our products on a timely
basis. We may not be able to compete successfully in the future against
existing or new competitors. In addition, competitive pressures may force us to
reduce our prices, which could negatively affect our operating results. If we
do not respond adequately to competitive challenges, our business and results of
operations would be harmed.
We may acquire additional businesses, products or technologies, which could
negatively affect our business.
We have historically achieved growth through a combination of internally
developed new products and acquisitions. As part of our strategy to sustain
growth, we expect to continue to pursue acquisitions of other companies,
technologies and complementary product lines. Any acquisition would involve
risks, including:
. our ability to manufacture and sell the products of the businesses acquired;
. a decline in demand by our customers for these acquired products;
. our ability to integrate the acquired business' operations, products and
personnel;
. our ability to retain key personnel of the acquired businesses;
. our ability to expand our financial and management controls and reporting
systems and
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procedures to incorporate the acquired businesses;
. diversion of management's time and attention;
. customer dissatisfaction or performance problems with the products or
services of an acquired firm; and
. assumption of unknown liabilities, or other unanticipated events or
circumstances.
Any of these risks could materially harm our business, financial condition and
results of operations. We cannot assure you that any business that we may
acquire will achieve anticipated revenues and operating results, which could
decrease the value of the acquisition to us.
We rely on several sole-source and limited source suppliers.
We obtain some of the materials used to build our systems and subsystems, such
as the sheet steel used in some of our vibration isolation tables, from single
or limited sources due to unique component designs as well as specialized
quality and performance requirements needed to manufacture our products. If our
components are unavailable in adequate numbers or are unavailable on
satisfactory terms, we may be required to purchase them from alternative
sources, if available, which could increase our costs and cause delays in the
production and distribution of our products. If we do not obtain comparable
replacement components from other sources in a timely manner, our business and
results of operations will be harmed. Many of our suppliers require long lead-
times to deliver the quantities of components that we need. If we fail to
accurately forecast our needs, or if we fail to obtain sufficient quantities of
components that we use to manufacture our products, then delays or reductions in
production and shipment could occur, which would harm our results of operations.
If any third parties claim that we infringe upon their intellectual property
rights, we could face substantial licensing or litigation costs, or could be
forced to stop selling some of our products.
Our products are complex and include substantial technology. It is possible
that technology incorporated in our products, or the trademarks under which they
are marketed, may infringe the intellectual property rights of others. Third
parties who believe that our products or trademarks infringe upon their
intellectual property may assert such rights, which could result in litigation.
For example, we are currently engaged in litigation with a third party that
claims that our use of the "Newport" mark infringes their rights. Any
litigation over intellectual property rights, whether with or without merit,
would be time consuming, expensive and distracting to our management.
Litigation could also subject us to extensive liabilities, including monetary
damages and injunctions preventing us from selling certain of our products or
from using one or more of our trademarks. Moreover, we could be forced to enter
into licensing agreements or sell the rights to our products or technology on
unfavorable terms, in order to avoid claims of infringement. Unfavorable
outcomes regarding claims of infringement of the intellectual property rights of
third parties could harm our business.
We must protect and enforce our intellectual property rights to remain
competitive.
Our success depends in part on our ability to protect our intellectual property
rights such as patents, trademarks, copyrights, trade secrets, confidentiality
agreements and license agreements. If we are unsuccessful in protecting and
enforcing our intellectual property rights, our business and results of
operations could be harmed. In addition, our pending and future patent and
trademark applications may be rejected, or our competitors may contest the scope
or validity of our applications or existing rights, which could weaken our
competitive position.
Third parties may infringe our intellectual property rights or devise designs
that circumvent our intellectual property, and we may not be able to detect this
unauthorized use or effectively enforce our rights. If any
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third parties infringe our intellectual property rights, we could incur
significant costs in defending our rights. Since we do business in foreign
countries, we face the additional challenge of protecting and enforcing our
intellectual property rights worldwide. The laws of many foreign countries may
not protect our intellectual property rights as fully as those of the United
States. Unauthorized use or misappropriation of our intellectual property, and
our ability to remedy the misuse, could materially harm our business.
We are required to comply with government regulations, and we may incur
significant expenses complying with these regulations.
Many of our products are subject to government regulations on the federal, state
and local levels, as well as to the government regulations of any of the foreign
countries where we do business. In addition, our products must comply with
relevant industry standards, such as ISO 9000 and NEBS. We are required to make
substantial efforts to ensure compliance with these regulations and standards
and to remedy any deficiencies. If we fail to comply with all required
government regulations, we could incur fines or be forced to curtail segments of
our business. In addition, many of our customers operate in regulated
industries, which means that we must comply with any applicable regulations and
standards within these industries. Our failure to comply with any of the
regulations and standards will likely impair our ability to remain competitive
and could harm our business and results of operations.
We may be subject to the rules and regulations governing government contracts,
and failure to comply could result in a decline in our operating results.
We regularly enter into contracts with government agencies, or subcontracts with
government contractors, which require us to abide by the special rules and
regulations governing government contracts. We may also be required to submit
to investigations by government agencies to ensure compliance with the rules and
regulations governing government contracts or with the provisions of any such
government contracts. If any governmental agency elected to investigate or
review our practices with respect to government contracts, we would be required
to cooperate with the investigation, which would likely result in significant
distraction for management and other key employees. If we fail to abide by the
rules and regulations governing government contracts or to abide by the
provisions of any government contracts, our business and operating results could
be harmed.
Our sales cycle is long and difficult to predict, which may cause fluctuations
in our operating results.
Many of our products are complex, and customers for such products require
substantial time to make purchase decisions. These customers often perform, and
require us to perform, elaborate testing and evaluation of our products before
committing to purchasing them. Our sales cycle for such products typically
varies and is difficult to predict, but can last as long as one year. Orders
expected to be shipped in one quarter may slip to subsequent quarters, which
would cause our operating results to fluctuate from period to period, or cause
us not to meet the expectations of investors or market analysts.
If we are delayed in introducing our new products into the marketplace, or if
our new products contain defects, our operating results will suffer.
Because our products are sophisticated and complex, we may experience delays in
introducing new products or enhancements to our existing products. If we do not
introduce our new products or enhancements into the marketplace in a timely
fashion, our customers may choose to use competitors' products. Our inability
to introduce new or enhanced products in a timely manner could cause our
business and results of operations to suffer. Our products may contain defects
or undetected errors. As a result we could incur substantial expenses in fixing
any defects or undetected errors, which could result in damage to our
competitive position and harm our results of operations and business.
We may incur expenses incident to complying with environmental regulations.
Page 20
<PAGE>
There are aspects of our business that involve substances that could pose a
threat of contamination to the environment. Although we believe we have
complied with all environmental regulations and that we have implemented all
necessary safeguards, we may in the future incur expenses from environmental
remediation, or in connection with complying with current or future
environmental regulations. Environmental remediation is costly, time consuming
and could result in lengthy proceedings that could distract our management. If
we are required to remediate any environmental hazard, our business, results of
operations and financial conditions could be harmed.
Natural disasters could disrupt or shut down our operations.
Our operations are susceptible to damages from earthquakes, floods, fire, loss
of power or water supplies, or other similar contingencies. We have significant
facilities in areas with above average seismic activity. If any of our
facilities were to experience a catastrophic loss, it could disrupt our
operations, delay production, shipments and revenue, and result in large
expenses to repair or replace the facility, any of which would harm our
business.
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
The principal market risks (i.e., the risk of loss arising from adverse changes
in market rates and prices) to which we are exposed are foreign exchange rates
which may generate translation and transaction gains and losses and interest
rate risk.
Foreign Currency Risk
Operating in international markets sometimes involves exposure to volatile
movements in currency exchange rates. The economic impact of currency exchange
rate movements on our operating results is complex because such changes are
governmental actions and other factors. These changes, if material, may cause us
to adjust our financing and operating strategies. Consequently, isolating the
effect of changes in currency does not incorporate these other important
economic factors.
International operations constituted approximately 7% of our 1999 consolidated
operating profit. As currency exchange rates change, translation of the income
statements of international operations into U.S. dollars affects year-over-year
comparability of operating results. We do not generally hedge translation risks
because cash flows from international operations are generally reinvested
locally. We do not enter into hedges to minimize volatility of reported earnings
because we do not believe it is justified by the exposure or the cost.
Changes in currency exchange rates that would have the largest impact on
translating future international operating profit include the euro, British
pound, Canadian dollar and Swiss franc. We estimate that a 10% change in foreign
exchange rates would not have a material impact on our reported operating
profit. We believe that this quantitative measure has inherent limitations
because, as we discussed in the first paragraph of this section, it does not
take into account any governmental actions or changes in either customer
purchasing patterns or financing and operating strategies.
Transaction gains and losses arise from monetary assets and liabilities
denominated in currencies other than a subsidiary's functional currency. Net
foreign exchange gains and losses were not material to our earnings for the last
three years. The impact of unrealized foreign exchange translation gains and
losses is disclosed in the Consolidated Statement of Comprehensive Income on
page 31.
Page 21
<PAGE>
Interest Rate Risk
Our exposure to interest rate risk is limited to our unsecured lines of credit
which bear interest at either the prevailing prime rate, or the prevailing
London Interbank Offered Rate plus 1.0%, at our option. Our long term debt
instruments carry fixed interest rates. We estimate that a 10% change in
interest rates would not have a material impact on our reported operating profit
The sensitivity analyses presented in the interest rate and foreign exchange
discussions above disregard the possibility that rates can move in opposite
directions and that gains from one category may or may not be offset by losses
from another category and vice versa.
ITEM 8 Financial Statements and Supplementary Data
Consolidated financial statements of the Company as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999, the
report of independent auditors thereon and the Company's unaudited quarterly
financial data for 1999 and 1998 are referenced in Item 14 herein.
ITEM 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Page 22
<PAGE>
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, 1999 in connection
with its May 17, 2000 Annual Meeting of Stockholders.
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, 1999 in connection
with its May 17, 2000 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, 1999 in connection
with its May 17, 2000 Annual Meeting of Stockholders.
ITEM 13 Certain Relationships and Related Transactions
In November 1996, the Company entered into a Consulting Agreement with Richard
E. Schmidt, a director of the Company and the Company's former Chairman and
Chief Executive Officer, pursuant to which Mr. Schmidt provides consulting
services to the Company in exchange for a consulting fee equal to $100,000 per
year. Such Agreement was renewable by the Company for additional one-year terms
through December 31, 2001. In connection with such Agreement, the Compensation
Committee of the Board of Directors amended certain option and restricted stock
agreements with Mr. Schmidt to provide that (1) the vesting of the options was
accelerated and such options were exercisable during the term of the Consulting
Agreement and (2) the restricted stock would continue to vest in accordance with
the original time schedule. In January 2000, the Company terminated the
remaining two years of the Agreement with Mr. Schmidt and granted him 3,013
shares of restricted stock in lieu of renewing the Agreement. The shares fully
vest one year after the grant.
The Company has entered into Severance Compensation Agreements with certain of
its officers. See response to Item 11 above.
Page 23
<PAGE>
PART IV
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 10-K
(a) 1. Financial Statements and Financial Statement Schedules
<TABLE>
<S> <C>
Report of Independent Auditors 27
FINANCIAL STATEMENTS:
Consolidated income statement
for the years ended December 31, 1999, 1998 and 1997 28
Consolidated balance sheet
at December 31, 1999 and 1998 29
Consolidated statement of cash flows
for the years ended December 31, 1999, 1998 and 1997 30
Consolidated statement of stockholders' equity
for the years ended December 31, 1999, 1998 and 1997 31
Consolidated statement of comprehensive income
for the years ended December 31, 1999, 1998 and 1997 31
Notes to consolidated financial statements 32 - 44
FINANCIAL STATEMENT SCHEDULES:
II - Consolidated valuation accounts 45
</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:
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).
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 10.2 1992 Incentive Stock Plan (incorporated by reference to
exhibit in the Company's 1992 Proxy Statement).*
Exhibit 10.3 Employee Stock Purchase Plan, as amended (incorporated
by reference to Exhibit 10.4 of the Company's Annual
Report on Form 10-K for the year ended December 31,
1997).*
Page 24
<PAGE>
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 10-K
- -------------------------------------------------------------------------
(Cont'd)
--------
Exhibit 10.4 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 10.5 Note Agreement dated as of May 2, 1996 between Newport
Corporation and The Prudential Insurance Company of America
(incorporated by reference to Exhibit 10.8 of the Company's
Form 10-Q for the quarter ended March 31, 1996).
Exhibit 10.6 Severance Compensation Agreement dated as of April 8, 1996,
between Newport Corporation, a Nevada Corporation, and
Robert J. Phillippy, Vice President and General Manager
(incorporated by reference to Exhibit 10.2 of the Company's
Form 10-Q for the quarter ended September 30, 1996).*
Exhibit 10.7 Severance Compensation Agreement dated as of May 1, 1996,
between Newport Corporation, a Nevada Corporation, and
Robert G. Deuster, President and Chief Executive Officer
(incorporated by reference to Exhibit 10.3 of the Company's
Form 10-Q for the quarter ended September 30, 1996).*
Exhibit 10.8 Consulting Agreement dated November 7, 1997 between Newport
Corporation, a Nevada Corporation, and Richard E. Schmidt, a
director of the Company (incorporated by reference to
Exhibit 10.14 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
Exhibit 10.9 364-Day $10,000,000 Credit Agreement dated as of October 29,
1999 between Newport Corporation and ABN AMRO Bank, N.V.
Exhibit 10.10 3-Year $15,000,000 Credit Agreement dated as of October 29,
1999 between Newport Corporation and ABN AMRO Bank, N.V.
Exhibit 10.11 1999 Stock Incentive Plan*
Exhibit 21 Subsidiaries of Registrant
Exhibit 23 Consent of Independent Auditors
Exhibit 27 Financial Data Schedule (Article 5 of Regulation S-X)
_____________
* Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(a) (3) of Form 10-K
(b) Reports on Form 8-K
The Company filed no Reports on Form 8-K during the quarter ended December 31,
1999.
Page 25
<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
<TABLE>
<S> <C>
/s/ ROBERT G. DEUSTER March 29, 2000
- -------------------------------------------------------------------------------------------
Robert G. Deuster, President and Chief Executive Officer Date
(Principal Executive Officer)
/s/ ROBERT C. HEWITT March 29, 2000
- -------------------------------------------------------------------------------------------
Robert C. Hewitt, Vice President, Chief Financial Officer and Secretary Date
(Chief Financial Officer)
/s/ WILLIAM R. ABBOTT March 29, 2000
- -------------------------------------------------------------------------------------------
William R. Abbott, Vice President and Corporate Controller Date
(Principal Accounting Officer)
</TABLE>
POWER OF ATTORNEY
The undersigned directors and officers of Newport Corporation constitutes and
appoints Robert G. Deuster and Robert C. Hewitt, or either of them, as their
true and lawful attorney and agent with power of substitution, to do any and all
acts and things in our name and behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorney and agent may deem necessary or
advisable to enable said corporation to comply with the Securities Exchange Act
of 1934, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Annual Report on
Form 10-K, including specifically but without limitation, power and authority to
sign for us or any of us in our names in the capacities indicated below, any and
all amendments (including post-effective amendments) hereto; and we do hereby
ratify and confirm all that said attorney and agent shall do or cause to be done
by virtue hereof. 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 29, 2000
- -------------------------------------------------------------------------------
R. Jack Aplin, Member of the Board Date
/s/ ROBERT L. GUYETT March 29, 2000
- -------------------------------------------------------------------------------
Robert L. Guyett, Member of the Board Date
/s/ C. KUMAR N. PATEL March 29, 2000
- -------------------------------------------------------------------------------
C. Kumar N. Patel, Member of the Board Date
/s/ KENNETH F. POTASHNER March 29, 2000
- -------------------------------------------------------------------------------
Kenneth F. Potashner, Member of the Board Date
/s/ RICHARD E. SCHMIDT March 29, 2000
- -------------------------------------------------------------------------------
Richard E. Schmidt, Member of the Board Date
/s/ JOHN T. SUBAK March 29, 2000
- -------------------------------------------------------------------------------
John T. Subak, Member of the Board Date
Page 26
<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, 1999 and 1998, and the related consolidated
statements of income, comprehensive income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Newport
Corporation at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. 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.
/s/ ERNST & YOUNG LLP
Orange County, California
January 25, 2000
Page 27
<PAGE>
NEWPORT CORPORATION
Consolidated Income Statement
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Years Ended December 31,
--------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $141,945 $134,359 $132,594
Cost of sales 80,194 75,491 74,844
-------- -------- --------
Gross profit 61,751 58,868 57,750
Selling, general and administrative expense 35,593 33,017 35,825
Research and development expense 13,300 11,738 9,490
-------- -------- --------
Income from operations 12,858 14,113 12,435
Interest expense (1,785) (1,891) (1,992)
Other income (expense), net 166 121 (349)
-------- -------- --------
Income before income taxes 11,239 12,343 10,094
Income tax provision 2,956 3,365 3,030
-------- -------- --------
Net income $ 8,283 $ 8,978 $ 7,064
======== ======== ========
Net income per share
Basic $ 0.91 $ 1.00 $ 0.80
Diluted $ 0.88 $ 0.96 $ 0.77
Number of shares used to calculate net income per share
Basic 9,083 8,989 8,865
Diluted 9,461 9,384 9,179
Dividends per share $ 0.04 $ 0.04 $ 0.04
</TABLE>
See accompanying notes.
Page 28
<PAGE>
NEWPORT CORPORATION
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(In thousands, except share data) December 31,
------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,721 $ 5,335
Customer receivables, net 32,239 25,798
Other receivables 684 2,367
Inventories 36,386 31,260
Deferred tax assets 2,626 2,703
Other current assets 2,484 1,643
-------- --------
Total current assets 77,140 69,106
Investments and other assets 8,461 6,451
Property, plant and equipment, at cost, net 25,738 22,696
Goodwill, net 10,914 12,220
-------- --------
$122,253 $110,473
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,816 $ 6,180
Accrued payroll and related expenses 5,536 5,566
Taxes based on income 1,235 95
Line of credit 10,000 -
Current portion of long-term debt 4,645 3,699
Other current liabilities 2,736 5,068
-------- --------
Total current liabilities 30,968 20,608
Long-term debt 12,715 17,536
Deferred tax liabilities 1,407 1,359
Commitments
Stockholders' equity:
Common stock, $0.35 stated value, 20,000,000
shares authorized; 9,232,000 shares
issued and outstanding at December 31, 1999;
9,119,000 shares at December 31, 1998 3,231 3,192
Capital in excess of stated value 9,398 8,573
Unamortized deferred compensation (417) (548)
Accumulated other comprehensive loss (6,635) (3,916)
Retained earnings 71,586 63,669
-------- --------
Total stockholders' equity 77,163 70,970
-------- --------
$122,253 $110,473
======== ========
</TABLE>
See accompanying notes.
Page 29
<PAGE>
NEWPORT CORPORATION
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $ 8,283 $ 8,978 $ 7,064
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,011 6,075 5,830
Increase in provision for losses on
receivables, inventories and investments 1,260 1,073 1,906
Deferred income taxes 251 704 87
Other non-cash items, net (489) (481) 345
Changes in operating assets and liabilities:
Receivables (6,007) (1,532) (1,269)
Inventories (5,027) (3,472) (2,051)
Other current assets (1,532) (196) (1,261)
Other assets 327 280 (78)
Accounts payable and other accrued expenses (1,530) (2,107) 925
Taxes based on income 1,126 (2,283) 798
Other, net - (1) 1
-------- ------- -------
Net cash provided by operating activities 3,673 7,038 12,297
-------- ------- -------
Investing activities:
Purchases of property, plant and equipment (4,799) (5,378) (5,034)
Disposition of property, plant and equipment 201 2,323 396
Acquisition of business, net of cash acquired (6,559) (3,561) (879)
Payments for equity investment (1,074) - -
Proceeds from sales of investments
and marketable securities 1,054 720 -
Software development costs (2,261) (779) (728)
-------- ------- -------
Net cash used in investing activities (13,438) (6,675) (6,245)
-------- ------- -------
Financing activities:
Increase in credit line 10,000 - -
Decrease in long-term borrowings (3,632) (2,360) (790)
Cash dividends paid (366) (362) (357)
Repurchase of common stock (1,589) (2,879) (3,996)
Issuance of common stock under employee
agreements including associated tax benefit 2,453 3,218 2,910
-------- ------- -------
Net cash provided by (used in) financing activities 6,866 (2,383) (2,233)
-------- ------- -------
Effect of foreign exchange rate changes on cash 285 (101) 262
-------- ------- -------
Increase (decrease) in cash and cash equivalents (2,614) (2,121) 4,081
Cash and cash equivalents at beginning of year 5,335 7,456 3,375
-------- ------- -------
Cash and cash equivalents at end of year $ 2,721 $ 5,335 $ 7,456
======== ======= =======
</TABLE>
See accompanying notes.
Page 30
<PAGE>
NEWPORT CORPORATION
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Common shares:
Shares outstanding at beginning of year 9,119 8,951 8,890
Issuance of common shares 224 340 351
Repurchase of common shares (111) (172) (290)
------- ------- -------
Shares outstanding at end of year 9,232 9,119 8,951
======= ======= =======
Common stock:
Balance at beginning of year $ 3,192 $ 3,132 $ 3,110
Issuance of common stock 75 113 117
Grants of restricted stock, net - 7 7
Repurchase of common stock (36) (60) (102)
------- ------- -------
Balance at end of year 3,231 3,192 3,132
======= ======= =======
Capital in excess of stated value:
Balance at beginning of year 8,573 8,026 8,959
Issuance of common stock 2,378 3,105 2,793
Grants of restricted stock, net - 261 168
Repurchase of common stock (1,553) (2,819) (3,894)
------- ------- -------
Balance at end of year 9,398 8,573 8,026
======= ======= =======
Unamortized deferred compensation:
Balance at beginning of year (548) (519) (548)
Grants of restricted stock, net - (268) (175)
Amortization of deferred compensation 131 239 204
------- ------- -------
Balance at end of year (417) (548) (519)
======= ======= =======
Accumulated other comprehensive loss:
Balance at beginning of year (3,916) (5,036) (2,442)
Unrealized translation gain (loss) (2,719) 1,120 (2,594)
------- ------- -------
Balance at end of year (6,635) (3,916) (5,036)
======= ======= =======
Retained earnings:
Balance at beginning of year 63,669 55,055 48,350
Dividends (366) (364) (359)
Net income 8,283 8,978 7,064
------- ------- -------
Balance at end of year 71,586 63,669 55,055
======= ======= =======
Total stockholders' equity $77,163 $70,970 $60,658
======= ======= =======
</TABLE>
Consolidated Statement of Comprehensive Income
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income $ 8,283 $ 8,978 $ 7,064
Unrealized translation gain (loss) (2,719) 1,120 (2,594)
------- ------- -------
Comprehensive income $ 5,564 $10,098 $ 4,470
======= ======= =======
</TABLE>
See accompanying notes.
Page 31
<PAGE>
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization Newport Corporation designs, manufactures and markets high
precision components, instruments and integrated systems for the fiber optic
communications, semiconductor equipment, computer peripherals and scientific
research markets. The Company's high precision products enhance productivity and
capabilities of test and measurement and automated assembly for precision
manufacturing, engineering and research applications.
Consolidation The accompanying financial statements consolidate the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated. Certain reclassifications have
been made to prior year amounts to conform to current year presentation. Amounts
in 1999 include net sales of $2.5 million representing one extra month of sales
from Newport's European operations. The additional net sales stem from a
reporting change in the second quarter of 1999 that eliminated a one-month lag
in the reporting of European results. Without the change, 1999 net sales would
have been $139.4 million, while net income would not have been materially
different. Earnings per share were not impacted by the change.
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 and warranty reserves.
Sales A sale is recorded upon customer acceptance after all significant
obligations have been met, collectibility is probable and title has passed to
the customer. Customers have 30 days from the original invoice date (60 days for
international customers) to return a catalog product purchase for exchange or
credit. The catalog product must be returned in its original condition and meet
certain other criteria. Product returns of catalog items have historically been
immaterial. Custom configured and certain other products as defined in the
Company's Customer Satisfaction and Product Guarantee Policy cannot be returned.
Unless otherwise stated in its product literature, the Company provides a one-
year warranty from the original invoice date on all product material and
workmanship. Defective products will be either repaired or replaced, at the
Company's option, upon meeting certain criteria.
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 Property, plant and equipment is depreciated on a
straight line basis over estimated useful lives of the assets ranging from three
to thirty one years. In 1997 the Company changed the depreciation method for
certain machinery and equipment from an accelerated method based on a declining
balance formula to a straight line method to conform with the method used to
depreciate its other machinery and equipment. The effect of this change on the
Company's 1997 financial position, results of operations and cash flow was not
material nor does the Company expect this change to have a material impact on
future periods. Leasehold improvements are generally amortized over the term of
the lease.
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 product catalogs. The Company uses these product catalogs as its
principal marketing tools for the scientific market. Sales to this market
approximate 28% of the Company's annual revenues. The catalogs provide detailed
product information as well as extensive technical and applications data. The
catalogs are published in English, French, German and Japanese languages and are
mailed worldwide to more than 100,000 potential customers.
Page 32
<PAGE>
The Company believes that after a period of generally 12 to 18 months, no future
benefit can be realized from these catalogs due to price changes, technological
enhancements to existing products and new product releases. As such, the Company
has established benefit periods for its various catalogs ranging from 12 to 18
months and amortizes catalog costs over this timeframe. Advertising materials of
$0.8 million and $0.2 million were reported as assets at December 31, 1999 and
1998, respectively. Advertising expense was $1.5 million, $1.4 million and $1.6
million for 1999, 1998 and 1997, respectively.
Net Income per Share Basic net income per share is computed using the weighted
average number of shares of common stock outstanding during the periods,
excluding restricted stock. Diluted net income per share is computed using the
weighted average number of shares of common stock outstanding during the
periods, including restricted stock, and the dilutive effects of common stock
equivalents (stock options), determined using the treasury stock method,
outstanding during the periods (see Note 12).
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 with original maturities of less than three months.
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 their rates of
interest approximate current market rates. The carrying amounts of the foreign
exchange contracts, if any, equal fair value and are adjusted each balance sheet
date for changes in exchange rates.
Investments Nonmarketable investments are stated at cost, adjusted for the
Company's proportionate share of undistributed earnings.
Intangible Assets Goodwill, representing the excess of the purchase price over
the fair value of the net assets of acquired entities, is amortized on a
straight-line basis over its estimated useful life of fifteen to 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. Accumulated amortization of intangible
assets, principally goodwill, totaled $5.2 million and $4.5 million at December
31, 1999 and 1998, respectively.
The Company examines the carrying value of goodwill and other intangible assets
to determine whether there are any impairment losses. If indicators of
impairment were present in intangible assets used in operations, and future cash
flows were not expected to be sufficient to recover the assets' carrying amount,
an impairment loss would be charged to expense in the period identified. No
event has been identified that would indicate an impairment of the value of
material intangible assets recorded in the accompanying consolidated financial
statements.
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 (Note 11). Foreign exchange
contracts totaled $4.3 million and $4.2 million at December 31, 1999 and 1998,
respectively.
Stock-Based Compensation The Company accounts for stock-based employee
compensation arrangements in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock-Issued to Employees (APB No. 25), and complies with
the disclosures provisions of Statement of Financial
Page 33
<PAGE>
Accounting Standards No. 123, Accounting for Stock-Based Compensation. Under APB
No. 25, compensation cost is recognized based on the difference, if any, on the
date of the grant between the fair value of the Company's stock and the amount
the employee must pay to acquire the stock.
Comprehensive Income The only item of accumulated other comprehensive income is
a cumulative foreign currency translation adjustment.
Pending Adoption of Statement of Financial Accounting Standards No. 133 In June
1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133). SFAS No. 133 establishes new standards for recording
derivatives in interim and annual financial reports requiring that all
derivative instruments be recorded as assets or liabilities, measured at fair
value. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000, and therefore the Company will adopt the new requirements effective with
the filing of its Quarterly Report on Form 10-Q for the quarter ended March 31,
2001. Management does not anticipate that the adoption of SFAS No. 133 will have
a significant impact on the Company's results of operations, financial position
or cash flow.
NOTE 2 ACQUISITIONS
On October 13, 1998, the Company acquired, for $3.5 million in cash plus
additional consideration based upon achievement of future milestones, all the
outstanding capital stock of EOSI, a manufacturer of tunable external cavity
diode laser systems and other components. The company is located in Longmont,
Colorado. The acquisition was accounted for as a purchase. In 1999, the Company
paid the sellers an additional $0.2 million for achieving certain milestones
which has been recorded as additional goodwill. In connection with this
acquisition the Company recorded goodwill totaling $2.8 million.
In October 1999, the Company entered into a stock purchase agreement providing
for the acquisition of the west coast commercial optics subsidiary of Corning
OCA Corporation, a subsidiary of Corning Incorporated, based in Garden Grove,
California. The transaction, completed on October 21, 1999, was accounted for
as a purchase and the commercial optics subsidiary (renamed Newport Precision
Optics Corporation), a manufacturer of specialized precision optical products
and systems, became a wholly owned subsidiary of Newport. In connection with
this acquisition the Company paid $6.3 million in cash, subject to final
settlement adjustment.
Pro-forma information for these acquisitions is not presented as neither are
material to the Company's consolidated sales or net income.
NOTE 3 CUSTOMER RECEIVABLES
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.
Customer receivables consist of the following:
<TABLE>
<CAPTION>
(In thousands) December 31,
----------------
1999 1998
------- -------
<S> <C> <C>
Customer receivables $32,650 $26,077
Less allowance for doubtful accounts 411 279
------- -------
$32,239 $25,798
======= =======
</TABLE>
Page 34
<PAGE>
NOTE 4 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,
------------------
1999 1998
------- -------
<S> <C> <C>
Raw materials and purchased parts $12,128 $12,412
Work in process 7,391 5,301
Finished goods 16,867 13,547
------- -------
$36,386 $31,260
======= =======
</TABLE>
NOTE 5 INCOME TAXES
The provision for taxes based on income consists of the following:
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $2,038 $ 1,999 $ 2,329
State 340 225 321
Foreign 327 437 293
Deferred:
Federal 262 674 48
State (16) 35 39
Foreign 5 (5) -
------ ------- -------
$2,956 $ 3,365 $ 3,030
====== ======= =======
</TABLE>
The provision for taxes based on income differs from the amount obtained by
applying the statutory tax rate as follows:
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income tax provision at statutory rate $ 3,834 $ 4,220 $ 3,432
Increase (decrease) in taxes resulting from:
Non deductible goodwill amortization 250 142 153
Foreign losses not benefited - 2 107
State income taxes, net of federal income tax benefit 214 171 238
Utilization of foreign losses (314) (21) (57)
Reduction in valuation allowance (607) (237) -
Tax credits (240) (490) -
Foreign sales corporation income (370) (516) (734)
Other, net 189 94 (109)
------- ------- -------
$ 2,956 $ 3,365 $ 3,030
======= ======= =======
</TABLE>
Deferred tax assets and liabilities determined in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, 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.
Page 35
<PAGE>
In 1999 the Company reduced the valuation allowance applicable to foreign net
operating loss carryforwards by approximately $1,012,000, of which $405,000 was
allocated to goodwill, because of improvements in earnings of certain of its
European subsidiaries.
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,
------------
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 8,449 $ 9,336
Accruals not currently deductible for tax purposes and other 1,609 1,811
Valuation allowance (7,432) (8,444)
------- -------
Total deferred tax asset 2,626 2,703
------- -------
Deferred tax liabilities:
Accelerated depreciation methods used for tax purposes 977 854
Other 430 505
------- -------
Total deferred tax liability 1,407 1,359
------- -------
Net deferred tax asset $ 1,219 $ 1,344
======= =======
</TABLE>
The Company has foreign net operating loss carryforwards totaling approximately
$23.4 million at December 31, 1999, principally expiring in the years 2007
through 2012. 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 $2.1 million of the valuation
allowance will be allocated to reduce goodwill when realized. Approximately $0.4
million and $0.2 million of the valuation allowance realized was allocated to
goodwill for 1999 and 1998, respectively. As the Company's net operating loss
carryforwards and valuation allowance are largely denominated in foreign
currencies, they are subject to foreign currency translation adjustments as
described in Note 1 above and to the risks associated therewith. (See also Item
7A, Quantitative and Qualitative Disclosures About Market Risk, on Page 21 for
further discussion of exchange rate risk.) The exchange loss related to gross
net operating loss carryforwards is largely offset by a corresponding exchange
fluctuation in the valuation allowance. Accordingly, the net effect of currency
fluctuations on the net operating loss carryforwards, net of valuation
allowance, is not material.
Net income taxes paid for 1999, 1998 and 1997 totaled $2.8 million, $4.3 million
and $2.0 million, respectively.
NOTE 6 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, including capitalized lease assets,
consists of the following:
<TABLE>
<CAPTION>
(In thousands) December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Land $ 1,106 $ 1,287
Buildings 6,202 7,218
Leasehold improvements 8,455 8,715
Machinery and equipment 29,161 24,063
Office equipment 13,687 11,715
------- -------
58,611 52,998
Less accumulated depreciation 32,873 30,302
------- -------
$25,738 $22,696
======= =======
</TABLE>
Page 36
<PAGE>
NOTE 7 INVESTMENTS AND OTHER ASSETS
Investments and other assets consist of the following:
<TABLE>
<CAPTION>
(In thousands) December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Nonmarketable investments $4,015 $3,661
Other assets 4,446 2,790
------ ------
$8,461 $6,451
====== ======
</TABLE>
Nonmarketable investments consist primarily of investments in private companies,
including a $1.4 million investment in a U.S. supplier, a $1.4 million
investment in a company active in laser and electro-optical technology and a
$1.1 million investment in a photonics manufacturer. The Company made purchases
of approximately $3.8 million, $4.3 million and $4.3 million from the U.S.
supplier during 1999, 1998 and 1997, respectively.
Other assets consist primarily of capitalized software, patents and license
agreements.
NOTE 8 LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(In thousands) December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Revolving credit agreements:
$15.0 million, expiring October 2002 $10,037 $ -
$10.0 million, expiring October 2000 - -
Term notes:
8.25% senior notes, maturing May 2004 15,500 18,500
Capitalized lease obligations, payable in installments to 2005,
in French francs 1,224 1,783
Equipment loans 599 952
------- -------
27,360 21,235
Less current portion 14,645 3,699
------- -------
$12,715 $17,536
======= =======
</TABLE>
During May 1996, the Company obtained $20.0 million of long-term financing from
an insurance company. These senior notes, sold at par, are unsecured, carry an
8.25% annual coupon and mature in May 2004. Interest is payable semiannually and
semiannual principal payments commenced during November 1998.
To support its worldwide operations, at December 31, 1999, the Company had in
place a $15.0 million unsecured line of credit expiring October 29, 2002 and a
$10.0 million unsecured line of credit expiring October 27, 2000. Both lines
bear interest at either the prevailing prime rate, or the prevailing London
Interbank Offered Rate plus 1.0%, at the Company's option, plus an unused line
fee of 0.2% per year. At December 31, 1999, there was $10.0 million outstanding
under the $15.0 million line of credit, with $14.4 million available under the
combined lines, after considering outstanding letters of credit.
Page 37
<PAGE>
Capitalized lease obligations of 8.0 million French francs (approximately $1.2
million) relate to real estate and equipment located in France. The original
cost of assets under capital leases at December 31, 1999 and 1998, was 19.1
million French francs (approximately $2.9 million at December 31, 1999).
Accumulated amortization totaled 11.1 million French francs (approximately $1.7
million) and 9.2 million French francs (approximately $1.6 million) at December
31, 1999 and 1998, respectively. Required annual payments are as follows:
<TABLE>
<CAPTION>
(In thousands) Capitalized
Lease Borrowings and
For years ending December 31, Obligations Term Notes
----------- ----------
<S> <C> <C>
2000 $ 340 $14,473
2001 299 5,163
2002 304 3,500
2003 269 2,000
2004 194 1,000
Thereafter 83 -
------ -------
1,489
Less interest 265
------
$1,224 $26,136
====== =======
</TABLE>
Interest paid totaled $1.9 million for each of the 1999, 1998 and 1997 years.
NOTE 9 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 for years ending December 31:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
2000 $3,019
2001 2,958
2002 2,181
2003 2,016
2004 1,967
Thereafter 3,974
</TABLE>
The principal lease expires in 2007. Rental expense under all leases totaled
$2.8 million, $2.6 million and $2.6 million for 1999, 1998 and 1997,
respectively.
NOTE 10 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 for terms of not more
than ten years. 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.
Page 38
<PAGE>
Effective November 18, 1999, the Company's Board of Directors adopted the
Newport Corporation 1999 Stock Incentive Plan to enhance the Company's ability
to attract and retain qualified managers (excluding Board members, officers and
key employees) and to align their interests with stockholders. The Plan
authorizes the granting of non-incentive stock options and restricted stock up
to an aggregate of 300,000 shares, of which 60,500 shares were granted in 1999.
The term of the Plan is 10 years.
The following table summarizes option plan and restricted stock activity for the
years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Weighted Average
Available for Under Plan Exercise Price
-----------------------------------
Option Grant Restricted of Option Shares
or Award Stock Options Total Under Plan
-------- ---- ------- ----- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 462,922 96,750 1,163,491 1,260,241 $ 7.37
Authorized 179,027 - - - -
Granted (222,000) 20,500 201,500 222,000 8.90
Exercised - (16,000) (224,616) (240,616) 7.35
Forfeited 78,316 - (78,316) (78,316) 7.07
-------- ------- --------- ---------
Balance, December 31, 1997 498,265 101,250 1,062,059 1,163,309 7.69
Authorized 182,388 - - - -
Granted (489,600) 20,000 469,600 489,600 13.50
Exercised - (24,625) (229,400) (254,025) 6.57
Forfeited 31,900 - (31,900) (31,900) 10.50
-------- ------- --------- ---------
Balance, December 31, 1998 222,953 96,625 1,270,359 1,366,984 9.97
Authorized 484,631 - - - -
Granted (241,700) - 241,700 241,700 21.31
Exercised - (29,750) (133,675) (163,425) 9.37
Forfeited 57,976 - (57,976) (57,976) 13.71
-------- ------- --------- ---------
Balance, December 31, 1999 523,860 66,875 1,320,408 1,387,283 $11.97
======== ======= ========= =========
</TABLE>
There were no grants of restricted stock in 1999. The weighted average per share
fair value of restricted stock granted during 1998 and 1997 was $13.38 and
$8.76, respectively.
At December 31, 1999, options on 672,484 shares were exercisable with a weighted
average exercise price of $8.64 per share. The following table summarizes
information concerning options outstanding and exercisable at December 31, 1999
(Contractual life in years):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- ---------------------
Weighted Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 5.00 - 10.00 700,142 4.4 7.97 572,262 7.77
12.50 - 21.00 559,766 8.3 14.81 100,222 13.67
--------- -------
1,259,908 672,484
========= =======
</TABLE>
Page 39
<PAGE>
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its stock-
based compensation plans other than for restricted stock awards. Had
compensation cost for the Company's stock option and employee stock purchase
plans been determined based upon the fair value at the grant date for awards
under these plans consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123), the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net income - reported $8,283 $8,978 $7,064
Net income - pro forma $6,659 $7,524 $6,707
Diluted earnings per share - reported $ 0.88 $ 0.96 $ 0.77
Diluted earnings per share - pro forma $ 0.70 $ 0.80 $ 0.73
</TABLE>
The fair value of each option grant in 1999 was estimated on the date of the
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions: dividend yield of 0.23%; expected annual volatility of
50.5%; risk-free interest rate of 4.93%; expected lives of 5 years; and expected
turnover rate of 12.90%. The fair value of each option grant in 1998 and 1997
was estimated on the date of the grant using the following weighted-average
assumptions: dividend yield of 0.33%; expected annual volatility of 41.01% and
34.00%, respectively, risk-free interest rates of 5.44% and 6.36%, respectively,
expected lives of 5 years and expected turnover rate of 12.90%. The weighted
average per share fair value of options granted in 1999, 1998, and 1997 was
$8.68, $5.81 and $3.56, respectively. The pro forma amounts shown for the impact
of SFAS No. 123 are not necessarily indicative of future results because of the
phase in rules and differences in number of grants, stock price and assumptions
for future years.
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 650,000 shares of common stock is available
for purchase under the Purchase Plan. There were 99,136, 82,201, and 87,662
shares issued under the Purchase plan during 1999, 1998, and 1997, respectively.
The amounts included in the pro forma net income disclosures related to the
impact of the Purchase Plan totaled $0.2 million, $0.2 million and $0.1 million
for the years 1999, 1998, and 1997, respectively.
NOTE 11 OTHER INCOME (EXPENSE), NET
Other income (expense), net, consisted of the following:
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest and dividend income $ 102 $ 458 $ 210
Exchange losses, net (226) (261) (497)
Gains on sale of investments, net 275 134 14
Other 15 (210) (76)
----- ----- -----
$ 166 $ 121 $(349)
===== ===== =====
</TABLE>
Page 40
<PAGE>
NOTE 12 EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share under SFAS No. 128:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income $8,283 $8,978 $7,064
Denominator:
Denominator for basic earnings per
share - weighted-average shares 9,083 8,989 8,865
Effect of dilutive securities:
Employee stock options 338 337 252
Restricted stock 40 58 62
------ ------ ------
Dilutive potential common shares 378 395 314
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 9,461 9,384 9,179
====== ====== ======
Basic earnings per share $ 0.91 $ 1.00 $ 0.80
Diluted earnings per share $ 0.88 $ 0.96 $ 0.77
</TABLE>
Page 41
<PAGE>
NOTE 13 BUSINESS SEGMENT INFORMATION
The Company operates in three reportable segments, Industrial & Scientific
Technologies, Fiber Optics & Photonics and Video Metrology. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies except that certain expenses, such as
interest are not allocated to the segments. In addition, certain assets,
including cash and cash equivalents, deferred taxes and certain long-lived and
intangible assets are not allocated to the segments.
The Industrial and Scientific Technologies segment consists primarily of Motion
Control Devices and Systems, Vibration Isolation Products, Optics, Mechanical
Components, Instruments and Subassemblies. The Fiber Optics and Photonics
segment consists primarily of Device Testing and Characterization Systems and
Process Automation Workstations for Fiber Optic and Photonics manufacturing.
The Video Metrology segment consists primarily of Video-Based Measurement and
Inspection Systems.
Selected financial information for the Company's reportable segments for the
years ended December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
(In thousands) Industrial
& Scientific Fiber Optics Video
Technologies & Photonics Metrology Total
------------ ------------- ---------- --------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999:
- -----------------------------
Sales to external customers $ 96,578 $35,450 $ 9,917 $141,945
Depreciation and amortization 4,011 827 484 5,322
Segment income (loss) 12,418 3,805 (3,365) 12,858
Segment assets 77,110 23,192 10,897 111,199
Expenditures for long-lived assets 2,558 629 304 3,491
Year Ended December 31, 1998:
- -----------------------------
Sales to external customers $ 97,792 $24,079 $12,488 $134,359
Depreciation and amortization 4,034 383 258 4,675
Segment income (loss) 14,667 1,639 (2,193) 14,113
Segment assets 68,143 15,555 9,445 93,143
Expenditures for long-lived assets 3,231 457 615 4,303
Year Ended December 31, 1997:
- -----------------------------
Sales to external customers $100,102 $16,099 $16,393 $132,594
Depreciation and amortization 3,891 353 228 4,472
Segment income (loss) 12,274 (1,232) 1,393 12,435
Segment assets 67,358 8,558 7,957 83,873
Expenditures for long-lived assets 2,196 150 422 2,768
</TABLE>
Page 42
<PAGE>
The following reconciles segment income to consolidated income before income
taxes and segment assets and depreciation and amortization to consolidated
assets and consolidated depreciation and amortization.
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income:
Segment income $ 12,858 $ 14,113 $ 12,435
Unallocated amounts:
Interest expense (1,785) (1,891) (1,992)
Other income (expense) 166 121 (349)
-------- -------- --------
Income before income taxes $ 11,239 $ 12,343 $ 10,094
======== ======== ========
Assets:
Assets for reportable segments $111,199 $ 93,143 $ 83,873
Assets held at corporate 11,054 17,330 22,088
-------- -------- --------
Total assets $122,253 $110,473 $105,961
======== ======== ========
Expenditures for long-lived assets for reportable segments $ 3,491 $ 4,303 $ 2,768
Expenditures for long-lived assets held at corporate 1,308 1,075 2,266
-------- -------- --------
Total expenditures for long-lived assets $ 4,799 $ 5,378 $ 5,034
======== ======== ========
Depreciation and amortization:
Depreciation and amortization for reportable segments $ 5,322 $ 4,675 $ 4,472
Depreciation and amortization for assets held at corporate 1,689 1,400 1,358
-------- -------- --------
Total depreciation and amortization $ 7,011 $ 6,075 $ 5,830
======== ======== ========
</TABLE>
Selected financial information for the Company's operations by geographic
segment is as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Geographic area revenue:
United States $ 90,153 $ 87,561 $ 85,749
Europe (1) 32,516 30,358 27,659
Pacific Rim 11,006 9,468 14,974
Other 8,270 6,972 4,212
-------- -------- --------
$141,945 $134,359 $132,594
======== ======== ========
Geographic area long-lived assets:
United States $ 19,022 $ 14,094 $ 14,855
Europe 6,634 8,508 8,074
Other 82 94 65
-------- -------- --------
$ 25,738 $ 22,696 $ 22,994
======== ======== ========
</TABLE>
(1) Europe revenues disclosed in the geographic segment include all revenues
from sales to European-based customers whereas Europe segment revenues are
comprised of sales from the Company's Europe operations.
Page 43
<PAGE>
NOTE 14 DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan. Generally, all U.S. employees
are eligible to participate in and contribute to this plan. Company
contributions to the plan are determined based on a percentage of contributing
employees' compensation. Expense recognized for the plan totaled $1.3 million,
$1.3 million and $1.0 million for 1999, 1998 and 1997, respectively.
NOTE 15 SUPPLEMENTARY QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Diluted 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, 1999 $41,494 $17,594 $2,982 $0.31 $0.02 $45 3/4 $ 16 1/4
September 30, 1999 35,427 15,488 2,332 0.25 - 20 5/8 13 3/4
June 30, 1999 35,576 15,860 2,055 0.22 0.02 15 3/4 11 15/16
March 31, 1999 29,448 12,809 914 0.10 - 19 1/2 12 3/8
December 31, 1998 $33,407 $14,708 $2,565 $0.28 $0.02 $17 3/4 $ 8 7/8
September 30, 1998 33,456 14,517 2,218 0.24 - 19 3/4 10 5/8
June 30, 1998 33,833 15,163 2,189 0.23 0.02 22 7/8 17 3/4
March 31, 1998 33,663 14,480 2,006 0.21 - 21 3/4 12 1/4
</TABLE>
Page 44
<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, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts $ 279 $ 278 $ (116) $ (30) $ 411
Reserve for inventory obsolescence 4,304 982 (1,330) (188) 3,768
Warranty reserve 336 1,575 (1,508) - 403
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts $ 485 $ (97) $ (120) $ 11 $ 279
Reserve for inventory obsolescence 4,119 1,170 (1,460) 475 4,304
Warranty reserve 426 966 (1,056) - 336
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts $ 524 $ 134 $ (122) $ (51) $ 485
Reserve for inventory obsolescence 4,065 1,772 (1,401) (317) 4,119
Warranty reserve - 982 (556) - 426
</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 Statement of Financial
Accounting Standards No. 52, Foreign Currency Translation, and certain
reclassifications between balance sheet accounts.
Page 45
<PAGE>
Exhibit 10.9
================================================================================
364-Day
$10,000,000
Revolving Credit Agreement
Dated as of
October 29, 1999
between
Newport Corporation
and
ABN AMRO Bank N.V.
================================================================================
-1-
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Description Page
<S> <C>
Section 1. The Credits....................................................................... 1
Section 1.1. Revolving Credit.................................................................. 1
Section 1.2. Revolving Credit Loans............................................................ 1
Section 1.3. [Intentionally Blank]............................................................. 1
Section 1.4. Manner and Disbursement of Loans.................................................. 1
Section 2. Interest and Change in Circumstances.............................................. 2
Section 2.1. Interest Rate Options............................................................. 2
Section 2.2. Minimum Amounts................................................................... 3
Section 2.3. Computation of Interest........................................................... 3
Section 2.4. Manner of Rate Selection.......................................................... 3
Section 2.5. Change of Law..................................................................... 3
Section 2.6. Unavailability of Deposits or Inability to Ascertain Adjusted LIBOR............... 4
Section 2.7. Taxes and Increased Costs......................................................... 4
Section 2.8. Change in Capital Adequacy Requirements........................................... 5
Section 2.9. Funding Indemnity................................................................. 5
Section 2.10. Lending Branch.................................................................... 6
Section 2.11. Discretion of Bank as to Manner of Funding........................................ 6
Section 3. Fees, Prepayments, Terminations and Applications. 6
Section 3.1. Commitment Fee.................................................................... 6
Section 3.2. Voluntary Prepayments............................................................. 6
Section 3.3. Terminations...................................................................... 7
Section 3.4. Place and Application of Payments................................................. 7
Section 3.5. Notations......................................................................... 7
Section 4. Definitions; Interpretation....................................................... 8
Section 4.1. Definitions....................................................................... 8
Section 4.2. Interpretation.................................................................... 15
Section 5.1. Organization and Qualification.................................................... 16
Section 5.2. Subsidiaries...................................................................... 16
Section 5.3. Corporate Authority and Validity of Obligations................................... 16
Section 5.4. Use of Proceeds; Margin Stock..................................................... 17
Section 5.5. Financial Reports................................................................. 17
Section 5.6. No Material Adverse Change........................................................ 17
Section 5.7. Full Disclosure................................................................... 18
Section 5.8. Good Title........................................................................ 18
Section 5.9. Litigation and Other Controversies................................................ 18
Section 5.10. Taxes............................................................................. 18
</TABLE>
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Section 5.11. Approvals......................................................................... 18
Section 5.12. Affiliate Transactions............................................................ 18
Section 5.13. Investment Company; Public Utility Holding Company................................ 18
Section 5.14. ERISA............................................................................. 19
Section 5.15. Compliance with Laws.............................................................. 19
Section 5.16. Other Agreements.................................................................. 19
Section 5.17. No Default........................................................................ 19
Section 6. Conditions Precedent.............................................................. 19
Section 6.1. All Advances...................................................................... 19
Section 6.2. Initial Advance................................................................... 20
Section 7. Covenants......................................................................... 21
Section 7.1. Maintenance of Business........................................................... 21
Section 7.2. Maintenance of Properties......................................................... 21
Section 7.3. Taxes and Assessments............................................................. 21
Section 7.4. Insurance......................................................................... 21
Section 7.5. Financial Reports................................................................. 22
Section 7.6. Inspection........................................................................ 23
Section 7.7. Quick Ratio....................................................................... 23
Section 7.8. Leverage Ratio.................................................................... 24
Section 7.9. Tangible Net Worth................................................................ 24
Section 7.10. Net Income........................................................................ 24
Section 7.11. Interest Coverage Ratio........................................................... 24
Section 7.12. Capital Expenditures.............................................................. 24
Section 7.13. Indebtedness for Borrowed Money................................................... 24
Section 7.14. Liens............................................................................. 25
Section 7.15. Investments, Acquisitions, Loans, Advances and Guaranties......................... 26
Section 7.16. Mergers, Consolidations and Sales................................................. 27
Section 7.17. Maintenance of Subsidiaries....................................................... 28
Section 7.18. Dividends and Certain Other Restricted Payments................................... 28
Section 7.19. ERISA............................................................................. 28
Section 7.20. Compliance with Laws.............................................................. 28
Section 7.21. Burdensome Contracts With Affiliates.............................................. 28
Section 7.22. No Changes in Fiscal Year......................................................... 29
Section 7.23. Formation of Subsidiaries......................................................... 29
Section 7.24. Change in the Nature of Business.................................................. 29
Section 7.25. Limitation on Certain Restrictions on Subsidiaries................................ 29
Section 7.26. European Monetary Union........................................................... 29
Section 8. Events of Default and Remedies.................................................... 30
Section 8.1. Events of Default................................................................. 30
Section 8.2. Non-Bankruptcy Defaults........................................................... 32
Section 8.3. Bankruptcy Defaults............................................................... 33
</TABLE>
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Section 8.4. [Intentionally Blank]............................................................... 33
Section 9. Miscellaneous....................................................................... 33
Section 9.1. Non-Business Day.................................................................... 33
Section 9.2. No Waiver, Cumulative Remedies...................................................... 33
Section 9.3. Amendments, Etc..................................................................... 33
Section 9.4. Costs and Expenses.................................................................. 34
Section 9.5. Documentary Taxes................................................................... 34
Section 9.6. Survival of Representations......................................................... 34
Section 9.7. Survival of Indemnities............................................................. 34
Section 9.8. Notices............................................................................. 34
Section 9.9. Currency............................................................................ 35
Section 9.10. Currency Equivalence................................................................ 36
Section 9.11. Headings............................................................................ 36
Section 9.12. Severability of Provisions.......................................................... 36
Section 9.13. Counterparts........................................................................ 36
Section 9.14. Binding Nature, Governing Law, Etc.................................................. 36
Section 9.15. Submission to Jurisdiction; Appointment of Agent for Process; Waiver of Jury Trial.. 37
</TABLE>
Exhibit A - Revolving Credit Note
Exhibit B - Compliance Certificate
Exhibit C - Existing Liens
Exhibit D - Certain Investment Descriptions
Schedule 5.2 - Subsidiaries
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Exhibit 10.9
Credit Agreement
ABN AMRO Bank N.V.
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; provided, however, the Revolving Credit hereunder
shall not be available to the Company until the Company has fully utilized the
facilities available under the 3-Year Agreement. The Revolving Credit may be
utilized by the Company in the form of Loans, all as more fully hereinafter set
forth, provided that the aggregate principal amount of Loans outstanding at any
one time shall not exceed $10,000,000 (the "Commitment", as such amount may be
reduced pursuant to Section 3.3 hereof). 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.
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 $10,000,000. 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 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. [Intentionally Blank].
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
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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 of Section 6 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 equal 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 October 31, 1999) 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 1% 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
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be applicable 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 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
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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 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
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(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.
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) or 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;
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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 or through 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. 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 0.20% 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 October 31, 1999) and on the Termination Date.
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
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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.
Section 3.3. 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 3.4. 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 (a) its principal office
in Los Angeles, California (or at such other place as the Bank may specify) or
(b) if such payment is to be made in an Alternative Currency, no later than
11:00 a.m. local time at the place of payment to such office as the Bank has
previously notified the Company. Payments received by the Bank after 11:00 a.m.
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 3.5. 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 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. Definitions; Interpretation.
Section 4.1. Definitions. The following terms when used herein
shall have the following meanings:
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"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 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.
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"Agreement" means this Credit Agreement, as the same may be amended,
modified or restated from time to time in accordance with the terms hereof.
"Alternative Currency" means a currency other than U.S. Dollars acceptable
to the Bank in its reasonable discretion.
"Authorized Representative" means those persons shown on the lists of
officers provided the Company pursuant to Section 6.2(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.
"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 and when used with respect to any Letter of credit issued in an
Alternative Currency, on which banks and foreign exchange markets are open for
business in the city where issuance, or payments in respect of such Letter of
Credit are being made.
"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.
"Corning Acquisition" means the Acquisition of the assets of a division of
Corning, Incorporated relating to the letter of intent issued by the Company to
Corning, International with a total purchase price not to exceed $12,000,000.
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"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.
"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.
"EMU" shall mean economic and monetary union as contemplated in the Treaty
on European Union.
"EMU Commencement" shall mean the date of commencement of the third stage
of EMU, namely January 1, 1999.
"EMU Legislation" shall mean legislative measures of the European Council
for the introduction of, changeover to or operation of a single or unified
European currency (whether known as the "euro" or otherwise), being in part the
implementation of the third stage of EMU.
"Equity Offering" means any issuance of equity securities (whether common
or preferred stock or otherwise), other than common stock issued in connection
with the exercise of employee stock options.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.
"Euro" shall mean the single currency of Euro Members of the European
Union.
"Eurocurrency Loans" shall have the meaning set forth in Section 3.1
hereof.
"Euro Member" shall mean each state described as a "participating member
state" in any EMU Legislation.
"Euro Unit" shall mean the currency unit of the Euro.
"Event of Default" means any event or condition identified as such in
Section 8.1 hereof.
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"Facilities" means the loans made under the 3-Year Agreement and the Loans
made hereunder.
"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 5.5 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, commencing 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 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,
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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.
"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 and the Note.
"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.
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"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 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 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.
"Outstanding Letters of Credit" means all outstanding letters of credit
heretofore issued by the Bank (whether directly or through one of its branches
or affiliates) for the account of the Company, including but not limited to,
letters of credit issued under the Prior Credit Agreement.
"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 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.
"Prior Credit Agreement" means that certain Credit Agreement dated as of
February 26, 1998 between the Company and the Bank, as amended.
"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 he
excluded from current assets all deferred assets, prepaid expenses, the
surrender value of
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insurance and investments in and loans and advances to any Person, other than
investments permitted by Section 7.15(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 Facilities.
"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, 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 September 30, 2000, or such earlier date on which
the Commitment is terminated in whole pursuant to Section 3.3, 8.2 or 8.3
hereof.
"3-Year Agreement" means that certain 3-Year $15,000,000 Revolving Credit
Agreement dated as of October 29, 1999 between the Company and the Bank.
"Treaty on European Union" shall mean the Treaty of Rome of March 25, 1957,
as amended by the Single European Act of 1986 and the Maastricht Treaty (which
was signed at Maastricht on February 7, 1992, and came into force on November 1,
1993, as amended from time to time).
"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
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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 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.
"U.S. Dollars" means the lawful currency of the United States of America.
"U.S. Dollar Equivalent" means the amount of U.S. Dollars which would be
realized by converting an Alternative Currency into U.S. Dollars in the spot
market at the exchange rate quoted by the Bank at approximately 11:00 a.m.
(London, England time) two Business Days prior to the date on which a
computation thereof is required to be made, to major banks in the interbank
market for the purchase of U.S. Dollars for such Alternative Currency.
"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 4.2. 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 Los Angeles, California 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 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 5. Representations and Warranties.
The Company represents and warrants to the Bank as follows:
Section 5.1. 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
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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 5.2. 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 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 5.2 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 shares, and fully paid and nonassessable and all such shares and
other equity interests indicated on Schedule 5.2 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 5.3. 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 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 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 5.4. 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 (other than the Outstanding
Letters of Credit) owing to the Bank under the Prior Credit Agreement and for
its general working capital purposes. The initial Loans hereunder shall be in an
amount necessary to so refinance and concurrently therewith the Prior Credit
Agreement
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shall terminate. 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 5.5. Financial Reports. The consolidated balance sheet of the
Company and its Subsidiaries as at December 31, 1998 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 June 30,
1999 and the related consolidated statements of income, retained earnings and
cash flows of the Company and its Subsidiaries for the six (6) 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 subject in the case of interim balance sheet to normal year-end
adjustment and in the absence of footnotes. 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 7.5 hereof.
Section 5.6. No Material Adverse Change. Since June 30, 1999, there has
been no change in the condition (financial or otherwise) or business prospects
of the Company or any Subsidiary except those occurring in the ordinary course
of business, none of which individually or in the aggregate constitute a
Materially Adverse Effect.
Section 5.7. 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 5.8. 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 7.14 hereof.
Section 5.9. Litigation and Other Controversies. There is no litigation
or governmental proceeding or labor controversy pending, nor to the knowledge of
the Company threatened,
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against the Company or any Subsidiary which if adversely determined would result
in a Materially Adverse Effect.
Section 5.10. Taxes. 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 5.11. 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.
Section 5.12. 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 5.13. 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 5.14. 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 5.15. 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,
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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 5.16. 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.
Section 5.17. No Default. No Default or Event of Default has occurred and
is continuing.
Section 6. Conditions Precedent.
The obligation of the Bank to make any Loan under this Agreement is subject
to the following conditions precedent:
Section 6.1. 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
5 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 outstanding under this Agreement shall not
exceed the Commitment; and
(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.
The Company's request for any Loan shall constitute its warranty as to the
facts specified in subsections (a) through (d), both inclusive, above.
Section 6.2. 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
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 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; and
(g) the Bank shall have received such other agreements, instruments,
documents, certificates and opinions as the Bank may reasonably request.
Section 7. 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:
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Section 7.1. 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 7.2. 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 7.3. 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 7.4. 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.
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 7.5. 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 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;
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(b) 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;
(c) within the period provided in subsection (b) 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;
(d) 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;
(e) 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;
(f) 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
(g) 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
(a) and (b) of this Section shall be accompanied by a written certificate in the
form attached hereto as Exhibit B signed by the President or chief financial
officer of the Company to the effect that to the best of
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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 7.7, 7.8, 7.9,
7.10, 7.11 and 7.12 of this Agreement.
Section 7.6. 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 7.7. Quick Ratio. The Company will at all times maintain a Quick
Ratio of not less than 1.0 to 1.0.
Section 7.8. 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 7.9. Tangible Net Worth. The Company will at all times maintain
Tangible Net Worth at not less than the sum of $50,465,000 plus, on a cumulative
basis, 75% of positive Net Income for each fiscal year subsequent to the fiscal
year ended December 31, 1998 plus, at the time of offering, 75% of Equity
Offerings issued after the date of this Agreement.
Section 7.10. 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 7.11. 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 7.12. 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
$10,000,000 during any fiscal year of the Company.
Section 7.13. 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 7.14(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 7.14(a) below;
(d) Indebtedness in respect of liabilities permitted under Section
7.14(c) below; and
(e) unsecured term debt owed by Micro-Controle, S.A. to financial
institutions as of the date of this Agreement; and
(f) Indebtedness in an aggregate amount not to exceed $15,000,000
solely in connection with the Corning Acquisition.
Section 7.14. 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;
(d) the Liens existing as of the date hereof and disclosed on
Exhibit C hereto;
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(e) Liens on property of the Company or any of its Subsidiaries
created solely for the purpose of securing indebtedness permitted by
Section 7.13(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; and
(g) Liens arising solely in connection with the Corning Acquisition.
Section 7.15. 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;
(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;
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(e) the present investments, loans and advances by the Company in
its Subsidiaries as disclosed on Schedule 5.2 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 7.13(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 $3,000,000, (ii) the aggregate amount of stock
consideration payable in connection with such Acquisitions does not exceed
$5,000,000, (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 7.23 hereof;
(h) investments in the form of accounts receivable arising from
sales of goods or services in the ordinary course of business;
(i) investments in the form of advances or prepayments to suppliers
in the ordinary course of business; and
(j) investments in addition to those otherwise permitted under this
Section 7.15 of a type described on Exhibit D hereto which bear the
equivalent of at least A-1 or AA by Standard & Poor's Corporation and
mature within one year; and
(k) existing minority investments in Suskiyou, ILX and Optra, and,
after the date hereof, the Company may make additional minority investments
of up to $2,000,000 per fiscal year; and
(l) the Corning Acquisition.
In determining the amount of investments, acquisitions, loans, advances and
guarantees permitted under this Section 7.15, 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 7.16. 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 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
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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 7.16, 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 10% of the Company's 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 7.17. 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 except to another Subsidiary or to
the Company; 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 7.18. 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,
provided, however, that the foregoing shall not apply to nor operate to prevent
the common stock share repurchase program approved by the Company's Board of
Directors to repurchase and retire shares issued solely for the Company's equity
compensation plans and employee stock purchase plan or to repurchase shares at
cost pursuant to rights under stock option or restricted stock purchase
agreements.
Section 7.19. 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.
Section 7.20. 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,
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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 7.21. 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 7.22. 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 7.23. Formation of Subsidiaries. Except for existing Subsidiaries
designated on Schedule 5.2 hereto, the Company shall not, nor shall it permit
any Subsidiary to, acquire any Subsidiary without the prior written consent of
the Bank, such consent not to be unreasonably withheld.
Section 7.24. 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 7.25. 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 7.26. European Monetary Union. (a) If, as a result of the EMU
Commencement, (i) any Alternative Currency ceases to be lawful currency of the
state issuing the same and is replaced by the Euro or (ii) any Alternative
Currency and the Euro are at the same time both recognized by the central bank
or comparable governmental authority of the state issuing such currency as
lawful currency of such state, then any amount payable hereunder by any party
hereto in such Alternative Currency (including, without limitation, any Loan to
be made under this Agreement) shall instead be payable in the Euro and the
amount so payable shall be determined by redenominating or converting such
amount into the Euro at the exchange rate officially fixed by the European
Central Bank for the purpose of implementing the EMU, provided, that to the
extent any EMU Legislation provides that an amount denominated either in the
Euro or in the applicable Alternative Currency can be paid either in Euros or in
the applicable Alternative Currency, each party to this Agreement shall be
entitled to pay or repay such amount in Euros or in the applicable Alternative
Currency. Prior to the occurrence of the event or events described in clause (i)
or (ii) of the preceding sentence, each amount payable hereunder in any
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such Alternative Currency will, except as otherwise provided herein, continue to
be payable only in that Alternative Currency.
(b) The Company shall from time to time, at the request of the Bank, pay
to the Bank the amount of any cost or increased cost incurred by, or of any
reduction in any amount payable to or in the effective return on its capital to,
or of interest or other return foregone by, the Bank or any holding company of
the Bank as a result of the introduction of, changeover to or operation of the
Euro in any applicable state to the extent attributable to the Bank's
obligations hereunder or for the credit which is the subject matter hereof.
(c) With respect to the payment of any amount denominated in the Euro or
in any Alternative Currency, the Bank shall not be liable to the Company in any
way whatsoever for any delay, or the consequences of any delay, in the crediting
to any account of any amount required by this Agreement to be paid by the Bank
if the Bank shall have taken all relevant steps to achieve, on the date required
by this Agreement, the payment of such amount in immediately available, freely
transferable, cleared funds (in the Euro Unit or, as the case may be, in any
Alternative Currency) to the account with the bank in the principal financial
center in the Euro Member which the Company or, as the case may be, the Bank
shall have specified for such purpose. In this paragraph (c), "all relevant
steps" means all such steps as may be prescribed from time to time by the
regulations or operating procedures of such clearing or settlement system as the
Bank may from time to time determine for the purpose of clearing or settling
payments of the Euro.
(d) If the basis of accrual of interest or fees expressed in this
Agreement with respect to the currency of any state that becomes a Euro Member
shall be inconsistent with any convention or practice in the London interbank
market for the basis of accrual of interest or fees in respect of the Euro, such
convention or practice shall replace such expressed basis effective as of and
from the date on which such state becomes a Euro Member; provided, that if any
Loan in the currency of such state is outstanding immediately prior to such
date, such replacement shall take effect, with respect to such Loan, at the end
of the then current Interest Period.
(e) In addition, this Agreement (including, without limitation, the
definition of Eurocurrency Loans) will be amended to the extent determined by
the Bank (acting reasonably and in consultation with the Company) to be
necessary to reflect such EMU Commencement and change in currency and to put the
Bank and the Company in the same position, so far as possible, that they would
have been in if such implementation and change in currency had not occurred.
Except as provided in the foregoing provisions of this Section 7.26, no such
implementation or change in currency nor any economic consequences resulting
therefrom shall (i) give rise to any right to terminate prematurely, contest,
cancel, rescind, alter, modify or renegotiate the provisions of this Agreement
or (ii) discharge, excuse or otherwise affect the performance of any obligations
of Company or the Bank under this Agreement, any Note or any other Loan
Documents.
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Section 8. Events of Default and Remedies.
Section 8.1. Events of Default. Any one or more of the following (unless
waived in writing by the Bank) shall constitute an "Event of Default" hereunder:
(a) default in the payment of any principal of any Obligation or any
principal of any other indebtedness or obligation (whether direct,
contingent or otherwise) of the Company owing to the Bank when due, whether
at the stated maturity thereof or at any time provided for in this
Agreement or default for a period of ten (10) days in the payment when due
of any interest or other Obligation payable by the Company hereunder or
under any other Loan Documents (whether at the stated maturity thereof or
at any other time provided for in this Agreement) or default for a period
of ten (10) days in the payment when due of any interest or other amount
payable in respect or 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 7.7 through 7.12 or 7.16, 7.18, 7.19, 7.24 or 7.25
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
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(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
(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 Restricted Subsidiary (other than due to merger of such Restricted
Subsidiary with and into the Company); or
(j) the Company or any Restricted Subsidiary shall (i) have entered
involuntarily against it in 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 8.1(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 8.1(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 8.2. Non-Bankruptcy Defaults. When any Event of Default described
in subsection (a) through (i), both inclusive, of Section 8.1 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 8.3. Bankruptcy Defaults. When any Event of Default described in
subsection (j) or (k) of Section 8.1 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 8.4. [Intentionally Blank].
Section 9. Miscellaneous.
Section 9.1. 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 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 9.2. 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 9.3. 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
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<PAGE>
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 9.4. 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 any consents hereunder or waivers or
amendments to this Agreement or the other Loan Documents, 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 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 9.4
shall survive the termination of this Agreement.
Section 9.5. 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 9.6. 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 9.7. 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.
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<PAGE>
Section 9.8. Notices. Except as otherwise specified herein, all notices
hereunder shall be in writing (including cable or telecopy) and shall be given
to the relevant party at its address or telecopier number set forth below, or
such other address or telecopier 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 92606
Attention: Robert C. Hewitt
Telephone: (949) 253-1405
Telecopy: (949) 253-1671
to the Bank at:
ABN AMRO Bank N.V.
300 South Grand Avenue
Suite 1115
Los Angeles, California 90071-7519
Attention: Mr. John A. Miller
Telephone: (213) 687-2072
Telecopy: (213) 687-2061
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 9.8 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 9.8 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 9.8; provided that any
notice given pursuant to Section 1 or Section 2 hereof shall be effective only
upon receipt.
Section 9.9. Currency. Each reference in this Agreement to U.S. Dollars
or to an Alternative Currency (the "relevant currency") is of the essence. To
the fullest extent permitted by law, the obligation of the Company in respect of
any amount due in the relevant currency under this Agreement shall,
notwithstanding any payment in any other currency (whether pursuant to a
judgment or otherwise), be discharged only to the extent of the amount in the
relevant currency that the Bank entitled to receive such payment may, in
accordance with normal banking procedures, purchase with the sum paid in such
other currency (after any premium and costs of exchange) on the Business Day
immediately following the day on which such party receives such payment. If the
amount in the relevant currency that may be so purchased for any reason falls
short of the amount originally due, the Company shall pay such additional
amounts,
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<PAGE>
in the relevant currency, as may be necessary to compensate for the shortfall.
Any obligations of the Company not discharged by such payment shall, to the
fullest extent permitted by applicable law, be due as a separate and independent
obligation and, until discharged as provided herein, shall continue in full
force and effect.
Section 9.10. Currency Equivalence. If for the purpose of obtaining
judgment in any court it is necessary to convert a sum due from the Company
hereunder or under the Note in the currency expressed to be payable herein or
under the Note (the "specified currency") into another currency, the parties
agree that the rate of exchange used shall be that at which in accordance with
normal banking procedures the Bank could purchase the specified currency with
such other currency on the Business Day preceding that on which final judgment
is given. The obligation of the Company in respect of any such sum due to the
Bank hereunder or under the Note shall, notwithstanding any judgment in a
currency other than the specified currency, be discharged only to the extent
that on the Business Day following receipt by the Bank of any sum adjudged to be
so due in such other currency, may in accordance with normal banking procedures
purchase the specified currency with such other currency. If the amount of the
specified currency so purchased is less than the sum originally due to the Bank
in the specified currency, the Company agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify the Bank against such loss, and
if the amount of the specified currency so purchased exceeds the amount
originally due to the Bank in the specified currency.
Section 9.11. 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 9.12. 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 9.13. Counterparts. This Agreement may be executed in any number
of counterparts, and by different parties hereto no separate counterpart
signature pages, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
Section 9.14. 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.
Section 9.15. 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
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<PAGE>
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.
[Remainder of this Page Intentionally Blank]
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<PAGE>
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 29th day of October, 1999.
Newport Corporation
By:________________________________
Its_____________________________
Accepted and agreed to as of the day and year last above written.
ABN AMRO Bank N.V.
By:________________________________
Its:____________________________
By:________________________________
Its:____________________________
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<PAGE>
Exhibit A
Newport Corporation
Revolving Credit Note
$10,000,000 October 29, 1999
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) Ten Million and no/100
Dollars ($10,000,000), 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 364-Day $10,000,000
Revolving Credit Agreement dated as of October 29, 1999 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 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.
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<PAGE>
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:______________________________
Its:_______________________________
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<PAGE>
Exhibit B
Compliance Certificate
This Compliance Certificate is furnished to ABN AMRO Bank N.V. (the "Bank")
pursuant to that certain 364-Day $10,000,000 Revolving Credit Agreement dated as
of October 29, 1999, 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 7.5 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.
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
existing and the action which the Company has taken, is taking, or proposes to
take with respect to each such condition or event:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
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<PAGE>
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__.
Newport Corporation
By
Its:_____________________________
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<PAGE>
Attachment to Compliance Certificate
Newport Corporation
Compliance Calculations for Credit Agreement
Dated as of October 29, 1999
Calculations as of ____________, 19__
================================================================================
A. Quick Ratio (Section 7.7)
-------------------------
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 7.9)
--------------------------------
1. Total shareholder's equity $___________
B1
2. Sum of:
(i) intangibles $___________
(ii) write-up of assets $___________
$___________
B2
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
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<PAGE>
C. Leverage Ratio (Section 7.8)
----------------------------
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 7.11)
--------------------------------------
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
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 7.10)
-------------------------
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
-2-
<PAGE>
5. Line E2 amount must exceed $0
Company in compliance yes/no
F. Capital Expenditures (Section 7.12)
-----------------------------------
1. Capital expenditures fiscal year to date $___________
F1
2. Line F1 amount must not exceed $10,000,000
Company in compliance? yes/no
-3-
<PAGE>
Exhibit C
Existing Liens
None, other than those liens permitted under Section 7.14.
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<PAGE>
Exhibit D
"U.S. Treasury Securities" - Obligations of the U.S. government. Bills
have a maturity of one year or less and are sold on a discount basis. Notes
have maturities of one to seven years and bonds have longer maturities; both are
interest-bearing.
"U.S. Government Agency Securities" - Obligations of the U.S. government
agencies or departments - some owned by the federal government, some sponsored
by it but privately held.
"Domestic" or "Eurodollar Certificates" or "Deposits" - U.S. dollar
deposits or certificates of deposit, held domestically or overseas from one day
to five years.
"Bankers Acceptances" - Time drafts sold on a discount basis with a
maturity of six months or less, with a bank accepting primary responsibility for
paying the draft whether or not the customer has repaid the bank.
"Money Market Funds" - Daily funds invested in a portfolio of short-term
instruments, with special funds developed for corporate use. Smith Barney's
Money Fund Cash Portfolio Class A and Temporary Investment Fund, Inc. are
included in this approved group.
"Commercial Paper" - Company short-term unsecured promissory notes with a
fixed maturity, sold on a discount basis from one to 270 days.
"Municipal Government Notes and Bonds" - Securities issued by a state or
local government, usually tax exempt.
"Floating Rate Municipal Notes and Bonds" - Variable rate long term
municipal bonds which may be "put back" to the issuer at par plus accrued
interest at frequent intervals.
"Municipal Auction Rate Preferred Stock" - Mutual funds based on a
diversified portfolio of municipal bonds, by law backed by assets equal to at
least 200% of face value, and bearing interest at auction set rates in frequent
intervals.
"Taxable Municipal Auction Rate Notes" - Notes issued by non-profit
corporations which bear interest at auction set rates on a taxable basis.
"Corporate Notes" - Corporate unsecured promissory notes with a fixed
maturity from nine months to 15 years.
"Corporate Auction Rate Preferred Stock" - Corporate perpetual preferred
stock with a floating rate dividend eligible for the 70% intercorporate dividend
received deduction. The dividend pricing mechanism ensures that the stock will
trade at par on auction dates.
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<PAGE>
Schedule 5.2
Subsidiaries
<TABLE>
<CAPTION>
Jurisdiction of Percentage
Name Incorporation Ownership
<S> <C> <C>
Micro-Controle Benelux S.A. (inactive) Belgium 100*
Newport Domestic International Sales Corp. California 100
(inactive)
Newport European Distribution Company California 100
Newport Government Systems, Inc. California 100
(inactive)
Newport Instruments Canada Corporation Canada 100
MC Holding S.A. France 100*
Micro-Controle S.A. (1) France 100*
Newport GmbH Germany 100
Micro-Controle Italia SRL Italy 100
Newport BV Netherlands 100
Newport Instruments AG Switzerland 100
Micro-Controle Holdings Ltd. (inactive) (2) United Kingdom 100
Micro-Controle Ltd. (inactive) (2) United Kingdom 100
Micro-Controle UK Ltd. (inactive) (2) United Kingdom 100
Newport Ltd. United Kingdom 100
Newport Foreign Sales Corporation Barbados 100
Environmental Optical Sensors, Inc. Colorado 100
</TABLE>
*Director's Shares exist for this Subsidiary
(1) Owned directly by MC Holding S.A.
(2) Owned directly by Newport Ltd.
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<PAGE>
Exhibit 10.10
================================================================================
3-Year
$15,000,000
Revolving Credit Agreement
Dated as of
October 29, 1999
between
Newport Corporation
and
ABN AMRO Bank N.V.
================================================================================
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<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Description Page
<S> <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......................................................... 6
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. Terminations...................................................................... 9
Section 3.4. Place and Application of Payments................................................. 9
Section 3.5. Notations......................................................................... 9
Section 4. Definitions; Interpretation....................................................... 10
Section 4.1. Definitions....................................................................... 10
Section 4.2. Interpretation.................................................................... 17
Section 5. Representations and Warranties.................................................... 18
Section 5.1. Organization and Qualification.................................................... 18
Section 5.2. Subsidiaries...................................................................... 18
Section 5.3. Corporate Authority and Validity of Obligations................................... 18
Section 5.4. Use of Proceeds; Margin Stock..................................................... 19
Section 5.5. Financial Reports................................................................. 19
Section 5.6. No Material Adverse Change........................................................ 20
Section 5.7. Full Disclosure................................................................... 20
Section 5.8. Good Title........................................................................ 20
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 5.9. Litigation and Other Controversies................................................ 20
Section 5.10. Taxes............................................................................. 20
Section 5.11. Approvals......................................................................... 20
Section 5.12. Affiliate Transactions............................................................ 20
Section 5.13. Investment Company; Public Utility Holding Company................................ 21
Section 5.14. ERISA............................................................................. 21
Section 5.15. Compliance with Laws.............................................................. 21
Section 5.16. Other Agreements.................................................................. 21
Section 5.17. No Default........................................................................ 21
Section 6. Conditions Precedent.............................................................. 22
Section 6.1. All Advances...................................................................... 22
Section 6.2. Initial Advance................................................................... 22
Section 7. Covenants......................................................................... 23
Section 7.1. Maintenance of Business........................................................... 23
Section 7.2. Maintenance of Properties......................................................... 23
Section 7.3. Taxes and Assessments............................................................. 24
Section 7.4. Insurance......................................................................... 24
Section 7.5. Financial Reports................................................................. 24
Section 7.6. Inspection........................................................................ 26
Section 7.7. Quick Ratio....................................................................... 26
Section 7.8. Leverage Ratio.................................................................... 26
Section 7.9. Tangible Net Worth................................................................ 26
Section 7.10. Net Income........................................................................ 26
Section 7.11. Interest Coverage Ratio........................................................... 26
Section 7.12. Capital Expenditures.............................................................. 26
Section 7.13. Indebtedness for Borrowed Money................................................... 26
Section 7.14. Liens............................................................................. 27
Section 7.15. Investments, Acquisitions, Loans, Advances and Guaranties......................... 28
Section 7.16. Mergers, Consolidations and Sales................................................. 29
Section 7.17. Maintenance of Subsidiaries....................................................... 30
Section 7.18. Dividends and Certain Other Restricted Payments................................... 30
Section 7.19. ERISA............................................................................. 30
Section 7.20. Compliance with Laws.............................................................. 31
Section 7.21. Burdensome Contracts With Affiliates.............................................. 31
Section 7.22. No Changes in Fiscal Year......................................................... 31
Section 7.23. Formation of Subsidiaries......................................................... 31
Section 7.24. Change in the Nature of Business.................................................. 31
Section 7.25. Limitation on Certain Restrictions on Subsidiaries................................ 31
Section 7.26. European Monetary Union........................................................... 31
Section 8. Events of Default and Remedies.................................................... 33
Section 8.1. Events of Default................................................................. 33
</TABLE>
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<TABLE>
<S> <C>
Section 8.2. Non-Bankruptcy Defaults........................................................... 35
Section 8.3. Bankruptcy Defaults............................................................... 35
Section 8.4. Collateral for Undrawn Letters of Credit.......................................... 35
Section 9. Miscellaneous..................................................................... 35
Section 9.1. Non-Business Day.................................................................. 35
Section 9.2. No Waiver, Cumulative Remedies.................................................... 36
Section 9.3. Amendments, Etc................................................................... 36
Section 9.4. Costs and Expenses................................................................ 36
Section 9.5. Documentary Taxes................................................................. 36
Section 9.6. Survival of Representations....................................................... 37
Section 9.7. Survival of Indemnities........................................................... 37
Section 9.8. Notices........................................................................... 37
Section 9.9. Currency.......................................................................... 38
Section 9.10. Currency Equivalence.............................................................. 38
Section 9.11. Headings.......................................................................... 38
Section 9.12. Severability of Provisions........................................................ 38
Section 9.13. Counterparts...................................................................... 39
Section 9.14. Binding Nature, Governing Law, Etc................................................ 39
Section 9.15. Submission to Jurisdiction; Appointment of Agent for Process;
Waiver of Jury Trial........................................................... 39
Section 9.16. Outstanding Letters of Credit..................................................... 39
</TABLE>
Exhibit A - Revolving Credit Note
Exhibit B - Compliance Certificate
Exhibit C - Existing Liens
Exhibit D - Certain Investment Descriptions
Schedule 5.2 - Subsidiaries
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Exhibit 10.10
Credit Agreement
ABN AMRO Bank N.V.
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 $15,000,000
(which, in the case of Letters of Credit issued in an Alternative Currency,
means the U.S. Dollar Equivalent thereof computed as set forth in Section 1.3(a)
hereof) (the "Commitment", as such amount may be reduced pursuant to Section 3.3
hereof). 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 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.
<PAGE>
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
(together with the Outstanding Letters of Credit being hereinafter referred to
individually as 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 $10,000,000. 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 (which, in the case of Letters of Credit issued
in an Alternative Currency shall mean the U.S. Dollar Equivalent thereof). 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 or in an Alternative Currency, 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
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 or in
the case of a Letter of Credit issued in an Alternative Currency, local time at
the place of issuance) 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
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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 6 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) 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) 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. All payments on account of any reimbursement obligations in
respect of a Letter of Credit issued in an Alternative Currency shall be made in
such Alternative Currency.
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 of Section 6 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
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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 equal 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 October 31, 1999) 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 1% 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 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.
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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 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
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<PAGE>
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 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
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(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.
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) or 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 or issue Letters of Credit hereunder at
or through 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.
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Section 3. Fees, Prepayments, Terminations and Applications.
Section 3.1. Fees.
(a) 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 0.20% 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 October 31, 1999) and on the Termination Date.
(b) 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 1.00% 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.
Section 3.3. 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
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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 3.4. 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 (a) its principal office in Los
Angeles, California (or at such other place as the Bank may specify) or (b) if
such payment is to be made in an Alternative Currency, no later than 11:00 a.m.
local time at the place of payment to such office as the Bank has previously
notified the Company. Payments received by the Bank after 11:00 a.m. 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 3.5. 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 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. Definitions; Interpretation.
Section 4.1. 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.
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"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 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.
"Alternative Currency" means a currency other than U.S. Dollars acceptable
to the Bank in its reasonable discretion.
"Application" is defined in Section 1.3 hereof.
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"Authorized Representative" means those persons shown on the lists of
officers provided the Company pursuant to Section 6.2(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.
"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 and when used with respect to any Letter of credit issued in an
Alternative Currency, on which banks and foreign exchange markets are open for
business in the city where issuance, or payments in respect of such Letter of
Credit are being made.
"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.
"Corning Acquisition" means the Acquisition of the assets of a division of
Corning, Incorporated relating to the letter of intent issued by the Company to
Corning, International with a total purchase price not to exceed $12,000,000.
"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%).
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"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.
"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.
"EMU" shall mean economic and monetary union as contemplated in the Treaty
on European Union.
"EMU Commencement" shall mean the date of commencement of the third stage
of EMU, namely January 1, 1999.
"EMU Legislation" shall mean legislative measures of the European Council
for the introduction of, changeover to or operation of a single or unified
European currency (whether known as the "euro" or otherwise), being in part the
implementation of the third stage of EMU.
"Equity Offering" means any issuance of equity securities (whether common
or preferred stock or otherwise), other than common stock issued in connection
with the exercise of employee stock options.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.
"Euro" shall mean the single currency of Euro Members of the European
Union.
"Eurocurrency Loans" shall have the meaning set forth in Section 3.1
hereof.
"Euro Member" shall mean each state described as a "participating member
state" in any EMU Legislation.
"Euro Unit" shall mean the currency unit of the Euro.
"Event of Default" means any event or condition identified as such in
Section 8.1 hereof.
"Facilities" means the loans made under the 364-Day Agreement and the Loans
made hereunder.
"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
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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 5.5 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, commencing 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 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;
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(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.
"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 extraordinary
profits and also excluding any taxes on such profits.
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"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.
"Original Dollar Amount" means in relation to any Letter of Credit issued
in an Alternative Currency, the U.S. Dollar Equivalent of the amount (computed
as set forth in Section 1.3(a) hereof) of such Letter of Credit on the date it
is issued.
"Outstanding Letters of Credit" means all outstanding letters of credit
heretofore issued by the Bank (whether directly or through one of its branches
or affiliates) for the account of the Company, including but not limited to,
letters of credit issued under the Prior Credit Agreement.
"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 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.
"Prior Credit Agreement" means that certain Credit Agreement dated as of
February 26, 1998 between the Company and the Bank, as amended.
"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 he
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
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permitted by Section 7.15(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 Facilities.
"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, 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 September 30, 2002, or such earlier date on which
the Commitment is terminated in whole pursuant to Section 3.3, 8.2 or 8.3
hereof.
"364-Day Agreement" means that certain 364-Day $10,000,000 Revolving Credit
Agreement dated as of October 29, 1999 between the Company and the Bank.
"Treaty on European Union" shall mean the Treaty of Rome of March 25, 1957,
as amended by the Single European Act of 1986 and the Maastricht Treaty (which
was signed at Maastricht on February 7, 1992, and came into force on November 1,
1993, as amended from time to time).
"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
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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 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.
"U.S. Dollars" means the lawful currency of the United States of America.
"U.S. Dollar Equivalent" means the amount of U.S. Dollars which would be
realized by converting an Alternative Currency into U.S. Dollars in the spot
market at the exchange rate quoted by the Bank at approximately 11:00 a.m.
(London, England time) two Business Days prior to the date on which a
computation thereof is required to be made, to major banks in the interbank
market for the purchase of U.S. Dollars for such Alternative Currency.
"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 4.2. 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 Los Angeles, California 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 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 5. Representations and Warranties.
The Company represents and warrants to the Bank as follows:
Section 5.1. 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
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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 5.2. 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 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 5.2 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 shares, and fully paid and nonassessable and all such shares and
other equity interests indicated on Schedule 5.2 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 5.3. 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 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 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 5.4. 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 (other than the Outstanding
Letters of Credit) owing to the Bank under the Prior Credit Agreement and for
its general working capital purposes and shall use standby Letters of Credit
issued hereunder solely in connection with performance bonding requirements or
guarantee requirements in connection with Permitted Indebtedness of the Company
or its
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Subsidiaries hereunder in the ordinary course of its business. The initial Loans
hereunder shall be in an amount necessary to so refinance and concurrently
therewith the Prior Credit Agreement shall terminate. 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 5.5. Financial Reports. The consolidated balance sheet of the
Company and its Subsidiaries as at December 31, 1998 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 June 30,
1999 and the related consolidated statements of income, retained earnings and
cash flows of the Company and its Subsidiaries for the six (6) 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 subject in the case of interim balance sheet to normal year-end
adjustment and in the absence of footnotes. 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 7.5 hereof.
Section 5.6. No Material Adverse Change. Since June 30, 1999, there has
been no change in the condition (financial or otherwise) or business prospects
of the Company or any Subsidiary except those occurring in the ordinary course
of business, none of which individually or in the aggregate constitute a
Materially Adverse Effect.
Section 5.7. 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 5.8. 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 7.14 hereof.
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Section 5.9. Litigation and Other Controversies. 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 5.10. Taxes. 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 5.11. 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.
Section 5.12. 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 5.13. 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 5.14. 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 5.15. 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
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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 5.16. 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.
Section 5.17. No Default. No Default or Event of Default has occurred and
is continuing.
Section 6. 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 6.1. 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
5 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 Commitment;
(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.
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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 6.2. Initial Advance. At or prior to the making of the initial
extension of credit hereunder, the following conditions precedent shall also
have been satisfied:
(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
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 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; and
(g) the Bank shall have received such other agreements, instruments,
documents, certificates and opinions as the Bank may reasonably request.
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Section 7. 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 7.1. 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 7.2. 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 7.3. 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 7.4. 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.
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 7.5. 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 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
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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;
(b) 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;
(c) within the period provided in subsection (b) 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;
(d) 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;
(e) 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;
(f) 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
(g) 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
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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
(a) and (b) of this Section shall be accompanied by a written certificate in the
form attached hereto as Exhibit B 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 7.7, 7.8, 7.9, 7.10, 7.11 and
7.12 of this Agreement.
Section 7.6. 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 7.7. Quick Ratio. The Company will at all times maintain a Quick
Ratio of not less than 1.0 to 1.0.
Section 7.8. 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 7.9. Tangible Net Worth. The Company will at all times maintain
Tangible Net Worth at not less than the sum of $50,465,000 plus, on a cumulative
basis, 75% of positive Net Income for each fiscal year subsequent to the fiscal
year ended December 31, 1998 plus, at the time of offering, 75% of Equity
Offerings issued after the date of this Agreement.
Section 7.10. 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 7.11. 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 7.12. Capital Expenditures. The Company will not, nor will it
permit any Subsidiary to, expend or become obligated for capital expenditures
(as determined in accordance
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with GAAP) in an aggregate amount in excess of $10,000,000 during any fiscal
year of the Company.
Section 7.13. 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"):
(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 7.14(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 7.14(a) below;
(d) Indebtedness in respect of liabilities permitted under Section
7.14(c) below; and
(e) unsecured term debt owed by Micro-Controle, S.A. to financial
institutions as of the date of this Agreement; and
(f) Indebtedness in an aggregate amount not to exceed $15,000,000
solely in connection with the Corning Acquisition.
Section 7.14. 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;
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(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;
(d) the Liens existing as of the date hereof and disclosed on
Exhibit C hereto;
(e) Liens on property of the Company or any of its Subsidiaries
created solely for the purpose of securing indebtedness permitted by
Section 7.13(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; and
(g) Liens arising solely in connection with the Corning Acquisition.
Section 7.15. 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 5.2 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 7.13(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 $3,000,000, (ii) the aggregate amount of stock
consideration payable in connection with such Acquisitions does not exceed
$5,000,000, (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 7.23 hereof;
(h) investments in the form of accounts receivable arising from
sales of goods or services in the ordinary course of business;
(i) investments in the form of advances or prepayments to suppliers
in the ordinary course of business; and
(j) investments in addition to those otherwise permitted under this
Section 7.15 of a type described on Exhibit D hereto which bear the
equivalent of at least A-1 or AA by Standard & Poor's Corporation and
mature within one year;
(k) existing minority investments in Siskiyou, ILX and Optra, and,
after the date hereof, the Company may make additional minority investments
of up to $2,000,000 per fiscal year; and
(l) the Corning Acquisition.
In determining the amount of investments, acquisitions, loans, advances and
guarantees permitted under this Section 7.15, 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.
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Section 7.16. 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 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 7.16, 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 10% of the Company's 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 7.17. 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 except to another Subsidiary or to
the Company; 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 7.18. 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,
provided, however, that the foregoing shall not apply to nor operate to prevent
the common stock share repurchase program approved by the Company's Board of
Directors to repurchase and retire shares issued solely for the Company's equity
compensation plans and employee stock purchase plan or to repurchase shares at
cost pursuant to rights under stock option or restricted stock purchase
agreements.
Section 7.19. 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
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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.
Section 7.20. 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 7.21. 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 7.22. 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 7.23. Formation of Subsidiaries. Except for existing Subsidiaries
designated on Schedule 5.2 hereto, the Company shall not, nor shall it permit
any Subsidiary to, acquire any Subsidiary without the prior written consent of
the Bank, such consent not to be unreasonably withheld.
Section 7.24. 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 7.25. 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 7.26. European Monetary Union. (a) If, as a result of the EMU
Commencement, (i) any Alternative Currency ceases to be lawful currency of the
state issuing the same and is replaced by the Euro or (ii) any Alternative
Currency and the Euro are at the same time both recognized by the central bank
or comparable governmental authority of the state issuing such currency as
lawful currency of such state, then any amount payable hereunder by any party
hereto in such Alternative Currency (including, without limitation, any Loan to
be made under this Agreement) shall instead be payable in the Euro and the
amount so payable shall be
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determined by redenominating or converting such amount into the Euro at the
exchange rate officially fixed by the European Central Bank for the purpose of
implementing the EMU, provided, that to the extent any EMU Legislation provides
that an amount denominated either in the Euro or in the applicable Alternative
Currency can be paid either in Euros or in the applicable Alternative Currency,
each party to this Agreement shall be entitled to pay or repay such amount in
Euros or in the applicable Alternative Currency. Prior to the occurrence of the
event or events described in clause (i) or (ii) of the preceding sentence, each
amount payable hereunder in any such Alternative Currency will, except as
otherwise provided herein, continue to be payable only in that Alternative
Currency.
(b) The Company shall from time to time, at the request of the Bank, pay
to the Bank the amount of any cost or increased cost incurred by, or of any
reduction in any amount payable to or in the effective return on its capital to,
or of interest or other return foregone by, the Bank or any holding company of
the Bank as a result of the introduction of, changeover to or operation of the
Euro in any applicable state to the extent attributable to the Bank's
obligations hereunder or for the credit which is the subject matter hereof.
(c) With respect to the payment of any amount denominated in the Euro or
in any Alternative Currency, the Bank shall not be liable to the Company in any
way whatsoever for any delay, or the consequences of any delay, in the crediting
to any account of any amount required by this Agreement to be paid by the Bank
if the Bank shall have taken all relevant steps to achieve, on the date required
by this Agreement, the payment of such amount in immediately available, freely
transferable, cleared funds (in the Euro Unit or, as the case may be, in any
Alternative Currency) to the account with the bank in the principal financial
center in the Euro Member which the Company or, as the case may be, the Bank
shall have specified for such purpose. In this paragraph (c), "all relevant
steps" means all such steps as may be prescribed from time to time by the
regulations or operating procedures of such clearing or settlement system as the
Bank may from time to time determine for the purpose of clearing or settling
payments of the Euro.
(d) If the basis of accrual of interest or fees expressed in this
Agreement with respect to the currency of any state that becomes a Euro Member
shall be inconsistent with any convention or practice in the London interbank
market for the basis of accrual of interest or fees in respect of the Euro, such
convention or practice shall replace such expressed basis effective as of and
from the date on which such state becomes a Euro Member; provided, that if any
Loan in the currency of such state is outstanding immediately prior to such
date, such replacement shall take effect, with respect to such Loan, at the end
of the then current Interest Period.
(e) In addition, this Agreement (including, without limitation, the
definition of Eurocurrency Loans) will be amended to the extent determined by
the Bank (acting reasonably and in consultation with the Company) to be
necessary to reflect such EMU Commencement and change in currency and to put the
Bank and the Company in the same position, so far as possible, that they would
have been in if such implementation and change in currency had not occurred.
Except as provided in the foregoing provisions of this Section 7.26, no such
implementation or change in currency nor any economic consequences resulting
therefrom shall (i) give rise to any right to terminate prematurely, contest,
cancel, rescind, alter, modify or renegotiate the
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provisions of this Agreement or (ii) discharge, excuse or otherwise affect the
performance of any obligations of Company or the Bank under this Agreement, any
Note or any other Loan Documents.
Section 8. Events of Default and Remedies.
Section 8.1. Events of Default. Any one or more of the following (unless
waived in writing by the Bank) shall constitute an "Event of Default" hereunder:
(a) default in the payment of any principal of any Obligation or any
principal of any other indebtedness or obligation (whether direct,
contingent or otherwise) of the Company owing to the Bank when due, whether
at the stated maturity thereof or at any time provided for in this
Agreement or default for a period of ten (10) days in the payment when due
of any interest or other Obligation payable by the Company hereunder or
under any other Loan Documents (whether at the stated maturity thereof or
at any other time provided for in this Agreement) or default for a period
of ten (10) days in the payment when due of any interest or other amount
payable in respect or 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 7.7 through 7.12 or 7.16, 7.18, 7.19, 7.24 or 7.25
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
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<PAGE>
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
(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 Restricted Subsidiary (other than due to merger of such Restricted
Subsidiary with and into the Company); or
(j) the Company or any Restricted Subsidiary shall (i) have entered
involuntarily against it in 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 8.1(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 8.1(j)(v) shall be instituted against
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<PAGE>
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.
Section 8.2. Non-Bankruptcy Defaults. When any Event of Default described
in subsection (a) through (i), both inclusive, of Section 8.1 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 8.3. Bankruptcy Defaults. When any Event of Default described in
subsection (j) or (k) of Section 8.1 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 8.4. 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 8.1, 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 8.1 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 9. Miscellaneous.
Section 9.1. 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 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
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<PAGE>
effect, which accrued amount shall be due and payable on the next scheduled date
for the payment of interest.
Section 9.2. 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 9.3. 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 9.4. 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 any consents hereunder or waivers or
amendments to this Agreement or the other Loan Documents, 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 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 9.4
shall survive the termination of this Agreement.
Section 9.5. 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.
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<PAGE>
Section 9.6. 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 9.7. 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 and Letters of Credit, 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 and the reimbursement obligations with
respect to the Letters of Credit.
Section 9.8. Notices. Except as otherwise specified herein, all notices
hereunder shall be in writing (including cable or telecopy) and shall be given
to the relevant party at its address or telecopier number set forth below, or
such other address or telecopier 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 92606
Attention: Robert C. Hewitt
Telephone: (949) 253-1405
Telecopy: (949) 253-1671
to the Bank at:
ABN AMRO Bank N.V.
300 South Grand Avenue
Suite 1115
Los Angeles, California 90071-7519
Attention: Mr. John A. Miller
Telephone: (213) 687-2072
Telecopy: (213) 687-2061
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 9.8 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 9.8 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 9.8; provided
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<PAGE>
that any notice given pursuant to Section 1 or Section 2 hereof shall be
effective only upon receipt.
Section 9.9. Currency. Each reference in this Agreement to U.S. Dollars or
to an Alternative Currency (the "relevant currency") is of the essence. To the
fullest extent permitted by law, the obligation of the Company in respect of any
amount due in the relevant currency under this Agreement shall, notwithstanding
any payment in any other currency (whether pursuant to a judgment or otherwise),
be discharged only to the extent of the amount in the relevant currency that the
Bank entitled to receive such payment may, in accordance with normal banking
procedures, purchase with the sum paid in such other currency (after any premium
and costs of exchange) on the Business Day immediately following the day on
which such party receives such payment. If the amount in the relevant currency
that may be so purchased for any reason falls short of the amount originally
due, the Company shall pay such additional amounts, in the relevant currency, as
may be necessary to compensate for the shortfall. Any obligations of the Company
not discharged by such payment shall, to the fullest extent permitted by
applicable law, be due as a separate and independent obligation and, until
discharged as provided herein, shall continue in full force and effect.
Section 9.10. Currency Equivalence. If for the purpose of obtaining
judgment in any court it is necessary to convert a sum due from the Company
hereunder or under the Note or applications in the currency expressed to be
payable herein or under the Note or Applications (the "specified currency") into
another currency, the parties agree that the rate of exchange used shall be that
at which in accordance with normal banking procedures the Bank could purchase
the specified currency with such other currency on the Business Day preceding
that on which final judgment is given. The obligation of the Company in respect
of any such sum due to the Bank hereunder or under the Note or any Application
shall, notwithstanding any judgment in a currency other than the specified
currency, be discharged only to the extent that on the Business Day following
receipt by the Bank of any sum adjudged to be so due in such other currency, may
in accordance with normal banking procedures purchase the specified currency
with such other currency. If the amount of the specified currency so purchased
is less than the sum originally due to the Bank in the specified currency, the
Company agrees, as a separate obligation and notwithstanding any such judgment,
to indemnify the Bank against such loss, and if the amount of the specified
currency so purchased exceeds the amount originally due to the Bank in the
specified currency.
Section 9.11. 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 9.12. 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 9.13. Counterparts. This Agreement may be executed in any number of
counterparts, and by different parties hereto no separate counterpart signature
pages, and all such counterparts taken together shall be deemed to constitute
one and the same instrument.
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<PAGE>
Section 9.14. 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.
Section 9.15. 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.
Section 9.16. Outstanding Letters of Credit. The Company and the Bank agree
that the Outstanding Letters of Credit shall, for all purposes of this
Agreement, constitute Letters of Credit outstanding hereunder and all risk
allocation or guaranty agreements executed and delivered in connection therewith
shall remain in full force and effect.
[The Remainder of Page Intentionally Left Blank]
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<PAGE>
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 29th day of October, 1999.
Newport Corporation
By:_______________________________
Its____________________________
Accepted and agreed to as of the day and year last above written.
ABN AMRO Bank N.V.
By:_______________________________
Its:__________________________
By:_______________________________
Its:__________________________
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<PAGE>
Exhibit A
Newport Corporation
Revolving Credit Note
$15,000,000 October 29, 1999
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 3-Year $15,000,000
Revolving Credit Agreement dated as of October 29, 1999 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 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.
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<PAGE>
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:____________________________
Its:_____________________________
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<PAGE>
Exhibit B
Compliance Certificate
This Compliance Certificate is furnished to ABN AMRO Bank N.V. (the "Bank")
pursuant to that certain 3-Year $15,000,000 Revolving Credit Agreement dated as
of October 29, 1999, 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 7.5 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.
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
existing and the action which the Company has taken, is taking, or proposes to
take with respect to each such condition or event:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
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__.
Newport Corporation
By
Its:______________________________
-2-
<PAGE>
Attachment to Compliance Certificate
Newport Corporation
Compliance Calculations for Credit Agreement
Dated as of October 29, 1999
Calculations as of ____________, 19__
================================================================================
A. Quick Ratio (Section 7.7)
-------------------------
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 7.9)
--------------------------------
1. Total shareholder's equity $___________
B1
2. Sum of:
(i) intangibles $__________
(ii) write-up of assets $__________
$___________
B2
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
<PAGE>
C. Leverage Ratio (Section 7.8)
----------------------------
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 7.11)
--------------------------------------
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
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 7.10)
-------------------------
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
-2-
<PAGE>
5. Line E2 amount must exceed $0
Company in compliance yes/no
F. Capital Expenditures (Section 7.12)
-----------------------------------
1. Capital expenditures fiscal year to date $___________
F1
2. Line F1 amount must not exceed $10,000,000
Company in compliance? yes/no
-3-
<PAGE>
Exhibit C
Existing Liens
None, other than those liens permitted under Section 7.14.
<PAGE>
Exhibit D
"U.S. Treasury Securities" - Obligations of the U.S. government. Bills
have a maturity of one year or less and are sold on a discount basis. Notes have
maturities of one to seven years and bonds have longer maturities; both are
interest-bearing.
"U.S. Government Agency Securities" - Obligations of the U.S. government
agencies or departments - some owned by the federal government, some sponsored
by it but privately held.
"Domestic" or "Eurodollar Certificates" or "Deposits" - U.S. dollar
deposits or certificates of deposit, held domestically or overseas from one day
to five years.
"Bankers Acceptances" - Time drafts sold on a discount basis with a
maturity of six months or less, with a bank accepting primary responsibility for
paying the draft whether or not the customer has repaid the bank.
"Money Market Funds" - Daily funds invested in a portfolio of short-term
instruments, with special funds developed for corporate use. Smith Barney's
Money Fund Cash Portfolio Class A and Temporary Investment Fund, Inc. are
included in this approved group.
"Commercial Paper" - Company short-term unsecured promissory notes with a
fixed maturity, sold on a discount basis from one to 270 days.
"Municipal Government Notes and Bonds" - Securities issued by a state or
local government, usually tax exempt.
"Floating Rate Municipal Notes and Bonds" - Variable rate long term
municipal bonds which may be "put back" to the issuer at par plus accrued
interest at frequent intervals.
"Municipal Auction Rate Preferred Stock" - Mutual funds based on a
diversified portfolio of municipal bonds, by law backed by assets equal to at
least 200% of face value, and bearing interest at auction set rates in frequent
intervals.
"Taxable Municipal Auction Rate Notes" - Notes issued by non-profit
corporations which bear interest at auction set rates on a taxable basis.
"Corporate Notes" - Corporate unsecured promissory notes with a fixed
maturity from nine months to 15 years.
"Corporate Auction Rate Preferred Stock" - Corporate perpetual preferred
stock with a floating rate dividend eligible for the 70% intercorporate dividend
received deduction. The dividend pricing mechanism ensures that the stock will
trade at par on auction dates.
<PAGE>
Schedule 5.2
Subsidiaries
<TABLE>
<CAPTION>
Jurisdiction of Percentage
Name Incorporation Ownership
<S> <C> <C>
Micro-Controle Benelux S.A. (inactive) Belgium 100*
Newport Domestic International Sales Corp. California 100
(inactive)
Newport European Distribution Company California 100
Newport Government Systems, Inc. California 100
(inactive)
Newport Instruments Canada Corporation Canada 100
MC Holding S.A. France 100*
Micro-Controle S.A. (1) France 100*
Newport GmbH Germany 100
Micro-Controle Italia SRL Italy 100
Newport BV Netherlands 100
Newport Instruments AG Switzerland 100
Micro-Controle Holdings Ltd. (inactive) (2) United Kingdom 100
Micro-Controle Ltd. (inactive) (2) United Kingdom 100
Micro-Controle UK Ltd. (inactive) (2) United Kingdom 100
Newport Ltd. United Kingdom 100
Newport Foreign Sales Corporation Barbados 100
Environmental Optical Sensors, Inc. Colorado 100
</TABLE>
*Director's Shares exist for this Subsidiary
(1) Owned directly by MC Holding S.A.
(2) Owned directly by Newport Ltd.
<PAGE>
Exhibit 10.11
NEWPORT CORPORATION
1999 STOCK INCENTIVE PLAN
This 1999 STOCK INCENTIVE PLAN (the "Plan") is hereby established and
adopted this 18th day of November, 1999 (the "Effective Date") by Newport
Corporation, a Nevada corporation (the "Company").
ARTICLE 1
PURPOSES OF THE PLAN
1.1 Purposes. The purposes of the Plan are (a) to enhance the
Company's ability to attract, motivate and retain the services of qualified
employees, officers, directors, consultants and other service providers (to the
extent qualifying under Article 3 hereof) upon whose judgment, initiative and
efforts the successful conduct and development of the Company's business largely
depends, and (b) to provide additional incentives to such persons or entities to
devote their utmost effort and skill to the advancement and betterment of the
Company, by providing them an opportunity to participate in the ownership of the
Company and thereby have an interest in the success and increased value of the
Company.
ARTICLE 2
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 Administrator. "Administrator" means the Board or, if the Board
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.
2.2 Affiliated Company. "Affiliated Company" means any "parent
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 Board. "Board" means the Board of Directors of the Company.
2.4 Cause. "Cause" means, with respect to the termination of a
Participant's employment, termination of such employment by the Company for any
of the following reasons:
(a) The continued refusal or omission by the Participant to
perform any material duties required of him by the Company if such duties are
consistent with duties customary for the position held with the Company;
(b) Any material act or omission by the Participant involving
malfeasance or gross negligence in the performance of Participant's duties to,
or material deviation from any of the policies or directives of, the Company;
1
<PAGE>
(c) Conduct on the part of Participant which constitutes the breach
of any statutory or common law duty of loyalty to the Company; or
(d) Any illegal act by Participant which materially and adversely
affects the business of the Company or any felony committed by Participant, as
evidenced by conviction thereof, provided that the Company may suspend
Participant with pay while any allegation of such illegal or felonious act is
investigated.
2.5 Change in Control. "Change in Control" shall mean (i) the acquisition,
directly or indirectly, by any person or group (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) of the beneficial
ownership of more than fifty percent (50%) of the outstanding securities of the
Company; (ii) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated; (iii) the sale, transfer
or other disposition of all or substantially all of the assets of the Company;
(iv) a complete liquidation or dissolution of the Company; or (v) any reverse
merger in which the Company is the surviving entity but in which securities
possessing more than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
merger.
2.6 Code. "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.7 Committee. "Committee" means a committee of two or more members
of the Board appointed to administer the Plan, as set forth in Section 7.1
hereof.
2.8 Common Stock. "Common Stock" means the Common Stock, $0.35 par value,
of the Company, subject to adjustment pursuant to Section 4.2 hereof.
2.9 Disability. "Disability" means permanent and total disability as
defined in Section 22(e)(3) of the Code. The Administrator's determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.10 Effective Date. "Effective Date" means November 18, 1999, which was
the date on which the Plan was originally adopted by the Board.
2.11 Exercise Price. "Exercise Price" means the purchase price per share
of Common Stock payable upon exercise of an Option.
2.12 Fair Market Value. "Fair Market Value" on any given date means the
value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on a
Nasdaq market system or a stock exchange which reports closing sale prices, the
Fair Market Value shall be the closing sale price on the date of valuation on
such Nasdaq market system or principal stock exchange on which the Common Stock
is then listed or admitted to trading, or, if no closing sale price is quoted on
such day, then the Fair Market Value shall be the closing sale price of the
Common Stock on such Nasdaq market system or such exchange on the next preceding
day on which a closing sale price is quoted.
2
<PAGE>
(b) If the Common Stock is not then listed or admitted to trading on
a Nasdaq market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the average of the closing bid and asked prices
of the Common Stock in the over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of valuation,
then the Fair Market Value shall be determined by the Administrator in good
faith using any reasonable method of evaluation, which determination shall be
conclusive and binding on all interested parties.
2.13 NASD Dealer. "NASD Dealer" means a broker-dealer that is a member of
the National Association of Securities Dealers, Inc.
2.14 Offeree. "Offeree" means a Participant to whom a Right to Purchase
has been offered or who has acquired Restricted Stock under the Plan.
2.15 Option. "Option" means any option to purchase Common Stock granted
pursuant to the Plan.
2.16 Option Agreement. "Option Agreement" means the written agreement
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.
2.17 Optionee. "Optionee" means a Participant who holds an Option.
2.18 Participant. "Participant" means an individual or entity who holds an
Option, a Right to Purchase or Restricted Stock under the Plan.
2.19 Purchase Price. "Purchase Price" means the purchase price per share
of Restricted Stock payable upon acceptance of a Right to Purchase.
2.20 Restricted Stock. "Restricted Stock" means shares of Common Stock
issued pursuant to Article 6 hereof, subject to any restrictions and conditions
as are established pursuant to such Article 6.
2.21 Right to Purchase. "Right to Purchase" means a right to purchase
Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.22 Service Provider. "Service Provider" means a consultant or other
person or entity who provides services to the Company or an Affiliated Company
and who the Administrator authorizes to become a Participant in the Plan.
2.23 Stock Purchase Agreement. "Stock Purchase Agreement" means the
written agreement entered into between the Company and the Offeree with respect
to a Right to Purchase offered under the Plan.
ARTICLE 3
ELIGIBILITY
3.1 Options and Rights to Purchase. Subject to Section 3.3, officers and
other key employees of the Company or of an Affiliated Company, members of the
Board (whether or not
3
<PAGE>
employed by the Company or an Affiliated Company), and Service Providers are
eligible to receive Options or Rights to Purchase under the Plan.
3.2 Limitation on Shares. In no event shall any Participant be granted
Rights to Purchase or Options in any one calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 200,000 shares.
3.3 Restrictions. Notwithstanding anything contained in this Plan to the
contrary, including, without limitation, Section 3.1 above, no director or
officer of the Company or any Affiliated Company shall be eligible to receive
any Option or Right to Purchase, or any right to receive the same, pursuant to
this Plan unless and until this Plan has been approved by the affirmative vote
of holders of a majority of the outstanding shares of the Company's Common
Stock.
ARTICLE 4
PLAN SHARES
4.1 Shares Subject to the Plan. The number of shares of Common Stock that
may be issued under the Plan shall be 300,000 shares, subject to adjustment as
to the number and kind of shares pursuant to Section 4.2 hereof. For purposes
of this limitation, in the event that (a) all or any portion of any Option or
Right to Purchase granted or offered under the Plan can no longer under any
circumstances be exercised, or (b) any shares of Common Stock are reacquired by
the Company pursuant to a Option Agreement or Stock Purchase Agreement, the
shares of Common Stock allocable to the unexercised portion of such Option or
such Right to Purchase, or the shares so reacquired, shall again be available
for grant or issuance under the Plan.
4.2 Changes in Capital Structure. In the event that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, and the number and
kind of shares and the price per share subject to outstanding Option Agreements,
Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly
as practical, but not to increase, the benefits to Participants.
4
<PAGE>
ARTICLE 5
OPTIONS
5.1 Option Agreement. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement which shall specify the number of shares
subject thereto, vesting provisions relating to such Option and the Exercise
Price per share. As soon as is practical following the grant of an Option, an
Option Agreement shall be duly executed and delivered by or on behalf of the
Company to the Optionee to whom such Option was granted. Each Option Agreement
shall be in such form and contain such additional terms and conditions, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable, including, without limitation, the imposition of
any rights of first refusal and resale obligations upon any shares of Common
Stock acquired pursuant to an Option Agreement. Each Option Agreement may be
different from each other Option Agreement.
5.2 Exercise Price. The Exercise Price per share of Common Stock covered
by each Option shall be determined by the Administrator, except that the
Exercise Price of a Option shall not be less than 85% of Fair Market Value on
the date the Option is granted.
5.3 Payment of Exercise Price. Payment of the Exercise Price shall be
made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee that have been
held by the Optionee for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Optionee's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
Exercise Price directly to the Company; (h) provided that a public market for
the Common Stock exists, a "margin" commitment from the Optionee and an NASD
Dealer whereby the Optionee irrevocably elects to exercise the Option and to
pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the Company; or (i) any combination of
the foregoing methods of payment or any other consideration or method of payment
as shall be permitted by applicable corporate law.
5.4 Term and Termination of Options. The term and termination of each
Option shall be as fixed by the Administrator, but no Option may be exercisable
more than ten (10) years after the date it is granted.
5.5 Vesting and Exercise of Options. Each Option shall vest and become
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.
5.6 Nontransferability of Options. No Option shall be assignable or
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be
5
<PAGE>
exercisable only by such Optionee; provided, however, that, in the discretion of
the Administrator, any Option may be assigned or transferred in any manner which
such Option is permitted to be assigned or transferred under the Code.
5.7 Rights as Stockholder. An Optionee or permitted transferee of an
Option shall have no rights or privileges as a Stockholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.
ARTICLE 6
RIGHTS TO PURCHASE
6.1 Nature of Right to Purchase. A Right to Purchase granted to an
Offeree entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Such conditions may include, but are not limited to, continued
employment or the achievement of specified performance goals or objectives.
6.2 Acceptance of Right to Purchase. An Offeree shall have no rights with
respect to the Restricted Stock subject to a Right to Purchase unless the
Offeree shall have accepted the Right to Purchase within ten (10) days (or such
longer or shorter period as the Administrator may specify) following the grant
of the Right to Purchase by making payment of the full Purchase Price to the
Company in the manner set forth in Section 6.3 hereof and by executing and
delivering to the Company a Stock Purchase Agreement. Each Stock Purchase
Agreement shall be in such form, and shall set forth the Purchase Price and such
other terms, conditions and restrictions of the Restricted Stock, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable. Each Stock Purchase Agreement may be different
from each other Stock Purchase Agreement.
6.3 Payment of Purchase Price. Subject to any legal restrictions, payment
of the Purchase Price upon acceptance of a Right to Purchase Restricted Stock
may be made, in the discretion of the Administrator, by: (a) cash; (b) check;
(c) the surrender of shares of Common Stock owned by the Offeree that have been
held by the Offeree for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Offeree's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Offeree; (f) the waiver of compensation due or accrued to the Offeree for
services rendered; or (g) any combination of the foregoing methods of payment or
any other consideration or method of payment as shall be permitted by applicable
corporate law.
6.4 Rights as a Stockholder. Upon complying with the provisions of
Section 6.2 hereof, an Offeree shall have the rights of a Stockholder with
respect to the Restricted Stock purchased pursuant to the Right to Purchase,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in the Stock Purchase Agreement. Unless the
Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company in accordance
with the terms of the Stock Purchase Agreement.
6
<PAGE>
6.5 Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement or by the Administrator.
In the event of termination of a Participant's employment, service as a director
of the Company or Service Provider status for any reason whatsoever (including
death or disability), the Stock Purchase Agreement may provide, in the
discretion of the Administrator, that the Company shall have the right,
exercisable at the discretion of the Administrator, to repurchase (i) at the
original Purchase Price, any shares of Restricted Stock which have not vested as
of the date of termination, and (ii) at Fair Market Value, any shares of
Restricted Stock which have vested as of such date, on such terms as may be
provided in the Stock Purchase Agreement.
6.6 Vesting of Restricted Stock. The Stock Purchase Agreement shall
specify the date or dates, the performance goals or objectives which must be
achieved, and any other conditions on which the Restricted Stock may vest.
6.7 Dividends. If payment for shares of Restricted Stock is made by
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
6.8 Nonassignability of Rights. No Right to Purchase shall be assignable
or transferable except by will or the laws of descent and distribution or as
otherwise provided by the Administrator.
ARTICLE 7
ADMINISTRATION OF THE PLAN
7.1 Administrator. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
As used herein, the term "Administrator" means the Board or, with respect to any
matter as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee.
7.2 Powers of the Administrator. In addition to any other powers or
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Options shall be granted and Rights to
Purchase shall be offered, the number of shares to be represented by each Option
and Right to Purchase and the consideration to be received by the Company upon
the exercise thereof; (b) to interpret the Plan; (c) to create, amend or rescind
rules and regulations relating to the Plan; (d) to determine the terms,
conditions and restrictions contained in, and the form of, Option Agreements and
Stock Purchase Agreements; (e) to determine the identity or capacity of any
persons who may be entitled to exercise a Participant's rights under any Option
or Right to Purchase under the Plan; (f) to correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Option Agreement
or Stock Purchase Agreement; (g) to accelerate the vesting of any Option or
release or waive any repurchase rights of the Company with respect to Restricted
Stock; (h) to extend the exercise date of any Option or acceptance date of any
Right to Purchase; (i) to provide for rights of first refusal and/or repurchase
rights; (j) to amend outstanding
7
<PAGE>
Option Agreements and Stock Purchase Agreements to provide for, among other
things, any change or modification which the Administrator could have provided
for upon the grant of an Option or Right to Purchase or in furtherance of the
powers provided for herein; and (k) to make all other determinations necessary
or advisable for the administration of the Plan, but only to the extent not
contrary to the express provisions of the Plan. Any action, decision,
interpretation or determination made in good faith by the Administrator in the
exercise of its authority conferred upon it under the Plan shall be final and
binding on the Company and all Participants.
7.3 Limitation on Liability. No employee of the Company or member of the
Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person's conduct in the performance of duties
under the Plan.
ARTICLE 8
CHANGE IN CONTROL
8.1 Change in Control. In order to preserve a Participant's rights in the
event of a Change in Control of the Company with respect to Options and Rights
to Purchase, the Administrator in its discretion may, at any time an Option or
Right to Purchase is granted, or at any time thereafter, take one or more of the
following actions: (A) provide for the purchase of each Option or Right to
Purchase for an amount of cash or other property that could have been received
upon the exercise of the Option or Right to Purchase had the Option been
currently exercisable, (B) adjust the terms of the Options and Rights to
Purchase in a manner determined by the Administrator to reflect the Change in
Control, (C) cause the Options and Rights to Purchase to be assumed, or new
rights substituted therefor, by another entity, through the continuance of the
Plan and the assumption of outstanding Options and Rights to Purchase, or the
substitution for such Options and Rights to Purchase of new options and new
rights to purchase of comparable value covering shares of a successor
corporation, with appropriate adjustments as to the number and kind of shares
and Exercise Prices, in which event the Plan and such Options and Rights to
Purchase, or the new options and rights to purchase substituted therefor, shall
continue in the manner and under the terms so provided or (D) make such other
provision as the Committee may consider equitable. If the Administrator does
not take any of the forgoing actions, all Options and Rights to Purchase shall
terminate upon the consummation of the Change in Control and the Administrator
shall cause written notice of the proposed transaction to be given to all
Participants not less than fifteen (15) days prior to the anticipated effective
date of the proposed transaction.
8
<PAGE>
ARTICLE 9
AMENDMENT AND TERMINATION OF THE PLAN
9.1 Amendments. The Board may from time to time alter, amend, suspend or
terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any Participant under an
outstanding Option Agreement or Stock Purchase Agreement without such
Participant's consent. The Board may alter or amend the Plan to comply with
requirements under the Code relating to Incentive Options or other types of
options which give Optionee more favorable tax treatment than that applicable to
Options granted under this Plan as of the date of its adoption. Upon any such
alteration or amendment, any outstanding Option granted hereunder may, if the
Administrator so determines and if permitted by applicable law, be subject to
the more favorable tax treatment afforded to an Optionee pursuant to such terms
and conditions.
9.2 Plan Termination. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or Rights to Purchase may be granted under the
Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights to
Purchase then outstanding shall continue in effect in accordance with their
respective terms.
ARTICLE 10
CANCELLATION & RECISSION
10.1 Non-Competition. Unless an Option Agreement specifies otherwise, the
Administrator may cancel, rescind, suspend, withhold or otherwise limit or
restrict any unexpired, unpaid, or deferred Options at any time if the
Participant is not in compliance with all applicable provisions of the Option
Agreement and the Plan, or if the Participant engages in any "Adverse Activity."
For purposes of this Section 10, "Adverse Activity" shall include: (i) the
rendering of services for any organization or engaging directly or indirectly in
any business which is or becomes competitive with the Company, or which
organization or business, or the rendering of services to such organization or
business, is or becomes otherwise prejudicial to or in conflict with the
interests of the Company; (ii) the disclosure to anyone outside the Company, or
the use in other than the Company's business, without prior written
authorization from the Company, of any confidential information or material
relating to the business of the Company, acquired by the Participant either
during or after employment with the Company; (iii) the failure or refusal to
disclose promptly and to assign to the Company all right, title and interest in
any invention or idea, patentable or not, made or conceived by the Participant
during employment by the Company, relating in any manner to the actual or
anticipated business, research or development work of the Company; (iv) activity
that results in termination of the Participant's employment for Cause; (v) a
violation of any rules, policies, procedures or guidelines of the Company; or
(vi) any attempt directly or indirectly to induce any employee of the Company to
be employed or perform services elsewhere or any attempt directly or indirectly
to solicit the trade or business of any current or prospective customer,
supplier or partner of the Company.
10.2 Agreement Upon Exercise. Upon exercise, payment or delivery pursuant
to an Option Agreement, the Participant shall certify in a manner acceptable to
the Company that he or she
9
<PAGE>
is in compliance with the terms and conditions of the Plan. In the event a
Participant fails to comply with the provisions of paragraphs (i)-(vi) of
Section 10.1 prior to, or during the six (6) months after, any exercise, payment
or delivery pursuant to an Option Agreement, such exercise, payment or delivery
may be rescinded within two years thereafter. In the event of any such
rescission, the Participant shall pay to the Company the amount of any gain
realized or payment received as a result of the exercise, payment or delivery,
in such manner and on such terms and conditions as may be required, and the
Company shall be entitled to set-off against the amount of any such gain any
amount owed to the Participant by the Company.
ARTICLE 11
MISCELLANEOUS
11.1 Benefits Not Alienable. Other than as provided above, benefits under
the Plan may not be assigned or alienated, whether voluntarily or involuntarily.
Any unauthorized attempt at assignment, transfer, pledge or other disposition
shall be without effect.
11.2 No Enlargement of Employee Rights. This Plan is strictly a voluntary
undertaking on the part of the Company and shall not be deemed to constitute a
contract between the Company and any Participant to be consideration for, or an
inducement to, or a condition of, the employment of any Participant. Nothing
contained in the Plan shall be deemed to give the right to any Participant to be
retained as an employee of the Company or any Affiliated Company or to interfere
with the right of the Company or any Affiliated Company to discharge any
Participant at any time.
11.3 Application of Funds. The proceeds received by the Company from the
sale of Common Stock pursuant to Option Agreements and Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
11.4 Annual Reports. During the term of this Plan, the Company will
furnish to each Participant copies of annual financial reports that the Company
distributes generally to its stockholders.
10
<PAGE>
Exhibit 21
NEWPORT CORPORATION
Subsidiaries of Registrant
State or Country of
Name of Subsidiary Incorporation
- ------------------ -------------
Newport Domestic International Sales Corporation (Inactive) California
Newport European Distribution Company California
Newport Government Systems, Inc. (Inactive) California
Environmental Optical Sensors, Inc. Colorado
Newport Precision Optics Corporation New York
Newport Photonics Packaging Services Corporation Delaware
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 Barbados
<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) and the
Employee Stock Purchase Plan (Form S-8 No. 33-87062) of Newport Corporation of
our report dated January 25, 2000, 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, 1999.
/S/ ERNST & YOUNG LLP
Orange County, California
March 23, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated income statements, consolidated balance sheets and
consolidated statements of cash flows and is qualified in its entirety by
reference to such financial statements contained within the Company's Form 10-K
for the year ended December 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,721
<SECURITIES> 0
<RECEIVABLES> 32,650
<ALLOWANCES> 411
<INVENTORY> 36,386
<CURRENT-ASSETS> 77,140
<PP&E> 58,611
<DEPRECIATION> 32,873
<TOTAL-ASSETS> 122,253
<CURRENT-LIABILITIES> 30,968
<BONDS> 12,715
0
0
<COMMON> 3,231
<OTHER-SE> 73,932
<TOTAL-LIABILITY-AND-EQUITY> 122,253
<SALES> 141,945
<TOTAL-REVENUES> 141,945
<CGS> 80,194
<TOTAL-COSTS> 80,194
<OTHER-EXPENSES> 48,449
<LOSS-PROVISION> 278
<INTEREST-EXPENSE> 1,785
<INCOME-PRETAX> 11,239
<INCOME-TAX> 2,956
<INCOME-CONTINUING> 8,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,283
<EPS-BASIC> 0.91
<EPS-DILUTED> 0.88
</TABLE>
