<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1994
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to ____________
Commission file number 1-7935
_________________________________________________________
INTERNATIONAL RECTIFIER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-1528961
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
233 Kansas Street
El Segundo, CA 90245
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (310) 322-3331
______________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
Common Stock, par value $1 New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
______________________________________
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 report (s)), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---.
The aggregate market value of the registrant's voting Common Stock held by non-
affiliates of the registrant was approximately $375,324,681 (computed using the
closing price of a share of Common Stock on September 27, 1994 reported by New
York Stock Exchange).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
There were 20,392,023 shares of the registrant's Common Stock, par value $1.00
per share, outstanding on September 28, 1994.
Portions of the registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders scheduled to be held on November 21, 1994, which Proxy Statement
will be filed no later than 120 days after the close of the registrant's fiscal
year ended June 30, 1994, are incorporated by reference in Part III of this
Annual Report on Form 10-K.
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TABLE OF CONTENTS
PART I
ITEM PAGE
- - - ---- ----
1. Business 1
2. Properties 10
3. Legal Proceedings 10
4. Submission of Matters to a Vote of the Security Holders 11
Additional Item. Directors and Executive Officers of the Registrant 12
PART II
5. Market for the Registrants' Common Equity and Related Stockholders'
Matters 14
6. Selected Financial Data 15
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
8. Financial Statements and Supplementary Data 20
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure (-NONE) 39
PART III
10. Directors and Executive Officers of the Registrant 39
11. Executive Compensation 39
12. Security Ownership of Certain Beneficial Owners and Management 39
13. Certain Relationships and Related Transactions 39
PART IV
14. Exhibits, Financial Statement Schedules, and Reports 39
<PAGE>
PART I
ITEM 1. BUSINESS
INTRODUCTION
International Rectifier Corporation ("IR" or the "Company") is a major worldwide
supplier of power semiconductors. Power semiconductors switch or condition
electricity at relatively high voltage and current levels in products such as
automobiles, computers/peripherals, communications equipment and copiers.
The Company designs, manufactures and markets power semiconductors which are
used for power conversion. In the same way that oil is refined to produce
gasoline to power a car, electricity has to be converted to create power to
operate equipment. This process of power conversion can be viewed in four
stages: input rectification, control, switching, and output rectification.
Input rectification conditions off-line electricity, typically rectifying
alternating-current to direct-current. The control function measures incoming
electricity and sends a signal to the switch. The switch chops the energy into
small elements. Output rectification re-configures the elements into a form
usable by electrically operated equipment.
Because IR supplies products that perform each of the four basic functions in
power conversion, many circuits use more than one type of IR product. This
allows IR to develop products that work together to optimize overall circuit
performance, and enables the Company to capitalize more broadly on market-
leading products.
IR's products are used in all major market sectors. Applications for power
semiconductors in automobiles include anti-lock braking and fuel injection
systems, power accessories, and air bags. Computer/peripheral applications
include power supplies, disk drives, and printers. Office equipment
applications include copiers and facsimile machines. Consumer electronics and
lighting applications include home entertainment, household appliances and
fluorescent lighting ballasts. Communications applications include telephone
networks and modems. Power semiconductors are also used widely in industrial
applications such as motor-driven production lines, machine tools, fork lifts,
and welders.
According to statistics published by the Semiconductor Industry Association (the
"SIA"), the Company is the leader in the power MOSFET (Metal Oxide Semiconductor
Field Effect Transistor) segment with a 19% market share in calendar year 1993
for its trademarked HEXFET-R- power MOSFETs and IGBTs. SIA data indicates that
industry-wide sales of power MOSFETs were $1.1 billion in calendar 1993, an
increase of 23% over 1992 levels, and that, over the past five years, power
MOSFET sales have grown at an average rate of 26% per year.
The Company's major customers include industry leaders such as AT&T Technologies
Inc., Conner Peripherals, Inc., General Motors Corp., Hewlett Packard Co.,
International Business Machines Corp., Matsushita Electronics Corporation,
Sanken Electric Company, Ltd., Sony Corporation, Sporele and Siemens AG. In
fiscal year 1994 the Company's sales by region were approximately 46% from North
America, 27% from Europe, and 27% from Asia. IR has manufacturing facilities in
North America, Europe, and Asia, and uses subcontract assembly in Asia.
<PAGE>
IR was founded as a California corporation in 1947 and reincorporated in
Delaware in 1979. Its executive offices are located at 233 Kansas Street, El
Segundo, California 90245 and its telephone number is (310) 322-3331.
POWER SEMICONDUCTOR INDUSTRY
Semiconductors are silicon-based chips that conduct and block electricity. The
semiconductor industry consists of integrated circuits ("ICs") and power
semiconductors. ICs operate at low power levels and perform multiple functions
to process and convey information in electronic signal form. IC capability is
largely defined by circuit density, which increases as its features are
miniaturized. The applications for ICs are generally concentrated in the
computer industry and have been subject to frequent redesign, short product life
cycles and rapid obsolescence. As a result, the demand for ICs has been highly
cyclical.
In contrast to ICs, power semiconductors operate at higher power levels and
perform a single function: they condition and control electricity to operate a
power supply, control a motor, or light a lamp. Their capability is largely
defined by the level of power that they can handle and their efficiency in
converting raw electric current into a more useful form. The amount of electric
current handled and the heat it generates limit the rate at which power
semiconductors can be miniaturized.
Advances in power semiconductor performance and cost-per-function have been
achieved through the use of MOS technology. MOS power transistors (power
MOSFETs and IGBTs) have gained an increasing share of the power transistor
market at the expense of bipolar transistors that also serve the switch
function.
MOS power transistors offer significant benefits over bipolar power transistors.
They provide much greater switching speed, which allows the design of higher
frequency, more compact circuits. They are activated by voltage rather than
current, so they require less external circuitry. MOS transistors are more
compatible with microprocessor controls. They offer more reliable long-term
performance and are more rugged, so they can better withstand adverse operating
conditions. Power MOSFETs and IGBTs compare favorably to bipolar power
transistors on a price/performance basis.
APPLICATIONS
Power semiconductors are used in a broad spectrum of commercial and industrial
applications, including many products with long life cycles. Because of this
more gradual rate of technological change and the diversity of applications, the
Company believes that the demand for power semiconductors is less cyclical than
ICs. Power semiconductor demand is driven by growth in the end markets,
conversion to new technologies, and the proliferation of new end-product
applications. The Company believes that markets driving future demand for power
semiconductors include:
PORTABLE ELECTRONICS. Advances in power semiconductors help extend battery
life and reduce product size and weight in a variety of battery-operated
products such as lap-top and notebook computers, personal digital
organizers, cellular telephones, household appliances and hand tools.
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AUTOMOTIVE ELECTRONIC SYSTEMS. The concentration of solid state
electronics in recent model year automobiles has increased rapidly, as
safety and comfort features increase demands on the battery. Applications
include anti-lock braking systems, air-bags, fuel injection systems,
electric windows and adjustable mirrors and seats. Adoption of battery
operated electric vehicles to reduce emissions would dramatically increase
consumption of MOS transistors.
ELECTRONIC LIGHTING BALLASTS. Electronic lighting ballasts, which
incorporate MOS power semiconductors, significantly reduce the amount of
energy consumed in lighting. Conversion to electronic ballasts has been
driven by lower end-user operating costs and incentives from electric
utilities to encourage energy efficiency.
VARIABLE SPEED MOTORS. Variable-speed solid-state controls increase energy
efficiency and performance in a broad range of industrial and appliance
motors. In addition, clean air legislation is driving the conversion from
traditional chlorofluorocarbons ("CFCs") to less toxic but less efficient
refrigerants. Manufacturers of refrigerators and air conditioners
compensate for these less efficient chemicals by using more efficient
variable-speed motors.
PRODUCTS
The Company's products convert electrical power to make it more useable and
efficient in performing work such as operating power supplies, controlling
motors, and lighting lamps. The ability of the products to minimize energy lost
at each point in the power conversion process is central to their value.
Important growth applications include such energy-sensitive products as electric
automobiles, electronic fluorescent lights and more energy efficient
refrigeration and air conditioning equipment.
The Company's HEXFET power MOSFET products comprised about 66% of fiscal 1994
sales. IR also supplies IGBT transistors, Control ICs, high performance diodes,
and high power rectifiers and thyristors. The Company believes that this
complete line of power conversion products represents a competitive advantage,
as it is able to provide customers with integrated solutions to their power
conversion needs.
The Company's fastest-growing products have comprised a greater proportion of
its total revenues during each of the past three fiscal years. The table below
shows revenues of IR's growth and mature products as a percentage of revenues
for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Growth (1) 81.9% 77.5% 75.8%
Mature (2) 18.1% 22.5% 24.2%
------ ------ ------
Total 100.0% 100.0% 100.0%
------ ------ ------
------ ------ ------
<FN>
____________________
(1) Growth products consist of Hexfets, Schottky diodes, Fast Recovery diodes,
IGBT, Control ICs, and royalties.
(2) Mature products consist of high power rectifiers and thyristors.
</TABLE>
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SWITCHING PRODUCTS
MOS TRANSISTORS. MOS transistors (power MOSFETs and IGBTs) serve the switch
function in power conversion to provide an even, useable flow of power for
electronic equipment.
POWER MOSFETS. Through its HEXFET product line, the Company is the world leader
in power MOSFETs. The breadth and diversity of the market for these products
provide an element of stability in demand.
Applications for MOSFETs in automobiles include anti-lock braking and fuel
injection systems, power accessories and air bags. Computer/peripheral
applications include power supplies, disk drives, and printers. Office
equipment applications include copiers and facsimile machines. Consumer
electronics applications include home entertainment, videocameras, household
appliances, and power tools. Lighting applications include electronic
fluorescent ballasts and compact fluorescent bulbs. Industrial applications
include instrumentation and test equipment. Communications applications include
telephone networks and modems. Government and aerospace applications include
commercial and military satellites, communications equipment, command-and-
control systems, and missiles.
Market acceptance and brand recognition of HEXFETs have benefited from the
Company's emphasis on quality control and reliability, and the Company believes
its standards to be among the most stringent in the industry. Cumulative and
current data on long and short term product reliability is made available to
customers quarterly.
The Company fabricates the large majority of its power MOSFET wafers at HEXFET
America. Die from these wafers are assembled into packaged devices at HEXFET
America, IR's facilities in England and Mexico, and subcontract facilities in
Asia. See "-Manufacturing."
IGBTS. IGBTs also serve the switch function in power conversion applications
that require higher current and voltage than power MOSFETs handle efficiently.
IGBTs combine the ease of voltage-driven power MOSFET technology with the
conduction efficiency of bipolar transistor technology. The performance and
ruggedness of these devices enable them to replace bipolar transistors and
thyristors in many high-voltage, high-current motor control and power
conditioning applications. Energy-efficient, variable-speed motor controls are
an emerging application, and the Company believes electric vehicles will require
large quantities of IGBTs for each vehicle.
The Company's IGBT technology is closely related to its HEXFET technology, and
the Company views them as complementary products. The Company believes that its
patents on fundamental MOSFET technology also apply to IGBTs, and it is seeking
further patent protection on its IGBT technology.
CONTROL PRODUCTS
CONTROL ICS. Control ICs serve the control function of power conversion. These
devices perform the functions of several discrete components. This integration
allows circuit designers to simplify circuit design and assembly, improve
reliability and reduce overall system size and
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cost. In sensing and responding to adverse operating conditions, Control IC
performance is superior to a safety or diagnostic circuit using discrete
components. IR's Control ICs draw on the Company's power MOSFET technology and
are designed to optimize the performance of both MOSFETs and IGBTs. The Company
believes that its power MOSFET patents also apply to a broad range of Control
ICs.
Control ICs are used in a wide variety of power supply, motor and lighting
control applications. These include industrial motor controls, stepper motor
controls, solenoid drivers, welding equipment, telecom switchers,
computer/peripherals, instrumentation and test equipment, fluorescent lighting
ballasts, and compact fluorescent light bulbs.
INPUT RECTIFICATION PRODUCTS
The Company also manufactures a broad line of rectifiers, diodes and thyristors
that serve the input rectification function of power conversion. These products
condition power to make it more efficient and useable, in principally industrial
end products that require power-handling capability from one amp to 5000 amps
and from 20 volts to 5000 volts. Applications include motor and lighting
controls, welding equipment, fork lifts, machine tools, induction heating,
locomotives, motor-driven production lines, smelting equipment, and power
supplies.
The Company recently consolidated its manufacturing facilities for its input
rectification products from three sites to a single site at its existing
facility in Turin, Italy. The consolidation was completed in the third quarter
of fiscal 1994.
OUTPUT RECTIFICATION PRODUCTS
The Company's Schottky diodes and Fast-Recovery diodes serve the output
rectification function of power conversion. Output rectification re-configures
the elements into a form usable by electrically operated equipment. Schottky
diodes are used with power MOSFETs in high-frequency applications such as
computer/peripherals. The Company's trademarked HEXFRED-R- Fast-Recovery diodes
are used with IGBTs in higher-current, lower-frequency applications such as
motor controls.
MANUFACTURING
Semiconductor manufacturing involves two phases of production: wafer fabrication
and assembly (or packaging). Wafer fabrication is a sequence of process steps
that expose silicon wafers to chemicals that change their electrical properties.
The chemicals are applied in patterns that define cells or circuits within
numerous individual devices (often termed "die" or "chips") on each wafer.
Packaging or assembly is the sequence of production steps that divide the wafer
into individual chips and enclose the chips in external structures (termed
packages) that make them useable in a circuit. Power semiconductors generally
use the process technology and equipment already proven in ICs manufacturing.
The Company has production facilities in California, England, Italy, Mexico and
India. In addition, the Company has equipment at, or manufacturing supply
agreements with, subcontractors located in the Philippines, Japan, Taiwan and
Malaysia. IR fabricates substantially all of its power MOSFET wafers at HEXFET
America in Temecula, California. A wafer fabrication facility for IGBTs and
other
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MOSFET devices as well as assembly operations for government and other advanced
products are located in El Segundo, California. Facilities that assemble
HEXFETs and other growth products are located in the United States and overseas,
in Company-owned and subcontract facilities, in order to take advantage of low
assembly costs and provide maximum customer service. In Tijuana, Mexico, the
Company assembles MOSFET products, IGBTs and other modules. The Company's
Oxted, England facility, which qualifies as a duty-free warehouse, assembles
MOSFETs and IGBTs as well as products used in certain military applications.
Since April 1, 1994 the Company has manufactured substantially all its high
power rectifiers and thyristors at its Turin, Italy facility. The Company also
has arrangements with third parties for product assembly in the Philippines,
Malaysia, Taiwan and Japan. In a duty-free zone in India, the Company has an
assembly facility for rectifiers and thyristors.
To meet rising demand for power MOSFETs, the Company is expanding wafer
fabrication at HEXFET America. Planned to be in production by the end of
calendar 1995, the Company believes that the estimated $75 million expansion
will increase by about 75% the Company's wafer capacity in power MOSFETs.
The expansion will position IR to aggressively address the fastest growing
segments of the power transistor market, high density MOSFETs and IGBTs.
Next-generation devices designed for production in the new fabrication facility
incorporate design and process advancements in the Company's proprietary HEXFET
and IGBT technologies. A core process with shared elements for both products
will enable the facility to combine flexibility with efficient high-volume
manufacturing techniques. The fabrication will be performed on six-inch
wafers and will use a continuous-flow layout similar to the one already in use
at HEXFET America which was designed for efficient, high volume fabrication with
reduced cycle times and is different from the functional layout that the
Company believes is commonly used by semiconductor manufacturers. Highly
automated processing and supply systems for gases, water, and other processing
chemicals have also contributed to continuous improvements in wafer yields at
this facility. Pilot runs of the new products on the specified equipment are
already underway at the Company's headquarters in El Segundo, California.
HEXFET America was selected for the fabrication expansion because it offers
several important benefits. Expanding at an existing facility allows the
Company to invest less in construction and more in production capacity. It
should require fewer additional employees than a totally new facility would and
enables IR to start up and operate the fabrication with seasoned staff already
in place. The accessibility of HEXFET America to the Company's research and
development staff in El Segundo eases the transition of the products from
development to manufacturing.
MARKETING, SALES AND DISTRIBUTION
The Company markets its products through sales personnel, representatives, or
distributors. The Company believes its ability to offer products that serve
each of the four functions of power conversion enhances its competitive position
in the overall power semiconductor market.
In fiscal year 1994 the Company's sales by region were approximately 46% from
North America, 27% from Europe, and 27% from Asia. The Company's domestic
direct sales force is organized in four sales zones. In Western Europe, the
Company's products are sold through its own sales force as well as through sales
agents and distributors. The Company's European sales and representative
offices are in England, Italy, Sweden, France, Germany, Finland, Denmark,
Poland, the Czech Republic, and
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Hungary. In Asia IR has sales and representative offices in India, Japan,
Singapore, Hong Kong, and Korea.
Because many applications require products from several product groups, the
Company has organized its marketing efforts by market sector, rather than
product type. These business management groups focus on several key commercial
sectors and on government and aerospace business. In addition, the Company's
staff of applications engineers provides customers with technical advice and
support regarding the use of IR's products.
CUSTOMERS
In most cases, the Company's devices are incorporated in larger systems
manufactured by end product manufacturers. The Company's customers in the
automotive segment include General Motors Corp., Ford, Delco, Siemens AG and
Bosch. International Business Machines Corp., Hewlett Packard Co., Apple
Computer Inc. and Compaq purchase the Company's products in the computer
segment. Consumer electronics customers include Philips. Customers in the
telecommunications segment include AT&T Technologies, Inc. and Nokia. The
Company also sells its products to distributors including Arrow Electronics,
Future Electronics, and Pioneer Electronics/Pioneer Technology.
BACKLOG
As of June 30, 1994, the Company's backlog of orders was $121.8 million compared
to $85.3 million as of June 30, 1993. Backlog represents purchase orders which
have been released for shipment and are scheduled to be shipped within the
following 12 months. In accordance with industry practice, IR may in certain
circumstances release customers from purchase orders without penalty.
Increasingly, major customers are operating their businesses with shorter lead
times and are placing orders on a periodic rather than an annual basis. Orders
are cancelable and backlog is not necessarily indicative of sales for any future
period.
RESEARCH AND DEVELOPMENT
The Company is involved in ongoing research and development directed toward new
processes, devices and packages as well as continued improvement of quality and
reliability in existing products. In fiscal years 1994, 1993 and 1992, the
Company spent approximately $16.4 million, $14.1 million, and $9.4 million,
respectively, on research and development activities. In fiscal 1994, the
Company introduced a variety of products designed to address growth
opportunities identified by market sector: high-density, high-efficiency HEXFETs
and surface-mount packages for portable electronics; Control ICs for lighting
and motor control applications; IGBT modules for motor controls; and HEXFETs
with diagnostic and safety features for auto applications. IR's research and
development program is focused on advancing and diversifying the HEXFET product
line, expanding the related IGBT products, and developing Control ICs and other
power products that work in combination with HEXFETs and IGBTs to improve system
performance. IR's research and development staff also works with the marketing
staff to develop new products that address specific customer needs. Efforts are
directed towards developing new processes that enable the Company to produce
smaller, more efficient devices. Efforts are also directed at reducing assembly
costs and developing new package designs and assembly processes.
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INTELLECTUAL PROPERTY
The Company has made significant investments in developing and protecting its
intellectual property. Through successful enforcement of its patents, the
Company has entered into a number of license agreements, generated royalty
income, and received substantial payments in settlement of litigation. The
Company currently has 61 unexpired U.S. patents, which expire from 1995 to 2011
(those patents fundamental to the Company's operations expire between 2000 and
2010), 29 U.S. patents pending, and 67 unexpired and 58 pending corresponding
foreign patents in a number of countries. IR is also licensed to use certain
patents owned by others. Under the terms of an agreement with Unitrode
Corporation that terminates in March 2000, the Company pays Unitrode Corporation
approximately 12% of IR's net patent royalty income. The Company has several
registered trademarks in the United States and abroad including trademarks for
HEXFET. The Company believes that its proprietary technology and intellectual
property contribute to its competitive advantage.
Since the Company believes that its power MOSFET patents are broadly applicable
in the marketplace, it is committed to enforcing its rights under those patents
and is pursuing additional license agreements. The Company presently has
royalty-bearing license agreements with ten companies, most of which are
competitors: Harris Corporation; Hitachi, Ltd.; Matsushita Electronics
Corporation; National Semiconductor Corporation; NEC Corporation; Sanken
Electric Company, Ltd.; SGS-Thomson Microelectronics, Inc.; Siliconix
incorporated; Toshiba Corporation; and Unitrode Corporation.
Certain of the Company's fundamental MOSFET patents have been subjected to
reexamination in the United States Patent and Trademark Office. See "Note 9 -
Intellectual Property Rights." Although no assurance can be given as to the
ultimate outcome of the Company's patent enforcement efforts or the success of
the Company's patent licensing program, the Company believes that its patent
portfolio will be the source of continuing royalty income.
COMPETITION
The Company encounters differing degrees of competition for its various
products, depending upon the nature of the product and the particular market
served. Generally, the semiconductor industry is highly competitive, and many
of the Company's competitors are larger companies with greater financial
resources than IR. The Company believes that its breadth of product line and
its ability to bundle products that serve the different functions into one
package distinguish it from its competitors. IR's products compete with
products manufactured by others based on breadth of product line, quality,
price, reliability, over-all performance of the products, delivery time to the
customer, and service (including technical advice and support). The Company's
competitors include Eupec, Harris Corporation, Hitachi Ltd., Motorola, Inc., NEC
Corporation, Philips International B.V., Powerex, Inc., Samsung Semiconductor
Inc., SGS-Thomson Microelectronics, Siemens AG, Siliconix incorporated, Toshiba
Corporation and Westcode Semiconductors Ltd.
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ENVIRONMENTAL MATTERS
Federal, state and local laws and regulations impose various restrictions and
controls on the discharge of certain materials, chemicals and gases used in
semiconductor processing. The Company does not believe that compliance with
such laws and regulations will have a material adverse effect on its financial
position.
The Company and Rachelle Laboratories, Inc. ("Rachelle"), its former
pharmaceutical subsidiary which discontinued operations in 1986, have been named
among several hundred entities as potentially responsible parties ("PRPs") under
the provisions of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), in connection with the United States
Environmental Protection Agency's ("EPA") investigation of the disposal of
allegedly hazardous substances at a major superfund site in Monterey Park,
California (the "OII site"). Certain PRPs who settled certain claims with the
EPA under two consent decrees, filed suit in Federal Court in May 1992 against a
number of other PRPs, including IR, for cost recovery and contribution under
CERCLA. The lawsuit against IR, relating to the first and second consent
decrees, was settled in August 1993 for the sum of $40,000 to avoid protracted
and expensive litigation. Claims have been made with the Company's insurers
with respect to the OII site matter; however, there can be no assurance that the
insurance coverage attaches to these claims. There remains the potential for
litigation against IR relating to future consent decrees. The Company does not
believe that either it or Rachelle is responsible for the disposal at the OII
site of any material constituting hazardous substances under CERCLA. Although
the ultimate resolution of this matter is unknown, the Company believes that it
will not have a material adverse impact on its financial position.
In May 1993 the Company purchased property from its Employee Profit Sharing and
Retirement Plan. At the time of the purchase it was determined that the
property required clean up of seepage from a storage tank, at an estimated
additional cost of $500,000. The Company commenced the clean up in fiscal year
1994, and the costs to be incurred will be capitalized as additional costs of
the property.
On July 18, 1994, the Company received a letter from the State of Washington
Department of Ecology notifying the Company of a proposed finding that the
Company is a potentially liable person ("PLP") for alleged PCE contamination
(also known as perchloroethylene, tetrachloroethylene, and other names) ("PCE")
of real property and groundwater in Yakima County, Washington. The letter
alleges that the Company arranged for disposal or treatment of the PCE or
arranged with a transporter for the disposal or treatment of the PCE in Yakima
County. The Company replied on August 11, 1994 to this letter and stated that
it has not contributed to PCE or other solvent contamination at the Yakima
County site and that it should not be designated a PLP.
The Company received a letter dated September 9, 1994, from the State of
California Department of Toxic Substances Control stating that the Company may
be a PRP for the deposit of hazardous substances at a facility in Whittier,
California. The Company's investigation of this matter has just begun and
therefore an opinion cannot be expressed as to any ultimate responsibility.
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EMPLOYEES
As of June 30, 1994, the Company employed approximately 3,100 people, of whom
approximately 2,085 are employed in North America, 970 in Western Europe and 45
in Asia. The Company is not a party to any collective bargaining agreements.
The Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company's operations occupy a total of approximately 864,000 square feet, of
which approximately 477,000 square feet are located within the United States.
Of the worldwide total, approximately 247,000 square feet are leased and the
balance is owned by the Company.
IR's leases expire between 1994 and 2012. If the Company is unable to renew
these leases upon expiration, it believes that it could find other suitable
premises without any material adverse impact on its operations.
The Company's major facilities are in the following locations:
<TABLE>
<CAPTION>
Total Square Feet
-----------------
Facility Owned Leased Expiration of Lease
- - - -------- ----- ------ -------------------
<S> <C> <C> <C>
Temecula, California 287,000 --- ---
El Segundo, California 93,000 91,000 July 31, 1995 - July 31, 2004
Tijuana, Mexico --- 89,000 (1)
Oxted, England 45,000 15,000 March 27, 2012
Turin, Italy 110,000 6,000 June 30, 1995 - March 31,1998
<FN>
(1) Since the Company's lease on its assembly facility in Mexico expired, it
has rented the same space on a month to month basis due to pending rezoning
of the neighborhood. The Company has identified comparable space available
for lease on comparable terms if such assembly facility needs to be moved.
</TABLE>
The Company believes that these facilities are adequate for its current and
anticipated near term operating needs. IR estimates that it currently utilizes
approximately 81% of its worldwide manufacturing capacity. To meet rising
demand for power MOSFETs, the Company is expanding wafer fabrication at HEXFET
America. Planned to be in production by the end of calendar 1995, the Company
believes that the estimated $75 million expansion will increase by about 75% the
Company's wafer capacity in power MOSFETs.
The Company has nine sales offices located throughout the United States, and
other sales and technical support offices in Canada, France, Germany, Hong Kong,
India, China, Singapore, and Scandinavia which operate in leased facilities.
ITEM 3. LEGAL PROCEEDINGS
SGS-Thomson Microelectronics, Inc. filed suit against the Company in June 1991
in Federal District Court in Texas, charging infringement of U.S. patent
4,553,314. The suit was thereafter transferred to the Federal District Court in
Los Angeles, California. Subsequent to transfer, SGS amended its complaint
10
<PAGE>
to charge additionally infringement of U.S. patents 4,495,513 and 4,712,127.
The District Court on February 1, 1993 dismissed for lack of standing SGS's
claims for infringement of the '127 and '513 patents. The same Court ruled on
March 15, 1993 that the remaining SGS patent in the same case ('314) is
unenforceable. SGS appealed the February and March summary judgment rulings, as
well as the order transferring the case to California, to the Court of Appeals
for the Federal Circuit. IR then cross-appealed the District Court's denial of
IR's motion for summary judgment as to the invalidity of the '314 patent. In
July 1994, the Federal Circuit vacated the District Court's grants of summary
judgment as to the '513, '127 and '314 patents, affirmed the District Court's
denial of summary judgment, and reversed the transfer order, but remanded the
case for continued proceedings in California. SGS petitioned the U.S. Supreme
Court for a writ of certiorari as to various rulings of the Federal Circuit
relating to jurisdictional and venue issues. No trial date has yet been set and
the ultimate outcome of the case as to the three patents is unknown. In a
separate proceeding before the California District Court, the Court in July 1994
granted the Company's motions to enforce its license agreement with SGS,
requiring SGS to pay royalties under IR's patents 4,959,699 and 4,642,666 as to
SGS's sales of power MOSFET, IGBT and power IC products. SGS is appealing this
ruling on royalties to the Federal Circuit. The Company's separate action
against SGS and its Italian affiliate, SGS-Thomson Microelectronics, S.r.L., for
infringement of the Company's U.S. patents 5,008,725 and 5,130,767 is continuing
before the same Court. Trial of the Company's action has been set for January
25, 1995.
The Company, its directors and certain officers have been named as defendants in
three class action lawsuits filed in federal court in California. The last two
suits also name Kidder, Peabody & Co. Incorporated and Montgomery Securities.
These suits seek unspecified compensatory and punitive damages for alleged
intentional and negligent misrepresentations and violations of the federal
securities laws. They generally allege that the Company and the other
defendants made materially false statements and/or omitted to state material
facts in connection with the public offering of the Company's common stock
completed on April 24, 1991 and/or the redemption and conversion of the
Company's 9% Convertible Subordinated Debentures Due 2010 completed in June
1991. Although the Company believes that the claims alleged in the suits are
without merit, the ultimate outcome thereof cannot be presently determined.
Accordingly, no provision for any liability that may result upon adjudication of
these matters has been made in the consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
Not applicable.
11
<PAGE>
ADDITIONAL ITEM. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of IR are:
Eric Lidow 81 President; Chairman of the Board; Chief Executive
Officer
Alexander Lidow 39 Executive Vice President-Operations; Director
Derek Lidow 41 Executive Vice President; Director
Robert J. Mueller 65 Executive Vice President-External Affairs and Business
Development; Director
Michael P. McGee 35 Vice President-Chief Financial Officer
George Krsek 73 Director
Jack O. Vance 69 Director
Rochus E. Vogt 64 Director
Donald S. Burns 69 Director
James D. Plummer 49 Director
Eric Lidow is a founder of the Company and has been the Chief Executive Officer
and a director of the Company since its inception in 1947.
Alexander Lidow, Ph.D., has been employed by the Company since 1977. He served
as the Semiconductor Division's Vice President-Research and Development since
July 1979, was promoted to Semiconductor Division Executive Vice President-
Manufacturing and Technology in March 1985, and became the President of the
Electronic Products Division in July 1989. In August 1992, Dr. Lidow was
elected Executive Vice President of Operations. He was elected a director in
September 1994. Dr. Lidow is a son of Eric Lidow.
Derek B. Lidow, Ph.D., has been employed by the Company since 1976. He served
as the Semiconductor Division's Vice President-Operations since March 1980, was
promoted to Semiconductor Division Executive Vice President-Marketing and
Administration in March 1985, and became President of the Power Products
Division in July 1989. In August 1992, Dr. Lidow was elected Executive Vice
President and in July 1993 assumed responsibilities for worldwide sales and
marketing. He was elected a director in September 1994. Dr. Lidow is a son of
Eric Lidow.
Robert J. Mueller has been employed by the Company since November 1961. He
served as Vice President of Marketing for the U.S. Semiconductor Division from
1963 until October 1969 when he was promoted to Corporate Vice President-Foreign
Operations. Mr. Mueller became Executive Vice President-World Marketing and
Foreign Operations in April 1978, Corporate Executive Vice President-External
Affairs and Worldwide Sales in July 1989, and in July 1993 became Executive Vice
President-External Affairs and Business Development. He was elected a director
in 1990.
Michael P. McGee has been employed by the Company since 1990. He joined the
Company in July 1990 as Director of Corporate Accounting and was promoted to
Corporate Controller in December 1990. Mr. McGee became Vice President,
Controller and Principal Accounting Officer in 1991, and in 1993,
12
<PAGE>
became Vice President-Chief Financial Officer. From 1985 to the time he joined
the Company, Mr. McGee was a senior manager and audit manager at Ernst and
Young.
George Krsek, Ph.D., was President of Houba, Inc. a pharmaceutical firm from
1975 to July 1994, and is currently President of Konec L.L.C., a management
consulting company. He has been a director of the Company since 1979.
Jack O. Vance became the Managing Director of Management Research, a management
consulting firm in November 1990. From 1960 through 1989 he was a director of
McKinsey & Co., Inc., a management consulting firm. During the years 1973
through 1989 he was also the Managing Director of the firm's Los Angeles office.
He has been a director of the Company since 1988. He is also a director of
Hillhaven Corporation, International Technology Corporation, Escorp, The Nichols
Institute, The Olson Company, University Restaurant Group, and FCG Enterprises,
Inc.
Rochus E. Vogt, Ph.D., is a Professor of Physics, California Institute of
Technology, and acted as Provost from 1983 through 1987. He has been a director
of the Company since 1984.
Donald S. Burns has been Chairman, President and Chief Executive Officer of
Prestige Holdings, Ltd., a property management and business consulting firm
since 1978. Mr. Burns was elected a director of the Company in 1993. He is
also a director of ESI Corporation and International Technology Corporation.
James D. Plummer, Ph.D., has been the John M. Fluke Professor of Electrical
Engineering, Stanford University since 1988 and Director of Stanford's
Integrated Circuits Laboratory since 1984. Mr. Plummer was elected a director
of the Company in September 1994.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDERS'
MATTERS
Price Range of Common Stock
---------------------------
(in Dollars)
<TABLE>
<CAPTION>
First Second Third Fourth Stockholders
Fiscal Quarter Quarter Quarter Quarter at
Year High Low High Low High Low High Low Year End
- - - ---- ---- --- ---- --- ---- --- ---- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 13 10 1/4 14 7/8 10 1/4 19 13 7/8 17 1/8 13 1/2 1,787
1993 9 7/8 7 3/4 13 8 3/4 13 5/8 11 12 5/8 9 7/8 2,006
</TABLE>
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "IRF".
No dividends have been recently declared or paid. The Company does not intend
to pay cash dividends in the foreseeable future as all funds will be used to
expand operations. Furthermore, under certain credit agreements, the Company is
not permitted to pay any cash dividends.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data as of June 30, 1994 and 1993 and for
the fiscal years ended June 30, 1994, 1993 and 1992 are derived from the audited
consolidated financial statements of the Company and should be read in
conjunction with the audited consolidated financial statements and notes with
respect thereto included herein. The selected consolidated financial data as of
June 30, 1992, 1991 and 1990, and for the fiscal years ended June 30, 1991 and
1990 are derived from audited consolidated financial statements of the Company
which are not included herein.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (IN THOUSANDS
EXCEPT PER SHARE DATA) (1)
Revenues $ 328,882 $ 281,732 $ 265,495 $ 252,800 $ 229,863
Cost of sales 219,944 202,684 186,437 167,044 162,075
--------- --------- --------- --------- ---------
Gross profit 108,938 79,048 79,058 85,756 67,788
Selling and administrative expense 69,008 62,637 58,771 51,544 41,526
Research and development expense 16,381 14,083 9,405 7,538 6,585
Restructuring charge -- -- -- 1,000 --
--------- --------- --------- --------- ---------
Operating profit 23,549 2,328 10,882 25,674 19,677
Interest expense, net (3,625) (2,250) (1,436) (13,266) (17,062)
Other income (expense) (1,050) (2,675) 1,066 5,825 8
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item 18,874 (2,597) 10,512 18,233 2,623
Provision for income tax 3,160 436 1,275 1,086 466
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item 15,714 (3,033) 9,237 17,147 2,157
Extraordinary item, net -- -- -- 726 --
--------- --------- --------- --------- ---------
Net income (loss) $ 15,714 $ (3,033) $ 9,237 $ 16,421 $ 2,157
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income (loss) per share:
Before extraordinary item $ 0.78 $ (0.15) $ 0.46 $ 1.30 $ 0.18
Extraordinary item -- -- -- (0.06) --
--------- --------- --------- --------- ---------
Net income (loss) per share $ 0.78 $ (0.15) $ 0.46 $ 1.24 $ 0.18
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Average common and common equivalent
shares outstanding 20,428 20,087 20,107 13,210 11,733
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
AT JUNE 30,
---------------------------------------------------------------------
Balance Sheet Data (In thousands) 1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
Working capital $ 67,165 $ 58,116 $ 67,538 $ 74,900 $ 25,889
Total assets 330,574 278,448 285,880 250,263 217,532
Short-term debt 33,310 27,539 27,135 15,821 27,309
Long-term debt, less current maturities 26,817 11,810 11,535 11,921 120,139
Stockholders' equity 202,943 186,074 191,703 179,535 21,572
<FN>
(1) Certain reclassifications have been made to previously reported amounts to
conform with current year presentation.
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain items included in selected financial data
as a percentage of revenues.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of sales 66.9 71.9 70.2
----- ----- -----
Gross profit 33.1 28.1 29.8
Selling and administrative expense 21.0 22.2 22.1
Research and development expense 5.0 5.0 3.5
----- ----- -----
Operating profit 7.1 0.9 4.2
Interest expense, net (1.1) (0.8) (0.6)
Other income (expense) (0.3) (1.0) 0.4
----- ----- -----
Income (loss) before income taxes 5.7 (0.9) 4.0
Provision for income taxes 0.9 0.2 0.5
----- ----- -----
Net income (loss) 4.8% (1.1)% 3.5%
----- ----- -----
----- ----- -----
</TABLE>
1994 COMPARED WITH 1993
The Company operates on a fiscal calendar under which the twelve months ended
July 3, 1994 consisted of 52 weeks compared to 53 weeks in the twelve months
ended July 4, 1993.
Revenues for fiscal 1994 increased 16.7% to $328.9 million from $281.7 million
in the prior year. The Company's revenue increase reflected continued growing
demand for the Company's power MOSFET and related devices which resulted in a
23.4% increase in revenues from these products. Offsetting this revenue
increase was a 6.2% decrease in revenues from the Company's thyristor and
rectifier product lines. This downturn reflected slow starting economies in key
European markets in the first half, and the pruning of these mature product
lines. Changes in foreign exchange rates negatively impacted revenues by
approximately $2.0 million. Revenues for fiscal 1994 also included $9.0 million
of net patent royalties compared to $9.5 million in the prior period.
Gross profit was 33.1% of revenues ($108.9 million) in fiscal 1994 versus 28.1%
of revenues ($79.0 million) in fiscal 1993. The increased margin reflected IR's
recovery from production constraints in fiscal 1993. In addition, greater
MOSFET manufacturing volume and efficiencies resulted in lower per unit product
costs and enabled the Company to balance output to market demand and return to a
normal mix of original equipment manufacturers, distribution and higher margin
spot market business.
In the fourth quarter of fiscal 1993 the Company extended the useful lives of
certain assets. This change positively impacted gross profit by approximately
$2.6 million (0.8% of revenues) during fiscal 1994.
16
<PAGE>
In fiscal 1994, selling and administrative expense was 21.0% of revenues ($69.0
million) versus 22.2% of revenues ($62.6 million) in fiscal 1993. The decreased
percentage reflects the Company's continued commitment to reducing
operating expenses as a percentage of revenues.
In fiscal 1994, the Company's research and development expenditures increased
$2.3 million to $16.4 million (5.0% of revenues) from $14.1 million (5.0% of
revenues) in the prior period. The Company's research and development program
was focused on the advancement and diversification of the HEXFET product line
and expansion of the related IGBT products, the development of Control ICs and
power products that work in combination with HEXFETs and IGBTs to improve system
performance. Included in 1994 research and development expenses are the costs
associated with an activity started in fiscal 1994, in Japan, where efforts are
directed at reducing assembly costs and developing new assembly processes.
The major components of other expense include a $0.9 million charge for the
consolidation of the Company's power products operations, $0.4 million of
severance costs and $0.3 million on the disposal of property, plant and
equipment, offset by $0.4 million in foreign currency transaction gains.
1993 COMPARED WITH 1992
The Company operates on a fiscal calendar year under which the twelve months
ended July 4, 1993 consisted of 53 weeks compared to 52 weeks in the twelve
months ended June 28, 1992.
Revenues for fiscal 1993 increased 6.1% to $281.7 million from $265.5 million in
the prior year. The Company's revenue increase was primarily a result of higher
sales of the Company's power MOSFET devices and increased net patent royalties.
Changes in foreign exchange rates negatively impacted revenues by approximately
$2.5 million. Revenues for fiscal 1993 also include $9.5 million of net patent
royalties compared to $5.7 million in the prior period.
During fiscal 1992 and the first three fiscal quarters of 1993, sales of the
Company's power MOSFET devices were constrained because of assembly output
limitations. In the second half of 1992, the Company began a program to expand
assembly capacity for power MOSFETs at HEXFET America. During this expansion
program a subcontractor that provided about 30% of IR's fast-growing product
assembly output quit the business. Delays in receiving and ramping up equipment
at HEXFET America were compounded by the need to replace the subcontractor.
Product shortages curtailed IR's growth and negatively affected its share of the
power MOSFET market.
Gross profit was 28.1% of revenues ($79.0 million) in fiscal 1993 versus 29.8%
of revenues ($79.1 million) in fiscal 1992. Margins reflected less efficient
operation during the above assembly expansion ramp-up and product allocation
that favored industry-leading original equipment manufacturer customers over
higher-margin spot market business. Gross margin for the first half of fiscal
1993 was 26.8% of revenues as compared to 29.2% of revenues for the last half of
fiscal 1993. First-half margins also reflected a decrease in wafer fabrication
rates to accommodate a lower assembly production rate. Second-half margins
reflected greater manufacturing volume and efficiencies and an increase in net
patent royalties.
17
<PAGE>
In fiscal 1993, selling and administrative expense increased $3.8 million to
$62.6 million (22.2% of revenues) from $58.8 million (22.1% of revenues) in the
prior period. These increases reflect planned revenue increases, as well as
increases associated with an additional week of operations reported in fiscal
1993.
In fiscal 1993, the Company's research and development expenditures increased
$4.7 million to $14.1 million (5.0% of revenues) from $9.4 million (3.5% of
revenues) in the prior period. The Company's research and development program
is focused on the advancement and diversification of the HEXFET product line and
expansion of the related IGBT products. Efforts were also directed to the
development of Control ICs and power products that work in combination with
HEXFETs and IGBTs to improve system performance. The increase in research and
development expenditures in fiscal 1993 contributed to more new product
introductions in fiscal 1993.
Other expense included a $1.1 million charge for the settlement of a breach of
contract lawsuit, $1.1 million of severance costs and $0.2 million related to
the buyout of a lease upon early termination.
SEASONALITY
The Company has experienced moderate seasonality in its business in recent
years. On average over the past three years, the Company has reported
approximately 47% of annual revenues in the first half and 53% in the second
half of its fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1994, the Company had established $77.0 million in domestic and
foreign revolving credit facilities, of which $27.2 million had been borrowed by
the Company. Based upon covenant and collateral limitations under the revolving
credit facilities, the Company had $26.5 million available for borrowing at June
30, 1994. In addition, at June 30, 1994 the Company had available approximately
$20.0 million of unused lines of credit for capital equipment, $13.1 million of
cash and cash equivalents, and had commitments of approximately $7.5 million for
capital equipment.
During fiscal 1995 the Company intends to spend approximately $75 million to
expand wafer fabrication capacity at its HEXFET America facility. In addition,
the Company intends to spend approximately $35 million to expand or maintain
assembly capacity, to enhance its Management Information Systems infrastructure
and to maintain its existing facilities. The Company intends to fund these
capital expenditures and meet its short term liquidity requirements through cash
and cash equivalents on hand, anticipated cash flows from operations, funds
available from existing credit facilities, and funds from external financial
sources, including, but not limited to, public or private offerings of
debt or equity. The Company is currently negotiating the issuance of taxable
bonds by the County of Riverside, California, and backed by the U.S. Department
of Housing and Urban Development. However, there can be no assurance that any
financing will be available under cost effective terms.
Although the Company believes that the class action lawsuits brought against the
Company and its Board of Directors (See "Legal Proceedings") are without merit,
the ultimate outcome thereof cannot be presently determined. Accordingly, the
Company has not made any provision for any liability, if any,
18
<PAGE>
that may result upon adjudication of these matters. For the possible effects of
environmental matters on liquidity, see "Business - Environmental Matters".
INCOME TAXES
Due in part to the utilization of net operating loss carryforwards ("NOLs"), the
Company's effective income tax rate in fiscal 1994 was approximately 17%. At
June 30, 1994, the Company had NOLs of approximately $28.8 million for federal
income tax purposes. These NOLs expire beginning in 2004. The Company also has
approximately $5.3 million of tax credits available to offset future U.S. taxes.
In addition, the Company anticipates that it will be eligible to receive
California state tax credits equal to 6% of the cost of most of the Company's
equipment purchased and placed in service in California on or after January 1,
1994. When the NOLs and other available tax credits are fully utilized, the
Company will be subject to a normalized tax rate in the range of 35% - 40%.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE
----
Report of Independent Accountants 21
Financial Statements
Consolidated Statement of Operations for the Fiscal Years Ended
June 30, 1994, 1993, and 1992 22
Consolidated Balance Sheet as of June 30, 1994 and 1993 23
Consolidated Statement of Stockholders' Equity for the Fiscal
Years Ended June 30, 1994, 1993, and 1992 24
Consolidated Statement of Cash Flows for the Fiscal Years Ended
June 30, 1994, 1993, and 1992 25
Notes to Consolidated Financial Statements 26
Supporting Financial Statement Schedules:
SCHEDULE NO. PAGE
- - - ------------ ----
V Property, Plant and Equipment for the Fiscal Years Ended
June 30, 1994, 1993, and 1992 F-1
VI Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment for the Fiscal Years Ended
June 30, 1994, 1993, and 1992 F-2
VIII Valuation and Qualifying Accounts and Reserves for the Fiscal
Years Ended June 30, 1994, 1993, and 1992 F-3
IX Short-Term Borrowings for the Fiscal Years Ended June 30,
1994, 1993, and 1992 F-4
X Supplementary Statement of Operations Information for the
Fiscal Years Ended June 30, 1994, 1993, and 1992 F-5
Schedules other than those listed above have been omitted since they are either
not required, are not applicable, or the required information is shown in the
consolidated financial statements or related notes.
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders and Board of Directors
International Rectifier Corporation
We have audited the accompanying consolidated financial statements and the
financial statement schedules of International Rectifier Corporation and
Subsidiaries as of June 30, 1994 and 1993, and for the fiscal years ended June
30, 1994, 1993 and 1992 as listed on the index on page 20 of this Form 10-K.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of International
Rectifier Corporation and Subsidiaries at June 30, 1994 and 1993, and the
consolidated results of their operations and their cash flows for the fiscal
years ended June 30, 1994, 1993 and 1992, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
As discussed in Note 10 to the accompanying consolidated financial statements,
three class action lawsuits have been filed against the Company and its Board of
Directors (two of whom are also officers). The ultimate outcome thereof cannot
presently be determined. Accordingly, no provisions for any liability that may
result upon adjudication of these matters has been made in the accompanying
consolidated financial statements.
/s/ COOPERS & LYBRAND
- - - -----------------------
Coopers & Lybrand
Los Angeles, California
July 26, 1994
21
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In 000's except per share amounts)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenues $ 328,882 $ 281,732 $ 265,495
Cost of sales 219,944 202,684 186,437
--------- --------- ---------
Gross profit 108,938 79,048 79,058
Selling and administrative expense 69,008 62,637 58,771
Research and development expense 16,381 14,083 9,405
--------- --------- ---------
Operating profit 23,549 2,328 10,882
Other income (expense):
Interest expense, net (3,625) (2,250) (1,436)
Other, net (1,050) (2,675) 1,066
--------- --------- ---------
Income (loss) before income taxes 18,874 (2,597) 10,512
Provision for income taxes (Note 5) 3,160 436 1,275
--------- --------- ---------
Net income (loss) $ 15,714 $ (3,033) $ 9,237
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share $ 0.78 $ (0.15) $ 0.46
--------- --------- ---------
--------- --------- ---------
Average common and common equivalent
shares outstanding 20,428 20,087 20,107
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In 000's except share amounts)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1994 1993
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 13,051 $ 8,545
Trade accounts receivable, less allowance for doubtful accounts 67,595 55,004
($677 in 1994 and $607 in 1993)
Inventories 73,429 62,609
Prepaid expenses 2,779 1,731
--------- ---------
Total current assets 156,854 127,889
Property, plant and equipment, at cost, less accumulated depreciation 158,567 138,518
($112,411 in 1994 and $98,250 in 1993)
Investments and long-term notes receivable 2,248 2,251
Other assets 12,905 9,790
--------- ---------
Total assets $ 330,574 $ 278,448
--------- ---------
--------- ---------
Liabilities and stockholders' equity
Current liabilities:
Bank loans (Note 2) $ 27,205 $ 24,007
Long-term debt, due within one year (Note 2) 6,105 3,532
Accounts payable 36,965 27,846
Accrued salaries, wages and commissions 10,264 9,376
Other accrued expenses 9,150 5,012
--------- ---------
Total current liabilities 89,689 69,773
Long-term debt, less current maturities (Note 2) 26,817 11,810
Deferred income 1,199 1,402
Other long-term liabilities 9,320 9,073
Deferred income taxes (Note 5) 606 316
Commitments and contingencies (Notes 7, 8, 9, 10, and 11)
Stockholders' equity (Note 3):
Common shares, $1 par value, authorized: 30,000,000; issued 20,352 20,234
and outstanding: 20,352,277 shares in 1994 and 20,233,802
shares in 1993
Preferred shares, $1 par value, authorized: 1,000,000; issued -- --
and outstanding: none in 1994 and 1993
Capital contributed in excess of par value of shares 168,078 167,148
Retained earnings 19,500 3,786
Cumulative translation adjustments (4,987) (5,094)
--------- ---------
Total stockholders' equity 202,943 186,074
--------- ---------
Total liabilities and stockholders' equity $ 330,574 $ 278,448
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of this statement.
23
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In 000's except share amounts)
CAPITAL
CONTRIBUTED
IN EXCESS OF RETAINED CUMULATIVE
COMMON PAR VALUE EARNINGS TRANSLATION
SHARES OF SHARES (DEFICIT) ADJUSTMENTS TOTAL
------ --------- --------- ----------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1991 $ 19,810 $164,938 $ (2,418) $ (2,795) $179,535
Issuance of common shares:
30,916 - exercise of stock options 31 159 -- -- 190
48,956 - stock purchase plan 49 489 -- -- 538
40,000 - profit sharing contribution 40 184 -- -- 224
Stock offering costs -- (203) -- -- (203)
Net income for the year ended June 30, 1992 -- -- 9,237 -- 9,237
Cumulative translation adjustments -- -- -- 2,182 2,182
---------- ---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1992 19,930 165,567 6,819 (613) 191,703
Issuance of common shares:
204,640 - exercise of stock options 205 992 -- -- 1,197
99,027 - stock purchase plan 99 589 -- -- 688
Net loss for the year ended June 30, 1993 -- -- (3,033) -- (3,033)
Cumulative translation adjustments -- -- -- (4,481) (4,481)
---------- ---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1993 20,234 167,148 3,786 (5,094) 186,074
Issuance of common shares:
49,410 -- exercise of stock options 49 276 -- -- 325
69,065 -- stock purchase plan 69 654 -- -- 723
Net income for the year ended June 30, 1994 -- -- 15,714 -- 15,714
Cumulative translation adjustments -- -- -- 107 107
---------- ---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1994 $ 20,352 $168,078 $ 19,500 $ (4,987) $202,943
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
24
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In 000's)
FISCAL YEARS ENDED JUNE 30,
---------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $15,714 $(3,033) $9,237
Adjustment to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 18,018 16,524 16,597
Stock contribution to employee benefit plan -- -- 224
Deferred income (203) (513) (496)
Deferred income taxes 272 (159) (248)
Deferred compensation 1,473 1,529 978
---------- ---------- ----------
Cash flow from operating activities prior to
working capital requirements 35,274 14,348 26,292
Change in working capital (Note 1) (9,109) 3,943 (19,760)
---------- ---------- ----------
Net cash provided by operating activities 26,165 18,291 6,532
---------- ---------- ----------
Cash flow from investing activities:
Additions to property, plant and equipment (24,686) (16,994) (32,069)
Investment in other noncurrent assets (4,979) (4,158) (3,233)
---------- ---------- ----------
Net cash used in investing activities (29,665) (21,152) (35,302)
---------- ---------- ----------
Cash flow from financing activities:
Proceeds from issuance of short-term bank
debt, net 2,623 5,333 14,490
Proceeds from issuance of long-term debt 10,326 2,038 1,734
Payments on long-term debt and obligations
under capital leases (5,809) (5,268) (7,606)
Net proceeds from issuance of common stock 1,048 1,885 525
Other (125) (1,201) 4,085
---------- ---------- ----------
Net cash provided by financing activities 8,063 2,787 13,228
---------- ---------- ----------
Effect of exchange rate changes on cash and cash
equivalents (57) 72 (192)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 4,506 (2) (15,734)
Cash and cash equivalents beginning of year 8,545 8,547 24,281
---------- ---------- ----------
Cash and cash equivalents end of year $13,051 $ 8,545 $ 8,547
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
25
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all its majority-owned subsidiaries which are located in Europe, Mexico, Canada,
the Far East and South East Asia. All material intercompany transactions have
been eliminated.
FISCAL YEAR
Fiscal years 1994 and 1992 consist of 52 weeks ending July 3 and June 28,
respectively. Fiscal year 1993 consists of 53 weeks ending July 4. For
convenience, all references herein to fiscal years are to fiscal years ended
June 30.
REVENUE RECOGNITION
The Company recognizes revenues from product sales at the time of shipment
except on certain government contracts where revenues are recognized using the
percentage of completion method.
INVENTORIES
Inventories are stated at the lower of cost (principally first-in, first-out) or
market. Inventories at June 30, 1994 and 1993 were comprised of the following
(000's):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Raw materials $15,118 $12,613
Work-in-process 26,965 24,943
Finished goods 31,346 25,053
-------- --------
$73,429 $62,609
-------- --------
-------- --------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Upon retirement or other
disposal, the asset cost and related accumulated depreciation are removed from
the accounts and any gain or loss on disposition is included in income.
Depreciation is provided on the straight-line method, based on the estimated
useful lives of the assets, or the units of production method based upon the
estimated output of the equipment. In the fourth quarter of fiscal year 1993,
the Company extended the estimated useful lives of certain assets. This change
positively impacted 1994 and 1993 pre-tax results by $2,600,000 and $200,000,
respectively. Depreciation expense for the fiscal years ended June 30, 1994,
1993, and 1992 was $15,880,000, $14,160,000, and $15,358,000, respectively.
Property, plant and equipment at June 30, 1994 and 1993 was comprised of the
following (000's):
26
<PAGE>
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Buildings and improvements $ 72,004 $ 71,859
Equipment 169,988 140,651
Construction in progress 22,525 17,795
Less accumulated depreciation (112,411) (98,250)
---------- ----------
152,106 132,055
Land 6,461 6,463
---------- ----------
$ 158,567 $ 138,518
---------- ----------
---------- ----------
</TABLE>
Depreciation of improvements to leased premises is provided on the straight-line
method over the shorter of the remaining term of the lease or estimated useful
lives of the improvements. Capital leases included in property, plant and
equipment at June 30, 1994 and 1993 are as follows (000's):
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Equipment $ 62,533 $ 51,305
Less Accumulated depreciation (35,171) (31,800)
---------- ----------
$ 27,362 $ 19,505
---------- ----------
---------- ----------
</TABLE>
FOREIGN CURRENCY TRANSLATION
The financial position and results of operation of the Company's foreign
subsidiaries are measured using the local currency as the functional currency.
Foreign assets and liabilities in the consolidated balance sheet have been
translated at the rate of exchange on the balance sheet date. Revenues and
expenses are translated at the average exchange rate for the year. Unrealized
translation adjustments do not affect the results of operations and are reported
as a separate component of stockholders' equity. In fiscal 1994, 1993 and 1992,
the Company recognized foreign currency transaction gains of $376,000, $129,000,
and $376,000, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
INCOME TAXES
Deferred income taxes are determined based on the difference between the
financial reporting and tax bases of assets and liabilities using enacted rates
in effect during the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.
U.S. income taxes have not been provided on approximately $14,260,000 of
undistributed earnings of foreign subsidiaries since management considers these
earnings to be invested indefinitely or substantially offset by foreign tax
credits.
27
<PAGE>
EARNINGS PER SHARE
Earnings per share is computed by dividing earnings by the weighted average
number of common and common stock equivalents outstanding. Stock options
outstanding under stock option plans are considered common stock equivalents.
Common stock equivalents for stock options of 112,700 and 244,200 were utilized
in the computation of earnings per share in 1994 and 1992, respectively. No
common stock equivalents for stock options were used in 1993 as the impact would
have been anti-dilutive.
INTANGIBLE ASSETS
Patent costs are amortized using the straight-line method over the life of the
patent.
STATEMENT OF CASH FLOWS
The Company invests excess cash from operations in short term investment grade
money market funds. The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents. Components in the changes in working capital are comprised of the
following (000's):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Trade accounts receivable, net $ (11,701) $ (2,871) $ (8,386)
Inventories (10,427) 3,390 (19,333)
Prepaid expenses (1,031) (789) 796
Accounts payable 9,123 4,316 4,710
Accrued salaries, wages and commissions 918 243 1,686
Other accrued expenses 4,009 (346) 767
---------- ---------- ---------
$ (9,109) $ 3,943 $(19,760)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
Supplemental disclosures of cash flow information (000's):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 3,612 $ 3,246 $ 3,877
Income taxes 802 1,376 1,416
Interest capitalized 453 1,357 1,736
Non cash financing activity:
Assets acquired through capital leases 12,675 4,275 2,576
</TABLE>
Included in assets acquired through capital leases in 1994 is $7.2 million in
existing operating leases that were renegotiated to capital leases.
CONCENTRATION OF RISK
The Company places its temporary cash investments with high credit quality
financial institutions. At times, such investments may be in excess of insured
limits.
28
<PAGE>
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables generally are
due in 60 days. Credit losses have consistently been within management's
expectations.
RECLASSIFICATION
Certain reclassifications have been made to previously reported amounts to
conform with the current year presentation.
2. LONG-TERM DEBT AND OTHER LOANS
In June 1994, the Company renewed and modified its existing $20 million
unsecured credit facility from Sanwa Bank California ("Sanwa Facility"). The
modified facility increases the revolving line of credit to $25 million. In
June 1994 the Company also added an unsecured revolving credit facility of
$10 million from Wells Fargo Bank. Interest rates on both facilities are at
prime, or the banks costs of funds plus 1.25%, or LIBOR plus 1.25% (at the
Company's option). Both facilities expire on October 31, 1996, contain the same
financial covenants and ratios, which impact the availability of funds, and
prohibit the Company from paying cash dividends. At June 30, 1994, $2.5 million
was outstanding under the Sanwa Facility. The Company also has a $3.0 million
uncommitted domestic credit facility of which $1.0 million was outstanding at
June 30, 1994.
The Company also has an additional $39.0 million of credit facilities at foreign
locations. The interest rate on these facilities range from 3.0% to 12.25% at
June 30, 1994. Under the terms of the agreements, the availability of funds is
impacted by various financial covenants and collateral requirements. At June
30, 1994, $23.7 million was outstanding under these foreign facilities.
Based on covenant and collateral limitations under the above credit facilities,
the Company had $26.5 million available for borrowing at June 30, 1994.
29
<PAGE>
The following is a summary of the Company's long-term debt and other loans at
June 30, 1994 and 1993 (000's):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Capitalized lease obligations payable in varying
monthly installments primarily at rates from 6.9% to
16.6% $ 16,115 $ 7,543
10.55% property mortgage due in equal monthly
installments to 2011 4,300 4,392
Domestic bank loans collateralized by equipment,
payable in varying monthly installments at rates from
8.0% to 9.0%, due in 1995 through 1999 3,097 134
Foreign bank loans collateralized by property and/or
equipment, payable in varying monthly installments at
rates from 6.5% to 10.8%, due in 1997 through 2000 4,803 2,873
Foreign unsecured bank loans payable in varying monthly
installments at rates from 4.0% to 11.9%, due in 1998
through 2006 4,607 400
---------- ----------
32,922 15,342
Less current portion of long-term debt (6,105) (3,532)
---------- ----------
$ 26,817 $ 11,810
---------- ----------
---------- ----------
</TABLE>
The net book value of properties mortgaged at June 30, 1994 amounted to
$6,134,000. Principal payments on long-term debt are as follows: 1996
$6,458,000; 1997 $6,246,000; 1998 $6,087,000; 1999 $2,769,000; and $5,257,000
thereafter.
In accordance with Statement of Financial Accounting Standards No. 107
"Disclosures About Fair Value of Financial Instruments," the fair values of the
Company's long-term debt has been estimated based on current rates offered to
the Company for debt of the same remaining maturities. The carrying amounts of
the Company's loans approximate their fair values.
3. CAPITAL STOCK
The Company has an employee stock purchase plan. Under this plan employees are
allowed to designate between two and ten percent of their base compensation to
purchase shares of the Company's common stock at 85 percent of fair market
value. In November 1993, the stock purchase plan was amended to cover an
additional 1,000,000 shares. During fiscal 1994 and 1993, 69,065 and 99,027
shares were purchased at an aggregate purchase price of $723,000 and $688,000,
respectively. Shares authorized under this plan that remained unissued were
1,055,003 and 124,068 at June 30, 1994 and 1993, respectively.
The Company has three stock option plans, the 1979, 1984, and 1992 Plans, as
amended. Under these plans, options to purchase shares of the Company's common
stock are issued to key employees as well as members of the Company's Board of
Directors. Options are issued at 100% of the fair value of the Company's common
stock at the date of grant and become exercisable in annual installments of 20%,
beginning on the first anniversary date. The 1992 plan provides for the
increase in options available for
30
<PAGE>
grant under the plan by 1 1/2% of total common stock outstanding on January 1
of each year. On January 1, 1994 and 1993, 304,503 and 300,061 options,
respectively, were added to the plan.
A summary of the status of options under the 1992, 1984, and 1979 plans is as
follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
------ -----------
<S> <C> <C>
Outstanding, June 30, 1991 616,290 $ 4.00 to $21.62
Options granted 92,900 8.00 to 19.62
Options exercised (30,916) 4.00 to 11.50
Options expired or canceled (15,874) 4.37 to 19.62
---------
Outstanding, June 30, 1992 662,400 4.00 to 21.62
Options granted 73,700 8.00 to 12.50
Options exercised (204,640) 4.00 to 10.00
Options expired or canceled (17,650) 4.00 to 12.75
---------
Outstanding, June 30, 1993 513,810 4.00 to 21.62
Options granted 240,000 11.00 to 17.00
Options exercised (49,410) 4.00 to 15.38
Options expired or canceled (23,200) 5.75 to 21.62
---------
Outstanding, June 30, 1994 at
an average price of $13.97 681,200 $4.50 to $21.62
---------
---------
<CAPTION>
The following table summarizes the options exercisable:
SHARES PRICE RANGE
------- ------------------
June 30, 1994 264,120 $4.50 to $21.62
June 30, 1993 216,760 4.00 to 21.62
June 30, 1992 275,900 4.00 to 21.62
</TABLE>
Additional information relating to the 1992, 1984, and 1979 plans is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Options available for grant at June 30 350,214 262,511 20,350
Total reserved common stock shares 1,031,414 776,321 682,750
</TABLE>
31
<PAGE>
4. GEOGRAPHIC SEGMENTS AND FOREIGN OPERATIONS
The Company operates in one business segment. Transfers between geographic areas
are made at prices reflecting market conditions. Geographic segment information
including sales and transfers between geographic areas is presented below:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED (000's)
--------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenues from Unaffiliated Customers
United States $169,263 $137,765 $123,854
Europe 89,073 79,930 83,382
Other 70,546 64,037 58,259
---------- ---------- ----------
Total $328,882 $281,732 $265,495
---------- ---------- ----------
---------- ---------- ----------
Transfers between Geographic Areas
United States $97,896 $84,753 $87,145
Europe 48,864 56,119 52,150
Other 1,379 2,602 5,281
---------- ---------- ----------
Total $148,139 $143,474 $144,576
---------- ---------- ----------
---------- ---------- ----------
Total Revenues
United States $267,159 $222,518 $210,999
Europe 137,937 136,049 135,532
Other 71,925 66,639 63,540
Intersegment eliminations (148,139) (143,474) (144,576)
---------- ---------- ----------
Total $328,882 $281,732 $265,495
---------- ---------- ----------
---------- ---------- ----------
Operating Profit
United States $18,173 $1,108 $7,285
Europe 4,710 409 2,692
Other 666 811 905
---------- ---------- ----------
Total $23,549 $2,328 $10,882
---------- ---------- ----------
---------- ---------- ----------
Identifiable Assets
United States(1) $189,591 $164,485 $164,778
Europe 74,533 61,364 71,230
Other 28,696 22,506 23,297
---------- ---------- ----------
Total $292,820 $248,355 $259,305
---------- ---------- ----------
---------- ---------- ----------
U.S. Export Sales to Unaffiliated Customers by
Destination of Sale
Europe $4,362 $3,293 $3,630
Asia 20,094 13,319 10,709
Other 4,829 4,057 2,448
---------- ---------- ----------
Total $29,285 $20,669 $16,787
---------- ---------- ----------
---------- ---------- ----------
<FN>
(1) Excluding general corporate assets.
</TABLE>
32
<PAGE>
5. INCOME TAXES
Effective July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes"
which requires recognition of deferred tax assets and liabilities for temporary
differences and net operating loss (NOL) and tax credit carryforwards. Under
SFAS No. 109, deferred income taxes are established based on enacted tax rates
expected to be in effect when temporary differences are scheduled to reverse and
NOL and tax credit carryforwards are expected to be utilized. Adoption of SFAS
No. 109 did not have a material impact on the Company's financial position or
results from operations. Prior year's financial statements have not been
restated.
The major components of the net deferred tax liability as of June 30, 1994 and
July 1, 1993 were as follows (000's):
<TABLE>
<CAPTION>
JUNE 30, 1994 JULY 1, 1993
------------- ------------
<S> <C> <C>
Deferred tax liability:
Depreciation $ (9,215) $ (10,194)
Deferred tax assets:
Reserves for books, not deducted 3,380 2,851
Net operating loss carryovers 9,815 16,765
Credit carryovers 5,417 5,269
Other 593 539
---------- ----------
Total deferred tax assets 19,205 25,424
Valuation allowance (10,596) (15,546)
---------- ----------
Net deferred tax liabilities $ (606) $ (316)
---------- ----------
---------- ----------
</TABLE>
Income (loss) before income taxes was as follow (000's):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Operations:
Domestic $ 15,626 $ (1,590) $ 8,733
Foreign 3,248 (1,007) 1,779
---------- ---------- ----------
$ 18,874 $ (2,597) $ 10,512
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
The provision (benefit) for income taxes consisted of (000's):
FISCAL YEARS ENDED
----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Current income taxes:
Domestic $1,539 $(122) $614
Foreign 1,331 788 908
---------- ---------- ----------
2,870 666 1,522
---------- ---------- ----------
Deferred income taxes:
Domestic -- (160) --
Foreign 290 (70) (247)
---------- ---------- ----------
290 (230) (247)
---------- ---------- ----------
Total provision $3,160 $ 436 $1,275
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Deferred taxes result primarily from temporary differences relating to
depreciation, inventory valuation and state taxes.
The Company's effective tax rate on pretax income (loss) differs from the U.S.
Federal Statutory tax rate as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate (benefit) 35.0% (34.0)% 34.0%
Utilization of domestic net operating loss
carryforward (36.6) -- (23.1)
Change in valuation allowance 9.6 -- --
Foreign tax differential 2.6 40.9 0.5
Domestic loss producing no current tax
benefit -- 16.6 --
State taxes, net of federal tax benefit 1.5 (7.5) --
Alternative minimum tax 2.2 -- --
Other, net 2.4 0.8 0.7
----- ----- -----
16.7% 16.8% 12.1%
----- ----- -----
----- ----- -----
</TABLE>
At June 30, 1994, the Company had approximately $28.8 million of U.S. federal
income tax net operating loss carryovers which begin to expire in 2004. During
the year, the Company utilized approximately $20.4 million in U.S. federal net
operating loss carryovers. The estimated tax benefit from utilization of the
net operating loss carryover was $6.9 million.
The Company has approximately $3.1 million, $1.1 million, and $0.2 million,
respectively, of investment, research and development, and foreign tax credit
carryforwards which expire from 1995 to 2001. In addition, the Company has
approximately $0.9 million of alternative minimum tax credits which are
available to offset future regular tax.
34
<PAGE>
In general, Section 382 of the United States Internal Revenue Code includes
provisions which limit the amount of net operating loss carryforwards and other
tax attributes that may be used annually in the event that a 50% ownership
change (as defined) takes place in any three year period. At June 30, 1994, the
Company had not experienced a change in ownership for purposes of Section 382.
6. PROFIT SHARING AND RETIREMENT PLANS
The Company has established defined contribution plans for all eligible
employees. The Profit Sharing and Retirement Plan provides for contributions by
the Company in such amounts as the Board of Directors may annually determine.
The Company has also established a voluntary Retirement Savings Plan (401K) to
which the Company makes an annual contribution of up to $600 for each
participating employee. Combined plan contributions totaled $841,000, $511,000,
and $1,250,000 for fiscal years 1994, 1993, and 1992, respectively. Fiscal year
1992 contributions included 40,000 shares of the Company's common stock to its
Profit Sharing and Retirement Plan.
7. ENVIRONMENTAL MATTERS
Federal, state and local laws and regulations impose various restrictions and
controls on the discharge of certain materials, chemicals and gases used in
semiconductor processing. The Company does not believe that compliance with
such laws and regulations will have a material adverse effect on its financial
position.
The Company and Rachelle Laboratories, Inc. ("Rachelle"), its pharmaceutical
subsidiary which discontinued operations in 1986, have been named among several
hundred entities as potentially responsible parties ("PRPs") under the
provisions of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), in connection with the United States
Environmental Protection Agency's ("EPA") investigation of the disposal of
allegedly hazardous substances at a major superfund site in Monterey Park,
California (the "OII site"). Certain PRPs who settled certain claims with the
EPA under two consent decrees, filed suit in Federal Court in May 1992 against a
number of other PRPs, including IR, for cost recovery and contribution under
CERCLA. The lawsuit against IR, relating to the first and second consent
decrees, was settled in August 1993 for the sum of $40,000 to avoid protracted
and expensive litigation. Claims have been made with the Company's insurers
with respect to the OII site matter; however, there can be no assurance that the
insurance coverage attaches to these claims. There remains the potential for
litigation against IR relating to future consent decrees. The Company does not
believe that either it or Rachelle is responsible for the disposal at the OII
site of any material constituting hazardous substances under CERCLA. Although
the ultimate resolution of this matter is unknown, the Company believes that it
will not have a material adverse impact on its financial position.
In May 1993 the Company purchased property from its Employee Profit Sharing and
Retirement Plan. At the time of the purchase it was determined that the
property required clean up of seepage from a storage tank, at an estimated
additional cost of $500,000. The Company commenced the clean up in fiscal year
1994, and the costs to be incurred will be capitalized as additional costs of
the property.
35
<PAGE>
On July 18, 1994, the Company received a letter from the State of Washington
Department of Ecology notifying the Company of a proposed finding that the
Company is a potentially liable person ("PLP") for alleged PCE contamination
(also known as perchloroethylene, tetrachloroethylene, and other names) ("PCE")
of real property and groundwater in Yakima County, Washington. The letter
alleges that the Company arranged for disposal or treatment of the PCE or
arranged with a transporter for the disposal or treatment of the PCE in Yakima
County. The Company replied on August 11, 1994 to this letter and stated that
it has not contributed to PCE or other solvent contamination at the Yakima
County site and that it should not be designated a PLP.
The Company received a letter dated September 9, 1994, from the State of
California Department of Toxic Substances Control stating that the Company may
be a PRP for the deposit of hazardous substances at a facility in Whittier,
California. The Company's investigation of this matter has just begun and
therefore an opinion cannot be expressed as to any ultimate responsibility.
8. COMMITMENTS
The future minimum lease commitments under non-cancelable capital and operating
leases of equipment and real property at June 30, 1994 were as follows (000's):
<TABLE>
<CAPTION>
FISCAL CAPITAL OPERATING TOTAL
YEARS LEASES LEASES COMMITMENTS
----- ------ ------ -----------
<S> <C> <C> <C>
1995 $ 5,282 $ 6,050 $ 11,332
1996 4,949 5,272 10,221
1997 4,436 4,457 8,893
1998 3,880 1,826 5,706
1999 977 628 1,605
Later years 3 1,208 1,211
Less imputed interest (3,412) -- (3,412)
--------- --------- ---------
Total minimum lease payment $ 16,115 $ 19,441 $ 35,556
--------- --------- ---------
--------- --------- ---------
</TABLE>
Total rental expense on all operating leases charged to income was $6,723,000,
$5,591,000, and $3,193,000 in fiscal years 1994, 1993 and 1992, respectively.
9. INTELLECTUAL PROPERTY RIGHTS
A competitor, prior to settlement of patent litigation with the Company in
February 1992, obtained reexamination by the United States Patent and Trademark
Office ("PTO") of the Company's MOSFET patents 4,376,286, 4,959,699 and
5,008,725. The PTO confirmed the patentability of the '725 patent in January
1993 and the '286 patent in July 1993 and the '699 patent in October 1993. In
other reexamination proceedings the PTO in November 1992 agreed to reexamine the
Company's 4,642,666 patent and in July 1993 agreed to reexamine the Company's
4,705,759 patent. More recently, the PTO on September 12, 1994 agreed to
reexamine the Company's 4,642,666 and 4,959,699 patents. The patents subject to
reexamination are fundamental to the Company's MOS transistors.
36
<PAGE>
10. LITIGATION
SGS-Thomson Microelectronics, Inc. filed suit against the Company in June 1991
in Federal District Court in Texas, charging infringement of U.S. patent
4,553,314. The suit was thereafter transferred to the Federal District Court in
Los Angeles, California. Subsequent to transfer, SGS amended its complaint to
charge additionally infringement of U.S. patents 4,495,513 and 4,712,127. The
District Court on February 1, 1993 dismissed for lack of standing SGS's claims
for infringement of the '127 and '513 patents. The same Court ruled on March
15, 1993 that the remaining SGS patent in the same case ('314) is unenforceable.
SGS appealed the February and March summary judgment rulings, as well as the
order transferring the case to California, to the Court of Appeals for the
Federal Circuit. IR then cross-appealed the District Court's denial of IR's
motion for summary judgment as to the invalidity of the '314 patent. In
July 1994, the Federal Circuit vacated the District Court's grants of summary
judgment as to the '513, '127 and '314 patents, affirmed the District Court's
denial of summary judgment, and reversed the transfer order, but remanded the
case for continued proceedings in California. SGS petitioned the U.S. Supreme
Court for a writ of certiorari as to various rulings of the Federal Circuit
relating to jurisdictional and venue issues. No trial date has yet been set and
the ultimate outcome of the case as to the three patents is unknown. In a
separate proceeding before the California District Court, the Court in July 1994
granted the Company's motions to enforce its license agreement with SGS,
requiring SGS to pay royalties under IR's patents 4,959,699 and 4,642,666 as to
SGS's sales of power MOSFET, IGBT and power IC products. SGS is appealing this
ruling on royalties to the Federal Circuit. The Company's separate action
against SGS and its Italian affiliate, SGS-Thomson Microelectronics, S.r.L., for
infringement of the Company's U.S. patents 5,008,725 and 5,130,767 is continuing
before the same Court. Trial of the Company's action has been set for January
25, 1995.
The Company, its directors and certain officers have been named as defendants in
three class action lawsuits filed in federal court in California. The last two
suits also name Kidder, Peabody & Co. Incorporated and Montgomery Securities.
These suits seek unspecified compensatory and punitive damages for alleged
intentional and negligent misrepresentations and violations of the federal
securities laws. They generally allege that the Company and the other
defendants made materially false statements and/or omitted to state material
facts in connection with the public offering of the Company's common stock
completed on April 24, 1991 and/or the redemption and conversion of the
Company's 9% Convertible Subordinated Debentures Due 2010 completed in June
1991. Although the Company believes that the claims alleged in the suits are
without merit, the ultimate outcome thereof cannot be presently determined.
Accordingly, no provision for any liability that may result upon adjudication of
these matters has been made in the consolidated financial statements.
The Company is currently involved in litigation arising in the normal course of
business. Management does not believe that the ultimate resolution of this
litigation will have a material adverse impact on the financial position of the
Company (also see Notes 7 and 9).
11. EXECUTIVE AGREEMENT
The Company entered into an executive agreement with Eric Lidow dated May 15,
1991 providing for his continued employment with the Company for a six year
period as Chief Executive Officer and President or in such other position as the
Board of Directors may determine. Mr. Lidow's salary at fiscal
37
<PAGE>
year end under this agreement was $550,000. Upon Mr. Lidow's retirement from
the Company (or a change in control) he will receive annual payments (Founder's
Pension) of 90% of his then current salary. Upon Mr. Lidow's death, payments
will be continued to his wife, if she survives him, in an amount equal to two-
thirds of his retirement benefits for the remainder of her life. Under the
terms of the Founder's Pension, $572,000, $572,000, and $611,000 have been
expensed in fiscal years 1994, 1993, and 1992, respectively.
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows (000's):
<TABLE>
<CAPTION>
NET
GROSS NET INCOME (LOSS)
REVENUES PROFIT INCOME (LOSS) PER SHARE
-------- ------ ------------- ---------
1994
----
<S> <C> <C> <C> <C>
1st Quarter $ 73,094 $ 23,420 $ 1,976 $ 0.10
2nd Quarter 79,104 25,613 3,070 0.15
3rd Quarter 84,252 28,110 4,206 0.21
4th Quarter 92,432 31,795 6,462 0.32
1993
----
1st Quarter $ 64,980 $ 16,937 $ (1,878) $ (0.09)
2nd Quarter 70,452 19,417 (1,993) (0.10)
3rd Quarter 70,572 20,513 125 0.01
4th Quarter 75,728 22,181 713 0.04
</TABLE>
38
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
For information called for by Items 10, 11, 12 and 13, reference is made to the
Registrant's definitive proxy statement for its Annual Meeting of Stockholders,
to be held November 21, 1994, which will be filed with the Securities and
Exchange Commission within 120 days after June 30, 1994, and which is
incorporated herein by reference. Certain information concerning the Directors
and Executive Officers of the Company is included in Part I. See "Additional
Item" page 12.
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Financial Statements and Schedules being filed as part of this report are
listed in the index on page 20.
b. Exhibits filed as part of this report are listed on the Exhibit Index on
page 40.
39
<PAGE>
EXHIBIT INDEX
INCORPORATED BY REFERENCE:
EXHIBIT NO. ITEM DOCUMENT
- - - ----------- ---- --------
3(a) Certificate of Report on Form 10-Q for the
Incorporation of the quarterly period ended December 31,
Company, as amended to 1990, as amended by Form 8 dated
date March 6 and March 12, 1991 as filed
with the Securities and Exchange
Commission, File No. 1-7935
(Exhibit 3(a))
3(b) Amended and restated By- Registration Statement on Form S-3
Laws of the Company as filed with the Securities and
Exchange Commission, Registration
No. 33-39226 (Exhibit 3(b))
10(a) Technical Assistance Registration Statement on Form S-2
Agreement dated March 30, as filed with the Securities and
1983 between the Company Exchange Commission, Registration
and Unitrode Corporation No. 2-89410 (Exhibit 10.8)
10(b) International Rectifier Registration Statement on Form S-8
Corporation 1979 Non- as filed with the Securities and
Qualified Stock Option Exchange Commission, Registration
Plan No. 2-69614
10(c) International Rectifier Registration Statement on Form S-8
Corporation Stock Option as filed with the Securities and
Plan of 1984 Exchange Commission, Registration
No. 2-94858 (Exhibit 4.1)
10(d) International Rectifier Registration Statement on Form S-8
Corporation 1984 Stock as filed with the Securities and
Participation Plan Exchange Commission, Registration
No. 2-94436
10(e) International Rectifier Registration Statement on Form S-8
Corporation Stock Option as filed with the Securities and
Plan of 1984 (Amended) Exchange Commission, Registration
No. 33-28596 (Exhibit 4.1)
10(f) Amended and Restated Form 10-K - Annual Report Pursuant
License Agreement between to Section 13 or 15(d) of the
International Rectifier Securities Exchange Act of 1934 for
Corporation and Siliconix Fiscal Year Ended June 30, 1990,
incorporated dated Commission File No. 1-7935
April 10, 1990
40
<PAGE>
EXHIBIT NO. ITEM DOCUMENT
- - - ----------- ---- --------
10(g) Amended and Restated Form 10-K- Annual Report Pursuant
Settlement Agreement to Section 13 or 15(d) of the
between International Securities Exchange Act of 1934 for
Rectifier Corporation and Fiscal Year Ended June 30, 1990,
Siliconix incorporated Commission File No. 1-7935
dated July 27, 1990
10(h) Amendment to Technical Report on Form 10-Q for the
Assistance Agreement, quarterly period ended
effective as of December 31, 1990 as amended by
August 27, 1987, by and Form 8 dated April 15, 1991,
between the Company and Commission File No. 1-7935 (Exhibit
Unitrode Corporation 10(l))
10(i) International Rectifier Registration Statement on Form S-8
Corporation Stock Option as filed with the Securities and
Plan of 1984 (Second Exchange Commission, Registration
Amendment) No. 33-40208.
10(j) Executive Employment Form 10-K- Annual Report Pursuant
Agreement dated May 15, to Section 13 or 15(d) of the
1991 between Securities Exchange Act of 1934 for
International Rectifier Fiscal Year Ended June 30, 1991,
Corporation and Mr. Eric Commission File No. 1-7935
Lidow
10(k) International Rectifier Registration Statement on Form S-8
Corporation Stock Option as filed with the Securities and
Plan of 1992 Exchange Commission, Registration
No. 33-63958 (Exhibit 8)
10(l) Line of Credit Agreement Form 10-K- Annual Report Pursuant
between International to Section 13 or 15(d) of the
Rectifier Corporation and Securities Exchange Act of 1934 for
Sanwa Bank California Fiscal Year Ended June 30, 1993,
dated as of June 30, 1993 Commission File No. 1-7935
and amended as of
August 24, 1993
10(m) Amendment to Registration Statement on Form S-8
International Rectifer as filed with the Securities and
Corporation 1984 Stock Exchange Commission, Registration
Participation Plan No. 33-53589 (Exhibit 4.1)
41
<PAGE>
Submitted Herewith:
See page 20 for an index of financial statements and schedules being filed as
part of this report.
EXHIBIT NO. ITEM
10 (n) Amendments to Line of Credit
Agreement between International
Rectifier Corporation and Sanwa
Bank California dated as of
November 22, 1993 and
July 1, 1994
10 (o) Security Agreement between
International Rectifier Corporation
and Nationsbanc Leasing Corporation
of North Carolina dated as of
July 1, 1994
10 (p) Revolving Credit Agreement between
International Rectifier Corporation
and Wells Fargo Bank, N.A. dated as
of July 1, 1994
10 (q) Loan and Security Agreement between
Sanwa General Equipment Leasing, a
Division of Sanwa Business Credit
Corporation and International Rectifier
Corporation dated as of July 1, 1994
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
42
<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 report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL RECTIFIER CORPORATION
(REGISTRANT)
By MICHAEL P. MCGEE Date: September 27, 1994
----------------------------- ------------------------------
Michael P. McGee
Vice President, Chief Financial Officer
and Principal Accounting Officer
Each person whose signature appears below hereby authorizes Michael P. McGee, as
attorney-in-fact and agent, with full powers of substitution, to sign on his
behalf, individually and in the capacities stated below, and to file any and all
amendments to this Form 10-K, and other documents in connection therewith, with
the Securities and Exchange Commission, granting to said attorney-in-fact and
agent full power and authority to perform any other act on behalf of the
undersigned required to be done in the premises.
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.
SIGNATURES TITLE DATE
---------- ----- ----
ERIC LIDOW President, Chairman of the Board, 9/27/94
- - - ------------------------ Chief Executive Officer ------------
Eric Lidow
DONALD S. BURNS Director 9/27/94
- - - ----------------------- ------------
Donald S. Burns
GEORGE KRSEK Director 9/27/94
- - - ----------------------- ------------
George Krsek
ROBERT J. MUELLER Director, Executive Vice President 9/27/94
- - - ----------------------- ------------
Robert J. Mueller
JACK O. VANCE Director 9/27/94
- - - ----------------------- ------------
Jack O. Vance
ROCHUS E. VOGT Director 9/27/94
- - - ----------------------- ------------
Rochus E. Vogt
(Signatures continued on next page)
<PAGE>
SIGNATURES
(continued)
SIGNATURES TITLE DATE
---------- ----- ----
ALEXANDER LIDOW Director, Executive Vice President of 9/27/94
- - - ----------------------- Operations ------------
Alexander Lidow
DEREK B. LIDOW Director, Executive Vice President 9/27/94
- - - ----------------------- ------------
Derek B. Lidow
Director
- - - ----------------------- ------------
James D. Plummer
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT FOR THE FISCAL YEARS ENDED
JUNE 30, 1994, 1993 AND 1992
(IN 000'S EXCEPT NOTES)
<TABLE>
<CAPTION>
OTHER
BALANCE AT CHANGES BALANCE
BEGINNING ADDITIONS RETIREMENTS ADD (DEDUCT) AT END
CLASSIFICATION OF PERIOD AT COST (A) (B) OF PERIOD
- - - -------------- --------- --------- ------------ ------------- ---------
1994
----
<S> <C> <C> <C> <C> <C>
Land $ 6,463 $ -- $ -- $ (2) $ 6,461
-------- -------- -------- -------- --------
Buildings 68,191 -- (1) (44) 68,146
Leasehold improvements 3,668 288 (89) (9) 3,858
-------- -------- -------- -------- --------
71,859 288 (90) (53) 72,004
-------- -------- -------- -------- --------
Machinery and equipment 135,400 17,851 (1,838) 12,515 163,928
Automotive equipment 260 -- (2) 2 260
Office furniture and fixtures 4,991 167 (179) 821 5,800
-------- -------- -------- -------- --------
140,651 18,018 (2,019) 13,338 169,988
-------- -------- -------- -------- --------
Construction in progress 17,795 18,839 (74) (14,035) 22,525
-------- -------- -------- -------- --------
$236,768 $ 37,145 $ (2,183) $ (752) $270,978
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
1993
----
Land $ 5,411 $ 1,121 $ -- $(69) $ 6,463
-------- -------- -------- -------- --------
Buildings 67,835 1,094 -- (738) 68,191
Leasehold improvements 3,130 246 (9) 301 3,668
-------- -------- -------- -------- --------
70,965 1,340 (9) (437) 71,859
-------- -------- -------- -------- --------
Machinery and equipment 120,508 10,299 (359) 4,952 135,400
Automotive equipment 314 60 (77) (37) 260
Office furniture and fixtures 6,327 275 (87) (1,524) 4,991
-------- -------- -------- -------- --------
127,149 10,634 (523) 3,391 140,651
-------- -------- -------- -------- --------
Construction in progress 24,783 8,706 -- (15,694) 17,795
-------- -------- -------- -------- --------
$228,308 $ 21,801 $ (532) $(12,809) $236,768
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
1992
----
Land $ 5,372 $ -- $ -- $ 39 $ 5,411
-------- -------- -------- -------- --------
Buildings 67,251 130 -- 454 67,835
Leasehold improvements 2,102 590 -- 438 3,130
-------- -------- -------- -------- --------
69,353 720 -- 892 70,965
-------- -------- -------- -------- --------
Machinery and equipment 100,803 8,955 (196) 10,946 120,508
Automotive equipment 281 51 (42) 24 314
Office furniture and fixtures 3,884 2,281 (38) 200 6,327
-------- -------- -------- -------- --------
104,968 11,287 (276) 11,170 127,149
-------- -------- -------- -------- --------
Construction in progress 11,798 22,914 -- (9,929) 24,783
-------- -------- -------- -------- --------
$191,491 $ 34,921 $ (276) $ 2,172 $228,308
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
<FN>
Notes:
(A) Sales, abandonments of fully depreciated assets.
(B) Reclassification of construction in progress, assets refinanced
through operating leases, and currency translation adjustments due to
SFAS 52 of $332,000, $(10,403,000), and $4,696,000 in 1994, 1993, and
1992 respectively.
</TABLE>
F-1
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT
AND EQUIPMENT FOR THE FISCAL YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(IN 000'S EXCEPT NOTES)
<TABLE>
<CAPTION>
OTHER
BALANCE AT CHARGED TO CHANGES BALANCE
BEGINNING COST AND RETIREMENTS ADD (DEDUCT) AT END
DESCRIPTION OF PERIOD EXPENSES (A) (B) OF PERIOD
- - - -------------- --------- --------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
1994
----
Buildings $ 11,029 $ 1,741 $ -- $ (9) $ 12,761
Leasehold improvements 1,784 362 (85) 2 2,063
Machinery and equipment 82,253 13,139 (1,086) (398) 93,908
Automotive equipment 179 22 (1) (3) 197
Office furniture and fixtures 3,005 616 (154) 15 3,482
-------- -------- -------- -------- --------
$ 98,250 $ 15,880 $ (1,326) $ (393) $112,411
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
1993
----
Buildings $ 9,738 $ 1,552 $ -- $ (261) $ 11,029
Leasehold improvements 1,455 340 (7) (4) 1,784
Machinery and equipment 74,786 11,712 (235) (4,010) 82,253
Automotive equipment 220 37 (55) (23) 179
Office furniture and fixtures 2,826 519 (70) (270) 3,005
-------- -------- -------- -------- --------
$ 89,025 $ 14,160 $ (367) $ (4,568) $ 98,250
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
1992
----
Buildings $ 7,929 $ 1,718 $ -- $ 91 $ 9,738
Leasehold improvements 1,208 251 -- (4) 1,455
Machinery and equipment 61,038 12,645 (127) 1,230 74,786
Automotive equipment 204 44 (35) 7 220
Office furniture and fixtures 2,053 700 (32) 105 2,826
-------- -------- -------- -------- --------
$ 72,432 $ 15,358 $ (194) $ 1,429 $ 89,025
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
<FN>
Notes:
(A) Sales, abandonments of fully depreciated assets.
(B) Includes currency translation adjustments due to SFAS 52 of
$(134,000), $(4,739,000), and $1,398,000 in fiscal 1994, 1993, and
1992, respectively.
</TABLE>
Depreciation of property, plant and equipment is provided on the straight-line
method, based on the estimated useful lives of the assets at annual rates
explained below except at the Company's Rancho California and El Segundo
facilities where the unit of production method has been adopted for the wafer
fabrication facilities and related assets.
<TABLE>
<CAPTION>
<S> <C>
Buildings 2% to 4%
Leasehold improvements Lesser of term of lease or useful life
Equipment 8 1/3% to 33 1/3%
</TABLE>
F-2
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(IN 000'S)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
CHARGED
BALANCE AT TO CHARGED BALANCE
BEGINNING COST AND TO DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES OTHER (A) OF PERIOD
- - - ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1994
----
Allowance for doubtful account $ 607 $ 577 $ -- $ (507) $ 677
--------- --------- --------- --------- ---------
Deferred tax valuation allowance (B) $ 15,546 $ -- $ (4,950) $ -- $ 10,596
--------- --------- --------- --------- ---------
1993
----
Allowance for doubtful account $ 1,413 $ (78) $ -- $ (728) $ 607
--------- --------- --------- --------- ---------
1992
----
Allowance for doubtful account $ 714 $ 712 $ -- $ (13) $ 1,413
--------- --------- --------- --------- ---------
<FN>
(A) Deductions include the write-off of uncollectible amounts and the effects
of FAS 52.
(B) Effective July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" which requires recognition of deferred tax assets and liabilities
for temporary differences and net operating loss (NOL) and tax credit
carryforwards. Under SFAS No. 109, deferred income taxes are established
based on enacted tax rates expected to be in effect when temporary
differences are scheduled to reverse and NOL and tax credit carryforwards
are expected to be utilized. Adoption of SFAS No. 109 had no material
impact on the Company's financial position or results from operations.
Prior year's financial statements have not been restated.
</TABLE>
F-3
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
SCHEDULE IX
SHORT TERM BORROWINGS (A)
FOR THE FISCAL YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(IN 000'S EXCEPT INTEREST AMOUNTS)
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE AVERAGE
BALANCE AVERAGE MAXIMUM OUTSTANDING INTEREST RATE
AT END INTEREST OUTSTANDING DURING YEAR DURING THE
BORROWING CATEGORY OF YEAR RATE DURING YEAR (B) YEAR (B)
- - - ------------------ -------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1994
----
Banks $ 27,205 5.7% $ 29,204 $ 25,737 7.1%
1993
----
Banks $ 24,007 6.5% $ 24,007 $ 20,118 8.4%
1992
----
Banks $ 22,360 11.6% $ 23,196 $ 17,369 11.3%
<FN>
Notes:
(A) See Long Term Debt and Other Loans note to the Consolidated Financial
Statements.
(B) The Average amounts outstanding and average interest rates were
determined on a monthly and quarterly basis, respectively.
</TABLE>
F-4
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
SCHEDULE X
SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
FOR THE FISCAL YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(IN 000'S)
<TABLE>
<CAPTION>
CHARGED TO COST AND EXPENSES
--------------------------------------
ITEM 1994 1993 1992
- - - ---- ------ ------ ------
<S> <C> <C> <C>
1. Maintenance and repairs $ 8,144 $ 7,721 $ 6,438
5. Advertising costs $ 1,549 $ 1,362 $ 1,044
</TABLE>
F-5
<PAGE>
AMENDMENT TO LINE OF CREDIT AGREEMENT
This Second Amendment to Line of Credit Agreement (the "Amendment") is
made and entered into this 22nd day of November, 1993, by and between SANWA BANK
CALIFORNIA (the "Bank") and INTERNATIONAL RECTIFIER CORPORATION (the "Borrower")
with respect to the following:
This Amendment shall be deemed to be a part of and subject to that
certain Line of Credit Agreement dated as of June 30, 1993, as it may be amended
from time to time, and any and all addenda and riders thereto (collectively the
"Agreement"). Unless otherwise defined herein, all terms used in this Amendment
shall have the same meanings as in the Agreement. To the extent that any of the
terms or provisions of this Amendment conflict with those contained in the
Agreement, the terms and provisions contained herein shall control.
WHEREAS, the Borrower and the Bank mutually desire to modify the
Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the
Borrower and the Bank agree as follows:
1. CHANGE IN COVENANTS. A new Section 7.18 is added to the
Agreement as follows:
"7.18 CAPITAL EXPENSES. Not make any fixed capital
expenditure or any commitment therefor, for uses which
would be, in accordance with generally accepted
accounting principles, reported as Domestic capital
leases in an aggregate amount exceeding $20,000,000 in
any one fiscal year".
2. CHANGE IN DOMESTIC INDEBTEDNESS. Section 7.09 of the
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
"7.09 ADDITIONAL DOMESTIC INDEBTEDNESS: Not, after the
date hereof, create, incur or assume, directly or
indirectly, any additional Indebtedness other than (i)
Indebtedness owed or to be owed to the Bank or (ii)
Indebtedness to trade creditors incurred in the
ordinary course of the Borrower's business or (iii) any
Indebtedness in the aggregate greater than
$5,000,000.00 in any one fiscal year or (iv)
Indebtedness incurred pursuant to Sections 4.01a(5) or
4.01c(5) or Section 7.18 or (v) Indebtedness of up to
$1,500,000 in connection with the real property located
at 233 Kansas Street, 1423 Franklin Street, 247 Kansas
Street, 1521 Grand Avenue, 318 Kansas Street, and 1413
Franklin Street in El Segundo, California as long as
such Indebtedness is incurred prior to September 30,
1993".
3. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT.
Except as specifically provided in this Amendment, all other terms, conditions
and covenants of the Agreement unaffected by this Amendment shall remain
unchanged and shall continue in full force and effect and the Borrower hereby
covenants and agrees to perform and observe all terms, covenants and agreements
provided for in the Agreement, as hereby amended.
IN WITNESS WHEREOF, this Amendment has been executed by the parties
hereto as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA INTERNATIONAL RECTIFIER CORPORATION
By: /s/ Janice Upton By: Michaell P. McGee
------------------------------ ----------------------------------
Janice Upton, Vice President Michael P. McGee, Vice President,
Chief Financial Officer
- - - --------------------------------- -------------------------------------
(Name/Title) (Name/Title)
By:
----------------------------------
-------------------------------------
(Name/Title)
-1-
<PAGE>
AMENDMENT TO LINE OF CREDIT AGREEMENT
This Third Amendment to Line of Credit Agreement (the "Amendment") is
made and entered into this 1st day of July, 1994, by and between SANWA BANK
CALIFORNIA (the "Bank") and INTERNATIONAL RECTIFIER CORPORATION (the "Borrower")
with respect to the following:
This Amendment shall be deemed to be a part of and subject to that
certain Line of Credit Agreement dated as of June 30, 1993, as it may be amended
from time to time, and any and all addenda and riders thereto (collectively the
"Agreement"). Unless otherwise defined herein, all terms used in this Amendment
shall have the same meanings as in the Agreement. To the extent that any of the
terms or provisions of this Amendment conflict with those contained in the
Agreement, the terms and provisions contained herein shall control.
WHEREAS, the Borrower and the Bank mutually desire to modify the
Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the
Borrower and the Bank agree as follows:
1. EXTENSION OF EXPIRATION DATE. Section 1.01 (k) of the
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
"(k) "EXPIRATION DATE": shall mean October 31, 1996
or the date of termination of the Bank's commitment to
lend under this Agreement pursuant to Section 8,
whichever shall occur first".
2. CHANGE IN PERMITTED LIENS. Section 1.01(p) of the Agreement
is deleted in its entirety and the following is substituted in lieu thereof:
"(p) "PERMITTED DOMESTIC LIENS": shall mean (i) liens
and security interests securing indebtedness owed by
the Borrower to the Bank; (ii) liens for taxes,
assessments or similar charges either not more than 45
days past due or being contested in good faith; (iii)
liens of materialmen, mechanics, warehousemen, or
carriers or other like liens arising in the ordinary
course of business and securing obligations which are
not more than 45 days past due or being contested in
good faith; (iv) purchase money liens or purchase money
security interests upon or in any property acquired or
held by the Borrower in the ordinary course of business
to secure Indebtedness outstanding on the date hereof
or permitted to be incurred under Section 7.09 hereof;
(v) liens and security interests which, as of the date
hereof, have been disclosed to and approved by the Bank
in writing; (vi) liens in connection with workers'
compensation, unemployment insurance and such other
types of insurance; (vii) liens to secure performance
bonds and bid bonds and other similar obligations;
(viii) liens resulting from zoning restrictions,
easements and such other similar restrictions on the
use of real property; and (ix) liens arising from
judgments and attachments that would not constitute an
Event of Default hereunder".
3. CHANGE IN PRINCIPAL AMOUNT. All references in Section 2.01
of the Agreement to $20,000,000.00 shall be deemed to be $25,000,000.00.
4. CHANGE IN MAKING LINE ADVANCES. Section 2.02 is deleted in
its entirety and the following is substituted in lieu thereof:
"2.02 MAKING LINE ADVANCES: Each Advance shall be
conclusively deemed to have been made at the request of
and for the benefit of the Borrower (i) when credited
to any deposit account of the Borrower maintained with
the Bank or (ii) when paid in accordance with the
Borrower's written instructions. Subject to the
requirements of Section 5, Advances shall be made by
the Bank upon telephonic or facsimile request received
from the Borrower, and confirmed in writing within two
Business Days, which request shall be received not
later than 12:00 p.m. (Pacific Standard Time) on the
date specified for a Variable Rate Advance and 7:00
a.m. (Pacific Standard Time) one business days prior to
the date specified for a Eurocurrency Advance or a Cost
of Funds Advance, each on
-1-
<PAGE>
which dates shall be a Business Day. The rates for a
Eurocurrency Advance or a Cost of Funds Advance shall
be set on the same Business Day as the request is
received if received by 7:00 a.m. and on the next
Business Day if received after 7:00 a.m.. Requests
for Advances received after such time may, at the
Bank's option, be deemed to be a request for an
Advance to be made on the next succeeding Business Day
for a Variable Rate Advance and the second succeeding
Business Day for a Eurocurrency Advance or a Cost of
Funds Advance".
5. Change in Reporting Requirements. Section 7.06(b) is
deleted in its entirety and the following is substituted in lieu thereof:
"(b) Not later than 60 days after the end of each
fiscal quarter, the Borrower's Securities Exchange
Commission Form 10-Q, together with the consolidating
balance sheets and income statements for the Borrower
and its subsidiaries, each as of the end of such
period".
6. Modification of Financial Condition. Section 7.14 (a),
(b), (c), (d), and (e) are deleted in their entirety and the following is
substituted in lieu thereof:
"(a) A minimum consolidated Effective Tangible Net
Worth of at least $175,000,000.00 plus, in each case,
50% of annual net income, the proceeds of any equity
issuance, conversion of debt into equity and any grant
of rights to subscribe for shares of the Borrower,
commencing with the fiscal year-end June 30, 1994.
(b) A ratio of consolidated Debt to consolidated
Effective Tangible Net Worth of not more than 0.90 to
1 ("Debt/Worth Ratio"). An alternative ratio of
consolidated Debt to consolidated Effective Tangible
Net Worth of not more than 1.15 to 1 shall replace the
Debt/Worth Ratio in the event that the Borrower incurs
additional Domestic Debt through the issuance of
convertible debentures.
(c) A ratio of consolidated current assets to
consolidated current liabilities of not less than 1.4
to 1. For the purposes hereof, outstanding Advances
under the Line of Credit and under any other revolving
lines of credit (whether with Bank or a third party)
shall be included in consolidated current liabilities.
(d) A minimum Domestic working capital of not less
than $15,000,000. For purposes of this calculation,
current assets shall exclude intercompany receivables
and current liabilities shall exclude intercompany
payables but include Advances outstanding under the
Line of Credit".
7. Modification of Indebtedness. Sections 7.09 and 7.18 of
the Agreement are deleted in their entirety and a new section 7.09 is
substituted in lieu thereof:
"7.09 Additional Domestic Indebtedness: Not after the
date hereof, create, incur or assume, directly or
indirectly, any additional Indebtedness nor make any
fixed capital expenditure or any commitment therefor,
for uses which would be, in accordance with generally
accepted accounting principles, reported as Domestic
capital leases ("Capital Expenditures") other than (i)
Indebtedness or Capital Expenditures owed or to be
owed to the Bank or (ii) Indebtedness or Capital
Expenditures to trade creditors incurred in the
ordinary course of the Borrower's business or (iii)
any Indebtedness for Capital Expenditures in the
aggregate greater than $55,000,000.00 in any one
fiscal year or (iv) Indebtedness owed to other
financial institutions under revolving lines of
credit".
8. Modification of Liens and Encumbrances. Section 7.11 of
the Agreement is deleted in its entirety and the following is substituted in
lieu thereof:
"7.11 Liens and Encumbrances: Not create, assume or
permit to exist any security interest, encumbrance,
mortgage, deed of trust, or other lien (including, but
not limited to, a lien of attachment, judgment or
execution) affecting any of the Borrower's Domestic
properties, or execute or allow to be filed any
financing statement or continuation thereof affecting
any of such properties, except for (i) Permitted
Domestic Liens or as otherwise provided in this
Agreement, (ii) purchase
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<PAGE>
money security interests or capital leases of up to
$55,000,000 for equipment including mortgage financing
for the Borrower's Temecula, California property in any
one fiscal year".
9. CONDITION PRECEDENT. As a condition precedent to the
effectiveness of this Amendment, Borrower agrees to pay to Bank a flat fee of
$31,250.00.
10. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT.
Except as specifically provided in this Amendment, all other terms, conditions
and covenants of the Agreement unaffected by this Amendment shall remain
unchanged and shall continue in full force and effect and the Borrower hereby
covenants and agrees to perform and observe all terms, covenants and agreements
provided for in the Agreement, as hereby amended.
IN WITNESS WHEREOF, this Amendment has been executed by the parties
hereto as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA INTERNATIONAL RECTIFIER CORPORATION
By: /s/ Janice Upton By: /s/ Michael P. McGee
-------------------------------- -----------------------------------
Janice Upton, Vice President Vice President and Chief Financial Officer
- - - ----------------------------------- --------------------------------------
(Name/Title) (Name/Title)
By:
-----------------------------------
-----------------------------------
(Name/Title)
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SECURITY AGREEMEENT
THIS SECURITY AGREEMENT, dated as of July 1, 1994, (the "Security
Agreement") is by and between
INTERNATIONAL RECTIFIER CORPORATION, a Delaware corporation with its
principal place of business located in El Segundo, California (the "Debtor");
and
NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a North Carolina
corporation with its principal place of business located in Charlotte, North
Carolina (the "Secured Party").
RECITALS
A. The Debtor desires Secured Party to make revolving loans to Debtor to
enable Debtor to make progress payments relating to certain equipment (the
"Contract Equipment" as hereinafter defined) from time to time as more
specifically set forth hereinafter.
B. The Debtor desires Secured Party to make term loans to Debtor secured
by, and to fund the purchase of, certain equipment (the "Equipment" as
hereinafter defined) from time to time as more specifically set forth
hereinafter.
C. So long as the terms and conditions set forth in this Security
Agreement are complied with by the Debtor, the Secured Party is willing to enter
into this Security Agreement for the purposes stated herein.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
SECTION 1
PROGRESS PAYMENT LOANS; TERM LOANS
1.1. PROGRESS PAYMENT LOANS. Subject to the terms and conditions hereof,
Secured Party and Debtor hereby agree that Secured Party may, from time to time,
make progress payment loans ("Progress Payment Loans") to Debtor with respect to
the personal property ("Contract Equipment") that will become Equipment subject
to this Security Agreement. The Progress Payment Loans shall be evidenced by a
Progress Payment Note substantially in the form of EXHIBIT C hereto. Advances
of Progress Payment Loans may be made by Secured Party on behalf of Debtor
directly to the vendor of the Contract Equipment or may be advanced by Secured
Party to Debtor in reimbursement for funds advanced by Debtor to the vendor.
Progress Payment Loans shall be advanced at the end of each month, providing
that the total Progress Payment Loans to be advanced equal or exceed, in
aggregate, $500,000. Should Debtor request Secured Party to provide an advance
on a date other than the end of a month, the Secured Party shall do so provided
that such advance equals or exceeds $500,000. The total outstanding Progress
Payment Loans at any one time shall not exceed $3,000,000 and the total
<PAGE>
outstanding number of advances shall not cover more than twenty-five (25)
purchase orders at any one time. Debtor shall repay such Progress Payment Loans
and shall pay interest on such Progress Payment Loans as set forth in Section
4.1 hereof. All Progress Payment Loans advanced pursuant to this section and
all payments of interest, repayments of Progress Payment Loans or application of
Progress Payment Loans to Term Loans pursuant to Section 1.2 shall be evidenced
by notations made by the Secured Party in its business records. The aggregate
unpaid amount of Progress Payment Loans and other payments, receipts and
applications reflected by the notations made in the Secured Party's business
records shall be conclusive evidence of the principal amount of the Progress
Payment Loans owing and unpaid and of the other payments, receipts and
applications.
1.2. TERM LOANS. Subject to the terms and conditions hereof, Secured Party
and Debtor hereby agree that Secured Party may, from time to time, make term
loans ("Term Loans") to Debtor secured by the personal property described in
each Security Agreement Schedule, in the form of that which is attached hereto
as EXHIBIT B ("Security Agreement Schedule") executed concurrently with this
Security Agreement or from time to time hereafter and made a part hereof. (All
such personal property, together with all replacement parts, additions, repairs
and accessories incorporated therein or affixed thereto, is collectively called
the "Equipment" and all such Security Agreement Schedules are collectively
called the "Security Agreement Schedules"). Advances of Term Loans may be made
by Secured Party on behalf of Debtor directly to the vendor of the Equipment or
may be advanced by Secured Party to Debtor in reimbursement for funds advanced
by Debtor to the vendor. In addition, the outstanding principal balance of a
Progress Payment Loan with respect to Contract Equipment that becomes Equipment
subject to a Term Loan shall be paid from the proceeds of such Term Loan. Each
Term Loan shall be evidenced by a Term Loan Note substantially in the form of
EXHIBIT D hereto. The parties contemplate from time to time, by mutual
agreement, that additional Equipment will be added to this Security Agreement
by execution of additional Security Agreement Schedules, and this Security
Agreement shall control and be effective as to such additional items of
Equipment. The Equipment will consist of new computers and new or used
electronic test and production equipment. Such used equipment shall be approved
by Secured Party on a case by case basis. The Equipment may also consist of
other equipment approved by Secured Party on a case by case basis. No Term Loan
shall exceed the Cost of Equipment securing such Term Loan and the aggregate
Term Loans plus the total outstanding Progress Payment Loans shall not exceed
$15,000,000 (the "Total Commitment"), of which no more than $2,000,000 shall be
computer equipment. No Term Loan Commencement Date shall occur after the date
(the "Final Commencement Date") one year less one day from the date of this
Security Agreement .
SECTION 2
CONDITIONS PRECEDENT
2.1. LOAN CONDITIONS. The obligation of Secured Party to make Progress
Payment Loans or Term Loans hereunder is subject to the delivery on or prior to
the first such loan of the following documents each in form and substance
satisfactory to Secured Party:
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<PAGE>
(a) Debtor's articles of incorporation and by-laws, both of
which shall be certified, and an incumbency certificate of Debtor
containing the name(s), title(s) and specimen signature(s) of the
person(s) authorized on behalf of Debtor to execute this Security
Agreement (the "Debtor's Omnibus Certificates");
(b) good standing certificates of Debtor from the Secretary of
State of Debtor's state of incorporation, the state of Debtor's
principal place of business and the state where any Equipment shall be
located;
(c) an opinion of counsel for the Debtor in form and substance
reasonably satisfactory to Secured Party; and
(d) a certificate of insurance evidencing the coverages
required under Section 9 hereof.
2.2. PROGRESS PAYMENT LOAN CONDITIONS. The obligations of Secured Party
to make Progress Payment Loans are subject to the delivery to Secured Party on
or prior to the date of such Progress Payment Loan of the following documents
each in form and substance satisfactory to Secured Party:
(a) a Progress Payment Request substantially in the form of
EXHIBIT A hereto, together with invoices, purchase orders or other
evidence satisfactory to Secured Party of payments due to vendors or
payments made to vendors;
(b) the Progress Payment Note substantially in the form of
EXHIBIT C hereto duly executed by Debtor and dated the date of the
first Progress Payment Loan; and
(c) such other documents, appraisals, certificates, financing
statements and other items as Secured Party may reasonably require.
2.3. TERM LOAN CONDITIONS. The obligations of Secured Party to make a
Term Loan secured by such Equipment are subject to the delivery to Secured Party
on or prior to such Security Agreement Commencement Date specified in such
Security Agreement Schedule of the following documents each in form and
substance satisfactory to Secured Party:
(a) the Security Agreement Schedule duly executed by the Debtor
and dated such Term Loan Commencement Date;
(b) a Term Loan Note substantially in the Form of EXHIBIT D
hereto duly executed by the Debtor and dated such Term Loan
Commencement Date;
(c) Uniform Commercial Code financing statements and such other
security documentation as reasonably requested and deemed appropriate
by Secured Party's counsel, duly executed by the Debtor; and
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<PAGE>
(d) such other documents, appraisals, certificates, financing
statements and other items as Secured Party may reasonably require.
SECTION 3
DELIVERY AND ACCEPTANCE OF EQUIPMENT
Secured Party shall not be liable to Debtor for any failure or delay in
obtaining the Equipment or making delivery thereof. On the Term Loan
Commencement Date specified in each Security Agreement Schedule, the Debtor
shall inspect each item of Equipment, and unless Debtor gives Secured Party
prompt written notice of any defect in or other proper objection to any item of
such Equipment, Debtor shall promptly execute and deliver to Secured Party a
Certificate of Inspection and Acceptance with respect to such Equipment. The
execution of the Certificate of Inspection and Acceptance by Debtor and Secured
Party shall evidence that each item of Equipment has been accepted under this
Security Agreement, upon and subject to all of the terms, conditions and
provisions hereof and shall constitute Debtor's unconditional and irrevocable
acceptance of the Equipment for all purposes under this Security Agreement.
Debtor's execution of the Certificate of Inspection and Acceptance shall
constitute Debtor's acknowledgment and agreement that, as between Secured Party
and Debtor, each item of Equipment has been inspected to Debtor's satisfaction,
is in good operating order, repair and condition, is of a size, design, capacity
and manufacture selected by Debtor, that each item of Equipment is duly
certified or licensed by any required governmental entity, that Debtor is
satisfied that each item of Equipment is suitable for its purpose, and that
Secured Party has made no warranty, expressed or implied, with respect to any
item of Equipment.
SECTION 4
TERM; AMORTIZATION PAYMENTS
4.1. PROGRESS PAYMENT LOANS; INTEREST. The term of the loan for each item
of Contract Equipment shall begin on the date any funds are advanced with
respect to that Contract Equipment by Secured Party to a vendor or to Debtor in
reimbursement for funds advanced by Debtor to a vendor and shall end on the Term
Loan Commencement Date with respect to the Contract Equipment. The advancement
of such funds by Secured Party shall be conclusive evidence of a Progress
Payment Loan. Debtor agrees to pay as interest a sum calculated on the basis of
the outstanding amount of each Progress Payment Loan from time to time equal to
the lesser of (i) the Prime Rate (computed on the basis of the actual number of
days elapsed over a 360 day year) or (ii) the highest rate Debtor may lawfully
contract for, be charged and pay. "Prime Rate" as used herein, is the rate of
interest announced publicly from time to time by NationsBank of North Carolina,
N.A., in Charlotte, North Carolina as its Prime Rate. Such Prime Rate is not
necessarily the lowest or best rate offered by NationsBank of North Carolina,
N.A. The interest rate shall change on the same day as the Prime Rate changes.
Interest with respect to each Progress Payment Loan with respect to an item of
Contract Equipment shall be paid monthly in arrears on the last day of each
month and on the Term Loan Commencement Date relating to that Contract
Equipment. In the event that an item or items of Contract
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<PAGE>
Equipment shall not have become Equipment subject to this Security Agreement on
or prior to the Final Commencement Date, Debtor shall pay Secured Party, on the
Final Commencement Date, all of the Progress Payment Loans made by Secured Party
with respect to such Contract Equipment, together with interest to the date of
such payment. In the event that an item of Contract Equipment shall become
Equipment subject to this Security Agreement, the outstanding balance of the
Progress Payment Loans with respect to such Equipment shall be paid from the
proceeds of the Term Loan with respect to such Equipment as provided in
Section 1.2.
4.2. TERM LOAN; AMORTIZATION PAYMENTS. The term of the loan for each item
of Equipment shall be set forth as the "Term Loan Term" in the Security
Agreement Schedule pertaining to such item of Equipment. The Term Loan Term to
be set forth in the Security Agreement Schedule shall not exceed the following:
computer equipment: three (3) years; electronic test production equipment: three
(3) years, five (5) years or seven (7) years. The Debtor shall pay the
amortization payments ("Amortization Payments") set forth in the applicable
Security Agreement Schedule in successive payments in arrears from the Term Loan
Commencement Date set forth in the Security Agreement Schedule. Amortization
Payments shall consist of a principal component and an interest component as set
forth in the Security Agreement Schedule.
4.3. NON-UTILIZATION FEE. Debtor agrees to pay Secured Party, on the Final
Commencement Date, a non-utilization fee equal to one-half of one percent (1/2%)
of the amount, if any, by which ninety percent (90%) of the Total Commitment
exceeds the Total Secured Party's Cost of Equipment subject to this Security
Agreement on the Final Commencement Date.
4.4. INTEREST PAYMENTS; AMORTIZATION PAYMENTS. The Debtor agrees to pay
the interest and principal on Progress Payment Loans and the Amortization
Payments on the Term Loans and all other payments hereunder at Secured Party's
place of business at NationsBank Corporate Center, NC1-007-12-01, 100 North
Tryon Street, Charlotte, North Carolina 28255, or at such other location as
Secured Party shall designate to Debtor in writing. All interest, principal,
Amortization Payments and any other amounts payable under the Security Agreement
shall be payable in lawful money of the United States and in immediately
available funds. Debtor's promises under this Security Agreement are
irrevocable and independent upon the advance of Progress Payment Loans by
Secured Party or upon the advance of the Term Loans. This Security Agreement is
a net instrument, under which Debtor's obligations to pay all interest,
principal, Amortization Payments and other sums payable hereunder or under the
Progress Payment Note or the Term Loan Notes are absolute and unconditional,
shall be paid without abatement, offset or deduction of any amount whatsoever
and shall not be affected by circumstances, including, without limitation, (i)
any recoupment, defense, abatement, set-off, counterclaim or other right which
Debtor may have against Secured Party or against the vendor or manufacturer of
the Contract Equipment or the Equipment, (ii) any defect in condition, quality
or fitness for use of the Contract Equipment or the Equipment or any damage to
or loss thereof, (iii) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation, or other like proceeding relating to
Secured Party or Debtor, or any action taken with respect to this Security
Agreement by any trustee or receiver of Secured Party or Debtor, or by any
court, in any such proceeding, (iv) any invalidity or unenforceability or
disaffirmance of this Security Agreement or any provision hereof, (v) any
governmental taking or interference
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<PAGE>
with use of the Contract Equipment or the Equipment, or (vi) any other
occurrence whatsoever, whether similar or dissimilar to the foregoing and
whether Debtor has notice or knowledge thereof.
SECTION 5
DISCLAIMER OF WARRANTIES
AS BETWEEN SECURED PARTY AND DEBTOR, SECURED PARTY FINANCES THE CONTRACT
EQUIPMENT AND THE EQUIPMENT TO DEBTOR "AS IS" WITHOUT WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, AS TO (A) CONDITION, DESIGN, OPERATION,
FITNESS FOR USE OR MERCHANTABILITY OF ANY CONTRACT EQUIPMENT OR EQUIPMENT,
COMPLIANCE WITH LAWS, QUALITY, CAPACITY, FREEDOM FROM PATENT INFRINGEMENT OR ANY
PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPRIETARY RIGHT OR ABSENCE OF LATENT
DEFECTS, (B) FITNESS OF THE CONTRACT EQUIPMENT OR THE EQUIPMENT FOR ANY
PARTICULAR PURPOSE OF DEBTOR, (C) DEBTOR'S RIGHT TO THE QUIET ENJOYMENT THEREOF
(EXCEPT THAT SECURED PARTY WARRANTS THAT SECURED PARTY WILL NOT DISTURB DEBTOR'S
QUIET ENJOYMENT OF THE CONTRACT EQUIPMENT OR THE EQUIPMENT HEREUNDER PROVIDED
DEBTOR IS NOT IN DEFAULT HEREUNDER), OR (D) ANY OTHER MATTER WHATSOEVER, IT
BEING AGREED THAT ALL RISKS ARE TO BE BORNE BY DEBTOR. Secured Party, without
assuming responsibility for compliance by the manufacturer, vendor or dealer of
the Contract Equipment or the Equipment, will, on written request by Debtor, ask
the manufacturer or the manufacturer's authorized vendor or dealer to authorize
Debtor to enforce in Debtor's own name, all warranties, agreements or
representations, if any, which may be made by the manufacturer or the
manufacturer's authorized vendor to Secured Party. In no event shall any defect
in, or unfitness of, the Contract Equipment or the Equipment relieve Debtor of
the obligation to make Amortization Payments or to make any other payments
required hereunder or under the Progress Payment Note or the Term Loan Notes or
of any other obligation hereunder. Without limiting the generality of the
foregoing, Secured Party shall not be liable for any defects, either latent or
patent, in the Contract Equipment or the Equipment or for any direct, indirect
or consequential damage therefrom; Secured Party shall not be liable to Debtor
for loss of use of the Contract Equipment or the Equipment or for any
interruption in Debtor's business occasioned by the inability to use the
Contract Equipment or the Equipment for any reason whatsoever.
SECTION 6
SECURITY INTEREST; INSPECTION; IDENTIFICATION; REPORTS
Debtor acknowledges and agrees that (a) Secured Party shall have a security
interest in all the Equipment subject to each Security Agreement Schedule and
all accessions thereto and such security interest shall vest in and remain with
Secured Party for security purposes to secure amounts payable pursuant to such
Security Agreement Schedule and the related Term Note, including amounts due
hereunder in connection with such Security Agreement Schedule and the
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<PAGE>
enforcement thereof, throughout the term of this Security Agreement insofar as
it relates to such Security Agreement Schedule and until all amounts payable
hereunder relating to such Security Agreement Schedule and under the related
Term Loan Note and thereunder shall have been paid; (b) Debtor will make no
claim or assert any right to such Equipment inconsistent with Secured Party's
security interest in the Equipment and will make appropriate entries upon its
respective books and records reflecting Secured Party's security interest in the
Equipment; (c) Debtor, at its expense, will protect and defend Secured Party's
security interest in the Equipment from and against all claims, encumbrances,
security interests, liens and legal processes; will keep the Equipment free and
clear from any and all such claims, encumbrances, security interests, liens and
legal processes and will do all things necessary to ensure that Secured Party
maintains a perfected first priority security interest in the Equipment; (d)
Debtor will now and at any time hereafter, whenever requested by Secured Party,
execute and deliver to Secured Party all agreements, instruments and documents,
in a form reasonably satisfactory to Secured Party, necessary to consummate
fully all of the transactions contemplated herein and necessary for the
protection of Secured Party's security interest in the Equipment; (e) Debtor
will allow Secured Party to make inspections of the Equipment at such times as
Secured Party may reasonably request; and (f) Debtor will make reports in such
form and at such times as Secured Party may reasonably require with regard to
the Equipment, including but not limited to the use, operation, location and
condition of the Equipment.
SECTION 7
GRANT OF SECURITY INTEREST
Debtor hereby grants to Secured Party a security interest in the Equipment
subject to each Security Agreement Schedule and all proceeds thereof as
collateral security for the payment and performance by Debtor of Debtor's
obligations as Debtor under such Security Agreement Schedule, the related Term
Loan Note and hereunder to the extent such payment and performance relates to
such Security Agreement Schedule. Debtor agrees it will not grant a security
interest in such Equipment to any party other than Secured Party.
SECTION 8
USE; MAINTENANCE; LOCATION; INSPECTION
8.1. Debtor agrees that the Equipment will be used only by qualified
personnel for lawful purposes and in the normal course of Debtor's business.
Debtor shall, with respect to the installation, maintenance, use and operation
of the Equipment comply with the provisions of all applicable insurance
policies, all pertinent rules, regulations, permits, certificates, ordinances
and laws of all governmental or regulatory bodies having jurisdiction over
Debtor, the Equipment or the use thereof by Debtor. Debtor shall use the
Equipment in a prudent, careful and proper manner, and with respect to the
installation, maintenance, use and operation of the Equipment, Debtor shall
comply with normal and safe operating procedures for such Equipment, as set
forth by any applicable operation manuals or instructions and required to keep
all insurance in full force and effect. Debtor shall, at its expense, maintain,
inspect, service, repair, overhaul and test the Equipment in accordance with
manufacturer's specifications and
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<PAGE>
prudent industry practice (but in any event to the same extent that Debtor would
in prudent management of its property, maintain similar property owned or leased
by Debtor) so as to keep the Equipment in good, safe and satisfactory repair and
order and in the same operating condition and appearance as when received,
excepting reasonable wear and tear.
8.2. Debtor shall, at its sole expense, promptly replace all parts and
components of the Equipment which may from time to time become worn out, lost,
stolen, destroyed, damaged beyond repair or otherwise rendered unfit for use,
each replacement being in at least as good condition as the part being replaced
(assuming compliance with the terms of the Security Agreement). All replacement
parts and components shall be deemed a part of the Equipment and shall be
subject to the terms hereof to the same extent as the replaced parts and
components, and Secured Party is hereby granted a security interest in such
replacement parts and components without cost or payment.
8.3. Debtor, at its sole expense, may make alterations and modifications in
and additions and improvements to the Equipment provided that no such
alteration, modification, addition or improvement eliminates any of the multi-
use capabilities, reduces the value or utility, or impairs the warranty,
certification, safety or performance of the Equipment. Debtor shall permit the
manufacturer of the Equipment to incorporate therein recommended engineering
changes that enhance the safety or are necessary to comply with governmental
regulations. If any Equipment is delivered to Secured Party under Section 14
hereof, it will be delivered with all recommended engineering changes. Secured
Party is hereby granted a security interest in any part or item incorporated in
the Equipment as a result of such alteration, modification, addition or
improvement without cost or payment. Debtor shall make, at its expense, any
alterations or modifications that are required during the term of this Security
Agreement to comply with any applicable law or governmental rule or regulation.
8.4. Each item of Equipment shall be kept primarily at the location
specified in the Security Agreement Schedule applicable thereto and shall not be
moved from such location without Secured Party's prior written consent, which
shall not be unreasonably withheld. Debtor shall not surrender possession of
the Equipment to anyone other than Secured Party.
8.5. If requested, Debtor shall furnish waivers of interests or liens, in
form and substance reasonably satisfactory to Secured Party, from all landlords
and mortgagees of any premises upon which any Equipment is located.
8.6. Secured Party shall not be obligated or required to, or to provide or
pay for, (a) the service, repair or maintenance of the Equipment, (b) the
purchase of parts or accessories for the Equipment, (c) the loan of replacement
or substitute equipment while the Equipment is being serviced, (d) the purchase
of insurance for Debtor, or (e) the renewal of any license or registration for
the Equipment.
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<PAGE>
SECTION 9
INSURANCE
Debtor shall at all times during any Term Loan Term and until the Progress
Payment Loans, Term Loans and all of the amounts due hereunder and under the
Progress Payment Notes and the Term Loan Notes are paid in full at its sole cost
and expense, procure and maintain insurance of the types (including without
limitation casualty and liability insurance), against the hazards, for the
risks, in the amounts and with insurers reasonably acceptable to Secured Party.
In no event shall any required casualty insurance policy contain loss payable
amounts which are less than the total Unamortized Principal Balances (as
specified in all of the Security Agreement Schedules). Insurance policies
carried in accordance with this Section 9 shall be subject to deductible amounts
and/or retentions for self-insurance in the aggregate not to exceed $250,000 per
occurrence. All insurance policies shall name Secured Party and, if applicable,
any assignee of Secured Party as additional insureds and loss payees as their
respective interests may appear. Debtor shall not materially alter or cancel
any policy to the detriment of Secured Party. Debtor shall give prompt notice
to Secured Party of any cancellation of any policy and shall replace any
cancelled policy immediately. Debtor shall furnish Secured Party with evidence
of the required insurance. Debtor shall not make adjustments with insurers
except with Secured Party's consent. All risk of loss, theft or destruction or
damage to the Equipment shall be on Debtor whether or not insurance has been
provided. All insurance shall provide that (a) insurance proceeds shall be paid
directly to the party suffering the insured against loss, and (b) Secured Party
has the rights but not the obligations of a co-insured or additional insured.
Debtor shall not operate or use any Equipment while the required insurance is
not in full force and effect. Debtor shall deliver to Secured Party on or prior
to the date of this Security Agreement a certificate of insurance evidencing the
insurance required by this Section 9 with respect to the Equipment subject to
the terms of this Security Agreement on such date, and Debtor shall deliver
additional insurance certificates on or no more than thirty (30) days prior to
each annual anniversary hereof until all amounts due hereunder and under the
Progress Payment Note and the Term Loan Notes are paid in full.
SECTION 10
LOSS, DAMAGE OR TAKING
10.1. Debtor assumes and shall bear the entire risk of loss, destruction,
theft or taking of, or damage to, any Contract Equipment or Equipment, from any
cause whatsoever. Debtor shall promptly report to Secured Party in writing any
loss, destruction, theft, taking of and damage to the Contract Equipment or
Equipment, and shall promptly provide copies of all reports or documents made by
it relating thereto to Secured Party.
10.2. In the event that the Equipment shall have been lost, destroyed,
stolen or damaged to such an extent that repair thereof is impractical, or in
the event of a total taking, which term includes without limitation, seizure,
condemnation, requisition or taking of possession of any Equipment by any
governmental authority, domestic or foreign, or any agency or political
subdivision thereof, Debtor shall pay Secured Party within ninety (90) days
after such loss,
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destruction, theft, damage or taking, an amount equal to the sum of: (a) all
Amortization Payments for such Equipment due and unpaid as of, together with
Amortization Payments accrued through, the date of such payment; (b) the
Unamortized Principal Balance of such Equipment (as specified in the applicable
Security Agreement Schedule) as of the date of such payment; (c) accrued taxes
and other amounts payable hereunder as of the date of such payment with respect
to such Equipment; (d) all costs, expenses, losses and damages incurred or
sustained by Secured Party in connection with such loss, destruction, theft,
damage or taking, including all amounts Debtor shall be required to pay Secured
Party pursuant to any indemnity provisions contained in this Security Agreement;
(e) any other amounts due and payable by Debtor to Secured Party under the terms
of the Security Agreement; and (f) interest on all amounts not paid when due
under any provision of this Security Agreement at the rate of the lesser of (i)
the Prime Rate plus two (2%) percent per annum (computed on the basis of the
actual number of days elapsed over a 360 day year); or (ii) the highest rate
Debtor may lawfully contract for, be charged and pay. For purposes of this
Section 10, Amortization Payments shall be prorated daily and the Unamortized
Principal Balances set forth in the applicable Security Agreement Schedule shall
be prorated daily by interpolation on a straight line basis to the date of
payment.
10.3. To the extent that any such loss, destruction, damage, theft or
taking is covered by insurance, all proceeds of such insurance, and any payments
received from any governmental authority on account of a taking of such
Equipment, shall be first applied by Debtor toward satisfaction of the payment
to Secured Party or its assignee or mortgagee described in Section 10.2. Upon
receipt of such payment in full, the Term Loan Term with respect to the
Equipment so lost, destroyed, damaged, taken or stolen shall terminate and (if
Debtor is not then in default under this Security Agreement) (a) Debtor shall
become entitled to (i) all remaining proceeds of insurance pertaining to such
Equipment arising from, and all rights in, insurance policies paid for by Debtor
and required hereunder, except such policies insuring or covering liabilities of
Secured Party, or any other person named as insured or covered thereby, caused
by or arising out of, or in connection with, events, matters or circumstances
antedating or existing at the time of such termination, and (ii) all of Secured
Party's rights, duties and interest with regard to such Equipment as they exist
at the time of termination, without warranty, express or implied, as to any
matter whatsoever (and Secured Party agrees to execute and deliver such
instruments and to take such other action necessary to transfer any of the
foregoing to Debtor, and Debtor agrees to accept such transfer); and (b) Debtor
shall be entitled to all remaining payments from any such governmental
authority.
10.4. If any Equipment or any part, component or material thereof
shall suffer any loss, destruction, damage or taking, other than as set forth in
Section 10.2 above, Debtor shall at its own expense, promptly restore such
Equipment to good and safe condition, repair and working order, including
without limitation, replacing all parts, components or materials of such
Equipment as shall have been lost, destroyed, damaged or taken with
manufacturer-approved parts, components or materials of equal or greater value.
In connection with any such repairs or replacements Secured Party will make
available to Debtor the proceeds of insurance, if any, that may have actually
been received by Secured Party with respect to the loss or damage to the
Equipment that necessitated such repairs or replacements, provided that in no
event shall Secured Party make available to Debtor any insurance proceeds
received by it in excess of the actual cost expended by Debtor in making such
repairs or replacements if there shall have occurred and be
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continuing an Event of Default (as hereinafter defined) or an event which with
notice or lapse of time or both shall constitute an Event of Default hereunder.
10.5. No loss, theft, destruction or damage to, or taking of, the
Equipment, however occurring and whether or not the same is covered by
insurance, shall relieve Debtor of any of its obligations under this Security
Agreement.
SECTION 11
GENERAL INDEMNITIES
Debtor shall and does hereby assume all risks, responsibilities and
liabilities arising from Debtor's ownership, possession, use and location of the
Contract Equipment or Equipment and shall exonerate Secured Party, its agents,
officers, employees and assigns, from, and pay, indemnify and hold them harmless
from and against, any and all claims, actions, suits, proceedings, losses,
judgments, damages and liabilities, and all costs and expenses in connection
therewith or incident thereto (including reasonable attorneys' fees and
expenses), for death of or injury to any person whomsoever, or the loss or
damage to, or destruction of, any property whatsoever, caused by or arising out
of, or in any way connected with or resulting from: (a) any Contract Equipment
or Equipment or any property or persons on such Contract Equipment or Equipment,
(b) the design, manufacture, acquisition, selection, delivery, possession,
lease, use, control, financing, acceptance, rejection, repair, transportation,
sale, condition, operation, storage, maintenance or return of such Contract
Equipment or Equipment, at any time during the Security Agreement Term, (c) any
patent, trademark or copyright infringement or claim of infringement relating to
such Contract Equipment or Equipment, (d) latent or other defects, whether or
not discoverable, and (e) negligence of the Secured Party or strict liability in
tort. The indemnities contained in this Section shall remain in full force and
effect notwithstanding the expiration or other termination of the Security
Agreement. Debtor hereby waives any claim against Secured Party on account of
any and all such claims.
SECTION 12
FEES, TAXES, CERTIFICATES, PERMITS AND LICENSES
Debtor agrees, at its sole expense, to procure and maintain in effect
all licenses, certificates, permits and other approvals and consents required by
municipal, state, federal or foreign laws and regulations in connection with the
possession, use, maintenance and operation of the Contract Equipment and the
Equipment. Debtor further agrees to pay promptly when due all registration,
title, license, landing, permit and certificate and all other fees, all
assessments, sales, use, gross receipts, property and any and all other taxes or
other charges of whatever nature (hereinafter collectively called "Impositions")
and by whomever payable (except federal or state taxes levied on Secured Party's
net income), now or hereafter imposed by any state, federal, local or foreign
governmental authority upon any use, maintenance, ownership, rental, financing,
shipment, transportation, delivery or operation of the Contract Equipment and
the Equipment or upon or measured by any payments due hereunder. Secured Party
and Debtor
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hereby agree that Debtor will list the Contract Equipment and the Equipment for
personal property taxes and Debtor will promptly pay all such taxes when due or
reimburse Secured Party for such taxes if Secured Party has previously paid
them. In the event any Impositions, or any penalties or interest thereon, shall
be paid by Secured Party, or if Secured Party is required to collect and pay any
thereof, Debtor shall upon demand by Secured Party promptly reimburse Secured
Party for such sums and for any expenses incurred in connection therewith.
Secured Party agrees that if, in the opinion of independent counsel selected by
Debtor and acceptable to Secured Party (and whose fees and expenses shall be
paid by Debtor), a bona fide claim exists to all or a portion of any such
Imposition in respect of which Debtor has made payment to Secured Party as
aforesaid, Secured Party shall, upon request and at the expense of Debtor, take
all such legal action deemed reasonable by such independent counsel in order to
sustain such claim, provided, however, that (a) Secured Party shall have the
right, in its sole discretion, to select the forum in which any claim is to be
litigated; (b) Secured Party shall have the right, at its sole option, to forego
any and all administrative appeals; and (c) Secured Party shall not be obligated
to take any such legal action unless Debtor shall first have indemnified Secured
Party for all liabilities and expenses which may be incurred in connection
therewith or related thereto and shall have furnished Secured Party with such
reasonable security therefor as Secured Party may request. Unless there shall
exist an Event of Default, or an event which with notice or lapse of time or
both would constitute an Event of Default, Debtor shall be entitled to the
proceeds of the successful prosecution of any such claim.
SECTION 13
DEFAULT AND REMEDIES
13.1. An event of default hereunder (individually, an "Event of
Default") shall occur if:
(a) Debtor fails to pay when due any installment of principal of
or interest on any Progress Payment Loan or Term Loan and such failure
continues for a period of five (5) days after written notice is given
to Debtor; or
(b) Debtor fails to perform or observe any covenant, material
condition or agreement to be performed or observed by it under this
Security Agreement (or any other documents executed by Debtor with
respect to this Security Agreement), other than for payment of
principal of or interest on any Progress Payment Loan or Term Loan or
maintaining insurance coverage, and such failure continues for a
period of thirty (30) days after written notice is given to Debtor; or
(c) Debtor fails to maintain any insurance required by the terms
hereof; or
(d) any warranty or representation made in this Security
Agreement or any instrument or document executed in connection
herewith, by Debtor or other
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party liable for payment or performance of this Security Agreement, is
untrue when made; or
(e) Debtor ceases doing business as a going concern; makes an
assignment for the benefit of creditors; admits in writing its
inability to pay its debts as they become due (or such fact is
determined by judicial proceedings); commences a voluntary proceeding
in bankruptcy; is named as debtor in an involuntary petition in
bankruptcy and Debtor fails to have such petition dismissed within
sixty (60) days; files a petition seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar arrangement under any present or future
statute, law or regulation, or files an answer admitting the material
allegations of a petition filed against it in any such proceeding; or
consents to or acquiesces in the appointment of a trustee, custodian,
receiver or liquidator of it or of all or any substantial part of its
assets or properties; or Debtor or the holders of its common stock
shall take any action contemplating its dissolution or liquidation; or
(f) Debtor shall fail to make any payment due on any
indebtedness or obligation having a principal amount outstanding in
excess of $2,500,000.00 or any event shall occur or conditions shall
exist in respect of such indebtedness or obligation, or under any
agreement securing or relating to such indebtedness or obligation, and
the holder or owner of such indebtedness or obligation, or any portion
thereof, declares such indebtedness or obligation to be immediately
due and payable and Debtor is not contesting the same in a good faith
proceeding; or
(g) Debtor attempts to remove, sell, transfer, sublet, encumber
or part with possession of the Contract Equipment or the Equipment or
any item thereof in breach of this Security Agreement; or
(h) any writ or order of attachment or execution or other legal
process shall be levied on or charged against any item of Contract
Equipment or Equipment and not released or discharged within ninety
(90) days; or
(i) a final non-appealable judgment for the payment of money in
excess of $2,500,000.00 shall be rendered by a court of competent
jurisdiction against Debtor which Debtor does not discharge or for
which Debtor does not make provisions for discharge in accordance with
the terms thereof within ninety (90) days following the date of entry
thereof.
13.2. The occurrence of any Event of Default shall constitute an event of
default with respect to all Progress Payment Loans and all Term Loans and with
respect to each and every Security Agreement Schedule, Progress Payment Note,
Term Loan Note and this Security Agreement.
13.3. (a) Upon the occurrence of an Event of Default, Secured Party, at
its option, may do one or more of the following:
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(i) declare this Security Agreement to be in default and
the outstanding balance of the Progress Payment Loans, the outstanding
balance of all Term Loans and all other amounts hereunder, under the
Security Agreement Schedules or under the Progress Payment Note or
Term Loan Notes to be immediately due and payable whereupon the same
shall be due and payable without any presentment, demand, protest,
notice of protest, notice of intent to accelerate, notice of
acceleration, or notice of any kind (except notice required pursuant
to this Security Agreement or otherwise by law) all of which are
hereby waived;
(ii) exercise, in respect of the Equipment, in addition to
other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under
the North Carolina UCC (whether or not the North Carolina UCC applies
to the affected Equipment) and also (A) require Debtor to, and Debtor
hereby agrees that it will at its expense and upon the request of
Secured Party forthwith, assemble all or part of the Equipment as
directed by Secured Party and make it available to Secured Party at a
place to be designated by Secured Party and (B) without notice except
as specified below, sell the Equipment or any part thereof in one or
more parcels at public or private sale, at any of Secured Party's
offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as Secured Party may deem commercially
reasonable. Secured Party shall not be obligated to make any sale of
Equipment regardless of notice of sale having been given. Secured
Party may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which is was
so adjourned;
(iii) to the extent permitted by applicable law, bring suit
at law, in equity or through other appropriate Proceedings, whether
for the specific performance of any covenant or agreement contained in
this Security Agreement or any of the other related documents or
instruments for an injunction against a violation of any of the terms
hereof or thereof, in aid of the exercise of any power granted hereby
or thereby, or by law, to recover judgment for any and all amounts due
on the Progress Payment Note, the Term Loan Notes, this Security
Agreement, the Security Agreement Schedules of the other related
instruments or otherwise, including, without limitation, any
deficiency remaining after foreclosure hereunder; and
(iv) take any other appropriate action to protect and
enforce the rights and remedies of Secured Party hereunder, or under
or in respect of any other related document or instrument, or
otherwise.
(b) The unpaid principal amount of the Progress Payment Note, the
Term Loan Notes and all accrued interest and other sums payable under
this
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Security Agreement, the Security Agreement Schedules or any related
documents or instruments shall be forthwith payable upon a sale of any
portion of the Equipment pursuant to Subsection (a)(ii) of this Section
13.3, and notwithstanding any provision to the contrary contained in this
Security Agreement, the Progress Payment Note, the Term Loan Notes, the
Security Agreement Schedules or any other related document or instrument.
All earnings, revenues, proceeds, rents, issues, profits and income derived
pursuant to Subsection (a)(iv) of this Section 13.3 (after deducting costs
and expenses of operation and other proper charges), all proceeds of any
such sale and all other money and property received or recovered by the
Secured Party pursuant to this Section 13.3 with respect to the Equipment
shall be held and applied as set forth in Section 13.4 hereof.
(c) The power to effect any sale under this Section 13.3 shall not be
exhausted by any one or more sales as to any portion of the Equipment
remaining unsold, but shall continue unimpaired until all of the Equipment
shall have been sold or all of the obligations hereunder or under any
related documents or instruments shall have been paid in full.
(d) Secured Party may bid for and acquire any portion of the
Equipment in connection with a sale thereof under this Section 13.3, and
may pay all or part of the purchase price by crediting against amounts
owing hereunder or under any related documents or instruments, all or part
of the net proceeds of such sale after deducting the costs, charges and
expenses incurred by Secured Party in connection with such sale. The notes
need not be produced in order to complete any such sale or effect such
credit. Secured Party may hold, lease, operate, manage or otherwise deal
with any property so acquired in any manner permitted by law.
(e) Secured Party shall execute and deliver an appropriate instrument
of conveyance transferring its interest in any portion of the Equipment in
connection with a sale thereof under this Section 13.3. In addition, Debtor
hereby irrevocably appoints Secured Party its agent and attorney-in-fact to
transfer and convey its interest in any portion of the Equipment in
connection with such a sale thereof and to take all action necessary to
effect such sale. No purchaser or transferee at such a sale shall be bound
to ascertain Secured Party's authority, inquire into the satisfaction of
any condition precedent or see to the application of any monies.
(f) Secured Party's right to seek and recover judgment on the
obligations hereunder or under any documents or instruments executed in
connection herewith shall not be affected by the seeking, obtaining or
application of any other relief under or with respect to this Security
Agreement. Neither the lien of this Security Agreement nor any rights or
remedies of Secured Party shall be impaired by the recovery of any judgment
by Secured Party against Debtor or by the levy of an execution under such
judgment upon any portion of the Equipment.
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(g) All rights and remedies from time to time conferred upon or
reserved to the Secured Party are cumulative, and none is intended to be
exclusive of another and shall be in addition to every other right or
remedy permitted by law. No delay or omission in insisting upon the strict
observance or performance of any provision of this Security Agreement, or
in exercising any right or remedy, shall be construed as a waiver or
relinquishment of such provision, nor shall it impair such right or remedy.
Every right and remedy may be exercised from time to time and as often as
deemed expedient in any combination and order desired by Secured Party.
13.4 All cash proceeds received by Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the collateral
may, in the discretion of Secured Party, be held by Secured Party as collateral
for, and/or then or at any time thereafter applied (after payment of any amounts
payable to Secured Party pursuant to this Security Agreement) in whole or in
part by Secured Party against, all or any part of the amounts due under the
particular Term Loan Note and other obligations relating to the Security
Agreement Schedule relating to the Equipment sold, collected from or realized
upon in such order as Secured Party shall elect. Any surplus of such cash or
cash proceeds held by Secured Party and remaining after payment in full of all
the obligations shall be paid over to Debtor or to whomsoever may be lawfully
entitled to receive such surplus.
13.5 (a) Debtor consents to the appointment of one or more receivers of
all or part of the Equipment, upon the request of Secured Party, if an
Event of Default shall have occurred and shall be continuing.
(b) To the extent permitted by law, Debtor hereby waives its right to
seek, and hereby agrees that it will not seek or derive any benefit or
advantage from, any of the following whether now existing or hereafter in
effect:
(i) any stay, extension, moratorium or similar law with
respect to the Equipment or the obligations hereunder or under
any related documents;
(ii) any law allowing for the redemption of any portion of the
Equipment after a sale thereof under Section 13.3 hereof; and
(iii) any right to have any portion of the Equipment after an
Event of Default shall have occurred and shall be continuing.
(c) Debtor covenants not to hinder, delay or impede the exercise of
any right or remedy of Secured Party under or in respect of this Security
Agreement and agrees to suffer and permit the exercise of each such remedy.
(d) If on the date of any repossession hereunder, any Equipment is
damaged, lost, stolen or destroyed, or subject to any levy, seizure,
assignment or application for sale for or by any creditor or governmental
agency, Debtor shall also be liable to Secured Party as provided in
Section 10 with regard to such Equipment, less the amount
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of any insurance recovery received by Secured Party in connection
therewith. TO THE EXTENT PERMITTED BY LAW, DEBTOR HEREBY WAIVES ANY AND
ALL RIGHTS TO NOTICE AND TO A JUDICIAL HEARING WITH RESPECT TO THE
REPOSSESSION OF THE EQUIPMENT BY SECURED PARTY IN THE EVENT OF A DEFAULT
HEREUNDER BY DEBTOR.
13.6. The subsequent acceptance of Amortization Payments by Secured Party
shall not be deemed a waiver of any prior existing Event of Default by Debtor
regardless of Secured Party's knowledge of such prior existing Event of Default
at the time of acceptance of Amortization Payments. No right or remedy
conferred upon or reserved to Secured Party by this Security Agreement shall be
exclusive of any other right or remedy herein or provided by law. All rights
and remedies of Secured Party conferred upon Secured Party by this Security
Agreement or by law shall be cumulative and in addition to every other right and
remedy available to Secured Party.
13.7. Upon the occurrence of any Event of Default, Debtor will pay to
Secured Party a reasonable sum for attorneys' fees and such out of pocket costs
and expenses as shall have been reasonably incurred by Secured Party in the
enforcement of any right or privilege hereunder.
13.8. The parties agree that (a) in the event it becomes necessary for
Secured Party to repossess and sell or otherwise dispose of Equipment in whole
or in part pursuant to the terms of this Section 13, Secured Party shall have
the right to exercise any or all of the rights, remedies and powers of a secured
party as provided under the Uniform Commercial Code after default by a debtor
and to apply the proceeds thereof toward payment of any cost and expenses
thereby incurred by Secured Party and toward payment of any liability of Debtor
to Secured Party; (b) to the extent any notice of sale or other disposition of
Equipment may be required by law and cannot be waived as provided in Section 13
hereof, Debtor agrees that if such notice is mailed to Debtor five days in
advance of the date of such sale or other disposition or the time after which
any private sale is to be made, such notice shall be considered commercially
reasonable and shall fully satisfy all requirements for the giving of such
notice; (c) Debtor shall provide Secured Party with such financing statements
covering the Equipment as Secured Party shall request; and (d) upon the
occurrence of an Event of Default, Debtor shall assemble the Equipment.
SECTION 14
DELIVERY OF EQUIPMENT; STORAGE
14.1. Upon the demand by Secured Party pursuant to Section 13 hereof
Debtor will at its own cost and expense deliver such Equipment to Secured Party
at a point designated by Secured Party in the continental United States in as
good, safe and satisfactory operating order, repair, condition and appearance as
when delivered to Debtor, ordinary and reasonable wear and tear only excepted.
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14.2. In the event Debtor does not deliver the Equipment to Secured Party
in the condition described in Section 14.1 above, Secured Party may, without
limiting its remedies hereunder on account of such failure, make any repairs or
replacements necessary to restore such Equipment to said condition, and Debtor
shall immediately reimburse Secured Party for the expense of any such repairs or
restoration.
SECTION 15
ASSIGNMENT AND SECURITY INTEREST
15.1. Debtor acknowledges and understands that the terms and conditions of
this Security Agreement have been fixed by Secured Party in anticipation of its
being able to assign, at its sole election and at any time, its interests in and
to all or some of the this Security Agreement, the loans made hereunder and the
Equipment financed hereunder and to grant a security interest in and to all or
some of this Security Agreement and the loans made hereunder to one or more
lending institutions, or an agent or trustee representing such lending
institutions, or to others having an interest in this transaction, all or some
of which will rely upon and be entitled to the benefit of the provisions of this
Section 15; provided however, that Debtor shall not assign this Security
Agreement or related loans to a company substantially engaged in the semi-
conductor manufacturing business without the consent of the Debtor. In
consideration of the provisions hereof, Debtor agrees with Secured Party and
with such lending institutions and/or such other party (for whose benefit this
covenant is expressly made) to do as follows: (a) to recognize any such
assignment; (b) to accept the directions or demands of such assignee in place
of those of Secured Party; (c) to surrender any Equipment only to such assignee;
(d) to pay all amounts payable hereunder, without set off, abatement, or other
claim of any kind, and to do any and all things required of Debtor hereunder and
not to terminate this Security Agreement, except as expressly allowed herein,
notwithstanding any default by Secured Party or the existence of any other
offset as between Secured Party and Debtor or the existence of any other
liability or obligation of any kind or character on the part of Secured Party to
Debtor whether or not arising hereunder; (e) not to require any assignee of this
Security Agreement to perform any duty, covenant or condition required to be
performed by Secured Party under the terms of this Security Agreement which have
not been assigned to the assignee, all rights of Debtor in such connection
aforesaid being hereby waived as to any and all of such assignees; and (f) to
execute any documents (or consents to the assignment) which Secured Party may
reasonably request in order to effectuate the foregoing. NOTHING HEREINABOVE
REGARDING A COLLATERAL ASSIGNMENT, MORTGAGE OR SECURITY INTEREST SHALL RELIEVE
SECURED PARTY FROM ITS OBLIGATIONS TO DEBTOR HEREUNDER; PROVIDED, HOWEVER, THAT
UPON SECURED PARTY'S SALE OF ALL ITS RIGHT AND INTEREST IN THE EQUIPMENT AND
ASSIGNMENT OF ALL ITS RIGHT AND INTEREST HEREUNDER, SECURED PARTY SHALL BE
RELIEVED OF ALL ITS DUTIES AND OBLIGATIONS TO DEBTOR HEREUNDER ARISING AFTER THE
EFFECTIVE DATE OF SUCH SALE AND ASSIGNMENT TO THE EXTENT SUCH DUTIES AND
OBLIGATIONS ARE ASSUMED BY THE ASSIGNEE. ANY ASSIGNMENT, MORTGAGE OR SECURITY
INTEREST OR ANY OTHER PARTIAL ASSIGNMENT OR TRANSFER OF SECURED PARTY'S RIGHT
AND INTEREST HEREUNDER SHALL BE SUBJECT AND
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SUBORDINATE TO THE TERMS AND PROVISIONS OF THIS SECURITY AGREEMENT AND THE
RIGHTS AND INTERESTS OF DEBTOR HEREUNDER.
15.2. Debtor may not assign or sublease or otherwise transfer all or
any part of this Security Agreement, the Contract Equipment or the Equipment
without the prior written consent of Secured Party.
SECTION 16
NOTICES
All notices or other communications hereunder shall be in writing and
delivered in person or mailed to the party to whom directed at the address
specified below or at such other address as a party shall have specified by
written notice to the other. Notices pursuant to Section 13 shall be delivered
in person, sent by certified or registered mail or telefaxed (with copies of
such telefaxed materials sent by certified or registered mail on the same day).
if to Secured Party, at:
NationsBanc Leasing Corporation of North Carolina
NationsBank Corporate Center, NC1-007-12-01
100 North Tryon Street
Charlotte, North Carolina 28255
Attention: Manager, Corporate Lease Administration
Telephone: (704) 386-7783
Telecopy: (704) 386-0892
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if to Debtor, at:
International Rectifier Corporation
233 Kansas Street
El Segundo, CA 90245
Attention: Treasury Department
Telephone: (310) 607-8853
Telecopy: (310) 640-6575
SECTION 17
FINANCIAL STATEMENTS; OTHER REPORTS
Debtor shall deliver to Secured Party, until all amounts outstanding or due
and payable under the Progress Payment Note, the Term Loan Note, this Security
Agreement, the Security Agreement Schedules and any related documents or
instruments have been paid in full, (i) within 90 days after the last day of
each fiscal quarter except the fourth quarter, unaudited quarterly financial
reports including the consolidated balance sheets of Debtor and its
subsidiaries, each as of the end of such quarterly period and consolidated
statements of income, retained earnings and cash flows for the quarter then
ended and for the year to date of Debtor and its subsidiaries, each setting
forth in each case comparative consolidated financial statements for the
corresponding quarterly period in the preceding year and the year to date all
prepared in accordance with generally accepted accounting principles applied on
a consistent basis; PROVIDED, so long as Debtor is required to file Form 10-Q
with the Securities and Exchange Commission and further provided Debtor delivers
such Form 10-Q to Secured Party within 90 days after the end of each fiscal
quarter, the requirements of this clause (i) will be deemed to have been
satisfied, and (ii) within 120 days after the end of each fiscal year, audited
year end financial reports including consolidated balance sheets of Debtor and
its subsidiaries each as of the end of such fiscal year, and the notes thereto,
and consolidated statements of income, retained earnings and cash flows for the
year then ended of Debtor and its subsidiaries and the notes thereto, and
setting forth in each case comparative consolidated financial statements for the
corresponding period in the preceding year, all prepared in accordance with
generally accepted accounting principles consistently applied and containing,
with respect to such consolidated financial reports, opinions regarding Debtor
satisfactory to Secured Party of a firm of independent certified public accounts
of national prominence selected by Debtor, as the case may be; PROVIDED, so long
as Debtor is required to file Form 10-K with the Securities and Exchange
Commission and further provided Debtor delivers such Form 10-K to Secured Party
within 120 days after the end of each fiscal year, the requirements of this
clause (ii) will be deemed to have been satisfied. Debtor shall promptly advise
Secured Party of any event, fact or condition that could, if determined
adversely, have a material adverse effect on Debtor or its business condition or
prospects. Debtor shall furnish to Secured Party from time to time such other
information about its financial condition, business affairs and operations as
Secured Party may reasonably request.
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SECTION 18
DEBTOR'S REPRESENTATIONS,
WARRANTIES AND COVENANTS
Debtor represents, warrants and covenants that:
18.1. Debtor is a corporation duly organized and validly existing under
the laws of the State of Delaware and has all requisite corporate power,
authority and legal right to own the Equipment, to grant security interests in
the Equipment, to conduct its business as is now being conducted and to execute,
deliver and perform its obligations under the Security Agreement, and each other
document or instrument to which it is a party or to which it may become a party
pursuant to this Security Agreement. Debtor is fully qualified to do business
and is in good standing in each jurisdiction (i) in which the Equipment is or
will be located and (ii) in which the failure to be in good standing would not
have a material adverse effect on the business or operations of Debtor.
18.2. The execution, delivery and performance by Debtor of the Security
Agreement and each other document or instrument to which it is a party or to
which it may become a party pursuant to this Security Agreement are within
Debtor's corporate powers, have been duly authorized by all requisite corporate
action, do not contravene Debtor's charter or bylaws or any law, governmental
rule or regulation, or any order, writ, injunction, decrees, determination or
award currently in effect applicable to, or any contractual restriction binding
on or affecting, Debtor or any of its properties, including without limitation
the Contract Equipment or the Equipment, and do not result in or require the
creation of any lien, security interest, right of acceleration, charge or
encumbrance (other than pursuant to this Security Agreement) upon or with
respect to any of its properties.
18.3. No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by Debtor of this Security Agreement or
any other document or instrument to which it is a party or to which it may
become a party pursuant to this Security Agreement.
18.4. The Security Agreement and each other document or instrument to
which Debtor is a party or to which it may become a party pursuant to this
Security Agreement are, or will be when executed and delivered by Debtor, the
legal, valid and binding obligations of Debtor, enforceable against Debtor in
accordance with their respective terms.
18.5. Debtor is not currently insolvent, as defined in 11 U.S.C. 100(26)
nor will it be rendered insolvent by virtue of entering into the Security
Agreement or any other document or instrument to which it is a party or carrying
out any of the transactions contemplated hereby or thereby.
18.6. Each financial statement of Debtor which has been furnished to
Secured Party fairly presents the financial condition of Debtor as at the date
of such financial statement. There has been no material adverse change in
Debtor's business, condition or operations (financial or
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otherwise) since the date of the most current financial statements delivered to
Secured Party by Debtor.
18.7. Except as has been disclosed in Debtor's SEC filings on Forms 10-K,
10-Q or 8-K, to Debtor's knowledge there is no pending or threatened action or
proceeding affecting Debtor or any of its properties before any court,
governmental agency or arbitrator which may materially and adversely affect the
business, condition or operation (financial or otherwise) of Debtor or any of
its properties or which purports to affect the validity or enforceability of the
Security Agreement or any other document or instrument to which it is a party or
to which it may become a party pursuant to this Security Agreement.
18.8. Debtor is not a party to, or bound by, any contract, agreement or
instrument that would conflict with this Security Agreement or any other
contracts, agreements or instruments executed or which may be executed in
connection with the transactions contemplated by this Security Agreement.
18.9. Debtor has agreed, and hereby acknowledges, to accept service of
process at its address set forth in Section 16 hereof in connection with any
proceeding initiated by Secured Party.
18.10. There shall be no change in the ownership or control of Debtor
unless the succeeding or surviving entity fully assumes the obligations of
Debtor in writing and the tangible net worth of the succeeding or surviving
entity immediately after the change in the ownership or control of Debtor is
substantially equal to or greater than Debtor's tangible net worth immediately
prior to such change in ownership or control.
18.11. There shall not occur, without the prior written consent of Secured
Party, which will not be unreasonably withheld, any sale, transfer or other
disposition (by operation of law or otherwise, or in one or a series of
transactions) of a substantial part of the assets of Debtor.
18.12. Debtor has its principal place of business at 233 Kansas Street, El
Segundo, CA 90245.
SECTION 19
EARLY TERMINATION
Except upon the occurrence of a total loss of an item of Equipment or a
declaration that all but not less than all of the Equipment pertaining to a
specific Security Agreement Schedule is obsolete or surplus to its needs, Debtor
may not prepay the loans with respect to any Security Agreement Schedule without
the prior written consent of the Secured Party which will not be unreasonably
withheld. So long as no Event of Default (or event which with notice or lapse
of time or both would constitute an Event of Default) shall have occurred and be
continuing, Debtor may upon ninety (90) days prior written notice to Secured
Party that all but not less than all of the Equipment subject to a specific
Security Agreement Schedule has in the reasonable judgment of Debtor, as
certified by a responsible official of Debtor, become surplus or obsolete to the
needs of Debtor, elect to prepay the Term Loan secured by such Equipment (an
"Early Termination") on the date specified in such notice or such consent (the
"Early Termination
- 22 -
<PAGE>
Date"). On such Early Termination Date Debtor shall pay to Secured Party an
amount equal to the sum of: (a) all Amortization Payments for such Equipment due
and unpaid, together with Amortization Payments accrued through the date of such
Early Termination; (b) the Termination Value of the Equipment as of the date of
such early termination; (c) an amount equal to accrued taxes and other amounts
payable hereunder by Debtor with respect to such Equipment; (d) all costs,
expenses, losses and damages incurred or sustained by Secured Party in
connection with such early termination and all amounts such Debtor shall be
required to pay Secured Party pursuant to any indemnity provision contained in
this Security Agreement; and (e) interest on each of the foregoing and on all
amounts not paid when due under any provision contained in the Security
Agreement at the rate of the lesser of (i) the Prime Rate plus two percent (2%)
per annum (computed on the basis of the actual number of days elapsed over a 360
day year or (ii) the highest rate Debtor may lawfully contract for, be charged
and pay. For purposes of this Section 19, Amortization Payments shall be
prorated daily and the Termination Values set forth in the applicable Security
Agreement Schedule shall be prorated daily by interpolation on a straight line
basis to the date of payment.
SECTION 20
END OF TERM OBLIGATIONS
At the end of each Term Loan Term, Debtor shall pay all outstanding
principal and interest on such Term Loan and upon such payment in full and the
payment of all other amounts hereunder and under the Security Agreement
Schedule, Term Loan Note and other documents and instruments relating to such
Term Loan, Secured Party shall release its security interest on the Equipment
relating to such Term Loan.
SECTION 21
EXPENSES
The Debtor agrees, whether or not the transaction contemplated hereby is
consummated, to pay the reasonable fees (up to $7,500) and expenses of
Fennebresque, Clark, Swindell & Hay, Secured Party's special counsel, incurred
in connection with the preparation and negotiation of this Security Agreement
and the documents related thereto. In addition, Debtor agrees to pay the
Secured Party's reasonable attorneys fees and out-of-pocket expenses with
respect to any modification or enforcement of this Security Agreement or any
provision hereof.
- 23 -
<PAGE>
SECTION 22
FEDERAL TAX CONSEQUENCES
It is expressly agreed that for Federal income tax purposes Debtor and
Secured Party entered into this Security Agreement intending it to be
characterized as a mere financing and for Debtor to be considered the owner of
the Equipment for such tax purposes; PROVIDED, HOWEVER Secured Party makes no
representation or warranty as to the availability of such tax treatment.
Consistent with this, Debtor intends to claim the cost recovery deductions
associated with the Equipment, and Secured Party agrees not take an inconsistent
position on its Federal income tax returns.
SECTION 23
MISCELLANEOUS
Secured Party and Debtor hereby confirm their intent that the Equipment
shall always remain and be deemed personal property even if any of such
Equipment may hereafter become attached or affixed to realty. This Security
Agreement may not be amended except in writing and shall be binding upon and
inure to the benefit of the parties hereto and their permitted successors and
assigns. Any forbearance or indulgence by Secured Party hereunder shall not
constitute a waiver of any of its rights or remedies. Any provision of this
Security Agreement which is 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, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Time is of the
essence with respect to all the provisions of this Security Agreement. Section
headings are for convenience only and do not define or limit the terms thereof.
If Debtor fails to pay or perform any obligations payable or performable under
this Security Agreement, Secured Party, at its option, may cure such failure at
Debtor's expense. This Security Agreement is noncancelable except as provided
herein. All sums payable by Debtor under this Security Agreement not paid when
due shall accrue interest at the lesser of (i) the Prime Rate plus two (2%)
percent per annum (computed on the basis of the actual number of days elapsed
over a 360 day year); or (ii) the highest rate Debtor may lawfully contract for,
be charged and pay. This Security Agreement shall be governed and construed in
accordance with the laws of the State of North Carolina. This Security
Agreement shall become binding on Secured Party only upon Secured Party's
execution hereof and delivery of a counterpart hereof to Debtor.
- 24 -
<PAGE>
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
This Security Agreement consists of the foregoing and all Schedules
attached hereto, and correctly sets forth the entire agreement of the parties as
to the subject matter hereof. By execution hereof each signer certifies that he
has read this Security Agreement and that he is duly authorized to execute it in
the capacity set forth below.
DEBTOR:
INTERNATIONAL RECTIFIER CORPORATION
By: /s/ Michael P. McGee
----------------------------------
Title: VICE PRESIDENT & CFO
------------------------------
SECURED PARTY:
NATIONSBANC LEASING CORPORATION OF
NORTH CAROLINA
By: /s/ M. Randall Ross
----------------------------------
Title: SENIOR VICE PRESIDENT
-------------------------------
- 25 -
<PAGE>
EXHIBIT A
PROGRESS PAYMENT LOAN REQUEST
Reference is made to that certain Security Agreement dated July 1, 1994
between INTERNATIONAL RECTIFIER CORPORATION ("Debtor") and NATIONSBANC LEASING
CORPORATION OF NORTH CAROLINA ("Secured Party").
Debtor hereby requests that Secured Party make a Progress Payment Loan to
Debtor in the following amount: $______________________________.
The Progress Payment Loan is to be disbursed as follows:
1. DISBURSEMENTS TO VENDORS:
VENDOR CONTRACT EQUIPMENT AMOUNT
2. DISBURSEMENTS TO DEBTOR:
The Debtor certifies that the amount of the Progress Payment Loan advanced
to Debtor is in reimbursement for funds advanced by Debtor to the following
vendors:
VENDOR CONTRACT EQUIPMENT AMOUNT
True copies of invoices, purchase orders, evidence of payments due to
vendors, payments made by Debtor to vendors or other evidence relating to the
purchase of the Contract Equipment are attached hereto.
INTERNATIONAL RECTIFIER CORPORATION
By:
-----------------------------------
Title:
--------------------------------
- 26 -
<PAGE>
EXHIBIT B
SECURITY AGREEMENT SCHEDULE
This Security Agreement Schedule Number ___________ is dated ____________,
199__ , and is executed by INTERNATIONAL RECTIFIER CORPORATION ("Debtor") and
NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA ("Secured Party") as a
schedule to Security Agreement between Secured Party and Debtor dated
July 1, 1994 and hereby incorporates by reference all of the terms, conditions
and provisions thereof.
1. EQUIPMENT FINANCED:
2. EQUIPMENT LOCATION:
3. COST OF EQUIPMENT:
a. Cost:
b. Sales Tax:
Total Cost of Equipment:
4. TERM LOAN:
Term Loan Amount:
Term Loan Commencement Date:
Term Loan Maturity Date:
The "Term Loan Term" shall be ___________________, beginning on the Term
Loan Commencement Date and ending on the Term Loan Maturity Date, both
dates inclusive.
5. AMORTIZATION PAYMENTS:
Amortization Payment Amount:
Frequency of Amortization Payments:
Number of Consecutive Amortization Payments:
Interest Rate:
Amortization Payment Dates:
First Amortization Payment Date:
- 27 -
<PAGE>
Last Amortization Payment Date:
6. FINAL PAYMENT AMOUNT:
7. UNAMORTIZED PRINCIPAL BALANCES: See Annex A
8. TERMINATION VALUES: See Annex A
Debtor acknowledges and certifies solely to Secured Party that all of the
Equipment described hereinabove has been: (i) delivered to Debtor at the
Equipment Location specified above; (ii) thoroughly examined and inspected to
the complete satisfaction of Debtor; (iii) unconditionally accepted by Debtor,
in the condition received, for all purposes of the Security Agreement; (iv)
found by Debtor to be in good operating order, repair and condition; (v) found
to be of the size, design, quality, type and manufacturer selected by Debtor;
and (vi) found to be and is wholly suitable for Debtor's purposes. Debtor
further acknowledges and certifies that Secured Party has made no warranty,
express or implied, with respect to the Equipment or its delivery, and that the
insurance coverage required by Section 9 of the Security Agreement is in full
force and effect with respect to the Equipment, and that the insurance policies
or certificates evidencing such coverage have been delivered to Secured Party.
Debtor further acknowledges, certifies and agrees that the Equipment is subject
to the security interest granted by the Security Agreement, that such security
interest in favor of Secured Party is a first priority security interest and
that the Equipment is free of all liens, encumbrances or security interests
other than the security interest in favor of Secured Party. The official
signing this Security Agreement Schedule for Debtor certifies to Secured Party
that (a) no default or Event of Default has occurred and is continuing, (b) no
material adverse change has occurred in the business, condition or operations of
Debtor (financial or otherwise) since the date of the last financial statements
of Debtor, (c) no event has occurred or exists which would impair the ability
of Debtor to pay and perform its obligations under the Security Agreement and
(d) the representations and warranties of Debtor in the Security Agreement are
true and correct as of the date hereof.
IN WITNESS WHEREOF, the parties hereto, as of the day and year first above
written, have caused this Security Agreement Schedule to be executed in their
respective corporate names by their duly authorized officials.
NATIONSBANC LEASING CORPORATION INTERNATIONAL RECTIFIER
OF NORTH CAROLINA CORPORATION
(Secured Party) (Debtor)
By: By:
------------------------------- ------------------------------------
Title: Title:
---------------------------- ---------------------------------
- 28 -
<PAGE>
ANNEX A
TO
SECURITY AGREEMENT SCHEDULE NUMBER _____
Dated as of________, 199__
between
INTERNATIONAL RECTIFIER CORPORATION, as Debtor
NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, as Secured Party
Unamortized
Amortization Interest Principal Amortization Principal Termination
Payment Date Component Component Payment Balance Value
- - - ------------ --------- --------- ------------ ----------- -----------
- 29 -
<PAGE>
EXHIEBIT C
TO
SECURITY AGREEMENT
Dated as of July 1, 1994
between
INTERNATIONAL RECTIFIER CORPORATION, as Debtor
NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, as Secured Party
PROGRESS PAYMENT NOTE
$3,000,000.00 July 1, 1994
FOR VALUE RECEIVED, the undersigned INTERNATIONAL RECTIFIER CORPORATION, a
Delaware corporation ("Debtor") HEREBY PROMISES TO PAY to the order of
NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a North Carolina corporation
("Secured Party"), the principal sum of Three Million Dollars ($3,000,000), or
so much thereof as shall be advanced or readvanced pursuant to Section 1.1 the
Security Agreement dated the date hereof (the "Security Agreement") between
Debtor and Secured Party, on the Final Commencement Date or on such earlier date
provided below.
All payments shall be payable, in lawful money of the United States and in
immediately available funds without setoff or counterclaim, to Secured Party at
its office at NationsBank Corporate Center, 100 North Tryon Street,
NC1-007-12-01, Charlotte, North Carolina 28255, or such other location as the
holder thereof shall notify Debtor in writing. funds.
Debtor promises to pay interest on the principal amount remaining unpaid
hereunder from the date hereof until said principal amount becomes due, payable
monthly in arrears on the last day of each month, on the dates provided in the
last two sentences of this paragraph and on maturity hereof at the rate of equal
to the lesser of (i) the Prime Rate (computed on the basis of the actual number
of days elapsed over a year of 360 days or (ii) the highest rate Debtor may
lawful contract for, be charged and pay. The interest rate shall change on the
same day as the Prime Rate changes. Any amount of principal hereof which is not
paid when due, whether at stated maturity, by acceleration or otherwise, shall
bear interest from the day when due until said principal amount is paid in full,
payable on demand at the rate equal to the lesser of (ii) the Prime Rate plus
two percent (2%) per annum (computed on the basis of the actual number of days
elapsed over a 360 day year) or (i) the highest rate Debtor may lawfully
contract for, be charged and pay (the "Overdue Rate"). "Prime Rate" is defined
as the interest rate announced publicly in Charlotte, North Carolina by
NationsBank of North Carolina, N.A., which is not necessarily the lowest or best
rate offered by NationsBank of North Carolina, N.A. Interest and principal with
respect to each Progress Payment Loan with respect to an item of Contract
Equipment that becomes Equipment subject to a Term Loan shall be paid on the
Term Loan Commencement Date relating to that Contract Equipment. In the event
an item of Contract Equipment shall not become Equipment subject to the Security
Agreement on or prior to the Final Commencement Date, Debtor shall pay the
remaining outstanding balance together with interest on the Final Commencement
Date.
- 30 -
<PAGE>
Each payment made under this Note that includes principal shall be applied
first to the payment of all accrued and unpaid interest and then to the payment
of unpaid principal.
This Note is the Progress Payment Note referred to in, and is entitled to
the benefits of the Security Agreement, dated as of July 1, 1994 (the "Security
Agreement"), between Debtor and Secured Party. All terms and provisions of the
Security Agreement are deemed to be a part of this Note as though they were
reproduced herein. Capitalized terms used herein and not otherwise defined
herein are used herein as defined in the Security Agreement. The Security
Agreement contains provisions, among others, for the acceleration of the
maturity hereof upon the happening of certain stated events. This Note may be
prepaid only as permitted by the Security Agreement or if Secured Party, at its
sole discretion, shall allow such prepayment any prepayment shall include
additional amounts required by the Security Agreement. The aggregate unpaid
amount of Progress Payment Loans evidenced by this Note and other payments,
receipts and applications reflected by the notations made in the Secured Party's
business records shall be conclusive evidence of the principal amount of the
Progress Payment Loans owing and unpaid and of the other payments, receipts and
applications.
The references made herein to the Security Agreement shall neither affect
nor impair the absolute and unconditional obligation of Debtor to make payments
when due. Debtor, and each endorser or accommodation party hereto, or guarantor
hereof, jointly and severally waive presentment, demand, notice of intention to
accelerate, notice that acceleration has occurred, protect and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note.
Should any of the indebtedness represented by this Note be collected in any
proceeding, or this Note be placed in the hands of attorneys for collection
after default, Debtor agrees to pay, in addition to the principal and interest
due and payable hereon, all costs of collecting this Note, including reasonable
attorneys' fees and expenses.
Notwithstanding any provision to the contrary contained herein, Debtor (i)
shall be fully liable for the payment of all indebtedness outstanding hereunder
or under the Security Agreement; and (ii) nothing contained herein shall relieve
Debtor from liability resulting from its breach of any representation, covenant
or warranty contained in the Security Agreement.
- 31 -
<PAGE>
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
INTERNATIONAL RECTIFIER CORPORATION
By:
---------------------------------
Name (Printed):
---------------------
Title:
------------------------------
ATTEST:
By:
-----------------------------
Title:
--------------------------
(Corporate Seal)
- 32 -
<PAGE>
EXHIBIT D
TO
SECURITY AGREEMENT
Dated as of July 1, 1994
between
INTERNATIONAL RECTIFIER CORPORATION, as Debtor
NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, as Secured Party
TERM LOAN NOTE
$_________________ _____, 199___
FOR VALUE RECEIVED, the undersigned INTERNATIONAL RECTIFIER CORPORATION, a
Delaware corporation ("Debtor") HEREBY PROMISES TO PAY to the order of
NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a North Carolina corporation
("Secured Party"), the principal sum of ______________ and ___/100
Dollars ($________________) in (__) consecutive installments of principal and
interest; each in the amount of ($ __________________) commencing on _______ and
ending on ____________ (each such date, an "Amortization Payment Date"); and
with an additional installment of principal in the amount of __________________
Dollars ( - ) on________________; PROVIDED, that the last such installment
shall be in the amount necessary to repay in full the unpaid principal amount
hereof.
All payments shall be payable, in lawful money of the United States and in
immediately available funds without setoff or counterclaim, to Secured Party at
its office at NationsBank Corporate Center, 100 North Tryon Street,
NC1-007-12-01, Charlotte, North Carolina 28255, or such other location as the
holder thereof shall notify Debtor in writing.
Debtor promises to pay interest on the principal amount remaining unpaid
hereunder from the date hereof until said principal amount becomes due, payable
on each of the above-listed Amortization Payment Dates, at the rate of _______
(_%) per annum (computed on the basis of the actual number of days elapsed over
a year of 360 days). Any amount of principal hereof which is not paid when due,
whether at stated maturity, by acceleration or otherwise, shall bear interest
from the day when due until said principal amount is paid in full, payable on
demand at the rate equal to the lower of (i) Prime Rate plus two percent (2%)
per annum or (ii) the highest rate Debtor may lawfully contract for, be charged
and pay (the "Overdue Rate"). "Prime Rate" is defined as the interest rate
announced publicly in Charlotte, North Carolina by NationsBank of North
Carolina, N.A., which is not necessarily the lowest or best rate offered by
NationsBank of North Carolina, N.A.
Each payment made under this Note shall be applied first to the payment of
all accrued and unpaid interest and then to the payment of unpaid principal.
This Note is a Term Loan Note referred to in, and is entitled to the
benefits of the Security Agreement, dated as of July 1, 1994 (the "Security
Agreement"), between Debtor and Secured Party. All terms and provisions of the
Security Agreement are deemed to be a part of this Note as though they were
reproduced herein. Capitalized terms used herein and not otherwise defined
herein are used herein as defined in the Security Agreement. The Security
- 33 -
<PAGE>
Agreement contains provisions, among others, for the acceleration of the
maturity hereof upon the happening of certain stated events. This Note may be
prepaid only as permitted by the Security Agreement or if Secured Party, at its
sole discretion, shall allow such prepayment. Any prepayment shall include
additional amounts required by the Security Agreement.
The references made herein to the Security Agreement shall neither affect
nor impair the absolute and unconditional obligation of Debtor to make payments
when due. Debtor, and each endorser or accommodation party hereto, or guarantor
hereof, jointly and severally waive presentment, demand, notice of intention to
accelerate, notice that acceleration has occurred, protect and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note.
Should any of the indebtedness represented by this Note be collected in any
proceeding, or this Note be placed in the hands of attorneys for collection
after default, Debtor agrees to pay, in addition to the principal and interest
due and payable hereon, all costs of collecting this Note, including reasonable
attorneys' fees and expenses.
Notwithstanding any provision to the contrary contained herein, Debtor (i)
shall be fully liable for the payment of all indebtedness outstanding hereunder
or under the Security Agreement; and (ii) nothing contained herein shall relieve
Debtor from liability resulting from its breach of any representation, covenant
or warranty contained in the Security Agreement.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NORTH CAROLINA.
INTERNATIONAL RECTIFIER CORPORATION
By:
-----------------------------------
Name (Printed):
-----------------------
Title:
--------------------------------
ATTEST:
By:
-------------------------------
Title:
----------------------------
(Corporate Seal)
- 34 -
<PAGE>
PROGRESS PAYMENT NOTE
$3,000,000.00 July 1, 1994
FOR VALUE RECEIVED, the undersigned INTERNATIONAL RECTIFIER CORPORATION, a
Delaware corporation ("Debtor") HEREBY PROMISES TO PAY to the order of
NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a North Carolina corporation
("Secured Party"), the principal sum of Three Million Dollars ($3,000,000), or
so much thereof as shall be advanced or readvanced pursuant to Section 1.1 the
Security Agreement dated the date hereof (the "Security Agreement") between
Debtor and Secured Party, on the Final Commencement Date or on such earlier date
provided below.
All payments shall be payable, in lawful money of the United States and in
immediately available funds without setoff or counterclaim, to Secured Party at
its office at NationsBank Corporate Center, 100 North Tryon Street, NC1-007-12-
01, Charlotte, North Carolina 28255, or such other location as the holder
thereof shall notify Debtor in writing. funds.
Debtor promises to pay interest on the principal amount remaining unpaid
hereunder from the date hereof until said principal amount becomes due, payable
monthly in arrears on the last day of each month, on the dates provided in the
last two sentences of this paragraph and on maturity hereof at the rate of equal
to the lesser of (i) the Prime Rate (computed on the basis of the actual number
of days elapsed over a year of 360 days or (ii) the highest rate Debtor may
lawful contract for, be charged and pay. The interest rate shall change on the
same day as the Prime Rate changes. Any amount of principal hereof which is not
paid when due, whether at stated maturity, by acceleration or otherwise, shall
bear interest from the day when due until said principal amount is paid in full,
payable on demand at the rate equal to the lesser of (ii) the Prime Rate plus
two percent (2%) per annum (computed on the basis of the actual number of days
elapsed over a 360 day year) or (i) the highest rate Debtor may lawfully
contract for, be charged and pay (the "Overdue Rate"). "Prime Rate" is defined
as the interest rate announced publicly in Charlotte, North Carolina bv
NationsBank of North Carolina, N.A., which is not necessarily the lowest or best
rate offered by NationsBank of North Carolina, N.A. Interest and principal with
respect to each Progress Payment Loan with respect to an item of Contract
Equipment that becomes Equipment subject to a Term Loan shall be paid on the
Term Loan Commencement Date relating to that Contract Equipment. In the event
an item of Contract Equipment shall not become Equipment subject to the Security
Agreement on or prior to the Final Commencement Date, Debtor shall pay the
remaining outstanding balance together with interest on the Final Commencement
Date.
Each payment made under this Note that includes principal shall be applied
first to the payment of all accrued and unpaid interest and then to the payment
of unpaid principal.
This Note is the Progress Payment Note referred to in, and is entitled to
the benefits of the Security Agreement, dated as of July 1, 1994, as amended
(the "Security Agreement"), between Debtor and Secured Party. All terms and
provisions of the Security Agreement are deemed to be a part of this Note as
though they were reproduced herein. Capitalized terms used herein and not
otherwise defined herein are used herein as defined in the Security Agreement.
- 1-
<PAGE>
The Security Agreement contains provisions, among others, for the acceleration
of the maturity hereof upon the happening of certain stated events. This Note
may be prepaid only as permitted by the Security Agreement or if Secured Party,
at its sole discretion, shall allow such prepayment any prepayment shall include
additional amounts required by the Security Agreement. The aggregate unpaid
amount of Progress Payment Loans evidenced by this Note and other payments,
receipts and applications reflected by the notations made in the Secured Party's
business records shall be conclusive evidence of the principal amount of the
Progress Payment Loans owing and unpaid and of the other payments, receipts and
applications.
The references made herein to the Security Agreement shall neither affect
nor impair the absolute and unconditional obligation of Debtor to make payments
when due. Debtor, and each endorser or accommodation party hereto, or guarantor
hereof, jointly and severally waive presentment, demand, notice of intention to
accelerate, notice that acceleration has occurred, protect and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note.
Should any of the indebtedness represented by this Note be collected in any
proceeding, or this Note be placed in the hands of attorneys for collection
after default, Debtor agrees to pay, in addition to the principal and interest
due and payable hereon, all costs of collecting this Note, including reasonable
attorneys' fees and expenses.
Notwithstanding any provision to the contrary contained herein, Debtor (i)
shall be fully liable for the payment of all indebtedness outstanding hereunder
or under the Security Agreement; and (ii) nothing contained herein shall relieve
Debtor from liability resulting from its breach of any representation, covenant
or warranty contained in the Security Agreement.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NORTH CAROLINA.
INTERNATIONAL RECTIFIER CORPORATION
By: /s/ Michael P. McGee
------------------------------------------
Name (Printed): MICHAEL P. McGEE
------------------------------
Title: VICE PRESIDENT,
--------------------------------------
CHIEF FINANCIAL OFFICER
ATTEST:
By: /s/ Lesley C. Kleveter
----------------------------------
Title: Asst Secretary
-------------------------------
(Corporate Seal)
- 2 -
<PAGE>
REVOLVING CREDIT AGREEMENT
This Revolving Credit Agreement (the "Agreement") is made and entered into
as of July 1, 1994, by and between WELLS FARGO BANK, N.A. ("Wells Fargo") and
INTERNATIONAL RECTIFIER CORPORATION (the "Borrower") on the terms and conditions
set forth below:
SECTION I
DEFINITIONS
1.01 CERTAIN DEFINED TERMS. Unless elsewhere defined in this Agreement,
the following terms shall have the following meanings (such meanings to be
generally applicable to the singular and plural forms of the terms defined):
(a) "ADVANCE" shall mean an advance to the Borrower under the
Revolving Credit Facility.
(b) "APPLICATIONS" shall mean Wells Fargo's form "Application For
Standby Letter of Credit" and form "Application For Commercial Letter of Credit"
attached to this Agreement as Exhibits C and D respectively.
(c) "BANKRUPTCY CODE" shall mean the Bankruptcy Reform Act, Title 11
of the United States code, as amended or recodified from time to time.
(d) "BUSINESS DAY" shall mean a day other than a Saturday or Sunday
on which commercial banks are open for business in the State of California, and,
with respect to LIBO Rate Advances, on which dealings are carried on in the
London interbank market and banks are open for business in London.
(e) "COMMITMENT" shall mean the obligation of Wells Fargo, in
accordance with the terms of this Agreement, to make the Advances to the
Borrower and to issue Letters of Credit for the account of the Borrower in a
combined aggregate principal amount at any one time outstanding of Ten Million
Dollars ($10,000,000.00).
(f) "CONSOLIDATED OPERATING LOSS" shall mean a loss from operations
before other income and expenses, income taxes and extraordinary items as set
forth on the Borrower's consolidated statement of income.
(g) "COST OF FUNDS ADVANCE" shall mean an Advance in a minimum amount
of Five Hundred Thousand Dollars ($500,000.00) and in One Hundred Thousand
Dollar ($100,000.00) increments thereafter for which interest is based on the
Cost of Funds Rate.
<PAGE>
(h) "COST OF FUNDS INTEREST PERIOD" shall mean, for each Cost of
Funds Advance, a period of one (1), three (3), six (6), nine (9), twelve (12) or
eighteen (18) months, as designated by the Borrower, during which all or a
portion of the Advances under the Revolving Credit Facility bear interest
determined in relation to the Cost of Funds Rate; provided, however, that (a) if
a Cost of Funds Interest Period commences on a date for which there is no
corresponding date in the month in which such Cost of Funds Interest Period is
to end, such Cost of Funds Interest Period shall end on the last Business Day of
such month; (b) if the last day of any Cost of Funds Interest Period occurs on a
day which is not a Business Day, such Cost of Funds Interest Period shall be
extended to expire on the next succeeding Business Day; and (c) no Cost of Funds
Interest Period may extend beyond the Maturity Date.
(i) "COST OF FUNDS RATE" shall mean, for each Cost of Funds Interest
Period, a fixed rate (rounded upward if necessary to the nearest 1/100th of 1%)
determined by Wells Fargo in its sole and absolute discretion to be equal to
Wells Fargo's cost of acquiring funds (adjusted for any and all assessments,
surcharges and reserve requirements pertaining to the borrowing or purchase by
Wells Fargo of such funds) for a term comparable to such Interest Period and in
an amount approximately equal to the amount of the Cost of Funds Advance to be
outstanding during such Cost of Funds Interest Period. The Cost of Funds Rate
applicable to any Cost of Funds Advance for any Cost of Funds Interest Period
shall be determined on the first day of such Cost of Funds Interest Period and
will not be adjusted during such Cost of Funds Interest Period to reflect any
change in the reserve requirements applicable to such Advances (which shall
include, but not be limited to, any basic, supplemental or emergency reserve
requirements imposed on any bank by any Governmental Authority). Each change in
the applicable reserve requirement will affect the Cost of Funds Rate applicable
during Cost of Funds Interest Periods commencing on or after the date of such
change.
(j) "DEBT" shall mean all Indebtedness and other liabilities of the
Borrower or any Subsidiary and/or the Borrower and all the Subsidiaries, as the
case may be, as set forth on the Borrower's and/or such Subsidiary's balance
sheet.
(k) "DOLLARS" AND "$" shall mean lawful money of the United States.
(l) "DOMESTIC" shall mean the consolidated United States and Mexican
maquiladora operations of the Borrower.
(m) "EFFECTIVE TANGIBLE NET WORTH" shall mean the Borrower's stated
net worth, but less all intangible assets of the Borrower (that is, goodwill,
trademarks, patents, copyrights, organization expense, loans and advances to
employees, and similar intangible items), but excluding any cumulative
translation adjustments to equity for the value of foreign assets based upon
changes in foreign exchange rates.
(n) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time, including (unless the context
otherwise requires) any rules or regulations promulgated thereunder.
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(o) "EVENT OF DEFAULT" shall have the meaning set forth in Section 7
of this Agreement.
(p) "FIXED RATE ADVANCES" shall mean the Cost of Funds Advances and
the LIBO Rate Advances.
(q) "GAAP" shall mean generally accepted accounting principles in the
United States as in effect from time to time.
(r) "GOVERNMENTAL AUTHORITY" shall mean any domestic or foreign
national, state or local government, any political subdivision thereof, any
department, agency, authority or bureau of any of the foregoing, or any other
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including, but not limited to, the
Federal Deposit Insurance Corporation, the Board of Governors of the Federal
Reserve System, the Comptroller of the Currency, any central bank or any
comparable authority.
(s) "INDEBTEDNESS" shall mean, with respect to the Borrower, (i) all
indebtedness for borrowed money, and (ii) all indebtedness for the deferred
purchase price of property or services due more than 45 days from the date of
payment specified on the invoice for such obligation in respect of which the
Borrower is primarily liable as obligor, and (iii) obligations under leases
which shall have been or should be, in accordance with GAAP, reported as capital
leases in respect of which the Borrower is primarily liable.
(t) "INTEREST PERIOD" shall mean a Cost of Funds Interest Period or a
LIBO Rate Interest Period as the context shall require.
(u) "LETTER OF CREDIT" shall mean a commercial and/or standby letter
of credit issued by Wells Fargo pursuant to the Revolving Credit Facility
subfeature for letters of credit, as described more fully in Section 3 of this
Agreement.
(v) "LETTER OF CREDIT AGREEMENTS" shall mean (a) Wells Fargo's
standard "Continuing Standby and Commercial Letter of Credit Agreement",
substantially in the form of Exhibit B attached hereto and all related
documents required in connection therewith, (b) Wells Fargo's standard
"Application For Standby Letter of Credit", substantially in the form of
Exhibit C attached hereto, and (c) Wells Fargo's standard "Application For
Commercial Letter of Credit", substantially in the form of Exhibit D attached
hereto.
(w) "LETTER OF CREDIT COMMITMENT" shall mean the obligation of Wells
Fargo, in accordance with the terms of this Agreement, to issue Letters of
Credit for the account of the Borrower in an aggregate face amount at any one
time outstanding, less any partial drawings paid by Wells Fargo under Letters of
Credit and not reimbursed by the Borrower, of Five Million Dollars
($5,000,000.00).
(x) "LETTER OF CREDIT SUB-FACILITY" shall mean the letter of credit
sub-facility described in Section 3 of this Agreement of the Revolving Credit
Facility, under which Wells Fargo agrees to issue commercial and standby letters
of credit for the account of the
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Borrower up to an amount of Five Million Dollars ($5,000,000.00) at any one time
outstanding.
(y) "LIBO RATE" shall mean, for each LIBO Rate Interest Period, a
rate per annum (rounded upward if necessary to the nearest 1/8th of 1%) equal
to the quotient of (a) the rate per annum at which Dollar deposits are offered
to Wells Fargo in the London interbank eurodollar currency market on the second
Business Day prior to the commencement of such LIBO Rate Interest Period at or
about 11:00 a.m. London time (for delivery on the first day of such LIBO Rate
Interest Period) for a term comparable to such LIBO Rate Interest Period and in
an amount approximately equal to the amount of the LIBO Rate Advance to be
outstanding during such LIBO Rate Interest Period DIVIDED BY (b) one minus the
Reserve Requirement for such LIBO Rate Advance in effect from time to time. The
LIBO Rate applicable to LIBO Rate Advances during each LIBO Rate Interest Period
shall be determined two Business Days prior to the first day of such LIBO Rate
Interest Period and will not be adjusted during such LIBO Rate Interest Period
to reflect any change in the applicable Reserve Requirement occurring during
such LIBO Rate Interest Period. Each change in the applicable Reserve
Requirement will affect the LIBO Rate applicable during LIBO Rate Interest
Periods commencing on or after the date of such change.
(z) "LIBO RATE ADVANCE" shall mean an Advance in a minimum amount of
$500,000 and in $100,000 increments thereafter for which interest is based on
the LIBO Rate.
(aa) "LIBO RATE INTEREST PERIOD" shall mean, for each LIBO Rate
Advance, a period of one (1) month, two (2) months, three (3) months, six (6)
months (if available), nine (9) months (if available) or twelve (12) months (if
available), as designated by the Borrower, during which all or a portion of the
Advances under the Revolving Credit Facility bear interest determined in
relation to the LIBO Rate; provided, however, that (a) if a LIBO Rate Interest
Period commences on a date for which there is no corresponding date in the month
in which such LIBO Rate Interest Period is to end, such LIBO Rate Interest
Period shall end on the last Business Day of such month, (b) if the last day of
any LIBO Rate Interest Period occurs on a day which is not a Business Day, such
LIBO Rate Interest Period shall be extended to expire on the next succeeding
Business Day; provided further, however, that if such extension would cause the
last day of any LIBO Rate Interest Period to occur in the next following
calendar month, such LIBO Rate Interest Period shall expire on the next
preceding Business Day, and (c) no LIBO Rate Interest Period may extend beyond
the Maturity Date.
(bb) "LIQUID ASSETS" shall mean all Domestic cash and cash equivalents
plus all Domestic accounts receivable, less any inter-company accounts
receivable.
(cc) "LOAN DOCUMENTS" shall mean this Agreement, the Note, the Letter
of Credit Agreements, and any foreign exchange agreements or contracts or
documents signed by the Borrower in favor of Wells Fargo which indicate on their
face or in their text that they are Loan Documents, and each other contract,
instrument and document required by or executed in connection with this
Agreement, the Note, the Letter of Credit Agreements, or any such foreign
exchange agreements or contracts or documents.
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(dd) "MATURITY DATE" shall mean October 31, 1996 or the date of
termination of the Commitment pursuant to Section 7 of this Agreement, whichever
shall occur first.
(ee) "NOTE" shall mean the Revolving Credit Facility Note.
(ff) "OBLIGATIONS" shall mean all amounts owing by the Borrower to
Wells Fargo pursuant to this Agreement and the Loan Documents, including, but
not limited to, the unpaid principal amount of the Advances.
(gg) "OTHER TAXES" shall have the meaning assigned to it in Section
2.15(b) of this Agreement.
(hh) "PERMITTED DOMESTIC LIENS" shall mean: (i) liens and security
interests securing indebtedness owed by the Borrower to Wells Fargo; (ii) liens
for taxes, assessments or similar charges either not more than 45 days past due
or being contested in good faith; (iii) liens of materialmen, mechanics,
warehousemen, or carriers or other like liens arising in the ordinary course of
business and securing obligations which are not more than 45 days past due or
being contested in good faith; (iv) purchase money liens or purchase money
security interests upon or in any property acquired or held by the Borrower in
the ordinary course of business to secure Indebtedness outstanding on the date
hereof or permitted to be incurred under Section 6.09 of this Agreement; (v)
liens and security interests which, as of the date hereof, have been disclosed
to and approved by Wells Fargo in writing; (vi) liens in connection with
workers' compensation, unemployment insurance and such other types of insurance;
(vii) liens to secure performance bonds and bid bonds and other similar
obligations; (viii) liens resulting from zoning restrictions, easements and
such other similar restrictions on the use of real property; and (ix) liens
arising from judgments and attachments that would not constitute an Event of
Default hereunder.
(ii) "PERSON" shall mean any individual, corporation, partnership,
joint venture or other organization or entity.
(jj) "PLAN" shall mean any defined employee pension benefit plan
maintained or contributed to by Borrower and insured by the Pension Benefit
Guaranty Corporation under title IV of ERISA.
(kk) "POTENTIAL EVENT OF DEFAULT" shall mean any condition, occurrence
or event which, after notice or the passage of time or both, would constitute an
Event of Default.
(ll) "PRIME RATE" shall mean, at any time, the rate of interest most
recently announced within Wells Fargo at its principal office in San Francisco
as its Prime Rate, with the understanding that Wells Fargo's Prime Rate is one
of its base rates and serves as the basis upon which effective rates of interest
are calculated for those loans making reference thereto, and is evidenced by the
recording thereof in such internal publication or publications as Wells Fargo
may designate.
(mm) "PRIME RATE ADVANCE" shall mean an Advance for which interest is
based on the Prime Rate.
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(nn) "RESERVE REQUIREMENT" shall mean, with respect to any day in a
LIBO Rate Interest Period, the aggregate of the reserve requirement rates
(expressed as a decimal) in effect on such day for eurocurrency funding
(currently referred to as "Eurocurrency liabilities" in Regulation D of the
Board of Governors of the Federal Reserve System) maintained by a member bank of
the federal Reserve System. As used herein. the term "Reserve Requirement"
shall include, but not be limited to, any basic, supplemental or emergency
reserve requirements imposed on any bank by any Governmental Authority.
(oo) "REVOLVING CREDIT ACCOUNT" shall mean the account in which Wells
Fargo makes entries for each Advance and such other debits and credits as shall
be appropriate in connection with the Revolving Credit Facility.
(pp) "REVOLVING CREDIT FACILITY" shall mean the credit facility
described in Section 2 of this Agreement under which all Wells Fargo offers
Borrower a revolving credit accommodation in the maximum total principal amount
of Ten Million Dollars ($10,000,000.00).
(qq) "SUBORDINATED DEBT" shall mean such liabilities of the Borrower
which have been subordinated to those owed to Wells Fargo in a manner acceptable
to Wells Fargo.
(rr) "SUBSIDIARY" shall mean any corporation, association or other
business entity of which Borrower owns directly or indirectly more than fifty
percent (50%) of the voting securities thereof or in which Borrower otherwise
owns a controlling interest.
(ss) "TAXES" shall have the meaning assigned to it in Section 2.15(a)
of this Agreement.
(tt) "TEMECULA FACILITY" shall mean the Borrower's wafer fabrication
and assembly plant existing on the date of this Agreement on the property owned
by the Borrower in Temecula, California, and the addition to such plant to be
built in the future.
1.02 ACCOUNTING TERMS. All references to financial statements, assets,
liabilities, and similar accounting items not specifically defined herein shall
mean such financial statements or such items prepared or determined in
accordance with GAAP consistently applied and, except where otherwise specified,
all financial data submitted pursuant to this Agreement shall be prepared in
accordance with GAAP.
1.03 OTHER TERMS. Other terms not otherwise defined shall have the
meanings attributed to such terms in the California Uniform Commercial Code.
SECTION 2
REVOLVING CREDIT FACILITY
2.01 REVOLVING CREDIT FACILITY. On the terms and conditions as set forth
herein, Wells Fargo agrees to make Advances in Dollars to the Borrower from time
to time from the date
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hereof to the Maturity Date; provided, however, that the aggregate amount of
such Advances outstanding at any one time may not exceed $10,000,000.00
("Revolving Credit Facility"). Within the foregoing limits, the Borrower may
borrow, partially or wholly prepay, and reborrow under this Section 2.
2.02 MAKING ADVANCES. Each Advance shall be conclusively deemed to have
been made at the request of and for the benefit of the Borrower when made upon
telephonic or facsimile request received from the Borrower, with a confirmation
in writing sent within two Business Days, and (i) when credited to any deposit
account of the Borrower maintained with Wells Fargo, or (ii) when paid in
accordance with the Borrower's written instructions. Each request for an
Advance must be received not later than 12:00 p.m. (California time) on the
Business Day specified for a Prime Rate Advance and 7:00 a.m. (California time)
two Business Days prior to the date specified for a LIBO Rate Advance or a Cost
of Funds Advance, each of which dates shall be a Business Day. The rates for a
LIBO Rate Advance or a Cost of Funds Advance shall be set on the same Business
Day as the request is received if it is received by 7:00 a.m. and on the next
succeeding Business Day if it is received after 7:00 a.m. Any request for an
Advance received after the above-specified deadline may, at Wells Fargo's
option, be deemed to be a request for an Advance to be made on the next
succeeding Business Day for a Prime Rate Advance and the third succeeding
Business Day for a LIBO Rate Advance or a Cost of Funds Advance. Wells Fargo
shall not incur any liability to the Borrower in acting upon any telephonic
notice referred to above given by someone who identifies himself or herself as a
person named on the Note or on a list of persons authorized to borrow money for
the Borrower given to Wells Fargo from time to time by the Borrower's chief
financial officer, and upon the making of the Advance by Wells Fargo in
accordance with any such telephonic notice, the Borrower shall have effected an
Advance hereunder.
2.03 MANDATORY REPAYMENT. On the Maturity Date, the Borrower hereby
promises and agrees to pay to Wells Fargo in full the aggregate unpaid principal
amount of all Advances then outstanding, together with all accrued and unpaid
interest thereon.
2.04 INTEREST ON ADVANCES. Interest shall accrue from the date of each
Advance at one of the following rates, as quoted by Wells Fargo and as elected
by the Borrower pursuant to this Section 2.04 or Section 2.05 of this Agreement:
(a) PRIME RATE ADVANCES. For Advances designated as Prime Rate
Advances, a fluctuating rate per annum equal to the Prime Rate in effect from
time to time. Interest shall be adjusted concurrently with any change in the
Prime Rate.
(b) LIBO RATE ADVANCES. For Advances designated as LIBO Rate
Advances, a fixed rate per annum determined by Wells Fargo to be one and one-
quarter percent (1.25%) above the LIBO Rate in effect on the first day of the
LIBO Rate Interest Period for the Advance.
(c) COST OF FUNDS ADVANCES. For Advances designated as Cost of Funds
Advances, a fixed rate per annum determined by Wells Fargo to be one and one-
quarter
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percent (1.25%) above the Cost of Funds Rate in effect on the first day of the
Cost of Funds Interest Period for the Advance.
All interest on Advances shall be computed on the basis of a 360 day year,
actual days elapsed. Interest on Prime Rate Advances and Cost of Funds Advances
shall be paid in Dollars in arrears in monthly installments commencing on the
first day of the month following the date of the first such Advance and
continuing on the first day of each month thereafter. Interest on any LIBO Rate
Advance shall be paid in arrears on the last day of the LIBO Rate Interest
Period pertaining to such LIBO Rate Advance and, if such Interest Period is
greater than three months, on that date falling three months (if the LIBO Rate
Interest Period is six months), three months and six months (if the LIBO Rate
Interest Period is nine months) and three months, six months and nine months (if
the LIBO Rate Interest Period is twelve months) after the first day of such
Interest Period.
2.05 INTEREST ON OVERDUE PAYMENTS. Overdue payments of principal (and of
interest and fees to the extent permitted by law) on the Advances, and all
amounts payable on demand in accordance with the terms of this Agreement which
are not paid on demand, shall bear interest at a fluctuating rate per annum
equal to the Prime Rate plus three percent (3%) until such unpaid amount has
been paid in full (whether before or after judgment); provided, however, that
such rate of interest shall in no event be less than the interest rate in effect
at the time such payment was due. All interest provided for in this Section
2.05 shall be compounded monthly, based on a year of 360 days for actual days
elapsed, and be payable on demand. Except as provided in this Section 2.05, the
Advances will bear interest (whether before or after any breach of this
Agreement) at the rate of interest specified in Section 2.04 of this Agreement.
2.06 PROMISSORY NOTE. The Borrower's obligation to repay Advances under
the Revolving Credit Facility shall be evidenced by the Note, all the terms of
which are incorporated in this Agreement by this reference.
2.07 REDUCTION OF COMMITMENT. The Borrower may reduce the amount of the
Commitment at any time (with any such reduction to be in a minimum amount of
$100,000 and in integral multiples of $100,000) by giving Wells Fargo written
notice of the amount to which the Commitment is to be reduced, with such
reduction to be effective as of the close of business on the date specified in
said notice, which date must be a Business Day and must be at least two Business
Days after such notice is actually received by Wells Fargo; provided, however,
that (a) no such reduction may reduce the Commitment to an amount less than (i)
the total principal amount of all the Advances outstanding at such time, plus
(ii) the total undrawn amount of all Letters of Credit outstanding at such time,
plus (iii) all amounts paid by Wells Fargo under Letters of Credit and not yet
reimbursed by the Borrowers, (b) after giving Wells Fargo a notice of reduction
of the Commitment, the Borrower may not subsequently increase the amount of the
Commitment, and (c) any such reduction which reduces the Commitment below Five
Million Dollars ($5,000,000.00) shall also reduce the amount of the Letter of
Credit Commitment to the amount of the reduced Commitment.
2.08 NOTICE OF ELECTION TO ADJUST INTEREST RATE. Before the end of any
Cost of Funds Interest Period or LIBO Rate Interest Period, the Borrower may
elect that interest on the
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Cost of Funds Advance or the LIBO Rate Advance outstanding during such Interest
Period shall continue to accrue after the end of such Interest Period at a new
LIBO Rate or Cost of Funds Rate quoted by Wells Fargo for an additional Interest
Period of the same duration or any other duration permitted under this
Agreement; provided, however, that such election shall specify the duration of
the next Interest Period and be received by Wells Fargo no later than 7:00 a.m.
two Business Days prior to the last day of the LIBO Rate Interest Period for a
LIBO Rate Advance or 1:00 p.m. one Business Day prior to the last day of a Cost
of Funds Interest Period for a Cost of Funds Advance. Before the end of any
Cost of Funds Interest Period or LIBO Rate Interest Period, the Borrower may
elect that interest on the Cost of Funds Advance or the LIBO Rate Advance
outstanding during such Interest Period shall accrue at the Prime Rate after the
end of such Interest Period; provided, however, that such election shall be
received by Wells Fargo no later than one Business Day prior to the last day of
such Interest Period. The elections referred to above may be made by telephone
if they are immediately confirmed in writing by telecopy, with the original of
such writing deposited in the United States mail or with an air courier on the
same day addressed to Wells Fargo. Wells Fargo shall not incur any liability to
the Borrower in acting upon any telephonic notice referred to above given by
someone who identifies himself or herself as a person named on the Note or on a
list of persons authorized to borrow money for the Borrower given to Wells Fargo
from time to time by the Borrower's Chief Financial Officer, and upon the
continuation of any Advance by Wells Fargo in accordance with any such
telephonic notice, the Borrower shall have effected the continuation of an
Advance hereunder. If Wells Fargo shall not have received notice as required by
this Section 2.08 of Borrower's election that interest on any Fixed Rate Advance
shall continue to accrue at a LIBO Rate or Cost of Funds Rate or Prime Rate
quoted by Wells Fargo, as the case may be, and the Borrower does not repay the
Advance in full, the Borrower shall be deemed to have elected that interest on
the Advance after the end of the current Interest Period shall be adjusted to
accrue at the Prime Rate then in effect.
2.09 PREPAYMENT.
(a) The Borrower may prepay any Advance in whole or in part, at any
time and without penalty; provided, however, that (i) any partial prepayment
shall first be applied, at Wells Fargo's option, to accrued and unpaid interest
and next to the outstanding principal balance; and (ii) during any period of
time in which interest is accruing on any Advance on the basis of the LIBO Rate
or the Cost of Funds Rate, no prepayment shall be made except on a day which is
the last day of the Interest Period pertaining thereto; provided, however, if
the whole or any part of any Fixed Rate Advance is prepaid by reason of
acceleration or otherwise, the Borrower shall, upon Wells Fargo's request,
promptly pay to and indemnify Wells Fargo for all costs and losses actually
incurred by Wells Fargo as a consequence of such prepayment, and provided
further, that any prepayment under this Agreement shall not be deemed to be an
Event of Default.
(b) If, on the last day of any Interest Period, the aggregate
principal amount of all LIBO Rate Advances then outstanding, when combined with
the aggregate principal amount of all Prime Rate Advances and Cost of Funds
Advances then outstanding and the aggregate amount of all Letters of Credit then
outstanding and (without duplication) the aggregate amount of all drawings paid
by Wells Fargo under Letters of Credit and not then
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reimbursed by the Borrower, exceeds the Commitment, the Borrower shall on such
last day prepay to Wells Fargo an aggregate principal amount of such Advances at
least equal to such excess together with accrued interest on the principal
amount prepaid to the date of such prepayment.
2.10 APPLICATION OF PREPAYMENTS. Unless otherwise directed by Borrower,
Wells Fargo shall apply all prepayments not designated by Borrower to apply to
any Advance or Advances first to all the Prime Rate Advances outstanding at the
time of such prepayment and second to any outstanding LIBO Rate and/or Cost of
Funds Advances on a prorated basis determined in relation to the amount of LIBO
Rate and Cost of Funds Advances outstanding at the time of such prepayment to
the total amount of all LIBO Rate and Cost of Funds Advances outstanding at such
time.
2.11 INTEREST PERIOD BREAKAGE COSTS. If any Fixed Rate Advance shall
become due and payable prior to the last day of its Interest Period by
acceleration or otherwise, or if the Borrower shall fail to borrow a Fixed Rate
Advance on the date specified by the Borrower for such Advance (other than as a
result of Wells Fargo's failure to make funds available for such Advance), the
Borrower shall, with respect to any prepayment of all or any portion of a Fixed
Rate Advance or the failure to borrow all or any portion of a Fixed Rate
Advance, on the date specified for such Advance, pay to Wells Fargo immediately
upon demand a fee which is the sum of the discounted monthly differences for
each month from the month in which the prepayment or failure to borrow occurs
through the month in which the final day of the Interest Period for such prepaid
or non-borrowed Fixed Rate Advance occurs, with the discounted monthly
differences being calculated as follows:
(a) DETERMINE the amount of interest which would have accrued each
month on the amount prepaid or not borrowed at the Cost of Funds Rate, in the
case of a Cost of Funds Advance, or the LIBO Rate, in the case of a LIBO Rate
Advance, applicable to such amount had it remained outstanding or been borrowed
and outstanding until the last day of the applicable Interest Period,
(b) SUBTRACT from the amount determined in subsection (a) above the
amount of interest which would accrue for the same month on the amount prepaid
or not borrowed for the remaining term of the Interest Period in which such
prepayment occurs or such borrowing was to be made at the LIBO Rate, in the case
of a LIBO Rate Advance, or the Cost of Funds Rate, in the case of a Cost of
Funds Advance, as determined by Wells Fargo in its sole discretion, in effect on
the date of prepayment for new Fixed Rate Advances of the type prepaid or not
borrowed made for such term and in a principal amount equal to the amount
prepaid or not borrowed.
(c) If the result obtained in (b) for any month is greater than zero,
discount that difference by the LIBO Rate or the Cost of Funds Rate used in (b)
above.
The Borrower acknowledges that prepayments of LIBO Rate Advances and Cost of
Funds Advances before the end of their Interest Periods and failure to borrow a
Fixed Rate Advance after it is requested will result in Wells Fargo incurring
additional costs, expenses and/or liabilities, and that it is extremely
difficult to ascertain the full extent of such costs,
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expenses and/or liabilities. Wells Fargo will send the Borrower in writing
Wells Fargo's calculation of the above-described fee, and the Borrower agrees
that the amount of such fee determined by such calculation represents a
reasonable estimate of the prepayment and non-borrowing costs, expenses and/or
liabilities of Wells Fargo, and that the Borrower will pay such fee as so
calculated absent manifest error. If the Borrower fails to pay any fee for any
prepayment or failure to borrow when due, the amount of such fee shall
thereafter bear interest until paid at a fluctuating rate per annum equal to the
Prime Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed) plus three percent (3%).
2.12 INDEMNIFICATION FOR LIBO RATE AND COST OF FUNDS RATE COSTS.
Notwithstanding anything provided in the definitions of Cost of Funds Rate and
LIBO Rate in Section 1.01 of this Agreement, during any period of time after the
date of this Agreement in which interest on any Advance is accruing on the basis
of the LIBO Rate or the Cost of Funds Rate, the Borrower shall, upon Wells
Fargo's written request, which request shall explain in reasonable detail the
reason for such costs or payments and shall be conclusive and binding on the
Borrower absent manifest error, promptly pay to, and reimburse Wells Fargo for,
any increase in the cost to Wells Fargo of, or any reduction in the amount of
any sum receivable by Wells Fargo in respect of, making, continuing or
maintaining (or of Wells Fargo's obligation to make, continue or maintain) any
Advance as, or of converting (or of Wells Fargo's obligation to convert) any
Advance into, Fixed Rate Advances (including, but not limited to, any imposition
or effectiveness of reserve requirements, assessments, deposits or similar
requirements) that arise after the date of this Agreement in connection with any
change in, or the introduction, adoption, effectiveness, interpretation,
reinterpretation or phase-in of, any law, regulation, directive, guideline,
decision or request (whether or not having the force of law) of any court,
central bank, regulator or other governmental authority.
2.13 INABILITY TO DETERMINE THE LIBO RATE OR COST OF FUNDS RATE. In the
event that Wells Fargo shall at any time decide that the accrual of interest on
the basis of the LIBO Rate or the Cost of Funds Rate (i) cannot be determined at
the time of any borrowing or the continuation of any borrowing because Dollar
deposits, contracts or time deposits in an amount approximately equal to the
amount of the relevant Fixed Rate Advance and for a period of time approximately
equal to relevant Interest Period are not available, or (ii) is or has become
unlawful or impossible by reason of Wells Fargo's compliance with any new law,
rule, regulation, guideline or order, or any new interpretation of any present
law, rule, regulation, guideline or order, then Wells Fargo shall give
telephonic notice thereof (confirmed in writing) to the Borrower, in which event
such Fixed Rate Advance shall not be made or, at the election of the Borrower,
be made as a Prime Rate Advance or, if already made, shall be immediately
prepaid, but then may be converted into a Prime Rate Advance at the election of
the Borrower. In the event that Wells Fargo shall at any time decide that the
accrual of interest on the basis of the LIBO Rate for a LIBO Rate Advance or the
Cost of Funds Rate for a Cost of Funds Advance does not accurately reflect the
cost to Wells Fargo of making or continuing such Fixed Rate Advance, then Wells
Fargo shall give telephonic notice thereof (confirmed in writing) to the
Borrower and such Fixed Rate Advance shall not be made or, at the election of
the Borrower, be made as a Prime Rate Advance, if such Fixed Rate Advance has
not yet been made, without the Borrower paying any interest
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breakage costs referred to in Section 2.11 of this Agreement, or, if such Fixed
Rate Advance has already been made, such Fixed Rate Advance will be paid on the
last day of the Interest Period in which the Borrower receives such notice.
2.14 PAYMENTS. Payment of all sums due from the Borrower under this
Agreement with respect to Advances and reimbursement of Letter of Credit
payments made by Wells Fargo shall be made by the Borrower to Wells Fargo in
immediately available funds. Each such payment by the Borrower shall be made
without setoff or counterclaim on the day such payment is due. All sums
received after such time shall be deemed received on the next Business Day.
Whenever any payment under this Agreement shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of interest; provided, however, if such extension would
cause payment of interest on, or principal of, LIBO Rate Advances to be made in
the next following calendar month, such payment shall be made on the immediately
preceding Business Day.
2.15 TAXES.
(a) Any and all payments by the Borrower shall be made hereunder free
and clear of, and without deduction for, any and all taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
existing on or arising after the date of this Agreement, excluding taxes imposed
on Wells Fargo's income, and franchise taxes imposed on it by the jurisdiction
under the laws of which Wells Fargo is organized or any political subdivision
thereof (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes"). If
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.15) Wells Fargo receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
Borrower shall make such deductions, and (iii) Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, Borrower agrees to pay any stamp or documentary
taxes, or any other excise or property taxes, charges or similar levies,
existing on or arising after the date of this Agreement, which arise from any
payment or registration of, or otherwise with respect to, this Agreement
(hereinafter referred to as "Other Taxes").
(c) Borrower will indemnify Wells Fargo for the full amount of Taxes
or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section 2.15) paid by Wells
Fargo and any liability (including, without limitation, penalties, interest and
expenses) arising therefrom or with respect thereto, except to the extent that
such liabilities arise directly from Wells Fargo's gross negligence or willful
misconduct, whether or not such Taxes or Other Taxes were correctly or legally
asserted. This indemnification shall be made within 30 days from the date Wells
Fargo makes written demand therefor.
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(d) Within 30 days after the date of any payment of Taxes, the
Borrower will furnish to Wells Fargo at its address referred to in Section 9.03
of this Agreement, the original or a certified copy of a receipt evidencing
payment thereof. If no taxes are payable in respect of any payment hereunder,
Borrower will furnish to Wells Fargo at such address a certificate from each
appropriate taxing authority, or an opinion of counsel acceptable to Wells
Fargo, in either case stating that such payment is exempt from, or not subject
to, Taxes.
(e) To the extent that any Taxes were not lawfully payable, any
recovery ultimately received by Wells Fargo in respect of any such Taxes shall
be refunded to the Borrower to the extent of the Borrower's applicable
indemnification payment.
(f) Wells Fargo agrees that, upon receiving written notice from the
Borrower, Wells Fargo shall take all such actions as are reasonably necessary to
enable the Borrower to pay all Taxes in a timely manner and to claim such
exemptions as Wells Fargo may be entitled to claim in respect of all or any
portion of any Taxes which are otherwise required to be paid or deducted or
withheld pursuant to this Section 2.15 in respect of any payments under this
Agreement.
(g) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.15 shall survive the payment in full of principal and interest
hereunder.
2.16 REVOLVING CREDIT ACCOUNT.
(a) Wells Fargo shall maintain on its books a record of account in
which Wells Fargo shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the Revolving Credit Facility
(the "Revolving Credit Account"). Wells Fargo shall provide the Borrower with a
monthly statement of the Borrower's Revolving Credit Account, which statement
shall be considered to be correct and conclusively binding on the Borrower
unless the Borrower notifies Wells Fargo to the contrary within 30 days after
the Borrower's receipt of any such statement which it deems to be incorrect.
(b) The Borrower hereby authorizes Wells Fargo, if and to the extent
any payment owed to Wells Fargo under this Agreement is not made when due, after
giving effect to any grace period, to charge, from time to time, against any or
all of the Borrower's deposit accounts with Wells Fargo any amount so due.
2.17 COMMITMENT FEE. The Borrower agrees to pay a commitment fee of .125%
per annum on the unused portion of the Commitment (that is, the total Commitment
less the average outstanding Advances and the average undrawn portions of
Letters of Credit), payable quarterly in arrears and computed on a year of 360
days for actual days elapsed.
2.18 FACILITY FEE. The Borrower shall pay to Wells Fargo on the date of
this Agreement a facility fee equal to one-eighth of one percent (1/8 of 1%)
times the amount of the Commitment on such date.
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2.19 LIMITATIONS.
(a) Notwithstanding anything to the contrary in this Agreement, the
Borrower shall not be required to make any payment or indemnification to Wells
Fargo pursuant to Sections 2.11, 2.12, 2.15 or 3.06 of this Agreement or
Section 9 of the Letter of Credit Agreement unless Wells Fargo shall have given
the Borrower notice of the occurrence of the circumstances which may or will
require such payment within thirty (30) calendar days after Wells Fargo becomes
aware of the occurrence of such circumstances.
(b) The Borrower shall not be responsible for any payment or
indemnification required pursuant to Sections 2.11, 2.12, 2.15 or 3.06 of this
Agreement or Section 9 of the Letter of Credit Agreement to the extent the loss,
liability or payment of Wells Fargo giving rise to the payment or indemnity
obligation of the Borrower directly results from Wells Fargo's gross negligence
or willful misconduct.
(c) Wells Fargo shall use its reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to take reasonable
actions which would avoid the need for, or reduce the amount of, any additional
amounts payable under Sections 2.11, 2.12, 2.15 or 3.06 of this Agreement or
Section 9 of the Letter of Credit Agreement, or would avoid the prepayment of a
Fixed Rate Advance, if such action would not, in the reasonable judgment of
Wells Fargo, be otherwise disadvantageous to Wells Fargo.
SECTION 3
LETTERS OF CREDIT
In addition to making Advances under the Revolving Credit Facility
described hereinabove, Wells Fargo hereby agrees to make the following credit
accommodation available to the Borrower on the following terms and conditions:
3.01 LETTER OF CREDIT SUB-FACILITY. Wells Fargo agrees to issue commercial
and standby letters of credit (each a "Letter of Credit") on behalf of the
Borrower ("Letter of Credit Sub-Facility") subject to the terms and conditions
of the Letter of Credit Agreements; provided, however, at no time shall the
total face amount of all Letters of Credit outstanding, less any partial draws
paid by Wells Fargo under Letters of Credit and not reimbursed by the Borrower,
exceed the sum of Five Million Dollars ($5,000,000.00).
3.02 LETTER OF CREDIT FEES. Upon Wells Fargo's request, the Borrower shall
promptly pay to Wells Fargo quarterly in advance an issuance fee of 1% per annum
of the face amount of each Letter of Credit and such negotiation fees, other
fees, commissions, costs and any out-of-pocket expenses charged or incurred by
Wells Fargo with respect to any Letter of Credit.
3.03 TERMINATION OF LETTER OF CREDIT COMMITMENT. The Letter of Credit
Commitment shall, unless terminated earlier in accordance with the terms of the
Agreement,
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automatically terminate on the Maturity Date, and no Letter of Credit shall
expire on a date which is later than ninety (90) calendar days after the
Maturity Date.
3.04 FORM OF LETTERS OF CREDIT. Each Letter of Credit shall provide only
for drafts or demands payable at sight, and shall be in form and substance and
in favor of beneficiaries satisfactory to Wells Fargo; provided, however, that
Wells Fargo may refuse to issue a Letter of Credit due to the nature of the
transaction or its terms or in connection with any transaction where Wells
Fargo, due to the beneficiary or the nationality or residence of the
beneficiary, would be prohibited by any applicable law, regulation or order from
issuing such Letter of Credit.
3.05 APPLICATIONS. Prior to the issuance of each Letter of Credit, but in
no event later than 9:00 a.m. (California time) on the Business Day immediately
preceding the day such Letter of Credit is to be issued (which shall be a
Business Day), the Borrower shall deliver to Wells Fargo's Northern California
Trade Services Department a duly executed Application for the type of Letter of
Credit to be issued, with proper insertions.
3.06 INCREASED COSTS. The Borrower shall, upon Wells Fargo's request,
which request shall explain in reasonable detail the reason for such costs or
payments and shall be conclusive and binding on the Borrower absent manifest
error, promptly pay to and reimburse Wells Fargo for any increase in the cost to
Wells Fargo of, or any reduction in the amount of any sum receivable by Wells
Fargo in respect of, making, continuing or maintaining (or Wells Fargo's
obligation to make, continue or maintain) any Letter of Credit (including, but
not limited to, any imposition or effectiveness of reserve requirements,
assessments, deposits or similar requirements) that arise after the date of this
Agreement in connection with any change in, or the introduction, adoption,
effectiveness, interpretation, reinterpretation or phase-in of, any law,
regulation, directive, guideline, decision or request (whether or not having the
force of law) of any court, central bank, regulator or other governmental
authority.
3.07 AUTOMATIC PAYMENT. Borrower agrees to pay each drawing under a Letter
of Credit to Wells Fargo on the same day the drawing occurs by direct payment to
Wells Fargo on demand or, at Wells Fargo's option, by Wells Fargo debiting the
depository account or accounts maintained by the Borrower with Wells Fargo for
the amount of such drawing. Wells Fargo will notify the Borrower of each such
debit on the date the debit occurs. In the event that the Borrower fails to pay
the amount of any drawing under any Letter of Credit on the same day as the
drawing occurs or in the event that the balances in the depository account or
accounts maintained by the Borrower with Wells Fargo are not sufficient to pay
any drawing when it occurs, Wells Fargo shall, and Borrower hereby instructs
Wells Fargo to, create an Advance under this Agreement bearing interest at the
Prime Rate to pay the relevant drawing.
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SECTION 4
CONDITIONS OF LENDING
4.01 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. The obligation of Wells
Fargo to make the initial Advance or issue the first Letter of Credit, whichever
first occurs, is subject to the conditions precedent that Wells Fargo shall have
received before the date of such initial Advance or the issuance of such first
Letter of Credit all of the following in form and substance satisfactory to
Wells Fargo:
(a) Evidence that the execution, delivery and performance by the
Borrower of this Agreement and the other Loan Documents have been duly
authorized, including, but not limited to, (i) a copy of a resolution or
resolutions passed by the Board of Directors of Borrower, certified by the
Secretary or an Assistant Secretary of Borrower, authorizing the borrowings
provided for in this Agreement and the execution, delivery and performance of
each of the Loan Documents, and (ii) a certificate, signed by the Secretary or
an Assistant Secretary of the Borrower, as to the incumbency of, and containing
the specimen signature or signatures of, the person or persons authorized to
execute and deliver each of the Loan Documents on behalf of the Borrower.
(b) A certificate, signed by the chief executive officer or the chief
financial officer of Borrower and dated the date of such Advance or issuance,
stating that (i) since March 31, 1994, there has been no adverse change in
Borrower's financial condition sufficient to impair Borrower's ability to pay
the Advances and reimburse the amounts paid by Wells Fargo under the Letters of
Credit or any other of its obligations hereunder, and (B) the representations
and warranties contained in Section 5 of this Agreement are then true and
accurate in all respects as though made on and as of the date of the
certificate.
(c) A written opinion of outside counsel for Borrower with respect to
the matters set forth in Sections 5.01, 5.02, 5.03, 5.04 and 5.06 of this
Agreement.
(d) All reasonable attorneys' fees and all out-of-pocket expenses of
Wells Fargo in connection with the preparation, negotiation and execution of
this Agreement.
(e) A copy of each of the loan or credit agreements existing on the
date of such Advance or issuance under which the Borrower has incurred or may
incur Domestic Debt from another bank or financial institution.
(f) Such other evidence as Wells Fargo may reasonably request to
establish the consummation of the transaction contemplated under the Loan
Documents and compliance with the conditions of the Loan Documents.
4.02 CONDITIONS PRECEDENT TO EACH ADVANCE. The obligation of Wells Fargo
to make each Advance and to issue each Letter of Credit (including the initial
Advance and the first Letter of Credit) shall be subject to the further
conditions precedent that, on the date of each Advance or the issuance of each
Letter of Credit and after making such Advance or issuing such Letter of Credit:
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(a) Wells Fargo shall have received such approvals, opinions or
documents of a legal or financial nature supplemental to the documents delivered
by the Borrower to Wells Fargo pursuant to Section 4.01 as Wells Fargo may
reasonably request.
(b) The representations contained in Section 5 and in any other Loan
Document are correct.
(c) No event has occurred and is continuing which constitutes, or,
with the lapse of time or giving of notice or both, would constitute an Event of
Default.
The Borrower's acceptance of the proceeds of any Advance or the issuance of
any Letter of Credit shall be deemed to constitute the Borrower's representation
and warranty that all of the above statements are true and correct.
SECTION 5
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties to
Wells Fargo, which representations and warranties shall continue in full force
and effect until the full and final payment, and satisfaction and discharge, of
all obligations of the Borrower to Wells Fargo under this Agreement.
5.01 STATUS. The Borrower is a corporation duly organized and validly
existing under the laws of the State of Delaware and is properly licensed and is
qualified to do business and in good standing in, and, where necessary to
maintain the Borrower's rights and privileges, has complied in all material
respects with the fictitious name statute of, every jurisdiction in which the
Borrower is doing business. Each Subsidiary is duly organized and existing
under the laws of the jurisdiction of its formation, and is properly licensed
and in good standing in, and where necessary to maintain its rights and
privileges has complied with the fictitious name statutes of, every jurisdiction
in which it is doing business where failure to qualify would have a material
adverse effect on the business operations or financial condition of the Borrower
and all the Subsidiaries taken as a whole.
5.02 AUTHORITY. The execution, delivery and performance by the Borrower of
this Agreement and each of the other Loan Documents have been duly authorized,
and do not and will not (i) violate any provision of any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award presently in
effect having application to the Borrower; (ii) result in a breach of or
constitute a default under any material indenture or loan or credit agreement or
other material agreement, lease or instrument to which the Borrower is a party
or by which it or its properties may be bound or affected; or (iii) require any
consent or approval of its stockholders or violate any provision of its articles
of incorporation or by-laws.
5.03 LEGAL EFFECT. This Agreement and the other Loan Documents constitute,
and any instrument, document or agreement required hereunder or thereunder when
delivered
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hereunder or thereunder will constitute, legal, valid and binding obligations of
the Borrower enforceable against the Borrower in accordance with their
respective terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws relating to or limiting creditors'
rights generally, and subject to the availability of equitable remedies.
5.04. APPROVALS; CONSENTS. No approval, consent, exemption or other
action by, or notice to or filing with, any governmental authority is necessary
in connection with the execution, delivery, performance or enforcement of this
Agreement or any of the other Loan Documents, except as may have been obtained
by Borrower and delivered (duly certified) to Wells Fargo.
5.05 FINANCIAL STATEMENTS. All financial statements, financial information
and other financial data which may have been or which may hereafter be submitted
by the Borrower to Wells Fargo are and have been or will be prepared in
accordance with GAAP consistently applied and fairly present in all material
respects, as of the date of such statements, information or data, the financial
condition of the Borrower and the Subsidiaries or, as applicable, the other
information disclosed therein. The Borrower has no contingent obligations,
liabilities for taxes or other outstanding financial obligations which are
material in the aggregate and are required to be disclosed pursuant to this
Agreement, except as disclosed in such statements, information and data or in
any written notice to Wells Fargo. Since the most recent submission of such
financial information or data to Wells Fargo, the Borrower represents and
warrants that no material adverse change in the Borrower's financial condition
or operation has occurred which has not been fully disclosed to Wells Fargo in
writing.
5.06 LITIGATION. Except as have been disclosed to Wells Fargo in writing,
there are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or any Subsidiary or the
Borrower's or any Subsidiary's properties before any court or administrative
agency which could reasonably be expected, if determined adversely to the
Borrower or any Subsidiary, to have a material adverse effect on the business
operations or financial condition of the Borrower and all the Subsidiaries taken
as a whole.
5.07 TITLE TO DOMESTIC ASSETS. The Borrower has good and marketable title
to all of its Domestic assets. The Domestic assets are not subject to any
security interest, encumbrance, lien or claim of any third person except for
Permitted Domestic Liens.
5.08 ERISA. Borrower is in compliance in all material respects with all
applicable provisions of ERISA, and no Reportable Event under Section
4043(b)(5), (6) or (9) or ERISA has occurred and/or is continuing with respect
to any Plan of the Borrower, and any such Plan has been and will continue to be
funded in accordance with its terms, and otherwise complies with and continues
to comply with the requirements of ERISA, except as disclosed in writing to
Wells Fargo prior to the date of the Agreement.
5.09 TAXES. The Borrower has filed all tax returns required to be filed
and paid all taxes shown thereon to be due, including interest and penalties,
other than such taxes which
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are currently payable without penalty or interest or those which are being duly
contested in good faith.
5.10 REGULATION U. The proceeds of the Advances will not be used to
purchase or carry margin stock.
SECTION 6
COVENANTS
The Borrower covenants and agrees that, during the term of this Agreement
and the other Loan Documents, and so long thereafter as the Borrower is
obligated to Wells Fargo under this Agreement or the other Loan Documents, the
Borrower will, unless Wells Fargo shall otherwise consent in writing:
6.01 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS. Maintain
and preserve its existence and all rights and privileges it now enjoys; not
liquidate or dissolve, change the nature of its business, sell (whether in any
one transaction or a series of transactions) all or substantially all of its
assets, or enter into any merger, consolidation, reorganization or
recapitalization; and conduct its business and operations in accordance with all
applicable laws, rules and regulations (including, but not limited to, ERISA
with respect to each of its Plans), orders of any Governmental Authority and all
material agreements to which it is a party.
6.02 MAINTENANCE OF INSURANCE. Maintain insurance in such amounts and
covering such risks as is usually and prudently carried by companies engaged in
similar business and owning similar properties in the same general areas in
which the Borrower operates, including, but not limited to, fire, public
liability, property damage and worker's compensation.
6.03 MAINTENANCE OF PROPERTIES. Maintain and preserve all its properties
in good working order and condition in accordance with the general practice of
other businesses of similar character and size, ordinary wear and tear excepted.
6.04 PAYMENT OF OBLIGATIONS AND TAXES. Make timely payment of all
assessments and taxes and all of its liabilities and obligations unless the same
are being contested in good faith by appropriate proceedings with the
appropriate court or regulatory agency; provided, however, that Borrower may
make payment of trade payables in accordance with its customary business
practices. For purposes hereof, the Borrower's issuance of a check, draft or
similar instrument without delivery to the intended payee shall not constitute
payment.
6.05 INSPECTION RIGHTS. Borrower shall, and shall cause each Subsidiary
to, maintain adequate books and accounts in accordance with GAAP consistently
applied. At any reasonable time and from time to time, permit Wells Fargo or
any representative of Wells Fargo to examine and make copies of the records and
visit the properties of the Borrower and discuss the business and operations of
the Borrower and its Subsidiaries with any
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designated representative of the Borrower, and shall furnish Wells Fargo with
all information relating to the business or finances of the Borrower and the
Subsidiaries promptly upon Wells Fargo's request. If the Borrower shall
maintain any records (including, but not limited to, computer generated records
or computer programs for the generation of such records) in the possession of a
third party, the Borrower thereby agrees to notify such third party to permit
Wells Fargo free access to such records at all reasonable times, and to provide
Wells Fargo with copies of any records which it may reasonably request, all at
the Borrower's expense, the amount of which shall be payable within 30 days
after demand.
6.06 REPORTING AND CERTIFICATION REQUIREMENTS. Deliver or cause to be
delivered to Wells Fargo in form and detail satisfactory to Wells Fargo:
(a) Not later than 120 days after the end of each of the Borrower's
fiscal years, a copy of the annual audited financial report and Securities and
Exchange Commission Form 10-K of the Borrower for such year, all certified by
public accountants acceptable to Wells Fargo as having been prepared in
accordance with GAAP consistently applied, together with the following: (i)
consolidating income statements of the Borrower and the Subsidiaries for such
fiscal year, and (ii) consolidating balance sheets of the Borrower and the
Subsidiaries as of the end of such fiscal year.
(b) Not later than 60 days after the close of each fiscal quarter in
each of the Borrower's fiscal years (i) consolidating income statements of the
Borrower and the Subsidiaries for such quarterly period, and (ii) consolidating
balance sheets of the Borrower and the Subsidiaries as of the end of such
quarterly period, all in reasonable detail and subject to year-end audit
adjustments.
(c) Contemporaneously with each quarterly and year-end financial
report required by the foregoing subsections (a) and (b), a certificate of the
president or chief financial officer of the Borrower stating that (i) the
quarterly financial report required by subsection (b) above was prepared in
accordance with GAAP consistently applied, (ii) he or she has individually
reviewed the provisions of this Agreement and that a review of the activities of
the Borrower and the Subsidiaries during such year or quarterly period, as the
case may be, has been made by him or her or under his or her supervision, with a
view to determining whether the Borrower has fulfilled all its obligations under
this Agreement, and that the Borrower has observed and performed each
undertaking contained in this Agreement, including, but not limited to, its
quantitative financial covenants set forth in Section 6.18 of this Agreement,
and is not in default in the observance or performance of any of the provisions
hereof or, if Borrower shall be so in default, specifying all such defaults and
events of which he or she may have knowledge.
(d) Not later than 60 days after the end of each fiscal quarter, the
Borrower's Securities and Exchange Commission Form 10-Q.
(e) Promptly after they are sent, made available or filed, copies of
all reports, proxy statements and financial statements that the Borrower sends
or makes available to its stockholders and all registration statements and
reports that the Borrower files with the Securities and Exchange Commission.
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(f) Prompt written notice of any and all (i) Events of Default or
Potential Events of Default, (ii) litigation, arbitration or administrative
proceedings to which the Borrower is a party and in which the claim or liability
exceeds One Million Dollars ($1,000,000.00), and (iii) other matters, other than
matters of a general economic nature (other than those matters relating
primarily to the Borrower or the industries in which the Borrower conducts its
business), which have resulted in, or could reasonably be expected to result in,
a material adverse change in the financial condition or business operations of
the Borrower, together with, in the case of an Event of Default or a Potential
Event of Default, a statement of the chief financial officer of the Borrower
setting forth details of such Event of Default or Potential Event of Default and
the action which the Borrower proposes to take with respect thereto.
(g) As soon as possible, and in any event within thirty (30) days
after the Borrower knows or should know that any Reportable Event has occurred
with respect to any Plan, a statement from the chief financial officer of the
Borrower setting forth details as to such Reportable Event and the action which
the Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event given to the Pension Benefit Guaranty
Corporation if a copy of such notice is available to the Borrower.
(h) Promptly after the filing thereof with the United States
Secretary of Labor or the Pension Benefit Guaranty Corporation, copies of each
annual report with respect to each Plan.
(i) Promptly after receipt thereof, a copy of any notice the Borrower
or any member of the Controlled Group of Corporations (as defined in Section
1563(a) of the Internal Revenue Code of 1954, as amended, determined without
regard to Sections 1563(a)(4) and 1563(e)(3)(c) of such Code) of which Borrower
is a part may receive from the Pension Benefit Guaranty Corporation or the
Internal Revenue Service with respect to any Plan; provided, however, that this
Section 6.06(i) shall not apply to notices of general application promulgated by
the Department of Labor.
(j) When prepared, but not later than ninety (90) calendar days after
the start of each of the Borrower's fiscal years, an internally prepared budget
showing the total projected capital expenditures of the Borrower for such fiscal
year broken down into the total projected Domestic capital expenditures and the
total projected foreign capital expenditures of the Borrower for such fiscal
year.
(k) Promptly after they are signed by the Borrower, a copy of each
credit or loan agreement and any other document or agreement evidencing any
Domestic extension of credit to the Borrower by Sanwa Bank California or any
other bank or financial institution.
(l) Promptly upon Wells Fargo's request, such other information
pertaining to the Borrower and any Subsidiary as Wells Fargo may reasonably
request.
6.07 PAYMENT OF DIVIDENDS. Not declare or pay any dividends on any class
of stock now or hereafter outstanding, except dividends payable solely in the
Borrower's capital stock.
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6.08 REDEMPTION OR REPURCHASE OF STOCK. Not redeem or repurchase any class
of the Borrower's stock now or hereafter outstanding; provided, however, that
the Borrower may redeem or repurchase any class of the Borrower's stock in an
amount not to exceed $1,000,000.00 in any one of the Borrower's fiscal years.
6.09 ADDITIONAL DOMESTIC INDEBTEDNESS. Not, after the date hereof, create,
incur or assume, directly or indirectly, any additional Domestic Indebtedness
other than (i) Indebtedness owed or to be owed to Wells Fargo or Sanwa Bank
California, or (ii) Indebtedness to trade creditors incurred in the ordinary
course of the Borrower's business, or (iii) Indebtedness in an aggregate amount
not exceeding $55,000,000.00 in any one of the Borrower's fiscal years for new
equipment financing, capital leases, and financing for the Temecula Facility,
or (iv) Indebtedness owed to other financial institutions under revolving
lines of credit.
6.10 LOANS. Not make any loans or advances or extend credit to any third
person including, but not limited to, directors, officers, shareholders,
employees, affiliated entities and Subsidiaries of the Borrower, except for
credit extended in the ordinary course of the Borrower's business as presently
conducted; provided, however, that the Borrower may make loans or advances or
extend credit to employees of the Borrower in an aggregate amount not to exceed
$750,000.00 in any one fiscal year for all such employees.
6.11 LIENS AND ENCUMBRANCES. Not create, assume or permit to exist any
security interest, encumbrance, mortgage, deed of trust or other lien
(including, but not limited to, a lien of attachment, judgment or execution)
affecting any of the Borrower's Domestic properties, or execute or allow to be
filed any financing statement or continuation thereof affecting any of such
properties, except (i) for Permitted Domestic Liens, (ii) for purchase money
security interests or capital leases of up to $55,000,000.00 in any one of the
Borrower's fiscal years for equipment, which amount shall be calculated
including any mortgage financing for the Temecula Facility, or (iii) as
otherwise provided in this Agreement.
6.12 TRANSFER OF ASSETS. Not, after the date hereof, sell, contract for
sale, convey, transfer, assign, lease or sublet, any of its assets except in the
ordinary course of business as presently conducted by the Borrower, which
ordinary course of business includes, but is not limited to, sale-leasebacks of
equipment at then prevailing market rates for such assets.
6.13 CHANGE IN NATURE OF BUSINESS. Not make any material change in the
fundamental nature of its business as existing or conducted as of the date
hereof.
6.14 MISREPRESENTATIONS. Not furnish Wells Fargo any certificate or other
document that will contain any untrue statement of material fact or that will
omit to state a material fact necessary to make it not misleading in light of
the circumstances under which it was furnished.
6.15 REGULATION U. Not directly or indirectly apply any part of the
proceeds of the Advances to the purchasing or carrying of any "margin stock"
within the meaning of Regulation U of the Federal Reserve Board or any
regulations, interpretations or rulings thereunder.
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<PAGE>
6.16 SUBSIDIARY OWNERSHIP. Not, unless required with respect to directors'
qualifying shares, directly or indirectly sell, assign, pledge or otherwise
transfer (except to a Domestic Subsidiary) any Debt of, or claim against, a
Domestic Subsidiary or any shares of stock or securities of a Domestic
Subsidiary, and not permit a Domestic Subsidiary to sell, assign, pledge or
otherwise transfer (except to the Borrower or another Domestic Subsidiary) any
Debt of, or claim against, the Borrower or any other Domestic Subsidiary, or any
shares of stock or securities of any other Domestic Subsidiary.
6.17 GUARANTEES. Borrower shall not become liable, directly or indirectly,
as guarantor or otherwise, for any Indebtedness of any other person or entity,
except for a Subsidiary.
6.18 FINANCIAL CONDITION. Maintain at all times:
(a) A minimum consolidated Effective Tangible Net Worth of at least
$175,000,000.00, plus 50% of annual net income, 100% of the proceeds of any
equity issuance, 100% of the conversion of debt into equity, and 100% of any
grant of rights to subscribe for shares of the Borrower, commencing with the
fiscal year-end June 30, 1994.
(b) A ratio of consolidated Debt to consolidated Effective Tangible
Net Worth of not more than .90 to 1. In the event that the Borrower incurs
additional Domestic Debt through the issuance of convertible debentures, the
ratio of consolidated Debt to consolidated Effective Tangible Net Worth shall
not be more than 1.15 to 1.
(c) A ratio of consolidated current assets to consolidated current
liabilities (including, but not limited to, amounts outstanding under this
Agreement and all amounts outstanding under other facilities from Wells Fargo or
other banks for the extension of any type of credit) of not less than 1.4 to 1.
(d) Domestic working capital (that is, current assets less current
liabilities) in a minimum of $15,000,000.00; provided, however, that for
purposes of such calculation current assets will not include any intercompany
receivables and current liabilities will not include any current intercompany
payables, but current liabilities will include amounts outstanding under this
Agreement and under other facilities from Wells Fargo or other banks for the
extension of any type of credit to the Borrower.
6.19 CONSOLIDATED OPERATING LOSS. Not incur for any two consecutive
quarters a cumulative Consolidated Operating Loss in excess of $5,000,000.00.
SECTION 7
EVENTS OF DEFAULT
Any one or more of the following described events shall constitute an
event of default (an "Event of Default") under this Agreement:
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<PAGE>
7.01 NON-PAYMENT. The Borrower shall fail to pay the principal of any
Advance within one calendar day after it is due or the Borrower shall fail to
pay interest on any Advance within five calendar days after it is due, or the
Borrower shall fail to reimburse any drawing under a Letter of Credit or pay any
other amount owing to Wells Fargo when due.
7.02 PERFORMANCE UNDER THIS AND OTHER AGREEMENTS. The occurrence and
continuance of any Event of Default under the Letter of Credit Agreements or any
of the other Loan Documents, or the failure of the Borrower in any material
respect to perform or observe any term, covenant or agreement contained in this
Agreement or in any other Loan Document or in any document, instrument or
agreement evidencing or relating to any Indebtedness of the Borrower, other than
immaterial Indebtedness described in clause (ii) of Section 1.01(s) (if such
Indebtedness is owed to a third person and such failure would permit such third
person to accelerate the Indebtedness), and any such failure (exclusive of the
payment of money to Wells Fargo under this Agreement or under any Loan Document
or under any other instrument, document or agreement with Wells Fargo, which
failure shall constitute and be an immediate Event of Default if not paid when
due or when demanded to be due, but after giving effect to any grace period
therefor) shall continue for more than 30 days after written notice from Wells
Fargo to the Borrower of the existence and character of such Event of Default.
7.03 REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any
representation or warranty made by the Borrower under or in connection with this
Agreement, the Letter of Credit Agreements or any of the other Loan Documents,
or any financial statement given by the Borrower shall prove to have been
incorrect in any material respect when made or given or when deemed to have been
made or given.
7.04 INSOLVENCY. The Borrower shall (i) become insolvent or be unable to
pay its debts as they mature; (ii) make an assignment for the benefit or
creditors or to an agent authorized to liquidate any substantial amount of its
properties and assets; (iii) file a voluntary petition in bankruptcy or seeking
reorganization or to effect a plan or other arrangement with creditors or any
other relief under the Bankruptcy Code or under any state or federal law
granting relief to debtors, whether now or hereafter in effect; (iv) file an
answer admitting the material allegations of an involuntary petition relating to
bankruptcy or reorganization or join in any such petition; (v) become or be
adjudicated a bankrupt or become subject to an order for relief entered by any
court of competent jurisdiction under the Bankruptcy Code or under any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors; (vi) apply for or consent to the appointment of, or consent
that an order be made, appointing any receiver, custodian or trustee, for itself
or any of its properties, assets or businesses; or (vii) become subject to any
involuntary petition or proceeding filed or commenced against the Borrower
pursuant to the Bankruptcy Code or any other applicable state or federal law
relating to bankruptcy, reorganization or other relief for debtors, and such
petition or proceeding is not discharged within 60 days after it is filed or
commenced; or (viii) any receiver, custodian or trustee is appointed to take
possession, custody or control of all or substantial part of its properties,
assets or businesses and such petition or appointment shall not be discharged
within 60 days after the date of such appointment.
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<PAGE>
7.05 ATTACHMENT; JUDGMENT LIEN. Any writ of execution or attachment or any
judgment lien which individually exceeds $2,000,000 or which, in the aggregate,
exceeds $5,000,000.00 shall be issued against the Borrower or any property of
the Borrower and shall not be discharged or bonded against or released within 60
days after the issuance or attachment of such writ or lien.
7.06 DISSOLUTION; LIQUIDATION. The Borrower shall dissolve or liquidate or
voluntarily suspend the transaction of business or allow to be suspended,
terminated, revoked or expired any permit, license or approval of any
governmental body materially necessary to conduct the Borrower's business as now
conducted.
7.07 CHANGE IN OWNERSHIP. There shall occur a sale, transfer, disposition
or encumbrance (whether voluntary or involuntary to), or an agreement shall be
entered into to do so with, any Person or group of Persons (as such terms are
defined pursuant to Federal securities laws) with respect to more than 20% of
the issued and outstanding capital stock of the Borrower and, as a result
thereof, such Person or group of Persons has the ability to direct or cause the
direction of the management and policies of the Borrower.
7.08 ERISA. The termination of, or any full or partial withdrawal from, a
Plan or Plans shall occur which could result in liability of the Borrower to the
Pension Benefit Guaranty Corporation or to the Plan or Plans in the aggregate
amount of $1,000,000 or more, or the actuarial present value of unfunded vested
benefits under all Plans shall exceed one percent (1%) of Borrower's Effective
Tangible Net Worth determined on a consolidated basis.
SECTION 8
REMEDIES ON DEFAULT
Upon the occurrence and during the continuation of any Event of Default,
Wells Fargo may, at its sole absolute election, without demand and only upon
such notice as may be required by law:
8.01 ACCELERATION. Declare any or all of the Borrower's Indebtedness owing
to Wells Fargo, whether under this Agreement or under any other Loan Document or
under any other document, instrument or agreement, immediately due and payable,
whether or not otherwise due and payable.
8.02 CEASE EXTENDING CREDIT. Cease making Advances or otherwise extending
credit to or for the account of the Borrower under this Agreement or under any
other Loan Document or under any other agreement now existing or hereafter
entered into between the Borrower and Wells Fargo.
8.03 TERMINATION. Terminate this Agreement as to any future obligation of
Wells Fargo without affecting the Borrower's obligations to Wells Fargo or Wells
Fargo's rights
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<PAGE>
and remedies under this Agreement or under any other Loan Document or under any
other document, instrument or agreement.
8.04 NON-EXCLUSIVITY OF REMEDIES. Exercise one or more of Wells Fargo's
rights set forth in this Agreement or in any other Loan Document or seek such
other rights or pursue such other remedies as may be provided by law, in equity
or in any other agreement now existing or hereafter entered into between the
Borrower and Wells Fargo, or otherwise.
8.05 LETTERS OF CREDIT. Wells Fargo may, at its sole and absolute
discretion and in addition to any other remedies available to it under this
Agreement and the Letter of Credit Agreements, require the Borrower to pay
immediately to Wells Fargo the undrawn principal amount of each outstanding
Letter of Credit for prompt application against drawings under any such Letters
of Credit. Any such amount so paid to Wells Fargo which is not promptly applied
to satisfy drawings under any such Letters of Credit or to any other obligations
of the Borrower to Wells Fargo shall be repaid to the Borrower without interest.
SECTION 9
MISCELLANEOUS
9.01 RELIANCE BY WELLS FARGO. Each warranty, representation, covenant,
obligation and agreement contained in this Agreement shall be conclusively
presumed to have been relied upon by Wells Fargo regardless of any investigation
made or information possessed by Wells Fargo and shall be cumulative and in
addition to any other warranties, representations, covenants and agreements
implied under this Agreement and any other warranties, representations,
covenants and agreements which the Borrower now or hereafter shall give, or
cause to be given, to Wells Fargo in writing.
9.02 COSTS, EXPENSES AND ATTORNEYS' FEES. In the event any legal action is
taken in relation to this Agreement or any other Loan Document, the prevailing
party, in addition to all other sums to which it may be entitled, shall be
entitled to its reasonable costs, expenses and attorneys' fees in connection
with such action. The Borrower agrees to pay to Wells Fargo within ten (10)
calendar days after demand, the full amount of all costs and expenses,
including, but not limited to, reasonable attorneys' fees (including allocated
costs for in-house legal services), incurred by Wells Fargo in connection with
any refinancing or restructuring of the Revolving Credit Facility, or any other
obligations of Borrower under this Agreement or any other Loan Document, in the
nature of a "work-out" or otherwise.
9.03 NOTICES. All notices, payments, requests, information and demands
which Wells Fargo or the Borrower may desire, or may be required to give or make
to the other party hereto, shall be given or made to such party by hand delivery
or through deposit in the United States mail, first class and postage prepaid,
or by telecopier addressed as set forth below or to such other address or
telecopy number as may be specified from time to time in writing by either party
to the other. Any such notice, payment, request, information or demand sent by
mail shall be deemed given or made two days after it is deposited in the U.S.
mail.
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<PAGE>
TO THE BORROWER: TO WELLS FARGO:
INTERNATIONAL RECTIFIER CORPORATION WELLS FARGO BANK, N.A.
233 Kansas Street Corporate Banking Department
El Segundo, California 90245 420 Montgomery Street, 9th Floor
San Francisco, California 94104
ATTN: TREASURY DEPARTMENT ATTN: ACCOUNT MANAGER FOR
INTERNATIONAL RECTIFIER
CORPORATION
Telecopier No. (310) 640-6575 Telecopier No. (415) 421-1352
9.04 WAIVERS. Neither any failure nor any delay by Wells Fargo in
exercising any right, power or remedy under this Agreement or under any other
Loan Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or remedy hereunder or thereunder preclude other or
further exercise thereof or the exercise of any other right, power or remedy;
nor shall any waiver of any right, power or remedy or Event of Default under
this Agreement or any other Loan Document constitute a waiver of any other
right, power or remedy or Event of Default or constitute a waiver of any other
default of the same, or any other, term or provision. Any waiver, permit,
consent or approval of any kind by Wells Fargo of any breach of, or Event of
Default under, this Agreement or any other Loan Document must be in writing and
shall be effective only to the extent set forth in such writing.
9.05 CONFLICTING PROVISIONS. To the extent the provisions contained in
this Agreement are inconsistent with those contained in any other Loan Document,
the terms and provisions contained in this Agreement shall control. If they are
not inconsistent, such provisions shall be considered cumulative.
9.06 IMMATERIALITY. Notwithstanding anything in this Agreement to the
contrary, any breach of a representation and warranty contained in Sections
5.01, 5.02, 5.04, 5.05, 5.06, 5.07 or 5.09 of this Agreement or any inaccuracy
in any such representation and warranty, and any violation of a covenant in
Sections 6.01, 6.03, 6.04, 6.11 or 6.12 of this Agreement, shall not be deemed
to be an Event of Default or a Potential Event of Default under this Agreement
or to prohibit any extension of credit by Wells Fargo to the Borrower under this
Agreement if such breach or inaccuracy or violation when combined with all other
breaches, inaccuracies and violations of such sections existing at such time and
all other Events of Default and Potential Events of Default existing at such
time does not have, or cannot reasonably be expected to have, a material adverse
effect on the Borrower's financial condition, business operations or assets.
9.07 BINDING EFFECT; ASSIGNMENT; PARTICIPATIONS. This Agreement shall be
binding upon and inure to the benefit of the Borrower and Wells Fargo and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of Wells Fargo. Wells Fargo may sell, assign or grant
participations in all or any portion of its rights and benefits
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<PAGE>
under this Agreement and the other Loan Documents; provided, however, that, in
the case of any such sale or assignment, (a) the amount of the Commitment being
sold or assigned shall not be less than $5,000,000.00, (b) after giving effect
thereto, Wells Fargo's Commitment shall not be less than $5,000,000.00, and (c)
the purchaser or assignee shall be a single financial institution that is not in
the semi-conductor industry. On or prior to the date any such assignment is to
become effective, the Borrower at its own expense shall execute and deliver to
Wells Fargo, in exchange for the surrendered Note of Wells Fargo, a new Note to
the order of the assignee thereunder (with each new Note to be in an amount
equal to the Commitment or the Advances assumed by such assignee), and if Wells
Fargo has retained any Commitment or any Advance outstanding under this
Agreement, a new Note to the order of Wells Fargo (with the new Note to be in an
amount equal to the Commitment or any Advance retained by Wells Fargo). Each
such new Note shall be dated the date the assignment is to be effective by its
terms and otherwise be in the form of the Note it replaces. In the event Wells
Fargo grants a participation in all or part of its rights and benefits under
this Agreement and the other Loan Documents, the Borrower agrees that Wells
Fargo shall, notwithstanding any such transfer, be entitled to the full benefits
accorded Wells Fargo under this Agreement and the other Loan Documents as if
Wells Fargo had not made such transfer; and the Borrower hereby authorizes Wells
Fargo and each such participant, in case of default by the Borrower under this
Agreement, to proceed directly by right of setoff, banker's lien or otherwise
against any assets of the Borrower which may at the time of such default be in
the hands of Wells Fargo or such participant to the same extent, in the case of
the participant, as if its participating interest were owing directly to it. The
Borrower agrees that, in connection with any such sale, grant, assignment or
participation, Wells Fargo may deliver to the prospective buyer or assignee or
participant financial statements and other relevant information relating to the
Borrower if such third party agrees in writing to abide by the confidentiality
provisions of Section 9.08 of this Agreement.
9.08 CONFIDENTIALITY. Wells Fargo shall, and shall cause its officers,
employees, directors, agents, legal counsel and other professional advisors to,
hold all confidential information obtained pursuant to this Agreement and the
other Loan Documents in accordance with its customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking practices; provided, however, that disclosure of such confidential
information may be made (a) if such information is or becomes generally
available to the public, or (b) if such information is or becomes available to
Wells Fargo on a non-confidential basis from a person or entity, other than the
Borrower, who is not prohibited from disclosing the information to any person or
entity, or (c) if such disclosure is made (i) to the affiliates of Wells Fargo,
(ii) to prospective transferees or purchasers of an interest in Wells Fargo's
Advances or Commitment or a portion of the outstanding Letters of Credit;
provided, however, that such prospective transferee or purchaser has agreed in
writing to abide by the confidentiality provisions of this Section 9.08, (iii)
as required by law, regulation, rule, order, subpoena, judicial order or similar
order, and (iv) as may be required in connection with the examination, audit or
similar investigation of Wells Fargo. Wells Fargo shall use its best efforts to
notify the Borrower prior to any disclosure of any such confidential
information, unless prohibited by applicable law, rule, regulation or order.
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<PAGE>
9.09 JURISDICTION. This Agreement and the other Loan Documents shall be
governed by and construed according to the laws of the State of California, and
Wells Fargo and the Borrower hereby submit to the jurisdiction of the Federal
and state courts in California.
9.10 SEVERABILITY OF PROVISIONS. The illegality or unenforceability of any
provision of this Agreement or any other Loan Document shall not in any way
affect or impair the legality or enforceability of the remaining provisions of
this Agreement or such other Loan Document or the provisions of any other Loan
Document.
9.11 WAIVER OF JURY TRIAL. THE BORROWER AND WELLS FARGO EACH HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
9.12 HEADINGS. The headings set forth in this Agreement are solely for the
purpose of identification and have no legal significance.
9.13 ENTIRE AGREEMENT. This Agreement and the other Loan Documents
constitute the entire and complete understanding of the Borrower and Wells Fargo
with respect to the transactions contemplated under this Agreement. All
previous conversations, memoranda and writings between the Borrower and Wells
Fargo pertaining to the transactions contemplated under this Agreement or the
other Loan Documents which are not incorporated or referenced in this Agreement
or in such other Loan Documents are superseded by this Agreement and the other
Loan Documents. This Agreement may be amended only in a writing signed by Wells
Fargo and the Borrower.
WELLS FARGO BANK, N.A. INTERNATIONAL RECTIFIER
CORPORATION
By: /s/ Daniel S. Silmore By: /s/ Michael P. McGee
---------------------------------- ---------------------------------
Name: Daniel S. Silmore Name: Michael P. McGee
--------------------------- ----------------------------
Title: Assistant Vice President Title: Vice President,
-------------------------- ---------------------------
Chief Financial Officer
Attest:
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
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<PAGE>
REVOLVING CREDIT FACILITY NOTE
$10,000,000 El Segundo, California
July 1, 1994
FOR VALUE RECEIVED, the undersigned, INTERNATIONAL RECTIFIER CORPORATION
("Borrower"), promises to pay to the order of WELLS FARGO BANK, N.A. ("Wells
Fargo") at Wells Fargo's office at 420 Montgomery Street, San Francisco,
California, or at such other place in the State of California as Wells Fargo may
designate, in lawful money of the United States of America and in immediately
available funds, the principal sum of Ten Million Dollars ($10,000,000), or so
much thereof as may be advanced and be outstanding.
Borrower further agrees to pay interest (whether before or after any breach
of this Note) at said office, in like funds and currency, on the unpaid
principal amount owing hereunder from time to time from the date hereof until
such amount shall have become due and payable (whether at the stated maturity,
by acceleration or otherwise) at either (a) a fluctuating rate per annum at all
times equal to the Prime Rate in effect from time to time, (b) a fixed rate per
annum determined by Wells Fargo to be one and one-quarter percent (1.25%) above
the LIBO Rate in effect on the first day of any LIBO Rate Interest Period for a
LIBO Rate Advance, or (c) a fixed rate per annum determined by Wells Fargo to be
one and one-quarter percent (1.25%) above the Cost of Funds Rate in effect on
the first day of any Cost of Funds Interest Period for a Cost of Funds Advance.
When interest is determined in relation to the Prime Rate, each change in the
rate of interest hereunder shall become effective on the date each Prime Rate
change is announced within Wells Fargo. Interest shall also be payable on any
overdue payment of principal and (to the extent permitted by law) interest as
set forth in the Credit Agreement (as defined below).
With respect to each interest rate selection by Borrower, the date,
principal amount, rate of interest, term of the applicable Interest Period for a
LIBO Rate Advance and a Cost of Funds Advance, and any payments applicable
thereto, shall be set forth by Wells Fargo on the reverse of this Note or on
such schedules as Wells Fargo shall maintain for such purposes. Absent manifest
error, such notations on this Note or on such schedules, and all endorsements by
Wells Fargo thereon, shall be conclusive evidence of all such items.
This Note is the Revolving Credit Facility Note defined in and made
pursuant to that certain Revolving Credit Agreement dated as of July 1, 1994,
between Borrower and Wells Fargo, as amended from time to time, (the "Credit
Agreement"). All terms defined in the Credit Agreement shall have the same
meanings when used in this Note, and the rate of interest applicable under this
Note shall change from time to time in accordance with the terms of the Credit
Agreement.
The unpaid principal balance of this obligation at any time shall be the
total of all amounts advanced under this Note by the holder of this Note less
the amount of all principal payments made on this Note by or for Borrower, which
balance may be endorsed on this Note from time to time by Wells Fargo.
Notwithstanding anything in this Note to the contrary, the outstanding principal
balance of this Note, together with the aggregate amount
<PAGE>
of all outstanding Letters of Credit (as defined in the Credit Agreement), shall
not at any time exceed the maximum principal amount set forth above, or such
lesser amount as is then available under this Note if the maximum principal
amount of this Note is reduced pursuant to the provisions of the Credit
Agreement.
Interest accrued on this Note shall be due and payable as provided in the
Credit Agreement. The outstanding principal balance of this Note, together with
all accrued and unpaid interest thereon, shall also be due and payable on the
Maturity Date (as defined in the Credit Agreement).
Borrower may prepay principal on this Note solely in accordance with the
terms of the Credit Agreement. Each payment of principal on this Note shall be
credited to the portions of this Note which bear interest determined in relation
to the Prime Rate, the LIBO Rate and the Cost of Funds Rate in accordance with
the application of payment provisions of the Credit Agreement.
Advances under this Note, to the total amount of the principal sum stated
above and in accordance with the provisions of the Credit Agreement, may be made
by the holder at the oral or written request of Darryl T. Mikuni, Rose M.
Marcario, Michael P. McGee or Deidre J. Samuels, any one acting alone, who are
authorized to request Advances and direct the disposition of any such Advances
until written notice of the revocation of such authority or the substitution of
new named people with such authority is received by the holder of this Note.
Upon the occurrence of any Event of Default (as defined in the Credit
Agreement) Wells Fargo, at Wells Fargo's option, may declare all sums of
principal and interest outstanding under this Note to be immediately due and
payable, without presentment, demand, protest or notice of dishonor, all of
which are expressly waived by Borrower, and Wells Fargo shall have all rights,
powers and remedies set forth in the Credit Agreement.
Borrower agrees to pay, immediately upon demand, the full amount of all
costs and expenses, including reasonable attorneys' fees (including, but not
limited to, allocated costs for in-house legal services), incurred by Wells
Fargo in connection with the enforcement of any rights of Wells Fargo and/or the
collection of any amounts which become due to Wells Fargo under this Note, and
the prosecution or defense of any action in any way related to this Note,
including, but not limited to, any action for declaratory relief.
This Note shall be governed by and be construed in accordance with the laws
of the State of California.
INTERNATIONAL RECTIFIER
CORPORATION
By: /s/ Michael P. McGee
-------------------------------------
Name: Michael P. McGee
--------------------------------
Title: Vice President,
-------------------------------
Chief Financial Officer
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<PAGE>
CONTINUING STANDBY AND
WELLS FARGO BANK COMMERCIAL LETTER OF CREDIT AGREEMENT
- - - --------------------------------------------------------------------------
To: WELLS FARGO BANK, N.A.
In consideration of Wells Fargo Bank, National Association, at the
request and for the account of the undersigned Applicant, and, unless
otherwise specifically provided in any Loan Document, at the option of
Wells Fargo, issuing standby letters of credit and/or commercial letters
of credit pursuant to applications for standby letters of credit,
applications for commercial letters of credit and the terms and conditions
of this Agreement, Applicant hereby agrees that the terms and conditions
hereinafter set forth shall apply to each such Application, to the Credit
issued by Wells Fargo pursuant to such Application, to the issuance of
each such Credit, and to transactions under each such Application, each
such Credit and this Agreement.
SECTION 1. DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth after each term: "ACCEPTANCE"
shall mean any time draft drawn or made, or purported to be drawn or made,
under any Credit, and accepted for payment by Wells Fargo or by any other
bank specified by Wells Fargo to accept such time draft for payment.
"ACCEPTANCE FEE" shall mean the fee, computed at the acceptance fee rate
specified by Wells Fargo, charged by Wells Fargo when each Acceptance is
created on the amount of each Acceptance for the time period each such
Acceptance is to be outstanding. "AGREEMENT" shall mean this Continuing
Standby and Commercial Letter of Credit Agreement as it may be revised or
amended from time to time pursuant to its terms. "APPLICANT" shall mean
the person or persons or the entity or entities signing this Agreement.
"APPLICATION" shall mean an Application for Standby Letter of Credit
and/or an Application for Commercial Letter of Credit and/or an
application for amendment of a Credit or any combination of such
applications, as the context may require. "APPLICATION FOR COMMERCIAL
LETTER OF CREDIT" shall mean Wells Fargo's printed form titled
"Application for Commercial Letter of Credit" or any other form acceptable
to Wells Fargo on which Applicant applies for the issuance by Wells Fargo
of a Commercial Credit. "APPLICATION FOR STANDBY LETTER OF CREDIT" shall
mean Wells Fargo's printed form titled "APPLICATION FOR STANDBY LETTER OF
CREDIT" or any other form acceptable to Wells Fargo on which Applicant
applies for the issuance by Wells Fargo of a Standby Credit. "BENEFICIARY"
shall mean any person or entity named on an Application as the beneficiary
or any person or entity who is the transferee of any such beneficiary.
"COLLATERAL" shall mean the Property, together with the proceeds of such
Property, securing any or all the obligations and liabilities of Applicant
to Wells Fargo at any time existing under or in connection with any Letter
of Credit Document and/or any Loan Document. "COMMERCIAL CREDIT" shall
mean an instrument or document titled "Irrevocable Commercial Letter of
Credit" or "Irrevocable Documentary Credit", or any instrument or document
whatever it is titled or whether or not it is titled functioning as a
commercial letter of credit, issued under or pursuant to an Application
for Commercial Letter of Credit, and all renewals, extensions and
amendments of such instrument or document. "COMMISSION FEE" shall mean the
fee, computed at the commission fee rate specified by Wells Fargo, charged
by Wells Fargo at the time or times specified by Wells Fargo on the amount
of each Standby Credit and on the amount of each increase in a Standby
Credit for the time period each such Standby Credit is outstanding.
"CREDIT" shall mean a Standby Credit or a Commercial Credit or both as the
context may require. "DEFERRED PAYMENT FEE" shall mean the fee, computed
at the deferred payment fee rate specified by Wells Fargo, charged by
Wells Fargo on the amount of each Demand presented under a Credit
providing for deferred payment of Demands which are not time drafts, which
fee will be payable when the Demand is determined by Wells Fargo to comply
with such Credit and cover the time period from the date of such
determination to the date such Demand is payable. "DELIVERY AUTHORIZATION"
shall mean any agreement, undertaking, guarantee, indemnity, release,
bond, letter, document or authorization given or executed by Wells Fargo,
at its option in each case, at the request of Applicant or Applicant's
agent to or in favor of a carrier or other person or entity in order to
permit delivery to Applicant or Applicant's agent of Property referred to
in or shipped under any Credit. "DEMAND" shall mean any sight or time
draft (before it is accepted), electronic or telegraphic transmission or
other written demand drawn or made, or purported to be drawn or made,
under or in connection with any Credit. "DOCUMENT" shall mean any
instrument, statement, certificate or other document, including, but not
limited to, shipping documents, warehouse receipts and policies or
certificates of insurance, referred to in or related to any Credit or
required by any Credit to be presented with any Demand. "DOLLARS" shall
mean the lawful currency at any time for the payment of public or private
debts in the United States of America. "EVENT OF DEFAULT" shall mean any
of the events set forth in Section 14 of this Agreement. "EXPIRATION DATE"
shall mean the date any Credit expires. "GUARANTOR" shall mean any person
or entity guaranteeing the payment and/or performance of any or all the
obligations of Applicant to Wells Fargo under or in connection with any
Letter of Credit Document and/or any Loan Document. "HOLDING COMPANY"
shall mean any company or other entity controlling Wells Fargo. "ISSUANCE
FEE" shall mean the fee, computed at the issuance fee rate specified by
Wells Fargo, charged by Wells Fargo on the amount of each Commercial
Credit and on the amount of each increase in a Commercial Credit at the
time each Commercial Credit is issued and the time the amount of each
Commercial Credit is increased. "LETTER OF CREDIT DOCUMENT" shall mean
this Agreement, each Application, each Credit, each Demand and each
Acceptance. "LOAN DOCUMENT" shall mean each and any promissory note,
credit agreement, loan agreement, security agreement, pledge agreement,
guarantee or other agreement or writing signed by Well Fargo and/or
Applicant and/or any Guarantor relating to, evidencing or guaranteeing any
loan or other extension of credit by Wells Fargo to Applicant under or in
connection with any Letter of Credit Document. "NEGOTIATION FEE" shall
mean the fee, computed at the negotiation fee rate specified by Wells
Fargo, charged by Wells Fargo on the amount of each Demand when each
Demand is paid or accepted. "PAYMENT OFFICE" shall mean such office of
Wells Fargo specified by Wells Fargo as the office where reimbursements
and other payments under or in connection with any Letter of Credit
Document are to be made by Applicant. "PRIME RATE" shall mean the rate of
interest most recently announced at Wells Fargo's principal office in San
Francisco, California as its Prime Rate, with the understanding that the
Prime Rate is one of Wells Fargo's base rates and serves as the basis upon
which effective rates of interest are calculated for those loans making
reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Wells Fargo
may designate. "PROPERTY" shall mean all forms of property, whether
tangible or intangible, real, personal or mixed. "RATE OF EXCHANGE" shall
mean Wells Fargo's then current selling rate of exchange in San Francisco,
California for sales of the currency of payment of any Demand or
Acceptance, or of any fees or expenses or other amounts payable under this
Agreement, for cable transfer to the country of which such currency is the
legal tender. "STANDBY CREDIT" shall mean an instrument or document titled
"Irrevocable Standby Letter of Credit" or Irrevocable Standby Credit", or
any instrument or document whatever it is titled or whether or not it is
titled functioning as a standby letter of credit, issued under or pursuant
to an Application for Standby Letter of Credit, and all renewals,
extensions and amendments of such instrument or document. "UCP" shall mean
the Uniform Customs and Practice for Documentary Credits, an International
Chamber of Commerce publication, or any substitution therefor or
replacement thereof. "UNPAID AND UNDRAWN BALANCE" shall mean at any time
and from time to time the entire amount which has not been paid by Wells
Fargo under all the Credits issued for the account of Applicant,
including, but not limited to, the amount of each Demand and Acceptance on
which Wells Fargo has not yet effected payment as well as the amount
undrawn under all such Credits. "WELLS FARGO" shall mean Wells Fargo Bank,
National Association, a national banking association.
SECTION 2. HONORING DEMANDS AND DOCUMENTS. Applicant agrees that
Wells Fargo may receive, accept and honor, as complying with the terms of
any Credit, any Demand and any Documents accompanying such Demand;
provided, however, that (a) such Demand and accompanying Documents appear
on their face to comply substantially with the provisions of such Credit,
and (b) such Demand and accompanying Documents are, or appear on their
face to be, signed or issued by (i) a person or entity authorized under
such Credit to draw, sign or issue such Demand and such accompanying
Documents, or (ii) an administrator, executor, trustee in bankruptcy,
debtor in possession, assignee for the benefit of creditors, liquidator,
receiver or other legal representative or successor in interest by
operation of law of any such person or entity. Notwithstanding the
preceding sentence, Applicant agrees that (x) in consideration for Wells
Fargo giving or executing a Delivery Authorization at its option at any
time,, Wells Fargo may, in its sole discretion, receive, accept and honor,
as complying with the terms of the Credit related to such Delivery
Authorization, any Demand and any Documents accompanying such Demand which
are presented under such Credit and relate to any Property covered by such
Delivery Authorization even if such Demand or any such Document does not
conform to the requirements of such Credit or is not otherwise in order or
any other term or condition of such Credit has not been complied with; and
(y) in consideration for Wells Fargo issuing a Commercial Credit which, at
the request of Applicant and at the option of Wells Fargo, contains
provisions that (i) any Demand made under such Credit will be honored only
if and when Wells Fargo receives written notice that the Property referred
to in the Documents accompanying such Demand has been inspected and passed
and/or released and/or approved by the United States Food and Drug
Administration or by any other state or federal government agency or
regulatory authority or by any other party or entity, and (ii) the
Documents accompanying such Demand are to be released by Wells Fargo to
Applicant or Applicant's agent for the purpose of arranging such
inspection against Applicant or Applicant's agent signing a receipt for
such Documents, Wells Fargo may in its sole discretion honor and accept
such Demand and such Documents as complying with the terms of such Credit
without having received written notice that such Property has been
inspected and passed and/or released and/or approved as aforesaid (l) if
such Demand and accompanying Documents appear on their face to comply
substantially with all other terms of such Credit, or Applicant has waived
any failure of such Demand or Documents to comply with the terms of such
Credit, and (ll) if Applicant or Applicant's agent does not promptly (A)
sign such a receipt with is in form and substance acceptable to Wells
Fargo and (B) comply with all the terms of such receipt and (C) arrange
such inspection of such Property.
SECTION 3. REIMBURSEMENT FOR PAYMENT OF DEMANDS AND ACCEPTANCES. Applicant
agrees to reimburse Wells Fargo for all amounts paid by Wells Fargo on
each Demand and on each Acceptance, including, but not limited to, all
amounts paid by Wells Fargo on each Demand and on each Acceptance to any
paying, accepting, negotiating or other bank. If in connection with the
issuance of any Credit, Wells Fargo agrees to pay any other bank the
amount of any payment of negotiation made by such other bank under such
Credit upon receipt by Wells Fargo of a cable, telex or other written
telecommunication advising Wells Fargo of such payment or negotiation, or
authorizes any other bank to debit Wells Fargo's account for the amount of
such payment or negotiation, Applicant agrees to reimburse Wells Fargo for
all such amounts paid by Wells Fargo, or debited to Wells Fargo's account
with such other bank, even if any Demand or Document specified in such
Credit fails to arrive in whole or in part or if, upon the arrival of any
such Demand or Document, the terms of such Credit have not been complied
with or such Demand or document does not conform to the requirements of
such Credit or is not otherwise in order.
SECTION 4. FEES AND EXPENSES. Applicant agrees to pay to Wells Fargo
(a) all issuance Fees, Commission Fees, Negotiation Fees, Acceptance Fees,
Deferred Payment Fees, cable fees, amendment fees, non-usance fees and
cancellation fees of, and all out-of-pocket expenses incurred by, Wells
Fargo under or in connection with any Letter of Credit Document, and (b)
all fees and charges of banks other than Wells Fargo under or in
connection with any Letter of Credit Document if any Application (i) does
not indicate who will pay such fees and charges, (ii) indicates that such
fees and charges are to be paid by Applicant, or (iii) indicates that such
fees and charges are to be paid by the Beneficiary and the Beneficiary
does not, for any reason whatsoever, pay such fees or charges. There shall
be no refund of any portion of any issuance Fee or any Commission Fee in
the event any Credit is used, reduced, amended, modified or terminated
before its Expiration Date; and there shall be no refund of any portion of
any Acceptance Fee or Deferred Payment Fee if any Acceptance or deferred
payment Demand is reimbursed by Applicant before it matures.
SECTION 5. DEFAULT INTEREST. Unless otherwise specified in any Loan
Document or on an Application and agreed to by Wells Fargo, all amounts to
be reimbursed by Applicant to Wells Fargo pursuant to Section 3 of the
Agreement and all fees and expenses to be paid by Applicant to Wells
Fargo pursuant to Section 4 of this Agreement, and all other amounts due
from Applicant to Wells Fargo under or in connection with the Letter of
Credit Documents, will bear interest (to the extent permitted by law),
payable on demand, from the date Wells Fargo paid the amounts to be
reimbursed or the date such fees, expenses and other amounts were due
until such amounts are reimbursed in full or such fees, expenses and other
amounts are paid in full, at that interest rate per annum, calculated for
the actual days elapsed in a year of 360 days, which is two percent (2%)
above the Prime Rate in effect from time to time.
<PAGE>
SECTION 6. TIME AND METHOD OF REIMBURSEMENT AND PAYMENT. Unless
otherwise specified in this Section 6, in any Loan Document or on an
Application and agreed to by Wells Fargo, all amounts to be reimbursed by
Applicant to Wells Fargo pursuant to Section 3 of this Agreement, all fees
and expenses to be paid by Applicant to Wells Fargo pursuant to Section 4
of this Agreement, all interest due to Wells Fargo pursuant to Section 5
of this Agreement, and all other amounts due to Wells Fargo from Applicant
under or in connection with the Letter of Credit Documents will be
reimbursed or paid at the Payment Office in Dollars in immediately
available funds without setoff or counterclaim on demand or, at Wells
Fargo's option, by Wells Fargo debiting any of Applicant's accounts with
Wells Fargo without presentment, protest, demand for reimbursement or
payment, notice of dishonor or any other notice whatsoever, all of which
are hereby expressly waived by Applicant. Such debit will be made (a) at
the time each Demand is paid by Wells Fargo or on the maturity of each
Acceptance, or if earlier, at the time each amount is paid by Wells Fargo
to any paying, accepting, negotiating or other bank, (b) at the time each
fee and expense referenced in Section 4 of this Agreement is to be paid,
(c) at the time interest is due to Wells Fargo pursuant to Section 5 of
this Agreement, and (d) at the time each other amount is due under or in
connection with the Letter of Credit Documents. If any Demand or
Acceptance or any fee, expense, interest or other amount payable under or
in connection with the Letter of Credit Documents is payable in a currency
other than Dollars, Applicant agrees to reimburse Wells Fargo for all
amounts paid by Wells Fargo on such Demand and on such Acceptance, and/or
to pay Wells Fargo all such fees, expenses, interest and other amounts, in
one of the three following ways, as determined by Wells Fargo in its sole
discretion in each case; (i) at such place as Wells Fargo shall direct, in
such other currency, or (ii) at the Payment Office in the Dollar
equivalent of the amount of such other currency calculated at the Rate of
Exchange on the date determined by Wells Fargo in its sole discretion, or
(iii) at the Payment Office in the Dollar equivalent, as determined by
Wells Fargo (which determination shall be deemed correct absent manifest
error), of such fees, expenses, interest or other amounts or of the actual
cost to Wells Fargo of paying such Demand or Acceptance.
SECTION 7. AGREEMENTS OF APPLICANT. Applicant agrees that (a) unless
otherwise specifically provided in any Loan Document, Wells Fargo shall
not be obligated at any time to issue any Credit for the account of
Applicant; (b) unless otherwise specifically provided in any Loan
Document, if any Credit is issued by Wells Fargo for the account of
Applicant, Wells Fargo shall not be obligated to issue any further Credit
for the account of Applicant or to make other extensions of credit to
Applicant or in any other manner to extend any financial consideration to
Applicant; (c) Wells Fargo has not given Applicant any legal or other
advice with regard to any Letter of Credit Document or Loan Document; (d)
if Wells Fargo at any time discusses with Applicant the wording for any
Credit, any such discussion will not constitute legal or other advice by
Wells Fargo or any representation or warranty of Wells Fargo that any
wording or Credit will satisfy Applicant's needs; (e) Applicant is
responsible for the wording of each Credit, including, but not limited to,
any drawing conditions, and will not rely on Wells Fargo in any way in
connection with the wording of any Credit or the structuring of any
transaction related to any Credit; (f) Applicant and not Wells Fargo is
responsible for entering in the contracts relating to the Credits between
Applicant and the Beneficiaries and for causing Credits to be issued; (g)
Wells Fargo may, as Wells Fargo deems appropriate, modify or alter and use
in any Credit the terminology contained on the Application for such
Credit; (h) unless the Application for a Credit specifies whether the
Documents to be presented with a Demand under such Credit must be sent to
Wells Fargo in one parcel or in two parcels or may be sent to Wells Fargo
in any number of parcels, Wells Fargo may, if it so desires, make such
determination and specify in the Credit whether such Documents must be
sent in one parcel or two parcels or may be sent in any number of parcels;
(i) Wells Fargo shall not be deemed the agent of Applicant, any
Beneficiary or any other user of any Credit, and neither Applicant, nor
any Beneficiary nor any other user of any Credit shall be deemed an agent
of Wells Fargo; (j) Applicant will promptly examine all Documents and each
Credit if and when they are delivered to Applicant by Wells Fargo and, in
the event of any claim of noncompliance of any Documents or any Credit
with Applicant's instructions or any Application, or in the event of any
other irregularity, will promptly notify Wells Fargo in writing of such
noncompliance or irregularity unless such notice is given promptly; (k)
all directions and correspondence relating to any Letter of Credit
Document are to be sent at the risk of Applicant; (l) if any Credit has a
provision concerning the automatic extension of the Expiration Date of
such Credit, Wells Fargo may, at its sole option, give notice of
nonrenewal of such Credit and if Applicant does not at any time want such
Credit to be renewed Applicant will so notify Wells Fargo at least fifteen
(15) calendar days before Wells Fargo is to notify the Beneficiary of such
Credit or any advising bank of such nonrenewal pursuant to the terms of
such Credit; (m) Applicant will not seek to obtain, apply for, or
acquiesce in any temporary restraining order, restraining order,
preliminary injunction, permanent injunction or any type of pretrial or
permanent injunctive relief or any similar relief, however named,
restraining, prohibiting or enjoining Wells Fargo, any of Wells Fargo's
correspondents or any advising, confirming, negotiating, paying, accepting
or other bank from paying or negotiating any Demand or creating or paying
any Acceptance or honoring any other obligation under or in connection
with any Credit; and (n) except for any of Applicant's obligations which
are specifically affected by the actions referred to in subsection (vi) of
this Section 7(n), Applicant's obligations under or in connection with
each Letter of Credit Document and each Loan Document shall be absolute,
unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of each such Letter of Credit Document and each
such Loan Document under all circumstances whatsoever, including, but not
limited to, the following circumstances and the circumstances
listed in Section 13(b) through (bb) of this Agreement; (i) any lack of
validity or enforceability of any Letter of Credit Document, any Loan
Document, any Document or any agreement relating to any Letter of Credit
Document, any Loan Document or any Document; (ii) any amendment of or
waiver relating to, or any consent to or departure from, any Letter of
Credit Document, any Loan Document or any Document; (iii) any release or
substitution at any time of any Property which may be held as Collateral;
(iv) the existence of any claim, set-off, defense or other right which
Applicant may have at any time against Wells Fargo or any Beneficiary (or
any person or entity for whom any Beneficiary may be acting) or any other
person or entity, whether under or in connection with any Letter of Credit
Document, any Loan Document or any Property referred to in or related to
any Letter of Credit Document, any Loan Document or any Document or under
or in connection with any unrelated transaction; (v) any breach of
contract or other dispute between or among any two or more of Applicant,
Wells Fargo, any Beneficiary, any transferee of any Beneficiary, any
person or entity for whom any Beneficiary or any transferee of any
Beneficiary may be acting, or any other person or entity; or (vi) any
delay, extension of time, renewal, compromise or other indulgence granted
or agreed to by Wells Fargo with or without notice to, or approval by,
Applicant in respect of any of Applicant's indebtedness or other
obligations to Wells Fargo under or in connection with any Letter of
Credit Document or any Loan Document.
SECTION 8. COMPLIANCE WITH LAWS AND REGULATIONS. Applicant represents
and warrants to Wells Fargo that no Application, Credit or transaction
under any Application and/or any Credit will contravene any law or
regulation of the government of the United States or any state thereof.
Applicant agrees (a) to comply with all federal, state and foreign
exchange regulations and other government laws and regulations now or
hereafter applicable to any Letter of Credit Document, to any payments
under or in connection with any Letter of Credit Document, to each
transaction under or in connection with any Letter of Credit Document, or
to the import, export, shipping or financing of the Property referred to
in or shipped under or in connection with any Credit, and (b) to reimburse
Wells Fargo for such amounts as Wells Fargo may be required to expend as a
result of such laws or regulations, any change in such laws or regulations
or any change in the interpretation of such laws or regulations by any
court or administrative or government authority charged with the
administration of such laws or regulations.
SECTION 9. TAXES, RESERVES AND CAPITAL ADEQUACY REQUIREMENTS. In
addition to, and notwithstanding, any other provision of any Letter of
Credit Document or any Loan Document, in the event that any law, treaty,
rule, regulation, guideline, request, order, directive or determination
(whether or not having the force of law) of or from any government
authority, including, but not limited to, any court, central bank or
government regulatory authority, or any change therein or in the
interpretation or application thereof, (a) does or shall subject Wells
Fargo to any tax of any kind whatsoever with respect to the Letter of
Credit Documents or the Loan Documents, or change the basis of taxation of
payments to Wells Fargo of any amount payable thereunder (except for
changes in the rate of tax on the net income of Wells Fargo); or (b) does
or shall impose, modify or hold applicable any reserve, special deposit,
assessment, compulsory loan, Federal Deposit Insurance Corporation
insurance or similar requirement against assets held by, deposits or other
liabilities in or for the account of, advances or loans by, other credit
extended by or any other acquisition of funds by, any office of Wells
Fargo; or (c) does or shall impose, modify or hold applicable any capital
adequacy requirements (whether or not having the force of law); or (d)
does or shall impose on Wells Fargo any other condition; and the result of
any of the foregoing is (i) to increase the cost to Wells Fargo of issuing
or maintaining any Credit or of performing any transaction under any
Letter of Credit Document or any Loan Document, or (ii) to reduce any
amount receivable by Wells Fargo under any Letter of Credit Document or
any Loan Document, or (iii) to reduce the rate of return on the capital of
Wells Fargo or the Holding Company to a level below that which Wells Fargo
or the Holding Company could have achieved but for any imposition,
modification or application of any capital adequacy requirement (taking
into consideration the policy of Wells Fargo or the Holding Company, as the
case may be, with respect to capital adequacy), and any such increase or
reduction is material (as determined by Wells Fargo in its sole
discretion); then, in any such case, Applicant agrees to pay to Wells
Fargo such amount or amounts as may be necessary to compensate Wells Fargo
or the Holding Company for (1) any such additional cost, (2) any reduction
in the amount received by Wells Fargo under any Letter of Credit Document
or any Loan Document, or (3) to the extent allocable (as determined by
Wells Fargo in its sole discretion) to any Letter of Credit Document or
any Loan Document, any reduction in the rate of return on the capital of
Wells Fargo or the Holding Company.
SECTION 10. COLLATERAL. Applicant grants to Wells Fargo a security
interest in and to the following Collateral, whether or not any such
Collateral is in Wells Fargo's possession or control or in the possession
or control of Wells Fargo's agents or correspondents or in transit to, or
set apart for, Wells Fargo or any of Wells Fargo's agents or
correspondents: (a) with respect to each Commercial Credit and until such
time as all the obligations and liabilities of Applicant to Wells Fargo at
any time existing under or in connection with each Commercial Credit and
the Letter of Credit Documents and Loan Documents related to such
Commercial Credit have been fully paid and discharged, all as security for
such obligations and liabilities, (i) all Property referred to in each
Commercial Credit or at any time shipped under or pursuant to each
Commercial Credit or in any way related to each Commercial Credit or to
any Demand made or Acceptance created under each Commercial Credit,
whether or not Wells Fargo receives the Documents covering such Property
or releases such Documents to Applicant on trust or bailee receipt or
otherwise, (ii) all Documents accompanying any Demand made under each
Commercial Credit, and (iii) all the proceeds of the Property and the
Documents referred to in subsections (i) and (ii) of this Section 10(a).
<PAGE>
If any temporary restraining order, restraining order, preliminary
injunction, permanent injunction or any type of pretrial or permanent
injunctive relief or any similar relief, however named, is obtained
restraining, prohibiting or enjoining Wells Fargo, any of Wells Fargo's
correspondents or any advising, confirming, negotiating, paying, accepting
or other bank from paying or negotiating any Demand or creating or paying
any Acceptance or honoring any other obligation under or in connection
with any Credit. Applicant agrees that the receipt by Wells Fargo or any
of Wells Fargo's agents or correspondents or any time of any kind of
security, including, but not limited to, cash, shall not be deemed a
waiver of any of Wells Fargo's rights or powers under this Agreement.
Applicant agrees to sign and deliver to Wells Fargo on demand of Wells
Fargo all such deeds of trust, security agreements, financing statements
and other documents as Wells Fargo shall at any time request which are
necessary or desirable (in the sole opinion of Wells Fargo) to grant to
Wells Fargo an effective and perfected security interest in and to any or
all of the Collateral. Applicant agrees to pay all filing and recording
fees related to the perfection of any security interests granted to Wells
Fargo in accordance with this Section 10. Applicant hereby agrees that any
or all of the Collateral may be held and disposed of by Wells Fargo as
provided in this Agreement. Upon any transfer, sale, delivery, surrender or
endorsement of any Document or Property which is or was part of the
Collateral, Applicant will indemnify and hold Wells Fargo and Wells
Fargo's agents and correspondents harmless from and against each and every
claim, demand, action or suit which may arise against Wells Fargo or any
such agent or correspondent by reason of such transfer, sale, delivery,
surrender or endorsement.
SECTION 11. LICENSES AND INSURANCE FOR PROPERTY. Applicant agrees (a)
to procure promptly any necessary import, export or other licenses for
import, export of shipping of the Property referred to in or shipped
under, pursuant to or in connection with any Commercial Credit; (b) to
furnish such instruments, certificates and other documents as Wells Fargo
may at any time require with respect to such import, export or other
licenses and with respect to the compliance by Applicant with all federal,
state and foreign government laws, regulations, guidelines, requests,
directives and/or determinations with regard to the import, export,
shipping and financing of the Property referred to in or shipped under,
pursuant to or in connection with any Commercial Credit; (c) to keep such
Property adequately covered by insurance in amounts, against risks and
with companies satisfactory to Wells Fargo; (d) to assign the policies or
certificates of insurance to Wells Fargo, or to make the loss or
adjustment, if any, payable to Wells Fargo, at its option; and (e) to
furnish to Wells Fargo, upon demand of Wells Fargo, evidence of such
insurance and/or evidence of acceptance by the insurers of the assignment
of such policies or certificates of insurance. Should the insurance on any
Property referred to in or shipped under, pursuant to or in connection
with any Commercial Credit for any reason be unsatisfactory to Wells
Fargo, Wells Fargo may, at Applicant's expense, obtain insurance
satisfactory to Wells Fargo.
SECTION 12. INDEMNIFICATION. Except to the extent caused by Wells
Fargo's lack of good faith, gross negligence or willful misconduct, and
notwithstanding any other provision of this Agreement, Applicant agrees to
reimburse and indemnify Wells Fargo for (a) all amounts paid by Wells
Fargo to any person or entity under or in connection with any Delivery
Authorization; (b) all amounts paid by Wells Fargo to any Beneficiary
under or in connection with any guarantee or similar undertaking issued by
such Beneficiary to a third party at the request of Applicant, whether
such request is communicated directly by Applicant or through Wells Fargo
to such Beneficiary; and (c) all damages, losses, liabilities, actions,
claims, suits, penalties, judgments, obligations, costs or expenses, of
any kind whatsoever and howsoever caused, including, but not limited to,
attorneys' fees and interest, paid, suffered or incurred by, or imposed
upon, Wells Fargo directly or indirectly arising out of or in connection
with (i) any Letter of Credit Document, any Loan Document, any Document or
any Property referred to in or related to any Credit; (ii) the issuance of
any Credit; (iii) the transfer of any Credit: (iv) any Delivery
Authorization; (v) any guarantee or similar undertaking, or any
transactions thereunder, issued by any Beneficiary to a third party at the
request of Applicant, whether such request is communicated directly by
Applicant or through Wells Fargo to such Beneficiary; (vi) any
communication made by Wells Fargo, on the instructions of Applicant, to
any Beneficiary requesting that such Beneficiary issue a guarantee or
similar undertaking to a third party or the issuance of any such guarantee
or similar undertaking; (vii) the collection of any amounts owed to Wells
Fargo by Applicant under or in connection with any Letter of Credit
Document or any Loan Document; (viii) the foreclosure against, or other
enforcement of, any Collateral; (ix) the protection, exercise or
enforcement of Wells Fargo's rights and remedies under or in connection
with any Letter of Credit Document or any Loan Document; (x) any court
decrees or orders, including, but not limited to, temporary restraining
orders, restraining orders, preliminary injunctions, permanent injunctions
or any type of pretrial or permanent injunctive relief or any similar
relief, however named, restraining, prohibiting or enjoining or seeking to
restrain, prohibit or enjoin Wells Fargo, any of Wells Fargo's
corespondents or any advising, confirming, negotiating, paying, accepting
or other bank from paying or negotiating any Demand or creating or paying
any Acceptance or honoring any other obligation under or in connection
with any Credit; or (xi) any Credit being governed by laws or rules other
than the UCP in effect on the date such Credit is issued. The indemnity
provided in this Section 12 will survive the termination of this Agreement
and the expiration or cancellation of any or all the Credits.
SECTION 13. LIMITATION OF LIABILITY. Notwithstanding any other
provision of this Agreement, neither Wells Fargo nor any of its agents or
correspondents will have any liability to Applicant for any action,
neglect or omission, if done in good faith, under or in connection with
any Letter of Credit Document, Loan Document or Credit, including, but not
limited to, any issuance or amendment of any Credit, the failure to issue
or amend any Credit, or the honoring or dishonoring of any Demand under
any Credit, and such good faith action, neglect or omission will bind the
Applicant. Notwithstanding any other provision of any Letter of Credit
Document, in no event shall Wells Fargo, its officers or directors be
liable or responsible, regardless of whether any claim is based on
contract or tort, for (a) any special, consequential, indirect or
incidental damages, including, but not limited to, lost profits, arising out
of or in connection with the issuance of any Credit or any action taken or
not taken by Wells Fargo in connection with any Letter of Credit Document,
any Loan Document or any Document or Property referred to in or related to
any Credit; (b) the honoring of any Demand or Acceptance in accordance
with any order or directive of any court or government or regulatory body
or entity requiring such honor despite any temporary restraining order,
restraining order, preliminary injunction, permanent injunction or any
type of pretrial or permanent injunctive relief or any similar relief,
however named, restraining, prohibiting or enjoining such honor; (c) the
use which may be made of any Credit; (d) the validity of any purported
transfer of any Credit or the identity of any purported transferee of any
Beneficiary; (e) any acts or omissions of any Beneficiary or any other
user of any Credit; (f) the existence, character, quality, quantity,
condition, packing, value or delivery of the Property referred to in or
related to any Credit or purporting to be represented by any Document; (g)
any difference in the character, quality, quantity, condition or value of
the Property referred to in or related to any Credit or purporting to be
represented by any Document from that expressed in any Credit or any
Document; (h) the time, place, manner or order in which shipment is made
of, or the failure or omission to ship, or the partial or incomplete
shipment of, any or all of the Property referred to in or related to any
Credit or any Document; (i) the form, validity, sufficiency, correctness,
genuineness or legal effect of any Demand or any Document, or of any
signatures or endorsements on any Demand or Document, even if any Demand
or any Document should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; (j) any deviation from instructions,
delay, default or fraud by the shipper or anyone else in connection with
any Document or any Property referred to in or related to any Credit or
the shipping of any such Property; (k) any delay in giving or failure to
give any notice, including, but not limited to, notice of arrival of any
Property referred to in or related to any Credit or any Document; (l) any
delay in arrival or failure to arrive of any Property referred to in or
related to any Credit or any Document; (m) any breach of contract between
the shippers or vendors and the consignees or buyers; (n) the character,
adequacy, validity or genuineness of any insurance or the solvency or
responsibility of any insurer of any risk; (o) the solvency of any person
or entity issuing any Document or the responsibility of any such person or
entity for, or the relationship of any such person or entity to, any
Property referred to in or related to any Document; (p) payment or
acceptance by Wells Fargo of any Demand when the Demand and any Documents
which accompany such Demand appear on their face to comply substantially
with the terms of the Credit to which they relate or dishonor by Wells
Fargo of any Demand when the Demand and any Documents which accompany such
Demand do not strictly comply on their face with the terms of the Credit
to which they relate; (q) the failure of any Demand or Document to bear
any reference or adequate reference to the Credit to which it relates; (r)
the failure of any Document to accompany any Demand; (s) the failure of
any person or entity to note the amount of any Demand on the Credit to
which it relates or on any Document; (t) the failure of any person or
entity to surrender or take up any Credit; (u) the failure of any
Beneficiary to comply with the terms of any Credit or to meet the
obligations of such Beneficiary to Applicant; (v) the failure of any
person or entity to send or forward Documents if and as required by the
terms of any Credit; (w) any errors, inaccuracies, omissions,
interruptions or delays in transmission or delivery of any messages,
directions or correspondence by mail, cable, telegraph, wireless or
otherwise, whether or not they are in cipher; (x) any notice of nonrenewal
of a Credit sent by Wells Fargo not being received on time or at any time
by the Beneficiary of such Credit; (y) any inaccuracies in the translation
of any messages, directions or correspondence, (z) any Beneficiary's use
of the proceeds of any Demand or Acceptance; (aa) any Beneficiary's
failure to repay to Wells Fargo or Applicant the proceeds of any Demand or
Acceptance if the terms of any Credit require such repayment; (bb) any
act, error, neglect, default, negligence, gross negligence, omission,
willful misconduct, lack of good faith, insolvency or failure in business
of any of Wells Fargo's agents or correspondents or of any advising,
confirming, negotiating, paying, accepting or other bank. The occurrence
of any one or more of the contingencies referred to in the preceding
sentence shall not affect, impair or prevent the vesting of any of Wells
Fargo's rights or powers under this Agreement or any Loan Document or
Applicant's obligation to make reimbursement or payment to Wells Fargo
under this Agreement or any Loan Document. The provisions of this Section
13 will survive the termination of this Agreement and any Loan Documents
and the expiration or cancellation of any or all the Credits.
*SECTION 14. EVENTS OF DEFAULT.*
<PAGE>
SECTION 15. REMEDIES: Upon the occurrence and continuance of any
Event of Default, Wells Fargo may, as it may at any time during the term
of this Agreement, exercise its rights under Section 7 of this Agreement
and refuse to issue any Credit or Credits for the account of Applicant,
and all amounts paid by Wells Fargo on any Demand or Acceptance which have
not previously been repaid to Wells Fargo, together with all interest on
such amounts, and the Unpaid and Undrawn Balance, if any, shall
automatically be owing by Applicant to Wells Fargo and shall be due and
payable by Applicant on demand. Applicant agrees that upon payment of the
Unpaid and Undrawn Balance to Wells Fargo Applicant shall have no further
legal or equitable interest therein, and that Wells Fargo will not be
required to segregate on its books or records the Unpaid and Undrawn
Balance paid by Applicant. After Wells Fargo receives the Unpaid and
Undrawn Balance, Wells Fargo agrees to pay to Applicant upon termination
of all of Wells Fargo's liability under all the Credits, Demands and
Acceptances, a sum equal to the amount which has not been drawn under all
the Credits less all amounts due and owing to Wells Fargo from Applicant
under or in connection with the Letter of Credit Documents and the Loan
Documents. Further, upon the occurrence and continuance of any Event of
Default, Wells Fargo may sell immediately, without demand for payment,
advertisement or notice to Applicant, all of which are hereby expressly
waived, any and all Collateral, received or to be received, at private
sale or public auction or at brokers' board or upon any exchange or
otherwise, at Wells Fargo's option, in such parcel or parcels, at such
time or times, at such place or places, for such price or prices and upon
such terms and conditions as Wells Fargo may deem proper, and Wells Fargo
may apply the net proceeds of such sale or sales, together with any
deposit balances and any sums credited by or due from Wells Fargo to
Applicant in a general account or otherwise, to the payment of any and all
obligations and liabilities due to Wells Fargo by Applicant under or in
connection with the Letter of Credit Documents and the Loan Documents, all
without prejudice to the rights of Wells Fargo against Applicant with
respect to any and all such obligations and liabilities which may be or
remain unpaid. If any sale pursuant to the preceding sentence be at
brokers' board or at public auction or upon any exchange, Wells Fargo may
itself be a purchaser at such sale free from any right of redemption,
which Applicant hereby expressly waives and releases. All rights and
remedies of Wells Fargo existing under the Letter of Credit Documents and
the Loan Documents are in addition to, and not exclusive of, any rights or
remedies otherwise available to Wells Fargo under applicable law.
SECTION 16. SETOFF. In addition to any rights now or hereafter
granted under applicable law, and not by way of limitation of any such
rights, upon the occurrence and continuance of any Event of Default, Wells
Fargo is hereby authorized by Applicant at any time or from time to time,
without notice to Applicant or to any other person (any such notice being
hereby expressly waived by Applicant) to set off and to appropriate and to
apply any and all deposits (general or special, including, but not limited
to, indebtedness evidenced by certificates of deposit), whether matured or
unmatured, and any other indebtedness at any time held or owing by Wells
Fargo to or for the credit or the account of Applicant, against and on
account of the obligations and liabilities of Applicant to Wells Fargo
under or in connection with any of the Letter of Credit Documents or the
Loan Documents, irrespective of whether or not Wells Fargo shall have made
any demand for payment of any or all such obligations and liabilities or
declared any or all such obligations and liabilities to be due and
payable, and although any or all such obligations and liabilities shall be
contingent or unmatured.
SECTION 17. WAIVERS. Applicant agrees that no delay, extension of
time, renewal, compromise or other indulgence which may occur or be
granted by Wells Fargo under any Letter of Credit Document or any Loan
Document from time to time shall impair Wells Fargo's rights or powers
under this Agreement or any Application. Wells Fargo shall not be deemed
to have waived any of its rights under this Agreement or any Application
unless such waiver is in writing signed by an authorized representative of
Wells Fargo. No such waiver, unless expressly provided in such waiver,
shall be effective as to any transactions which occur subsequent to the
date of such waiver, or as to any continuance of any Event of Default
after such waiver. No amendment or modification of this Agreement shall be
effective unless such amendment or modification is in writing signed by
authorized representatives of Wells Fargo and Applicant.
SECTION 18. AMENDMENTS AND MODIFICATIONS TO CREDITS. At the request
or with the consent of Applicant and without affecting the obligations of
Applicant under this Agreement, Wells Fargo may, but will not be obligated
to, (a) increase the amount of any Credit, (b) extend the time for, and
amend or modify the terms and conditions governing, the making and
honoring of any Demand, Acceptance or Document or any other terms and
conditions of any Credit, or (c) waive the failure of any Demand or Document
to comply with the terms of the Credit to which it relates. No amendment to,
or modification of, the terms of any Credit will become effective if the
Beneficiary of such Credit or any confirming bank objects to such
amendment or modification. If any Credit is amended or modified in
accordance with this Section 18, Applicant shall be bound by, and
obligated under, the provisions of this Agreement with respect to such
Credit as so amended or modified and any action taken by Wells Fargo or
any advising, confirming, negotiating, paying, accepting or other bank in
accordance with such amendment or modification.
SECTION 19. SUCCESSORS AND ASSIGNS. Applicant agrees that the terms
and conditions of this Agreement and each Application shall bind the
heirs, executors, administrators, successors and assigns of Applicant, and
that all rights, benefits and privileges conferred on Wells Fargo under or
in connection with each Letter of Credit Document and each Loan Document
shall be and hereby are extended to, conferred upon and may be enforced by
the successors and assigns of Wells Fargo. Applicant will not assign this
Agreement or Applicant's obligations or liabilities under or in connection
with any Letter of Credit Document or any Loan Document to any person or
entity without the prior written approval of Wells Fargo.
SECTION 20. GOVERNING LAW. This Agreement and each Application, and
the performance by Applicant and Wells Fargo under this Agreement and each
Application, shall be governed by and be construed in accordance with the
laws of the State of California. Unless Wells Fargo otherwise specifically
agrees in writing, each Credit, even if it is not a documentary credit,
the opening of each Credit, the performance by Wells Fargo under each
Credit, and the performance by the Beneficiary and any advising,
confirming, negotiating, paying, accepting or other bank under each
Credit, shall be governed by and be construed in accordance with the UCP
in force on the date of the issuance of each Credit.
*SECTION 21. JURISDICTION AND SERVICE OF PROCESS. Any suit, action or
proceeding against Applicant under or with respect to any Letter of Credit
Document may, at Wells Fargo's sole option, be brought in (a) the courts
of the State of California, (b) the United States District Courts in
California, (c) the courts of the jurisdiction of Applicant's
incorporation or principal office, or (d) the courts of the jurisdiction
where any Beneficiary, any advising, confirming, negotiating, paying,
accepting or other bank, or any other person or entity has brought any
suit, action or proceeding against Wells Fargo with respect to any Credit,
any Demand or any Acceptance, and Applicant hereby submits to the
nonexclusive jurisdiction of such courts for the purpose of any such suit,
action, proceeding or judgment and waives any other preferential
jurisdiction by reason of domicile. Applicant further agrees that it will
accept joinder in any suit, action or proceeding brought in any court or
jurisdiction against Wells Fargo by any Beneficiary, any advising,
confirming, negotiating, paying, accepting or other bank or any other
person or entity with respect to any Credit, any Demand or any Acceptance.
Applicant irrevocably waives trial by jury and any objection, including,
but not limited to, any objection of the laying of venue or any objection
based on the grounds of FORUM NON CONVENIENS, which Applicant may now or
hereafter have to the bringing of any such action or proceeding. Applicant
further waives any right to transfer or change the venue of any suit, action
or proceeding brought against Applicant by Wells Fargo under or in connection
with any Letter of Credit Document. Applicant irrevocably consents to the
service of process in any action or proceeding in any court by the mailing of
copies thereof by registered or certified mail, postage prepaid, to Applicant
at its address specified next to its signature on this Agreement or at such
other address as Applicant shall have notified to Wells Fargo in writing, such
service to be effective ten (10) days after such mailing.
SECTION 22. JOINT APPLICANTS. If this Agreement is signed by more
than one person or entity, each Applicant agrees that this Agreement and
the Applications shall be the joint and several agreement of all such
Applicants and that all references to Applicant in this Agreement and the
Applications shall refer to all such Applicants jointly and severally.
SECTION 23. SEVERABILITY. Any provision of any Letter of Credit
Document which is prohibited or unenforceable in any jurisdiction shall
be, only as to such jurisdiction, ineffective to the extent of such
prohibition or unenforceability, but all the remaining provisions of such
Letter of Credit Document and all the other Letter of Credit Documents
shall remain valid.
SECTION 24. HEADINGS. The headings used in this Agreement are for
convenience of reference only and shall not define or limit the provisions
of this Agreement.
SECTION 25. COMPLETE AGREEMENT. This Agreement and the Application
for each Credit contain the entire agreement of Wells Fargo and Applicant
with respect to such Credit; provided, however, that such entire agreement
will also include any written document or instrument signed by Wells Fargo
and/or Applicant, and approved by Wells Fargo, which specifically
references this Agreement, any Application or any Credit. Except as
specifically provided in this Agreement, in any Application or in any
written document or instrument referred to in the preceding sentence, no
statements or representations not contained in this Agreement, such
Application or such written document or instrument shall have any force or
effect on this Agreement, such Application or such written document or
instrument.
This agreement is signed by Applicant's duly authorized
representative or representatives on the date specified below.
*See attached ADDENDUM TO CONTINUING STANDBY AND COMMERCIAL LETTER OF
CREDIT AGREEMENT
INTERNATIONAL RECTIFIER CORPORATION
- - - -------------------------------- ---------------------------------------
ADDRESS APPLICANT
By: /s/ Michael P. McGee
- - - -------------------------------- ------------------------------------
Date: July 1, 1994 Vice President, Chief Financial Officer
- - - -------------------------------- ---------------------------------------
TITLE
By:
------------------------------------
<PAGE>
ADDENDUM
TO CONTINUING STANDBY AND
COMMERCIAL LETTER OF CREDIT AGREEMENT
THIS ADDENDUM FORMS AN INTEGRAL PART OF THE CONTINUING STANDBY AND COMMERCIAL
LETTER OF CREDIT AGREEMENT DATED AS OF JULY 1, 1994 SIGNED BY INTERNATIONAL
RECTIFIER CORPORATION IN FAVOR OF WELLS FARGO BANK, N.A.
International Rectifier Corporation (the "Applicant") hereby agrees to the
following with respect to the above-referenced Continuing Standby and Commercial
Letter of Credit Agreements (the "Letter of Credit Agreement"):
1. EVENTS OF DEFAULT. The only Event of Default under the Letter of
Credit Agreement will be the occurrence and continuance of any Event
of Default under the Revolving Credit Agreement dated as of July 1,
1994 (the "Credit Agreement") between the Applicant and Wells Fargo
Bank, N.A. ("Wells Fargo").
2. JURISDICTION AND SERVICE OF PROCESS. In addition to the provisions on
jurisdiction and service of process in the Letter of Credit Agreement,
Wells Fargo agrees that any suit, action or proceeding against Wells
Fargo under or with respect to any Letter of Credit Document may, at
Applicant's sole option, be brought in (a) the courts of the State of
California, (b) the United States District Courts in California, or
(c) the courts of the jurisdiction of Applicant's incorporation or
principal office, and Wells Fargo hereby submits to the nonexclusive
jurisdiction of such courts for the purpose of any such suit, action,
proceeding or judgment and waives any other preferential jurisdiction
by reason of domicile. Wells Fargo irrevocably waives trial by jury
and any objection, including, but not limited to, any objection of the
laying of venue or any objection based on the grounds of FORUM NON
CONVENIENS which Wells Fargo may now or hereafter have to the bringing
of any such action or proceeding. Wells Fargo further waives any right
to transfer or change the venue of any suit, action or proceeding
brought against Wells Fargo by Applicant under or in connection with
any Letter of Credit Document. Wells Fargo irrevocably consents to the
service of process in any action or proceeding in any court by the
mailing of copies thereof by registered or certified mail, postage
prepaid, to Wells Fargo at its address on an Application or at such
other address as Wells Fargo shall have notified to Applicant in
writing, such service to be effective ten (10) days after such
mailing.
This Addendum to Continuing Standby and Commercial Letter of Credit
Agreement is signed by Applicant's and Wells Fargo's duly authorized
representative or representatives on 1 July, 1994.
INTERNATIONAL RECTIFIER CORPORATION WELLS FARGO BANK, N.A.
By: /s/ Michael McGee By: /s/ Daniel S. Silmore
------------------------------- -------------------------------------
Title: Vice President, Title: Assistant Vice President
------------------------- -------------------------------
Chief Financial Officer
By:
-------------------------------
Title:
-------------------------
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of the 1st
day of July 1994, by and between [SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF
SANWA BUSINESS CREDIT CORPORATION] its successors and assigns ("Lender"), and
INTERNATIONAL RECTIFIER CORPORATION ("Borrower").
Borrower is desirous of obtaining a loan from Lender and Lender is willing
to make the loan to Borrower upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00) in hand
paid and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties do hereby agree as follows:
1. ADVANCE OF LOAN.
(a) On the terms and conditions hereinafter set forth, the
parties agree that Lender shall lend to Borrower certain sums (the "Loan") on
the terms specified pursuant to that certain commitment letter dated May 16,
1994 (the "Commitment Letter"; which is incorporated herein by reference). Time
is of the essence.
(b) The obligation to repay the Loan hereunder shall be
evidenced by one or more promissory notes payable by Borrower to the order of
Lender in substantially the form attached hereto as Exhibit No. 1 (hereinafter
collectively referred to as the "Promissory Note"). The Promissory Note shall
bear interest, be payable and mature as set forth in Exhibit No. 1.
(c) The commitment of Lender to make the Loan herein shall
expire on the date specified in the Commitment Letter, provided, however, that
such commitment shall terminate (at Lender's option) upon the occurrence of
any Default (as such term is hereinafter defined) or shall be suspended (at
Lender's option) upon the occurrence and continuance of any event which, with
the giving of notice or lapse of time, or both, would become a Default
hereunder.
2. SECURITY. As security for the payment as and when due of the
indebtedness of Borrower to Lender hereunder and under Borrower's Promissory
Note (and any renewals, extensions and modifications thereof) and under any
other agreement or instrument, both now in existence and hereafter created (as
the same may be renewed, extended or modified), and the performance as and when
due of all other obligations of Borrower to Lender, both now in existence and
hereafter created (as the same may be renewed, extended or modified) (the
"Obligations"), Borrower hereby grants
<PAGE>
to Lender a purchase money security interest in the items of equipment (the
"Equipment") described on the collateral schedule(s) in substantially the form
attached hereto as Exhibit No. 2 (hereinafter collectively referred to as the
"Collateral Schedule") now or hereafter executed in connection with the
Promissory Note, and all replacements, substitutions and alternatives therefor
and thereof and accessions thereto and all proceeds (cash and non-cash),
including the proceeds of all insurance policies, thereof (the "Collateral").
Borrower agrees that with respect to the Collateral Lender shall have
all of the rights and remedies of a secured party under the California Uniform
Commercial Code (the "UCC"). Until such time as the Obligations have been
satisfied in full (upon prepayment or in accordance with their terms), Borrower
may not dispose of any of the Collateral without the prior written consent of
Lender, notwithstanding the fact that proceeds constitute a part of the
Collateral.
3. CONDITIONS PRECEDENT TO LENDER'S OBLIGATION. The obligation of
Lender to make the Loan as set forth in Section 1 hereof is expressly
conditioned upon compliance by Borrower, to the reasonable satisfaction of
Lender and its counsel, of the following conditions precedent:
(a) Concurrently with the execution hereof, or on or prior to the
date on which Lender is to make the initial advance of the Loan hereunder,
Borrower shall cause to be provided to Lender the following:
(1) Resolutions of the Board of Directors or validly
authorized Executive Committee of Borrower, certified by the Secretary or an
Assistant Secretary of Borrower, duly authorizing the borrowing of funds
hereunder and the execution, delivery and performance of this Agreement and all
related instruments and documents.
(2) An opinion of counsel for Borrower satisfactory as to
form and substance to Lender, as to each of the matters set forth in sub-parts
(a) through (f) of Section 4 hereof and as to such other matters as Lender may
reasonably request.
(3) Evidence satisfactory to Lender as to due compliance
with the insurance provisions of Section 5(f) hereof.
(b) On each date on which Lender is to advance funds hereunder,
(1) Borrower shall cause to be provided to Lender the
following:
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a. A Promissory Note in the amount of the Loan to be
advanced on such date, duly executed on behalf of Borrower, pursuant to Section
1 hereof.
b. Photocopies of the invoices or other evidence
reasonably satisfactory to Lender and its counsel, related to the acquisition
cost of that portion of the Collateral to which such advance of the Loan relates
as is newly acquired by Borrower (the "New Equipment"), and/or a desktop
appraisal reasonably satisfactory to Lender and its counsel with respect to that
portion of the Collateral to which such advance of the Loan relates as is used
in the hands of Borrower (the "Used Equipment"). Such appraisal shall confirm
that the current fair market value of the relevant items of the Used Equipment
equals or exceeds that portion of the Loan to which such items of the Used
Equipment relate. The appraisal shall be conducted by a firm selected by
Borrower, and reasonably satisfactory to Lender, at the expense of Borrower.
Notwithstanding the foregoing, Borrower shall not be required to provide a
desktop appraisal with respect to individual items of the Used Equipment that
have an acquisition cost of less than $100,000.00 until such time as the
aggregate acquisition cost of all such items of the Collateral having an
individual acquisition cost of less than $100,000.00, exceeds $250,000.00 in the
aggregate.
c. A Collateral Schedule describing the Collateral to
which such advance of the Loan relates.
d. A Uniform Commercial Code Financing Statement
prepared by Lender and duly executed on behalf of Borrower, to be filed with the
Secretary of State of California.
e. A Uniform Commercial Code Financing Statement
prepared by Lender and duly executed on behalf of Borrower, to be filed with the
County Recorder of Los Angeles County, California (the "UCC Fixture Filing").
(2) Such filings shall have been made and other actions
taken as reasonably may be required by Lender and its counsel to perfect a
valid, first priority purchase money security interest granted by Borrower to
Lender with respect to the Collateral.
(3) No Default or event which, with the giving of notice or
lapse of time, or both, would become a Default hereunder, shall have occurred.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby
represents and warrants that:
(a) Borrower is a corporation duly organized, and validly
existing in good standing under the laws of the state of
3
<PAGE>
its incorporation; and is duly qualified and authorized to transact business as
a foreign corporation in good standing in each state in which the collateral is
to be located.
(b) Borrower has the corporate power and authority to own or hold
under lease its properties and to enter into and perform its obligations
hereunder; and the borrowing hereunder by Borrower from Lender, the execution,
delivery and performance of this Agreement and all related instruments and
documents, (1) have been duly authorized by all necessary corporate action on
the part of Borrower; (2) do not require any stockholder approval or approval or
consent of any trustee or holders of any indebtedness or obligations of Borrower
except such as have been duly obtained; and (3) do not and will not contravene
any law, governmental rule, regulation or order now binding on Borrower, or the
certificate of incorporation or by-laws of Borrower, or contravene the
provisions of, or constitute a default under, or result in the creation of any
lien or encumbrance upon the property of Borrower under any agreement to which
Borrower is a party or by which it or its property is bound.
(c) Neither the execution and delivery by Borrower of this
Agreement and all related instruments and documents, nor the consummation of any
of the transactions by Borrower contemplated hereby or thereby, requires the
consent or approval of, the giving of notice to, the registration with, or the
taking of any other action in respect of, any Federal, state or foreign
governmental authority or agency, except as provided herein.
(d) This Agreement constitutes, and all related instruments and
documents when entered into will constitute, the legal, valid and binding
obligation of Borrower enforceable against Borrower in accordance with the terms
hereof and thereof, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating to
or affecting the enforcement of creditors' rights generally, and by applicable
laws (including any applicable common law and equity) and judicial decisions
which may affect the remedies provided herein and therein.
(e) There are no pending or threatened actions or proceedings to
which Borrower is a party, and there are no other pending or threatened actions
or proceedings of which Borrower has knowledge, before any court, arbitrator or
administrative agency, which, either individually or in the aggregate, would
materially adversely affect the financial condition of Borrower, or the ability
of Borrower to perform its obligations hereunder. Further, Borrower is not in
default under any material obligation for the payment of borrowed money, for the
deferred purchase price of property or for the payment of any rent which, either
individually or in the aggregate, would have the same such effect.
4
<PAGE>
(f) Under the laws of the State of California, the state in which
the Equipment is to be located, the Equipment consists solely of personal
property and not fixtures notwithstanding the filing of the UCC Fixture Filing.
(g) Upon payment in full of the acquisition cost of the New
Equipment, Borrower will have good and marketable title to the New Equipment,
and Borrower has good and marketable title to the Used Equipment, free and clear
of all liens and encumbrances (excepting only the lien of Lender). Upon the last
to occur of: (1) delivery of an item of New Equipment, (2) payment to the vendor
of the acquisition cost of such item of the New Equipment, (3) advance by Lender
to Borrower of the Loan relating to the item of the Equipment, and (4) filing in
the appropriate public offices of Uniform Commercial Code financing statements
or statements of amendment naming Borrower as debtor, and Lender as secured
party, and describing the item of the Equipment, Lender will have a valid,
perfected, first priority security interest in the item of the Equipment.
(h) The financial statements of Borrower (copies of which have
been furnished to Lender) have been prepared in accordance with generally
accepted accounting principles consistently applied ("GAAP"), and fairly
present Borrower's financial condition and the results of Borrower's operations
as of the date of and for the period covered by such statements, and since the
date of such statements there has been no material adverse change in such
conditions or operations.
(i) Borrower has filed or has caused to have been filed all
federal, state and local tax returns which, to the knowledge of Borrower, are
required to be filed, and has paid or caused to have been paid all taxes as
shown on such returns or on any assessment received by it, to the extent that
such taxes have become due, unless and to the extent only that such taxes,
assessments and governmental charges are currently contested in good faith and
by appropriate proceedings by Borrower and adequate reserves therefor have been
established as required under GAAP. To the extent Borrower believes it advisable
to do so, Borrower has set up reserves which are believed by Borrower to be
adequate for the payment of additional taxes for years which have not been
audited by the respective tax authorities.
(j) Borrower is not in violation of any law, ordinance,
governmental rule or regulation to which it is subject and the violation of
which would have a material adverse effect on the conduct of its business, and
Borrower has obtained any and all licenses, permits, franchises or other
governmental authorizations necessary for the ownership of its properties and
the conduct of its business.
5
<PAGE>
(k) None of the proceeds of the Loan will be used, directly or
indirectly, by Borrower for the purpose of purchasing or carrying, or for the
purpose of reducing or retiring any indebtedness which was originally incurred
to purchase or carry, any "margin security" within the meaning of Regulation G
(12 CFR Part 207), or "margin stock" within the meaning of Regulation U (12 CFR
Part 221), of the Board of Governors of the Federal Reserve System (herein
called "margin security" and "margin stock") or for any other purpose which
might make the transactions contemplated herein a "purpose credit" within the
meaning of Regulation G or Regulation U, or cause this Agreement to violate any
other regulation of the Board of Governors of the Federal Reserve System or the
Securities Exchange Act of 1934 or the Small Business Investment Act of 1958, as
amended, or any rules or regulations promulgated under any of such statutes.
(1) The address stated below the signature of Borrower is the
chief place of business and chief executive office of Borrower; and Borrower
does not conduct business under a trade, assumed or fictitious name.
5. COVENANTS OF BORROWER. Borrower covenants and agrees as follows:
(a) The proceeds of the Loan will be used exclusively for
business or commercial purposes, including financing the acquisition of the New
Equipment.
(b) Borrower shall use the Collateral solely in the conduct of
its business and in a careful and proper manner; and shall not change the
location of any item of the Collateral, as specified on the applicable
Collateral Schedule, without the prior written consent of Lender, which shall
not unreasonably be withheld.
(c) Borrower shall not dispose of or further encumber its
interest in the Collateral without the prior written consent of Lender.
(d) Borrower, at its own expense, will pay or cause to be paid
all taxes and fees relating to the ownership and use of the Equipment and will
keep and maintain, or cause to be kept and maintained, the Equipment in
accordance with the manufacturer's recommended specifications, and in as good
operating condition as on the date of execution hereof (or on the date on which
acquired, if such date is subsequent to the date of execution hereof), ordinary
wear and tear resulting from proper use thereof alone excepted, and will provide
all maintenance and service and make all repairs necessary for such purpose. In
addition, if any parts or accessories forming part of the Equipment shall from
time to time become worn out, lost, destroyed, damaged beyond repair or
otherwise permanently rendered unfit for use, Borrower, at its own
6
<PAGE>
expense, will within a reasonable time replace such parts or accessories or
cause the same to be replaced, with replacement parts or accessories which are
free and clear of all liens, encumbrances or rights of others and have a value
and utility at least equal to the parts or accessories replaced. All
accessories, parts and replacements for or which are added to or become attached
to the Equipment shall immediately be deemed incorporated in the Equipment and
subject to the security interest granted by Borrower herein. Upon reasonable
advance notice, Lender shall have the right to inspect the Equipment and all
maintenance records thereto, if any, at any reasonable time.
(e) The parties intend that the Equipment shall remain personal
property, notwithstanding the manner in which it may be affixed to any real
property, and Borrower shall use its best efforts to obtain and deliver to
Lender (to be recorded at Borrower's expense) from each owner of the property
(the "Premises") where the Equipment is to be located, waivers of any lien,
encumbrance or interest which such owner might have or hereafter obtain or
claim with respect to the Equipment. Borrower shall maintain the Equipment free
from all claims, liens and legal processes of creditors of Borrower other than
liens (1) for fees, taxes, or other governmental charges of any kind which are
not yet delinquent or are being contested in good faith by appropriate
proceedings which suspend the collection thereof (provided, however, that such
proceedings do not involve any substantial danger of the sale, forfeiture or
loss of the Equipment or any interest therein); (2) liens of mechanics,
materialmen, laborers, employees or suppliers and similar liens arising by
operation of law incurred by Borrower in the ordinary course of business for
sums that are not yet delinquent or are being contested in good faith by
negotiations or by appropriate proceedings which suspend the collection thereof
(provided, however, that such contest does not involve any substantial danger of
the sale, forfeiture or loss of the Equipment or any interest therein) ; and (3)
liens arising out of any judgments or awards against Borrower which have been
adequately bonded to protect Lender's interests or with respect to which a stay
of execution has been obtained pending an appeal or a proceeding for review.
Borrower shall notify Lender immediately upon receipt of notice of any lien,
attachment or judicial proceeding affecting the Equipment in whole or in part.
(f) At its own expense, Borrower shall keep the Equipment or
cause it to be kept insured against loss or damage due to fire and the risks
normally included in extended coverage, malicious mischief and vandalism, for
the full replacement value thereof. All insurance for loss or damage shall
provide that losses, if any, shall be payable to Lender. The proceeds of such
insurance payable as a result of loss of or damage to the Equipment shall be
applied, at Lender's option, (x) toward the replacement, restoration or repair
of the Equipment which may be lost, stolen, destroyed or damaged, or (y) toward
payment of the balance
7
<PAGE>
outstanding on the Promissory Note or the Obligations. In addition, Borrower
shall also carry public liability insurance, both personal injury and property
damage. All insurance required hereunder shall be in form and amount and with
companies satisfactory to Lender. Borrower shall pay or cause to be paid the
premiums therefor and deliver to Lender evidence satisfactory to Lender of such
insurance coverage. Borrower shall cause to be provided to Lender, on or before
the date of the scheduled expiration or lapse of such insurance coverage,
evidence satisfactory to Lender of renewal or replacement coverage. Each insurer
shall agree, by endorsement upon the policy or policies issued by it, or by
independent instrument furnished to Lender, that (1) it will endeavor to give
Lender thirty (30) days' prior written notice of the effective date of any
material alteration or cancellation of such policy; and (2) insurance as to
the interest of any named loss payee other than Borrower shall not be
invalidated by any actions, inactions, breach of warranty or conditions or
negligence of Borrower with respect to such policy or policies.
(g) Borrower shall promptly and duly execute and deliver to
Lender such further documents, instruments and assurances and take such further
action as Lender may from time to time reasonably request in order to carry out
the intent and purpose of this Agreement and to establish and protect the rights
and remedies created or intended to be created in favor of Lender hereunder;
including, without limitation, the execution and delivery of any Uniform
Commercial Code Financing Statement or other document reasonably required, and
payment of all necessary costs to record such documents (including payment of
any documentary or stamp tax), to perfect and maintain perfected the security
interest granted under this Agreement.
(h) Borrower shall provide written notice to Lender (1) thirty
(30) days prior to any contemplated change in the name or address of Borrower or
of Borrower's corporate structure such that a filed financing statement would
become seriously misleading (within the meaning of the UCC); and (2) promptly
upon the occurrence of any event which constitutes a Default (as hereinafter
defined) hereunder or which, with the giving of notice, lapse of time or both,
would constitute a Default hereunder.
(i) Borrower shall furnish Lender (1) within one hundred twenty
(120) days after the end of each fiscal year of Borrower, its balance sheet as
at the end of such year, and the related statement of income and statement of
changes in financial position for such fiscal year, prepared in accordance with
GAAP, all in reasonable detail and certified by independent certified public
accountants of recognized standing selected by Borrower (which shall be a "Big
6" accounting firm); (2) within sixty (60) days after the end of each quarter
of Borrower's fiscal year, its balance sheet as at the end of such quarter and
the related statement of income and statement of changes in financial position
8
<PAGE>
for such quarter, prepared in accordance with GAAP; and (3) within thirty (30)
days after the date on which they are filed, all reports, forms and other
filings required to be made by Borrower to the Securities and Exchange
Commission, if any. Notwithstanding the foregoing, Borrower shall be deemed to
have satisfied its obligations pursuant to clauses (1) and (2) of this Section 5
(i) if Borrower is a reporting company and satisfies its obligations under
Section 5(i)(3).
(j) Borrower shall at all times maintain its corporate existence
except as expressly permitted herein. Borrower shall not consolidate with, merge
into, or convey, transfer or lease substantially all of its assets as an
entirety to (such actions being referred to as an "Event"), any Person (which
term, for the purposes of this paragraph means any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof) , unless (not less than sixty (60) days before the Event):
(1) if Borrower is not the surviving entity after such
Event, (A) such Person shall be an entity organized and existing under the laws
of the United States of America or any state or the District of Columbia, (B)
such Person shall execute and deliver to Lender an agreement containing an
effective assumption by such Person of the due and punctual performance and
observance of each covenant and condition of this Agreement to be performed or
observed by Borrower, and (C) Lender is reasonably satisfied as to the
creditworthiness of such Person; or
(2) if Borrower is the surviving entity after such Event,
the Tangible Net Worth of the surviving entity immediately after such Event must
be substantially equal to or greater than the Borrower's Tangible Net Worth
prior to such Event. As used herein, "Tangible Net Worth" shall mean the sum of
the par or stated value of all outstanding capital stock, surplus and undivided
profits, less any amounts attributable to good will, patents, copyrights,
mailing lists, catalogs, trademarks, bond discount and underwriting expenses,
organization expenses and other intangibles, all as determined in accordance
with GAAP.
(k) As a result of or in connection with a material change in the
ownership of the Borrower's capital stock, the Tangible Net Worth of the
surviving entity immediately after such a change must be substantially equal to
or greater than the Borrower's Tangible Net Worth immediately prior to such
change.
(l) Borrower shall provide written notice to Lender of the
commencement of proceedings under the Federal bankruptcy laws or other
insolvency laws (as now or hereafter in effect) involving Borrower as a debtor.
9
<PAGE>
(m) Borrower shall indemnify and defend Lender, its successors
and assigns, and their respective directors, officers and employees, from and
against any and all claims, actions and suits (including, without limitation,
related reasonable attorneys' fees) of any kind, nature or description
whatsoever arising, directly or indirectly, in connection with any of the
Collateral, including (without limitation) any rent paid to the landlord of the
Premises, and all costs of repair or restoration of the Premises (in each case,
other than such as may result from the gross negligence or willful misconduct
of Lender, its successors and assigns, and their respective directors, officers
and employees).
(n) Borrower has conducted, and will continue to conduct its
business operations, and so long as any Obligations remains outstanding will
use the Collateral, so as to comply with all Environmental Laws in all material
respects; as of the date hereof, and as of the date of execution of each
Collateral Schedule, except as have been previously disclosed in writing in
Borrower's most recently filed Form 10K, there are no Hazardous Substances
generated, treated, handled, stored, transported, discharged, emitted, released
or otherwise disposed of in connection with Borrower's use of the Collateral
resulting in any material liability or obligations; and Borrower has, and so
long as any Obligations remains outstanding will continue to have in full force
and effect all federal, state and local licenses, permits, orders and approvals
required to operate the Collateral in compliance with all Environmental Laws in
all material respects.
As used herein, the following terms shall have the following meaning:
(A) "Adverse Environmental Condition" shall mean (i) the existence or the
continuation of the existence of an Environmental Contamination
(including, without limitation, a sudden or non-sudden accidental or
non-accidental Environmental Contamination), or exposure to any
substance, chemical, material, pollutant, Hazardous Substance, odor or
audible noise or other release or emission in, into or onto the
environment (including without limitation, the air, ground, water or
any surface) at, in, by, from or related to any Collateral, (ii) the
environmental aspect of the transportation, storage, treatment or
disposal of materials in connection with the operation of any
Collateral, or (iii) the violation, or alleged violation, of any
Environmental Law, permits or licenses of, by or from any governmental
authority, agency or court relating to environmental matters connected
with any of the Collateral.
(B) "Environmental Claim" shall mean any accusation, allegation, notice of
violation, claim, demand, abatement or other order on direction
(conditional or otherwise) by
10
<PAGE>
any governmental authority or any Person for personal injury
(including sickness, disease or death), tangible or intangible
property damage, damage to the environment or other adverse affects on
the environment, or for fines, penalties or restrictions, resulting
from or based upon any Adverse Environmental Condition.
(C) "Environmental Contamination" shall mean any actual or threatened
release, spill, emission, leaking, pumping, injection, presence,
deposit, abandonment, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, or into or out of
any of the Collateral, including, without limitation, the movement of
any Hazardous Substance or other substance through or in the air,
soil, surface water, groundwater or property which is not in
compliance with applicable Environmental Laws.
(D) "Environmental Law" shall mean any present or future federal,
foreign, state or local law, ordinance, order, rule or regulation
and all judicial, administrative and regulatory decrees, judgments
and orders, pertaining to health, industrial hygiene, the use,
disposal or transportation of Hazardous Substances, Environmental
Contamination, or pertaining to the protection of the environment,
including, but not limited to, the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C.
Section 9601 ET SEQ.), the Hazardous Material Transportation Act
(49 U.S.C. Section 1801 ET SEQ.), the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 ET SEQ.) , the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 ET SEQ.), the
Clean Air Act (42 U.S.C. Section 7401 ET SEQ.), the Toxic Substances
Control Act (15 U.S.C. Section 2601 ET SEQ.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 1361
ET SEQ.), the Occupational Safety and Health Act (19 U.S.C.
Section 651 ET SEQ.), the Hazardous and Solid Waste Amendments
(42 U.S.C. Section 2601 ET SEQ.), the California Hazardous
Waste Control Law, Cal. Health & Safety Code Section 25100 ET SEQ.,
the California Carpenter-Presley-Tanner Hazardous Substances Account
Act, Cal. Health & Safety Code Section 25300 ET SEQ., the California
Porter-Cologne Water Quality Act, Cal. Water Code Section 13000 ET
SEQ., and the California Environmental Quality Act, Cal. Pub. Res.
Code Section 21000 ET SEQ., as these laws have been or may be amended
or supplemented, and any successor thereto, and any analogous foreign,
state or local statutes, and the rules, regulations and orders
promulgated pursuant thereto.
(E) "Environmental Loss" shall mean any loss, cost, damage, liability,
deficiency, fine, penalty or expense
11
<PAGE>
(including, without limitation, reasonable attorneys' fees,
engineering and other professional or expert fees), investigation,
removal, cleanup and remedial costs (voluntarily or involuntarily
incurred) and damages to, loss of the use of or decrease in value of
the Collateral arising out of or related to any Adverse Environmental
Condition.
(F) "Hazardous Substances" shall mean and include hazardous substances as
defined in CERCLA; oil of any kind, petroleum products and their
by-products, including, but not limited to, sludge or residue;
asbestos containing materials; polychlorinated biphenyls; any and all
other hazardous or toxic substances; hazardous waste, as defined in
CERCLA; medical waste; infectious waste; those substances listed in
the United States Department of Transportation Table (49 C.F.R.
Section 172.101); explosives; radioactive materials; and all other
pollutants, contaminants and other substances regulated or controlled
by the Environmental Laws and any other substance that requires
special handling in its collection, storage, treatment or disposal
under the Environmental Laws.
(G) "Person" shall mean any individual, partnership, corporation, trust,
unincorporated organization, government or department or agency
thereof and any other entity
6. DEFAULT. Borrower shall be deemed to be in default hereunder
("Default") if (a) Borrower shall fail to make any payment of the Obligations as
and when due, and such failure shall continue unremedied for a period of ten
(10) days after the same shall have become due; or (b) Borrower shall fail to
provide the insurance required pursuant to Section 5(f) hereof; or (c) Borrower
shall fail to perform or observe in timely fashion any other covenant, condition
or agreement to be performed or observed by it hereunder or under the Promissory
Note and such failure shall continue unremedied for a period of thirty (30) days
after written notice thereof to Borrower by Lender; or (d) Borrower shall (1) be
generally not paying its debts as they become due after and including any
applicable grace period (within the meaning of such phrase as used in the
Bankruptcy Code), (2) take action for the purpose of invoking the protection of
any bankruptcy or insolvency law, or any such law is invoked against or with
respect to Borrower or its property, and any such petition filed against
Borrower is not dismissed within sixty (60) days; or (e) any certificate,
statement, representation, warranty or audit contained herein or heretofore or
hereafter furnished with respect hereto by or on behalf of Borrower proving to
have been false in any material respect at the time as of which the facts
therein set forth were stated or certified, or having omitted any substantial
contingent or unliquidated liability or claim against Borrower; or (f)
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<PAGE>
Borrower shall be in default under any obligation for an original principal
amount in excess of One Million Dollars ($1,000,000.00) for the payment of
borrowed money, for the deferred purchase price of property or for the payment
of any rent, and the applicable grace period with respect thereto shall have
expired. Notwithstanding anything herein to the contrary, any breach of any
representations and warranties contained in Sections 4(b)(3), 4(c) or 4(i), or
the covenant in Section 5(n), shall not be deemed a Default or prohibit any
extension or continuation of credit hereunder if, in the aggregate, such
breaches could not reasonably be expected to have a material adverse effect on
the Borrower's financial condition, operations or assets.
The occurrence of a Default with respect to any Promissory Note shall,
at the sole discretion of Lender (as set forth in a written declaration to
Borrower), constitute a Default with respect to any or all of the other
Promissory Notes. Notwithstanding anything to the contrary set forth herein,
Lender or its assignee(s) (as applicable) may exercise all rights and remedies
hereunder or under a Promissory Note independently with respect to each
Promissory Note and/or with respect to the Collateral collateralizing such
Promissory Note.
7. REMEDIES. Upon the occurrence of a Default hereunder, Lender
may, at its option, declare this Agreement to be in default with respect to any
or all of the Promissory Notes, and at any time thereafter may do any one or
more of the following, all of which are hereby authorized by Borrower:
(a) Exercise any and all rights and remedies of a Lender under
the UCC in effect in the State of California at the date of this Agreement and
in addition to those rights, at its sole discretion, may require Borrower (at
Borrower's sole expense) to forward promptly any or all of the Collateral to
Lender at such location as shall reasonably be required by Lender, or enter upon
the premises where any such Collateral is located (without obligation for rent)
and take immediate possession of and remove the Collateral by summary
proceedings or otherwise, all without liability from Lender to Borrower for or
by reason of such entry or taking of possession, whether for the restoration of
damage to property caused by such taking or otherwise.
(b) Subject to any right of Borrower to redeem the Collateral,
sell, lease or otherwise dispose of any or all of the Collateral in a
commercially reasonable manner at public or private sale with notice to Borrower
(the parties agreeing that ten (10) days' prior written notice shall constitute
adequate notice of such sale) at such price as it may deem best, for cash,
credit, or
13
<PAGE>
otherwise, with the right of Lender to purchase and apply the proceeds:
FIRST, to the payment of all expenses and charges, including the
expenses of any sale, lease or other disposition, the expenses of any
taking, attorneys' fees, court costs and any other expenses incurred
or advances made by Lender in the protection of its rights or the
pursuance of its remedies, and to provide adequate indemnity to Lender
against all taxes and liens which by law have, or may have, priority
over the rights of Lender to the monies so received by Lender;
SECOND, to the payment of the Obligations; and
THIRD, to the payment of any surplus thereafter remaining to
Borrower or to whosoever may be entitled thereto;
and in the event that the proceeds are insufficient to pay the amounts specified
in clauses "First" and "Second" above, Lender may collect such deficiency from
Borrower.
(c) Lender may exercise any other right or remedy available to it
under this Agreement, the Promissory Note, the Guaranty or applicable law, or
proceed by appropriate court action to enforce the terms hereof or to recover
damages for the breach hereof or to rescind this Agreement in whole or in part.
In addition, Borrower shall be liable for any and all unpaid additional
sums due hereunder or under the Promissory Note, before, after or during the
exercise of any of the foregoing remedies; for all reasonable legal fees and
other reasonable costs and expenses incurred by reason of any default or of the
exercise of Lender's remedies with respect thereto. No remedy referred to in
this Section is intended to be exclusive, but each shall be cumulative, and
shall be in addition to any other remedy referred to above or otherwise
available at law or in equity, and may be exercised concurrently or separately
from time to time. Borrower hereby waives any and all existing or future claims
to any offset against the sums due hereunder or under the Promissory Note and
agrees to make the payments regardless of any offset or claim which may be
asserted by Borrower or on its behalf in connection with this Agreement.
The failure of Lender to exercise, or delay in the exercise of, the rights
granted hereunder upon any Default by Borrower shall not constitute a waiver of
any such right upon the continuation or recurrence of any such Default. Lender
may take or release other security; may release any party primarily or
secondarily liable for the Obligations; may grant extensions, renewals or
indulgences with respect to the Obligations and may apply any other security
14
<PAGE>
therefor held by it to the satisfaction of the Obligations without prejudice to
any of its rights hereunder.
8. NOTICES. All notices (excluding billings and communications in the
ordinary course of business) hereunder shall be in writing, personally
delivered, sent by overnight courier service, sent by facsimile telecopier, or
sent by certified mail, return receipt requested, addressed to the other party
at its respective address stated below the signature of such parties or at such
other addresses as such parties shall from time to time designate in writing to
the other parties; and shall be effective from the date of receipt.
9. LENDER'S RIGHT TO PERFORM FOR BORROWER. If Borrower is in Default
in the performance of or compliance with any of its agreements contained herein,
Lender shall have the right, but shall not be obligated, to effect such
performance or compliance, and the amount of any out-of-pocket expenses and
other reasonable expenses of Lender thereby incurred, together with interest
thereon at the Late Charge Rate (as defined in the Promissory Note), shall be
due and payable by Borrower upon demand.
Borrower hereby irrevocably appoints Lender as Borrower's
attorney-in-fact (which power shall be deemed coupled with an interest),
effective upon any Default hereunder, to execute, endorse and deliver any deed,
conveyance, assignment or other instrument in writing as may be required to vest
in Lender any right, title or power which by the terms hereof are expressed to
be conveyed to or conferred upon Lender, including, without limitation, Uniform
Commercial Code financing statements (including continuation statements), real
property waivers, and documents and checks or drafts relating to or received in
payment for any loss or damage under the policies of insurance required by the
provisions of Section 5(f) hereof, but only to the extent that the same relates
to the Collateral.
10. SUCCESSORS AND ASSIGNS; CONFIDENTIALITY. (a) This Agreement shall
inure to the benefit of Lender, its successors and assigns, and shall be binding
upon the successors of Borrower. This Agreement may not be assigned by Borrower.
Lender reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Lender's rights and
obligations hereunder, in the Promissory Notes, in the Collateral and/or the
Obligations held by it to others at any time and from time to time; and Lender
may disclose to any such purchaser, assignee, transferee or participant (the
"Participant") or potential Participant, this Agreement and all information,
reports, financial statements and documents executed or obtained in connection
with this Agreement which Lender now or hereafter may have relating to the Loan,
Borrower, or the business of Borrower. Notwithstanding the foregoing, such
Participant may not be an entity directly and substantially engaged in the
semi-conductor
15
<PAGE>
manufacturing business; and any such sale, assignment, transfer, negotiation or
grant of a participation shall be with respect to Obligations equal to or in
excess of [One Million Dollars ($1,000,000.00)]. Borrower hereby grants to any
Participant all liens, rights and remedies of Lender under the provisions of
this Agreement or any other documents relating hereto or under applicable laws.
Borrower agrees that any Participant may enforce such liens and exercise such
rights and remedies in the same manner as if such Participant were Lender and a
direct creditor of Borrower. (b) Lender shall, and shall cause its
Representatives to, hold all non-public information obtained pursuant to this
Agreement ("Confidential Information") in accordance with its customary
procedures for handling confidential information of this nature. Confidential
Information does not include, however, information which (1) is or becomes
generally available to the public other than as a result of a disclosure by
Lender or its Representatives, (2) was available to Lender prior to its
disclosure by Borrower to Lender, (3) becomes available to Lender on a
non-confidential basis from any person, or (4) is approved for release by
written authorization of Borrower. The term "Representatives" shall mean and
include all subsidiaries, affiliates, directors, officers, employees, agents and
controlling persons of the persons referred to. In the event that Lender is
requested by governmental organization or required by applicable law, regulation
or legal process, to disclose any Confidential Information, Lender agrees that
it will use its best efforts to provide Borrower with prompt oral or written
notice of such request(s), at the Borrower's address set forth below, attention
"President"; provided that Lender is not required to provide such notice if
Lender is prohibited by applicable law, rule, regulation or order from doing so.
Disclosure of Confidential Information may be made to a potential Participant,
only if the potential Participant has agreed in writing to abide by the
confidentiality provisions of this Section.
11. CALIFORNIA LAW GOVERNS. THIS AGREEMENT AND ALL OTHER RELATED
INSTRUMENTS AND DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER AND THEREUNDER SHALL, IN ALL RESPECTS, BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA (WITHOUT REGARD
TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE
COLLATERAL.
The parties agree that any action or proceeding arising out of or
relating to this Agreement may be commenced in any state or Federal court of
competent jurisdiction in the State of California, and each party submits to the
jurisdiction of such court and agrees that a summons and complaint commencing an
action or proceeding in any such court shall be properly served and shall confer
personal jurisdiction if served personally or by certified
16
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mail to it at its address designated pursuant hereto, or as otherwise provided
under the laws of the State of California.
BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH BORROWER AND LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY
PERTAINING TO THIS AGREEMENT OR THE PROMISSORY NOTE. BORROWER AUTHORIZES LENDER
TO FILE THIS PROVISION WITH THE CLERK OR JUDGE OF ANY COURT HEARING SUCH CLAIM
PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 631(a). IT IS HEREBY
AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF
ALL CLAIMS AGAINST PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS
AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. THIS WAIVER IS
KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY BORROWER AND BORROWER HEREBY
ACKNOWLEDGES THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR
NULLIFY ITS EFFECT. BORROWER FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS AGREEMENT AND THE PROMISSORY NOTE AND IN THE MAKING OF
THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND
THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
12. NON-UTILIZATION FEE. Borrower shall pay to Lender a
non-utilization fee calculated and payable as follows: (a) if the aggregate
amount of the Loans advanced hereunder as of December 31, 1994, is less than
$2,000,000.00, then upon demand Borrower shall pay to Lender a non-utilization
fee calculated as one-half of one percent (.5%) of the difference between
$2,000,000.00 and the aggregate amount of the Loans having been funded hereunder
as of December 31, 1994; and (b) if the aggregate amount of the Loans advanced
hereunder as of September 30, 1995, is less than $5,000,000.00, then upon demand
Borrower shall pay to Lender a non-utilization fee calculated as one-half of
one percent (.5%) of the difference between $3,000,000.00 and the aggregate
amount of the Loans having been funded hereunder between January 1, 1995, and
September 30, 1995 (provided, however, that the amount of such difference shall
be reduced by the excess, if any, of the aggregate amount of the Loans having
been funded hereunder on or before December 31, 1994, and $2,000,000.00).
13. MISCELLANEOUS. This Agreement, the Promissory Note all other
related instruments and documents executed pursuant hereto, and the Commitment
Letter, constitute the entire agreement between the parties with respect to the
subject matter hereof and shall not be amended or altered in any manner except
by a document in writing executed by both parties.
All representations, warranties, and covenants of Borrower contained
herein or made pursuant hereto shall survive closing and continue throughout the
term hereof and until the Obligations are satisfied in full.
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Any provision of this Agreement or of any instrument or document
executed pursuant hereto 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 thereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. To the extent permitted by applicable law, Borrower
hereby waives any provision of law which renders any provision hereof or thereof
prohibited or unenforceable in any respect. The captions in this Agreement are
for convenience of reference only and shall not define or limit any of the terms
or provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
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SANWA GENERAL EQUIPMENT LEASING,
A DIVISION OF SANWA BUSINESS
CREDIT CORPORATION
Lender
By: /s/ Thomas M. Joschik
----------------------------------
Name: Thomas M. Joschik
--------------------------------
Title: Vice President
-------------------------------
One South Wacker Drive
Chicago, Illinois 60606
with a copy to:
502 Washington Avenue
Suite 600
Towson, Maryland 21204
Facsimile: 410-821-8775
INTERNATIONAL RECTIFIER CORPORATION
Borrower
By: /s/ Michael P. McGee
----------------------------------
Name: Michael P. McGee
Title: Vice President & Chief Financial
Officer
233 Kansas Street
El Segundo, California 90245
Facsimile: (310) 640-6575
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<PAGE>
EXHIBIT NO. 1
PROMISSORY NOTE
NO._____
$__________________________________ ________________, 1994
FOR VALUE RECEIVED, INTERNATIONAL RECTIFIER CORPORATION (the "Borrower") hereby
promises to pay to the order of SANWA GENERAL EQUIPMENT LEASING, A DIVISION OF
SANWA BUSINESS CREDIT CORPORATION, its successors and assigns ("Lender"), in
lawful money of the United States of America the principal amount of $ _______,
together with interest at the Interest Rate as hereinafter defined at the
times and in the manner set forth below.
This Note is one of a series of promissory notes issued pursuant to a Loan
and Security Agreement dated as of ________, 1994 (the "Agreement"), between
the Borrower and Lender. Capitalized terms used herein without definition
shall have the meaning given them in the Agreement.
Principal and interest due hereunder shall be payable as follows:
(a) Interest only shall be payable for the period from the date of
execution of this Note to the last day of this calendar month; payable on the
last day of this calendar month; at the Interest Rate.
(b) Twenty (20) consecutive quarterly installments of principal, each
in an amount equal to $_____________________, which is equal to four and one-
half percent (4 1/2%) of the original principal amount hereof; payable, in
arrears, on the last day of each calendar quarter during the term hereof
(each such date, an ("Installment Date"), commencing ________________, 199__,
and continuing on the last day of every third (3rd) month thereafter.
(c) The Borrower promises to pay to the order of the Lender interest
on the outstanding principal balance of this Note until the maturity of this
Note (whether by acceleration, declaration, extension or otherwise) at a
floating and fluctuating per annum rate of interest equal at all times to the
Interest Rate. Interest accrued on the unpaid principal balance of this Note
until the maturity of this Note (whether by acceleration, declaration, extension
or otherwise) shall be paid by the Borrower to the Lender quarterly on the last
day of each calendar quarter in each year, commencing ______________, 199__, and
continuing on the last day of every third (3rd) month thereafter until the
maturity of this Note (whether by acceleration, declaration, extension or
otherwise), at which time all unpaid interest accrued through the
<PAGE>
date of such maturity shall be paid in full by the Borrower to the Lender.
(d) One (1) final installment, in an amount equal to ten (10)
percent of the original principal amount hereof, shall be payable concurrently
with the twentieth (20th) quarterly installment.
(e) As used herein, the term "Interest Rate" shall mean that
percentage per annum calculated as the sum of (a) one hundred sixty (160) basis
points, plus (b) the LIBOR Rate (as hereinafter defined) determined as of the
Installment Date next preceding the date of determination. As used herein, the
term "LIBOR Rate" shall mean, with respect to the period beginning on the date
hereof and ending on the first Installment Date, and each subsequent quarterly
period occurring during the term hereof (each, an "Interest Period"), an
interest rate per annum (rounded upward to the next higher whole multiple of
1/16% if such rate is not such a multiple), equal at all times during such
Interest Period to the quotient of (i) the rate per annum (rounded upwards to
the next higher whole multiple of 1/16% if such rate is not such a multiple) as
determined on the basis of the Interest Settlement Rates of the British Banker's
Association as published by TELERATE, for deposits in U.S. Dollars for ninety
(90) days, on the Business Day next preceding the first day of such Interest
Period, divided by (ii) a number equal to 1.00 minus the aggregate (without
duplication) of the rates (expressed as a decimal fraction) of the LIBOR Reserve
Requirements (as hereinafter defined) current on the Business Day next preceding
the first day of such Interest Period. For the purposes of calculating such
rate, the parties shall assume that each year is comprised of twelve (12)
thirty (30) day months. As used herein, the term "LIBOR Reserve Requirements"
means, for any Interest Period, the maximum reserves (whether basic,
supplemental, marginal, emergency or otherwise) prescribed by the Board of
Governors of the Federal Reserve System (or any successor) with respect to
liabilities or assets consisting of or including "Eurocurrency liabilities"
(as defined in Regulation D of the Board of Governors of the Federal Reserve
System) having a term equal to such Interest Period. Interest on any overdue
payment shall be due and payable at a rate calculated as that percentage per
annum equal to the Interest Rate plus two (2) percent, until paid (the "Late
Charge Rate").
This Note may be prepaid by Borrower in whole on any of the first (1st)
four (4) Installment Dates, after giving sixty (60) days' prior written notice
to Lender of its intention to make such prepayment, by paying, in addition to
such prepayment, all interest accrued to the date of such payment accompanied by
a Prepayment Premium in an amount equal to one percent (1%) of the then
outstanding principal balance of this Note. Thereafter, this Note may be prepaid
in whole without premium or penalty.
2
<PAGE>
Payments of principal and interest shall be made by check at 502 Washington
Avenue, Suite 600, Towson, Maryland 21204 or such other address as the holder
hereof shall have designated to the Borrower in writing; and shall be effective
upon receipt.
In the event of the declaration by Lender of a Default under the Agreement,
then this Note shall be in default and the balance of the principal sum then due
hereunder, together with all accrued interest thereon, shall become immediately
due and payable without further notice, such further notice being expressly
waived, and the Borrower shall be liable to the holder hereof for reasonable
attorney's fees and costs of suit.
By its execution of this Note Borrower hereby represents and warrants to
Lender that the representations and warranties of Borrower contained in the
Agreement remain true and correct as of the date hereof, and that no Default or
event which, with the giving of notice or the lapse of time, or both, would
become a Default under the Agreement, has occurred.
The Borrower waives presentment for payment, demand, notice of demand,
notice of nonpayment or dishonor, protest and notice of protest of this Note,
and all other notices in connection with the delivery, acceptance, performance,
default or enforcement of the payment of this Note.
The remedies of Lender as provided herein and in the Agreement shall be
cumulative and concurrent and may be pursued singly, successively or together,
at the sole discretion of Lender, and may be exercised as often as occasion
therefor shall occur; and the failure to exercise any such right or remedy shall
in no event be construed as a waiver or release thereof.
It is the intention of the parties hereto to comply with the applicable
usury laws. Accordingly, it is agreed that, notwithstanding any provisions to
the contrary in this Note or the Agreement, in no event shall this Note or the
Agreement require the payment or permit the collection of interest in excess of
the maximum amount permitted by applicable law. If any such excess interest is
contracted for, charged or received under this Note or the Agreement, or in the
event that all of the principal balance shall be prepaid, so that under any of
such circumstances the amount of interest contracted for, charged or received
under this Note or the Agreement on the principal balance shall exceed the
maximum amount of interest permitted by applicable law, then in such event: (a)
the provisions of this paragraph shall govern and control, (b) neither the
Borrower nor any other person or entity now or hereafter liable for the payment
hereof shall be obligated to pay the amount of such interest to the extent that
it is in excess of the maximum amount of interest permitted by applicable law,
(c) any such excess which may have been collected shall either be applied as a
credit against the then unpaid principal balance or
3
<PAGE>
refunded to the Borrower, at the option of Lender, and (d) the effective rate of
interest shall be automatically reduced to the maximum lawful contract rate
allowed under the applicable law as now or hereafter construed by the courts
having jurisdiction thereof. It is further agreed that, without limitation of
the foregoing, all calculations of the rate of interest contracted for, charged
or received under this Note or the Agreement which are made for the purpose of
determining whether such rate exceeds the maximum lawful contract rate, shall be
made, to the extent permitted by applicable law, by amortizing, prorating,
allocating and spreading in equal parts during the period of the full stated
term of the Indebtedness evidenced hereby, all interest at any time contracted
for, charged or received from the Borrower or otherwise by Lender in
connection with such Indebtedness; provided, however, that if any applicable
state law is amended or the law of the United States of America preempts any
applicable state law, so that it becomes lawful for Lender to receive a
greater interest per annum rate than is presently allowed by law, the Borrower
agrees that, on the effective date of such amendment or preemption, as the
case may be, the lawful maximum hereunder shall be increased to the maximum
Interest Rate per annum allowed by the amended state law or the law of the
United States of America (but not in excess of the Interest Rate provided for
herein).
THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE BORROWER AND LENDER MAY BE PARTIES ARISING OUT OF OR IN ANY WAY
PERTAINING TO THIS NOTE. BORROWER AUTHORIZES LENDER TO FILE THIS PROVISION WITH
THE CLERK OR JUDGE OF ANY COURT HEARING SUCH CLAIM PURSUANT TO CALIFORNIA CODE
OF CIVIL PROCEDURE SECTION 631 (a). IT IS HEREBY AGREED AND UNDERSTOOD THAT THIS
WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES
TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT
PARTIES TO THIS NOTE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE
BY THE BORROWER AND THE BORROWER HEREBY ACKNOWLEDGES THAT NO REPRESENTATIONS OF
FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL
BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THE BORROWER FURTHER
ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
THE BORROWER AGREES THAT THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE. Venue for any action hereunder or
related hereto shall be in any state or Federal court of competent jurisdiction
in the State of California, and the Borrower submits to the jurisdiction of such
courts.
4
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Promissory Note to be signed
as of the _________ day of ___________, 199__.
INTERNATIONAL RECTIFIER CORPORATION
By: __________________________________
Name: ________________________________
Title: _______________________________
5
<PAGE>
EXHIBIT NO. 2
COLLATERAL SCHEDULE NO.
THIS COLLATERAL SCHEDULE NO.______ is executed pursuant to and made a part
of that certain Loan and Security Agreement dated as of _________________, 1994
(the "Agreement"), between Sanwa General Equipment Leasing, a Division of Sanwa
Business Credit Corporation, as Lender, and International Rectifier Corporation,
as Borrower, and describes collateral in which Borrower has granted Lender a
security interest in connection with the Obligations (as defined in the
Agreement) including without limitation that certain Promissory Note No. ____
dated _______________________________________________ in the original principal
amount of $____________________________________.
DESCRIPTION LOCATION
Date:______________________________, 199__
SANWA GENERAL EQUIPMENT LEASING, INTERNATIONAL RECTIFIER CORPORATION
A DIVISION OF SANWA BUSINESS Borrower
CREDIT CORPORATION
Lender
By: _______________________________ By: ________________________________
Name: _____________________________ Name: ______________________________
Title: ____________________________ Title: _____________________________
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
As of June 30, 1994
INTERNATIONAL RECTIFIER COMPANY (GREAT BRITAIN) LIMITED
Hurst Green Oxted,
Surrey RH8 9BB, England
INTERNATIONAL RECTIFIER CORPORATION ITALIANA S.P.A.
Via Liguria 49,
10071 Borgaro, Turin, Italy
INTERNATIONAL RECTIFIER GMBH
Saalburgstrasse 157,
D-61350 Bad Homburg, Germany
INTERNATIONAL RECTIFIER CANADA LIMITED
7321 Victoria Park Avenue, Suite 201
Markham, Ontario, Canada L3R 3Ll
RECTIFICADORES INTERNACIONALES, S.A.
Durazno No. 30, Centro Industrial,
La Mesa, Tijuana, Baja California, Mexico
INTERNATIONAL RECTIFIER FAR EAST COMPANY, LTD
K&H Building 2F, 30-4 Nishi Ikebukuro
Toshima-ku, Tokyo, Japan 171
INTERNATIONAL RECTIFIER SOUTHEAST ASIA PRIVATE, LTD
315 Outram Road
#10-02 Tan Boon Liat Building
Singapore 0316
IR INTERNATIONAL HOLDINGS, INC.
233 Kansas Street
El Segundo, California 90245
SEMICONDUCTOR ELECTRONICS LTD.
SPF Unit 23, SEEPZ Post Office
Anderi East
Bombay 400 096 India
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
International Rectifier Corporation on Form S-8 (File No. 2-94858, File
No. 2-94436, File No. 33-28596, File No. 33-40208, File No. 33-63958 and File
No. 33-53589) of our report dated July 26, 1994 on our audits of the
consolidated financial statements and financial statement schedules of
International Rectifier Corporation as of June 30, 1994 and 1993, and for the
fiscal years ended June 30, 1994, 1993 and 1992, which report is included in
this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND
- - - -----------------------
Coopers & Lybrand
Los Angeles, California
September 27, 1994
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-START> JUL-01-1993
<PERIOD-END> JUN-30-1994
<CASH> 13,051
<SECURITIES> 0
<RECEIVABLES> 68,272
<ALLOWANCES> 677
<INVENTORY> 73,429
<CURRENT-ASSETS> 156,854
<PP&E> 270,978
<DEPRECIATION> 112,411
<TOTAL-ASSETS> 330,574
<CURRENT-LIABILITIES> 89,689
<BONDS> 0
<COMMON> 20,352
0
0
<OTHER-SE> 182,591
<TOTAL-LIABILITY-AND-EQUITY> 330,574
<SALES> 328,882
<TOTAL-REVENUES> 328,882
<CGS> 219,944
<TOTAL-COSTS> 219,944
<OTHER-EXPENSES> 85,389
<LOSS-PROVISION> 577
<INTEREST-EXPENSE> 3,625
<INCOME-PRETAX> 18,874
<INCOME-TAX> 3,160
<INCOME-CONTINUING> 15,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,714
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.78
</TABLE>
