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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1996
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
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INTERNATIONAL RECTIFIER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-1528961
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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233 KANSAS STREET
EL SEGUNDO, CA 90245
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (310) 726-8000
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $1 New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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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 $656,780,804 (computed using
the closing price of a share of Common Stock on September 24, 1996 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.
There were 50,933,932 shares of the registrant's Common Stock, par value
$1.00 per share, outstanding on September 24, 1996.
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders scheduled to be held on November 25, 1996, which Proxy
Statement will be filed no later than 120 days after the close of the
registrant's fiscal year ended June 30, 1996, 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
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1. Business............................................................ 1
2. Properties.......................................................... 8
3. Legal Proceedings................................................... 9
4. Submission of Matters to a Vote of the Security Holders............. 10
Additional Item. Directors and Executive Officers of the
Registrant......................................................... 10
PART II
5. Market for the Registrants' Common Equity and Related Stockholders'
Matters............................................................ 12
6. Selected Financial Data............................................. 13
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 14
8. Financial Statements and Supplementary Data......................... 17
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 37
PART III
10. Directors and Executive Officers of the Registrant.................. 38
11. Executive Compensation.............................................. 38
12. Security Ownership of Certain Beneficial Owners and Management...... 38
13. Certain Relationships and Related Transactions...................... 38
PART IV
14. Exhibits, Financial Statement Schedule, and Reports................. 38
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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 power supplies, motor controls, computers/peripherals, automobiles,
portable phones, and electronic lighting ballasts.
The Company designs, manufactures, and markets power semiconductors which
are used for power conversion. In a manner similar to the way that oil is
refined to produce gasoline to power a car, electrical power is converted 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 a switch. The switch chops the energy into
small elements. Output rectification re-configures the elements into a form
usable by electrically operated equipment.
IR supplies products that perform each of the four basic functions in power
conversion, and 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 electronic
lighting ballasts. Communications applications include portable phones,
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.
Based on statistics published by the Semiconductor Industry Association (the
"SIA"), the Company believes it is the leader in the power MOSFET (Metal Oxide
Semiconductor Field Effect Transistor) segment with its trademarked HEXFET power
MOSFETs and IGBTs (Insulated Gate Bipolar Transistors). SIA data indicates that
industry-wide sales of power MOSFETs were $2.1 billion in calendar 1995, an
increase of 44% over 1994 levels, and that, over the past five years, power
MOSFET sales have grown at an average rate of 29% per year.
The Company's major customers in the automotive segment include Delco, Ford,
Siemens, and Bosch. International Business Machines, Hewlett Packard, and Compaq
purchase the Company's products in the computer segment. Consumer electronics
customers include Philips and Sony. Customers in the telecommunications segment
include Lucent Technologies and Nokia. The Company also sells its products to
distributors including Arrow Electronics and Future Electronics. In fiscal year
1996, the Company's sales by region were approximately 46% from North America,
28% from Europe, and 26% from Asia. IR has manufacturing facilities in North
America, Europe, and Asia, and uses subcontract assembly in Asia.
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) 726-8000.
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
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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 generated 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. The
Company believes that because of their more gradual rate of technological change
and the diversity of applications, the demand for power semiconductors is less
cyclical than for ICs. Power semiconductor demand is driven by conversion to new
technologies, the proliferation of new end-product applications, and growth in
the end markets. 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.
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, electronic power steering, 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 power MOSFETs and Power ICs, 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 refrigerants which are also less
efficient. Manufacturers of refrigerators and air conditioners can 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 usable and
efficient in performing work such as operating power supplies, controlling
motors, and lighting lamps. The products'
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ability 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 electronic fluorescent lights, more energy
efficient refrigeration and air conditioning equipment, and electric vehicles.
The Company's HEXFET power MOSFET products comprised about 68% of fiscal
1996 sales. IR also supplies IGBT transistors, High Voltage 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, enabling IR to provide customers with integrated
solutions to their power conversion needs.
SWITCHING PRODUCTS
MOS TRANSISTORS. MOS transistors (power MOSFETs and IGBTs) serve the switch
function in power conversion to provide an even, usable 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 help to stabilize demand.
Applications for MOSFETs in automobiles include anti-lock braking and fuel
injection systems, electronic power steering, 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, video cameras,
household appliances, and power tools. Lighting applications include electronic
lighting ballasts and compact fluorescent bulbs. Industrial applications include
motor control, 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 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 typically serve the switch function in power conversion
applications that require higher current and voltage than power MOSFETs can
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
HIGH VOLTAGE CONTROL ICS. These devices serve the control function of power
conversion. They perform the functions of several discrete components. This
integration allows IR's customers to simplify circuit design and assembly,
improve reliability and reduce overall system size and cost. In sensing and
responding to adverse operating conditions, High Voltage Control IC performance
is superior to that of discrete components in a safety or diagnostic circuit.
IR's High Voltage Control ICs
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draw on the Company's MOSFET technology and are designed to optimize the
performance of both power MOSFETs and IGBTs. The Company believes that its power
MOSFET patents also apply to a broad range of High Voltage Control ICs.
High Voltage Control ICs are used in a wide variety of power supply, motor,
and lighting control applications. These include industrial motor controls, home
appliance motor controls, solenoid drivers, welding equipment, telecom
switchers, computer/peripherals, instrumentation and test equipment, electronic
lighting ballasts, and compact fluorescent light bulbs.
OUTPUT RECTIFICATION PRODUCTS
The Company's Schottky diodes and Fast-Recovery diodes serve the output
rectification function of power conversion. Output rectification reconfigures
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 Fast-Recovery diodes are
used with IGBTs in higher-current, lower-frequency applications such as motor
controls.
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 usable, principally
in 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.
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 usable 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,
India, and China. In addition, the Company has equipment at, or manufacturing
supply agreements with, subcontractors located in the Philippines, Japan,
Taiwan, Malaysia, and the United States.
IR fabricates the majority of its power MOSFET wafers at HEXFET America in
Temecula, California. In addition, HEXFET America produces IGBT wafers. A wafer
fabrication facility for IGBTs and other MOSFET devices as well as assembly
operations for government and other advanced products, such as High Voltage
Control ICs, are located in El Segundo, California. Facilities that assemble
HEXFETs and other products are located in the United States and overseas, in
Company-owned and subcontract facilities. In Tijuana, Mexico, the Company
assembles MOSFETs, Schottkys, IGBTs, and other modules. The Company's Oxted,
England facility, which qualifies as a duty-free facility, assembles MOSFETs,
IGBTs, Schottkys, and diodes. Currently, the Company manufactures substantially
all its high power rectifiers and thyristors at its Turin, Italy facility. A
Schottky wafer fabrication facility currently under construction at its Turin
facility is scheduled to be in production by the end of calendar 1996. The
Company also has arrangements with third parties for product assembly in the
Philippines, Malaysia, Taiwan, Japan, and Mexico. In a duty-free zone in India,
the Company has an assembly facility for rectifiers and thyristors.
To aggressively address the fastest growing segments of the power transistor
market: high density MOSFETs and IGBTs, the Company installed a second wafer
fabrication unit at HEXFET America. Phase one, completed in September 1995, is
expected to add about $185 million in additional product shipments at full
utilization. Phase two of the expansion, scheduled to be in production in the
second half of fiscal year 1997, is expected to support an additional $150
million in annual revenues at
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an incremental cost of approximately $45 million. Estimated additional annual
revenues from the expansion are based on fiscal year 1996 pricing levels.
Next-generation devices designed for production in the new fabrication unit
incorporate design and process advancements in the Company's proprietary HEXFET
and IGBT technologies. A core process with shared elements for both products
enables the unit to combine flexibility with efficient high-volume manufacturing
techniques. Fabrication is performed on six-inch wafers and uses a
continuous-flow layout similar to the one already in use at HEXFET America.
The Company is transferring its assembly lines from HEXFET America to its
assembly facility in Tijuana, Mexico and to independent subcontractors. The move
affects only the assembly phase of manufacturing and allows the California plant
to focus on expansion of its benchmark wafer fabrication capability and enables
the Company to reduce the cost of assembling its HEXFET-Registered Trademark-
power MOSFET chips into finished devices. Currently, the transfer is
approximately 60% complete. The move is targeted for completion in the second
half of fiscal year 1997.
MARKETING, SALES, AND DISTRIBUTION
The Company markets its products through sales staff, representatives, and
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 1996, the Company's sales by region were approximately 46%
from North America, 28% from Europe, and 26% 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, Switzerland,
Russia, the Czech Republic, and Hungary. In Asia, IR has sales, representative,
and liaison offices in India, Japan, Singapore, China, Hong Kong, and South
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 application 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 Delco, Ford, Siemens, and Bosch. International
Business Machines, Hewlett Packard, and Compaq purchase the Company's products
in the computer segment. Consumer electronics customers include Philips and
Sony. Customers in the telecommunications segment include Lucent Technologies
and Nokia. Approximately 30% of the Company's revenues come from sales of its
products to distributors including Arrow Electronics and Future Electronics. The
Company has historically found it more difficult to determine distributor demand
than demand from its other customers.
BACKLOG
As of June 30, 1996, the Company's backlog of orders was $315.5 million
compared to $210.8 million as of June 30, 1995. Backlog is comprised of purchase
orders and customer forecast commitments scheduled to be shipped within the
following 12 months. Increasingly, major customers are operating their
businesses with shorter lead times and are placing orders on a periodic rather
than an annual basis. In most circumstances IR allows customers to cancel
purchase orders without penalty. Backlog is not necessarily indicative of sales
for any future period.
Subsequent to year-end, the Company noted aggressive efforts by distributors
(which accounted for approximately 30% of the Company's revenues in fiscal 1996)
to reduce inventory levels, including order cancellations and a slow-down in new
order input, which have cut deeply into the Company's backlog. Furthermore,
competitive price moves have resulted in a 10% to 15% decrease in average
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prices on approximately one-third of the Company's business. The Company
anticipates that the inventory correction should be largely completed by the end
of December 1996. In addition, the Company believes the competitive pressure may
result in lower prices on a significant portion of its business.
RESEARCH AND DEVELOPMENT
The Company's breadth of technology and focus on power conversion underlie
an integrated approach to developing complementary products that add value and
differentiate International Rectifier from its competitors. IR conducts research
and development activities to improve the price/ performance ratio of its
product offerings to customers across a wide range of end-use applications.
In fiscal years 1996, 1995, and 1994, the Company spent approximately $27.0
million, $20.1 million, and $16.4 million, respectively, on research and
development activities.
In fiscal 1995, the Company introduced a new generation of
HEXFET-Registered Trademark- brand power MOSFETs that offer benchmark
performance and manufacturing cost reductions designed to create a significant
competitive advantage. The Generation5 HEXFETs are being produced at the
Company's newest wafer fabrication unit in Temecula, California, which also
produces IR's latest generation of IGBT transistors using the same core process.
In fiscal 1996, IR also previewed its most comprehensive offering to date in
the area of "solution" products that combine multiple components and
technologies to benefit customers' overall circuit size, cost, and performance.
These products have been in beta site testing since March 1996 and are scheduled
for market introduction in late calendar 1996.
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 80 unexpired U.S. patents and 47 U.S. patents pending.
Those patents fundamental to the Company's products expire between 2000 and
2010. In addition, the Company has 61 foreign patents and 154 foreign patents
pending in a number of countries. The Company 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
approximately 12% of the Company'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, it is committed to enforcing its rights under those patents and is
pursuing additional license agreements. The Company presently has license
agreements with 18 companies: ABB Semiconductor, Inc.; CP Clare Corporation;
Harris Corporation; Hitachi, Ltd.; Matsushita Electronics Corporation;
Mitsubishi Electric Corporation; Motorola, Inc.; National Semiconductor
Corporation; NEC Corporation; Nihon Inter Electronics Corporation; Philips
Electronics, N.V.; Sanken Electric Company, Ltd.; Sanyo Electric Company;
SGS-Thomson Microelectronics, Inc.; Siemens Aktiengesellschaft; Siliconix
incorporated; Toshiba Corporation; and Unitrode Corporation. In fiscal 1996,
$16,262,000 of revenues were derived from royalty-bearing license agreements.
Certain of the Company's fundamental power MOSFET patents have been
subjected, and continue to be subjected, to reexamination in the United States
Patent and Trademark Office ("PTO"). The patents subject to reexamination are
fundamental to the Company's MOS transistors and their loss would allow
competitors to use currently patented features of the Company's MOS transistor
technology without liability for infringement of those patents. On the following
dates, the PTO granted requests for reexamination of the following patents of
the Company: November 13, 1992 and September 12, 1994 on patent 4,642,666;
October 13, 1993 on patent 4,705,759; September 12, 1994 on patent 4,959,699;
September 23, 1994 and June 28, 1995 on patent 5,008,725; January 17, 1995 on
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patent 5,130,767; June 5, 1995 on patent 5,191,396; and June 14, 1995 on patent
4,593,302. On February 14, 1995 and on December 26, 1995, respectively, the PTO
issued reexamination certificates, confirming the patentability of the Company's
U.S. patents 4,705,759 and 5,191,396.
Although no assurance can be given as to the ultimate outcome of the
Company's patent enforcement efforts, the PTO reexamination proceedings, 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 subject
to rapid price changes, 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 combine 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.
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 consent decrees filed suit in Federal Court in May 1992 against a
number of other PRPs, including the Company, for cost recovery and contribution
under CERCLA. The lawsuit against the Company, 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. In June 1995, the Company was named among
others as a party defendant in Federal Court apparently in connection with a
third consent decree with respect to the OII Site. The Company received a letter
(dated July 25, 1995) from the U.S. Department of Justice offering to settle
claims against Rachelle relating to the first three elements of clean-up work at
the OII Site for the sum of $4,953,148 (the final remedy assessment has not yet
been made). This settlement offer expired by its terms on September 1, 1995. The
Company also received a separate letter from the EPA dated July 25, 1995, with
respect to International Rectifier only, notifying the Company that it may
qualify for a settlement with de minimis generators under CERCLA Section 122(g).
The Company has received no further communications in this regard. At an August
17, 1995 meeting with EPA representatives and representatives of other PRPs, EPA
representatives stated that they will not have an estimate of the cost of final
clean-up until at least early 1996. The Company is unaware of any estimate of
the cost of final clean-up of the site.
On August 7, 1995, the Company received a Supplemental Information Request
from the EPA, directed to Rachelle. In its response, dated October 20, 1995, the
Company explained that none of the wastes generated by Rachelle were hazardous.
The Company has received no further communications in connection with the
Supplemental Information Request.
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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. 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. It was determined that the property required clean-up of
seepage from a storage tank, at an estimated additional cost of $525,000. The
Company commenced the clean-up in fiscal year 1994, and through June 30, 1996
approximately $518,000 in clean-up costs have been incurred which 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 (the "Department") 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) 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 by a letter dated August 11, 1994, stating that it
has not contributed to PCE or other solvent contamination at the Yakima County
site (resulting from sending carbon canisters for regeneration to a facility in
the county) and that it should not be designated a PLP. On October 11, 1994, the
Company received a letter from the Department notifying the Company of its
finding that the Company is a PLP in the above matter. On June 20, 1996, the
Company received a letter from the Washington Department of Ecology, stating
that a settlement offer would be extended to all potentially liable persons in
late summer or early fall of 1996. While the letter did not commit to the amount
of any settlement, it predicted a settlement of approximately $4.95 for each
pound of carbon sent to Cameron-Yakima.
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, in June 1995, agreed to join a group of other PRPs to
remove contamination from the site. The group currently estimates the total cost
of the clean-up to be between $3.1 million and $4 million, of which between
$12,000 and $15,000 is presently expected to be allocated to the Company.
However, the ultimate cost borne by the Company will depend on the extent of the
clean-up undertaken by the group and the actual clean-up costs and the final
allocation scheme agreed upon by the group.
EMPLOYEES
As of June 30, 1996, the Company employed approximately 3,915 people, of
whom approximately 2,775 are employed in North America, 1,065 in Western Europe,
and 75 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 1,035,000 square
feet, of which approximately 564,000 square feet are located within the United
States. Of the worldwide total, approximately 346,000 square feet are leased and
the balance is owned by the Company.
IR's leases expire between 1996 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.
8
<PAGE>
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............... 297,000 --
El Segundo, California............. 93,000 164,000 September 30, 1996 -- July 31, 2004
Tijuana, Mexico.................... 149,000 100,000 February 28, 1997(1)
Oxted, England..................... 40,000 31,000 June 30, 2000 -- March 27, 2012
Turin, Italy....................... 110,000 9,000 September 30, 2001
</TABLE>
- ------------------------
(1) In May 1995 the Company purchased land in Tijuana, Mexico to construct a new
assembly facility. At June 30, 1996, the building was substantially
complete. The move from the leased facilities is scheduled for August 1996
through February 1997.
The Company believes that these facilities are adequate for its current and
anticipated near term operating needs. IR estimates that it currently utilizes
approximately 80% of its worldwide manufacturing capacity.
The Company has sales and technical support offices located throughout the
United States, Canada, France, Germany, Finland, Scandinavia, Russia, Czech
Republic, Hungary, Hong Kong, Japan, China, Korea, Singapore, and India which
operate in leased facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company and SGS-Thomson Microelectronics, Inc. ("SGS") are engaged in
various legal proceedings relating to their respective power MOSFET patents. SGS
filed suit against the Company in June 1991 in Federal District Court in Texas,
charging infringement of U.S. patent 4,553,314. On motion by the Company, the
suit was transferred to the Federal District Court in Los Angeles, California,
and thereafter SGS amended its complaint to charge infringement of U.S. patents
4,495,513 and 4,712,127. SGS alleges, in substance, that the Company's power
MOSFET, power IC and IGBT products infringe the '314 patent, that the Company's
IGBT products infringe the '513 patent, and that certain packages for the
Company's products (including certain power MOSFET packages) infringe the '127
patent. The complaint, as amended, seeks unspecified actual damages (but no less
than an unspecified reasonable royalty) and an injunction restraining further
sales of such products. On February 1, 1993, the District Court dismissed SGS's
claims for infringement of the '127 and '513 patents for lack of standing and on
March 15, 1993, ruled that the SGS '314 patent is unenforceable due to
inequitable conduct. SGS appealed these rulings, as well as the order
transferring the case to California, to the Court of Appeals for the Federal
Circuit. The Company cross-appealed a separate ruling by the District Court
denying the Company's motion for summary judgment that the '314 patent is
invalid. In July 1994, the Federal Circuit vacated the District Court's grants
of summary judgment as to the '513, '127, and '314 patents and affirmed the
District Court's denial of the Company's motion for summary judgment of
invalidity of the '314 patent. The Federal Circuit ordered, however, that the
case should proceed in California. On July 5, 1995, the Court, based on the
stipulation of the parties, effectively stayed SGS's claims on its '314 and '127
patents pending the outcome of reexamination of the patentability of the subject
matter of those patents by the PTO. These reexamination proceedings are still
pending.
In November and December 1995, the parties presented testimony and evidence
to the District Court concerning the interpretation of the claims of the '513
patent; the Court has not yet ruled on the matter.
The Company has also filed a separate action in the same District Court
against SGS and its Italian affiliate, SGS-Thomson Microelectronics, S.r.l.,
seeking an injunction against infringement of the Company's U.S. patents
5,008,725 and 5,130,767. This action has been essentially stayed pending
completion of reexamination of these patents by the PTO (see "Intellectual
Property").
9
<PAGE>
The Company filed another separate action in the same District Court on
August 13, 1996, against the same SGS entities charging infringement of its U.S.
patent 5,545,955.
In the Fall of 1995, SGS and SGS-Thomson Microelectronics, S.A.
("SGS-France") commenced an infringement action in Great Britain against the
Company and International Rectifier (Great Britain) Limited ("IRGB") based on
the European counterpart patent to the '513 patent (European Patent (UK) No.
0,068,546). The Company and IRGB have filed a response denying the material
allegations plead by SGS and SGS-France and seek revocation of the foreign
counterpart patents at issue. The British action is set for trial in July 1997.
The Company, its directors, and certain officers have been named as
defendants in three class action lawsuits filed in Federal Court in California.
These suits seek unspecified but substantial compensatory and punitive damages
for alleged intentional and negligent misrepresentations and violations of the
federal securities laws. The complaints generally allege that the Company and
the other defendants made materially false statements or omitted to state
material facts in connection with the public offering of the Company's common
stock completed in April 1991 and the redemption and conversion in June 1991 of
the Company's 9% Convertible Subordinated Debentures Due 2010. They also allege
that the Company's projections for growth in fiscal 1992 were materially
misleading. Although the Company believes that the claims alleged in the suits
are without merit, the ultimate outcome cannot be presently determined. A
substantial judgment or settlement, if any, could have a material adverse effect
on the Company's financial condition and results of operations. Two of these
suits also name Kidder, Peabody & Co. Incorporated and Montgomery Securities as
defendants. Defendants Kidder, Peabody & Co. and Montgomery Securities have
demanded that the Company indemnify them for any liability or expenses,
including attorneys fees, that they may incur in connection with this
litigation. Those defendant underwriters base that demand on their underwriting
agreements with the Company. The Company has agreed to advance the underwriter
defendants' attorneys fees pursuant to that indemnity, subject to a reservation
of the Company's right to seek reimbursement of those advances.
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.
ADDITIONAL ITEM. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of IR are:
<TABLE>
<S> <C> <C>
Eric Lidow 83 Chairman of the Board
Alexander Lidow 41 Chief Executive Officer; Director
Derek B. Lidow 43 Chief Executive Officer; Director
Robert J. Mueller 67 Executive Vice President -- External Affairs
and Business Development; Director
Michael P. McGee 37 Vice President -- Chief Financial Officer
George Krsek 75 Director
Jack O. Vance 71 Director
Rochus E. Vogt 66 Director
Donald S. Burns 71 Director
James D. Plummer 51 Director
</TABLE>
10
<PAGE>
Eric Lidow is a founder of the Company, has been a director of the Company
since its inception in 1947 and was Chief Executive Officer until March 6, 1995.
Mr. Lidow continues as Chairman of the Board and also serves as Chairman of the
Company's Executive Committee.
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 and Chief Executive Officer in March 1995. 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 and Chief Executive
Officer in March 1995. 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, 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, and serves
as Chairman of the Company's Audit Committee.
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 and also serves as
Chairman of the Company's Compensation and Stock Option Committee. He is also a
director of Vencor Corporation (formerly Hillhaven Corporation), International
Technology Corporation, Escorp, The Olson Company, University Restaurant Group,
FCG Enterprises, Inc., and Semtech Corporation.
Rochus E. Vogt, Ph.D., is the R. Stanton Avery Distinguished Service
Professor and 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. Dr. Plummer was elected a director of
the Company in September 1994.
11
<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 QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------------ ------------------ ------------------ ------------------ STOCKHOLDERS AT
FISCAL YEAR HIGH LOW HIGH LOW HIGH LOW HIGH LOW YEAR END
- -------------------- ------- ------- ------- ------- ------- ------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996................ 22 16 1/8 25 3/4 19 1/16 24 1/4 16 3/4 26 16 1/8 1,742
1995................ 11 1/8 7 9/16 12 1/8 9 5/8 13 1/8 11 5/16 16 11/16 11 5/8 1,771
</TABLE>
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "IRF." Market prices have been retroactively restated to reflect the
two-for-one stock split declared on November 20, 1995.
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.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data as of June 30, 1996 and 1995 and
for the fiscal years ended June 30, 1996, 1995, and 1994 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, 1994, 1993, and 1992, and for the fiscal years ended June 30, 1993 and
1992 are derived from audited consolidated financial statements of the Company
which are not included herein.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS EXCEPT PER SHARE DATA) (1)
Revenues........................................ $ 576,849 $ 429,026 $ 328,882 $ 281,732 $ 265,495
Cost of sales................................... 351,046 278,202 219,944 202,684 186,437
----------- ----------- ----------- ----------- -----------
Gross profit.................................... 225,803 150,824 108,938 79,048 79,058
Selling and administrative expense.............. 102,129 82,328 69,008 62,637 58,771
Research and development expense................ 26,967 20,108 16,381 14,083 9,405
----------- ----------- ----------- ----------- -----------
Operating profit................................ 96,707 48,388 23,549 2,328 10,882
Interest expense, net........................... (394) (377) (3,625) (2,250) (1,436)
Other income (expense), net..................... (383) (544) (1,050) (2,675) 1,066
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes............... 95,930 47,467 18,874 (2,597) 10,512
Provision for income taxes...................... 29,451 8,069 3,160 436 1,275
----------- ----------- ----------- ----------- -----------
Net income (loss)............................... $ 66,479 $ 39,398 $ 15,714 $ (3,033) $ 9,237
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per share (2)................. $ 1.29 $ 0.84 $ 0.38 $ (0.08) $ 0.23
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Average common and common equivalent shares
outstanding (2)................................ 51,384 47,020 40,856 40,174 40,214
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS)
Working capital................................. $ 151,809 $ 127,751 $ 67,165 $ 58,116 $ 67,538
Total assets.................................... 629,079 496,184 330,574 278,448 285,880
Short-term debt................................. 23,570 25,235 33,310 27,539 27,135
Long-term debt, less current maturities......... 47,994 23,881 26,817 11,810 11,535
Stockholders' equity............................ 421,213 345,181 202,943 186,074 191,703
</TABLE>
- ------------------------
(1) Certain reclassifications have been made to previously reported amounts to
conform with current year presentation.
(2) Adjusted to reflect the two-for-one stock split declared on November 20,
1995.
13
<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,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues......................................................... 100.0% 100.0% 100.0%
Cost of sales.................................................... 60.9 64.8 66.9
--------- --------- ---------
Gross profit..................................................... 39.1 35.2 33.1
Selling and administrative expense............................... 17.7 19.2 21.0
Research and development expense................................. 4.7 4.7 5.0
--------- --------- ---------
Operating profit................................................. 16.7 11.3 7.1
Interest expense, net............................................ (0.1) (0.1) (1.1)
Other expense, net............................................... (0.1) (0.1) (0.3)
--------- --------- ---------
Income before income taxes....................................... 16.5 11.1 5.7
Provision for income taxes....................................... 5.0 1.9 0.9
--------- --------- ---------
Net income....................................................... 11.5% 9.2% 4.8%
--------- --------- ---------
--------- --------- ---------
</TABLE>
1996 COMPARED WITH 1995
Revenues for fiscal 1996 increased 34.5% to $576.8 million from $429.0
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 39% increase in revenues from these products. Revenues from the thyristor
and rectifier product lines increased 6% from the prior period. Changes in
foreign exchange rates negatively impacted revenues by approximately $3.8
million. Revenues for fiscal 1996 also included $16.3 million of net patent
royalties compared to $9.7 million in the prior period.
Gross profit was 39.1% of revenues ($225.8 million) in fiscal 1996 versus
35.2% of revenues ($150.8 million) in fiscal 1995. The increased margin
reflected greater manufacturing volume and efficiencies and a greater
contribution from new higher margin products.
In fiscal 1996, selling and administrative expense was 17.7% of revenues
($102.1 million) versus 19.2% of revenues ($82.3 million) in fiscal 1995. The
planned increase in absolute dollars was made to support the Company's 34.5%
revenue growth and consisted mainly of costs related to additional staffing,
higher commission expense, and increased advertising expense.
In fiscal 1996, the Company's research and development expenditures
increased $6.9 million to $27.0 million (4.7% of revenues) from $20.1 million
(4.7% of revenues) in the prior period. Research and development activities were
focused on the advancement and diversification of the HEXFET product line and
expansion of the related IGBT products, the development of High Voltage Control
ICs and complementary components that work in combination with HEXFETs and IGBTs
to improve system performance.
Net interest expense and net other expense were essentially unchanged in
fiscal 1996 from fiscal 1995.
1995 COMPARED WITH 1994
Revenues for fiscal 1995 increased 30.4% to $429.0 million from $328.9
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 34% increase in revenues from these products. Revenues from the thyristor
and rectifier product lines increased 17% from the prior period. Changes
14
<PAGE>
in foreign exchange rates positively impacted revenues by approximately $11.1
million. Revenues for fiscal 1995 also included $9.7 million of net patent
royalties compared to $9.0 million in the prior period.
Gross profit was 35.2% of revenues ($150.8 million) in fiscal 1995 versus
33.1% of revenues ($108.9 million) in fiscal 1994. The increased margin
reflected greater manufacturing volume and efficiencies and a greater
contribution from new higher margin products.
In fiscal 1995, selling and administrative expense was 19.2% of revenues
($82.3 million) versus 21.0% of revenues ($69.0 million) in fiscal 1994. The
decreased percentage reflects the Company's continued commitment to reducing
operating expenses as a percentage of revenues.
In fiscal 1995, the Company's research and development expenditures
increased $3.7 million to $20.1 million (4.7% of revenues) from $16.4 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 High Voltage
Control ICs and power products that work in combination with HEXFETs and IGBTs
to improve system performance.
The major components of other expense include a $1.0 million charge for the
transfer of assembly operations to the Company's Mexican subsidiary, $0.3
million of severance costs, $0.3 million on the disposal of property, plant and
equipment, $0.3 million of local taxes and $0.5 million in legal fees, offset by
$0.3 million in foreign currency transaction gains and $1.8 million of net
patent royalty revenues related to prior years.
In fiscal 1995, net interest expense decreased by $3.2 million from the
prior year. The decrease was due to approximately $2.4 million in interest
income earned in the current year on funds received from a November 1994
offering of the Company's common stock and an increase of $1.7 million of
interest capitalized in the current year, partially offset by increased interest
expense in the first half of the year on higher average debt balances over the
prior year.
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 46% of annual revenues in the first half and 54% in the second
half of its fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company maintained cash and cash equivalent balances
of $35.8 million and $18.0 million of short-term investments. Cash in excess of
operating requirements is maintained in the United States. In addition, the
Company had established $71.0 million of domestic and foreign revolving lines of
credit, against which $13.3 million had been borrowed. Based on covenant and
collateral limitations, the Company had an additional $49.5 million available
for borrowing against these lines at June 30, 1996. The Company also had
available $65.0 million of bank term loan facilities and $22.5 million of credit
lines for capital equipment. At June 30, 1996, the Company had made purchase
commitments for capital equipment of approximately $42.9 million.
During fiscal 1997, the Company plans to spend approximately $120 million on
capital expenditures for the continuing expansion of its global wafer
fabrication and assembly capacity. The Company intends to fund these capital
expenditures and working capital requirements through cash and cash equivalents
on hand, anticipated cash flow from operations, and as needed, from funds
available from revolving credit, term loan and equipment financing facilities.
The Company may also consider the use of funds from other external sources
including, but not limited to, public or private offerings of debt or equity.
The Company believes that its existing manufacturing capacity is adequate to
respond to anticipated increases in customer requirements and that planned
capital expenditures of $120 million in fiscal 1997 are consistent with the
Company's view of market needs over the next couple of years.
15
<PAGE>
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, that may
result upon adjudication of these matters. For the possible effects of
environmental matters on liquidity, see "Business -- Environmental Matters."
FOREIGN CURRENCY TRANSACTIONS
Due to the global nature of its operations, the Company is subject to the
effect of international currency fluctuations. In fiscal year 1996, over 50% of
the Company's revenues were derived from sales in foreign markets. In the years
ended June 30, 1996, 1995, and 1994, the Company recognized net foreign currency
transaction gains of $126,000, $347,000, and $376,000, respectively.
The Company manages potential foreign currency exposure by entering into
forward contracts and currency options. These contracts are not speculative in
nature, as the resulting gains or losses will offset any losses or gains on the
underlying hedged transactions.
INCOME TAXES
Reflecting benefits derived from the utilization of state and foreign tax
credits and a foreign sales corporation, the Company's effective tax rate in
fiscal 1996 was approximately 30.7%. Partially offsetting these benefits was the
effect of higher statutory tax rates in certain foreign jurisdictions. The
difference between the U.S. federal statutory tax rate of 35% and the Company's
effective tax rates of approximately 17.0% and 16.7% in fiscal years 1995 and
1994, respectively, was attributable mainly to the utilization of U.S. federal
income tax net operating loss carryovers, which were fully utilized in fiscal
1995.
SHAREHOLDER RIGHTS PLAN
On August 2, 1996, the Company's Board of Directors adopted a Shareholder
Rights Plan (the "Plan") under which preferred stock purchase rights (the
"Rights") will be granted for each outstanding share of the Company's common
stock held at the close of business on August 14, 1996. The Plan is intended to
ensure fair and equitable treatment for all shareholders in the event of
unsolicited attempts to acquire the Company.
The Rights will become exercisable ten days after a person or group (the
"Acquiror") has acquired beneficial ownership of 20% or more of the Company's
common stock other than pursuant to a qualified offer, or announces or commences
a tender offer or exchange offer that could result in the acquisition of
beneficial ownership of 20% or more. Once exercisable, each Right entitles the
holder to purchase one one-thousandth of a share of a new series of preferred
stock at an exercise price of $135, subject to adjustment to prevent dilution.
If the Acquiror acquires 20% or more of the Company's common stock, each Right
(except those held by the Acquiror) entitles the holder to purchase either the
Company's stock or stock in the merged entity at half of market value. The
Rights have no voting power, expire on August 14, 2006, and may be redeemed at a
price of $0.01 per Right up to and including the tenth business day after a
public announcement that 20% or more of the Company's shares have been acquired
by the Acquiror.
For additional information, refer to the Company's reports to the Securities
and Exchange Commission on Forms 8-K and 8-A filed on August 20, 1996 and August
21, 1996, respectively.
CURRENT MARKET CONDITIONS
Subsequent to year-end, the Company noted aggressive efforts by distributors
(which accounted for approximately 30% of the Company's revenues in fiscal 1996)
to reduce inventory levels, including order cancellations and a slow-down in new
order input, which have cut deeply into the Company's backlog. Furthermore,
competitive price moves have resulted in a 10% to 15% decrease in average prices
on approximately one-third of the Company's business. Due to the inventory
correction and price pressures, the Company expects revenues in the first
quarter of fiscal 1997 of between $115 million to $125 million. The reduced
level of shipments will result in a lower gross margin percentage and a higher
level of operating expenses as a percentage of revenues. The Company anticipates
that
16
<PAGE>
the inventory correction should be largely completed by the end of December
1996. In addition, the Company believes the competitive pressure may result in
lower prices on a significant portion of its business.
The Company is deferring non-critical hiring and expenditures until a
decisive improvement in business conditions is seen.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-K Report contains statements which are not historical facts but
are forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995 and that can be identified by the use of
forward-looking terminology such as "anticipate," "believe," "estimate,"
"expect," "may," "should," "view," or "will" or the negative or other variations
thereof. Such forward-looking statements are subject to risks and uncertainties
which could cause actual results to differ materially from those projected.
Financial results are to a large extent dependent on the power MOSFET segment of
the power semiconductor industry. If market demand does not continue to grow,
revenue growth may be impacted, capacity installed might be under-utilized,
capital spending may be slowed, and Company performance may be negatively
impacted. Other risks and uncertainties which could negatively impact Company
results include: risk of nonpayment of accounts receivable; risk of inventory
obsolescence due to shifts in market demand; push-out of delivery dates and
product returns; acceptance of new products and price pressures; market
acceptance of rival products; risks associated with foreign operations and
foreign currency fluctuations; litigation involving intellectual property;
environmental matters; shareholder lawsuits; and business and general economic
conditions in major markets around the world.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE
----
Report of Independent Accountants......................................... 18
Financial Statements
Consolidated Statement of Operations for the Fiscal Years Ended June 30,
1996, 1995, and 1994................................................... 19
Consolidated Balance Sheet as of June 30, 1996 and 1995................. 20
Consolidated Statement of Stockholders' Equity for the Fiscal Years
Ended June 30, 1996, 1995, and 1994.................................... 21
Consolidated Statement of Cash Flows for the Fiscal Years Ended June 30,
1996, 1995, and 1994................................................... 22
Notes to Consolidated Financial Statements.............................. 23
Supporting Financial Statement Schedule:
SCHEDULE NO. PAGE
- ------------ ----
II Valuation and Qualifying Accounts and Reserves for the
Fiscal Years Ended June 30, 1996, 1995, and 1994........... F-1
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.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Board of Directors
International Rectifier Corporation
We have audited the accompanying consolidated financial statements and the
financial statement schedule of International Rectifier Corporation and
Subsidiaries as of June 30, 1996 and 1995, and for the fiscal years ended June
30, 1996, 1995, and 1994 as listed on the index on page 17 of this Form 10-K.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of International
Rectifier Corporation and Subsidiaries at June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the fiscal
years ended June 30, 1996, 1995, and 1994, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
July 18, 1996
18
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN 000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................................................... $ 576,849 $ 429,026 $ 328,882
Cost of sales.............................................................. 351,046 278,202 219,944
----------- ----------- -----------
Gross profit............................................................. 225,803 150,824 108,938
Selling and administrative expense......................................... 102,129 82,328 69,008
Research and development expense........................................... 26,967 20,108 16,381
----------- ----------- -----------
Operating profit......................................................... 96,707 48,388 23,549
Other income (expense):
Interest, net............................................................ (394) (377) (3,625)
Other, net............................................................... (383) (544) (1,050)
----------- ----------- -----------
Income before income taxes................................................. 95,930 47,467 18,874
Provision for income taxes (Note 5)........................................ 29,451 8,069 3,160
----------- ----------- -----------
Net income................................................................. $ 66,479 $ 39,398 $ 15,714
----------- ----------- -----------
----------- ----------- -----------
Net income per share (Note 1).............................................. $ 1.29 $ 0.84 $ 0.38
----------- ----------- -----------
----------- ----------- -----------
Average common and common equivalent shares outstanding (Note 1)........... 51,384 47,020 40,856
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN 000'S EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................. $ 35,760 $ 50,820
Short-term investments................................................................ 18,000 3,000
Trade accounts receivable, less allowance for doubtful accounts ($1,014 in 1996 and
$901 in 1995)........................................................................ 126,341 94,095
Inventories........................................................................... 82,852 73,155
Deferred income taxes (Note 5)........................................................ 9,801 10,630
Prepaid expenses...................................................................... 3,772 2,112
----------- -----------
Total current assets................................................................ 276,526 233,812
Property, plant, and equipment, at cost, less accumulated depreciation ($160,167 in 1996
and $130,480 in 1995).................................................................. 327,978 245,218
Other assets............................................................................ 24,575 17,154
----------- -----------
Total assets........................................................................ $ 629,079 $ 496,184
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans (Note 2)................................................................... $ 13,302 $ 17,250
Long-term debt, due within one year (Note 2).......................................... 10,268 7,985
Accounts payable...................................................................... 67,908 53,771
Accrued salaries, wages, and commissions.............................................. 13,953 11,517
Other accrued expenses................................................................ 19,286 15,538
----------- -----------
Total current liabilities........................................................... 124,717 106,061
Long-term debt, less current maturities (Note 2)........................................ 47,994 23,881
Other long-term liabilities............................................................. 15,999 10,986
Deferred income taxes (Note 5).......................................................... 19,156 10,075
Commitments and contingencies (Notes 7, 8, 9, 10, and 11)
Stockholders' equity (Notes 1 and 3):
Common shares, $1 par value, authorized: 60,000,000; issued and outstanding:
50,821,277 shares in 1996 and 50,360,018 shares in 1995.............................. 50,821 50,360
Preferred shares, $1 par value, authorized: 1,000,000; issued and outstanding: none in
1996 and 1995........................................................................ -- --
Capital contributed in excess of par value of shares.................................. 249,388 240,146
Retained earnings..................................................................... 125,377 58,898
Cumulative translation adjustments.................................................... (4,373) (4,223)
----------- -----------
Total stockholders' equity.......................................................... 421,213 345,181
----------- -----------
Total liabilities and stockholders' equity.......................................... $ 629,079 $ 496,184
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
20
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN 000'S EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAPITAL
CONTRIBUTED
IN EXCESS
OF
COMMON PAR VALUE CUMULATIVE
SHARES OF SHARES RETAINED TRANSLATION
(NOTE 1) (NOTE 1) EARNINGS ADJUSTMENTS TOTAL
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993........................... $ 40,468 $ 146,914 $ 3,786 $ (5,094) $ 186,074
Issuance of common shares:
98,820 -- exercise of stock options............ 99 226 -- -- 325
138,130 -- stock purchase plan................. 138 585 -- -- 723
Net income for the year ended June 30, 1994...... -- -- 15,714 -- 15,714
Cumulative translation adjustments............... -- -- -- 107 107
--------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1994........................... 40,705 147,725 19,500 (4,987) 202,943
Issuance of common shares:
417,400 -- exercise of stock options........... 417 1,351 -- -- 1,768
148,064 -- stock purchase plan................. 148 767 -- -- 915
9,090,000 -- stock offering.................... 9,090 88,008 -- -- 97,098
Tax benefits from exercise of stock options and
stock purchase plan............................. -- 2,295 -- -- 2,295
Net income for the year ended June 30, 1995...... -- -- 39,398 -- 39,398
Cumulative translation adjustments............... -- -- -- 764 764
--------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1995........................... 50,360 240,146 58,898 (4,223) 345,181
Issuance of common shares:
339,090 -- exercise of stock options........... 339 3,073 -- -- 3,412
122,169 -- stock purchase plan................. 122 1,339 -- -- 1,461
Tax benefits from exercise of stock options and
stock purchase plan............................. -- 1,305 -- -- 1,305
Tax benefits from exercise of warrants (Note
3).............................................. -- 3,525 -- -- 3,525
Net income for the year ended June 30, 1996...... -- -- 66,479 -- 66,479
Cumulative translation adjustments............... -- -- -- (150) (150)
--------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1996........................... $ 50,821 $ 249,388 $ 125,377 $ (4,373) $ 421,213
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
21
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
--------------------------------------
1996 1995 1994
------------ ------------ ----------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income............................................................. $ 66,479 $ 39,398 $ 15,714
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 30,144 23,444 18,018
Deferred income...................................................... 1,594 (524) (203)
Deferred income taxes................................................ 13,420 (1,178) 272
Deferred compensation................................................ 3,015 1,471 1,473
Change in working capital (Note 1)..................................... (27,078) 3,707 (9,109)
------------ ------------ ----------
Net cash provided by operating activities................................ 87,574 66,318 26,165
------------ ------------ ----------
Cash flow from investing activities:
Additions to property, plant, and equipment............................ (112,275) (106,902) (24,686)
Purchase of short-term investments..................................... (68,821) (57,581) --
Proceeds from sale of short-term investments........................... 53,821 54,581 --
Investment in other noncurrent assets.................................. (8,741) (3,615) (4,979)
------------ ------------ ----------
Net cash used in investing activities.................................... (136,016) (113,517) (29,665)
------------ ------------ ----------
Cash flow from financing activities:
Proceeds from issuance of (payments on) short-term bank debt, net...... (2,904) (11,542) 2,623
Proceeds from issuance of long-term debt............................... 36,495 9,435 10,326
Payments on long-term debt and obligations under capital leases........ (9,010) (11,302) (5,809)
Net proceeds from issuance of common stock............................. 6,178 99,781 1,048
Other.................................................................. 3,523 (1,979) (125)
------------ ------------ ----------
Net cash provided by financing activities................................ 34,282 84,393 8,063
------------ ------------ ----------
Effect of exchange rate changes on cash and cash equivalents............. (900) 575 (57)
------------ ------------ ----------
Net increase (decrease) in cash and cash equivalents..................... (15,060) 37,769 4,506
Cash and cash equivalents beginning of year.............................. 50,820 13,051 8,545
------------ ------------ ----------
Cash and cash equivalents end of year.................................... $ 35,760 $ 50,820 $ 13,051
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
International Rectifier Corporation ("IR" or the "Company") designs,
manufactures, and markets power semiconductors which switch or condition
electricity at relatively high voltage and current levels. The Company's
products are used in major market sectors including automobiles, computer/
peripherals, office equipment, consumer electronics, lighting, communications,
and industrial.
IR was founded as a California corporation in 1947 and reincorporated in
Delaware in 1979.
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 1996, 1995, and 1994 consist of 52 weeks ending June 30, July
2, and July 3, respectively. For convenience, all references herein to fiscal
years are to fiscal years ended June 30.
REVENUE RECOGNITION
The Company recognizes revenues from product sales to all customers,
including distributors, at the time of shipment.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations 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 1996, 1995, and 1994,
the Company recognized foreign currency transaction gains of $126,000, $347,000,
and $376,000, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
ADVERTISING
The Company reports the costs of all advertising as expenses in the periods
in which those costs are incurred. The Company shares portions of certain
distributors' advertising expenses through cooperative advertising arrangements.
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 $24,236,000 of
undistributed earnings of foreign subsidiaries since management considers these
earnings to be invested indefinitely or substantially offset by foreign tax
credits.
23
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK SPLIT
On November 20, 1995, the Board of Directors declared a two-for-one split of
the Company's common stock. Shares were distributed on December 22, 1995 to
stockholders of record on December 1, 1995. Stockholders' equity has been
retroactively restated for all periods presented by reclassifying from capital
contributed in excess of par value of shares to common shares the par value of
the additional shares arising from the split. In addition, all references in the
financial statements to number of shares, per share amounts, stock option data,
and market prices of the Company's common stock have been restated to reflect
the split.
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 807,679, 486,112, and 225,400 were
utilized in the computation of earnings per share in 1996, 1995, and 1994
respectively.
STATEMENT OF CASH FLOWS
The Company invests excess cash from operations in investment grade money
market instruments. The Company considers all highly liquid debt instruments
with a purchased maturity of three months or less to be cash equivalents.
Components in the change in working capital for the fiscal years ended June 30,
1996, 1995, and 1994 were comprised of the following (000's):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Trade accounts receivable, net.......... $ (35,760) $ (23,938) $ (11,701)
Inventories............................. (9,890) 613 (10,427)
Prepaid expenses........................ (1,713) 737 (1,031)
Accounts payable........................ 13,838 16,787 9,123
Accrued salaries, wages, and
commissions............................ 2,288 1,277 918
Other accrued expenses.................. 4,159 8,231 4,009
---------- ---------- ----------
$ (27,078) $ 3,707 $ (9,109)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Supplemental disclosures of cash flow information (000's):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the year for:
Interest.............................. $ 4,489 $ 4,578 $ 3,612
Income taxes.......................... 15,760 3,879 802
Interest capitalized.................... 1,371 2,164 453
Non cash financing activity:
Assets acquired through capital
leases............................... -- 792 12,675
</TABLE>
Included in assets acquired through capital leases in 1994 is $7.2 million
in existing operating leases that were renegotiated to capital leases.
SHORT-TERM INVESTMENTS
The Company's short-term investments consist of investment grade money
market instruments. All of the Company's investments have original maturities of
less than one year. In accordance with the criteria established by Statement of
Financial Accounting Standard No. 115, "Accounting for
24
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Certain Investments in Debt and Equity Securities," all investments have been
classified as "available-for-sale." The Company utilizes the specific
identification method for determining the cost of the investments. At June 30,
1996 and 1995 the cost of the investments approximates the market value.
INVENTORIES
Inventories are stated at the lower of cost (principally first-in,
first-out) or market. Inventories at June 30, 1996 and 1995 were comprised of
the following (000's):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Raw materials........................... $ 20,203 $ 19,974
Work-in-process......................... 40,895 32,967
Finished goods.......................... 21,754 20,214
--------- ---------
$ 82,852 $ 73,155
--------- ---------
--------- ---------
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are 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. Depreciation expense for the fiscal years
ended June 30, 1996, 1995, and 1994 was $28,958,000, $21,819,000, and
$15,880,000, respectively. Property, plant, and equipment at June 30, 1996 and
1995 were comprised of the following (000's):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Buildings and improvements.............. $ 75,863 $ 73,027
Equipment............................... 331,712 210,934
Construction in progress................ 72,595 84,318
Less accumulated depreciation........... (160,167) (130,480)
------------ ------------
320,003 237,799
Land.................................... 7,975 7,419
------------ ------------
$ 327,978 $ 245,218
------------ ------------
------------ ------------
</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, 1996 and 1995 were as follows (000's):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Equipment............................... $ 59,458 $ 62,751
Less accumulated depreciation........... (40,744) (38,980)
---------- ----------
$ 18,714 $ 23,771
---------- ----------
---------- ----------
</TABLE>
Repairs and maintenance costs are charged to expense. In the fiscal years
ended June 30, 1996, 1995, and 1994, repairs and maintenance costs were
$16,620,000, $11,977,000, and $8,144,000, respectively.
INTANGIBLE ASSETS
Patent and related costs are amortized using the straight-line method over
the life of the related patent portfolio.
25
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables on average are
due in 60 days. Credit losses have consistently been within management's
expectations.
FINANCIAL INSTRUMENTS
The Company operates internationally, giving rise to exposure to market
risks from changes in foreign exchange rates. The Company enters into forward
foreign contracts and foreign currency options to hedge certain foreign currency
denominated receivables and payables from its foreign subsidiaries. The related
gains and losses on these contracts are included in "Other income (expense)."
The Company does not hold or issue financial instruments for trading purposes.
Forward contracts outstanding at June 30, 1996 had maturities of less than
three months and were denominated in Japanese Yen, British Pound Sterling, and
French Francs. Counterparties to the transactions were large financial
institutions. At June 30, 1996, the Company had $22.6 million outstanding in
forward contracts and had no outstanding foreign currency options.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement will be effective for the Company's year ending June 30, 1997.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable by using the future undiscounted cash flows expected from
the use of the eventual disposition of the asset. Management anticipates
implementing SFAS No. 121 effective July 1, 1996 and believes implementation
will not have a material impact on the Company's financial position, results of
operations, or cash flows.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company's year ending June 30,
1997. SFAS No. 123 provides alternative accounting treatment to Accounting
Principles Board Opinion No. 25 with respect to stock-based compensation and
requires certain additional disclosures, including disclosures if the Company
elects not to adopt the accounting measurement requirements of SFAS No. 123. The
Company does not intend to adopt the accounting measurement requirements of SFAS
No. 123 for stock options granted to employees and therefore in future years
will provide the required additional disclosures in the notes to the
consolidated financial statements.
RECLASSIFICATION
Certain reclassifications have been made to previously reported amounts to
conform with the current year presentation.
26
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BANK LOANS AND LONG-TERM DEBT
In February 1996, the Company renewed and modified its existing $5 million
unsecured credit facility from Sanwa Bank California. The expiration date was
extended to October 31, 1997, and the interest rate for loans drawn under this
facility was reduced to the bank's cost of funds plus 0.75%, or LIBOR plus
0.75%. In May 1996, the Company extended and modified its existing $25 million
unsecured credit facility with Wells Fargo Bank, N.A. The expiration date was
extended to October 30, 2000, and the interest rate for loans drawn under this
facility was reduced to LIBOR plus 0.75%. In June 1996, the Company renewed its
$10 million unsecured credit facility with Nationsbank of Texas, N.A. The
expiration date of this facility was extended to June 5, 1997 and the interest
rate for loans drawn under this facility was reduced to LIBOR plus 0.75%. These
facilities all contain the same financial covenants and ratios which affect the
availability of funds and prohibit the Company from paying cash dividends. As of
June 30, 1996, no borrowings were outstanding under these three facilities.
The Company has an additional $31.0 million of revolving credit facilities
at foreign locations. The interest rates on borrowings from these facilities
range from 1.5% to 10.75% at June 30, 1996. Under the terms of the agreements,
the availability of funds is affected by various financial covenants and
collateral requirements. At June 30, 1996, $13.3 million was outstanding under
these foreign facilities, and the weighted average interest rate was 5.29%.
Based on covenant and collateral limitations under the above revolving
credit facilities, the Company had an additional $49.5 million available for
borrowing at June 30, 1996.
In February 1996, the Company modified its unsecured term loan facility for
$25 million with Sanwa Bank California ("Sanwa Term Facility"). The size of this
facility was reduced to $19.7 million and the interest rate for loans drawn
under this facility was reduced to LIBOR plus 0.75%. Principal repayments on
loans under the Sanwa Term Facility are required to be made in equal quarterly
installments from March 1998 through December 2001. This facility contains the
same financial covenants and ratios as contained in the three unsecured
revolving credit facilities mentioned above. At June 30, 1996, there was $19.7
million outstanding under this facility.
In March 1996, the Company entered into a second unsecured term loan
facility for $25 million with Sanwa Bank California ("Sanwa Term Facility #2").
Under this facility, the Company may draw up to $25 million prior to December
31, 1996. Interest rates for loans drawn under this facility are at prime, or
LIBOR plus 0.75%, or the bank's cost of funds plus 0.75% (at the Company's
option). Principal repayments on loans under the Sanwa Term Facility #2 are
required to be made in equal quarterly installments from March 1999 through
December 2002. This facility contains the same financial covenants and ratios as
contained in the three unsecured revolving credit facilities mentioned above. At
June 30, 1996, no borrowings were outstanding under this facility.
In June 1996, the Company entered into an unsecured term loan facility for
$20 million with Sumitomo Trust & Banking Co., Ltd., Los Angeles Agency
("Sumitomo Facility") and a separate unsecured term loan facility for $20
million with Banque Nationale de Paris, Los Angeles Branch ("BNP Facility").
From each of these facilities, the Company may draw up to $20 million prior to
June 30, 1997. Interest rates for loans drawn under the Sumitomo Facility are at
LIBOR plus 0.65%, and interest rates for loans drawn under the BNP Facility are
at LIBOR plus 0.55%. Principal repayments on loans under the Sumitomo Facility
are required to be made in equal semi-annual installments from December 1998
through June 2001. Principal repayments on loans under the BNP Facility are
required to be made in equal quarterly installments from September 1998 through
June 2001. These facilities contain the same financial covenants and ratios as
contained in the three unsecured revolving credit facilities mentioned above. At
June 30, 1996, no borrowings were outstanding under these facilities.
27
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BANK LOANS AND LONG-TERM DEBT (CONTINUED)
In December 1995, the Company modified and extended its secured credit
facility with NationsBanc Leasing Corporation of North Carolina. The Company has
available $22.5 million for capital equipment, which may be drawn down prior to
December 28, 1996. This facility contains no financial covenants.
The following is a summary of the Company's long-term debt and other loans
at June 30, 1996 and 1995 (000's):
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Capitalized lease obligations payable in varying monthly installments primarily at rates
from 6.0% to 12.6%....................................................................... $ 9,285 $ 13,221
Domestic bank loans collateralized by equipment, payable in varying monthly
installments at rates from 6.6% to 8.7%, due in 1998 through 2000........................ 17,199 8,337
Domestic unsecured bank loans payable in varying monthly installments at rates from 6.2%
to 6.3%, due in 2001..................................................................... 19,700 --
Foreign bank loans collateralized by property and/or equipment, payable in varying monthly
installments at rates from 8.0% to 10.8%, due in 1997 through 2000....................... 4,743 3,894
Foreign unsecured bank loans payable in varying monthly installments at rates from 2.6% to
8.4%, due in 1998 through 2006........................................................... 7,335 6,414
---------- ---------
58,262 31,866
Less current portion of long-term debt.................................................... (10,268) (7,985)
---------- ---------
$ 47,994 $ 23,881
---------- ---------
---------- ---------
</TABLE>
Principal payments on long-term debt are as follows: 1998 $13,657,000; 1999
$13,833,000; 2000 $10,451,000; 2001 $6,912,000; and $3,141,000 thereafter.
During fiscal years 1996, 1995, and 1994, the Company incurred interest
expense of $4,851,000, $5,098,000, and $4,186,000, respectively.
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
EMPLOYEE STOCK PURCHASE PLAN
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 2,000,000 shares. During fiscal 1996 and 1995, 122,169 and 148,064
shares were purchased at an aggregate purchase price of $1,461,000 and $915,000,
respectively. Shares authorized under this plan that remained unissued were
1,839,731 and 1,961,942 at June 30, 1996 and 1995, respectively.
STOCK OPTION PLANS
The Company has two stock option plans, the 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%,
28
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CAPITAL STOCK (CONTINUED)
beginning on the first anniversary date. The 1984 plan has expired. Exercisable
options outstanding under the 1984 plan expire between August 1996 and June
1999. The 1992 plan provides for an increase in shares available for grant under
the plan by 1.5% of total common stock outstanding on January 1 of each year. On
January 1, 1996, 1995, and 1994, 757,165, 748,422, and 609,006 shares,
respectively, were added to the plan. During fiscal year 1996, 400 shares
expired under the 1984 plan.
A summary of the status of options under the 1992 and 1984 plans is as
follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
------------- ------------------
<S> <C> <C>
Outstanding, June 30, 1993.............. 1,027,620 $2.00 to $10.81
Options granted....................... 480,000 5.50 to 8.50
Options exercised..................... (98,820) 2.00 to 7.69
Options expired or canceled........... (46,400) 2.88 to 10.81
-------------
Outstanding, June 30, 1994.............. 1,362,400 2.25 to 10.81
Options granted....................... 676,200 9.31 to 15.94
Options exercised..................... (417,400) 2.25 to 10.81
Options expired or canceled........... (16,800) 2.25 to 10.81
-------------
Outstanding, June 30, 1995.............. 1,604,400 2.94 to 15.94
Options granted....................... 581,825 16.75 to 23.81
Options exercised..................... (339,090) 2.94 to 15.94
Options expired or canceled........... (7,200) 6.00 to 23.81
-------------
Outstanding, June 30, 1996 at an average
price of $12.75........................ 1,839,935 $4.00 to $23.81
-------------
-------------
</TABLE>
The following table summarizes the options exercisable:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
--------- ------------------
<S> <C> <C>
June 30, 1996........................... 379,230 $4.00 to $15.94
June 30, 1995........................... 379,280 3.75 to 10.81
June 30, 1994........................... 528,240 2.25 to 10.81
</TABLE>
Additional information relating to the 1992 and 1984 plans at June 30, 1996,
1995, and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Options available for grant............. 955,290 773,150 700,428
Total reserved common stock shares for
stock option plans..................... 2,795,225 2,377,550 2,062,828
</TABLE>
WARRANTS
In connection with an April 24, 1991 public offering of the Company's common
stock, 700,000 warrants previously issued by the Company were exercised and sold
as part of the total shares offered. The difference between the exercise price
of the warrants and the public offering price of the stock was treated as
expense to the Company for federal and state income tax purposes. In fiscal year
1996, the income tax benefit of approximately $3,525,000 relating to the
exercise of the warrants was credited to capital contributed in excess of par
value.
29
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CAPITAL STOCK (CONTINUED)
SHAREHOLDER RIGHTS PLAN (UNAUDITED)
On August 2, 1996, the Company's Board of Directors adopted a Shareholder
Rights Plan (the "Plan") under which preferred stock purchase rights (the
"Rights") will be granted for each outstanding share of the Company's common
stock held at the close of business on August 14, 1996. The Plan is intended to
ensure fair and equitable treatment for all shareholders in the event of
unsolicited attempts to acquire the Company.
The Rights will become exercisable ten days after a person or group (the
"Acquiror") has acquired beneficial ownership of 20% or more of the Company's
common stock other than pursuant to a qualified offer, or announces or commences
a tender offer or exchange offer that could result in the acquisition of
beneficial ownership of 20% or more. Once exercisable, each Right entitles the
holder to purchase one one-thousandth of a share of a new series of preferred
stock at an exercise price of $135, subject to adjustment to prevent dilution.
If the Acquiror acquires 20% or more of the Company's common stock, each Right
(except those held by the Acquiror) entitles the holder to purchase either the
Company's stock or stock in the merged entity at half of market value. The
Rights have no voting power, expire on August 14, 2006, and may be redeemed at a
price of $0.01 per Right up to and including the tenth business day after a
public announcement that 20% or more of the Company's shares have been acquired
by the Acquiror.
For additional information, refer to the Company's reports to the Securities
and Exchange Commission on Forms 8-K and 8-A filed on August 20, 1996 and August
21, 1996, respectively.
4. GEOGRAPHIC SEGMENTS AND FOREIGN OPERATIONS
The Company operates in one business segment. Transfers between geographic
areas are made at prices reflecting market conditions. Revenues from
unaffiliated customers is based on the location of the customer. Geographic
segment information, including sales and transfers between geographic areas, for
the fiscal years ended June 30, 1996, 1995, and 1994 is presented below (000's):
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues from Unaffiliated Customers
United States......................................................... $ 266,514 $ 196,520 $ 154,684
Europe................................................................ 158,853 122,391 87,245
Other................................................................. 151,482 110,115 86,953
------------ ------------ ------------
Total............................................................... $ 576,849 $ 429,026 $ 328,882
------------ ------------ ------------
------------ ------------ ------------
Transfers between Geographic Areas
United States......................................................... $ 60,694 $ 47,196 $ 36,261
Europe................................................................ 134,395 82,439 59,119
Other................................................................. 97,238 69,418 52,759
------------ ------------ ------------
Total............................................................... $ 292,327 $ 199,053 $ 148,139
------------ ------------ ------------
------------ ------------ ------------
Total Revenues
United States......................................................... $ 327,208 $ 243,716 $ 190,945
Europe................................................................ 293,248 204,830 146,364
Other................................................................. 248,720 179,533 139,712
Intersegment eliminations............................................. (292,327) (199,053) (148,139)
------------ ------------ ------------
Total............................................................... $ 576,849 $ 429,026 $ 328,882
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
30
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. GEOGRAPHIC SEGMENTS AND FOREIGN OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating Profit
United States......................................................... $ 82,276 $ 38,924 $ 18,173
Europe................................................................ 6,704 7,428 4,710
Other................................................................. 7,727 2,036 666
------------ ------------ ------------
Total............................................................... $ 96,707 $ 48,388 $ 23,549
------------ ------------ ------------
------------ ------------ ------------
Identifiable Assets
United States (1)..................................................... $ 362,497 $ 269,737 $ 189,591
Europe................................................................ 123,994 93,517 74,533
Other................................................................. 43,327 35,765 28,696
------------ ------------ ------------
Total............................................................... $ 529,818 $ 399,019 $ 292,820
------------ ------------ ------------
------------ ------------ ------------
U.S. Export Sales to Unaffiliated Customers by Destination of Sale
Europe................................................................ $ 19,863 $ 9,231 $ 4,362
Asia.................................................................. 24,762 18,026 20,094
Other................................................................. 2,830 3,345 4,829
------------ ------------ ------------
Total............................................................... $ 47,455 $ 30,602 $ 29,285
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------------------
(1) Excluding general corporate assets.
5. INCOME TAXES
The major components of the net deferred tax asset (liability) as of June
30, 1996 and 1995 are as follows (000's):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation.................................... $ (22,638) $ (10,446)
Effect of state taxes........................... (1,415) (502)
Other........................................... (435) --
---------- ----------
Total deferred tax liabilities.................. (24,488) (10,948)
---------- ----------
Deferred tax assets:
Reserves for books, not deducted................ 10,334 5,431
Credit carryovers............................... 3,844 5,894
Other........................................... 955 178
---------- ----------
Total deferred tax assets....................... 15,133 11,503
---------- ----------
Net deferred tax asset (liability)................ $ (9,355) $ 555
---------- ----------
---------- ----------
</TABLE>
31
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Income before income taxes for the fiscal years ended June 30, 1996, 1995,
and 1994 is as follows (000's):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operations:
Domestic.............................. $ 86,231 $ 39,719 $ 15,626
Foreign............................... 9,699 7,748 3,248
--------- --------- ---------
$ 95,930 $ 47,467 $ 18,874
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision (benefit) for income taxes for the fiscal years ended June 30,
1996, 1995, and 1994 consists of (000's):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current income taxes:
Domestic.............................. $ 16,948 $ 6,356 $ 1,539
Foreign............................... 2,593 2,874 1,331
--------- --------- ---------
19,541 9,230 2,870
--------- --------- ---------
Deferred income taxes:
Domestic.............................. 8,695 (1,458) --
Foreign............................... 1,215 297 290
--------- --------- ---------
9,910 (1,161) 290
--------- --------- ---------
Total provision......................... $ 29,451 $ 8,069 $ 3,160
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred taxes result primarily from temporary differences relating to
depreciation, financial statement reserves, and state taxes.
The Company's effective tax rate on pretax income differs from the U.S.
Federal Statutory tax rate for the fiscal years ended June 30, 1996, 1995, and
1994 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory tax rate................................ 35.0% 35.0% 35.0%
Change in valuation allowance..................... -- (21.7) (24.8)
Foreign tax differential.......................... 1.4 1.8 2.6
Foreign tax credit benefit........................ (2.0) (1.8) --
Foreign sales corporation benefit................. (0.8) -- --
State taxes, net of federal tax benefit........... (1.2) 1.0 1.5
Other tax credits................................. -- (1.2) --
Other, net........................................ (1.7) 3.9 2.4
--- --------- ---------
30.7% 17.0% 16.7%
--- --------- ---------
--- --------- ---------
</TABLE>
During fiscal 1996, the Company fully utilized its $4.9 million of U.S.
federal income tax credit carryovers. At June 30, 1996, the Company has
approximately $3.8 million of state tax credits which expire in 2002.
6. PROFIT SHARING AND RETIREMENT PLANS
The Company has established defined contribution plans for all eligible
employees. The Profit Sharing and Retirement Plan provided for contributions by
the Company in such amounts as the Board of Directors determined annually.
Effective November 1, 1995, the Company elected to terminate its Profit Sharing
and Retirement Plan in order to focus on improvements in its voluntary
32
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROFIT SHARING AND RETIREMENT PLANS (CONTINUED)
Retirement Savings Plan (401K). Employees and former employees not fully vested
at time of the plan termination became 100% vested and were given various
distribution options as defined by ERISA. Under the established Retirement
Savings Plan (401K), the Company made an annual contribution for each
participating employee of up to $1,200 in fiscal year 1996 and up to $600 in
fiscal years 1995 and 1994. Combined plan contributions by the Company totaled
$1,021,000, $1,027,000, and $841,000 for fiscal years 1996, 1995, and 1994,
respectively.
7. ENVIRONMENTAL MATTERS
Federal, state, and local laws and regulations impose various restrictions
and controls on the discharge of certain materials, chemical, 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 consent decrees filed suit in Federal Court in May 1992 against a
number of other PRPs, including the Company, for cost recovery and contribution
under CERCLA. The lawsuit against the Company, 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. In June 1995, the Company was named among
others as a party defendant in Federal Court apparently in connection with a
third consent decree with respect to the OII Site. The Company received a letter
(dated July 25, 1995) from the U.S. Department of Justice offering to settle
claims against Rachelle relating to the first three elements of clean-up work at
the OII Site for the sum of $4,953,148 (the final remedy assessment has not yet
been made). This settlement offer expired by its terms on September 1, 1995. The
Company also received a separate letter from the EPA dated July 25, 1995, with
respect to International Rectifier only, notifying the Company that it may
qualify for a settlement with de minimis generators under CERCLA Section 122(g).
The Company has received no further communications in this regard. At an August
17, 1995 meeting with EPA representatives and representatives of other PRPs, EPA
representatives stated that they will not have an estimate of the cost of final
clean-up until at least early 1996. The Company is unaware of any estimate of
the cost of final clean-up of the site.
On August 7, 1995, the Company received a Supplemental Information Request
from the EPA, directed to Rachelle. In its response, dated October 20, 1995, the
Company explained that none of the wastes generated by Rachelle were hazardous.
The Company has received no further communications in connection with the
Supplemental Information Request.
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. 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. It was determined that the property required clean-up of
seepage from a storage tank, at an
33
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ENVIRONMENTAL MATTERS (CONTINUED)
estimated additional cost of $525,000. The Company commenced the clean-up in
fiscal year 1994, and through June 30, 1996 approximately $518,000 in clean-up
costs have been incurred which 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 (the "Department") 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) 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 by a letter dated August 11, 1994, stating that it
has not contributed to PCE or other solvent contamination at the Yakima County
site (resulting from sending carbon canisters for regeneration to a facility in
the county) and that it should not be designated a PLP. On October 11, 1994, the
Company received a letter from the Department notifying the Company of its
finding that the Company is a PLP in the above matter. On June 20, 1996, the
Company received a letter from the Washington Department of Ecology, stating
that a settlement offer would be extended to all potentially liable persons in
late summer or early fall of 1996. While the letter did not commit to the amount
of any settlement, it predicted a settlement of approximately $4.95 for each
pound of carbon sent to Cameron-Yakima.
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, in June 1995, agreed to join a group of other PRPs to
remove contamination from the site. The group currently estimates the total cost
of the clean-up to be between $3.1 million and $4 million, of which between
$12,000 and $15,000 is presently expected to be allocated to the Company.
However, the ultimate cost borne by the Company will depend on the extent of the
clean-up undertaken by the group and the actual clean-up costs and the final
allocation scheme agreed upon by the group.
8. COMMITMENTS
The future minimum lease commitments under non-cancelable capital and
operating leases of equipment and real property at June 30, 1996 are as follows
(000's):
<TABLE>
<CAPTION>
CAPITAL OPERATING TOTAL
FISCAL YEARS LEASES LEASES COMMITMENTS
- ---------------------------------------- --------- --------- -------------
<S> <C> <C> <C>
1997.................................... $ 4,771 $ 6,322 $ 11,093
1998.................................... 4,238 3,600 7,838
1999.................................... 1,186 2,168 3,354
2000.................................... 20 1,629 1,649
2001.................................... -- 1,496 1,496
Later years............................. -- 3,111 3,111
Less imputed interest................... (930) -- (930)
--------- --------- -------------
Total minimum lease payment............. $ 9,285 $ 18,326 $ 27,611
--------- --------- -------------
--------- --------- -------------
</TABLE>
Total rental expense on all operating leases charged to income was
$8,193,000, $7,965,000, and $6,723,000 in fiscal years 1996, 1995, and 1994,
respectively.
9. INTELLECTUAL PROPERTY RIGHTS
Certain of the Company's fundamental power MOSFET patents have been
subjected, and continue to be subjected, to reexamination in the United States
Patent and Trademark Office ("PTO"). The patents subject to reexamination are
fundamental to the Company's MOS transistors and their loss would allow
competitors to use currently patented features of the Company's MOS transistor
34
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INTELLECTUAL PROPERTY RIGHTS (CONTINUED)
technology without liability for infringement of those patents. On the following
dates, the PTO granted requests for reexamination of the following patents of
the Company: November 13, 1992 and September 12, 1994 on patent 4,642,666;
October 13, 1993 on patent 4,705,759; September 12, 1994 on patent 4,959,699;
September 23, 1994 and June 28, 1995 on patent 5,008,725; January 17, 1995 on
patent 5,130,767; June 5, 1995 on patent 5,191,396; and June 14, 1995 on patent
4,593,302. On February 14, 1995 and on December 26, 1995, respectively, the PTO
issued reexamination certificates, confirming the patentability of the Company's
U.S. patents 4,705,759 and 5,191,396.
10. LITIGATION
The Company and SGS-Thomson Microelectronics, Inc. ("SGS") are engaged in
various legal proceedings relating to their respective power MOSFET patents. SGS
filed suit against the Company in June 1991 in Federal District Court in Texas,
charging infringement of U.S. patent 4,553,314. On motion by the Company, the
suit was transferred to the Federal District Court in Los Angeles, California,
and thereafter SGS amended its complaint to charge infringement of U.S. patents
4,495,513 and 4,712,127. SGS alleges, in substance, that the Company's power
MOSFET, power IC and IGBT products infringe the '314 patent, that the Company's
IGBT products infringe the '513 patent, and that certain packages for the
Company's products (including certain power MOSFET packages) infringe the '127
patent. The complaint, as amended, seeks unspecified actual damages (but no less
than an unspecified reasonable royalty) and an injunction restraining further
sales of such products. On February 1, 1993, the District Court dismissed SGS's
claims for infringement of the '127 and '513 patents for lack of standing and on
March 15, 1993, ruled that the SGS '314 patent is unenforceable due to
inequitable conduct. SGS appealed these rulings, as well as the order
transferring the case to California, to the Court of Appeals for the Federal
Circuit. The Company cross-appealed a separate ruling by the District Court
denying the Company's motion for summary judgment that the '314 patent is
invalid. In July 1994, the Federal Circuit vacated the District Court's grants
of summary judgment as to the '513, '127, and '314 patents and affirmed the
District Court's denial of the Company's motion for summary judgment of
invalidity of the '314 patent. The Federal Circuit ordered, however, that the
case should proceed in California. On July 5, 1995, the Court, based on the
stipulation of the parties, effectively stayed SGS's claims on its '314 and '127
patents pending the outcome of reexamination of the patentability of the subject
matter of those patents by the PTO. These reexamination proceedings are still
pending.
In November and December 1995, the parties presented testimony and evidence
to the District Court concerning the interpretation of the claims of the '513
patent; and the Court has not yet ruled on the matter.
The Company has also filed a separate action in the same District Court
against SGS and its Italian affiliate, SGS-Thomson Microelectronics, S.r.l.,
seeking an injunction against infringement of the Company's U.S. patents
5,008,725 and 5,130,767. This action has been essentially stayed pending
completion of reexamination of these patents by the PTO (see Note 9).
The Company filed another separate action in the same District Court on
August 13, 1996, against the same SGS entities charging infringement of its U.S.
patent 5,545,955.
In the Fall of 1995, SGS and SGS-Thomson Microelectronics, S.A.
("SGS-France") commenced an infringement action in Great Britain against the
Company and International Rectifier (Great Britain) Limited ("IRGB") based on
the European counterpart patent to the '513 patent (European Patent (UK) No.
0,068,546). The Company and IRGB have filed a response denying the material
allegations plead by SGS and SGS-France and seek revocation of the foreign
counterpart patents at issue. The British action is set for trial in July 1997.
35
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LITIGATION (CONTINUED)
The Company, its directors, and certain officers have been named as
defendants in three class action lawsuits filed in Federal Court in California.
These suits seek unspecified but substantial compensatory and punitive damages
for alleged intentional and negligent misrepresentations and violations of the
federal securities laws. The complaints generally allege that the Company and
the other defendants made materially false statements or omitted to state
material facts in connection with the public offering of the Company's common
stock completed in April 1991 and the redemption and conversion in June 1991 of
the Company's 9% Convertible Subordinated Debentures Due 2010. They also allege
that the Company's projections for growth in fiscal 1992 were materially
misleading. Although the Company believes that the claims alleged in the suits
are without merit, the ultimate outcome cannot be presently determined. A
substantial judgment or settlement, if any, could have a material adverse effect
on the Company's financial condition and results of operations. Two of these
suits also name Kidder, Peabody & Co. Incorporated and Montgomery Securities as
defendants. Defendants Kidder, Peabody & Co. and Montgomery Securities have
demanded that the Company indemnify them for any liability or expenses,
including attorneys fees, that they may incur in connection with this
litigation. Those defendant underwriters base that demand on their underwriting
agreements with the Company. The Company has agreed to advance the underwriter
defendants' attorneys fees pursuant to that indemnity, subject to a reservation
of the Company's right to seek reimbursement of those advances.
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 year end under
this agreement was $632,500. 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. The agreement was amended on April 12, 1995 to provide
that upon retirement Mr. Lidow's pension would be based, in addition to his
salary, on the average of the prior three years' cash bonuses, if any. The
pension would further be adjusted annually to account for any increase in the
Consumer Price Index. 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, $2,348,000, $1,068,000, and $572,000 have been expensed in fiscal years
1996, 1995, and 1994, respectively.
On October 24, 1995 (amended on February 22, 1996), the Company established
an irrevocable grantor trust (the "Trust") for payment of retirement benefits to
Eric Lidow and his wife. The principal of the Trust, and any earnings thereon,
shall be held separate and apart from other funds of the Company and shall be
used exclusively for the uses and purposes of providing the retirement benefits
described in the executive agreement (and for payments to general creditors if
the Company is unable to pay its debts as they become due or is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code). Under
the Trust agreement, the Company funds the pro-rata liability accrual 30 days
following the end of each calendar quarter. At June 30, 1996, the balance in the
Trust was $5,219,000 and was included in "Other assets."
36
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows (000's except per share
data):
<TABLE>
<CAPTION>
NET
GROSS NET INCOME
REVENUES PROFIT INCOME PER SHARE (A)
----------- --------- --------- -------------
<S> <C> <C> <C> <C>
1996
1st Quarter............................. $ 126,097 $ 47,311 $ 12,829 $ 0.25
2nd Quarter............................. 141,026 53,889 15,219 0.30
3rd Quarter............................. 154,070 60,094 18,011 0.35
4th Quarter............................. 155,656 64,509 20,420 0.40
1995
1st Quarter............................. $ 92,253 $ 31,514 $ 6,498 $ 0.16
2nd Quarter............................. 102,814 35,792 8,368 0.18
3rd Quarter............................. 111,867 39,506 10,752 0.21
4th Quarter............................. 122,092 44,012 13,780 0.27
</TABLE>
- ------------------------
(A) Quarter net income per share is rounded to the nearest cent.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
37
<PAGE>
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 25, 1996, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 1996, 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 10.
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
a. Financial Statements and Financial Statement Schedule being filed as
part of this report are listed in the index on page 17.
b. Exhibits filed as part of this report are listed on the Exhibit Index on
page 39.
38
<PAGE>
EXHIBIT INDEX
Incorporated By Reference:
<TABLE>
<CAPTION>
EXHIBIT
NO. ITEM DOCUMENT
- ------- ----------------------------- ----------------------------------------
<C> <S> <C>
3(a) Certificate of Incorporation Report on Form 10-Q for the quarterly
of the Company, as amended to period ended December 31, 1990, as
date amended by Form 8 dated 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-Laws Form 10-Q -- for the quarterly period
of the Company ended March 31, 1995 as filed with the
Securities and Exchange Commission, File
No. 1-7935
10(a) Technical Assistance Registration Statement on Form S-2 as
Agreement dated March 30, filed with the Securities and Exchange
1983 between the Company and Commission, Registration No. 2-89410
Unitrode Corporation (Exhibit 10.8)
10(b) Amended and Restated Form 10-K -- Annual Report Pursuant to
Settlement Agreement between Section 13 or 15(d) of the Securities
International Rectifier Exchange Act of 1934 for Fiscal Year
Corporation and Siliconix Ended June 30, 1990, Commission File No.
incorporated dated July 27, 1-7935
1990
10(c) Amendment to Technical Report on Form 10-Q for the quarterly
Assistance Agreement, period ended December 31, 1990 as
effective as of August 27, amended by Form 8 dated April 15, 1991,
1987, by and between the Commission File No. 1-7935 (Exhibit
Company and Unitrode 10(l))
Corporation
10(d) International Rectifier Registration Statement on Form S-8 as
Corporation Stock Option Plan filed with the Securities and Exchange
of 1984 (Second Amendment) Commission, Registration No. 33-40208
10(e) Executive Employment Form 10-K -- Annual Report Pursuant to
Agreement dated May 15, 1991 Section 13 or 15(d) of the Securities
between International Exchange Act of 1934 for Fiscal Years
Rectifier Corporation and Ended June 30, 1991 and 1995, Commission
Eric Lidow and amended as of File No. 1-7935
April 12, 1995
10(f) International Rectifier Registration Statement on Form S-8 as
Corporation Stock Option Plan filed with the Securities and Exchange
of 1992 Commission, Registration No. 33-63958
(Exhibit 8)
10(g) Line of Credit Agreement Form 10-K -- Annual Report Pursuant to
between International Section 13 or 15(d) of the Securities
Rectifier Corporation and Exchange Act of 1934 for Fiscal Years
Sanwa Bank California dated Ended June 30, 1993, 1994, and 1995, and
as of June 30, 1993 and Form 10-Q for the quarterly period ended
amended as of August 24, March 31, 1996, Commission File No.
1993, November 22, 1993, July 1-7935
1, 1994, December 30, 1994,
February 28, 1995, and
February 29, 1996
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. ITEM DOCUMENT
- ------- ----------------------------- ----------------------------------------
<C> <S> <C>
10(h) Amendment to International Registration Statement on Form S-8 as
Rectifier Corporation 1984 filed with the Securities and Exchange
Stock Participation Plan Commission, Registration No. 33-53589
(Exhibit 4.1)
10(i) Security Agreement between Form 10-K -- Annual Report Pursuant to
International Rectifier Section 13 or 15(d) of the Securities
Corporation and Nationsbanc Exchange Act of 1934 for Fiscal Years
Leasing Corporation of North Ended June 30, 1994 and 1995, Commission
Carolina dated as of July 1, File No. 1-7935
1994 and amended as of August
15, 1994, November 3, 1994,
and March 8, 1995
10(j) Revolving Credit Agreement Form 10-K -- Annual Report Pursuant to
between International Section 13 or 15(d) of the Securities
Rectifier Corporation and Exchange Act of 1934 for Fiscal Years
Wells Fargo Bank, N.A. dated Ended June 30, 1994 and 1995, Commission
as of July 1, 1994 and File No. 1-7935
amended as of December 30,
1994 and March 31, 1995
10(k) Loan and Security Agreement Form 10-K -- Annual Report Pursuant to
between Sanwa General Section 13 or 15(d) of the Securities
Equipment Leasing, a Division Exchange Act of 1934 for Fiscal Year
of Sanwa Business Credit Ended June 30, 1994, Commission File No.
Corporation and International 1-7935
Rectifier Corporation dated
as of July 1, 1994
10(l) Revolving Credit Agreement Form 10-K -- Annual Report Pursuant to
between International Section 13 or 15(d) of the Securities
Rectifier Corporation and Exchange Act of 1934 for Fiscal Year
Nationsbank of Texas, N.A. Ended June 30, 1995, Commission File No.
dated June 15, 1995 1-7935
10(m) Amendments to Term Loan Form 10-Q for the quarterly period ended
Agreement between March 31, 1996, Commission File No.
International Rectifier 1-7935
Corporation and Sanwa Bank
California dated as of
December 29, 1995 and
February 29, 1996
10(n) Term Loan Agreement between Form 10-Q for the quarterly period ended
International Rectifier March 31, 1996, Commission File No.
Corporation and Sanwa Bank 1-7935
California (Sanwa Term
Facility #2) dated March 26,
1996
</TABLE>
40
<PAGE>
SUBMITTED HEREWITH:
See page 17 for an index of Financial Statements and Schedules being filed
as part of this report.
<TABLE>
<CAPTION>
EXHIBIT
NO. ITEM DOCUMENT
- ------- ----------------------------- ----------------------------------------
<C> <S> <C>
10(o) Term Loan Agreement between
International Rectifier
Corporation and Sanwa Bank
California dated February 28,
1995 and amended as of
December 29, 1995, February
29, 1996, and June 28, 1996
10(p) International Rectifier
Corporation Grantor Trust for
Retirement Benefits for Eric
Lidow dated October 24, 1995
and amended as of February
22, 1996
10(q) Amendments to Security
Agreement between
International Rectifier
Corporation and Nationsbanc
Leasing Corporation of North
Carolina dated as of December
29, 1995 and July 30, 1996
10(r) Amendment to Revolving Credit
Agreement between
International Rectifier
Corporation and Wells Fargo
Bank, N.A. dated as of May
15, 1996
10(s) Amendment to Revolving Credit
Agreement between
International Rectifier
Corporation and Nationsbank
of Texas, N.A. dated as of
June 6, 1996
10(t) Term Loan Agreement between
International Rectifier
Corporation and Sumitomo
Trust & Banking Co., LTD.,
Los Angeles Agency dated June
12, 1996
10(u) Term Loan Agreement between
International Rectifier
Corporation and Banque
Nationale de Paris, Los
Angeles Branch dated June 25,
1996
10(v) Amendment to Line of Credit
Agreement between
International Rectifier
Corporation and Sanwa Bank
California dated as of June
28, 1996
21 List of Subsidiaries
23 Consent of Independent
Accountants
27 Financial Data Schedule
</TABLE>
41
<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 24, 1996
--------------------------------
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 Chairman of the Board September 24, 1996
- ------------------------------
Eric Lidow
ALEXANDER LIDOW Director, Chief Executive September 24, 1996
- ------------------------------ Officer
Alexander Lidow
DEREK B. LIDOW Director, Chief Executive September 24, 1996
- ------------------------------ Officer
Derek B. Lidow
ROBERT J. MUELLER Director, Executive Vice September 24, 1996
- ------------------------------ President
Robert J. Mueller
GEORGE KRSEK Director September 24, 1996
- ------------------------------
George Krsek
JACK O. VANCE Director September 24, 1996
- ------------------------------
Jack O. Vance
ROCHUS E. VOGT Director September 24, 1996
- ------------------------------
Rochus E. Vogt
DONALD S. BURNS Director September 24, 1996
- ------------------------------
Donald S. Burns
JAMES D. PLUMMER Director September 24, 1996
- ------------------------------
James D. Plummer
<PAGE>
SCHEDULE II
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN 000'S)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND CHARGED TO END
DESCRIPTION PERIOD EXPENSES OTHER DEDUCTIONS (1) OF PERIOD
- ------------------------------------------- ------------ ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
1996
Allowance for doubtful accounts............ $ 901 $ 421 $ -- $ (308) $ 1,014
Deferred tax valuation allowance........... $ 0 $ -- $ -- $ -- $ 0
Inventory valuation reserve................ $ 5,029 $ 6,503 $ -- $ (5,448) $ 6,084
1995
Allowance for doubtful accounts............ $ 677 $ 703 $ -- $ (479) $ 901
Deferred tax valuation allowance........... $ 10,596 $ -- $ (10,596) $ -- $ 0
Inventory valuation reserve................ $ 2,798 $ 4,420 $ -- $ (2,189) $ 5,029
1994
Allowance for doubtful accounts............ $ 607 $ 577 $ -- $ (507) $ 677
Deferred tax valuation allowance........... $ 15,546 $ -- $ (4,950) $ -- $ 10,596
Inventory valuation reserve................ $ 2,052 $ 1,997 $ -- $ (1,251) $ 2,798
</TABLE>
- ------------------------
(1) Deductions include the write-off of uncollectible amounts with respect to
trade accounts receivable, obsolete and scrap inventory, and the effects of
Statement of Financial Accounting Standards No. 52.
F-1
<PAGE>
TERM LOAN AGREEMENT
This Term Loan Agreement (the "Agreement") is made and entered into as of
this 28th day of February, 1995, by and between SANWA BANK CALIFORNIA (the
"Bank") and INTERNATIONAL RECTIFIER CORPORATION (the "Borrower"), on the terms
and conditions that follow:
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) "BUSINESS DAY": shall mean a day other than a Saturday or Sunday
on which commercial banks are open for business in California, USA.
(b) "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.
(c) "DEBT": shall mean all liabilities of the Borrower as set forth on
its balance sheet less Subordinated Debt.
(d) "DOMESTIC": shall mean the consolidated United States and Mexican
maquiladora operations of the Borrower.
(e) "EFFECTIVE TANGIBLE NET WORTH": shall mean the Borrower's stated
net worth plus Subordinated Debt but less all intangible assets of the Borrower
(i.e., 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 and excluding redemption of
employee stock options.
(f) "ERISA": shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, including (unless the context otherwise
requires) any rules or regulations promulgated thereunder.
(g) "EVENT OF DEFAULT": shall have the meaning set forth in Section 6.
(h) "INDEBTEDNESS": shall mean, with respect to the Borrower, (i) all
indebtedness for borrowed money and (ii) 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 generally accepted accounting principles, reported
as capital leases in respect of which the Borrower is primarily liable.
i) "OBLIGATIONS": shall mean all amounts owing by the Borrower to the
Bank pursuant to this Agreement.
(j) "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 5.09 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.
-1-
<PAGE>
(k) "SUBORDINATED DEBT": shall mean such liabilities of the Borrower
which have been subordinated to those owed to the Bank in a manner acceptable to
the Bank.
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 generally accepted accounting principles consistently applied
and, except where otherwise specified, all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles.
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
THE TERM LOAN
2.01 TERM LOAN. The Bank agrees to lend to the Borrower in up to 5 drawings
in the minimum amount of $1,000,000, upon the Borrower's request made prior to
December 31, 1995, (the "Drawdown Period") up to the maximum amount of
$25,000,000 (the "Term Loan").
A. PURPOSE. Proceeds from the Term Loan shall be used to finance
acquisition of assets.
B. TERM LOAN ACCOUNT. The Bank shall maintain on its books a record of
account in which the Bank shall make entries setting forth all payments made,
the application of such payments to interest and principal, accrued and unpaid
interest (if any) and the outstanding principal balance under the Term Loan (the
"Term Loan Account). The Bank shall provide the Borrower with a monthly
statement of the Borrower's Term Loan Account, which statement shall be
considered to be correct and conclusively binding on the Borrower unless the
Borrower notifies the Bank to the contrary within 30 days after the Borrower's
receipt of any such statement which it deems to be incorrect.
C. INTEREST. Interest shall accrue on the outstanding principal
balance or any portion of the outstanding principal balance of the Term Loan at
one of the following rates as elected by Borrower:
(a) VARIABLE RATE BALANCES. The outstanding principal balance of
the Term Loan ("Term Balance") shall bear interest at a rate equal to Bank's
Reference Rate per annum, as it may change from time to time ("Variable Rate").
The rate of interest shall be adjusted concurrently with any change in Bank's
Reference Rate. The Term Balance bearing interest at the Variable Rate is
hereinafter referred to as "Variable Rate Balances".
(b) FIXED RATE BALANCES. A fixed rate for such period of time
that the Bank may quote and offer in its sole discretion from time to time (the
"Fixed Rate"), provided that any such period of time shall be for at least 7
days and provided further that any such period of time does not extend beyond
the maturity date of the Term Loan (the "Fixed Rate Interest Period") The Bank
shall provide the Borrower with a statement of the Borrower's Fixed Rate, which
statement shall be considered to be correct and conclusively binding on the
Borrower unless the Borrower notifies the Bank to the contrary within 30 days
after the Borrower's receipt of any such statement which it deems to be
incorrect. The Term Balance bearing interest at the Fixed Rate is hereinafter
referred to as "Fixed Rate Balances".
(c) EURODOLLAR BALANCES. A fixed rate quoted by the Bank for a
minimum of 30 days or for such other period of time that the Bank may quote and
offer [the "Eurodollar Interest Period"] for Term Balances in the minimum amount
of $100,000.00. Such interest rate shall be a percentage equivalent to 1.00% per
annum in excess of the Bank's Eurodollar Rate which is that rate determined by
the Bank's Treasury Desk as being the approximate rate at which the Bank could
purchase offshore U.S. dollar deposits in an amount approximately equal to the
amount of the relevant Term Balance and for a period of time approximately equal
to the relevant Eurodollar Interest Period (adjusted for any and all
assessments, surcharges and reserve requirements pertaining to the purchase by
the Bank of such U.S. dollar deposits) [the "Eurodollar Rate"]. Term Balances
based upon the Eurodollar Rate is hereinafter referred to as the "Eurodollar
Balances".
Borrower hereby promises and agrees to pay interest on any Variable
Rate Balances monthly in arrears on the first calendar day of each month.
-2-
<PAGE>
Interest on any Eurodollar Balance or any Fixed Rate Balance with a
Eurodollar Interest Period or a Fixed Rate Interest Period (hereinafter referred
to as an "Interest Period") of 93 or less days shall be paid on the last day of
the relevant Eurodollar Interest Period or Fixed Rate Interest Period pertaining
to such Eurodollar Balance or Fixed Rate Balance. Interest on any Eurodollar
Balance or Fixed Rate Balance with an Eurodollar Interest Period or Fixed Rate
Interest Period in excess of 93 days shall be paid quarterly (i.e., on the last
day of each 3 month period occurring in such Interest Period) and on the last
day of the relevant Eurodollar Interest Period or Fixed Rate Interest Period
pertaining to such Eurodollar Balance or Fixed Rate Balance.
Interest shall be calculated on a year of 360 days for actual days
elapsed.
(d) NOTICE OF ELECTION TO ADJUST INTEREST RATE. Upon telephonic
notice which shall be received by the Bank at or before 2:00 p.m. (California
time) on a business day, the Borrower may elect:
1) That interest on a Variable Rate Balance shall be
adjusted to accrue at the Fixed Rate or the Eurodollar Rate; provided, however,
that such notice shall be received by the Bank no later than two business days
prior to the day (which shall be a business day) on which Borrower requests that
interest be adjusted to accrue at the Fixed Rate or Eurodollar Rate.
2) That interest on a Fixed Rate Balance or Eurodollar
Balance shall continue to accrue at a newly quoted Fixed Rate or Eurodollar Rate
as the case may be or shall be adjusted to commence to accrue at the Variable
Rate; provided, however that such notice shall be received by the Bank no later
than two business days prior to the last day of the Interest Period or
Eurodollar Interest Period pertaining to such Fixed Rate Balance or Eurodollar
Balance. If the Bank shall not have received notice as prescribed herein of
Borrower's election that interest on any Fixed Rate Balance or Eurodollar
Balance shall continue to accrue at the Fixed Rate or Eurodollar Rate as the
case may be, Borrower shall be deemed to have elected that interest thereon
shall be adjusted to accrue at the Variable Rate upon the expiration of the
Interest Period pertaining to such Term Balance.
(e) PREPAYMENT. Notwithstanding anything to the contrary in the
Agreement, no prepayment shall be made on any Fixed Rate Balance or Eurodollar
Balance except on a day which is the last day of the relevant Interest Period or
Eurodollar Interest Period pertaining thereto. If the whole or any part of any
Fixed Rate Balance or Eurodollar Balance is prepaid by reason of acceleration or
otherwise, the Borrower shall upon the Bank's request, promptly pay to and
indemnify the Bank for all costs and any loss (including interest) actually
incurred by the Bank and any loss (excluding loss of profit resulting from the
re-employment of funds) sustained by the Bank as a consequence of such
prepayment. Any prepayment shall first be applied to pay accrued interest, then
be applied to reduce the principal balance payable on the date set forth in
numbered paragraph 3 hereinbelow, and the remaining portion (if any) of such
prepayment shall then be applied to pay the principal installment(s) of latest
maturity under this Term Loan.
(f) INDEMNIFICATION FOR FIXED RATE AND EURODOLLAR RATE COSTS.
During any period of time in which interest on any Term Balance is accruing on
the basis of the Fixed Rate or Eurodollar Rate, the Borrower shall, upon the
Bank's written request, which request shall explain in reasonable detail the
reason for such costs or payments, promptly pay to and reimburse the Bank for
all costs incurred and payments made by the Bank by reason of any future
assessment, reserve, deposit or similar requirements or any surcharge, tax or
fee imposed upon the Bank or as a result of the Bank's compliance with any
directive or requirement of any regulatory authority pertaining or relating to
funds used by the Bank in quoting and determining the Fixed Rate or Eurodollar
Rate.
(g) CONVERSION FROM FIXED RATE OR EURODOLLAR RATE TO VARIABLE
RATE. In the event that the Bank shall at any time determine that the accrual of
interest on the basis of the Fixed Rate or Eurodollar Rate (i) is infeasible
because the Bank is unable to determine the Fixed Rate or Eurodollar Rate due to
the unavailability of U.S. dollar deposits, contracts or certificates of deposit
in an amount approximately equal to the amount of the relevant Balance and for a
period of time approximately equal to the relevant Interest Period; or (ii) is
or has become unlawful or infeasible by reason of the Bank'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 the Bank shall give
telephonic notice thereof (confirmed in writing) to the Borrower, in which event
any Fixed Rate Balance or Eurodollar Balance shall be deemed to be a Variable
Rate Balance and interest shall thereupon immediately accrue at the Variable
Rate.
-3-
<PAGE>
D. PRINCIPAL. The Borrower hereby promises and agrees to pay the
outstanding principal of the Term Loan as of December 31, 1995, in 15 equal
installments of 1/16th of the outstanding principal balance of the Term Loan as
of December 31, 1995, commencing on March 31, 1998, and continuing on the last
day of each calendar quarter thereafter up to and including September 30,
2001. On December 31, 2001, the Borrower hereby promises and agrees to pay to
the Bank the entire unpaid principal balance, together with accrued and unpaid
interest.
Each payment received by the Bank shall be applied to pay interest then due
and unpaid and the remainder thereof (if any) shall be applied to pay principal.
E. ACCOUNT DEBIT Upon prior notice to the Borrower from the Bank,
the Borrower hereby authorizes the Bank, if and to the extent payment owed to
the Bank under the Term Loan 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 the Bank any amount so due.
F. COMMITMENT FEE. Borrower agrees to pay to Bank a commitment
fee during the Drawdown Period of.25% per annum on the undrawn portion of the
Term Loan, payable quarterly in arrears and computed on a year of 360 days for
actual days elapsed.
2.02 LIMITATIONS.
(a) Notwithstanding anything to the contrary herein, the Borrower
shall not be required to make any payment to the Bank with respect to any
indemnity required pursuant to Sections 2.01 C. (f) ("Affected Section") unless
Bank shall have given notice to Borrower promptly upon the Rosemead Commercial
Banking Center of Bank, or its equivalent successor, becoming aware of any
circumstance requiring the Borrower to make any payment under an Affected
Section;
(b) The Borrower shall not be responsible for payment of any
amounts payable under any Affected Section to the extent determined to be as a
result of the Bank's gross negligence or willful misconduct.
(c) The Bank shall use its reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions) to take any action if
the taking of such action would avoid the need for, or reduce the amount of, any
additional amounts payable under any Affected Section or not require the
prepayment of a Fixed Rate Advance and would not, in the reasonable judgment of
the Bank, be otherwise disadvantageous to the Bank.
SECTION 3
CONDITIONS OF LENDING
3.01 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE: The obligation of the
Bank to make the first extension of credit to or on account of the Borrower
hereunder is subject to the conditions precedent that the Bank shall have
received before the date of such first extension of credit all of the following,
in form and substance satisfactory to the Bank:
(a) Evidence that the execution, delivery and performance by the
Borrower of this Agreement and any document, instrument or agreement required
hereunder have been duly authorized.
(b) A flat fee of $62,500.00 which shall include all of Bank's out-of-
pocket expenses.
(c) Such other evidence as the Bank may reasonably request to
establish the consummation of the transaction contemplated hereunder and
compliance with the conditions of this Agreement.
//
//
//
//
-4-
<PAGE>
SECTION 4
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties to
the Bank, which representations and warranties are continuing:
4.01 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.
4.02 AUTHORITY: The execution, delivery and performance by the Borrower of
this Agreement and any instrument, document or agreement required hereunder 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.
4.03 LEGAL EFFECT: This Agreement constitutes, and any instrument, document
or agreement required hereunder when delivered hereunder 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 creditor' rights generally and subject to the availability of equitable
remedies.
4.04 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 the Bank are and have been or will be prepared in accordance
with generally accepted accounting principles consistently applied and fairly
present in all material respects, as of the date of such statements, information
or data, the financial condition or, as applicable, the other information
disclosed therein. Since the most recent submission of such financial
information or data to the Bank, the Borrower represents and warrants that no
material adverse change in the Borrower's financial condition or operations has
occurred which has not been fully disclosed to the Bank in writing.
4.05 LITIGATION: Except as have been disclosed to the Bank in writing,
there are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or the Borrower's
properties before any court or administrative agency which could reasonably be
expected, if determined adversely to the Borrower, to have a material adverse
effect on the Borrower's financial condition or operations.
4.06 TITLE TO ASSETS: The Borrower has good and marketable title to all of
its assets. The Domestic assets are not subject to any security interest,
encumbrance, lien or claim of any third person except for Permitted Domestic
Liens.
4.07 ERISA: If the Borrower has a pension, profit sharing or retirement
plan subject to ERISA, 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 the Bank prior
to the date of this Agreement.
4.08 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 are currently payable without penalty or interest or those
which are being duly contested in good faith.
4.09 REGULATION U: The proceeds of the Advances will not be used to
purchase or carry margin stock.
4.10 ENVIRONMENTAL COMPLIANCE: The Borrower has implemented and complied in
all material respects with all applicable federal, state and local laws,
ordinances, statutes and regulations with respect to hazardous or toxic wastes,
substances or related materials, industrial hygiene or environmental conditions.
Except as previously disclosed to the Bank in writing, there are no suits,
proceedings, claims or disputes pending or, to the knowledge of the Borrower,
threatened against or affecting the Borrower or its property claiming violations
of any federal, state or local law, ordinance, statute or regulation relating to
hazardous or toxic wastes, substances or related materials.
-5-
<PAGE>
SECTION 5
COVENANTS
The Borrower covenants and agrees that, during the term of this Agreement,
and so long thereafter as the Borrower is indebted to the Bank under this
Agreement, the Borrower will, unless the Bank shall otherwise consent in
writing:
5.01 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS: Maintain
and preserve its existence and all rights and privileges now enjoyed; not
liquidate or dissolve, merge or consolidate with or into, any other business
organization, provided however, that Borrower may acquire any other businesses
for up to $100,000,0000 in the aggregate; and conduct its business and
operations in accordance with all applicable laws, rules and regulations.
5.02 MAINTENANCE OF INSURANCE: Maintain insurance in such amounts and
covering such risks as is usually and prudently carried by companies engaged in
similar businesses and owning similar properties in the same general areas in
which the Borrower operates.
5.03 MAINTENANCE OF PROPERTIES: The Borrower shall also 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.
5.04 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.
5.05 INSPECTION RIGHTS: At any reasonable time and from time to time,
permit the Bank or any representative thereof to examine and make copies of the
records and visit the properties of the Borrower and discuss the business and
operations of the Borrower with any designated representative thereof. 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 hereby agrees to notify such third
party to permit the Bank free access to such records at all reasonable times and
to provide the Bank 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 following demand.
5.06 REPORTING AND CERTIFICATION REQUIREMENTS: Deliver or cause to be
delivered to the Bank in form and detail satisfactory to the Bank:
(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
Exchange Commission Form 10-K of the Borrower for such year, all certified to as
having been prepared in accordance with generally accepted accounting principles
consistently applied by a firm of certified public accountants acceptable to
Bank, together with the consolidating balance sheets and income statements for
the Borrower and its subsidiaries for such year.
(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.
(c) Promptly upon the Bank's request, such other information
pertaining to the Borrower as the Bank may reasonably request.
5.07 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.
5.08 REDEMPTION OR REPURCHASE OF STOCK: Not redeem or repurchase any class
of the Borrower's stock now or hereafter outstanding, provided however, 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 fiscal year .
-6-
<PAGE>
5.09 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 $75,000,000.00 in any one fiscal year or (iv)
Indebtedness owed to other financial institutions under revolving lines of
credit or (v) Indebtedness of up to $75,000,000 in connection with any
acquisitions.
5.10 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 Borrower may make loans or advances or extend
credit to employees of Borrower in an aggregate amount not to exceed
$1,000,000.00 in any one fiscal year and provided further, that Borrower may
make loans or advances or extend credit to affiliated entities and subsidiaries
of Borrower in an aggregate amount not to exceed $15,000,000.00 in the
aggregate.
5.11 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 money security interests or capital leases of up
to $75,000,000 for equipment including mortgage financing for the Borrower's
Temecula, California property in any one fiscal year.
5.12 TRANSFER 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 and, then, only at then prevailing market rates for such assets.
5.13 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.
5.14 FINANCIAL CONDITION: Maintain at all times:
(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 l.
(c) A ratio of consolidated current assets to consolidated current
liabilities of not less than 1.75 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 ratio of the sum of net income, plus depreciation expense, plus
amortization expense, plus net interest expense, each for the immediately
preceding 4 fiscal quarters to the sum of the current portion of long-term Debt
then due for the fourth preceding fiscal quarter, plus net interest expense for
the immediately preceding 4 fiscal quarters of not less than 1.5 to l.
5.15 COMPENSATION OF EMPLOYEES: Compensate its employees for services
rendered at an hourly rate at least equal to the minimum hourly rate prescribed
by any applicable federal or state law or regulation.
5.16 NOTICE: Give the Bank prompt written notice of any and all (i) Events
of Default; (ii) litigation, arbitration or administrative proceedings to which
the Borrower is a party and in which the claim or liability exceeds $1,000,000;
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 businesses) 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.
5.17 CONSOLIDATED OPERATING LOSS: Not incur for any two consecutive
quarters a cumulative Consolidated Operating Loss in excess of $10,000,000.00.
-7-
<PAGE>
5.18 ENVIRONMENTAL COMPLIANCE. The Borrower shall:
(a) Implement and comply in all material respects with all applicable
federal, state and local laws, ordinances, statutes and regulations with respect
to hazardous or toxic wastes, substances or related materials, industrial
hygiene or to environmental conditions.
(b) Own, use, generate, manufacture, store, handle, treat, release or
dispose of any hazardous or toxic wastes, substances or related materials, only
if such ownership or use would not result in a material adverse change in the
Borrower's financial condition, operations or assets.
(c) Give prompt written notice of any discovery of or suit,
proceeding, claim, dispute, threat, inquiry or filing respecting hazardous or
toxic wastes, substances or related materials.
(d) At all times indemnify and hold harmless Bank from and against any
and all liability arising out of the use, generation, manufacture, storage,
handling, treatment, disposal or presence of hazardous or toxic wastes,
substances or related materials, other than liability arising out of the Bank's
gross negligence or willful misconduct.
SECTION 6
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:
6.01 NON-PAYMENT: The Borrower shall fail to pay any Obligations within 10
days of when due.
6.02 PERFORMANCE UNDER AS AND OTHER AGREEMENTS: The Borrower shall fail in
any material respect to perform or observe any term, covenant or agreement
contained in this Agreement 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(h) (whether
such Indebtedness is owed to the Bank or to third persons if such failure would
permit such third persons to accelerate the Indebtedness), and any such failure
(exclusive of the payment of money to the Bank under this Agreement or under any
other instrument, document or agreement, 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 therefore) shall continue for more
than 30 days after written notice from the Bank to the Borrower of the existence
and character of such Event of Default.
6.03 REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS: Any
representation or warranty made by the Borrower under or in connection with this
Agreement or any financial statement given by the Borrower or any guarantor
shall prove to have been incorrect in any material respect when made or given or
when deemed to have been made or given.
6.04 INSOLVENCY: The Borrower shall: (i) become insolvent or be unable to
pay its debts as they mature; (ii) make an assignment for the benefit of
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; (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; (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) any receiver, custodian or trustee shall have been appointed for all or
substantial part of its properties, assets or businesses and shall not be
discharged within 60 days after the date of such appointment.
6.05 EXECUTION: 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 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.
6.06 SUSPENSION: The Borrower shall 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.
-8-
<PAGE>
6.07 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.
SECTION 7
REMEDIES ON DEFAULT
Upon the occurrence and during the continuation of any Event of Default,
the Bank may, at its sole and absolute election, without demand and only upon
such notice as may be required by law:
7.01 ACCELERATION: Declare any or all of the Borrower's Indebtedness owing
to the Bank, whether under this Agreement or any other document, instrument or
agreement, immediately due and payable, whether or not otherwise due and
payable.
7.02 CEASE EXTENDING CREDIT: Cease extending credit to or for the account
of the Borrower under this Agreement or under any other agreement now existing
or hereafter entered into between the Borrower and the Bank.
7.03 TERMINATION: Terminate this Agreement as to any future obligation of
the Bank without affecting the Borrower's Obligations to the Bank or the Bank's
rights and remedies under this Agreement or under any other document, instrument
or agreement.
7.04 NON-EXCLUSIVITY OF REMEDIES: Exercise one or more of the Bank's rights
set forth herein 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 the Bank, or otherwise.
SECTION 8
MISCELLANEOUS
8.01 DEFAULT INTEREST RATE: The Borrower shall pay the Bank interest on any
indebtedness or amount payable under this Agreement, from the date that such
indebtedness or amount became due or was demanded to be due until paid in full,
at a rate which is 3% in excess of the Variable Rate otherwise provided under
this Agreement.
8.02 RELIANCE: Each warranty, representation, covenant, obligation and
agreement contained in this Agreement shall be conclusively presumed to have
been relied upon by the Bank regardless of any investigation made or information
possessed by the Bank and shall be cumulative and in addition to any other
warranties, representations, covenants and agreements which the Borrower now or
hereafter shall give, or cause to be given, to the Bank in writing, other than
those implied hereunder.
8.03 ATTORNEYS' FEES: In the event of any action in relation to this
Agreement or any document, instrument or agreement executed with respect to,
evidencing or securing the Obligations, the prevailing party, in addition to all
other sums to which it may be entitled, shall be entitled to reasonable
attorneys' fees.
//
//
//
//
-9-
<PAGE>
8.04 NOTICES: All notices, payments, requests, information and demands
which either party hereto may desire, or may b 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, postage prepaid, or by telecopier
addressed as set forth below or to such other address as may be specified from
time to time in writing by either party to the other.
TO THE BORROWER: TO THE BANK:
INTERNATIONAL RECTIFIER CORPORATION SANWA BANK CALIFORNIA
233 Kansas Street 9000 East Valley Blvd.
El Segundo, CA 90245 Rosemead, CA 91770
Attn: Treasury Department Attn: David Carr
Vice President
Telecopier No. (310) 640-6575 Telecopier No. (818) 312-5751
8.05 WAIVER: Neither the failure nor delay by the Bank in exercising any
right hereunder or under any document, instrument or agreement mentioned herein
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right hereunder or under any other document, instrument or agreement
mentioned herein preclude other or further exercise thereof or the exercise of
any other right; nor shall any waiver of any right or default hereunder, or
under any other document, instrument or agreement mentioned herein, constitute a
waiver of any other right or default or constitute a waiver of any other default
of the same or any other term or provision.
8.06 CONFLICTING PROVISIONS: To the extent the provisions contained in this
Agreement are inconsistent with those contained in any other document,
instrument or agreement executed pursuant hereto, the terms and provisions
contained herein shall control. Otherwise, such provisions shall be considered
cumulative.
8.07 BINDING EFFECT; ASSIGNMENT: This Agreement shall be binding upon and
inure to the benefit of the Borrower and the Bank 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 the Bank. The Bank may sell, assign or grant participations in
amounts of $5,000,000 or greater, in all or any portion of its rights and
benefits hereunder, provided, however, that Bank will not make any assignment
without the Borrower's prior written consent that would be (i) not to any
Federal Reserve Bank as collateral (ii) to more than one bank or a syndication
of banks, or (iii) to any assignee in the semi-conductor industry. The Borrower
agrees that, in connection with any such sale, grant or assignment, the Bank may
deliver to the prospective buyer, participant or assignee 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 8.12
hereof.
8.08 JURISDICTION: This Agreement, and any documents, instruments or
agreements mentioned or referred to herein shall be governed by and construed
according to the laws of the State of California, to the jurisdiction of whose
courts the parties hereby submit.
8.09 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE
BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
8.10 HEADINGS: The headings herein set forth are solely for the purpose of
identification and have no legal significance.
-10-
<PAGE>
8.11 ENTIRE AGREEMENT: This Agreement and all documents, instruments and
agreements mentioned herein constitute the entire and complete understanding of
the parties with respect to the transactions contemplated hereunder. All
previous conversations, memoranda and writings between the parties pertaining to
the transactions contemplated hereunder not incorporated or referenced in this
Agreement or in such documents, instruments and agreements are superseded
hereby.
8.12 CONFIDENTIALITY: The Bank shall, and shall cause its officers,
employees, directors, agents, legal counsel and other professional advisors to,
hold all non-public information obtained pursuant to this Agreement in
accordance with its customary procedures for handling confidential information
of this nature and in accordance with safe and sound banking practices. The Bank
shall use its best efforts to notify the Borrower prior to any disclosure of any
such non-public information, unless prohibited by applicable law, rule,
regulation or order.
8.13 IMMATERIALITY: Notwithstanding anything herein to the contrary, any
breach of any representations and warranties contained in Section 4 hereof or
the covenants in Sections 5.01, 5.03, 5.04, 5.11, 5.12 or 5.18 shall not be
deemed to be an Event of Default or prohibit any extension of credit hereunder
if, in the aggregate, such defaults could not reasonably be expected to have a
material adverse effect on the Borrower's financial condition, operations or
assets.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA INTERNATIONAL RECTIFIER CORPORATION
By: /s/ David Carr /s/ Janice Upton By: /s/ Michael P. McGee
---------------------------------- ----------------------------------
Name: David Carr Janice Upton Name: Vice President & CFO
-------------------------------- --------------------------------
Title: Vice President Vice President Title:
-------------------------------- --------------------------------
Attest: By: _______________________
Name:______________________
Title:_____________________
-11-
<PAGE>
AMENDMENT TO TERM LOAN AGREEMENT
This First Amendment to Term Loan Agreement (the "Amendment") is made and
entered as of December 29, 1995, 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
Term Loan Agreement dated as of February 28, 1995, 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 TERM LOAN. The first paragraph of Section 2.01 of the
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
"2.01 TERM LOAN. The Bank agrees to lend to the Borrower in up to
5 drawings in the minimum amount of $1,000,000, upon the
Borrower's request made prior to March 31, 1996, (the "Drawdown
Period") up to the maximum amount of $25,000,000 (the "Term
Loan")".
2. 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/ David Carr By: /s/ Michael P. McGee
--------------------------------- ---------------------------------------
DAVID CARR, VICE PRESIDENT Michael P. McGee / Vice President- CFO
- ------------------------------------ ---------------------------------------
(Name/Title) (Name/Title)
By:
------------------------------------
---------------------------------------
(Name/Title)
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<PAGE>
AMENDMENT TO TERM LOAN AGREEMENT
This Second Amendment to Term Loan Agreement (the "Amendment") is made and
entered into this 29th day of February, 1996, 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
Term Loan Agreement dated as of February 28, 1995, 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 TERM LOAN. The first paragraph of Section 2.01 of the
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
"2.01 TERM LOAN. The Bank agrees to lend to the Borrower in up to 5
drawings in the minimum amount of $1,000,000, upon the Borrower's request
made prior to March 31, 1996, (the "Drawdown Period") up to the maximum
amount of $19,700,000 (the "Term Loan")".
2. CHANGE IN INTEREST. Section 2.01 C. (c) of the Agreement is
deleted in its entirety and the following is substituted in lieu thereof:
"(c) EURODOLLAR BALANCES. A fixed rate quoted by the Bank for a
minimum of 30 days or for such other period of time that the Bank may quote
and offer [the "Eurodollar Interest Period"] for Term Balances in the
minimum amount of $100,000.00. Such interest rate shall be a percentage
equivalent to .75% per annum in excess of the Bank's Eurodollar Rate which
is that rate determined by the Bank's Treasury Desk as being the
approximate rate at which the Bank could purchase offshore U.S. dollar
deposits in an amount approximately equal to the amount of the relevant
Term Balance and for a period of time approximately equal to the relevant
Eurodollar Interest Period (adjusted for any and all assessments,
surcharges and reserve requirements pertaining to the purchase by the Bank
of such U.S. dollar deposits) [the "Eurodollar Rate"]. Term Balances based
upon the Eurodollar Rate is hereinafter referred to as the "Eurodollar
Balances".
3. FINANCIAL CONDITION. Section 5.14 (d) of the Agreement is
deleted in its entirety and the following is substituted in lieu thereof:
"(d) A ratio of the sum of net income, plus depreciation expense, plus
amortization expense, plus net interest expense, each for the immediately
preceding 4 fiscal quarters to the sum of the current portion of long-term
Debt then due for the 4th immediately preceding fiscal quarter, plus net
interest expense for the immediately preceding 4 fiscal quarters of not
less than 2 to 1".
4. 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.
[PAGE 1 ENDS HERE. SIGNATURES APPEAR ON PAGE 2]
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<PAGE>
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/ David Carr By: /s/ Michael P. McGee
--------------------------------- ---------------------------------------
DAVID CARR, VICE PRESIDENT Michael P. McGee / Vice President- CFO
- ------------------------------------ ---------------------------------------
(Name/Title) (Name/Title)
By:
------------------------------------
---------------------------------------
(Name/Title)
-2-
<PAGE>
AMENDMENT TO TERM LOAN AGREEMENT
This Third Amendment to Term Loan Agreement (the "Amendment") is made and
entered into as of June 28, 1996, 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
Term Loan Agreement dated as of February 28, 1995, 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 PRINCIPAL PAYMENTS. The first paragraph of Section 2.01 D
of the Agreement is deleted in its entirety and the following is substituted in
lieu thereof:
"D. PRINCIPAL. The Borrower hereby promises and agrees to pay the
outstanding principal of the Term Loan as of March 31, 1996, in
15 equal installments of 1/16th of the outstanding principal
balance of the Term Loan as of March 31, 1996, commencing on
March 31, 1998, and continuing on the last day of each calendar
quarter thereafter up to and including September 30, 2001. On
December 31, 2001, the Borrower hereby promises and agrees to pay
to the Bank the entire unpaid principal balance, together with
accrued and unpaid interest".
2. 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 hereinabovewritten.
BANK: BORROWER
SANWA BANK CALIFORNIA INTERNATIONAL RECTIFIER CORPORATION
By: /s/ David Carr By: /s/ Michael P. McGee
--------------------------------- ---------------------------------------
DAVID CARR, VICE PRESIDENT Michael P. McGee /
Vice President-Chief Financial Officer
- ------------------------------------ ---------------------------------------
(Name/Title) (Name/Title)
By:
------------------------------------
---------------------------------------
(Name/Title)
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INTERNATIONAL RECTIFIER CORPORATION
GRANTOR TRUST FOR RETIREMENT BENEFITS
FOR ERIC LIDOW
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INTERNATIONAL RECTIFIER CORPORATION
GRANTOR TRUST FOR RETIREMENT BENEFITS
FOR ERIC LIDOW
This Agreement, made effective as of the 24th day of October, 1995, by
and between International Rectifier Corporation (the "Company") and Union
Bank (the "Trustee"), evidences the terms of a trust to hold assets in respect
of the retirement benefits payable to Eric Lidow, and his spouse if she survives
him, pursuant to Paragraph 3(a)(iii) of the employment agreement, dated as of
May 15, 1991, between the Company and Eric Lidow as amended by the letter
agreement dated April 12, 1995 (the "Employment Agreement").
WHEREAS, under the terms of the Employment Agreement, a copy of which is
attached hereto as Exhibit A, the Company is obligated to provide retirement
benefits to Eric Lidow and, if she survives him, his spouse;
WHEREAS, the Company wishes to establish a trust (hereinafter referred to
as the "Trust") and to contribute to the Trust assets that shall be held
therein, subject to the claims of the Company's creditors in the event of
the Company's Insolvency, as herein defined, until paid to Eric Lidow or his
spouse in such manner and at such times as specified in the Employment
Agreement;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Company's obligation under the Employment Agreement as an unfunded promise to
pay deferred compensation to Eric Lidow for purposes of Title I of the Employee
Retirement Income Security Act of 1974; and
WHEREAS, it is the intention of the Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its obligation under the Employment Agreement to provide retirement
benefits to Eric Lidow.
NOW, THEREFORE, the parties do hereby establish the Trust, to be known as
the "INTERNATIONAL RECTIFIER CORPORATION TRUST FOR RETIREMENT BENEFITS FOR ERIC
LIDOW," and agree that the Trust shall be comprised, held and disposed of as
follows:
SECTION 1. ESTABLISHMENT OF TRUST; GENERAL ADMINISTRATION.
(a) The Company hereby deposits with the Trustee in trust $100,
which shall become the principal of the Trust to be held, administered
and disposed of by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part I,
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subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as
amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall
be held separate and apart from other funds of the Company and shall
be used exclusively for the uses and purposes of providing the
retirement benefits described in the Employment Agreement and general
creditors as herein set forth. Eric Lidow and his spouse shall have
no preferred claim on, or any beneficial ownership interest in, any
assets of the Trust. Any rights created under the Employment
Agreement and this Trust Agreement shall be mere unsecured contractual
rights of Eric Lidow and his spouse against the Company. Any assets
held by the Trust will be subject to the claims of the Company's
general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) Within 30 days following the execution of this Trust
Agreement, the Company shall irrevocably deposit cash or other
property to the Trust in an amount equal to $3,000,000. Thereafter,
within 30 days following the end of each calendar quarter, the Company
shall irrevocably deposit additional cash or other property to the
Trust in an amount equal to the excess of (A) over (B) where (A)
equals the lump sum Actuarial Equivalent (as defined below) of the
retirement benefits payable to Eric Lidow and his spouse as of the end
of such calendar quarter and (B) equals the fair market value of the
Trust's assets as of the end of such calendar quarter. For purposes
of this Trust Agreement, "Actuarial Equivalent" shall mean a benefit
of equal value computed using an interest rate of 8%, the 1983 GAM
Male (0, -6) Mortality Table, and an assumption of a 4% increase in
the Consumer Price Index referred to in the Employment Agreement for
future years.
(f) The Company shall certify in writing to the Trustee the
names and specimen signatures of all those who are authorized to act
as or on behalf of the Company, and those names and specimen
signatures shall be updated as necessary by a duly authorized official
of the Company. The Company shall promptly notify the Trustee if any
person so designated is no longer authorized to act on behalf of the
Company. Until the Trustee receives notice that a person is no longer
authorized to act on behalf of the Company, the Trustee may continue
to rely on the Company's designation of such person.
(g) The Trustee may seek written instructions from the Company
on any matter and await written instructions without incurring any
liability. If at any time the Company should fail to give directions
to the Trustee, the Trustee may act in the manner that in its
discretion seems advisable under the circumstances for carrying out
the purposes of the Trust. Such actions shall be conclusive on the
Company, Eric Lidow and his spouse on any matter if written notice of
the proposed action is given five (5) days prior to the action being
taken, and the Trustee receives no response. In case of emergency,
the Trustee may act in the absence of directions from any other person
having the power and duty to direct the Trustee with respect to the
matter involved and shall incur no liability in so acting.
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(h) The Company shall maintain and furnish the Trustee with all
reports, documents and information as shall be required by the Trustee
to perform its duties and discharge its responsibilities under this
Trust Agreement, including without limitation a certified copy of any
amendments to the Employment Agreement and, following a Change in
Control of the Company, written reports setting forth all information
required to calculate Eric Lidow's benefit under the Employment
Agreement.
(i) The Trustee shall have no liability for the adequacy of
contributions for the purposes of the Employment Agreement or for
enforcement of the payment thereof.
(j) The Trustee shall have no liability for the acts or
omissions of the Company.
(k) The Company, by adoption of this Trust Agreement, agrees to
indemnify the Trustee and any agent such parties appoint for
reasonable expenses and to exonerate and indemnify them to their
reasonable satisfaction, from time to time, for or against any and all
loss, expense and liability incurred or to be incurred by them for
acts or omissions of the Company or any of its employees.
(1) The Company agrees to indemnify the Trustee against any liability
imposed as a result of a claim asserted by any person or persons with respect to
whom the Trustee has acted in good faith in reliance on a written direction of
the Company.
SECTION 2. PAYMENTS TO ERIC LIDOW AND/OR HIS SPOUSE.
(a) Upon the Corporation's termination of Eric Lidow's
employment for any reason other than Cause, or upon Eric Lidow's
resignation following a Change in Control of the Company (as "Cause"
and "Change in Control") are defined in Employment Agreement, or upon
Eric Lidow's death, the Company or such party as it shall designate in
writing to the Trustee shall deliver to the Trustee a written schedule
(a "Payment Schedule") that indicates the amounts payable to Eric
Lidow or his spouse, or that provides a formula or other instructions
acceptable to Trustee for determining the amounts so payable, the form
in which such amount is to be paid (as provided for under the
Employment Agreement), and the time of commencement for payment of
such amounts. Except as otherwise provided herein, the Trustee shall
make payments to Eric Lidow or his spouse in accordance with such
Payment Schedule. The Trustee shall make provision for the reporting
and withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits
pursuant to the terms of the Employment Agreement and shall pay the
amounts withheld to the appropriate taxing authorities or determine
that such amounts have been reported, withheld and paid by the
Company. The Trustee shall provide the Company with written
confirmation of the fact and time of any payment hereunder within 10
days of payment.
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(b) The entitlement of Eric Lidow or his spouse to retirement
benefits under the Employment Agreement shall be determined by the
Company or such party as it shall designate under the Employment
Agreement. Notwithstanding the foregoing or anything else contained
in this Trust Agreement to the contrary, upon a Change in Control of
the Company, the responsibility of the Company and any of its
delegates for determining benefit entitlement or directing any payment
or disbursement shall cease and the Trustee shall have full authority
and responsibility for such matters.
(c) The Trustee shall provide the Company with written confirma-
tion of the fact and time of any payment hereunder within 10 business
days after making any payment to Eric Lidow or his spouse.
(d) The Company may make payment of benefits directly to Eric
Lidow or his spouse as they become due under the terms of the
Employment Agreement. The Company shall notify the Trustee of its
decision to make payment of benefits directly prior to the time
amounts are payable to Eric Lidow or his spouse. In addition, if the
principal of the Trust, and any earnings thereon, are not sufficient
to make payments of benefits in accordance with the terms of the
Employment Agreement, the Company shall make the balance of each such
payment as it falls due. The Trustee shall notify the Company when
principal and earnings are not sufficient.
(e) Should any controversy arise as to the person or persons to
whom any distribution or payment is to be made by the Trustee, the
Trustee may retain the amount in controversy pending resolution of the
controversy or the Trustee may file an action seeking declaratory
relief and/or may interplead the Trust assets or fund in issue, and
name as necessary parties the Company, Eric Lidow, his spouse and/or
any or all persons making conflicting demands. The Trustee shall not
be liable for the payment of any interest or income, except for that
earned as a Trust investment, on any amount withheld or interpleaded
under this Section 2(e). The expenses of the Trustee for taking any
action under this Section 2(e) shall be paid to the Trustee by the
Company.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
BENEFICIARY WHEN COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of benefits to Eric Lidow or
his spouse if the Company is Insolvent. The Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i) it
is unable to pay its debts as they become due, or (ii) it is subject
to a pending proceeding as a debtor under the United States Bankruptcy
Code.
(b) At all times during the continuance of this Trust, as
provided in Section l(d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of the Company and its
affiliates under federal and state law, as set forth below.
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(i) The Company's Board of Directors and its Chief
Executive Officer shall have the duty to inform the Trustee in
writing of the Company's Insolvency. If a person claiming to be
a creditor of the Company alleges in writing to the Trustee that
the Company has become Insolvent, the Trustee shall determine
whether the Company is Insolvent and, pending such determination,
the Trustee shall discontinue payment of benefits to Eric Lidow
or his spouse.
(ii) Unless the Trustee has actual knowledge of the
Company's Insolvency, or has received notice from the Company or
a person claiming to be a creditor alleging that the Company is
Insolvent, the Trustee shall have no duty to inquire whether the
Company is Insolvent. The Trustee may in all events rely on such
evidence concerning the Company's solvency as may be furnished to
the Trustee and that provides the Trustee with a reasonable basis
for making a determination concerning the Company's solvency.
(iii) If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall discontinue payments to
Eric Lidow or his spouse and shall hold the assets of the Trust
for the benefit of the Company's general creditors. Nothing in
this Trust Agreement shall in any way diminish any rights of Eric
Lidow or his spouse to pursue their rights as general creditors
of the Company with respect to benefits due under the Employment
Agreement or otherwise.
(iv) The Trustee shall resume the payment of benefits
to Eric Lidow or his spouse in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined that the
Company is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to
Section 3(b) hereof and subsequently resumes such payments, the first
payment following such discontinuance shall include the aggregate
amount of all payments due to Eric Lidow or his spouse under the terms
of the Employment Agreement for the period of such discontinuance,
less the aggregate amount of any payments made to Eric Lidow or his
spouse by the Company in lieu of the payments provided for hereunder
during any such period of discontinuance.
SECTION 4. PAYMENTS TO COMPANY.
Except as provided in Section 3 or Section 11 hereof, the Company shall
have no right or power to direct the Trustee to return to the Company or to
divert to others any of the Trust assets before all payments of benefits have
been made to Eric Lidow or his spouse pursuant to the terms of the Plans.
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SECTION 5. INVESTMENT AUTHORITY.
(a) Prior to a Change in Control, the Trustee shall invest and
manage the assets of the Trust in accordance with written directions
from the Administrative Committee, a committee to be appointed by the
Company, the members of which may be changed from time to time by the
Company (the "Committee"). Upon a Change in Control, the authority of
the Company and the Committee hereunder shall cease and the Trustee
shall have the exclusive authority and responsibility for the
investment of Trust assets.
(b) The Company shall have the right, at any time, and from time
to time in its sole discretion, to substitute assets of equal fair
market value for any asset held by the Trust.
(c) Subject to the foregoing provisions of this Section 5, the
Trustee shall have, without exclusion, all powers conferred on the
Trustee by applicable law, unless expressly provided otherwise herein,
and all rights associated with assets of the Trust shall be exercised
by the Trustee or the person designated by the Trustee, and shall in
no event be exercisable by or rest with Eric Lidow or his spouse. The
Trustee shall have full power and authority to invest and reinvest the
Trust funds in any investment permitted by law, under the standards
set forth in Section 8(a) including, without limiting the generality
of the foregoing, the power:
(i) To hold, invest and reinvest the principal or income of
the Trust in bonds, common or preferred stock, other securities,
or other personal, real or mixed tangible or intangible property
(including investment in deposits with Trustee which bear a
reasonable interest rate, including without limitation invest-
ments in trust savings accounts, certificates of deposit, time
certificates or similar investments or deposits maintained by the
Trustee);
(ii) To pay and provide for the payment of all reasonable
and necessary expenses of administering the affairs of the Trust,
subject to reimbursement of such expenses within 30 days by the
Company in accordance with Section 9 hereof;
(iii) To pay and provide for the payment of all benefits to
Eric Lidow or his spouse in accordance with the Payment Sched-
ules;
(iv) To retain noninterest bearing deposits or a cash
balance with Trustee of so much of the funds as may be determined
to be temporarily held awaiting investment or payment of benefits
or expenses notwithstanding Trustee's receipt of "float" from
such uninvested funds;
(v) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust and to institute, compromise and
defend actions and proceedings;
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(vi) To vote any stock, bonds or other securities of any
corporation or other issuer at any time held in the Trust; to
otherwise consent to or request any action on the part of any
such corporation or other issuer; to give general or special
proxies or powers of attorney, with or without power of substitu-
tion; to participate in any reorganization, recapitalization,
consolidation, merger or similar transaction with respect to such
stocks, bonds or other securities and to deposit such stocks,
bonds or other securities in any voting trust, or with any
protective or like committee, or with a trustee, or with the
depositaries designated thereby; to exercise any subscription
rights and conversion privileges; and to generally exercise any
of the powers of an owner with respect to the stocks, bonds or
other securities or properties in the Trust; and
(vii) To cause all or any part of the Trust to be held in
the name of the Trustee, or as permitted by law, in the name of
any nominee, and to acquire for the Trust any investment in
bearer form.
(viii) To invest funds pending required directions in any
type of interest-bearing account including, without limitation,
time certificates of deposit or interest-bearing accounts issued
by the Trustee, or any mutual fund or short-term investment fund
("Fund"), whether sponsored or advised by the Trustee or any
affiliate thereof. In addition to receiving any Trustee's fees
paid pursuant to this Trust Agreement, the Trustee or its
affiliate may be compensated for providing such investment advice
to such Fund.
(ix) Generally, to do all such acts, execute all such
instruments, take all such proceedings, and exercise all such
rights and privileges with relation to the property constituting
the Trust as if Trustee were the absolute owner thereof.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
SECTION 7. ACCOUNTING BY TRUSTEE.
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. Within 30 days following the close of each calendar
quarter and within 30 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its administration of
the Trust during such quarter or during the period from the close of the last
preceding quarter to the date of such removal or resignation, setting forth
all investments, receipts, disbursements and other
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transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such quarter or as of the date of such removal or resignation, as the case may
be. The Company shall have 60 days after the Trustee's mailing of each such
account within which to file with the Trustee written objections to such
account. Upon the expiration of each such period, the Trustee shall be forever
released and discharged from all liability and accountability to the Company
with respect to the propriety of its acts and transactions shown in such account
except with respect to any such acts or transactions as to which the Company
files written objections within such 60-day period with the Trustee.
SECTION 8. RESPONSIBILITY OF TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent
person acting in like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and with like
aims; provided, however, that the Trustee shall incur no liability to
any person for any action taken pursuant to a direction, request or
approval given by the Company which is contemplated by, and in
conformity with, the terms of the Employment Agreement or this Trust
and is given in writing by the Company. In the event of a dispute
between the Company and a party, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising
in connection with this Trust, the Company agrees to indemnify the
Trustee against the Trustee's reasonable costs, expenses and liabili-
ties (including, without limitation, attorneys' fees and expenses)
relating thereto and to be primarily liable for such payments;
provided that the Trustee must first afford the Company the opportuni-
ty to defend any action against the Trust or the Trustee in connection
with this Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Company generally) with respect to any of its duties
or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals to
assist it in performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein;
provided, however, that if an insurance policy is held as an asset of the Trust,
the Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other
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than to a successor Trustee, or to loan to any person the proceeds of any
borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant
to this Trust Agreement or to applicable law, the Trustee shall not
have any power that could give this Trust the objective of carrying on
a business and dividing the gains therefrom, within the meaning of
Section 301.7701-2 of the Procedure and Administrative Regulations
promulgated pursuant to the Internal Revenue Code.
SECTION 9. COMPENSATION AND EXPENSES OF TRUSTEE.
The Company, or at its option, the Trust, shall quarterly pay the Trustee
its expenses in administering the Trust and reasonable compensation for
its services as Trustee at a rate to be agreed upon from time to time by the
parties to this Trust Agreement, based upon Trustee's published fee schedule.
Reasonable compensation shall include compensation for any extraordinary
services or computations required. The Trustee shall have a lien on
the Trustee for compensation and for any reasonable expenses including
counsel, appraisal, or accounting fees, and these may be withdrawn from the
Trust unless paid by the Company within 30 days after mailing of the written
billing by the Trustee.
SECTION 10. RESIGNATION AND REMOVAL OF TRUSTEE; APPOINTMENT OF
SUCCESSOR.
(a) The Trustee may resign at any time by written notice to
Company, which shall be effective 30 days after receipt of such notice
unless the Company and the Trustee agree otherwise. If the Trustee
resigns at any time after a Change in Control, the Company shall
appoint a successor Trustee which must be approved by Eric Lidow or,
if he is then deceased, his surviving spouse.
(b) The Trustee may be removed by the Company on 30 days' notice
or upon shorter notice accepted by the Trustee; provided that, after
a Change in Control, the Trustee may not be removed by the Company
unless such removal is approved by Eric Lidow or, if he is then
deceased, his surviving spouse.
(c) Any successor Trustee may be a bank trust department or other party that
may be granted corporate trustee powers under state law. Upon resignation or
removal of the Trustee and appointment of a successor Trustee, all assets shall
subsequently be transferred to the successor Trustee. The transfer shall be
completed within 30 days after receipt of notice of resignation, removal or
transfer, unless the Company extends the time limit; provided that after a
Change in Control any extension must be approved by Eric Lidow or, if he is then
deceased, his surviving spouse. Notwithstanding the foregoing, the Trustee
resigning or being removed is authorized to reserve such amount of trust assets
as may be necessary for the payment of its fees and expenses incurred prior to
its resignation, and the Trust assets
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shall remain liable to reimburse the resigning Trustee for all costs, expenses
or attorneys' fees or losses incurred, whether before or after resignation,
due solely to Trustee's holding title to and administration of Trust
assets.
(d) A successor Trustee must be appointed by the effective date
of resignation or removal of the original Trustee. If no such
appointment has been made, the original Trustee may apply to a court
of competent jurisdiction for appointment of a successor or for
instructions. All expenses of the Trustee in connection with the
proceeding shall be allowed as administrative expenses of the Trust.
The Trustee shall continue to be entitled to compensation for its
services as provided herein as Trustee until a successor Trustee is
appointed.
(e) The successor Trustee need not examine the records and acts
of any prior Trustee and may retain or dispose of existing Trust
assets, subject to Sections 5, 7 and 8 hereof. The successor Trustee
shall not be responsible for and the Company shall indemnify and
defend the successor Trustee from any claim or liability resulting
from any action or inaction of any prior Trustee or from any other
past event, or any condition existing at the time it becomes successor
Trustee.
SECTION 11. AMENDMENTS OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument executed
by the Trustee and the Company, provided that after a Change in Control any
amendment of this Agreement must be approved by Eric Lidow or, if he is then
deceased, his surviving spouse. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Employment Agreement or shall
make the Trust revocable.
(b) The Trust shall not terminate until the date on which Eric
Lidow and his spouse are no longer entitled to benefits pursuant to
the terms of the Employment Agreement. Such date shall be determined
by the Company and communicated to the Trustee in writing. Upon
termination of the Trust, any assets remaining in the Trust shall be
returned to the Company.
(c) Notwithstanding the foregoing, the Company may terminate the Trust
upon (i) written approval of Eric Lidow or, if he is then deceased, his
surviving spouse, (ii) the exhaustion of all appeals of a final determination of
a court of competent jurisdiction that the interests in the Trust of Eric Lidow
or his spouse is includible for federal income tax purposes in his or her gross
income, without such determination having been reversed (or the earlier
expiration of the time to appeal), (iii) the expiration of the maximum length of
time for which trusts may be established under any applicable state law, (iv) a
determination of the Company to terminate the Trust because of applicable law
requires it to be amended in a way that could make it taxable to Eric Lidow or
his spouse and failure to so amend the Trust would subject the Company to
material penalties, or (v) a
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determination of the Company to terminate the Trust because the Company
concludes, after consulting with legal counsel, that judicial authority or the
opinion of the U.S. Department of Labor (as expressed in its proposed or final
regulations, advisory opinions, or similar administrative announcements) creates
a significant possibility that the Trust will not be considered a component of
an unfunded plan or arrangement maintained primarily to provide deferred
compensation for a member of a select group of management or highly
compensated employees, as described in Section 201(2) of the Employee Retirement
Income Security Act of 1974, as amended. All assets in the Trust at termination
shall be returned to the Company.
SECTION 12. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) Benefits payable to Eric Lidow or his spouse under this
Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of California.
(d) This instrument may be executed in one or more counterparts,
each of which is legally binding and enforceable.
(e) Terms used in the masculine shall include the feminine and
vice versa and terms used in the singular shall include the plural and
vice versa, unless the context clearly indicates otherwise.
(f) This Trust Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their successors and assigns.
(g) Any dispute under this Agreement between Company and Trustee
shall be resolved by submission of the issue to a member of the
American Arbitration Association who is chosen by the Company and the
Trustee. If the Company and the Trustee cannot agree on the choice,
each shall nominate a member of the American Arbitration Association,
and the two nominees will then select an arbitrator.
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IN WITNESS WHEREOF, this Trust Agreement is executed this 24th day of
October, 1995.
INTERNATIONAL RECTIFIER CORPORATION
By /s/ Michael P. McGee
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VICE PRESIDENT -
CHIEF FINANCIAL OFFICER
By
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UNION BANK
By /s/ T. STEVEN PERRY
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By /s/ Illegible Signature
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[Letterhead]
February 22, 1996
Via Federal Express
Mr. T. Steven Perry
Vice President - Compliance
Union Bank
Post Office Box 4560
Los Angeles, CA 90051-4560
RE: International Rectifier Corporation
Grantor Trust for Retirement Benefits for
Eric Lidow, dated October 24, 1995
Dear Mr. Perry:
Reference is made to the subject trust of which Union Bank is
the trustee. It is proposed to amend the trust, as permitted by
Section 11(a) thereof, as follows:
Section 1(e) is deleted in its entirety and replaced with:
"(e) Within 30 days following the execution of this Trust Agreement, the
Company shall irrevocably deposit $3,000,000 and on January 31, 1996,
the Company shall irrevocably deposit an additional $1,040,000.
Thereafter, within 30 days following the end of each calendar quarter,
the Company shall irrevocably deposit an amount equal to the quarterly
pro-rata (straight-line) liability accrual during the current fiscal
year of the Company, as determined by Coopers & Lybrand as part of
its annual audit of International Rectifier Corporation, with respect
to the retirement benefits payable to Eric Lidow and his wife as of
the termination date of the Employment Agreement (June 30, 1997) or
any extension thereof.
Except as hereinabove indicated, the subject agreement shall remain in full
force and effect.
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If the foregoing is acceptable to you, please so indicate by signing and
returning to me one copy of this letter.
Very truly yours,
/s/ MICHAEL P. MCGEE
Michael P. McGee
Vice President, Chief Financial Officer
MPM/kf
Accepted and Agreed to:
Union Bank
By: /s/ T. Steven Perry Date: MARCH 5, 1996
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SECURITY AGREEMENT
AMENDMENT NO. 4
THIS SECURITY AGREEMENT AMENDMENT NO. 4, dated as of December 29, 1995,
(the "Security Agreement Amendment No. 4") 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 and Secured Party entered into a Security Agreement dated
as of July 1, 1994, as amended (the "Security Agreement").
B. The Debtor and Secured Party desire to amend certain provisions of
the Security Agreement as more specifically set forth hereinafter.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. The last two sentences of Section 1.2 of the Security Agreement are
amended to read in their entirety as follows:
"No Term Loan shall exceed the Cost of Equipment securing such Term
Loan and the aggregate Term Loans plus the outstanding Progress Payment Loans
shall not exceed $40,000,000 (the "Total Commitment"), of which no more than
$3,000,000 shall be computer equipment. No Term Loan Commencement Date shall
occur after December 28, 1996 (the "Final Commencement Date")."
2. Section 4.2(b) of the Security Agreement is amended to read as
follows:
"(b) FIXED RATE TERM LOANS. Amortization Payments on Term Loans with
fixed interest rates shall be determined as follows:
Debtor shall pay Secured Party successive quarterly payments in
arrears from the Term Loan Commencement Date(s). The payments shall be
fixed on each Term Loan Commencement Date based upon the interest rate
determined by the sum of (i) the applicable generic U.S. Treasury yield
as quoted by the Dow Jones/Telerate Inc. system at the opening of
business in Charlotte, North Carolina five (5) Business Days
<PAGE>
prior to the Term Loan Commencement Date (the "Index") and (ii) the
applicable margin as follows:
Term Loan Term Index Margin
-------------- ----- -------
three (3) years two (2) year U.S. Treasury 1.29%
five (5) years three (3) year U.S. Treasury 1.27%
seven (7) years four (4) year U.S. Treasury 1.27%
3. Section 4.3 of the Security Agreement is amended to read in its
entirety as follows:
"4.3. NON-UTILIZATION FEE. Debtor agrees to pay Secured Party, on the
Final Commencement Date, a non-utilization fee equal to twenty-five one
hundredths of one percent (.25%) of the amount, if any, by which ninety
percent (90%) of the unused balance of the Total Commitment as of the date
hereof exceeds the Total Secured Party's Cost of Equipment subject to this
Security Agreement on the Final Commencement Date."
4. The first sentence of paragraph (c) of Section 4.6 is amended
to read in its entirety as follows:
"(c) INTEREST RATE OPTIONS. Floating Rate Loans made before
December 22, 1995, shall bear interest at a rate per annum (computed on
the basis of a month of thirty days over a year of 360 days) equal to the
LIBOR Rate plus 1.15% for the three and five year loans and the LIBOR
Rate plus 1.35% for seven year loans. Floating Rate Loans made on or
after December 22, 1995, shall bear interest at a rate per annum
(computed on the basis of a month of thirty days over a year of 360 days)
equal to the LIBOR Rate plus 1.00% for three, five and seven year loans."
5. The address of Secured party in Section 16 is hereby amended to
be as follows:
NationsBanc Leasing Corporation of North Carolina
NationsBank Plaza
101 South Tryon Street
NC1-002-38-20
Charlotte, North Carolina 28255
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, as of the day and year above
written, have caused this Security Agreement Amendment No. 4 to be executed
in their respective corporate names by their duly authorized officials.
DEBTOR:
INTERNATIONAL RECTIFIER CORPORATION
By: /s/ Michael P. McGee
-----------------------------------
Title: V.P. & CHIEF FINANCIAL OFFICER
--------------------------------
SECURED PARTY:
NATIONSBANC LEASING CORPORATION OF
NORTH CAROLINA
By: /s/ M. Randall Ross
-----------------------------------
Title: SENIOR VICE PRESIDENT
--------------------------------
-3-
<PAGE>
SECURITY AGREEMENT
AMENDMENT NO. 5
THIS SECURITY AGREEMENT AMENDMENT NO. 5, dated as of July 30, 1996,
(the "Security Agreement Amendment No. 5") 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 and Secured Party entered into a Security Agreement
dated as of July 1, 1994, as amended (the "Security Agreement").
B. The Debtor and Secured Party desire to amend certain provisions of
the Security Agreement as more specifically set forth hereinafter.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. Section 4.2(b) of the Security Agreement is amended to read as
follows:
"(b) FIXED RATE TERM LOANS. Amortization Payments on Term Loans with
fixed interest rates shall be determined as follows:
Debtor shall pay Secured Party successive quarterly payments in
arrears from the Term Loan Commencement Date(s). The payments shall
be fixed on each Term Loan Commencement Date based upon the interest
rate determined by the sum of (i) the applicable generic U.S.
Treasury yield as quoted by the Dow Jones/Telerate Inc. system at
the opening of business in Charlotte, North Carolina five (5)
Business Days prior to the Term Loan Commencement Date (the "Index")
and (ii) the applicable margin as follows:
Term Loan Term Index Margin
-------------- ----- ------
three (3) years two (2) year U.S. Treasury 1.24%
five (5) years three (3) year U.S. Treasury 1.22%
seven (7) years four (4) year U.S. Treasury 1.27%
<PAGE>
2. The first sentence of paragraph (c) of Section 4.6 is amended to
read in its entirety as follows:
"(c) INTEREST RATE OPTIONS. Floating Rate Loans made before
December 22, 1995, shall bear interest at a rate per annum (computed on
the basis of a month of thirty days over a year of 360 days) equal to
the LIBOR Rate plus 1.15% for three and five year loans and the LIBOR
Rate plus 1.35% for seven year loans. Floating Rate Loans made on or
after December 22, 1995, shall bear interest at a rate per annum
(computed on the basis of a month of thirty days over a year of 360
days) equal to the LIBOR Rate plus 0.95% for three and five year
loans and the LIBOR Rate plus 1.00% for seven year loans."
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, as of the day and year above written,
have caused this Security Agreement No. 5 to be executed in their respective
corporate names by their duly authorized officials.
DEBTOR:
INTERNATIONAL RECTIFIER CORPORATION
By: /s/ Alex Lidow
------------------------------------
Title: C.E.O.
---------------------------------
SECURED PARTY:
NATIONSBANC LEASING CORPORATION OF
NORTH CAROLINA
By: /s/ M. Randall Ross
------------------------------------
Title: SENIOR VICE PRESIDENT
---------------------------------
-3-
<PAGE>
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT
---------------------------------------------
THIS THIRD AMENDMENT dated as of May 15, 1996 (the "Third Amendment") to
the Revolving Credit Agreement dated as of July 1, 1994 as amended by the
First Amendment to Revolving Credit Agreement dated December 30, 1994 and the
Second Amendment to Revolving Credit Agreement dated as of March 31, 1995
(collectively, the "Agreement") between INTERNATIONAL RECTIFIER CORPORATION
(the "Borrower") and WELLS FARGO BANK, N.A. ("Wells Fargo") WITNESSES the
following:
WHEREAS the Borrower has requested that Wells Fargo amend the Agreement
to extend the term of the Commitment, decrease the interest rate on LIBO Rate
Advances and modify the Consolidated Operating Loss covenant restrictions; and
WHEREAS Wells Fargo is willing to extend the term of the Commitment,
decrease the interest rate on LIBO Rate Advances and modify the Consolidated
Operating Loss covenant restrictions;
NOW, THEREFORE, Wells Fargo and the Borrower agree as follows:
1. USE OF CERTAIN TERMS. Terms defined in the Agreement and not defined
in this Third Amendment are used in this Third Amendment with their defined
meanings in the Agreement.
2. MATURITY DATE: Wells Fargo and the Borrower agree that the Maturity
Date shall be extended from October 31, 1996 to October 30, 2000. To that end,
the Agreement is hereby amended to delete "October 31, 1996" from the
definition of "Maturity Date" in Section 1.01(dd) of the Agreement and
"October 30, 2000" is hereby inserted in place thereof.
3. LIBO RATE ADVANCES. Wells Fargo and the Borrower agree that the
interest rate on LIBO Rate Advances shall be decreased. To that end, Section
2.04(b) of the Agreement is hereby modified to delete "one percent (1.00%)"
and to insert "three-quarters of one percent (.75%)" in lieu thereof.
4. FINANCIAL CONDITION. Wells Fargo and the Borrower agree that the
ration specified in Section 6.18(d) shall be amended. To that end, Section
6.18(d) of the Agreement is hereby modified to delete, on the last line
thereof, the words and numbers "1.5 to 1." and to insert the words and numbers
"2.0 to 1." in lieu thereof.
5. CONSOLIDATED OPERATING LOSS. Wells Fargo and the Borrower agree that
the Consolidated Operating Loss Limitation in Section 6.19 shall be increased.
To that end, Section 6.19 of the Agreement is hereby modified to delete
"$5,000,000" and to insert "$10,000,000" in lieu thereof.
6. REPRESENTATIONS AND WARRANTIES. In order to induce Wells Fargo to
enter into this Third Amendment and to amend the Agreement in the manner
provided in this Third Amendment, the Borrower hereby warrants that (i) the
representations and warranties contained in Section 5 of the Agreement are
true and correct on the date of this Third Amendment, and (ii) no Event of
Default, as specified in Section 7 of the
<PAGE>
Agreement, and no event which with notice or lapse of time or both would
become such an Event of Default, has occurred and is continuing on the date of
this Third Amendment.
7. AGREEMENT OTHERWISE UNALTERED. Except as expressly modified by this
Third Amendment, the Agreement shall continue to be and shall remain in full
force and effect.
IN WITNESS WHEREOF, Wells Fargo and the Borrower by their respective duly
authorized officers or representatives have caused this First Amendment to be
duly executed as of the day and year first written above.
INTERNATIONAL RECTIFIER CORPORATION
By: /s/ Michael P. McGee
------------------------------------
Title: Vice President & CFO
-----------------------------
WELLS FARGO BANK, N.A.
By: /s/ Gregory P. Brown
------------------------------------
Title: Vice President
-----------------------------
<PAGE>
FIRST AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "First Amendment"),
is made and entered into as of June 6, 1996, by and between NATIONSBANK OF
TEXAS, N.A. ("NationsBank") and INTERNATIONAL RECTIFIER CORPORATION (the
"Borrower").
WITTNESSETH
WHEREAS, the parties hereto made and entered into as of June 15, 1995 a
certain Revolving Credit Agreement (the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement in the
particulars hereinafter set forth;
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS. Unless otherwise specifically defined herein, all
defined terms used herein shall have their respective meanings set forth in
the Agreement.
2. AMENDMENTS.
(a) Section 1.01(cc) of the Agreement is hereby amended by deleting in
its entirety the definition of "Maturity Date" and substituting in lieu
thereof the following definition:
"(cc) 'Maturity Date' shall mean June 5, 1997 or the date of
termination of the Commitment pursuant to Section 7 of this
Agreement, whichever shall occur first."
(b) The first paragraph of Section 2.04(b) of the Agreement is hereby
amended by deleting it in its entirety and substituting in lieu thereof
the following:
"(b) LIBO Rate Advances. For Advances designated as LIBO Rate
Advances, a fixed rate per annum determined by NationsBank to be
three-quarters of one percent (0.75%) above the LIBO Rate in effect
on the first day of the LIBO Rate Interest Period for the Advance."
(c) Section 2 of the Agreement is hereby amended by adding a new
Section 2.19 as follows:
<PAGE>
"2.19 Commitment Fee. The Borrower agrees to pay a commitment fee
of 0.15% 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."
(d) Section 6.18(d) of the Agreement is hereby amended by deleting it
in its entirety and substituting in lieu thereof the following:
"(d) A ratio of the sum of net income, plus depreciation expense,
plus amortization expense, plus net interest expense, each for the
immediately preceding four fiscal quarters to the sum of the current
portion of long-term Debt then due for the fourth preceding fiscal
quarter, plus net interest expense for the immediately preceding four
fiscal quarters of not less than 2.0 to 1."
(e) Section 6.19 of the Agreement is hereby amended by deleting it in
its entirety and substituting in lieu thereof the following:
"6.19 Consolidated Operating Loss. Not incur for any two
consecutive quarters a cumulative Consolidated Operating Loss in
excess of $10,000,000.00."
(f) The Agreement is hereby amended by replacing EXHIBIT A to the
Agreement with the attached EXHIBIT A.
3. REPRESENTATIONS AND WARRANTIES. By the execution of the First
Amendment, the Borrower represents and warrants that (i) after giving effect
to this First Amendment, the representations and warranties stated in the
Agreement are true and correct as of the date hereof; and (ii) after giving
effect to this First Amendment, neither an Event of Default, as defined in
the Agreement, nor any event which with the lapse of time or notice or both
could become an Event of Default, has occurred as of the date hereof.
4. EFFECTIVENESS.
(a) Except to the extent specifically waived, amended and supplemented
hereby, all of the terms, conditions and provisions of the Agreement shall
remain unmodified, and the Agreement, as amended and supplemented by this
First Amendment, is confirmed as being in full force and effect.
-2-
<PAGE>
(b) All references to the Agreement herein or in any other document or
instrument between the parties hereto shall hereafter be construed to be
references to the Agreement as modified by this First Amendment.
(c) This First Amendment shall be effective upon receipt by
NationsBank of each of the following:
(i) A counterpart of this First Amendment executed by the Borrower;
and
(ii) The Note dated June 6, 1996 executed by the Borrower.
5. COUNTERPARTS. This First Amendment may be executed by the parties
hereto in any number of separate counterparts and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
6. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
CALIFORNIA.
7. NOTICE OF FINAL AGREEMENT. THIS FIRST AMENDMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT 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.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date and year first above written.
NATIONSBANK OF TEXAS, N.A. INTERNATIONAL RECTIFIER CORPORATION
By: /s/ Lori Stone By: /s/ Michael P. McGee
--------------------------- --------------------------
Name: Lori Stone Name: Michael P. McGee
------------------------- ------------------------
Title: Vice President Title: Vice President & CFO
------------------------ ------------------------
-3-
<PAGE>
REVOLVING CREDIT FACILITY NOTE
$10,000,000 Dallas, Texas June 6,1996
FOR VALUE RECEIVED, the undersigned, INTERNATIONAL RECTIFIER CORPORATION
("Borrower"), promises to pay to the order of NATIONSBANK OF TEXAS, N.A.
("NationsBank") at NationsBank's office at 901 Main Street, Dallas, Texas 75202,
or at such other place in the State of Texas as NationsBank 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 life 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, or (b) a fixed rate
per annum determined by NationsBank to be three-quarters of one percent (0.75%)
above the LIBO Rate in effect on the first day of any LIBO Rate Interest Period
for a Libo Rate 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 NationsBank. 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 any payments applicable thereto, shall be set forth by
NationsBank on the reverse of this Note or on such schedules as NationsBank
shall maintain for such purposes. Absent manifest error, such notations on this
Note or on such schedules, and all endorsements by NationsBank 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 June 15, 1995,
between Borrower and NationsBank, 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
<PAGE>
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 NationsBank. Notwithstanding
anything in this Note to the contrary, the outstanding principal balance of this
Note, together with the aggregate amount 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 and the LIBO Rate in accordance with the application of
payment provisions of the Credit Agreement.
Upon the occurrence of any Event of Default (as defined in the Credit
Agreement) NationsBank, at NationsBank'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 NationsBank 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
NationsBank in connection with the enforcement of any rights of NationsBank
and/or the collection of any amounts which become due to NationsBank 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 ASSOCIATION
By: /s/ Michael P. McGee
-------------------------------------
Name: M. McGee
-----------------------------------
Title: VICE PRESIDENT & CFO
-----------------------------------
2
<PAGE>
EXHIBIT A
REVOLVING CREDIT FACILITY NOTE
$10,000,000 Dallas, Texas June 6,1996
FOR VALUE RECEIVED, the undersigned, INTERNATIONAL RECTIFIER CORPORATION
("Borrower"), promises to pay to the order of NATIONSBANK OF TEXAS, N.A.
("NationsBank") at NationsBank's office at 901 Main Street, Dallas, Texas 75202,
or at such other place in the State of Texas as NationsBank 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, or (b) a fixed rate
per annum determined by NationsBank to be three-quarters of one percent (0.75%)
above the LIBO Rate in effect on the first day of any LIBO Rate Interest Period
for a LIBO Rate 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 NationsBank. 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 any payments applicable thereto, shall be set forth by
NationsBank on the reverse of this Note or on such schedules as NationsBank
shall maintain for such purposes. Absent manifest error, such notations on this
Note or on such schedules, and all endorsements by NationsBank 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 June 15, 1995,
between Borrower and NationsBank, 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.
<PAGE>
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 NationsBank.
Notwithstanding anything in this Note to the contrary, the outstanding principal
balance of this Note, together with the aggregate amount 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 and the LIBO Rate in accordance with the application of
payment provisions of the Credit Agreement.
Upon the occurrence of any Event of Default (as defined in the Credit
Agreement) NationsBank, at NationsBank'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 NationsBank 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
NationsBank in connection with the enforcement of any rights of NationsBank
and/or the collection of any amounts which become due to NationsBank 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: M. McGee
------------------------------------
Title: VICE PRESIDENT & CFO
-----------------------------------
2
<PAGE>
TERM LOAN AGREEMENT
This Term Loan Agreement (this "Agreement") is made and entered into
as of this 12th day of June, 1996 by and between THE SUMITOMO TRUST & BANKING
CO., LTD., LOS ANGELES AGENCY (the "Bank") and INTERNATIONAL RECTIFIER
CORPORATION (the "Borrower"), on the terms and conditions that follow:
Section 1
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) "Applicable Laws": shall mean all applicable laws,
statutes, ordinances, rulings, regulations, codes, decrees, orders, judgments,
conditions, restrictions, requirements, guidelines or interpretations (whether
or not having the force of law) of any Governmental Authority.
-1-
<PAGE>
(b) "Business Day": shall mean a day other than a Saturday or
Sunday on which commercial banks are open for business in California, USA, and,
if the applicable Business Day relates to a LIBOR Rate, a day on which dealings
are carried on in the London Interbank Market.
(c) "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.
(d) "Debt": shall mean all liabilities of the Borrower as set
forth on its balance sheet less Subordinated Debt.
(e) "Domestic": shall mean the consolidated North American
operations of the Borrower.
(f) "Effective Tangible Net Worth": shall mean the Borrower's
stated net worth plus Subordinated Debt but less all intangible assets of the
Borrower (i.e, goodwill, trademarks, patents, copyrights, organization expense,
loans and advances to employees, and similar intangible items), and excluding
any cumulative translation adjustments to equity for the value of foreign
assets based upon changes in foreign exchange rates and excluding redemption
of employee stock
-2-
<PAGE>
options.
(g) "ERISA": shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time, including (unless the context
otherwise requires) any rules or regulations promulgated thereunder.
(h) "Event of Default": shall have the meaning set forth in
Section 6.
(i) "GAAP": shall mean generally accepted accounting principles
in the United States applied on a consistent basis.
(j) "Governmental Authority": shall mean the U.S.A., Japan, the
State of California, the state in which the Borrower's corporate domicile is
located and any political subdivision, agency, department, court, commission,
board or any similar entity which exercises jurisdiction over the Bank, the
Borrower or any of the Borrower's property.
(k) "Indebtedness": shall mean, with respect to the Borrower
(i) all indebtedness, whether direct or contingent (if reportable pursuant to
GAAP) or (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
-3-
<PAGE>
obligation in respect of which the Borrower is primarily liable as obligor or
(iii) all 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.
(l) "LIBOR": shall mean the rate per annum determined on the
basis of the offered rates for deposits in U.S. Dollars for a period of
one (1), three (3) or six (6) months, commencing on the borrowing date,
the conversion date or the last day of the immediately preceding Interest
Period, as the case may be, which appear on Telerate Page 3750 as of
11:00 a.m. London time, on the day that is two (2) Business Days preceding
the borrowing date or the last day of the immediately preceding Interest
Period. If at least two (2) such offered rates appear on Telerate Page 3750,
the applicable rate will be the arithmetic mean, rounded up to the next
higher one thirty-second of a percentage point, of such offered rates. If
fewer than two (2) offered rates appear, the applicable rate will be equal
to the Bank's cost of funds determined by it, in its sole but reasonable
discretion. Any LIBOR Rate determined on the basis of the rate displayed on
Telerate Page 3750 shall be subject to corrections, if any, made in such rate
and displayed by the Associated Press-Dow Jones Telerate Service.
(m) "London Interbank Market": shall mean the offering and
making of dollar deposits at financial institutions
-4-
<PAGE>
located in London.
(n) "Note": shall mean a promissory note by the Borrower in
favor of the Bank in the form of Annex A attached hereto.
(o) "Obligations": shall mean all present and future
obligations, indebtedness and liabilities, and all renewals and extensions of
all or any part thereof, of the Borrower to the Bank arising from or
pursuant to this Agreement and all interest accruing on all or any part
thereof.
(p) "Permitted Domestic Liens": shall mean: (i) liens and
security interests securing the Obligations; (ii) liens for taxes,
assessments or similar charges either not more than 45 days past due or being
contested in good faith by appropriate proceedings diligently conducted;
(iii) liens of materialmen, mechanics, warehousemen, 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
by appropriate proceedings diligently conducted; (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 5.09 hereof; (v) liens and security interests which, as of
the date hereof,
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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 the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other similar obligations incurred in
the ordinary course of business; (viii) liens resulting from zoning
restrictions, easements and such other similar restrictions on the use of real
property, which do not materially interfere with the ordinary conduct of the
business of the Borrower; and (ix) liens arising by reason of any judgment,
decree or order of any court, if appropriate legal proceedings which may have
been duly initiated for the review of such judgment, decree or order, are being
diligently prosecuted and shall not have been finally terminated or the period
within which such proceedings may be initiated shall not have expired.
(q) "Subordinated Debt": shall mean such liabilities of the
Borrower which have been subordinated to the prior payment and satisfaction in
full of the Obligations and which mature after July 1, 2001.
(r) "Telerate Page 3750": shall mean the display designated as
"Page 3750" on the Associated Press-Dow Jones Telerate Service (or such other
page as may replace Page 3750 on the Associated Press-Dow Jones Telerate Service
or such other
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service as may be nominated by the British Bankers' Association as the
information vendor for the purpose of displaying British Bankers' Association
interest settlement rates for U.S. dollar deposits).
1.02 ACCOUNTING TERMS. All accounting terms used in this Agreement
which are not otherwise defined herein shall be construed in accordance with
GAAP unless otherwise expressly stated herein, and except where otherwise
specified, all financial data submitted pursuant to this Agreement shall be
prepared in accordance with GAAP.
Section 2
THE TERM LOAN
2.01 TERM LOAN. Subject to the terms and conditions of this
Agreement, the Bank hereby agrees to lend to the Borrower, upon the Borrower's
request which shall be made after June 12, 1996 for drawdown as of June 14,
1996, and prior to June 30, 1997 (the "Drawdown Period") in minimum amounts of
$5,000,000.00 up to the maximum amount of $20,000,000.00 (the "Term Loan");
provided that a borrowing may be made in an amount equal to any remaining
portion of the Term Loan. The Borrower shall provide the Bank with a written
request at least two (2) Business Days prior to the date of a proposed borrowing
(no later than 11:30 a.m. (California time)) specifying (a) the date of the
borrowing, (b)
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the amount of the borrowing, and (c) the Interest Period. The Term Loan shall
be evidenced by the Note. Any amount prepaid or repaid may not be reborrowed
under this Agreement.
A. Term Loan Account. The Bank shall maintain on its books a record
of account in which the Bank shall make entries setting forth all payments made,
the application of such payments to interest and principal, accrued and unpaid
interest (if any) and the outstanding principal balance under the Term Loan (the
"Term Loan Account"). The Bank shall provide the Borrower with a monthly
statement of the Borrower's principal amount outstanding hereunder, which
statement shall be conclusive and binding upon the Borrower absent manifest
error.
B. Interest.
(a) Effective June 14, 1996, interest shall accrue on the
outstanding principal balance or any portion of the outstanding principal
balance on the Term Loan ("Term Balance") at a rate of LIBOR plus a margin of
0.65% per annum (the "LIBOR Rate"). The interest period with respect to the
LIBOR Rate shall be a period of one (1), three (3) or six (6) months, at the
Borrower's option, thereafter (the "Interest Period"), beginning on the
borrowing date, the conversion date or the last day of the immediately preceding
Interest Period, as the case may be. Each determination of LIBOR applicable to
a particular Interest Period
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shall be made by the Bank and shall be conclusive and binding upon the Borrower
absent manifest error. Prior to the end of each Interest Period, the Borrower
shall select the applicable Interest Period for the Term Loan in a written
notice to the Bank. Each such notice shall be delivered to the Bank no later
than 11:30 a.m. (California time), at least two (2) Business Days prior to the
end of the then current Interest Period. If the Borrower shall at any time fail
to send to the Bank such notice in a timely manner, then the Borrower shall be
deemed to have elected an Interest Period of one (1) month. Term Balances based
upon the LIBOR Rate is hereinafter referred to as the "Eurodollar Balances".
(b) Effective June 14, 1997, the Borrower has the option to
convert the Eurodollar Balances, in whole or in part, to Fixed Rate Balances
pursuant to the terms and conditions set forth below. The Term Balance shall
bear interest at the Bank's cost of funds to be determined two (2) Business Days
prior to conversion plus a margin of 0.70% per annum (the "Fixed Rate"). The
Bank shall provide the Borrower with a statement of the Borrower's Fixed Rate,
which statement shall be considered to be correct and conclusively binding on
the Borrower absent manifest error. The Term Balance bearing interest at the
Fixed Rate is hereinafter referred to as "Fixed Rate Balances".
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Should the Borrower decide to elect the Fixed Rate, the Borrower shall
convert, in whole or in part, on the last day of any Interest Period in a
minimum amount of $2 Million up to the total amount of principal
outstanding as of June 30, 1997. The Borrower shall deliver a written notice
to the Bank specifying (a) the date of the conversion, (b) the amount of the
conversion and (c) the Fixed Rate term period (the "Fixed Rate Term Period").
Each such notice shall be delivered to the Bank no later than 11:30 a.m.
(California time), at least two (2) Business Days prior to the date of
conversion.
On any date of determination, the Term Balance shall never exceed the
Term Balance as of June 30, 1997, minus the sum of (i) all scheduled
payments to be made through such date of determination plus (ii) all
prepayments made on the Term Balance. The Fixed Rate Term Period selected by
the Borrower shall not extend beyond any Repayment Dates (as hereinafter
defined) unless the Term Balance, the aggregate amount of which shall be equal
to or greater than the amount to be repaid on any particular Repayment Date,
shall become due and payable on such Repayment Date.
(c) The Borrower has the option to convert from the Fixed Rate
to the LIBOR Rate, in whole, on the last day of any Fixed Rate Term Period. The
Borrower shall deliver a written notice to the Bank specifying (a) the date
of the
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conversion, and (b) the Interest Period. Each such notice shall be
delivered to the Bank no later than 11:30 a.m. (California time), at least
two (2) Business Days prior to the date of conversion.
(d) Interest on any Eurodollar Balance with an interest period
of 93 or less days shall be paid on the last day of the relevant Interest
Period pertaining to such Eurodollar Balance. Interest on any Eurodollar
Balance with an Interest Period in excess of 93 days shall be paid quarterly
(i.e., on the last day of each 3 month period occurring in such Interest
Period) and on the last day of the relevant Interest Period pertaining to
such Eurodollar Balance.
Interest on any Fixed Rate Balance for each advance shall be paid
quarterly (i.e., on the day that is three months after the relevant conversion
date and every three months thereafter).
Interest shall be calculated on a year of 360 days for actual days elapsed.
(e) Notice of Election to Adjust Interest Rate. Upon written
notice which shall be received by the Bank at or before 11:30 a.m. (California
time) on a Business Day, the Borrower may elect that interest on a
Eurodollar Balance shall
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continue to accrue at a newly quoted LIBOR Rate or shall be adjusted to
commence to accrue at the Fixed Rate; provided, however, that such notice
shall be received by the Bank no later than two (2) Business Days prior to
the last day of the Interest Period. If the Bank shall not have received
notice as prescribed herein of Borrower's election that interest on any
Eurodollar Balance shall continue to accrue at the LIBOR Rate, Borrower shall
be deemed to have elected that interest thereon shall be adjusted to accrue
at the newly quoted LIBOR Rate with the one (1) month Interest Period upon the
expiration of the Interest Period pertaining to such Eurodollar Balance.
(f) Optional Prepayment. Notwithstanding anything to the
contrary in this Agreement, the Borrower may from time to time prepay any
Eurodollar Balance, in whole or in part, without premium or penalty; provided
that any such payment shall be on a day which is the last day of the relevant
Interest Period. The Borrower may prepay any Fixed Rate Balance, in whole
or in part, without premium or penalty; provided that the Borrower shall pay
the Bank on the date of the prepayment for any and all of the breakage costs
incurred by the Bank due to such prepayment which breakage costs shall be
determined by the Bank in its reasonable discretion which determination
shall be conclusive absent manifest error.
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If the whole or any part of the Term Balance is prepaid by reason of
acceleration or otherwise, the Borrower shall upon the Bank's request, pay to
and indemnify the Bank for all costs and any loss (including interest) actually
incurred by the Bank and any loss (excluding loss of profit resulting from the
re-employment of funds) sustained by the Bank as a consequence of such
prepayment. Any prepayment shall first be applied to pay accrued interest, then
be applied to reduce the principal balance payable on the date set forth in this
Agreement, and the remaining portion (if any) of such prepayment shall then be
applied to pay the principal installment(s) of latest maturity under this Term
Loan.
(g) Increased Costs. The Borrower shall within five (5)
Business Days after written notice from the Bank, reimburse the Bank for any
increased cost incurred by the Bank in making or maintaining the Term Loan,
including, but without limitation the Bank's cost of maintaining any reserves
or special deposits against the Term Loan or against the deposits to fund the
Term Loan or of complying with any Applicable Laws after the date hereof
with respect to the Term Loan or with respect to any other aspect of this
transaction, including but not limited to, costs or reductions in the Bank's
return on capital resulting from changes in capital adequacy requirements.
The Bank shall submit to the Borrower a certificate setting forth the amount
of any such increased cost and describing in reasonable detail the
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basis and calculation of such increased costs which in the absence of manifest
error shall be conclusive and binding. The foregoing notwithstanding, (i) the
Borrower shall not be responsible for payment of any amounts to the extent
determined to be as a result of the Bank's gross negligence or willful
misconduct, and (ii) the Bank shall use its reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions) to take any action if
the taking of such action would avoid the need for, or reduce the amount of, any
additional amounts payable and would not, in the reasonable judgment of the
Bank, be otherwise disadvantageous to the Bank.
(h) Illegality. In the event it becomes unlawful for the Bank
to make or maintain the Term Loan at the LIBOR Rate or any advance of the Term
Loan at the LIBOR Rate, then the obligation of the Bank to make the Term Loan
at the LIBOR Rate or any such advance at the LIBOR Rate shall forthwith
terminate or, if the entire amount of the Term Loan at the LIBOR Rate has
already been advanced, then upon notice by the Bank the Term Loan shall
immediately bear interest at a rate per annum equal to the sum of the Bank's
cost of funds, as determined by the Bank at its sole discretion, plus
0.65 percent.
(i) Business Day Adjustment. If the date on which a payment
hereunder is due is not a Business Day or if any Interest Period would
otherwise end on a day that is not a
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Business Day, then such payment shall be made, or such Interest Period shall
end, on the next succeeding Business Day; provided however, in the event the
Interest Rate is based on the LIBOR Rate, the Interest Period shall end on the
immediately preceding Business Day if the next succeeding Business Day is in
another calendar month.
(j) Taxes. Any and all payments by the Borrower hereunder or
under the Note shall be made free and clear or and without deduction for
any taxes.
C. Principal. The Borrower hereby promises and agrees to pay
the outstanding principal of the Term Loan in 6 equal semi-annual installments
of the outstanding principal balance of the Term Loan commencing on December 1,
1998, and ending on June 1, 2001 ("Repayment Dates").
Each payment received by the Bank shall be applied to pay interest
then due and unpaid and the remainder thereof (if any) shall be applied to pay
principal.
D. Commitment Fee. Borrower agrees to pay to the Bank a
commitment fee during the Drawdown Period of 0.25% per annum on the daily
average undrawn portion of the Term Loan, payable quarterly in arrears and
computed on a year of 360 days for actual days elapsed.
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Section 3
CONDITIONS OF LENDING
3.01 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. The obligation of the
Bank to make the first extension of credit to or on account of the Borrower
hereunder is subject to the conditions precedent that the Bank shall have
received before the date of such first extension of credit all of the following
in form and substance satisfactory to the Bank:
(a) Evidence that the execution, delivery and performance by the
Borrower of this Agreement and any document, instrument or agreement required
hereunder have been duly authorized.
(b) Such other evidence as the Bank may reasonably request to
establish the consummation of the transaction contemplated hereunder and
compliance with the conditions of this Agreement.
3.02 CONDITIONS PRECEDENT TO SUBSEQUENT BORROWINGS. At the time of each
notice of borrowing made hereunder the Borrower shall conclusively be deemed to
have represented and warranted to the Bank that on and as of the date thereof
(i) the representations and warranties of the Borrower contained in this
Agreement are in all material respects true and correct and (ii)
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no Event of Default or event which, with the giving of notice, the passage of
time, or both, could become an Event of Default has occurred.
Section 4
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties to
the Bank, which representations are true and correct:
4.01 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.
4.02 AUTHORITY. The Borrower has full power and authority to execute,
deliver and perform this Agreement and the Note. The execution, delivery and
performance by the Borrower of this Agreement and the Note and any instrument,
document or agreement required hereunder have been duly authorized and do not
and will not: (i) violate any provision of any law, rule, regulation, order,
writ, judgment, injunction, decree,
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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 certificate of incorporation or by-laws.
4.03 LEGAL EFFECT. This Agreement and the Note constitute, and any
instrument, document or agreement required hereunder when delivered hereunder
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 creditor's rights
generally and subject to the availability of equitable remedies.
4.04 FINANCIAL STATEMENTS. All financial statements, financial information
and other financial data which may have been submitted by the Borrower to the
Bank are and have been prepared in accordance with GAAP consistently applied and
present fairly in all material respects, as of the date of such statements,
information or data, the financial condition or, as applicable, the other
information disclosed therein. Since the
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most recent submission of such financial information or data to the Bank, the
Borrower represents and warrants that no material adverse change in the
Borrower's financial condition or operations has occurred which has not been
fully disclosed to the Bank in writing.
4.05 LITIGATION. Except as disclosed by the Borrower in reports filed
with the Securities and Exchange Commission, there are no actions, suits or
proceedings pending or, to the knowledge of the Borrower, threatened against or
affecting the Borrower or the Borrower's properties before any court or
administrative agency which could reasonably be expected, if determined
adversely to the Borrower, to have a material adverse affect on the Borrower's
financial condition or operations.
4.06 TITLE TO ASSETS. The Borrower has good and marketable title to
all of its assets. The Domestic assets are not subject to any security
interest, encumbrance, lien or claim of any third person except for permitted
Domestic Liens.
4.07 ERISA. If the Borrower has a pension, profit sharing or
retirement plan subject to ERISA, such plan has been funded in accordance with
its terms and otherwise complies with the requirements of ERISA, except as
disclosed in writing to the Bank prior to the date of this Agreement.
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4.08 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 are currently payable without penalty or
interest or those which are being duly contested in good faith by appropriate
proceedings diligently conducted.
4.09 COMPLIANCE WITH LAWS REGULATING THE INCURRENCE OF DEBT. The
Borrower is not engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U issued
by the Board of Governors of the Federal Reserve System), and no proceeds of the
Term Loan will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock. The
Borrower is not subject to regulation under the Investment Company Act of 1940.
4.10 ENVIRONMENTAL COMPLIANCE. The Borrower has implemented and
complied in all material respects with all applicable federal, state and local
laws, ordinances, statutes and regulations with respect to hazardous or toxic
wastes, substances or related materials, industrial hygiene or environmental
conditions. Except as previously disclosed to the Bank in filings of the
Borrower with the Securities and Exchange Commission, there are no suits,
proceedings, claims or disputes pending or, to the knowledge of the Borrower,
threatened against
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or affecting the Borrower or its property claiming violations of any federal,
state or local law, ordinance, statute or regulation relating to hazardous or
toxic wastes, substances or related materials.
4.11 BORROWER IS CURRENT IN ALL OBLIGATIONS. At the time of the
execution of this Agreement, the Borrower is current in all material obligations
of any kind or nature whatsoever in the ordinary course of business.
4.12 NO DEFAULT. No Event of Default has occurred and is continuing,
and no event has occurred and is continuing which with the giving of notice or
lapse of time, or both, would become an Event of Default.
4.13 PARI PASSU. The obligations of the Borrower hereunder and under
the Note rank PARI PASSU with all other senior debts, if any, of the Borrower.
Section 5
COVENANTS
The Borrower covenants and agrees that, during the term of this
Agreement, and so long thereafter as the Borrower is indebted to the Bank under
this Agreement, the Borrower will, unless the Bank shall otherwise consent in
writing:
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5.01 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS.
Maintain and preserve its existence and all rights and privileges now
enjoyed; and conduct its business and operations in accordance with all
Applicable Laws.
5.02 MAINTENANCE OF INSURANCE. Maintain insurance in such amounts and
covering such risks as is usually and prudently carried by companies engaged
in similar businesses and owning similar properties in the same general areas
in which the Borrower operates.
5.03 MAINTENANCE OF PROPERTIES. The Borrower shall also 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.
5.04 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 diligently conducted; 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
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payment.
5.05 INSPECTION RIGHTS. At any reasonable time and from time to time,
permit the Bank or any representative thereof to examine and make copies of
the records and visit the properties of the Borrower and discuss the business
and operations of the Borrower with any designated representative thereof. 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 hereby agrees to
notify such third party to permit the Bank free access to such records at all
reasonable times and to provide the Bank with copies of any records which it
may reasonably request, all at the Borrower's expense, the amount of which
shall be payable by the Borrower within 30 days following demand.
5.06 REPORTING AND CERTIFICATION REQUIREMENTS. Deliver or cause to be
delivered to the Bank in form and detail satisfactory to the Bank:
(a) Except for the existing class action lawsuit against the
Borrower and its Board of Directors, 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 Exchange Commission Form 10-K of the Borrower for such
year,
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prepared pursuant to GAAP, and audited by an independent certified public
accounting firm of recognized standing in accordance with generally accepted
auditing standards. The audit opinion of the certified accountants shall
state that the Borrower's consolidated statement of operations, balance
sheet, stockholders' equity and cash flows present fairly, in all material
respect, the consolidated financial position of the Borrower and its
subsidiaries.
(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.
(c) Promptly upon the Bank's request, such other information
pertaining to the Borrower as the Bank may reasonably request.
5.07 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.
5.08 REDEMPTION OR REPURCHASE OF STOCK. Not redeem or repurchase any
class of the Borrower's stock now or hereafter outstanding, provided,
however, Borrower may redeem or repurchase
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any class of the Borrower's stock in an amount not to exceed $1,000,000.00
in any one fiscal year.
5.09 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 for Capital Expenditures in
the aggregate amount greater than $75,000,000.00 in any one fiscal year or
(iv) Indebtedness owed to other financial institutions under revolving
lines of credit or (v) Indebtedness of up to $75,000,000.00 in connection
with any acquisitions.
5.10 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 Borrower
may make loans or advances or extend credit to employees of Borrower in an
aggregate amount not to exceed $1,000,000.00 in any one fiscal year and;
provided further, that the Borrower may make loans or advances or extend
credit to affiliated entities and subsidiaries of Borrower in an aggregate
amount not to exceed $15,000,000.00 in the aggregate.
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5.11 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 money security interests or
capital leases of up to $75,000,000.00 for equipment including mortgage
financing for the Borrower's Temecula, California property in any one fiscal
year.
5.12 TRANSFER 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 and, then, only at then prevailing market rates
for such assets.
5.13 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.
5.14 RESTRICTIONS ON MERGER, CONSOLIDATION, ACQUISITION OR ALTERATION OF
CORPORATE STRUCTURE. Not merge with or
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consolidate with any other entity, make any material acquisition (except that
Borrower may acquire any other businesses for up to $100,000,000.00 in the
aggregate) or materially alter its present corporate structure.
5.15 FINANCIAL CONDITIONS. Maintain at all times:
(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.
(c) A ratio of consolidated current assets to consolidated current
liabilities of not less than 1.75 to 1. For the purposes hereof, outstanding
balances hereunder and under any other loans maturing within the succeeding
12 month period (whether with the Bank or a third party) shall be included
in consolidated current liabilities.
(d) A ratio of the sum of net income, plus depreciation expense,
plus amortization expense, plus net
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interest expense, each for the immediately preceding 4 fiscal quarters to the
sum of the current portion of long-term Debt then due for the 4th immediately
preceding fiscal quarter, plus net interest expense for the immediately
preceding 4 fiscal quarters of not less than 2 to 1.
5.16 NOTICE. Give the Bank prompt written notice of any and all (i)
Events of Default; (ii) litigation, arbitration or administrative proceedings
to which the Borrower is a party and in which the claim or liability exceeds
$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 businesses) 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.
5.17 CONSOLIDATED OPERATING LOSS. Not incur for any two consecutive
quarters a cumulative Consolidated Operating Loss in excess of $10,000,000.00.
5.18 ENVIRONMENTAL COMPLIANCE. The Borrower shall:
(a) Implement and comply in all material respects with all
applicable federal, state and local laws, ordinances, statutes and regulations
with respect to hazardous or toxic
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wastes, substances or related materials, industrial hygiene or to environmental
conditions.
(b) Own, use, generate, manufacture, store, handle, treat,
release or dispose of any hazardous or toxic wastes, substances or related
materials, only if such ownership or use would not result in a material adverse
change in the Borrower's financial condition, operations or assets.
(c) Give prompt written notice to the Bank or any discovery of
or suit, proceeding, claim, dispute, threat, inquiry or filing respecting
hazardous or toxic wastes, substances or related materials, which if decided
adversely would have a material adverse effect on the Borrower's financial
condition, operations or assets.
(d) At all times indemnify, defend and hold harmless the Bank,
its successors, assigns and the officers, directors, employees and agents of the
Bank from and against any loss, liability, cost, injury, expense or damage of
any and every kind whatsoever (including, without limitation, court costs and
attorney's fees and expenses) arising out of the use, generation, manufacture,
storage, handling, treatment, disposal or presence of hazardous or toxic wastes,
substances or related materials, other than liability arising out of the Bank's
gross negligence or willful misconduct.
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5.19 INDEMNIFICATION. Without limiting any other obligations of the
Borrower hereunder, on demand indemnify, defend and hold harmless the Bank, its
successors, assigns, and the officers, directors, employees and agents of the
Bank (collectively, the "Indemnitees") from and against any and all liabilities,
losses, claims, damages and expenses including, without limitation, court costs
and reasonable attorney's fees and expenses, of any kind or nature directly or
indirectly resulting from or arising out of the Term Loan, any use of its
proceeds, the Agreement, the Note or any act or omission to act by the
Indemnitees in connection therewith, except to the extent caused directly by the
gross negligence or willful misconduct of the Indemnitees. The Borrower's
obligation to indemnify the Indemnitees under this Section 5.19 shall survive
the termination of this Agreement.
5.20 REPRESENTATIONS AND WARRANTIES. The Borrower shall continue to
maintain the accuracy of the representations and warranties contained in
Section 4 of this Agreement.
Section 6
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>
6.01 NON-PAYMENT. The Borrower shall fail to pay any principal, interest,
fees or other amounts payable under this Agreement after the expiration of ten
(10) Business Days after such due date.
6.02 COVENANTS. The Borrower shall fail in any material respect to perform
or observe any term, covenant or agreement contained in this Agreement and any
such failure shall continue for more than 30 days after written notice from the
Bank to the Borrower of the existence and character of such Event of Default.
6.03 REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any
representation or warranty made by the Borrower under or in connection with this
Agreement or any financial statement given by the Borrower shall prove to have
been materially incorrect or misleading in any material respect when made or
given or when deemed to have been made or given.
6.04 OTHER AGREEMENTS. The Borrower shall fail to pay any Indebtedness and
such failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Indebtedness, or the Borrower
shall fail in any material respect to perform or observe any term or covenant
contained in any agreement or instrument relating to any such Indebtedness, when
required to be performed or observed and
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such failure shall not be waived or shall continue after the applicable grace
period specified in such agreement or instrument, or any such Indebtedness shall
be declared to be due and payable or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof.
6.05 INSOLVENCY. The Borrower shall: (i) become insolvent or be unable to
pay its debts as they mature; (ii) make an assignment for the benefit of
creditors or to an agent authorized to liquidate any substantial amount of its
properties and assets; (iii) file a voluntary petition for bankruptcy or seeking
reorganization or to effect a plan or other arrangement with creditors; (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; (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) any receiver, custodian or trustee shall have been appointed for all or
substantial part of its properties, assets or businesses and shall not be
discharged within 60 days after the date of such appointment.
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6.06 ATTACHMENT. Any writ of execution or attachment or any judgment lien
which individually exceeds $2,000,000.00 or which, in the aggregate, exceeds
$5,000,000.00 shall be issued against 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.
6.07 SUSPENSION. The Borrower shall 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.
6.08 CHANGE IN OWNERSHIP. There shall occur a sale, transfer, disposition
or encumbrance (whether voluntary or involuntary), 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) 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.
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Section 7
REMEDIES ON DEFAULT
Upon the occurrence and during the continuation of any Event of Default,
the Bank may, at its sole and absolute election, without demand and only upon
such notice as may be required by law:
7.01 ACCELERATION. Declare any or all of the Borrower's indebtedness owing
to the Bank, whether under this Agreement or any other document, instrument or
agreement, immediately due and payable, whether or not otherwise due and
payable.
7.02 CEASE EXTENDING CREDIT. Cease extending credit to or for the account
of the Borrower under this Agreement or under any other agreement now existing
or hereafter entered into between the Borrower and the Bank.
7.03 TERMINATION. Terminate this Agreement as to any future obligation of
the Bank without affecting the Borrower's Obligations to the Bank or the Bank's
rights and remedies under this Agreement or under any other document, instrument
or agreement.
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<PAGE>
7.04 NON-EXCLUSIVITY OF REMEDIES. Exercise one or more of the Bank's
rights set forth herein 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 the Bank, or otherwise.
Section 8
MISCELLANEOUS
8.01 DEFAULT INTEREST RATE. The Borrower shall pay the Bank interest on
any indebtedness or amount payable under this Agreement, from the date that such
indebtedness or amount became due or was demanded to be due until paid in full,
at a rate which is equal to 2% per annum plus the rate designated by the Bank
from time to time as its prime rate in the United States of America, such rate
to change as and when so designated.
8.02 RELIANCE. Each warranty, representation, covenant, obligation and
agreement contained in this Agreement shall be conclusively presumed to have
been relied upon by the Bank regardless of any investigation made or information
possessed by the Bank and shall be cumulative and in addition to any other
warranties, representations, covenants and agreements which the Borrower now or
hereafter shall give, or cause to be given, to the Bank in writing, other than
those implied hereunder.
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<PAGE>
8.03 NOTICES. All notices, payments, requests, information and demands
which either party hereto 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, postage prepaid, or by telecopier
(such telecopier transmission effective upon confirmation or answerback)
addressed as set forth below or to such other address as may be specified from
time to time in writing by either party to the other.
To the Borrower: To the Bank:
INTERNATIONAL RECTIFIER THE SUMITOMO TRUST & BANKING CO.,
CORPORATION LTD., LOS ANGELES AGENCY
233 Kansas Street 333 South Grand Avenue
El Segundo, CA 90245 Suite 5300
Attn: Treasury Department Los Angeles, CA 90071
Telecopier No. (310) 640-6575 Attn: Credit Administration
Department (with copy
to Ninoos Benjamin)
Telecopier No. (213) 628-2719
8.04 LEGAL EXPENSES. All legal and other expenses incurred in connection
with the negotiation, execution and delivery of the Term Loan Agreement shall be
borne separately by each party.
8.05 WAIVER. Neither the failure nor delay by the Bank in exercising any
right hereunder or under any document, instrument or agreement mentioned herein
shall operate as a waiver thereof, nor shall any single or partial exercise of
any
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<PAGE>
right hereunder or under any other document, instrument or agreement mentioned
herein preclude other or further exercise thereof or the exercise of any other
right; nor shall any waiver of any right or default hereunder, or under any
other document, instrument or agreement mentioned herein, constitute a waiver of
any other right or default or constitute a waiver of any other default of the
same or any other term or provision.
8.06 CONFLICTING PROVISIONS. To the extent the provisions contained in
this Agreement are inconsistent with those contained in any other document,
instrument or agreement executed pursuant hereto, the terms and provisions
contained herein shall control. Otherwise, such provisions shall be considered
cumulative.
8.07 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Borrower and the Bank 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 the Bank. The Bank may sell, assign or grant participations in
amounts of $5,000,000.00 or greater, in all or any portion of its rights and
benefits hereunder, provided, however, that Bank will not make any assignment
without the Borrower's prior written consent that would be (i) to more than one
bank or a syndication of banks, or (ii) to any assignee in the semiconductor
industry.
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<PAGE>
The Borrower agrees that, in connection with any such sale, grant or
assignment, the Bank may deliver to the prospective buyer, participant or
assignee 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 8.12 hereof.
8.08 JURISDICTION. This Agreement, and any documents, instruments or
agreements mentioned or referred to herein shall be governed by and construed
according to the laws of the State of California, to the jurisdiction of whose
courts the parties hereby submit.
8.09 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
THE BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION
SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING,
THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS
WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN
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<PAGE>
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
8.10 HEADINGS. The headings herein set forth are solely for the purpose of
identification and have no legal significance.
8.11 ENTIRE AGREEMENT. This Agreement and all documents, instruments and
agreements mentioned herein constitute the entire and complete understanding of
the parties with respect to the transactions contemplated hereunder. All
previous conversations, memoranda and writings between the parties pertaining to
the transactions contemplated hereunder not incorporated or referenced in this
Agreement or in such documents, instruments and agreements are superseded
hereby.
8.12 CONFIDENTIALITY. Except as may be required by law or requested by any
regulatory body having jurisdiction over the Bank, the Bank shall, and shall
cause its officers, employees, directors, agents, legal counsel and other
professional advisors to, hold all non-public information obtained pursuant to
this Agreement in accordance with its customary procedures for handling
confidential information of this nature and in
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<PAGE>
accordance with safe and sound banking practices. The Bank shall use its best
efforts to notify the Borrower prior to any disclosure of any such non-public
information, unless prohibited by any Applicable Laws.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first hereinabove written.
BANK: BORROWER:
THE SUMITOMO TRUST & BANKING INTERNATIONAL RECTIFIER CORPORATION
CO., LTD., LOS ANGELES AGENCY
By: /s/ Ninoos Benjamin By: /s/ Michael P. McGee
----------------------------- -----------------------------
Name: Ninoos Benjamin Name: Michael P. McGee
Title: VP & Manager Title: Vice President - Chief
Financial Officer
Attest
By: /s/ Darryl T. Mikuni
------------------------------
Name: Darryl T. Mikuni
Title: Assistant Treasurer
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<PAGE>
ANNEX A
PROMISSORY NOTE
U.S.$20,000,000.00 Los Angeles, California
June 12, 1996
FOR THE VALUE RECEIVED, the undersigned International Rectifier
Corporation (the "Borrower") hereby promises to pay to the order of The
Sumitomo Trust & Banking Co., Ltd., Los Angeles Agency (the "Bank") the
principal sum of Twenty Million United States Dollars (US$20,000,000.00) or
if less, the aggregate unpaid principal amount of the Term Balance in six (6)
equal semi-annual installments commencing on December 1, 1998 and ending on
June 1, 2001.
The Company further promises to pay interest on the unpaid principal
amount hereof from the date hereof until maturity (whether by acceleration or
otherwise), in like money, at such rates and at such times, as are specified in
the Agreement (as hereafter defined).
All payments hereunder shall be made by wire transfer, in immediately
available funds, not later than 1:00 p.m. California time on each day when due,
to Bank of America NT & SA (San Francisco, California) ABA No. 121000358 for the
account of The Sumitomo Trust & Banking Co., Ltd., Los Angeles Agency account
No. 62907-31117 attention Credit Administration Department or at such other
place as the Bank may specify in writing.
This Promissory Note is the Note referred to in the Term Loan
Agreement dated June 12, 1996 between the Company and the Bank (the "Agreement")
and is entitled to the benefits thereof. All capitalized words and terms herein
are used as defined in the Agreement. The terms and conditions contained in the
Agreement shall be considered a part hereof as if written herein, including
those pertaining to the acceleration of the maturity hereof upon the happening
of certain events in the Agreement.
<PAGE>
This Promissory Note shall be governed by and be construed and
interpreted in accordance with the laws of the State of California without
regard to principles of conflicts of laws.
INTERNATIONAL RECTIFIER CORPORATION
By:
-------------------------------------
Name:
Title:
CORPORATE SEAL:
2
<PAGE>
PROMISSORY NOTE
Los Angeles, California
U.S.$20,000,000.00 June 12, 1996
FOR THE VALUE RECEIVED, the undersigned International Rectifier
Corporation (the "Borrower") hereby promises to pay to the order of The
Sumitomo Trust & Banking Co., Ltd., Los Angeles Agency (the "Bank") the
principal sum of Twenty Million United States Dollars (US$20,000,000.00) or
if less, the aggregate unpaid principal amount of the Term Balance in six (6)
equal semi-annual installments commencing on December 1, 1998 and ending on
June 1, 2001.
The Company further promises to pay interest on the unpaid principal
amount hereof from the date hereof until maturity (whether by acceleration or
otherwise), in like money, at such rates and at such times, as are specified
in the Agreement (as hereafter defined).
All payments hereunder shall be made by wire transfer, in immediately
available funds, not later than 1:00 p.m. California time on each day when due,
to Bank of America NT & SA (San Francisco, California) ABA No. 121000358 for
the account of The Sumitomo Trust & Banking Co., Ltd., Los Angeles Agency
account No. 62907-31117 attention Credit Administration Department or at such
other place as the Bank may specify in writing.
This Promissory Note is the Note referred to in the Term Loan Agreement
dated June 12, 1996 between the Company and the Bank (the "Agreement") and is
entitled to the benefits thereof. All capitalized words and terms herein are
used as defined in the Agreement. The terms and conditions contained in the
Agreement shall be considered a part hereof as if written herein, including
those pertaining to the acceleration of the maturity hereof upon the
happening of certain events in the Agreement.
<PAGE>
This Promissory Note shall be governed by and be construed and
interpreted in accordance with the laws of the State of California without
regard to principles of conflicts of laws.
INTERNATIONAL RECTIFIER CORPORATION
By: /s/ MICHAEL P. MCGEE
-------------------------------------
Name: Michael P. McGee
Title: Vice President --
Chief Financial Officer
CORPORATE SEAL:
2
<PAGE>
TERM LOAN AGREEMENT
This Term Loan Agreement (the "Agreement") is made and entered into as of
June 25, 1996, by and between BANQUE NATIONALE DE PARIS, Los Angeles Branch (the
"Bank") and INTERNATIONAL RECTIFIER CORPORATION (the "Borrower"), on the terms
and conditions that follow:
SECTION 1
DEFINITIONS
1.1 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) "BUSINESS DAY": shall mean a day other than a Saturday or Sunday
on which commercial banks are open for business in California, USA.
(b) "CAPITAL EXPENDITURES": for any period, the dollar amount of
gross expenditures (including obligations under capital leases) incurred during
such period for fixed assets, real property, plant and equipment, and renewals,
improvements and replacements thereto required to be included in "capital
expenditures" or comparable items in the financial statements of the Borrower in
conformity with generally accepted accounting principles.
(c) "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.
(d) "DEBT: shall mean all liabilities of the Borrower as set forth
on its balance sheet less Subordinated Debt.
(e) "DOMESTIC": shall mean the consolidated United States and
Mexican maquiladora operations of the Borrower.
(f) "EFFECTIVE TANGIBLE NET WORTH": shall mean the Borrower's stated
net worth plus Subordinated Debt but less all intangible assets of the Borrower
(i.e., goodwill, trademarks, patents, copyrights, organization expense, loans
and advances to employees, and similar intangible items), and excluding any
cumulative translation adjustments to equity for the value of foreign assets
based upon changes in foreign exchange rates and excluding redemption of
employee stock options.
(g) "ERISA": shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time,
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including (unless the context otherwise requires) any rules or regulations
promulgated thereunder.
(h) "EVENT OF DEFAULT": shall have the meaning set forth in Section 6.
(i) "INDEBTEDNESS": shall mean, with respect to the Borrower, (i)
all indebtedness for borrowed money and (ii) 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 generally accepted accounting principles, reported
as capital leases in respect of which the Borrower is primarily liable.
(j) "LIBO BUSINESS DAY": a day which is a Business Day and a day on
which dealings in U.S. dollar deposits may be carried out in the London
interbank market.
(k) "OBLIGATIONS": shall mean all amounts owing by the Borrower to
the Bank pursuant to this Agreement.
(l) "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 permitted to be incurred under Section 5.9 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.
(m) "SUBORDINATED DEBT": shall mean such liabilities of the Borrower
which have been subordinated to those owed to the Bank in a manner acceptable to
the Bank.
1.2 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
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<PAGE>
with generally accepted accounting principles consistently applied and,
except where otherwise specified, all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles.
1.3 OTHER TERMS: Other terms not otherwise defined shall have the
meanings attributed to such terms in the California Uniform Commercial Code.
SECTION 2
THE TERM LOAN
2.1 TERM LOAN. The Bank agrees to lend to the Borrower in up to 5
drawings in the minimum amount of $1,000,000, upon the Borrower's request
made prior to June 30, 1997, (the "Drawdown Period") up to the maximum amount
of $20,000,000 (the "Term Loan").
(a) PURPOSE. Proceeds from the Term Loan shall be used to finance
capital expenditures.
(b) TERM LOAN AMOUNT. The Bank shall maintain on its books
a record of account in which the Bank shall make entries setting forth all
payments made, the application of such payments to interest and principal,
accrued and unpaid interest (if any) and the outstanding principal balance
under the Term Loan (the "Term Loan Account"). The Bank shall provide the
Borrower with a monthly statement of the Borrower's Term Loan Account, which
statement shall be considered to be correct and conclusively binding on the
Borrower, absent manifest error.
(c) INTEREST.
A. LIBO RATE. Interest shall accrue on the outstanding
principal balance or any portion of the outstanding principal balance of the
Term Loan at a fixed rate quoted by the Bank for a minimum of one month or
for such other period of time that the Bank may quote and offer (the "Interest
Period") for Term Balances in the minimum amount of $100,000. Such interest
rate shall be a percentage equivalent to .55% per annum in excess of the Bank's
LIBO Rate which is that rate determined by the Bank at which U.S. dollar
deposits for the relevant Interest Period and in the approximate amount of the
relevant Term Balance would be offered by the Bank to prime banks in the London
interbank market as of 11:00 A.M. (London time) on the day which is two LIBO
Business Days prior to the first day of such Interest Period (adjusted for any
and all assessments, surcharges and reserve requirements pertaining to the
purchase by the Bank of such U.S. dollar deposits) (the "LIBO Rate").
Interest on any Term Balance with an Interest Period of 93 or less days
shall be paid on the last day of the relevant Interest Period pertaining to such
Term Balance. Interest on
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any Term Balance with an Interest Period in excess of 93 days shall be paid
quarterly (i.e., on the last day of each 3 month period occurring in such
Interest Period) and on the last day of the relevant Interest Period
pertaining to such Term Balance.
Interest shall be calculated on a year of 360 days for actual days
elapsed.
B. PREPAYMENT. Notwithstanding anything to the contrary in the
Agreement, no prepayment shall be made on any Term Balance except on a day
which is the last day of the relevant Interest Period pertaining thereto. If
the whole or any part of any Term Balance is prepaid by reason of
acceleration or otherwise, the Borrower shall upon the Bank's request,
promptly pay to and indemnify the Bank for all costs and any loss (including
interest) actually incurred by the Bank and any loss (excluding loss of profit
resulting from the re-employment of funds) sustained by the Bank as a
consequence of such prepayment. Any prepayment shall first be applied to pay
accrued interest, then be applied to pay the principal installment(s) of
latest maturity under this Term Loan.
C. INDEMNIFICATION FOR LIBO RATE COSTS. The Borrower shall, upon
the Bank's written request, which request shall explain in reasonable detail
the reason for such costs or payments, promptly pay to and reimburse the
Bank for all costs incurred and payments made by the Bank by reason of any
future assessment, reserve, deposit or similar requirements or any surcharge,
tax or fee imposed upon the Bank or as a result of the Bank's compliance with
any directive or requirement of any regulatory authority pertaining or
relating to funds used by the Bank in quoting and determining the LIBO Rate.
(d) PRINCIPAL. The Borrower hereby promises and agrees to pay the
outstanding principal of the Term Loan in 12 equal quarterly installments of
1/12th of the outstanding principal balance of the Term Loan as of June 30,
1997 commencing on September 30, 1998 and continuing on the last day of each
calendar quarter thereafter up to and including June 30, 2001. On June 30,
2001, the Borrower hereby promises and agrees to pay to the Bank the entire
unpaid principal balance, together with accrued and unpaid interest.
Each payment received by the Bank shall be applied to pay interest then due
and unpaid and the remainder thereof (if any) shall be applied to pay
principal.
(e) COMMITMENT FEE. The Borrower agrees to pay to the Bank a
commitment fee during the Drawdown Period of .25% per annum on the undrawn
portion of the Term Loan, payable quarterly in arrears and computed on a
year of 360 days for actual days elapsed.
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<PAGE>
2.2 LIMITATIONS.
(a) Notwithstanding anything to the contrary herein, the Borrower shall
not be required to make any payment to the Bank with respect to any indemnity
required pursuant to Sections 2.1(c).C ("Affected Section") unless the Bank
shall have given notice to the Borrower promptly upon the Bank becoming aware
of any circumstance requiring the Borrower to make any payment under an
Affected Section.
(b) The Borrower shall not be responsible for payment of any amounts
payable under any Affected Section to the extent determined to be as a result
of the Bank's gross negligence or willful misconduct.
(c) The Bank shall use its reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to take any action if
the taking of such action would avoid the need for, or reduce the amount of,
any additional amounts payable under any Affected Section and would not, in
the reasonable judgment of the Bank, be otherwise disadvantageous to the Bank.
SECTION 3
CONDITIONS OF LENDING
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE: The obligation of the
Bank to make the first extension of credit to or on account of the Borrower
hereunder is subject to the conditions precedent that the Bank shall have
received before the date of such first extension of credit all of the
following, in form and substance satisfactory to the Bank:
(a) Evidence that the execution, delivery and performance by the
Borrower of this Agreement and any document, instrument or agreement required
hereunder have been duly authorized.
(b) An upfront fee of $20,000.
(c) Such other evidence as the Bank may reasonably request to establish
the consummation of the transaction contemplated hereunder and compliance
with the conditions of this Agreement.
SECTION 4
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties
to the Bank, which representations and warranties are true and correct:
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4.1 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.
4.2 AUTHORITY: The execution, delivery and performance by the Borrower of
this Agreement and any instrument, document or agreement required hereunder
have been duly authorized and do 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 certificate of incorporation or by-laws.
4.3 LEGAL EFFECT: This Agreement constitutes, and any instrument, document
or agreement required hereunder when delivered hereunder 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.
4.4 FINANCIAL STATEMENTS: All financial statements, financial information
and other financial data which may have been submitted by the Borrower to the
Bank are and have been prepared in accordance with generally accepted
accounting principles consistently applied and fairly present in all material
respects, as of the date of such statements, information or data, the
financial condition or, as applicable, the other information disclosed
therein. Since the most recent submission of such financial information or
data to the Bank, the Borrower represents and warrants that no material
adverse change in the Borrower's financial condition or operations has
occurred which has not been fully disclosed to the Bank in writing.
4.5 LITIGATION: Except as have been disclosed to the Bank in reports filed
with the Securities and Exchange Commission, there are no actions, suits or
proceedings pending or, to the knowledge of the Borrower, threatened against
or affecting the Borrower or the Borrower's properties before any court or
administrative agency which could reasonably be expected, if determined
adversely to the Borrower, to have a material adverse effect on the
Borrower's financial condition or operations.
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<PAGE>
4.6 TITLE TO ASSETS: The Borrower has good and marketable title to all of
its assets. The Domestic assets are not subject to any security interest,
encumbrance, lien or claim of any third person except for Permitted Domestic
Liens.
4.7 ERISA: If the Borrower has a pension, profit sharing or retirement
plan subject to ERISA, such plan has been funded in accordance with its terms
and otherwise complies with the requirements of ERISA, except as disclosed in
writing to the Bank prior to the date of this Agreement.
4.8 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 are currently payable without penalty or interest or
those which are being duly contested in good faith.
4.9 REGULATION U: The proceeds of the Term Loan will not be used to
purchase or carry margin stock.
4.10 ENVIRONMENTAL COMPLIANCE: The Borrower has implemented and complied
in all material respects with all applicable federal, state and local laws,
ordinances, statutes and regulations with respect to hazardous or toxic wastes,
substances or related materials, industrial hygiene or environmental conditions.
Except as previously disclosed to the Bank in filings of the Borrower with the
Securities and Exchange Commission, there are no suits, proceedings, claims or
disputes pending or, to the knowledge of the Borrower, threatened against or
affecting the Borrower or its property claiming violations of any federal, state
or local law, ordinance, statute or regulation relating to hazardous or toxic
wastes, substances or related materials.
SECTION 5
COVENANTS
The Borrower covenants and agrees that, during the term of this Agreement,
and so long thereafter as the Borrower is indebted to the Bank under this
Agreement, the Borrower will, unless the Bank shall otherwise consent in
writing:
5.1 PRESERVATION OF EXISTENCE; WITH APPLICABLE LAWS: Maintain and
preserve its existence and all rights and privileges now enjoyed; not liquidate
or dissolve, merge or consolidate with or into, any other business
organization, provided however, that Borrower may acquire any other businesses
for up to $100,000,000 in the aggregate; and conduct its business and operations
in accordance with all applicable laws, rules and regulations.
5.2 MAINTENANCE OF INSURANCE: Maintain insurance in such amounts and
covering such risks as is usually and prudently
-7-
<PAGE>
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which the Borrower operates.
5.3 MAINTENANCE OF PROPERTIES: The Borrower shall also 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.
5.4 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.
5.5 INSPECTION RIGHTS: At any reasonable time and from time to time,
permit the Bank or any representative thereof to examine and make copies of the
records and visit the properties of the Borrower and discuss the business and
operations of the Borrower with any designated representative thereof. 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 hereby agrees to notify such
third party to permit the Bank free access to such records at all reasonable
times and to provide the Bank 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 following demand.
5.6 REPORTING AND CERTIFICATION REQUIREMENTS: Deliver or cause to be
delivered to the Bank in form and detail satisfactory to the Bank:
(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
Exchange Commission Form 10-K of the Borrower for such year, all certified to
as having been prepared in accordance with generally accepted accounting
principles consistently applied by a firm of certified public accountants
acceptable to Bank, together with the consolidating balance sheets and income
statements for the Borrower and its subsidiaries for such year.
(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.
-8-
<PAGE>
(c) Not later than 60 days after the end of each fiscal quarter, a
certificate of the chief financial officer of the Borrower demonstrating
compliance as of the end of such period with each financial covenant set forth
herein, all in form satisfactory to the Bank.
(d) Promptly upon the Bank's request, such other information
pertaining to the Borrower as the Bank may reasonably request.
5.7 PAYMENT OF DIVIDENDS: Not declare or pay any cash dividends on any
class of stock now or hereafter outstanding except dividends payable solely in
the Borrower's capital stock.
5.8 REDEMPTION OR REPURCHASE OF STOCK: Not redeem or repurchase any class
of the Borrower's stock now or hereafter outstanding, provided however, Borrower
may redeem or repurchase any class of the Borrower's stock in an amount not to
exceed $1,000,000 in any one fiscal year.
5.9 ADDITIONAL DOMESTIC INDEBTEDNESS: Not, after the date hereof, create,
incur or assume, directly or indirectly, any additional Indebtedness or any
commitment therefor 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 for Capital Expenditures in the
aggregate greater than $75,000,000 in any one fiscal year or (iv) Indebtedness
owned to other financial institutions under revolving lines of credit or
(v) Indebtedness of up to $75,000,000 in connection with any acquisitions.
5.10 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 Borrower may make loans or advances or extend
credit to employees of Borrower in an aggregate amount not to exceed $1,000,000
in any one fiscal year and provided further, that Borrower may make loans or
advances or extend credit to affiliated entities and subsidiaries of Borrower in
an aggregate amount not to exceed $15,000,000 in the aggregate.
5.11 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 money security interests or capital leases of up
to $75,000,000 for
-9-
<PAGE>
equipment including mortgage financing for the Borrower's Temecula, California
property in any one fiscal year.
5.12 TRANSFER 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 and, then, only at then prevailing market rates for such assets.
5.13 CHANGE IN NATURE OF BUSINESS: Not make any material change in the
fundamental nature of its business existing or conducted as of the date
hereof.
5.14 FINANCIAL CONDITION: Maintain at all times:
(a) A minimum consolidated Effective Tangible Net Worth of at
least $175,000,000, 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.
(c) A ratio of consolidated current assets to consolidated current
liabilities of not less than 1.75 to 1. For the purposes hereof, outstanding
amounts under any revolving lines of credit shall be included in consolidated
current liabilities.
(d) A ratio of the sum of net income, plus depreciation expense,
plus amortization expense, plus net interest expense, each for the immediately
preceding four fiscal quarters, to the sum of the current portion of
long-term Debt then due for the fourth immediately preceding fiscal quarter,
plus net interest expense for the immediately preceding four fiscal quarters,
of not less than 2 to 1.
5.15 NOTICE: Give the Bank prompt written notice of any and all
(i) Events of Default; (ii) litigation, arbitration or administration
proceedings to which the Borrower is a party and in which the claim or
liability exceeds $1,000,000, 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
businesses) 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.
-10-
<PAGE>
5.16 CONSOLIDATED OPERATING LOSS: Not incur for any two consecutive
fiscal quarters a cumulative Consolidated Operating Loss in excess of
$10,000,000.
5.17 ENVIRONMENTAL COMPLIANCE: The Borrower shall:
(a) Implement and comply in all material respects with all
applicable federal, state and local laws, ordinances, statutes and regulations
with respect to hazardous or toxic wastes, substances or related materials,
industrial hygiene or to environmental conditions.
(b) Own, use, generate, manufacture, store, handle, treat, release
or dispose of any hazardous or toxic wastes, substances or related materials,
only if such ownership or use would not result in a material adverse change
in the Borrower's financial condition, operations or assets.
(c) Give prompt written notice of any discovery of or suit,
proceeding, claim, dispute, threat, inquiry or filing respecting hazardous
or toxic wastes, substances or related materials.
(d) At all times indemnify and hold harmless Bank from and against
any and all liability arising out of the use, generation, manufacture,
storage, handling, treatment, disposal or presence of hazardous or toxic
wastes, substances or related materials, other than liability arising out of
the Bank's gross negligence or willful misconduct.
SECTION 6
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:
6.1 NON-PAYMENT: The Borrower shall fail to pay any Obligations
within 10 days of when due.
6.2 PERFORMANCE UNDER THIS AND OTHER AGREEMENTS: The Borrower shall
fail in any material respect to perform or observe any term, covenant or
agreement contained in this Agreement 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 1.1(h)
(whether such Indebtedness is owed to the Bank or to third persons if
such failure would permit such third persons to accelerate the Indebtedness),
and any such failure (exclusive of the payment of money to the Bank under
this Agreement or under any other instrument, document or agreement, 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
-11-
<PAGE>
grace period therefore) shall continue for more than 30 days after written
notice from the Bank to the Borrower of the existence and character of such
Event of Default.
6.3 REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS: Any
representation or warranty made by the Borrower under or in connection with
this Agreement or any financial statement given by the Borrower or any
guarantor shall prove to have been incorrect in any material respect when
made or given or when deemed to have been made or given.
6.4 INSOLVENCY: The Borrower shall: (i) become insolvent or be unable
to pay its debts as they mature; (ii) make an assignment for the benefit of
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; (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; (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) any receiver, custodian or
trustee shall have been appointed for all or substantial part of its
properties, assets or businesses and shall not be discharged within 60 days
after the date of such appointment.
6.5 EXECUTION: 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, shall be issued against 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.
6.6 SUSPENSION: The Borrower shall 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.
6.7 CHANGE IN OWNERSHIP: There shall occur a sale, transfer,
disposition or encumbrance (whether voluntary or involuntary), 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.
-12-
<PAGE>
SECTION 7
REMEDIES ON DEFAULT
Upon the occurrence and during the continuation of any Event of Default,
the Bank may, at its sole and absolute election, without demand and only upon
such notice as may be required by law:
7.1 ACCELERATION: Declare any or all of the Borrower's Indebtedness
owing to the Bank, whether under this Agreement or any other document,
instrument or agreement, immediately due and payable, whether or not
otherwise due and payable.
7.2 CEASE EXTENDING CREDIT: Cease extending credit to or for the
account of the Borrower under this Agreement or under any other agreement
now existing or hereafter entered into between the Borrower and the Bank.
7.3 TERMINATION: Terminate this Agreement as to any future obligation
of the Bank without affecting the Borrower's Obligations to the Bank or the
Bank's rights and remedies under this Agreement or under any other document,
instrument or agreement.
7.4 NON-EXCLUSIVITY OF REMEDIES: Exercise one or more of the Bank's
rights set forth herein 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 the Bank, or
otherwise.
SECTION 8
MISCELLANEOUS
8.1 DEFAULT INTEREST RATE: The Borrower shall pay the Bank interest on
any indebtedness or amount payable under this Agreement, from the date that
such indebtedness or amount became due or was demanded to be due until paid
in full, at a rate which is 3% in excess of the LIBO Rate otherwise provided
under this Agreement.
8.2 RELIANCE: Each warranty, representation, covenant, obligation and
agreement contained in this Agreement shall be conclusively presumed to have
been relied upon by the Bank regardless of any investigation made or
information possessed by the Bank and shall be cumulative and in addition to
any other warranties, representations, covenants and agreements which the
Borrower now or hereafter shall give, or cause to be given, to the Bank in
writing, other than those implied hereunder.
8.3 ATTORNEYS' FEES: Reasonable attorneys' fees (not to exceed $5,000
in aggregate amount) shall be paid by the Borrower in connection with the
preparation of this Agreement. In the
-13-
<PAGE>
event of any action in relation to this Agreement or any document, instrument
or agreement executed with respect to, evidencing or securing the
Obligations, the prevailing party, in addition to all other sums to which it may
be entitled, shall be entitled to reasonable attorneys' fees.
8.4 NOTICES: All notices, payments, requests, information and demands
which either party hereto 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, postage prepaid, or by
telecopier addressed as set forth below or to such other address as may be
specified from time to time in writing by either party to the other.
To the Borrower: To the Bank:
INTERNATIONAL RECTIFIER BANQUE NATIONALE DE PARIS
CORPORATION Los Angeles Branch
233 Kansas Street 725 So. Figueroa Street,
El Segundo, CA 90245 Suite 2090
Los Angeles, CA 90017
Attn: Treasury Department Attn: Robert Nickel
Vice President
Telecopier No. (310) 640-6575 Telecopier No. (213) 488-9602
8.5 WAIVER: Neither the failure nor delay by the Bank in exercising any
right hereunder or under any document, instrument or agreement mentioned
herein shall operate as a waiver thereof, nor shall any single or partial
exercise of any right hereunder or under any other document, instrument or
agreement mentioned herein preclude other or further exercise thereof or the
exercise of any other right; nor shall any waiver of any right or default
hereunder, or under any other document, instrument or agreement mentioned
herein, constitute a waiver of any other right or default or constitute a
waiver of any other default of the same or any other term or provision.
8.6 CONFLICTING PROVISIONS: To the extent the provisions contained in
this Agreement are inconsistent with those contained in any other document,
instrument or agreement executed pursuant hereto, the terms and provisions
contained herein shall control. Otherwise, such provisions shall be
considered cumulative.
8.7 BINDING EFFECT; ASSIGNMENT: This Agreement shall be binding upon
and inure to the benefit of the Borrower and the Bank 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 the Bank. The Bank may sell, assign or grant participations in
amounts of $5,000,000 or greater, in all or any portion of its rights and
benefits hereunder, provided,
-14-
<PAGE>
however, that the Bank will not make any assignment without the Borrower's
prior written consent that would be (i) other than to any Federal Reserve
Bank as collateral, (ii) to more than one bank or a syndication of banks or
(iii) to any assignee in the semiconductor industry. The Borrower agrees
that, in connection with any such sale, grant or assignment, the Bank may
deliver to the prospective buyer, participant or assignee 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 8.12 hereof.
8.8 JURISDICTION: This Agreement, and any documents, instruments or
agreements mentioned or referred to herein shall be governed by and construed
according to the laws of the State of California, to the jurisdiction of
whose courts the parties hereby submit.
8.9 WAIVER OF JURY TRIAL: THE BORROWER AND THE BANK EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS,
TORT CLAIMS, OR OTHERWISE THE BORROWER AND THE BANK EACH AGREE THAT ANY SUCH
CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY
WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS
TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR OTHER
LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
8.10 HEADINGS: The headings herein set forth are solely for the purpose
of identification and have no legal significance.
8.11 ENTIRE AGREEMENT: This Agreement and all documents, instruments
and agreements mentioned herein constitute the entire and complete
understanding of the parties with respect to the transactions contemplated
hereunder. All previous conversations, memoranda and writings between the
parties pertaining to the transactions contemplated hereunder not
incorporated or referenced in this Agreement or in such documents,
instruments and agreements are superseded hereby.
8.12 CONFIDENTIALITY: The Bank shall, and shall cause its officers,
employees, directors, agents, legal counsel and other professional advisors
to, hold all non-public information obtained pursuant to this Agreement in
accordance with its customary procedures for handling confidential
information of
-15-
<PAGE>
this nature and in accordance with safe and sound banking practices. The Bank
shall use its best efforts to notify the Borrower prior to any disclosure of
any such non-public information, unless prohibited by applicable law, rule,
regulation or order.
8.13 IMMATERIALITY: Notwithstanding anything herein to the contrary,
any breach of any representations and warranties contained in Section 4
hereof or the covenants in Sections 5.1, 5.3, 5.4, 5.11, 5.12 or 5.17 shall
not be deemed to be an Event of Default or prohibit any extension of credit
hereunder if, in the aggregate, such defaults could not reasonably be
expected to have a material adverse effect on the Borrower's financial
condition, operations or assets.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first hereinabove written.
BANK: BORROWER:
BANQUE NATIONALE DE PARIS INTERNATIONAL RECTIFIER
Los Angeles Branch CORPORATION
By: /s/ C. Bettles By: /s/ Michael P. McGee
------------------------------ ------------------------------
Name: C. Bettles Name: Michael P. McGee
---------------------------- ----------------------------
Title: Sr. V.P. & Manager Title: Vice President - Chief
--------------------------- Financial Officer
---------------------------
Attest:
By: /s/ Robert Nickel By: /s/ Darryl T. Mikuni
------------------------------ ------------------------------
Name: Robert Nickel Name: Darryl T. Mikuni
---------------------------- ----------------------------
Title: Vice President Title: Assistant Treasurer
--------------------------- ---------------------------
-16-
<PAGE>
AMENDMENT TO LINE OF CREDIT AGREEMENT
This Seventh Amendment to Line of Credit Agreement (the "Amendment") is
made and entered into as of June 28, 1996, 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 extend and/or modify
the Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the Borrower and
the Bank agree as follows:
1. CHANGE IN REPORTING REQUIREMENTS. Section 7.06 (c) of the Agreement
is deleted in its entirety.
2. MODIFICATION OF OPERATING LOSS. All references in Section 7.17 of
the Agreement to the figure $5,000,000 shall be changed to $10,000,000.
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/ David B. Carr By: /s/ Michael P. McGee
------------------------------------ -----------------------------------
David B. Carr Michael P. McGee /
Vice President Vice President-Chief Financial Officer
- --------------------------------------- --------------------------------------
(Name/Title) (Name/Title)
By:
----------------------------------
-------------------------------------
(Name/Title)
-1-
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
As of June 30, 1996
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, Torino(To), 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, Los Olivos
La Mesa, Tijuana, Baja California, Mexico
INTERNATIONAL RECTIFIER FAR EAST COMPANY, LTD
K&H Building, 3-30-4 Nishi Ikebukuro
Toshima-ku, Tokyo, 171 Japan
INTERNATIONAL RECTIFIER SOUTHEAST ASIA PRIVATE, LTD
315 Outram Road
#10-02 Tan Boon Liat Building
Singapore 169074
IR INTERNATIONAL HOLDINGS, INC.
233 Kansas Street
El Segundo, California 90245
SEMICONDUCTOR ELECTRONICS LTD.
SDF 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. 33-40208,
File No. 33-63958 and File No. 33-53589) of our report dated July 18, 1996
on our audits of the consolidated financial statements and financial
statement schedule of International Rectifier Corporation as of June 30, 1996
and 1995, and for the fiscal years ended June 30, 1996, 1995 and 1994, which
report is included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
- -----------------------
Coopers & Lybrand L.L.P.
Los Angeles, California
September 24, 1996
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 35,760
<SECURITIES> 18,000
<RECEIVABLES> 127,355
<ALLOWANCES> 1,014
<INVENTORY> 82,852
<CURRENT-ASSETS> 276,526
<PP&E> 488,145
<DEPRECIATION> 160,167
<TOTAL-ASSETS> 629,079
<CURRENT-LIABILITIES> 124,717
<BONDS> 0
0
0
<COMMON> 50,821
<OTHER-SE> 370,392
<TOTAL-LIABILITY-AND-EQUITY> 629,079
<SALES> 576,849
<TOTAL-REVENUES> 576,849
<CGS> 351,046
<TOTAL-COSTS> 351,046
<OTHER-EXPENSES> 129,096
<LOSS-PROVISION> 421
<INTEREST-EXPENSE> 394
<INCOME-PRETAX> 95,930
<INCOME-TAX> 29,451
<INCOME-CONTINUING> 66,479
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,479
<EPS-PRIMARY> 1.29
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