UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number 0-12906
RICHARDSON ELECTRONICS, LTD.
(Exact name of registrant as specified in its charter)
Delaware 36-2096643
(State of incorporation or organization) (I.R.S. Employer Identification No.)
40W267 Keslinger Road, LaFox, Illinois 60147
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (708) 208-2200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of April 13, 1994, there were outstanding 8,039,727 shares of Common
Stock, $.05 par value, and 3,247,543 shares of Class B Common Stock, $.05 par
value, which are convertible into Common Stock on a share for share basis.
This Quarterly Report on Form 10-Q contains 34 pages. An exhibit index is on
page 13.
(1)
<PAGE>
Richardson Electronics, Ltd. and Subsidiaries
INDEX
Page
PART 1 - FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Income 5
Consolidated Condensed Statements of Cash Flow 6
Notes to Consolidated Condensed Financial Statements 7
Management's Discussion and Analysis of the Financial 8
Condition and Results of Operations 9
PART II - OTHER INFORMATION 12
(2)
<PAGE>
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
February 28 May 31
1994 1993
--------- ---------
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and equivalents $4,539 $7,098
Trade accounts receivable, less
allowance ($1,343 at February 28, 1994
and $1,456 at May 31, 1993) 31,162 30,267
Inventories:
Finished products 77,919 76,294
Work in process 2,936 3,961
Materials 6,455 6,700
--------- ---------
87,310 86,955
Deferred income taxes 1,187 1,562
Other 6,548 6,405
--------- ---------
TOTAL CURRENT ASSETS 130,746 132,287
Investments 20,140 29,080
Property, Plant and Equipment 62,545 63,331
Less allowances for depreciation (29,962) (27,089)
--------- ---------
32,583 36,242
Other Assets 6,581 7,434
--------- ---------
TOTAL ASSETS $190,050 $205,043
========= =========
See Notes to Consolidated Condensed Financial Statements.
(3)
<PAGE>
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands, except per share amounts)
February 28 May 31
1994 1993
--------- ---------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $9,571 $11,902
Compensation and payroll taxes 2,734 3,939
Accrued interest 1,271 2,622
Reserve for litigation settlement and
phase-down of domestic
manufacturing operations 1,990 2,954
Income taxes payable 233 1,967
Other accrued expenses 1,521 1,782
Notes payable and current portion of
of long-term debt 2,480 3,134
--------- ---------
TOTAL CURRENT LIABILITIES 19,800 28,300
Long-Term Debt, less current portion 95,452 98,855
Deferred Income Taxes 2,379 2,471
Stockholders' Equity
Common stock, $.05 par value; issued
8,039 at February 28, 1994 and
8,019 at May 31, 1993 402 401
Class B Common Stock, convertible,
$.05 par value; issued 3,248 at
February 28, 1994 and at May 31, 1993 162 162
Preferred stock, $1.00 par value - -
Additional paid-in capital 49,287 49,158
Retained earnings 26,073 26,475
Foreign currency translation adjustment (3,505) (779)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 72,419 75,417
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $190,050 $205,043
========= =========
See Notes to Consolidated Condensed Financial Statements.
(4)
<PAGE>
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Statements of Income
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
February 28 February 28
---------- --------- ---------- ---------
1994 1993 1994 1993
--------- --------- --------- ---------
Net Sales $43,051 $38,086 $123,097 $115,893
Costs and Expenses:
Cost of products sold 30,952 26,786 89,008 79,961
Selling, general and
administrative expenses 10,118 9,718 28,536 27,659
Interest expense 1,856 1,912 5,609 5,776
Investment income (405) (912) (2,069) (1,920)
Other (income) expense, net 92 206 498 638
--------- --------- --------- ---------
42,613 37,710 121,582 112,114
--------- --------- --------- ---------
Income before Income Taxes 438 376 1,515 3,779
Income Taxes 180 140 600 1,400
--------- --------- --------- ---------
Net Income $258 $236 $915 $2,379
========= ========= ========= =========
Net Income per Share $0.02 $0.02 $0.08 $0.21
========= ========= ========= =========
Average Shares Outstanding 11,302 11,417 11,303 11,331
========= ========= ========= =========
See Notes to Consolidated Condensed Financial Statements.
(5)
<PAGE>
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(in thousands)(unaudited)
Nine Months Ended
February 28
------------------------
1994 1993
--------- ---------
OPERATING ACTIVITIES
Net income $915 $2,379
Adjustments to reconcile income to cash
used in operating activities:
Depreciation 3,476 3,798
Amortization of intangibles
and financing costs 760 985
Deferred income taxes 278 592
Common stock awards and contribution
to employee stock ownership plan 193 209
Changes in current accounts, net of effects
of acquisitions and currency translation:
Accounts receivable (1,711) 358
Inventories (1,806) (3,454)
Other current assets (379) 1,930
Accounts payable (2,329) (763)
Other liabilities (5,355) (2,397)
--------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (5,958) 3,637
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings 753 6,370
Payments on debt (3,901) (8,433)
Cash dividends (1,317) (1,312)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (4,465) (3,375)
--------- ---------
INVESTING ACTIVITIES
Investment activity, including
income reinvestment 8,940 (2,026)
Capital expenditures (1,161) (1,719)
Other 85 211
--------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 7,864 (3,534)
--------- ---------
DECREASE IN CASH AND EQUIVALENTS (2,559) (3,272)
Cash and equivalents at beginning of year 7,098 8,073
--------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD $4,539 $4,801
========= =========
See Notes to Consolidated Condensed Financial Statements.
(6)
<PAGE>
Richardson Electronics, Ltd. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited Consolidated Condensed Financial Statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q. In the
opinion of management, all adjustments necessary for a fair presentation of the
results of operations for the periods covered have been reflected in the
aforementioned statements. Certain information and footnotes necessary for a
fair presentation of the financial position and results of operations in
conformity with generally accepted accounting principles have been omitted in
accordance with the aforementioned instructions. It is suggested that the
Consolidated Condensed Financial Statements be read in conjunction with the
Financial Statements and Notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1993.
NOTE B -- INCOME TAXES
The income tax provision of $600,000 for the nine months ended February 28,
1994 is based on the estimated effective tax rate of 40% for fiscal 1994
income. This rate differs from the applicable federal statutory rate of 34%
principally as a result of state income taxes and foreign operating losses for
which the related tax benefit will not be recognized until future foreign
earnings are realized. The income tax provision of $1,400,000 for the nine
months ended February 28, 1993 was based on the estimated effective tax rate of
37%, as a result of state income taxes.
NOTE C -- DEBT AGREEMENTS
Prior to August 31, 1993, the Company entered into negotiations with
Continental Bank to amend the terms of its floating rate term loan agreements.
The term loan due August 1994, which had a principal balance of $9,269,000 at
August 31, 1993, was revised to require quarterly payments of $750,000, with a
final balloon payment on August 14, 1994. The payment schedule for the term
loan due June 1996 remained unchanged, requiring quarterly principal payments
of $375,000.
(7)
<PAGE>
Richardson Electronics, Ltd. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
In addition to changes in the interest rates, several changes were made to the
financial and operating covenants. The interest coverage ratio minimum was
reduced from 1.5:1 to 1.1:1, a new leverage ratio was added and a new loan
liquidity ratio required that the Company maintain its cash and investment
balances at a minimum of 75% of the outstanding principal balance of the loan
due August 1994. At February 28, 1994, the outstanding principal balance on
these term loans was $12,269,000.
In March, 1994, the Company entered into a new loan agreement with American
National Bank, which replaced the floating rate term loans with a $13,000,000
term loan due November, 1998. The term loan will require quarterly principal
payments of $464,300 beginning on April 30, 1994 and a balloon payment at
maturity. The loan initially will bear interest floating at the bank's prime
rate, or 1 1/2 % above the London Inter Bank Offered Rate (LIBOR), at the
Company's option. The interest rate will be adjusted based on the Company's
financial performance. Financial covenants under the agreement set benchmark
levels for tangible net worth, debt / tangible net worth ratio and annual debt
service coverage.
NOTE D -- POTENTIAL LITIGATION
The United States Government has advised the Company that the Government is
considering making a claim against the Company under the False Claims Act and
the Lanham Act for conduct in connection with a $3.1 million contract to supply
the Government with certain tubes which was completed in 1989. The False
Claims Act permits the Government to seek a civil penalty for each violation of
not less than $5,000 nor more than $10,000, plus three times its damages. The
Company believes it has not violated these statutes and is in the early stages
of discussing the possibility of resolving the matter with the Government. If
such discussions are not satisfactorily concluded, the Company plans to
vigorously defend itself against any litigation the Government may initiate.
The status of the Penache litigation remains as described in Note I of the
Company's Annual Report.
(8)
<PAGE>
Richardson Electronics, Ltd. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Net sales for the third quarter ended February 28, 1994 were $43,051,000, up
13% from last year's third quarter total of $38,086,000. Sales by the
Company's Display Products Group increased 56.2% to $6,575,000, while sales by
the Solid State & Components Group increased 38.2% to $10,584,000. Security
Systems Division sales increased 1.8% to $2,645,000, and Electron Device Group
sales declined 1.2% to $23,247,000. Nine month sales totals were up 6.2%, to
$123,097,000 from $115,893,000.
On a geographic basis, North American sales were up 10% for the quarter, to
$25,323,000. Sales for the Latin America / Far East region were up 26.4% for
the quarter, to $7,893,000. Europe region sales increased 16.3% for the
quarter, to $8,902,000. Sales for the Rapidly Developing Markets (RDM) region
declined 20.1% to $933,000, primarily due to a large sales contract recorded in
the third quarter of fiscal 1993. The RDM region consists of 77 countries in
Africa, the Middle East, South Central Asia, the Commonwealth of Independent
States and parts of Oceania. These countries are considered to have high growth
potential, and the Company is establishing new programs to increase sales in
this region.
Gross margin for the third quarter declined to 28.1% from 29.7% in the prior
year. The gross margin decline reflects changes in product mix, which caused
product margins on distribution sales to decline to 32.0% from 33.2%. The
gross margin also was affected by the continuing high level of manufacturing
underabsorption, which was $875,000 for the quarter, compared to $716,000 a
year ago. Gross margin for the nine month period declined to 27.7% from 31.0%,
as underabsorption increased to $3,991,000 from $1,622,000. Product margin on
distribution sales fell to 32.5% from 34.1%.
Selling, general, and administrative expenses for the first nine months of
fiscal 1994 were $28,536,000, an increase of $877,000 from the prior year, as
payroll additions for the specialty sales program were partially offset by
expense reductions. Selling expense as a percent of sales declined to 23.2%
from 23.9%. Net non-operating expenses declined 10.1% to $4,038,000,
(9)
<PAGE>
Richardson Electronics, Ltd. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
reflecting lower debt levels, and higher realized capital gains on the
Company's investment portfolio.
The estimated fiscal 1994 effective tax rate of 40% differs from the federal
statutory rate of 34%, primarily as the result of state income taxes and
foreign operating losses for which the related tax benefit will not be
recognized until future earnings are realized. The fiscal 1993 effective tax
rate of 37%, differs from the statutory rate as a result of state income taxes.
Net income per share in the third quarter of fiscal 1994 was $.02, unchanged
from the third quarter of fiscal 1993. Net income per share for the nine month
periods declined to $.08 from $.21.
Liquidity and Capital Resources
Cash (used in) provided by operating activity, after working capital
requirements, for the nine months ended February 28, 1994 and 1993, was
$(5,958,000) and $3,637,000, respectively The current year result includes
U.S. federal income tax payments of $2.6 million, while the prior year included
a $3 million tax refund received. The remainder of the change in cash from
operations reflects lower net income and changes in working capital balances.
Funding for the current year activity and for scheduled debt repayments was
obtained through the liquidation of $8,940,000 from the long-term investment
portfolio. Anticipated funds from operations and current short-term financing
arrangements are expected to be adequate to meet the operational needs and
future dividends of the Company.
As indicated in Note D to the consolidated condensed financial statements, the
U. S. Government is considering filing a claim against the Company in
connection with a supply contract which was completed in 1989. The costs of
defense against or settlement of the claim, if any, is expected to be met by
anticipated funds from operations and current short-term financing
arrangements.
(10)
<PAGE>
Richardson Electronics, Ltd. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The term loan agreements issued by the bank contain various financial and
operating covenants which have been revised as described in Note C to the
consolidated condensed financial statements. In March, 1994, the Company
replaced the term loan agreements with a new term loan as described in Note C.
Principal balances outstanding at February 28 which were due within one year
under the existing term loans have been reclassified as long-term to reflect
the new agreements. The new loan agreement also contains financial and
operating covenants which set benchmark levels for tangible net worth, debt /
tangible net worth ratio and annual debt service coverage.
In connection with the December 1986 debt issuance, certain restrictions were
placed on the Company relating to the purchase of treasury stock or the payment
of cash dividends. At February 28, 1994, $22,142,000 was available for such
transactions. Payment of dividends will be considered quarterly based upon
corporate performance.
At February 28, 1994, the market value of the Company's non-current investment
portfolio totaled approximately $20,700,000. Included in the portfolio are
high-yield investments for which management periodically evaluates the
associated market risk. The investments are being maintained for corporate
purposes which may include short-term operating needs and the evaluation of
opportunities for the Company's expansion.
(11)
<PAGE>
Richardson Electronics, Ltd. and Subsidiaries
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
No material developments have occurred in the matter reported under the
category "Legal Proceedings" in the Registrant's Report on Form 10-K for the
fiscal year ended May 31, 1993. The case remains in the discovery stage and
the court has not determined whether the matter may be maintained as a class
action.
The Company has been advised that the U. S. Government is considering filing a
claim under the False Claims Act and the Lanham Act for conduct in connection
with a $3.1 million supply contract completed in 1989. See Note D to the
condensed consolidated financial statements.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
(12)
<PAGE>
Richardson Electronics, Ltd. and Subsidiaries
Part II -- Other Information
ITEM 5. OTHER INFORMATION
On March 30, the Company entered into a long term loan agreement with American
National Bank. The terms of this agreement are summarized in Note C to the
condensed consolidated financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
$13,000,000 Senior Term Note dated March 28, 1994 delivered to American
National Bank
(b) Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RICHARDSON ELECTRONICS, LTD.
Date April 13 , 1994 By /s/ Leonard R. Prange
Leonard R. Prange
Vice President and
Chief Financial Officer
(13)
RICHARDSON ELECTRONICS, LTD.
SENIOR TERM NOTE
$13,000,000.00 Chicago, Illinois March 28, 1994
FOR VALUE RECEIVED, THE UNDERSIGNED, RICHARDSON ELECTRONICS, LTD., a
Delaware corporation ("Borrower") promises to pay to the order of AMERICAN
NATIONAL BANK AND TRUST COMPANY OF CHICAGO ("Bank"), at such place as Bank may
from time to time designate in writing on or before November 30, 1998, the
principal sum of Thirteen Million Dollars ($13,000,000.00), payable in
successive quarterly principal installments of Four Hundred Sixty Four Thousand
Three Hundred Dollars ($464,300.00) each, beginning on the 30th day of April,
1994 and on each July 31, October 31, January 31 and April 30 thereafter with a
final installment of all unpaid principal and accrued interest outstanding upon
this Senior Term Note ("Note") due on the 30th day of November, 1998.
Except as hereinafter provided, Borrower's obligations and liabilities to
Bank under this Note ("Borrower's Liabilities") unpaid from time to time shall
bear interest from the date of disbursement until paid, at a daily rate equal
to the daily rate equivalent, computed on a basis of actual days elapsed, of
interest announced or published publicly from time to time by Bank as its prime,
base or equivalent rate of interest (such publicly announced or published rate
of interest referred to herein as the "Prime Rate"). The foregoing rate of
interest to be charged hereunder shall fluctuate hereafter from time to time
concurrently with and in an amount equal to each increase or decrease in the
Prime Rate.
Notwithstanding the foregoing, at Borrower's option ("Libor Option"),
exercisable upon one Business Day prior oral or written notice by an Authorized
Officer of Borrower to Bank, all or any portion of the principal balance
outstanding under this Note shall bear interest at Borrower's Libor Option Rate
(as defined below) in effect as of the date of such notification. Borrower's
Libor Option may be exercised for periods (the "Libor Option Period") of not
less than thirty (30) days and not greater than ninety (90) days, and may be
exercised (whether for consecutive periods or otherwise) throughout the term of
this Note.
Interest hereunder shall be due and payable quarterly in arrears, on each
April 30, July 31, October 31, and January 31, during the term of this Note, at
such place as Bank may from time to time designate in writing, on the average
daily balance of the principal amount outstanding during the quarterly period
then ending, and shall be calculated on the basis of the actual number of days
in such quarterly period. All interest payable under this Note shall be
calculated for actual days based upon a 360 day year. If any payment of
principal and interest hereunder is due on a day which is not a Business Day,
such payment will be due on the next following Business Day.
Both the Bank's Prime Rate and its Libor shall not necessarily be the
lowest rate of interest which the Bank charges its customers.
If an Event of Default shall occur, interest, in lieu of the interest
hereinabove provided, shall accrue hereunder from the date of the same until
cured, if cure is allowed, at the rate of two percent (2%) per annum, computed
on a basis of actual days elapsed, in excess of the Prime Rate in effect on the
date of the Event of Default, which rate shall change when and as said Prime
Rate changes. The Bank shall not, however, incur any additional costs as a
result of the change from the Libor Option to such Prime Rate in the middle of a
Libor Option period. Such amounts shall be part of Borrower's Liabilities
immediately due and payable by Borrower to Bank without notice by Bank to or
demand by Bank of Borrower.
Borrower may prepay all or any portion of outstanding principal or
interest or both under this Note at any time without notice, premium or penalty.
Throughout the term of this Note, the Borrower agrees to utilize the Bank
as its primary depository and remittance point.
The Borrower acknowledges that the Bank will charge the Borrower monthly
service charges for various services performed by the Bank in connection with
any aspect of the relationship between the Borrower and the Bank, and the
Borrower hereby agrees that if such service charges arising in any month exceed
the credit to the Borrower in that month arising from earnings attributable to
funds on deposit with the Bank in demand deposit accounts, such service charge
deficiency shall be deducted by the Bank from the Borrower's operating account.
All of the Bank's charges to the Borrower pursuant to this paragraph shall be
its usual and customary charges to companies of a similar size for services of a
similar nature.
All payments of principal of, or interest on, this Note and of any fees
shall be made in immediately available funds by the Borrower to the Bank. All
such payments shall be made to the Bank at its principal office in Chicago, not
later than 2:00 p.m., Chicago time, on the date due; and funds received after
that hour shall be deemed to have been received by the Bank on the next
following Business Day.
If, with respect to any Libor Option Period, the Bank shall determine
that, by reason of circumstances affecting the foreign exchange and interbank
markets generally, deposits in eurodollars in the applicable amounts are not
being offered to the Bank for such Libor Option Period, then the Bank shall
forthwith give notice thereof to the Borrower. Thereafter, until the Bank
notifies the Borrower that such circumstances no longer exist, the obligation of
the Bank to provide the Libor Option, and the right of the Borrower to elect the
Libor Option, shall be suspended.
If, after the date hereof, the introduction of, or any change in, any
applicable law or in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by (or any of its
lending offices) with any request or directive (whether or not having the force
of law) of any such governmental authority, central bank or comparable agency,
shall make it unlawful or impossible for the Bank to honor its obligations to
maintain the Libor Option, the Bank shall forthwith give notice thereof to the
Borrower. Thereafter, until the Bank notifies the Borrower that such
circumstances no longer exist, (i) the obligations of the Bank to provide the
Libor Option and the right of the Borrower to elect or maintain a principal
balance with interest at the Libor Option Rate shall be suspended, and (ii) if
the Bank may not lawfully continue to maintain the Libor Option to the end of
the then current Libor Option Period, the applicable principal shall immediately
accrue interest at the Prime Rate for the remainder of such Libor Option Period.
If, after the date hereof, the introduction of, or any change in, any
applicable law or in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive (whether or not having the force of law) of such
governmental authority, central bank or comparable agency:
(i) shall subject the Bank to any tax, duty or other charge with
respect to this Note or shall change the basis of taxation of payments to
the Bank (or any of its lending offices) or the principal of or interest
on this Note (except for changes in the rate of tax on the overall net
income of the Bank); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System), special deposit or similar requirements
against assets of, deposits with or for the account of, or credit extended
by the Bank or shall impose on the Bank or the foreign exchange and
interbank markets any other condition affecting this Note;
and the result of any of the foregoing is to increase the cost to the Bank of
maintaining this Note or to reduce the amount of any sum received or receivable
by the Bank under this Note, then the Bank shall promptly notify the Borrower of
such fact and demand compensation therefor and, within fifteen (15) days after
such notice by the Bank, the Borrower agrees to pay to the Bank such additional
amount or amounts as will compensate such Bank for such increased cost or
reduction. The Bank will promptly notify the Borrower of any event of which it
has knowledge which will entitle the Bank to compensation pursuant to this
paragraph. A certificate of the Bank setting forth the basis for determining
such additional amount or amounts necessary to compensate the Bank shall be
conclusively presumed to be correct save for manifest error.
The Borrower hereby indemnifies the Bank against any loss or expense which
may arise or be attributable to the Bank's obtaining, liquidating or employing
deposits or other funds acquired to effect, fund or maintain this Note, (a) as a
consequence of any failure by the Borrower to make any payment when due or any
amount due hereunder in connection with any election of a Libor Option Period,
(b) due to any failure of the Borrower, or (c) due to any payment, prepayment or
conversion of any Libor Option on a date other than the last day of the Libor
Option Period therefor. The Bank's calculations of any such loss or expense
shall be furnished to the Borrower and shall be conclusive absent manifest
error.
When used in this Note, the following terms shall have the following
respective meanings:
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. A Person shall be deemed to control another Person
if such first Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such other Person, whether
through ownership of voting securities, by contract or otherwise.
"applicable law" means all applicable provisions of constitutions,
statutes, rules, regulations and orders of all governmental authorities and all
orders and decrees of all courts and arbitrators.
"Authorized Officer" means any officer of the Borrower designated in
writing by Borrower to Bank as an "Authorized Officer".
"Business Day" means any day of the year on which the Bank is open for
business in Chicago, Illinois.
"Capitalized Lease Obligations" means any amount payable with respect to
any lease of any tangible or intangible property (whether real, personal or
mixed), however denoted, which is required by GAAP to be reflected as a
liability on the face of the balance sheet of the lessee thereunder.
"Current Assets" means current assets determined in accordance with GAAP
on a consolidated basis (unless otherwise agreed between Borrower and Bank) for
the Borrower and its Subsidiaries.
"Current Liabilities" means current liabilities determined in accordance
with GAAP on a consolidated basis (unless otherwise agreed between Borrower and
Bank) for the Borrower and its Subsidiaries.
"Debentures" means the Company's 7-1/4% convertible subordinated
debentures due December 15, 2006.
"Domestic Accounts" means accounts owing by a Person (i) residing, located
or having its principal activities or place of business in the United States of
America, and (ii) subject to service of process within the continental United
States of America.
"Domestic Inventory" means inventory located within the continental United
States of America.
"Environmental Laws" means any and all federal, state or local
environmental or health and safety-related laws, regulations, rules, ordinances,
orders or directives.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder and under the Internal Revenue Code of 1986, as amended,
in each case as in effect from time to time. References to sections of ERISA
shall be construed to also refer to any successor sections.
"ERISA Affiliate" means any corporation, trade or business that is, along
with the Borrower, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in Sections 414(b) and
414(c), respectively, of the Internal Revenue Code of 1986, as amended, or
Section 4001 of ERISA.
"GAAP" means the generally accepted accounting principles applied in the
preparation of the audited consolidated financial statements of the Borrower
with such changes thereto as (i) shall be consistent with the then-effective
principles promulgated or adopted by the Financial Accounting Standards Board
and its predecessors and successors and (ii) shall be concurred in by the
independent certified public accountants of recognized standing certifying any
financial statements of the Borrower and its Subsidiaries.
"governmental authority" means any nation, province, state or other
political subdivision thereof, and any government or any Person exercising
executive, legislative, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Indebtedness" with respect to any Person, means total current, long term
(including debt) and other liabilities, and all liabilities which are components
thereof, as calculated according to GAAP.
"Intangible Assets" means goodwill, patents, copyrights, leases, licenses,
franchises, service marks, logos and similar nonphysical assets.
"Libor" means at any time and from time to time the Bank's adjusted London
Interbank Offering Rate for a designated Libor Option Period which the Bank most
recently announced or publishes publicly as its Libor rate.
"Libor Option Rate" means one hundred fifty (150) basis points over Libor;
provided that commencing May 31, 1995 and every six months thereafter, if
Borrower has achieved Net Income before extraordinary items and one time charges
or credits reasonably agreed to by Bank and Borrower during the four previous
fiscal quarters of the following amounts, then the Libor Option Rate will be as
follows:
Net Income Libor Option Rate
Below 0 Prime Rate
0 - $ 2,000,000 175 basis points over Libor
$2,000,001 - $ 5,000,000 150 basis points over Libor
$5,000,001 - $ 7,000,000 125 basis points over Libor
$7,000,001 - $11,000,000 100 basis points over Libor
Greater than $11,000,000 75 basis points over Libor
"Lien" means any mortgage, pledge, lien, security interest or other
charge, encumbrance or preferential arrangement, including the retained security
title of a conditional vendor or lessor.
"Margin Stock" has the meaning given to such term in Regulation U.
"Material Adverse Effect" or "materially and adversely affect" means a
material adverse effect upon the condition (financial or otherwise),
operations, performance or properties of Borrower or upon the Borrower's ability
to perform or otherwise comply with its obligations set forth in this Note. The
phrase "has a Material Adverse Effect" or "will result in a Material Adverse
Effect" or words substantially similar thereto shall in all cases be intended to
mean "has or will or could reasonably be anticipated to result in a Material
Adverse Effect," and the phrase "has no (or does not have a) Material Adverse
Effect" or "will not result in a Material Adverse Effect" or words substantially
similar thereto shall in all cases be intended to mean "does not or will not or
could not reasonably be anticipated to result in a Material Adverse Effect.
"Net Income" means for any period the net income and net losses of the
Borrower and its Subsidiaries during such period determined in accordance with
GAAP.
"Net Worth" means total assets determined in accordance with GAAP minus
Indebtedness.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means a "pension plan", as such term is defined in ERISA, which is
subject to Title IV of ERISA (other than a multiemployer plan) and to which the
Borrower or any ERISA Affiliate may have any liability, including any liability
by reason of having been a substantial employer within the meaning of Section
4063 of ERISA at any time during the preceding five years, or by reason of being
deemed to be a contributing sponsor under Section 4069 of ERISA.
"Redeemable Stock" means any equity security (or option or warrant related
thereto) that by its terms or otherwise is required to be purchased or redeemed
at any time prior to the date which falls 60 days after November 30, 1998, or is
redeemable at the option of the holder thereof at any time prior to the date
which falls 60 days after November 30, 1998. An equity security shall not
constitute "Redeemable Stock" if the sole requirement for redemption is the
occurrence of the death of the shareholder holding such equity security.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System and any successor rule or regulation of similar import as in
effect from time to time.
"Senior Indebtedness" means all of the Borrower's Indebtedness to the Bank
(i) for borrowed money, capitalized lease obligations or purchase money
obligations, or (ii) evidenced by a note, debenture, letter of credit or similar
instrument given in connection with the acquisition, other than in the ordinary
course of business, of any property or assets.
"Subordinated Debt" means all of the Borrower's Indebtedness which is
fully subordinate to the Senior Indebtedness including but not limited to all
Indebtedness for the payment of principal of, premium, if any, and interest
under the Debentures.
"Subsidiaries" means a corporation of which the Borrower and/or its other
Subsidiaries own, directly or indirectly, such number of outstanding shares as
have more than 50% of the ordinary voting power for the election of such
corporation's directors.
"Tangible Net Worth" means at any time the Borrower's consolidated Net
Worth after subtracting therefrom the aggregate amount of any Intangible Assets
of the Borrower and the Subsidiaries, including, without limitation, covenants
not to compete, prepayments, deferred charges, goodwill, franchises, licenses,
patents, trademarks, trade names, copyrights, service marks and brand name; plus
the aggregate principal amount of Borrower's Subordinated Debt.
"Unmatured Event of Default" means any event which, with lapse of time or
notice or lapse of time and notice, will constitute an Event of Default if it
continues uncured.
"Value" means with respect to any inventory, the lesser of the Borrower's
cost or market value thereof calculated on a first-in, first-out basis, and with
respect to accounts receivable, the principal balance outstanding on all such
accounts which are not delinquent in payments past sixty (60) days.
"Welfare Plan" has the meaning given to such term in ERISA.
Unless otherwise provided herein, financial terms shall have the meaning
generally ascribed to such terms under GAAP and "inventory" and "accounts" shall
have the meaning provided for such terms under the Uniform Commercial Code.
To induce the Bank to fund the loan evidenced by this Note, the Borrower
represents and warrants to the Bank that:
a. The Borrower is a corporation duly existing and in good standing
under the laws of the State of Delaware, and each Subsidiary is a corporation
duly existing and in good standing under the laws of its respective state of
incorporation; and each of the Borrower and the Subsidiaries is duly qualified
and in good standing as a foreign corporation authorized to do business in each
jurisdiction where such qualification is required because of the nature of its
activities or properties and where the failure to maintain such qualification
would cause a Material Adverse Effect.
b. The Borrower's execution, delivery and performance of this Note and
the consummation of the transactions contemplated by this Note are within the
Borrower's corporate powers, have been duly authorized by all necessary
corporate action, require no governmental, regulatory or other approval, and do
not and will not contravene or conflict with any provision of (i) law, (ii) any
judgment, decree or order to which the Borrower is a party, or (iii) the
Borrower's articles of incorporation or by-laws, and do not and will not
contravene or conflict with, or cause any Lien to arise under, any provision of
any agreement or instrument binding upon the Borrower or any Subsidiary or upon
any property of the Borrower or any Subsidiary.
c. This Note is the legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency or other similar laws of
general application, or general principles of equity relating to remedies,
affecting or relating to the enforcement of creditors' rights.
d. All balance sheets, statements of operations and other financial
data which have been or shall hereafter be furnished to the Bank for the
purposes of or in connection with this Note do and will present fairly the
financial condition of the Persons involved as of the dates thereof and the
results of their operations for the period(s) covered thereby.
e. To Borrower's knowledge, no material litigation (including, without
limitation, derivative actions), arbitration proceedings, governmental
proceedings or investigations or regulatory proceedings are pending or
threatened against the Borrower or any Subsidiary (except as previously
disclosed by notice to the Bank), which, if adversely determined, would have a
Material Adverse Effect upon the Borrower, nor does the Borrower or any
Subsidiary know of any basis for any of the foregoing. In addition, there are
no inquiries, formal or informal, which might give rise to such actions,
proceedings or investigations.
f. To Borrower's knowledge, each of the Borrower and each of its
Subsidiaries has obtained all licenses, permits, franchises and other
governmental authorizations necessary to the ownership of its properties or to
the conduct of its businesses, including all permits required under applicable
Environmental Laws, a failure to obtain or violation of which might materially
and adversely affect the Borrower's or such Subsidiary's business, credit,
operations, financial condition or prospects.
g. Neither the Borrower nor any Subsidiary has any material contingent
liabilities not provided for or disclosed to the Bank.
h. None of the Borrower's accounts or inventory is subject to any Lien,
except (i) Liens for current taxes not delinquent or taxes which the Borrower is
contesting in good faith and by appropriate proceedings and with respect to
which the Borrower has provided for and is maintaining adequate reserves in
accordance with GAAP, (ii) Liens which arise in the ordinary course of business
for sums not due or sums that the Borrower is contesting in good faith and by
appropriate proceedings and with respect to which the Borrower has provided for
and is maintaining adequate reserves in accordance with GAAP, but which do not
involve any deposits or advances or borrowed money, and (iii) Permitted Liens.
i. Each Plan maintained by Borrower and its Subsidiaries subject to
United States jurisdiction complies in all material respects with all applicable
statutes and governmental rules and regulations and during the
12-consecutive-month period prior to the date of the execution and delivery of
this Agreement, (i) no Reportable Event has occurred and is continuing with
respect to any Plan, (ii) neither the Borrower nor any ERISA Affiliate has
withdrawn from any Plan or instituted steps to do so, (iii) no steps have been
instituted to terminate any Plan, (iv) every employee benefit plan within the
meaning of Section 3(3) of ERISA which is sponsored, or to which contributions
are made by the Borrower or any ERISA Affiliate has been maintained in
compliance with all applicable laws and regulations, including, without
limitation ERISA and the Internal Revenue Code of 1986, as amended, and (v) no
contribution failure has occurred with respect to any Plan sufficient to give
rise to a lien under Section 302(f) of ERISA. No condition exists or event or
transaction has occurred in connection with any Plan which could result in the
incurrence by the Borrower or any ERISA Affiliate of any material liability,
fine or penalty. Neither the Borrower nor any ERISA Affiliate is a member of or
contributes to any multiemployer Plan. Neither the Borrower nor any ERISA
Affiliate has any contingent liability with respect to any postretirement
benefit under a Welfare Plan other than liability for continuation coverage
described in Part 6 of Title I of ERISA.
j. Neither the Borrower nor any Subsidiary is an "investment company"
or a company "controlled" by an "investment company", within the meaning of the
Investment Borrower Act of 1940, as amended.
k. Neither the Borrower nor any Subsidiary is a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Borrower Act of 1935, as amended.
l. Neither the Borrower nor any Subsidiary is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying Margin Stock.
m. All factual information heretofore or contemporaneously furnished by
or on behalf of the Borrower to the Bank for purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all other factual
information hereafter furnished by or on behalf of the Borrower to the Bank will
be, true and accurate in every material respect on the date as of which such
information is dated or certified, and the Borrower has not omitted and will not
omit any material fact necessary to prevent such information from being false or
misleading. The Borrower has disclosed to the Bank all facts which might
materially and adversely affect the business, credit, operations, financial
condition or prospects of the Borrower or any Subsidiary or which might
materially and adversely affect any material portion of the Borrower's
properties, or the Borrower's ability to perform its obligations under this
Agreement or the Related Documents.
n. The Borrower is not insolvent, nor will its incurrence of
obligations, direct or contingent, to repay the Note render it insolvent.
o. There are no labor controversies pending or threatened against the
Borrower or any Subsidiary which, if adversely determined, would materially and
adversely affect the Borrower's or such Subsidiary's business, credit,
operations, financial condition or prospects.
p. The Borrower has made or filed all income and other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
has paid all taxes, assessments and other charges shown or determined to be due
on such returns, reports and declarations (other than those being diligently
contested in good faith by appropriate proceedings), except for failures to file
or pay which would not have a Material Adverse Effect and has set aside adequate
reserves against liability for taxes, assessments and charges applicable to
periods subsequent to those covered by such returns, reports and declarations.
q. No event has occurred and no condition exists which, upon the
execution and delivery of, or consummation of any transaction contemplated by
this Note, will constitute an Event of Default or Unmatured Event of Default.
r. The Borrower and each of its Subsidiaries is in compliance with the
requirements of all applicable laws, rules, regulations, and orders of all
governmental authorities (Federal, state, local or foreign, and including,
without limitation, applicable Environmental Laws, rules, regulations and
orders), except for failures to comply which would not have a Material Adverse
Effect on the Borrower's or such Subsidiary's business, credit, operations,
financial condition or prospects.
Until all of Borrower's Liabilities are paid in full, the Borrower agrees
that, unless at any time the Bank shall otherwise expressly consent in writing,
it and its Subsidiaries will:
a. Reports. Certificates and Other Information. Furnish to the Bank:
(1) Audit Report. On or before the 90th day after each of the
Borrower's fiscal years, a copy of an annual audit report of the Borrower and
its Subsidiaries prepared in conformity with GAAP, duly certified by independent
certified public accountants of recognized standing selected by the Borrower
with the Bank's consent, together with a certificate from such accountants
containing a computation of, and showing compliance with, each of the financial
ratios and restrictions contained in this Note.
(2) Interim Reports. On or before the 45th day after the end of
each of the Borrower's fiscal quarters, a copy of unaudited financial statements
of the Borrower prepared in a manner consistent with the financial statements
referred to above, signed by an Authorized Officer and consisting of, at least,
balance sheets as at the close of such month and statements of earnings for such
quarter and for the period from the beginning of such fiscal quarter to the
close of such quarter.
(3) Notice of Default, Litigation and ERISA Matters. Forthwith
upon learning of the occurrence of any of the following, written notice thereof
which describes the same and the steps being taken by the Borrower with respect
thereto: (i) the occurrence of an Event of Default or an Unmatured Event of
Default, (ii) the institution of, or any adverse determination in, any
litigation, arbitration proceeding or governmental proceeding in which any
injunctive relief is sought or in which money damages in excess of $1,000,000
are sought, (iii) the occurrence of a Reportable Event with respect to any Plan,
(iv) the institution of any steps by the Borrower, the PBGC or any other Person
to terminate any Plan, (v) the institution of any steps by the Borrower or any
ERISA Affiliate to withdraw from any Plan or Multiemployer Plan which could
result in material liability to the Borrower, (vi) the failure to make a
required contribution to any Plan if such failure is sufficient to give rise to
a lien under Section 302(f) of ERISA, (vii) the taking of any action with
respect to a Plan which could result in the requirement that the Borrower
furnish a bond or other security to the PBGC or such Plan or Multiemployer Plan,
or (viii) the occurrence of any event with respect to any Plan or Multiemployer
Plan which could result in the incurrence by the Borrower of any material
liability, fine or penalty; and, promptly after the incurrence thereof, notice
of any material increase in the contingent liability of the Borrower with
respect to any postretirement Welfare Plan benefits.
(4) Other Information. Such other information concerning the
Borrower as the Bank may reasonably request from time to time.
b. Corporate Existence and Franchises. Except as otherwise expressly
permitted in this Agreement, maintain and cause each Subsidiary to maintain in
full force and effect its separate existence and all rights, licenses, leases
and franchises reasonably necessary to the conduct of its business.
c. Books, Records and Inspections. Maintain, and cause each Subsidiary
to maintain, complete and accurate books and records, permit the Bank to have
reasonable access to the Borrower's books and records, and permit, and cause
each Subsidiary to permit, the Bank to inspect the Borrower's properties and
operations at reasonable times.
d. Insurance. Maintain, and cause each Subsidiary to maintain,
insurance to such extent and against such hazards and liabilities as may be
required by law and as is commonly maintained by companies similarly situated or
as the Bank may reasonably request from time to time.
e. Taxes and Liabilities. Promptly pay, and cause each Subsidiary to
pay, when due all taxes, duties, assessments and other liabilities, except such
taxed, duties, assessments and other liabilities as the Borrower is diligently
contesting in good faith and by appropriate proceedings or where the failure to
pay would not have a Material Adverse Effect; provided that the Borrower or such
Subsidiary has provided for and is maintaining adequate reserves with respect
thereto in accordance with GAAP.
f. Tangible Net Worth. Not permit the Borrower's Tangible Net Worth to
be at any time less than $100,000,000.
g. Indebtedness to Tangible Net Worth. Not permit the ratio of (x) the
Borrower's consolidated Indebtedness minus all of Borrower's Indebtedness under
the Debentures to (y) the Borrower's Tangible Net Worth to be at any time
greater than 0.70 to 1.
h. Liens. Not create or permit to exist any Lien with respect to any
accounts or inventory now owned or hereafter acquired, except the following
Liens (herein collectively called the "Permitted Liens"): (a) Liens which arise
in the ordinary course of business for sums not due or sums which the Borrower
is contesting in good faith and by appropriate proceedings and with respect to
which the Borrower has provided for and is maintaining adequate reserves in
accordance with GAAP, but which do not involve any deposits or advances or
borrowed money or the deferred purchase price of property or services, (b) Liens
granted by any Subsidiary to secure such Subsidiary's Indebtedness to the
Borrower, and (c) Liens in an amount that at all times eighty percent (80%) of
the value of unencumbered Domestic Accounts plus fifty percent (50%) of the
value of unencumbered Domestic Inventory shall exceed all outstanding Senior
Indebtedness.
i. Debt Service Coverage. Commencing November 30, 1994 and thereafter,
maintain semi-annual and annual Debt Service Coverage as of each November 30 and
May 31 of 1.05 to 1. Debt Service Coverage for a fiscal period is (a) Net Income
before interest expense and taxes, plus depreciation, amortization and one-time
charges and/or credits reasonably agreed to by Bank and Borrower, less capital
expenditures funded by Borrower internally; divided by (b) the sum of all
scheduled principal payments and related interest expense upon all Indebtedness
(including without limitation, payments of Capitalized Lease Obligations and
permitted payments of principal upon Subordinated Debt and preferred Stock) and
taxes. For purposes of tax calculations, the effective tax rates will not vary
more than five percent from the maximum United States federal corporate tax rate
plus the Illinois effective corporate tax rate. For the purpose of computing
Debt Service Coverage, Borrower's principal payments upon this Note shall not
include the final payment of principal upon maturity of this Note and shall be
the sum of any two quarterly principal installments (if the computation is made
as of November 30 of any fiscal year) and, if the computation is made as of May
31 of any fiscal year, any four quarterly principal installments (excluding
principal prepayments during the year the principal prepayment is made).
j. Employee Benefit Plans. Not permit, and not permit any ERISA
Affiliate to permit, any condition to exist in connection with any Plan which
might constitute grounds for the PBGC to institute proceedings to have such Plan
terminated or a trustee appointed to administer such Plan; and not engage in, or
permit to exist or occur, or permit any ERISA Affiliate to engage in, or permit
to exist or occur, any other condition, event or transaction with respect to any
Plan or Multiemployer Plan which could result in the incurrence by the Borrower
or any ERISA Affiliate of any material liability, fine or penalty.
k. Use of Proceeds. Not use or permit the direct or indirect use of
any proceeds of or with respect to the Loans for the purpose, whether immediate,
incidental or ultimate, of "purchasing or carrying" (within the meaning of
Regulation U) Margin Stock.
l. Other Agreements. Not enter into any agreement containing any
provision which would be violated or breached by the performance of its
obligations hereunder or under any instrument or document delivered or to be
delivered by it hereunder or in connection herewith or which would violate or
breach any provision hereof or of any such instrument or document.
m. Compliance with Applicable Laws. Comply, and cause each Subsidiary
to comply, with the requirements of all applicable laws, rules, regulations, and
orders of all governmental authorities (Federal, state, local or foreign, and
including, without limitation, environmental laws, rules, regulations and
orders), except for failures to comply with such statutes, rules and regulations
which in the aggregate would not materially and adversely affect the Borrower's
or such Subsidiary's business, credit, operations, financial condition or
prospects, except where the Borrower is contesting an alleged breach in good
faith and by proper proceedings and for which the Borrower or such Subsidiary is
maintaining adequate reserves in accordance with GAAP.
n. Subordinated Debt. At all times cause Indebtedness for the payment
of principal of, premium, if any, and interest under the Debentures to be
Subordinated Debt.
The occurrence of any one of the following events shall constitute a
default by Borrower ("Event of Default") under this Note:
a. Nonpayment of Loans. Default in the payment when due of the
principal of or interest on this Note or any other sum due under this Note, or
the payment when due of any fees or any other amounts payable by the Borrower
hereunder, and such default continues for ten days after the Borrower receives
notice thereof.
b. Nonpayment of Other Indebtedness. The Borrower or any Subsidiary
shall default in the payment when due (subject to any applicable grace period),
whether by acceleration or otherwise, of any other Indebtedness of, or
guaranteed by, the Borrower or any Subsidiary (except any such Indebtedness of
any Subsidiary to the Borrower or to any other Subsidiary) or default in the
performance or observance of any obligation or condition with respect to any
such other Indebtedness if the effect of such default is to accelerate the
maturity of any such Indebtedness or to permit the holder or holders thereof, or
any trustee or agent for such holders, to cause such Indebtedness to become due
and payable prior to its expressed maturity, and continuation thereof after the
Bank gives notice to the Borrower that such default is an Event of Default;
provided, however, that no default under this section shall occur or result from
a default in payment of any such other Indebtedness which, when added to the
amount of all such other Indebtedness in default does not exceed $1,000,000.
c. Bankruptcy or Insolvency. The Borrower becomes insolvent or
generally fails to pay, or admits in writing its inability to pay, debts as they
become due; or the Borrower applies for, consents to, or acquiesces in the
appointment of, a trustee, receiver or other custodian for the Borrower, or any
property thereof, or makes a general assignment for the benefit of creditors;
or, in the absence of such application, consent or acquiescence, a trustee,
receiver or other custodian is appointed for the Borrower, or for a substantial
part of the property thereof and is not discharged within 60 days; or any
bankruptcy, reorganization, debt arrangement, or other case or proceeding under
any bankruptcy or insolvency law, or any dissolution or liquidation proceeding,
is commenced in respect of the Borrower, and if such case or proceeding is not
commenced by the Borrower, it is consented to or acquiesced in by the Borrower
or remains for 45 days undismissed; or the Borrower, takes any corporate action
to authorize, or in furtherance of, any of the foregoing.
d. Specified Noncompliance with this Agreement. Failure by the
Borrower to comply with any financial covenant hereunder.
e. Other Noncompliance with this Agreement. Failure by the Borrower to
comply with or to perform any provision of this Agreement (and not constituting
an Event of Default under any of the other provisions hereof) and continuance of
such failure for thirty days after notice thereof to the Borrower from the Bank
or the holder of this Note.
f. Representations and Warranties. Any representation or warranty made
by the Borrower herein is breached or is false or misleading in any material
respect, or any schedule, certificate, financial statement, report, notice, or
other writing furnished by the Borrower to the Bank is false or misleading in
any material respect on the date as of which the facts therein set forth are
stated or certified.
g. Employee Benefit Plans. (i) Institution by the PBGC, the Borrower
or any ERISA Affiliate of steps to terminate a Plan or to organize, withdraw
from or terminate a Multiemployer Plan if as a result of such reorganization,
withdrawal or termination, the Borrower or any ERISA Affiliate could be required
to make a contribution to such Plan a Multiemployer Plan, or could incur a
liability or obligation to such Plan or Multiemployer Plan, in excess of
$10,000, or (ii) a contribution failure occurs with respect to any Plan
sufficient to give rise to a lien under Section 302(f) of ERISA.
h. Judgments. There shall be entered against the Borrower one or more
judgments or decrees in excess of $1,000,000 in the aggregate at any one time
outstanding for the Borrower, excluding those judgments or decrees (i) that
shall have been stayed, vacated or bonded, (ii) that shall have been outstanding
less than 30 days from the entry thereof, (iii) for and to the extent to which
the Borrower is insured and with respect to which the insurer specifically has
assumed responsibility in writing, (iv) for and to the extent to which the
Borrower is otherwise indemnified if the terms of such indemnification are
satisfactory to the Bank, or (v) for and to the extent to which Borrower has
accrued reserves in a sum satisfactory to the Bank which reserves are sufficient
to discharge such judgment.
i. Default under the Debentures. A default as defined in the
Debentures shall occur and be continuing.
Upon an Event of Default under the preceding subparagraph c hereunder,
without notice by Bank to or demand by Bank of Borrower, all payments upon this
Note shall be immediately accelerated and all of Borrower's Liabilities shall be
immediately due and payable. Upon any other Event of Default, upon demand from
Bank to Borrower, all payments upon this Note shall be immediately accelerated
and all of Borrower's Liabilities shall be immediately due and payable. The
acceptance by Bank of any partial payment made hereunder after the time when any
obligation under this Note becomes due and payable will not establish a custom,
or waive any rights of Bank to enforce prompt payment hereof. Borrower and
every endorser hereof waive presentment, demand and protest and notice of
presentment, protest, default, non-payment, maturity, release, compromise,
settlement, extension or renewal of this Note.
This Note and Borrower's Liabilities hereunder are secured by all security
interests, liens and encumbrances (if any) heretofore, now or hereafter granted
to Bank by Borrower and/or every guarantor (if any) of Borrower's Liabilities.
Regardless of the adequacy of any collateral securing Borrower's Liabilities
hereunder, any deposits or other sums at any time created by or payable or due
from Bank to Borrower, or any monies, cash, cash equivalents, securities,
instruments, documents or other assets of Borrower in possession or control of
Bank and its bailee for any purpose may at any time be reduced to cash and
applied by Bank to or set-off by Bank against Borrower's Liabilities hereunder.
The Borrower agrees to pay on demand all of the Bank's out-of-pocket costs
and expenses (including the reasonable fees not exceeding 510,000 and
out-of-pocket expenses of the Bank's counsel) in connection with the
preparation, execution and delivery of this Note and all other instruments or
documents provided for herein or delivered or to be delivered hereunder or in
connection herewith (including, without limitation, all supplements and waivers
executed and delivered pursuant hereto or in connection herewith).
The reasonable out of pocket costs and expenses which the Bank incurs in
any manner or way with respect to the following shall be part of the
Liabilities, payable by the Borrower on demand if at any time after the date of
this Note, the Bank:
a. Employs counsel for advice or other representation (i) with respect
to the amendment or enforcement of this Note, (ii) to represent the Bank in any
litigation, contest, dispute, suit or proceeding or to commence, defend or
intervene or to take any other action in or with respect to any litigation,
contest, dispute, suit or proceeding (whether instituted by the Bank, the
Borrower, or any other Person) in any way or respect relating to this Note or
the Borrower's affairs, or (iii) to enforce any of the Bank's rights with
respect to the Borrower;
b. Takes any action to protect, collect, sell, liquidate or otherwise
dispose of any collateral (if any) securing Borrower's Liabilities hereunder;
and or
c. Seeks to enforce or enforces any of the Bank's rights and remedies
with respect to the Borrower or any guarantor of the Borrower's Liabilities.
Without limiting the generality of the foregoing, such reasonable expenses,
costs, charges and fees include: reasonable fees, costs and expenses of
attorneys, accountants and consultants; court costs and expenses; court reporter
fees, costs and expenses; long distance telephone charges; telegram and
telecopier charges; and reasonable expenses for travel, lodging and food.
The Borrower further agrees to pay, and to save the Bank harmless from all
liability for, any stamp or other taxes which may be payable in connection with
the execution or delivery of this Note, the borrowings hereunder, or the
issuance of the Note or of any other instruments or documents provided for
herein or delivered or to be delivered hereunder or in connection herewith.
All of the Borrower's obligations to pay fees and costs provided for
herein shall be Borrower's Liabilities, and shall survive repayment and
cancellation of this Note.
Subject to the restrictions of applicable law, the Borrower hereby agrees
to indemnify, exonerate and hold the Bank and each of its officers, directors,
employees and agents (herein collectively called the "Bank Parties" and
individually called a "Bank Party") free and harmless from and against any and
all actions, causes of action, suits, losses, costs (including, without
limitation, all documentary or other stamp taxes or duties), liabilities and
damages, and expenses in connection therewith (irrespective of whether such Bank
Party is a party to the action for which indemnification hereunder is sought)
(the "Indemnified Liabilities"), including, without limitation, reasonable
attorneys' fees and disbursements, incurred by the Bank Parties or any of them
as a result of, or arising out of, or relating to:
a. Any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds from this Note;
b. The execution, delivery, performance, administration or enforcement
of this Note in accordance with their respective terms by any of the Bank
Parties;
c. Any misrepresentation or breach of any warranty or covenant herein.
If any provision of this Note or the application thereof to any party or
circumstance is held invalid or unenforceable, the remainder of this Note and
the application of such provision to other parties or circumstances will not be
affected thereby and the provisions of this Note shall be severable in any such
instance.
The provisions of this paragraph shall govern and control over any
irreconcilably inconsistent provision contained in this Note or in any other
document evidencing or securing the indebtedness evidenced hereby. Bank shall
never be entitled to receive, collect, or apply as interest hereon (for purposes
of this paragraph, the word "interest" shall be deemed to include any sums
treated as interest under applicable law governing matters of usury and unlawful
interest), any amount in excess of the Highest Lawful Rate (hereinafter defined)
and, in the event Bank ever receives, collects, or applies as interest any such
excess, such amount which would be excessive interest shall be deemed a partial
prepayment of principal and shall be treated hereunder as such; and, if the
principal of this Note is paid in full, any remaining excess shall forthwith be
paid to Borrower. In determining whether or not the interest paid or payable,
under any specific contingency, exceeds the Highest Lawful Rate, Borrower and
Bank shall, to the maximum extent permitted under applicable law, (i)
characterize any non- principal payment as an expense, fee or premium rather
than as interest, (ii) exclude voluntary prepayments and the effects thereof,
and (iii) spread the total amount of interest throughout the entire contemplated
term of this Note, provided, that if this Note is paid and performed in full
prior to the end of the full contemplated term hereof, and if the interest
received for the actual period of existence hereof exceeds the Highest Lawful
Rate, Bank shall refund to Borrower the amount of such excess or credit the
amount of such excess against the principal of this Note, and, in such event,
Bank shall not be subject to any penalties provided by any laws for contracting
for, charging or receiving interest in excess of the Highest Lawful Rate.
"Highest Lawful Rate" shall mean the maximum rate of interest which Bank is
allowed to contract for, charge, take, reserve or receive under applicable law
after taking into account, to the extent required by applicable law, any and all
relevant payments or charges hereunder.
This Note is submitted by Borrower to Bank at Bank's principal place of
business and shall be deemed to have been made thereat. This Note shall be
governed and controlled by the internal laws of the State of Illinois.
TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER, IRREVOCABLY, AGREES THAT,
SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY
WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS NOTE, SHALL BE
LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS.
BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE. BORROWER HEREBY WAIVES ANY
RIGHT BORROWER MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION
BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS PARAGRAPH.
BORROWER AND BANK HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH
RESPECT TO ANY ACTION IN WHICH BORROWER AND BANK ARE PARTIES.
No delay on the part of the Bank or the holder of this Note in the
exercise of any right, power or remedy shall operate as a waiver thereof, nor
shall any single or partial exercise by any of them of any right, power or
remedy preclude other or further exercise thereof, or the exercise of any other
right, power or remedy. No amendment, modification or waiver of, or consent
with respect to, any provision of this Note shall in any event be effective
unless the same shall be in writing and signed and delivered by the Bank, and
then any such amendment, modification, waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
All notices hereunder shall be in writing. Notices given by mail shall be
deemed to have been given three days after the date sent if sent by registered
or certified mail, postage prepaid, and:
(a) if to the Borrower, addressed to the Borrower as follows: Richardson
Electronics, Ltd., 40 W 267 Keslinger Road, La Fox, Illinois 60147:
(b) if to the Bank, addressed to the Bank, at American National Bank and
Trust Company of Chicago, 33 North La Salle Street, Chicago, Illinois 60690,
Attention: Division 501, with a copy to Neal Gerber & Eisenberg, Two North La
Salle Street, Suite 2200, Chicago, Illinois 60602, Attention: Joel M. Hurwitz;
or in the case of either party, such other address as such party, by written
notice received by the other party, may have designated as its address for
notices. Notices given by telex or telegram shall be deemed to have been given
when sent. Notices given by personal delivery shall be deemed to have been
given when delivered. The Bank shall be entitled to rely upon all telephonic
notices and the Borrower shall hold the Bank harmless from any loss, cost or
expense ensuing from any such reliance.
If any changes in accounting principles from those used in the preparation
of the annual audit report of Borrower and its Subsidiaries for its fiscal year
1993 are hereafter required or permitted by the rules, regulations,
pronouncements and opinions of the Financial Accounting Standards Board of
American Institute of Certified Public Accountants (or successors thereto or
agencies with similar functions) are adopted by the Borrower with the agreement
of its independent certified public accountants and such changes result in a
change in the method of calculation of any of the financial covenants set forth
in this Note, the Borrower agrees to enter into negotiations with the Bank in
order to amend such provisions so as to equitably reflect such changes with the
desired result that the criteria for evaluating the Borrower's financial
condition shall be he same after such changes as if such changes had not been
made, provided, however, that no change in GAAP that would affect the method of
calculation of any of the financial covenants shall be given effect in such
calculations until such provisions are amended in a manner satisfactory to the
Bank.
The section captions used in portions of this Note are for convenience
only, and shall not affect the construction of this Note.
This Note shall be binding upon the Borrower and its respective successors
and shall inure to the benefit of the Bank and the Bank's successors and
assigns.
ATTEST: RICHARDSON ELECTRONICS, LTD.
By: /s/ William G. Seils By: /s/ Edward J. Richardson
Secretary Its: Chairman and President
