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 November 30, 1995
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)
(708) 208-2200
(Registrant's telephone number, including area code)
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 January 5, 1996, there were outstanding 8,502,862 shares of Common
Stock, $.05 par value, and 3,243,926 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 39 pages. An exhibit index is at
page 11.
(1)
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended November 30, 1995
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Income 4
Consolidated Condensed Statements of Cash Flow 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II - OTHER INFORMATION 10
(2)
PART I - FINANCIAL INFORMATION
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
November 30 May 31
1995 1995
--------- ---------
(Unaudited) (Audited)
ASSETS
- ------
Current assets:
Cash and equivalents $ 6,393 $ 11,151
Receivables,less allowance of $1,627
and $1,385 44,747 42,768
Inventories 88,591 81,267
Other 7,254 8,762
--------- ---------
Total current assets 146,985 143,948
Investments 1,746 7,070
Property, plant and equipment, net 16,386 16,388
Other assets 5,226 6,108
--------- ---------
Total assets $ 170,343 $ 173,514
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 11,748 $ 16,695
Accrued expenses 10,437 11,161
Current portion of long-term debt -- 9,857
--------- ---------
Total current liabilities 22,185 37,713
Long-term debt, less current portion 88,575 79,647
Stockholders' equity:
Common stock, $.05 par value; issued
8,494 at November 30, 1995 and 8,225
at May 31, 1995 425 411
Class B common stock, convertible,
$.05 par value; issued 3,244 at
November 30, 1995 and 3,247 at
May 31, 1995 162 162
Additional paid-in capital 51,580 49,989
Retained earnings 9,206 6,141
Foreign currency translation adjustment (1,801) (686)
Market appreciation on investments,
net of tax 11 137
--------- ---------
Total stockholders' equity 59,583 56,154
--------- ---------
Total liabilities
and stockholders equity $ 170,343 $ 173,514
========= =========
See notes to consolidated condensed financial statements.
(3)
PART I - FINANCIAL INFORMATION
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
November 30 November 30
--------- --------- --------- ---------
1995 1994 1995 1994
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Net sales $ 61,669 $ 51,008 $ 118,870 $ 97,415
Costs and expenses:
Cost of products sold 43,735 36,438 83,798 69,342
Selling, general and
administrative expenses 13,175 11,545 26,486 22,525
--------- --------- --------- ---------
56,910 47,983 110,284 91,867
--------- --------- --------- ---------
Operating income 4,759 3,025 8,586 5,548
Other (income) expense:
Interest expense 1,739 1,568 3,243 3,117
Investment income (376) (291) (887) (537)
Other, net 86 50 260 56
--------- --------- --------- ---------
1,449 1,327 2,616 2,636
--------- --------- --------- ---------
Income before income taxes 3,310 1,698 5,970 2,912
Income taxes 1,070 570 2,000 1,000
--------- --------- --------- ---------
Net income $ 2,240 $ 1,128 $ 3,970 $ 1,912
========= ========= ========= =========
Net income per share $ .19 $ .10 $ .34 $ .17
========= ========= ========= =========
Average shares outstanding 11,909 11,541 11,809 11,484
========= ========= ========= =========
See notes to consolidated condensed financial statements.
(4)
PART I - FINANCIAL INFORMATION
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)(unaudited)
Six Months Ended
November 30
----------------------
1995 1994
--------- ---------
Operating Activities:
Net income $ 3,970 $ 1,912
Non-cash charges to income:
Depreciation 1,319 1,360
Amortization of intangibles and
financing costs 170 172
Deferred income taxes 1,053 904
Common stock awards and contribution
to employee stock ownership plan 500 500
--------- ---------
Total non-cash charges 3,042 2,936
--------- ---------
Net income adjusted for non-cash charges 7,012 4,848
Changes in working capital, net of effects
of currency translation:
Accounts receivable (2,445) (947)
Inventories (7,872) (3,831)
Other current assets 1,350 175
Accounts payable (5,009) (437)
Other liabilities (692) (1,232)
--------- ---------
Net changes in working capital (14,668) (6,272)
--------- ---------
Net cash used in operating activities (7,656) (1,424)
--------- ---------
Financing Activities:
Payments on debt (929) (933)
Cash dividends (905) (890)
--------- ---------
Net cash used in financing activities (1,834) (1,823)
--------- ---------
Investing Activities:
Reduction in investments 5,103 4,264
Capital expenditures (1,359) (1,197)
Other (112) 291
--------- ---------
Net cash provided by investing
activities 3,632 3,358
--------- ---------
Decrease in cash and equivalents (5,858) 111
Cash and equivalents at beginning of year 11,151 9,739
--------- ---------
Cash and equivalents at end of period $ 5,293 $ 9,850
========= =========
See notes to consolidated condensed financial statements.
(5)
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three- and Six-Month Periods Ended November 30, 1995
(Unaudited)
Note A -- Basis of Presentation
The accompanying unaudited Consolidated Condensed Financial Statements
("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 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
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 year ended
May 31, 1995.
The marketing and sales operations of the Company are organized in four
strategic business units (SBUs): Electronic Device Group (EDG), Solid State and
Components (SSC), Display Products Group (DPG) and Security Systems Division
(SSD). References hereinafter are to the acronyms noted parenthetically.
Note B -- Income Taxes
The income tax provisions for the six-month periods ended November 30, 1995 and
November 30, 1994 are based on the estimated effective tax rate of 34% for
fiscal 1996 and 1995 income. The effect of expected state income taxes are
offset by U.S. foreign sales corporation tax benefits in both years.
For fiscal 1996, the second quarter tax rate was 32%, reflecting a reduction in
the estimated annual effective rate to 34% from the first quarter estimate of
35%. The first quarter estimate included non-taxable foreign net operating
losses which are no longer anticipated. The second quarter tax rate in fiscal
1995 was 34%.
(6)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three- and Six- Month Periods Ended November 30, 1995
(Unaudited)
Results of Operations
Net sales for the second quarter of fiscal 1996 were a record $61.7 million, up
21% from last year's second quarter of $51.0 million. Sales for the six-month
period were $118.9 million, a 22% increase from $97.4 in the prior year. In the
quarter, the Company experienced growth in all SBU's, lead by SSC's $5.6
million increase, a 46% improvement over the prior year. SSD more than doubled
their sales, providing an increase of $3.5 million. Trends were similar on a
year-to-date basis. Sales and gross margin by the Company's SBU are summarized
in the following table along with the sales percentage increase from the prior
year and gross margin percent of sales. Gross margins for each SBU include
provisions for returns and overstock. Provisions for LIFO, manufacturing
charges and other costs are included under the caption "Corporate" (in
thousands).
Sales Gross Margin
--------------------------- -------------------------------
1996 1995 % 1996 GM% 1995 GM%
-------- -------- ---- ------- ----- ------- ------
Second Quarter
EDG $ 28,421 $ 27,101 5% $ 8,430 29.7% $ 8,035 29.6%
SSC 17,834 12,198 46% 5,440 30.5% 3,886 31.9%
DPG 8,730 8,513 3% 3,252 37.3% 2,797 32.9%
SSD 6,684 3,196 109% 1,412 21.1% 721 22.6%
Corporate - - (600) (869)
-------- -------- ------- -------
Total $ 61,669 $ 51,008 21% $17,934 29.1% $14,570 28.6%
======== ======== ======= =======
Six Months
EDG $ 55,230 $ 50,941 8% $16,647 30.1% $15,089 29.6%
SSC 33,777 23,520 44% 10,411 30.8% 7,554 32.1%
DPG 17,602 17,128 3% 6,440 36.6% 5,545 32.4%
SSD 12,261 5,826 110% 2,575 21.0% 1,341 23.0%
Corporate - - (1,001) (1,456)
-------- -------- ------- -------
Total $118,870 $ 97,415 22% $35,072 29.5% $28,073 28.8%
======== ======== ======= =======
In the quarter, the Company experienced sales gains in all areas of the world.
North America contributed $5.7 million to the overall sales increase and Europe
achieved the largest percentage increase of 33.9% or $4.0 million. Trends were
similar on a year-to-date basis. Sales and gross margin by geographic area are
summarized in the following table along with the percentage increase from the
prior year and gross margin percent of sales. Provisions for LIFO,
manufacturing charges and other costs are included under the caption
"Corporate" (in thousands).
(7)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three- and Six- Month Periods Ended November 30, 1995
(Unaudited)
Sales Gross Margin
-------------------------- -------------------------------
1996 1995 % 1996 GM% 1995 GM%
-------- -------- ---- ------- ----- ------- -----
Second Quarter
North America $ 34,913 $ 29,247 19% $10,303 29.5% $ 8,864 30.3%
Europe 15,776 11,784 34% 5,190 32.9% 3,771 32.0%
Rest of World 10,980 9,977 10% 3,041 27.7% 2,804 28.1%
Corporate - - (600) (869)
-------- -------- ------- -------
Total $ 61,669 $ 51,008 21% $17,934 29.1% $14,570 28.6%
======== ======== ======= =======
Six Months
North America $ 69,192 $ 56,635 22% $20,487 29.6% $17,188 30.3%
Europe 28,803 21,951 31% 9,678 33.6% 6,937 31.6%
Rest of World 20,875 18,829 11% 5,908 28.3% 5,404 28.7%
Corporate - - (1,001) (1,456)
-------- -------- ------- -------
Total $118,870 $ 97,415 22% $35,072 29.5% $28,073 28.8%
======== ======== ======= =======
Gross margins for the second quarter were 29.1%, compared to 28.6% in the prior
year, reflecting higher distribution product margins, primarily in Europe, and
the phase-down of manufacturing completed in 1995.
Selling, general, and administrative expenses for the second quarter of fiscal
1996 were $13.2 million, an increase of $1.6 million from the prior year,
primarily due to personnel additions for expansion of the specialty sales
program and incentive payments on increased gross margins. Selling, general and
administrative expense as a percent of sales improved, declining to 21.4% from
22.6%. Trends were similar on a year-to-date basis.
The sales growth, combined with proportionately slower growth in costs,
resulted in net income of $2.2 million or $.19 per share for the quarter,
compared to $1.1 million or $.10 per share in the prior year. For the six month
period, net income of $4.0 million or $.34 per share doubled the prior year
results of $1.9 million or $.17 per share.
Liquidity and Capital Resources
Cash provided by operations, exclusive of working capital requirements, was
$7.0 million in the first half of fiscal 1996, compared to $4.9 million for the
first half last year. Investments in additional working capital of $14.7
million in the first half of 1996 and $6.3 million last year, debt service and
dividend payments were funded by cash generated by operations, liquidation of
(8)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three- and Six- Month Periods Ended November 30, 1995
(Unaudited)
investments and proceeds from the exercise of stock options. First half
interest payments were $3.1 million in each of fiscal 1996 and 1995.
First half working capital requirements include inventory investments of $7.9
million in fiscal 1996 and $3.8 million in fiscal 1995 to support sales growth.
Accounts payable declined $5.0 million, reflecting the timing of several large
payments to vendors.
In the second quarter the Company finalized a $25 million senior revolving
credit note agreement due November 30, 1998 consolidating a $9.8 million long-
term loan and an $8 million short-term loan. The loan bears interest at 125
basis points over LIBOR, which at November 30 resulted in a rate of 7.1%. An
additional $7.2 million is available under the agreement for future working
capital or other corporate requirements.
The Company's loan agreements contain various financial and operating covenants
which set benchmark levels for tangible net worth, debt / tangible net worth
ratio and annual debt service coverage. The Company was in compliance with
these covenants at November 30, 1995.
In addition, certain of the current agreements contain restrictions on the
Company relating to the purchase of treasury stock or the payment of cash
dividends. At November 30, 1995, $7.6 million was available for such
transactions. Payment of dividends will be considered quarterly based upon
corporate performance.
At November 30, 1995, the market value of the Company's non-current investment
portfolio totaled $1.7 million. 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. Cash reserves, investments, funds from operations and
credit lines are expected to be adequate to meet the operational needs and
future dividends of the Company.
(9)
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material developments have occurred in the matters reported
under the category "Legal Proceedings" in the Registrant's
Report on Form 10-K for the fiscal year ended May 31, 1995.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) At the Annual meeting of stockholders held October 10,
1995, the following directors were elected. It was noted that
of the proxies voting it was believed 380,886 are broker votes
and such brokers held another 177,473 shares entitled to vote
and such shares were not voted.
NUMBER OF WITHHELD
NAME AFFIRMATIVE VOTES AUTHORITY
Edward J. Richardson 39,487,867 15,513
Dennis Gandy 39,478,265 25,115
Joel Levine 39,484,230 19,150
Arnold R. Allen 39,476,658 26,722
Scott Hodes 39,464,564 38,816
Samuel Rubinovitz 39,484,230 19,150
Kenneth J. Douglas 39,483,930 19,450
Jacques Bouyer 39,484,005 19,375
William J. Garry 39,483,867 19,375
Harold L. Purkey 39,477,230 19,150
(10)
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10 - $25,000,000 Senior Revolving Credit Note
Facility Agreement dated November 30, 1995 delivered to
American National Bank. - page 12
Exhibit 27 - Financial Data Schedule - page 39.
(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 January 10 , 1995 By /s/ William J. Garry
William J. Garry
Vice President and
Chief Financial Officer
(11)
RICHARDSON ELECTRONICS, LTD.
SENIOR REVOLVING NOTE
$25,000,000.00 Chicago, Illinois November 30, 1995
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, the principal sum of Twenty Five Million Dollars
($25,000,000.00) or so much thereof as may from time to time be
advanced hereunder, with interest on the principal balance
outstanding from time to time, all as hereinafter set forth. The
principal balance hereof may be borrowed, repaid and borrowed
again, all in accordance with the terms and conditions stated
herein.
The entire principal balance of this Note then outstanding,
plus any accrued and unpaid interest thereon shall be due and
payable on November 30, 1998, or such earlier date on which said
amount shall become due and payable on account of acceleration by
Bank (the "Maturity Date"). Borrower promises to pay to Bank
interest in the amounts and at the times provided below.
Borrower agrees that, on the Maturity Date, Borrower will pay to
Bank the entire principal balance of this Note then outstanding,
together with all accrued and unpaid interest, all penalties,
late payment fees and any other sums due hereunder.
Except as hereinafter provided, Borrower's obligations and
liabilities to Bank under this Note ("Borrower's Liabilities")
unpaid from time to time (except for principal outstanding
comprising a Foreign Denominated Funding) 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 two Business Days 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 (not comprising a Foreign Denominated Funding as described
below) 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. In the event Borrower fails to elect as provided above a
successive Libor Option Period prior to the expiration of a Libor
Option Period then in effect, the funds subject to the Libor
Option shall, after such expiration, bear interest at the Prime
Rate provided in the preceding paragraph.
Notwithstanding the foregoing, at Borrower's option
("Foreign Funding Option"), exercisable upon two Business Days
prior oral or written notice by an Authorized Officer of Borrower
to Bank, all or any portion of funds to be advanced under this
Note, in amounts equal to or exceeding one million dollars
($1,000,000) for each advance may be advanced as a Foreign
Denominated Funding. The principal balance outstanding under
this Note comprising a Foreign Denominated Funding shall bear
interest at the Foreign Denominated Funding Rate (as defined
below) in effect as of the date of such notification. Borrower's
Foreign Funding Option may be exercised for periods (the "Foreign
Funding Option Period") of not less than ninety (90) days and not
greater than five hundred forty (540) days, and may be exercised
(whether for consecutive periods or otherwise) throughout the
term of this Note. In the event Borrower fails to elect as
provided above a successive Foreign Funding Option Period prior
to two Business Days prior to the last day of a Foreign Funding
Option Period then in effect, the funds subject to the Foreign
Funding Option shall, after such expiration, bear interest at the
Prime Rate provided in the second preceding paragraph.
Borrowers Liabilities for principal upon this Note arising
from a Foreign Denominated Funding shall bear interest at
Borrower's Foreign Denominated Funding Rate (as defined below)
from the date of advance until repayment.
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 (except for interest at the Foreign Denominated Funding
Rate upon British Pounds Sterling which shall be calculated for
actual days based upon a 365 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, provided that Borrower may not make a
prepayment upon any portion of the balance outstanding upon this
Note bearing interest at the Libor Option Rate until the
expiration of the applicable Libor Option Period.
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, Illinois 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 or Foreign
Funding 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 or Foreign Funding 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 or
Foreign Funding Option, and the right of the Borrower to elect
the Libor Option or Foreign Funding 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 or
Foreign Funding 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 or Foreign
Funding Option and the right of the Borrower to elect or maintain
a principal balance with interest at the Libor Option Rate or the
Foreign Denominated Funding Rate shall be suspended, and (ii) if
the Bank may not lawfully continue to maintain the Libor Option
or Foreign Funding Option to the end of the then current Libor
Option Period or Foreign Funding Option Period, the applicable
principal shall immediately accrue interest at the Prime Rate for
the remainder of such Libor Option Period or Foreign Funding
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 or a Foreign Funding Option
Period, (b) due to any failure of the Borrower to borrow a Libor
Option Loan advance or a Foreign Funding Option Loan on the date
specified in an oral or written notice to the Bank by an
Authorized Officer of Borrower, (c) due to any payment,
prepayment or conversion of any Libor Option or Foreign Funding
Option on a date other than the last day of the Libor Option
Period or two Business Days prior to the last day of the Foreign
Funding Option Period therefor or (d) due to any acceleration of
the maturity of a Libor Option Loan or a Foreign Funding Option
Loan as a result of the occurrence of any Event of Default. The
Bank's calculations of any such loss or expense shall be
furnished to the Borrower and shall be conclusive absent manifest
error.
Definitions
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-l/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.
"Foreign Denominated Funding" means any advance which is
funded in non-United States currency at the request of Borrower.
"Foreign Funding Option Loan" means any funds advanced by
Bank to the Borrower bearing interest at the Foreign Funding
Option Rate.
"Foreign Funding Option Period" has the meaning stated on
page 2 of this Note.
"Foreign Denominated Funding Rate" means (i) one hundred
fifty (150) basis points plus (ii) the actual adjusted Libor rate
of interest (adjusted for costs and reserves) which the Bank
determines in its reasonable discretion it could earn from time
to time upon deposits of non-United States currency corresponding
to the non-United States currency outstanding from time to time
as a Foreign Denominated Funding for the Foreign Funding Option
Period designated by Borrower.
"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 (adjusted by the Bank to
account for the Eurodollar Reserve Percentage which is the
maximum reserve percentage calculated from time to time under
regulations issued by the Federal Reserve Board for determining
the maximum reserve requirement with respect to Eurocurrency
funding) for a designated Libor Option Period which the Bank most
recently announces or publishes publicly as its adjusted Libor
rate.
"Libor Option Loan" means any funds advanced by Bank to the
Borrower bearing interest at the Libor Option Rate.
"Libor Option Period" has the meaning stated on page 1 of
this Note.
"Libor Option Rate" means one hundred fifty (150) basis
points over Libor; provided that commencing November 30, 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, including, but
not limited to, the face amount of all outstanding Letters of
Credit and all obligations under this Note, 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 names; 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.
Revolving Credit Commitment and L/C Facility;
Revolving Credit Borrowing Procedures
Revolving Loans. The Bank shall make revolving loans
("Revolving Loans") to the Borrower for the Borrower's working
capital and issue Letters of Credit, with an expiration no later
than November 30, 1998, for the account of the Borrower, from
time to time before the "Revolving Credit Termination Date" which
is the earlier of (i) the occurrence of an Event of Default
hereunder, or (ii) November 30, 1998, in such aggregate amounts
as the Borrower may from time to time request. The Revolving
Loans shall not exceed at any one time outstanding Twenty-Five
Million Dollars ($25,000,000) minus the face amount of all
outstanding Letters of Credit. The Borrower shall have the right
to repay and reborrow any of the Revolving Loans; provided,
however, that it shall be a condition precedent to any
reborrowing that as of the date of any reborrowing (any such date
herein called a "Reborrowing Date") all of the conditions to
borrowing set forth in this Agreement shall be satisfied and all
representations and warranties made herein shall be true and
correct in all material respects as of such Reborrowing Date.
The Bank's commitment to make the Revolving Loans and issue
Letters of Credit up to a maximum aggregate face amount not
exceeding Three Million Dollars ($3,000,000) is herein called the
"Revolving Credit Commitment".
Revolving Loan Borrowing Procedures. Subject to the
notification requirements stated herein for a Libor Option or
Foreign Funding Option advance, the Borrower shall give the Bank
irrevocable telephonic notice of each proposed Revolving Loan
borrowing no later than 12:00 noon, Chicago time, on the same
Business Day as the proposed date of such borrowing. Each such
notice shall be effective upon receipt by the Bank and shall
specify the date and the amount of the borrowing. Each request
for a Revolving Loan shall automatically constitute a
representation and warranty by the Borrower that, as of the date
of such requested Revolving Loan, all conditions precedent to the
making of such Revolving Loan set forth in Section 11 shall be
satisfied. Each borrowing of a Revolving Loan shall be on a
Business Day.
L/C Facility. From time to time upon the Borrower's
request, Bank shall issue or cause to be issued one or more
letters of credit (each such letter of credit, as from time to
time amended or modified with the consent of Borrower, being
hereinafter referred to as a "Letter of Credit"). The aggregate
amount of Letters of Credit outstanding at any point in time
shall not exceed $3,000,000.
Reimbursement. The Borrower shall reimburse Bank, on
demand, for any amounts paid by Bank pursuant to any sight draft,
receipt or cable or written demand for payment presented to Bank
in connection with a Letter of Credit; such amounts shall be
evidenced by the Revolving Note. Upon the termination of this
Agreement, the Borrower shall cause all outstanding Letters of
Credit to be canceled as of the Credit Termination Date or shall
pay to Bank an amount equal to the amount of all Letters of
Credit which are outstanding on the Credit Termination Date. Any
amounts so paid which are not used to liquidate obligations of
Bank in connection with said outstanding Letters of Credit shall,
after the expiration of all Letters of Credit be returned to the
Borrower. Bank shall have no obligation to invest such amounts
paid to it by the Borrower pursuant to the preceding sentence in
an interest-bearing account and the interest and earnings
thereon, if any, shall be the property of Bank. With respect to
any such payment which becomes due under the terms of this
Section 2.2.1, Borrower authorizes and directs Bank, at its
option, to cause such payment to be made when due by charging
such payment as a Revolving Loan advance pursuant to Section
2.1.1 of this Agreement.
Letter of Credit Term. Each Letter of Credit shall not have
an expiration after November 30, 1998.
Form. Each Letter of Credit shall be payable in United
States dollars, shall conform to the general requirements of the
Bank for the issuance of letters of credit as to form.
Applications. At the time of each request by Borrower that
a Letter of Credit be issued, Bank will require Borrower to
execute and deliver to Bank an application for such Letter of
Credit in the form customarily prescribed by Bank to issue
Letters of Credit (collectively the "Applications"). This
Agreement supersedes any terms of the Applications which are
irreconcilably inconsistent with the terms hereof.
Letter of Credit Fees. Borrower agrees to pay to Bank (i) a
per annum fee, payable monthly, in arrears on the first Business
Day of each succeeding month, equal to the Bank's customary fee
for letters of credit multiplied by the amount of the Letters of
Credit issued or caused to be issued by Bank, plus (ii) any
direct out-of pocket expenses incurred by Bank in connection with
issuing or causing such Letter of Credit to be issued. With
respect to the payment of any fees or expenses that become due
thereunder, the Borrower authorizes and directs Bank, at its
option, to cause such payment to be paid when due by charging
such payment as a Revolving Loan advance against the Revolving
Credit Commitment established pursuant to Section 2.1 of this
Agreement.
Release of Bank's Liability. Neither Bank nor its
correspondents or agent, or any bank(s) or financial
institutions(s) used by Bank in connection with the issuance of
Letters of Credit ("Correspondent"), shall be responsible for (i)
the use which may be made of the Letters of Credit or for any
acts or omissions of the user(s) of the Letters of Credit; (ii)
the existence, character, quality, quantity, condition, packing
or value of the property purporting to be represented by the
documents required by the terms of any Letters of Credit or
presented in connection therewith ("Documents"); (iii) the time,
place, manner or order in which shipment is made; (iv) the
validity, sufficiency, or genuineness of Documents, or of any
endorsement thereon, even if such Documents were in fact proved
to be in any or all respects invalid, insufficient, fraudulent,
or forged; (v) partial or incomplete shipment, or failure or
omission to ship any or all of the property referred to in the
Letters of Credit or the Documents; (vi) the character, adequacy,
validity or genuineness of any insurance or solvency or
responsibility of any insurer or any other risk connected with
insurance; (vii) any deviation from instructions, delay, default
or fraud by the shipper or anyone else in connection with the
property referred to in the Letters of Credit or the Documents
or the shipping thereof; (vii) the insolvency, responsibility or
relationship to the property of any party issuing any documents
in connection with the property referred to in the Letters of
Credit; (ix) delay in arrival or failure to arrive of either the
property referred to in the Letters of Credit or the Documents;
(x) delay in giving or failure to give notice of arrival or any
other notice; (xi) any breach of contract between the shipper(s)
or vendor(s) and the consignee(s) or buyer(s); (xii) failure of
any instrument to bear any reference or adequate reference to the
Letters of Credit or failure of Documents to accompany any
instrument at negotiation, or failure of any person to note the
amount of any instrument on the reverse of the Letter of Credit
or to send forward Documents apart from instruments as required
by the terms of the Letter of Credit or to send forward Document
apart from instruments as required by the terms of the Letter of
Credit each of which provisions, if contained in the Letter of
Credit itself, it is agreed may be waived by Bank or
Correspondent; or (xiii) errors, omissions, interruptions or
delays in transmission or delivery of any messages by mail,
cable, telegraph, wireless or otherwise. Further, Bank shall not
be responsible for any act, error, neglect or default, omission,
insolvency or failure in business of any of its Correspondents.
The occurrence of any one or more of the contingencies referred
to in the preceding sentences of this Section 2.2.6 shall not
affect, impair or prevent the vesting of any of Bank's rights or
powers hereunder or Borrower's obligation to make reimbursement.
Borrower shall promptly examine (i) the copy of the Letter of
Credit (and of any amendments thereof) sent to it by Bank or
Correspondent and (ii) all documents and instruments delivered
to it from time to time by Bank or Correspondent, and, in the
event of any claim of noncompliance with Borrower's instruction
or other irregularity, will immediately notify Bank and
Correspondent thereof in writing. Borrower being conclusively
deemed to have waived any such claim against Bank and
Correspondent unless such notice is given as aforesaid.
Indemnification. Upon any transfer, sale, delivery,
surrender or endorsement of any bill of lading, warehouse receipt
or other Document at any time(s) held by Bank, or held for its
account by any of its correspondents or agents, or any bank of
financial institution used by Bank in connection with the
issuance of Letters of Credit, relative to the Letter of Credit,
Borrower will indemnify and hold Bank and any such
correspondent(s), agent(s), bank(s) and financial institution(s),
harmless from and against each and every claim, demand, action
or suit which may arise against Bank or any correspondent(s),
agent(s) bank(s) and financial institution(s), by reason thereof.
Use. Proceeds of the Revolving Loans and the Letters of
Credit will be used solely for the purpose of providing working
capital for the Borrower in the Borrower's ordinary course of
business.
Annual Fee. On the date on which this Note is delivered to
Bank by the Borrower and on the first Business day of December,
1996 and each December thereafter while this Note remains
outstanding, the Borrower agrees to pay to the Bank a
nonrefundable annual fee equal to $31,250.00 per year. Each such
annual fee shall be deemed fully earned by the Bank upon such
date when payment is due.
Mandatory Prepayment. The Borrower agrees that if at any
time the aggregate unpaid principal amount of the outstanding
Revolving Loans plus the face amount unexpired of all Letters of
Credit shall exceed the amount of Twenty Five Million Dollars
($25,000,000) or the face amount of all unexpired Letters of
Credit exceeds Three Million Dollars ($3,000,000), it will
forthwith make a mandatory prepayment of principal on such
Revolving Loan(s) in an amount equal to such excess. Each such
mandatory prepayment shall be without premium or penalty (except
indemnification for loss as provided herein in the event such
prepayment occurs upon a Revolving Loan bearing interest under
the Libor Option or Foreign Funding Option during a Libor Option
Period or a Foreign Funding Option Period).
Representations and Warranties
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.
Covenants
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 taxes, 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 the following amounts
during the Borrower's respective fiscal years:
Tangible Net Worth Borrower's Fiscal Year
$123,000,000 1995-1996
$125,000,000 1996-1997
$127,500,000 1997-1998
$130,000,000 1998-1999
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 such
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, 1995
and thereafter, maintain quarterly, semi-annual and annual Debt
Service Coverage as of each November 30, February 28, May 31 and
August 31 of 1.20 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.
Events of Default and Remedies
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, the Bank's obligations to loan funds to Borrower shall
immediately terminate and 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,
the Bank's obligations to loan funds to Borrower shall
immediately terminate and 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.
Reimbursement of Costs, Indemnification
and Miscellaneous Provisions
The Borrower agrees to pay on demand all of the Bank's
out-of-pocket costs and expenses (including the reasonable fees
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 nonprincipal 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 LaSalle
Street, Chicago, Illinois 60690, Attention: Division 501, with a
copy to Neal Gerber & Eisenberg, Two North LaSalle 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 1995 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/ William J. Garry
Secretary Its: Vice President
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<PERIOD-END> NOV-30-1995
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<ALLOWANCES> 1627
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<PP&E> 42111
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<SALES> 118870
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<CGS> 83798
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<INCOME-PRETAX> 5970
<INCOME-TAX> 2000
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