<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996.
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File No. 0-121
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KULICKE AND SOFFA INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1498399
- ---------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.
2101 BLAIR MILL ROAD, WILLOW GROVE, PENNSYLVANIA 19090
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip code)
(215) 784-6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
----- -----
As of May 3, 1996, there were 19,370,862 shares of the Registrant's
Common Stock, Without Par Value outstanding.
<PAGE> 2
KULICKE AND SOFFA INDUSTRIES, INC.
FORM 10 - Q MARCH 31, 1996
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheet -
March 31, 1996 and September 30, 1995 3
Consolidated Income Statement -
Three and Six Months Ended March 31, 1996
and 1995 4
Consolidated Condensed Statement of Cash Flows -
Six Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6 - 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 10 - 16
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES. 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 16
Item 6. EXHIBITS AND REPORTS ON FORM 8 - K. 17
Signatures. 17
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
March 31, September 30,
1996 1995
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 35,474 $ 28,624
Short-term investments 12,575 9,590
Accounts and notes receivable, net 86,253 77,427
Inventories, net 50,964 40,850
Prepaid expenses and other current assets 4,497 3,534
------- -------
TOTAL CURRENT ASSETS 189,763 160,025
Property, plant and equipment, net 35,101 25,519
Intangible assets, primarily goodwill, net 43,167 1,183
Long-term investments 1,600 2,732
Other assets 2,704 1,570
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TOTAL ASSETS $272,335 $191,029
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 659 $ 60
Accounts payable to suppliers and others 29,216 33,145
Accrued expenses 20,631 16,014
Income taxes payable 6,665 6,973
------- -------
TOTAL CURRENT LIABILITIES 57,171 56,192
Long-term debt 50,925 156
Deferred income taxes 690 --
Other liabilities 2,511 1,034
------- -------
TOTAL LIABILITIES 111,297 57,382
------- -------
Commitments and contingencies -- --
SHAREHOLDERS' EQUITY:
Common stock, without par value 46,807 45,757
Retained earnings 116,280 89,238
Cumulative translation adjustment (2,049) (1,348)
------- -------
TOTAL SHAREHOLDERS' EQUITY 161,038 133,647
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $272,335 $191,029
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 4
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED INCOME STATEMENT
(in thousands, except per share data)
(unaudited)
Three months Six months
ended March 31, ended March 31,
------------------ ------------------
1996 1995 1996 1995
------- ------ ------- -------
Net sales $115,374 $64,785 $242,563 $116,244
Cost of goods sold 69,877 35,628 144,990 65,042
------- ------ ------- -------
Gross Profit 45,497 29,157 97,573 51,202
Selling, general and
administrative 18,256 11,668 35,244 22,323
Research and development, net 12,155 6,546 23,431 12,706
------- ------ ------- ------
Income from operations 15,086 10,943 38,898 16,173
Interest income 860 318 1,569 660
Interest expense (820) (541) (1,701) (1,080)
Other expense -- -- (630) --
------- ------ ------- ------
Income before income taxes 15,126 10,720 38,136 15,753
Provision for income taxes 4,390 2,466 11,063 3,775
------- ------ ------- ------
10,736 8,254 27,073 11,978
Equity in loss of joint venture 31 -- 31 --
------- ------ ------- ------
Net income $ 10,705 $ 8,254 $ 27,042 $11,978
======= ====== ======= ======
Net income per share:
Primary $0.54 $0.49 $1.36 $ 0.71
==== ==== ==== ====
Fully diluted $0.54 $0.44 $1.36 $ 0.65
==== ==== ==== ====
Weighted average shares
outstanding:
Primary 19,831 16,963 19,854 16,881
Fully diluted 19,831 19,482 19,854 19,426
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 5
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Six months ended March 31,
1996 1995
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $27,042 $11,978
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,577 2,323
Deferred income taxes 160 50
Changes in other components of working
capital net of acquisition of business (15,940) (14,374)
Other changes, net 1,067 462
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Net cash provided by operating activities 16,906 439
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CASH FLOWS FROM INVESTING ACTIVITIES:
Cash portion of AFW purchase price,
less cash acquired (41,778) --
Purchase of property, plant and equipment (7,876) (3,040)
Purchases of short-term investments
classified as available-for-sale (13,028) (2,976)
Proceeds from sales of short-term investments
classified as available-for-sale 10,692 11,867
Proceeds from maturities of debt securities
held-to-maturity 505 --
Investment in joint venture (510) --
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Net cash (used) provided by investing activities (51,995) 5,851
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under bank
credit facility 50,000 --
Repayment of borrowings and capital
lease obligations (8,142) (30)
Proceeds from exercise of stock options 103 975
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Net cash provided by financing activities 41,961 945
------ ------
Effect of exchange rate changes on cash (22) 32
------ ------
Change in cash and cash equivalents 6,850 7,267
Cash and cash equivalents at beginning of
period 28,624 8,754
------ ------
Cash and cash equivalents at end of period $35,474 $16,021
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 6
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands)
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statement information included herein is
unaudited, but in the opinion of management, contains all
adjustments, consisting only of normal recurring adjustments,
necessary to present fairly Kulicke and Soffa Industries, Inc.'s
("the Company") financial position as of March 31, 1996 and
September 30, 1995, and the results of its operations and its cash
flows for the three and six month periods ended March 31, 1996 and
1995. These financial statements should be read in conjunction
with the audited financial statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30,
1995.
NOTE 2 - ACQUISITION OF AMERICAN FINE WIRE CORPORATION
On October 2, 1995, the Company acquired American Fine Wire
Corporation ("AFW") through the acquisition of all of the common
stock of Circle "S" Industries, Inc. ("Circle "S""), the parent
corporation of AFW. AFW is a manufacturer of fine gold and
aluminum wire used in the wire bonding process, and has
manufacturing facilities in Singapore; Selma, Alabama; and Zurich,
Switzerland. The AFW purchase price, including transaction related
costs, approximated $54.7 million, and was initially financed by
borrowings under a bank credit facility and seller promissory notes
(see Note 5). The AFW acquisition was accounted for using the
purchase method. Accordingly, AFW's operating results are included
in the Company's consolidated financial statements commencing
October 2, 1995.
The AFW purchase price, including transaction related costs, has
been allocated to the assets acquired and liabilities assumed based
on their estimated fair market values, as follows:
Cash $10,944
Accounts receivable 9,166
Inventory 1,964
Property and equipment 3,687
Intangible assets, primarily goodwill 43,099
Other assets 283
Short-term debt (8,000)
Accounts payable and accrued expenses (5,231)
Other liabilities (1,190)
------
Total purchase price $54,722
======
The excess of the AFW purchase price over the estimated fair value
of acquired tangible net assets consists primarily of goodwill and
a favorable operating lease for the Selma manufacturing facility,
both of which are being amortized over a twenty-year period.
<PAGE> 7
Unaudited pro forma income statement data reflecting the combined
operating results of the Company and AFW for the six month period
ended March 31, 1995, as if the acquisition had occurred on October
1, 1994, after giving effect to certain pro forma adjustments, are
as follows:
Pro forma
-----------
(unaudited)
Revenue $151,190
Net income $ 11,472
Net income per share $ 0.63
NOTE 3 - INVENTORY
March 31, September 30,
1996 1995
------ ------
Finished goods $17,254 $10,673
Work in process 15,989 15,740
Raw materials and supplies 26,437 22,190
------ ------
59,680 48,603
Inventory reserves (8,716) (7,753)
------ ------
$50,964 $40,850
====== ======
NOTE 4 - INVESTMENT IN JOINT VENTURE
On February 28, 1996, the Company entered into a joint venture
agreement with Delco Electronics Corporation ("Delco"), providing
for the formation and management of Flip Chip Technologies, L.L.C.
("FCT" or "the Joint Venture"). FCT was formed to provide wafer
bumping services. The Company will account for its investment in
the joint venture using the equity method. In March 1996, the
Company contributed $.5 million as its initial capital contribution
to FCT, and recognized its proportionate share of the joint
venture's operating loss.
NOTE 5 - DEBT OBLIGATIONS
The Company borrowed $15.0 million under its bank credit facility
on October 2, 1995 to fund the cash portion of the AFW purchase
price and issued promissory notes totaling $34.4 million to certain
selling shareholders of Circle "S". The promissory notes were
repaid in full on January 5, 1996, together with accrued interest
thereon. To finance the repayment of the promissory notes, on
January 5, 1996, the Company borrowed the remaining $35.0 million
available under the term credit facility. Borrowings under the
$50.0 million term credit facility bore interest at the LIBOR rate
plus 50 basis points (5.8125% at March 31, 1996).
<PAGE> 8
On April 10, 1996, the Company renegotiated the terms of its bank
credit facilities resulting in a new Restated Loan Agreement
providing for a $10.0 million revolving credit facility expiring
February 28, 1997, and a $50.0 million revolving credit facility
expiring March 30, 2001. The $10.0 million revolving loan bears
interest at the prime rate less 1/4%. The $50.0 million revolving
loan bears interest, at the Company's option, either at a "Base
Rate" (the lesser of the prime rate minus 1/2% or the Federal Funds
rate plus 1/2%) or, at a "LIBOR Rate" (LIBOR plus .4% to .6%,
depending on maintenance of certain financial covenants).
The Restated Loan Agreement is unsecured and requires that the
Company maintain certain covenants including a leverage ratio, an
interest ratio and working capital of not less than $50.0 million.
Additionally, the Restated Loan Agreement also limits the Company's
ability to mortgage, pledge, or dispose of material assets, engage
in certain transactions with affiliates and imposes restrictions as
to the type and quality of the Company's investments.
NOTE 6 - EARNINGS PER SHARE
For the three and six month periods ended March 31, 1996, primary
and fully diluted earnings per share included the dilutive effect
of shares issuable upon exercise of stock options. For the three
and six month periods ended March 31, 1995, fully diluted earnings
per share included the dilutive effects of shares issuable upon
exercise of stock options and convertible subordinated debentures,
the remainder of which were either converted or redeemed during
fiscal 1995.
NOTE 7 - RECLASSIFICATIONS
Certain amounts in the Company's prior year financial statements
have been reclassified to conform to their presentation in the
Company's fiscal 1996 financial statements.
<PAGE> 9
NOTE 8 - OPERATING RESULTS BY BUSINESS SEGMENT
Operating results by business segment for the six month periods
ended March 31, 1996 and 1995 were as follows:
Expendable
Tools and Corporate
Six months ended Equipment Materials and
March 31, 1996: Segment Segment Eliminations Total
--------- ---------- ------------ --------
Net sales $192,307 $50,256 $242,563
Cost of goods sold 105,915 39,075 144,990
------- ------ -------
Gross profit 86,392 11,181 97,573
Operating costs 47,878 7,002 $3,795 58,675
------- ------ ----- -------
Operating income $ 38,514 $ 4,179 ($3,795) $ 38,898
======= ====== ===== =======
Expendable
Tools and Corporate
Six months ended Equipment Materials and
March 31, 1995: Segment Segment Eliminations Total
--------- ---------- ------------ ---------
Net sales $107,339 $ 8,905 $116,244
Cost of goods sold 59,872 5,170 65,042
------- ------ -------
Gross profit 47,467 3,735 51,202
Operating costs 30,538 1,401 $3,090 35,029
------- ------ ----- -------
Operating income $ 16,929 $ 2,334 ($3,090) $ 16,173
======= ====== ===== =======
Intersegment sales are immaterial.
<PAGE> 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
INTRODUCTION
The Company's operating results depend primarily upon the capital
expenditures of semiconductor manufacturers and subcontract
assemblers worldwide, which in turn depend on the current and
anticipated market demand for semiconductors and products utilizing
semiconductors. The semiconductor industry has historically been
highly volatile and has experienced periodic downturns and
slowdowns which have had a severe negative effect on the
semiconductor industry's demand for semiconductor capital
equipment, including assembly equipment manufactured and marketed
by the Company and, to a lesser extent, expendable tools and
materials such as those sold by the Company. These downturns and
slowdowns have also adversely affected the Company's operating
results. While the Company does not consider its business to be
seasonal in nature, historically there have been substantial
fluctuations in the amounts which semiconductor manufacturers and
subcontract assemblers have invested in capital equipment. To help
mitigate the effect of volatile demand for capital equipment, the
Company acquired AFW in October 1995 to increase the portion of the
Company's revenues from expendable tools and materials which have
historically fluctuated less than capital equipment sales.
The Company's equipment sales consist primarily of a relatively
small number of machines, most with selling prices ranging from
approximately $60,000 to over $500,000. A delay or reduction in
shipments of a limited number of machines, either due to
manufacturing delays or to rescheduling or cancellation of customer
orders, could have a material adverse effect on operating results
for any particular quarter. The Company believes that such
volatility will continue to characterize the industry and the
Company's operations in the future.
RESULTS OF OPERATIONS - Three and six month periods ended March 31,
1996 compared to three and six month periods ended March 31, 1995.
The Company recorded bookings totaling $86.0 million during the
fiscal 1996 second quarter ended March 31, 1996 (including $17.0
million related to AFW) compared to $77.0 million for the second
quarter of fiscal 1995. AFW bookings data was not included in
fiscal 1995 as AFW was not part of the consolidated group. At
March 31, 1996, the backlog of customer orders totalled
approximately $74.0 million (including $7.0 million related to AFW
products) compared to December 31, 1995 backlog of $96.0 million
(excluding AFW products). Because the timing of deliveries may
vary and orders generally are subject to delay or cancellation,
the Company's backlog as of any date may not be indicative of sales
for any succeeding period.
During the fiscal 1996 second quarter, some customers either
cancelled equipment orders or asked the Company to delay shipments
of machines originally scheduled for the second and third quarters
<PAGE> 11
of fiscal 1996, causing fiscal 1996 second quarter equipment sales
to fall below the amount reported during the fiscal 1996 first
quarter. Despite these push outs, consolidated net sales for the
fiscal 1996 second quarter ended March 31, 1996 increased by $50.6
million (including $18.1 million of wire sales as a result of the
AFW acquisition) to $115.4 million compared to $64.8 million for
the same period in the prior year. For the six month period ended
March 31, 1996, consolidated net sales increased by $127.4 million
(including $34.8 million of wire sales as a result of the AFW
acquisition) from the $115.2 million for the fiscal 1995 year to
date period. Of the fiscal 1996 increases in net sales, $29.2
million for the three month period and $85.0 million for the six
month period were attributable to the equipment segment, with the
balance due to the expendable tools and materials segment. By
geographic area, the revenue increases were primarily realized in
the Asia/Pacific region, with shipments primarily destined for
Korea, Taiwan, Malaysia, and the Philippines.
Higher unit volume of machine sales, primarily of the Company's
Model 1488 Turbo bonders, accounted for approximately $22.3 million
and $80.8 million of the increases in net sales during the second
quarter and year to date periods of fiscal 1996, respectively.
Higher selling prices for the Model 1488 Turbo bonder (compared to
selling prices realized on earlier models of gold ball wire
bonders) contributed an additional $4.2 million and $6.3 million,
to net sales during the three and six month periods ended March 31,
1996, respectively, over the amounts reported for the comparable
periods in fiscal 1995.
Gross profit as a percentage of net sales in the equipment segment
totaled 44.6% during the three month period ended March 31, 1996
compared to 44.7% for the same period last year, and totaled 44.9%
during the six month period in fiscal 1996 compared to 44.2% during
the same period last year. During the second quarter of fiscal
1996, the Company realized improved selling prices on the 1488
Turbo bonder and the favorable effect on manufacturing overhead
absorption associated with higher fiscal 1996 sales volumes. These
improvements were offset by a $2.0 million charge to cost of goods
sold primarily to provide for anticipated inventory obsolescence
associated with product changes and vendor charges due to the
cancellation by the Company of certain purchase orders for
subassemblies and components. Improved selling prices on the 1488
Turbo bonder and favorable manufacturing overhead absorption also
contributed to the improved 1996 year to date gross profit margin
as compared to the same period of fiscal 1995.
In the expendable tools and materials segment, gross profit as a
percentage of net sales decreased to 22.0% for the second quarter
of fiscal 1996 as compared to 49.1% for the fiscal 1995 second
quarter, and decreased to 22.2% for the six month period ended
March 31, 1996 as compared to 41.9% for the fiscal 1995 year to
date period. These decreases were primarily the result of the AFW
acquisition, as the gross profit percentage on sales of wire
products is significantly lower than historically realized by the
Company on sales of expendable tools.
<PAGE> 12
Selling, general and administrative expenses ("SG&A") totaled $18.3
million during the second quarter of fiscal 1996, compared to $11.7
million during the same period last year. Of this increase, $2.0
million reflected incremental SG&A costs attributable to the AFW
acquisition, including $.5 million of goodwill amortization. The
remainder of the increase was largely attributable to higher
employment levels, primarily in the areas of customer support,
information systems and other administrative areas to support the
higher volume of business. For the fiscal 1996 year to date
period, SG&A costs increased to $35.2 million from $22.3 million,
with approximately $4.1 million of the increase due to incremental
costs related to the AFW operation, and the remainder due primarily
to higher employment levels in fiscal 1996.
Net research and development ("R&D") costs increased to $12.2
million for the second quarter of fiscal 1996, from the $6.5
million for the same period last year. The Company continues to
invest heavily in the development of the 8000 Series wire bonders
and in enhancements of existing products, including an enhancement
to the Model 1488 Turbo bonder which will enable it to deliver
improved throughput compared to the current Model 1488 Turbo.
Operating income totaled $15.1 million for the second quarter of
fiscal 1996 compared to $10.9 million for the same period in fiscal
1995. This improvement resulted principally from the higher
revenue levels and improved gross profit margins in the equipment
segment, offset in part by the increases in SG&A and R&D expenses
noted above.
The majority of interest expense incurred during the second quarter
and year to date periods of fiscal 1996 resulted from borrowings
related to the AFW acquisition. In the comparable periods last
year, most of the interest expense related to the Company's 8%
Subordinated Convertible Debentures, which were converted or
redeemed during fiscal 1995. Interest income during the second
quarter and year to date periods of fiscal 1996 exceeded the
amounts reported for the same periods last year primarily due to
interest earned on a note receivable from a customer and to a
higher average balance of invested cash in fiscal 1996.
Nonoperating costs during the six month period ended March 31, 1996
reflect the write-off of $.6 million of costs incurred in
connection with a proposed public offering of the Company's common
stock which was indefinitely delayed due to a decline in the market
price of the Company's common stock.
The increase in the Company's effective tax rate to 29% in fiscal
1996 compared to the fiscal 1995 rate of 24% was due primarily to
utilization of most remaining domestic tax credit carryforwards in
fiscal 1995, the effect of non-deductible goodwill amortization
resulting from the AFW acquisition, and the estimated amount and
geographic distribution of taxable income in fiscal 1996.
<PAGE> 13
COMPANY OUTLOOK
Certain of the information set forth below and elsewhere in this
report contains forward looking statements that are subject to
certain risks and uncertainties that could cause actual results to
differ materially from those set forth in the forward looking
statements. These risks and uncertainties include, but are not
limited to the following: the risk of volatile demand in the
semiconductor industry; the continued deferral or possible
cancellation of existing customer orders; the timing, development,
introduction and acceptance of new products and enhancements to
existing products; the Company's ability to manufacture and ship
its products on a timely basis; competitive pricing pressures; and
international political and other developments which could impact
foreign operations.
As indicated above, some customers either cancelled equipment
orders or asked the Company to delay shipments of machines
originally scheduled for delivery during the second and third
quarters of fiscal 1996, adversely affecting equipment segment net
sales during the second quarter of fiscal 1996. In addition, the
rate of new customer orders booked into backlog during the fiscal
1996 second quarter was lower than each of the previous two
quarters. As a result, the Company presently anticipates that net
sales by the equipment segment during the fiscal 1996 third and
fourth quarters will be lower than reported in the fiscal 1996
second quarter. While the Company believes this downturn will be
temporary and that long-term growth prospects for the semiconductor
industry and for the Company's products remain positive, in the
near term, the Company intends to selectively reduce certain
operating costs. Despite the planned cost reductions, net income
for the third and fourth quarters of fiscal 1996 are currently
expected to be substantially lower than reported during the latter
half of fiscal 1995 and first half of fiscal 1996 because of the
anticipated lower volume of equipment sales.
The Company is in the process of developing a new generation of
wire bonder, the 8000 family, which will be based on an entirely
new platform and has required the development of new software and
many subassemblies not part of the Company's current wire bonders.
The first prequalification Model 8020 ball bonder (the first
production model of the 8000 family) was shipped to a customer in
March 1996 and is presently being field tested. While development
and technical risks exist which have the potential to delay the
introduction of the Model 8020 including recent software related
development issues, the Company currently expects that the Model
8020 will be released early in calendar 1997. However, no
assurance can be given that its scheduled introduction in early
1997 will not be further delayed due to technical or other
difficulties, or that the Model 8020 will not experience quality or
reliability problems after shipment. The Company's inability to
complete the development of and introduce the Model 8020 or other
new products, or its inability to manufacture and ship these
products in volume and on a timely basis, could adversely affect
the Company's competitive position. The Company also may incur
substantial costs early in a new product's life cycle to ensure the
functionality and reliability of such product.
<PAGE> 14
The Company's planned transition to the Model 8020 platform also
involves numerous risks, including the possibility that customers
will defer purchases of the current model of gold ball wire bonders
in anticipation of the availability of the Model 8020 or that the
Model 8020 will fail to meet customer needs or achieve market
acceptance. To the extent that the Company fails to accurately
forecast demand in volume and configuration for both its current
and next-generation wire bonders and generally to manage product
transitions successfully, it could experience reduced orders,
delays in product shipments, increased risk of inventory
obsolescence and delays in collecting accounts receivable. There
can be no assurance that the Company will successfully develop and
manufacture new products, including the Model 8020, that new
products introduced by the Company will be accepted in the
marketplace or that the Company will manage its product transitions
successfully. The Company's failure to do any of the foregoing
would materially adversely affect the Company's business, financial
condition and operating results.
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years, the Company has financed its
operations principally through cash flows from operations. Cash
generated by operating activities totaled $16.9 million during the
first six months of fiscal 1996 compared to $.4 million during the
first half of fiscal 1995. Cash and total investments increased to
$49.6 million at March 31, 1996 from the $40.9 million reported at
September 30, 1995. Cash flows from operating activities and the
overall increase in cash and total investments in the first six
months of fiscal 1996 compared to the first six months of fiscal
1995 generally reflect improved profitability in fiscal 1996.
As described in Notes 2 and 5 to the Company's March 31, 1996
financial statements, the Company acquired AFW on October 2, 1995.
In connection with this acquisition, $17.2 million of the $53.6
million purchase price was paid in cash at closing. The Company
borrowed $15.0 million under its term credit facility and $34.4
million pursuant to certain promissory notes, to finance the AFW
acquisition. The promissory notes were repaid in full on January
5, 1996. To finance the repayment of the promissory notes, on
January 5, 1996, the Company borrowed the remaining $35.0 million
under the bank term credit facility.
At March 31, 1996, working capital increased to $132.6 million
compared to $103.8 million at September 30, 1995. Accounts
receivable at March 31, 1996 increased by $8.8 million compared to
the September 30, 1995, of which $7.8 million was attributable to
the AFW acquisition. Inventory increased $10.1 million at March
31, 1996 compared to September 30, 1995, of which, $2.4 million was
attributable to the AFW acquisition. The remainder of the increase
is due generally to growth in inventories in the equipment segment,
largely due to changes in customer delivery requirements. The
Company has adjusted its materials purchasing plans to more closely
track customer delivery schedules. Current liabilities are
essentially unchanged compared to the September 30, 1995 balances.
<PAGE> 15
During the first half of fiscal 1996, the Company invested
approximately $7.9 million in property and equipment (excluding
$1.5 million in assets acquired under capital lease), primarily to
upgrade equipment used in the Company's manufacturing and R&D
activities and for tooling used to manufacture new models of
machines. The Company presently expects fiscal 1996 capital
spending will not exceed $30.0 million. The principal capital
projects planned for fiscal 1996 include: expansion of operating
facilities in Willow Grove, PA, Singapore and Israel; purchase of
equipment necessary to expand capacity and investment in a new
global management information system. Relocation of facilities in
Singapore and Israel is not expected to have a material adverse
effect on the Company's results of operation, cash flow or
liquidity.
In addition, at the end of February 1996, the Company entered into
an agreement with Delco Electronics Corporation ("Delco") to form
and manage a joint venture which will provide wafer bumping
services. In March 1996, the Company paid $.5 million as its
initial cash contribution to the joint venture, and expects an
initial investment of approximately $11.0 million to fund the start
up of activities during the joint venture's first year of
operations.
On April 10, 1996, the Company renegotiated the terms of its bank
credit facilities resulting in a Restated Loan Agreement providing
for a $10.0 million revolving credit facility expiring February 28,
1997, and a $50.0 million revolving credit facility expiring March
30, 2001. As of March 31, 1996, the $50.0 million borrowed under
the term credit facility was classified as long-term debt as the
Company presently does not expect to repay any principal under this
loan during the next year. There have been no borrowings under the
$10.0 million credit line during fiscal 1996.
A significant portion of the Company's cash and investments are
attributable to undistributed earnings of its foreign subsidiaries.
Deferred income taxes have not been provided on that portion of
such undistributed earnings which is considered indefinitely
reinvested in the foreign operations. If such funds were required
to be repatriated to fund the Company's operations or other
financial obligations, additional income tax expenses could be
required to be recognized.
The amended Gold Supply Agreement dated October 2, 1995 between AFW
and its subsidiaries (collectively, the "AFW Companies") and their
gold supplier contains certain financial covenants and prohibits
the AFW Companies from paying any dividends or making any
distributions without the consent of the supplier if, following any
such dividend or distribution, the net worth of the AFW Companies
would be less than $7.0 million.
<PAGE> 16
The Company believes that anticipated cash flows from operations,
its working capital and amounts available under its revolving
credit facility will be sufficient to meet the Company's liquidity
and capital requirements for at least the next 12 months. The
Company may, however, seek additional equity or additional or
replacement debt financing to provide capital for corporate
purposes or to fund strategic business opportunities, including
possible acquisitions, joint ventures, alliances or other business
arrangements which could require substantial capital outlays. The
timing and amount of any such capital requirements cannot be
precisely determined at this time and will depend on a number of
factors, including demand for the Company's products, semiconductor
and semiconductor capital equipment industry conditions and
competitive factors and the nature and size of strategic business
opportunities which the Company may elect to pursue.
PART II. OTHER INFORMATION.
Item 2. Changes in Securities.
The Restated Loan Agreement (Exhibit 4) is unsecured and requires
that the Company maintain certain covenants including a minimum
working capital of $50.0 million, as detailed in Note 5 to the
consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
The 1996 Annual Meeting of Shareholders of the Company was held on
February 13, 1996.
At this meeting, Messrs. Frederick W. Kulicke and Larry D.
Striplin, Jr. were re-elected to the Board of Directors of the
Company for terms expiring at the 2000 Annual Meeting. In such
election, 17,297,749 votes were cast for Mr. Kulicke and for Mr.
Striplin. Under Pennsylvania law, votes cannot be cast against a
candidate. Proxies filed by the holders of 70,528 shares at the
1996 Annual Meeting withheld authority to vote for Mr. Kulicke and
Mr. Striplin.
At the 1996 Annual Meeting, 17,284,431 shares were voted in favor
of the reappointment of Price Waterhouse as independent accountants
of the Company to serve until the 1997 Annual Meeting and 41,377
shares were voted against such proposal. Proxies filed by the
holders of 42,469 shares at the 1996 Annual Meeting instructed the
proxy holders to abstain from voting on such proposal.
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 4 - Restated Loan Agreement
Exhibit 27 - Financial Data Schedule
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.
KULICKE AND SOFFA INDUSTRIES, INC.
Date: May 15, 1996 /s/ Clifford G. Sprague
----------------------------------
Clifford G. Sprague
Senior Vice President,
Chief Financial Officer and
Chief Accounting Officer
<PAGE>
Exhibit 4
RESTATED LOAN AGREEMENT
Dated as of April 10, 1996
between
KULICKE AND SOFFA INDUSTRIES, INC.
and
MIDLANTIC BANK, N.A.
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION iii
SECTION 1.01 Definitions iii
SECTION 1.02 Interpretation of Financial Measurements;
Financial Statements 7
SECTION 2. THE LOANS 8
SECTION 2.01 Revolving Loan I 8
SECTION 2.02 The Revolving Loan Note I 8
SECTION 2.03 Use Of Revolving Loan I Proceeds 8
SECTION 2.04 Revolving Loan II 8
SECTION 2.05 The Revolving Loan Note II 9
SECTION 2.06 Use Of Revolving Loan II Proceeds 9
SECTION 2.07 Interest Rates and Calculation of Interest 9
SECTION 2.08 Payments to Bank 15
SECTION 2.09 Due Date Extension 15
SECTION 2.10 Mandatory Prepayment; Optional Prepayment; Application
of Payments; Repayment Premium 15
SECTION 2.11 Fees 16
SECTION 2.12 Participations 16
SECTION 3. CONDITIONS 17
SECTION 3.01 Documents Required for the Closing 17
SECTION 3.02 Certain Events 18
SECTION 4. [INTENTIONALLY OMITTED] 18
SECTION 5. REPRESENTATIONS, WARRANTIES AND SURVIVAL 18
SECTION 5.01 Representations and Warranties 18
SECTION 5.02 Survival 21
SECTION 5.03 No Default 22
SECTION 6. COVENANTS 22
SECTION 6.01 Affirmative Covenants 22
SECTION 6.02 Negative Covenants 24
SECTION 7. DEFAULT 25
SECTION 7.01 Events of Default 25
SECTION 7.02 Remedies 27
SECTION 8. MISCELLANEOUS 27
SECTION 8.01 Construction 27
SECTION 8.02 Further Assurance 27
SECTION 8.03 Enforcement and Waiver by the Bank 28
SECTION 8.04 Expenses of the Bank 28
SECTION 8.05 Notices 28
SECTION 8.06 Waiver and Release by Borrower 29
SECTION 8.07 Applicable Law 29
SECTION 8.08 Binding Effect; Assignment and Entire Agreement 29
SECTION 8.09 Severability 29
SECTION 8.10 Counterparts 30
SECTION 8.11 Headings 30
SECTION 8.12 Modification 30
SECTION 8.13 Third Parties 30
SECTION 8.14 Seal 30
SECTION 8.15 WAIVER OF JURY TRIAL 30
SECTION 8.16 Jurisdiction 30
SECTION 8.17 Indemnity 30
SECTION 8.18 Most Favored Lender 31
RESTATED LOAN AGREEMENT
_______________________
THIS LOAN AGREEMENT, dated as of April 10, 1996 (herein called the
"Agreement"), is entered into between KULICKE AND SOFFA INDUSTRIES, INC.
("Borrower") and MIDLANTIC BANK, N.A. ("Bank").
WITNESSETH:
__________
A. Borrower desires to establish certain financing arrangements with and
borrow funds from Bank and Bank is willing to establish such arrangements for
and make loans and advances to Borrower under the terms and provisions
hereinafter set forth.
B. The parties desire to define the terms and conditions of their
relationship and to reduce their agreements to writing.
C. It is intended hereby to restate the terms of all prior agreements between
the parties relative to the credit facilities included herein, including the
terms of that certain Loan Agreement dated November 27, 1991 as amended to
date and that certain Restated Loan Agreement dated September 14, 1995 as
amended to date.
NOW, THEREFORE, the parties hereto, intending to be legally bound, covenant
and agree as follows:
SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION.
_________ _______________________________________
SECTION 1.01 Definitions.
"Annual Financial Statements" shall mean the annual financial statements of
Borrower and its consolidated subsidiaries, including all notes thereto,
which statements shall include a balance sheet as of the end of a calendar
year and an income statement and a statement of cash flows for such year,
all setting forth in comparative form the corresponding figures from the
previous year, all prepared in conformity with Generally Accepted Accounting
Principles and accompanied by a financial audit of independent certified
public accountants who are reasonably satisfactory to the Bank which shall
state that such accountants have audited such financial statements and that
such financial statements are in conformity with Generally Accepted
Accounting Principles.
"Applicable Percentage" shall mean, for purposes of calculating the Unused
Commitment Fee payable under Section 2.11(B) hereof:
(1). 15% for any Quarterly Period next following a fiscal quarter in which
Borrower's Interest Coverage Ratio equals or exceeds 5.00, as
reflected in Borrower's Compliance Certificate for such fiscal
quarter;
(2). 175% for any Quarterly Period next following a fiscal quarter in which
neither subpart (1) or (3) of this subsection applies, as reflected in
Borrower's Compliance Certificate for such fiscal quarter;
(3). 20% for any Quarterly Period next following a fiscal quarter in which
Borrower's Interest Coverage Ratio is less than 3.5, as reflected in
Borrower's Compliance Certificate for such fiscal quarter.
"Bank Indemnitees" shall mean the Bank, any pledgee, assignee or subsequent
holder or owner of any Note or any interest in any Note, including each
Participant, any affiliate, successor, assign or subsidiary of the Bank or any
Participant, and each of their respective shareholders, members, directors,
officers, employees, counsel, agents and contractors, as well as their
respective heirs, beneficiaries, administrators, executors, personal
representatives, trustees, receivers, successors and assigns.
"Business Day" shall mean a day, other than a Saturday or Sunday, on which
Bank is open for business.
"Closing Date" shall mean the date of this Agreement.
"Collateral Documents" shall mean all of the documents and instruments to be
executed and delivered to Bank pursuant to Sections 2 and 3 hereof.
"EBITA" shall mean Pre Tax Earnings plus the sum of amortization and
interest expense during the period for which Pre Tax Earnings was calculated.
"80% Subsidiary" shall mean an entity 80% or more of the capital stock or
partnership units of which are owned directly or indirectly by Borrower.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" shall mean an event specified in Section 7 hereof.
"Financial Statements" means any Annual Financial Statements.
"Fixed Charges" means cash interest payments on Funded Debt.
"Funded Debt" means, as of any date, all Indebtedness for borrowed money,
including cash advances under the Loans and capital lease obligations, and
including further, without limitation, all Indebtedness for borrowed money
guaranteed by Borrower and the face amount of letters of credit for which
Borrower has any reimbursement obligation.
"Generally Accepted Accounting Principles" or "GAAP" shall mean, with
respect to any Person, such accounting practice as, in the opinion of the
independent accountants retained by such Person and who are reasonably
acceptable to the Bank, conforms at the time to generally accepted accounting
principles, consistently applied. Generally accepted accounting principles
means those principles and practices which are (a) recognized as such by the
Financial Accounting Standards Board, (b) applied for all periods after the
date hereof in a manner consistent with the manner in which such principles
and practices were applied to the most recent financial statements of the
relevant Person furnished to the Bank, and (c) consistently applied for all
periods after the date hereof so as to reflect properly the financial
condition, and results of operations and cash flows, of such Person. If any
change in any accounting principle or practice is required by the Financial
Accounting Standards Board in order for such principle or practice to continue
as a generally accepted accounting principle or practice, all reports and
financial statements required hereunder shall be prepared in accordance with
such change. Solely for purposes of this Agreement, if any such material
change is made, then either (i) the financial covenants shall be appropriately
modified by agreement between the parties to reflect such change or (ii) if no
such agreement is reached, the financial covenant compliance computations
shall be computed without regard to such change.
"Indebtedness" shall mean all items of indebtedness, obligation or
liability, due or to become due, liquidated or unliquidated, direct or
contingent, joint or several, of any nature whatsoever and out of whatever
transaction arising, including, without limitation:
(A) All indebtedness guaranteed, directly or indirectly, in any manner, or
endorsed (other than for collection or deposit in the ordinary course
of business) or discounted with recourse;
(B) All indebtedness in effect guaranteed, directly or indirectly, through
agreements, contingent or otherwise to (l) purchase such indebtedness,
(2) purchase, sell or lease (as lessee or lessor) property, products,
materials or supplies, or to purchase or sell services, primarily for
the purpose of enabling any debtor to make payment of such
indebtedness or to assure the owner of the indebtedness against loss,
or (3) supply funds to or in any other manner invest in any debtor;
(C) All indebtedness secured by (or for which the holder of such
indebtedness has an existing right, contingent or otherwise, to be
secured by) any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance upon property owned or
acquired subject to such mortgage, deed of trust, pledge, lien,
security interest, charge or encumbrance, whether or not the
liabilities secured thereby have been assumed; and
(D) All indebtedness incurred as the lessee of goods or services under
leases that, in accordance with GAAP, consistently applied, should be
reflected on the lessee's balance sheet.
"Interest Coverage Ratio" shall mean, as of any date, the ratio of (a) EBITA
for the 12 months then ended, to (b) Fixed Charges for such period.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Investment" shall mean for purposes of Section 6.02(A) hereof any loan or
advance to or equity investment in any Person by Borrower.
"Laws" shall mean all ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof or any court or similar entity established by any thereof.
"Leverage Ratio" means, as of any date, the ratio of (a) Funded Debt as of
such date to (b) the sum of Funded Debt and Net Worth on such date.
"Loans" shall mean collectively the Revolving Loan I and the Revolving Loan
II.
"Material Adverse Effect" shall mean any specified event, condition or
occurrence as to Borrower which individually or in the aggregate with any
other such event, condition or occurrence and whether through the effect on
Borrower's business, property, prospects, profits or condition (financial or
otherwise) or otherwise could reasonably be expected to (a) result in, to the
extent not fully covered by insurance, any liability, loss, forfeiture,
penalty, costs, fine, expense, payment or other monetary obligation or loss of
property of Borrower in excess of 5% of Borrower's consolidated shareholder's
equity, determined in accordance with GAAP, as reflected in Borrower's then
most recently prepared annual or quarterly financial statements, and/or (b)
materially impair the ability of the Borrower to meet all of its Obligations
to the Bank.
"Measurement Period" shall mean as of any date for purposes of Section 6.02
(A) hereof the two and one-half (2 1/2) year period ending on such date.
"Net Worth" shall mean the excess of assets over liabilities as would be
shown on a balance sheet of Borrower, prepared in accordance with GAAP,
consistently applied, plus Subordinated Indebtedness.
"Non-80% Subsidiary" shall mean any entity other than an 80% Subsidiary.
"Notes" shall mean, collectively, the Revolving Loan Note I and the
Revolving Loan Note II.
"Obligations" shall mean the obligations of Borrower to pay the principal of
and interest on the Notes and to satisfy and perform all of its other existing
and future obligations, liabilities and indebtedness to Bank under this
Agreement and the Notes, whether matured or unmatured, direct or contingent,
joint or several, including, without limitation, any extensions,
modifications, renewals thereof and substitutions therefor.
"Participants" shall mean each Person to which Bank may pursuant to Section
2.12 hereof sell participations in all or any portion of the Loans.
"Permitted Investments" shall mean (a) direct obligations of, or obligations
fully and unconditionally guaranteed by, the United States of America, (b)
deposit accounts in, or certificates of deposit issued by, any commercial bank
in the United States of America having total capital and surplus in excess of
Seventy Five Million Dollars ($75,000,000) or certificates of deposit which
are fully insured by the Federal Deposit Insurance Corporation, (c) investment
grade (rated in one of the four highest rating categories) commercial paper,
bankers' acceptances or similar financial instruments, (d) investment grade
bonds (rated in one of the four highest rating categories), (e) mutual funds
having at least eighty percent (80%) of their assets in cash and/or
investments included in (a), (b), (c) or (d) above and/or (f) investments of
the type described in Exhibit "1.01(A)".
"Permitted Liens" shall mean:
(A) Liens for taxes, assessments or similar charges incurred in the
ordinary course of business which are not yet due and payable;
(B) Pledges or deposits made in the ordinary course of business to secure
repayment of workers' compensation, or to participate in any fund in
connection with compensation, insurance, old-age pensions or other
social security programs, as well as any underlying lien, if any,
being replaced by such pledge or deposit;
(C) Liens of mechanics, materialmen, warehousemen,
carriers, or other like lienors, securing obligations incurred in the
ordinary course of business that are not yet due and payable;
(D) Good faith pledges or deposits made in the ordinary course of business
to secure performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, not in excess of ten percent
(10%) of the aggregate amount due thereunder unless the amount due
thereunder is less than $1,000,000, or to secure statutory
obligations, or surety, appeal, indemnity, performance or other
similar bonds required in the ordinary course of business, as well as
any underlying lien, if any, being replaced by such pledge, deposit or
bond;
(E) Liens in favor of Bank; and
(F) Purchase money security interests covering real estate or equipment in
favor of the vendor or financier thereof, provided that the principal
amount secured by each such security interest does not exceed the
unpaid purchase price for such equipment.
"Person" shall mean any individual, corporation, participation, association,
joint-stock company, trust, unincorporated organization, joint venture, court
or government division or agency thereof.
"Pre-Tax Earnings" shall mean gross revenues and other proper income
credits, less all proper income charges other than taxes on income, all
determined in accordance with Generally Accepted Accounting Principles;
provided that there shall not be included in such revenues or charges (a) any
gains resulting from the write-up of assets; (b) any proceeds of any life
insurance policy; or (c) any gain or loss which is classified as
"extraordinary" in accordance with Generally Accepted Accounting Principles.
Pre-Tax Earnings can be less than zero for all purposes of this Agreement.
"Quarterly Period" shall have the meaning given thereto in Section 2.07(A)
hereof.
"Rates" shall mean the respective rates of interest specified in Section 2
of this Agreement.
"Revolving Loan I" shall mean the Revolving Loan facility established
pursuant to Section 2.01 of this Agreement.
"Revolving Loan II" shall mean the Revolving Loan facility established
pursuant to Section 2.04 of this Agreement.
"Revolving Loan I Limit" shall mean $10,000,000.
"Revolving Loan II Limit" shall mean $50,000,000.
"Revolving Loan Note I" shall mean promissory note evidencing Borrower's
obligation to repay the Revolving Loan I.
"Revolving Loan Note II" shall mean promissory note evidencing Borrower's
obligation to repay the Revolving Loan II.
"Revolving Loan I Termination Date" shall mean February 28, 1997 or such
other later date to which Bank and Borrower may (without obligation to do so)
hereafter agree in writing in connection with any renewal or extension of the
Revolving Loan I.
"Revolving Loan II Termination Date" shall mean March 30, 2001 or such other
later date to which Bank and Borrower may (without obligation to do so)
hereafter agree in writing in connection with any renewal or extension of the
Revolving Loan II.
"Subordinated Indebtedness" shall mean Indebtedness the repayment of which
is subordinated to the Loans and all other Obligations in form and manner
satisfactory to Bank.
"Unused Commitment I" shall mean on any day and for purposes of Section 2.11
(A) hereof the Revolving Loan I Limit minus the sum of the principal amount of
cash advances and the face amount of letters of credit outstanding under
Revolving Loan I.
"Unused Commitment II" shall mean on any day and for purposes of Section
2.11 (B) hereof the Revolving Loan II Limit minus the principal amount of cash
advances outstanding under Revolving Loan II.
"Working Capital" shall mean the excess of current assets over current
liabilities as would be shown on a balance sheet of Borrower, prepared in
accordance with GAAP, consistently applied. For purposes of the computation
of Working Capital, outstanding cash advances under the Revolving Loan II
shall not be treated as current liabilities.
SECTION 1.02 Interpretation of Financial Measurements;
Financial Statements.
Except where specifically otherwise provided herein, all financial
measurements shall be computed for Borrower and its consolidated subsidiaries
on a consolidated basis, and all references herein to financial statements of
the Borrower shall be references to such consolidated financial statements.
SECTION 2. THE LOANS.
_________ _________
SECTION 2.01 Revolving Loan I.
Under and subject to the terms and conditions of this Agreement and within
the Revolving Loan I Limit and as requested by an authorized officer of
Borrower from time to time through but not including the Revolving Loan I
Termination Date, Bank hereby establishes a Revolving Loan facility (the
"Revolving Loan I") pursuant to which Bank will from time to time make cash
advances to and issue letters of credit for the account of Borrower. Unless
sooner terminated pursuant to any other provision of this Agreement, the
Revolving Loan I will terminate and the entire principal balance of the
Revolving Loan I, together with all unpaid accrued interest thereon, shall be
repaid on the Revolving Loan I Termination Date, without notice or demand.
This shall include, as to letters of credit outstanding on the Revolving Loan
I Termination Date, payment by Borrower to Bank on the Revolving Loan I
Termination Date of cash or cash equivalents acceptable to Bank in an amount
equal to the face amount of all outstanding letters of credit. Each advance
under the Revolving Loan I shall be made or issued following the giving of
notice by an authorized officer of Borrower to Bank (which notice shall be
given not later than three (3) Business Days preceding the Business Day on
which such cash advance is required), specifying the date of borrowing and the
amount thereof. Cash advance shall be in multiples of $50,000. Upon
fulfillment of all applicable conditions to such advance set forth herein,
Bank will make such funds available to the Borrower at Bank's main office by
depositing same in Borrower's deposit account with Bank or issue such letter
of credit. The outstanding principal balance under the Revolving Loan I may
fluctuate from time to time, to be reduced by repayments made by Borrower, to
be increased by future loans, advances and extensions of credit which may be
made by Bank, to or for the benefit of Borrower.
SECTION 2.02 The Revolving Loan Note I.
Contemporaneously herewith, Borrower will execute and deliver to Bank the
Revolving Loan Note I to evidence Borrower's obligation to repay Bank for all
amounts due or which may become due in connection with the Revolving Loan I,
with interest, all as more fully described in the Revolving Loan Note I, the
terms of which are incorporated herein by reference.
SECTION 2.03 Use Of Revolving Loan I Proceeds.
Advances under the Revolving Loan I shall be used by the Borrower
exclusively for working capital.
SECTION 2.04 Revolving Loan II.
Under and subject to the terms and conditions of this Agreement and within
the Revolving Loan II Limit and as requested by an authorized officer of
Borrower from time to time through but not including the Revolving Loan II
Termination Date, Bank hereby establishes a Revolving Loan facility (the
"Revolving Loan II") pursuant to which Bank will from time to time make cash
advances to Borrower. Unless sooner terminated pursuant to any other
provision of this Agreement, the Revolving Loan II will terminate and the
entire principal balance of the Revolving Loan II, together with all unpaid
accrued interest thereon, shall be repaid on the Revolving Loan II Termination
Date, without notice or demand. Each advance under the Revolving Loan II
shall be made or issued following the giving of notice by an authorized
officer of Borrower to Bank (which notice shall be given not later than three
(3) Business Days preceding the Business Day on which such cash advance is
required), specifying the date of borrowing and the amount thereof. Cash
advance shall be in multiples of $50,000. Upon fulfillment of all applicable
conditions to such advance set forth herein, Bank will make such funds
available to the Borrower at Bank's main office by depositing same in
Borrower's deposit account with Bank. The outstanding principal balance under
the Revolving Loan II may fluctuate from time to time, to be reduced by
repayments made by Borrower, to be increased by future loans, advances and
extensions of credit which may be made by Bank, to or for the benefit of
Borrower.
SECTION 2.05 The Revolving Loan Note II.
Contemporaneously herewith, Borrower will execute and deliver to Bank the
Revolving Loan Note II to evidence Borrower's obligation to repay Bank for all
amounts due or which may become due in connection with the Revolving Loan II,
with interest, all as more fully described in the Revolving Loan Note II, the
terms of which are incorporated herein by reference.
SECTION 2.06 Use Of Revolving Loan II Proceeds.
Advances under the Revolving Loan II shall be used by the Borrower
exclusively for the refinance of existing Indebtedness due Bank and for
general corporate purposes.
SECTION 2.07 Interest Rates and Calculation of Interest.
(A) As used in this Section 2.07, the following terms shall have the
following meanings:
(i) "Applicable Margin" means, with respect to principal of the
Revolving Loan II for which a LIBOR Rate election is being made:
(1) .40 percentage points for any Quarterly Period next
following a fiscal quarter in which Borrower's Interest
Coverage Ratio equals or exceeds 5.0, as reflected in
Borrower's Compliance Certificate for such fiscal quarter;
(2) .50 percentage points for any Quarterly Period next
following a fiscal quarter in which neither subpart (1) or
(3) of this subsection (i) applies, as reflected in
Borrower's Compliance Certificate for such fiscal quarter;
(3) .60 percentage points for any Quarterly Period next
following a fiscal quarter in which Borrower's Interest
Coverage Ratio is less than 3.5, as reflected in Borrower's
Compliance Certificate for such fiscal quarter;
With respect to principal of Revolving Loan II for which a LIBOR Rate election
is made, the Applicable Margin will remain fixed for the applicable Rate
Period regardless of any change in Borrower's Interest Coverage Ratio during
such Rate Period.
(ii) "Base Rate" means the higher of (1) the Prime Rate minus one-
half of one percentage point or (2) the Fed Funds Rate plus one-half of one
percentage point.
(iii) "Fed Funds Rate" means as of any date the federal funds
"offered" rate as most recently published in the Money Rate section of the
Wall Street Journal, provided that if such rate ceases to be published, the
Fed Funds Rate may be based on such other index as Bank reasonably determines
to be comparable to such published rate.
(iv) "Good Business Day" means any day when both Bank and banks in
London, England are open for business.
(v) "LIBOR Rate" means, with respect to principal of the Revolving
Loan II, for any day during each Rate Period, (a) the per annum rate of
interest determined by Bank as being the composite rate available to Bank at
approximately 11:00 a.m. London time in the London Interbank Market, as
referenced by Telerate (page 3750), in accordance with the usual practice in
such market, for the Rate Period elected by Borrower, in effect two (2) Good
Business Days prior to the date on which such LIBOR Rate is to be effective
for deposits of dollars in amounts equal (as nearly as may be estimated) to
that portion of the principal balance of the Revolving Loan II for which such
election is being made as of the time of such determination, as such rate (the
"LIBOR Base Rate") may be adjusted by the reserve percentage applicable during
the Rate Period (or if more than one such percentage shall be applicable, the
daily average of such percentages for those days in such Rate Period during
which any such percentage shall be so applicable) under regulations issued
from time to time by the Board of Governors of the Federal Reserve System (or
any successor) for determining the maximum reserve requirement (including
without limitation, any emergency, supplemental or other marginal reserve
requirement) for the Bank with respect to liabilities or assets consisting of
or including "Eurocurrency Liabilities" as such term is defined in RegulationD
of the Board of Governors of the Federal Reserve System, as in effect from
time to time, having a term equal to such Rate Period ("Eurocurrency Reserve
Requirement"), plus (b) the Applicable Margin. Such reserve adjustment shall
be effectuated by calculating, and the LIBOR Rate shall be equal to, (a) the
quotient of (i) the LIBOR Base Rate divided by (ii) one minus the Eurocurrency
Reserve Requirement, plus (b) the Applicable Margin.
(vi) "Maximum Tranches" means as of any date six (6) minus, if on
such date there is principal outstanding on the Revolving Loan II earning
interest at the Base Rate, one (1).
(vii) "Notification" means, with respect to all periods in which the
LIBOR Rate is in effect, telephonic notice (which shall be irrevocable) by an
authorized officer of a Borrower to Bank, which notice shall be given no later
than 10:00 a.m. Philadelphia time, on the day which is at least 4 Business
Days prior to the Business Day on which such rate is to become effective,
which notice shall specify (a) that a LIBOR Rate is being selected for a
portion of outstanding principal of the Revolving Loan II, (b) the principal
amount of Revolving Loan II to be subject to such rate; (c) the Rate Period(s)
selected; and (d) the date on which such request is to become effective (which
date shall be a date selected in accordance with Section 2.07(B) hereof).
(viii)"Prime Rate" means a per annum rate of interest, equal to the
rate of interest in effect from time to time at Bank as its Prime Rate (which
is not necessarily the lowest interest rate charged by Bank for loans), and
whether or not announced or otherwise communicated to Borrower, such Prime
Rate to change from time to time as of the effective date of each change in
Prime Rate.
(ix) "Quarterly Period" means the three (3) calendar month period
commencing on the first day of the month next following the month in which
Borrower provides Bank with a Compliance Certificate pursuant to Section
6.01(A)(3) hereof.
(x) "Rate Period" means, with respect to all periods in which to the
LIBOR Rate is in effect, the period of time for which a particular LIBOR Rate
shall apply to a portion of the principal of the Revolving Loan II. Rate
Periods for principal earning interest at the LIBOR Rate shall be for periods
of 30, 60, 90 or 180 days, and for no other length of time, provided that no
Rate Period may end on other than a Business Day, or after the Revolving Loan
II Termination Date.
(B) (1) The outstanding principal balance of cash advances under the
Revolving Loan I shall earn interest at the Prime Rate minus one-quarter of
one (.25) percentage point ("the "Prime-Based Rate").
(2) The outstanding principal balance of the Revolving Loan II shall
earn interest at the Base Rate, provided, however, that, by giving
Notification, Borrower may request to have all or a portion of the outstanding
principal of the Revolving Loan II earn interest, instead, at the LIBOR Rate
as follows: (i) with respect to such principal amount of such Loan, from the
date of such advance until the end of the Rate Period specified in the
Notification; and/or (ii) with respect to the principal amount of such Loan
outstanding and earning interest at the LIBOR Rate at the time of the
Notification related to such principal amount, from the expiration of the then
current Rate Period related to such principal amount until the end of the Rate
Period specified in the Notification; and/or (iii) with respect to all or any
portion of the principal amount of such Loan outstanding and earning interest
at the Base Rate at the time of Notification, from the date set forth in the
Notification until the end of the Rate Period specified in the Notification.
(3) Borrower understands and agrees: (i) that the LIBOR Rate
applicable to any portion of outstanding principal of the Revolving Loan II
may be different from the LIBOR Rate applicable to any other portion of
outstanding principal of the Revolving Loan II, (ii) that no more than the
Maximum Tranches of principal of the Revolving Loan II bearing interest at the
LIBOR Rate may be outstanding at any one time, (iii) that the minimum amount
of principal to which any LIBOR Rate shall apply shall be $1,000,000, and (iv)
that Bank shall have the right to terminate any Rate Period, and the interest
rate applicable thereto, prior to maturity of such Rate Period, if Bank
determines in good faith (which determination shall be conclusive) that
continuance of such interest rate has been made unlawful by any Law to which
Bank or any Participant may be subject, in which event the principal to which
such terminated Rate Period relates thereafter shall earn interest at the Base
Rate.
(4) Borrower shall indemnify Bank and any Participant against any and
all loss or expense (excluding loss of margin) which Bank or such Participant
has sustained or incurred as a consequence of: (a) any payment of any
principal amount earning interest at the LIBOR Rate on a day other than the
last day of the corresponding Rate Period (whether or not any such payment is
made pursuant to acceleration upon or after an Event of Default, by reason of
optional or mandatory prepayment, or for any other reason, and whether or not
any such payment is consented to by Bank, unless Bank shall have expressly
waived such indemnity in writing), other than in connection with a prepayment
made under the circumstances set forth in Sections 2.07(B)(5) or 2.07(B)(6)
hereof; (b) any attempt by Borrower to revoke in whole or part any
Notification given pursuant to this Agreement; or (c) any attempt by Borrower
to convert or renew any principal amount earning interest at the LIBOR Rate on
a day other than the last day of the corresponding Rate Period (whether or not
such conversion or renewal is consented to by Bank, unless Bank shall have
expressly waived such indemnity in writing).
(5) In the event that, as a result of any changes in applicable Law
or the interpretation thereof, it becomes unlawful for Bank or any Participant
to maintain Eurodollar liabilities sufficient to fund any LIBOR Rate loan,
then Bank's obligations to convert to or maintain a LIBOR Rate shall be
suspended until such time as Bank or such Participant may again cause the
LIBOR Rate to be applicable to its share of the Revolving Loan II and such
principal earning interest at the LIBOR Rate shall accrue interest instead at
the Base Rate.
(6) The LIBOR Rate may, upon five (5) days' prior notice to Borrower,
be adjusted by Bank on a prospective basis to take into account the additional
or increased cost of maintaining any necessary reserves for Eurodollar
deposits (but without duplication for any adjustment made on account of
Eurocurrency Reserve Requirements in determining the LIBOR Rate) or increased
costs due to changes in applicable law or regulation or the interpretation
thereof occurring subsequent to the commencement of the then applicable Rate
Period, including but not limited to changes in tax laws (except changes of
general applicability in corporate income tax laws as they affect financial
institutions) and changes in the reserve requirements imposed by the Board of
Governors of the Federal Reserve System (or any successor) that increase the
cost to Bank or any Participant of funding the LIBOR Rate. Bank shall
promptly give Borrower notice of such a determination and proposed adjustment,
which determination shall be conclusive as to the correctness of the fact and
the amount of such proposed adjustment. The Borrower may, by written notice
to Bank provided within two (2) Business Days after the date of Bank's notice
to Borrower of such proposed adjustment, (a) request Bank to furnish to
Borrower a statement setting forth the basis for adjusting such LIBOR Rate and
the method for determining the amount of such adjustment, and/or (b) prepay
that portion of principal of the Revolving Loan II accruing interest at the
LIBOR Rate with respect to which such adjustment is made, and/or (c) elect to
have that portion of principal of the Revolving Loan II accruing interest at
the LIBOR Rate accrue interest, effective on the first Business Day after
Bank's receipt of such written notice, at the Base Rate for the balance of the
applicable Rate Period.
(7) In the event that the Borrower shall have requested the LIBOR
Rate in accordance herewith and Bank shall have reasonably determined that
Eurodollar deposits equal to the amount of the principal to earn interest at
the LIBOR Rate and for the Rate Period specified are unavailable, impractical
or unlawful with respect to Bank or any Participant, or that the rate based on
the LIBOR Rate will not adequately and fairly reflect the cost to Bank or any
Participant of the LIBOR Rate applicable to the specified Rate Period, of
making or maintaining the principal amount of the Revolving Loan II at the
LIBOR Rate specified by the Borrower during the Rate Period specified, or that
by reason of circumstances affecting Eurodollar markets, adequate and
reasonable means do not exist for ascertaining the rate based on the LIBOR
Rate applicable to the specified Rate Period, Bank shall promptly give notice
of such determination to the Borrower that the LIBOR Rate is not available. A
determination by Bank hereunder shall be conclusive evidence of the
correctness of the fact and amount of such additional costs or unavailability.
Upon such a determination, (i) the right of Borrower to select, convert to,
or maintain a LIBOR Rate shall be suspended until Bank shall have notified the
Borrower that such conditions shall have ceased to exist, and (ii) that
portion of the Revolving Loan II subject to the requested LIBOR Rate shall
accrue interest instead at the Base Rate.
(C) Interest accruing at the LIBOR Rate or the Prime-Based Rate shall be
computed on the basis of a 360 day year but charged for the actual number of
days elapsed, and interest accruing at the Base Rate shall be computed on the
basis of a 365 or 366 day year, as the case may be.
(D) If, at any time, any of the Rates shall be finally determined by any
court of competent jurisdiction, governmental agency or tribunal to exceed the
maximum rate of interest permitted by any applicable Laws, then, for such time
as such Rate would be deemed excessive, application thereof shall be suspended
and there shall be charged in lieu thereof the maximum rate of interest
permissible under such Laws.
(E) Should there occur an Event of Default under this Agreement which is
not cured within fifteen (15) days after the occurrence thereof, then during
the continuance of such Event of Default interest on the Loans shall
automatically without notice or demand increase to a rate per annum which is
two (2) percentage points above the Base Rate, but in no event with respect to
any portion of principal less than interest on such portion at the rate
accruing prior to such Event of Default ("Default Rate"). Interest at the
Default Rate shall continue to accrue notwithstanding the entry of any
judgment hereon or on any of the Notes, and all such judgments shall bear
interest at the Default Rate provided for herein.
(F) Interest on the Revolving Loan I shall be payable monthly on the first
day of each calendar month. Interest on the Revolving Loan II shall be
payable quarterly on the first day of each calendar quarter or, as to interest
accruing at the LIBOR Rate, on the last day of the Rate Period or on the 90th
day of the Rate Period if the Rate Period exceeds 90 days.
SECTION 2.08 Payments to Bank.
All payments of interest on and principal of the Loans, all fees and all
other sums payable to Bank hereunder shall be paid directly to Bank in
immediately available funds, in such currency of the United States of America
as is, at the time of payment, legal tender for the payment of public and
private debts. To the extent Bank sends Borrower statements of any amounts
due or outstanding hereunder for interest or principal, such statements shall
be considered correct and conclusively binding on Borrower unless Borrower
notifies Bank in writing to the contrary within ten (10) days of the date any
statement which it deems to be incorrect is received by Borrower, specifying
the reason for its position. Bank is hereby irrevocably authorized to charge
Borrower's deposit accounts with Bank, and/or charge the Loans, for any and
all principal, interest and any other amounts due from Borrower to Bank
hereunder and under any of the Collateral Documents.
SECTION 2.09 Due Date Extension.
If any payment of principal of, or interest on any of the Loans or any
payment of any fee provided for herein or any other amount due hereunder shall
fall due on a day which is not a Business Day of Bank, then such due date
shall be extended to the next succeeding Business Day and additional interest
and fees shall accrue and be payable for the period of such extension.
SECTION 2.10 Mandatory Prepayment; Optional Prepayment;
Application of Payments; Repayment Premium.
(a) In the event the aggregate principal amount of either of the
Loans (including the face amount of all outstanding letters of credit and all
related reimbursement obligations) shall at the time of any determination of
the Revolving Loan Limits be in excess of the applicable Revolving Loan Limit
at such time, Borrower will forthwith without notice or demand, repay and
reduce the principal balance of the applicable Revolving Loan in an aggregate
amount equal to such excess.
(b) Borrower may at its option but subject to the terms of subpart
(d) below and Section 2.07(B)(4), prepay the principal of the Loans from time
to time and in whole or in part.
(c) For purposes of subparts (a) and (b), Borrower will at the time
of prepayment designate the portion(s) of principal earning interest at a
particular Rate(s) to which such prepayment is to be applied.
(d) Notwithstanding anything in subparts (a)-(b) to the contrary,
upon acceleration by Bank of the Obligations after the occurrence of an Event
of Default, Bank may apply any and all payments to any portion of the Loans in
any order as it shall in its discretion determine.
SECTION 2.11 Fees.
Borrower agrees to pay Bank the following fees:
(A) UnusedCommitment Fee I. Borrower shall pay Bank an Unused Commitment
Fee equal to 1/4 of 1% of the daily average Unused Commitment I, calculated
and payable quarterly in arrears.
(B) Unused Commitment Fee II. Borrower shall pay Bank an Unused Commitment
Fee equal to the Applicable Percentage of the daily average Unused Commitment
II, calculated and payable quarterly in arrears.
(C) Letter of Credit Fees. Borrower shall pay to Bank in connection with
letters of credit 1% per annum (calculated on the basis of a 360 day year) on
the face amount thereof, payable upon issuance and on each anniversary
thereof.
SECTION 2.12 Participations.
Borrower acknowledges that the Bank may from time to time sell
participations in all or any portion of the Loans to one or more financial
institutions (each a "Participant") as participant of Bank in the Loans. In
this regard, Borrower agrees that Bank may, subject to the following sentence,
from time to time provide financial and other information concerning the
Borrower to each Participant as well as to any or prospective participant.
Bank agrees to exercise all reasonable efforts to keep any information
delivered or made available by the Borrower confidential from anyone other
than persons employed or retained by Bank who are or are expected to become
engaged in evaluating, approving, structuring or administering the Loans,
provided that nothing herein shall prevent Bank from disclosing such
information (i) to any affiliate of Bank, (ii) upon the order of any court or
administrative agency, (iii) upon the request or demand of any regulatory
agency or authority having jurisdiction over Bank, (iv) which has been
publicly disclosed, (v) in connection with any litigation relating to the
Loans, this Agreement or any transaction contemplated hereby to which Bank or
Borrower may be a party, (vi) to the extent reasonably required in connection
with the exercise of any remedy hereunder, (vii) to Bank's legal counsel and
independent auditors, and (viii) to any actual or proposed Participant or
assignee of all or any part of the Loans hereunder, if such other Person,
prior to such disclosure, agrees for the benefit of the Borrower to comply
with the provisions of this Section 2.12.
SECTION 3. CONDITIONS.
_________ __________
The making of the Loans hereunder is subject to the following conditions
precedent (all documents to be in form and substance satisfactory to Bank and
its counsel):
SECTION 3.01 Documents Required for the Closing.
The Borrower shall have duly delivered to the Bank the following on the
Closing Date:
(A) The Notes, duly executed on behalf of Borrower;
(B) A certified (as of the date of the Closing hereof) copy of
resolutions of board of directors of Borrower authorizing the execution,
delivery and performance of this Agreement, the Notes, the Collateral
Documents and each other document and instrument to be delivered pursuant
hereto and any other instrument, agreement or document referred to herein;
(C) A certified (as of the date of the Closing) copy of Borrower's
by-laws;
(D) A certificate (dated the date of the Closing) of Borrower's
corporate secretary or assistant secretary as to the incumbency and specimen
signatures of the officers of Borrower executing this Agreement, the Notes,
the Collateral Documents and each other document to be delivered pursuant
hereto or thereto;
(E) A copy, certified as of the most recent date practicable by the
appropriate Secretary of State, of Borrower's articles of incorporation,
together with a certificate (dated the date of the Closing) of Borrower's
corporate secretary or assistant secretary to the effect that such certificate
of incorporation has not been amended since the date of the aforesaid
certification;
(F) Certificates, as of the most recent dates practicable, of the
aforesaid Secretaries of State, the Secretary of State of each state in which
Borrower is qualified as a foreign corporation, and the department of revenue
or taxation of each of the foregoing states, as to the subsistence and good
standing of Borrower;
(G) A written opinion of counsel to Borrower, dated the date of the
Closing and addressed to the Bank, in form and substance satisfactory to Bank
and its counsel;
(H) A certificate, dated the date of the Closing, signed by the
president or a vice president of Borrower to the effect that:
(1) The representations and warranties set forth in Section 5 of
this Agreement are true, complete and correct as of the date of the Closing;
(2) No Event of Default hereunder, and no event which, with the
giving of notice or the passage of time, or both, could become such an Event
of Default, has occurred as of the date of the Closing;
(3) No material adverse change has occurred in the Borrower's
financial condition since that reflected in the most recent Financial
Statements delivered to Bank; and
(4) All conditions to Closing set forth in this Agreement have
been fulfilled.
SECTION 3.02 Certain Events.
At the time of the Closing and each request for an advance or letter of
credit under the Revolving Loan, no Event of Default shall have occurred and
be continuing, and no event shall have occurred and be continuing which, with
the giving of notice or the passage of time, or both, could constitute an
Event of Default.
SECTION 4. [INTENTIONALLY OMITTED]
_________ _______________________
SECTION 5. REPRESENTATIONS, WARRANTIES AND SURVIVAL.
_________ ________________________________________
SECTION 5.01 Representations and Warranties.
To induce Bank to enter into this Agreement, Borrower represents and
warrants to Bank that:
(A) Borrower is a corporation duly organized, validly existing and in
good standing under the Laws of its state of incorporation as shown on Exhibit
"5.01(A)" hereto; Borrower has the lawful power to own its property and to
engage in the business it conducts, and is duly qualified and in good standing
in each of the jurisdictions where the nature of its business makes such
qualification necessary and where the failure to so qualify would have a
Material Adverse Effect; the states in which Borrower is qualified to do
business, and the addresses and counties of all places of business of
Borrower, are as set forth in Exhibit "5.01(A)" to this Agreement;
(B) Borrower is not in default with respect to any of its existing
Indebtedness where such default would have a Material Adverse Effect, and the
making and performance of this Agreement, the Notes and the Collateral
Documents will not (immediately, with the passage of time, or with the giving
of notice and the passage of time):
(1) Violate the charter, minutes or by-law provisions of Borrower
or violate any Laws or result in a default under any contract, agreement or
instrument to which Borrower is a party or by which Borrower or its property
is or may be bound, where the same would have a Material Adverse Effect, or
(2) Result in the creation or imposition of any security interest
in, or lien or encumbrance upon, any of the assets of Borrower, except such as
are in favor of Bank;
(C) Borrower has the power and authority to enter into and perform
this Agreement, the Notes and the Collateral Documents and to incur the
Obligations herein and therein provided for, and has taken all proper and
necessary action, corporate or otherwise, to authorize the execution, delivery
and performance of this Agreement, the Notes and the Collateral Documents;
(D) This Agreement is and the Collateral Documents and the Notes when
executed and delivered will be, valid, binding and enforceable against
Borrower in accordance with their respective terms, except to the extent that
the enforceability thereof is limited by bankruptcy and similar laws and
equitable principles affecting the rights of creditors generally;
(E) Except as disclosed in Exhibit "5.01(E)" to this Agreement, there
are no judgments or judicial or administrative orders or proceedings or other
litigation pending, or threatened, against or affecting Borrower in any court
or before any governmental authority or arbitration board or tribunal, and
Borrower is not in violation of any order of any court, governmental
authority, arbitration board or tribunal or administrative agency, or any
applicable statute, regulation or ordinance of the United States of America,
or of any state, city, town, municipality, county or of any other
jurisdiction, or of any agency thereof (including without limitation,
environmental laws and regulations), which would have a Material Adverse
Effect;
(F) As of the date of the most recent Financial Statements, Borrower
has not had any Indebtedness which is required by GAAP to be disclosed therein
including, without limitation, liabilities for taxes and any interest or
penalties relating thereto, except to the extent reflected (in a footnote or
otherwise) and reserved against in the Financial Statements or as disclosed in
or permitted by this Agreement. Borrower does not know of any basis for the
assertion against it of any liability required by GAAP to be disclosed in the
Financial Statements not fully reflected and reserved against therein;
(G) Borrower has filed all federal, state and local tax returns and
other reports as required by Law to be filed by it prior to the date hereof,
has paid or caused to be paid all taxes, assessments and other governmental
charges that are due and payable prior to the date hereof, and has made
adequate provision for the payment of such taxes, assessments or other charges
accruing but not yet payable, where the failure to do any of the foregoing
would have a Material Adverse Effect, except to the extent that Borrower is
contesting the same in good faith and by appropriate proceeding and an
adequate reserve has been made therefor. Borrower has no knowledge of any
deficiency or additional assessment against it in connection with any taxes,
assessments or charges not provided for on its books the failure to pay any of
which would have a Material Adverse Effect;
(H) Except as otherwise disclosed in Exhibit "5.01(H)" to this
Agreement, Borrower has complied with all applicable Laws the noncompliance
with which would have a Material Adverse Effect with respect to (1)
restrictions, specifications or other requirements pertaining to products that
it manufactures and sells or to the services it performs, or that it intends
to manufacture, sell or perform, (2) the conduct or planned conduct of its
business operations, and (3) the use, maintenance and operation or planned
use, maintenance and operation of the real and personal property owned or
leased by it in the operation or planned operation of its business. Exhibit
"5.01(H)" to this Agreement discloses any and all such noncompliance by
Borrower with all such applicable Laws as of the date hereof;
(I) All necessary consents, approvals or authorizations of, or
filing, registration or qualification with, any Person required to be obtained
by Borrower in connection with the execution and delivery of this Agreement,
the Notes and the Collateral Documents or the undertaking or performance of
any Obligation hereunder or thereunder has been obtained;
(J) Any employee benefit plan including those subject to ERISA
maintained by Borrower or to which Borrower contributed or contributes meets
the minimum funding standards established in Section 302 of ERISA and complies
in all material respects with all applicable requirements of ERISA and of the
Internal Revenue Code and with all applicable rulings and regulations issued
under the provisions of ERISA and the Internal Revenue Code, and no Prohibited
Transaction or Reportable Event, within the meaning of Section 4043 of ERISA,
has occurred and is outstanding with respect to any employee benefit plan of
Borrower. Furthermore, no employee benefit plan, including pension plan, has
asserted or threatened to assert a claim or demand for withdrawal liability
under ERISA as a result of any withdrawal from any said plan by Borrower or
any member of its Controlled Group which has occurred on or before the date
hereof;
(K) Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System), and no
part of the proceeds of the Loans will be used, directly or indirectly, to
purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock;
(L) Borrower has obtained all licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its property and
assets and to the conduct of its business, the failure to obtain which would
have a Material Adverse Effect;
(M) Borrower is not a guarantor or surety of, or otherwise
responsible in any manner with respect to, any undertaking of any other Person
except as set forth in the Financial Statements and except for guaranties in
favor of suppliers of Borrower's subsidiaries the indebtedness guarantied by
which does not exceed $1,000,000 at any time outstanding in the aggregate;
(N) Except as disclosed in Exhibit 5.01(E), Borrower has no knowledge
of any violations which would have a Material Adverse Effect of any state or
federal statutes, regulations, laws or orders pertaining to environmental
matters, including, without limitation the federal Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA"), Environmental Cleanup
Responsibility Act ("ECRA") and the federal Resource Conservation and Recovery
Act ("RCRA") relating to the operations and properties of Borrower;
(O) Borrower has not received a summons, citation, notice, directive,
letter or other communication, written or oral, from any state or federal
agency concerning any intentional or unintentional action or omission by
Borrower resulting in any material releasing, spilling, leaking, pumping,
pouring, emitting, emptying, dumping or otherwise disposing of Hazardous Waste
(as defined in 12 U.S.C. Section 6903(5)) or Hazardous Substance (as defined
in 42 U.S.C. Section 9609(14));
(P) Borrower has no corporate affiliates other than as set forth in
Exhibit "5.01(P)" hereto;
(Q) There are no liens, security interests or other encumbrances on
or affecting any of Borrower's personal or real property, other than Permitted
Liens.
SECTION 5.02 Survival.
By completing the Closing, Bank does not thereby waive any breach of
warranty or misrepresentation made by Borrower hereunder, or under any other
document or agreement delivered to Bank at Closing or otherwise referred to
herein, and all of Bank's claims and rights resulting from any breach or
misrepresentation by Borrower is expressly reserved by Bank. All of the
foregoing representations and warranties set forth in this Section 5 shall
survive until all Obligations hereunder are paid and satisfied in full.
SECTION 5.03 No Default.
Each request by a Borrower that Bank make an advance or issue a letter of
credit under the Loans shall, as of the date of such request, constitute a
representation and warranty by Borrower to Bank that no Event of Default or
event which with the passage of time or the giving of notice or both would
constitute an Event of Default exists hereunder.
SECTION 6. COVENANTS.
_________ _________
SECTION 6.01 Affirmative Covenants.
Borrower covenants and agrees with Bank that, so long as any of the
Obligations hereunder remain unsatisfied or Bank has any commitment in
connection therewith, it will comply with the following covenants:
(A) Borrower will furnish to Bank:
(1) Within one hundred five (105) days after each fiscal year of
Borrower, a copy of Borrower's Annual Financial Statements;
(2) Within sixty (60) days of the close of each of the first
three fiscal quarters, and within one hundred twenty (120) days of the close
of its fiscal year, a copy of Borrower's Form 10Q for such fiscal quarter and
with its Form 10K for such fiscal year, as filed with the Securities and
Exchange Commission;
(3) Concurrently with the foregoing, a certificate (the
"Compliance Certificate") of Borrower, certified by its chief financial
officer, reflecting compliance or non-compliance with the financial covenants
set forth in Exhibit 6.01(L).
(B) Borrower will maintain its properties in good condition and
repair (normal wear and tear excepted), and will pay and discharge or cause to
be paid and discharged when due, the cost of repairs to or maintenance of the
same, and will pay or cause to be paid all rental payments due.
(C) Borrower will carry insurance with reputable insurers in form and
amount and against fire (with extended coverage), liability and such other
risks as are customary with companies in the same or similar business in the
same area as Borrower.
(D) Borrower will pay or cause to be paid when due, all taxes,
assessments and charges or levies imposed upon Borrower or on any of its
property or which it is required to withhold and pay over, except where
contested in good faith by appropriate proceedings with adequate reserves
therefor (as determined by Borrower's certified public accountants) having
been set aside on its books.
(E) Borrower will maintain complete and accurate books and records
and will permit access by Bank during business hours to such books and records
and will permit Bank to inspect its properties and operations. Bank may at
any time and from time to time on reasonable notice to Borrower, audit and
conduct examinations of any Borrower's books and records and accounts
receivable and make abstracts and copies thereof.
(F) Borrower will take all necessary steps to preserve and qualify
its existence and franchises and comply with all present and future Laws
applicable to it in the operation of its business, where the failure to do so
would have a Material Adverse Effect.
(G) Borrower will give immediate notice to the Bank of (1) any
litigation to which it is a party if an adverse decision therein would have a
Material Adverse Effect, and (2) the institution of any other suit or any
administrative proceeding involving Borrower that would have a Material
Adverse Effect.
(H) Borrower will notify Bank immediately upon becoming aware of the
occurrence of any Event of Default or of any fact, condition or event that,
with the giving of notice or passage of time, or both, could become an Event
of Default, or of the failure of Borrower to observe any of its undertakings
hereunder.
(I) [INTENTIONALLY OMITTED]
(J) Borrower will (1) fund all its employee benefit plans in
accordance with no less than the minimum funding standards of Section 302 of
ERISA, (2) promptly advise Bank of the occurrence of any Reportable Event or
Prohibited Transaction with respect to any such Employee Benefit Plan(s) and
the action which Borrower propose to take with respect thereto; and (3)
promptly advise Bank of any claim for withdrawal liability made against it or
a member of its Controlled Group.
(K) All Financial Statements to be furnished by Borrower to Bank
shall be correct and complete, and fairly and fully present in accordance with
Generally Accepted Accounting Principles the financial condition of Borrower
as of the date(s) thereof and the results of the operations for the periods
covered thereby.
(L) Borrower will at all times be in compliance with the financial
covenants set forth in Exhibit "6.01(L)" hereto.
(M) Borrower will maintain its major and primary deposit accounts
with Bank.
SECTION 6.02 Negative Covenants.
Borrower hereby covenants and agrees that so long as any of the Obligations
remain unsatisfied, without the prior written consent of Bank:
(A) Borrower will not hereafter enter into any merger, consolidation
or reorganization, or acquire any stock in or all or substantially all of the
assets of or any partnership or joint venture interest in, or make any
Investment (other than a Permitted Investment) in (including any further
Investments in subsidiaries), any other Person, except (i) as described in
Exhibit 6.02(A), (ii) mergers with 80% Subsidiaries where Borrower is the
surviving entity and (iii) mergers, acquisitions and Investments with respect
to which all of the following conditions have been met:
(a) Borrower is the surviving entity with respect to any such
merger,
(b) no merger, acquisition or Investment in Non-80% Subsidiaries
shall exceed $5,000,000 per occurrence or $25,000,000 (the "Non-80% Subsidiary
Sublimit") for all such occurrences during any Measurement Period,
(c) no Investment hereafter made in any 80% Subsidiary shall
exceed $2,500,000 in the aggregate unless such 80% Subsidiary first guaranties
the Obligations in an amount equal to all Investments hereafter made by
Borrower in such 80% Subsidiary pursuant to a Surety Agreement in the form of
Exhibit 6.02(B) hereto, and
(d) the aggregate of all such mergers, acquisitions and
Investments referred to in clauses (b) and (c) shall not exceed $40,000,000
during any Measurement Period.
(B) Borrower will not sell, transfer, lease or otherwise dispose of
all or (except for (i) the sale of Inventory in the ordinary course of its
business, (ii) and disposition of Equipment for obsolescence or which is in
Borrower's reasonable judgment no longer necessary in the operation of its
business in the ordinary course thereof and (iii) any other disposition which
does not exceed $1,000,000 per disposition and $10,000,000 in the aggregate
for all dispositions) any part of its assets.
(C) Borrower will not mortgage, pledge, grant or permit to exist a
security interest in or lien on any of its assets of any kind, real or
personal, tangible or intangible, now owned or hereafter acquired, except for
Permitted Liens.
(D) Borrower will not directly or indirectly apply any part of the
proceeds of the Loans to the purchasing or carrying of any "margin stock"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, or any regulations, interpretations or rulings thereunder.
(E) Except as set forth in Exhibit 6.02(E) hereto, Borrower will not
suffer or permit any 80% Subsidiary to be subject to any agreement or
restriction which prohibits such 80% Subsidiary from repaying or making cash
dividends on or reductions of any Investment in such 80% Subsidiary.
SECTION 7. DEFAULT.
_________ _______
SECTION 7.01 Events of Default.
Each of the following events shall constitute an Event of Default and upon
the occurrence thereof Bank shall thereupon have the option (which is not
intended to diminish, alter or limit any other of Bank's rights described in
this Agreement, the Collateral Documents or any related agreements and
documents) (A) to declare Borrower in default under this Agreement, the
Collateral Documents, the Notes, and all other agreements with Bank, (B) to
terminate any undertaking of Bank in connection with the Loans, and (C)
require that Borrower provide the Bank, and Borrower agree to provide to the
Bank, cash or cash equivalents acceptable to Bank in an amount equal to the
face amount of all outstanding letters of credit, and/or (D) to declare all
Obligations immediately due and payable, including, but not limited to,
interest, principal, expenses, advances to protect Bank's position and
reasonable attorneys' fees to enforce this Agreement, the Collateral
Documents, and all related agreements and documents, and all of Bank's rights
hereunder and thereunder, all without demand, notice, presentment or protest,
or further action of any kind:
(A) Borrower fails to pay to Bank within ten (10) days when due any
installment of principal, interest, fee or other charge payable hereunder or
under the Notes or the Collateral Documents.
(B) Borrower fails to observe or perform any other Obligation to be
observed or performed by it hereunder, under the Notes or under any of the
Collateral Documents, or under any other existing or future agreement between
Borrower and Bank, which failure, to the extent reasonably susceptible of
cure, is not cured within thirty (30) days of the earlier of (i) the date on
which Borrower has actual knowledge thereof and (ii) Bank's giving Borrower
written notice of the occurrence thereof.
(C) Any Financial Statement or any representation made herein or
provided to Bank pursuant to any requirement hereof is materially false,
incorrect, or incomplete when made.
(D) Borrower becomes insolvent or generally fails to pay, or admits
its inability to pay, debts as they become due or makes a general assignment
for the benefit of any of its creditors.
(E) Borrower applies for, consents to, or acquiesces in the
appointment of, a trustee, receiver or other custodian for Borrower or any of
the property of Borrower or, in the absence of such application, consent or
acquiescence, a trustee, receiver or other custodian is appointed for Borrower
or for a substantial part of its property and is not discharged within sixty
(60) days.
(F) Any bankruptcy, reorganization, liquidation, dissolution or other
case and proceeding under any bankruptcy or insolvency law is commenced in
respect of Borrower and if such case or proceeding is not commenced by
Borrower, it is consented to or acquiesced in by Borrower or remains for sixty
(60) days undismissed.
(G) Borrower discontinues its business operations or materially
changes the nature of its business.
(H) Borrower shall suffer final judgment(s) for the payment of money
in an aggregate amount of $500,000 or more not covered by insurance or
reserves satisfactory to Bank and shall not discharge, satisfy or stay the
same within a period of thirty (30) days.
(I) One or more judgment creditors of Borrower shall obtain actual or
constructive possession of any of Borrower's properties having an aggregate
book value of $500,000 or more by any means, including, but without
limitation, levy, distraint, replevin or self-help.
(J) (l) Any Reportable Event which Bank reasonably determines to
constitute grounds for the termination of any employee benefit plan by the
PBGC or for the appointment by any United States District Court of a trustee
to administer or liquidate any Employee Benefit Plan; (2) the termination of
any employee benefit plan, or any Defined Benefit Plan described in Section
414(j) or Section 414(k) of the Internal Revenue Code, the present value of
whose benefits that may be guaranteeable under Title IV of ERISA exceeds the
amount of plan assets allocable to such benefits; (3) the appointment by any
United States District Court of a trustee to administer any Employee Benefit
Plan; (4) the institution by the PBGC of proceedings to terminate any Employee
Benefit Plan; (5) the failure by Borrower or any member of any Controlled
Group to meet the minimum funding standards established in Section 302 of
ERISA; or (6) the assertion of any claim of, or demand for, withdrawal
liability under ERISA by any multi-employer pension plan to which Borrower or
any member of its Controlled Group heretofore contributed or currently
contributes; but only if any of the events described in clauses (1) (6),
individually or in the aggregate, would have a Material Adverse Effect.
(K) (a) Failure by Borrower to perform or observe any term,
condition or covenant of any bond, note, debenture, loan agreement, indenture,
guaranty, trust agreement, mortgage or similar instrument to which Borrower is
a party or by which it is bound, or by which any of its properties or assets
may be affected (a "Debt Instrument"), and, as a result thereof (assuming the
giving of appropriate notice thereof, if required), Indebtedness which is
included therein or secured or covered thereby shall have been declared due
and payable prior to the date on which such Indebtedness would otherwise
become due and payable; or
(b) Any event or condition referred to in any Debt Instrument
shall have occurred or failed to occur, and, as a result thereof, Indebtedness
which is included therein or secured or covered thereby shall have been
declared due and payable prior to the date on which such Indebtedness would
otherwise become due and payable; or
(c) Failure to pay any Indebtedness for borrowed money due at
final maturity or pursuant to demand under any Debt Instrument; and in any of
said events set forth in (a), (b) and (c) the same has a Material Adverse
Effect.
SECTION 7.02 Remedies.
After any acceleration of the Obligations, Bank shall have in addition to
the rights and remedies given it by this Agreement, the Notes and the
Collateral Documents, all those allowed by all applicable Laws.
SECTION 8. MISCELLANEOUS.
_________ _____________
SECTION 8.01 Construction.
The provisions of this Agreement shall be in addition to those of the Notes
and Collateral Documents all of which shall be construed as integrated and
complementary to each other. Nothing herein contained shall prevent Bank from
enforcing any or all of the Notes and Collateral Documents, in accordance with
their respective terms.
SECTION 8.02 Further Assurance.
From time to time, Borrower will execute and deliver to Bank such additional
documents and will provide such additional information as Bank may reasonably
require to carry out the terms of this Agreement and be informed of each
Borrower's status and affairs.
SECTION 8.03 Enforcement and Waiver by the Bank.
Bank shall have the right at all times to enforce the provisions of this
Agreement and the Collateral Documents in strict accordance with the terms
hereof and thereof, notwithstanding any conduct or custom on the part of Bank
in refraining from so doing at any time or times. The failure of Bank at any
time or times to enforce its rights under such provisions, strictly in
accordance with such provisions, shall not be construed as having created a
custom in any way or manner contrary to specific provisions of this Agreement
or as having in any way or manner modified or waived this Agreement. All
rights and remedies of Bank are cumulative and concurrent and the exercise of
one right or remedy shall not be deemed a waiver or release of any other right
or remedy.
SECTION 8.04 Expenses of the Bank.
Borrower agrees to pay all costs and expenses, including reasonable
attorneys' fees and expenses, and filing, search, environmental audit,
consultant, appraisal and other out-of-pocket expenditures, incurred by Bank
in connection with the preparation, negotiation, administration, amendment,
extension, replacement, modification, enforcement or termination of this
Agreement, the Notes, the Loans and the Collateral Documents and the
collection or attempted collection of the Notes or any other Obligations, and
the protection, preservation or defense of Bank's rights and interests.
SECTION 8.05 Notices.
Any notices or consents required or permitted by this Agreement shall be in
writing and shall be deemed delivered if delivered in person, or by commercial
courier against receipt or if sent by certified mail, postage prepaid, return
receipt requested, or by telecopy, as follows, unless such address or telecopy
number it changed by written notice hereunder:
(A) If to Borrower:
Kulicke & Soffa Industries, Inc.
2101 Blair Mill Road
Willow Grove, PA 19090
Attention: Clifford G. Sprague, Senior Vice President and
Chief Financial Officer
Telecopy No. (215) 784-6258
(B) If to Bank:
Midlantic Bank, N.A.
1500 Market Street
Philadelphia, PA 19102
Attention: Ronald H. Vicari,
Senior Vice President
Telecopy No. (215) 564-7421
SECTION 8.06 Waiver and Release by Borrower.
To the maximum extent permitted by applicable Laws, Borrower:
(A) Waives (1) protest of all commercial paper at any time held by
Bank on which Borrower is any way liable; and (2) except as otherwise set
forth herein or in the Collateral Documents, notice and opportunity to be
heard, after acceleration in the manner provided in Section 7.01 hereof,
before exercise by Bank of the remedies of self-help, set-off, or of other
summary procedures permitted by any applicable Laws or by any agreement with
Borrower and, except where required hereby or by any applicable Laws, notice
of any other action taken by Bank; and
(B) Releases Bank and its officers, attorneys, agents and employees
from all claims for loss or damage caused by any act or omission on the part
of any of them except willful misconduct or gross negligence.
SECTION 8.07 Applicable Law.
The substantive Laws of the Commonwealth of Pennsylvania shall govern the
construction of this Agreement and the rights and remedies of the parties
hereto.
SECTION 8.08 Binding Effect; Assignment and Entire Agreement.
This Agreement shall inure to the benefit of, and shall be binding upon, the
respective successors and permitted assigns of the parties hereto. Borrower
has no right to assign any of its respective rights or Obligations hereunder
without the prior written consent of Bank. Bank may assign its rights
hereunder to other financial institutions, but agrees not to delegate its duty
to make loans and other credit extensions hereunder. This Agreement, and the
documents executed and delivered pursuant hereto, constitute the entire
agreement among the parties relating to the subject matter thereof.
SECTION 8.09 Severability.
If any provision of this Agreement is held invalid under any applicable
Laws, such invalidity will not affect any other provision of this Agreement
that can be given effect without the invalid provision, and, to this end, the
provisions hereof are severable.
SECTION 8.10 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
but one and the same instrument.
SECTION 8.11 Headings.
The headings of any paragraph or section of this Agreement are for
convenience only and shall not be used to interpret any provision of this
Agreement.
SECTION 8.12 Modification.
No modification or amendment hereof or of any agreement referred to herein
shall be binding or enforceable unless in writing and signed on behalf of the
party against whom enforcement is sought.
SECTION 8.13 Third Parties.
No rights are intended to be created hereunder, or under the Collateral
Documents or related agreements and documents for the benefit of any third
party donee, creditor or incidental beneficiary of Borrower.
SECTION 8.14 Seal.
This Agreement is intended to take effect as an instrument under seal.
SECTION 8.15 WAIVER OF JURY TRIAL.
BORROWER AND BANK IRREVOCABLY WAIVE TRIAL BY JURY AND THE RIGHT THERETO IN
ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING
OUT OF, THIS AGREEMENT, THE NOTES, COLLATERAL DOCUMENTS, OR ANY INSTRUMENT OR
DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
SECTION 8.16 Jurisdiction.
Borrower and Bank hereby irrevocably consent to the jurisdiction of the
Court of Common Pleas of Philadelphia, Pennsylvania and of the United States
District Court for the Eastern District of Pennsylvania in any and all actions
and proceedings in connection with this Agreement, the Notes or the Collateral
Documents and irrevocably consent, in addition to any methods of service of
process permissible under applicable law, to service of process by certified
mail, return receipt requested to the address of the Borrower and Bank as set
forth herein. Borrower and Bank agrees that in any action or proceeding
brought by it in connection with this Agreement or the transactions
contemplated hereby, exclusive jurisdiction shall be in the Court of Common
Pleas of Philadelphia, Pennsylvania, and the United States District Court for
the Eastern District of Pennsylvania.
SECTION 8.17 Indemnity.
Borrower agrees to indemnify, defend and hold the Bank Indemnitees harmless
from and against any and all loss, liability, obligation, damage, penalty,
judgment, claim, deficiency and expense (including interest, penalties,
reasonable attorneys' fees and amounts paid in settlement) to which any Bank
Indemnitee may become subject arising out of or based upon this Agreement, the
Collateral Documents, the Notes or the Loans through the alleged negligence of
such Bank Indemnitee or otherwise, except and to the extent that Borrower
proves that such loss, liability, etc. was caused by the gross negligence or
willful misconduct or manifest bad faith of the Person otherwise so
indemnified.
SECTION 8.18 Most Favored Lender.
Borrower agrees to promptly notify Bank in writing if any agreement for
borrowed money to which Borrower is or hereafter becomes a party, contains or
is amended to contain, financial or performance covenants more restrictive
than those contained herein and upon Bank's request, Borrower agrees to amend
this Agreement accordingly so that covenants contained herein are
substantially the same as those contained in such other agreements for
borrowed money.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and
year first above written.
KULICKE AND SOFFA INDUSTRIES, INC.
By: /s/ Clifford G. Sprague
________________________
MIDLANTIC BANK, N.A.
By: /s/ Glenn L. Blakeslee
_______________________
EXHIBIT 6.01(L)
Financial Covenants
(a) Leverage Ratio of not more than .45 to 1.0 at all times.
(b) Interest Coverage Ratio of not less than 2.5 to 1.0 as of the end
of each fiscal quarter.
(c) Working Capital of not less than $50,000,000 at all times.
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<PAGE>
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<PERIOD-END> MAR-31-1996
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<SECURITIES> 12,575
<RECEIVABLES> 86,253
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<INVENTORY> 50,964
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0
0
<COMMON> 46,807
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<TOTAL-LIABILITY-AND-EQUITY> 272,335
<SALES> 242,563
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<OTHER-EXPENSES> 58,675
<LOSS-PROVISION> 0
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