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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_______________ TO ________________
COMMISSION FILE NO. 1-7819
ANALOG DEVICES, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2348234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE TECHNOLOGY WAY, NORWOOD, MA 02062-9106
(Address of principal executive offices) (Zip Code)
(781) 329-4700
(Registrant's telephone number, including area code)
----------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK $.16 2/3 PAR VALUE NEW YORK STOCK EXCHANGE
Title of Each Class Name of Each Exchange on Which Registered
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $16,009,763,070 based on the closing price of
the Common Stock on the New York Stock Exchange Composite Tape reporting system
on December 31, 1999.
As of December 31, 1999, there were 175,504,662 shares of $.16 2/3 par
value Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT DESCRIPTION 10-K PART
-------------------- ---------
Portions of Annual Report to Shareholders
for the fiscal year ended October 30, 1999 I and II
Portions of the Registrant's Proxy Statement
for the Annual Meeting of Stockholders to
be held March 14, 2000 III
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
Analog Devices, Inc. (Analog, ADI or the Company) is a world leader in the
design, manufacture and marketing of high-performance analog, mixed-signal and
digital signal processing (DSP) integrated circuits (ICs) used in signal
processing applications.
As of the end of fiscal 1999, approximately 40% of Analog's revenues came from
the communications market, making it the Company's largest and fastest growing
served market. Communications applications include wireless handsets and base
stations, as well as products used for high-speed access to the Internet,
including ICs used in ADSL and cable modems and central office networking
equipment.
Analog serves the PC market with products that monitor and manage power usage,
process signals used in flat panel displays and LCD projectors and enable PCs to
provide CD-quality audio. Analog also serves the high-end consumer market with
products used in digital cameras and camcorders, DVD players and surround sound
audio systems. Analog provides a broad array of products to the industrial
market, including products for automatic test equipment and for the digital
speed control of AC motors.
Analog's products are sold worldwide through a direct sales force, third-party
industrial distributors and independent sales representatives. The Company has
direct sales offices in 18 countries, including the United States. Approximately
46% of fiscal 1999 revenue came from customers in North America, while most of
the balance came from customers in Western Europe and the Far East.
The Company is headquartered near Boston, in Norwood, Massachusetts, and has
manufacturing facilities in Massachusetts, California, North Carolina, Ireland,
the Philippines and Taiwan. Founded in 1965, Analog Devices employs
approximately 7,400 people worldwide. The Company's stock is listed on the New
York Stock Exchange under the symbol ADI and is included in the Standard &
Poor's 500 Index.
INDUSTRY BACKGROUND
Real-world phenomena, such as temperature, pressure, sound, images, speed and
acceleration are inherently analog in nature, consisting of continuously varying
information. This information can be detected and measured using analog sensors,
which represent real-world phenomena by generating continuously varying voltages
and currents. The signals from these sensors are initially processed using
analog methods, such as amplification, filtering and shaping. They are then
usually converted to digital form for input to a microprocessor, which is used
to manipulate, store or display the information. In many cases, the signals are
further processed after conversion to digital form using a technology called
"digital signal processing," or DSP. In addition, digital signals are frequently
converted to analog form to provide signals for functions such as analog
display, audio output or control. These manipulations and transformations are
known collectively as "real-world signal processing."
Significant advances in semiconductor technology in recent years have led to
substantial increases in the performance and functionality of ICs used in signal
processing applications. These advances include the ability to sense, receive,
condition, convert and transmit signals from analog phenomena, such as voice and
video images, and process these signals in both the analog and digital domain.
The analog circuitry portion of the IC is used for manipulating real-world
signals while still in analog form and for converting analog signals into
digital form (or vice versa), and the digital portion is used for further
processing analog signals subsequent to their conversion to digital form. The
convergence of computing and communications requires applications that
incorporate these functions and the Company's products are used as components in
equipment and systems to achieve higher performance and more efficient signal
processing.
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PRINCIPAL PRODUCTS
The Company is engaged in the design, manufacture and marketing of a broad line
of high-performance ICs that incorporate analog, mixed-signal and digital signal
processing technologies that address a wide range of real-world signal
processing applications. The Company has a generic list of approximately 2,000
products, with the highest revenue product accounting for approximately 2% of
the Company's revenue for fiscal 1999. Many of the Company's products are
proprietary, while equivalents to other products are available from a limited
number of other suppliers. The Company also designs, manufactures and markets a
range of assembled products.
MARKETS AND APPLICATIONS
The following describes some of the characteristics of, and products supplied
to, each of the Company's major markets:
COMMUNICATIONS--The rapid development of broadband and wireless communications
infrastructure around the world combined with the development of the Internet
has created a rapidly growing market for the Company's products. Communications
technology involves the acquisition of analog signals that are converted from
analog to digital and digital to analog form as they are processed and
transmitted. ADI's expertise in combining analog and digital functionality on a
single chip has enabled the Company to develop products that fulfill the
technological challenges of this complex and rapidly expanding market space. The
need for ever higher speed and reduced power consumption, coupled with more
reliable, more bandwidth-efficient communications, is creating increasing demand
for the Company's products which are used in systems that include digital,
analog and mixed-signal processing capability. The products are used in the full
spectrum of signal processing for audio, data, image or video communication. In
broadband and wireless communication applications, the Company's products are
incorporated into data and digital subscriber line (DSL) modems, cellular
telephones, base station equipment and remote access servers.
COMPUTERS AND COMPUTER PERIPHERALS--Increased interface between users and the PC
through monitors, printers, scanners and audio devices and the increasing need
for power and thermal management capability in PCs have provided many
opportunities in the computer market. The Company's ability to integrate analog,
DSP and mixed-signal functionality on ICs has enabled ADI to supply many high
performance critical components required by PC manufacturers. The computer
industry requires smaller, lighter personal computers, creating increased demand
for high performance ICs to monitor power usage thereby allowing manufacturers
to use smaller batteries and extend battery life between charges. The Company
currently supplies a variety of ICs used in this market for functions such as
graphic displays, interfaces between PCs and peripherals such as modems and
printers, power and battery management, and enhanced audio input and output
capability for business and entertainment applications.
CONSUMER ELECTRONICS--The acquisition and display of signals combined with the
requirement for digital processing of these signals have allowed the Company to
combine analog and digital design capability to provide solutions that conform
to the rigorous cost, size and reliability constraints of the consumer
electronic market. The emergence of high-performance consumer products, such as
compact disc players, DVD players and digital camcorders and cameras, has led to
the need for high-performance system-level ICs with a high level of specific
functionality. The addition of monitoring and motor control devices on many
consumer products has also created new opportunities for the Company.
INDUSTRIAL--includes data acquisition systems, automatic process control
systems, robotics, environmental control systems and automatic test equipment
(ATE). These products generally require ICs that offer performance greater than
that available from commodity-level ICs, but generally do not have production
volumes that warrant custom or application-specific ICs. Combinations of analog
and mixed-signal ICs are usually employed to achieve the necessary
functionality, except in ATE applications where the high level of electronic
circuitry required per tester has created opportunities for the design of
system-level ICs.
INSTRUMENTATION--includes engineering, medical and scientific instruments. These
products are usually designed using the highest performance analog and
mixed-signal ICs available, where production volumes generally do not warrant
custom or application-specific ICs.
MILITARY/AEROSPACE--includes military, commercial avionics and space markets,
all of which require high-performance ICs that meet rigorous environmental and
reliability specifications. Nearly all of the Company's analog ICs can be
supplied in versions that meet appropriate military standards. In addition, many
products can be supplied to meet the standards required for broadcast satellites
and other commercial space applications. Most of the Company's products
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sold in this market are derived from standard commercial grade ICs, although the
Company sometimes develops products expressly for military/aerospace
applications.
AUTOMOTIVE--Although the automotive market has historically been served with
low-cost, low-performance ICs, demand has emerged for higher performance devices
for a wide range of applications. In response, the Company is developing
products specifically for the automotive market. The Company supplies a
micromachined IC used as a crash sensor in airbag systems, which serves as an
alternative to an electromechanical sensor. The Company believes that other
micromachined devices derived from this product may be suitable for other
automotive applications, such as roll-over sensing, global positioning satellite
(GPS) automotive navigation systems, anti-lock brakes and "smart" suspension
systems and other applications including earthquake detectors and high-end
computer joysticks.
RESEARCH AND DEVELOPMENT
The markets served by Analog are characterized by rapid technological changes
and advances. Accordingly, the Company makes substantial investments in the
design and development of new products and processes, and for significant
improvement of existing products and processes. ADI incurred $257 million during
fiscal 1999 for the design, development and improvement of new and existing
products and processes, compared to $219 million and $196 million during fiscal
1998 and fiscal 1997, respectively.
In support of its research and development activities, the Company employs
hundreds of engineers involved in product and process development at several
design centers and manufacturing sites located throughout the world.
As of October 30, 1999, the Company owned approximately 550 U.S. patents and had
150 patent applications on file with the United States patent office. The
Company believes that while its patents may provide some advantage, its
competitive position is largely determined by such factors as the knowledge,
ability and experience of the Company's personnel, new product development,
market recognition and ongoing marketing efforts, customer service and technical
support.
IC TECHNOLOGY
Analog Technology
Analog IC technology has been the foundation of the Company's business for more
than 25 years, and the Company believes it is one of the world's largest
suppliers of analog ICs. The Company's analog ICs are primarily
high-performance, single-function devices. The majority of the Company's analog
IC product revenue is attributable to sales of data converters
(analog-to-digital and digital-to-analog) and amplifiers. Other analog IC
products offered by the Company include analog signal processing devices (such
as analog multipliers), voltage references and comparators. Over the past few
years the Company has been expanding its analog IC product offerings into
product areas where its focus was previously limited, principally interface
circuits and power management ICs. It is also expanding its analog IC product
line to include a much larger number of products designed to operate from
single-supply 3 or 5 volt power sources to better meet the needs of customers
designing portable battery-operated equipment.
ADI's analog IC products tend to be general purpose in nature, which allows
customers to incorporate them in a wide variety of equipment and systems. ADI's
product portfolio includes several hundred analog ICs, any one of which can have
as many as several hundred customers. Analog ICs typically have long product
life cycles. The Company's analog IC customers include both OEMs and customers
who build equipment for their own use. Historically, most analog ICs have been
purchased by OEMs that serve the instrumentation, industrial and
military/aerospace markets, but they are now also being used for applications in
communications, computers, camcorders, scanners, automatic test equipment,
imaging and other consumer applications requiring high-performance real-world
signal processing. By using standard, high-performance, readily available,
off-the-shelf components in their designs, ADI's customers can reduce the time
required to develop and bring new products to market. Given the high cost of
developing customized ICs, analog ICs usually provide the most cost-effective
solutions for low to medium volume applications. In addition, combinations of
analog ICs connected together on a printed circuit board can provide
functionality not currently achievable using a single IC.
Other analog ICs include circuits that are designed to serve the needs of
particularly demanding applications, e.g. very high speed analog timing and pin
driver circuits needed by OEMs in the automatic test equipment business.
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Manufacturers of portable instrumentation need analog ICs designed to address
demanding battery life requirements, and need similar kinds of functions
available in analog IC products integrated into a single, very low-power chip.
Other principal requirements can include higher accuracy, lower cost per
function, smaller size, lower weight and fewer components for improved
reliability. These application specific products allow ADI's customers to design
smaller, lighter, higher performance, more power-efficient and lower-cost end
products. The Company believes that these benefits have become more important to
the Company's OEM customers as they increase their focus on high-performance,
small, lightweight products, many of which are battery-powered.
General Purpose DSP Technology
The Company's products that include DSP technology are designed to efficiently
execute specialized programs (algorithms) associated with processing digitized
real-time, real-world data. General-purpose DSP IC customers typically write
their own algorithms using software tools provided by the Company and software
tools obtained from third-party suppliers. All of these devices share a common
architecture which allows system designers to address cost, performance and
time-to-market constraints. ADI supports these products with specialized
applications and easy-to-use, low-cost design tools, which reduce product
development costs and time to market.
Mixed-Signal Technology
ADI's product range also includes multi-function mixed-signal devices which
incorporate combinations of analog and digital technology. The growing need to
allow user interface with computers and consumer products as well as the
development of communications systems has created new opportunities for these
mixed-signal devices. Examples of these devices include chipsets for
communication applications (GSM cellular phones, remote access servers, data and
fax modems), audio input/output devices and power and thermal management devices
for computer applications and motor control devices.
Micromachined Technology
The Company's technology base includes a number of new products using an
advanced IC technology known in the industry as surface micromachining. This
technology enables extremely small mechanical structures to be built on the
surface of a chip along with supporting circuitry. In addition to incorporating
an electro-mechanical structure, these devices also have analog circuitry for
conditioning signals obtained from the micromachined sensing element.
ADI's micromachined products are accelerometers used in a wide variety of
applications. The majority of current revenue from ADI's micromachined products
is derived from accelerometers used by automotive manufacturers in airbag
applications. Emerging applications include GPS automobile navigation systems,
earthquake detectors and high-end computer joysticks.
General Purpose and Custom Products
Across the entire range of ICs designed and manufactured by the Company there
are general purpose products and custom products designed for specific
applications for specific customers. In many of the new emerging markets in
communications, computer and consumer products there is a tendency to work with
selected large customers to design application-specific solutions which can
combine elements of analog, digital, mixed-signal and micromachined
functionality.
ASSEMBLED PRODUCT TECHNOLOGY
The Company's assembled products technology includes multi-chip modules (MCMs),
hybrids and printed circuit board modules. An MCM is a device made up of several
IC chips assembled in an automated fashion in a multilayer package that provides
high interconnect density at low cost. A hybrid consists of several chips and
discrete components mounted and wired together on a substrate, which is then
enclosed in a package. A printed-board module consists of surface-mount
components assembled on a small printed board that is then encapsulated in a
small plastic case.
Revenues from this product group have been declining for several years,
primarily because hybrids are being replaced in many new designs with smaller,
lower-cost monolithic ICs that offer higher levels of performance and
integration. Sales of these products have declined to approximately 3% of the
Company's total sales.
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SALES CHANNELS
ADI sells its products in both North America and internationally through a
direct sales force, third-party distributors and independent sales
representatives. Approximately 46% of fiscal 1999 revenue was derived from
customers in North America. As of December 1, 1999, the Company had 14 sales
offices in the United States, and its third-party distribution channel consisted
of six national and regional third-party distributors and several independent
sales representatives at numerous locations throughout the U.S. and Canada.
Approximately 22% of the Company's fiscal 1999 revenue was derived from sales to
customers in Europe; 14% to customers in Japan; and 18% to customers in other
international markets. As of December 1, 1999, the Company had direct sales
offices in Australia, Austria, China, Denmark, France, Germany, Hong Kong,
India, Israel, Italy, Japan, Korea, the Netherlands, Singapore, Sweden, Taiwan
and the United Kingdom. The Company also had sales representatives and/or
distributors in approximately 40 countries outside North America, including
countries where the Company also has direct sales offices. For further detail
regarding geographic information, see Note 4 in the Notes to the Company's
Consolidated Financial Statements incorporated herein by reference to the 1999
Annual Report to Shareholders and filed herewith as part of Exhibit 13.2.
Approximately 42% of ADI's fiscal 1999 revenue was derived from sales made
through distributors. These distributors typically maintain an inventory of
Analog products. Some of them also sell products competitive with the Company's
products, including those for which the Company is an alternate source. Sales to
certain distributors are made under agreements which provide protection to the
distributors for their inventory of Company products against price reductions
and products that are slow-moving or have been discontinued by the Company.
The Company's worldwide sales efforts are supported by an extensive promotional
program that includes editorial coverage and paid advertising in trade
publications; direct mail programs; promotional brochures; technical seminars
and participation in trade shows. The Company publishes and distributes
full-length databooks, short-form catalogs, applications guides, technical
handbooks and detailed data sheets for individual products. The Company also
provides products and application information via its worldwide web site on the
Internet and the Company started to sell products on the Internet in the fourth
quarter of fiscal 1999. The Company also maintains a staff of application
engineers who aid customers in incorporating Analog's products into their
products during their product development cycles.
For fiscal 1999, Analog's 20 largest customers accounted for approximately 30%
of the Company's net sales. The largest single customer represented
approximately 4% of net sales.
PRODUCTION AND RAW MATERIALS
Monolithic integrated circuit components are manufactured in a sequence of
semiconductor production steps that include wafer fabrication, wafer testing,
cutting the wafer into individual "chips" (or dice), assembly of the dice into
packages and electrical testing of the devices in final packaged form. The raw
materials used to manufacture these devices include silicon wafers, processing
chemicals (including liquefied gases), precious metals, ceramic packages and
plastic used for packaging.
ADI employs a wide variety of Company-developed proprietary processes
specifically tailored for use in fabricating high-performance linear and
mixed-signal and system-level ICs. The Company also uses industry-standard
bipolar and CMOS wafer fabrication processes.
ADI's IC products are fabricated both at the Company's production facilities and
by third-party wafer fabricators. The Company relies primarily on its own
facilities for fabricating wafers that require linear and mixed-signal
processes. The Company operates wafer fabrication facilities in Wilmington and
Cambridge, Massachusetts; Santa Clara and Sunnyvale, California; and Limerick,
Ireland. The Company also operates assembly and test facilities located in the
United States, Ireland, the Philippines and Taiwan and also uses third-party
subcontractors. The Company has agreements with Taiwan Semiconductor
Manufacturing Company, (TSMC), and Chartered Semiconductor Manufacturing Pte.,
Ltd., (CSM), for the production of digital and VLSI mixed-signal devices. To
provide access to advanced process technology at competitive costs, the Company
participates in a joint venture agreement (WaferTech, LLC) with TSMC, Altera,
Integrated Silicon Solutions and several individual investors that built an
eight-inch wafer fabrication facility in Camas, Washington. Originally the
Company had an 18% equity ownership in WaferTech. In
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January 1999, the Company concluded an agreement to sell to other WaferTech
partners 78% of its equity ownership in WaferTech for cash equal to its
carrying value at October 31, 1998.
Hybrid products are manufactured by mounting and connecting together several
integrated circuit chips in a single package. Some of the chips used in the
Company's hybrids are manufactured by the Company and some are purchased from
outside suppliers. The production process for modular components, subsystems and
systems consists primarily of assembly, packaging and testing. Some of the
Company's assembled products are assembled and tested within the Company's U.S.
manufacturing facilities, while others are assembled and tested at Company-owned
facilities outside the United States or by subcontractors, principally in the
Far East.
To respond to production capacity requirements, the Company significantly
expanded its manufacturing capacity in 1997 and 1998. Major wafer fabrication
expansions were completed in Wilmington and Cambridge, Massachusetts; Sunnyvale,
California and Limerick, Ireland. Also, in fiscal 1998 the Company completed
construction of an additional assembly and test facility in Cavite, Philippines.
Capital expenditures were reduced to a total of $78 million in fiscal 1999 in
response to the industry downturn in the latter half of fiscal 1998 and the
early part of fiscal 1999.
BACKLOG
Backlog at the end of fiscal 1999 was approximately $446 million, up from
approximately $174 million at the end of fiscal 1998. The increase in the
backlog is a result of the rapid increase in demand for the Company's products
from the year earlier period. This is the result of an upturn in the
semiconductor industry during fiscal 1999 combined with increased demand for the
Company's products in the rapidly growing communications, computer and consumer
products markets. In periods of increased demand there is a tendency towards
longer lead times which has the effect of increasing backlog and, in some
instances, the Company may not have manufacturing capacity sufficient to fulfill
all orders. As is customary in the semiconductor industry, the Company includes
customers' forecast orders in backlog and often allows such orders to be
canceled or deliveries delayed by customers without significant penalty.
Accordingly, the Company believes that its backlog at any time should not be
used as a measure of future revenues.
GOVERNMENT CONTRACTS
The Company estimates that approximately 7% of its fiscal 1999 total worldwide
revenue was attributable to sales to the U.S. government and government
contractors and subcontractors. Analog's government contract related business is
predominantly in the form of negotiated, firm fixed-price subcontracts. All such
contracts and subcontracts contain standard provisions relating to termination
at the election of the United States government.
COMPETITION
ADI competes with a large number of semiconductor companies in markets that are
highly competitive. The Company believes it is one of the largest suppliers of
high-performance linear and mixed-signal signal-processing components.
Competitors for the Company's analog, mixed-signal and DSP products include
Burr-Brown Corp., Cirrus Logic Inc., Harris Corp., Linear Technology Corp.,
Lucent Technologies Inc., Maxim Integrated Products, Inc., Motorola
Semiconductor Products, National Semiconductor Corp., Sierra Semiconductor
Corp., Siliconix Inc. and Texas Instruments, Inc. Sales of the Company's
micromachined products currently comprise acceleration sensors, and its main
competitors are Bosch, Motorola and Denso, which use a multichip solution
whereas ADI uses a single chip solution that the Company believes provides
cost, reliability and functional advantages in the marketplace.
Many other companies offer components that compete with ADI's products; some
also offer other electronic products, and some have financial resources
substantially larger than ADI's. Also, some formerly independent competitors
have been purchased by larger companies. However, to the Company's knowledge, no
manufacturer competes with ADI across all of the product types offered by the
Company in its signal-processing components product line.
The Company believes that competitive performance in the marketplace for
real-world signal-processing components depends upon several factors, including
product price, technical innovation, product quality and reliability, range of
products, customer service and technical support. The Company believes its
aggressive technical innovation emphasizing product performance and reliability,
supported by its commitment to strong customer service and technical support,
enables the Company to continue to compete successfully in its chosen markets
against both foreign and domestic semiconductor manufacturers.
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ENVIRONMENT
Analog's manufacturing facilities are subject to numerous environmental laws and
regulations, particularly with respect to industrial waste and emissions.
Compliance with these laws and regulations has not had a material impact on the
Company's capital expenditures, earnings or competitive position.
EMPLOYEES
As of October 30, 1999, the Company employed approximately 7,400 persons. The
Company's future success depends in large part on the continued service of its
key technical and senior management personnel, and on its ability to continue to
attract, retain and motivate qualified employees, particularly those highly
skilled design, process and test engineers involved in the manufacture of
existing products and the development of new products and processes. The
competition for such personnel is intense, and the loss of key employees could
have a material adverse effect on the Company. The Company believes that
relations with its employees are good.
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ITEM 2. PROPERTIES
The Company's corporate headquarters is located in Norwood, Massachusetts.
Manufacturing and other operations are conducted in several locations worldwide.
The following tables provide certain information as to the Company's principal
general offices and manufacturing facilities:
<TABLE>
<CAPTION>
PLANT LOCATION
--------------
OWNED: USE FLOOR SPACE
-------------- --- -----------
<S> <C> <C>
Wilmington, Wafer fabrication, components assembly and testing, engineering and 265,200 sq. ft.
Massachusetts administrative offices
Wilmington, Engineering, marketing and administrative offices 108,000 sq. ft.
Massachusetts
Wilmington, Components engineering, marketing and administrative offices 65,500 sq. ft.
Massachusetts
Westwood, Engineering and administrative offices 100,500 sq. ft.
Massachusetts
Limerick, Wafer fabrication, wafer probe and testing, engineering and administrative 315,400 sq. ft.
Ireland offices
Greensboro, Components and board assembly and testing, engineering and administrative 122,600 sq. ft.
North Carolina offices
Cavite, Philippines Components assembly and testing, engineering and administrative offices 168,300 sq. ft.
Manila, Philippines Components assembly and testing, engineering and administrative offices 75,300 sq. ft.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL LEASE
---------- ----------
PROPERTIES USE FLOOR SPACE EXPIRATION RENEWALS
---------- --- ----------- ---------- --------
LEASED: (FISCAL YEAR)
----------
<S> <C> <C> <C> <C>
Norwood, Corporate headquarters, engineering, components testing, 129,900 sq. ft. 2007 3, five-yr.
Massachusetts sales and marketing offices periods
Cambridge, Wafer fabrication, components testing and assembly 116,000 sq. ft. 2001 2, five-yr.
Massachusetts engineering, marketing and administrative offices periods
Santa Clara, Wafer fabrication, components assembly and testing, 72,800 sq. ft. 2002 3, five-yr.
California engineering and administrative offices periods
Santa Clara, Engineering and administrative offices 43,500 sq. ft. 2002 3, five-yr.
California periods
Sunnyvale, Wafer fabrication 38,700 sq. ft. 2000 3, five-yr.
California periods
Taipei, Components testing, engineering and administrative offices 45,700 sq. ft. 2001 1, five to
Taiwan seven yr.
period
</TABLE>
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ITEM 2. PROPERTIES -- (CONTINUED)
In addition to the principal leased properties listed in the previous table, the
Company also leases sales offices and other premises at 28 locations in the
United States and 37 locations overseas under operating lease agreements. These
leases expire at various dates through the year 2030. The Company anticipates no
difficulty in retaining occupancy of any of its manufacturing, office or sales
facilities through lease renewals prior to expiration or through month-to-month
occupancy, or in replacing them with equivalent facilities. For information
concerning the Company's obligations under all operating and capital leases see
Note 10 in the Notes to the Company's Consolidated Financial Statements
incorporated herein by reference to the 1999 Annual Report to Shareholders and
filed herewith as part of Exhibit 13.2.
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is set forth in Note 11 in the Notes to
the Company's Consolidated Financial Statements incorporated herein by reference
to the 1999 Annual Report to Shareholders and filed herewith as part of Exhibit
13.2.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
last quarter of the fiscal year ended October 30, 1999.
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EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth (i) the name and age of each present executive
officer of the Company; (ii) the position(s) presently held by each person
named; and (iii) the principal occupations held by each person named for at
least the past five years.
<TABLE>
<CAPTION>
EXECUTIVE OFFICER AGE POSITION BUSINESS EXPERIENCE
----------------- --- -------- -------------------
<S> <C> <C> <C>
Ray Stata.......................65 Chairman of the Board Chairman of the Board since 1973; Chief
Executive Officer from 1973 to November
1996; President from 1971 to November
1991.
Jerald G. Fishman...............54 President, Chief Executive Officer Chief Executive Officer since November
and Director 1996; President and Director since
November 1991; Executive Vice President
from 1988 to November 1991; Group Vice
President - Components from 1982 to
1988.
Ross Brown......................55 Vice President, Human Resources Vice President, Human Resources since
May 1993; U.S. Personnel Manager for
Digital Equipment Corp. from 1990 to
1993; Senior Group Personnel Manager at
Digital from 1986 to 1990.
Samuel H. Fuller................53 Vice President, Research and Vice President, Research and Development
Development since March 1998; Vice President of
Research and Chief Scientist of Digital
Equipment Corp. from 1983 to 1998.
Russell K. Johnsen..............45 Vice President and General Manager, Vice President and General Manager,
Communications Division Communications Division since May 1994;
Vice President and General Manager,
Analog Devices Semiconductor Division
from November 1993 to May 1994; General
Manager of the Wide Area Networks
Division of National Semiconductor Corp.
from 1992 to 1993.
Robert R. Marshall..............45 Vice President, Worldwide Vice President, Worldwide Manufacturing
Manufacturing since February 1994; Vice President,
Manufacturing, Limerick Site, Analog
Devices, B.V. - Limerick, Ireland from
November 1991 to February 1994; Plant
Manager, Analog Devices, B.V. -
Limerick, Ireland from January 1991 to
November 1991.
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
EXECUTIVE OFFICER AGE POSITION BUSINESS EXPERIENCE
----------------- --- -------- -------------------
<S> <C> <C> <C>
William A. Martin...............40 Treasurer Treasurer since March 1993; Assistant
Treasurer from October 1991 to March
1993; Manager of Treasury Finance from
March 1987 to October 1991; Manager of
International Treasury from October 1985
to March 1987.
Robert McAdam...................49 Vice President and General Manager, Vice President and General Manager,
Standard Linear Products Division Standard Linear Products Division since
February 1994; Vice President and
General Manager, Analog Devices, B.V. -
Limerick, Ireland from January 1991 to
February 1994; Product Line Manager,
Analog Devices, B.V. - Limerick, Ireland
from October 1988 to January 1991.
Brian P. McAloon................49 Vice President, Sales Vice President, Sales since May 1992;
Vice President, Sales and Marketing -
Europe and Southeast Asia from 1990 to
1992; General Manager, Analog Devices,
B.V. - Limerick, Ireland from 1987 to
1990.
Joseph E. McDonough.............52 Vice President, Finance and Chief Vice President, Finance and Chief
Financial Officer Financial Officer since November 1991;
Vice President since 1988 and Treasurer
from 1985 to March 1993; Director of
Taxes from 1983 to 1985.
Franklin Weigold................60 Vice President and General Manager, Vice President and General Manager,
Micromachined Products Division Micromachined Products Division since
November 1999; Vice President and
General Manager, Transportation and
Industrial Products Division since March
1992; President and Chief Operating
Officer of Unitrode from June 1990 to
March 1992.
</TABLE>
There is no family relationship among the named officers.
11
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange ("NYSE")
under the symbol ADI. The table below sets forth the NYSE high and low sale
prices of the Common Stock during the two most recent fiscal years.
FISCAL 1999 FISCAL 1998
------------------ ------------------
PERIOD HIGH LOW HIGH LOW
------ ------ ------ ------ ------
First Quarter $32.25 $19.31 $33.56 $23.75
Second Quarter $38.38 $24.38 $39.63 $27.13
Third Quarter $51.00 $35.06 $39.00 $21.44
Fourth Quarter $60.44 $41.63 $24.38 $12.00
The Company's $60,000,000 credit agreement restricts the aggregate of all cash
dividend payments declared or made subsequent to November 2, 1996 to an amount
not exceeding $150,000,000 plus 50% of the consolidated net income of the
Company for the period from November 3, 1996 through the end of the Company's
then most recent fiscal quarter. At October 30, 1999 this amount was equal to
$378,723,500. The Company has never paid any cash dividends on its Common Stock
and currently has no intentions to do so.
The approximate number of holders of record of the Company's Common Stock at
December 31, 1999 was 4,655. This number does not include shareholders for whom
shares are held in a "nominee" or "street" name.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(thousands except per share amounts) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations data:
Net sales....................... $1,450,379 $1,230,571 $1,243,494 $1,193,786 $941,546
Net income before cumulative
effect of change in
accounting principle.......... - 119,488 - - -
Cumulative effect of change
in accounting principle....... - 37,080 - - -
Net income after cumulative
effective of change in
accounting principle.......... 196,819 82,408 178,219 171,901 119,270
Net income per share:
Basic......................... 1.16 0.51 1.13 1.12 0.79
Diluted....................... 1.10 0.50 1.04 1.03 0.75
Pro forma amounts with the change
in accounting principle related
to revenue recognition applied
retroactively:
Net sales....................... - $1,230,571 $1,214,602 $1,183,186 *
Net income...................... - 119,488 167,515 168,328 *
Net income per share:
Basic......................... - 0.74 1.06 1.10 *
Diluted....................... - 0.71 0.98 1.01 *
Balance Sheet data:
Total assets.................... $2,218,354 $1,861,730 $1,763,853 $1,508,272 $993,349
Long-term debt and non-
current obligations under
capital leases................ 16,214 340,758 348,852 353,666 80,000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Data was not available in sufficient detail to provide pro forma
information for this year.
12
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated herein by reference to the
"Management Analysis" set forth on pages 1 through 7 of the 1999 Annual Report
to Shareholders and is filed herewith as part of Exhibit 13.1.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by reference to the
"Management Analysis" set forth on pages 1 through 7 of the 1999 Annual Report
to Shareholders and is filed herewith as part of Exhibit 13.1.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference to the
Company's 1999 Annual Report to Shareholders under the headings "Financial
Section - Consolidated Statements of Income, - Consolidated Balance Sheets, -
Consolidated Statements of Stockholders' Equity, - Consolidated Statements of
Cash Flows, - Notes to Consolidated Financial Statements, - Report of Ernst &
Young LLP, Independent Auditors and - Supplementary Financial Information," and
is filed herewith as Exhibit 13.2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption "EXECUTIVE
OFFICERS OF THE COMPANY" in Part I hereof, and the remainder is contained in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
March 14, 2000 (the "2000 Proxy Statement") under the caption "Election of
Directors," and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the Company's 2000 Proxy Statement
under the captions "Directors' Compensation," "Executive Compensation," and
"Severance and Other Agreements," and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is contained in the Company's 2000 Proxy Statement
under the caption "Security Ownership of Certain Beneficial Owners and
Management," and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is contained in the Company's 2000 Proxy Statement
under the caption "Transactions with Related Parties," and is incorporated
herein by reference.
13
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS
The following consolidated financial statements are included in the
Company's 1999 Annual Report to Shareholders and are incorporated herein by
reference pursuant to Item 8:
- Consolidated Statements of Income for the years ended October 30,
1999, October 31, 1998 and November 1, 1997
- Consolidated Balance Sheets as of October 30, 1999 and October 31,
1998
- Consolidated Statements of Stockholders' Equity for the years ended
October 30, 1999, October 31, 1998 and November 1, 1997
- Consolidated Statements of Cash Flows for the years ended October
30, 1999, October 31, 1998 and November 1, 1997
(a) 2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule is included in
Item 14(d):
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted since the required information is not
present, or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
consolidated financial statements or the notes thereto.
(a) 3. LISTING OF EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Restated Articles of Organization of Analog Devices, Inc., as
amended, filed as an exhibit to the Company's quarterly report
on Form 10-Q (Commission File No. 1-7819) for the quarterly
period January 30, 1999 as filed with the Commission on March
15, 1999 and incorporated herein by reference.
3.2 By-laws of Analog Devices, Inc., as amended, filed as an
exhibit to the Company's annual report on Form 10-K (Commission
File No. 1-7819) for the fiscal year ended November 1, 1997, as
filed with the Commission on January 28, 1998 and incorporated
herein by reference.
4.1 Rights Agreement, as amended, between Analog Devices, Inc. and
The First National Bank of Boston, as Rights Agent, filed as an
exhibit to a Form 8 filed on June 27, 1989 amending the
Registration Statement on Form 8-A relating to Common Stock
Purchase Rights, and incorporated herein by reference.
4.2 Indenture dated as of March 1, 1993 between Analog Devices,
Inc. and The First National Bank of Boston, filed as an exhibit
to the Company's Form 10-K for the fiscal year ended October
29, 1994 and incorporated herein by reference.
* 4.3 Analog Devices, Inc. Deferred Compensation Plan, filed as
an exhibit to a Form S-8 filed on December 8, 1995 and
incorporated herein by reference, as amended by Amendment No. 1
and Amendment No. 2, filed as Exhibits to Post-Effective
Amendment No. 1 to Form S-8 filed on April 15, 1997, and
Amendment No. 3, filed as an Exhibit to Post-Effective
Amendment No. 2 to Form S-8 filed on November 12, 1997.
14
<PAGE> 16
EXHIBIT
NO. DESCRIPTION
------- -----------
4.4 Rights Agreement, dated as of March 18, 1998 between Analog
Devices Inc. and BankBoston, N.A., as Rights Agent, filed as an
exhibit and incorporated herein by reference to Analog Devices
Inc.'s Registration Statement on Form 8-K (File No. 001-07819)
filed on March 19, 1998, as amended by Amendment No. 1 filed as
an exhibit to the Registrant's Form 8-K/A (File No. 001-07819)
filed on November 11, 1999 and incorporated herein by
reference.
*+ 10.1 Bonus Plan of Analog Devices, Inc.
* 10.2 1991 Restricted Stock Plan of Analog Devices, Inc., filed as an
exhibit to the Company's Form 10-K for the fiscal year ended
November 1, 1997 and incorporated herein by reference.
* 10.3 1998 Stock Option Plan of Analog Devices Inc., filed on
February 6, 1998 as an appendix to the Registrant's Definitive
Proxy Statement on Schedule 14A and incorporated herein by
reference.
* 10.4 Restated 1988 Stock Option Plan of Analog Devices, Inc., filed
as an exhibit to the Company's Form 10-Q for the fiscal quarter
ended May 3, 1997 and incorporated herein by reference.
* 10.5 1989 Director Stock Option Plan of Analog Devices, Inc., as
amended, filed as an exhibit to the Company's Form 10-K for the
fiscal year ended November 2, 1996 and incorporated herein by
reference.
* 10.6 1992 Director Option Plan of Analog Devices, Inc., filed as an
exhibit to the Company's Form 10-K for the fiscal year ended
November 1, 1997 and incorporated herein by reference.
* 10.7 1994 Director Option Plan of Analog Devices, Inc., as amended,
filed as an exhibit to the Company's Form 10-Q for the fiscal
quarter ended February 1, 1997 and incorporated herein by
reference, as amended by Amendment No. 2, filed as an exhibit
to the Registrant's Form S-8 (File No. 333-47789) filed on
March 11, 1998 and incorporated herein by reference.
10.8 Amended and restated lease agreement dated May 1, 1992 between
Analog Devices, Inc. and the trustees of Everett Street Trust
relating to the premises at 3 Technology Way, Norwood,
Massachusetts, filed as an exhibit to the Company's Form 10-K
for the fiscal year ended November 1, 1997 and incorporated
herein by reference.
+ 10.9 Guaranty dated as of May 1, 1994 between Analog Devices, Inc.
and Metropolitan Life Insurance Company relating to the
premises at 3 Technology Way, Norwood, Massachusetts.
+ 10.10 Letter Agreement dated as of May 18, 1994 between Analog
Devices, Inc. and Metropolitan Life Insurance Company relating
to the premises at 3 Technology Way, Norwood, Massachusetts.
10.11 Reimbursement Agreement dated May 18, 1992 between Analog
Devices, Inc. and the trustees of Everett Street Trust, filed
as an exhibit to the Company's Form 10-K for the fiscal year
ended November 1, 1997 and incorporated herein by reference.
10.12 Lease agreement dated August 8, 1990 between Precision
Monolithics, Inc. and Bourns, Inc. relating to the premises at
1525 Comstock Road, Santa Clara, California, filed as an
exhibit to the Company's Form 10-K for the fiscal year ended
November 2, 1996 and incorporated herein by reference.
15
<PAGE> 17
EXHIBIT
NO. DESCRIPTION
------- -----------
10.13 Lease amendment dated May 1, 1996 to the Lease Agreement dated
August 8, 1990 between Analog Devices, Inc. and Bourns, Inc.,
relating to premises located at 1525 Comstock Road, Santa
Clara, California, filed as an exhibit to the Company's Form
10-Q for the fiscal quarter ended May 4, 1996 and incorporated
herein by reference.
10.14 Lease agreement dated August 8, 1990, as amended, between
Precision Monolithics, Inc. and Bourns, Inc. relating to the
premises at 1500 Space Park Drive, Santa Clara, California,
filed as an exhibit to the Company's Form 10-K for the fiscal
year ended November 2, 1996 and incorporated herein by
reference.
+ 10.15 Credit Agreement dated as of March 12, 1993 among Analog
Devices, Inc. and Morgan Guaranty Trust Company of New York,
Bank of America National Trust and Savings Association,
Continental Bank, N.A., The First National Bank of Boston and
Morgan Guaranty Trust Company of New York, as Agent.
+ 10.16 Amendment No. 1 dated as of May 18, 1993 to the Company's
Credit Agreement dated March 12, 1993.
10.17 Amendment No. 2 dated as of September 8, 1994 to the Company's
Credit Agreement dated March 12, 1993, filed as an exhibit to
the Company's Form 10-K for the fiscal year ended October 29,
1994 and incorporated herein by reference.
10.18 Amendment No. 3 dated as of October 25, 1996 to the Company's
Credit Agreement dated March 12, 1993, filed as an exhibit to
the Company's Form 10-K for the fiscal year ended November 2,
1996 and incorporated herein by reference.
* 10.19 Form of Employee Retention Agreement, as amended, filed as an
exhibit to the Company's Form 10-K for the fiscal year ended
November 1, 1997 and incorporated herein by reference.
*+ 10.20 Employee Change in Control Severance Policy of Analog Devices,
Inc., as amended.
*+ 10.21 Senior Management Change in Control Severance Policy of Analog
Devices, Inc., as amended.
* 10.22 Description of Consulting Arrangement between Analog Devices,
Inc. and John L. Doyle, filed as an exhibit to the Company's
Form 10-K for the fiscal year ended November 2, 1996 and
incorporated herein by reference.
* 10.23 Letter agreement between Analog Devices, Inc. and Jerald G.
Fishman dated December 15, 1994 relating to acceleration of
stock options and restricted stock awards upon termination of
employment, filed as an exhibit to the Company's Form 10-K for
the fiscal year ended October 29, 1994 and incorporated herein
by reference.
** 10.24 Option Agreement dated as of May 16, 1995 between Analog
Devices B.V. and Taiwan Semiconductor Manufacturing Company,
Ltd., filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended July 29, 1995 and incorporated herein by
reference.
** 10.25 Wafer Production Agreement dated as of May 16, 1995 between
Taiwan Semiconductor Manufacturing Company, Ltd. and Analog
Devices B.V., filed as an exhibit to the Company's Form 10-Q
for the fiscal quarter ended July 29, 1995 and incorporated
herein by reference.
16
<PAGE> 18
EXHIBIT
NO. DESCRIPTION
------- -----------
10.26 Lease Agreement dated June 16, 1995 between Analog Devices,
Inc. and Ferrari Brothers, relating to the premises at 610
Weddell Drive, Sunnyvale, California, filed as an exhibit to
the Company's Form 10-K for the fiscal year ended November 2,
1996 and incorporated herein by reference.
10.27 Lease amendment dated March 1, 1996 to the Lease Agreement
dated June 16, 1995 between Analog Devices, Inc. and Ferrari
Brothers, relating to premises located at 610 Weddell Drive,
Sunnyvale, California, filed as an exhibit to the Company's
Form 10-Q for the fiscal quarter ended May 4, 1996 and
incorporated herein by reference.
** 10.28 Manufacturing Agreement dated as of March 17, 1995 between
Chartered Semiconductor Manufacturing Pte. Ltd. and Analog
Devices B.V., filed as an exhibit to the Company's Form 10-Q
for the fiscal quarter ended February 3, 1996 and incorporated
herein by reference.
***+ 10.29 Deposit Agreement dated October 1, 1999 between Chartered
Semiconductor Manufacturing Pte. Ltd. and Analog Devices, Inc.
10.30 Lease Agreement dated February 8, 1996 between Analog Devices,
Inc. and Massachusetts Institute of Technology, relating to
premises located at 21 Osborn Street, Cambridge, Massachusetts,
filed as an exhibit to the Company's Form 10-Q for the fiscal
quarter ended February 3, 1996 and incorporated herein by
reference.
** 10.31 Amended and Restated Limited Liability Company Agreement of
WaferTech, LLC, a Delaware limited liability company, dated as
of August 9, 1996, filed as Exhibit 10.47 to the Form 10-Q of
Altera Corporation (File No. 0-16617) for the fiscal quarter
ended June 30, 1996, and incorporated herein by reference.
** 10.32 Purchase Agreement by and between Taiwan Semiconductor
Manufacturing Co., Ltd., as seller and Analog Devices, Inc.,
Altera Corporation and Integrated Silicon Solutions, Inc., as
buyers dated as of June 25, 1996, filed as Exhibit 10.48 to the
Form 10-Q of Altera Corporation (File No. 0-16617) for the
fiscal quarter ended June 30, 1996, and incorporated herein by
reference.
* 10.33 Trust Agreement for Deferred Compensation Plan, filed as an
exhibit to the Company's Post Effective Amendment No. 2 to Form
S-3 filed November 12, 1997 and incorporated herein by
reference.
10.34 Lease agreement dated September 19, 1996 between Ren Min
Company Limited and Analog Devices Taiwan, Limited relating to
the premises at Five-Kung-Five Road, Taipei, Taiwan, filed as
an exhibit to the Company's Form 10-K for the fiscal year ended
November 1, 1997 and incorporated herein by reference.
+ 13.1 Management Analysis corresponding to pages 1 through 7 of the
1999 Annual Report to Shareholders, for the fiscal year ended
October 30, 1999.
+ 13.2 Financial Statements and Notes thereto, Report of Ernst & Young
LLP, Independent Auditors and Supplementary Financial
Information, corresponding to pages 8 through 33 of the 1999
Annual Report to Shareholders, for the fiscal year ended
October 30, 1999.
+ 21 Subsidiaries of the Company.
+ 23 Consent of Ernst & Young LLP.
17
<PAGE> 19
EXHIBIT
NO. DESCRIPTION
------- -----------
+ 27 Financial Data Schedule.
- -----------------
* Management contracts and compensatory plan or arrangements required to be
filed as an Exhibit pursuant to Item 14(c) of Form 10-K.
** Confidential treatment has been granted as to certain portions of these
Exhibits.
*** Confidential Materials omitted and filed separately with the Securities
and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934.
+ Filed Herewith.
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K with the Securities and Exchange
Commission during the fiscal quarter ended October 30, 1999.
18
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ANALOG DEVICES, INC.
(Registrant)
By: /s/ Jerald G. Fishman By: /s/ Joseph E. McDonough
-------------------------------- ----------------------------
Jerald G. Fishman Joseph E. McDonough
President Vice President-Finance
Chief Executive Officer and Chief Financial Officer
and Director (Principal Financial and
(Principal Executive Officer) Accounting Officer)
Date: January 28, 2000 Date: January 28, 2000
------------------------------ --------------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Ray Stata Chairman of the Board January 28, 2000
- --------------------------- ----------------
Ray Stata
/s/ Jerald G. Fishman President, January 28, 2000
- --------------------------- Chief Executive Officer ----------------
Jerald G. Fishman and Director
/s/ John L. Doyle Director January 28, 2000
- --------------------------- ----------------
John L. Doyle
/s/ Charles O. Holliday Director January 28, 2000
- --------------------------- ----------------
Charles O. Holliday
/s/ Joel Moses Director January 28, 2000
- --------------------------- ----------------
Joel Moses
/s/ F. Grant Saviers Director January 28, 2000
- --------------------------- ----------------
F. Grant Saviers
/s/ Lester C. Thurow Director January 28, 2000
- --------------------------- ----------------
Lester C. Thurow
19
<PAGE> 21
ANALOG DEVICES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED OCTOBER 30, 1999, OCTOBER 31, 1998 AND NOVEMBER 1, 1997
(THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITION BALANCE AT
BEGINNING OF CHARGED TO END OF
DESCRIPTION PERIOD INCOME STATEMENT DEDUCTIONS PERIOD
- ----------- ------------ ---------------- ---------- ----------
<S> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE RESERVES AND ALLOWANCES:
Year ended November 1, 1997 $14,785 $25,456 $ 234 $40,007
======= ======= ======= =======
Year ended October 31, 1998 $40,007 $ 3,023 $10,698* $32,332
======= ======= ======= =======
Year ended October 30, 1999 $32,332 $ 313 $18,407 $14,238
======= ======= ======= =======
</TABLE>
* Amount reflects reclassification of certain reserves from accounts
receivable to accrued liabilities made in connection with the Company's
accounting change (see Notes 2(m) and 5 to the consolidated financial
statements).
20
<PAGE> 1
Exhibit 10.1
FY99 BONUS PLAN
Analog Devices U.S.-based Employees
SALES GROWTH
OPBT
ROA
Analog Devices is committed to sharing its success with the people who make it
possible - our employees. The aim of the Bonus Plan is to encourage
participation by all of us in achieving company goals and to share the rewards
of our success.
Jerry Fishman
President & CEO
<PAGE> 2
THE FY99 BONUS PLAN
Our business strategy has always been for ADI to be a growth company with strong
profitability. Given our focus on two of the highest growth segments of the
semiconductor industry - analog integrated circuits and digital signal
processing - we believe that further improvement in sales growth and
profitability are both achievable and necessary.
While improvement in sales growth and operating profit before taxes (OPBT)
continue to be important goals for the company, we have also identified
improving return on assets (ROA) as an important success factor for strong
financial performance.
Therefore, the FY99 Bonus Plan emphasizes not only continued improvements in
sales growth and OPBT, but also improvements in ROA, which can be defined as the
return the company earns on its investments in plant, property and equipment,
inventory and accounts receivable. By improving ROA, we will be able to minimize
the investments we need to make to execute our high growth, high profitability
business strategy.
Sales growth, OPBT and ROA are weighted equally in the FY99 Bonus Plan. The Plan
is designed to generate a 1.0 payout when the average of all three performance
factors equals 17%, a level of performance that we believe is achievable during
the second half of FY99. A 1.0 payout would result in approximately 10% of the
company's profits being paid to employees in bonus payments.
The FY99 Bonus Plan is consistent with ADI's long-term business model, which is
defined as 25% sales growth, 25% OPBT and 25% ROA.
WE CAN MAKE A DIFFERENCE
All ADI employees can contribute to achieving these key goals by working to
control expenses, minimize waste, increase customer satisfaction, develop new
products on time and improve process efficiency.
CALCULATING BONUS PAYMENTS
The bonus payout factor is determined by averaging sales growth since the same
bonus period in the previous year, and OPBT and ROA during the bonus period.
Each fiscal year, the first bonus period consists of the first and second
quarters, while the second bonus period consists of the third and fourth
quarters.
For example, if sales growth for the second half of the year totaled 20%, OPBT
were 16% and ROA were 15%, the average of the three factors would be 17%,
resulting in a payout factor of 1.0.
BONUS PAYOUT CURVE
[chart]
Your accumulated eligible earnings for the bonus period are multiplied by your
bonus target, which presents a percentage of your eligible earnings. The
percentage of earnings used in the bonus calculation varies by job grade.
<PAGE> 3
The product of that calculation is then multiplied by the bonus factor to
determine the gross bonus payment amount.
<TABLE>
<CAPTION>
GRADE BONUS POTENTIAL
LEVEL TARGET RANGE
<S> <C> <C>
Non-exempt 4% 0-12%
E02-E06 4% 0-12%
E07-E08 6% 0-18%
E09-E10 10% 0-30%
E11-E14 15% 0-45%
E15-EI6 20% 0-60%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C>
Accumulated eligible =$15,000
earnings for the bonus
period
Bonus target for your job =4%
grade
Payout factor for the bonus =1.0
period
Gross bonus (before tax) payment:
$15,000 x 4% x 1.0 =$600.00
</TABLE>
Earnings included in the bonus calculation:
o Base Pay o Holiday pay
o Shift differential o Bereavement pay
o Sick pay o Jury duty pay
o Vacation pay o Alternative work
schedule pay
Excluded from the bonus calculation:
o Overtime pay
o Bonus payments from a previous bonus period
o Other payments that are taxable but not considered regular earnings
WHEN BONUS PAYMENTS ARE MADE
When ADI's financial performance warrants, bonus payments will be made on a
semi-annual basis in June and December.
No bonus payments will be earned when the average of sales growth, OPBT and ROA
equals 10% or below, since this level of performance is not acceptable for ADI.
Bonus payments will begin when the average of all three performance factors is
above 10%.
The maximum payout for the FY99 Bonus Plan is 3.0 times target, or when the
average of sales growth, OPBT and ROA equals 31%.
- --------------------------------------------------------------------------------
WHO'S ELIGIBLE?
Most ADI employees are eligible to participate in the Bonus Plan. New employees
are immediately eligible to participate in the Plan with no waiting period.
The following situations may EXCLUDE an employee from participating in the Plan:
o Employee is already covered under a field sales, field application
engineering or other incentive program.
o Employee terminates employment at ADI prior
to the last day of the bonus period.
o Employee receives a 'Needs Improvement' or
'Marginal' performance rating during the
bonus period.
o Employee receives a final written warning
during the bonus period.
o Co-op and temporary employees are not
eligible for participation in the Plan.
- --------------------------------------------------------------------------------
<PAGE> 4
OTHER INFORMATION ABOUT THE BONUS PLAN
WHEN BONUS CHECKS ARE ISSUED
- ----------------------------
Bonus checks are issued approximately six weeks after the end of the bonus
period.
HOW CHANGES IN YOUR EMPLOYMENT STATUS AFFECT BONUS PAYMENTS
- ------------------------------------------------------------
o IF YOUR JOB GRADE AND BONUS TARGET CHANGE DURING THE BONUS PERIOD:
Your bonus payments will be based on the job grade that was effective at the end
of the bonus period.
o IF YOU CHANGE WORK SHIFTS DURING THE BONUS PERIOD:
Because shift differential paid during the bonus period is included as part of
your earnings for the bonus calculation, your bonus payment will already take
into consideration any shift differential earnings that you may have for the
period.
o IF YOU TRANSFER BUSINESS UNITS:
If you transfer between business units, your earnings records transfer with you,
so your bonus payment is based on the total accumulated paid earnings for the
bonus period.
o IF YOU CHANGE STATUS BETWEEN FULL-TIME AND PART-TIME WORKING HOURS:
Since your bonus payment is based on your accumulated paid earnings for the
bonus period, your bonus calculation will take into account any change in
status, such as part-time to full-time or full-time to part-time working hours.
o IF YOU ARE ON LEAVE OF ABSENCE OR DISABILITY FOR PART OF THE BONUS PERIOD:
The bonus is paid based on your earnings while actively at work during the
period (not on short-term disability, long-term disability or other leave of
absence). Therefore, any pay received during your leave of absence will be
excluded from your accumulated paid earnings for bonus calculation purposes.
THE BONUS PLAN DESIGN
THE BONUS PLAN IS DESIGNED TO REWARD ALL ELIGIBLE EMPLOYEES FOR CONTRIBUTING TO
COMPANY-WIDE BUSINESS GOALS DURING EACH FISCAL YEAR. THE BONUS PLAN DESIGN, OR
PORTIONS OF THE DESIGN, MAY CHANGE FROM YEAR TO YEAR AS THE COMPANY'S FOCUS
MOVES TO DIFFERENT COMPANY-WIDE PERFORMANCE GOALS THAT ARE DETERMINED TO BE
CRITICAL DURING THAT FISCAL YEAR. THE BONUS PLAN IS EFFECTIVE ONLY DURING FY99
AND WILL BE RECONSIDERED IN FY00.
BELOW CERTAIN LEVELS, ADI'S RESULTS MAY NOT BE COMPETITIVE AND MAY NOT MEET KEY
BUSINESS PERFORMANCE MEASURES. AT THESE LOW LEVELS OF BUSINESS PERFORMANCE, NO
BONUS WOULD BE PAID.
The Bonus Plan brochure provides a summary of the FY99 Bonus Plan. If you need
further information, please ask your supervisor or Human Resources consultant.
Analog Devices reserves the right to modify the Bonus Plan from time to time
at the sole discretion of management. All changes to the Bonus Plan are
subject to the approval of ADI's Board of Directors.
<PAGE> 1
Exhibit 10.9
GUARANTY
THIS GUARANTY (this "Guaranty"), dated as of May 1, 1994, is from ANALOG
DEVICES, INC., a Massachusetts corporation (the "Guarantor"), to and for the
benefit of METROPOLITAN LIFE INSURANCE COMPANY (the "Purchaser"), its successors
and assigns and any and all other Beneficiaries (as such term is defined in
Section 9 hereof).
RECITALS
A. The Purchaser has agreed to purchase $10,500,000.00 in aggregate
original principal amount of the 8.87% Senior Secured Notes due May 1, 2007 (the
"Notes"), of Francis J. Perry, Jr. and William J. Walker, not in their
individual capacities, but solely as trustees of Everett Street Trust, a
Massachusetts nominee trust established under Declaration of Trust, dated May 9,
1980 (the "Debtor"), to be issued pursuant to the terms of a Note Purchase
Agreement (the "Note Agreement"), dated May 18, 1994, between the Debtor and the
Purchaser.
B. The Guarantor is the lessee (in its capacity as such, the Guarantor is
hereinafter sometimes referred to as the "Lessee") under an Amended and Restated
Lease Agreement, dated as of May 1, 1992 (as the same may be further amended or
supplemented from time to time, the "Lease"), each with the Debtor, as lessor.
The Debtor will use the proceeds from the sale of the Notes to refinance certain
indebtedness with respect to and to make certain improvements to the Premises
(as defined in the Lease) for the benefit of the Lessee.
C. It is a condition to the purchase by the Purchaser of the Notes under
the Note Agreement that the Guarantor execute and deliver this Guaranty.
NOW, THEREFORE, the Guarantor hereby agrees as follows:
1. GUARANTY OF PAYMENT AND PERFORMANCE OF OBLIGATIONS.
(a) The Guarantor unconditionally guarantees to each of the
Beneficiaries the full and punctual payment of the Obligations (as defined in
subsection (b) below). This Guaranty is an absolute, unconditional and
continuing guaranty of the full and punctual payment by the Debtor of each of
the Obligations, and not of collectibility only, and is in no way conditioned
upon any requirement that any Beneficiary first attempts to collect payment from
the Debtor or any other guarantor or surety or resorts to any security or other
means of obtaining payment of all or any of the Obligations or upon any other
contingency. Upon any Event of Default (as defined in the Mortgage) by the
Debtor in the full and punctual payment of any of the Obligations, the
liabilities and obligations of the Guarantor hereunder shall, at the option of
any Beneficiary, become forthwith due and payable without demand or notice of
any nature, all such demands and notices being expressly waived by the
Guarantor.
(b) As used herein, the term "Obligations" means all indebtedness,
obligations and liabilities of any kind of the Debtor to any or all of the
Beneficiaries or otherwise arising under or in connection with the Notes, the
Note Agreement or any other Obligation Agreement (as defined
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below), howsoever incurred, arising or evidenced, whether now or hereafter
existing, due or to become due or of payment, and including without limitation
the Debtor's obligation to pay (i) all principal of, interest on and premium, if
any, including any Make-Whole Payments (as defined in the Mortgage), with
respect to the Notes when and as the same shall become due and payable (whether
at maturity or by declaration or otherwise) and (ii) all costs and expenses
(including court costs, reasonable attorneys' fees and other legal expenses)
incurred by any Beneficiary in exercising and enforcing any of its rights,
powers and remedies under the Notes, the Note Agreement or any other Obligation
Agreement, including without limitation its rights and remedies following an
Event of Default (as defined in the Mortgage) by Debtor. The term "Obligation
Agreement" means the Notes, the Note Agreement, the Mortgage (as defined in the
Note Agreement), the Lease Assignment (as defined in the Note Agreement) and any
other agreement, document or instrument referred to in any thereof.
2. GUARANTY CONTINUING AND LIABILITY UNLIMITED.
(a) This is a continuing guaranty and shall be binding upon the
Guarantor regardless of (a) how long before or after the date hereof any part of
the Obligations was or is incurred by the Debtor and (b) the amount of the
Obligations at any time outstanding (whether more or less than the original
principal amount of the Notes). This Guaranty may be enforced by any or all of
the Beneficiaries from time to time and as often as occasion for such
enforcement may arise.
(b) If after receipt of any payment of, or the proceeds of any
collateral for, all or any part of the Obligations, the Beneficiaries are
compelled to surrender or voluntarily surrender such payment or proceeds to any
person because such payment or application of proceeds is or may be avoided,
invalidated, recaptured, or set aside as a preference, fraudulent conveyance,
impermissible setoff or for any other reason, whether or not such surrender is
the result of (i) any judgment, decree or order of any court or administrative
body having jurisdiction over the Beneficiaries, or (ii) any settlement or
compromise by the Beneficiaries of any claim as to any of the foregoing with any
person (including the Debtor), then the Obligations or part thereof affected
shall be reinstated and continue and this Guaranty shall be reinstated and
continue, in full force as to such Obligations or part thereof as if such
payment or proceeds had not been received, notwithstanding any previous
cancellation of any instrument evidencing any such Obligation or any previous
instrument delivered to evidence the satisfaction thereof. The provisions of
this Section 2(b) shall survive the termination of this Guaranty and any
satisfaction and discharge of the Debtor by virtue of any payment, court order
or any federal or state law.
3. UNCONDITIONAL NATURE OF GUARANTOR'S OBLIGATIONS AND LIABILITIES.
The obligations and liabilities of the Guarantor hereunder shall be
absolute and unconditional, shall not be subject to any counterclaim, set-off,
deduction or defense based upon any claim the Guarantor may have against the
Debtor, any other guarantor, or any other person or entity, and shall remain in
full force and effect until all of the Obligations have been fully satisfied,
without regard to any event, circumstance or condition (whether or not the
Guarantor shall have knowledge or notice thereof) which but for the provisions
of this Section might constitute a legal or equitable defense or discharge of a
guarantor or surety or which might in any way limit recourse against the
Guarantor, including without limitation: (a) any amendment or modification or
supplement to the terms of the Note Agreement, the Lease, the Notes or any other
Obligation Agreement; PROVIDED, HOWEVER that the Guarantor shall not be liable
under this Guaranty for any increase in the Obligations
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which results solely from an amendment, modification or supplement to the Notes
or the Note Agreement to which the Guarantor has not consented; (b) any waiver,
consent or indulgence by any Beneficiary, or any exercise or non-exercise by any
Beneficiary of any right, power or remedy, under or in respect of this Guaranty,
the Note Agreement, the Notes, the Lease or any other Obligation Agreement
(whether or not the Guarantor or the Debtor has or have notice or knowledge of
any such action or inaction); (c) the invalidity or unenforceability, in whole
or in part, of the Note Agreement, the Lease, the Notes or any other Obligation
Agreement, or the termination, cancellation or frustration of any thereof, or
any limitation or cessation of the Debtor's liability under any thereof,
including without limitation any invalidity, unenforceability or impaired
liability resulting from the Debtor's lack of capacity, power and/or authority
to enter into the Note Agreement, the Notes, the Lease or any other Obligation
Agreement and/or to incur any or all of the Obligations, or from the execution
and delivery of any Obligation Agreement by any person acting for the Debtor
without or in excess of authority; (d) any actual, purported or attempted sale,
assignment or other transfer by any or all of the Beneficiaries or by the Debtor
of any Obligation Agreement or of any of its rights, interests or obligations
thereunder; (e) any defect in the Debtor's title to the Premises or any item(s)
of the Mortgaged Property (as defined in the Note Agreement) or in the design,
quality, condition, durability, operation, merchantability or fitness for any
particular use or purpose of any thereof, or the failure of any such item to
meet the requirements or specifications of any law, regulation, judgment,
administrative order or decision or of any agreement between the Debtor and any
other party; (f) any actual, purported or attempted sale, assignment, leasing,
transfer, encumbrance, redelivery or other temporary or permanent disposition of
the Premises or any item(s) of the Mortgaged Property, or any damage to or
destruction, seizure, condemnation, theft, repossession or any other partial or
total loss or loss of use of any thereof; (g) the Debtor's failure to obtain,
protect, preserve or enforce any rights in the Premises or any item(s) of the
Mortgaged Property against any party, or the invalidity or unenforceability of
any such rights; (h) the taking or holding by any or all of the Beneficiaries of
a security interest, lien or other encumbrance in or on any other property as
security for any or all of the Obligations or any exchange, release,
non-perfection, loss or alteration of, or any other dealing with, any such
security; (i) the addition of any party as a guarantor or surety of all or any
part of the Obligations or any limitation of the liability of any additional
guarantor or surety of all or any part of the Obligations under any other
agreement; (j) any merger or consolidation of the Debtor into or with any other
entity, or any sale, lease, transfer or other disposition of any or all of
Debtor's assets or any sale, transfer or other disposition of any or all of the
beneficial interests in the Debtor to any other person or entity; and (k) any
change in the financial condition of the Debtor or the Debtor's entry into an
assignment for the benefit of creditors, an arrangement or any other agreement
or procedure for the restructuring of its liabilities, or the Debtor's
insolvency, bankruptcy, reorganization, dissolution, liquidation or any similar
action by or occurrence with respect to the Debtor.
4. GUARANTOR'S WAIVER.
The Guarantor unconditionally waives, to the fullest extent permitted by
law: (a) notice of any of the matters referred to in Section 3 hereof; (b) any
right to the enforcement, assertion or exercise by any or all of the
Beneficiaries of any of its or their respective rights, powers or remedies
under, against or with respect to (i) the Note Agreement, the Lease, the Notes
or any other Obligation Agreement, (ii) any other guarantor or surety, or (iii)
any security for all or any part of the Obligations, including, without
limitation, the Mortgaged Property; (c) any requirement of diligence and any
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<PAGE> 4
defense based on a claim of laches; (d) all defenses which may now or hereafter
exist by virtue of any statute of limitations, or of any stay, valuation,
exemption, moratorium or similar law; (e) any requirement that the Guarantor be
joined as a party in any action or proceeding against the Debtor to enforce any
of the provisions of the Note Agreement, the Lease, the Notes or any other
Obligation Agreement; (f) any requirement that any Beneficiary mitigate or
attempt to mitigate damages resulting from a default by the Guarantor hereunder
or from a default by the Debtor under the Lease or any of the Obligation
Agreements; (g) acceptance of this Guaranty by any Beneficiary; and (h) all
presentments, protests, notices of dishonor, demands for performance and any and
all other demands upon and notices to the Debtor, and any and all other
formalities of any kind, the omission of or delay in performance of which might
but for the provisions of this Section constitute legal or equitable grounds for
relieving or discharging the Guarantor in whole or in part from its irrevocable,
absolute and continuing obligations hereunder, it being the intention of the
Guarantor that its obligations hereunder shall not be discharged except by
payment and performance and then only to the extent thereof; PROVIDED, HOWEVER,
that the Beneficiaries agree that if, at any time, such Beneficiaries have the
right to assert an identical claim against the Guarantor both under this
Guaranty and under the Put Agreement (as defined in the Note Agreement), then,
so long as the Put Agreement is in full force and effect and the Guarantor is
not in default in any of its obligations thereunder, the Beneficiaries shall
first assert such claim against the Guarantor under the Put Agreement; PROVIDED
FURTHER, HOWEVER, that the Beneficiaries may immediately assert such claim under
this Guaranty without the necessity of asserting such claim under the Put
Agreement if the Guarantor at any time fails to make payment of all or any
portion of such claim as and when due under the Put Agreement or otherwise is in
default of its obligations thereunder.
5. REPRESENTATIONS AND WARRANTIES.
The Guarantor represents and warrants that:
(a) ORGANIZATION AND POWER. The Guarantor (i) is a corporation duly
organized and validly existing under the laws of the Commonwealth of
Massachusetts; and (ii) has all requisite corporate power and authority and all
necessary licenses and permits under the laws of the Commonwealth of
Massachusetts to enter into this Guaranty, the Lease, Put Agreement and Lease
Assignment (herein, collectively, the "Guarantor Documents"), to perform and
observe the terms and conditions of such instruments and to own its properties
and conduct its business as currently conducted. The Guarantor is qualified to
do business as a foreign corporation in all jurisdictions where its ownership of
property or the nature of its business requires such qualification. Each of the
Guarantor's Subsidiaries (i) is a corporation duly organized and validly
existing under the laws of such Subsidiary's state of incorporation, (ii) has
all requisite corporate power and authority to own its properties and conduct
its business as currently conducted and (iii) is qualified to do business as a
foreign corporation in all jurisdictions where its ownership of property or the
nature of its business requires such qualification. The Guarantor Documents have
been duly authorized, executed and delivered by the Guarantor and constitute the
legal, valid and binding obligations of the Guarantor enforceable against the
Guarantor in accordance with their respective terms, except that certain rights
and remedies as set forth in such Guarantor Documents may be limited by
bankruptcy, reorganization and other laws of general application relating to or
affecting the enforcement of creditors' or lessors' rights.
(b) LITIGATION; TAXES. There are no actions, suits or proceedings pending
or, to its knowledge, threatened against or affecting the Guarantor at
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law or in equity before any court or administrative officer or agency an adverse
determination in which could, individually or in the aggregate, have a material
adverse effect on the business, property, assets or financial condition of the
Guarantor. The Guarantor is not in default (i) in the payment of any taxes
levied or assessed against it or its assets or (ii) under or in violation of any
statute, rule, order, decree, writ, injunction or regulation of any governmental
body (including any court).
(c) COMPLIANCE WITH OTHER INSTRUMENTS. The Guarantor is not a party to any
contract or agreement or subject to any restriction or to any order, rule,
regulation, writ, injunction or decree of any court or governmental authority or
to any statute which materially and adversely affects its business, property,
assets or financial condition. Neither the execution, delivery or performance by
the Guarantor of this Guaranty or the other Guarantor Documents nor its
compliance herewith or therewith (A) conflicts or will conflict with or results
or will result in a breach of or constitutes or will constitute a default under
(i) any law in effect as of the date of delivery of this Guaranty, (ii) the
articles of incorporation or by-laws of the Guarantor, (iii) any agreement or
instrument to which the Guarantor is a party or by which it is bound, or (iv)
any order, writ, injunction or decree of any court or other governmental
authority, or (B) results or will result in the creation or imposition of any
lien, charge or encumbrance upon the Guarantor's property pursuant to such
agreement or instrument.
(d) GOVERNMENTAL AUTHORIZATION; CONSENTS. No authorization, consent or
approval of or filing with any governmental authority is required for the
execution, delivery and performance of this Guaranty or any other Guarantor
Document. If, on the Closing Date (as defined in the Note Agreement), any such
authorization, consent, approval or filing shall be required, the same shall
have been obtained or made on or prior to the Closing Date and true and complete
copies of each thereof shall have been provided to the Purchaser. The execution,
delivery and performance by the Guarantor of this Guaranty or any other
Guarantor Document do not require any stockholder approval or the consent or
approval of any of the Guarantor's creditors (except as have already been
obtained in writing).
(e) EVENT OF DEFAULT. No event has occurred and is continuing with respect
to the Guarantor which would constitute a Default or an Event of Default.
(f) OBLIGATIONS TO OTHERS. The Guarantor has no unsatisfied obligations in
excess of $25,000 in the aggregate to any Person arising out of or incurred in
connection with the acquisition, construction, leasing or remodeling by the
Guarantor of its interests in the Premises.
(g) MARGIN STOCK. The Guarantor does not own or have any present intention
of acquiring any "margin stock" as defined in Regulation G (12 C.F.R., Chapter
II, Part 207) of the Board of Governors of the Federal Reserve System. None of
the proceeds of the Notes will be used, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of purchasing or carrying any such
margin stock or for the purpose of maintaining, reducing or retiring any
indebtedness which was originally incurred to purchase or carry any such stock
that is currently a margin stock or for any other purpose which might constitute
this transaction a "purpose credit" within the meaning of said Regulation G.
Neither the Guarantor nor any agent acting on its behalf has taken or will take
any action which might cause the transactions contemplated herein to violate
such Regulation G, Regulation T (12 C.F.R., Chapter II, Part 220) or Regulation
X (12 C.F.R., Chapter II, Part 224) or any other regulation of the
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Board of Governors of the Federal Reserve System or to violate the Securities
Exchange Act of 1934, in each case as now in effect or as the same may hereafter
be in effect.
(h) ERISA. The Guarantor is in compliance in all material respects with all
material applicable provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the regulations and published interpretations
thereunder. No "reportable event", as such term is defined in Section 4043 of
ERISA, has occurred with respect to any employee pension benefit plan (as
defined in ERISA), and the Guarantor has not incurred, nor does it reasonably
expect to incur, any liability to the Pension Benefit Guaranty Corporation under
Section 4062 of ERISA or to any multiemployer plan (as defined in ERISA) under
Section 4201 of ERISA. The Guarantor has not incurred any accumulated funding
deficiency within the meaning of Section 302 of ERISA nor is it subject to any
lien arising under Section 307 of ERISA or Section 401(a)(29) or 412(n) of the
Internal Revenue Code of 1986, as amended.
(i) SOLVENCY. The Guarantor's assets are not less than its liabilities,
both determined in accordance with generally accepted accounting principles, and
the Guarantor is solvent. The transactions contemplated by this Guaranty and the
other Guarantor Documents are being consummated by the Guarantor in furtherance
of the Guarantor's ordinary business purposes and in furtherance of its
corporate purposes within the meaning of M.G.L. c156B, #9, with no contemplation
of insolvency and with no intent to hinder, delay or defraud any of its present
or future creditors. Neither before nor as a result of the transactions
contemplated by this Guaranty will the Guarantor be or be rendered insolvent or
have an unreasonably small capital for the conduct of its business and the
payment of its anticipated obligations. The Guarantor's assets and cash flow
enable it to meet its present obligations in the ordinary course of business as
they become due, and the Guarantor does not believe that it will incur debts
beyond its ability to pay.
(j) TITLE TO THE PREMISES. The Premises are free and clear of any liens or
encumbrances which result from claims against the Guarantor.
(k) FULL DISCLOSURE. Neither (i) the financial statements for the
Guarantor's fiscal years ending in 1993, 1992, 1991, 1990 and 1989 nor (ii) the
Form 10-Q of the Guarantor for the fiscal quarter ended January 31, 1994 nor
(iii) the Form 10-K of the Guarantor for the fiscal year ended October 30, 1993
nor (iv) any Guarantor Document nor (v) any written statement furnished by the
Guarantor to the Purchaser in connection with the offering and sale of the
Notes, contains any untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein not misleading. There is no
fact applicable to the Guarantor which the Guarantor has not disclosed to the
Purchaser in writing which materially affects adversely nor so far as the
Guarantor can now reasonably foresee will materially affect adversely the
properties, business, prospects, profits or condition (financial or otherwise)
of the Guarantor. The Guarantor represents to the Purchaser that all of the
financial statements and reports specified above have been prepared in
accordance with generally accepted accounting principles, consistently applied.
(l) NO MATERIAL ADVERSE CHANGE. There has been no material adverse change
in the business, properties, prospects or condition, financial or otherwise, of
the Guarantor since October 30, 1993.
(m) OFFERING OF THE NOTES. The Guarantor has not, directly or through an
agent, offered the Notes or any part thereof or any similar security for sale
to, solicited offers to buy any thereof from or otherwise approached or
negotiated with anyone other than the Purchaser. Neither the Guarantor nor any
agent on its behalf will sell or offer any part of the Notes or any part
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thereof or any similar security for sale to, solicit any offers to buy any
thereof from or otherwise approach or negotiate in respect thereof with any
other Person or Persons so as thereby to require registration of the Notes under
Section 5 of the Securities Act of 1933, as amended.
6. CERTAIN COVENANTS AND AGREEMENTS.
In addition to its covenants and agreements set forth elsewhere in this
Guaranty, the Guarantor hereby further covenants and agrees, for so long as any
Obligation is outstanding and unpaid, as follows:
(a) PAYMENT OF OBLIGATIONS. The Guarantor will pay and discharge, and
will cause each Subsidiary to pay and discharge, at or before maturity, all
their respective material obligations and liabilities, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings, and will maintain and will cause each
Subsidiary to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.
(b) MAINTENANCE OF PROPERTY; INSURANCE. (i) The Guarantor will keep,
and will cause each Subsidiary to keep, all property useful and necessary in its
business in good working order and condition, ordinary wear and tear and fully
insured casualty excepted.
(ii) The Guarantor will maintain, and will cause each Subsidiary
to maintain, insurance with financially sound and reputable insurance companies
or associations in such amounts and covering such risks as are usually carried
by companies engaged in the same or a similar business and similarly situated,
which insurance may provide for reasonable deductibility from coverage thereof.
(c) CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Guarantor
will continue, and will cause each Subsidiary to continue, to engage in business
of the same general type as now conducted by the Guarantor and its Subsidiaries,
and will preserve, renew and keep in full force and effect, and will cause each
Subsidiary to preserve, renew and keep in full force and effect their respective
corporate existence and their respective rights, privileges and franchises
necessary or desirable in the normal conduct of business; PROVIDED that nothing
in this Section 6(c) shall prohibit (i) the merger of a Subsidiary into the
Guarantor or the merger or consolidation of a Subsidiary with or into another
Person if the corporation surviving such consolidation or merger is a Subsidiary
and if, in each case, after giving effect thereto, no Default or Event of
Default shall have occurred and be continuing or (ii) the termination of the
corporate existence of any Subsidiary if the Guarantor in good faith determines
that such termination is in the best interest of the Guarantor and is not
materially disadvantageous to the Beneficiaries.
(d) COMPLIANCE WITH LAWS. The Guarantor will comply, and cause each
Subsidiary to comply, in all material respects with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
except where the necessity of compliance therewith is contested in good faith by
appropriate proceedings.
(e) INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Guarantor will
keep, and will cause each Subsidiary to keep, proper books of record and account
in which full, true and correct entries shall be made of all dealings and
transactions in relation to its business and activities; and will permit, and
will cause each Subsidiary to permit, representatives of any Beneficiary,
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at such Beneficiary's expense, to visit and inspect any of their respective
properties, to examine and make abstracts from any of their respective books and
records and to discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public accountants, all at
such reasonable times and as often as may reasonably be desired.
(f) TRANSACTIONS WITH AFFILIATES. Neither the Guarantor nor any
Subsidiary will enter into any transaction, including, without limitation, the
purchase or sale of any property or the rendering of any service, with any
Affiliate except for transactions entered into in the ordinary course of, and
pursuant to the reasonable requirements of, the Guarantor's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Guarantor
or such Subsidiary than would be obtained in a comparable arm's-length
transaction with a person not an Affiliate.
(g) LEVERAGE RATIO. The Guarantor shall maintain at all times a ratio
of Total Liabilities to Consolidated Tangible Net Worth of not greater than 1 to
1.
(h) MINIMUM CONSOLIDATED TANGIBLE NET WORTH. The Guarantor will at no
time permit Consolidated Tangible Net Worth to be less than the sum of (A)
$312,000,000 PLUS (B) 50% of consolidated net income for the period from October
30, 1993, through the end of the Guarantor's then most recent fiscal quarter
(treated for this purpose as a single accounting period); PROVIDED, HOWEVER,
that in the event that the Guarantor incurs a net loss in one of more of its
fiscal quarters ending after October 30, 1993, then the results of such quarter
or quarters shall be excluded in calculating consolidated net income for the
purposes of clause (B) above.
(i) RESTRICTED PAYMENTS. Neither the Guarantor nor any Subsidiary will
declare or make any Restricted Payment if either (A) a Default or Event of
Default exists or (B) after giving effect thereto, the aggregate of all
Restricted Payments declared or made subsequent to October 30, 1993, would
exceed an amount equal to (x) $48,000,000 PLUS (y) 50% of consolidated net
income for the period from October 30, 1993, through the end of the Guarantor's
then most recent fiscal quarter (treated for this purpose as a single accounting
period). Nothing in this subparagraph (i) shall prohibit the payment of any
dividend or distribution within 45 days after declaration thereof, if such
declaration was not prohibited by this subparagraph (i).
(j) INVESTMENTS. The Guarantor will not make, or permit any of its
Subsidiaries to make, any loan or advance to any Person or purchase or otherwise
acquire, or permit any such Subsidiary to purchase or otherwise acquire any
capital stock, assets, obligations or other securities of, make any capital
contribution to, or otherwise invest in, or acquire any interest in, any Person
(all such transactions being herein called "Investments"), except:
(i) Investments in Liquid Assets;
(ii) Investments in the Guarantor or any of its Consolidated
Subsidiaries;
(iii) Investments in accounts, contract rights and general intangibles
(as defined in the Uniform Commercial Code as in effect in the Commonwealth
of Massachusetts from time to time) or notes or other instruments
receivable, arising from the sale, lease or other furnishing of goods or
services by the Guarantor or any Consolidated Subsidiary in the ordinary
course of business;
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(iv) Investments in equity interests (including stocks and convertible
debt securities) of corporations which do not become Consolidated
Subsidiaries made with the proceeds of the issuance of stock by the
Guarantor;
(v) Acquisitions permitted by Section 6(q);
(vi) Investments (including stocks, equity interests and convertible
debt securities) of corporations that do not become Consolidated
Subsidiaries made with the proceeds of the sale or other disposition of any
capitalized investment permitted by clause (iv), providing that the
Guarantor gives the Beneficiaries notice of such Investment under this
clause; and
(vii) additional Investments not exceeding in the aggregate at any one
time outstanding $20,000,000.
(k) NEGATIVE PLEDGE. Neither the Guarantor nor any Subsidiary will
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, except:
(i) Liens securing Indebtedness specified on Exhibit A hereto;
(ii) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or, if due and payable, they are being
contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained;
(iii) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are
not past due for more than 30 days, or which are being contested in good
faith by appropriate proceedings and for which appropriate reserves have
been established;
(iv) Liens under workmen's compensation, unemployment insurance,
social security or similar legislation;
(v) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payments of money), leases
(as may be permitted under this Guaranty), public or statutory obligations,
surety, stay, appeal, indemnity, performance or other similar bonds, or
other similar obligations arising in the ordinary course of business;
(vi) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate do not materially interfere with the
occupation, use and enjoyment by the Guarantor or any Subsidiary of the
property or assets encumbered thereby in the normal course of business or
materially impair the value of the property subject thereto;
(vii) Liens securing obligations of a Subsidiary to the Guarantor or
to another Subsidiary;
(viii) Judgment and other similar Liens arising in connection with
court proceedings; PROVIDED that the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are being
actively contested in good faith and by appropriate proceedings;
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<PAGE> 10
(ix) Liens on any assets of any corporation at the time such
corporation becomes a Subsidiary;
(x) Liens on any assets at the time of acquisition of such assets by
the Guarantor or a Subsidiary;
(xi) Liens on any assets of a corporation existing at the time such
corporation is merged into or consolidated with the Guarantor or a
Subsidiary or at the time of a purchase, lease or other acquisition of the
assets of a corporation or firm as an entirety or substantially as an
entirety by the Guarantor or a Subsidiary;
(xii) Liens granted in connection with the Guarantor's or any
Subsidiary's refinancing of Indebtedness secured by a Lien on any of their
respective assets on the date of the closing for the sale of the Notes;
PROVIDED, HOWEVER, that in no event shall the principal amount of
Indebtedness secured by such Lien exceed 100% of the Indebtedness
originally secured by the Lien to be released in connection with such
refinancing; and
(xiii) Liens not otherwise permitted by the foregoing clauses (i) -
(xii) of this Section securing Indebtedness in an aggregate principal
amount and Swap Obligations with an aggregate mark to market value (net of
mark of market thresholds, if any) at any one time outstanding not to
exceed 30% of Consolidated Tangible Net Worth.
(l) CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. (A) The Guarantor
will not merge or consolidate with or sell, assign, lease or otherwise dispose
of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired), to
any Person unless: (i) the corporation which results from such merger, sale or
consolidation or to which such disposition is made is either (A) the Guarantor
or (B) a corporation organized under the laws of the United States or any state
thereof or the District of Columbia; (ii) the surviving corporation (if not the
Guarantor) or the corporation to which such disposition is made expressly
assumes the Guarantor's obligations hereunder and under the Lease, the Lease
Amendment, the Put Agreement and the Lease Assignment pursuant to documentation
satisfactory in form and substance to the Beneficiaries; (iii) no Default or
Event of Default exists or will result from such merger, sale or consolidation;
(iv) no default by the Debtor exists in respect of payment of any amount due
under the Notes, whether in respect of principal, interest or premium, if any;
and (v) such merger, sale or consolidation will not have a material adverse
effect on the financial condition of the Guarantor or such surviving or
transferee corporation, as the case may be.
(B) No Subsidiary shall merge or consolidate with or sell, assign, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or any part of its assets (whether now owned or hereafter acquired) to any
Person or acquire all or substantially all of the assets or the business of any
Person nor shall the Guarantor permit any of its Subsidiaries to do so, except
that: (i) any Subsidiary may merge into or transfer assets to the Guarantor;
(ii) any Subsidiary may merge into or transfer assets to any other Subsidiary;
and (iii) any Subsidiary may consummate an Acquisition as permitted under
Section 6(q).
(m) SALES AND LEASEBACKS. The Guarantor and its Subsidiaries will not sell
or transfer any of their respective assets and become, directly or indirectly,
liable as the lessee under a lease of such assets if, as a result of such a sale
and leaseback transaction, the combined fair market value (as
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<PAGE> 11
determined in good faith by the Guarantor) of all assets of the Guarantor and
its Subsidiaries subject to a sale and leaseback transaction entered into from
and after the date of the sale of the Notes to any date of determination would
exceed 30% of Consolidated Tangible Assets.
(n) SUBSIDIARY INDEBTEDNESS. The Guarantor will not permit a Subsidiary to
incur any Indebtedness except:
(i) Indebtedness listed on Exhibit B hereto;
(ii) Indebtedness incurred pursuant to the refinancing of Indebtedness
permitted pursuant to clause (i) above;
(iii) Guaranties of Indebtedness of the Guarantor;
(iv) Indebtedness to any other Subsidiary or to the Guarantor;
and
(v) Indebtedness not permitted by any of the preceding clauses (i) -
(iv); PROVIDED, HOWEVER, that the aggregate amount of Indebtedness
outstanding at any time pursuant to this clause (v) shall not exceed 20% of
Consolidated Tangible Net Worth; and PROVIDED FURTHER that no Indebtedness
incurred as permitted by clause (iv) above may be sold, transferred or
otherwise assigned at any time to any Person that is not a Subsidiary or is
not the Guarantor.
(o) FINANCIAL STATEMENTS. The Guarantor will deliver to each Beneficiary:
(i) Copies of all public financial statements, including any special or
interim statements of the Guarantor, and any information sent to
shareholders; PROVIDED, HOWEVER, that if such statements do not
include the following information required by this clause (o), the
Guarantor will deliver to said Beneficiaries the following:
(A) Within 120 days after the end of each fiscal year of the
Guarantor, a consolidated balance sheet of the Guarantor and its
Consolidated Subsidiaries as at the end of such year and
consolidated statements of income, retained earnings and changes
in financial position of the Guarantor and its Consolidated
Subsidiaries for such year, setting forth in each case, in
comparative form, the corresponding figures for the preceding
fiscal year in reasonable detail and scope, certified by
independent certified public accountants of nationally recognized
standing selected by the Guarantor; and within 60 days after the
end of the first three fiscal quarters of the Guarantor,
consolidated balance sheets of the Guarantor and its Consolidated
Subsidiaries as at the end of such quarter and consolidated
statements of income, retained earnings and changes in financial
position of the Guarantor and its Consolidated Subsidiaries for
such quarter, setting forth in each case, in comparative form,
the corresponding figures for the similar quarter of the
preceding year, in reasonable detail and scope, and certified by
the treasurer or chief financial officer of the Guarantor;
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<PAGE> 12
(B) With reasonable promptness such additional
information (including copies of public reports filed by the
Guarantor) regarding the business affairs and financial condition
of the Guarantor as any Beneficiary may reasonably request; and
(C) Upon the occurrence of any Default or Event of Default
hereunder or under and as defined in the Lease, the Guarantor
promptly shall give written notice thereof to each Beneficiary.
All financial statements specified in clause (A) above shall be accompanied
by the certificate of the treasurer or chief financial officer of the Guarantor
stating that (A) no Default or Event of Default hereunder or under and as
defined in the Lease has occurred and is continuing, (B) if any such Default or
Event of Default has occurred, specifying the nature and the period of existence
thereof and what action the Guarantor has taken or is taking with respect
thereto, (C) the Guarantor has fulfilled all its obligations hereunder and under
the Lease and (D) such financial statements present fairly and completely the
financial condition of the Guarantor and its Consolidated Subsidiaries. As soon
as available and in any event within 120 days after the end of each fiscal year
of the Guarantor, the certification of the independent certified public
accountants referred to in clause (A) above shall be accompanied by a letter
from said accountants stating whether as a result of their examination anything
has come to their attention to cause them to believe that a Default or Event of
Default hereunder or under and as defined in the Lease has occurred, and, if so,
specifying the nature and period of existence thereof.
(p) PAYMENT OF CERTAIN EXPENSES. Whether or not the transactions
contemplated by this Guaranty or the Note Agreement shall be consummated, the
Guarantor will:
(i) Pay all reasonable fees and expenses incurred by the Purchaser and
the Debtor in connection with the transactions described in the Note
Agreement and all reasonable fees and expenses incurred by the Purchaser or
any other Beneficiary in connection with any modification, supplement or
amendment of this Guaranty, the Lease, the Put Agreement or any of the
Obligation Agreements or Guarantor Documents or any waiver or consent under
or in respect of this Guaranty, the Notes, the Lease, the Put Agreement or
any of the Obligation Agreements or Guarantor Documents, whether or not
such modification, supplement, amendment, waiver or consent is obtained or
becomes effective, including in each such instance, without limitation,
printing, word processing and reproduction expenses, reasonable legal fees
(including reasonable legal fees and expenses of each Beneficiary's
counsel), fees and expenses of any appraisers and environmental engineers
and consultants and all recording, registration and filing fees, taxes and
expenses. The Guarantor agrees to pay all expenses incurred by any
Beneficiary (including reasonable counsel fees and the fees, expenses and
disbursements of an investment bank or other firm acting as such
Beneficiary's financial advisor) following the occurrence and during the
continuance of any Default or Event of Default or any workout restructuring
or similar negotiations or any bankruptcy proceeding involving the
Guarantor, the Debtor or any holder of a beneficial interest in the Debtor
and to pay all costs of collection and enforcement, including reasonable
attorneys' fees and disbursements, with respect to this Guaranty, the
Notes, the Lease, the Put Agreement or any other Obligation Agreement or
Guarantor Document;
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<PAGE> 13
(ii) Pay and save each Beneficiary harmless from and against any and
all liability and loss with respect to or resulting from the nonpayment or
delayed payment of any and all stamp and other similar taxes (other than
transfer taxes), fees and excises, if any, including any interest and
penalties, which may be, or be determined to be, payable in connection with
the transactions contemplated by the Note Agreement and this Guaranty, or
in connection with any modification, supplement or amendment of this
Guaranty, the Notes, the Lease, the Put Agreement or any of the Obligation
Agreements or Guarantor Documents or any waiver or consent under or in
respect of any thereof; and
(iii) Hold each Beneficiary harmless from and against any and all
finders' or brokerage fees and commissions which may be payable in
connection with the transactions contemplated hereby and by the Note
Agreement or in connection with any modification, supplement or amendment
of this Guaranty, the Notes, the Lease, the Put Agreement or any of the
Obligation Agreements or Guarantor Documents or any waiver or consent under
or in respect of any thereof.
Notwithstanding anything to the contrary contained in this Guaranty, the
Guarantor's obligations under this Section 6(p) shall survive payment of the
Obligations.
(q) ACQUISITIONS. The Guarantor shall not, and shall not permit any of its
Subsidiaries to, consummate any Acquisition, or sell, lease, assign or otherwise
dispose of (whether in one transaction or in a series of related transactions)
all or any substantial part of its assets, whether now owned or hereafter
acquired, or be a party to any merger or consolidation, except that:
(i) the Guarantor and its Subsidiaries may sell inventory or used or
surplus equipment in the ordinary course of business; and
(ii) the Guarantor and any of its Subsidiaries may consummate any
Acquisition (including any Acquisition by way of merger); PROVIDED that:
(i) with respect to any such Acquisition, the Guarantor shall provide to
the Beneficiaries twenty (20) days or more prior written notice thereof;
(ii) with respect to all such Acquisitions the aggregate value, on a
current market value basis (determined at the time of each such
Acquisition), of the consideration therefor paid and to be paid by the
Guarantor and Subsidiaries shall not exceed 33 1/3% of Consolidated
Tangible Net Worth as of the end of the immediately preceding fiscal
quarter; (iii) after giving effect to such Acquisition, the Guarantor shall
be in compliance with all of the terms and conditions hereof; (iv) the
Guarantor or such Subsidiary consummating such Acquisition shall not, after
giving effect to such Acquisition, be in violation of Section 6(c); (v) no
such Acquisition shall have a material adverse effect on the financial
condition of the Guarantor and the Subsidiaries taken as a whole; and (vi)
in respect of each such Acquisition, the Guarantor or such Subsidiary shall
be the surviving or continuing entity.
For the purposes of this Guaranty, the following definitions shall apply:
"Acquisition" means any transaction or series of related transactions,
consummated after the date of this Guaranty, by which the Guarantor or any of
its Subsidiaries (i) acquires any going business or all or substantially all of
the assets of any firm, corporation or division thereof, whether through
purchase of assets, merger or otherwise, or (ii) directly or indirectly acquires
(in one transaction or as the most recent transaction in a series of
transactions) at least a majority (in number of votes) of the securities of a
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<PAGE> 14
corporation which have ordinary voting power for the election of directors
(other than securities having such power only by reason of the happening of a
contingency).
"Affiliate" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls the Guarantor (a "Controlling Person") or (ii)
any Person (other than the Guarantor or a Subsidiary of the Guarantor) which is
controlled by or is under common control with a Controlling Person. As used
herein, the term "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Consolidated Subsidiary" means any Subsidiary whose accounts are or are
required to be consolidated with the accounts of the Guarantor.
"Consolidated Tangible Assets" means the gross book value of all assets of
the Guarantor and its Consolidated Subsidiaries, determined on a consolidated
basis, minus the following items (without duplication of deductions) appearing
on the balance sheet of the Guarantor and its Consolidated Subsidiaries:
(a) reserves for depreciation, depletion and amortization and other
reserves against assets, reserves for investments, receivables and
income taxes and other liability reserves;
(b) all deferred charges (less amortization), unamortized debt discount
and expense and corporate organizational expenses;
(c) the book amount of all assets (including, without limitation,
goodwill, patents, trademarks and copyrights) which would be treated
as intangibles under generally accepted accounting principles;
(d) the amount by which aggregate inventories appearing on the asset side
of such balance sheet exceed the lower of cost or market value (at the
date of such balance sheet) thereof;
(e) any write-up in the book amount of any asset or investment subsequent
to April 30, 1994, resulting from a reevaluation or reappraisal
thereof from the amount entered in accordance with generally accepted
accounting principles by the Guarantor or its Subsidiary on its books
with respect to its acquisition of the asset or investment; and
(f) the book amount of the minority interest in any Subsidiary.
"Consolidated Tangible Net Worth" means the Tangible Net Worth of the
Guarantor and its Consolidated Subsidiaries on a consolidated basis.
"Default" means any condition or event which with the giving of notice or
lapse of time or both would, unless cured or waived, become an Event of Default.
"Environmental Laws" has the meaning specified in Section 7 of this
Guaranty.
"Event of Default" has the meaning specified in Section 8 of this
Guaranty.
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<PAGE> 15
"Guaranty" by any Person means any agreement, undertaking or arrangement, by
which such Person assumes, guarantees, endorses or otherwise is or becomes,
directly or contingently responsible or liable (including, but not limited to,
an agreement to purchase any obligation, stock, assets, goods or services or to
supply or advance any funds, assets, goods or services, or an agreement to
maintain or cause such Person to maintain a minimum working capital or net worth
or otherwise to assure the creditors of any Person against loss) for the
obligations of any Person.
"Indebtedness" means, with respect to any Person (without duplication), (a)
indebtedness for borrowed money which, in accordance with generally accepted
accounting principles, would be classified on a balance sheet as liabilities of
such Person, (b) indebtedness for borrowed money secured by any mortgage, pledge
or other Lien on any property of such Person, (c) Guarantees and (d) letters of
credit to support Indebtedness of others.
"Lien" means, with respect to any asset, any lien (statutory or otherwise),
security interest, mortgage, deed of trust, priority, pledge, charge,
conditional sale, title retention agreement, financing lease or other
encumbrance or similar right of others or any agreement to give any of the
foregoing.
"Liquid Assets" means at any time (i) cash; (ii) current accounts with
banks; (iii) bankers' acceptances, certificates of deposit, and time deposits
evidenced by instruments or documents other than certificates of deposit, in
each case only if due within 1 year, not past due, and issued by United States
commercial banks having assets of $500,000,000 or more; (iv) direct debt
obligations of, or obligations guaranteed by, the United States or of agencies
of the United States, due within 1 year and not past due; and (v) direct debt
obligations of any issuer, due within 1 year and not past due, rated A or MIG- 2
or higher by Moody's Investors Services, Inc.
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Restricted Payment" means any dividend or other distribution on any shares
of the Guarantor's capital stock (except dividends payable solely in shares of
its capital stock).
"Subsidiary" means, as to any Person, any corporation or other entity of
which at least a majority of the securities or other ownership interests having
ordinary voting power for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by such Person.
"Swap Obligations" means obligations of the Guarantor and its Subsidiaries
in respect of rate swap transactions, basis swaps, forward rate transactions,
commodity swaps, commodity options, interest rate options, foreign exchange
transactions, cap transactions, floor transactions, collar transactions,
currency swap transactions, cross-currency rate swap transactions, currency
options or any other similar transactions (including any options with respect to
any such transactions) or combinations of such transactions.
"Tangible Net Worth" means the excess of total assets over total
liabilities, excluding, however, from the determination of total assets (i)
goodwill; (ii) patents, copyrights and trademarks; (iii) trade names; (iv)
licenses; (v) organizational expenses; and (vi) treasury stock.
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<PAGE> 16
"Total Liabilities" means at any time all Indebtedness, obligations and
liabilities of the Guarantor and its Consolidated Subsidiaries, on a
consolidated basis, which should be classified as liabilities of such
corporations on a consolidated balance sheet, and in any event shall include
(without duplication):
(1) all Indebtedness, obligations and liabilities guaranteed by any
Guaranty, and all Indebtedness, obligations and liabilities secured by any
mortgage, lien, assignment, pledge, security interest, charge or encumbrance
upon or in property owned by the respective corporation, even though the
respective corporation has not assumed or become liable for the payment of the
same, to the extent that such Indebtedness, obligations and liabilities actually
outstanding exceed $4,000,000;
(2) the aggregate amount of reserves established on the books of the
Guarantor and its Consolidated Subsidiaries in respect of contingent liabilities
and other contingencies, including contingent obligations to make payments under
contracts; and
(3) contingent liabilities in excess of 20% of Consolidated Tangible Net
Worth.
For the purposes of this Section 6, all definitions and calculations made
or to be made in connection therewith shall be governed by generally accepted
accounting principles, consistently applied, as in effect from time to time.
7. ENVIRONMENTAL MATTERS.
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The Guarantor represents,
covenants and warrants to the Beneficiaries that:
(i) at all times during the term of the Lease, the Premises and
the Lessee shall comply in all respects with all applicable
Environmental Laws; the Lessee has obtained all permits,
licenses, and any other authorizations to conduct operations
at the Premises that are required under all applicable
Environmental Laws; the Lessee is in compliance with all
terms and conditions of all permits, licenses, and any other
authorizations required under all applicable Environmental
Laws relating to the Premises;
(ii) as of the commencement of the term of the Lease, no notices,
complaints or orders of violation or non-compliance of any
nature whatsoever had been issued to the Lessee or, to the
best of the Lessee's knowledge, to any person regarding the
Premises, and no federal, state or local environmental
investigation or legal action by a private party is pending
or overtly threatened, in each case with regard to the
Premises or any use thereof or any alleged violation of, or
strict liability arising under, Environmental Laws with
regard to the Premises; no liens have been placed upon the
Premises in connection with any actual or alleged liability
under any Environmental Laws;
(iii) the Premises (a) have not been used by the Lessee or by any other
person to generate, manufacture, refine, produce or process any
Hazardous Substance or to store, handle, transfer or transport
any Hazardous Substance other than normal and lawful uses of such
Hazardous Substances, taking
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<PAGE> 17
into account the Lessee's use of the Premises, in lawful
quantities and in compliance with Environmental Laws, and (b)
will not be used by the Lessee or any other Person at any time
during the term of the Lease to generate, manufacture, refine,
produce or process any Hazardous Substance or to store, handle,
transfer or transport any Hazardous Substance, other than normal
and lawful uses of such Hazardous Substances, taking into account
the Lessee's intended use of the Premises, in lawful quantities
and in compliance with Environmental Laws where such uses will
have no material adverse effect upon the Premises;
(iv) no surface impoundments are constructed, operated or
maintained in or on the Premises in violation of applicable
Environmental Laws and no underground storage tanks are
constructed, operated or maintained in or on the Premises;
there is no asbestos nor asbestos-containing material
located in, on, at or under the Premises nor is there any
polychlorinated biphenyl containing equipment, including
transformers located in, on, at or under the Premises; and
(v) the Premises are and at all times during the term of the
Lease will be maintained (a) free of Hazardous Substances to
which Persons working on or visiting the Premises could be
exposed, the removal or remediation of which is required or
the maintenance of which is prohibited or penalized by any
applicable legal requirements of any local, state or federal
agency, authority or governmental unit having jurisdiction
or which would have a material adverse effect upon the
Premises and (b) free of asbestos and asbestos-containing
material and free of polychlorinated biphenyl containing
equipment, including transformers.
(b) COMPLIANCE WITH ENVIRONMENTAL LAWS. The Guarantor and the Lessee shall
(i) fully comply with all Environmental Laws relating to the Premises, (ii)
prohibit the use of the Premises for the generation, manufacture, refinement,
production or processing of any Hazardous Substances or for the storage,
handling, transfer or transportation of any Hazardous Substances (other than
normal and lawful uses of such products in lawful quantities in compliance with
Environmental Laws where such uses will have no material adverse effect upon the
Premises), (iii) refrain from installing or permitting the installation on the
Premises of any underground storage tanks or asbestos-containing materials or,
except in accordance with applicable Environmental Laws, surface impoundments
and (iv) cause any alterations of, or construction on, the Premises to be done
in accordance with applicable Environmental Laws, and in connection with any
such alterations or construction, remove and dispose of, in compliance with
applicable Environmental Laws, any Hazardous Substances present upon the
Premises not in compliance with Environmental Laws.
(c) NOTICES. Promptly upon obtaining knowledge thereof, the Guarantor shall
give to the Beneficiaries notice of the occurrence of any of the following
events: (i) the failure of the Premises or the Lessee or the Guarantor to comply
with any Environmental Law in any manner whatsoever; (ii) the issuance to the
Lessee of any notice, complaint or order of violation or non-compliance of any
nature whatsoever with regard to the Premises or the use thereof with respect to
Environmental Laws; or (iii) any notice of a pending or threatened investigation
to determine whether the Lessee's operations on the Premises are in violation of
any Environmental Law.
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<PAGE> 18
If any Beneficiary at any time receives notice that an adverse change in
the environmental condition of the Premises has occurred or that an adverse
environmental condition with respect to the Premises has been discovered, such
Beneficiary may give notice thereof to the Guarantor, and if the Guarantor has
not (i) diligently commenced to cure such condition, to the extent necessary to
meet legal requirements or comply fully with applicable Environmental Laws or to
prevent a material diminution in the fair market value of the Premises, within
30 days after receipt of such notice (or such shorter period as may be required
by law or in the event of an emergency) and (ii) thereafter diligently
prosecuted to completion such cure, then the Beneficiaries may cause to be
performed an environmental audit or risk assessment of the Premises and the then
uses thereof, and may take such actions as they may deem necessary to cure such
condition. Such environmental audit or assessment shall be performed by an
environmental consultant satisfactory to the Beneficiaries and shall include a
review of the uses of the Premises and compliance of the same with all
Environmental Laws. All costs and expenses incurred by the Beneficiaries in
connection with such environmental audit or assessment and any remediation
required shall be paid by the Guarantor upon demand.
(d) INDEMNIFICATION. The Guarantor agrees to indemnify, defend and hold
harmless each Beneficiary (herein, the "Indemnified Parties") from and against
any and all losses, liabilities, damages, judgments, penalties, claims, charges,
costs and expenses (including, without limitation, fees and disbursements of
counsel and consultants for such Indemnified Party), which may be suffered or
incurred by, or asserted against such Indemnified Party to the extent directly
or indirectly arising out of, or related to, the Premises, or any Indemnified
Party's interest therein pursuant to the Mortgage or the Lease Assignment, or
the enforcement or exercise of any right or remedy of such Indemnified Party
thereunder, or the presence, use, storage, transportation, disposal, release,
threatened release, discharge, emission or generation of any Hazardous
Substances at the Premises, or the violation by the Lessee or the Guarantor of
any Environmental Law or the breach by the Guarantor of any representation or
covenant contained in this Section 7.
The warranties and obligations of the Guarantor and the rights and remedies
of each Indemnified Party under this Section 7 are in addition to and not in
limitation of any other warranties, obligations, rights and remedies provided in
the Lease or otherwise at law or in equity.
In the event of the termination of the Lease as therein provided or the
Lessee's abandonment of the Premises, the obligations and liabilities of the
Guarantor with respect to each Indemnified Party, actual or contingent, under
this Section 7 shall survive such termination or abandonment.
For the purposes of this Section 7, the following definitions shall apply:
"Environmental Laws" means and includes but shall not be limited to the
Resource Conservation and Recovery Act (42 U.S.C. #6901 ET SEQ.) ("RCRA"), as
amended by the Hazardous and Solid Waste Amendments of 1984, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. #9601 et
seq.) ("CERCLA"), as amended by the Superfund Amendments and Reauthorization
Act of 1986 (Pub. Law 99-499, 100 Stat. 1613) ("SARA"), the Hazardous
Materials Transportation Act (49 U.S.C. #1801 ET SEQ.) ("HMTA"), the Toxic
Substances Control Act (15 U.S.C. #2601 ET SEQ.), Clean Air Act (42 U.S.C.
#9402 ET SEQ.), the Clean Water Act (33 U.S.C. #1251 ET SEQ.), the Federal
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. #136 ET SEQ.), the
Occupational Safety and Health Act (29 U.S.C. #651 ET SEQ.) ("OSHA") and all
applicable federal, state and local environmental laws, including obligations
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<PAGE> 19
under the common law, ordinances, rules, regulations, private agreements (such
as covenants, conditions and restrictions) and publications, as any of the
foregoing may have been or may be from time to time amended, supplemented or
supplanted, and any other federal, state or local laws, including obligations
under the common law, ordinances, rules, regulations, private agreements (such
as covenants, conditions and restrictions) and publications, now or hereafter
existing relating to regulation or control of Hazardous Substances or
environmental health and safety.
"Hazardous Substances" means (i) those substances included within the
definitions of or identified as "hazardous substances", "hazardous materials",
or "toxic substances" in or pursuant to, without limitation, CERCLA, SARA, RCRA,
OSHA and HMTA and in the regulations promulgated pursuant to said laws, all as
amended; (ii) those substances listed in the United States Department of
Transportation Table (40 CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency (or any successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto); (iii) any material, waste
or substance which is or contains (A) petroleum, including crude oil or any
fraction thereof, natural gas, or synthetic gas usable for fuel or any mixture
thereof, (B) asbestos, (C) polychlorinated biphenyls, (D) designated as
"hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C.
#1251 ET SEQ., (33 U.S.C. #1321) or listed pursuant to Section 307 of the Clean
Water Act (33 U.S.C. #1317); (E) flammable explosives; (F) radioactive
materials; and (iv) such other substances, materials and wastes which are or
become regulated as hazardous, toxic or "special wastes" under applicable local,
state or federal law, or by the United States government, or which are
classified as hazardous, toxic or as "special wastes" under federal, state or
local laws or regulations.
8. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the
following occurs and is continuing:
(a) if default shall be made in any payment due hereunder by the
Guarantor;
(b) if the Guarantor shall fail to make any payment when due, whether in
respect of principal or interest, on Indebtedness of the Guarantor aggregating
in excess of $5,000,000;
(c) if the Guarantor shall default in the observance or performance of any
other covenant, condition or agreement contained in any instrument(s) evidencing
any Indebtedness of the Guarantor aggregating in excess of $5,000,000, or under
any agreement(s) securing or relating to such Indebtedness, the effect of which
is to cause the holder(s) thereof (or a trustee therefor) to cause such
Indebtedness, or a portion thereof, to become due prior to its stated maturity
or prior to its regularly scheduled date or dates of payment;
(d) if any representation or warranty of the Guarantor set forth in (i) any
certificate delivered in connection with the issuance of the Notes, (ii) the
Lease in its capacity as Lessee, (iii) this Guaranty, (iv) the Put Agreement (as
defined in the Note Agreement), (v) the Lease Assignment (as defined in the Note
Agreement), or (vi) any certificate, notice, demand, or request delivered to any
Beneficiary pursuant to this Guaranty shall be misleading or inaccurate in any
material respect, as of the time when the same shall have been made;
(e) if default shall be made in the due observance or performance of any
covenant, agreement or condition set forth in Section 6 or Section 7 of this
Guaranty, or if any material term of this Guaranty shall cease to be in
- 19 -
<PAGE> 20
full force or effect or if such material term shall be disavowed by the
Guarantor;
(f) if default shall be made in the due observance or performance of any
other covenant, condition, or agreement of the Guarantor contained herein or in
the Lease in its capacity as Lessee and the Guarantor shall not, within 30 days
after written notice to the Guarantor specifying such default, have commenced
diligently to correct the default or at any time thereafter shall not diligently
pursue such correction to completion;
(g) if a receiver, trustee, or liquidator (or other similar official) of
the Guarantor or of any property of the Guarantor shall be appointed in any
proceeding or by any federal or state officer or agency and shall not be
discharged within 90 days after such appointment or if the Guarantor shall
consent to such appointment or if a custodian for purposes of any federal
bankruptcy statute of substantially all of the Guarantor's property is appointed
or otherwise takes possession thereof or if the Guarantor shall be adjudicated a
bankrupt or be declared insolvent under any federal or state bankruptcy laws, or
if an order for relief shall be entered in any bankruptcy proceeding;
(h) if the Guarantor shall file a petition commencing a voluntary case
under any federal bankruptcy or similar law or in bankruptcy or for
reorganization or for any arrangement pursuant to any state bankruptcy or
similar law or shall make an assignment for the benefit of its creditors or
shall admit in writing its inability, or shall fail, to pay its debts generally
as they become due or shall consent to the appointment of a receiver of any
property of the Guarantor, or if a petition or an answer proposing the
reorganization of the Guarantor pursuant to the Federal Bankruptcy Code or any
similar law, federal or state, shall be filed in, and approved by, any court;
(i) if an involuntary case against the Guarantor, as debtor, is commenced
by a petition for reorganization or liquidation under any federal bankruptcy or
similar law, federal or state, and if such petition shall not be discharged or
denied within 90 days after the date on which such petition was filed; or
(j) if any final judgment or judgments for the payment of money in excess
of $5,000,000 in the aggregate shall be rendered against the Guarantor, and the
Guarantor shall not discharge the same or cause the same to be discharged by the
later of (A) 30 days from the entry thereof and (B) the date payment is required
pursuant to the judgment, if later than 30 days after such date of entry, or
shall not appeal therefrom or from the order, decree or process upon which or
pursuant to which said judgment was granted, based or entered, and secure a stay
of execution pending such appeal.
9. SUCCESSORS AND ASSIGNS.
This Guaranty shall be binding upon the Guarantor and its respective
successors and assigns (including without limitation any and all successors and
transferees which may assume the Guarantor's obligations as provided in Section
6(l) hereof), and shall inure to the benefit of and be enforceable by the
Purchaser, its successors and assigns, and each successive holder of any of the
Notes (herein, collectively, called the "Beneficiaries").
10. SUBORDINATION OF OBLIGATIONS TO GUARANTOR.
Any and all indebtedness and other obligations of the Debtor to the
Guarantor (including without limitation any such obligations resulting from any
rights of subrogation on the part of the Guarantor as a result of any
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<PAGE> 21
payment by the Guarantor hereunder) shall during the term of this Guaranty be
subordinated to the Obligations and to any other indebtedness of the Debtor to
any or all of the Beneficiaries.
11. GOVERNING LAW AND CONSENT TO JURISDICTION.
This Guaranty shall be governed by the laws of the Commonwealth of
Massachusetts. The Guarantor hereby irrevocably and unconditionally submits, for
itself and its property, to the non-exclusive jurisdiction of any New York state
court or federal court of the United States of America sitting in New York, and
any appellate court from any thereof, in any action or proceeding arising out of
or relating to this Guaranty or for recognition and enforcement of any judgment,
and irrevocably and unconditionally consents to all claims in respect of any
such action or proceeding being heard and determined in such New York state
court or, to the extent permitted by law, in such Federal court. A final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any manner
provided by law. Nothing in this Guaranty shall affect any right that any party
may otherwise have to bring any action or proceeding relating to this Guaranty
against the Guarantor or its properties in the courts of any jurisdiction.
The Guarantor hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Guaranty in any New York state or Federal court. The
Guarantor hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
The Guarantor irrevocably consents to service of process in the manner
provided for notices in Section 13. Nothing in this Guaranty will affect the
right of any party to serve process in any other manner permitted by law.
12. SEVERABILITY.
Wherever possible, each provision of this Guaranty shall be construed in
such manner as to be valid and enforceable against the Guarantor under
applicable law, but if any provision hereof shall be deemed invalid or
unenforceable to any extent against the Guarantor in any jurisdiction, such
provision shall be ineffective only to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remainder
of such provision or any of the other provisions hereof, and any such invalidity
or unenforceability against the Guarantor in one jurisdiction shall not render
such provision ineffective in any other jurisdiction.
13. NOTICES.
All notices, requests, demands and other communications provided for herein
shall be in writing, and shall be sent by (i) reputable overnight delivery
service, and the giving of such communication shall be complete on the
immediately succeeding business day after the same is deposited with such
delivery service or (ii) legible confirmed fax with original to follow the next
day by overnight delivery service as specified in clause (i), and the giving of
such communication shall be complete when such fax is received. Notices shall be
addressed (a) to the Guarantor at One Technology Way, Norwood, Massachusetts
02026-9106, fax number (617) 461-3491, Attention: Chief Financial Officer, (b)
to the Purchaser at its address and fax number set forth in the Note Agreement,
and (c) to any other Beneficiary, at the address and fax number of such
Beneficiary provided by such Beneficiary in writing to
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<PAGE> 22
the Purchaser and the Guarantor or to such other address or fax number as the
Guarantor, the Purchaser or any other Beneficiary shall theretofore have
transmitted to the other parties in writing by any of the means specified in
this Section. Each of the Guarantor, the Purchaser and the Beneficiaries agree
that it will send a courtesy copy of any notice delivered by such party
hereunder to the Debtor at 1416 Providence Highway, Norwood, Massachusetts
02062; PROVIDED, HOWEVER, that the failure to send such a copy to the Debtor
shall not render ineffective any notice otherwise delivered by any such party in
accordance with the terms of this Section 13.
14. HEADINGS; COUNTERPARTS.
Section headings appearing in this Guaranty are for convenience of
reference only and shall not define, limit, amplify or otherwise modify any
provision hereof. This Guaranty may be executed in two or more counterparts,
each of which when executed shall be deemed to be an original but all of which
together shall constitute one and the same agreement.
15. AMENDMENTS.
No provision of this Guaranty may be amended, modified, waived, discharged
or terminated except by a writing signed by each of the Beneficiaries and the
Guarantor expressly referring to the provisions of this Guaranty to which such
writing relates. No course of dealing with respect to any of the rights, powers
and remedies of any or all of the Beneficiaries hereunder, and no delay or
omission on the part of any or all of the Beneficiaries in exercising any such
right, power or remedy, shall operate as a waiver thereof or otherwise be
prejudicial thereto.
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<PAGE> 23
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed
under seal on its behalf by an officer thereunto duly authorized as of the date
first above written.
ANALOG DEVICES, INC.
By: /s/ William A. Martin
--------------------------
Name: William A. Martin
Title: Treasurer
<PAGE> 24
EXHIBIT A
EXISTING SECURED INDEBTEDNESS
Amounts Outstanding
as of 4/30//94
-------------------
Capital Lease $ 467,000.00
Obligations
<PAGE> 25
EXHIBIT B
EXISTING SUBSIDIARY INDEBTEDNESS
Amounts Outstanding
Country Bank Facility as of 4/30/94
- ------- ---- -------- -------------------
France Bank of America Overdraft $ 970,522.00
Belgium Credit Lyonnais Overdraft $2,137,833.00
-------------
$3,108,355.00
<PAGE> 1
Exhibit 10.10
ANALOG DEVICES, INC.
One Technology Way
P. O. Box 9106
Norwood, Massachusetts 02062-9106
May 18, 1994
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Attention: Treasurer
Re: 8.87% Senior Secured Notes Due May 1, 2007
------------------------------------------
Gentlemen:
Capitalized terms used herein but not otherwise defined shall have
the meanings specified in the Note Agreement, as hereinafter defined.
In connection with the $10,500,000 loan (the "Loan") made by
Metropolitan Life Insurance Company (together its with successors and assigns,
"Metropolitan") to Francis J. Perry, Jr. and William J. Walker, not in their
individual capacities but solely as Trustees of Everett Street Trust under
Declaration of Trust, dated May 9, 1980 (the "Borrower"), pursuant to and as
described in the Note Purchase Agreement, dated May 18, 1994, between
Metropolitan and the Borrower (the "Note Agreement") and the Notes evidencing
the Loan executed by the Borrower to Metropolitan or its registered assigns
(the "Notes"), Analog Devices, Inc. (the "Company") agrees with Metropolitan
as follows:
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<PAGE> 2
ARTICLE I
OBLIGATION TO PURCHASE
1.1 PURCHASE. (a) Upon the occurrence and during the continuance of
(i) an "Event of Default", as defined in the Mortgage, Security Agreement and
Fixture Filing, dated as of May 1, 1994 (the "Mortgage"), from the Borrower, as
mortgagor, to Metropolitan, as mortgagee, or (ii) an "Event of Default", as
defined in the Guaranty, dated as of May 1, 1994 (the "Guaranty"), from the
Company to Metropolitan or (b) at such time when all principal payable under the
Notes has become or has been declared due and payable, whether upon the stated
maturity of the Notes of May 1, 2007 or otherwise, or (c) at any time if the
Lease (as defined in the Notes) is terminated by either the Borrower or the
Company prior to May 1, 2007, or (d) at any time if the Fixed Rent (as defined
in the Lease) payable under the Lease is reduced or suspended so that the Debt
Service Portion of Fixed Rent (as defined in the Lease) is not sufficient to pay
in full the Installment Payments (as defined in the Notes) then due under the
Notes or (e) upon the determination by Metropolitan of the existence of a
Material Environmental Condition (as hereinafter defined) with respect to the
Property, the Company will, upon written demand by Metropolitan, and at the
time, in the manner and otherwise as hereinafter set forth, purchase and pay for
the Notes. The purchase shall be made within 15 days after such demand is made,
for an amount (the "Purchase Price") payable in immediately available funds
equal to the aggregate outstanding principal amount of the Notes, together with
all accrued and unpaid interest thereon and all other costs, fees and charges
due and payable under or with respect to the Guaranty and the Mortgage,
including, without limitation, the Make-Whole Payment (as defined in the
Mortgage), if any. Notwithstanding the foregoing, Metropolitan and the Company
agree that the Purchase Price payable hereunder (x) upon the termination of the
Lease
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<PAGE> 3
pursuant to Section 7.1 of the Lease solely on account of a casualty in the
final 3 years of the term of the Lease or (y) upon the termination of the Lease
pursuant to Section 7.2 of the Lease solely on account of a taking of the
Property at any time or (z) upon a purchase contemplated by subparagraph (e)
above, shall not include the Make-Whole Payment. Upon any purchase, Metropolitan
shall, without representation or warranty, express or implied, other than as to
the ownership by Metropolitan of the Notes free and clear of any encumbrances
created by or through Metropolitan, and without recourse on the part of
Metropolitan, endorse and deliver the Notes and assign the Note Agreement and
any related documents to the Company.
As a condition of Metropolitan's making the Loan, Metropolitan has
required the Company to complete an Environmental Due Diligence Questionnaire
(the "Questionnaire") with respect to the Property. The Company agrees that if
upon completion and delivery to Metropolitan of the Questionnaire, together with
any supplements thereto as may be required by Metropolitan, Metropolitan in good
faith determines that further environmental testing, monitoring, investigation
or other review of the Property is warranted, then the Company shall, at its
sole cost and expense, engage a firm of independent qualified environmental
engineers acceptable to Metropolitan (the "Independent Engineers") to conduct
such testing, monitoring, investigation and review, including, without
limitation, preparation of a "Phase I" environmental site assessment (the "Phase
I ESA"). If, based upon review of the Phase I ESA or such other tests, reports,
evaluations or reviews as are prepared by the Independent Engineers,
Metropolitan determines in good faith that additional testing of the Property is
warranted, the Company agrees to provide for such additional testing, at its
sole cost and expense, by a firm of Independent Engineers.
Upon the conclusion of all environmental testing, investigation and
review with respect to the Property which Metropolitan has required as
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<PAGE> 4
permitted above, Metropolitan shall inform the Company in writing of whether
Metropolitan believes that a "Material Environmental Condition" exists with
respect to the Property. A "Material Environmental Condition" shall exist if
Metropolitan in good faith determines, based on its review of the Questionnaire,
any supplement thereto, any Phase I ESA and/or any other report prepared in
connection with the Property, that an environmental condition exists with
respect to the Property that could materially adversely affect Metropolitan's
investment in the Notes or the Property as collateral therefor or could
materially adversely affect the Company's business, prospects or financial
condition.
Upon receipt of written notice from Metropolitan that a Material
Environmental Condition exists, the Company will purchase and pay for the Notes
in accordance with the terms of this Agreement.
1.2 TAXES, AUTHORIZATIONS, ETC. The Company will pay any stamp, with
respect to the purchase of the Notes pursuant to this Agreement other than any
gross receipts or net income or similar tax of Mortgagee payable with respect to
such purchase. If any such tax is paid by Metropolitan, the Company will, upon
demand of Metropolitan and whether or not such tax will be correctly or legally
asserted, promptly pay to Metropolitan all such amounts incurred by Metropolitan
for such payment, together with any interest, penalties and expenses in
connection therewith. The Company hereby indemnifies and holds harmless
Metropolitan for such payment, together with all such interest, penalties and
expenses incurred in connection therewith, in the event of the failure of the
Company to pay such stamp or other tax as hereinabove set forth. The provisions
of this Section 1.2 shall survive the purchase of the Notes contemplated herein.
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<PAGE> 5
The Company will obtain any authorization or approval or other action
by, and will give any notice to or make any filing with, any governmental
authority or regulatory body required in connection with the transfer of the
Notes and related documents to the Company upon any purchase pursuant to this
Agreement. Nothing in this paragraph shall obligate the Company to obtain any
such authorization or approval or other action by, or give any such notice to or
make any such filing if any such authorization, approval, action, notice, or
filing is required solely by or with respect to Metropolitan.
1.3 OBLIGATION ABSOLUTE. The Company acknowledges and agrees that the
obligations of the Company as set forth in this Agreement are material
inducements to Metropolitan in purchasing the Notes from the Borrower. The
Company hereby agrees that its obligations under this Agreement are absolute and
unconditional, independent of the ability of the Borrower to perform any of its
obligations to Metropolitan or to the Company or the performance by any person
or entity of his or its respective obligations, and without regard to any law,
regulation or order now or hereafter in effect in any jurisdiction affecting the
Notes or any of the terms of the Note Agreement, the Notes, the Mortgage, the
Lease, the Guaranty or any other document related thereto or the rights of
Metropolitan with respect thereto, and irrespective of the following:
(a) Any lack of genuineness, legality, validity, enforceability or
value of the Note Agreement or Notes or any other agreement or instrument
relating thereto or any collateral therefor;
(b) Any change in the time, manner or place of payment of any
obligations under the Notes, or any term of the Note Agreement, the Mortgage or
the Notes or any amendment or waiver of or any consent to departure from
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<PAGE> 6
the terms of the Note Agreement, the Mortgage or the Notes or any other related
documents;
(c) Any exchange, release or non-perfection of any collateral
including, without limitation, the Mortgaged Property (as defined in the
Mortgage);
(d) Any failure to pay any taxes which may be payable with respect to
the issuance or transfer of any Note and related documents; or any failure to
obtain any authorization or approval from, or other action by, or to notify or
file with, any governmental authority or regulatory body required in connection
with the issuance or transfer of any Note and related documents;
(e) Any impossibility or impracticality of performance, FORCE MAJEURE,
OR any act of any government, or any other circumstance which might constitute a
defense available to, or a discharge of, the Borrower in respect of the
obligations under the Note Agreement, the Mortgage or the Notes or any party
obligated thereunder or any circumstance, event or happening whatsoever, whether
foreseen or unforeseen and whether similar or dissimilar to anything referred to
in this Section 1.3(e), which in any manner would constitute a legal, equitable
or other excuse for non-performance by the Borrower or the Company;
(f) The validity of the organization of the Borrower or the Company or
any other entity, the termination of existence of the Borrower, the Company or
any person or entity or the receipt or non-receipt of any approvals, directions
or consents or other authorizations to act on behalf of the Company or the
Borrower;
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<PAGE> 7
(g) Any defense, claim, setoff, recoupment, abatement or other right,
existing or future, which the Company may have against the Borrower or any other
person or entity;
(h) The inaccuracy of any representation, warranty or statement made
by or on behalf of any person or entity in connection with the issuance of the
Notes (other than those representations, warranties and statements contained in
Sections 7.1 and 7.2 of the Note Agreement);
(i) The bankruptcy, insolvency, reorganization, liquidation,
dissolution, winding up, arrangement, composition, readjustment of debt or
similar event with respect to the Borrower or the Company or any other person or
entity.
This Agreement shall continue to be effective or be reinstated, as the
case may be, if at any time any payment under or with respect to any Note is
rescinded or must otherwise be returned by Metropolitan upon the insolvency,
bankruptcy or reorganization of the Borrower or otherwise, all as though such
payment had not been made. The obligations of the Company under this Agreement
shall not be subject to reduction, termination or other impairment by reason of
any setoff, recoupment, counterclaim or defense or for any other reason.
1.4 WAIVER. The Company hereby waives promptness, diligence and notice
of acceptance with respect to the Note Agreement, the Mortgage and the Notes,
and any requirement that Metropolitan protect, secure, perfect or insure any
security interest in or lien on any property including, without limitation, the
Mortgaged Property, which may become subject thereto or exhaust any right or
take any action against the Borrower, or any other person or entity or any
collateral including, without limitation, the Mortgaged Property and the
Guaranty.
-7-
<PAGE> 8
1.5 SUBROGATION. Until all sums owing hereunder have been paid in full
to Metropolitan, any rights of subrogation or other rights or remedies which the
Company might have against the Borrower as a result of any payments made
hereunder or otherwise in connection with its undertaking under this Agreement
shall be subordinate to the rights of Metropolitan under the Notes, Note
Agreement, the Mortgage and other related documents and the Company shall not
exercise any such rights and remedies without the consent of Metropolitan.
ARTICLE II
REMEDIES
2.1 FAILURE TO PURCHASE. If the Company shall fail to pay the Purchase
Price for the Notes within the time period and in the manner set forth above,
the Company (i) agrees that it will be unconditionally liable to Metropolitan
for liquidated damages (for the loss of a bargain and not as a penalty) for the
amount of such Purchase Price as well as for all costs and expenses, if any,
incurred by Metropolitan in enforcing this Agreement, and (ii) irrevocably
waives to the full extent permitted by applicable law any right or defense the
Company may have to cause Metropolitan to prove the cause or amount of such
damages or to mitigate the same.
2.2 ADDITIONAL REMEDIES. The Company agrees that Metropolitan may
bring hereunder and prosecute against the Company a separate action or actions
whether or not the Company brings an action against the Borrower and whether or
not the Borrower is joined in any such action or actions. Metropolitan shall
have, in its sole discretion and without limitation of any other remedies of
Metropolitan with respect to this Agreement and the performance obligations
called for hereby, a right of specific performance of the obligations of the
Company under this Agreement, including but not limited
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<PAGE> 9
to the obligation to purchase the Notes for the Purchase Price, and the right to
commence suit for compensatory, consequential and liquidated damages.
2.3 INDEMNIFICATION. The Company agrees to indemnify and defend
Metropolitan against and hold Metropolitan harmless from all liabilities,
damages, costs and expenses (including, without limitation, reasonable
attorneys' fees), sustained or incurred (a) as a result of the failure of the
Company to comply with its obligations hereunder or (b) in connection with
Metropolitan's purchase of the Notes from the Borrower or enforcement of any of
its rights with respect thereto.
ARTICLE III
Miscellaneous
Section 3.1 GENERAL PROVISIONS. This Agreement cannot be changed,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the same is sought; PROVIDED, HOWEVER,
that the terms of Section 1.1 of this Agreement may not be amended in any manner
which would materially and adversely affect the Borrower's interests and rights
with respect to the Property without the consent of the Borrower, which consent
shall not be unreasonably withheld or delayed. All the terms of this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto, and, in particular,
shall inure to the benefit of and be enforceable by any registered owner or
holder of any of the Notes. The headings to the various sections of this
Agreement have been inserted for the convenience of reference only and shall not
limit or otherwise affect any of the terms hereof. This Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which together shall constitute one and the same
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<PAGE> 10
instrument. This Agreement shall be construed and enforced in accordance with,
and governed by, the laws of the Commonwealth of Massachusetts.
Section 3.2 CONSENT TO JURISDICTION. The Company hereby irrevocably
and unconditionally submits, for itself and its property, to the non-exclusive
jurisdiction of any New York state court or federal court of the United States
of America sitting in New York, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement, or for
recognition and enforcement of any judgment, and irrevocably and unconditionally
consents to all claims in respect of any such action or proceeding being heard
and determined in such New York state court or, to the extent permitted by law,
in such Federal court. A final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any manner provided by law. Nothing in this Agreement shall affect any
right that any party may otherwise have to bring any action or proceeding
relating to this Agreement against the Company or its properties in the courts
of any jurisdiction.
The Company hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement in any New York state or Federal court. The
Company hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
The Company irrevocably consents to service of process in the manner
provided for notices in Section 13 of the Guaranty. Nothing in this Agreement
will affect the right of any party to serve process in any other manner
permitted by law.
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<PAGE> 11
If you are in agreement with the foregoing, please sign the enclosed
counterparts and return one to the Company whereupon this Agreement shall become
a binding contract under seal between you and the Company.
Very truly yours,
ANALOG DEVICES, INC.
By: /s/ William A. Martin
-----------------------
Name: William A. Martin
Title: Treasurer
The foregoing Agreement is
hereby agreed to as of the
date first above written.
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ Francis M. Donnantuono
----------------------------
Name: Francis M. Donnantuono
Title:
By: /s/ Richard G. Clarke
----------------------------
Name: Richard G. Clarke
Title:
<PAGE> 1
EXHIBIT 10.15
$80,000,000
CREDIT AGREEMENT
dated as of
March 12, 1993
among
Analog Devices, Inc.
The Banks Listed Herein
and
Morgan Guaranty Trust Company of New York,
as Agent
<PAGE> 2
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS........................................................................ 1
SECTION 1.01. Definitions................................................ 1
SECTION 1.02. Accounting Terms and Determinations........................ 10
SECTION 1.03. Types of Borrowings........................................ 11
ARTICLE II
THE CREDITS........................................................................ 11
SECTION 2.01. Commitments to Lend........................................ 11
SECTION 2.02. Notice of Committed Borrowings............................. 11
SECTION 2.03. Money Market Borrowings.................................... 12
SECTION 2.04. Notice to Banks; Funding of Loans.......................... 15
SECTION 2.05. Notes...................................................... 16
SECTION 2.06. Maturity of Loans.......................................... 16
SECTION 2.07. Interest Rates............................................. 16
SECTION 2.08. Fees....................................................... 20
SECTION 2.09. Optional Termination or Reduction of Commitments........... 20
SECTION 2.10. Mandatory Termination of Commitments....................... 20
SECTION 2.11. Optional Prepayments....................................... 21
SECTION 2.12. General Provisions as to Payments.......................... 21
SECTION 2.13. Funding Losses............................................. 22
SECTION 2.14. Computation of Interest and Fees........................... 22
SECTION 2.15. Withholding Tax Exemption.................................. 22
SECTION 2.16. Judgment Currency.......................................... 22
SECTION 2.17. Foreign Withholding Taxes and Other Costs.................. 23
ARTICLE III
CONDITIONS......................................................................... 24
SECTION 3.01. Effectiveness.............................................. 24
SECTION 3.02. Borrowings................................................. 25
SECTION 3.03. First Borrowing by Each Eligible Subsidiary................ 25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................... 25
SECTION 4.01. Corporate Existence and Power.............................. 26
SECTION 4.02. Corporate and Governmental Authorization; No Contravention. 26
SECTION 4.03. Binding Effect............................................. 26
SECTION 4.04. Financial Information...................................... 26
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
SECTION 4.05. Litigation................................................. 26
SECTION 4.06. Compliance with ERISA...................................... 27
SECTION 4.07. Environmental Matters...................................... 27
SECTION 4.08. Taxes...................................................... 27
SECTION 4.09. Subsidiaries............................................... 27
SECTION 4.10. Ownership and Liens........................................ 28
SECTION 4.11. Subsidiaries and Ownership of Stock........................ 28
SECTION 4.12. Credit Arrangements........................................ 28
SECTION 4.13. Not an Investment Company.................................. 28
SECTION 4.14. Full Disclosure............................................ 28
ARTICLE V
COVENANTS.......................................................................... 29
SECTION 5.01. Information................................................ 29
SECTION 5.02. Payment of Obligations..................................... 31
SECTION 5.03. Maintenance of Property; Insurance......................... 31
SECTION 5.04. Conduct of Business and Maintenance of Existence........... 31
SECTION 5.05. Compliance with Laws....................................... 31
SECTION 5.06. Inspection of Property, Books and Records.................. 31
SECTION 5.07. Transactions With Affiliates............................... 32
SECTION 5.08. Current Ratio.............................................. 32
SECTION 5.09. Leverage Ratio............................................. 32
SECTION 5.10. Minimum Consolidated Tangible Net Worth.................... 32
SECTION 5.11. Restricted Payments........................................ 33
SECTION 5.12. Investments................................................ 33
SECTION 5.13. Negative Pledge............................................ 33
SECTION 5.14. Consolidations, Mergers and Sales of Assets................ 34
SECTION 5.15. Acquisitions............................................... 35
SECTION 5.16. Use of Proceeds............................................ 35
ARTICLE VI
DEFAULTS........................................................................... 35
SECTION 6.01. Events of Default.......................................... 35
SECTION 6.02. Notice of Default.......................................... 37
ARTICLE VII
THE AGENT.......................................................................... 37
SECTION 7.01. Appointment and Authorization.............................. 37
SECTION 7.02. Agent and Affiliates....................................... 37
SECTION 7.03. Action by Agent............................................ 38
SECTION 7.04. Consultation with Experts.................................. 38
</TABLE>
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<TABLE>
<S> <C>
SECTION 7.05. Liability of Agent......................................... 38
SECTION 7.06. Indemnification............................................ 38
SECTION 7.07. Credit Decision............................................ 38
SECTION 7.08. Successor Agent............................................ 38
SECTION 7.09. Agent's Fee................................................ 39
ARTICLE VIII
CHANGE IN CIRCUMSTANCES............................................................ 39
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair... 39
SECTION 8.02. Illegality................................................. 39
SECTION 8.03. Increased Cost and Reduced Return.......................... 40
SECTION 8.04. Base Rate Loans Substituted for Affected Fixed Rate Loans.. 41
SECTION 8.05. HLT Classification......................................... 42
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF ELIGIBLE SUBSIDIARIES............................ 42
SECTION 9.01. Corporate Existence and Power.............................. 42
SECTION 9.02. Corporate and Governmental Authorization; Contravention.... 42
SECTION 9.03. Binding Effect............................................. 42
SECTION 9.04. Taxes...................................................... 42
ARTICLE X
GUARANTY........................................................................... 43
SECTION 10.01. The Guaranty.............................................. 43
SECTION 10.02. Guaranty Unconditional.................................... 43
SECTION 10.03. Discharge Only Upon Payment In Full; Reinstatement In
Certain Circumstances................................... 44
SECTION 10.04. Waiver by the Company..................................... 44
SECTION 10.05. Subrogation............................................... 44
SECTION 10.06. Stay of Acceleration...................................... 44
ARTICLE XI
MISCELLANEOUS...................................................................... 44
SECTION 11.01. Notices................................................... 44
SECTION 11.02. No Waivers................................................ 45
SECTION 11.03. Expenses; Documentary Taxes; Indemnification.............. 45
SECTION 11.04. Sharing of Set-Offs....................................... 45
SECTION 11.05. Amendments and Waivers.................................... 46
SECTION 11.06. Successors and Assigns.................................... 46
</TABLE>
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<TABLE>
<S> <C>
SECTION 11.07. Collateral................................................ 47
SECTION 11.08. Governing Law; Submission to Jurisdiction................. 48
SECTION 11.09. Counterparts; Integration................................. 48
SECTION 11.10. Waiver Of Jury Trial...................................... 48
</TABLE>
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Schedule I - Subsidiaries and Ownership of Stock
Schedule II - Credit Arrangements
Schedule III - Liens
Exhibit A - Note
Exhibit B - Money Market Quote Request
Exhibit C - Invitation for Money Market Quotes
Exhibit D - Money Market Quote
Exhibit E - Opinion of Counsel for the Company
Exhibit F - Opinion of Special Counsel for the Agent
Exhibit G - Form of Election to Participate
Exhibit H - Form of Election to Terminate
Exhibit I - Opinion of Counsel for the Borrower
(Borrowings by Eligible Subsidiaries)
Exhibit J - Assignment and Assumption Agreement
*The Table of Contents is not a part of this Agreement.
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<PAGE> 6
AGREEMENT dated as of March 12, 1993 among ANALOG DEVICES,
INC., the BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used
herein, have the following meanings:
"Absolute Rate Auction" means a solicitation of Money Market
Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03.
"Acquisition" means any transaction, or any series of related
transactions, consummated after the date of this Agreement, by which the Company
or any of its Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise, or (ii) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency).
"Adjusted CD Rate" has the meaning set forth in Section
2.07(b).
"Adjusted London Interbank Offered Rate" has the meaning bet
forth in Section 2.07(c).
"Administrative Questionnaire" means, with respect to each
Bank, an administrative questionnaire in the form prepared by the Agent and
submitted to the Agent (with a copy to the Company) duly completed by such Bank.
"Affiliate" means (i) any Person that directly, or indirectly
through one or more intermediaries, controls the Company (a "Controlling
Person") or (ii) any Person (other than the Company or a Subsidiary of the
Company) which is controlled by or is under common control with a Controlling
Person. As used herein, the term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agent" means Morgan Guaranty Trust Company of New York in its
capacity as agent for the Banks hereunder, and its successors in such capacity.
"Applicable Lending Office" means, with respect to any Bank,
(i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the
case of its Euro-Dollar Loans, its
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<PAGE> 7
Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its
Money Market Lending Office.
"Assessment Rate" has the meaning set forth in Section
2.07(b).
"Assignee" has the meaning set forth in Section 11.06(c).
"Bank" means each bank listed on the signature pages hereof,
each Assignee which becomes a Bank pursuant to Section 11.06(c), and their
respective successors.
"Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means a Committed Loan to be made by a Bank
as a Base Rate Loan in accordance with the applicable Notice of Committed
Borrowing or pursuant to Article VIII.
"Benefit Arrangement" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means the Company or any Eligible Subsidiary, as
the context may require, and their respective successors, and "Borrowers" means
all of the foregoing.
"Borrowing" has the meaning set forth in Section 1.03.
"Capital Lease" means any lease which has been or should be
capitalized on the books of the lessee.
"CD Base Rate" has the meaning set forth in Section 2.07(b).
"CD Loan" means a Committed Loan to be made by a Bank as a CD
Loan in accordance with the applicable Notice of Committed Borrowing.
"CD Margin" has the meaning set forth in Section 2.07(b).
"Commitment" means, with respect to each Bank, the amount set
forth opposite the name of such Bank on the signature pages hereof, as such
amount may be reduced from time to time pursuant to Section 2.09.
"Commitment Fee Rate" means, for any date, 1/16 of 1% per
annum.
"Committed Loan" means a loan to be made by a Bank pursuant to
Section 2.01.
"Company" means Analog Devices, Inc., a Massachusetts
corporation, and its successors.
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<PAGE> 8
"Company's 1992 Form 10-K" means the Company's annual report
on Form 10-K for 1992, as filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.
"Consolidated Current Assets" means all current assets of the
Company and its Consolidated Subsidiaries on a consolidated basis.
"Consolidated Current Liabilities" means all current
liabilities of the Company and its Consolidated Subsidiaries on a consolidated
basis, including without limitation (a) all obligations payable on demand or
within one year after the date on which the determination is made, and (b)
installment and sinking fund payments required to be made within one year after
the date on which the determination is made, but excluding all such liabilities
or obligations (i) which are renewable or extendable at the option of the
Company to a date more than one year from the date of determination or (ii)
which can be refinanced using the available portion of the Commitments under
this Agreement.
"Consolidated Subsidiary" means any Subsidiary whose accounts
are or are required to be consolidated with the accounts of the Company.
"Consolidated Tangible Net Worth" means the Tangible Net Worth
of the Company and its Consolidated Subsidiaries on a consolidated basis.
"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"Domestic Business Day" means any day except a Saturday,
Sunday or other day on which commercial banks in New York City are authorized by
law to close.
"Domestic Lending Office" means, as to each Bank, its office
located at its address set forth in its Administrative Questionnaire (or
identified in its Administrative Questionnaire as its Domestic Lending Office)
or such other office as such Bank may hereafter designate as its Domestic
Lending Office by notice to the Company and the Agent; provided that any Bank
may so designate separate Domestic Lending Offices for its Base Rate Loans, on
the one hand, and its CD Loans, on the other hand, in which case all references
herein to the Domestic Lending Office of such Bank shall be deemed to refer to
either or both of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in
Section 2.07(b).
"Effective Date" means the date this Agreement becomes
effective in accordance with Section 3.01.
"Election to Participate" means an Election to Participate
substantially in the form of Exhibit G hereto.
- 3 -
<PAGE> 9
"Election to Terminate" means an Election to Terminate
substantially in the form of Exhibit H hereto.
"Eligible Subsidiary" means any Wholly-Owned Consolidated
Subsidiary of the Company as to which an Election to Participate shall have been
delivered to the Agent and as to which an Election to Terminate shall not have
been delivered to the Agent. Each such Election to Participate and Election to
Terminate shall be duly executed on behalf of such Wholly-Owned Consolidated
Subsidiary and the Company in such number of copies as the Agent may request.
The delivery of an Election to Terminate shall not affect any obligation of an
Eligible Subsidiary theretofore incurred. The Agent shall promptly give notice
to the Banks of the receipt of any Election to Participate or Election to
Terminate.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group" means the Company and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company, are treated
as a single employer under Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on
which commercial banks are open for international business (including dealings
in dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its
office, branch or affiliate located at its address set forth in its
Administrative Questionnaire (or identified in its Administrative Questionnaire
as its Euro-Dollar Lending Office) or such other office, branch or affiliate of
such Bank as it may hereafter designate as its Euro-Dollar Lending Office by
notice to the Company and the Agent.
"Euro-Dollar Loan" means a Committed Loan to be made by a Bank
as a Euro-Dollar Loan in accordance with the applicable Notice of Committed
Borrowing.
"Euro-Dollar Margin" has the meaning set forth in Section
2.07(c).
"Euro-Dollar Reserve Percentage" has the meaning set forth in
Section 2.07(c).
"Event of Default" has the meaning set forth in Section 6.01.
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<PAGE> 10
"Facility Fee Rate" means (i) 3/16 of 1% per annum for any
date on which Level I Status exists, (ii) 1/4 of 1% per annum for any date on
which Level II Status exists, (iii) 5/16 of 1% per annum for any date on which
Level III Status or Level IV Status exists and (iv) 7/16 of 1% per annum for any
date on which Level V Status exists.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business Day next succeeding such day, provided that (i) if such day is not a
Domestic Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Domestic Business Day as so published on
the next succeeding Domestic Business Day, and (ii) if no such rate is so
published on such next succeeding Domestic Business Day, the Federal Funds Rate
for such day shall be the average rate quoted to Morgan Guaranty Trust Company
of New York on such day on such transactions as determined by the Agent.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or
Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the
Prime Rate pursuant to Section 8.01(a)) or any combination of the foregoing.
"Guaranty" by any Person means any agreement, undertaking or
arrangement, by which such Person assumes, guarantees, endorses or otherwise is
or becomes, directly or contingently responsible or liable (including, but not
limited to, an agreement to purchase any obligation, stock, assets, goods or
services or to supply or advance any funds, assets, goods or services, or an
agreement to maintain or cause such Person to maintain a minimum working capital
or net worth or otherwise to assure the creditors of any Person against loss)
for the obligations of any Person.
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one,
two, three or six months thereafter, as the Borrower may elect in the applicable
Notice of Borrowing; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest Period
shall end an the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(2) with respect to each CD Borrowing, the period commencing
on the date of such Borrowing and ending 30, 60, 90 or 180 days
thereafter, as the Borrower may elect in the applicable Notice of
Borrowing; provided that:
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<PAGE> 11
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(3) with respect to each Base Rate Borrowing, the period
commencing on the date of such Borrowing and ending 30 days thereafter;
provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(4) with respect to each Money Market LIBOR Borrowing, the
period commencing on the date of such Borrowing and ending such whole
number of months thereafter as the Borrower may elect in accordance
with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day Shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(5) with respect to each Money Market Absolute Rate Borrowing,
the period commencing on the date of such Borrowing and ending such
number of days thereafter (but not less than 15 days) as the Borrower
may elect in accordance with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, or any successor statute.
- 6 -
<PAGE> 12
"Investment" has the meaning set forth in Section 5.12.
"Level I Status" exists at any date if, at such date, the
Company's senior unsecured long-term debt securities are rated either A- or
higher by S&P or A3 or higher by Moody's.
"Level II Status" exists at any date if, at such date, (i) the
Company's senior unsecured long-term debt securities are rated either BBB- or
higher by S&P or Baa2 or higher by Moody's and (ii) Level I Status does not
exist.
"Level III Status" exists at any date if, at such date, (i)
the Company's senior unsecured long-term debt securities are rated either BBB or
higher by S&P or Baa3 or higher by Moody's and (ii) neither Level I Status nor
Level II Status exists.
"Level IV Status" exists at any date if, at such date, (i) the
Company's senior unsecured long-term debt securities are rated either BB+ or
higher by S&P or Ba1 or higher by Moody's and (ii) none of Level I Status, Level
II Status or Level III Status exists.
"Level V Status" exists at any date if, at such date, none of
Level I Status, Level II Status, Level III or Level IV Status exists.
"LIBOR Auction" means a solicitation of Money Market Quotes
setting forth Money Market Margins based on the London Interbank Offered Rate
pursuant to Section 2.03.
"Lien" means, with respect to any asset, any lien (statutory
or otherwise), security interest, mortgage, deed of trust, priority, pledge,
charge, conditional sale, title retention agreement, financing lease or other
encumbrance or similar right of others or any agreement to give any of the
foregoing.
"Liquid Assets" means at any time (i) cash; (ii) current
accounts with banks; (iii) bankers' acceptances, certificates of deposit, and
time deposits evidenced by instruments or documents other than certificates of
deposit, in each case only if due within 1 year, not past due, and issued by
United States commercial banks having assets of $500,000,000 or more; (iv)
direct debt obligations of, or obligations guaranteed by, the United States or
of agencies of the United States, due within 1 year and not past due; and (v)
direct debt obligations of any issuer, due within 1 year and not past due, rated
A or MIG-2 or higher by Moody's.
"Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money
Market Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money
Market Loans or any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in
Section 2.07(c).
"Material Debt" means indebtedness (other than the Notes) of
the Company and/or one or more of its Subsidiaries, arising in one or more
related or unrelated transactions, in an aggregate principal amount exceeding
$1,000,000.
"Material Plan" means at any time a Plan or Plans having
aggregate Unfunded Liabilities in excess of $500,000.
- 7 -
<PAGE> 13
"Moody's" means Moody's Investors Service, Inc.
"Money Market Absolute Rate" has the meaning set forth in
Section 2.03(d).
"Money Market Absolute Rate Loan" means a loan to be made by a
Bank pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its
Domestic Lending Office or such other office, branch or affiliate of such Bank
as it may hereafter designate as its Money Market Lending Office by notice to
the Company and the Agent; provided that any Bank may from time to time by
notice to the Company and the Agent designate separate Money Market Lending
Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market
Absolute Rate Loans, on the other hand, in which case all references herein to
the Money Market Lending Office of such Bank shall be deemed to refer to either
or both of such offices, as the context may require.
"Money Market LIBOR Loan" means a loan to be made by a Bank
pursuant to a LIBOR Auction (including such a loan bearing interest at the Prime
Rate pursuant to Section 8.01(a)).
"Money Market Loan" means a Money Market LIBOR Loan or a Money
Market Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section
2.03 (d) .
"Money Market Quote" means an offer by a Bank to make a Money
Market Loan in accordance with Section 2.03.
"Multiemployer Plan" means at any time an employee pension
benefit plat within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the ERISA
Group during such five year period.
"Notes" means promissory notes of a Borrower, substantially in
the form of Exhibit A hereto, evidencing the obligation of such Borrower to
repay the Loans made by it, and "Note" means any one of such promissory notes
issued hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing
(as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined
in Section 2.03(f)).
"Parent" means, with respect to any Bank, any Person
controlling such Bank.
"Participant" has the meaning set forth in Section 11.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
- 8 -
<PAGE> 14
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Internal
Revenue Code and either (i) is maintained, or contributed to, by any member of
the ERISA Group for employees of any member of the ERISA Group or (ii) has at
any time within the preceding five years been maintained, or contributed to, by
any Person which was at such time a member of the ERISA Group for employees of
any Person which was at such time a member of the ERISA Group.
"Prime Rate" means the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York in New York City from time to time as
its Prime Rate.
"Refunding Borrowing" means a Committed Borrowing which, after
application of the proceeds thereof, results in no net increase in the
outstanding principal amount of Committed Loans made by any Bank to any
Borrower.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Required Banks" means at any time Banks having at least 66
2/3% of the aggregate amount of the Commitments or, if the Commitments shall
have been terminated, holding Notes evidencing at least 66 2/3% of the aggregate
unpaid principal amount of the Loans.
"Restricted Payment" means any dividend or other distribution
on any shares of the Company's capital stock (except dividends payable solely in
shares of its capital stock).
"Revolving Credit Period" means the period from and including
the Effective Date to but excluding the Termination Date.
"S&P" means Standard and Poor's Corporation.
"Subsidiary" means, as to any Person, any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by such Person, provided that for the purpose of Articles IV and V
(except when the term "Consolidated Subsidiary" is used) of this Agreement the
term "Subsidiary" shall not include any corporation that is the subject of any
Acquisition if the Company elects or designates less than a majority of the
members of the board of directors of such corporation, and if such Subsidiary's
assets are less than 15% of Consolidated Tangible Net Worth.
"Tangible Net Worth" means the excess of total assets over
total liabilities, excluding, however, from the determination of total assets
(i) goodwill; (ii) patents, copyrights and trademarks; (iii) trade names; (iv)
licenses; (v) organizational expenses; and (vi) treasury stock.
- 9 -
<PAGE> 15
"Termination Date" means March 15, 1996, or, if such day is
not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day
unless such Euro-Dollar Business Day falls in another calendar month, in which
case the Termination Date shall be the next preceding Euro-Dollar Business Day.
"Total Liabilities" means at any time all indebtedness,
obligations and liabilities of the Company and its Consolidated Subsidiaries, on
a consolidated basis, which should be classified as liabilities of such
corporations on a consolidated balance sheet, and in any event shall include
(without duplication):
(1) all indebtedness, obligations and liabilities guaranteed
by any Guaranty, and all indebtedness, obligations and liabilities
secured by any mortgage, lien, assignment, pledge, security interest,
charge or encumbrance upon or in property owned by the respective
corporation, even though the respective corporation has not assumed or
become liable for the payment of the same, to the extent that such
indebtedness, indebtedness actually outstanding with respect to
obligations and liabilities exceed $4,000,000;
(2) the aggregate amount of reserves established on the books
of the Company and its Consolidated Subsidiaries in respect of
contingent liabilities and other contingencies, including contingent
obligations to make payments under contracts; and
(3) contingent liabilities in excess of 20% of Consolidated
Tangible Net Worth.
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all benefits under
such Plan exceeds (ii) the fair market value of all Plan assets allocable to
such benefits (excluding any accrued but unpaid contributions), all determined
as of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA Group
to the PBGC or any other Person under Title IV of ERISA.
"Usage Fee Rate" means (i) 0% per annum, for any date on which
Level I Status, Level II Status, Level III or Level V Status exists and (ii) 1/8
of 1% per annum, for any date on which Level IV Status exists.
"Wholly-Owned Consolidated Subsidiary" means any Consolidated
Subsidiary all of the shares of capital stock or other ownership interests of
which (except directors, qualifying shares) are at the time directly or
indirectly owned by the Company.
SECTION 1.02. Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles as in effect from time
to time, applied on a basis consistent (except for changes concurred in by the
Company's independent public accountants) with the most recent audited
consolidated financial statements of the Company and its Consolidated
Subsidiaries delivered to the Banks.
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<PAGE> 16
SECTION 1.03. Types of Borrowings. The term "Borrowing"
denotes the aggregation of Loans of one or more Banks to be made to a single
Borrower pursuant to Article II on a single date and for a single Interest
Period. Borrowings are classified for purposes of this Agreement either by
reference to the pricing of Loans comprising such Borrowing (e.g., a
"Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by
reference to the provisions of Article II under which participation therein is
determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in
which all Banks participate in proportion to their Commitments, while a "Money
Market Borrowing" is a Borrowing under Section 2.03 in which the Bank
participants are determined on the basis of their bids in accordance therewith).
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend. During the Revolving Credit
Period each Bank severally agrees, on the terms and conditions set forth in this
Agreement, to make loans to the Company or any Eligible Subsidiary pursuant to
this Section from time to time in amounts such that the aggregate principal
amount of Committed Loans by such Bank at any one time outstanding to all
Borrowers shall not exceed the amount of its Commitment. Each Borrowing under
this subsection (a) shall be in an aggregate principal amount of $5,000,000 or
any larger multiple of $1,000,000 (except that any such Borrowing may be in the
aggregate amount available in accordance with Section 3.02(b)) and shall be made
from the several Banks ratably in proportion to their respective Commitments.
Within the foregoing limits, a Borrower may borrow under this Section 2.01,
repay, or to the extent permitted by Section 2.11, prepay Loans and reborrow at
any time during the Revolving Credit Period under this Section 2.01.
SECTION 2.02. Notice of Committed Borrowings. The Borrower
shall give the Agent notice (a "Notice of Committed Borrowing") not later than
Noon (New York City time) on (x) the date of each Base Rate Borrowing, (y) the
second Domestic Business Day before each CD Borrowing and (z) the third
Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Domestic Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,
(ii) the aggregate amount of such Borrowing,
(iii) whether the Loans comprising such Borrowing are to be CD
Loans, Base Rate Loans or Euro-Dollar Loans, and
(iv) in the case of a Fixed Rate Borrowing, the duration of
the Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period.
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<PAGE> 17
SECTION 2.03. Money Market Borrowings.
(a) The Money Market Option. In addition to Committed
Borrowings pursuant to Section 2.01, unless Level V Status exists any
Borrower may, as set forth in this Section, request the Banks during
the Revolving Credit Period to make offers to make Money Market Loans
to the Borrower. Unless Level V Status exists, the Banks may, but shall
have no obligation to, make such offers and the Borrower may, but shall
have no obligation to, accept any such offers in the manner set forth
in this Section.
(b) Money Market Quote Request. When a Borrower wishes to
request offers to make Money Market Loans under this Section, it shall
transmit to the Agent by telex or facsimile transmission a Money Market
Quote Request substantially in the form of Exhibit B hereto so as to be
received no later than Noon (New York City time) on (y) the fifth
Euro-Dollar Business Day prior to the date of Borrowing proposed
therein, in the case of a LIBOR Auction or (y) the Domestic Business
Day next preceding the date of Borrowing proposed therein, in the case
of an Absolute Rate Auction (or, in either case, such other time or
date as the Company and the Agent shall have mutually agreed and shall
have notified to the Banks not later than the date of the Money Market
Quote Request for the first LIBOR Auction or Absolute Rate Auction for
which such change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a
Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic
Business Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$5,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period, and
(iv) whether the Money Market Quotes requested are to set
forth a Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Company and the Agent may agree) of any other Money Market
Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt
of a Money Market Quote Request, the Agent shall send to the Banks by
telex or facsimile transmission an Invitation for Money Market Quotes
substantially in the form of Exhibit C hereto, which shall constitute
an invitation by the Borrower to each Bank to submit Money Market
Quotes offering to make the Money Market Loans to which such Money
Market Quote Request relates in accordance with this Section.
(d) Submission and Contents of Money Market Quotes. (i) Each
Bank may submit a Money Market Quote containing an offer or offers to
make Money Market
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<PAGE> 18
Loans in response to any Invitation for Money Market Quotes. Each Money
Market Quote must comply with the requirements of this subsection (d)
and must be submitted to the Agent by telex or facsimile transmission
at its offices specified in or pursuant to Section 11.01 not later than
(x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business
Day prior to the proposed date of Borrowing, in the case of a LIBOR
Auction or (y) 9:00 A.M. (New York City time) on the proposed date of
Borrowing, in the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Company and the Agent shall have
mutually agreed and shall have notified to the Banks not later than the
date of the Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be effective);
provided that Money Market Quotes submitted by the Agent (or any
affiliate of the Agent) in the capacity of a Bank may be submitted, and
may only be submitted, if the Agent or such affiliate notifies the
Borrower of the terms of the offer or offers contained therein not
later than (x) one hour prior to the deadline for the other Banks, in
the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for
the other Banks, in the case of an Absolute Rate Auction. Subject to
Articles III and VI, any Money Market Quote so made shall be
irrevocable except with the written consent of the Agent given on the
instructions of the Borrower.
(ii) Each Money Market Quote shall be in substantially the
form of Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for
which each such offer is being made, which principal amount
(w) may be greater than or less than the Commitment of the
quoting Bank, (x) must be $5,000,000 or a larger multiple of
$1,000,000, (y) may not exceed the principal amount of Money
Market Loans for which offers were requested, and (z) may be
subject to an aggregate limitation as to the principal amount
of Money Market Loans for which offers being made by such
quoting Bank may be accepted,
(C) in the case of a LIBOR Auction, the margin above
or below the applicable London Interbank Offered Rate (the
"Money Market Margin") offered for each such Money Market
Loan, expressed as a percent-age (specified to the nearest
1/10,000th of 1%) to be added to or subtracted from such base
rate,
(D) in the case of an Absolute Rate Auction, the rate
of interest per annum (specified to the nearest 1/10,000th of
1%) (the "Money Market Absolute Rate") offered for each such
Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
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<PAGE> 19
(A) is not substantially in conformity with Exhibit D
hereto or does not specify all of the information required by
subsection (d)(ii);
(B) contains qualifying, conditional or similar
language;
(C) proposes terms other than or in addition to those
set forth in the applicable Invitation for Money Market
Quotes; or
(D) arrives after the time set forth in subsection
(d)(i).
(e) Notice to Borrower. The Agent shall promptly notify the
Borrower of the terms (x) of any Money Market Quote submitted by a Bank
that is in accordance with subsection (d) and (y) of any Money Market
Quote that amends, modifies or is otherwise inconsistent with a
previous Money Market Quote submitted by such Bank with respect to the
same Money Market Quote Request. Any such subsequent Money Market Quote
shall be disregarded by the Agent unless such subsequent Money Market
Quote is submitted solely to correct a manifest error in such former
Money Market Quote. The Agent's notice to the Borrower shall specify
(A) the aggregate principal amount of Money Market Loans for which
offers have been received for each Interest Period specified in the
related Money Market Quote Request, (B) the respective principal
amounts and Money Market Margins or Money Market Absolute Rates, as the
case may be, so offered and (C) if applicable, limitations on the
aggregate principal amount of Money Market Loans for which offers in
any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:00
A.M. (New York City time) on (x) the third Euro-Dollar Business Day
prior to the proposed date of Borrowing, in the case of a LIBOR Auction
or (y) the proposed date of Borrowing, in the case of an Absolute Rate
Auction (or, in either case, such other time or date as the Company and
the Agent shall have mutually agreed and shall have notified to the
Banks not later than the date of the Money Market Quote Request for the
first LIBOR Auction or Absolute Rate Auction for which such change is
to be effective), the Borrower shall notify the Agent of its acceptance
or non-acceptance of the offers so notified to it pursuant to
subsection (e). In the case of acceptance, such notice (a "Notice of
Money Market Borrowing") shall specify the aggregate principal amount
of offers for each Interest Period that are accepted. The Borrower may
accept any Money Market Quote in whole or in part; provided that:
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in the related
Money Market Quote Request,
(ii) the principal amount of each Money Market Borrowing must
be $5,000,000 or a larger multiple of $1,000,000,
(iii) acceptance of offers may only be made on the basis of
ascending Money Market Margins or Money Market Absolute Rates, as the
case may be, and
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<PAGE> 20
(iv) the Borrower may not accept any offer that is described
in subsection (d)(iii) or that otherwise fails to comply with the
requirements of this Agreement.
(g) Allocation by Agent. If offers are made by two or more
Banks with the same Money Market Margins or Money Market Absolute
Rates, as the case may be, for a greater aggregate principal amount
than the amount in respect of which such offers are accepted for the
related Interest Period, the principal amount of Money Market Loans in
respect of which such offers are accepted shall be allocated by the
Agent among such Banks as nearly as possible (in multiples of
$1,000,000, as the Agent may deem appropriate) in proportion to the
aggregate principal amounts of such offers. Determinations by the Agent
of the amounts of Money Market Loans shall be conclusive in the absence
of manifest error.
SECTION 2.04. Notice to Banks; Funding of Loans.
(a) Upon receipt of a Notice of Borrowing, the Agent shall
promptly notify each Bank of the contents thereof and of such Bank's
share (if any) of such Borrowing and such Notice of Borrowing shall not
thereafter be revocable by the Borrower.
(b) Not later than 1:00 P.M. (New York City time) on the date
of each Borrowing, each Bank participating therein shall (except as
provided in subsection (c) of this Section) make available its share of
such Borrowing, in Federal or other funds immediately available in New
York City, to the Agent at its address specified in or pursuant to
Section 11.01. Unless the Agent determines that any applicable
condition specified in Article III has not been satisfied, the Agent
will make the funds so received from the Banks available to the
Borrower at the Agent's aforesaid address or at such other location as
may be agreed upon in writing between the Borrower and the Agent.
(c) If any Bank makes a new Loan hereunder to a Borrower on a
day on which such Borrower is to repay all or any part of an
outstanding Loan from such Bank, such Bank shall apply the proceeds of
its new Loan to make such repayment and only an amount equal to the
difference (if any) between the amount being borrowed by such Borrower
and the amount being repaid shall be made available by such Bank to the
Agent as provided in subsection (b) of this Section, or remitted by
such Borrower to the Agent as provided in Section 2.12, as the case may
be.
(d) Unless the Agent shall have received notice from a Bank
prior to the date of any Borrowing that such Bank will not make
available to the Agent such Bank's share of such Borrowing, the Agent
may assume that such Bank has made such share available to the Agent on
the date of such Borrowing in accordance with subsections (b) and (c)
of this Section 2.04 and the Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding
amount. If and to the extent that such Bank shall not have so made such
share available to the Agent, such Bank and the Borrower severally
agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such
amount is made available to the Borrower until the date such amount is
repaid to the Agent, at (i) in the case of the Borrower, a rate per
annum equal to the higher of the Federal Funds Rate and the interest
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<PAGE> 21
rate applicable thereto pursuant to Section 2.07 and (ii) in the case
of such Bank, the Federal Funds Rate; provided that upon any Bank's
failure to make such share available to the Agent, the Agent may make a
demand upon the Borrower for payment of all amounts due under this
subsection with respect to such failure only if (A) the Agent has first
made such a demand upon such Bank and (B) such Bank has failed to
immediately pay the amounts so demanded. If such Bank shall repay to
the Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Loan included in such Borrowing for purposes of
this Agreement.
SECTION 2.05. Notes. (a) The Loans of each Bank to each
Borrower shall be evidenced by a single Note of such Borrower payable to the
order of such Bank for the account of its Applicable Lending office in an amount
equal to the aggregate unpaid principal amount of such Bank's Loans to such
Borrower.
(b) Each Bank may, by notice to a Borrower and the Agent,
request that its Loans of a particular type to such Borrower be
evidenced by a separate Note of such Borrower in an amount equal to the
aggregate unpaid principal amount of such Loans. Each such Note shall
be in substantially the form of Exhibit A hereto with appropriate
modifications to reflect the fact that it evidences solely Loans of the
relevant type. Each reference in this Agreement to a "Note" or the
"Notes" of such Bank shall be deemed to refer to and include any or all
of such Notes, as the context may require.
(c) Upon receipt of each Bank's Note pursuant to Section
3.01(b) or 3.03(a), the Agent shall mail such Note to such Bank. Each
Bank shall record the date, amount, type and maturity of each Loan made
by it to each Borrower and the date and amount of each payment of
principal made with respect thereto, and prior to any transfer of its
Note of any Borrower shall endorse on the schedule forming a part
thereof appropriate notations to evidence the foregoing information
with respect to each such Loan to such Borrower then outstanding;
provided that the failure of any Bank to make any such recordation or
endorsement shall not affect the obligations of any Borrower hereunder
or under the Notes. Each Bank is hereby irrevocably authorized by each
Borrower so to endorse its Notes and to attach to and make a part of
any Note a continuation of any such schedule as and when required.
SECTION 2.06. Maturity of Loans. Each Loan included in any
Borrowing shall mature, and the principal amount thereof shall be due and
payable, on the last day of the Interest Period applicable to such Borrowing.
SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall
bear interest on the outstanding principal amount thereof, for each day from the
date such Loan is made until it becomes due, at a rate per annum equal to the
Base Rate for such day. Such interest shall be payable for each Interest Period
on the last day thereof. Any overdue principal of or interest on any Base Rate
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate
Loans for such day.
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<PAGE> 22
(b) Each CD Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto,
at a rate per annum equal to the sum of the CD Margin plus the
applicable Adjusted CD Rate; provided that if any CD Loan or any
portion thereof shall, as a result of clause (2)(b)(i) of the
definition of Interest Period, have an Interest Period of less than 30
days, such portion shall bear interest during such Interest Period at
the rate applicable to Base Rate Loans during such period. Such
interest shall be payable for each Interest Period on the last day
thereof and, if such Interest Period is longer than 90 days, at
intervals of 90 days after the first day thereof. Any overdue principal
of or interest on any CD Loan shall bear interest, payable on demand,
for each day until paid at a rate per annum equal to the sum of 2% plus
the higher of (i) the sum of the CD Margin plus the Adjusted CD Rate
applicable to such Loan and (ii) the rate applicable to Base Rate Loans
for such day.
"CD Margin" means (i) 9/16 of 1% per annum for any date on
which Level I Status exists, (ii) 5/8 of 1% per annum for any date on which
Level II Status exists, (iii) 11/16 of 1% per annum for any date on which Level
III Status exists, (iv) 3/4 of 1% per annum for any date on which Level IV
Status exists and (v) 1-3/16% per annum for any date on which Level V Status
exists.
The "Adjusted CD Rate" applicable to any Interest Period means
a rate per annum determined pursuant to the following formula:
[ CDBR ]*
ACDR = [ - - - - - - - ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
----------
* The amount in brackets being rounded upward, if necessary, to the
next higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the
rate of interest determined by the Agent to be the average (rounded upward, if
necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum,
bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on
the first day of such Interest Period by two or more New York certificate of
deposit dealers of recognized standing for the purchase at face value from
Morgan Guaranty Trust Company of New York of its certificates of deposit in an
amount comparable to the principal amount of the CD Loan of Morgan Guaranty
Trust Company of New York to which such Interest Period applies and having a
maturity comparable to such Interest Period.
"Domestic Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including
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<PAGE> 23
without limitation any basic, supplemental or emergency reserves) for a member
bank of the Federal Reserve System in New York City with deposits exceeding five
billion dollars in respect of new non-personal time deposits in dollars in New
York City having a maturity comparable to the related Interest Period and in an
amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically
on and as of the effective date of any change in the Domestic Reserve
Percentage.
"Assessment Rate" means for any day the annual assessment rate
in effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. Section 327.3(d) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the United
States. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the sum of the
Euro-Dollar Margin plus the applicable Adjusted London Interbank
Offered Rate. Such interest shall be payable for each Interest Period
on the last day thereof and, if such Interest Period is longer than
three months, at intervals of three months after the first day thereof.
"Euro-Dollar Margin" means (i) 7/16 of 1% per annum for any
date on which Level I Status exists, (ii) 1/2 of 1% per annum for any date on
which Level II Status exists, (iii) 9/16 of 1% per annum for any date on which
Level III Status exists, (iv) 5/8 of 1% per annum for any date on which Level IV
Status exists and (v) 1-1/16% per annum for any date on which Level V Status
exists.
The "Adjusted London Interbank Offered Rate" applicable to any
Interest Period means a rate per annum equal to the quotient obtained (rounded
upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the
applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar
Reserve Percentage.
The "London Interbank Offered Rate" applicable to any Interest
Period means the average (rounded upward, if necessary, to the next higher 1/16
of 1%) of the respective rates per annum at which deposits in dollars are
offered to Morgan Guaranty Trust Company of New York in the London interbank
market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days
before the first day of such Interest Period in an amount approximately equal to
the principal amount of the Euro-Dollar Loan of Morgan Guaranty Trust Company of
New York to which such Interest Period is to apply and for a period of time
comparable to such Interest Period.
"Euro-Dollar Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank of
the Federal Reserve System in New York City with deposits exceeding
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<PAGE> 24
five billion dollars in respect of "Eurocurrency liabilities" (or in respect of
any other category of liabilities which includes deposits by reference to which
the interest rate on Euro-Dollar Loans is determined or any category of
extensions of credit or other assets which includes loans by a non-United States
office of any Bank to United States residents). The Adjusted London Interbank
Offered Rate shall be adjusted automatically on and as of the effective date of
any change in the Euro-Dollar Reserve Percentage.
(d) Any overdue principal of or interest on any Euro-Dollar
Loan shall bear interest, payable on demand, for each day from and
including the date payment thereof was due to but excluding the date of
actual payment, at a rate per annum, equal to the sum of 2% plus the
higher of (i) the sum of the Euro-Dollar Margin plus the Adjusted
London Interbank Offered Rate applicable to such Loan and (ii) the
Euro-Dollar Margin plus the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by dividing (x) the average
(rounded upward, if necessary, to the next higher 1/16 of 1%) of the
respective rates per annum at which one day (or, if such amount due
remains unpaid more than three Euro-Dollar Business Days, then for such
other period of time not longer than six months as the Agent may
select) deposits in dollars in an amount approximately equal to such
overdue payment due to Morgan Guaranty Trust Company of New York are
offered to Morgan Guaranty Trust Company of New York in the London
interbank market for the applicable period determined as provided above
by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the
circumstances described in clause (a) or (b) of Section 8.01 shall
exist, at a rate per annum equal to the sum of 2% plus the rate
applicable to Base Rate Loans for such day).
(e) Subject to Section 8.01(a), each Money Market LIBOR Loan
shall bear interest on the outstanding principal amount thereof, for
the Interest Period applicable thereto, at a rate per annum equal to
the sum of the London Interbank Offered Rate for such Interest Period
(determined in accordance with Section 2.07(c) as if the related Money
Market LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or
minus) the Money Market Margin quoted by the Bank making such Loan in
accordance with Section 2.03. Each Money Market Absolute Rate Loan
shall bear interest on the outstanding principal amount thereof, for
the Interest Period applicable thereto, at a rate per annum equal to
the Money Market Absolute Rate quoted by the Bank making such Loan in
accordance with Section 2.03. Such interest shall be payable for each
Interest Period on the last day thereof and, if such Interest Period is
longer than three months, at intervals of three months after the first
day thereof. Any overdue principal of or interest on any Money Market
Loan shall bear interest, payable on demand, for each day until paid at
a rate per annum equal to the sum of 2% plus the Prime Rate for such
day.
(f) The Agent shall determine each interest rate applicable to
the Loans hereunder. The Agent shall give prompt notice to the Borrower
and the participating Banks by telex or cable of each rate of interest
so determined, and its determination thereof shall be conclusive in the
absence of manifest error.
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SECTION 2.08. Fees.
(a) Commitment Fee. During the Revolving Credit Period, the
Company shall pay to the Agent for the account of the Banks ratably in
proportion to their Commitments a commitment fee at the Commitment Fee
Rate on the daily amount by which the aggregate amount of the
Commitments exceeds the aggregate outstanding principal amount of the
Loans. Such commitment fee shall accrue from and including the date
hereof to but excluding the Termination Date.
(b) Facility Fee. The Company shall pay to the Agent for the
account of the Banks ratably a facility fee at the Facility Fee Rate.
Such facility fee shall accrue (i) from and including the date hereof
to but excluding the Termination Date, on the daily aggregate amount of
the Commitments (whether used or unused) and (ii) from and including
the Termination Date to but excluding the date the Loans shall be
repaid in their entirety, on the daily aggregate outstanding principal
amount of the Loans.
(c) Administrative and Auction Fees. The Company shall pay to
the Agent for its own account administrative and auction fees in the
amounts previously agreed between them.
(d) Payments. Accrued fees under subsections (a) and (b) of
this Section shall be payable quarterly on each March 15, June 15,
September 15 and December 15, and upon the date of termination of the
Commitments in their entirety (and, if later, the date the Loans shall
be repaid in their entirety).
(e) Usage Fee. If the daily average aggregate outstanding
amount of Committed Loans during any calendar quarter is greater than
25% of the daily average aggregate amount of Commitments (whether drawn
or undrawn) during such quarter, then the Company shall pay to the
Agent for the account of the Banks ratably in proportion to their daily
average outstanding amount of Committed Loans during such calendar
quarter a usage fee at the Usage Fee Rate on such daily average
aggregate outstanding amount of Committed Loans. Such usage fee shall
be payable in arrears on the fifteenth day after the last day of the
relevant calendar quarter.
SECTION 2.09. Optional Termination or Reduction of
Commitments. During the Revolving Credit Period, the Company may, upon at least
three Domestic Business Days', notice to the Agent, (i) terminate the
Commitments at any time, if no Loans are outstanding at such time or (ii)
ratably reduce from time to time by an aggregate amount of at least $10,000,000,
the aggregate amount of the Commitments in excess of the aggregate outstanding
principal amount of the Loans.
SECTION 2.10. Mandatory Termination of Commitments. The
Commitments shall terminate on the Termination Date, and any Loans then
outstanding (together with accrued interest thereon) shall be due and payable on
such date.
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<PAGE> 26
SECTION 2.11. Optional Prepayments.
(a) The Borrower may, upon at least one Domestic Business
Day's notice to the Agent, prepay any Base Rate Borrowing (or any Money
Market Borrowing bearing interest at the Prime Rate pursuant to Section
8.01(a)) in whole at any time, or from time to time in part in amounts
aggregating at least $5,000,000, by paying the principal amount to be
prepaid together with accrued interest thereon to the date of
prepayment. Each such optional prepayment shall be applied to prepay
ratably the Loans of the several Banks included in such Borrowing.
(b) Except as provided in Section 8.02, no Borrower may prepay
all or any portion of the principal amount of any Fixed Rate Loan prior
to the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to this
Section, the Agent shall promptly notify each Bank of the contents
thereof and of such Bank's ratable share (if any) of such prepayment
and such notice shall not thereafter be revocable by the Borrower.
SECTION 2.12. General Provisions as to Payments.
(a) The Borrowers shall make each payment of principal of, and
interest on, the Loans and of fees hereunder, not later than 2:00 P.M.
(New York City time) on the date when due, in Federal or other funds
immediately available in New York City, to the Agent at its address
referred to in Section 11.01. The Agent will promptly distribute to
each Bank its ratable share of each such payment received by the Agent
for the account of the Banks. Whenever any payment of principal of, or
interest on, the Domestic Loans or of fees shall be due on a day which
is not a Domestic Business Day, the date for payment thereof shall be
extended to the next succeeding Domestic Business Day. Whenever any
payment of principal of, or interest on, the Euro-Dollar Loans shall be
due on a day which is not a Euro-Dollar Business Day, the date for
payment thereof shall be extended to the next succeeding Euro-Dollar
Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case the date for payment thereof shall be the
next preceding Euro-Dollar Business Day. Whenever any payment of
principal of, or interest on, the Money Market Loans shall be due on a
day which is not a Euro-Dollar Business Day, the date for payment
thereof shall be extended to the next succeeding Euro-Dollar Business
Day. If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such
extended time.
(b) Unless the Agent shall have received notice from a
Borrower prior to the date on which any payment is due from such
Borrower to the Banks hereunder that such Borrower will not make such
payment in full, the Agent may assume that such Borrower has made such
payment in full to the Agent on such date and the Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and
to the extent that such Borrower shall not have so made such payment,
each Bank shall repay to the Agent forthwith on demand such amount
distributed to such Bank together with interest thereon, for each day
from
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<PAGE> 27
the date such amount is distributed to such Bank until the date such
Bank repays such amount to the Agent, at the Federal Funds Rate.
SECTION 2.13. Funding Losses. If a Borrower makes any payment
of principal with respect to any Fixed Rate Loan (pursuant to Article VI or VIII
or otherwise) on any day other than the last day of the Interest Period
applicable thereto, or the end of an applicable period fixed pursuant to Section
2.07(d), or if a Borrower fails to borrow any Fixed Rate Loans after notice has
been given to any Bank in accordance with Section 2.04(a), the Company shall
reimburse each Bank within 15 days after demand for any resulting loss or
expense incurred by it (or by an existing or prospective Participant in the
related Loan), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
margin for the period after any such payment or failure to borrow, provided that
such Bank shall have delivered to the Company a certificate as to the amount of
such loss or expense, which certificate shall be conclusive in the absence of
manifest error.
SECTION 2.14. Computation of Interest and Fees. Interest based
on the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.15. Withholding Tax Exemption. At least five
Domestic Business Days prior to the first date on which interest or fees are
payable hereunder for the account of any Bank, each Bank that is not
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to each of the Company and the Agent two duly
completed copies of United States Internal Revenue Service Form 1001 or 4224,
certifying in either case that such Bank is entitled to receive payments from
the Company under this Agreement and the Notes without deduction or withholding
of any United States federal income taxes. Each Bank which so delivers a Form
1001 or 4224 further undertakes to deliver to each of the Company and the Agent
two additional copies of such form (or a successor form) on or before the date
that such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Company or the Agent, in each case certifying that such Bank is
entitled to receive payments from the Company under this Agreement and the Notes
without deduction or withholding of any United States federal income taxes,
unless an event (including without limitation any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Bank from duly completing and delivering any such form with respect
to it and such Bank advises the Company and the Agent that it is not capable of
receiving such payments without any deduction or withholding of United States
federal income tax.
SECTION 2.16. Judgment Currency. If for the purpose of
obtaining judgment in any court it is necessary to convert a sum due from any
Borrower hereunder or under any of the Notes in United States dollars
("dollars") into another currency, the parties hereto agree, to the fullest
extent that they may effectively do so, that the rate of exchange used shall be
that at which in accordance with normal banking procedures the Agent could
purchase dollars with such other
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<PAGE> 28
currency at the Agent's New York office on the Domestic Business Day preceding
that on which final judgment is given. The obligations of each Borrower in
respect of any sum due to any Bank or the Agent hereunder or under any Note
shall, notwithstanding any judgment in a currency other than dollars, be
discharged only to the extent that on the Domestic Business Day following
receipt by such Bank or the Agent (as the case may be) of any sum adjudged to be
so due in such other currency such Bank or the Agent (as the case may be) may in
accordance with normal banking procedures purchase dollars with such other
currency; if the amount of dollars so purchased is less than the sum originally
due to such Bank or the Agent, as the case may be, in dollars, each Borrower
agrees, to the fullest extent that it may effectively do so, as a separate
obligation and notwithstanding any such judgment, to indemnify such Bank or the
Agent, as the case may be, against such loss, and if the amount of dollars so
purchased exceeds (a) the sum originally due to any Bank or the Agent, as the
case may be, and (b) any amounts shared with other Banks as a result of
allocations of such excess as a disproportionate payment to such Bank under
Section 11.04, such Bank or the Agent, as the case may be, agrees to remit such
excess to the appropriate Borrower.
SECTION 2.17. Foreign Withholding Taxes and Other Costs.
(a) All payments by an Eligible Subsidiary of principal of and
interest on its Notes and of all other amounts payable under this
Agreement are payable without deduction for or on account of any
present or future taxes, duties or other charges levied or imposed by
the government of any jurisdiction outside the United States of America
or by any political sub-division or taxing authority thereof or therein
through withholding or deduction with respect to any such payments. If
any such taxes, duties or other charges are so levied or imposed, such
Eligible Subsidiary will pay additional interest or will make
additional payments in such amounts so that every net payment of
principal of and interest on its Notes and of all other amounts payable
by it under this Agreement, after withholding or deduction for or on
account of any such present or future taxes, duties or other charges,
will not be less than the amount provided for herein. Such Eligible
Subsidiary shall furnish promptly to the Agent official receipts
evidencing such withholding or deduction.
(b) If the cost to any Bank of making or maintaining any Loan
to an Eligible Subsidiary is increased, or the amount of any sum
received or receivable by any Bank (or its Applicable Lending Office)
is reduced by an amount deemed by such Bank to be material, by reason
of the fact that such Eligible Subsidiary is incorporated in, or
conducts business in, a jurisdiction outside the United States of
America, the Company shall indemnify such Bank for such increased cost
or reduction within 15 days after demand by such Bank (with a copy to
the Agent). A certificate of such Bank claiming compensation under this
subsection (b) and setting forth the additional amount or amounts to be
paid to it hereunder shall be conclusive in the absence of manifest
error.
(c) Each Bank will promptly notify the Company and the Agent
of any event of which it has knowledge that will entitle such Bank to
additional interest or payments pursuant to subsection (b) and will
designate a different Applicable Lending Office, if, in the judgment of
such Bank, such designation will avoid the need for, or reduce the
amount of, such compensation and will not be otherwise disadvantageous
to such Bank.
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<PAGE> 29
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become
effective on the date that each of the following conditions shall have been
satisfied (or waived in accordance with Section 11.05):
(a) receipt by the Agent of counterparts hereof signed by each
of the Company, the Banks and the Agent (or, in the case of any party
as to which an executed counterpart shall not have been received,
receipt by the Agent in form satisfactory to it of telegraphic, telex
or other written confirmation from such party of execution of a
counterpart hereof by such party);
(b) receipt by the Agent for the account of each Bank of a
duly executed Note of the Company dated on or before the Effective Date
complying with the provisions of Section 2.05;
(c) receipt by the Agent of an opinion of William A. Wise,
Jr., Assistant General Counsel of the Company, substantially in the
form of Exhibit E hereto and covering such additional matters relating
to the transactions contemplated hereby as the Required Banks may
reasonably request;
(d) receipt by the Agent of an opinion of Davis Polk &
Wardwell, special counsel for the Agent, substantially in the form of
Exhibit F hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably
request;
(e) receipt by the Agent of all fees payable under Section
2.08(c);
(f) receipt by the Agent of evidence satisfactory to it that
the commitments of the banks under the $80,000,000 Credit Agreement
dated as of December 19, 1990, as amended, among the Company and the
banks and agent listed therein shall have been terminated and all
amounts due and payable under such agreement shall have been paid; and
(g) receipt by the Agent of all documents it may reasonably
request relating to the existence of the Company, the corporate
authority for and the validity of this Agreement and the Notes, and any
other matters relevant hereto, all in form and substance satisfactory
to the Agent;
provided that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later than
March 26, 1993. The Agent shall promptly notify the Company and the Banks of the
Effective Date, and such notice shall be conclusive and binding on all parties
hereto.
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<PAGE> 30
SECTION 3.02. Borrowings. The obligation of any Bank to make a
Loan on the occasion of any Borrowing is subject to the satisfaction of the
following conditions:
(a) receipt by the Agent of a Notice of Borrowing as required
by Section 2.02 or 2.03, as the case may be;
(b) the fact that, immediately before and after such
Borrowing, the aggregate outstanding principal amount of the Loans will
not exceed the aggregate amount of the Commitments;
(c) the fact that, immediately before and after such
Borrowing, no Default shall have occurred and be continuing; and
(d) the fact that the representations and warranties of the
Borrower contained in this Agreement (except, in the case of a
Refunding Borrowing, the representations and warranties set forth in
Sections 4.04(c) and 4.05 as to any matter which has theretofore been
disclosed in writing by the Company to the Banks) shall be true on and
as of the date of such Borrowing.
Each Borrowing hereunder shall be deemed to be a
representation and warranty by the Borrower on the date of such Borrowing as to
the facts specified in clauses (b), (c) and (d) of this Section.
SECTION 3.03. First Borrowing by Each Eligible Subsidiary. The
obligation of each Bank to make a Loan on the occasion of the first Borrowing by
each Eligible Subsidiary is subject to the satisfaction of the following further
conditions:
(a) receipt by the Agent for the account of each Bank of a
duly executed Note of such Eligible Subsidiary, dated on or before the
date of such Borrowing complying with the provisions of Section 2.05;
(b) receipt by the Agent of an opinion of counsel for such
Eligible Subsidiary acceptable to the Agent, substantially in the form
of Exhibit I hereto and covering such additional matters relating to
the transactions contemplated hereby as the Required Banks may
reasonably request; and
(c) receipt by the Agent of all documents which it may
reasonably request relating to the existence of such Eligible
Subsidiary, the corporate authority for and the validity of the
Election to Participate of such Eligible Subsidiary, this Agreement and
the Notes of such Eligible Subsidiary, and any other matters relevant
thereto, all in form and substance satisfactory to the Agent.
The opinion referred to in clause (b) above shall be dated no more than five
Euro-Dollar Business Days before the date of the first Borrowing by such
Eligible Subsidiary hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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<PAGE> 31
The Company represents and warrants that:
SECTION 4.01. Corporate Existence and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the Commonwealth of Massachusetts, and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted.
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Company of this
Agreement and its Notes are within the Company's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the articles of organization or by-laws of the Company or of
any agreement, judgment, injunction, order, decree or other instrument binding
upon the Company or result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement constitutes a
valid and binding agreement of the Company and its Notes, when executed and
delivered in accordance with this Agreement, will constitute valid and binding
obligations of the Company.
SECTION 4.04. Financial Information.
(a) The consolidated and consolidating balance sheet of the
Company and its Consolidated Subsidiaries as of October 31, 1992 and
the related consolidated and consolidating statements of income, cash
flow and stockholders' equity for the fiscal year then ended, in the
case of the consolidated statements reported on by Ernst & Young and
set forth in the Company's 1992 Form 10-K, copies of which has been
delivered to each of the Banks, fairly present, in conformity with
generally accepted accounting principles, the financial position of the
Company and its Consolidated Subsidiaries as of such date and their
results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated and consolidating balance sheet
of the Company and its Consolidated Subsidiaries as of January 30, 1993
and the related unaudited consolidated statements of income, cash flow
and stockholders' equity for the three months then ended, copies of
which have been delivered to each of the Banks, fairly present, in
conformity with generally accepted accounting principles applied on a
basis consistent with the financial statements referred to in
subsection (a) of this Section, the financial position of the Company
and its Consolidated Subsidiaries as of such date and their results of
operations and cash flows for such three month period (subject to
normal year-end adjustments).
(c) Since January 30, 1993 there has been no material adverse
change in the business, financial position, results of operations or
prospects of the Company and its Consolidated Subsidiaries, considered
as a whole.
SECTION 4.05. Litigation. There is no action, suit or
proceeding pending against, or to the knowledge of the Company threatened
against or affecting, the Company or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or
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<PAGE> 32
official in which there is a reasonable possibility of an adverse decision which
could materially adversely affect the business, consolidated financial position
or consolidated results of operations of the Company and its Consolidated
Subsidiaries or which in any manner draws into question the validity of this
Agreement or the Notes.
SECTION 4.06. Compliance with ERISA. Each member of the ERISA
Group has fulfilled its obligations under the minimum funding standards of ERISA
and the Internal Revenue Code with respect to each Plan and is in compliance in
all material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
SECTION 4.07. Environmental Matters. In the ordinary course of
its business, the Company conducts an ongoing review of the effect of
Environmental Laws on the business, operations and properties of the Company and
its Subsidiaries, in the course of which it identifies and evaluates associated
liabilities and costs (including, without limitation, any capital or operating
expenditures required for clean-up or closure of properties presently or
previously owned, any capital or operating expenditures required to achieve or
maintain compliance with environmental protection standards imposed by law or as
a condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat and any actual or potential liabilities to third parties,
including employees, and any related costs and expenses). On the basis of this
review, the Company has reasonably concluded that Environmental Laws are
unlikely to have a material adverse effect on the business, financial condition,
results of operations or prospects of the Company and its Consolidated
Subsidiaries, considered as a whole.
SECTION 4.08. Taxes. United States Federal income tax returns
of the Company and its Subsidiaries have been examined and closed through the
fiscal year ended November 3, 1990. The Company and its Subsidiaries have filed
all United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Company or any
Subsidiary. The charges, accruals and reserves on the books of the Company and
its Subsidiaries in respect of taxes or other governmental charges are, in the
opinion of the Company, adequate.
SECTION 4.09. Subsidiaries. Each of the Company's corporate
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
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<PAGE> 33
SECTION 4.10. Ownership and Liens. Each of the Company and its
Consolidated Subsidiaries has title to, or valid leasehold interests in, all of
its properties and assets, real and personal, including the properties and
assets, and leasehold interests reflected in the financial statements referred
to in Section 4.04 (other than any properties or assets disposed of in the
ordinary course of business), and none of the properties and assets owned by the
Company or any of its Subsidiaries and none of its leasehold interests is
subject to any Lien, except as disclosed in such financial statements or as may
be permitted hereunder.
SECTION 4.11. Subsidiaries and Ownership of Stock. Schedule I
is a complete and accurate list of the Subsidiaries of the Company, showing the
jurisdiction of incorporation or organization of each Subsidiary and showing the
percentage of the Company's ownership of the outstanding stock or other interest
of each such Subsidiary. All of the outstanding capital stock or other interest
of each such Subsidiary owned by the Company has been validly issued, is fully
paid and nonassessable and is owned by the Company free and clear of all Liens.
SECTION 4.12. Credit Arrangements. Schedule II is a complete
and correct list of all credit agreements, indentures, purchase agreements,
Guaranties, Capital Leases and other investments, agreements and arrangements
presently in effect providing for or relating to extensions of credit (including
agreements and arrangements for the issuance of letters of credit or for
acceptance financing) in respect of which the Company or any of its Subsidiaries
is in any manner directly or contingently obligated; and the maximum principal
or face amounts of the credit in question, outstanding as of January 30, 1993
and which can be outstanding, are correctly stated, and all Liens of any nature
given or agreed to be given as security therefor are correctly described or
indicated, in such Schedule; provided that for the purposes of such Schedule,
credit agreements, indentures and purchase agreements which individually have
values less than $2,000,000 and which in the aggregate do not have values
exceeding $4,000,000 may be listed in summary fashion and Guaranties and Capital
Leases having an aggregate market value of less than $6,000,000 and $14,000,000,
respectively, may be listed in summary fashion.
SECTION 4.13. Not an Investment Company. The Company is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 4.14. Full Disclosure. All information heretofore
furnished by the Company to the Agent or any Bank for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by the Company to the Agent or any Bank
will be, true and accurate in all material respects on the date as of which such
information is stated or certified. The Company has disclosed to the Banks in
writing any and all facts which materially and adversely affect or may affect
(to the extent the Company can now reasonably foresee), the business, operations
or financial condition of the Company and its Consolidated Subsidiaries, taken
as a whole, or the ability of the Company to perform its obligations under this
Agreement.
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<PAGE> 34
ARTICLE V
COVENANTS
The Company agrees that, so long as any Bank has any
Commitment hereunder or any amount payable under any Note remains unpaid:
SECTION 5.01. Information. The Company will deliver to each of
the Banks:
(a) as soon as available and in any event within 120 days
after the end of each fiscal year of the Company, a consolidated and
consolidating balance sheet of the Company and its Consolidated
Subsidiaries as of the end of such fiscal year and the related
consolidated and consolidating statements of income, cash flow and
stockholders' equity for such fiscal year, setting forth in each case
in comparative form the figures for the previous fiscal year, in the
case of the consolidated statements, all reported on in a manner
acceptable to the Securities and Exchange Commission by Ernst & Young
or other independent public accountants of nationally recognized
standing;
(b) as soon as available and in any event within 60 days after
the end of each of the first three quarters of each fiscal year of the
Company, a consolidated and consolidating balance sheet of the Company
and its Consolidated Subsidiaries as of the end of such quarter and the
related consolidated statements of income and cash flow for such
quarter and for the portion of the Company's fiscal year ended at the
end of such quarter, setting forth in each case in comparative form the
figures for the corresponding quarter and the corresponding portion of
the Company's previous fiscal year, all certified (subject to normal
year-end adjustments) as to fairness of presentation, generally
accepted accounting principles and consistency by the chief financial
officer or the treasurer of the Company;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of
the chief financial officer or the treasurer of the Company (i) setting
forth in reasonable detail the calculations required to establish
whether the Company was in compliance with the requirements of Sections
5.08 to 5.13, inclusive, and 5.15 on the date of such financial
statements and (ii) stating whether any Default exists on the date of
such certificate and, if any Default then exists, setting forth the
details thereof and the action which the Company is taking or proposes
to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements (i)
whether anything has come to their attention to cause them to believe
that any Default existed on the date of such statements and (ii)
confirming the calculations set forth in the officer's certificate
delivered simultaneously therewith pursuant to clause (c) above;
(e) within ten days after any officer of the Company obtains
knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer
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<PAGE> 35
or the treasurer of the Company setting forth the details thereof and
the action which the Company is taking or proposes to take with respect
thereto;
(f) promptly upon the mailing thereof to the shareholders of
the Company generally, copies of all financial statements, reports and
proxy statements so mailed;
(g) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent) and reports on
Forms 10-K, IO-Q and 8-K (or their equivalents) which the Company shall
have filed with the Securities and Exchange Commission;
(h) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as
defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of
ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the
notice of such reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial withdrawal liability
under Title IV of ERISA or notice that any Multiemployer Plan is in
reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of
an intent to terminate, impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or appoint a trustee to
administer any Plan, a copy of such notice (iv) applies for a waiver of
the minimum funding standard under Section 412 of the Internal Revenue
Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such
notice and other information filed with the PBGC; (vi) gives notice of
withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of
such notice; or (vii) fails to make any payment or contribution to any
Plan or Multiemployer Plan or in respect of any Benefit Arrangement or
makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a Lien or the posting of
a bond or other security, a certificate of the chief financial officer
or the treasurer of the Company setting forth details as to such
occurrence and action, if any, which the Company or applicable member
of the ERISA Group is required or proposes to take;
(i) promptly after the commencement thereof, notice of all
actions, suits, and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting the Company or any of its Subsidiaries
which, if determined adversely to the Company or such Subsidiary, could
have a material adverse effect on the financial condition, properties,
or operations of the Company and its Subsidiaries, taken as a whole;
(j) promptly after the furnishing thereof, copies of any,
statement or report furnished to any other party pursuant to the terms
of any indenture, loan or credit or similar agreement and not otherwise
required to be furnished to the Banks pursuant to any other clause of
this Section;
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<PAGE> 36
(k) promptly after such time as the Company becomes aware of
any actual or proposed change in the rating of the Company's senior
unsecured long-term debt securities, notice of such actual or proposed
change; and
(l) from time to time such additional information regarding
the financial position or business of the Company and its Subsidiaries
as the Agent, at the request of any Bank, may reasonably request.
SECTION 5.02. Payment of Obligations. The Company will pay and
discharge, and will cause each Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings, and will maintain, and will cause each
Subsidiary to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.
SECTION 5.03. Maintenance of Property; Insurance. (a) The
Company will keep, and will cause each Subsidiary to keep, all property useful
and necessary in its business in good working order and condition, ordinary wear
and tear and fully insured casualty excepted.
(b) The Company will maintain, and will cause each Subsidiary
to maintain, insurance with financially sound and reputable insurance
companies or associations in such amounts and covering such risks as
are usually carried by companies engaged in the same or a similar
business and similarly situated, which insurance may provide for
reasonable deductibility from coverage thereof.
SECTION 5.04. Conduct of Business and Maintenance of
Existence. The Company will continue, and will cause each Subsidiary to
continue, to engage in business of the same general type as now conducted by the
Company and its Subsidiaries, and will preserve, renew and keep in full force
and effect and will cause each Subsidiary to preserve, renew and keep in full
force and effect their respective corporate existence and their respective
rights, privileges and franchises necessary or desirable in the normal conduct
of business; provided that nothing in this Section 5.04 shall prohibit (i) the
merger of a Subsidiary into the Company or the merger or consolidation of a
Subsidiary with or into another Person if the corporation surviving such
consolidation or merger is a Subsidiary and if, in each case, after giving
effect thereto, no Default shall have occurred and be continuing or (ii) the
termination of the corporate existence of any Subsidiary if the Company in good
faith determines that such termination is in the best interest of the Company
and is not materially disadvantageous to the Banks.
SECTION 5.05. Compliance with Laws. The Company will comply,
and cause each Subsidiary, to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including, without limitation, Environmental Laws and
ERISA and the rules and regulations thereunder) except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 5.06. Inspection of Property, Books and Records. The
Company will keep, and will cause each Subsidiary to keep, proper books of
record and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business
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and activities; and will permit, and will cause each Subsidiary to permit,
representatives of any Bank at such Bank's expense to visit and inspect any of
their respective properties, to examine and make abstracts from any of their
respective books and records and to discuss their respective affairs, finances
and accounts with their respective officers, employees and independent public
accountants, all at such reasonable times and as often as may reasonably be
desired.
SECTION 5.07. Transactions With Affiliates. The Company will
not, and will not permit any Subsidiary to, directly or indirectly, pay any
funds to or for the account of, make any investment (whether by acquisition of
stock or indebtedness, by loan, advance, transfer of property, guarantee or
other agreement to pay, purchase or service, directly or indirectly, any
indebtedness, or otherwise) in, lease, sell, transfer or otherwise dispose of
any assets, tangible or intangible, to, or participate in, or effect any
transaction in connection with any joint enterprise or other joint arrangement
with, any Affiliate; provided, however, that the foregoing provisions of this
Section shall not prohibit (a) the Company from declaring or paying any lawful
dividend so long as, after giving effect thereto, no Default shall have occurred
and be continuing, (b) the Company or any Subsidiary from making sales to or
purchases from any Affiliate and, in connection there with, extending credit or
making payments, or from making payments for services rendered by any Affiliate,
if such sales or purchases are made or such services are rendered in the
ordinary course of business and on terms and conditions at least as favorable to
the Company or such Subsidiary as the terms and conditions which would apply in
a similar transaction with a Person not an Affiliate, (c) the Company or any
Subsidiary from making payments of principal, interest and premium on any
indebtedness of the Company or such Subsidiary held by an Affiliate if the terms
of such indebtedness are substantially as favorable to the Company or such
Subsidiary as the terms which could have been obtained at the time of the
creation of such indebtedness from a lender which was not an Affiliate and (d)
the Company or any Subsidiary from participating in, or effecting any
transaction in connection with, any joint enterprise or other joint arrangement
with any Affiliate if the Company or such Subsidiary participates in the
ordinary course of its business and on a basis no less advantageous than the
basis on which such Affiliate participates.
SECTION 5.08. Current Ratio. The Company shall maintain at all
times a ratio of Consolidated Current Assets to Consolidated Current Liabilities
of not less than 1.75 to 1.
SECTION 5.09. Leverage Ratio. The Company shall maintain at
all times a ratio of Total Liabilities to Consolidated Tangible Net Worth of not
greater than 1 to 1.
SECTION 5.10. Minimum Consolidated Tangible Net Worth. The
Company will at no time permit Consolidated Tangible Net Worth to be less than
the sum of (i) $288,981,000 plus (ii) 50% of consolidated net income of the
Company and its Consolidated Subsidiaries for the period from January 31, 1993
through the end of the Company's then most recent fiscal quarter (treated for
this purpose as a single accounting period) plus (iii) 50% of the net proceeds
received by the Company from the issuance and sale subsequent to January 30,
1993 of shares of any class of the capital stock of the Company; provided,
however, that in the event the Company incurs a net loss in one or more of its
fiscal quarters ending after January 30, 1993, the results of such quarter or
quarters shall be excluded in calculating consolidated net income of the Company
and its Consolidated Subsidiaries pursuant to clause (ii) above.
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SECTION 5.11. Restricted Payments. Neither the Company nor any
Subsidiary will declare or make any Restricted Payment unless, after giving
effect thereto, the aggregate of all Restricted Payments declared or made
subsequent to January 30, 1993 does not exceed the sum of $29,734,000 plus 50%
of the consolidated net income of the Company and its Consolidated Subsidiaries
for the period from January 31, 1993 through the end of the Company's then most
recent fiscal quarter (treated for this purpose as a single accounting period).
Nothing in this Section shall prohibit the payment of any dividend or
distribution within 45 days after the declaration thereof if such declaration
was not prohibited by this Section.
SECTION 5.12. Investments. The Company will not make, or
permit any of its Subsidiaries to make, any loan or advance to any Person or
purchase or otherwise acquire, or permit any such Subsidiary to purchase or
otherwise acquire, any capital stock, assets, obligations or other securities
of, make any capital contribution to, or otherwise invest in, or acquire any
interest in, any Person (all such transactions being herein called
"Investments"), except:
(a) Investments in Liquid Assets;
(b) Investments in the Company or any or its Consolidated
Subsidiaries;
(c) Investments in accounts, contract rights and general
intangibles (as defined in the Uniform Commercial Code) or notes or
other instruments receivable, arising from the sale, lease or other
furnishings of goods or services by the Company or any Subsidiary in
the ordinary course of its business;
(d) Investments in equity interests (including stocks and
convertible debt securities) of corporations which do not become
Consolidated Subsidiaries made with the proceeds of the issuance of
stock by the Company;
(e) Acquisitions permitted by Section 5.15;
(f) Investments (including stocks, equity interests and
convertible debt securities) of corporations that do not become
Consolidated Subsidiaries made with the proceeds of the sale or other
disposition of any capitalized Investment permitted by clause (d),
providing the Company gives the Banks notice of such Investment under
this clause; and
(g) additional Investments not exceeding in the aggregate at
any one time outstanding $20,000,000.
SECTION 5.13. Negative Pledge. Neither the Company nor any
Subsidiary will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:
(a) Liens in favor of the Banks securing the Loans hereunder;
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<PAGE> 39
(b) Liens for taxes or assessments or other government charges
or levies if not yet due and payable or if due and payable if they are
being contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained;
(c) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar
Liens, securing obligations incurred in the ordinary course of business
which are not past due for more than 30 days, or which are being
contested in good faith by appropriate proceedings and for which
appropriate reserves have been established;
(d) Liens under workmen's compensation, unemployment
insurance, social security or similar legislation;
(e) Liens, deposits or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of
money), leases (permitted under the terms of this Agreement), public or
statutory obligations, surety, stay, appeal, indemnity, performance or
other similar bonds, or other similar obligations arising in the
ordinary course of business;
(f) judgment and other similar Liens arising in connection
with court proceedings; provided that the execution or other
enforcement of such Liens is effectively stayed and the claims secured
thereby are being actively contested in good faith and by appropriate
proceedings;
(g) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with
the occupation, use and enjoyment by the Company or any such Subsidiary
of the property assets encumbered thereby in the normal course of its
business or materially impair the value of the property subject
thereto;
(h) Liens securing obligations of such a Subsidiary to the
Company or another such Subsidiary;
(i) Liens set forth in Schedule III; and
(j) Liens not otherwise permitted by the foregoing clauses of
this Section securing indebtedness in an aggregate principal amount at
any one time outstanding not to exceed 30% of Consolidated Tangible Net
Worth.
SECTION 5.14. Consolidations, Mergers and Sales of Assets. The
Company will not merge or consolidate with or sell, assign, lease or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
any substantial part of its assets (whether now owned or hereafter acquired), to
any Person, or acquire all or substantially all of the assets or the business of
any Person, or permit any of its Subsidiaries to do so, except that: (a) any
such Subsidiary may merge into or transfer assets to the Company; (b) any
Subsidiary may merge into or consolidate with or transfer assets to any other
Subsidiary; and (c) the Company may effect any Acquisition permitted by Section
5.15.
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SECTION 5.15. Acquisitions. The Company shall not, and shall
not permit any of the Subsidiaries to, consummate any Acquisition, or sell,
lease, assign or otherwise dispose of (whether in one transaction or in a series
of related transactions) all or Any substantial part of its assets, whether now
owned or hereafter acquired, or be a party to any merger or consolidation,
except that:
(a) the Company and its Subsidiaries may sell inventory or
used or surplus equipment in the ordinary course of business; and
(b) the Company and any of the Subsidiaries may consummate any
Acquisition (including any Acquisition by way of merger); provided
that: (i) with respect to any such Acquisition the Company shall
provide to the Banks twenty (20) days or more prior written notice
thereof; (ii) with respect to all such Acquisitions the aggregate
value, on a current market value basis (determined at the time of each
such Acquisition), of the consideration therefor paid and to be paid by
the Company and Subsidiaries shall not exceed 33 1/3% of Consolidated
Tangible Net worth as of the end of the immediately preceding fiscal
quarter; (iii) after giving effect to such Acquisition, the Company
shall be in compliance with all of the terms and conditions hereof;
(iv) the Company or such Subsidiary consummating such Acquisition shall
not, after giving effect to such Acquisition, be in violation of
Section 5.04; (v) no such Acquisition shall have a material adverse
effect on the financial condition of the Company and the Subsidiaries
taken as a whole; and (vi) in respect of each such Acquisition, the
Company or such Subsidiary shall be the surviving or continuing entity.
SECTION 5.16. Use of Proceeds. The proceeds of the Loans made
under this Agreement will be used by the Borrowers for general corporate
purposes. None of such proceeds will be used, directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of buying or carrying any
"margin stock" within the meaning of Regulation U.
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the
following events ("Events of Default") shall have occurred and be continuing:
(a) any principal of any Loan shall not be paid when due, or
any interest, any fees or any other amount payable hereunder shall not
be paid within three days of the due date thereof;
(b) the Company shall fail to observe or perform any covenant
contained in Sections 5.07 to 5.16, inclusive;
(c) any Borrower shall fail to observe or perform any covenant
or agreement contained in this Agreement (other than those covered by
clause (a) or (b) above) for 10 days after written notice thereof has
been given to the Company by the Agent at the request of any Bank;
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(d) any representation, warranty, certification or statement
made by any Borrower in this Agreement or in any certificate, financial
statement or other document delivered pursuant to this Agreement shall
prove to have been incorrect in any material respect when made (or
deemed made);
(e) the Company or any Subsidiary shall fail to make payment
in respect of any Material Debt when due or within any applicable grace
period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables (or, with
the giving of notice or lapse of time or both, would enable) the holder
of such Debt or any Person acting on such holder's behalf to accelerate
the maturity thereof;
(g) the Company or any Subsidiary shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as
they become due, or shall take any corporate action to authorize any of
the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Company or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 60 days; or an order
for relief shall be entered against the Company or any Subsidiary under
the federal bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due
an amount or amounts aggregating in excess of $500,000 which it shall
have become liable to pay under Title IV of ERISA; or notice of intent
to terminate a Material Plan shall be filed under Title IV of ERISA by
any member of the ERISA Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate, to impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or to cause a
trustee to be appointed to administer any Material Plan; or a condition
shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated; or there
shall occur a complete or partial withdrawal from, or a default, within
the meaning of Section 4219(c)(5) of ERISA, with respect to, one or
more Multiemployer Plans which could cause one or more members of the
ERISA Group to incur a current payment obligation in excess of
$500,000;
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<PAGE> 42
(j) one or more judgments or orders for the payment of money
in excess of $750,000 in the aggregate shall be rendered against the
Company or any Subsidiary and such judgment or order shall continue
unsatisfied and unstayed for a period of 30 days; or
(k) any person or group of persons (within the meaning of
Section 13 or 14 of the Securities Exchange Act of 1934, as amended)
shall have acquired beneficial owner-ship (within the meaning of Rule
13d-3 promulgated by the Securities and Exchange Commission under said
Act) of 50% or more of the outstanding shares of common stock of the
Company; or, during any period of 12 consecutive calendar months,
individuals who were directors of the Company on the first day of such
period shall cease to constitute a majority of the board of directors
of the Company (other than as a result of the death of one or more such
individuals);
then, and in every such event, the Agent shall (i) if requested by Banks having
more than 50% in aggregate amount of the Commitments, by notice to the Company
terminate the Commitments and they shall thereupon terminate, and (ii) if
requested by Banks holding Notes evidencing more than 50% in aggregate principal
amount of the Loans, by notice to the Company declare the Notes (together with
accrued interest thereon) to be, and the Notes shall thereupon become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by each Borrower; provided that in
the case of any of the Events of Default specified in clause (g) or (h) above
with respect to any Borrower, without any notice to any Borrower or any other
act by the Agent or the Banks, the Commitments shall thereupon terminate and the
Notes (together with accrued interest thereon) shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by each Borrower.
SECTION 6.02. Notice of Default. The Agent shall give notice
to the Company under Section 6.01(c) promptly upon being requested to do so by
any Bank and shall thereupon notify all the Banks thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization. Each Bank
irrevocably appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the Notes as are
delegated to the Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto.
SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust
Company of New York shall have the same rights and powers under this Agreement
as any other Bank and may exercise or refrain from exercising the same as though
it were not the Agent, and Morgan Guaranty Trust Company of New York and its
affiliates may accept deposits from, lend money to, and generally engage in any
kind of business with any Borrower or any Subsidiary or affiliate of any
Borrower as if it were not the Agent hereunder.
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SECTION 7.03. Action by Agent. The obligations of the Agent
hereunder are only those expressly set forth herein. Without limiting the
generality of the foregoing, the Agent shall not be required to take any action
with respect to any Default, except as expressly provided in Article VI.
SECTION 7.04. Consultation with Experts. The Agent may consult
with legal counsel (who may be counsel for any Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Agent. Neither the Agent nor any of
its directors, officers, agents, or employees shall be liable for any action
taken or not taken by it in connection herewith (i) with the consent or at the
request of the Required Banks or (ii) in the absence of its own gross negligence
or willful misconduct. Neither the Agent nor any of its directors officers,
agents or employees shall be responsible for or have any duty to ascertain,
inquire into or verify (i) any statement, warranty or representation made in
connection with this Agreement or any borrowing hereunder; (ii) the performance
or observance of any of the covenants or agreements of any Borrower; (iii) the
satisfaction of any condition specified in Article III, except receipt of items
required to be delivered to the Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes or any other instrument or writing
furnished in connection herewith. The Agent shall not incur any liability by
acting in reliance upon any notice, consent, certificate, statement, or other
writing (which may be a bank wire, telex or similar writing) believed by it to
be genuine or to be signed by the proper party or parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in
accordance with its Commitment, indemnify the Agent (to the extent not
reimbursed by the Borrowers) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from the Agent's gross negligence or willful misconduct) that the Agent
may suffer or incur in connection with this Agreement or any action taken or
omitted by the Agent hereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it
has, independently and without reliance upon the Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Agent. The Agent may resign at any
time by giving written notice thereof to the Banks and the Company. Upon any
such resignation, the Required Banks shall have the right, with the consent of
the Company, to appoint a successor Agent. If no successor Agent shall have been
so appointed by the Required Banks and consented to by the Company, and shall
have accepted such appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at
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least $50,000,000. Upon the acceptance of its appointment as Agent hereunder by
a successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation hereunder as Agent, the provisions of this Article
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent.
SECTION 7.09. Agent's Fee. The Borrower shall pay to the Agent
for its own account fees in the amounts and at the times previously agreed upon
between the Borrower and the Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate
or Unfair. If on or prior to the first day of any Interest Period for any Fixed
Rate Borrowing:
(a) the Agent is advised by Morgan Guaranty Trust Company of
New York that deposits in dollars (in the applicable amounts) are not
being offered to Morgan Guaranty Trust Company of New York in the
relevant market for such Interest Period, or
(b) in the case of a Committed Borrowing, Banks having more
than 50% of the aggregate amount of the Commitments advise the Agent
that the Adjusted CD Rate or the Adjusted London Interbank Offered
Rate, as the case may be, as determined by the Agent will not
adequately and fairly reflect the cost to such Banks of funding their
CD Loans or Euro-Dollar Loans, as the case may be, for such Interest
Period,
the Agent shall forthwith give notice thereof to the Company and the Banks,
whereupon until the Agent notifies the Company that the circumstances giving
rise to such suspension no longer exist, the obligations of the Banks to make CD
Loans or Euro-Dollar Loans, as the case may be, shall be suspended. Unless the
Borrower notifies the Agent at least two Domestic Business Days before the date
of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been
given that it elects not to borrow on such date, (i) if such Fixed Rate
Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a
Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market
LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall
bear interest for each day from and including the first day to but excluding the
last day of the Interest Period applicable thereto at the Prime Rate for such
day.
SECTION 8.02. Illegality. If, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Euro-Dollar Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office)
to make, maintain or
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fund its Euro-Dollar Loans to any Borrower and such Bank shall so notify the
Agent, the Agent shall forthwith give notice thereof to the other Banks and the
Company, whereupon until such Bank notifies the Company and the Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Bank to make Euro-Dollar Loans to such Borrower shall be suspended. Before
giving any notice to the Agent pursuant to this Section, such Bank shall
designate a different Euro-Dollar Lending Office if such designation will avoid
the need for giving such notice and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. If such Bank shall determine that it may
not lawfully continue to maintain and fund any of its outstanding Euro-Dollar
Loans to such Borrower to maturity and shall so specify in such notice, such
Borrower shall immediately prepay in full the then outstanding principal amount
of each such Euro-Dollar Loan, together with accrued interest thereon.
Concurrently with prepaying each such Euro-Dollar Loan, such Borrower shall
borrow a Base Rate Loan in an equal principal amount from such Bank (on which
interest and principal shall be payable contemporaneously with the related
Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate
Loan.
SECTION 8.03. Increased Cost and Reduced Return. (a) If on or
after (x) the date hereof, in the case of any Committed Loan or any obligation
to make Committed Loans or (y) the date of the related Money Market Quote, in
the case of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Applicable Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency:
(i) shall subject any Bank (or its Applicable Lending Office)
to any tax, duty or other charge with respect to its Fixed Rate Loans,
its Note or its obligation to make Fixed Rate Loans, or shall change
the basis of taxation of payments to any Bank (or its Applicable
Lending Office) of the principal of or interest on its Fixed Rate Loans
or any other amounts due under this Agreement in respect of its Fixed
Rate Loans or its obligation to make Fixed Rate Loans (except for
changes in the rate of tax on the overall net income of such Bank or
its Applicable Lending Office imposed by the jurisdiction in which such
Bank's principal executive office or Applicable Lending Office is
located); or
(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal
Reserve System, but excluding (A) with respect to any CD Loan any such
requirement included in an applicable Domestic Reserve Percentage and
(B) with respect to any Euro-Dollar Loan any such requirement included
in an applicable Euro-Dollar Reserve Percentage) against assets of,
deposits with or for the account of, or credit extended by, any Bank
(or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for
certificates of deposit or the London interbank market any other
condition affecting its Fixed Rate Loans, its Note or its obligation to
make Fixed Rate Loans;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or
to reduce the amount of any
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<PAGE> 46
sum received or receivable by such Bank (or its Applicable Lending Office) under
this Agreement or under its Note with respect thereto, by an amount deemed by
such Bank to be material, then, within 15 days after demand by such Bank (with a
copy to the Agent), the Company shall pay to such Bank such additional amount or
amounts as will compensate such Bank for such increased cost or reduction.
(b) If any Bank shall have determined that, after the date
hereof, the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital
adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on capital of such Bank (or its
Parent) as a consequence of such Bank's obligations hereunder to a
level below that which such Bank (or its Parent) could have achieved
but for such adoption, change, request or directive (taking into
consideration its policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time,
within 15 days after demand by such Bank (with a copy to the Agent),
the Company shall pay to such Bank such additional amount or amounts as
will compensate such Bank (or its Parent) for such reduction.
(c) Each Bank will promptly notify the Company and the Agent
of any event of which it has knowledge, occurring after the date
hereof, which will entitle such Bank to compensation pursuant to this
Section and will designate a different Applicable Lending Office if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. A certificate of any Bank claiming
compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive in the
absence of manifest error. In determining such amount, such Bank may
use any reasonable averaging and attribution methods.
SECTION 8.04. Base Rate Loans Substituted for Affected Fixed
Rate Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans to any
Borrower has been suspended pursuant to Section 8.02 or (ii) any Bank has
demanded compensation under Section 8.03(a) and the Borrower shall, by at least
five Euro-Dollar Business Days' prior notice to such Bank through the Agent,
have elected that the provisions of this Section shall apply to such Bank, then,
unless and until such Bank notifies the Company that the circumstances giving
rise to such suspension or demand for compensation no longer apply:
(a) all Loans to such Borrower which would otherwise be made
by such Bank as CD Loans or Euro-Dollar Loans, as the case may be,
shall be made instead as Base Rate Loans (on which interest and
principal shall be payable contemporaneously with the related Fixed
Rate Loans of the other Banks), and
(b) after each of its CD Loans or Euro Loans, as the case may
be, to such Borrower has been repaid, all payments of principal which
would otherwise be applied to repay such Fixed Rate Loans shall be
applied to repay its Base Rate Loans instead.
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SECTION 8.05. HLT Classification. If, after the date hereof,
the Agent determines that, or the Agent is advised by any Bank that such Bank
has received notice from any governmental authority, central bank or comparable
agency having jurisdiction over such Bank that, Loans hereunder are classified
as a "highly leveraged transaction" (an "HLT Classification"), the Agent shall
promptly give notice of such HLT Classification to the Company and the other
Banks. The Agent, the Banks and the Company shall commence negotiations in good
faith to agree on the extent to which fees, interest rates and/or margins
hereunder should be increased so as to reflect such HLT Classification. If the
Company and Banks having more than 50% in aggregate amount of the Commitments
agree on the amount of such increase or increases, this Agreement may be amended
to give effect to such increase or increases as provided in Section 11.05. If
the Company and Banks having more than 50% in aggregate amount of the
Commitments fail to so agree within 45 days after notice is given by the Agent
as provided above, then the Agent shall, if requested by Banks having 50% or
more in aggregate amount of the Commitments, by notice to the Company terminate
the Commitments and they shall thereupon terminate and the Borrowers shall repay
each outstanding Loan at the end of the Interest Period applicable thereto. The
Banks acknowledge that an HLT Classification is not a Default or an Event of
Default hereunder.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF ELIGIBLE SUBSIDIARIES
Each Eligible Subsidiary shall be deemed by the execution and
delivery of its Election to Participate to have represented and warranted as of
the date thereof that:
SECTION 9.01. Corporate Existence and Power. It is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and a Wholly-Owned Consolidated
Subsidiary of the Company.
SECTION 9.02. Corporate and Governmental Authorization;
Contravention. The execution and delivery by it of its Election to Participate
and its Notes, and the performance by it of this Agreement and its Notes, are
within its corporate powers, have been duly authorized by all necessary
corporate action, require no action by or in respect of, or filing with, any
governmental body, agency or official and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of its
certificate or incorporation or by-laws or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Company or such
Eligible Subsidiary result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries.
SECTION 9.03. Binding Effect. This Agreement constitutes a
valid and binding agreement of such Eligible Subsidiary and its Notes, when
executed and delivered in accordance with this Agreement, will constitute valid
and binding obligations of such Eligible Subsidiary.
SECTION 9.04. Taxes. Except as disclosed in such Election to
Participate, there is no income, stamp or other tax of any country, or any
taxing authority thereof or therein, imposed by or in the nature of withholding
or otherwise, which is imposed on any payment to be
- 42 -
<PAGE> 48
made by such Eligible Subsidiary pursuant hereto or on its Notes, or is imposed
on or by virtue of the execution, delivery or enforcement of its Election to
Participate or of its Notes.
ARTICLE X
GUARANTY
SECTION 10.01. The Guaranty. The Company hereby
unconditionally guarantees the full and punctual payment (whether at stated
maturity, upon acceleration or otherwise) of the principal of and interest on
each Note issued by any Eligible Subsidiary pursuant to this Agreement, and the
full and punctual payment of all other amounts payable by any Eligible
Subsidiary under this Agreement. Upon failure by any Eligible Subsidiary to pay
punctually any such amount, the Company shall forthwith on demand pay the amount
not so paid at the place and in the manner specified in this Agreement.
SECTION 10.02. Guaranty Unconditional. The obligation of the
Company hereunder shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by:
(i) any extension, renewal, settlement, com-promise, waiver or
release in respect of any obligation of any Eligible Subsidiary under
this Agreement or any Note, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to this
Agreement or any Note;
(iii) any release, non-perfection or invalidity of any direct
or indirect security for any obligation of any Eligible Subsidiary
under this Agreement or any Note;
(iv) any change in the corporate existence, structure or
ownership of any Eligible Subsidiary, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting any Eligible
Subsidiary or its assets or any resulting release or discharge of any
obligation of any Eligible Subsidiary contained in this Agreement or
any Note;
(v) the existence of any claim, set-off or other rights which
the Company may have at any time against any Eligible Subsidiary, the
Agent, any Bank or any other Person, whether in connection herewith or
any unrelated transactions, provided that nothing herein shall prevent
the assertion of any such claim by separate suit or compulsory
counterclaim;
(vi) any invalidity or unenforceability relating to or against
any Eligible Subsidiary for any reason of this Agreement or any Note,
or any provision of applicable law or-regulation purporting to prohibit
the payment by any Eligible Subsidiary of the principal of or interest
on any Note or any other amount payable by it under this Agreement; or
- 43 -
<PAGE> 49
(vii) any other act or omission to act or delay of any kind by
any Eligible Subsidiary, the Agent, any Bank or any other Person or any
other circumstance whatsoever which might, but for the provisions of
this paragraph, constitute a legal or equitable discharge of the
Company's obligations hereunder.
SECTION 10.03. Discharge Only Upon Payment In Full;
Reinstatement In Certain Circumstances. The Company's obligations hereunder
shall remain in full force and effect until the Commitments shall have
terminated and the principal of and interest on the Notes and all other amounts
payable by the Company and each Eligible Subsidiary under this Agreement shall
have been paid in full. If at any time any payment of the principal of or
interest on any Note or any other amount payable by any Eligible Subsidiary
under this Agreement is rescinded or must be otherwise restored or returned upon
the insolvency, bankruptcy or reorganization of any Eligible Subsidiary or
otherwise, the Company's obligations hereunder with respect to such payment
shall be reinstated at such time as though such payment had been due but not
made at such time.
SECTION 10.04. Waiver by the Company. The Company irrevocably
waives acceptance hereof, presentment, demand, protest and any notice not
provided for herein, as well as any requirement that at any time any action be
taken by any Person against any Eligible Subsidiary or any other Person.
SECTION 10.05. Subrogation. The Company irrevocably waives any
and all rights to which it may be entitled, by operation of law or otherwise,
upon making any payment hereunder to be subrogated to the rights of the payee
against an Eligible Subsidiary with respect to such payment or otherwise to be
reimbursed, indemnified or exonerated by an Eligible Subsidiary in respect
thereof.
SECTION 10.06. Stay of Acceleration. In the event that
acceleration of the time for payment of any amount payable by any Eligible
Subsidiary under this Agreement or its Notes is stayed upon insolvency,
bankruptcy or reorganization of such Eligible Subsidiary, all such amounts
otherwise subject to acceleration under the terms of this Agreement shall
nonetheless be payable by the Company hereunder forthwith on demand by the Agent
made at the request of the Required Banks.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case of any Borrower or the Agent, at its address or telex
number set forth on the signature pages hereof (or, in the case of an
Eligibility Subsidiary, its Election to Participate), (y) in the case of any
Bank, at its address or telex number set forth in its Administrative
Questionnaire or (z) in the case of any party, such other address or telex
number as such party may hereafter specify for the purpose by notice to the
Agent and the Company. Each such notice, request or other communication shall be
effective (i) if given by telex, when such telex is transmitted to the telex
number specified in this Section and the
- 44 -
<PAGE> 50
appropriate answerback is received, (ii) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the address specified in this Section; provided that notices to the Agent under
Article II or Article VIII shall not be effective until received.
SECTION 11.02. No Waivers. No failure or delay by the Agent or
any Bank in exercising any right, power or privilege hereunder or under any Note
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 11.03. Expenses; Documentary Taxes; Indemnification.
(a) The Company shall pay (i) all out-of-pocket expenses of the Agent, including
fees and disbursements of special counsel for the Agent, in connection with the
preparation of any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default hereunder and (ii) if an Event of Default occurs, all
out-of-pocket expenses incurred by the Agent and each Bank, including fees and
disbursements of counsel, and all allocated costs of in-house counsel, in
connection with such Event of Default and collection, bankruptcy, insolvency and
other enforcement proceedings resulting therefrom. The Company shall indemnify
each Bank against any transfer taxes, documentary taxes, assessments or charges
made by any governmental authority by reason of the execution and delivery of
this Agreement, any Election to Participate or Election to Terminate or any
Note.
(b) The Company agrees to indemnify each Bank and hold each
Bank harmless from and against any and all liabilities, losses,
damages, costs and expenses of any kind, including, without limitation,
the reasonable fees and disbursements of counsel, which may be incurred
by any Bank (or by the Agent in connection with its actions as Agent
hereunder) in connection with any investigative, administrative or
judicial proceeding (whether or not such Bank shall be designated a
party thereto) relating to or arising out of this Agreement or any
actual or proposed use of proceeds of Loans hereunder; provided that no
Bank shall have the right to be indemnified hereunder for its own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
SECTION 11.04. Sharing of Set-Offs. Each Bank agrees that if
it shall, by exercising any right of set-off or counterclaim or otherwise,
receive payment of a proportion of the aggregate amount of principal and
interest due with respect to any Note held by it which is greater than the
proportion received by any other Bank in respect of the aggregate amount of
principal and interest due with respect to any Note held by such other Bank, the
Bank receiving such proportionately greater payment shall purchase such
participations in the Notes held by the other Banks, and such other adjustments
shall be made, as may be required so that all such payments of principal and
interest with respect to the Notes held by the Banks shall be shared by the
Banks pro rata; provided that nothing in this Section shall impair the right of
any Bank to exercise any right of set-off or counterclaim it may have and to
apply the amount subject to such exercise to the payment of indebtedness of a
Borrower other than its indebtedness hereunder. Each Borrower agrees, to the
fullest extent it may effectively do so under applicable law, that any holder of
a participation in a Note, whether or not acquired pursuant to the foregoing
- 45 -
<PAGE> 51
arrangements, may exercise rights of set-off or counterclaim and other rights
with respect to such participation as fully as if such holder of a participation
were a direct creditor of such Borrower in the amount of such participation.
SECTION 11.05. Amendments and Waivers. Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Company and the Required Banks
(and, if the rights or duties of the Agent are affected thereby, by the Agent);
provided that no such amendment or waiver shall, unless signed by all the Banks,
(i) increase or decrease the Commitment of any Bank (except for a ratable
decrease in the Commitments of all Banks) or subject any Bank to any additional
obligation, (ii) reduce the principal of or rate of interest on any Loan or any
fees hereunder, except as provided below, (iii) postpone the date fixed for any
payment of principal of or interest on any Loan or any fees hereunder or for any
reduction or termination of any Commitment or (iv) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Notes, or the
number of Banks, which shall be required for the Banks or any of them to take
any action under this Section or any other provision of this Agreement;
provided, further, that this Agreement may be amended to give effect to any
increased fees, interest rates and/or margins agreed upon pursuant to Section
8.05 or to reduce or rescind any such increases previously agreed upon pursuant
to Section 8.05, if such amendment is in writing and is signed by the Company
and Banks having more than 50% in aggregate amount of the Commitments; and
provided further that no such amendment, waiver or modification shall, unless
signed by an Eligible Subsidiary, (w) subject such Eligible Subsidiary to any
additional obligation, (x) increase the principal of or rate of interest on any
outstanding Loan of such Eligible Subsidiary, (y) accelerate the stated maturity
of any outstanding Loan of such Eligible Subsidiary or (z) change this proviso.
SECTION 11.06. Successors and Assigns. (a) The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that no Borrower may
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or
other institutions (each a "Participant") participating interests in
its Commitment or any or all of its Loans. In the event of any such
grant by a Bank of a participating interest to a Participant, whether
or not upon notice to the Borrowers and the Agent, such Bank shall
remain responsible for the performance of its obligations hereunder,
and the Borrowers and the Agent shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. Any agreement pursuant to which any
Bank may grant such a participating interest shall provide that such
Bank shall retain the sole right and responsibility to enforce the
obligations of the Borrowers hereunder including, without limitation,
the right to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such participation agreement
may provide that such Bank will not agree to any modification,
amendment or waiver of this Agreement described in clause (i), (ii) or
(iii) of Section 11.05 without the consent of the Participant. The
Borrowers agree that each Participant shall, to the extent provided in
its participation agreement, be entitled to the benefits of Article
VIII with respect to its participating interest. An assignment or other
transfer which is not permitted by
- 46 -
<PAGE> 52
subsection (c) or (d) below shall be given effect for purposes of this
Agreement only to the extent of a participating interest granted in
accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more other
institutions (each an "Assignee") all, or a proportionate part of all,
of its rights and obligations under this Agreement and the Notes, and
such Assignee shall assume such rights and obligations, pursuant to an
Assignment and Assumption Agreement in substantially the form of
Exhibit J hereto executed by such Assignee and such transferor Bank,
with (and subject to) the subscribed consent of the Company and the
Agent; provided that (i) the amount of Loans or Commitments assigned
equals or exceeds $10,000,000, (ii) if an Assignee is an affiliate of
such transferor Bank, no such consent shall be required and (iii) such
assignment may, but need not, include rights of the transferor Bank in
respect of outstanding Money Market Loans. Upon execution and delivery
of such instrument and payment by such Assignee to such transferor Bank
of an amount equal to the purchase price agreed between such transferor
Bank and such Assignee, such Assignee shall be a Bank party to this
Agreement and shall have all the rights and obligations of a Bank with
a Commitment as set forth in such instrument of assumption, and the
transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party
shall be required. Upon the consummation of any assignment pursuant to
this subsection (c), the transferor Bank, the Agent and the Borrowers
shall make appropriate arrangements so that, if required, new Notes are
issued to the Assignee. In connection with any such assignment, the
transferor Bank shall pay to the Agent an administrative fee for
processing such assignment in the amount of $2,000. If the Assignee is
not incorporated under the laws of the United States of America or a
state thereof it shall, prior to the first date on which interest or
fees are payable hereunder for its account, deliver to the Company and
the Agent certification as to exemption from deduction or withholding
of any United States federal income taxes in accordance with Section
2.15.
(d) Any Bank may at any time assign all or any portion of its
rights under this Agreement and its Notes to a Federal Reserve Bank. No
such assignment shall release the transferor Bank from its obligations
hereunder.
(e) No Assignee, Participant or other transferee of any Bank's
rights shall be entitled to receive any greater payment under Section
8.03 than such Bank would have been entitled to receive with respect to
the rights transferred, unless such transfer is made with the Company's
prior written consent or by reason of the provisions of Section 8.02 or
8.03 requiring such Bank to designate a different Applicable Lending
Office under certain circumstances or at a time when the circumstances
giving rise to such greater payment did not exist.
SECTION 11.07. Collateral. Each of the Banks represents to the
Agent and each of the other Banks that it in good faith is not relying upon any
"margin stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
- 47 -
<PAGE> 53
SECTION 11.08. Governing Law; Submission to Jurisdiction. This
Agreement and each Note shall be governed by and construed in accordance with
the laws of the State of New York. Each Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York State court sitting in New York City
for purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. Each Borrower irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.
SECTION 11.09. Counterparts; Integration. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.
WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE AGENT AND THE
BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
- 48 -
<PAGE> 54
IN WITNESS WHEREOF, the parties hereto have this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written:
ANALOG DEVICES, INC.
By
-------------------------------
Title: V.P. Finance & CFO
One Technology Way
P.O. Box 9106
Norwood, Massachusetts 02062-9106
Attention: Vice President - Finance
and Chief Financial Officer
Telex number: 924491
COMMITMENTS
$20,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
-------------------------------
Title: VICE PRESIDENT
$20,000,000 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
-------------------------------
Title:
$20,000,000 CONTINENTAL BANK N.A.
By
-------------------------------
Title:
$20,000,000 THE FIRST NATIONAL BANK OF
BOSTON
By
-------------------------------
Title:
--------------------------
Total Commitments
$80,000,000
==========================
- 49 -
<PAGE> 55
COMMITMENTS
$20,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
-------------------------------
Title:
$20,000,000 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
-------------------------------
Title: Vice President
$20,000,000 CONTINENTAL BANK N.A.
By
-------------------------------
Title:
$20,000,000 THE FIRST NATIONAL BANK OF
BOSTON
By
-------------------------------
Title:
--------------------------
Total Commitments
$80,000,000
==========================
- 50 -
<PAGE> 56
COMMITMENTS
$20,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
-------------------------------
Title:
$20,000,000 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
-------------------------------
Title:
$20,000,000 CONTINENTAL BANK N.A.
By
-------------------------------
Title: Vice President
$20,000,000 THE FIRST NATIONAL BANK OF
BOSTON
By
-------------------------------
Title:
--------------------------
Total Commitments
$80,000,000
==========================
- 51 -
<PAGE> 57
COMMITMENTS
$20,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
-------------------------------
Title:
$20,000,000 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
-------------------------------
Title:
$20,000,000 CONTINENTAL BANK N.A.
By
-------------------------------
Title:
$20,000,000 THE FIRST NATIONAL BANK OF BOSTON
By
-------------------------------
Title:
--------------------------
Total Commitments
$80,000,000
==========================
- 52 -
<PAGE> 58
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By
-------------------------------
Title: VICE PRESIDENT
60 Wall Street
New York, New York 10260
Attention: Adam Silver
Telex number: 177615
- 53 -
<PAGE> 1
Exhibit 10.16
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT dated as of May 18, 1993 among ANALOG DEVICES, INC. and the
undersigned BANKS.
W I T N E S S E T H:
WHEREAS, Analog Devices, Inc., the Banks listed therein and Morgan
Guaranty Trust Company of New York, as Agent, are parties to a Credit Agreement
dated as of March 12, 1993 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend the negative pledge
covenant, and make a related change, as more fully set forth below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement has the
meaning assigned to such term in the Agreement.
SECTION 2. Amendment of Section 1.01. Section 1.01 of the Agreement is
amended to insert the following definition after the definition of "Subsidiary":
"Swap Obligations" means obligations of the Company and its
Subsidiaries in respect of rate swap transactions, basis swaps, forward
rate transactions, commodity swaps, commodity options, interest rate
options, foreign exchange transactions, cap transactions, floor
transactions, collar transactions, currency swap transactions,
cross-currency rate swap transactions, currency options or any other
similar transactions (including any options with respect to any such
transactions) or combinations of such transactions.
SECTION 3. Amendment of Section 5.13. Clause (j) of Section 5.13 of the
Agreement is amended and restated to read in its entirety as follows:
(j) Liens not otherwise permitted by the foregoing clauses of
this Section securing indebtedness and Swap Obligations in an aggregate
principal and mark to market value (net of mark to market thresholds,
if any) amount at any one time outstanding not to exceed 30% of
Consolidated Tangible Net Worth.
SECTION 4. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
<PAGE> 2
SECTION 5. Counterparts; Effectiveness. This Amendment may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment shall become effective as of the date hereof when the Agent shall
receive duly executed counterparts hereof signed by the Borrower and the
Required Banks (or, in the case of any party as to which an executed counterpart
shall not have been received, the Agent shall receive telex, telecopy or other
written confirmation from such party of execution of a counterpart hereof by
such party).
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
ANALOG DEVICES, INC.
By: /s/ William A. Martin
Title: Treasurer
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Stephen J. Kenneally
Title: Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: /s/ Michael A. Drevno
Title: Vice President
CONTINENTAL BANK N.A.
By: /s/ David Noda
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ George A. Hibbard
Title: Vice President
<PAGE> 1
Exhibit 10.20
ANALOG DEVICES, INC.
Employee Change in Control Severance Policy
-------------------------------------------
(Effective December 13, 1988)
(As Amended on June 13, 1989 and December 9, 1993)
1. Purpose
-------
The purpose of this Employee Change in Control Severance Policy is to
diminish the distraction of covered employees (as defined below) in the event of
a threatened or pending Change in Control (as defined below) and to provide
financial assistance to any covered employee whose employment with Analog
Devices, Inc. or any of its subsidiaries is terminated by the Company, other
than for the reasons set forth below, following such a Change in Control. For
purposes of this Policy, a covered employee shall be any employee of the Company
(other than any exempt employee with a labor grade of 15 or above) who is not
covered under any severance pay agreement (other than a stock option or
restricted stock agreement) that provides special cash benefits following such a
Change in Control. Unless the context otherwise requires, the "Company" means
Analog Devices, Inc. and its subsidiaries (other than portfolio companies of AD
Enterprises).
2. Eligibility for Severance Benefits
----------------------------------
A covered employee shall qualify for severance benefits under this
Policy if the employee is terminated from employment by the Company following a
Change in Control (as defined below) other than for Cause or Disability (as such
terms are defined below).
For purposes of this Policy, termination by the Company of employment
for Cause shall mean termination (a) upon the willful and continuing failure by
the employee to substantially perform his or her duties with the Company,
provided that a written demand for substantial performance has been delivered to
the employee by the Company specifically identifying the manner in which the
Company believes that such employee has not substantially performed his or her
duties and such employee shall not have cured such failure within 30 days after
such demand or (b) by reason of the employee's willful engagement in conduct
which is demonstrably and materially injurious to the Company. For purposes of
this Policy, no act or failure to act on the part of an employee shall be deemed
"willful" unless done or admitted to be done by the employee not in good faith
and without reasonable belief that his or her action or omission was in the best
interest of the Company.
For purposes of this Policy, Disability shall mean that as a result of
incapacity due to physical or mental illness, the employee shall have been
absent from the full-time performance of his or her duties with the Company for
six consecutive months and, within 30 days after written notice of termination
is given to the employee, the employee shall not have returned to the full-time
performance of his or her duties.
<PAGE> 2
3. Change in Control
-----------------
For purposes of this Policy, a Change in Control shall occur or be
deemed to have occurred only if any of the following events occur: (i) any
"person," as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (other than the Company,
any trustee or other fiduciary holding securities under an employee benefit plan
of the Company, or any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as their
ownership of stock of the Company) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities; (ii) individuals who, as of the
effective date hereof, constitute the Board of Directors of the Company (as of
the date hereof, the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
directors of the Company, as such terms are used in Rule 14a-11 of Regulation
14A under the Exchange Act) shall be, for purposes of this Policy, considered as
though such person were a member of the Incumbent Board; (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any other
corporation, other than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 80% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation or (B) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no "person" (as hereinabove defined) acquires more
than 30% of the combined voting power of the Company's then outstanding
securities; or (iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets."
4. Computation of Severance Benefit
--------------------------------
If a covered employee's employment by the Company shall be terminated
by the Company other than for Cause or Disability during the 18-month period
following a Change in Control, then such employee shall be entitled to receive,
promptly upon the termination of his or her employment, a lump-sum severance
payment equal to the base salary otherwise payable to such employee for the
following number of weeks' employment with the Company:
<TABLE>
<CAPTION>
Period of Employment Hourly Exempt
Prior to Termination Non-Exempt (L.G. E01-14)
- --------------------------------------------------------------------------------
<S> <C> <C>
0 to 89 days 2 weeks 4 weeks
90 days to less than 1 year 4 weeks 8 weeks
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
Period of Employment Hourly Exempt
Prior to Termination Non-Exempt (L.G. E01-14)
- --------------------------------------------------------------------------------
<S> <C> <C>
1 year to less than 3 years 6 weeks 12 weeks
3 years to less than 5 years 8 weeks 16 weeks
5 years to less than 10 years 2 weeks for each full 24 weeks
year of employment
10 years or more 20 weeks, plus 4 weeks 32 weeks, plus 4 weeks for
for each full year of each full year of employment
employment over 10 years over 10 years
</TABLE>
Notwithstanding the figures in the second column of the foregoing
table, the severance benefit for covered employees with labor grades of 12, 13
or 14 shall be a minimum of 26 weeks of base salary.
Notwithstanding the foregoing, in no event shall any lump sum payment
to any covered employee hereunder exceed two times such covered employee's
annual compensation for the last full year immediately preceding the termination
of employment with the Company following a Change in Control.
Subject to the provisions of Section 5(b), this Policy establishes in
each covered employee, following a Change in Control, a contractual right to the
benefits to which he or she is entitled under this Policy, and such right shall
be enforceable by each covered employee against the Company following a Change
in Control.
5. Amendment and Terminations
--------------------------
(a) This Policy shall be effective until December 31, 1994 and shall
continue in effect thereafter unless the Board of Directors of the Company shall
vote to terminate or modify this Policy, provided, however, that if a Change in
Control shall have occurred prior to December 31, 1994 (or such later date that
this Policy is in effect because no action has been taken by the Board of
Directors to terminate this Policy), this Policy shall remain in effect for a
period of not less than 18 months after the date of such Change in Control and
all obligations of the Company arising under this Policy as a result of any
termination during such 18-month period shall survive until such obligations are
fully performed.
(b) Notwithstanding the foregoing, this Policy and the benefits
described herein may be amended or terminated by the Board of Directors of the
Company at any time; provided, however, that following a Change in Control this
Policy may not be terminated or amended in any manner materially adverse to then
covered employees without the written consent of a majority of the covered
employees actively employed by the Company and covered by this Policy both
immediately prior to the Change in Control and at the date of such amendment.
3
<PAGE> 4
6. No Mitigation
-------------
An employee shall not be required to mitigate the amount of any payment
provided for in this Policy by seeking other employment or otherwise and shall
not be required to offset against such payment any payments he or she may
receive from future employment.
7. No Fiduciary or Employment Relationship
---------------------------------------
Nothing contained in this Policy and no action taken pursuant to the
provisions of this Policy shall create or be construed to create a trust of any
kind or fiduciary relationship or contract for employment between the Company
and any employee, and nothing in this Policy shall affect the right of the
Company to terminate the employment of any employee for any reason whatsoever.
8. Notice
------
For the purpose of this Policy, notices and all other communications
provided for in the Policy shall be in writing and shall be deemed to have been
duly given when delivered in person or mailed by United States registered mail,
return receipt requested, postage prepaid.
9. Withholding
-----------
Any payment provided for hereunder shall be paid net of any applicable
withholding required under foreign, federal, state or local law.
10. Governing Law
-------------
All questions pertaining to the construction, regulation, and validity
and effect of the provisions of this Policy shall be determined in accordance
with the laws of the Commonwealth of Massachusetts without regard for the
conflict of law principles thereof.
11. Conflict with Surplus (Reduction in Work Force) Policy
------------------------------------------------------
Any payments made to a covered employee under this Policy shall be in
lieu of, and not in addition to, any payments to such employee under the
Company's Surplus (Reduction in Work Force) Policy.
4
<PAGE> 1
Exhibit 10.21
ANALOG DEVICES, INC.
Senior Management Change in Control Severance Policy
----------------------------------------------------
(Effective December 13, 1988)
(As Amended on June 13, 1989 and December 9, 1993)
1. Purpose
-------
The purpose of this Senior Management Change in Control Severance
Policy is to diminish the distraction of covered employees (as defined below) in
the event of a threatened or pending Change in Control (as defined below) and to
provide financial assistance to any covered employee whose employment with
Analog Devices, Inc. or any of its subsidiaries is terminated under certain
circumstances following such a Change in Control. For purposes of this Policy, a
covered employee shall be any employee of the Company with a labor grade of 15
or above (as of the time of termination) who is not covered under any severance
pay agreement (other than a stock option or restricted stock agreement) that
provides special cash benefits following such a Change in Control. Unless the
context otherwise requires, the "Company" means Analog Devices, Inc. and its
subsidiaries (other than portfolio companies of AD Enterprises).
2. Eligibility for Severance Benefits
----------------------------------
(a) A covered employee shall qualify for severance benefits under this
Policy if following a Change in Control (as defined below) the employee is
terminated from employment by the Company other than for Cause or Disability (as
such terms are defined below) or by the employee for Good Reason (as defined
below).
(b) For purposes of this Policy, termination by the Company of
employment for Cause shall mean termination (a) upon the willful and continuing
failure by the employee to substantially perform his or her duties with the
Company, provided that a written demand for substantial performance has been
delivered to the employee by the Company specifically identifying the manner in
which the Company believes that such employee has not substantially performed
his or her duties and such employee shall not have cured such failure within 30
days after such demand or (b) by reason of the employee's willful engagement in
conduct which is demonstrably and materially injurious to the Company. For
purposes of this Policy, no act or failure to act on the part of an employee
shall be deemed "willful" unless done or admitted to be done by the employee not
in good faith and without reasonable belief that his or her action or omission
was in the best interest of the Company.
(c) For purposes of this Policy, Disability shall mean that as a result
of incapacity due to physical or mental illness, the employee shall have been
absent from the full-time performance of his or her duties with the Company for
six consecutive months and, within 30 days after written notice of termination
is given to the employee, the employee shall not have returned to the full-time
performance of his or her duties.
<PAGE> 2
(d) For purposes of this Policy, Good Reason shall mean, without the
employee's written consent, the occurrence after a Change in Control of the
Company of any of the following circumstances:
(A) any significant diminution in the employee's position, duties,
responsibilities, power, title or office as in effect immediately prior to a
Change in Control;
(B) any reduction in the employee's annual base salary as in effect
on January 1, 1989 or as the same may be increased from time to time;
(C) the failure of the Company to continue in effect any material
compensation or benefit plan in which the employee participates immediately
prior to the Change in Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to such plan,
or the failure by the Company to continue his or her participation therein (or
in such substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the level of his
or her participation relative to other participants, as existed at the time of
the Change in Control;
(D) the failure by the Company to continue to provide the employee
with benefits substantially similar to those enjoyed by him or her under any of
the Company's life insurance, medical, health and accident, or disability plans
in which he or she was participating at the time of the Change in Control, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits, or the failure by the Company to provide
him or her with the number of paid vacation days to which he or she is entitled
on the basis of years of service with the Company in accordance with the
Company's normal vacation policy in effect at the time of the Change in Control;
or
(E) any requirement by the Company or of any person in control of
the Company that the location at which the employee performs his or her
principal duties for the Company be changed to a new location outside a radius
of 50 miles from his or her principal residence at the time of the Change in
Control.
3. Change in Control
For purposes of this Policy, a Change in Control shall occur or be
deemed to have occurred only if any of the following events occur: (i) any
"person," as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (other than the Company,
any trustee or other fiduciary holding securities under an employee benefit plan
of the Company, or any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as their
ownership of stock of the Company) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities; (ii) individuals who, as of the
effective date hereof, constitute the Board of Directors of the Company (as of
the date hereof, the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at
2
<PAGE> 3
least a majority of the directors then comprising the Incumbent Board (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board; (iii) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 30% of the combined voting
power of the Company's then outstanding securities; or (iv) the stockholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets."
4. Computation of Severance Benefit
--------------------------------
If a covered employee's employment by the Company shall be terminated
by the Company other than for Cause or Disability during the 18-month period
following a Change in Control or a covered employee terminates employment with
the Company for Good Reason during the 18-month period following a Change in
Control, then such employee shall be entitled to receive, promptly upon the
termination of his or her employment, a lump-sum severance payment equal to the
base salary otherwise payable to such employee for the following number of
weeks'employment with the Company, plus an amount equal to the aggregate cash
bonuses paid or awarded by the Company to such employee in respect of the four
fiscal quarters preceding such termination of employment:
<TABLE>
<CAPTION>
Period of Employment Number of Weeks
Prior to Termination of Base Salary
<S> <C>
Less than 10 years 52 weeks
10 years or more 62 weeks, plus 4 weeks for each full year
of employment over 10 years, up to a
maximum of 104 weeks in the aggregate
</TABLE>
Subject to the provisions of Section 6(b), this Policy establishes in
each covered employee, following a Change in Control, a contractual right to the
benefits to which he or she is entitled under this Policy, and such rights shall
be enforceable by each covered employee against the Company following a Change
in Control.
5. Certain Reduction of Payments by the Company
--------------------------------------------
(a) Anything in this Policy to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the
3
<PAGE> 4
employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Policy or otherwise) (a "Payment") would be nondeductible by
the Company for federal income tax purposes because of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), then the aggregate
present value of amounts payable or distributable to or for the benefit of such
employee pursuant to this Policy (such payments or distributions pursuant to
this Policy are hereinafter referred to as "Policy Payments") shall be reduced
to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in
present value which maximizes the aggregate present value of Policy Payments
without causing any Payment to be nondeductible by the Company because of
Section 280G of the Code. For purposes of this Section 5, present value shall be
determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section 5 shall
be made by the Company's independent public accountants (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
employee. Any such determination by the Accounting Firm shall be binding upon
the Company and the employee.
(c) As a result of the uncertainty in the application of Section 280G
of the Code at the time of the initial determination by the Accounting Firm
hereunder it is possible that Policy Payments will have been made by the Company
which should not have been made ("Overpayment") or that additional Policy
Payments which will not have been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculations required to be
made hereunder. In the event that the Accounting Firm, based upon the assertion
of a deficiency by the Internal Revenue Service against the employee which the
Accounting Firm believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or distributed by the
Company to or for the benefit of the employee shall be treated for all purposes
as a loan ab initio to the employee which the employee shall repay to the
Company together with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code; provided, however, that no such loan shall be
deemed to have been made and no amount shall be payable by the employee to the
Company if and to the extent such deemed loan and payment would not either
reduce the amount on which the employee is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such taxes. In the event that
the Accounting Firm, based upon controlling precedent or other substantial
authority, determines that an Underpayment has occurred, any such Underpayment
shall be promptly paid by the Company to or for the benefit of the employee
together with interest at the applicable federal rate provided for in Section
7872(f)(2) of the Code.
6. Amendment and Termination
-------------------------
(a) This Policy shall be effective until December 31, 1994 and shall
continue in effect thereafter unless the Board of Directors of the Company shall
vote to terminate or modify this Policy, provided, however, that if a Change in
Control shall have occurred prior to December 31, 1994 (or such later date that
this Policy is in effect because no action has been taken by the Board of
Directors to terminate this Policy), this Policy shall remain in effect for a
period of not less than 18 months after the date of such Change of Control and
all obligations of the Company arising under this Policy as a result of any
termination during such 18-month period shall survive until such obligations are
fully performed.
4
<PAGE> 5
(b) Notwithstanding the foregoing, this Policy and the benefits
described herein may be amended or terminated by the Board of Directors of the
Company at any time; provided, however, that following a Change in Control this
Policy may not be terminated or amended in any manner materially adverse to then
covered employees without the written consent of a majority of the covered
employees actively employed by the Company and covered by this Policy both
immediately prior to the Change in Control and at the date of such amendment.
7. No Mitigation
-------------
An employee shall not be required to mitigate the amount of any payment
provided for in this Policy by seeking other employment or otherwise and shall
not be required to offset against such payment any payments he or she may
receive from further employment.
8. No Fiduciary or Employment Relationship
---------------------------------------
Nothing contained in this Policy and no action taken pursuant to the
provisions of this Policy shall create or be construed to create a trust of any
kind or fiduciary relationship or contract for employment between the Company
and any employee, and nothing in this Policy shall affect the right of the
Company to terminate the employment of any employee for any reason whatsoever.
9. Notice
------
For the purpose of this Policy, notices and all other communications
provided for in the Policy shall be in writing and shall be deemed to have been
duly given when delivered in person or mailed by United States registered mail,
return receipt requested, postage prepaid.
10. Withholding
-----------
Any payment provided for hereunder shall be paid net of any applicable
withholding required under foreign, federal, state or local law.
11. Governing Law
-------------
All questions pertaining to the construction, regulation, and validity
and effect of the provisions of this Policy shall be determined in accordance
with the laws of the Commonwealth of Massachusetts without regard for the
conflict of law principles thereof.
12. Conflict with Surplus (Reduction in Work Force) Policy
------------------------------------------------------
Any payments made to a covered employee under this Policy shall be in
lieu of, and not in addition to, any payments to such employee under the
Company's Surplus (Reduction in Work Force) Policy.
5
<PAGE> 1
Exhibit 10.29
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
DATED THIS 1ST DAY OF OCTOBER 1999
BETWEEN
CHARTERED SEMICONDUCTOR MANUFACTURING LTD
AND
ANALOG DEVICES INC.
- --------------------------------------------------------------------------------
ASSURED SUPPLY AND DEMAND AGREEMENT
- --------------------------------------------------------------------------------
<PAGE> 2
ASSURED SUPPLY AND DEMAND AGREEMENT
THIS AGREEMENT is made the 1st day of October 1999 by and between :-
(1) CHARTERED SEMICONDUCTOR MANUFACTURING LTD, a company incorporated in
Singapore and having its place of business at 60 Woodlands Industrial
Park D, Street 2, Singapore 738406 ("CSM"); and
(2) ANALOG DEVICES, INC. a company incorporated in Delaware and having its
place of business at One Technology Way, Norwood, MA 02062, USA
("ADI").
WHEREAS
(A) CSM and ADBV, an affiliate of ADI, had entered into a Deposit Agreement
dated 30 January 1996 (the "Deposit Agreement") for the purpose of ADBV
depositing certain funds with CSM and for CSM to make available to ADBV
certain wafer manufacturing capacity. ADBV subsequently assigned its
rights and obligations under the Deposit Agreement to ADI.
(B) To strengthen the relationship between CSM and ADI and to meet the
changing business needs of both Parties, CSM and ADI have decided to
enter into this Assured Supply and Demand Agreement to supersede the
Deposit Agreement to effect new terms and conditions under which the
said deposit may be credited back to ADI.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the Parties agree as follows:-
1. DEPOSIT AGREEMENT SUPERSEDED
With effect from July 1, 1999 ("the Effective Date"), all terms and
conditions of the Deposit Agreement shall be superseded by the terms
and conditions of this Agreement, and shall cease to have any force or
effect.
2. THE DEPOSIT
2.1 The Parties acknowledge that ADI has deposited with CSM the sum of
US$20,000,000 (the "Deposit") for the purposes of securing wafer
manufacturing capacity at CSM's facilities.
2.2 With effect from the Effective Date, the Parties agree that CSM will
refund the Deposit to ADI on the terms and conditions set out as
follows. Partial refunds shall occur on a per wafer basis as outlined
in Table B of ANNEX A and on a per product basis as outlined in TABLE A
of Annex A. Product based refunds shall occur upon successful
completion of Tapeout, Lot Acceptance or Qualification, as defined
below and as indicated in TABLE A of Annex A. Wafer refunds per Table B
of Annex A shall include wafers purchased by ADI, its affiliates and
others of ADI products. If CSM is unable to accept an order for
CSM/ADI CONFIDENTIAL 2
<PAGE> 3
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
2.3 wafers within the CSM commitment described in this Agreement, ADI shall
be entitled to that same refund amount per wafer for any orders not
accepted by CSM. Refunds shall be calculated at the end of each
calendar quarter and shall be credited or paid to ADI within 30 days
after the close of the quarter.
2.4 "Tapeout" shall be deemed to have occurred when ADI provides to CSM a
full GDS database of a given product and CSM has communicated in
writing to ADI that there has been no design rule violation or has
agreed to accept the design and layout "as is." Acceptance of a
purchase order by CSM from ADI for more than [**] wafers of a product
shall constitute written "as is" design acceptance, unless mutually
agreed in writing.
2.5 "Lot Acceptance" by ADI shall be defined as the successful fabrication
of 4 production lots including 1 prototype or skew lot and 3
qualification lots, which pass all relevant CSM WAT criteria.
2.6 "Qualification" by ADI shall be defined as the attainment of
competitive yield and the successful completion of standard Reliability
screens as used by ADI in the qualification of similar products,
according to ADI specification ADI-0012.
2.7 If ADI successfully qualifies products as described in Table A of Annex
A in accordance with the mutually agreed qualification plan in ANNEX C,
ADI will be entitled to portions of the Deposit in accordance with
Annex A. Any part of the Deposit that is not refunded or due to be
refunded to ADI pursuant to Annex A on or before 30 June 2004, will not
be refunded thereafter. However, i) if ADI shall Tapeout one or more
products, proven to meet similar Lot Acceptance and Qualification
criteria at another vendor, on each of three or more of the
technologies listed in Table A of Annex A and CSM does not attain Lot
Acceptance and Qualification by 1 January 2002, on two or more of the
technologies listed in Table A of Annex A, or ii) CSM shall fail to
make industry-compatible versions of three or more of the technologies
listed in Table A of Annex A available to ADI for production use by 1
January 2002, then any remaining deposit on 29 June 2004 shall be then
refunded to ADI. For this purpose, an industry compatible process is
one which can accept and qualify the same layout as accepted and
qualified at a competitor wafer fab, after only minor revisions which
do not affect die size.
2.8 ADI may introduce its design customers and/or licensees to use CSM's
manufacturing facilities. If CSM agrees to provide manufacturing
services to any such third party, wafers manufactured based on an ADI
design pursuant to such an arrangement shall entitle ADI to the same
wafer credits indicated in Table B of Annex A. Wafers manufactured for
ADI under other agreements between CSM and ADI or its subsidiaries
shall entitle ADI to the same wafer credits indicated in Table B.
CSM/ADI CONFIDENTIAL 3
<PAGE> 4
2.8 All wafers shall be manufactured and supplied in accordance with CSM's
procedures and relevant ADI and CSM specifications, including the
existing ADI/CSM procurement spec, as to the current revision or as
amended by mutual agreement. Copies of CSM's procedures shall be
available upon written request by ADI.
2.9 ADI acknowledges that some of the process technologies referred to in
Annex A may be run in either or both of CSM's joint venture fabs
operated by Silicon Manufacturing Partners Pte Ltd ("SMP") and
Chartered Silicon Partners Pte Ltd ("CSP"). In the event that CSM needs
to supply ADI with any wafers out of SMP and/or CSP, ADI agrees to
allow CSM to assign the relevant portions of this Agreement to SMP or
CSP, as the case may be, or to enter into a separate agreement with SMP
or CSP on similar terms as the terms of this Agreement. All 8" wafers
purchased by ADI, its subsidiaries and assignees from CSM and its
affiliates, regardless of the actual process, fabrication source, or
fabrication site, shall be eligible for credit under the terms of this
Agreement.
3. ADI'S LOADING COMMITMENT
3.1 ADI agrees to place with CSM purchase orders of such quantity of 8-inch
wafers as forecasted for delivery during each calendar quarter of the
term of this Agreement.
3.2 While there are no liquidated damages associated with forecasts, both
Parties recognize the difficulty in CSM factories accommodating sharp
forecast changes or changes from forecast. Also, both Parties recognize
that a certain level of capacity must be committed by CSM to ADI to
accommodate ADI's revenue needs and to enable ADI to earn back the
deposit as set forth in Annex A. For these reasons, the Parties have
agreed on certain forecast guidelines below.
3.3 Forecast Timing. Forecasts refer to wafer purchase projections beyond
the normal lead-time published by CSM and agreed by ADI. Nominally, the
order lead-time is otherwise assumed to be 3 months for the purpose of
such forecasts. Forecasts shall refer to wafer delivery quantities and
dates and shall be non-binding. CSM shall acknowledge each forecast in
writing within 10 business days, either (i) accepting such forecast,
even though aspects may exceed the forecast quantity or variation
guidelines noted in Section 3.8, or (ii) identifying those aspects
which exceed guidelines and CSM's ability to sustain as their Base
Loading Commitment. Any forecast accepted by CSM in writing within 10
business days shall become the new Base Loading Commitment.
3.4 All wafer commitments within the agreed lead-time are made via ADI
Purchase Orders as acknowledged and accepted by CSM. Purchase Orders
accepted by CSM are considered binding agreements for CSM to deliver
and ADI to accept the stated quantity and type of wafers, in accordance
with all relevant CSM procedures and all agreed ADI and CSM
specifications, including the existing ADI/CSM procurement spec, as to
the current revision or as amended by mutual agreement. Purchase Orders
are time sensitive documents and must be acknowledged and accepted in
writing by CSM within 10 business days or they are considered null and
void. Wafer orders which are not delivered within the agreed delivery
lead-time, plus a grace period of no more than 30 days, upon placement
and acceptance of the Purchase Order, are subject to cancellation by
ADI on 2
CSM/ADI CONFIDENTIAL 4
<PAGE> 5
business days notice. There is no penalty for cancellation due to late
delivery as described in this section. To the extent that the terms of
Purchase Orders and other documents are inconsistent with the terms of
this Agreement, this Agreement shall take precedence, unless CSM and
ADI specifically agree to amended terms in a separate agreement. The
terms of a quotation and purchase order shall not constitute such
amendment.
3.5 Quarterly Forecast. ADI's monthly wafer delivery requirements forecast
for those products to be manufactured over the next 18 months will be
provided quarterly on an agreed timetable (the "Quarterly Forecast").
The first such forecast is set out in ANNEX B (the "Original
Forecast"). The first 3 months of each Quarterly Forecast shall be
backed by Purchase Orders for those 3 months as described above.
Subject to Section 3.8 hereof, the Original Forecast shall be updated
by ADI at the end of every calendar quarter. Future Quarterly Forecasts
shall cover the period from 10 to 18 months from the forecast date,
indicating total wafer demand by process. The period from 4 to 9 months
shall be covered by the monthly forecast as outlined below.
3.6 Monthly Forecast. On a monthly basis, ADI shall provide CSM with a
6-month rolling forecast, by product and process, of its monthly volume
requirements for wafers covering the period from 4 to 9 months from the
forecast date. ADI will update the 6-month forecast on or before the
26th of each month (the "Monthly Forecast"). ADI shall indicate on the
forecast those products for which ADI requests CSM to obtain circuit
probe capacity and commit to execute circuit probing within the order
lead time.
3.7 Base Loading Commitment. For the purposes of establishing CSM's
capacity commitment to ADI, the concept of Base Loading Commitment is
introduced and is defined as the first Monthly Forecast, (as defined in
Section 3.6) of each quarter as accepted by CSM in writing plus the
corresponding Quarterly Forecast (as defined in section 3.5) of the
same date as submitted by ADI as adjusted for flexibility in accordance
with Section 3.8.
CSM/ADI CONFIDENTIAL 5
<PAGE> 6
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
3.8 Loading Commitment Flexibility.
3.8.1 ADI's loadings per month shall not vary from one third of the relevant
quarter's Base Loading Commitment by more than [**].
3.8.2 On a quarterly basis, ADI may modify the Base Loading Commitment as
follows:
Period Pre-approved Modification
(Forecast Quarter = Quarter 0; (Percentage of the same month forecast made in
current month = month 0 the previous Base Loading Commitment)
e.g. Mar 2000)
Quarter 1 (e.g. Apr - Jun 2000) +/- 0% as covered by Accepted Purchase Orders
Quarter 2 (e.g. Jul - Sep 2000) The lesser of + / - [**] wafers
Quarter 3 (e.g. Oct - Dec 2000) The lesser of + / - [**] wafers
Quarter 4 (e.g. Jan - Mar 2001) The lesser of + / - [**] wafers
Quarter 5 (e.g. Apr - Jun 2001) The lesser of + / - [**] wafers
Quarter 6 (e.g. Jul - Sep 2001) The lesser of + / - [**] wafers
3.8.3 Notwithstanding the foregoing, should any ADI forecast exceed the
pre-approved modification for any calendar quarter, CSM shall have the
right to accept or reject that revised forecast. CSM shall have 14
business days to either accept or reject the modified forecast in
writing. If CSM accepts the modified forecast, then it shall become the
new Base Loading Commitment.
A table to demonstrate how the above flexibility model operates with
respect to the Original Forecast is set out in ANNEX B.
4. CSM'S SUPPLY COMMITMENT
4.1 In consideration of the retention of the Deposit, CSM hereby agrees to
supply wafers as per the Base Loading Commitment. Unless otherwise
agreed to by CSM in writing, CSM shall not be contractually obligated
to provide more than [**] wafers under this Agreement in a given month
through December 31, 2000. Thereafter, and unless otherwise agreed to
by CSM in writing, CSM shall not be contractually obligated to provide
more am [**]wafers per month or [**] wafers per month per [**]
outstanding Deposit balance, whichever is greater.
4.2 CSM's Supply Commitment set out in Section 4.1 above shall be limited
to the mix of technologies set out in the Original Forecast in Annex B
or in subsequent forecasts as accepted by CSM and shall continue for so
long as any portion of the Deposit remains outstanding, unless the
Agreement is terminated under Section 6.
CSM/ADI CONFIDENTIAL 6
<PAGE> 7
4.3 CSM's Supply Commitment under this Agreement shall be considered
separate from and in addition to CSM's Supply Commitment under other
agreements between the Parties.
5. EFFECTIVE DATE
5.1 The effective date of this Agreement shall be July 1st, 1999.
6. TERMINATION DATE
6.1 Unless terminated earlier by the Agreement of the parties or on the
complete refund of the Deposit, this Agreement shall terminate
automatically on June 30, 2004. Any remaining amount of the Deposit
unrefunded as of June 30, 2004 and not pending reimbursement via
mechanisms in Annex A shall be retained by CSM with no recourse for
recovery by ADI, as provided in Section 2.6.
7. PRICING AND PAYMENT TERMS
7.1 The purchase price of wafers charged to ADI shall be in accordance with
the terms of the relevant CSM price quotation agreed to by the Parties
from time to time for the relevant lots of wafers purchased. CSM
commits to provide wafers at market competitive prices.
7.2 Unless otherwise set out in the applicable Agreed Price Quotation,
payment for wafers ordered shall be made by ADI in United States
dollars within 45 days from the date of the applicable invoices issued
by CSM. ADI shall make payment by telegraphic transfer to an account
nominated by CSM. Any late payment for Wafers shall be subject to
interest charges of 1.5% per month.
7.3 All invoices issued by CSM shall identify the wafers and the relevant
ADI Purchase Order number, Product part number, Purchase Order line and
release number, description of items, and quantity of items shipped.
Unless otherwise agreed by ADI and CSM in writing, invoices may be
dated no earlier than the relevant date of delivery.
7.4 In the event of any dispute over the amount invoiced, ADI shall first
make payment of the undisputed portion in accordance with Section 7.2
pending resolution of the dispute between the Parties.
7.5 ADI shall pay, in addition to the prices of wafers stipulated herein,
the amount of any freight, insurance, handling and other duties levied
on the shipment of wafers to ADI. ADI shall also pay for all sales,
use, excise or other similar taxes levied on the purchase of wafers by
ADI hereunder.
7.6 CSM may, in its discretion upon written notice to ADI, change the terms
of payment to cash, cash-on-delivery or letter of credit or place ADI
on credit hold in the event that ADI is late in its payments under this
Agreement.
CSM/ADI CONFIDENTIAL 7
<PAGE> 8
8. PROCEDURE FOR RETURN OF WAFERS
8.1 The return of wafers shall be in accordance with the current CSM
specification QX-038. The time limit for the return of wafers due to
low sort yield is 60 days from the delivery date of such wafers, and
the time limit for the return of Wafers due to reliability failures is
1 year from the delivery date of such wafers.
8.2 CSM shall have no liability and shall not be obliged to accept the
return of wafers after the relevant period of 60 days or 1 year, as the
case may be. In addition, CSM shall be under no liability for defects
in the wafers caused by static discharge, abnormal working conditions,
fair wear and tear, accident, willful damage, abuse, misuse, neglect,
improper installation, repair or alteration by persons other than CSM,
improper testing and/or improper storage and/or improper handling or
use contrary to any instructions issued by CSM which are in keeping
with generally accepted industry practices. Further, CSM shall be under
no liability for any parts or materials it has not manufactured.
8.3 CSM shall have the discretion to decide whether or not to conduct
failure analysis on the wafers returned by ADI, and if such failure
analysis is conducted, CSM will, at ADI's request, provide ADI with
copies of the results of such analysis. If it is mutually agreed that
the defects are due to causes other than the causes specified in
Section 8.2, then ADI may at its option elect for either a full credit
for the purchase price paid for such wafers, or CSM's replacement of
the defective wafers returned to CSM. If ADI elects for the replacement
of defective wafers, the manufacture of such wafers shall have high
priority on CSM's production schedule, at no further cost to ADI.
8.4 THE FOREGOING STATES CSMS ENTIRE LIABILITY, WHETHER IN CONTRACT OR IN
TORT FOR DEFECTS IN WAFERS. THE EXPRESS TERMS OF THIS AGREEMENT ARE IN
LIEU OF ALL WARRANTIES, CONDITIONS, TERMS, UNDERTAKINGS, AND
OBLIGATIONS IMPLIED BY STATUTE, COMMON LAW, CUSTOM, TRADE USAGE, COURSE
OF DEALING OR OTHERWISE, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED TO
THE FULLEST EXTENT PERMITTED BY LAW AND CSM SPECIFICALLY DISCLAIMS ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
9. PRODUCTION HALTS
9.1 ADI may at any time request CSM to halt the manufacture of wafers still
in-process and CSM shall effect production stoppage, within 2 business
days at a point in the process that is consistent with subsequent
successful completion. The manufacture of Wafers shall remain on hold
pending written directions from ADI. If such hold extends beyond 90
days, CSM will deem the hold to be a cancellation of the order and ADI
will be invoiced in accordance with Section 9.2.
CSM/ADI CONFIDENTIAL 8
<PAGE> 9
9.2 If ADI places an order on hold beyond 90 days or decides to cancel an
order for reasons other than late delivery, ADI shall pay to CSM a
Cancellation Fee based on the formula below:
CF = [(CS DIVIDED BY TS) X (P - R)] + R + T
where
'CF' means the cancellation fee payable by Customer.
'CS' means the number of completed manufacturing steps as at the
date of cancellation.
'TS' means the total number of manufacturing steps required to
produce the Wafers had there not been any cancellation.
'P' refers to the purchase price of the Wafer as set out in the
applicable Agreed Price Quotation.
'R' refers to the raw wafer cost incurred by CSM.
'T' refers to any applicable sales, use, excise or other similar
taxes levied on or otherwise payable in connection with the
Cancellation Fee.
9.3 CSM shall, if commercially feasible, re-start the manufacture of wafers
within a reasonable time after receipt of ADI's written request,
subject to ADI's agreement to bear all expenses incurred by CSM in
production stoppage and re-start. CSM will make no commitments of
yield, reliability and conformance with the Acceptance Criteria in
respect of wafers stopped in-process (a) more than one time regardless
of the number of days of stoppage, or (b) if the stoppage lasts for
more than 90 days.
10. DELIVERY
10.1 CSM shall use its commercially reasonable efforts to deliver the exact
quantity of wafers stipulated in the relevant ADI Purchase Order.
However if for each Purchase Order the aggregate quantity of wafers
delivered by CSM is either within plus or minus 5% of the quantity
ordered or within plus or minus 1 wafer, whichever is greater, such
quantity shall constitute compliance with ADI Purchase Order.
10.2 Unless otherwise agreed by the Parties, Wafers shall be delivered
Ex-Works (CSM's factory in Singapore) (INCOTERMS 1990). CSM shall use
its commercially reasonable efforts to deliver within the scheduled
delivery date. However if for each purchase order, wafers are delivered
within plus or minus 7 days of the scheduled delivery date, such
delivery shall constitute compliance with ADI Purchase Order. CSM shall
promptly give ADI written notice of any prospective failure to deliver
within the scheduled deliver date.
CSM/ADI CONFIDENTIAL 9
<PAGE> 10
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
10.3 All quantities of wafers shall be delivered in CSM standard containers
with proper labels identifying the specific product and lot number and
shall be accompanied by a packing list specifying the relevant purchase
order number, wafer lot number, Wafer quantity and number of good
un-inked die (if wafers have been sorted) and agreed upon processing
documentation.
10.4 If ADI fails to take delivery of any quantity of wafers or fails to
give adequate delivery instructions (otherwise than by reason of any
cause beyond ADI's reasonable control or by reason of CSM's fault),
then without prejudice to any other right or remedy available to CSM,
CSM may at its option, store such wafers until actual delivery and
charge ADI for reasonable costs (including insurance) of storage.
11. FORCE MAJEURE
11.1 Each Party's obligations under this Agreement shall be suspended upon
the occurrence of a force majeure event such as act of God, flood,
earthquake, fire, explosion, act of government, war, civil commotion,
insurrection, embargo, riots, lockouts, labour disputes affecting such
Party, for such period as such force majeure event may subsist. Upon
the occurrence of a force majeure event, the affected Party shall
notify the other Party in writing of the same and shall by subsequent
written notice after the cessation of such force majeure event inform
the other Party of the date on which that Party's obligation under this
Agreement shall be reinstated.
11.2 Notwithstanding anything in this Section 11, upon the occurrence of a
force majeure event affecting either Party, if such force majeure event
continues for a period exceeding 6 consecutive months without a
prospect of a cure of such event, the other Party shall have the
option, in its sole discretion, to terminate this Agreement. Such
termination shall take effect immediately upon the written notice to
that effect from the other Party to the Party affected by the force
majeure event.
11.3 If a force majeure event prevents CSM from supplying wafers to ADI, the
termination date set forth in Section 6 shall be automatically extended
by the duration of the force majeure event.
12. USE RESTRICTION AND LIMITATION OF LIABILITY
12.1 ADI accepts all responsibility for any use or action taken by ADI with
respect to wafers manufactured by CSM, once CSM has satisfactorily
delivered the said wafers to ADI or ADI's agent(s) in Singapore in
accordance with the terms of this Agreement.
12.2 ADI hereby agrees that the wafers are [**] for use as [**] in (a) any
[**]devices or systems; or (b) any [**] devices or systems [**]
(including but not limited to [**]). CSM
CSM/ADI CONFIDENTIAL 10
<PAGE> 11
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
12.3 shall not be responsible or liable to ADI or any third party for any
unauthorized use of the wafers. As used herein:
(i) [**] devices or systems are devices or systems which are intended
(aa) for [**], or (bb) to [**], and [**] may result in [**].
(ii) A [**] component is any component of a [**] device or system [**]
may cause the [**].
12.4 ADI shall indemnify, hold harmless and defend CSM, its officers,
directors, employees and subcontractors from and against any claim,
suit, demand or action which arises in any way out of, involves or
relates to an unauthorized use of any wafers or products and ADI shall
indemnify and hold harmless CSM, its officers, directors, employees and
subcontractors against any and all direct losses, liabilities, damages,
awards of settlement (including court costs) and expenses (including
all reasonable attorney's fees, whether or not legal proceedings are
commenced) arising from any such claim, suit, demand or action. CSM
shall notify ADI of any such claim or allegation promptly after
receiving notice thereof.
12.5 THE TOTAL LIABILITY OF CSM ON ALL CLAIMS OF ANY KIND, WHETHER IN
CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE
ARISING OUT OF THE PERFORMANCE OR BREACH OF THIS AGREEMENT OR USE OF
THE WAFERS SHALL NOT EXCEED [**] BY [**] FROM [**] IN RESPECT OF THE
[**] OF THE [**] WHICH [**] THE CLAIM.
12.6 In no event shall either Party be liable to the other with respect to
the subject matter of this Agreement under any contract, tort
(including negligence), strict liability or other legal or equitable
theory for any incidental, consequential, special or indirect damages
of any sort even if such Party has been informed of the possibility of
such damages.
13. CONFIDENTIALITY
13.1 All Confidential Information shall be kept confidential by the
recipient unless or until the recipient Party can reasonably
demonstrate that any such Confidential Information is, or part of it
is, in the public domain through no fault of its own, whereupon to the
extent that it is in the public domain or is required to be disclosed
by law this obligation shall cease. For the purposes of this Agreement,
"Confidential Information" shall mean all communications between the
Parties, and all information and other materials supplied to or
received by either of them from the other (a) prior to or on the date
of this Agreement whether or not marked confidential; (b) after the
date of this Agreement which is marked confidential with an appropriate
legend, marking, stamp or other obvious written identification by the
disclosing Party, and (c) all information concerning the business
transactions and the financial arrangements of the Parties with any
person with whom either of them is in a confidential relationship with
regard to the matter in question coming to the knowledge of the
recipient.
CSM/ADI CONFIDENTIAL 11
<PAGE> 12
13.2 The Parties shall take all reasonable steps to minimize the risk of
disclosure of Confidential Information, by ensuring that only they
themselves and such of their employees and directors whose duties will
require them to possess any of such information shall have access
thereto, and will be instructed to treat the same as confidential.
13.3 The obligation contained in this Section 13 shall endure, even after
the termination of this Agreement, for a period of 5 years from the
date of receipt of the Confidential Information except and until such
Confidential Information enters the public domain as set out above.
14. NOTICES
14.1 All notices, demands or other communications required or permitted to
be given or made under or in connection with this Agreement shall be in
writing and shall be sufficiently given or made (a) if delivered by
hand or commercial courier or (b) sent by pre-paid registered post or
(c) sent by legible facsimile transmission (provided that the receipt
of such facsimile transmission is confirmed and a copy thereof is sent
immediately thereafter by pre-paid registered post or commercial
courier) addressed to the intended recipient at its address or
facsimile number set out below. A Party may from time to time notify
the others of its change of address or facsimile number in accordance
with this Section 14.
CSM
---
60 Woodlands Industrial Park D
Street 2
Singapore 738406
Facsimile no: (65) 362 2909
Attention: The Legal Department
CSM/ADI CONFIDENTIAL 12
<PAGE> 13
ADI
---
One Technology Way
Norwood, MA 02062-9106, USA
Facsimile no: 1-781-461-3491
Attention: Corporate Counsel
With a copy to:
804 Woburn Street
Wilmington, MA 01887-3462, USA
Facsimile no: 1-781-937-2008
Attention: External Foundry Director
14.2 DEEMED DELIVERY
Any such notice, demand or communication shall be deemed to have been
duly served (a) if delivered by hand or commercial courier, or sent by
pre-paid registered post, at the time of delivery; or (b) if made by
successfully transmitted facsimile transmission, at the time of
dispatch (provided that the receipt of such facsimile transmission is
confirmed and that immediately after such dispatch, a copy thereof is
sent by pre-paid registered post or commercial courier).
15. WAIVER AND REMEDIES
15.1 No delay or neglect on the part of either Party in enforcing against
the other Party any term or condition of this Agreement or in
exercising any right or remedy under this Agreement shall either be or
be deemed to be a waiver or in any way prejudice any right or remedy of
that Party under this Agreement.
15.2 No remedy conferred by any of the provisions of this Agreement is
intended to be exclusive of any other remedy which is otherwise
available at law, in equity, by statute or otherwise and each and every
other remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law, in
equity, by statute or otherwise. The election of any one or more of
such remedies by either of the Parties shall not constitute a waiver by
such Party of the right to pursue any other available remedy.
16. SEVERANCE
16.1 If any provision or part of this Agreement is rendered void, illegal or
unenforceable in any respect under any enactment or rule of law, the
validity, legality and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
CSM/ADI CONFIDENTIAL 13
<PAGE> 14
17. NO ASSIGNMENT OR SUB-CONTRACTING
17.1 Unless otherwise agreed in writing by the Parties, this Agreement may
not be assigned or sub-contracted by either Party to any third party
without the prior written consent of the other Party, which consent
shall not be unreasonably withheld.
18. GOVERNING LAW
18.1 This Agreement shall be governed by and construed in accordance with
the substantive laws of the Singapore.
18.2 The Parties hereby specifically exclude the application of the United
Nations Convention on Contracts for the International Sale of Goods to
this Agreement.
18.3 Except as otherwise expressly provided hereunder, any dispute or
controversy arising in connection with this Agreement which cannot be
settled by mutual or amicable agreement shall be finally settled
through binding arbitration in London, England pursuant to the Rules of
Arbitration of the International Chamber of Commerce by 1 arbitrator
appointed in accordance with the said Rules. Any such arbitration shall
be conducted in the English language.
19. ENTIRE AGREEMENT
19.1 This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes and replaces
all prior or contemporaneous understandings, agreements, dealings, and
negotiations, oral or written, regarding the subject matter hereof
including, without limitation, the Deposit Agreement. No modification,
alteration or amendment of the Agreement shall be effective unless in
writing and signed by both Parties. This Agreement shall supersede the
1995 Manufacturing Agreement, dated 17 March 1995, only to the extent
of any inconsistent provision set forth herein.
CSM/ADI CONFIDENTIAL 14
<PAGE> 15
IN WITNESS WHEREOF the Parties have hereunto entered into this Agreement as of
the date first above written.
/s/ Joseph E. McDonough
- -----------------------
Name: Joseph E. McDonough
Title: Vice President Finance & CFO
for and on behalf of
ANALOG DEVICES, INC.
/s/ Robert Baxter
- -----------------
Name: Robert Baxter
Title: Senior Vice-President, Business Operations
for and on behalf of
CHARTERED SEMICONDUCTOR MANUFACTURING LTD
CSM/ADI CONFIDENTIAL 15
<PAGE> 16
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
ANNEX A
-------
(Ref Sections 2.2, 2.6, 2.7, 2.9, 3.2 and 6.1)
The Refund of the Deposit to ADI shall be in accordance with the following
terms:
TABLE A: NON-WAFER CREDITS
- --------------------------------------------------------------------------------
EVENTS ENTITLING ADI TO REFUND: AMOUNT REFUNDABLE
NON-WAFER CREDITS (US$)
- ----------------------------------------- --------------------------------------
1. [**] [**]
- ----------------------------------------- --------------------------------------
2. [**] [**]
- ----------------------------------------- --------------------------------------
3. [**] [**]
- ----------------------------------------- --------------------------------------
4. [**] [**]
- ----------------------------------------- --------------------------------------
5. [**] [**]
- ----------------------------------------- --------------------------------------
6. [**] [**]
- ----------------------------------------- --------------------------------------
7. [**] [**]
- ----------------------------------------- --------------------------------------
8. [**] [**]
- ----------------------------------------- --------------------------------------
9. [**] [**]
- ----------------------------------------- --------------------------------------
10. [**] [**]
- ----------------------------------------- --------------------------------------
11. [**] [**]
- ----------------------------------------- --------------------------------------
MAXIMUM TOTAL OF ALL NON-WAFER CREDITS [**]AMOUNT PAID OUT IN WAFER CREDITS
- --------------------------------------------------------------------------------
TABLE B: WAFER CREDITS
- --------------------------------------------------------------------------------
EVENTS ENTITLING ADI TO REFUND: AMOUNT REFUNDABLE
WAFER CREDITS (US$)
- ----------------------------------------- --------------------------------------
[**] [**]
- ----------------------------------------- --------------------------------------
MAXIMUM TOTAL OF ALL WAFER CREDITS [**] AMOUNT PAID OUT IN NON-WAFER
CREDITS
- --------------------------------------------------------------------------------
CSM/ADI CONFIDENTIAL 16
<PAGE> 17
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
NOTES:
1. The maximum amount of monetary credits to be refunded by Chartered
pursuant to the situations in Tables A and B above shall not exceed
US[**].
2. Notwithstanding product names or descriptions above, ADI shall have
sole discretion 1) as to which products are actually used for
qualification, provided they use the CSM process as described, and 2)
as to which products are subsequently run in volume generating wafer
credits.
CSM/ADI CONFIDENTIAL 17
<PAGE> 18
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
ANNEX B
(Ref Sections 3.5, 3.8 & 4.2)
{Original Forecast & Flexibility Model - ADI to provide forecast}
Table A - Monthly Forecast
<TABLE>
<CAPTION>
ADI WORLDWIDE MANUFACTURING
CSM AUG WAFER FORECAST PRINTED ON: 9121199 6:02:53 PM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VENDOR (P)ROBED 09/99A 10/99A 11/99A 12/99F 12/99F 01/00F 01/00F 02/00F
PRODUCT PART # (U)NPROBED ORDR ORDR ORDR PLAN MAX PLAN MAX PLAN
FOUNDRY: Chartered Semiconductor Manufacturing
Pte Ltd
<CAPTION>
ADI WORLDWIDE MANUFACTURING
CSM AUG WAFER FORECAST PRINTED ON: 9121199 6:02:53 PM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VENDOR (P)ROBED 02/00F 03/00F 03/00F 04/00F 04/00F 05/00F 05/00F
PRODUCT PART # (U)NPROBED MAX PLAN MAX PLAN MAX PLAN MAX
FOUNDRY: Chartered Semiconductor Manufacturing
Pte Ltd
</TABLE>
[**]
CSM/ADI CONFIDENTIAL 18
<PAGE> 1
Exhibit 13.1
MANAGEMENT ANALYSIS
COMPANY OVERVIEW
Analog Devices, Inc. (Analog, ADI or the Company) is a world leader in the
design, manufacture and marketing of high-performance analog, mixed-signal and
digital signal processing (DSP) integrated circuits (ICs) used in signal
processing applications.
As of the end of fiscal 1999, approximately 40% of Analog's revenues came from
the communications market, making it the Company's largest and fastest-growing
served market. Communications applications include wireless handsets and base
stations, as well as products used for high-speed access to the Internet,
including ICs used in ADSL and cable modems and central office networking
equipment.
Analog serves the PC market with products that monitor and manage power usage,
process signals used in flat panel displays and LCD projectors and enable PCs to
provide CD-quality audio. Analog also serves the high-end consumer market with
products used in digital cameras and camcorders, DVD players and surround sound
audio systems. Analog provides a broad array of products to the industrial
market, including products for automatic test equipment and for the digital
speed control of AC motors.
Analog's products are sold worldwide through a direct sales force, third-party
industrial distributors and independent sales representatives. The Company has
direct sales offices in 18 countries, including the United States. Approximately
46% of fiscal 1999 revenue came from customers in North America, while most of
the balance came from customers in Western Europe and the Far East.
The Company is headquartered near Boston, in Norwood, Massachusetts, and has
manufacturing facilities in Massachusetts, California, North Carolina, Ireland,
the Philippines and Taiwan. Founded in 1965, Analog Devices employs
approximately 7,400 people worldwide. The Company's stock is listed on the New
York Stock Exchange under the symbol ADI and is included in the Standard &
Poor's 500 Index.
RESULTS OF OPERATIONS
Sales were $1,450 million in fiscal 1999, $1,231 million in fiscal 1998 and
$1,243 million in fiscal 1997. The significant growth in the use of analog,
digital and mixed-signal ICs to address the signal processing needs of the
growing broadband and wireless communications, computer and computer peripherals
markets was the main reason for the sales increase in fiscal 1999. In addition,
a recovery in the semiconductor industry generally, partially offset by a
decline in Automatic Test Equipment (ATE) sales, contributed to the sales
increase in fiscal 1999. Sales declined slightly during fiscal 1998 from the
levels achieved in fiscal 1997, primarily due to a decline in sales of Global
System for Mobile Communications (GSM) cellular phone chipsets and a decline in
disk drive product sales as a result of the disposal of the disk drive IC
business in fiscal 1998. These declines were partially offset by an increase in
analog IC sales. Sales of assembled products continued to decline in fiscal 1999
and accounted for 3% of the Company's net sales in fiscal 1999, down from 4% in
the prior fiscal year. Assembled products include multichip modules, hybrids and
printed circuit board modules.
Demand for the Company's communications, computer and consumer products resulted
in sales increases in all geographic regions during fiscal 1999. Sales to North
American customers increased 8% over fiscal 1998. Sales in Europe in the first
half of fiscal 1999 had declined from prior year levels but as the fiscal year
progressed, demand increased resulting in a relatively flat level of sales year
over year. Sales in Japan increased 23% as demand increased for the Company's
products as the Japanese economy continued its recovery. Sales in other
Southeast Asian countries in fiscal 1999 doubled from the levels achieved in
fiscal 1998. The increased demand was attributed to the increased use of the
Company's products in the communications and computer products market, both of
which experienced significant growth during the year.
Sales to North American customers increased 9% during fiscal 1998 over the
levels achieved in the prior year, due to increased sales of analog IC products.
In Europe, sales declined in fiscal 1998 from the levels achieved in fiscal
1
<PAGE> 2
1997, primarily due to a decline in GSM sales. Sales in Japan during fiscal 1998
remained flat to the levels achieved in fiscal 1997. Sales in other Southeast
Asian countries declined during fiscal 1998 primarily because of a decline in
the sales of disk drive IC products, which was partially offset by increases in
the sale of analog IC products.
Gross margin increased to 49.3% of sales in fiscal 1999, from 47.8% in fiscal
1998. This increase was primarily attributable to higher sales and tight control
of internal manufacturing spending. The decline in gross margin from 49.9% in
fiscal 1997 to 47.8% in fiscal 1998 was principally due to a reduction in demand
in fiscal 1998, which caused the Company to reduce production rates,
particularly in the second half of the year.
Research and development (R&D) expense was $257 million in fiscal 1999, compared
to $219 million in fiscal 1998. As a percentage of sales, R&D spending remained
flat at approximately 17.8%. The Company expects to continue the development of
innovative technologies and processes for new products targeted for broadband
and wireless communications applications, imaging, audio and high-performance
power and thermal management products for computer and consumer product
applications. The Company believes that a continued commitment to research and
development is essential in order to maintain product leadership with its
existing products and to provide innovative new product offerings, and therefore
expects to continue to make significant R&D investments in the future. In fiscal
1998, R&D expenses increased approximately 12% to $219 million, or 17.8% of
sales, up from 15.8% of sales in fiscal 1997.
During the second quarter of fiscal 1999, the Company acquired two DSP tools
companies, White Mountain DSP, Inc. of Nashua, New Hampshire and Edinburgh
Portable Compilers Limited, of Edinburgh, Scotland. The total cost of these
acquisitions was approximately $23 million with additional cash consideration of
up to a maximum of $10 million payable if the acquired companies achieve certain
revenue and operational objectives. In connection with these acquisitions, the
Company recorded a charge of $5.1 million for the write-off of in-process
research and development.
Selling, marketing, general and administrative (SMG&A) expenses were $210
million in fiscal 1999, an increase of $3 million from the $207 million recorded
in the prior fiscal year. As a percentage of sales, SMG&A decreased from 16.9%
for fiscal 1998 to 14.5% for fiscal 1999 due to continued control over spending
despite sales increases. In fiscal 1998, SMG&A expenses increased $15 million
from the $192 million recorded in fiscal 1997. This increase was primarily
attributable to an $8 million charge related to collection difficulties
experienced by the Company. As a result, SMG&A expenses as a percentage of sales
increased from 15.4% in fiscal 1997 to 16.9% in fiscal 1998.
Including the impact of the write-off of in-process research and development,
the Company's operating income was 16.7% of sales for fiscal 1999. The Company's
operating income for fiscal 1998, including the impact of a $17 million
restructuring charge and a $13 million net gain on the sale of its disk drive IC
business in fiscal 1998, was 12.8% of sales. The Company's operating income was
18.8% of sales for fiscal 1997.
The Company's equity interest in WaferTech, LLC, a joint venture with Taiwan
Semiconductor Manufacturing Company and other investors, resulted in a loss of
$1.1 million in fiscal 1999, compared to a loss of $9.8 million in fiscal 1998.
This change was the result of the Company's completion of the sale in fiscal
1999 of approximately 78% of its equity ownership in WaferTech. As a result of
this sale, the Company's equity ownership in WaferTech was reduced from 18% to
4%. The Company sold 78% of its investment to other WaferTech partners in
exchange for $105 million in cash, which was equal to 78% of the carrying value
of the equity ownership at October 31, 1998.
This investment is now recorded under the cost method.
The Company's effective income tax rate increased to 23.6% for fiscal 1999 from
20.6% in fiscal 1998 due to a shift in the mix of worldwide profits.
Additionally, in fiscal 1998 the Company utilized $5.6 million of capital loss
carryforwards for tax purposes, which reduced the Company's valuation allowance
from $5.6 million at November 1, 1997 to $0 at October 31, 1998. The effective
tax rate for fiscal 1997 was 24.4%.
In the fourth quarter of fiscal 1998, the Company changed its accounting method
for recognizing revenue on all shipments to international distributors and
certain shipments to domestic distributors. The change was made with an
effective date of November 2, 1997 (the beginning of fiscal 1998). Prior to the
change the Company had historically deferred revenue on most shipments made to
domestic distributors until the products were resold by the distributors to end
users, but recognized revenue on shipments to international distributors and
certain shipments to domestic distributors upon shipment to the distributors,
net of appropriate reserves for returns and allowances. As a result of this
accounting change, revenue recognition on shipments to all distributors
worldwide is deferred until the products are resold to the end users. The
Company believes that deferral of revenue and related gross margin on shipments
to distributors until the product is shipped by the distributors is a more
meaningful measurement of results of operations because it better conforms to
the substance of the transaction considering the changing business environment
in the
2
<PAGE> 3
international marketplace; is consistent with industry practice; and will,
accordingly, better focus the entire organization on sales to end users and,
therefore, is a preferable method of accounting. The cumulative effect in prior
years of the change in accounting principle was a charge of approximately $37
million (net of $20 million of income taxes) or $0.21 per diluted share.
For fiscal 1999, net income increased 65% before the fiscal 1998 change in
accounting principle, and 139% after the change in accounting principle, to $197
million, and diluted earnings per share was $1.10. For fiscal 1998, net income
before the cumulative effect of the change in accounting principle was $119
million, and diluted earnings per share was $0.71. Net income after the
cumulative effect of the change in accounting principle was $82 million for
fiscal 1998, and diluted earnings per share was $0.50. Net income was $178
million for 1997, and the diluted earnings per share was $1.04.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, (FAS 133), "Accounting for Derivative
Instruments and Hedging Activities." This statement provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. In July 1999, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 137, which defers the
effective date of FAS 133 for one year. Accordingly, the Company will adopt FAS
133 during fiscal 2001 as required. The Company is currently evaluating the
impact of FAS 133 on the results of operations and financial position.
In March 1998, Statement of Position 98-1, (SOP 98-1), "Accounting for the Cost
of Computer Software Developed for or Obtained for Internal Use" was issued. The
Company is required to adopt SOP 98-1 in fiscal 2000. The Company believes that,
based upon current circumstances, the effect of adopting the standard will not
have a significant impact on the results of operations or financial position.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, (SAB 101), "Revenue Recognition in Financial Statements." SAB 101
summarizes the application of generally accepted accounting principles to
revenue recognition in financial statements. The Company does not expect SAB 101
to have a material effect on the results of operations or financial position.
The impact of inflation on the Company's business during the past three years
has not been significant.
LIQUIDITY AND CAPITAL RESOURCES
At October 30, 1999, the Company had $762 million of cash, cash equivalents and
short-term investments compared to $305 million at October 31, 1998. The
increase in cash, cash equivalents and short-term investments was primarily due
to operating cash inflows of $427 million (29% of fiscal 1999 sales), $105
million received in January 1999, related to the sale of the Company's
investment in WaferTech and lower capital spending. The Company's operating
activities generated net cash of $225 million, or 18% of sales in fiscal 1998.
Investing activities used $358 million in fiscal 1999 and $187 million in fiscal
1998, while financing activities generated $22 million in fiscal 1999 and used
$62 million in fiscal 1998. The Company's primary source of funds in fiscal 1999
and fiscal 1998 was net cash generated by operations.
Accounts receivable of $267 million at the end of fiscal 1999 increased $60
million or 29% from $207 million at the end of fiscal 1998. This increase
resulted principally from a $133 million increase in sales from the fourth
quarter of fiscal 1998 to the fourth quarter of fiscal 1999. Days sales
outstanding improved from 63 at the end of the fourth quarter of fiscal 1998 to
56 at the end of the fourth quarter of fiscal 1999. As a percentage of
annualized fourth quarter sales, accounts receivable was 15.5% at the end of
fiscal 1999, down from 17.4% at the end of fiscal 1998.
Inventories declined $26 million, or 10%, from the prior year to $249 million at
the end of fiscal 1999. Inventories as a percentage of annualized fourth quarter
sales decreased to 14% for the year ended October 30, 1999 from 23% for the year
ended October 31, 1998. Inventory levels had increased at the end of fiscal 1998
as demand levels had declined in the second half of fiscal 1998. As demand
increased through fiscal 1999, inventory levels declined.
Net additions to property, plant and equipment of $78 million for fiscal 1999
were funded with a combination of cash on hand and cash generated from
operations. Capital spending in fiscal 1999 was down substantially from the $167
million spent in fiscal 1998. The decrease in capital expenditures was
attributable to the Company's efforts to constrain all spending, including
capital expenditures, until sales growth resumed. The Company currently plans to
make capital
3
<PAGE> 4
expenditures of between $200 million and $250 million in fiscal 2000.
Depreciation expense is expected to increase to $150 million in fiscal 2000.
During the second quarter of fiscal 1999, the Company acquired two DSP tools
companies, White Mountain DSP, Inc. of Nashua, New Hampshire and Edinburgh
Portable Compilers Limited, of Edinburgh, Scotland. The total cost of these
acquisitions was approximately $21 million in cash and $2 million in common
stock of the Company, with additional cash consideration of up to a maximum of
$10 million payable if the acquired companies achieve certain revenue and
operational objectives. These acquisitions were accounted for as purchases, and
the excess of the purchase price over the fair value of assets acquired was
allocated to existing technology, workforce in place, tradenames and goodwill,
which are being amortized over periods ranging from six to ten years. In
connection with these acquisitions, the Company recorded a charge of $5.1
million for the write-off of in-process research and development. In the fourth
quarter of 1999, the Company invested an additional $4 million in WaferTech.
In fiscal 1999, financing activities generated cash of $22 million. The issuance
of common stock under stock purchase and stock option plans generated cash of
$34 million, and proceeds from variable rate borrowings generated cash of $2
million. These increases were offset by $14 million of cash used for the
repayment of capital lease obligations.
As of March 11, 1999, the Company had converted $229,967,000 of the $230 million
principal amount of its 3-1/2% Convertible Subordinated Notes (Notes) due 2000
into an aggregate of 10,983,163 shares of the Company's common stock, and the
remaining Notes were redeemed by a cash payment of $33,000. As a result of this
conversion, the Company's debt-to-equity ratio was reduced to 7% as compared to
31% in the prior year.
At October 30, 1999, the Company's principal sources of liquidity were $762
million of cash and cash equivalents and short-term investments. In addition,
the Company has various lines of credit both in the U.S. and overseas, including
a $60 million credit facility in the U.S. that expires in fiscal 2000. These
lines of credit were substantially unused at October 30, 1999.
The Company believes that its existing sources of liquidity and cash expected to
be generated from future operations, together with current and anticipated
available long-term financing, will be sufficient to fund operations, capital
expenditures and research and development efforts for the foreseeable future.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The Company has fixed rate debt obligations and related interest rate swap and
cap agreements. An increase in interest rates would not significantly increase
interest expense due to the fixed nature of the Company's debt obligations.
Because of the size and structure of these obligations, a 100 basis point
increase in interest rates would not result in a material change in the
Company's interest expense or the fair value of the debt obligations and related
interest rate swap and cap agreements for fiscal 1999 and fiscal 1998. The fair
value of the Company's investment portfolio or related interest income would not
be significantly impacted by either a 100 basis point increase or decrease in
interest rates in fiscal 1999 and fiscal 1998 due mainly to the short-term
nature of the major portion of the Company's investment portfolio and the
relative insignificance of interest income to the consolidated pre-tax income,
respectively.
As more fully described in Note 2 (h) in the Notes to the Company's Consolidated
Financial Statements, the Company regularly hedges its non-U.S. dollar-based
exposures by entering into forward exchange contracts, foreign currency option
contracts and currency swap agreements. The terms of these contracts typically
are for periods matching the duration of the underlying exposure and generally
range from three months up to one year. The short-term nature of these contracts
has resulted in these instruments having insignificant fair values at October
30, 1999 and October 31, 1998. The Company's largest foreign currency exposure
is against the Japanese yen, primarily because Japan has a higher proportion of
local currency denominated sales. Relative to foreign currency exposures
existing at October 30, 1999 and October 31, 1998, a 10% unfavorable movement in
foreign exchange rates would not expose the Company to significant losses in
earnings or cash flows or significantly diminish the fair value of its foreign
currency financial instruments, primarily due to the short lives of the affected
financial instruments that effectively hedge substantially all of the Company's
year-end exposures against fluctuations in foreign currency exchange rates. The
calculation assumes that each exchange rate would change in the same direction
relative to the U.S. dollar. In addition to the direct effects of changes in
exchange rates, such changes typically affect the volume of sales or the foreign
currency sales price as competitors' products become more or less attractive.
The Company's sensitivity analysis of the effects of changes in foreign currency
exchange rates does not factor in a potential change in sales levels or local
currency selling prices.
4
<PAGE> 5
LITIGATION
For information concerning certain pending litigation involving the Company, see
Note 11 of the Notes to the Company's Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS
The "Management Analysis" and other sections of this report contain
forward-looking statements that are based on current expectations, estimates,
forecasts and projections about the industry and markets in which the Company
operates, management's beliefs and assumptions made by management. In addition,
other written or oral statements that constitute forward-looking statements may
be made by or on behalf of the Company. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions thaT are difficult to
predict. (See "Factors That May Affect Future Results" below.) Therefore, actual
outcomes and results may differ materially from what is expressed or forecast in
such forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results are difficult to predict and may be
affected by a number of factors including the timing of new product
announcements or introductions by the Company and its competitors, competitive
pricing pressures, fluctuations in manufacturing yields, adequate availability
of wafers and manufacturing capacity, changes in product mix and economic
conditions in the United States and international markets. In addition, the
semiconductor market has historically been cyclical and subject to significant
economic downturns at various times. The Company's business is subject to rapid
technological changes and there can be no assurance, depending on the mix of
future business, that products stocked in inventory will not be rendered
obsolete before they are shipped by the Company. As a result of these and other
factors, there can be no assurance that the Company will not experience material
fluctuations in future operating results on a quarterly or annual basis.
The Company's success depends in part on its continued ability to develop and
market new products. There can be no assurance that the Company will be able to
develop and introduce new products in a timely manner or that such products, if
developed, will achieve market acceptance. In addition, the Company's growth is
dependent on its continued ability to penetrate new markets where the Company
has limited experience and competition is intense. There can be no assurance
that the markets being served by the Company will grow in the future; that the
Company's existing and new products will meet the requirements of such markets;
that the Company's products will achieve customer acceptance in such markets;
that competitors will not force prices to an unacceptably low level or take
market share from the Company; or that the Company can achieve or maintain
profits in these markets. Also, some of the Company's customers in these markets
are less well established which could subject the Company to increased credit
risk.
The semiconductor industry is intensely competitive. Certain of the Company's
competitors have greater technical, marketing, manufacturing and financial
resources than the Company. The Company's competitors also include emerging
companies attempting to sell products to specialized markets such as those
served by the Company. Competitors of the Company have, in some cases, developed
and marketed products having similar design and functionality as the Company's
products. There can be no assurance that the Company will be able to compete
successfully in the future against existing or new competitors or that the
Company's operating results will not be adversely affected by increased price
competition.
The cyclical nature of the industry has resulted in sustained or short-term
periods when demand for the Company's products has increased or decreased
rapidly. The semiconductor industry and the Company have experienced a period of
rapid increases in demand during fiscal 1999. The Company has increased its
manufacturing capacity over the past three years through both expansion of its
production facilities and increased access to third-party foundries. However,
the Company cannot be sure that it will not encounter unanticipated production
problems at either its own facilities or at third-party foundries, or that the
increased capacity will be sufficient to satisfy demand for its products. The
Company relies, and plans to continue to rely, on assembly and test
subcontractors and on third-party wafer fabricators to supply most of its wafers
that can be manufactured using industry-standard digital processes. Such
reliance involves several risks, including reduced control over delivery
schedules, manufacturing yields and costs. In addition, the Company's
5
<PAGE> 6
capacity additions resulted in a significant increase in operating expenses. If
revenue levels are not sufficient to offset these additional expense levels, the
Company's future operating results could be adversely affected. In addition,
asset values could be impaired if the additional capacity is underutilized for
an extended period of time. Also, noncompliance with "take or pay" covenants in
certain of its supply agreements could adversely impact operating results. The
Company believes that other semiconductor manufacturers have expanded their
production capacity over the past several years, and there can be no assurance
that the expansion by the Company and its competitors will not lead to
overcapacity in the Company's target markets, which could lead to price erosion
that would adversely affect the Company's operating results. In addition, the
Company and many companies in the semiconductor industry, rely on internal
manufacturing capacity located in California and Taiwan as well as wafer
fabrication foundries in Taiwan and other subcontractors in geologically
unstable locations around the world. Such reliance involves risks associated
with the impact of earthquakes on the Company and the semiconductor industry
including temporary loss of capacity, availability and cost of key raw materials
and equipment, and availability of key services including transport.
In fiscal 1999, 54% of the Company's revenues were derived from customers in
international markets. The Company has manufacturing facilities outside the U.S.
in Ireland, the Philippines and Taiwan. The Company also has a supply agreement
that includes "take or pay" covenants with a supplier located in Southeast Asia
(SEA) and as part of this arrangement, the Company has $20 million on deposit as
well as a $27 million investment in the common stock of the supplier. In
addition to being exposed to the ongoing economic cycles in the semiconductor
industry, the Company is also subject to the economic and political risks
inherent in international operations, including the risks associated with the
ongoing uncertainties in many developing economies around the world. These risks
include air transportation disruptions, expropriation, currency controls and
changes in currency exchange rates, tax and tariff rates and freight rates.
Although the Company engages in certain hedging transactions to reduce its
exposure to currency exchange rate fluctuations, there can be no assurance that
the Company's competitive position will not be adversely affected by changes in
the exchange rate of the U.S. dollar against other currencies.
The semiconductor industry is characterized by frequent claims and litigation
involving patent and other intellectual property rights. The Company has from
time to time received, and may in the future receive, claims from third parties
asserting that the Company's products or processes infringe their patents or
other intellectual property rights. In the event a third party makes a valid
intellectual property claim and a license is not available on commercially
reasonable terms, the Company's operating results could be materially and
adversely affected. Litigation may be necessary to enforce patents or other
intellectual property rights of the Company or to defend the Company against
claims of infringement, and such litigation can be costly and divert the
attention of key personnel. See Note 11 of the Notes to the Company's
Consolidated Financial Statements for information concerning certain pending
litigation involving the Company. An adverse outcome in such litigation may, in
certain cases, have a material adverse effect on the Company's consolidated
financial position or on its consolidated results of operations or cash flows in
the period in which the litigation is resolved.
The Company's software applications have been updated to accommodate the new
Euro currency. System testing was completed during the fourth quarter of
calendar 1998 and the Euro functionality was implemented as planned on January
1, 1999. No major system-related issues were encountered and none are
anticipated. The impact, either positive or negative, of the Euro on the
European economy generally and on the Company's operations in Europe in the
future is unknown at this time.
Because of these and other factors, past financial performance should not be
considered an indicator of future performance. Investors should not use
historical trends to anticipate future results and should be aware that the
trading price of the Company's common stock may be subject to wide fluctuations
in response to quarter-to-quarter variations in operating results, general
conditions in the semiconductor industry, changes in earnings estimates and
recommendations by analysts or other events.
YEAR 2000
Over the past six years the Company made significant investments in new
manufacturing, financial and operating hardware and software. These investments
were made to support the growth of its operations; however, the by-product of
this effort was that the Company had year 2000 compliant hardware and software
running on many of its major platforms. The Company established a task force to
evaluate the remaining systems and equipment and upgrade or replace systems that
were not year 2000 compliant. The cost of this effort, which commenced at the
beginning of fiscal 1998 and continued through fiscal 1999, was approximately
$10 million.
6
<PAGE> 7
The Company's computer systems and equipment successfully transitioned to the
year 2000. However, there may be latent problems that surface at key dates or
events in the future. The Company has not experienced, and does not anticipate,
any significant problems related to the transition to the year 2000.
Furthermore, the Company does not anticipate any significant expenditure in the
future related to year 2000 compliance.
7
<PAGE> 1
Exhibit 13.2
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended October 30, 1999, October 31, 1998 and November 1, 1997
(thousands except per share amounts) 1999 1998 1997
- ------------------------------------ ---- ---- ----
<S> <C> <C> <C>
REVENUE Net sales.............................................. $ 1,450,379 $ 1,230,571 $ 1,243,494
COSTS AND Cost of sales.......................................... 735,643 642,085 622,531
------------ ------------- ------------
EXPENSES
Gross margin........................................... 714,736 588,486 620,963
Operating expenses:
Research and development............................ 257,039 219,354 196,148
Write-off of purchased in-process research and
development....................................... 5,140 - -
Selling, marketing, general
and administrative................................ 209,639 207,487 191,613
Restructuring charge................................ - 17,000 -
Gain on sale of business............................ - (13,100) -
------------ ------------- ------------
471,818 430,741 387,761
Operating income....................................... 242,918 157,745 233,202
Equity in loss (income) of WaferTech................... 1,149 9,780 (214)
Nonoperating (income) expenses:
Interest expense.................................... 8,071 11,229 12,507
Interest income..................................... (26,726) (16,838) (16,178)
Other............................................... 2,884 3,115 1,208
------------ ------------- ------------
(15,771) (2,494) (2,463)
------------ ------------- ------------
EARNINGS Income before income taxes............................. 257,540 150,459 235,879
Provision for income taxes:
Payable currently................................... 44,139 43,343 63,794
Deferred ........................................... 16,582 (12,372) (6,134)
------------ ------------- ------------
60,721 30,971 57,660
------------ ------------- ------------
Net income before cumulative effect of change in
accounting principle................................ 196,819 119,488 178,219
------------ ------------- ------------
Cumulative effect of change in accounting principle,
net of $20 million of income taxes................ - (37,080) -
------------ ------------- ------------
Net income after cumulative effect of change in
accounting principle................................ $ 196,819 $ 82,408 $ 178,219
============ ============= ============
Shares used to compute earnings per share - Basic...... 168,241 161,574 159,594
============ ============= ============
Shares used to compute earnings per share - Diluted.... 181,452 177,875 177,309
============ ============= ============
Earnings per share before cumulative effect of change
in accounting principle
Earnings per share - Basic............................. $1.16 $0.74 $1.13
============ ============= ============
Earnings per share - Diluted........................... $1.10 $0.71 $1.04
============ ============= ============
Earnings per share after cumulative effect of change
in accounting principle
Earnings per share - Basic............................. $1.16 $0.51 $1.13
============ ============= ===========
Earnings per share - Diluted........................... $1.10 $0.50 $1.04
============ ============= ===========
</TABLE>
See accompanying notes.
8
<PAGE> 2
ANALOG DEVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 30, 1999 and October 31, 1998
(thousands except share amounts)
ASSETS 1999 1998
<S> <C> <C>
CURRENT Cash and cash equivalents............................................. $ 355,891 $ 263,331
ASSETS Short-term investments................................................ 406,553 41,575
Accounts receivable less allowances of $14,238
($32,332 in 1998)................................................... 267,127 207,361
Inventories........................................................... 248,936 275,076
Deferred tax assets................................................... 89,780 98,148
Prepaid expenses and other current assets............................. 10,823 18,038
---------- ----------
Total current assets.................................................. 1,379,110 903,529
---------- ----------
PROPERTY, Land and buildings.................................................... 166,130 158,792
PLANT AND Machinery and equipment............................................... 1,088,939 1,034,619
EQUIPMENT, Office equipment...................................................... 74,530 70,576
AT COST Leasehold improvements................................................ 108,530 103,482
---------- ----------
1,438,129 1,367,469
Less accumulated depreciation and amortization........................ 795,323 664,038
---------- ----------
Net property, plant and equipment..................................... 642,806 703,431
---------- ----------
OTHER Investments........................................................... 119,301 187,224
ASSETS Intangible assets, net................................................ 30,563 15,815
Other assets.......................................................... 46,574 51,731
---------- ----------
Total other assets.................................................... 196,438 254,770
---------- ----------
$2,218,354 $1,861,730
========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT Short-term borrowings and current portion of
LIABILITIES long-term debt...................................................... $ 82,344 $ 193
Obligations under capital leases...................................... 14,717 14,266
Accounts payable...................................................... 103,368 59,115
Deferred income on shipments to distributors.......................... 100,788 113,784
Income taxes payable.................................................. 66,761 53,595
Accrued liabilities................................................... 111,285 79,906
---------- ----------
Total current liabilities............................................. 479,263 320,859
---------- ----------
NONCURRENT Long-term debt........................................................ - 309,985
LIABILITIES Noncurrent obligations under capital leases........................... 16,214 30,773
Deferred income taxes................................................. 40,002 31,789
Other noncurrent liabilities.......................................... 66,844 39,935
---------- ----------
Total noncurrent liabilities.......................................... 123,060 412,482
---------- ----------
Commitments and Contingencies
STOCKHOLDERS' Preferred stock, $1.00 par value, 471,934 shares
EQUITY authorized, none outstanding........................................ - -
Common stock, $0.16 2/3 par value, 600,000,000
shares authorized, 178,049,189 shares issued
(164,092,719 in 1998)............................................... 29,675 27,349
Capital in excess of par value, net of deferred
compensation of $6,211 ($9,291 in 1998)............................ 523,106 248,970
Retained earnings..................................................... 1,110,811 913,992
Accumulated other comprehensive income................................ 12,209 6,025
---------- ----------
1,675,801 1,196,336
Less 3,161,774 shares in treasury, at cost
(3,782,763 in 1998)................................................. 59,770 67,947
---------- ----------
Total stockholders' equity............................................ 1,616,031 1,128,389
---------- ----------
$2,218,354 $1,861,730
========== ==========
</TABLE>
See accompanying notes.
9
<PAGE> 3
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
Years ended October 30, 1999, CAPITAL IN OTHER
October 31, 1998 and November 1, 1997 COMMON STOCK EXCESS OF RETAINED COMPREHENSIVE TREASURY STOCK
(thousands) SHARES AMOUNT PAR VALUE EARNINGS INCOME* SHARES AMOUNT
- ----------- ------ ------ --------- -------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, November 2,
1996 158,745 $26,458 $176,357 $ 653,365 $ 6,655 - $ -
------- ------- -------- ---------- -------- ------ --------
ACTIVITY Net income - 1997 178,219
IN FISCAL Issuance of stock under
1997 stock plans and other,
net of repurchases 3,196 533 19,446 (35) (1,054)
Compensation recognized
under Restricted Stock Plan 2,309
Tax benefit on exercise of non-
qualified stock options and
disqualifying dispositions
under stock plans 25,773
Translation adjustment 69
------- ------- -------- ---------- -------- ------ --------
Balance, November 1,
1997 161,941 26,991 223,885 831,584 6,724 (35) (1,054)
------- ------- -------- ---------- -------- ------ --------
ACTIVITY Net income - 1998 82,408
IN FISCAL Issuance of stock under
1998 stock plans and other,
net of repurchases 2,152 358 8,738 652 17,299
Compensation recognized
under Restricted Stock Plan 2,918
Tax benefit on exercise of non-
qualified stock options and
disqualifying dispositions
under stock plans 13,429
Repurchase of common stock (4,400) (84,192)
Translation adjustment (699)
------- ------- -------- ---------- -------- ------ --------
Balance, October 31,
1998 164,093 27,349 248,970 913,992 6,025 (3,783) (67,947)
------- ------- -------- ---------- -------- ------ --------
ACTIVITY Net income - 1999 196,819
IN FISCAL Issuance of stock under
1999 stock plans and other,
net of repurchases 2,974 496 28,159 621 8,177
Conversion of 3-1/2%
Subordinated notes 10,982 1,830 228,074
Compensation recognized
under Restricted Stock Plan 2,799
Tax benefit on exercise of non-
qualified stock options and
disqualifying dispositions
under stock plans 15,104
Securities valuation
adjustment 6,629
Translation adjustment (445)
------- ------- -------- ---------- -------- ------ --------
Balance, October 30,
1999 178,049 $29,675 $523,106 $1,110,811 $ 12,209 (3,162) $(59,770)
======= ======= ======== ========== ======== ====== ========
</TABLE>
* Comprehensive income, i.e., net income plus other comprehensive income,
totaled $203 million in 1999, $82 million in 1998 and $178 million in 1997.
See accompanying notes.
10
<PAGE> 4
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended October 30, 1999, October 31, 1998 and November 1, 1997
(thousands) 1999 1998 1997
<S> <C> <C> <C>
OPERATIONS Cash flows from operations:
Net income ............................................ $ 196,819 $ 82,408 $ 178,219
Adjustments to reconcile net income
to net cash provided by operations:
Cumulative effect of change in accounting
principle, net of $20 million of income taxes... - 37,080 -
Depreciation and amortization....................... 142,598 127,560 103,554
Noncash portion of restructuring costs.............. - 10,000 -
Gain on sale of business............................ - (13,100) -
Write-off of purchased in-process research and
development..................................... 5,140 - -
Equity in loss of WaferTech, net of dividends....... 1,149 10,907 211
Deferred income taxes............................... 16,582 (12,372) (6,134)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable.......... (59,019) 51,061 (25,129)
Decrease (increase) in inventories.................. 28,424 (48,883) (7,739)
Decrease (increase) in prepaid expenses and other
current assets.................................. 7,331 240 (3,605)
Increase in investments - trading................... (28,098) (7,319) (8,965)
Increase (decrease) in accounts payable,
deferred income and accrued liabilities......... 57,096 (31,840) 4,828
Increase in income taxes payable.................... 27,774 14,476 32,916
Increase in other liabilities....................... 31,525 4,467 17,584
---------- ---------- ----------
Total adjustments...................................... 230,502 142,277 107,521
---------- ---------- ----------
Net cash provided by operations........................... 427,321 224,685 285,740
---------- ---------- ----------
INVESTMENTS Cash flows from investments:
Additions to property, plant and equipment, net........ (77,500) (166,911) (179,374)
Purchase of short-term investments available-for-sale.. (628,823) (143,449) (153,269)
Maturities of short-term investments available-for-sale 263,845 152,880 192,073
Change in long-term investments........................ 101,501 (56,110) (51,599)
Payments for acquisitions, net of cash acquired........ (20,499) - -
Proceeds from sale of business......................... - 27,000 -
Decrease (increase) in other assets.................... 3,435 (370) (33,650)
---------- ---------- ----------
Net cash used for investments............................. (358,041) (186,960) (225,819)
---------- ---------- ----------
FINANCING Cash flows from financing activities:
ACTIVITIES Repurchase of common stock............................. - (84,192) -
Proceeds from employee stock plans..................... 34,154 27,638 19,283
Payments on capital lease obligations.................. (14,109) (11,640) (11,164)
Proceeds from equipment financing...................... - 6,094 7,123
Net increase (decrease) in variable rate borrowings.... 1,776 60 (109)
---------- ---------- ----------
Net cash provided by (used for) financing activities...... 21,821 (62,040) 15,133
---------- ---------- ----------
Effect of exchange rate changes on cash................... 1,459 (1,955) 4,438
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents...... 92,560 (26,270) 79,492
Cash and cash equivalents at beginning of year............ 263,331 289,601 210,109
---------- ---------- ----------
Cash and cash equivalents at end of year.................. $ 355,891 $ 263,331 $ 289,601
========== ========== ==========
SUPPLE- Cash paid during the year for:
MENTAL Income taxes........................................... $ 19,582 $ 23,582 $ 27,621
========== ========== ==========
INFORMATION Interest............................................... $ 10,808 $ 15,535 $ 16,158
========== ========== ==========
</TABLE>
See accompanying notes.
11
<PAGE> 5
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 30, 1999, OCTOBER 31, 1998 AND NOVEMBER 1, 1997
(ALL TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS
Analog Devices, Inc. (Analog, ADI or the Company) is a world leader in the
design, manufacture and marketing of high-performance analog, mixed-signal and
digital signal processing (DSP) integrated circuits (ICs) used in signal
processing applications.
As of the end of fiscal 1999, approximately 40% of Analog's revenues came from
the communications market, making it the Company's largest and fastest-growing
served market. Communications applications include wireless handsets and base
stations, as well as products used for high-speed access to the Internet,
including ICs used in ADSL and cable modems and central office networking
equipment.
Analog serves the PC market with products that monitor and manage power usage,
process signals used in flat panel displays and LCD projectors and enable PCs to
provide CD-quality audio. Analog also serves the high-end consumer market with
products used in digital cameras and camcorders, DVD players and surround sound
audio systems. Analog provides a broad array of products to the industrial
market, including products for automatic test equipment and for the digital
speed control of AC motors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all of its wholly owned subsidiaries. Upon consolidation, all significant
intercompany accounts and transactions are eliminated. The Company's fiscal year
ends on the Saturday closest to the last day in October. Fiscal years 1999, 1998
and 1997 were each 52-week years.
Certain amounts reported in previous years have been reclassified to conform to
the 1999 presentation, such reclassifications were immaterial.
b. CASH, CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents are highly liquid investments with insignificant
interest rate risk and maturities of three months or less at the time of
acquisition. Investments with maturities between three and twelve months at time
of acquisition are considered short-term investments. Cash, cash equivalents and
short-term investments consist primarily of commercial paper, but also include
certificates of deposit, bank time deposits, institutional money market funds
and bankers' acceptances. Long-term investments consist of mutual funds and bank
money market funds that are acquired to generate returns that offset changes in
certain liabilities related to deferred compensation arrangements, as well as
equity securities.
The Company classifies its investments in readily marketable debt and equity
securities as "held-to-maturity," "available-for-sale" and "trading" at the time
of purchase and such designation is evaluated as of each balance sheet date.
Held-to-maturity securities, which are carried at amortized cost, include only
those securities the Company has the positive intent and ability to hold to
maturity. Securities, such as bank time deposits, which by their nature are
typically held to maturity, are classified as such. The Company's other readily
marketable investments are classified as either available-for-sale or trading.
Available-for-sale securities are carried at fair value with unrealized gains
and losses, net of related tax, if any, reported as a separate component of
stockholders' equity. Realized gains and losses, as well as interest, dividends
and capital gains distributions on all securities, are included in earnings.
12
<PAGE> 6
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash equivalents and short-term investments classified as available-for-sale
were $707 million and $241 million at October 30, 1999 and October 31, 1998,
respectively and those classified as held-to-maturity were $28 million and $42
million at October 30, 1999 and October 31, 1998, respectively. All of these
securities have contractual maturities of twelve months or less at time of
acquisition. Because of the short term to maturity, and hence relative price
insensitivity to changes in market interest rates, amortized cost approximates
fair value for all of these securities. As such, no realized or unrealized gains
or losses were recorded during each of these years.
Long-term investments classified as trading were $59 million and $30 million at
October 30, 1999 and October 31, 1998, respectively and were based on published
market quotes on October 29, 1999 and October 30, 1998. Gross realized and
unrealized gains and losses from trading securities were not material in fiscal
1999, fiscal 1998 and fiscal 1997. There was approximately $27 million and $0 at
October 30, 1999 and October 31, 1998, respectively, of long-term investments
classified as available-for-sale. Gross unrealized gains were not material in
fiscal 1999 and fiscal 1998. There were no long-term investments classified as
held-to-maturity at October 30, 1999 and October 31, 1998.
c. ADDITIONAL CASH FLOW STATEMENT INFORMATION
The Company's non-cash financing activities consisted solely of the conversion
of its 3-1/2% Convertible Subordinated Notes into common stock as described in
Note 9.
d. INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market. Inventories at October 30, 1999 and October 31, 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 13,735 $ 25,624
Work in process 150,427 142,139
Finished goods 84,774 107,313
---------- ----------
Total inventories $ 248,936 $ 275,076
========== ==========
</TABLE>
e. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost less allowances for
depreciation and amortization. The straight-line method of depreciation is used
for all classes of assets for financial statement purposes; both straight-line
and accelerated methods are used for income tax purposes. Capitalized leases and
leasehold improvements are amortized based upon the lesser of the term of the
lease or the useful life of the asset. Depreciation and amortization are based
on the following useful lives:
<TABLE>
<S> <C>
Buildings & Building Equipment Up to 25 years
Machinery & Equipment 3-10 years
Office Equipment 3-8 years
</TABLE>
Total depreciation and amortization of property, plant and equipment was
$138,530,000, $124,735,000 and $101,432,000 in fiscal 1999, 1998 and 1997,
respectively. Property, plant and equipment included $75,034,000 and $75,006,000
of capitalized leases in 1999 and 1998, net of $35,588,000 and $23,679,000
respectively, of accumulated depreciation.
13
<PAGE> 7
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
f. GRANT ACCOUNTING
The Company's manufacturing facility in Limerick, Ireland has received various
grants from the Industrial Development Authority of the Republic of Ireland.
These grants include capital, employment and research and development grants.
Capital grants for the acquisition of property and equipment are netted against
the related capital expenditures and amortized as a credit to depreciation
expense over the useful life of the related asset. Employment grants, which
relate to employee hiring and training, and research and development grants are
recognized in earnings in the period in which the related expenditures are
incurred by the Company.
g. TRANSLATION OF FOREIGN CURRENCIES
The functional currency for the Company's foreign sales operations is the
applicable local currency. Gains and losses resulting from translation of these
foreign currencies into U.S. dollars are accumulated in a separate component of
stockholders' equity. Transaction gains and losses are included in income
currently, including those at the Company's principal foreign manufacturing
operations where the functional currency is the U.S. dollar. Foreign currency
transaction gains or losses included in other expenses, net, were not material
in fiscal 1999, 1998 and 1997.
h. FOREIGN CURRENCY INSTRUMENTS AND INTEREST RATE AGREEMENTS
The Company enters into forward foreign exchange contracts, foreign currency
option contracts and currency swap agreements to offset certain operational and
balance sheet exposures from changes in foreign currency exchange rates. Such
exposures result from the portion of the Company's operations, assets and
liabilities that are denominated in currencies other than the U.S. dollar,
primarily Japanese yen and European currencies. These foreign exchange contract,
option and swap transactions are entered into to support product sales,
purchases and financing transactions made in the normal course of business, and
accordingly, are not speculative in nature.
Forward foreign exchange contracts are utilized to manage the risk associated
with currency fluctuations on certain firm sales and purchase commitments
denominated in foreign currencies and certain non-U.S. dollar denominated asset
and liability positions. The Company's forward foreign exchange contracts are
primarily denominated in Japanese yen and certain European currencies and are
for periods consistent with the terms of the underlying transactions, generally
one year or less. The forward foreign exchange contracts that relate to firm,
foreign currency sales and purchase commitments are designated and effective as
hedges of firm, identifiable foreign currency commitments, and accordingly, the
gains and losses resulting from the impact of currency exchange rate movements
on these contracts are not recognized in operations until the underlying hedged
transactions are recognized. Upon recognition, such gains and losses are
recorded in operations as an adjustment to the carrying amount of the underlying
transactions in the period in which these transactions are recognized.
Unrealized gains and losses resulting from the impact of currency exchange rate
movements on forward foreign exchange contracts designated to offset certain
non-U.S. dollar denominated assets and liabilities are recognized as other
income or expense in the period in which the exchange rates change and offset
the foreign currency gains and losses on the underlying exposures being hedged.
The contract amounts of forward foreign exchange contracts outstanding were $178
million and $140 million at October 30, 1999 and October 31, 1998, respectively.
The Company also may periodically enter into foreign currency option contracts
to offset certain probable anticipated, but not firmly committed, foreign
currency transactions related to the sale of product during the ensuing nine
months. When the dollar strengthens significantly against the foreign
currencies, the decline in value of future currency cash flows is partially
offset by the gains in value of the purchased currency options designated as
hedges. Conversely, when the dollar weakens, the increase in value of future
foreign currency cash flows is reduced only by the premium paid to acquire the
options. The Company's foreign currency option contracts are primarily
denominated in Japanese yen and generally have maturities that do not exceed six
months. These foreign currency option contracts are designated and effective as
hedges of anticipated foreign currency sales transactions, and accordingly, the
premium cost and any realized gains associated with these contracts are deferred
and included in the consolidated balance sheet as prepaid expenses and accrued
liabilities, respectively, until such time as the underlying sales transactions
are recognized. Upon recognition, such premium costs and any realized gains are
recorded in sales as a component of the underlying sales transactions being
hedged. The contract amounts of foreign currency option contracts outstanding
were $39 million and
14
<PAGE> 8
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$26 million, at October 30, 1999 and October 31, 1998, respectively. Deferred
gains or losses attributable to foreign currency option contracts were not
material at October 30, 1999 and October 31, 1998.
The Company uses currency swap agreements to hedge the value of its net
investment in certain of its foreign subsidiaries. Realized and unrealized gains
and losses on such agreements related to the net foreign investment being hedged
are recognized in the cumulative translation adjustment component of
stockholders' equity, with the related amounts due to or from counterparties
included in accrued liabilities or other current assets. The contract amount of
currency swap agreements outstanding, which were principally denominated in
Japanese yen, was $10 million at October 30, 1999 and October 31, 1998. The
currency swap agreement outstanding at October 30, 1999 has a remaining maturity
of 4 months and is expected to remain in effect until expiration.
The Company enters into interest rate swap and cap agreements to manage its
exposure to interest rate movements by effectively converting a portion of its
debt and certain financing arrangements from fixed to variable rates. Maturity
dates of interest rate swap and cap agreements generally match those of the
underlying debt or financing arrangements. These agreements, which have
maturities of up to eight years, involve the exchange of fixed rate payments for
variable rate payments without the exchange of the underlying principal amounts.
Variable rates are based on six-month U.S. dollar LIBOR and are reset on a
semiannual basis. The differential between fixed and variable rates to be paid
or received is accrued as interest rates change in accordance with the
agreements and recognized over the life of the agreements as an adjustment to
interest expense. The notional principal amounts of interest rate swap and cap
agreements outstanding were approximately $50 million at October 30, 1999 and
October 31, 1998.
The cash requirements of the above-described financial instruments approximate
their fair value. Cash flows associated with these financial instruments are
classified consistent with the cash flows from the transactions being hedged.
Derivative financial instruments involve, to a varying degree, elements of
market and credit risk not recognized in the consolidated financial statements.
The market risk associated with these instruments resulting from currency
exchange rate or interest rate movements is expected to offset the market risk
of the underlying transactions, assets and liabilities being hedged. The
counterparties to the agreements relating to the Company's foreign exchange and
interest rate instruments consist of a number of major international financial
institutions with high credit ratings. The Company does not believe that there
is significant risk of nonperformance by these counterparties because the
Company continually monitors the credit ratings of such counterparties, and
limits the financial exposure and the amount of agreements entered into with any
one financial institution. While the contract or notional amounts of derivative
financial instruments provide one measure of the volume of these transactions,
they do not represent the amount of the Company's exposure to credit risk. The
amounts potentially subject to credit risk (arising from the possible inability
of counterparties to meet the terms of their contracts) are generally limited to
the amounts, if any, by which the counterparties' obligations under the
contracts exceed the obligations of the Company to the counterparties.
i. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange.
15
<PAGE> 9
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
OCTOBER 30, 1999 OCTOBER 31, 1998
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 355,891 $ 355,891 $ 263,331 $ 263,331
Short-term investments 406,553 406,553 41,575 41,575
Long-term investments 85,999 85,999 30,488 30,488
Liabilities:
Short-term borrowings (2,344) (2,344) (193) (193)
Long-term debt, including current portion (80,000) (79,978) (309,985) (328,290)
Foreign Currency Instruments and
Interest Rate Agreements:
Interest rate swap and cap agreements 13 (36) 14 1,201
Forward foreign currency exchange contracts (4,260) (7,658) (3,045) (1,575)
Foreign currency option contracts 340 220 479 211
Currency swap agreements 375 325 1,325 1,324
</TABLE>
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash, cash equivalents and short-term investments-The carrying amounts of these
items are a reasonable estimate of their fair value due to the short term to
maturity and readily available market for these types of investments.
Long-term investments-The fair value of long-term investments is based on quoted
market values.
Short-term borrowings-The carrying amounts of these variable-rate borrowings
approximate fair value due to the short period of time to maturity.
Long-term debt-The fair value of long-term debt is estimated based on current
interest rates available to the Company for debt instruments with similar terms,
degrees of risk and remaining maturities.
Interest rate swap and cap agreements-The fair value of interest rate swap and
cap agreements is obtained from dealer quotes. These values represent the
estimated amount the Company would receive or pay to terminate the agreements
taking into consideration current interest rates.
Forward foreign currency exchange contracts-The estimated fair value of forward
foreign currency exchange contracts is based on the estimated amount at which
they could be settled based on forward market exchange rates.
Foreign currency option contracts and currency swap agreements-The fair values
of foreign currency option contracts and currency swap agreements are obtained
from dealer quotes. These values represent the estimated net amount the Company
would receive or pay to terminate the agreements.
j. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingencies at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Such estimates relate to
the useful lives of fixed assets, allowances for doubtful accounts and customer
returns, inventory reserves, potential reserves relating to litigation matters,
accrued liabilities and other reserves. Actual results could differ from those
estimates, and such differences may be material to the financial statements.
16
<PAGE> 10
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
k. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of investments and trade accounts receivable.
The Company maintains cash, cash equivalents and short-term investments with
high credit quality financial institutions and monitors the amount of credit
exposure to any one financial institution.
The Company sells its products to distributors and original equipment
manufacturers involved in a variety of industries including industrial
automation, instrumentation, military/aerospace and, to an increasing degree,
communications, computers and peripherals, and high-performance consumer
electronics. The Company has adopted credit policies and standards to
accommodate growth in these markets. The Company performs continuing credit
evaluations of its customers' financial condition and although the Company
generally does not require collateral, letters of credit may be required from
its customers in certain circumstances. Reserves are provided for estimated
amounts of accounts receivable that may not be collected.
l. CONCENTRATION OF OTHER RISKS
The semiconductor industry is characterized by rapid technological change,
competitive pricing pressures and cyclical market patterns. The Company's
financial results are affected by a wide variety of factors, including general
economic conditions worldwide, economic conditions specific to the semiconductor
industry, the timely implementation of new manufacturing technologies, the
ability to safeguard patents and intellectual property in a rapidly evolving
market and reliance on assembly and test subcontractors, third-party wafer
fabricators and independent distributors. In addition, the semiconductor market
has historically been cyclical and subject to significant economic downturns at
various times. The Company is exposed to the risk of obsolescence of its
inventory depending on the mix of future business. As a result, the Company may
experience significant period-to-period fluctuations in future operating results
due to the factors mentioned above or other factors.
m. REVENUE RECOGNITION
Revenue from product sales to end users is recognized upon shipment. As further
explained in Note 5, commencing in 1998, revenue on shipments to all
distributors is deferred until products are resold by the distributors to end
users. Prior to 1998, revenue on most shipments to domestic distributors was
deferred until resale to end users because arrangements with these distributors
included returns and price concessions that could not be reasonably estimated.
Revenue on all shipments to international distributors and certain shipments to
domestic distributors were recognized upon shipment to the distributor, with
appropriate provision of reserves for returns and allowances.
n. COMPREHENSIVE INCOME
In the first quarter of fiscal 1999 the Company adopted Statement of Financial
Accounting Standards No. 130, (FAS 130), "Reporting Comprehensive Income". FAS
130 establishes new rules for the reporting and display of comprehensive income
and its components. Components of comprehensive income include net income and
certain transactions that have generally been reported in the consolidated
statement of shareholders' equity. Other comprehensive income is comprised of
net income, currency translation adjustments and available-for-sale securities
valuation adjustments.
o. INCOME TAXES
Deferred tax assets and liabilities are determined based on the differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted income tax rates and laws that will be in effect when
the temporary differences are expected to reverse. Additionally, deferred tax
assets and liabilities are separated into current and noncurrent amounts based
on the classification of the related assets and liabilities for financial
reporting purposes.
17
<PAGE> 11
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
p. STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees" and accordingly, recognizes no
compensation expense for the stock option grants.
q. EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share is computed based only on the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares outstanding during
the period, plus the dilutive effect of future issues of common stock relating
to stock option programs and convertible debt financing. In calculating diluted
earnings per share, the dilutive effect of stock options is computed using the
average market price for the period. The following table sets forth the
computation of basic and diluted earnings per share:
<TABLE>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Basic:
Income before cumulative effect of change in
accounting principle $ 196,819 $ 119,488 $ 178,219
Cumulative effect of change in accounting principle - (37,080) -
----------- ----------- -----------
Net income 196,819 82,408 178,219
=========== =========== ===========
Weighted shares outstanding 168,241 161,574 159,594
=========== =========== ===========
Earnings per share:
Income before cumulative effect of change in
accounting principle $1.16 $0.74 $1.13
Cumulative effect of change in accounting principle - (0.23) -
----------- ----------- -----------
Net income $1.16 $0.51 $1.13
=========== =========== ===========
Diluted:
Income before cumulative effect of change in
accounting principle $ 196,819 $ 119,488 $ 178,219
Interest related to convertible subordinated notes,
net of tax 1,906 5,686 5,700
----------- ----------- -----------
Income before cumulative effect of change in accounting
principle including the effect of dilutive securities 198,725 125,174 183,919
----------- ----------- -----------
Cumulative effect of change in accounting principle - (37,080) -
----------- ----------- -----------
Net income $ 198,725 $ 88,094 $ 183,919
=========== =========== ===========
Weighted shares outstanding 168,241 161,574 159,594
Assumed exercise of common stock equivalents 9,411 5,317 6,730
Assumed conversion of subordinated notes 3,800 10,984 10,985
----------- ----------- -----------
Weighted average common and common equivalent shares 181,452 177,875 177,309
=========== =========== ===========
Earnings per share:
Income before cumulative effect of change in
accounting principle $1.10 $0.71 $1.04
Cumulative effect of change in accounting principle - (0.21) -
----------- ----------- -----------
Net income $1.10 $0.50 $1.04
=========== =========== ===========
</TABLE>
18
<PAGE> 12
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
r. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, (FAS 133), "Accounting for Derivative
Instruments and Hedging Activities", which required adoption in periods
beginning after June 15, 1999. FAS 133 was subsequently amended by Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133" and will now be effective for fiscal years beginning after June 15, 2000,
with earlier adoption permitted. The Company will adopt FAS 133 on a cumulative
basis during fiscal 2001, as required. The Company is currently evaluating the
effect of adopting FAS 133 and has not determined the impact of FAS 133 on its
financial statements. In March 1998, Statement of Position 98-1, (SOP 98-1),
"Accounting for the Cost of Computer Software Developed for or Obtained for
Internal Use" was issued. The Company will adopt SOP 98-1 in fiscal 2000. The
Company does not expect SOP 98-1 to have a material impact on the results of
operations or financial position. In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin 101, (SAB 101), "Revenue Recognition
in Financial Statements." SAB 101 summarizes the application of generally
accepted accounting principles to revenue recognition in financial statements.
The Company will adopt SAB 101 in the second quarter of fiscal 2000 and does not
expect SAB 101 to have a material effect on its financial position or results of
operations.
3. ACQUISITIONS AND DISPOSITIONS
During the second quarter of fiscal 1999, the Company acquired two DSP tools
companies, White Mountain DSP, Inc. (WM) of Nashua, New Hampshire, and Edinburgh
Portable Compilers Limited (EPC), of Edinburgh, Scotland. The total cost of
these acquisitions was approximately $21 million in cash and $2 million in
common stock of the Company, with additional cash consideration of up to a
maximum of $10 million (to be accounted for as additional goodwill) payable if
the acquired companies achieve certain revenue and operational objectives. These
acquisitions were accounted for as purchases, and the excess of the purchase
price over the fair value of the assets acquired was allocated to existing
technology, workforce in place, trade names and goodwill, which are being
amortized on the straight-line basis over periods ranging from six to ten years.
In connection with these acquisitions, the Company recorded a charge of $5.1
million representing the write-off of in-process research and development.
Pro forma results of operations for WM and EPC have not been provided herein as
they were not material to the Company on either an individual or an aggregate
basis. The results of operations of each acquisition are included in the
Company's consolidated statement of income from the date of each acquisition.
During fiscal 1998, the Company completed the sale of its disk drive IC business
to Adaptec, Inc. The Company received approximately $27 million in cash for the
disk drive product line and, after providing for the write-off of inventory,
fixed assets and other costs incurred to complete the transaction, recorded a
net gain of approximately $13 million. The Company also entered into other
arrangements with Adaptec that provided for payments to the Company aggregating
$13 million, of which $3 million was earned in fiscal 1999 and $10 million was
earned in fiscal 1998, for assisting Adaptec in research and development
efforts.
4. INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131, (FAS
131), "Disclosures about Segments of an Enterprise and Related Information" in
fiscal 1999. The Company operates in two segments: the design, manufacture and
marketing of a broad range of integrated circuits, which comprises approximately
97% of the Company's revenue, and the design, manufacture and marketing of a
range of assembled products, which accounts for the remaining 3% of the
Company's revenue. Effectively, the Company operates in one reportable segment.
19
<PAGE> 13
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GEOGRAPHIC INFORMATION
The Company operates in three major geographic areas. The following geographic
area data include trade sales based upon point of sale and long lived assets
based upon physical location. The predominant countries comprising European
operations are England, France, Germany and Ireland. The predominant country
comprising Asian operations is Japan. For segment reporting purposes, sales
generated by North American operations include export sales of $262.4 million in
fiscal 1999, $128.2 million in fiscal 1998 and $147.6 million in fiscal 1997.
<TABLE>
<CAPTION>
GEOGRAPHIC SEGMENT INFORMATION 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES North America, including export............. $ 929,971 $ 748,283 $ 711,252
Europe...................................... 313,598 312,523 359,333
Asia........................................ 206,810 169,765 172,909
----------- ----------- -----------
Total sales............................... $ 1,450,379 $ 1,230,571 $ 1,243,494
=========== =========== ===========
LONG-LIVED North America............................... $ 417,854 $ 448,384 $ 405,511
ASSETS Europe...................................... 178,361 187,921 195,685
Asia........................................ 77,154 82,941 75,207
----------- ----------- -----------
Total long-lived assets................... $ 673,369 $ 719,246 $ 676,403
=========== =========== ===========
</TABLE>
5. ACCOUNTING CHANGE - RECOGNITION OF REVENUE ON CERTAIN SALES TO DISTRIBUTORS
In the fourth quarter of fiscal 1998, the Company changed its accounting method
for recognizing revenue on all shipments to international distributors and
certain shipments to domestic distributors. The change was made with an
effective date of November 2, 1997 (the beginning of fiscal 1998). While the
Company has historically deferred revenue on most shipments made to domestic
distributors until the products were resold by the distributors to end users, it
recognized revenue on shipments to international distributors and certain
shipments to domestic distributors upon shipment to the distributors, net of
appropriate reserves for returns and allowances. As a result of this accounting
change, revenue recognition on shipments to distributors worldwide is deferred
until the products are resold to the end users. The Company believes that
deferral of revenue and related gross margin on shipments to distributors until
the product is shipped by the distributors is a more meaningful measurement of
results of operations because it better conforms to the substance of the
transaction considering the changing business environment in the international
marketplace; is consistent with industry practice; and will, accordingly, better
focus the entire organization on sales to end users and, therefore, is a
preferable method of accounting. The cumulative effect in 1998 of the change in
accounting principle was a charge of approximately $37 million (net of $20
million of income taxes) or $0.21 per diluted share. The estimated pro forma
effect of the accounting change on the prior years' results is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
As reported:
Net sales $ 1,230,571 $ 1,243,494
Net income 82,408 178,219
Basic earnings per share $ 0.51 $ 1.13
Diluted earnings per share $ 0.50 $ 1.04
Pro forma amounts with the change in accounting
principle related to revenue recognition
applied retroactively: (unaudited)
Net sales $ 1,230,571 $ 1,214,602
Net income 119,488 167,515
Basic earnings per share $ 0.74 $ 1.06
Diluted earnings per share $ 0.71 $ 0.98
</TABLE>
20
<PAGE> 14
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. RESTRUCTURING CHARGE
The Company recorded a restructuring charge of $17 million during the third
quarter of fiscal 1998. Of this charge, $7 million related to a worldwide
workforce reduction of approximately 350 employees, which was completed during
the fourth quarter of fiscal 1998, in the manufacturing, selling and general and
administrative areas. In addition, the Company performed a review of its
business strategy and concluded that the key to success in the DSP market was to
focus on opportunities in the general-purpose DSP market that could provide
consistent growth, while at the same time being more selective in pursuing
vertical market DSP opportunities. As a result of this review, the Company
scaled back its efforts in some of the higher volume, lower margin, shorter life
cycle product areas and wrote off $10 million, which was the carrying value of
specific assets associated with these businesses.
7. INVESTMENTS
Investments at October 30, 1999 and October 31, 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
WaferTech, LLC $ 32,852 $ 135,002
CSM 27,413 20,784
Other 59,036 31,438
---------- ----------
$ 119,301 $ 187,224
========== ==========
</TABLE>
In January 1999, the Company concluded an agreement to sell to other WaferTech
partners 78% of its 18% equity ownership in WaferTech for cash equal to the
carrying value of the 78% equity ownership at October 31, 1998. During fiscal
1999, the Company invested an additional $4 million in WaferTech. The Company no
longer exercises significant influence over WaferTech's operating and financial
policies and, accordingly, accounts for its remaining 4% investment under the
cost method. Changes in the value of the investment are not recognized unless an
impairment in the value of the investment is deemed by management to be "other
than temporary."
The Company has an equity investment in Chartered Semiconductor Manufacturing
Pte., Ltd., (CSM), in Singapore of approximately $27 million which represents a
less than 5% ownership interest. During fiscal 1999, CSM's stock became publicly
traded. As a result, the Company changed the classification of its equity
investment to available-for-sale. Previously, the investment was accounted for
under the cost method.
Other investments consist primarily of long-term investments in mutual funds and
bank money market funds, which are related to the Company's deferred
compensation plan and are largely offset by a corresponding noncurrent liability
to the plan participants. These investments are classified as trading.
Investments are stated at fair value, which is based on market quotes, interest
rates or management estimates, as appropriate. Adjustments to fair value of
investments classified as available-for-sale are recorded as an increase or
decrease in stockholders' equity. Adjustments to fair value of and income
pertaining to other investments are recorded in operating expense.
8. ACCRUED LIABILITIES
Accrued liabilities at October 30, 1999 and October 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Accrued compensation
and benefits $ 65,997 $ 36,582
Other 45,288 43,324
---------- ----------
Total accrued liabilities $ 111,285 $ 79,906
========== ==========
</TABLE>
21
<PAGE> 15
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. DEBT AND CREDIT FACILITIES
Long-term debt at October 30, 1999 and October 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
3 1/2% Convertible Subordinated
Notes due December 1, 2000 $ - $ 229,985
6 5/8% Notes due March 1, 2000 80,000 80,000
----------- ----------
Long-term debt 80,000 309,985
Less: Current portion long-term debt (80,000) -
----------- ----------
Total $ - $ 309,985
=========== ==========
</TABLE>
As of March 11, 1999, the Company had converted $229,967,000 of the $230 million
principal amount of its 3 1/2% Convertible Subordinated Notes (Notes) due 2000
into an aggregate of 10,983,163 shares of the Company's common stock, and the
remaining Notes were redeemed by a cash payment of $33,000. This conversion did
not have an impact on diluted earnings per share.
Simultaneous with the sale of the 6 5/8% Notes, the Company entered into an
interest rate swap and cap agreement for the term of the Notes having a notional
principal amount of $40 million whereby the effective net interest rate on $40
million of the Notes will be the six-month LIBOR rate (up to a maximum of 7%)
plus 1.4%. For the year ended October 30, 1999, the net effective interest rate
on $40 million of the Notes was 7.3% after giving effect to the interest rate
swap agreement.
The Company has a revolving credit agreement with several banks that commits
them to lend up to $60 million. The Company did not borrow against this
agreement at any time during fiscal 1999 or fiscal 1998. There was $2.3 million
and $0.2 million of foreign currency borrowings outstanding at October 30, 1999
and October 31, 1998, respectively, which were at prevailing market rates for
the respective currencies. Borrowings under the Company's credit agreement and
lines of credit are generally due within six months.
10. LEASE COMMITMENTS
The Company leases certain of its facilities and equipment under various
operating and capital leases that expire at various dates through 2030. The
lease agreements frequently include renewal and purchase provisions and require
the Company to pay taxes, insurance and maintenance costs.
Total rental expense under operating leases was approximately $17 million in
fiscal 1999, $16 million in fiscal 1998 and $13 million in fiscal 1997.
The following is a schedule of future minimum lease payments under capital
leases and rental payments required under long-term operating leases at October
30, 1999:
<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEARS LEASES LEASES
- ------------ ------ ------
<S> <C> <C>
2000 $ 11,649 $ 15,807
2001 8,402 8,903
2002 5,920 4,804
2003 3,027 3,607
2004 2,501 57
Later Years 13,994 -
--------- ---------
Total $ 45,493 33,178
=========
Less amount representing interest (2,247)
---------
Present value of minimum lease payments $ 30,931
=========
</TABLE>
22
<PAGE> 16
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company was a defendant in a federal lawsuit brought in Arizona by the
Lemelson Medical, Education & Research Foundation, L.P. (Lemelson). On July 31,
1998, Lemelson commenced an action in federal court against the Company and 26
other companies alleging infringement of 16 patents allegedly covering various
manufacturing processes and techniques used in the fabrication of semiconductor
products. Lemelson served the Company with a complaint on November 24, 1998
seeking unspecified damages, treble damages for willful infringement and
injunctive relief. Subsequent to fiscal 1999, the Company entered into a
settlement agreement with Lemelson that was not material.
The Company is a defendant in a federal lawsuit brought in California by Linear
Technology Corporation (LTC). On June 26, 1997, LTC filed suit against the
Company, Impala Linear Corporation, Toyoda Automatic Loom Works, Ltd., Maxim
Integrated Products, Inc. and Unitrode Corporation alleging patent infringement
and seeking injunctive relief and unspecified damages. The parties are presently
engaged in discovery. The case was originally scheduled for trial on liability
issues beginning on September 7, 1999. The original district judge recused
himself and the case has not yet been rescheduled for trial. While the Company
can give no assurance that it will prevail in this litigation, it believes that
resolution of this litigation will not have a material adverse effect on the
Company's consolidated financial position, although an unfavorable outcome could
have a material adverse effect on the Company's results of operations or cash
flow in the quarter, or annual period in which this matter is resolved.
Patent infringement suits are pending against the Company by Sextant Avionique,
S.A. in France and the United States and Commissariat A. L'energie Atomique
C.E.A. in France, claiming that the Company's accelerometer infringes certain
patents. In the United States proceeding commenced by Sextant Avionique, S.A. on
August 8, 1995, the federal district court entered judgment following trial in
favor of the Company finding the Company did not infringe Sextant's patents.
Sextant appealed the decision and the case was heard on appeal. The parties are
awaiting the appellate court's determination. In the French proceeding commenced
by Sextant Avionique, S.A., the French court found that the Company infringed
Sextant's French patents, and therefore, unless the decision is reversed, the
Company will be unable to manufacture or sell any infringing accelerometers in
France. The Company does not believe that the French court's decision will have
any material adverse effect on its consolidated financial position or
consolidated results of operations.
On January 18, 2000, the Company became aware that Silicon Laboratories, Inc.
had named ADI as a defendant in a lawsuit filed in the United States District
Court for the Western District of Texas, which alleges misappropriation of trade
secrets and patent infringement by Analog. As of January 21, 2000, the Company
had not yet been served by the plaintiff and therefore has not had the
opportunity to review the plaintiff's complaint. Accordingly, the Company is not
in a position to assess the validity of the allegations or the effect of the
lawsuit on the Company.
From time to time as a normal incidence of the nature of the Company's business,
various claims, charges and litigation are asserted or commenced against the
Company arising from, or related to, contractual matters, patents, trademarks,
personal injury, environmental matters, product liability, and personnel and
employment disputes. As to such claims and litigation, the Company can give no
assurance that it will prevail. However, the Company does not believe that these
matters will have a material adverse effect on the Company's consolidated
financial position, although an adverse outcome of any of these matters could
have a material adverse effect on the Company's consolidated results of
operations or cash flow in the quarter, or annual period in which one or more of
these matters are resolved.
WAFER SUPPLY AGREEMENTS
The Company maintains a deposit of $20 million with Chartered Semiconductor
Manufacturing Pte., Ltd., (CSM). This deposit is classified in the balance sheet
line item "Other assets." Under the terms of this agreement, the deposit will
guarantee access to certain quantities of sub-micron wafers through fiscal 2004.
If the Company does not purchase the minimum quantities under the agreement, the
deposit will be forfeited for the value of the wafer shortfall up to the total
amount of $20 million. The outstanding balance of the deposit is refunded in
proportion to the Company's purchases of wafers from CSM and, at this time, the
Company expects to have the entire deposit refunded.
23
<PAGE> 17
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDERS' EQUITY
STOCK PLANS
In fiscal 1998, the stockholders approved the 1998 Stock Option Plan, which
provides for the issuance of nonstatutory and incentive stock options to
purchase up to 15,000,000 shares of common stock. Officers, employees,
directors, consultants and advisors of the Company and its subsidiaries are
eligible to be granted options under this plan at a price not less than 100%
(110% in the case of incentive stock options granted to 10% or greater
stockholders) of the fair market value of the common stock at the time the
option is granted. The Company's 1988 Stock Option Plan was terminated upon
adoption of the 1998 Stock Option Plan; however, options to purchase common
stock remain outstanding under the plan. There are no remaining options
outstanding under the Company's 1980 Stock Option Plan.
While the Company may grant options to employees, which become exercisable at
different times or within different periods, the Company has generally granted
options to employees that are exercisable on a cumulative basis in annual
installments of 33 1/3% each on the third, fourth and fifth anniversaries of the
date of grant.
Under the 1994 Director Option Plan, which was amended in 1998, each
non-employee director is granted annually a non-statutory option to purchase
10,500 shares of common stock at an exercise price equal to the fair market
value on the date of grant. Up to 1999, each newly elected non-employee director
received a grant of an option to purchase 10,500 shares of Common Stock upon his
or her election to the Board (the "Initial Grant"). The 1994 Director Plan was
amended in 1999 whereby the number of shares of Common Stock underlying the
Initial Grant was increased from 10,500 to 30,000. A total of 550,000 shares of
common stock may be issued under this plan. These options are exercisable on a
cumulative basis in annual installments of 33 1/3% each on the first, second and
third anniversaries of the date of grant. The Company also has options
outstanding under the 1992 Director Option that are exercisable on a cumulative
basis in annual installments of 33 1/3% each on the third, fourth and fifth
anniversaries of the date of grant.
Information with respect to activity under the stock option plans is set forth
below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES --------------------------------
AVAILABLE WEIGHTED AVERAGE
STOCK OPTION ACTIVITY FOR GRANT NUMBER PRICE PER SHARE
- --------------------- --------- ------ ---------------
<S> <C> <C> <C>
Balance, November 2, 1996 10,767 15,578 $ 8.87
Options granted (4,081) 4,081 $ 23.33
Options exercised - (2,432) $ 4.21
Options canceled 312 (322) $ 14.13
------- ------ -------
Balance, November 1, 1997 6,998 16,905 $ 12.92
------- ------ -------
Shares authorized for 1998 Stock Option Plan 15,000 - -
Additional shares authorized for 1994 Director Stock
Option Plan 150 - -
Shares authorized for Medialight acquisition 102 - -
Options granted (19,946) 19,946 $ 16.73
Options exercised - (2,014) $ 6.35
Options canceled 9,128 (9,128) $ 23.15
Shares canceled upon termination of 1988 Stock
Option Plan (2,579) - -
------- ------ -------
Balance, October 31, 1998 8,853 25,709 $ 12.78
------- ------ -------
Options granted (660) 660 $ 34.52
Options exercised - (3,027) $ 8.51
Options canceled 651 (651) $ 15.29
------- ------ -------
Balance, October 30, 1999 8,844 22,691 $ 13.93
======= ====== =======
</TABLE>
24
<PAGE> 18
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OPTION AMENDMENT
In September 1998 the Board of Directors approved a stock option program
amendment pursuant to which all employees with stock options granted during the
period beginning December 1, 1996 and ending on August 3, 1998 could elect to
reduce the option exercise price to $14.75 per share (equal to the then fair
market value). Upon such election, the vesting schedule for the affected options
was reset, whereby one-third vest on September 8, 2001, one-third on September
8, 2002 and the final one-third on September 8, 2003. A total of 8,221,498
options with exercise prices ranging from $22.25 to $34.25 per share were
amended under the program. The activity as a result of this option program
amendment is presented in the preceding table as cancellations and subsequent
grants.
The following table summarizes information about options outstanding at October
30, 1999:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
------------------------------------------------- -------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICE 10/30/99 LIFE (YEARS) PRICE AT 10/30/99 PRICE
- ----- -------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 1.96 - $ 5.62 950 2.1 $ 2.81 950 $ 2.81
$ 5.62 - $ 11.24 3,515 4.8 $ 9.11 2,414 $ 8.59
$ 11.24 - $ 22.48 17,191 7.9 $ 14.48 711 $ 16.26
$ 22.48 - $ 39.33 842 8.3 $ 26.41 76 $ 25.95
$ 39.33 - $ 56.19 193 9.9 $ 51.45 0 $ 0
- ------------------ ------ --- -------- ----- -------
$ 1.96 - $ 56.19 22,691 7.2 $ 13.93 4,151 $ 8.90
================== ====== === ======== ===== =======
</TABLE>
The Company has an employee stock purchase plan (ESPP) that allows eligible
employees to purchase, through payroll deductions, shares of the Company's
common stock at 85% of the fair market value at specified dates. Employees
purchased 656,400 shares in 1999 (602,500 and 579,200 in 1998 and 1997,
respectively) for $12.9 million ($11.8 million and $10.2 million in 1998 and
1997, respectively). At October 30, 1999, approximately 2,201,000 common shares
remained available for issuance under the stock purchase plan.
Under the 1991 Restricted Stock Plan, a maximum of 2,700,000 shares of common
stock was authorized for awards by the Company to key employees for nominal
consideration. This plan succeeded the Company's 1978 Restricted Stock Plan that
provided for the issuance of up to 7,372,800 shares of common stock. Shares
awarded from both plans are restricted as to transfer, usually for a period of
five years and, under certain conditions, may be subject to repurchase by the
Company at the original purchase price per share. There were no additional
shares awarded under the restricted stock plans in fiscal 1999. Shares awarded
under the Company's restricted stock plans, net of cancellations, for fiscal
1998 and fiscal 1997 were 217,500 and 168,000, respectively. The fair market
value of the shares at the date of award was $6,293,000 and $4,002,000 in fiscal
1998 and 1997, respectively and was accounted for as deferred compensation and
is being amortized over the restricted period. During 1999, 1998 and 1997,
$2,799,000, $2,918,000 and $2,309,000, respectively, of such compensation was
charged to expense. At October 30, 1999, there were 597,500 shares of common
stock available for issuance under the 1991 Restricted Stock Plan.
As of October 30, 1999, a total of 34,332,881 common shares were reserved for
issuance under the Company's stock plans.
COMMON STOCK REPURCHASE
In May and October of 1998, the Board of Directors authorized the Company to
repurchase up to 4 million and 8 million shares, respectively, of its common
stock over the succeeding 12 months. At October 31, 1998 the Company had
purchased 4,400,000 shares of its common stock an average purchase price of
$19.13 per share. The Company did not purchase any shares in fiscal 1999. The
repurchased shares will be held as treasury shares and will be available for
issuance under the Company's stock option plans, employee stock purchase plan
and other benefit plans.
25
<PAGE> 19
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK-BASED COMPENSATION
As permitted under Statement of Financial Accounting Standards No. 123 (FAS
123), "Accounting for Stock-Based Compensation," the Company has elected to
follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations, in accounting for stock-based awards
to employees. Under APB 25, the Company generally recognized no compensation
expense with respect to such awards.
Pro forma information regarding net income and earnings per share is required by
FAS 123 for awards granted after October 28, 1995 as if the Company had
accounted for its stock-based awards to employees under the fair value method of
FAS 123. The fair value of the Company's stock-based awards to employees was
estimated using a Black-Scholes option pricing model. The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because the
Company's stock-based awards to employees have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards to employees. The fair value
of the Company's stock-based awards to employees was estimated assuming no
expected dividends and the following weighted average assumptions:
<TABLE>
<CAPTION>
OPTIONS ESPP
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected life (years) 6.1 6.1 6.2 1.0 1.0 1.0
Expected stock price volatility 52.9% 49.5% 47.7% 64.1% 57.6% 56.0%
Risk-free interest rate 5.3% 5.3% 6.2% 5.1% 5.4% 5.8%
</TABLE>
The following is a summary of weighted average grant date values generated by
application of the Black-Scholes model:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE GRANT DATE VALUE
------------------------------------------------------
1999 1998 1997
-------- --------- -------
<S> <C> <C> <C>
Stock option plans $ 19.54 $ 9.82 $ 12.68
ESPP $ 8.79 $ 8.33 $ 9.53
</TABLE>
As required under FAS 123, the reported net income and diluted earnings per
share have been presented to reflect the impact had the Company been required to
include the amortization of the Black-Scholes option value as expense. For
purposes of this disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting periods. The Company's pro forma
information follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Pro forma net income $162,872 $56,719 $170,173
Pro forma diluted earnings per share $ 0.90 $ 0.32 $ 0.97
</TABLE>
The effects on pro forma disclosures of applying FAS 123 are not likely to be
representative of the effects on pro forma disclosures of future years. Because
FAS 123 is applicable only to options granted subsequent to October 28, 1995,
the pro forma effect will not be fully reflected until fiscal 2000.
PREFERRED STOCK
The Company has 471,934 authorized shares of $1.00 par value Preferred Stock.
The Board of Directors is authorized to fix designations, relative rights,
preferences and limitations on the preferred stock at the time of issuance.
26
<PAGE> 20
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMON STOCK PURCHASE RIGHTS
In March 1998, the Board of Directors adopted a Stockholder Rights Plan (the
Stockholder Rights Plan) that replaced a plan adopted by the Board in 1988.
Pursuant to the Stockholder Rights Plan, each share of the Company's Common
Stock (Common Stock) has an associated right (the Rights). Under certain
circumstances, each Right would entitle the registered holder to purchase from
the Company one one-thousandth share of Series A Junior Participating Preferred
Stock at a Purchase Price of $180 in cash, subject to adjustment.
The Rights are not exercisable and cannot be transferred separately from the
Common Stock until ten business days (or such later date as may be determined by
the Board of Directors) after (i) the public announcement that a person or group
of affiliated or associated persons has acquired (or obtained rights to acquire)
beneficial ownership of 15% or more of Common Stock or (ii) the commencement of
a tender offer or exchange offer that would result in a person or group
beneficially owning 20% or more of the outstanding Common Stock. If and when the
Rights become exercisable, each holder of a Right shall have the right to
receive, upon exercise, that number of Common Stock (or in certain
circumstances, cash property or other securities of the Company) that equals the
price of the Right divided by 50% of the current market price (as defined in the
Stockholder Rights Plan) per share of Common Stock at the date of the occurrence
of such event. In the event at any time after any person becomes an acquiring
person, (i) the Company is consolidated with, or merged with and into, another
entity and the Company is not the surviving entity of such consolidation or
merger or if the Company is the surviving entity, but shares of its outstanding
common stock are changed or exchanged for stock or securities or cash or any
other property, or (ii) 50% or more of the Company's assets or earning power is
sold or transferred, each holder of a Right shall thereafter have the right to
receive upon exercise, that number of shares of common stock of the acquiring
company that equals the exercise price of the Right divided by 50% of the
current market price of such common stock at the date of the occurrence of the
event.
The Rights have certain anti-takeover effects, in that they would cause
substantial dilution to a person or group that attempts to acquire a significant
interest in the Company on terms not approved by the Board of Directors. The
Rights expire on March 17, 2008 but may be redeemed by the Company for $.001 per
right at any time prior to the tenth day following a person's acquisition of 15%
or more of the Company's common stock. So long as the Rights are not separately
transferable, each new share of Common Stock issued will have a Right associated
with it.
13. RETIREMENT PLANS
The Company and its subsidiaries have various savings and retirement plans
covering substantially all employees. The Company maintains a defined
contribution plan for the benefit of its eligible United States employees. This
plan provides for Company contributions of up to 5% of each participant's total
eligible compensation. In addition, the Company contributes an amount equal to
each participant's contribution, if any, up to a maximum of 2% of each
participant's total eligible compensation, plus 50% of the contributions between
2% and 4%. The Company also has various defined benefit pension and other
retirement plans for certain foreign employees that are consistent with local
statutes and practices. The total expense related to all of the Company's
retirement plans was approximately $21 million in fiscal years 1999 and 1998 and
$19 million in fiscal 1997, which primarily consisted of costs related to the
U.S. defined contribution plan. Also included in total expense is pension
expense related to foreign defined benefit plans of approximately $3 million for
each of the fiscal years 1999, 1998 and 1997.
27
<PAGE> 21
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NON-U.S. PLAN DISCLOSURES
The Company's funding policy for its foreign defined benefit pension plans is
consistent with the local requirements of each country. The plans' assets
consist primarily of U.S. and foreign equity securities, bonds, property and
cash.
Net annual periodic pension cost of non-U.S. plans is presented in the following
table:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost of benefits earned during the year $ 4,079 $ 3,208 $ 3,117
Interest cost on projected benefit obligation 3,273 3,246 3,295
Expected return on plan assets (6,052) (12,623) (8,109)
Amortization of prior service cost 1,846 9,440 4,889
--------- ---------- ----------
Net periodic pension cost $ 3,146 $ 3,271 $ 3,192
========= ========== ==========
</TABLE>
Obligation and asset data of the plans at fiscal year end is presented in the
following table:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Benefit Obligation:
Beginning balance $ 56,485 $ 52,648
Service cost 4,079 3,208
Interest cost 3,273 3,246
Plan participants' contributions 1,267 1,230
Benefits paid (1,540) (2,634)
Actuarial (gain)/loss (7,939) 5,982
Exchange rate adjustment (711) (7,195)
---------- ----------
Ending balance $ 54,914 $ 56,485
========== ==========
Plan Assets at Fair Value:
Beginning balance $ 58,784 $ 50,951
Actual return on plan assets 6,052 12,623
Company contributions 2,646 2,277
Plan participants' contributions 1,267 1,230
Benefits paid (1,540) (2,634)
Exchange rate adjustment (1,052) (5,663)
---------- ----------
Ending balance $ 66,157 $ 58,784
========== ==========
Reconciliation of Funded Status:
Fund status - Plan assets in excess of benefit obligation $ (11,243) $ (2,299)
Unrecognized net gain 15,148 6,543
Unrecognized prior service cost (1,077) (308)
---------- ----------
Net amount recognized $ 2,828 $ 3,936
========== ==========
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost $ (4,201) $ (2,678)
Accrued benefit cost 7,029 6,614
---------- ----------
Total $ 2,828 $ 3,936
========== ==========
</TABLE>
Accrued benefit cost at October 30, 1999 and October 31, 1998 includes projected
benefit obligations of $14.8 million and $12.7 million and accumulated benefit
obligations of $8.7 million and $7.5 million, versus plan assets of $6.4 million
and $4.7 million for four plans whose obligations exceeded their assets.
28
<PAGE> 22
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The range of assumptions used for the non-U.S. defined benefit plans reflects
the different economic environments within the various countries. The projected
benefit obligation was determined using the following assumptions:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Discount rate 4% - 12% 4% - 12%
Rate of increase in compensation levels 4% - 10% 3% - 10%
Expected long-term returns on assets 5% - 12% 4% - 13%
</TABLE>
14. INCOME TAXES
The reconciliation of income tax computed at the U.S. federal statutory rates to
income tax expense is as follows:
<TABLE>
<CAPTION>
LIABILITY METHOD
----------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory tax rate 35.0% 35.0% 35.0%
Income tax provision reconciliation:
Tax at statutory rate $ 90,139 $ 52,660 $ 82,578
Irish income subject to lower tax rate (25,557) (10,960) (19,880)
Change in valuation allowance - (5,559) (1,835)
State income taxes, net of federal benefit 260 502 964
Research and development tax credits (2,700) (4,400) (5,000)
Foreign Sales Corporation (4,923) (1,745) (3,161)
Amortization of goodwill 1,189 545 528
Net foreign tax in excess of
U.S. federal statutory tax rate (156) 125 2,765
Other, net 2,469 (197) 701
---------- ---------- -----------
Total income tax provision $ 60,721 $ 30,971 $ 57,660
========== ========== ===========
</TABLE>
For financial reporting purposes, income before income taxes includes the
following components:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pretax income:
Domestic $ 114,333 $ 34,290 $ 84,599
Foreign 143,207 116,169 151,280
---------- ---------- ----------
$ 257,540 $ 150,459 $ 235,879
========== ========== ==========
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 19,949 $ 24,588 $ 35,500
Foreign 23,790 17,983 26,811
State 400 772 1,483
-------- -------- --------
Total current $ 44,139 $ 43,343 $ 63,794
======== ======== ========
Deferred (prepaid):
Federal $ 16,262 $ (7,792) $ (3,364)
Foreign 320 (4,580) (2,770)
-------- -------- --------
Total deferred (prepaid) $ 16,582 $(12,372) $ (6,134)
======== ======== ========
</TABLE>
29
<PAGE> 23
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's practice is to reinvest indefinitely the earnings of certain
international subsidiaries. Accordingly, no U.S. income taxes have been provided
for approximately $588,048,000 of unremitted earnings of international
subsidiaries.
The Company had recorded a valuation allowance to reflect the estimated amount
of deferred tax assets that may not be realized due to the expiration of book
and tax capital losses. The balance for the valuation allowance for deferred
assets was $0 at October 30, 1999 and October 31, 1998, and $5.6 million at
November 1, 1997.
The significant components of the Company's deferred tax assets and liabilities
for the fiscal years ended October 30, 1999 and October 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Inventory reserves $ 32,816 $ 36,176
Deferred income on shipments to distributors 34,750 39,210
Reserves for compensation and benefits 12,769 11,968
Restricted stock 2,364 2,466
Intercompany profits in foreign inventories 5,181 5,066
Reserve for bad debts 2,821 5,694
Foreign tax credits 292 (492)
Other 3,253 4,340
---------- ----------
Total gross deferred tax assets 94,246 104,428
---------- ----------
Deferred tax liabilities:
Depreciation (44,468) (38,069)
---------- ----------
Total gross deferred tax liabilities (44,468) (38,069)
---------- ----------
Net deferred tax assets $ 49,778 $ 66,359
========== ==========
</TABLE>
30
<PAGE> 24
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Analog Devices, Inc.
We have audited the accompanying consolidated balance sheets of Analog Devices,
Inc. as of October 30, 1999 and October 31, 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended October 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Analog
Devices, Inc. at October 30, 1999 and October 31, 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended October 30, 1999, in conformity with accounting principles
generally accepted in the United States.
As discussed in Notes 2(m) and 5 to the consolidated financial statements, in
the fiscal year ended October 31, 1998, the Company changed its method for
recognizing revenue on certain shipments to distributors.
/s/ Ernst & Young LLP
Boston, Massachusetts
November 30, 1999
31
<PAGE> 25
ANALOG DEVICES, INC.
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for fiscal 1999 and fiscal 1998 (thousands of
dollars except as noted):
<TABLE>
<CAPTION>
4Q99 3Q99 2Q99 1Q99 4Q98* 3Q98* 2Q98* 1Q98*
---- ---- ---- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 431,036 378,776 340,067 300,500 297,650 295,700 319,430 317,791
------- ------- ------- ------- ------- ------- ------- -------
Cost of sales 205,922 190,481 176,435 162,805 164,945 161,815 160,993 154,332
Gross margin 225,114 188,295 163,632 137,695 132,705 133,885 158,437 163,459
% of sales 52% 50% 48% 46% 45% 45% 50% 51%
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development 75,414 67,142 61,899 52,584 53,101 55,088 56,190 54,975
Write-off of purchased in-
process research and
development - - 5,140 - - - - -
Selling, marketing, general
and administrative 59,702 54,589 49,167 46,181 46,625 48,202 57,014 55,646
Restructuring charge - - - - - 17,000 - -
Gain on sale of business - - - - - - (13,100) -
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses 135,116 121,731 116,206 98,765 99,726 120,290 100,104 110,621
% of sales 31% 32% 34% 33% 34% 41% 31% 35%
------- ------- ------- ------- ------- ------- ------- -------
Operating income 89,998 66,564 47,426 38,930 32,979 13,595 58,333 52,838
% of sales 21% 18% 14% 13% 11% 5% 18% 17%
------- ------- ------- ------- ------- ------- ------- -------
Equity in loss of WaferTech - - - 1,149 2,715 3,560 1,915 1,590
------- ------- ------- ------- ------- ------- ------- -------
Nonoperating expenses (income):
Interest expense 1,354 1,044 1,985 3,688 3,031 2,666 3,103 2,429
Interest income (9,428) (6,881) (6,117) (4,300) (4,543) (3,996) (4,318) (3,981)
Other 441 557 854 1,032 798 536 996 785
------- ------- ------- ------- ------- ------- ------- -------
Total nonoperating
(income) expense (7,633) (5,280) (3,278) 420 (714) (794) (219) (767)
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 97,631 71,844 50,704 37,361 30,978 10,829 56,637 52,015
% of sales 23% 19% 15% 12% 10% 4% 18% 16%
------- ------- ------- ------- ------- ------- ------- -------
Provision for income taxes 24,413 17,243 11,598 7,467 4,642 1,721 12,852 11,756
------- ------- ------- ------- ------- ------- ------- -------
Net income before cumulative
effect of change in
accounting principle 73,218 54,601 39,106 29,894 26,336 9,108 43,785 40,259
% of sales 17% 14% 12% 10% 9% 3% 14% 13%
Per share - basic .42 .32 .23 .19 .16 .05 .27 .26
Per share - diluted .40 .30 .22 .18 .16 .06 .25 .24
------- ------- ------- ------- ------- ------- ------- -------
Cumulative effect of change
in accounting principle - - - - - - - (37,080)
------- ------- ------- ------- ------- ------- ------- -------
Net income after cumulative
effect of change in
accounting principle 73,218 54,601 39,106 29,894 26,336 9,108 43,785 3,179
% of sales 17% 14% 12% 10% 9% 3% 14% 1%
Per share - basic .42 .32 .23 .19 .16 .05 .27 .03
Per share - diluted .40 .30 .22 .18 .16 .06 .25 .03
------- ------- ------- ------- ------- ------- ------- -------
Shares used to compute earnings
per share (in thousands)
Basic 173,670 172,710 167,012 159,572 160,698 162,451 162,124 161,023
Diluted 184,774 183,480 180,698 176,857 175,382 178,546 179,427 178,146
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
* Fiscal 1998 results are after cumulative effect of accounting change - see
Note 5 of the consolidated financial statements.
32
<PAGE> 1
Exhibit 21
----------
SUBSIDIARIES
The following is a list of the Company's subsidiaries:
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED BY
ORGANIZED REGISTRANT AS OF
UNDER LAW OF OCTOBER 30, 1999
------------ --------------------
<S> <C> <C>
Analog Devices Limited United Kingdom 100%
Analog Devices, GmbH Germany 100%
Analog Devices, S.A. France 100%
Analog Devices, K.K. Japan 100%
Analog Devices APS Denmark 100%
Analog Devices Nederland, B.V. The Netherlands 100%
Analog Devices International, Inc. Massachusetts 100%
Analog Devices Israel, Ltd. Israel 100%
Analog Devices A.B. Sweden 100%
Analog Devices SRL Italy 100%
Analog Devices, HDLSGESMBH M.B.H. Austria 100%
Analog Devices Korea, Ltd. Korea 100%
Analog Devices, B.V. The Netherlands 100%
Analog Devices Finance N.V. Netherlands Antilles 100%
Analog Devices Holdings, B.V. The Netherlands 100%
Analog Devices Research & Development Ltd. Ireland 100%
Analog Devices (Philippines), Inc. The Philippines 100%
Analog Devices Foreign Sales
Corporation, B.V. The Netherlands 100%
Analog Devices Foundry Services, Inc. Delaware 100%
Analog Devices Asian Sales, Inc. Delaware 100%
Analog Devices Taiwan, Ltd. Taiwan 100%
Analog Devices Ireland, Ltd. Ireland 100%
Analog Devices Hong Kong, Ltd. Hong Kong 100%
Analog Devices Pty, Ltd. Australia 100%
Analog Devices India Private Limited India 100%
Analog Devices Gen. Trias, Inc. The Philippines 100%
Analog Devices International Financial Services Company Ireland 100%
Analog Devices Foreign Sales Corporation Barbados 100%
Analog Development (Israel) 1996 Ltd. Israel 100%
Analog Devices (China) Co. Ltd. China 100%
Analog Devices Canada, Ltd. Canada 100%
Edinburgh Portable Compilers Limited Scotland 100%
Analog/NCT Supply Ltd. Delaware 50%
Analog Devices Realty Holdings, Inc. The Philippines 40%
Analog Supplies Company Japan 15%
Analyzed Investments, Ltd. Ireland 7.4%
</TABLE>
<PAGE> 1
Exhibit 23
----------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Analog Devices, Inc. of our report dated November 30, 1999, included in the
1999 Annual Report to Shareholders of Analog Devices, Inc.
Our audits also included the financial statement schedule of Analog Devices,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-63561, 2-90023, 2-95495, 33-2502, 33-4067, 33-22604, 33-22605,
33-29484, 33-39851, 33-39852, 33-43128, 33-46520, 33-46521, 33-60696, 33-60642,
33-61427, 33-64849, 333-04771, 333-04819, 333-04821 333-08493, 333-47789,
333-47787, 333-48243, 333-56529, 333-69359, 333-79551 and 333-87055 and Form
S-3 Nos. 333-08505, 333-08509, 333-17651 and 333-87053) of Analog Devices, Inc.
and in the related Prospectuses of our report dated November 30, 1999, with
respect to the consolidated financial statements and schedule of Analog
Devices, Inc. included or incorporated by reference in this Annual Report
(Form 10-K) for the year ended October 30, 1999.
/s/ Ernst & Young LLP
Boston, Massachusetts
January 25, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-30-1999
<EXCHANGE-RATE> 1
<CASH> 355,891
<SECURITIES> 406,553
<RECEIVABLES> 281,365
<ALLOWANCES> 14,238
<INVENTORY> 248,936
<CURRENT-ASSETS> 1,379,110
<PP&E> 1,438,129
<DEPRECIATION> 795,323
<TOTAL-ASSETS> 2,218,354
<CURRENT-LIABILITIES> 479,263
<BONDS> 0
0
0
<COMMON> 29,675
<OTHER-SE> 1,586,356
<TOTAL-LIABILITY-AND-EQUITY> 2,218,354
<SALES> 1,450,379
<TOTAL-REVENUES> 1,450,379
<CGS> 735,643
<TOTAL-COSTS> 735,643
<OTHER-EXPENSES> 471,818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,071
<INCOME-PRETAX> 257,540
<INCOME-TAX> 60,721
<INCOME-CONTINUING> 196,819
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196,819
<EPS-BASIC> 1.16
<EPS-DILUTED> 1.10
</TABLE>
