<PAGE> 1
================================================================================
UNITED STATES
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 DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-11674
LSI LOGIC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 94-2712976
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
1551 MCCARTHY BOULEVARD
MILPITAS, CALIFORNIA 95035
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 433-8000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------------- ---------------------------------------------
<S> <C>
Common Stock, $0.01 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement 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 the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing price of the Common Stock on March 14,
1997 as reported on the New York Stock Exchange, was approximately
$4,819,807,000. Shares of Common Stock held by each executive officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of March 14, 1997, registrant had 129,390,793 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference into Parts
I, II, III and IV of this Form 10-K Report: (1) Proxy Statement for registrant's
1997 Annual Meeting of Stockholders, and (2) registrant's 1996 Annual Report to
Stockholders.
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
LSI Logic Corporation (the "Company") is a leader in the design,
development, manufacture and marketing of high performance application-specific
integrated circuits ("ASICs"). The Company uses advanced process technology and
design methodology to design and develop highly complex ASICs and other
integrated circuits. The Company's sub-micron process technologies, combined
with its product libraries, including CoreWare(R) libraries, provide the Company
with the ability to integrate system-level solutions on a single chip.
The Company's product marketing approach is to focus primarily on original
equipment manufacturers in the consumer, communications, and computer products
markets. The Company offers products and services for a variety of applications,
including digital video (DVD), digital broadcasting (set top box) and personal
entertainment applications for the consumer market segment, networking and
wireless communication for the communications market and desktop, and personal
computer and office automation applications for the computer products market.
The Company targets its marketing and selling effort towards acknowledged
industry leaders in these markets.
The Company has developed and uses complementary metal oxide semiconductor
("CMOS") process technologies to manufacture integrated circuits implementing
submicron geometries, including 0.25-micron processes and smaller for the
Company's advanced product offerings. The Company's 0.25-micron(1) G10(TM)
process, for example, allows for up to 49,000,000 usable transistors on a single
chip. In early 1997, the Company formally introduced its next generation G11(TM)
process technology featuring a 0.18 micron gate length, providing up to
64,000,000 transistors and allowing greater density and increased functionality
on a single chip.
The Company's CoreWare methodology and deep sub-micron process technologies
permit customers to combine microprocessor "engines", logic blocks (including
industry standard functions, protocols and interfaces) and memory with a
customer's proprietary logic on a single chip. This allows the customer to
differentiate its product, optimize its application and shorten product
development cycles.
The Company was incorporated in California on November 6, 1980 and
reincorporated in Delaware on June 11, 1987. Its principal offices are located
at 1551 McCarthy Boulevard, Milpitas, California 95035, and its telephone number
at that location is (408) 433-8000. Except where otherwise indicated, references
to the "Company" mean LSI Logic Corporation and its majority and wholly-owned
subsidiaries.
BUSINESS STRATEGY
The Company's objective is to design and manufacture highly integrated,
complex semiconductor devices that provide its customers with system-level
solutions on silicon thereby allowing customers to get to market rapidly with
differentiated systems and products. To achieve this objective, the Company has
implemented a business strategy incorporating the following key elements:
- Emphasize CoreWare Methodology and System-on-a-Chip Capability. The
Company's CoreWare product library approach and its deep sub-micron
process technologies permit system-level integration of microprocessors,
logic blocks (including industry standard functions, protocols and
interfaces), memory and customer specific proprietary logic functions on
a single piece of silicon. This methodology enables customers to improve
the performance and reliability of their products and differentiate their
products while shortening product development cycles and lowering
development costs.
- Target Growth Markets and Selected Customers. The Company directs its
marketing and selling efforts toward selected customers in the consumer,
communications and computer industries. The Company targets high growth
end markets which are characterized by increasingly shortened product
- ---------------
(1) All references to gate length measurement reflect effective gate length
unless otherwise indicated.
1
<PAGE> 3
cycles and ongoing changes in technological standards and performance
requirements. As a result, customers in these markets tend to benefit from
the flexibility of the Company's customized ASIC design methodology to help
differentiate their products while still complying with existing and
emerging global industry standards such as microprocessors and signal
processing engines, Ethernet and ATM (Asynchronous Transfer Mode) in
networking, PCI bus interfaces and high speed transmission in computers and
MPEG2 (Motion Picture Experts Group) in the digital video and personal
entertainment markets.
- Promote Highly Integrated Design and Manufacturing Technology. The
Company's proprietary computer-aided design tools are highly integrated
with the Company's manufacturing process requirements, thereby providing
high predictability that the product's performance will mirror the
computer simulation of the chip and facilitate optimum performance of
products developed using the Company's design methodology. The Company's
sophisticated design tools, advanced process technology and sub-micron
manufacturing capability are intended to provide customers highly
integrated solutions that work right the first time. The Company's design
environment includes expanded interface capabilities to certain third
party EDA software design tools from companies such as Cadence Design
Systems, Inc., Mentor Graphics Corporation, Synopsys, Inc. and Viewlogic
Systems, Inc.
- Provide Flexibility in Design Engineering. The Company provides customers
with a comprehensive approach and a continuum of solutions for the design
and manufacture of ASICs. This allows customers substantial flexibility
in how they proceed with an ASIC design project. A customer may implement
product specifications in a particular chip design through its own
engineers, on a "turn-key" basis using the Company's engineers, or
through a collaborative effort. The Company's extensive, worldwide
network of design and engineering professionals facilitates effective
interaction with customer management and engineering staff throughout the
design process.
- Maintain High-Quality and Cost-Effective Manufacturing. The Company
believes that owning its wafer manufacturing facilities improves quality,
cost-effectiveness, responsiveness to customers, implementation of
leading-edge process technology and time-to-market advantages as compared
to companies that do not own their own wafer fabrication facilities. The
Company's manufacturing operations are located in the United States,
Japan and Hong Kong. The Company performs substantially all of its
packaging, assembly and final test operations through third party
subcontractors in various locations. The Company's production operations
in the U.S. and Japan are ISO-9002 certified, an important international
measure for quality.
- Offer Worldwide Services. The Company markets its products and services
on a worldwide basis through its direct sales, marketing and field
technical staff of approximately 813 employees (including its
subsidiaries in Europe, Canada and the Far East), as well as through
independent sales representatives and distributors. The Company operates
44 design centers throughout the world to assist customers in product
design activities. The Company's extensive, worldwide network of design
centers allows the Company to provide customers with highly experienced
engineers to interact with customer engineering management and system
architects to develop designs for new products and to provide continuing
after-sale customer support.
PRODUCTS AND SERVICES
Engineering
The Company's product marketing strategy is to focus on original equipment
manufacturers (OEMs) in the computer, consumer and communications products
markets. The Company seeks out leaders in these markets with the objective of
providing technical support to customers early in their new system product
development process. In executing this strategy, the Company offers customers a
wide variety of engineering design services. The Company's engineering design
service approach allows the customers to determine the level of participation
which they will have in the design process. The Company may provide complete
"turn-key" engineering support for design projects where the customer provides
high-level functional objectives. This type of engineering support is well
suited for a customer's system-level design project in which the
2
<PAGE> 4
Company is engaged to utilize one or more of its CoreWare library elements for
delivering a system on a single chip. However, the customer may also perform
substantial design activity on its own. In either case, the Company's design
environment includes an expanded interface to various third party EDA vendors'
design tools.
The Company makes available various library elements (including
semiconductor macrocells, the basic silicon structures used in the design of
logic circuits, and the larger predefined functional building blocks,
"megacells" and "megafunctions"), technology data bases and design automation
software programs. The most complex of the Company's library elements are called
cores which are comprised of predefined and pretested cells of industry standard
functions, protocols and interfaces.
The ultimate output of the Company's integrated circuit design system is a
pattern generation tape from which the semiconductor "masks" or production
tooling is made. The system also produces a test tape which is readable by
standard industry semiconductor testing equipment. The Company's software design
tools support and automatically perform key elements of the design process from
circuit concept through physical layout of the circuit design and preparation of
pattern generation tapes.
After completion of the engineering design effort, the Company produces and
tests prototype circuits for shipment to the customer. Thereafter, the Company
will commence volume production of integrated circuits that have been developed
through one or more of the arrangements described above in accordance with the
customer's quantity and delivery requirements. The Company generally does not
have long-term volume production contracts with its customers. Whether any
specific ASIC design will result in volume production orders and, if so, the
quantities included in any such orders, are factors beyond the control of the
Company. Insufficient orders will result in underutilization of the Company's
manufacturing facilities which would adversely impact the Company's operating
results.
Components
The Company's vertical market focus permits it to dedicate engineering
resources to develop component products and systems expertise directed at
particular markets. This system-level expertise and design methodology in
conjunction with a wide range of component product offerings, including the
Company's CoreWare libraries, offer customers the opportunity to achieve rapid
time to market system-on-a-chip solutions.
The Company's CoreWare Program offers a complete design approach for
creating a system-on-a-chip efficiently, predictably and rapidly to address the
performance, cost and time-to-market goals of the customer. CoreWare library
elements are complex VLSI or large system-level pre-designed building blocks of
integrated circuit logic functions which are either developed by the Company or
acquired under technology transfer or licensing agreements. CoreWare elements
are highly integrated for use with the Company's proprietary software design
tools and those advanced manufacturing processes to which individual cores are
targeted.
The Company's CoreWare libraries are based upon industry standard
functions, protocols and interfaces, and are positioned to be useful in a wide
variety of systems applications. Representative examples from the Company's
CoreWare libraries include implementations of the Ethernet, ATM (asynchronous
transfer mode) and Gigabit Serial Transceiver functions for the communications
market, PCI bus interfaces and Fibre Channel protocol for the computer market
and MPEG2 (Motion Picture Experts Group) decoders and digital signal processing
for the digital video market. The Company's MiniRISC(TM) family of MIPS-based
RISC (reduced instruction set computing) central processing unit (CPU) cores,
including the TinyRISC(TM) 16/32-bit compressed code CPU, can be coupled with
these other cores and with customer proprietary functionality to realize
system-level applications on a single chip.
In addition, the Company offers a family of application specific standard
product (ASSP) high-speed digital signal and image processing devices that
perform a wide variety of common digital signal processing operations.
Generally, even new standard products developed by the Company are
implementations of emerging industry standard functions that the Company may
also target for inclusion in its CoreWare library.
3
<PAGE> 5
The Company's expanding line of products includes a variety of single chip
solutions, including a DVD decoder, a satellite receiver, an MPEG2 Audio/Video
decoder, a JPEG single-chip co-processor, and the ATMizer(TM) II. The Company
also offers a range of reference design modules such as the Scenario(TM)
MPEG2/AC3 reference design module, and development platforms including the
Integra(TM) SDP1000 platform for set top box applications.
The Company's component product offerings are based upon metal programmable
array, cell-based and Embedded Array(R) product architectures. The Company
offers a wide variety of die sizes and functionality configurations that are
available in different feature sizes and are based on different process
technologies. A metal programmable array, also known as a gate array, is a
matrix of uncommitted transistors contained on a single piece of silicon. The
gate array is "programmed" (i.e., customized) only in the last steps of the
fabrication process. This enables the manufacturer to produce large quantities
of uncommitted gate arrays, known as "base arrays," and to benefit from the
economies of volume chip production. These basic silicon substrates are designed
and manufactured in a fashion similar to standard integrated circuits. The
individual elements are interconnected at the metallization step in the
manufacturing process to implement user-defined functions. Gate arrays, when
compared to many standard logic circuits, provide the system manufacturer with
lower cost, higher reliability, lower power consumption, increased performance
and smaller end products.
The Company's cell-based technology allows the customer to combine standard
cells, memories such as fully static random access memory (RAM), static
multi-port RAM, metal programmable read only memory (ROM) and other dedicated
very large scale integration (VLSI) building blocks called megacells on a single
chip. Through combinations of these various cell-based structures, the Company
can provide the customer with customized solutions to a wide variety of digital
design problems. Cell based technology offers customers higher density and
enhanced performance as compared to gate array technology.
In addition, the Company offers its customers the opportunity to create
proprietary base wafers by utilizing a combination of the Company's standard
cell technology with gate array technology. This Embedded Array product option
can provide the customer with both high performance and density features
normally associated with cell-based technology and with faster turnaround times
resembling those available only for gate array-based designs.
The Company's CoreWare product libraries are designed to be used with the
customer's proprietary logic in gate array, cell-based or Embedded Array product
designs based upon the Company's design methodology. The Company continues to
emphasize engineering development and acquisition of CoreWare libraries and
integration of CoreWare libraries into its ASIC design capabilities in the
Company's transition from manufacturing products substantially based on the
customer's proprietary logic design to emphasizing ASIC opportunities that
utilize the Company's CoreWare product libraries. There can be no assurance,
however, that the cores selected for investment of the Company's financial and
engineering resources will enjoy market acceptance or that such cores can be
successfully integrated into the Company's ASIC design environment on a timely
basis. See "Marketing and Customers."
MANUFACTURING
The Company's manufacturing operations convert a customer's design into
packaged silicon chips and support customer volume production requirements.
Manufacturing begins with fabrication of uncommitted wafers (for gate array
ASICs) or custom diffused wafers (for cell-based ASICs). Although base layers
for cell-based designs are themselves customized, gate array wafers are not and
therefore may be inventoried by the Company pending customization accomplished
in the metallization stage of fabrication. In the next stage of manufacture,
metallization, layers of metal interconnects are diffused onto the wafer using
customized masks. Wafers are then tested, cut into die and sorted. The die that
have passed initial test are then assembled (embedded in and connected to one of
a wide variety of packages) and encapsulated. The finished devices then undergo
additional tests before shipment.
Currently, the Company's manufacturing facilities are located in the United
States, Japan and the Far East. Management and control of manufacturing
operations is performed by the Company's Hong Kong affiliate. Substantially all
of the Company's wafers are manufactured at its two wafer fabrication facilities
in
4
<PAGE> 6
Japan. Final assembly and test operations are conducted by the Company's Hong
Kong affiliate through independent subcontractors, and through the Company's
Fremont, California facility.
In July 1997, Hong Kong will come under the complete control of the Chinese
government. There can be no assurance that the Company and its affiliates will
not experience a disruption in the flow of products, which could result in a
material adverse impact on the Company's operating results, as a result of a
reversion of control of Hong Kong to China. In addition to the reversion of Hong
Kong to Chinese control, any political or economic disruptions in the countries
where the Company's subcontractors are located could result in a material
adverse impact on the Company's operating results.
The Company utilizes various high performance CMOS process technologies in
the volume manufacture of its products. The Company's two facilities in Tsukuba,
Japan utilize advanced process technologies in conjunction with computer
integrated manufacturing to produce mainly 0.38-micron and G10 0.25-micron
products containing up to 49,000,000 transistors (or up to 5,000,000 logic
gates) on a single chip and offer customers a high-volume, reliable source for
manufacturing. Each of these facilities has a highly automated production line,
providing greater productivity, product quality and production management
flexibility. During 1996, the Company installed highly specialized chemical
mechanical polishing (CMP) equipment in its Japanese manufacturing facilities.
CMP increases manufacturing yields and allows for higher levels of chip
customization. The Company has in the past and will in the future, consider
developing foundry relationships with certain other semiconductor manufacturers
whereby the Company may purchase quantities of wafers (both unmetallized and
metallized) that are manufactured to the Company's specifications.
In August 1995, the Company began development of a new site in Gresham,
Oregon for manufacturing operations and other purposes. The site, which consists
of approximately 325 acres, is planned to accommodate expansion requirements the
Company may have in the foreseeable future. Construction of a new wafer
fabrication facility is in process, and volume production is expected to
commence during the first half of 1998, utilizing the Company's G10 0.25-micron
and, later, G11 0.18-micron process technologies. The Company expects to spend
approximately $500 to $600 million during 1997 and the first half of 1998 to
bring this facility to operational status.
In the assembly process, the fabricated circuit is encapsulated into
ceramic or plastic packages. The Company has developed a network of offshore
third-party assembly and final test subcontractors for plastic packaging.
Plastic packaging is normally associated with lower cost, commercially oriented
products. The Company has benefitted from the cost savings associated with these
third-party subcontractors. The Company performs ceramic package assembly for
its products at its Fremont, California facility. Ceramic packaging is primarily
utilized in applications involving the need to protect the circuit against a
potentially harsh operating environment, such as in military applications. The
Fremont assembly line has been specially equipped to support such high
reliability packaging needs of both military and selected commercial
applications. The proportion of ceramic packaging being done by independent
assembly plants continues to increase and the Company subcontracts some ceramic
packaging offshore.
In 1996, the Company introduced its advanced Flip Chip packaging
technology, which essentially replaces wires that connect the edge of the die to
a package with solder bumps spread over the entire external surface of the die.
This new technology enables the Company to reach exceptional performance and
lead count levels in packages required for process technologies of 0.25-micron
and below. The Company also introduced a mini-BGA (Ball Grid Array) package
which offers a smaller package size without sacrificing electrical and thermal
performance.
Testing includes final test and final quality assurance acceptance.
Dedicated computer systems are used in this comprehensive testing sequence. The
test programs utilize the basic functional test criteria from the design
simulation which was generated and approved by the customers' design engineers.
Most product testing operations are currently conducted in close proximity to
the particular facility where assembly activities are performed. The Company
intends to continue its use of independent assembly plants to test its products.
The semiconductor industry is capital intensive. In order to remain
competitive, the Company must continue to make significant investments in new
facilities and capital equipment. In 1996, capital expenditures
5
<PAGE> 7
(leases and purchases of plant and equipment) were approximately $375,000,000.
The Company expects 1997 capital expenditures to be approximately $475,000,000,
and significant capital expenditures are expected in subsequent years, as well.
The Company believes that existing liquid resources and funds generated from
operations combined with its ability to borrow funds will be adequate to meet
its operating and capital requirements and obligations through the foreseeable
future. The Company believes that its level of financial resources is an
important competitive factor in its industry. Accordingly, the Company may from
time to time seek additional equity or debt financing. However, there can be no
assurance that such additional financing will be available when needed or, if
available, will be on favorable terms. Any future equity financing will decrease
existing stockholders' percentage equity ownership and may, depending on the
price at which the equity is sold, result in dilution.
Disruption of operations at any of the Company's primary manufacturing
facilities, or at any of its subcontractors for any reason, including work
stoppages, fire, earthquake or other natural disasters, would cause delays in
shipments of the Company's products. There can be no assurance that alternate
capacity would be available on a timely basis or at all, or that, if available,
it could be obtained on favorable terms, thereby potentially resulting in a loss
of customers. A disruption of operations for these and other reasons could
adversely affect the Company's operating results.
The semiconductor industry historically has been characterized by wide
fluctuations in product supply and demand. From time to time the industry also
has experienced significant downturns, often in connection with, or in
anticipation of maturing product cycles (of both the semiconductor companies and
their customers) and declines in general economic conditions. These downturns
have been characterized by diminished product demand, production overcapacity
and subsequent accelerated erosion of average selling prices, and in some cases
have lasted for more than a year. The Company may experience substantial period-
to-period fluctuations in future operating results due to general industry
conditions or events occurring in the general economy and the Company's business
could be materially and adversely affected by a significant industry-wide
downturn. The semiconductor industry also has been characterized by periods of
rapid expansion of production capacity. Even if customers' aggregate demand
might not decline, the availability of additional capacity can adversely impact
pricing levels, which can also depress revenue levels and afffect operating
results. Also, during such periods, customers benefiting from shorter lead times
may delay some purchases into future periods, as the Company believes occurred
during 1996.
To remain competitive, the Company must develop and implement new process
technologies in order to reduce semiconductor die size, increase device
performance and improve manufacturing yields, to adapt products and processes to
technological changes and adopt emerging industry standards. The Company
continues to evaluate its worldwide manufacturing operations to effect
additional cost-savings and technological improvements. Nevertheless, if the
Company is not able to successfully implement new process technologies and to
achieve volume production of new products at acceptable yields using new
manufacturing processes, the Company's operating results may be adversely
affected.
Development of advanced manufacturing technologies in the semiconductor
industry frequently requires that critical selections be made as to those
vendors from which essential equipment (including future enhancements) and
after-sales services and support will be purchased. Similarly, procurement of
certain types of materials required by the Company's manufacturing technologies
are closely linked with certain equipment selections. When the Company
implements specific technology choices, it may become dependent upon certain
sole-source vendors. Accordingly, the Company's capability to switch to other
technologies and vendors may be substantially restricted and may involve
significant expense and delay in the Company's technology advancements and
manufacturing capabilities. The semiconductor equipment and materials industries
also include a number of vendors that are relatively small and have limited
resources. Several of these vendors provide equipment and or services to the
Company. The Company does not have long-term supply or service agreements with
many vendors of certain critical items, and shortages could occur in various
essential materials due to interruption of supply or increased demand in the
industry. Additionally, there can be no assurance that disruptions in these
vendors' ability to perform will not occur. Should the Company experience such
disruptions, the Company's operations could be adversely affected, which could
have a material and adverse effect on its operating results. The Company's
operations also depend upon a continuing
6
<PAGE> 8
adequate supply of electricity, natural gas and water. To date, the Company has
experienced no significant difficulty in obtaining the necessary raw materials.
In countries in which the Company is conducting business in local currency,
currency exchange fluctuations could adversely affect the Company's revenues and
costs. A substantial portion of the costs of the Company's manufacturing
operations are denominated in Japanese yen. In addition, the Company purchases a
substantial portion of its raw materials and equipment from foreign suppliers
and incurs labor costs in foreign locations. A portion of these transactions are
denominated in currencies other than in U.S. dollars, principally in Japanese
yen. The Company also has borrowings and operating lease obligations denominated
in yen, which totaled approximately 31 billion yen (approximately $270,000,000)
as of December 31, 1996. Such transactions and borrowings expose the Company to
exchange rate fluctuations for the period of time from inception of the
transaction until it is settled. In recent years, the yen has fluctuated
substantially against the U.S. dollar. The Company has entered and will from
time to time enter into hedging transactions in order to minimize exposure to
currency rate fluctuations. There can be no assurance that such hedging
transactions will minimize exposure to currency rate fluctuations or that
fluctuations in the currency exchange rates in the future will not have an
adverse impact on the Company's results of operations. In addition, there can be
no assurance that inflation rates in countries where the Company conducts
operations will not adversely affect the Company's operating results in the
future.
Both manufacturing and sales of the Company's products may be affected
adversely by political and economic conditions abroad. Protectionist trade
legislation in either the United States or foreign countries, such as a change
in the current tariff structures, export compliance laws or other trade
policies, could affect adversely the Company's ability to manufacture or sell in
foreign markets.
MARKETING AND CUSTOMERS
The Company has focused its marketing efforts primarily on the computer,
communications and consumer products industries, and within those industries,
the Company emphasizes digital video, digital broadcasting, personal
entertainment, networking, desktop and personal computing, wireless
communication and office automation applications. The Company's strategy is to
leverage its systems-level ASIC strength to shift its marketing emphasis from
the low level integration market to the type of account where the Company can
bring greater systems-level intellectual property to the relationship. The
Company, however, expects that this strategy will result in the Company becoming
increasingly dependent on a limited number of customers for a substantial
portion of its revenues.
The Company markets its products and services through its worldwide direct
sales and marketing and field engineering organizations which consists of
approximately 813 employees (including subsidiaries), and through independent
sales representatives and distributors. All of the Company's customer design
centers also include a direct sales office. See "Properties." For information
concerning foreign operations, see Note 10 of Notes to Consolidated Financial
Statements in the Company's 1996 Annual Report to Stockholders. International
sales are subject to risks common to export activities, including governmental
regulations, trade barriers, tariff increases and currency fluctuations. To
date, the Company has not experienced any material difficulties because of these
risks.
In 1996, Sony Corporation accounted for approximately 14% of the Company's
revenues. In 1995, Sony Corporation accounted for approximately 12% of the
Company's revenues. In 1994 Sun Microsystems, Inc. and Intel Corporation
accounted for approximately 14% and 11%, respectively, of the Company's
revenues.
BACKLOG
Generally, the Company's customers are not subject to long-term contracts,
but to purchase orders which are accepted by the Company. Quantities of the
Company's products to be delivered and delivery schedules under purchase orders
outstanding from time to time are frequently revised to reflect changes in
customer needs. In addition, the timing of the performance of design services
included in the Company's backlog at any particular time is generally within the
control of the customer, not the Company. For these reasons, the Company's
backlog as of any particular date is not a meaningful indicator of future sales.
7
<PAGE> 9
COMPETITION
The Company's competitors include many large domestic and foreign companies
which have substantially greater financial, technical and management resources
than the Company, as well as emerging companies attempting to sell products to
specialized markets such as those addressed by the Company. Several major
diversified electronics companies, including Mitsubishi Corporation, Toshiba
Corporation, NEC Corporation and SGS Thompson, Inc., and a number of United
States semiconductor manufacturers, including Lucent Technologies, Inc.
(formerly known as AT&T), IBM Corporation, and Texas Instruments, Inc., offer
ASIC products and/or offer products which compete with the product lines of the
Company. In addition, the Company faces competition from some companies whose
strategy is to provide a portion of the products and services which the Company
offers. For example, these competitors may offer semiconductor design services,
may license design tools, and/or may provide support for obtaining products at
an independent foundry. There can be no assurance that certain large customers,
some of whom the Company has licensed to use elements of its process and product
technologies, will not develop internal design and production operations to
produce their own ASICs.
The principal factors on which competition in the ASIC market is based
include design capabilities (including the software design tool features,
compatibility with industry standard design tools, CoreWare library and the
skills of the design team), quality, delivery time and price. The Company
believes that it presently competes favorably with respect to these factors, and
that its success will depend on its continued ability to provide its customers
with a complete range of design services, products and manufacturing
capabilities on competitive terms. There can be no assurance, however, that
other custom design approaches will not be developed which could have an adverse
impact on the Company's business and results of operations.
The Company is increasingly emphasizing its CoreWare product offerings and
methodology. The Company believes that this strategy presents new business
opportunities for which the Company believes it presently has a competitive
advantage. Although there may be other companies that offer similar types of
products and related services, the Company believes it currently offers
different, and generally more complete, capabilities than those companies. As
the market for the CoreWare approach grows, the Company expects alternative
solutions to be offered by its competitors and that competition will intensify.
There can be no assurance that the Company's CoreWare product approach will
continue to receive market acceptance, that a competitor's approach will not
achieve greater acceptance or that as competition intensifies, the Company's
future operating results will not be adversely impacted. Important competitive
factors will include the content, quantity and quality of CoreWare library
elements available, the quality of process technology, the ability of a company
to offer its customers systems-level expertise and the ability of a customer to
customize and differentiate its product. There can be no assurance that the
Company will be able to compete favorably in these areas.
RESEARCH AND DEVELOPMENT
The semiconductor industry is characterized by rapid changes in both
product and process technologies. Because of continual improvements in these
technologies, the Company believes that its future success will depend, in part,
upon its ability to continue to improve its product and process technologies and
to develop new technologies in a cost effective manner in order to maintain the
performance advantages of its products and processes relative to competitors, to
adapt products and processes to technological changes and to adopt emerging
industry standards. If the Company is not able to successfully implement these
new process technologies and to achieve volume production of new products at
acceptable yields using new manufacturing processes, the Company's operating
results will be adversely affected.
The Company's research and development emphasizes the development of new
advanced products, improvements in process technologies, enhancements of design
automation software capabilities, and cost reduction of existing products.
During 1996, 1995 and 1994, the Company expended $184,452,000, $123,892,000 and
$98,978,000, respectively, on its research and development activities. The
Company expects to continue to make significant investments in research and
development activities and believes such
8
<PAGE> 10
investments are critical to its ability to continue to compete with other ASIC
manufacturers. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" at page 11 of the Company's 1996 Annual Report to
Stockholders, incorporated herein by reference.
PATENTS, TRADEMARKS AND LICENSES
The Company owns various United States and international patents and has
additional patent applications pending relating to certain of its products and
technologies. The Company also maintains trademarks on certain of its products
and services. Although the Company believes that patent and trademark protection
have value, the rapidly changing technology in the semiconductor industry makes
the Company's future success dependent primarily upon the technical competence
and creative skills of its personnel rather than on patent and trademark
protection.
As is typical in the semiconductor industry, the Company has from time to
time received, and may in the future receive, communications from other parties
asserting patent rights, mask work rights, copyrights, trademark rights or other
intellectual property rights that such other parties allege cover certain of the
Company's products, processes, technologies or information. Several such
assertions relating to patents are in various stages of evaluation. The Company
is considering whether to seek licenses with respect to certain of these claims.
Litigation has arisen with respect to one of these assertions. See "Legal
Proceedings." Based on industry practice, the Company believes that licenses or
other rights, if necessary, could be obtained on commercially reasonable terms.
Nevertheless, no assurance can be given that licenses can be obtained, or if
obtained will be on acceptable terms or that litigation or other administrative
proceedings will not occur. The inability to obtain licenses or other rights or
to obtain such licenses or rights on favorable terms or litigation arising out
of such other parties' assertions could have a material adverse effect on the
Company's future operating results.
The Company has also entered into certain license agreements which
generally provide for the non-exclusive licensing of design and product
manufacturing rights and for cross-licensing of future improvements developed by
either party.
ENVIRONMENTAL REGULATION
Federal, state and local regulations impose various environmental controls
on the use and discharge of certain chemicals and gases used in semiconductor
processing. The Company's facilities have been designed to comply with these
regulations, and the Company believes that its activities conform to present
environmental regulations. However, increasing public attention has been focused
on the environmental impact of electronics and semiconductor manufacturing
operations. While the Company to date has not experienced any materially adverse
effects on its business from environmental regulations, there can be no
assurance that such regulations will not be amended so as to impose expensive
obligations on the Company. In addition, violations of environmental regulations
or unpermitted discharges of hazardous substances could result in the necessity
for additional capital improvements to comply with such regulations or to
restrict discharges, liability to Company employees and/or third parties, and
business interruptions as a consequence of permit suspensions or revocations or
as a consequence of the granting of injunctions requested by governmental
agencies or private parties.
EMPLOYEES
At December 31, 1996, the Company and its subsidiaries had approximately
3,912 employees, including approximately 511 in field marketing and sales,
approximately 528 in product marketing and support, approximately 904 in
engineering and research and development activities, approximately 1,596 in
manufacturing and approximately 373 in executive and administrative activities.
The Company's future success depends in large part on the continued service
of its key technical and management personnel and on its ability to continue to
attract and retain 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
9
<PAGE> 11
employees could have a material adverse effect on the Company. The Company has
never had a work stoppage, slow-down or strike, and no United States employees
are represented by a labor organization. The Company considers its employee
relations to be good.
RISK FACTORS
In addition to the following risk factors, reference is made to those risk
factors described elsewhere in this Form 10-K Report, as well as in the other
documents incorporated by reference in this Form 10-K Report.
Dependence on New Process Technologies and Products. The Company believes
that its future success depends, in part, on its ability to improve its existing
technologies and to develop and implement new process technologies in order to
continue to reduce semiconductor die size, improve device performance and
manufacturing yields, adapt products and processes to technological changes and
adopt emerging industry standards. If the Company is not able to successfully
implement new process technologies and achieve volume production of new products
at acceptable yields using new manufacturing processes, the Company's operating
results will be adversely affected. In addition, the Company must continue to
develop and introduce new products that compete effectively on the basis of
price and performance and that satisfy customer requirements. New product
development often requires long-term forecasting of market trends, development
and implementation of new processes and technologies and a substantial capital
commitment. The Company intends the CoreWare library elements it offers to be
based upon industry standard functions, protocols and interfaces, thereby
positioning them to be useful in a wide variety of systems applications. The
Company continues to emphasize engineering development and acquisition of
CoreWare building blocks and integration of CoreWare libraries into its design
capabilities. There can be no assurance, however, that the cores selected for
investment of the Company's financial and engineering resources will be
developed or acquired in a timely manner or will enjoy market acceptance.
Manufacturing Risks. Disruption of operations at any of the Company's
primary manufacturing facilities, particularly the Company's Japanese
facilities, or any of its subcontractors for any reason, including work
stoppages, fire, earthquake or other natural disasters, would cause delays in
shipments of the Company's products. There can be no assurance that alternate
capacity, particularly wafer production capacity, would be available on a timely
basis or at all, or that if available, it could be obtained on favorable terms,
thereby potentially resulting in a loss of customers. A disruption of operations
for these or other reasons could adversely affect the Company's operating
results. The Company generally does not have long-term volume production
contracts with its customers. Whether any specific ASIC design will result in
volume production orders and, if so, the quantities included in any such orders,
are factors beyond the control of the Company. Insufficient orders will result
in underutilization of the Company's manufacturing facilities which would
adversely impact the Company's operating results.
Capital Needs. The semiconductor industry is capital intensive. In order to
remain competitive, the Company must continue to make significant investments in
new facilities and capital equipment. The Company expects 1997 capital
expenditures to be approximately $475,000,000, and expects significant capital
expenditures in subsequent years, as well. The Company believes that existing
liquid resources and funds generated from operations combined with its ability
to borrow funds will be adequate to meet its operating and capital requirements
and obligations through the foreseeable future. The Company believes that its
level of financial resources is an important competitive factor in its industry.
Accordingly, the Company may from time to time seek additional equity or debt
financing. However, there can be no assurance that such additional financing
will be available when needed or, if available, will be on favorable terms. Any
future equity financing will decrease existing stockholders' percentage equity
ownership and may, depending on the price at which the equity is sold, result in
dilution. In addition, the level of capital expenditures necessary to enable the
Company to remain competitive result in a relatively high level of fixed costs.
If demand for the Company's products does not absorb the additional capacity,
the increase in fixed costs and operating expenses related to increases in
production capacity may materially and adversely affect the Company's results of
operations and financial condition.
10
<PAGE> 12
Fluctuations in Operating Results. The Company believes that its future
operating results will continue to be subject to quarterly variations based upon
a wide variety of factors, including the cyclical nature of both the
semiconductor industry and the markets addressed by the Company's products, the
ability to develop and implement new technologies, the availability and extent
of utilization of manufacturing capacity, changes in product mix, fluctuations
in manufacturing yields, the timing of new product introductions, price erosion,
exchange rate fluctuations and other competitive factors. As a participant in
the semiconductor industry, the Company operates in a technologically advanced,
rapidly changing and highly competitive environment. The Company predominantly
sells custom products to customers operating in a similar environment.
Accordingly, changes in the conditions of any of the Company's customers may
have a greater impact on the Company than if the Company offered standard
products that could be sold to many purchasers. While the Company cannot predict
what effect these various factors may have on its financial results, the
aggregate effect of these and other factors could result in significant
volatility in the Company's future performance and stock price. To the extent
the Company's performance may not meet expectations published by external
sources, public reaction could result in a sudden and significantly adverse
impact on the market price of the Company's securities, particularly on a
short-term basis.
Competition. The semiconductor industry in general and the markets in which
the Company competes in particular are intensely competitive, exhibiting both
rapid technological changes and continued price erosion. The Company's
competitors include many large domestic and foreign companies which have
substantially greater financial, technical and management resources than the
Company, as well as emerging companies attempting to sell products to
specialized markets such as those addressed by the Company. Several major
diversified electronics companies, including Mitsubishi Corporation, Toshiba
Corporation, NEC Corporation and SGS Thompson, Inc. and a number of United
States semiconductor manufacturers, including Lucent Technologies, Inc.
(formerly known as AT&T), IBM Corporation and Texas Instruments, Inc., offer
ASIC products and/or other products which are competitive to the product lines
of the Company. In addition, the Company faces competition from some companies
whose strategy is to provide a portion of the products and services which the
Company offers. For example, these competitors may offer semiconductor design
services, may license design tools, and/or may provide support for obtaining
products at an independent foundry. In addition, there can be no assurance that
certain large customers, some of whom have licensed elements of the Company's
process and product technologies, will not develop internal design and
production operations to produce their own ASICs. There can be no assurance that
the Company will be able to continue to compete effectively with its existing or
new competitors.
Currency Risks. In countries in which the Company is conducting business in
a local currency, currency exchange fluctuations could adversely affect the
Company's revenues and costs. A substantial portion of the costs of the
Company's manufacturing operations are denominated in Japanese yen. In addition,
the Company purchases a substantial portion of its raw materials and equipment
from foreign suppliers and incurs labor costs in foreign locations. A portion of
these transactions are denominated in currencies other than in U.S. dollars,
principally in Japanese yen. The Company also has borrowings and operating lease
obligations denominated in yen, which totaled approximately 31 billion yen
(approximately $270 million) at December 31, 1996. Such transactions and
borrowings expose the Company to exchange rate fluctuations for the period of
time from inception of the transaction until it is settled. In recent years, the
yen has fluctuated substantially against the U.S. dollar. However, the Company
has entered and will from time to time enter into hedging transactions in order
to minimize exposure to currency rate fluctuations. There can be no assurance
that such hedging transactions will minimize exposure to currency rate
fluctuations or that fluctuations in currency exchange rates in the future will
not have an adverse impact on the Company's results of operations. In addition,
there can be no assurance that inflation rates in countries where the Company
conducts operations will not adversely affect the Company's operating results in
the future.
Customer Concentration. As a result of the Company's strategy to direct its
marketing and selling efforts toward selected customers, the Company expects
that it will become increasingly dependent on a limited number of customers for
a substantial portion of its revenues. During 1996, approximately 53% of the
Company's net revenues were derived from sales to its top ten customers. Loss of
new product design wins or cancellation of business from any of these major
customers, significant changes in scheduled deliveries to any
11
<PAGE> 13
of these customers or decreases in the prices of products sold to any of these
customers could materially adversely affect the Company's results of operations.
Intellectual Property and Litigation. Although the Company believes that
the protection afforded by its patents, patent applications and trademarks has
value, the rapidly changing technology in the semiconductor industry makes the
Company's future success dependent primarily upon the technical competence and
creative skills of its personnel rather than on patent and trademark protection.
As is typical in the semiconductor industry, the Company has from time to time
received, and may in the future receive, communications from other parties
asserting patent rights, mask work rights, copyrights, trademark rights or other
intellectual property rights that such other parties allege cover certain of the
Company's products, processes, technologies or information. Several such
assertions relating to patents are in various stages of evaluation. The Company
is considering whether to seek licenses with respect to certain of these claims.
Based on industry practice, the Company believes that licenses or other rights,
if necessary, could be obtained on commercially reasonable terms for such
existing or future claims. Nevertheless, no assurance can be given that licenses
can be obtained, or if obtained will be on acceptable terms or that litigation
or other administrative proceedings will not occur. The inability to obtain
certain licenses or other rights or to obtain such licenses or rights on
favorable terms, or litigation arising out of such other parties' assertions,
both existing and future, could have a material adverse effect on the Company's
future operating results.
Cyclical Nature of the Semiconductor Industry. The semiconductor industry
is characterized by rapid technological change, rapid product obsolescence and
price erosion, and wide fluctuations in product supply and demand. From time to
time the industry also has experienced significant downturns, often in
connection with, or in anticipation of, maturing product cycles (of both the
semiconductor companies and their customers) and declines in general economic
conditions. These downturns have been characterized by diminished product
demand, production overcapacity and subsequent accelerated erosion of average
selling prices, and in some cases, have lasted for more than a year. The Company
may experience substantial period-to-period fluctuations in future operating
results due to general industry conditions or events occurring in the general
economy, and the Company's business could be materially and adversely affected
by a significant industry-wide downturn. The semiconductor industry also has
been characterized by periods of rapid expansion of production capacity. Even if
customers' aggregate demand might not decline, the availability of additional
capacity can adversely impact pricing levels, which can also depress revenue
levels. Also, during such periods, customers benefiting from shorter lead times
may delay some purchases into future periods. There can be no assurance that the
Company will not experience such downturns in the future, which could have a
material adverse effect on the Company's future operating results.
12
<PAGE> 14
ITEM 2. PROPERTIES
The following table sets forth certain information concerning the Company's
principal facilities.
PRINCIPAL LOCATIONS
<TABLE>
<CAPTION>
NO. OF LEASED/
BUILDINGS LOCATION OWNED SQ. FT. TOTAL USE
- --------- ------------------ ------------- ------- -----------------------------
<C> <S> <C> <C> <C>
7 Milpitas, CA Leased 609,410 Corporate Offices,
Administration, Engineering
1 Fremont, CA Leased 74,000 Manufacturing
1 Fremont, CA Owned 65,000 Manufacturing
2 Santa Clara, CA Leased 83,290 Research and Development
1 Fremont, CA Leased 39,246 Logistics
3 Gresham, OR Owned 532,400 Executive Office,
Engineering, Manufacturing
1 Bracknell, Leased 18,000 Executive Offices, Design
United Kingdom Center, Sales
1 Tokyo, Japan Leased 24,263 Executive Offices, Design
Center, Sales
5 Tsukuba, Japan Owned 334,541 Executive Offices,
Manufacturing
1 Etobicoke, Canada Leased 14,005 Executive Offices, Design
Center, Sales
1 Tsuen Wan, Owned 26,000 Manufacturing Control,
Hong Kong Assembly & Test
</TABLE>
The Company maintains leased regional office space for its field sales,
marketing and design center offices at the locations described below. In
addition, the Company maintains design centers at various distributor locations.
<TABLE>
<CAPTION>
UNITED STATES INTERNATIONAL
-------------------------------- --------------------------------
<S> <C>
Atlanta, GA Etobicoke, Ontario, Canada
Austin, TX Kanata, Ontario, Canada
Beaverton, OR Montreal, Quebec, Canada
Bellevue, WA Ballerup, Denmark
Bethesda, MD Paris, France
Boca Raton, FL Munich, Germany
Boulder, CO Stuttgart, Germany
Bowling Green, KY Netanya, Israel
Carlsbad, CA Ramat Hasharon, Israel
Dallas, TX Milan, Italy
Edison, NJ Osaka, Japan
Houston, TX Tokyo, Japan
Irvine, CA Seoul, Korea
Milpitas, CA Singapore
Minneapolis, MN Madrid, Spain
Mountain View, CA Kista, Sweden
Raleigh, NC Taipei, Taiwan
San Diego, CA Bracknell, U.K.
Schaumburg, IL
Victor, NY
Waltham, MA
</TABLE>
Leased facilities described above are subject to operating leases which
expire in 1997 through 2022. See Note 11 of Notes to Consolidated Financial
Statements in the Company's 1996 Annual Report to Stockholders, incorporated
herein by reference.
13
<PAGE> 15
Although the Company has plans to acquire additional equipment, the Company
believes that its existing facilities and equipment are well maintained, in good
operating condition and are adequate to meet its current requirements.
ITEM 3. LEGAL PROCEEDINGS
On July 9, 1990, Texas Instruments Incorporated ("TI") filed a complaint in
the United States District Court in Dallas, Texas and with the International
Trade Commission ("ITC") against the Company and four other defendants, Analog
Devices, Inc., Integrated Device Technology, Inc., VLSI Technology, Inc. and
Cypress Semiconductor Corporation. In these complaints, TI alleged that the
Company's manufacturing processes relating to device encapsulation in certain
types of plastic packages infringed certain of TI's patents.
The ITC action was finally resolved on appeal in all aspects by the Federal
Circuit in 1993. The patents upon which TI based the ITC action expired in 1994.
In TI's United States District Court action, TI sought damages in an
unspecified amount for alleged prior patent infringement. In May 1995, the trial
resulted in a verdict against the Company for willful infringement and an award
of damages in the amount of approximately $15 million. In July 1995, the
District Court granted the Company's motions, holding that the Company had not
infringed the patent and setting aside all assessed damages. In July 1996, the
United States Court of Appeals for the Federal Circuit (CAFC) affirmed the
District Court's post-trial rulings in favor of the Company. In September 1996,
the CAFC denied TI's motion for reconsideration en banc. In December 1996, TI
petitioned the U.S. Supreme Court for a writ of certiorari, seeking further
review of the case. That petition was pending at the time of filing of this Form
10-K Report.
The Company believes that the probability of a significant loss is remote
and has accordingly reallocated its reserves for the damages originally
assessed. See Notes 5, 6 and 11 of Notes to Consolidated Financial Statements in
the Company's 1996 Annual Report to Stockholders. Because both of the patents
involved in the litigation have expired, the verdict would have had no effect
upon the manufacture or sale of the Company's present or future products. The
Company continues to believe that the final outcome of this matter will not have
a material adverse effect on the Company's consolidated financial position or
results of operations. No assurance can be given, however, that this matter will
be resolved without the payment of damages and other costs, with the potential
for having an adverse effect on the Company.
During the third quarter of 1995, the Company acquired all the remaining
shares which it did not own (45%) of its Canadian subsidiary LSI Logic
Corporation of Canada, Inc. Certain former shareholders, representing
approximately 800,000 shares, or 3% of the previously outstanding shares, have
exercised dissent and appraisal rights. An action is pending in the Court of
Queen's Bench of Alberta, Judicial District of Calgary, for the adjudication of
claims asserted by such former shareholders under the relevant provisions of the
Canada Business Corporations Act. In addition, a separate action was filed by
another former shareholder in the Court of Chancery of the State of Delaware in
and for New Castle County, seeking an order that the acquisition of shares by
the Company be enjoined, certification of a class and damages. Although that
case originally was dismissed pursuant to a motion filed by the Company, on
appeal to the Supreme Court of Delaware, the order of dismissal was reversed and
the case was remanded to the Court of Chancery. While no assurances can be given
regarding either the ultimate determination of the Canadian court or the outcome
of the action filed in Delaware, the Company believes that the final outcome of
the these matters will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
The Company is a party to other litigation matters and claims which are
normal in the course of its operations, and while the results of such litigation
and claims cannot be predicted with certainty, the Company believes that the
final outcome of such matters will not have a materially adverse effect on the
Company's consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
14
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to page
43 of the Company's 1996 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to pages
38 through 39 of the Company's 1996 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to pages
9 through 15 of the Company's 1996 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to pages
16 through 36 of the Company's 1996 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Report in
that the registrant will file a definitive proxy statement within 120 days after
the end of its fiscal year pursuant to Regulation 14A (the "Proxy Statement")
for its Annual Meeting of Stockholders to be held May 6, 1997, and certain of
the information included therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to "ELECTION OF DIRECTORS -- Nominees" in the
Company's Proxy Statement.
The executive officers of the Company, who are elected by and serve at the
discretion of the Board of Directors, are as follows:
<TABLE>
<CAPTION>
EMPLOYED
NAME AGE POSITION SINCE
- ------------------------- --- ------------------------------------------------ --------
<S> <C> <C> <C>
Wilfred J. Corrigan 59 Chairman and Chief Executive Officer 1981
Moshe N. Gavrielov 42 Executive Vice President, LSI Logic Products 1988
Cyril F. Hannon 58 Executive Vice President, Worldwide Operations 1984
W. Richard Marz 53 Executive Vice President, Geographic Markets 1995
R. Douglas Norby 61 Executive Vice President and Chief Financial
Officer 1996
Lewis C. Wallbridge 53 Vice President, Human Resources 1984
</TABLE>
Except as set forth below, all of the officers have been associated with
the Company in their present position for more than the past five years.
Moshe N. Gavrielov has been employed with the Company since November 1988.
In May 1996, Mr. Gavrielov was named Executive Vice President, LSI Logic
Products. From February 1996 until May 1996, Mr. Gavrielov served as Senior
VicePresident and General Manager of International Marketing and Sales. From
November 1994 until February 1996, Mr. Gavrielov held the position of Senior
Vice-
15
<PAGE> 17
President, General Manager, for the Company's European subsidiary, LSI Logic
Europe plc. Mr. Gavrielov was named Vice-President, ASIC Engineering, in January
1991. From January 1991 until December 1991, Mr. Gavrielov was Director, MIPS
Engineering.
In September 1995, W. Richard Marz was named Senior Vice-President, North
American Marketing and Sales. From June 1986 until September 1995, Mr. Marz was
Vice-President, Sales & Marketing/The Americas, at Advanced Micro Devices, Inc.,
a semiconductor manufacturer.
Mr. Norby has served as Executive Vice President and Chief Financial
Officer of the Company since November 1996. From September 1993 until November
1996, Mr. Norby served as Senior Vice President and Chief Financial Officer of
Mentor Graphics Corporation. From July 1992 until September 1993, Mr. Norby
served as President and Chief Executive Officer of Pharmetrix Corporation, a
health care company located in Menlo Park, California. Mr Norby served as
President and Chief Operating Officer of Lucasfilm, Ltd. from February 1985
until May 1992. Additionally, from 1989 until May 1992, Mr. Norby served as
Chairman, President and Chief Executive Officer of LucasArts Entertainment
Company, a subsidiary of Lucasfilm, Ltd.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
"EXECUTIVE COMPENSATION" in the Company's Proxy Statement.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
"SECURITY OWNERSHIP -- Principal Stockholders and Security Ownership of
Management" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
"CERTAIN TRANSACTIONS" in the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements. The following Consolidated Financial Statements of
LSI Logic Corporation and Report of Independent Accountants are incorporated by
reference to the Company's 1996 Annual Report to Stockholders:
<TABLE>
<CAPTION>
PAGE IN
ANNUAL REPORT
-------------
<S> <C>
Consolidated Balance Sheets -- As of December 31, 1996 and 1995................. 16
Consolidated Statements of Operations -- For the Three Years Ended December 31, 17
1996..........................................................................
Consolidated Statement of Stockholders' Equity -- For the Three Years Ended 18
December 31, 1996.............................................................
Consolidated Statements of Cash Flows--For the Three Years Ended December 31, 19
1996..........................................................................
Notes to Consolidated Financial Statements...................................... 20-36
Report of Independent Accountants............................................... 37
</TABLE>
Effective beginning 1990, the Company changed its fiscal year end from
December 31 to the 52 or 53 week period which ends on the Sunday closest to
December 31. For presentation purposes, the consolidated financial statements,
notes and financial statement schedules will continue to refer to December 31 as
the year end. Fiscal 1996 was a 52 week year that ended on December 29, 1996.
16
<PAGE> 18
2. Financial Statement Schedules.
All schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
3. Exhibits:
<TABLE>
<C> <S>
3.1 Restated Certificate of Incorporation of Registrant.(1)
3.2 By-laws of Registrant.(2)
4.3 Preferred Shares Rights Plan dated November 16, 1988.(3)
4.4 Indenture dated March 23, 1994, between LSI Logic Corporation and The First
National Bank of Boston, Trustee, covering $143,750,000 principal amount of 5
1/2% Convertible Subordinated Notes due 2001 (including form of Note).(11)
10.1 Lease dated March 26, 1981 for 1601 McCarthy Boulevard between the Registrant
and McCarthy Industrial Investors.(4)
10.1A First Amendment to Lease dated May 1, 1991 to Lease dated March 26, 1981 for
1601 McCarthy Boulevard between the Registrant and McCarthy Industrial
Investors.(10)
10.2 Registrant's 1982 Incentive Stock Option Plan, as amended, and forms of Stock
Option Agreement.(8)
10.3 Registrant's Employee Stock Purchase Plan, as amended, and form of
Subscription Agreement. (13)
10.6 Series B Preferred Shares Purchase Agreement for 1,395,864 shares of Series B
Preferred Stock dated as of February 8, 1982.(4)
10.7 Modification Agreement dated as of February 8, 1982 between the Registrant and
holders of its Series A Preferred Stock.(4)
10.8 Lease Agreement dated November 22, 1983 for 48580 Kato Road, Fremont,
California between the Registrant and Bankamerica Realty Investors.(5)
10.24 Registrant's 1986 Directors' Stock Option Plan and forms of Stock Option
Agreements.(6)
10.29 Form of Indemnification Agreement entered and to be entered into between
Registrant and its officers, directors and certain key employees.(7)
10.35 LSI Logic Corporation 1991 Equity Incentive Plan.(13)
10.36 Lease Agreement dated February 28, 1991 for 765 Sycamore Drive, Milpitas,
California between the Registrant and the Prudential Insurance Company of
America.(9)
10.37 Stock Purchase Agreement dated as of January 20, 1995; Promissory Note dated
January 26, 1995; Note Purchase Agreement dated as of January 26, 1995 in
connection with the Company's purchase of the minority interest in one of its
Japanese subsidiaries.(12)
10.38 1995 Director Option Plan.(13)
10.39 Y25,000,000,000 Floating Rate Guaranteed Credit Facility dated as of December
27, 1995; Guaranty dated as of December 27, 1995(13);
10.39A First Amendment to Y25,000,000,000 Floating Rate Guaranteed Credit Facility
dated December 24, 1996; Amended and Restated Guaranty dated as of December
30, 1996.
</TABLE>
17
<PAGE> 19
<TABLE>
<C> <S>
10.40 LSI Logic Corporation International Employee Stock Purchase Plan.(14)
10.41 $300,000,000 Credit Agreement dated as of December 20, 1996 with ABN AMRO
Bank, N.V.
11.1 Statement Re: Computation of Earnings Per Share.
13.1 Annual Report to Stockholders for the year ended December 31, 1996 (to be
deemed filed only to the extent required by the instructions for Reports on
Form 10-K).
21.1 List of Subsidiaries.
22.1 Proxy Statement for the Registrant's 1997 Annual Meeting of Stockholders (15).
23.1 Consent of Independent Accountants (see page 21).
24.1 Power of Attorney (included on page 20).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (No. 33-59981) which became effective
June 6, 1995.
(2) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 26, 1988.
(3) Incorporated by reference to exhibits filed with the Registrant's Form 8-A
filed on November 21, 1988.
(4) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 2-83035) which became effective May
13, 1983.
(5) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1983.
(6) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1986.
(7) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1987.
(8) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1988.
(9) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991.
(10) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992.
(11) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended April 3, 1994.
(12) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended January 1, 1995.
(13) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995.
(14) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (No. 333-12887) which became effective
September 27, 1996.
(15) Incorporated by reference to the Registrant's Definitive Proxy Statement
pursuant to Section 14(a) of the Securities Exchange Act of 1934, filed
March 25, 1997.
(b) Reports on Form 8-K.
None
18
<PAGE> 20
TRADEMARK ACKNOWLEDGMENTS
- The LSI Logic logo is a registered trademark of the Company. CoreWare and
Embedded Array are also registered trademarks of the Company.
- ATMizer, MiniRISC, TinyRISC, Scenario, Integra, G10 and G11 are
trademarks of the Company.
- All other brand names or trademarks appearing in the Form 10-K are the
property of their respective owners.
19
<PAGE> 21
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.
LSI LOGIC CORPORATION
By: /s/ WILFRED J. CORRIGAN
------------------------------------
Wilfred J. Corrigan
Chairman and Chief Executive Officer
Dated: March 25, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Wilfred J. Corrigan and David E. Sanders, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------
<C> <C> <S>
/s/ WILFRED J. CORRIGAN Chairman of the Board and Chief March 25, 1997
- --------------------------------------------- Executive Officer (Principal
(Wilfred J. Corrigan) Executive Officer)
/s/ R. DOUGLAS NORBY Executive Vice President and March 25, 1997
- --------------------------------------------- Chief Financial Officer
(R. Douglas Norby) (Principal Financial Officer
and Principal Accounting
Officer); Director
/s/ T.Z. CHU Director March 25, 1997
- ---------------------------------------------
(T.Z. Chu)
/s/ MALCOLM R. CURRIE Director March 25, 1997
- ---------------------------------------------
(Malcolm R. Currie)
/s/ JAMES H. KEYES Director March 25, 1997
- ---------------------------------------------
(James H. Keyes)
</TABLE>
20
<PAGE> 22
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 2-86474, No. 2-91907, No. 2-98732, No. 33-6188, No.
33-6203, No. 33-13265, No. 33-17720, No. 33-30385, No. 33-30386, No. 33-36249,
No. 33-41999, No. 33-42000, No. 33-53054, No. 33-66548, No. 33-66546, No.
33-55631, No. 33-55633, No. 33-55697, No. 33-59981, No. 33-59985, No. 33-59987,
No. 333-12887) of LSI Logic Corporation of our report dated January 16, 1997
(except for Note 12 for which the date is February 21, 1997) appearing on page
37 of the Annual Report to Stockholders, which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report on the Financial Statement Schedule, which appears on page S-2 of this
Form 10-K.
PRICE WATERHOUSE LLP
San Jose, California
March 24, 1997
21
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of Registrant(1).................
3.2 By-laws of Registrant(2)...............................................
4.3 Preferred Shares Rights Plan dated November 16, 1988(3)................
4.4 Indenture dated March 23, 1994, between LSI Logic Corporation and The
First National Bank of Boston, Trustee, covering $143,750,000 principal
amount of 5 1/2% Convertible Subordinated Notes due 2001 (including
form of Note)(11)......................................................
10.1 Lease dated March 26, 1981 for 1601 McCarthy Boulevard between the
Registrant and McCarthy Industrial Investors(4)........................
10.1A First Amendment to Lease dated May 1, 1991 to Lease dated March 26,
1981 for 1601 McCarthy Boulevard between the Registrant and McCarthy
Industrial Investors(10)...............................................
10.2 Registrant's 1982 Incentive Stock Option Plan, as amended, and forms of
Stock Option Agreement(8)..............................................
10.3 Registrant's Employee Stock Purchase Plan, as amended, and form of
Subscription Agreement(13).............................................
10.6 Series B Preferred Shares Purchase Agreement for 1,395,864 shares of
Series B Preferred Stock dated as of February 8, 1982(4)...............
10.7 Modification Agreement dated as of February 8, 1982 between the
Registrant and holders of its Series A Preferred Stock(4)..............
10.8 Lease Agreement dated November 22, 1983 for 48580 Kato Road, Fremont,
California between the Registrant and Bankamerica Realty
Investors(5)...........................................................
10.24 Registrant's 1986 Directors' Stock Option Plan and forms of Stock
Option Agreements(6)...................................................
10.29 Form of Indemnification Agreement entered and to be entered into
between Registrant and its officers, directors and certain key
employees(7)...........................................................
10.35 LSI Logic Corporation 1991 Equity Incentive Plan(13)...................
10.36 Lease Agreement dated February 28, 1991 for 765 Sycamore Drive,
Milpitas, California between the Registrant and the Prudential
Insurance Company of America(9)........................................
10.37 Stock Purchase Agreement dated as of January 20, 1995; Promissory Note
dated January 26, 1995; Note Purchase Agreement dated as of January 26,
1995 in connection with the Company's purchase of the minority interest
in one of its Japanese subsidiaries(12)................................
10.38 1995 Director Option Plan(13)..........................................
10.39 Y25,000,000,000 Floating Rate Guaranteed Credit Facility dated as of
December 27, 1995; Guaranty dated as of December 27, 1995(13)..........
10.39A First Amendment to Y25,000,000,000 Floating Rate Guaranteed Credit
Facility dated December 24, 1996; Amended and Restated Guaranty dated
as of December 30, 1996................................................
10.40 LSI Logic Corporation International Employee Stock Purchase Plan(14)...
10.41 $300,000,000 Credit Agreement dated as of December 20, 1996 with ABN
AMRO Bank, N.V. .......................................................
11.1 Statement Re: Computation of Earnings Per Share........................
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
13.1 Annual Report to Stockholders for the year ended December 31, 1996 (to
be deemed filed only to the extent required by the instructions for
Reports on Form 10-K)..................................................
21.1 List of Subsidiaries...................................................
23.1 Consent of Independent Accountants (see page 21).......................
24.1 Power of Attorney (included on page 20)................................
27.1 Financial Data Schedule................................................
</TABLE>
- ---------------
(1) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (No. 33-59981) which became effective
June 6, 1995.
(2) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 26, 1988.
(3) Incorporated by reference to exhibits filed with the Registrant's Form 8-A
filed on November 21, 1988.
(4) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 2-83035) which became effective May
13, 1983.
(5) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1983.
(6) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1986.
(7) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1987.
(8) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1988.
(9) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991.
(10) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992.
(11) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended April 3, 1994.
(12) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended January 1, 1995.
(13) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995.
(14) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (No. 333-12887) which became effective
September 27, 1996.
<PAGE> 1
EXHIBIT 10.39A
FIRST AMENDMENT TO AGREEMENT
THIS FIRST AMENDMENT TO AGREEMENT (this "Amendment"), dated December
24, 1996, is made among LSI Logic Japan Semiconductor, Inc., a company
organized and existing under the laws of Japan (the "Borrower"), the financial
institutions listed on the signature pages hereof under the heading "BANKS"
(each a "Bank" and, collectively, the "Banks"), ABN AMRO Bank N.V., Tokyo
Branch as agent for the Banks (in such capacity, the "Agent"), and The
Industrial Bank of Japan, Limited, as co-agent (in such capacity, the
"Co-Agent").
The Borrower, the Banks, the Agent and the Co-Agent are parties to an
Agreement dated as of December 27, 1995 (the "Agreement") under which the Banks
have made available to the Borrower a credit facility of up to Y.25,000,000,000
(twenty-five billion yen). The Borrower has requested that the Banks agree to
certain amendments to the Agreement. The Banks have agreed to such request,
subject to the terms and conditions hereof.
Accordingly, the parties hereto agree as follows:
SECTION 1 Definitions; Interpretation.
(a) Terms Defined in Agreement. All capitalized terms used in
this Amendment and not otherwise defined herein shall have the meanings
assigned to them in the Agreement or, if not defined in the Agreement, in the
Guaranty (as such term is amended as provided below).
(b) Interpretation. The rules of interpretation set forth in
Section 1.5 of the Agreement shall be applicable to this Amendment and are
incorporated herein by this reference.
SECTION 2 Amendments to the Agreement.
(a) Amendments. The Agreement shall be amended as follows,
effective as of the date of satisfaction of the conditions set forth in Section
3 (the "Effective Date"):
(i) Clause 1.2 of the Agreement is hereby amended as follows:
(A) The definition of "Guaranty" is amended and restated
as follows:
"Guaranty" means the Guaranty dated as of December
27, 1995, as amended by that certain
1.
<PAGE> 2
Amended and Restated Guaranty dated as of December 30, 1996, made by the
Guarantor.
(B) The definition of "Margin" is amended and restated in
its entirety as follows:
"Margin" has the meaning given to it in Clause 5.3;
(C) The definition of "Margin Determination Date" is
amended and restated in its entirety as follows:
"Margin Determination Date" means (i) the "Effective
Date" as defined in the First Amendment to Agreement
dated December 30, 1996, among the Borrower, the
Banks, the Agent and the Co-Agent, (ii) the 55th day
following the end of each of the first three fiscal
quarters of the Guarantor or (iii) the 100th day
following the end of each fiscal year of the
Guarantor, as the case may be;
(D) The definition of "Margin Period" is deleted.
(E) The definition of "Ratio" is amended and restated in
its entirety as follows:
"Ratio" means the EBITDA/Total Debt Ratio;
(ii) Clause 5.3 of the Agreement is hereby amended and
restated in its entirety as follows:
5.3 Margin
(a) The "Margin" shall be, in respect of any portion of
any Contribution other than any Collateralized
Amount, the amount set forth opposite the indicated
Level below the heading "LIBOR/TIBOR Margin" in the
pricing grid set forth on Annex I in accordance with
the parameters set forth on Annex I.
(b) The Margin shall be, in respect of any period during
the Availability Period and in respect of each
Collateralized Amount (provided that the
corresponding Collateral is held by the Banks in
accordance with Clause 6.7 and in any event in a
manner satisfactory to the relevant Bank for such
period), 0.30 per cent per annum.
The Borrower shall notify the Agent of the Ratio as
of each Margin Determination Date
2.
<PAGE> 3
and shall submit Margin Certificates (duly completed and signed by a
Responsible Officer of the Guarantor) on or before each Margin Determination
Date.
(iii) The Agreement is hereby also amended by attaching as
Annex I thereto the pricing grid attached hereto as Exhibit A.
(iv) The Agreement is hereby also amended by deleting the
reference to the Debt Rating in Exhibit 1 to the Agreement.
(v) The Agreement is hereby also amended by deleting the form
of "Margin Certificate" attached as Exhibit 5 to the Agreement and substituting
therefor as a new Exhibit 5 the form of Margin Certificate attached hereto as
Exhibit B.
(b) Amendment to Table of Contents. The Table of Contents of the
Agreement shall be amended to the extent necessary to reflect the amendments to
the Agreement made in subsection (a).
(c) References Within Agreement. Each reference in the Agreement
to "this Agreement" and the words "hereof," "herein," "hereunder," or words of
like import, shall mean and be a reference to the Agreement as amended by this
Amendment.
SECTION 3 Conditions of Effectiveness. The effectiveness of Section
2 of this Amendment shall be subject to the satisfaction of each of the
following conditions precedent:
(a) Guaranty. The Agent shall have received the Amended and
Restated Guaranty in the form of Exhibit C hereto, executed by the Guarantor
(the "Amended and Restated Guaranty").
(b) Additional Closing Documents and Actions. The Agent shall
have received the following, in form and substance satisfactory to it:
(i) evidence that all (A) authorizations or approvals of any
Governmental Authority, and (B) approvals or consents of any other Person,
required in connection with the Amended and Restated Guaranty or the execution,
delivery and performance of this Amendment shall have been obtained;
(ii) a certificate of a Responsible Officer of the Borrower, stating
that (A) the representations and warranties contained in Section 4 are true and
correct on and as of the date of such certificate as though made on and as of
the Effective Date, and (B) on and as of the Effective Date, after and giving
effect to the amendment of the Agreement contemplated hereby,
3.
<PAGE> 4
(1) no Default shall have occurred and be continuing, and (2) there has been no
material adverse change in the financial condition of the Borrower from that
set forth in the financial statements as of December 31, 1995; and
(iii) a certificate of a Responsible Officer of the Guarantor,
stating that (A) the representations and warranties contained in Section 10 of
the Amended and Restated Guaranty are true and correct on and as of the
Effective Date as though made on and as of such date, (B) no "Event of Default"
(as defined in the Guaranty) exists or would result from the execution,
delivery and performance of the Amended and Restated Guaranty, and (C) there
has been no Material Adverse Effect as to the Guarantor and its Subsidiaries
since December 31, 1995.
(c) Corporate Documents. The Agent shall have received the
following, in form and substance satisfactory to it:
(i) a certificate of the Secretary or Assistant Secretary of the
Borrower, dated the Effective Date, certifying (A) copies of the resolutions of
the Board of Directors of the Borrower authorizing the execution, delivery and
performance of this Amendment and (B) the incumbency, authority and signatures
of each officer of the Borrower authorized to execute and deliver this
Amendment, together with the related Power of Attorney empowering each Person
to execute and deliver this Amendment; and
(ii) a certificate of the Secretary or Assistant Secretary of the
Guarantor, dated the Effective Date, certifying (A) copies of the resolutions
of the Board of Directors of the Guarantor authorizing the execution, delivery
and performance of the Amended and Restated Guaranty and (B) the incumbency,
authority and signatures of each officer of the Guarantor authorized to execute
and deliver the Amended and Restated Guaranty.
(d) Legal Opinion. The Agent shall have received the opinion of
the General Counsel of the Guarantor, dated the Effective Date, in
substantially the form of Exhibit D; and
(e) Material Adverse Effect. On and as of the Effective Date,
there shall have occurred no material adverse change in the financial condition
of the Borrower from that set forth in its financial statements dated December
31, 1995, and no Material Adverse Effect (with respect to the Guarantor and its
Subsidiaries) since December 31, 1995.
(f) Representations and Warranties; No Default. On the Effective
Date, after giving effect to the amendment of the Agreement contemplated
hereby:
4.
<PAGE> 5
(i) the representations and warranties contained in Section 4 shall
be true and correct on and as of the Effective Date as though made on and as of
such date; and
(ii) no Default shall have occurred and be continuing.
(g) Margin Certificate and Compliance Certificate. The Agent
shall have received a completed Margin Certificate and a completed Compliance
Certificate, dated the Effective Date, for the Guarantor's immediately
preceding fiscal quarter.
(h) Additional Documents. The Agent shall have received, in form
and substance satisfactory to it, such additional approvals, opinions,
documents and other information as the Agent or any Bank (through the Agent)
may reasonably request.
SECTION 4 Representations and Warranties. To induce the Banks to
enter into this Amendment, the Borrower hereby confirms and restates, as of the
date hereof, the representations and warranties made by it in Section 9 of the
Agreement and in the other Loan Documents. For the purposes of this Section 4,
(i) each reference in Section 9 of the Agreement to "this Agreement," and the
words "hereof," "herein," "hereunder," or words of like import in such Section,
shall mean and be a reference to the Agreement as amended by this Amendment,
(ii) Section 9.1(f) of the Agreement shall be deemed instead to refer to the
last day of the most recent fiscal quarter and fiscal year for which financial
statements have then been delivered, (iii) any representations and warranties
which relate solely to an earlier date shall not be deemed confirmed and
restated as of the date hereof (provided that such representations and
warranties shall be true, correct and complete as of such earlier date), and
(iv) clause (i) shall take into account any amendments to the Schedules and
other disclosures made in writing by the Borrower to the Agent and the Banks
after the Closing Date and approved by the Agent and the Majority Banks.
SECTION 5 Miscellaneous.
(a) Notice. The Agent shall notify the Borrower, the Guarantor
and the Banks of the occurrence of the Effective Date and promptly thereafter
distribute to the Borrower and the Banks copies of all documents delivered
under Section 3.
(b) Agreement Otherwise Not Affected. Except as expressly amended
pursuant hereto, the Agreement shall remain unchanged and in full force and
effect and is hereby ratified and confirmed in all respects. The Banks' and
the Agent's execution and delivery of, or acceptance of, this Amendment and any
other documents and instruments in connection herewith (collectively,
5.
<PAGE> 6
the "Amendment Documents") shall not be deemed to create a course of dealing or
otherwise create any express or implied duty by any of them to provide any
other or further amendments, consents or waivers in the future. Nothing in
this Amendment or any other Amendment Document is intended to impair the
priorities, liens or rights of any Bank with respect to any Collateral granted
to such Bank under the Account Pledge executed by the Borrower in favor of such
Bank substantially in the form of Exhibit 3 to the Agreement or other form
satisfactory to such Bank. The Borrower hereby ratifies and confirms the
priority and perfection of all security interests in the Collateral granted to
any Bank prior to the date hereof.
(c) No Reliance. The Borrower hereby acknowledges and confirms to
the Agent and the Banks that the Borrower is executing this Amendment and the
other Amendment Documents on the basis of its own investigation and for its own
reasons without reliance upon any agreement, representation, understanding or
communication by or on behalf of any other Person.
(d) Costs and Expenses. The Borrower agrees to pay to the Agent
on demand the reasonable out-of-pocket costs and expenses of the Agent, and the
reasonable fees and disbursements of counsel to the Agent (including allocated
costs of internal counsel), in connection with the negotiation, preparation,
execution and delivery of this Amendment and any other documents to be
delivered in connection herewith.
(e) Binding Effect. This Amendment shall be binding upon, inure
to the benefit of and be enforceable by the Borrower, the Agent and each Bank
and their respective successors and assigns.
(f) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF JAPAN.
(g) Complete Agreement; Amendments. This Amendment, together with
the other Amendment Documents and the other Loan Documents, contains the entire
and exclusive agreement of the parties hereto and thereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior
commitments, drafts, communications, discussion and understandings, oral or
written, with respect thereto. This Amendment may not be modified, amended or
otherwise altered except in accordance with the terms of Clause 16.2 of the
Agreement.
(h) Jurisdiction.
(i) Each party irrevocably agrees that the Tokyo District Court shall
have jurisdiction to hear and determine any suit, action or proceedings, and to
settle any disputes, which
6.
<PAGE> 7
may arise out of or in connection with the Amendment Documents and, for those
purposes, irrevocably submits to the jurisdiction of that court.
(ii) Each party irrevocably waives any objection which it might now
or hereafter have to the court referred to in clause (i) above being nominated
as the forum to hear and determine any suit, action or proceedings, and to
settle any disputes, which may arise out of or in connection with the Amendment
Documents and agrees not to claim that court is not a convenient or appropriate
forum.
(iii) The submission to the jurisdiction of the court referred to in
clause (i) above shall not (and shall not be construed so as to) limit any
right of any party to take proceedings against any other party in any other
court of competent jurisdiction nor shall the taking of proceedings in any one
or more jurisdictions preclude the taking of proceedings in any other
jurisdiction (whether concurrently or not) if and to the extent permitted by
applicable law.
(iv) Each party consents generally in respect of any legal action or
proceedings arising out of or in connection with the Amendment Documents to the
giving of any relief or the issue of any process in connection with such action
or proceedings including the making, enforcement or execution against any
property whatsoever (irrespective of its use or intended use) of any order or
judgment which may be made or given in such action or proceeding.
(i) English language. This Amendment is made in and shall be
construed in the English language; all certificates, instruments and other
documents to be delivered under or supplied in connection with this Amendment
shall be in the English language; provided that, to the extent that (A) any
corporate document of the Borrower is in the ordinary course of its business
prepared in Japanese or (B) any instrument or other document issued by a
Governmental Authority is in Japanese, such documents shall be delivered
hereunder in Japanese and, if appropriate, shall be accompanied by an English
translation thereof. Without limiting the generality of the foregoing, the
Borrower's certificate of seal impression and the certified copy of the
commercial registry of the Borrower need not be accompanied by their English
translations.
(j) Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
7.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment, as of the date first above written.
THE BORROWER
LSI LOGIC JAPAN SEMICONDUCTOR, INC.
By____________________________________
Title:
THE AGENT
ABN AMRO BANK N.V., Tokyo Branch
By____________________________________
Title:
THE BANKS
ABN AMRO BANK N.V., Tokyo Branch,
as Bank
By____________________________________
Name:
Title:
8.
<PAGE> 9
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, as Co-Agent and a Bank
By____________________________________
Name:
Title:
THE SANWA BANK, LIMITED
By____________________________________
Name:
Title:
THE BANK OF NOVA SCOTIA, Tokyo Branch
By____________________________________
Name:
Title:
BANQUE NATIONALE DE PARIS, Tokyo Branch
By____________________________________
Name:
Title:
BARCLAYS BANK PLC, Tokyo Branch
By____________________________________
Name:
Title:
9.
<PAGE> 10
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By____________________________________
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD.
By____________________________________
Name:
Title:
THE SUMITOMO BANK, LTD.
By____________________________________
Name:
Title:
THE MITSUBISHI TRUST & BANKING
CORPORATION
By____________________________________
Name:
Title:
10.
<PAGE> 11
THE DAI-ICHI KANGYO BANK, LIMITED
By____________________________________
Name:
Title:
11.
<PAGE> 12
Exhibit A
to First Amendment to Agreement
ANNEX I
PRICING GRID
<TABLE>
---------------------------------------------------------------------------
<S> <C> <C>
Level EBITDA/Total Debt (Basis points per annum)
Ratio ------------------------
LIBOR/TIBOR Margin
------- ------------------------ ------------------------
Level 1 Greater than or equal to 65
to 1.0 to 1.0
------- ------------------------ ------------------------
Level 2 Less than 1.0 to 1.0 75
---------------------------------------------------------------------------
</TABLE>
The EBITDA/Total Debt Ratio used to compute the Margin for the
Contributions shall be the EBITDA/Total Debt Ratio set forth in the Margin
Certificate most recently delivered by the Guarantor to the Agent pursuant to
Section 11(l) of the Guaranty; changes in the Margin resulting from a change in
the EBITDA/Total Debt Ratio shall become effective one Business Day after
delivery by the Guarantor to the Agent of a new Margin Certificate pursuant to
Section 11(l). If the Guarantor shall fail to deliver a Margin Certificate on
or prior to a Margin Determination Date as required pursuant to Section 11(l)
(without giving effect to any grace period), the Margin from the first day
after such Margin Determination Date through the day the Guarantor delivers to
the Agent a Margin Certificate shall conclusively equal the highest Margin set
forth above.
1.
<PAGE> 13
Exhibit B
to First Amendment to Agreement
Exhibit 5
FORM OF MARGIN CERTIFICATE
TO: ABN AMRO Bank N.V., Tokyo Branch, as Agent
(address)
Re: LSI Logic Japan Semiconductor, Inc.
Gentlemen:
This Margin Certificate is made and delivered pursuant to the
Agreement dated December 27, 1995, as amended December 30, 1996 (as further
amended, modified, renewed or extended from time to time, the "Agreement")
among LSI Logic Japan Semiconductor, Inc. (the "Borrower"), certain financial
institutions named therein as Banks, ABN AMRO Bank N.V., Tokyo Branch, as
Agent, and The Industrial Bank of Japan, as Co-Agent and reference is made
thereto for full particulars of the matters described therein. All capitalized
terms used in this Margin Certificate and not otherwise defined herein shall
have the meanings assigned to them in the Agreement, or, if not defined in the
Agreement, in the Guaranty. This Margin Certificate relates to the accounting
period ending __________, 199__. We hereby notify you that the Ratio is
____________ as of the end of the [fiscal quarter] [fiscal year] ending
__________, 199__.
We refer you to our Compliance Certificate dated __________, 199__
delivered pursuant to the Guaranty for further information regarding the
determination of the Ratio.
IN WITNESS WHEREOF, the undersigned officer has signed this Margin
Certificate on behalf of the Guarantor this ____ day of ______________, 199__.
______________________________________
Name:
Title:
1.
<PAGE> 14
Exhibit C
to First Amendment to Agreement
FORM OF AMENDED AND RESTATED GUARANTY
================================================================================
LSI LOGIC CORPORATION
AMENDED AND RESTATED GUARANTY
DATED AS OF DECEMBER 30, 1996
================================================================================
<PAGE> 15
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION Page
- ------- ----
<S> <C>
SECTION 1 Definitions; Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Terms Defined in Facility Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(c) Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Guaranty . . . . . . . . 13
(d) Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3 Liability of Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4 Consents of Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5 Guarantor's Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Certain Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Additional Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(c) Independent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(d) Financial Condition of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 7 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Subordination to Payment of Subject Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) No Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(c) Subordination of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(d) Subordination upon any Distribution of Assets of the Borrower . . . . . . . . . . . . . . . . . . 22
(e) Authorization to Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8 Continuing Guaranty; Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Continuing Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(b) Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 9 Payments; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(b) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 10 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Organization and Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Authorization; No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(c) Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(d) Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(e) No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(f) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(g) Regulated Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(h) Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(i) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(j) Compliance with Consents and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
i
<PAGE> 16
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
SECTION Page
- ------- ----
<S> <C> <C>
(k) Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(l) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(m) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(n) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(o) Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(p) Labor Disputes, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(q) Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(r) Independent Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(s) Name of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(t) Significant Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(u) Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 11 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) Financial Statements and Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(b) Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(c) Preservation of Corporate Existence, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) Payment of Taxes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(e) Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(g) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(h) Payment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(i) Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(j) Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(k) Inspection of Property and Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(l) Margin Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(m) Further Assurances and Additional Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 12 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(a) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(b) Change in Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(c) Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(d) Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(e) Restrictions on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(f) Transactions with Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(g) Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(h) Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 13 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(a) Senior Debt to Total Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(b) Quick Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(c) Minimum Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(d) Debt Service Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(e) Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
ii
<PAGE> 17
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
SECTION Page
- ------- ----
<S> <C> <C>
SECTION 14 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(a) Representation or Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(b) Specific Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(c) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(d) Default Under Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(e) Insolvency; Voluntary Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(f) Involuntary Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(g) Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(h) Process Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(i) Seizure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(j) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(k) Dissolution, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(l) Ownership of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(m) Change in Ownership or Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(n) Repudiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(o) Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 15 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 16 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 17 Costs and Expenses; Indemnification; Other Charges . . . . . . . . . . . . . . . . . . . . . . . . 43
(a) Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(b) Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(c) Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(d) Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(e) Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 18 Payment Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 19 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 20 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 21 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 22 Assignments, Participations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 23 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 24 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 25 Effective Date; Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 26 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 27 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
iii
<PAGE> 18
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
SECTION Page
- ------- ----
<S> <C>
SECTION 28 Benefit of Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 29 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 30 Guarantor Acknowledgment and Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
EXHIBITS
Exhibit A Compliance Certificate
SCHEDULES
Schedule 1 Certain Permitted Liens
(Section 1, "Permitted Liens")
Schedule 2 Litigation (Section 10(i))
Schedule 3 Certain Environmental Matters (Section 10(k))
Schedule 4 Significant Subsidiaries
</TABLE>
iv
<PAGE> 19
AMENDED AND RESTATED GUARANTY
THIS AMENDED AND RESTATED GUARANTY (this "Guaranty"), dated as
of December 30, 1996, is made by LSI LOGIC CORPORATION, a Delaware corporation
(the "Guarantor"), in favor of the Banks from time to time party to the
Facility Agreement referred to below and ABN AMRO Bank N.V., as agent for such
Banks (in such capacity, the "Agent").
WHEREAS, LSI Logic Japan Semiconductor, Inc., a limited
liability company incorporated under the laws of Japan (the "Borrower"),
certain financial institutions as lenders (the "Banks") and the Agent are
parties to an Agreement dated December 27, 1995 (as amended, modified, renewed
or extended from time to time, the "Facility Agreement");
WHEREAS, the Guarantor has previously delivered a certain
Guaranty (the "Prior Guaranty") dated as of December 27, 1995 in favor of the
Banks from time to time party to the Facility Agreement and the Agent
guaranteeing the indebtedness and other obligations of the Borrower to the
Agent and the Banks under or in connection with the Facility Agreement as set
forth therein;
WHEREAS, the Borrower and the Guarantor have requested that
the Banks and the Agent agree to amend and restate the Prior Guaranty in order
to, among other things, amend the financial covenants contained therein; and
WHEREAS, the Banks and the Agent are willing to amend and
restate the Prior Guaranty as provided in this Guaranty.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained herein, the Guarantor hereby represents,
warrants, covenants and agrees as follows:
SECTION 1 Definitions; Interpretation.
(a) Terms Defined in Facility Agreement. All capitalized
terms used in this Guaranty (including in the recitals hereof) and not
otherwise defined herein shall have the meanings assigned to them in the
Facility Agreement.
(b) Certain Defined Terms. The following terms have the
following meanings:
"Acquisition" means any transaction or series of
related transactions for the purpose of or resulting in (a) the
acquisition, directly or indirectly, of all or substantially all of the
assets of a Person or of any business or division of a Person, (b) the
acquisition,
1
<PAGE> 20
directly or indirectly, of all or substantially all of the capital
stock, obligations or other securities of or interest in a Person, or
(c) a merger or consolidation or any other combination by the Guarantor
or any Subsidiary with another Person.
"Affiliate" means any Person which, directly or
indirectly, controls, is controlled by or is under common control with
another Person. For purposes of the foregoing, "control" with respect
to any Person shall mean the possession, directly or indirectly, of
the power (i) to vote 25% or more of the securities having ordinary
voting power for the election of directors of such Person, or (ii) to
direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by
contract or otherwise.
"Bankruptcy Code" means Title 11 of the United States
Code, as applicable to the relevant case.
"Capital Lease" means, for any Person, any lease of
property (whether real, personal or mixed) in respect of which such
Person is liable as lessee and which, in accordance with GAAP, would,
at the time a determination is made, be required to be recorded as a
capital lease.
"Capitalized Interest" means interest that is
incurred or accrued in any period and added to the cost of the asset
in connection with which such interest is incurred.
"Compliance Certificate" means a certificate of a
Responsible Officer of the Guarantor, in substantially the form of
Exhibit A, with such changes thereto as the Agent or any Bank may from
time to time reasonably request.
"Consolidated CMLTD" means, as of any date of
determination, the portion of long term Indebtedness coming due in the
next succeeding four-quarter period.
"Consolidated Current Liabilities" means, as of any
date of determination, the sum of current liabilities of the Guarantor
and its Subsidiaries on a consolidated basis, as determined in
accordance with GAAP, plus (without duplication) Guaranty Obligations
with respect to that portion of the underlying obligations which come
due within one year of such date of determination.
"Consolidated EBITDA" means, for any period,
Consolidated Net Income plus Consolidated Interest Expense plus income
tax expense plus depreciation expense, amortization expense and other
non-cash expenses or charges relating to Permitted Acquisitions which
were deducted in determining Consolidated Net Income, of the Guarantor
and
2
<PAGE> 21
its Subsidiaries on a consolidated basis, as determined in accordance
with GAAP.
"Consolidated Interest Expense" means, for any
period, interest expense (including interest expense attributable to
Capital Leases) of the Guarantor and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP.
"Consolidated Net Income" means, for any period, the
net income of the Guarantor and its Subsidiaries on a consolidated
basis for such period taken as a single accounting period, as
determined in accordance with GAAP.
"Consolidated Quick Assets" means, as of any date of
determination, the sum of all unencumbered and unrestricted (except
those encumbered or restricted in favor of the Agent or the Banks)
cash, cash equivalents and net accounts receivable classified as
current assets according to GAAP, of the Guarantor and its
Subsidiaries on a consolidated basis, as determined in accordance with
GAAP.
"Consolidated Rental Expense" means, for any period,
rental expense of the Guarantor and its Subsidiaries on a consolidated
basis, as determined in accordance with GAAP.
"Consolidated Tangible Net Worth" means, as of any
date of determination, Consolidated Total Assets minus Consolidated
Total Liabilities, minus (i) all assets which would be classified in a
separate account as intangible assets in accordance with GAAP,
including goodwill, organizational expense, research and development
expense, capitalized software, patent applications, patents,
trademarks, trade names, brands, copyrights, trade secrets, customer
lists, licenses, franchises and covenants not to compete, (ii) all
unamortized debt discount and expense and (iii) all treasury stock;
provided, however, that to the extent otherwise included in the amount
set forth in the foregoing clause (i) of this definition, there shall
be excluded from such amount the sum of (x) all engineering costs
incurred in connection with the development of major production
capabilities at new manufacturing facilities or refurbishment of an
existing facility or with respect to introducing a new manufacturing
process to existing or new manufacturing facilities and which are
classified as a fixed asset and capitalized on the consolidated
balance sheet of the Guarantor in accordance with GAAP and (y) amounts
representing the capitalized portion of the acquisition and
development costs of software necessary for the operation of the
business of the Guarantor and its Subsidiaries, as shown on the
consolidated balance sheet of the Guarantor.
3
<PAGE> 22
"Consolidated Total Assets" means, as of any date of
determination, the total assets of the Guarantor and its Subsidiaries
on a consolidated basis, as determined in accordance with GAAP.
"Consolidated Total Debt" means, as of any date of
determination, all Indebtedness of the Guarantor and its Subsidiaries
on a consolidated basis, as determined in accordance with GAAP.
"Consolidated Total Liabilities" means, as of any
date of determination, the total liabilities of the Guarantor and its
Subsidiaries on a consolidated basis, as determined in accordance with
GAAP.
"Convertible Subordinated Notes" has the meaning
provided therefor in the definition of Subordinated Debt.
"Dollars" and the sign "$" each means lawful money of
the United States.
"EBITDA/Total Debt Ratio" means, as of the last day
of any fiscal quarter of Guarantor, the ratio of (i) Consolidated
EBITDA for such fiscal quarter then ended to (ii) Consolidated Total
Debt as of such date.
"Environmental Laws" means all laws, statutes, common
law duties, rules, regulations, ordinances and codes, administrative
orders, directives, requests, licenses, authorizations and permits of,
and agreements with (including consent decrees), any Governmental
Authorities, in each case relating to or imposing liability or
standards of conduct concerning (a) the pollution, conservation or
protection of the environment (both natural and built), (b) the
development, occupation, exploitation or other use of land, buildings
or other property or assets, (c) the creation, storage, handling and
disposal of industrial waste and hazardous substances and (d) health
and safety at work or elsewhere, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Clean Air Act, the Federal Water Pollution Control Act of 1972, the
Solid Waste Disposal Act, the Federal Resource Conservation and
Recovery Act, the Toxic Substances Control Act, the Emergency Planning
and Community Right-to-Know Act, the California Hazardous Waste
Control Law, the California Solid Waste Management, Resource Recovery
and Recycling Act, the California Water Code and the California Health
and Safety Code.
"Equity Capital" means Consolidated Total Assets
minus Consolidated Total Liabilities.
"ERISA" means the Employee Retirement Income Security
Act of 1974, including (unless the context
4
<PAGE> 23
otherwise requires) any rules or regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business
(whether or not incorporated) which is under common control with the
Guarantor within the meaning of Section 4001(a)(14) of ERISA and
Sections 414(b), (c) and (m) of the Internal Revenue Code.
"ERISA Event" means (i) a Reportable Event with
respect to a Pension Plan; (ii) a withdrawal by the Guarantor from a
Pension Plan subject to Section 4063 of ERISA during a plan year in
which it was a substantial employer (as defined in Section 4001(a)(2)
of ERISA) or a cessation of operations which is treated as such a
withdrawal under Section 4062(e) of ERISA; (iii) the filing of a
notice of intent to terminate, the treatment of a plan amendment as a
termination under Section 4041 or 4041A of ERISA or the commencement
of proceedings by the PBGC to terminate a Pension Plan subject to
Title IV of ERISA; (iv) a failure by the Guarantor to make required
contributions to a Pension Plan or other Plan subject to Section 412
of the Code; (v) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any
Pension Plan; (vi) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section
4007 of ERISA, upon the Guarantor; or (vii) an application for a
funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code with respect to any Pension Plan.
"Event of Default" means any of the events or
circumstances specified as such in Section 14.
"Facility Agreement" has the meaning provided
therefor in the preamble hereto.
"First Amendment" has the meaning provided therefor
in Section 30.
"GAAP" means generally accepted accounting principles
set forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date
of determination.
"Governmental Authority" means, with respect to any
Person, any federal, state, local or other governmental
5
<PAGE> 24
department, commission, board, bureau, agency, central bank, court,
tribunal or other instrumentality or authority, domestic or foreign,
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government having
jurisdiction over such Person.
"Guaranty Obligation" means, as applied to any
Person, any direct or indirect liability, contingent or otherwise, of
that Person
(i) with respect to any Indebtedness, lease (other
than an operating lease), dividend, or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person (A) to purchase, repurchase or otherwise
acquire such primary obligations or any property constituting direct
or indirect security therefor, or (B) to advance or provide funds (x)
for the payment or discharge of any such primary obligation, or (y) to
maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor,
or (C) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary
obligation, or (D) otherwise to assure or hold harmless the holder of
any such primary obligation against loss in respect thereof;
(ii) (A) with respect to letters of credit,
acceptances, bank guaranties, surety bonds or similar instruments
issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings, or (B) as a partner or
joint venturer in any partnership or joint venture;
(iii) with respect to synthetic leases; or
(iv) net obligations with respect to Rate Contracts,
other than Rate Contracts entered into in connection with a bona fide
hedging operation that provides offsetting benefits to such Person.
"Hazardous Substances" means any hazardous or toxic
substance, material or waste, defined, listed, classified or regulated
as such in or under any Environmental Laws, including asbestos,
petroleum or petroleum products (including gasoline, crude oil or any
fraction thereof), polychlorinated biphenyls and ureaformaldehyde
insulation.
"Indebtedness" means, for any Person, without
duplication:
6
<PAGE> 25
(i) all indebtedness or other obligations of such
Person for borrowed money;
(ii) all obligations of such Person for the deferred
purchase price of property or services (including obligations under
credit facilities which secure or finance such purchase price), other
than trade payables incurred by such Person in the ordinary course of
its business on ordinary terms;
(iii) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or
businesses;
(iv) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property);
(v) all obligations under Capital Leases;
(vi) all Guaranty Obligations other than Guaranty
Obligations described in clauses (i)(C) and (i)(D) of the definition
of "Guaranty Obligation" where the primary obligor is a Subsidiary;
and
(vii) all indebtedness of another Person secured by
any Lien upon or in property owned by the Person for whom Indebtedness
is being determined, whether or not such Person has assumed or become
liable for the payment of such indebtedness of such other Person;
provided, that if such indebtedness is not assumed and recourse is
limited solely to such property, the Indebtedness incurred hereunder
shall be valued at the lesser of the principal amount of the
obligation so secured or the fair market value of the property subject
to such Lien.
"Indemnified Person" has the meaning given to such
term in Section 17(b).
"Insolvency Proceeding" means (i) any case, action or
proceeding before any court or other Governmental Authority relating
to bankruptcy, reorganization, insolvency, liquidation, receivership,
dissolution, winding-up or relief of debtors, or (ii) any general
assignment for the benefit of creditors, composition, marshalling of
assets for creditors, or other, similar arrangement in respect of its
creditors generally or any substantial portion of its creditors;
undertaken under U.S. Federal, state or foreign law, including the
Bankruptcy Code.
7
<PAGE> 26
"Intercompany Debt" has the meaning given to it in
Section 7(a).
"Intercompany Debt Payments" has the meaning given to
it in Section 7(b).
"Internal Revenue Code" means the Internal Revenue
Code of 1986, including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
"IRS" means the Internal Revenue Service, or any
successor thereto.
"Lien" means any mortgage, deed of trust, pledge,
security interest, assignment, deposit arrangement, charge or
encumbrance, lien (statutory or other), or other preferential
arrangement (including any conditional sale or other title retention
agreement, or any financing lease having substantially the same
economic effect as any of the foregoing or any agreement to give any
security interest, but excluding any operating lease, regardless of
whether precautionary filings are made in respect thereof under
Section 9408 of the California Uniform Commercial Code).
"Loan Document" means the Facility Agreement, any
notes evidencing the Indebtedness thereunder, this Guaranty and all
other certificates, documents, agreements and instruments delivered to
the Agent and the Banks under or in connection with the Facility
Agreement.
"Material Adverse Effect" means (i) a material
adverse change in, or a material adverse effect upon, the operations,
business, properties, condition (financial or otherwise) or prospects
of the Guarantor, the Borrower or the Guarantor and its Subsidiaries
taken as a whole; (ii) a material impairment of the ability of the
Guarantor or the Borrower to perform its payment obligations under any
Loan Document to which it is a party or under any loan document
relating to any Indebtedness of the Guarantor or the Borrower, as the
case may be, described in Section 14(d); or (iii) a material adverse
effect upon the legality, validity, binding effect or enforceability
of any Loan Document.
"Multiemployer Plan" means a "multiemployer plan" as
defined in Sections 3(37) and 4001(a)(3) of ERISA.
"Other Taxes" means any present or future stamp or
documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to,
this Guaranty or any other Loan Documents.
8
<PAGE> 27
"PBGC" means the Pension Benefit Guaranty
Corporation, or any successor thereto.
"Pension Plan" means a pension plan (as defined in
Section 3(2) of ERISA) subject to Title IV of ERISA, which the
Guarantor sponsors or maintains, or to which it makes, is making, or
is obligated to make contributions, or in the case of a multiple
employer plan (as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding five plan
years.
"Permitted Acquisition" means any Acquisition of a
Person by the Guarantor or any Subsidiary for which (i) the sole
consideration paid by the Guarantor or any Subsidiary, as the case may
be, consists of common stock, or (ii) the total cash consideration
paid by the Guarantor or any Subsidiary, as the case may be, does not
exceed, in the aggregate with all other Acquisitions, $500,000,000
during the period from December 20, 1996 through the Final Maturity
Date.
"Permitted Investments" means any investments
selected by the Guarantor in accordance with its Corporate Cash
Investment Policy as adopted by the Guarantor on February 13, 1995 (as
the same may be amended from time to time with the approval of the
Agent); provided that any Investments not meeting the standards set
forth in such Corporate Cash Investment Policy shall nevertheless be
deemed to be "Permitted Investments" if they do not exceed at any
time, in the aggregate, 10% of all Permitted Investments at such time.
"Permitted Liens" means:
(i) Liens which may at any time be granted in favor
of the Agent on behalf of the Banks or the Banks to secure obligations
under the Loan Documents;
(ii) Liens in existence as of the date of this
Guaranty listed on Schedule 1, and any substitutions or renewals
thereof, provided that (A) any substitute or renewal Lien is limited
to the property encumbered by the existing Lien, and (B) the principal
amount of the obligations secured thereby is not increased;
(iii) Liens for current taxes, assessments or other
governmental charges which are not delinquent or remain payable
without any penalty or which are being contested in good faith via
appropriate proceedings, with appropriate reserves established
therefor in accordance with GAAP;
9
<PAGE> 28
(iv) Liens in connection with workers' compensation,
unemployment insurance or other social security obligations;
(v) mechanics', workers', materialmen's, landlords',
carriers' or other like Liens arising in the ordinary and normal
course of business with respect to obligations which are not past due
or which are being contested in good faith via appropriate
proceedings, with appropriate reserves established therefor in
accordance with GAAP;
(vi) purchase money security interests (including by
way of installment sales and title retention agreements) in personal
or real property hereafter acquired when the security interest is
granted contemporaneously with such acquisition (or within nine months
thereafter), Liens created to secure the cost of construction or
improvement of property and Liens created to secure Indebtedness
incurred to finance such purchase price or cost (including Liens of
the Guarantor or the Borrower in favor of the United States or any
State, or any department, agency, instrumentality or political
subdivision thereof, securing any real property or other assets in
connection with the financing of industrial revenue bond facilities or
of any equipment or other property designed primarily for the purpose
of air or water pollution control); provided, that (A) any such Lien
shall attach only to the property so purchased, constructed or
improved, together with attachments and accessions thereto, and rents,
proceeds, products, substitutions, replacements and profits thereof
and attachments and accessories thereto, and (B) the amount of
Indebtedness secured by any such Lien shall not exceed the purchase or
construction price of such property plus transaction costs and
financing charges relating to the acquisition or construction thereof;
(vii) Liens arising from attachments or similar
proceedings, pending litigation, judgments or taxes or assessments in
any such event whose validity or amount is being contested in good
faith by appropriate proceedings and for which adequate reserves have
been established and are maintained in accordance with GAAP;
(viii) Liens arising in the ordinary course of
business or by operation of law, not securing Indebtedness, but
securing such obligations as (A) judgments or awards, which (x) are
covered by applicable insurance or (y) have been outstanding less than
30 consecutive days, (B) interests of landlords or lessors under
leases of real or personal property entered into in the ordinary
course of business arising by contract or operation of law, (C) Liens
in favor of customs and revenue authorities which secure payment of
customs in connection with the importation of goods, (D) Liens which
constitute rights of set-off of a
10
<PAGE> 29
customary nature or bankers' liens on amounts on deposit, whether
arising by contract or by operation of law, in connection with
arrangements entered into with depository institutions in the ordinary
course of business, (E) such minor defects, irregularities,
encumbrances, easements, rights of way, and clouds on title as
normally exist with respect to similar properties which do not,
individually or in the aggregate, materially impair the property
affected thereby or the use thereof and (F) subleases, licenses, and
sublicenses granted to third parties, the granting of which does not
result in a Material Adverse Effect;
(ix) Liens securing reimbursement obligations of the
Borrower or the Guarantor under documentary letters of credit;
provided that such Liens shall attach only to documents relating to
such letters of credit, goods covered thereby and products and
proceeds thereof;
(x) Liens on insurance policies or the proceeds of
insurance policies incurred solely to secure the financing of premiums
owing with respect thereto;
(xi) Liens existing on property (including the
proceeds and accessions thereto) acquired by the Borrower or the
Guarantor (including Liens on assets of any corporation at the time it
becomes a Subsidiary), but excluding any Liens created in
contemplation of any such acquisition; and
(xii) Liens encumbering customary initial deposits
and margin deposits, and other Liens that are within the general
parameters customary in the industry and incurred in the ordinary
course of business in connection with Rate Contracts or portfolio
investments maintained with financial intermediaries.
"Person" means an individual, corporation, limited
liability company, partnership, joint venture, trust, unincorporated
organization or any other entity of whatever nature or any
Governmental Authority.
"Plan" means an employee benefit plan (as defined in
Section 3(3) of ERISA) which the Guarantor sponsors or maintains, or
to which the Guarantor makes, is making, or is obligated to make
contributions, and includes any Pension Plan.
"Prior Guaranty" has the meaning provided therefor in
the Recitals hereof.
"Rate Contracts" means interest rate swaps, caps,
floors and collars, currency swaps, or other similar financial
products designed to provide protection against fluctuations in
interest, currency or exchange rates.
11
<PAGE> 30
"Reportable Event" means any of the events set forth
in Section 4043(b) of ERISA or the regulations promulgated thereunder,
other than any such event for which the 30-day notice requirement
under ERISA has been waived in regulations issued by the PBGC.
"Responsible Officer" means, with respect to any
Person, the chief executive officer, the president, the chief
financial officer or the treasurer of such Person, or any other senior
officer of such Person having substantially the same authority and
responsibility; or, with respect to compliance with financial
covenants, the chief financial officer or the treasurer of such
Person, or any other senior officer of such Person involved
principally in the financial administration or controllership function
of such Person and having substantially the same authority and
responsibility.
"Senior Debt" means all Indebtedness, other than
Subordinated Debt, of the Guarantor and its Subsidiaries on a
consolidated basis.
"Significant Subsidiary" means, at any time, any
Subsidiary having at such time total assets, as of the last day of the
preceding fiscal quarter, having a net book value in excess of
$10,000,000 (exclusive of intercompany assets and liabilities), based
upon the Guarantor's most recent annual or quarterly financial
statements delivered to the Agent under Section 11(a).
"Solvent" means, with respect to any Person, that as
of the date of determination, (i) the then fair saleable value of the
property of such Person is (A) greater than the total amount of
liabilities (including reasonably anticipated liabilities with respect
to contingent obligations) of such Person and (B) greater than the
amount that will be required to pay the probable liabilities on such
Person's then existing debts as they become absolute and matured
considering all financing alternatives and potential asset sales
reasonably available to such Person, and (ii) such Person has not
incurred and does not intend to incur, or does not believe that it
will incur, debts beyond its ability to pay such debts as they become
due.
"Subject Obligations" shall have the meaning assigned
to such term in Section 2 hereof.
"Subordinated Debt" means (i) the Guarantor's 5-1/2%
Convertible Subordinated Notes Due 2001 (the "Convertible Subordinated
Notes") and (ii) any other Indebtedness of the Guarantor or any
Subsidiary under which principal payments will become due and payable
no earlier than the first anniversary of the Final Maturity Date and
which is subordinated on terms and conditions reasonably acceptable to
the Majority Banks; provided, that any
12
<PAGE> 31
Subordinated Debt having subordination provisions no more favorable to
the holder than those contained in the Convertible Subordinated Notes
shall be deemed to be reasonably acceptable to the Majority Banks for
the purposes hereof.
"Subsidiary" means, with respect to the Guarantor,
any corporation, partnership, limited liability company, association,
joint venture or other business entity of which more than 50% of the
total voting power of shares of capital stock or other ownership
interests entitled (without regard to the occurrence of any
contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar
functions) having the power to direct or cause the direction of the
management and policies thereof is at the time owned or controlled,
directly or indirectly, by the Guarantor or one or more of the other
Subsidiaries of the Guarantor or a combination thereof.
"Taxes" means any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Bank
and the Agent, such taxes (including income taxes or franchise taxes)
as are imposed on or measured by each Bank's net income by the
jurisdiction (or any political subdivision thereof) under the laws of
which such Bank or the Agent, as the case may be, is organized or
maintains a lending office; and "Taxation" shall be construed
accordingly.
"Total Capital" means the sum of Equity Capital,
Senior Debt and Subordinated Debt.
"Unfunded Pension Liability" means the excess of a
Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over
the current value of that Plan's assets, determined in accordance with
the assumptions used for funding the Plan pursuant to Section 412 of
the Code for the applicable plan year.
"United States" and "U.S." each means the United
States of America.
(c) Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Guaranty. Except as otherwise expressly provided in this
Guaranty, all accounting terms not otherwise defined herein shall have the
meanings assigned to them in conformity with GAAP. Financial statements,
determinations relating to covenants, and other information required to be
delivered or determined by the Guarantor pursuant to this Guaranty shall be
prepared or determined in conformity with GAAP as in effect at the time of such
preparation or determination; provided, that in the event that a change to GAAP
taking effect
13
<PAGE> 32
after the date hereof would otherwise affect the calculation of any covenant
set forth in Section 13, such covenant shall be calculated in accordance with
GAAP as in effect immediately prior to such change until an appropriate
adjustment can be determined.
(d) Interpretation. In this Guaranty, except to the
extent the context otherwise requires:
(i) Any reference to an Article, a Section, a
Schedule or an Exhibit is a reference to an article or section of, or a
schedule or an exhibit to, this Guaranty, respectively, and any reference to a
subsection or a clause is, unless otherwise stated, a reference to a subsection
or a clause of the Section or subsection in which the reference appears.
(ii) The words "hereof," "herein," "hereto,"
"hereunder" and the like mean and refer to this Guaranty or any other Loan
Document as a whole and not merely to the specific Article, Section,
subsection, paragraph or clause in which the respective word appears.
(iii) The meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include"
shall be deemed to be followed by the words "without limitation."
(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of the Loan Documents.
(vi) References to statutes or regulations are to be
construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation referred to.
(vii) Any table of contents, captions and headings
are for convenience of reference only and shall not affect the construction of
this Guaranty.
(viii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding"; and the
word "through" means "to and including."
(ix) The use of a word of any gender shall include
each of the masculine, feminine and neuter genders.
(x) References to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of the Guarantor.
14
<PAGE> 33
SECTION 2 Guaranty. The Guarantor hereby unconditionally and
irrevocably guarantees to the Agent and the Banks, and their respective
successors, endorsees, transferees, assigns and Substitutes, the full and
prompt payment when due (whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise) and performance of the
indebtedness, liabilities and other obligations of the Borrower to the Agent
and the Banks under or in connection with the Facility Agreement and the other
Loan Documents, including all unpaid principal of the Advances, all interest
accrued thereon, all fees due under the Facility Agreement and all other
amounts payable by the Borrower to the Agent and the Banks thereunder or in
connection therewith. The terms "indebtedness," "liabilities" and
"obligations" are used herein in their most comprehensive sense and include any
and all advances, debts, obligations and liabilities, now existing or hereafter
arising, whether voluntary or involuntary and whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, together
with interest thereon at the contract rate (whether before or after the
commencement of any Insolvency Proceeding with respect to the Borrower), and
whether recovery upon such indebtedness, liabilities and obligations may be or
hereafter become unenforceable or shall be an allowed or disallowed claim under
the Bankruptcy Code or other applicable law. The foregoing indebtedness,
liabilities and other obligations of the Borrower, and all other indebtedness,
liabilities and obligations to be paid or performed by the Guarantor in
connection with this Guaranty (including any and all amounts due under Section
17), shall hereinafter be collectively referred to as the "Subject
Obligations."
SECTION 3 Liability of Guarantor. The liability of the Guarantor
under this Guaranty shall be irrevocable, absolute, independent and
unconditional, and shall not be affected by any circumstance which might
constitute a discharge of a surety or guarantor other than the indefeasible
payment and performance in full of all Subject Obligations. In furtherance of
the foregoing and without limiting the generality thereof, the Guarantor agrees
as follows:
(i) the Guarantor's liability hereunder shall be the
immediate, direct, and primary obligation of the Guarantor and shall not be
contingent upon the Agent's or any Bank's exercise or enforcement of any remedy
it may have against the Borrower or any other Person, or against any security
at any time securing the Subject Obligations;
(ii) this Guaranty is a guaranty of payment when due
and not merely of collectibility;
(iii) the Guarantor's payment of a portion, but not
all, of the Subject Obligations shall in no way limit,
15
<PAGE> 34
affect, modify or abridge the Guarantor's liability for any portion of the
Subject Obligations remaining unsatisfied; and
(iv) the Guarantor's liability with respect to the
Subject Obligations shall remain in full force and effect without regard to,
and shall not be impaired or affected by, nor shall the Guarantor be exonerated
or discharged by, any of the following events:
(A) any Insolvency Proceeding with
respect to the Borrower, the Guarantor, any other guarantor or any
other Person, or any liquidation, winding up or dissolution of the
Borrower, the Guarantor, any other guarantor or any other Person;
(B) any limitation, discharge, or
cessation of the liability of the Borrower, the Guarantor, any other
guarantor or any other Person for any Subject Obligations due to any
statute, regulation or rule of law, or any invalidity or
unenforceability in whole or in part of any of the Subject Obligations
or the Loan Documents;
(C) any merger, acquisition,
consolidation or change in structure of the Borrower, the Guarantor or
any other guarantor or Person, or any sale, lease, transfer or other
disposition of any or all of the assets or shares of the Borrower, the
Guarantor, any other guarantor or other Person;
(D) any assignment or other transfer, in
whole or in part, of the Agent's or any Bank's interests in and rights
under this Guaranty or the other Loan Documents, including the Agent's
or any Bank's right to receive payment of the Subject Obligations, or
any assignment or other transfer, in whole or in part, of the Agent's
or any Bank's interests in and to any collateral at any time securing
the Subject Obligations;
(E) any claim, defense, counterclaim or
setoff, other than that of prior performance, that the Borrower, the
Guarantor, any other guarantor or other Person may have or assert,
including any defense arising from the unavailability of the
Borrower's commercial register reflecting the Borrower's current name,
any defense of incapacity or lack of corporate or other authority to
execute any of the Loan Documents or any defense to or excuse of
performance arising under or by virtue of any sovereign or regulatory
act of any Governmental Authority, including any payment moratorium,
suspension or forgiveness of debtor payments, bank holiday, imposition
of exchange controls, or declaration of war or national emergency;
(F) the Agent's or any Bank's amendment,
modification, renewal, extension, cancellation or surrender
16
<PAGE> 35
of any Loan Document, any Subject Obligations, any collateral at any
time securing the Subject Obligations, or the Agent's or any Bank's
exchange, release, or waiver of any collateral at any time securing
the Subject Obligations;
(G) the Agent's or any Bank's exercise
or nonexercise of any power, right or remedy with respect to any
collateral at any time securing any of the Subject Obligations,
including the Agent's or any Bank's compromise, release, settlement or
waiver with or of the Borrower, the Guarantor, any other guarantor or
any other Person;
(H) the Agent's or any Bank's vote,
claim, distribution, election, acceptance, action or inaction in any
bankruptcy case related to the Subject Obligations;
(I) any impairment or invalidity of any
collateral at any time securing any of the Subject Obligations or any
failure to perfect any of the liens of the Agent and the Banks thereon
with respect to such collateral; and
(J) any other guaranty, whether by the
Guarantor or any other Person, of all or any part of the Subject
Obligations or any other indebtedness, obligations or liabilities of
the Borrower to the Agent or the Banks.
SECTION 4 Consents of Guarantor. The Guarantor hereby
unconditionally consents and agrees that, without notice to or further assent
from the Guarantor:
(i) the principal amount of the Subject Obligations
may be increased or decreased and additional indebtedness or obligations of the
Borrower under the Loan Documents may be incurred, by one or more amendments,
modifications, renewals or extensions of any Loan Document or otherwise;
(ii) the time, manner, place or terms of any payment
under any Loan Document may be extended or changed, including by an increase or
decrease in the interest rate on any Subject Obligation or any fee or other
amount payable under such Loan Document, by an amendment, modification or
renewal of any Loan Document or otherwise;
(iii) the time for the Borrower's (or any other
Person's) performance of or compliance with any term, covenant or agreement on
its part to be performed or observed under any Loan Document may be extended,
or such performance or compliance waived, or failure in or departure from such
performance or compliance consented to, all in such manner and upon such terms
as the Agent and the Banks may deem proper;
17
<PAGE> 36
(iv) the Agent or the Banks may discharge or
release, in whole or in part, any other guarantor or any other Person liable
for the payment and performance of all or any part of the Subject Obligations,
and may permit or consent to any such action or any result of such action, and
shall not be obligated to demand or enforce payment upon any collateral at any
time securing the Subject Obligations, nor shall the Agent or the Banks be
liable to the Guarantor for any failure to collect or enforce payment or
performance of the Subject Obligations from any Person or to realize on any
collateral therefor;
(v) the Agent and the Banks may take and hold
security (legal or equitable) of any kind, at any time, as collateral for the
Subject Obligations, and may, from time to time, in whole or in part, exchange,
sell, surrender, release, subordinate, modify, waive, rescind, compromise or
extend such security and may permit or consent to any such action or the result
of any such action, and may apply such security and direct the order or manner
of sale thereof;
(vi) the Agent and the Banks may request and accept
other guaranties of the Subject Obligations and any other indebtedness,
obligations or liabilities of the Borrower to the Agent or the Banks and may,
from time to time, in whole or in part, surrender, release, subordinate,
modify, waive, rescind, compromise or extend any such guaranty and may permit
or consent to any such action or the result of any such action; and
(vii) the Agent and the Banks may exercise, or waive
or otherwise refrain from exercising, any other right, remedy, power or
privilege (including the right to accelerate the maturity of any Advance and
any power of sale) granted by any Loan Document or other security document or
agreement, or otherwise available to the Agent and the Banks, with respect to
the Subject Obligations, any security for any or all of the Subject
Obligations, even if the exercise of such right, remedy, power or privilege
affects or eliminates any right of subrogation or any other right of the
Guarantor against the Borrower;
all as the Agent and the Banks may deem advisable, and all without impairing,
abridging, releasing or affecting this Guaranty.
SECTION 5 Guarantor's Waivers.
(a) Certain Waivers. The Guarantor waives and agrees not
to assert:
(i) any right to require the Agent or any Bank to
marshal assets in favor of the Borrower, the Guarantor, any other guarantor or
any other Person, to proceed against the Borrower, any other guarantor or any
other Person, to proceed against or exhaust any security at any time held for
the Subject Obligations, to give notice of the terms, time and place of any
18
<PAGE> 37
public or private sale of personal property security constituting collateral
for the Subject Obligations or comply with any other provisions of Section 9504
of the California UCC (or any equivalent provision of any other applicable law)
or to pursue any other right, remedy, power or privilege of the Agent or any
Bank whatsoever;
(ii) the defense of the statute of limitations in
any action hereunder or for the collection or performance of the Subject
Obligations;
(iii) any defense arising by reason of any lack of
corporate or other authority or any other defense of the Borrower, the
Guarantor or any other Person;
(iv) any defense (other than payment) based upon the
Agent's or any Bank's errors or omissions in the administration of the Subject
Obligations;
(v) any rights to set-offs and counterclaims;
(vi) all rights and defenses arising out of an
election of remedies by the creditor, even though that election of remedies,
such as a nonjudicial foreclosure with respect to security for a guaranteed
obligations, has destroyed the Guarantor's rights of subrogation and
reimbursement against the principal by the operation of Section 580d of the
Code of Civil Procedure or otherwise;
(vii) any rights or defenses by reason of the lack
of any fair value hearing or determination with respect to any collateral
securing the Subject Obligations, whether pursuant to California Code of Civil
Procedure Sections 580a or 726 or otherwise; and
(viii) without limiting the generality of the
foregoing, to the fullest extent permitted by law, any defenses or benefits
that may be derived from or afforded by applicable law limiting the liability
of or exonerating guarantors or sureties, or which may conflict with the terms
of this Guaranty, including any and all benefits that otherwise might be
available to the Guarantor under California Civil Code Sections 1432,
2809, 2810, 2815, 2819, 2839, 2845, 2848, 2849, 2850, 2899 and 3433 and
California Code of Civil Procedure Sections 580a, 580b, 580d and 726.
(b) Additional Waivers. The Guarantor waives any and all
notice of the acceptance of this Guaranty, and any and all notice of the
creation, renewal, modification, extension or accrual of the Subject
Obligations, or the reliance by the Agent and the Banks upon this Guaranty, or
the exercise of any right, power or privilege hereunder. The Subject
Obligations shall conclusively be deemed to have been created, contracted,
incurred and permitted to exist in reliance upon this Guaranty. The Guarantor
waives promptness, diligence, presentment, protest,
19
<PAGE> 38
demand for payment, notice of default, dishonor or nonpayment and all other
notices to or upon the Borrower, the Guarantor or any other Person with respect
to the Subject Obligations.
(c) Independent Obligations. The obligations of the
Guarantor hereunder are independent of and separate from the obligations of the
Borrower and any other guarantor and upon the occurrence and during the
continuance of any Event of Default (as defined in the Facility Agreement), a
separate action or actions may be brought against the Guarantor, whether or not
the Borrower or any such other guarantor is joined therein or a separate action
or actions are brought against the Borrower or any such other guarantor.
(d) Financial Condition of Borrower. The Guarantor shall
not have any right to require the Agent or the Banks to obtain or disclose any
information with respect to: (i) the financial condition or character of the
Borrower or the ability of the Borrower to pay and perform the Subject
Obligations; (ii) the Subject Obligations; (iii) any collateral at any time
securing any or all of the Subject Obligations; (iv) the existence or
nonexistence of any other guarantees of all or any part of the Subject
Obligations; (v) any action or inaction on the part of the Agent or the Banks
or any other Person; or (vi) any other matter, fact or occurrence whatsoever.
SECTION 6 Subrogation. The Guarantor shall not have, and hereby
waives, (i) any rights that it may acquire by way of subrogation under this
Guaranty, by any payment hereunder or otherwise, (ii) any rights of
contribution, indemnification, reimbursement or similar suretyship claims
arising out of this Guaranty or (iii) any other right which it might otherwise
have or acquire (in any way whatsoever) which could entitle it at any time to
share or participate in any right, remedy or security of the Banks or the Agent
as against the Borrower or other guarantors, whether in connection with this
Guaranty, any of the other Loan Documents or otherwise. If any amount shall be
paid to the Guarantor on account of the foregoing rights at any time, such
amount shall be held in trust for the benefit of the Agent and the Banks and
shall forthwith be paid to the Agent to be credited and applied to the Subject
Obligations, whether matured or unmatured, in accordance with the terms of the
Loan Documents.
SECTION 7 Subordination.
(a) Subordination to Payment of Subject Obligations. All
payments on account of all indebtedness, liabilities and other obligations of
the Borrower to the Guarantor, whether created under, arising out of or in
connection with any documents or instruments evidencing any credit extensions
to Borrower or otherwise, including all principal on any such credit
extensions, all interest accrued thereon, all fees and all other amounts
20
<PAGE> 39
payable by the Borrower to the Guarantor in connection therewith, whether now
existing or hereafter arising, and whether due or to become due, absolute or
contingent, liquidated or unliquidated, determined or undetermined (the
"Intercompany Debt") shall be subject, subordinate and junior in right of
payment and exercise of remedies, to the extent and in the manner set forth
herein, to the prior payment in full in cash or cash equivalents of the Subject
Obligations.
(b) No Payments. Following the occurrence of an Event of
Default under the Facility Agreement, the Guarantor shall not accept or receive
any payment or distribution by or on behalf of the Borrower, directly or
indirectly, of assets of the Borrower of any kind or character, whether in
cash, property or securities, including on account of the purchase, redemption
or other acquisition of Intercompany Debt, as a result of any collection, sale
or other disposition of collateral, or by setoff, exchange or in any other
manner, for or on account of the Intercompany Debt ("Intercompany Debt
Payments"). In the event that, notwithstanding the provisions of this Section
7, any Intercompany Debt Payments shall be received in contravention of this
Section 7 by the Guarantor before all Subject Obligations are paid in full in
cash or cash equivalents, such Intercompany Debt Payments shall be held in
trust for the benefit of the Agent and the Banks and shall be paid over or
delivered to the Agent for application to the payment in full in cash or cash
equivalents of all Subject Obligations remaining unpaid to the extent necessary
to give effect to this Section 7, after giving effect to any concurrent
payments or distributions to the Agent and the Banks in respect of the Subject
Obligations.
(c) Subordination of Remedies. As long as any Subject
Obligations shall remain outstanding and unpaid, the Guarantor shall not,
without the prior written consent of the Agent:
(i) accelerate, make demand or otherwise make due
and payable prior to the original stated maturity thereof any Intercompany Debt
or bring suit or institute any other actions or proceedings to enforce its
rights or interests under or in respect of the Intercompany Debt;
(ii) exercise any rights under or with respect to
(A) any guaranties of the Intercompany Debt, or (B) any collateral held by it,
including causing or compelling the pledge or delivery of any collateral, any
attachment of, levy upon, execution against, foreclosure upon or the taking of
other action against or institution of other proceedings with respect to any
collateral held by it, notifying any account debtors of the Borrower or
asserting any claim or interest in any insurance with respect to any
collateral, or attempt to do any of the foregoing; or
21
<PAGE> 40
(iii) commence, or cause to be commenced, or join
with any creditor other than the Agent and the Banks in commencing, any
Insolvency Proceeding against the Borrower.
(d) Subordination upon any Distribution of Assets of the
Borrower. In the event of any payment or distribution of assets of the
Borrower of any kind or character, whether in cash, property or securities,
upon the dissolution, winding up or total or partial liquidation or
reorganization, readjustment, arrangement or similar proceeding relating to the
Borrower or its property, whether voluntary or involuntary, or in any
Insolvency Proceeding with respect to the Borrower, or otherwise (i) all
amounts owing on account of the Subject Obligations, including all interest
accrued thereon at the contract rate both before and after the commencement of
any such proceeding, whether or not an allowed claim in any such proceeding,
shall first be paid in full in cash, or payment provided for in cash or in cash
equivalents, before any Intercompany Debt Payment is made; and (ii) to the
extent permitted by applicable law, any Intercompany Debt Payment to which the
Guarantor would be entitled except for the provisions hereof, shall be paid or
delivered by the trustee in bankruptcy, receiver, assignee for the benefit of
creditors or other liquidating agent making such payment or distribution
directly to the Agent (on behalf of the Banks) for application to the payment
of the Subject Obligations in accordance with clause (i), after giving effect
to any concurrent payment or distribution or provision therefor to the Agent or
the Banks in respect of such Subject Obligations.
(e) Authorization to Agent. If, while any Intercompany
Debt is outstanding, any Insolvency Proceeding is commenced by or against the
Borrower or its property:
(i) the Agent, when so instructed by the Majority
Banks, is hereby irrevocably authorized and empowered (in the name of the Banks
or in the name of the Guarantor or otherwise), but shall have no obligation, to
demand, sue for, collect and receive every payment or distribution in respect
of the Intercompany Debt and give acquittance therefor and to file claims and
proofs of claim and take such other action (including voting the Intercompany
Debt) as it may deem necessary or advisable for the exercise or enforcement of
any of the rights or interests of the Agent and the Banks; and
(ii) the Guarantor shall promptly take such action
as the Agent (on instruction from the Majority Banks) may reasonably request
(A) to collect the Intercompany Debt for the account of the Banks and to file
appropriate claims or proofs of claim in respect of the Intercompany Debt, (B)
to execute and deliver to the Agent, such powers of attorney, assignments and
other instruments as it may request to enable it to enforce any and all claims
with respect to the Intercompany Debt, and (C) to collect and receive any and
all Intercompany Debt Payments.
22
<PAGE> 41
SECTION 8 Continuing Guaranty; Reinstatement.
(a) Continuing Guaranty. This Guaranty is a continuing
guaranty and agreement of subordination and shall continue in effect and be
binding upon the Guarantor until payment and performance in full of the Subject
Obligations.
(b) Reinstatement. This Guaranty shall continue to be
effective or shall be reinstated and revived, as the case may be, if, for any
reason, any payment of the Subject Obligations by or on behalf of the Borrower
(or receipt of any proceeds of any collateral) shall be rescinded, invalidated,
declared to be fraudulent or preferential, set aside, voided or otherwise
required to be repaid to the Borrower, its estate, trustee, receiver or any
other Person (including under the Bankruptcy Code or other state or federal
law), or must otherwise be restored by the Agent or any Bank, whether as a
result of any Insolvency Proceedings or otherwise. To the extent any payment
is so rescinded or restored, the Subject Obligations shall be revived in full
force and effect without reduction or discharge for such payment. All losses,
damages, expenses (including fees and expenses of external legal counsel and
the allocated cost of internal legal services and disbursements of internal
counsel) that the Agent or the Banks may suffer or incur as a result of any
voided or otherwise set aside payments shall be specifically covered by the
indemnity in favor of the Banks and the Agent contained in Section 17 of this
Guaranty.
SECTION 9 Payments; Taxes.
(a) Payments. The Guarantor hereby agrees, in
furtherance of the foregoing provisions of this Guaranty and not in limitation
of any other right which the Agent or any Bank or any other Person may have
against the Guarantor by virtue hereof, upon the failure of the Borrower to pay
any of the Subject Obligations when and as the same shall become due, whether
at stated maturity, by required prepayment, declaration, acceleration, demand
or otherwise (including amounts that would become due but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code or any similar
provision under Japanese law), the Guarantor shall forthwith pay, or cause to
be paid, in cash, to the Agent an amount equal to the amount of the Subject
Obligations then due as aforesaid (including interest which, but for the filing
of a petition in bankruptcy with respect to the Borrower, would have accrued on
such Subject Obligations, whether or not a claim is allowed against the
Borrower for such interest in any such bankruptcy proceeding). The Guarantor
shall make each payment hereunder, unconditionally in full without set-off,
recoupment or counterclaim, on the day when due, in accordance with Section 18.
All such payments shall be applied as directed by the Guarantor; provided, that
following a default by the Guarantor in the performance of its obligations
hereunder, such payments shall be promptly applied from time to time by the
Agent
23
<PAGE> 42
(i) first, to the payment of any fees, costs, expenses and other amounts due
the Agent hereunder, and (ii) second, to the payment of the other Subject
Obligations in accordance with the provisions of the Facility Agreement.
(b) Taxes.
(i) Any and all payments by the Guarantor to each
Bank or the Agent under this Guaranty shall be made free and clear of, and
without deduction or withholding, for any Taxes. In addition, the Guarantor
shall pay all Other Taxes.
(ii) The Guarantor agrees to indemnify and hold
harmless each Bank and the Agent for the full amount of Taxes or Other Taxes
(including any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section) paid by the Bank or the Agent and any liability
(including penalties, interest, additions to tax and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes
were correctly or legally asserted. Payment under this indemnification shall
be made within 30 days after the date the Bank or the Agent makes written
demand therefor.
(iii) Except where such deduction or withholding
results from the failure of a Bank to comply with the terms of clause (v)
below, if the Guarantor shall be required by law to deduct or withhold any
Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Bank or the Agent, then:
(A) the sum payable shall be increased
as necessary so that after making all required deductions and
withholdings (including deductions and withholdings applicable to
additional sums payable under this Section) such Bank or the Agent, as
the case may be, receives an amount equal to the sum it would have
received had no such deductions or withholdings been made;
(B) the Guarantor shall make such
deductions and withholdings;
(C) the Guarantor shall pay the full
amount deducted or withheld to the relevant taxing authority or other
authority in accordance with applicable law; and
(D) the Guarantor shall also pay to each
Bank or the Agent for the account of such Bank, at the time interest
is paid, all additional amounts which the respective Bank specifies as
necessary to preserve the after-tax yield the Bank would have received
if such Taxes or Other Taxes had not been imposed.
(iv) Within 30 days after the date of any payment by
the Guarantor of Taxes or Other Taxes, the Guarantor shall furnish the Agent
the original or a certified copy of a receipt
24
<PAGE> 43
evidencing payment thereof, or other evidence of payment satisfactory to the
Agent.
(v) Each Bank that is organized under the laws of a
jurisdiction outside the United States hereby agrees that, if and to the extent
it is legally able to do so, it shall deliver in a timely fashion to the
Guarantor and the Agent, as applicable, such certificates, documents or other
evidence that may be available to establish, if applicable, the
nonapplicability to such Bank of, or such Bank's exemption from, United States
federal withholding tax under the Internal Revenue Code in respect of any sum
payable hereunder.
SECTION 10 Representations and Warranties. The Guarantor represents
and warrants to the Agent and each Bank that:
(a) Organization and Powers. The Guarantor is a
corporation duly organized, validly existing and in good standing under the law
of the jurisdiction of its incorporation, is qualified to do business and is in
good standing in each jurisdiction in which the failure so to qualify or be in
good standing would have a Material Adverse Effect and has all requisite power
and authority to own its assets and carry on its business and to execute,
deliver and perform its obligations under the Guaranty.
(b) Authorization; No Conflict. The execution, delivery
and performance by the Guarantor of this Guaranty have been duly authorized by
all necessary corporate action of the Guarantor, and do not and will not: (i)
contravene the terms of the certificate of incorporation, or the terms of the
bylaws, of the Guarantor or result in a breach of or constitute a default under
any material indenture or loan or credit agreement or any other material
agreement, lease or instrument to which the Guarantor is a party or by which it
or its properties may be bound or affected; or (ii) violate any provision of
any law, rule, regulation, order, writ, judgment, injunction, decree or the
like binding on or affecting the Guarantor.
(c) Binding Obligation. This Guaranty is the legal,
valid and binding obligation of the Guarantor, enforceable against the
Guarantor in accordance with its terms, except to the extent the enforceability
hereof would be subject to bankruptcy, insolvency, receivership or similar laws
providing relief from creditors, or principles of equity generally.
(d) Governmental Consents. No authorization, consent,
approval, license, exemption of, or filing or registration with, any
Governmental Authority, or approval or consent of any other Person, is required
for the due execution, delivery or performance by the Guarantor of this
Guaranty.
25
<PAGE> 44
(e) No Default. No Default or Event of Default (as
defined in the Facility Agreement) exists or would result from the execution
and delivery of the Facility Agreement or this Guaranty or from the performance
by the Borrower of its obligations under the Facility Agreement or by the
Guarantor of the Subject Obligations. As of the Closing Date, neither the
Guarantor nor any Subsidiary is in default under or with respect to any
contractual obligation in any respect which, individually or together with all
such defaults, could reasonably be expected to have a Material Adverse Effect,
or that would, if such default had occurred after the Closing Date, create an
Event of Default (as defined in the Facility Agreement). The Subject
Obligations are "Senior Debt" for purposes of, and as defined in, the Indenture
dated as of March 23, 1994, by and between the Guarantor and The First National
Bank of Boston executed in connection with the Convertible Subordinated Notes.
(f) Taxes. The Guarantor and its Subsidiaries have filed
all Federal and other material tax returns and reports required to be filed,
and have paid all Federal and other material taxes, assessments, fees and other
governmental charges levied or imposed upon them or their properties, income or
assets otherwise due and payable, except those which are being contested in
good faith by appropriate proceedings and for which adequate reserves have been
provided in accordance with GAAP. There is no proposed tax assessment against
the Guarantor or any Subsidiary that would, if made, have a Material Adverse
Effect.
(g) Regulated Entities. None of the Guarantor, any
Person controlling the Guarantor, or any Subsidiary, is an "Investment Company"
within the meaning of the Investment Company Act of 1940. The Guarantor is not
subject to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Interstate Commerce Act, any state public utilities
code, or any other Federal or state statute or regulation limiting its ability
to incur Indebtedness.
(h) Title to Properties. The Guarantor and each
Significant Subsidiary has good record and marketable title in fee simple to,
or valid leasehold interests in, all real property necessary or used in the
ordinary conduct of their respective businesses, except for such defects in
title as could not, individually or in the aggregate, have a Material Adverse
Effect. As of the Closing Date, the property of the Guarantor and its
Subsidiaries is subject to no Liens, other than Liens permitted under Section
12(a).
(i) Litigation. Except as set forth on Schedule 2, there
are no actions, suits or proceedings pending or, to the best of the Guarantor's
or the Borrower's knowledge, threatened against or affecting the Guarantor or
any of its Subsidiaries or the properties of the Guarantor or any of its
Subsidiaries before any Governmental Authority or arbitrator which would be
reasonably likely to result in a Material Adverse Effect.
26
<PAGE> 45
(j) Compliance with Consents and Licenses. Every consent
required by the Guarantor or any Subsidiary (including those required under or
pursuant to any Environmental Law) in connection with the conduct of its
business and the ownership, use, exploitation or occupation of its property and
assets has been obtained and is in full force and effect and there has not been
any default in the observance of the conditions and restrictions (if any)
imposed in, or in connection with, any of the same, except where the failure to
obtain any of the foregoing would not reasonably be expected to have a Material
Adverse Effect.
(k) Compliance with Environmental Laws. Except as set
forth on Schedule 3, to the best of the Guarantor's or the Borrower's knowledge
after due investigation, (i) the properties of the Guarantor and its
Subsidiaries do not contain and have not previously contained (at, under, or
about any such property) any Hazardous Substances or other contamination (A) in
amounts or concentrations that constitute or constituted a violation of, or
could give rise to liability under, any Environmental Laws, in either case
where such violation or liability could reasonably be expected to result in a
Material Adverse Effect, (B) which could interfere with the continued operation
of such property, or (C) which could materially impair the fair market value
thereof; and (ii) there has been no transportation or disposal of Hazardous
Substances from, nor any release or threatened release of Hazardous Substances
at or from, any property of the Guarantor or any of its Subsidiaries in
violation of or in any manner could give rise to liability under any
Environmental Laws, where such violation or liability, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.
(l) ERISA. Except as specifically disclosed to the Banks
in writing prior to the Closing Date: (i) each Plan is in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
federal or state law; (ii) there are no pending, or to the best knowledge of
the Guarantor, threatened, claims, actions or lawsuits, or action by any
governmental authority, with respect to any Plan which has resulted or could
reasonably be expected to result in a Material Adverse Effect; (iii) there has
been no prohibited transaction or other violation of the fiduciary
responsibility rule with respect to any Plan which could reasonably result in a
Material Adverse Effect; (iv) no ERISA Event has occurred or is reasonably
expected to occur with respect to any Pension Plan; (v) no Pension Plan has any
Unfunded Pension Liability; (vi) the Guarantor has not incurred, nor does it
reasonably expect to incur, any liability under Title IV of ERISA with respect
to any Pension Plan (other than premiums due and not delinquent under Section
4007 of ERISA); (vii) no trade or business (whether or not incorporated under
common control with the Guarantor within the meaning of Section 414(b), (c),
(m) or (o) of the Code) maintains or contributes to any Pension Plan or other
Plan subject to Section 412 of the Code; and (viii) neither the
27
<PAGE> 46
Guarantor nor any entity under common control with the Guarantor in the
preceding sentence has ever contributed to any Multiemployer Plan.
(m) Insurance. The properties of the Guarantor and its
Subsidiaries are insured against losses and damages of the kinds and in amounts
which are deemed prudent by the Guarantor in its reasonable business judgment
and within the general parameters customary among similarly situated businesses
in the industry, and such insurance is maintained with financially sound and
reputable insurance companies or pursuant to a plan or plans or self-insurance
to such extent as is usual for companies of similar size engaged in the same or
similar businesses and owning similar properties.
(n) Financial Statements. The audited consolidated
balance sheet of the Guarantor and its Subsidiaries as at December 31, 1995 and
the related consolidated statements of income, shareholders' equity and cash
flows for the fiscal year then ended, and the unaudited consolidated balance
sheet of the Guarantor and its Subsidiaries as at September 30, 1996 and the
related consolidated statements of income, shareholders' equity and cash flows,
for the quarter then ended and the nine-month period then ended, are complete
and correct and fairly present the financial condition of the Guarantor and its
Subsidiaries as at such dates and the results of operations of the Guarantor
and its Subsidiaries for the periods covered by such statements, in each case
in accordance with GAAP consistently applied, subject, in the case of the
September 30, 1996 financial statements, to normal year-end adjustments and the
absence of notes. Since December 31, 1995, there has been no Material Adverse
Effect.
(o) Liabilities. Neither the Guarantor nor any of its
Subsidiaries has any material liabilities, fixed or contingent, that are not
reflected in the financial statements referred to in subsection (n), in the
notes thereto or otherwise disclosed in writing to the Banks, other than
liabilities arising in the ordinary course of business since September 30,
1996.
(p) Labor Disputes, Etc. There are no strikes, lockouts
or other labor disputes against the Guarantor or any Subsidiary, or, to the
best of the Guarantor's or the Borrower's knowledge, threatened against or
affecting the Guarantor or any Subsidiary which may result in a Material
Adverse Effect.
(q) Consideration. The Guarantor has received at least
"reasonably equivalent value" (as such phrase is used in Section 548 of the
Bankruptcy Code, in Section 3439.04 of the California Uniform Fraudulent
Transfer Act and in comparable provisions of other applicable law) and at least
sufficient consideration to support its obligations hereunder in respect of the
Subject Obligations.
28
<PAGE> 47
(r) Independent Investigation. The Guarantor hereby
acknowledges that it has undertaken its own independent investigation of the
financial condition of the Borrower and all other matters pertaining to this
Guaranty and further acknowledges that it is not relying in any manner upon any
representation or statement of the Agent or any Bank with respect thereto. The
Guarantor represents and warrants that it has received and reviewed copies of
the Loan Documents and that it is in a position to obtain, and it hereby
assumes full responsibility for Borrower obtaining, any additional information
concerning the financial condition of the Borrower and any other matters
pertinent hereto that the Guarantor may desire. The Guarantor is not relying
upon or expecting the Agent or any Bank to furnish to the Guarantor any
information now or hereafter in the Agent's or any such Bank's possession
concerning the financial condition of the Borrower or any other matter.
(s) Name of Borrower. The Borrower's true name is set
forth in the preamble to this Guaranty, and the Borrower has made all
applicable filings required to cause such name to be reflected on its
commercial register.
(t) Significant Subsidiaries. The name and ownership of
each Significant Subsidiary of the Guarantor on the date of this Guaranty is as
set forth in Schedule 4. All of the outstanding capital stock of, or other
interest in, each such Significant Subsidiary has been validly issued, and is
fully paid and nonassessable.
(u) Full Disclosure. None of the representations or
warranties made by the Guarantor in this Guaranty or by the Borrower in the
Facility Agreement as of the date such representations and warranties are made,
and none of the statements contained in any exhibit, report, statement or
certificate furnished by or on behalf of the Guarantor or the Borrower in
connection with this Guaranty or the Facility Agreement, contains any untrue
statement of a material fact or omits any material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading in any material respect
as of the time when made or delivered.
SECTION 11 Affirmative Covenants. So long as any Subject Obligations
shall remain unpaid or any Bank shall have any Commitment, the Guarantor agrees
as follows:
(a) Financial Statements and Other Reports. The
Guarantor will furnish to the Agent in sufficient copies for distribution to
the Banks:
(i) as soon as available and in any event within 55
days after the end of each of the first three fiscal quarters of each fiscal
year of the Guarantor, a consolidated balance
29
<PAGE> 48
sheet of the Guarantor and its Subsidiaries as of the end of such quarter, and
the related consolidated statements of income, shareholders' equity and cash
flows of the Guarantor and its Subsidiaries for such quarter and the portion of
the fiscal year through the end of such quarter, prepared in accordance with
GAAP consistently applied, all in reasonable detail and setting forth in
comparative form the figures for the corresponding period in the preceding
fiscal year;
(ii) as soon as available and in any event within
100 days after the end of each fiscal year of the Guarantor, a consolidated
balance sheet of the Guarantor and its Subsidiaries as of the end of such
fiscal year, and the related consolidated statements of income, shareholders'
equity and cash flows of the Guarantor and its Subsidiaries for such fiscal
year, prepared in accordance with GAAP consistently applied, all in reasonable
detail and setting forth in comparative form the figures for the previous
fiscal year, and in the case of such consolidated financial statements,
accompanied by a report thereon of Price Waterhouse LLP or another firm of
independent certified public accountants of recognized national standing, which
report shall be unqualified as to scope of audit or the status of the Guarantor
and its Subsidiaries as a going concern;
(iii) together with the financial statements
required pursuant to clauses (i) and (ii), a Compliance Certificate of a
Responsible Officer as of the end of the applicable accounting period, which
shall contain a certification of a Responsible Officer of the Guarantor stating
that such financial statements fairly present the financial condition of the
Guarantor and its Subsidiaries as at such date and the results of operations of
the Guarantor and its Subsidiaries for the period ended on such date and have
been prepared in accordance with GAAP consistently applied, subject to changes
resulting from normal, year-end audit adjustments and except for the absence of
notes; and
(iv) promptly after the giving, sending or filing
thereof, copies of all reports, if any, which the Guarantor or any of its
Subsidiaries sends to the holders of its respective capital stock or other
securities and of all reports or filings, if any, by the Guarantor or any of
its Subsidiaries with the SEC or any national securities exchange.
(b) Additional Information. The Guarantor will furnish
to the Agent the following information, and will cause the Borrower to furnish
to the Agent the following information insofar as it relates to the Borrower:
(i) promptly after the Guarantor or the Borrower has
knowledge or becomes aware thereof, notice of the occurrence or existence of
any Default;
30
<PAGE> 49
(ii) prompt written notice of any action, event or
occurrence that could reasonably be expected to result in a Material Adverse
Effect due to environmental liability under Environmental Laws;
(iii) prompt written notice of each action, suit and
proceeding before any Governmental Authority or arbitrator pending, or to the
best of the Guarantor's or the Borrower's knowledge, threatened against or
affecting the Guarantor or any of its Subsidiaries which if adversely
determined would involve an aggregate liability of $10,000,000 (or its
equivalent in any other currency) or more in excess of amounts covered by
third-party insurance, or (B) otherwise may have a Material Adverse Effect;
(iv) promptly after the Guarantor has knowledge or
becomes aware thereof, (A) notice of the occurrence of any ERISA Event,
together with a copy of any notice of such ERISA Event to the PBGC, and (B) the
details concerning any action taken or proposed to be taken by the IRS, PBGC,
Department of Labor or other Person with respect thereto;
(v) promptly upon the commencement or increase of
contributions to, the adoption of, or an amendment to, a Plan by the Guarantor
or an ERISA Affiliate, if such commencement or increase of contributions,
adoption, or amendment could reasonably be expected to result in a net increase
in unfunded liability to Guarantor or an ERISA Affiliate in excess of
$10,000,000, a calculation of the net increase in unfunded liability;
(vi) promptly after filing or receipt thereof by the
Guarantor or any ERISA Affiliate, copies of the following:
(A) any notice received from the PBGC of
intent to terminate or have a trustee appointed to administer any
Pension Plan;
(B) any notice received from the sponsor
of a Multiemployer Plan concerning the imposition, delinquent payment,
or amount of withdrawal liability;
(C) any demand by the PBGC under
Subtitle D of Title IV of ERISA; and
(D) any notice received from the IRS
regarding the disqualification of a Plan intended to qualify under
Section 401(a) of the Internal Revenue Code;
(vii) within 45 days of the date thereof, or, if
earlier, on the date of delivery of any financial statements pursuant to
subsection 11(a), notice of any change in accounting policies or financial
reporting practices by the Guarantor or the Borrower or any Significant
Subsidiary that is expected to affect
31
<PAGE> 50
(or has affected) materially under U.S. GAAP the consolidated financial
condition of the Guarantor and its Subsidiaries;
(viii) promptly after the occurrence thereof, notice
of any labor controversy resulting in or threatening to result in any strike,
work stoppage, boycott, shutdown or other material labor disruption against or
involving the Guarantor or any of its Subsidiaries which could result in a
Material Adverse Effect;
(ix) prompt written notice of any change in the
fiscal year of the Guarantor or of the Borrower;
(x) prompt written notice of any Person or
Subsidiary not identified on Schedule 4 that becomes a Significant Subsidiary
after the date of this Guaranty;
(xi) prompt written notice of any other condition or
event which has resulted, or that could reasonably be expected to result, in a
Material Adverse Effect; and
(xii) such other information respecting the
operations, properties, business or condition (financial or otherwise) of the
Guarantor or its Significant Subsidiaries as any Bank (through the Agent) may
from time to time reasonably request.
Each notice pursuant to this subsection (b) shall be accompanied by a written
statement by a Responsible Officer of the Guarantor (or of the Borrower, with
respect to occurrences affecting the Borrower) setting forth details of the
occurrence referred to therein, and stating, to the extent then known or
proposed, what action the Guarantor or the Borrower, as the case may be, may
take with respect thereto.
(c) Preservation of Corporate Existence, Etc. The
Guarantor shall, and shall cause each Subsidiary to:
(i) preserve and maintain in full force and effect
its corporate existence and good standing under the laws of its state or
jurisdiction of incorporation, except in connection with transactions permitted
by Section 12, and except in the case of any Subsidiary (other than the
Borrower) to the extent that the failure to obtain or maintain the foregoing
would not reasonably be expected to have a Material Adverse Effect;
(ii) preserve and maintain in full force and effect
all governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its business, except
to the extent that the failure to obtain or maintain the foregoing would not
reasonably be expected to have a Material Adverse Effect;
32
<PAGE> 51
(iii) use reasonable efforts, in the ordinary course
of business, to preserve its business organization and goodwill, except in the
case of any Subsidiary (other than the Borrower) to the extent that the failure
to obtain or maintain the foregoing would not reasonably be expected to have a
Material Adverse Effect; and
(iv) preserve or renew all of its registered
patents, trademarks, trade names and service marks, the non-preservation of
which could reasonably be expected to have a Material Adverse Effect.
(d) Payment of Taxes, Etc. The Guarantor will, and will
cause each of its Subsidiaries to, pay and discharge all taxes, fees,
assessments and governmental charges or levies imposed upon it or upon its
properties or assets prior to the date on which penalties attach thereto, and
all lawful claims for labor, materials and supplies which, if unpaid, might
become a Lien (other than a Permitted Lien) upon any properties or assets of
the Guarantor or any Subsidiary, except to the extent such taxes, fees,
assessments or governmental charges or levies, or such claims, are being
contested in good faith by appropriate proceedings and are adequately reserved
against in accordance with GAAP.
(e) Licenses. The Guarantor will, and will cause each of
its Subsidiaries to, obtain and maintain all licenses, authorizations,
consents, filings, exemptions, registrations and other governmental approvals
necessary in connection with the execution, delivery and performance of the
Loan Documents, the consummation of the transactions therein contemplated or
the operation and conduct of its business and ownership of its properties,
except to the extent that the failure to obtain or maintain the foregoing would
not reasonably be expected to have a Material Adverse Effect.
(f) Maintenance of Property. Except as otherwise
permitted under Section 12(c) or (e), the Guarantor shall maintain, and shall
cause each Subsidiary to maintain, and preserve all its property which is used
or useful in its business in good working order and condition, ordinary wear
and tear excepted.
(g) Insurance. The Guarantor shall maintain, and shall
cause each Subsidiary to maintain, with financially sound and reputable
independent insurers, insurance with respect to its properties and business
against losses and damages of the kinds and in amounts which are deemed prudent
by the Guarantor in its reasonable business judgment and within the general
parameters customary among similarly situated businesses in the industry.
(h) Payment of Indebtedness. The Guarantor shall, and
shall cause each Subsidiary to, pay and discharge as the same shall become due
and payable, all obligations of the Borrower
33
<PAGE> 52
under the Facility Agreement and all other Indebtedness, as and when due and
payable or within any grace periods applicable thereto, but subject to any
subordination provisions contained in any instrument or agreement evidencing
such Indebtedness.
(i) Compliance with Laws. The Guarantor shall comply,
and shall cause each Subsidiary to comply, in all material respects with the
requirements of all Environmental Laws and all applicable laws, rules,
regulations and orders of any Governmental Authority having jurisdiction over
it or its business.
(j) Compliance with ERISA. The Guarantor shall, and
shall cause each of its ERISA Affiliates to: (a) maintain each Plan in
compliance in all material respects with the applicable provisions of ERISA,
the Code and other federal or state law; (b) cause each Plan which is qualified
under Section 401(a) of the Code to maintain such qualification; and (c) make
all required contributions to any Plan subject to Section 412 of the Code.
(k) Inspection of Property and Books and Records. The
Guarantor shall maintain and shall cause each Subsidiary to maintain proper
books of record and account, in which full, true and correct entries in
conformity with GAAP consistently applied shall be made of all financial
transactions and matters involving the assets and business of the Guarantor and
such Subsidiary. The Guarantor shall permit, and shall cause each Subsidiary
to permit, representatives and independent contractors of the Agent or any Bank
to visit and inspect any of their respective properties, to examine their
respective corporate, financial and operating records, and make copies thereof
or abstracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective directors, officers, and independent public
accountants, all at the expense of the Guarantor and at such reasonable times
during normal business hours and as often as may be reasonably desired, upon
reasonable advance notice to the Guarantor; provided, however, that (i) unless
an Event of Default under the Facility Agreement shall have occurred and be
continuing, (A) the Guarantor shall be responsible under this subsection (k)
for the costs and expenses of the Agent only, (B) all inspections, visits,
examinations and other actions permitted or authorized hereunder shall be
coordinated only through the Guarantor, and (C) physical inspections of the
Borrower's facilities in Japan shall be made on two weeks' prior notice and
shall occur no more frequently than semiannually in the case of inspections by
the Agent and no more frequently than annually otherwise, and (ii) when an
Event of Default under the Facility Agreement exists the Agent or any Bank may
make any visit, inspection or examination or take any other action authorized
hereunder at the expense of the Guarantor at any time during normal business
hours, without advance notice and without being subject to any of the other
restrictions described in clause (i).
34
<PAGE> 53
(l) Margin Certificate. The Guarantor shall from time to
time furnish to the Borrower for delivery by it pursuant to the Facility
Agreement a Margin Certificate.
(m) Further Assurances and Additional Acts. The
Guarantor shall, and shall cause the Borrower to, execute, acknowledge,
deliver, file, notarize and register at its own expense all such further
agreements, instruments, certificates, documents and assurances and perform
such acts as the Agent or the Majority Banks shall deem reasonably necessary or
appropriate to effectuate the purposes of the Loan Documents, and promptly
provide the Bank with evidence of the foregoing satisfactory in form and
substance to the Agent and the Majority Banks.
SECTION 12 Negative Covenants. So long as any Subject Obligations
shall remain unpaid or any Bank shall have any Commitment, the Guarantor agrees
that:
(a) Liens. The Guarantor will not, and will not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien
upon or with respect to any of its properties, revenues or assets, whether now
owned or hereafter acquired, other than (i) Permitted Liens and (ii) other
Liens that, in the aggregate at any time, secure obligations in an amount not
in excess of 10% of Consolidated Total Assets, determined as of the end of the
next preceding fiscal quarter (or fiscal year, as the case may be).
(b) Change in Nature of Business. The Guarantor will
not, and will not permit any of its Subsidiaries to, engage in any material
line of business other than the electronics business and other businesses
incidental or reasonably related thereto.
(c) Sales of Assets. The Guarantor will not, and will
not permit any of its Subsidiaries to, convey, sell, lease, transfer, or
otherwise dispose of, or part with control of (whether in one transaction or a
series of transactions) any assets (including any shares of stock in any
Subsidiary or other Person), except:
(i) sales or other dispositions of inventory in the
ordinary course of business;
(ii) sales or other dispositions of assets in the
ordinary course of business which have become worn out or obsolete or which are
promptly being replaced;
(iii) sales of accounts receivable to financial
institutions not affiliated with the Guarantor; provided that (A) the discount
rate shall not at any time exceed 10%, (B) the amount of all accounts
receivable permitted to be sold in any fiscal quarter shall not exceed 30% of
the consolidated accounts receivable of the Guarantor and its Subsidiaries,
determined as
35
<PAGE> 54
of the end of the next preceding fiscal quarter (or fiscal year, as the case
may be), and (C) the sole consideration received for such sales shall be cash;
(iv) sales or other dispositions of assets outside
the ordinary course of business which do not constitute Substantial Assets; and
(v) sales or other dispositions of Permitted
Investments.
For purposes of clause (iv), a sale, lease, transfer or other disposition of
assets shall be deemed to be of "Substantial Assets" if such assets, when added
to all other assets conveyed, sold, leased, transferred or otherwise disposed
of in any period of four consecutive fiscal quarters (other than assets sold in
the ordinary course of business or pursuant to clause (iii)), shall exceed 10%
of Consolidated Total Assets as determined as of the end of the fiscal quarter
of the Guarantor immediately preceding the date of determination.
(d) Loans and Investments. The Guarantor will not, and
will not permit any of its Subsidiaries to, enter into any Acquisition or
otherwise extend any credit to, guarantee the obligations of or make any
additional investments in or acquire any interest in, any Person, other than in
connection with:
(i) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sales of goods or services in
the ordinary course of business;
(ii) Permitted Investments;
(iii) additional purchases of or investments in the
stock of, and guarantees of the obligations of, Subsidiaries;
(iv) Permitted Acquisitions;
(v) employee loans and guarantees in accordance with
the Borrower's usual and customary practices with respect thereto; or
(vi) additional investments not exceeding, in the
aggregate with all such investments and all Acquisitions, $500,000,000 during
the period from December 20, 1996 through the Final Maturity Date;
provided that in the case of an Acquisition or an investment referred to in
clause (vi) above, (A) no such Acquisition or investment shall be made while
there exists a Default or if a Default or Material Adverse Effect would occur
as a result thereof, and (B) the acquired or other Person in which any such
Acquisition or investment is made shall be in the electronics
36
<PAGE> 55
business or other business incidental or reasonably related thereto.
(e) Restrictions on Fundamental Changes. The Guarantor
will not, and will not permit any of its Subsidiaries to, merge with or
consolidate into, or acquire all or substantially all of the assets of, any
Person, or sell, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its
assets, except that:
(i) any of the Guarantor's Subsidiaries may merge
with, consolidate into or transfer all or substantially all of its assets to
another of the Guarantor's Subsidiaries or to the Guarantor and in connection
therewith such Subsidiary may be liquidated or dissolved, provided that (A) if
the transaction involves the Guarantor, the Guarantor shall be the surviving
Person, and (B) if any transaction shall be between a non-wholly owned
Subsidiary and a wholly owned Subsidiary, the wholly owned Subsidiary shall be
the continuing or surviving Person, and provided further that no Material
Adverse Effect or Default shall result therefrom;
(ii) the Guarantor or any of its Subsidiaries may
sell or dispose of assets in accordance with the provisions of subsection (c);
(iii) the Guarantor or any of its Subsidiaries may
make any investment permitted by subsection (d); and
(iv) the Guarantor may merge with or consolidate
into any other Person pursuant to an Acquisition permitted by subsection (d),
provided that (A) the Guarantor is the surviving Person, (B) no such merger or
consolidation shall be made while there exists a Default or if a Default or
Material Adverse Effect would occur as a result thereof, and (C) the Guarantor
shall have complied with the notice and other requirements of subsection (d)
with respect to any Acquisition.
(f) Transactions with Related Parties. The Guarantor
will not, and will not permit any of its Subsidiaries to, enter into any
transaction, including the purchase, sale or exchange of property or the
rendering of any services, with any Affiliate, any officer or director thereof
or any Person which beneficially owns or holds 20% or more of the equity
securities, or 20% or more of the equity interest, thereof (a "Related Party"),
or enter into, assume or suffer to exist, or permit any Subsidiary to enter
into, assume or suffer to exist, any employment or consulting contract with any
Related Party, except (i) a transaction or contract which is in the ordinary
course of the Guarantor's or such Subsidiary's business, including a
transaction in the ordinary course of business between or among the Guarantor
and one or more of its Subsidiaries, and (ii) any other transaction which is
upon fair and reasonable terms not
37
<PAGE> 56
less favorable to the Guarantor or such Subsidiary than it would obtain in a
comparable arm's length transaction with a Person not a Related Party. For
purposes of this paragraph (f), the sale, transfer or disposition of more than
30% of its assets (in any transaction or a series of related transactions) by
the Guarantor or any Subsidiary shall be deemed to be outside the ordinary
course of business.
(g) Accounting Changes. The Guarantor shall not, and
shall not suffer or permit any Subsidiary to, make any significant change in
accounting treatment or reporting practices, except as required or permitted by
GAAP (or, in the case of any Subsidiary domiciled in a jurisdiction other than
the United States, in accordance with generally accepted accounting principles
and practices in such jurisdiction).
(h) Distributions. The Guarantor will not declare or pay
any dividends in respect of its capital stock, or purchase, redeem, retire or
otherwise acquire for value any of its capital stock now or hereafter
outstanding, return any capital to its shareholders as such, or make any
distribution of assets to its shareholders as such, or permit any of its
Subsidiaries to purchase, redeem, retire, or otherwise acquire for value any
stock of the Guarantor, except that the Guarantor may:
(i) declare and deliver dividends and distributions
payable only in common stock of the Guarantor;
(ii) purchase shares of its capital stock from time
to time in connection with the issuance of shares under the Guarantor's
employee stock option plans;
(iii) purchase, redeem, retire, or otherwise acquire
shares of its capital stock with the proceeds received from a substantially
concurrent issue of new shares of its capital stock; and
(iv) in addition to the dividends, purchases,
redemptions, retirements and other acquisitions permitted by the foregoing
paragraphs (i) through (iii), declare and deliver dividends and distributions,
and purchase, redeem, retire, or otherwise acquire shares of its capital stock,
in an aggregate amount not exceeding $100,000,000 in any period of four
consecutive quarters.
SECTION 13 Financial Covenants. So long as any of the Subject
Obligations shall remain unpaid or any Bank shall have any Commitment, the
Guarantor agrees that:
(a) Senior Debt to Total Capital. The Guarantor will
maintain a ratio of Senior Debt to Total Capital of not more than 0.35 to 1.0
as of the end of each of the Guarantor's fiscal quarters;
38
<PAGE> 57
(b) Quick Ratio. The Guarantor will maintain a ratio of
Consolidated Quick Assets to Consolidated Current Liabilities of not less than
1.35 to 1.0 as of the end of any fiscal quarter of the Guarantor;
(c) Minimum Consolidated Tangible Net Worth. The
Guarantor will maintain Consolidated Tangible Net Worth (exclusive of the
cumulative translation adjustment account as reported in the consolidated
balance sheet of the Guarantor and its Subsidiaries as of such date) as of the
end of each of the Guarantor's fiscal quarters of not less than (i)
$997,000,000 plus (ii) 100% of the net proceeds received by the Guarantor or
any Subsidiary from the sale or issuance of equity securities (including equity
securities issued upon the conversion of Subordinated Debt) to any Person other
than the Guarantor or any Subsidiary after September 30, 1995, plus (iii) 80%
of positive Consolidated Net Income, if any, for each fiscal quarter elapsed
after September 30, 1995, minus (iv) 80% of total goodwill generated by the
Guarantor's Permitted Acquisitions from September 30, 1996, if any, and minus
(v) 100% of restructuring and acquisition charges related to the Guarantor's
Permitted Acquisitions from September 30, 1996 (provided that any such
restructuring or acquisition charges are expensed in the same fiscal quarter
during which the applicable Permitted Acquisition is completed);
(d) Debt Service Coverage Ratio. The Guarantor will
maintain a ratio of (i) the sum of Consolidated EBITDA plus Consolidated Rental
Expense to (ii) the sum of Consolidated CMLTD, plus Consolidated Interest
Expense, plus Capitalized Interest, plus Consolidated Rental Expense of not
less than 2.0 to 1.0 for any period of four consecutive fiscal quarters of the
Guarantor, calculated as of the end of such period; and
(e) Subordinated Debt. The Guarantor will not permit
Subordinated Debt of the Guarantor and its consolidated Subsidiaries to exceed
(i) $500,000,000 at any time during the Guarantor's 1996 fiscal year or (ii)
$750,000,000 at any time thereafter; and the Guarantor will not, and will not
permit any of its Subsidiaries to, make any voluntary or optional payment or
repayment on, redemption, exchange or acquisition for value of, or any sinking
fund or similar payment with respect to, any Subordinated Debt if a Default
shall then exist or would occur as a result thereof.
SECTION 14 Events of Default. Any of the following shall constitute
an "Event of Default":
(a) Representation or Warranty. Any representation or
warranty by the Guarantor or the Borrower made herein or in the Facility
Agreement, or which is contained in any certificate, document or financial or
other statement by the Guarantor or the Borrower or any Responsible Officer of
the Guarantor or the Borrower, furnished at any time under this Guaranty, the
Facility
39
<PAGE> 58
Agreement or any other Loan Document, is incorrect in any material respect, on
or as of the date made; or
(b) Specific Defaults. The Guarantor fails to
perform or observe any term, covenant or agreement contained in any of Sections
11(b), 11(h) (in respect of the Borrower's obligations under the Facility
Agreement), 12 or 13; or
(c) Other Defaults. The Guarantor fails to perform or
observe any other term or covenant contained in this Guaranty, and such default
shall continue unremedied for a period of 30 days after the earlier of (i) the
date upon which a Responsible Officer of the Guarantor knew or reasonably
should have known of such failure or (ii) the date upon which written notice
thereof is given to the Guarantor by the Agent or any Bank; or
(d) Default Under Other Indebtedness. The Guarantor or
any of its Subsidiaries shall fail (i) to make any payment of any principal of,
or interest or premium on, any Indebtedness (other than in respect of the
Advances) in an aggregate principal amount outstanding of at least $10,000,000
(or its equivalent in any other currency) when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) and such
failure shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Indebtedness as of the date of
such failure, or (ii) to perform or observe any term, covenant or condition on
its part to be performed or observed under any agreement or instrument relating
to any such Indebtedness, when required to be performed or observed, and such
failure shall continue after the applicable grace period, if any, specified in
such agreement or instrument, if the effect of such failure to perform or
observe is to accelerate, or to permit the acceleration of, the maturity of
such Indebtedness without any further action by the holder thereof; or any such
Indebtedness shall be declared to be due and payable, or required to be prepaid
(other than by a contractually required prepayment), prior to the stated
maturity thereof; or any facility or commitment available to the Guarantor or
any Subsidiary relating to Indebtedness in an aggregate amount at any one time
of not less than $10,000,000 (or its equivalent in any other currency) is
withdrawn, suspended or cancelled by reason of any default (however described)
of the Guarantor or such Subsidiary; or
(e) Insolvency; Voluntary Proceedings. The Guarantor or
any Subsidiary (i) ceases or fails to be Solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject
to applicable grace periods, if any, whether at stated maturity or otherwise;
(ii) voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
formal corporate action to effectuate or authorize any of the foregoing; or
40
<PAGE> 59
(f) Involuntary Proceedings. (i) Any involuntary
Insolvency Proceeding is commenced or filed against the Guarantor or any
Subsidiary, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a substantial part of the Guarantor's or
any Subsidiary's properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or similar
process shall not be released, vacated or fully bonded within 60 days after
commencement, filing or levy; (ii) the Guarantor or any Subsidiary admits the
material allegations of a petition against it in any Insolvency Proceeding, or
an order for relief (or similar order under non-U.S. law) is ordered in any
Insolvency Proceeding; or (iii) the Guarantor or any Subsidiary acquiesces in
the appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor), or other similar Person for itself
or a substantial portion of its property or business; or
(g) Judgments. (i) A final nonappealable judgment or
order for the payment of money against the Guarantor or any of its Subsidiaries
shall remain unpaid 90 days following the due date for such payment and that is
reasonably expected to result in a Material Adverse Effect; or (ii) any
non-monetary judgment or order shall be rendered against the Guarantor or any
such Subsidiary which has or would reasonably be expected to have a Material
Adverse Effect; or
(h) Process Issued. A warrant of attachment, execution,
distraint, or similar process against any substantial part of the assets of the
Guarantor or any of its Subsidiaries is issued which remains undismissed or
undischarged for a period of 30 days, if as a result thereof there is
reasonably expected to occur a Material Adverse Effect; or
(i) Seizure. All or a material part of the undertaking,
assets, rights or revenues of the Guarantor or the Borrower are seized,
nationalized, expropriated or compulsorily acquired by or under the authority
of any Governmental Authority; or
(j) ERISA. (i) An ERISA Event shall occur with respect
to a Pension Plan which has resulted or could reasonably be expected to result
in liability of the Guarantor under Title IV of ERISA to the Pension Plan or
PBGC in an aggregate amount in excess of $10,000,000; (ii) the commencement or
increase of contributions to, or the adoption of or the amendment of a Pension
Plan by the Guarantor which has resulted or could reasonably be expected to
result in an increase in Unfunded Pension Liability among all Pension Plans in
an aggregate amount in excess of $10,000,000; or (iii) any of the
representations and warranties contained in subsection 10(l) hereof shall cease
to be true and correct which, individually or in combination, has resulted or
could reasonably be expected to result in a Material Adverse Effect; or
41
<PAGE> 60
(k) Dissolution, Etc. The Guarantor or any of its
Subsidiaries shall (i) liquidate, wind up or dissolve (or suffer any
liquidation, wind-up or dissolution), except to the extent expressly permitted
by subsection 12(e), (ii) suspend its operations other than in the ordinary
course of business, or (iii) take any corporate action to authorize any of the
actions or events set forth above in this subsection (k); or
(l) Ownership of Borrower. The Borrower shall cease to
be a wholly-owned indirect or direct Subsidiary of the Guarantor, except as
permitted hereunder; or
(m) Change in Ownership or Control. (i) Any Person, or
two or more Persons acting in concert, shall acquire beneficial ownership,
directly or indirectly, or shall enter into a contract or arrangement (A) for
the acquisition of the securities of the Guarantor (or other securities
convertible into such securities) representing 30% or more of the combined
voting power of all securities of the Guarantor entitled to vote in the
election of directors, or (B) which upon consummation will result in its or
their acquisition of, or control over, securities of the Guarantor (or other
securities convertible into such securities) representing 30% or more of the
combined voting power of all securities of the Guarantor entitled to vote in
the election or directors; or (ii) during any period of up to 12 consecutive
months commencing after the Closing Date, individuals who at the beginning of
such period were directors of the Guarantor shall cease for any reason to
constitute a majority of the Board of Directors of the Guarantor, unless the
Persons replacing such individuals were nominated by the Board of Directors of
the Guarantor.
(n) Repudiation. This Guaranty is for any reason
revoked, invalidated or repudiated, or otherwise ceases to be in full force and
effect, or the Guarantor or any other Person contests the validity or
enforceability of this Guaranty or denies that it has any further liability
hereunder.
(o) Material Adverse Effect. A Material Adverse Effect
shall have occurred.
Upon the occurrence of an Event of Default, the Agent and the
Banks shall have the rights and remedies set forth herein and in Clause 11 of
the Facility Agreement.
SECTION 15 Notices. All notices, requests and other communications
provided for hereunder shall be in writing and delivered by prepaid letter
(airmail if the addressee is abroad), or by telex or telefax, (a) if to the
Guarantor, to its address specified on the signature pages hereof or such other
address as shall be designated by the Guarantor in a written notice to the
other parties, (b) if to the Agent, to its address as set forth in or
determined pursuant to the Facility Agreement or such other
42
<PAGE> 61
address as shall be designated by the Agent in a written notice to the other
parties, and (c) if to any Bank, to its address as set forth in or determined
pursuant to the Facility Agreement or such other address as shall be designated
by such Bank in a written notice to the Guarantor and the Agent. All such
notices, requests and communications shall be effective (i) if delivered for
overnight delivery, upon delivery, (ii) if mailed, two business days after it
has been deposited into the mail (seven business days if delivered through
international mail), (iii) if transmitted by facsimile, when a complete and
legible copy is received by the addressee, or (iv) if sent by telex, at the
time of dispatch with confirmed answerback of the addressee appearing at the
beginning and end of the transmission (provided that if the date of receipt is
not a business day in the country of the addressee or if the time of receipt of
any telex or telefax is after the close of business in the country of the
address it shall be deemed to have been received at the opening of business on
the next business day).
SECTION 16 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Agent or any Bank of any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights and remedies hereunder are
cumulative and not exclusive of any rights, remedies, powers and privileges
that may otherwise be available to the Agent or any Bank.
SECTION 17 Costs and Expenses; Indemnification; Other Charges.
(a) Costs and Expenses. The Guarantor shall:
(i) as soon as reasonably practicable in accordance
with the Guarantor's customary procedures for reviewing and processing such
items, and in any event within 30 days following receipt of an invoice
therefor, and to the extent not earlier paid pursuant to the Facility
Agreement, pay or reimburse the Agent for all reasonable costs and expenses
incurred by the Agent in connection with the development, preparation,
delivery, administration and execution of, and any amendment, supplement,
waiver or modification to, this Guaranty and any other documents prepared in
connection herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, including fees and expenses of external legal
counsel and the allocated cost of internal legal services and disbursements of
internal counsel incurred by the Agent with respect thereto (subject, however,
in the case of legal fees only, to an aggregate limit agreed between the Agent
and the Guarantor in a letter dated November 30, 1995 for the
43
<PAGE> 62
development, preparation, delivery and execution of the Loan Documents);
(ii) pay or reimburse each Bank and the Agent on
demand for all reasonable costs and expenses incurred by them in connection
with the enforcement, attempted enforcement, or preservation of any rights or
remedies (including in connection with any "workout" or restructuring regarding
the Subject Obligations) under this Guaranty, including fees and expenses of
external legal counsel and the allocated cost of internal legal services and
disbursements of internal counsel incurred by the Agent and any Bank; and
(iii) as soon as reasonably practicable in
accordance with the Guarantor's customary procedures for reviewing and
processing such items, and in any event within 30 days following receipt of an
invoice therefor, pay or reimburse the Agent on demand for all reasonable
appraisal (including the allocated cost of internal appraisal services), audit,
search and filing costs, fees and expenses, consulting, recording, costs and
similar fees and expenses incurred or sustained by the Agent or any of its
Affiliates in connection with the matters referred to in clauses (i) and (ii)
of this subsection 17(a) or otherwise in connection with this Guaranty.
(b) Indemnification. Whether or not the transactions
contemplated by the Facility Agreement are consummated, the Guarantor shall
indemnify and hold the Agent, the Arranger, each Bank and each of their
respective officers, directors, employees, counsel, agents and
attorneys-in-fact (each, an "Indemnified Person") harmless from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses and disbursements (including fees
and expenses of external legal counsel and the allocated cost of internal legal
services and disbursements of internal counsel) of any kind or nature
whatsoever which may at any time (including at any time following repayment of
the Advances and the termination, resignation or replacement of the Agent or
replacement of any Bank) be imposed on, incurred by or asserted against any
such Person in any way relating to or arising out of this Guaranty or any
document contemplated by or referred to herein, or the transactions
contemplated hereby, or any action taken or omitted by any such Person under or
in connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any Insolvency Proceeding or
appellate proceeding) related to or arising out of this Guaranty or the
Advances or the use of the proceeds thereof, whether or not any Indemnified
Person is a party thereto (all the foregoing, collectively, the "Indemnified
Liabilities"); provided, that the Guarantor shall have no obligation hereunder
to any Indemnified Person with respect to Indemnified Liabilities to the extent
resulting from the gross negligence or willful misconduct of such Indemnified
Person. The agreements in this Section shall survive payment of all other
Subject Obligations.
44
<PAGE> 63
(c) Defense. At the election of any Indemnified Person,
the Guarantor shall defend such Indemnified Person using legal counsel
satisfactory to such Indemnified Person in such Person's sole discretion, at
the sole cost and expense of the Guarantor.
(d) Other Charges. The Guarantor agrees to indemnify the
Agent and each of the Banks against and hold each of them harmless from any and
all present and future stamp, transfer, documentary and other such taxes,
levies, fees, assessments and other charges made by any jurisdiction by reason
of the execution, delivery, performance and enforcement of this Guaranty.
(e) Interest. Any amounts payable in Dollars to the
Agent or any Bank under this Section 17 or otherwise under this Guaranty if not
paid when due shall bear interest from the due date until paid in full, at a
fluctuating rate per annum equal to the Prime Commercial Lending Rate of ABN
AMRO Bank N.V. ("ABN") as announced from time to time by ABN at its Chicago
Office plus 2% (calculated on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed). Any other amounts payable to the Agent
or any Bank under this Guaranty if not paid when due shall bear interest at the
default rate set forth in the Facility Agreement (but in no event exceeding the
maximum rate permitted by applicable law).
SECTION 18 Payment Currency.
(a) The Guarantor hereby guarantees that the Subject
Obligations will be paid to the Agent and the Banks without set-off or
counterclaim in the currency and at the places and times and in the manner
provided for in the Facility Agreement. The obligation of the Guarantor
hereunder to make payments in any currency (the "Payment Currency") shall not
be discharged or satisfied by any tender or recovery pursuant to any judgment
expressed in or converted into any currency other than the Payment Currency or
any other realization in such currency, whether as proceeds of set-off,
security, guarantee, distributions, or otherwise, except to the extent to which
such tender, recovery or realization shall result in the effective receipt by
the Agent and the Banks of the full amount of the Payment Currency to be
payable hereunder. Without limiting the foregoing, the Guarantor (i)
acknowledges that this Guaranty is not an instrument which may be paid in
Dollars pursuant to Section 3107 of the California Uniform Commercial Code,
(ii) agrees that (A) upon the acceleration of the Subject Obligations after an
Event of Default, the Agent, upon the instructions of the Majority Banks, may
at any time and from time to time purchase for the ratable benefit of the
Banks, one or more hedging contracts to fix the Dollar equivalent amount of the
Subject Obligations in the Payment Currency and (B) as a separate and
independent obligation hereunder, the Guarantor shall immediately
45
<PAGE> 64
pay to the Agent and the Banks all direct and indirect costs incurred by the
Agent or the Banks in obtaining any such hedging contract, and (iii) agrees
that (A) any judgment entered against the Guarantor and in favor of any Bank
with respect to the Subject Obligations shall, if requested by such Bank, be
entered in the Payment Currency pursuant to the Uniform Foreign-Money Claims
Act as in effect in the State of California (California Code of Civil Procedure
Section 676 et seq.) and (B) for the purpose of determining any "spot rate" as
defined in California Code of Civil Procedure Section 676.1(11), the Reference
Banks shall be used as the "bank or other dealer in foreign exchange"
referenced in such section. The Guarantor shall indemnify the Agent and each
Bank (as an alternative or additional cause of action) for the amount (if any)
by which such effective receipt shall fall short of the full amount of the
Payment Currency to be payable hereunder, and such obligation to indemnify
shall not be affected by judgment being obtained for any other sums due under
this Guaranty.
(b) Upon a payment with respect to any of the Subject
Obligations becoming due hereunder, unless and until such payment is received
by the Agent and the Banks in the Payment Currency in accordance with
subsection 18(a), the Guarantor shall (i) bear all exchange rate risks with
respect thereto, and (ii) pay interest on such Subject Obligations to the
Guarantor and the Banks on the amounts due, on demand, at the rate of interest
then payable by the Borrower.
SECTION 19 Set-off. In addition to any rights and remedies of the
Agent and the Banks provided by law, if an Event of Default (as defined in the
Facility Agreement) exists or the Advances have been accelerated, the Agent and
each Bank are authorized at any time and from time to time, without prior
notice to the Guarantor, any such notice being waived by the Guarantor to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by, the Agent or such Bank (as the
case may be) to or for the credit or the account of the Guarantor against any
and all Subject Obligations, now or hereafter existing, irrespective of whether
or not the Agent or such Bank shall have made demand under this Guaranty which
are then due and payable. The Agent and each Bank agree promptly to notify the
Guarantor, and each Bank agrees promptly to notify the Agent, after any such
set-off and application made by such Bank; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application.
SECTION 20 Survival. All covenants, agreements, representations and
warranties made in this Guaranty shall survive the execution and delivery of
this Guaranty, and shall continue in full force and effect so long as any of
the Subject Obligations
46
<PAGE> 65
remains unsatisfied. Without limiting the generality of the foregoing, the
obligations of the Guarantor under Section 17 shall survive the satisfaction of
the Subject Obligations.
SECTION 21 Successors and Assigns. The provisions of this Guaranty
shall be binding upon the Guarantor and its successors and assigns and inure to
the benefit of the Agent, each Bank and their respective successors and
assigns, except that the Guarantor may not assign or transfer any of its rights
or obligations under or in connection with this Guaranty without the prior
written consent of the Agent and each Bank.
SECTION 22 Assignments, Participations, Etc. Each Bank may, without
notice to or consent by the Guarantor, sell, assign, transfer or grant
participations in all or any portion of such Bank's rights and obligations
hereunder in connection with any sale, assignment, transfer or grant of a
participation by such Bank under Clause 15 of the Facility Agreement of its
rights and obligations thereunder. The Guarantor agrees that in connection
with any such sale, assignment, transfer or grant by any Bank, such Bank may
deliver to the prospective participant or assignee financial statements and
other relevant information relating to the Guarantor and its Subsidiaries as
contemplated by Clause 15 of the Facility Agreement.
SECTION 23 Governing Law.
(a) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE AGENT
AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
GUARANTY SHALL BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA IN AND FOR
THE CITY AND COUNTY OF SAN FRANCISCO OR OF THE UNITED STATES FOR THE NORTHERN
DISTRICT OF CALIFORNIA, OR, AT THE SOLE OPTION OF AGENT OR MAJORITY BANKS, IN
ANY OTHER COURT IN WHICH AGENT OR MAJORITY BANKS SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS JURISDICTION OVER THE SUBJECT MATTER AND
PARTIES IN CONTROVERSY AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, THE
GUARANTOR CONSENTS, AND THE BANKS AND THE AGENT BY THEIR ACCEPTANCE HEREOF EACH
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF
THOSE COURTS. THE GUARANTOR IRREVOCABLY WAIVES, AND THE BANKS AND THE AGENT BY
THEIR ACCEPTANCE HEREOF EACH IRREVOCABLY WAIVES, ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT
RELATED HERETO. THE GUARANTOR WAIVES, AND THE BANKS AND THE AGENT BY THEIR
ACCEPTANCE HEREOF EACH WAIVES, PERSONAL SERVICE OF ANY
47
<PAGE> 66
SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY CALIFORNIA LAW.
SECTION 24 Waiver of Jury Trial. THE GUARANTOR HEREBY AGREES TO
WAIVE, AND THE AGENT AND THE BANKS BY THEIR ACCEPTANCE HEREOF HEREBY AGREE TO
WAIVE, THEIR RESPECTIVE RIGHTS TO A TRAIL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
THE GUARANTOR HEREBY AGREES, AND THE AGENT AND THE BANKS BY THEIR ACCEPTANCE
HEREOF HEREBY AGREE, THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT IN ANY WAY LIMITING THE FOREGOING, THE
GUARANTOR FURTHER AGREES, AND THE AGENT AND THE BANKS BY THEIR ACCEPTANCE
HEREOF FURTHER AGREE, THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM, OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS GUARANTY OR ANY PROVISION HEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS GUARANTY. THIS SECTION 24 MAY NOT BE AMENDED EXCEPT PURSUANT TO SECTION
26 AND BY SPECIFIC REFERENCE TO THIS SECTION 24.
SECTION 25 Effective Date; Entire Agreement. This Guaranty shall be
effective on and as of the "Effective Date" defined in the First Amendment.
This Guaranty embodies the entire agreement and understanding among the
Guarantor, the Banks and the Agent with respect to the subject matter hereof,
and supersedes all prior or contemporaneous agreements and understandings of
such Persons, verbal or written, relating to the subject matter hereof, and
amends and restates in its entirety the Prior Guaranty.
SECTION 26 Amendments and Waivers. This Guaranty may not be amended
except by a writing signed by the Guarantor, the Agent and the Majority Banks,
except that without the consent in writing of all of the Banks (a) the release
or termination of this Guaranty may not be made, (b) the due date of any
payment of principal, interest or other amount payable by the Guarantor
hereunder may not be postponed and the amount thereof may not be reduced, and
(c) the currency in which any amount is payable by the Guarantor may not be
changed. No waiver of any rights of the Agent or the Banks under any provision
of this Guaranty or consent to any departure by the Guarantor therefrom shall
be effective unless in writing and signed by the Agent and the Majority Banks.
Any such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
48
<PAGE> 67
SECTION 27 Severability. The illegality or unenforceability of any
provision of this Guaranty or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Guaranty or any instrument or agreement required
hereunder.
SECTION 28 Benefit of Guaranty. This Guaranty is made and entered
into for the sole protection and legal benefit of the Banks and the Agent and
their successors and assigns, and no other Person other than an Indemnified
Person shall be a direct or indirect beneficiary of, or have any direct or
indirect cause of action or claim in connection with, this Guaranty. Neither
the Agent nor any Bank, by its acceptance of this Guaranty, shall have any
obligation under this Guaranty to any Person other than the Guarantor, and such
obligations shall be limited to those expressly stated herein.
SECTION 29 Time. Time is of the essence as to each term or provision
of this Guaranty.
SECTION 30 Guarantor Acknowledgment and Consent. The Guarantor
hereby (a) acknowledges and consents to the execution, delivery and performance
by the Borrower of that certain First Amendment to Facility Agreement (the
"First Amendment") dated as of December 24, 1996 which amends the Facility
Agreement as set forth in such First Amendment, a copy of which has been
previously delivered to and reviewed by the Guarantor; (b) reaffirms and agrees
that this Guaranty and all other documents and agreements executed and
delivered by the Guarantor previously (other than the Prior Guaranty) or
concurrently herewith to the Agent and the Banks in connection with the
Facility Agreement are in full force and effect, without defense, offset or
counterclaim; and (c) reaffirms and agrees that all of the provisions of this
Guaranty are applicable to, and enforceable by the Agent and all Banks party to
the Facility Agreement against, the Guarantor.
49
<PAGE> 68
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to
be duly executed and delivered in San Francisco, California, by its proper and
duly authorized officers, as of the date first above written.
LSI LOGIC CORPORATION
By ___________________________________
Title: ____________________________
Address:
1551 McCarthy Boulevard
Milpitas, CA 95035
Facsimile: (408) 954-3634
Attention: Mark R. Kent
50
<PAGE> 69
EXHIBIT A
to the Amended and Restated Guaranty
FORM OF COMPLIANCE CERTIFICATE
TO: ABN AMRO Bank N.V., Tokyo Branch, as Agent
(address)
Re: LSI Logic Corporation
Ladies and Gentlemen:
This Compliance Certificate is made and delivered pursuant to
the Amended and Restated Guaranty dated as of December 30, 1996 (as amended,
modified, renewed or extended from time to time, the "Guaranty") made by LSI
Logic Corporation, a Delaware corporation (the "Guarantor"), in favor of the
Banks referred to therein and ABN AMRO Bank N.V., Tokyo Branch, as Agent, and
reference is made thereto for full particulars of the matters described
therein. All capitalized terms used in this Compliance Certificate and not
otherwise defined herein shall have the meanings assigned to them in the
Guaranty. This Compliance Certificate relates to the accounting period ending
__________, 199__.
I am the _______________________ of the Guarantor. I have
reviewed the terms of the Guaranty and I have made, or caused to be made under
my supervision, a detailed review of the transactions and conditions of the
Guarantor and its Subsidiaries during such accounting period. I hereby certify
that the information set forth on Schedule 1 hereto (and on any additional
schedules hereto setting forth further supporting detail) is true, accurate and
complete as of the end of such accounting period.
I hereby further certify that (i) as of the date hereof, no
Event of Default has occurred and is continuing, and (ii) on and as of the date
hereof, there has occurred no Material Adverse Effect since December 31, 1995,
except, in each case, as may be set forth in a separate attachment hereto
describing in detail the nature of each condition or event constituting an
exception to the foregoing statements, the period during which it has existed
and the action which the Guarantor is taking or proposes to take with respect
to each such condition or event.
IN WITNESS WHEREOF, the undersigned officer has signed this
Compliance Certificate this ____ day of ______________, 199__.
______________________________________
Name:
Title:
A-1.
<PAGE> 70
Exhibit D
to First Amendment to Agreement
FORM OF LEGAL OPINION
December __, 1996
To each of the Banks party to the Amendment
Agreement referred to below, and to
ABN AMRO Bank N.V., Tokyo Branch, as Agent
Ladies and Gentlemen:
I am General Counsel of LSI Logic Corporation, a Delaware corporation
(the "Guarantor"), and I am giving my opinion in connection with the execution
and delivery of the First Amendment to Agreement, dated December 24, 1996 (the
"Amendment Agreement"), amending the Agreement dated December 27, 1995 (the
"Agreement") among LSI Logic Japan Semiconductor, Inc. (the "Borrower"),
certain financial institutions named therein as Banks (the "Banks"), ABN AMRO
Bank N.V., Tokyo Branch, as Agent (the "Agent"), and The Industrial Bank of
Japan, Limited, as Co-Agent, and the related Amended and Restated Guaranty,
dated as of December 30, 1996 (the "Guaranty") of LSI Logic Corporation, Inc.
(the "Guarantor") in favor of the Agent and the Banks.
This opinion is provided to the Agent and the Banks as required
pursuant to Section 3(d) of the Amendment Agreement. Capitalized terms not
otherwise defined herein have the respective meanings set forth in the
Amendment Agreement and the Guaranty.
In connection with this opinion letter, I have examined an executed
copies of the Guaranty; certificates of public officials from the States of
California and Delaware; the certificate of incorporation and by-laws of the
Guarantor, as amended to date; records of proceedings of the Board of Directors
of the Guarantor by which resolutions were adopted relating to matters covered
by this opinion; and such certificates of officers of the Guarantor as to
certain factual matters as I have deemed necessary or appropriate.
In addition, I have made such other investigations as I have deemed
necessary to enable me to express the opinions hereinafter set forth. In the
course of this examination I have assumed the genuineness of all signatures of
persons signing the Loan Documents on behalf of parties thereto other than the
Guarantor, the authenticity of all documents submitted to me as originals and
the conformity to authentic original documents of all documents submitted to me
as certified, conformed or photostatic copies.
1.
<PAGE> 71
Based upon the foregoing, and further subject to the assumptions,
qualifications and exceptions set forth below, I hereby advise you that in my
opinion:
(1) The Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with the
corporate power and authority to own and operate (or lease, as the case may be)
its properties and to carry on its business as it is now conducted. The
Guarantor is qualified as a foreign corporation and in good standing in the
State of California.
(2) The Guarantor has the corporate power and authority to enter
into and perform the Guaranty, and has taken all necessary corporate action to
authorize the execution, delivery and performance of the Guaranty.
(3) No authorization, consent, approval, license, exemption of, or
filing or registration with, any Governmental Authority, or approval or consent
of any other Person, is required for the due execution, delivery or performance
by, or enforcement against, the Guarantor of the Guaranty.
(4) The Guaranty have been duly executed and delivered by the
Guarantor and constitutes the legal, valid and binding obligation of the
Guarantor enforceable against the Guarantor in accordance with its terms.
(5) The execution, delivery and performance by the Guarantor of
the Guaranty will not (i) violate or be in conflict with any provision of the
certificate of incorporation, or by-laws of the Guarantor, (ii) violate or be
in conflict with any law or regulation having applicability to the Guarantor,
(iii) violate or contravene any judgment, decree, injunction, writ or order of
any court, or any arbitrator or other Governmental Authority, having
jurisdiction over the Guarantor or the Guarantor's properties or by which the
Guarantor may be bound, or (iv) violate or conflict with, or constitute a
default under or result in the termination of, or accelerate the performance
required by, any indenture, any loan or credit agreement, or any other
agreement for borrowed money or any other material agreement, lease or
instrument to which the Guarantor is a party or by which it or the Guarantor's
properties may be bound or affected except as contemplated under the Guaranty.
(6) Except as otherwise disclosed on Schedule 2 to the Guaranty,
no litigation or other proceedings are pending or threatened against the
Guarantor or its properties before any court, arbitrator or governmental agency
or authority with respect to the Guaranty or which, if determined adversely to
the Guarantor, would be likely to have a Material Adverse Effect.
The opinion set forth in paragraph 4 above is subject to the
qualification that the enforceability of the Guaranty may
2.
<PAGE> 72
be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally and by
general equity principles.
I express no opinion herein concerning any law other than the law of
the State of California, the General Corporation Law of the State of Delaware
and the federal law of the United States.
This letter has been furnished to you at the request of the Guarantor
pursuant to Section 3(d) of the Amendment Agreement for your use in connection
with the Amendment Agreement and the Guaranty, and may not be relied upon by
you or any other person for any other purpose without my consent; provided the
Agent and each Bank may deliver a copy to its legal counsel in connection with
the Amendment Agreement and the Guaranty, to any prospective assignee or
participant of any Bank and to any successor Agent, and such legal counsel, any
such assignee or participant and any successor Agent shall be entitled to rely
hereon.
Very truly yours,
3.
<PAGE> 1
EXHIBIT 10.41
LSI LOGIC CORPORATION
_________________________________
U.S.$300,000,000
CREDIT AGREEMENT
Dated as of December 20, 1996
_________________________________
ABN AMRO BANK N.V.
Agent
and
ABN AMRO NORTH AMERICA, INC.
Arranger
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) "Fiscal Year" and "Fiscal Quarter" . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 1.03 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE II THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.01 The Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.02 Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Notice to the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Notice to the Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.03 Non-Receipt of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.04 Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.05 Evidence of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.06 Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.07 Required Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE III INTEREST AND FEES; CONVERSION OR CONTINUATION . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.01 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Interest Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(d) Notice to the Borrower and the Banks . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.02 Default Rate of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
i.
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 3.03 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Agency and Arrangement Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(c) Fees Nonrefundable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.04 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.05 Conversion or Continuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(b) Automatic Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(c) Notice to the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(d) Notice to the Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.06 Replacement of Reference Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.07 Highest Lawful Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IV REDUCTION OF COMMITMENTS; REPAYMENT; PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.01 Reduction or Termination of the Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(a) Optional Reduction or Termination . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b) Mandatory Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(c) Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(d) Adjustment of Commitment Fee; No Reinstatement . . . . . . . . . . . . . . . . . . . 25
SECTION 4.02 Repayment of the Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.03 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Notice; Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE V YIELD PROTECTION AND ILLEGALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 5.01 Inability to Determine Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 5.02 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 5.03 Regulatory Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(c) Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.04 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
ii.
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 5.05 Funding Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.06 Obligation to Mitigate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.07 Substitution of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 6.01 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 6.02 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) Authorization to Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(c) Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(d) Extension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.03 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) No Reduction of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(b) Deduction or Withholding; Tax Receipts . . . . . . . . . . . . . . . . . . . . . . . 30
(c) Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(d) Forms 1001 and 4224 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(e) Mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(f) Exceptions to Payment of Additional Amounts . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.04 Non-Receipt of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.05 Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.01 Conditions Precedent to the Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(c) Additional Closing Documents and Actions . . . . . . . . . . . . . . . . . . . . . . 33
(d) Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(e) Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 7.02 Conditions Precedent to All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(a) Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(c) Representations and Warranties; No Default . . . . . . . . . . . . . . . . . . . . . 34
(d) Additional Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
iii.
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VIII REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 8.01 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(a) Organization and Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) Authorization; No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(c) Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(d) Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(e) No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(f) Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(g) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(h) Compliance with Consents and Licenses . . . . . . . . . . . . . . . . . . . . . . . 36
(i) Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . 36
(j) Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(k) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(l) Significant Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(m) Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(n) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(o) Patents and Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(p) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(q) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(r) Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(s) Labor Disputes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(t) Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(u) Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE IX COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 9.01 Reporting Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(a) Financial Statements and Other Reports . . . . . . . . . . . . . . . . . . . . . . . 39
(b) Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 9.02 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(a) Senior Debt to Total Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(b) Quick Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(c) Minimum Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . 42
(d) Debt Service Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(e) Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.03 Additional Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(a) Preservation of Corporate Existence, Etc . . . . . . . . . . . . . . . . . . . . . . 42
(b) Payment of Taxes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(c) Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(d) Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(e) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(f) Payment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
iv.
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(g) Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(h) Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(i) Inspection of Property and Books and Records . . . . . . . . . . . . . . . . . . . . 44
(j) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(k) Further Assurances and Additional Acts . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.04 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(a) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(b) Change in Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(c) Restrictions on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . 45
(d) Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(e) Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(f) Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(g) Transactions with Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . 48
(h) Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE X EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(a) Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(b) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(c) Failure by Borrower to Perform Certain Covenants . . . . . . . . . . . . . . . . . . 49
(d) Failure by Borrower to Perform Other Covenants . . . . . . . . . . . . . . . . . . . 49
(e) Insolvency; Voluntary Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 49
(f) Involuntary Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(g) Default Under Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(h) Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(i) Process Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(j) Seizure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(k) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(l) Dissolution, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(m) Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(n) Change in Ownership or Control . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 10.02 Effect of Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE XI THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 11.01 Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 11.02 Limitation on Liability of Agent; Notices; Closing . . . . . . . . . . . . . . . . . . . . . . . 53
(a) Limitation on Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(b) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(c) Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
v.
<PAGE> 7
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 11.03 Agent and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 11.04 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 11.05 Non-Reliance on Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 11.06 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 11.07 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 11.08 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 11.09 Arranger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE XII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 12.01 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 12.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(a) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(b) Facsimile and Telephonic Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 12.03 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 12.04 Costs and Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(a) Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(b) Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(c) Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(d) Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 12.05 Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 12.06 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 12.07 Obligations Several . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 12.08 Benefits of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 12.09 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(a) Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(b) Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 12.10 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 12.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 12.12 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 12.13 Limitation on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
vi.
<PAGE> 8
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 12.14 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 12.15 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 12.16 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ANNEXES
Annex 1 Pricing Grid
SCHEDULES
Schedule 1 Commitments and Pro Rata Shares
Schedule 2 Lending Offices; Addresses for Notices
Schedule 3 Existing Liens
Schedule 4 Significant Subsidiaries
Schedule 5 Litigation
Schedule 6 Environmental Compliance
EXHIBITS
Exhibit A Form of Note
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Compliance Certificate
Exhibit D Form of Opinion of General Counsel of the Borrower
Exhibit E Form of Assignment and Acceptance
</TABLE>
vii.
<PAGE> 9
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement"), dated as of December
20, 1996, is made among LSI LOGIC CORPORATION, a Delaware corporation (the
"Borrower"), the financial institutions listed on the signature pages of this
Agreement under the heading "BANKS" (each a "Bank" and, collectively, the
"Banks") and ABN AMRO BANK N.V. as agent for the Banks hereunder (in such
capacity, the "Agent").
The Borrower has requested the Banks to make revolving loans
to the Borrower in an aggregate principal amount of up to $300,000,000 at any
time outstanding. The Banks are severally willing to make such loans to the
Borrower upon the terms and subject to the conditions set forth in this
Agreement.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings:
"ABN AMRO" means ABN AMRO Bank N.V.
"Acquisition" means any transaction or series of related
transactions for the purpose of or resulting in (a) the acquisition, directly
or indirectly, of all or substantially all of the assets of a Person or of any
business or division of a Person, (b) the acquisition, directly or indirectly,
of all or substantially all of the capital stock, obligations or other
securities of or interest in a Person, or (c) a merger or consolidation or any
other combination by the Borrower or any Subsidiary with another Person.
"Affiliate" means any Person which, directly or indirectly,
controls, is controlled by or is under common control with another Person. For
purposes of the foregoing, "control" with respect to any Person shall mean the
possession, directly or indirectly, of the power (i) to vote 25% or more of the
securities having ordinary voting power for the election of directors of such
Person, or (ii) to direct or cause the direction of the management and policies
of such Person, whether through the ownership of voting securities or by
contract or otherwise.
"Agent" has the meaning set forth in the introduction to this
Agreement.
"Agent's Account" means the account of the Agent set forth in
Schedule 2 or such other account as the Agent from time
1.
<PAGE> 10
to time shall designate in a written notice to the Borrower and the Banks.
"Applicable Fee Amount" means with respect to the commitment
fee payable hereunder, the amount set forth opposite the indicated Level below
the heading "Commitment Fee" in the pricing grid set forth on Annex I in
accordance with the parameters for calculation and adjustment of such amount
also set forth on Annex I.
"Applicable Margin" means (i) with respect to Base Rate Loans,
0% per annum; and (ii) with respect to Eurodollar Rate Loans, the amount set
forth opposite the indicated Level below the heading "Eurodollar Rate Loan
Spread" in the pricing grid set forth on Annex I in accordance with the
parameters for calculation and adjustment of such amount also set forth on
Annex I.
"Arranger" means ABN AMRO North America, Inc.
"Assignment and Acceptance" has the meaning set forth in
Section 11.02(a).
"Bank" and "Banks" each has the meaning set forth in the
recital of parties to this Agreement.
"Bankruptcy Code" Title 11 of the United States Code entitled
"Bankruptcy."
"Base Rate" means for any day the higher of: (i) the Prime
Commercial Lending Rate of ABN AMRO, as announced from time to time at its
Chicago office, or (ii) the Federal Funds Rate, plus 1/2 of 1% per annum. Each
change in the interest rate on the Loans or other Obligations bearing interest
at the Base Rate based on a change in the Base Rate shall be effective as of
the effective date of such change in the Base Rate.
"Base Rate Loan" means a Loan bearing interest at a rate
determined by reference to the Base Rate.
"Borrower" has the meaning set forth in the recital of parties
to this Agreement.
"Borrower's Account" means the account of the Borrower set
forth in Schedule 2 or such other account as the Borrower from time to time
shall designate in a written notice to the Agent for the deposit of funds
borrowed under this Agreement.
"Borrowing" means a borrowing consisting of simultaneous Loans
made at any one time by the Borrower from the Banks pursuant to Article II.
2.
<PAGE> 11
"Business Day" means a day (i) other than Saturday or Sunday,
and (ii) on which commercial banks are open for business in San Francisco,
California and New York, New York.
"Capital Lease" means, for any Person, any lease of property
(whether real, personal or mixed) which, in accordance with GAAP, would, at the
time a determination is made, be required to be recorded as a capital lease in
respect of which such Person is liable as lessee.
"Capitalized Interest" means interest that is incurred or
accrued in any period and added to the cost of the asset in connection with
which such interest is incurred.
"Closing Date" means the date on which all conditions
precedent set forth in Section 7.01 are satisfied or waived by all Banks.
"Commitment" means, when used with reference to any Bank at
the time any determination thereof is to be made, the amount set forth opposite
the name of such Bank on Schedule 1, as such amount may be reduced from time to
time pursuant to Section 4.01, or, where the context so requires, the
obligation of such Bank to make Loans up to such amount on the terms and
conditions set forth in this Agreement.
"Compliance Certificate" means a certificate of a Responsible
Officer of the Borrower, in substantially the form of Exhibit C, with such
changes thereto as the Agent or any Bank may from time to time reasonably
request.
"Consolidated CMLTD" means, as of any date of determination,
the portion of long term Indebtedness coming due in the next succeeding
four-quarter period.
"Consolidated Current Liabilities" means, as of any date of
determination, the sum of current liabilities of the Borrower and its
Subsidiaries on a consolidated basis, as determined in accordance with GAAP,
plus (without duplication) Guaranty Obligations with respect to that portion of
the underlying obligations which come due within one year of such date of
determination.
"Consolidated EBITDA" means, for any period, Consolidated Net
Income plus Consolidated Interest Expense plus income tax expense plus
depreciation expense, amortization expense and other non-cash expenses or
charges relating to Permitted Acquisitions which were deducted in determining
Consolidated Net Income, of the Borrower and its Subsidiaries on a consolidated
basis, as determined in accordance with GAAP.
"Consolidated Interest Expense" means, for any period,
interest expense (including interest expense attributable to
3.
<PAGE> 12
Capital Leases) of the Borrower and its Subsidiaries on a consolidated basis,
as determined in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net
income of the Borrower and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period, as determined in accordance with
GAAP.
"Consolidated Quick Assets" means, as of any date of
determination, the sum of all unencumbered and unrestricted (except those
encumbered or restricted in favor of the Agent or the Banks) cash, cash
equivalents and net accounts receivable classified as current assets according
to GAAP, of the Borrower and its Subsidiaries on a consolidated basis, as
determined in accordance with GAAP.
"Consolidated Rental Expense" means, for any period, rental
expense of the Borrower and its Subsidiaries on a consolidated basis, as
determined in accordance with GAAP.
"Consolidated Tangible Net Worth" means, as of any date of
determination, Consolidated Total Assets minus Consolidated Total Liabilities,
minus (i) all assets which would be classified in a separate account as
intangible assets in accordance with GAAP, including goodwill, organizational
expense, research and development expense, capitalized software, patent
applications, patents, trademarks, trade names, brands, copyrights, trade
secrets, customer lists, licenses, franchises and covenants not to compete,
(ii) all unamortized debt discount and expense and (iii) all treasury stock;
provided, however, that to the extent otherwise included in the amount set
forth in the foregoing clause (i) of this definition, there shall be excluded
from such amount the sum of (A) all engineering costs incurred in connection
with the development of major production capabilities at new manufacturing
facilities or refurbishment of an existing facility or with respect to
introducing a new manufacturing process to existing or new manufacturing
facilities and which are classified as a fixed asset and capitalized on the
consolidated balance sheet of the Borrower in accordance with GAAP and (B)
amounts representing the capitalized portion of the acquisition and development
costs of software necessary for the operation of the business of the Borrower
and its Subsidiaries, as shown on the consolidated balance sheet of the
Borrower.
"Consolidated Total Assets" means, as of any date of
determination, the total assets of the Borrower and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP.
"Consolidated Total Debt" means, as of any date of
determination, all Indebtedness of the Borrower and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP.
4.
<PAGE> 13
"Consolidated Total Liabilities" means, as of any date of
determination, the total liabilities of the Borrower and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP.
"Default" means an Event of Default or an event or condition
which with notice or lapse of time or both would constitute an Event of
Default.
"Dollars" and the sign "$" each means lawful money of the
United States.
"EBITDA/Total Debt Ratio" means, as of the last day of any
Fiscal Quarter, the ratio of (i) Consolidated EBITDA for such Fiscal Quarter
then ended to (ii) Consolidated Total Debt as of such date.
"Eligible Assignee" means (i) a commercial bank organized
under the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least $100,000,000; (ii) a commercial bank
organized under the laws of any other country which is a member of the OECD, or
a political subdivision of any such country, and having a combined capital and
surplus of at least $100,000,000, provided that such bank is acting through a
branch or agency located in the United States and licensed by the United States
or any state thereof; and (iii) a Person that is primarily engaged in the
business of commercial banking and that is (A) a Subsidiary of a Bank, (B) a
Subsidiary of a Person of which a Bank is a Subsidiary, or (C) a Person of
which a Bank is a Subsidiary.
"Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directives, requests, licenses, authorizations
and permits of, and agreements with (including consent decrees), any
Governmental Authorities, in each case relating to or imposing liability or
standards of conduct concerning public health, safety and environmental
protection matters, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Clean Air Act, the Federal Water
Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal
Resource Conservation and Recovery Act, the Toxic Substances Control Act, the
Emergency Planning and Community Right-to-Know Act, the California Hazardous
Waste Control Law, the California Solid Waste Management, Resource Recovery and
Recycling Act, the California Water Code and the California Health and Safety
Code.
"Equity Capital" means Consolidated Total Assets minus
Consolidated Total Liabilities.
"ERISA" means the Employee Retirement Income Security Act of
1974, including (unless the context otherwise requires) any rules or
regulations promulgated thereunder.
5.
<PAGE> 14
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which is under common control with the Borrower within the
meaning of Section 4001(a)(14) of ERISA and Sections 414(b), (c) and (m) of the
Internal Revenue Code.
"ERISA Event" means (i) a Reportable Event with respect to a
Pension Plan; (ii) a withdrawal by the Borrower from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial employer
(as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which
is treated as such a withdrawal under Section 4062(e) of ERISA; (iii) the
filing of a notice of intent to terminate, the treatment of a plan amendment as
a termination under Section 4041 or 4041A of ERISA or the commencement of
proceedings by the PBGC to terminate a Pension Plan subject to Title IV of
ERISA; (iv) a failure by the Borrower to make required contributions to a
Pension Plan or other Plan subject to Section 412 of the Code; (v) an event or
condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Pension Plan; (vi) the imposition of any liability under
Title IV of ERISA, other than PBGC premiums due but not delinquent under
Section 4007 of ERISA, upon the Borrower; or (vii) an application for a funding
waiver or an extension of any amortization period pursuant to Section 412 of
the Code with respect to any Pension Plan.
"Eurodollar Business Day" means a Business Day on which
dealings in Dollar deposits are carried on in the London interbank market.
"Eurodollar Rate" means for each Interest Period for each
Eurodollar Rate Loan the rate per annum (rounded upward, if necessary, to the
nearest 1/100 of 1%) determined by the Agent pursuant to the following formula:
Interbank Rate
Eurodollar Rate = ------------------------------------
100% - Eurodollar Reserve Percentage
The Eurodollar Rate shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage.
"Eurodollar Rate Loan" means a Loan bearing interest at a rate
determined by reference to the Eurodollar Rate.
"Eurodollar Reference Banks" means ABN AMRO and Morgan
Guaranty Trust Company of New York, subject to the provisions of Section 3.06.
"Eurodollar Reserve Percentage" means the maximum reserve
requirement percentage (including any ordinary, supplemental, marginal and
emergency reserves), if any, as
6.
<PAGE> 15
determined by the Agent, then applicable under Regulation D in respect of
Eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a
member bank in the Federal Reserve System with deposits exceeding
$1,000,000,000.
"Event of Default" has the meaning set forth in Section 10.01.
"FDIC" means the Federal Deposit Insurance Corporation, or any
successor thereto.
"Fee Letter" means that certain letter agreement dated October
31, 1996 among the Borrower, the Agent and the Arranger relating to the payment
of certain arrangement and agency fees.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100 of 1%), as determined by
the Agent, 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, as published for any day of determination (or if such
day of determination is not a Business Day, for the next preceding Business
Day) by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations
for such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by it.
"FRB" means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its principal
functions.
"GAAP" means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of
the date of determination.
"Governmental Authority" means, with respect to any Person,
any federal, state, local or other governmental department, commission, board,
bureau, agency, central bank, court, tribunal or other instrumentality or
authority, domestic or foreign, exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government having
jurisdiction over such Person.
"Guaranty Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person
7.
<PAGE> 16
(i) with respect to any Indebtedness, lease (other
than an operating lease), dividend, or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person (A) to purchase, repurchase or otherwise
acquire such primary obligations or any property constituting direct
or indirect security therefor, or (B) to advance or provide funds (x)
for the payment or discharge of any such primary obligation, or (y) to
maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor,
or (C) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary
obligation, or (D) otherwise to assure or hold harmless the holder of
any such primary obligation against loss in respect thereof;
(ii) (A) with respect to letters of credit,
acceptances, bank guaranties, surety bonds or similar instruments
issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings, or (B) as a partner or
joint venturer in any partnership or joint venture;
(iii) with respect to synthetic leases; or
(iv) net obligations with respect to Rate Contracts,
other than Rate Contracts entered into in connection with a bona fide
hedging operation that provides offsetting benefits to such Person.
"Hazardous Substances" means any toxic or hazardous
substances, materials, wastes, contaminants or pollutants, including asbestos,
PCBs, petroleum products and byproducts, and any substances defined or listed
as "hazardous substances," "hazardous materials," "hazardous wastes" or "toxic
substances" (or similarly identified), regulated under or forming the basis for
liability under any applicable Environmental Law.
"IRS" means the Internal Revenue Service, or any successor
thereto.
"Indebtedness" means, for any Person, without duplication:
(i) all indebtedness or other obligations of such
Person for borrowed money;
(ii) all obligations of such Person for the deferred
purchase price of property or services (including obligations under
credit facilities which secure or finance such purchase price), other
than trade payables incurred by
8.
<PAGE> 17
such Person in the ordinary course of its business on ordinary terms;
(iii) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or
businesses;
(iv) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property);
(v) all obligations under Capital Leases;
(vi) all Guaranty Obligations other than Guaranty
Obligations described in clauses (i)(C) and (i)(D) of the definition
of "Guaranty Obligation" where the primary obligor is a Subsidiary;
and
(vii) all indebtedness of another Person secured by
any Lien upon or in property owned by the Person for whom Indebtedness
is being determined, whether or not such Person has assumed or become
liable for the payment of such indebtedness of such other Person;
provided, that if such indebtedness is not assumed and recourse is
limited solely to such property, the Indebtedness incurred hereunder
shall be valued at the lesser of the principal amount of the
obligation so secured or the fair market value of the property subject
to such Lien.
"Insolvency Proceeding" means (a) any case, action or
proceeding before any court or other Governmental Authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the benefit
of creditors, composition, marshalling of assets for creditors, or other,
similar arrangement in respect of its creditors generally or any substantial
portion of its creditors; undertaken under U.S. Federal, state or foreign law,
including the Bankruptcy Code.
"Interbank Rate" means the rate per annum determined by the
Agent, on the basis of quotations furnished to it by the Eurodollar Reference
Banks, to be the average (rounded upward, if necessary, to the nearest 1/16 of
1%) of the rates at which deposits in Dollars are offered to each of the
Eurodollar Reference Banks by prime banks in the London interbank market, at
approximately 11:00 a.m. (London time), two Eurodollar Business Days before
the first day of such Interest Period, in an amount substantially equal to the
proposed Eurodollar Rate Loan to be made, continued or converted by such
Eurodollar Reference Bank and for a period of time comparable to such Interest
Period. If
9.
<PAGE> 18
any Eurodollar Reference Bank shall fail to furnish a quotation of its
applicable rate to the Agent, the Interbank Rate for such Interest Period shall
be determined on the basis of the quotations furnished to the Agent by the
other Eurodollar Reference Bank or Reference Banks.
"Interest Payment Date" means a date specified for the payment
of interest pursuant to Section 3.01(c).
"Interest Period" means, with respect to any Eurodollar Rate
Loan, the period determined in accordance with Section 3.01(b) applicable
thereto.
"Internal Revenue Code" means the Internal Revenue Code of
1986, including (unless the context otherwise requires) any rules or
regulations promulgated thereunder.
"Lending Office" has the meaning set forth in Section 2.04.
"Lien" means any mortgage, deed of trust, pledge, security
interest, assignment, deposit arrangement, charge or encumbrance, lien
(statutory or other), or other preferential arrangement (including any
conditional sale or other title retention agreement, or any financing lease
having substantially the same economic effect as any of the foregoing or any
agreement to give any security interest, but excluding any operating lease,
regardless of whether precautionary filings are made in respect thereof under
Section 9408 of the California Uniform Commercial Code).
"Loan Documents" means this Agreement, the Notes, the Fee
Letter and all other certificates, documents, agreements and instruments
delivered to the Agent and the Banks under or in connection with this
Agreement.
"Loans" has the meaning set forth in Section 2.01.
"Majority Banks" means at any time Banks holding at least
66-2/3% of the then aggregate unpaid principal amount of the Loans, or, if no
such principal amount is then outstanding, Banks having at least 66-2/3% of the
aggregate Commitments.
"Material Adverse Effect" means (i) a material adverse change
in, or a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Borrower or the Borrower
and its Subsidiaries taken as a whole; (ii) a material impairment of the
ability of the Borrower to perform its payment obligations under any Loan
Document to which it is a party or under any loan document relating to any
Indebtedness of the Borrower described in Section 10.01(g); or (iii) a material
adverse effect upon the legality, validity, binding effect or enforceability of
any Loan Document.
10.
<PAGE> 19
"Minimum Amount" has the meaning set forth in Section 2.06.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Sections 3(37) and 4001(a)(3) of ERISA.
"Note" has the meaning set forth in Section 2.05.
"Notice" means a Notice of Borrowing, a Notice of Conversion
or Continuation or a Notice of Prepayment, as the case may be.
"Notice of Borrowing" has the meaning set forth in Section
2.02(a).
"Notice of Conversion or Continuation" has the meaning set
forth in Section 3.05(c).
"Notice of Prepayment" has the meaning set forth in Section
4.03(b).
"Obligations" means the indebtedness, liabilities and other
obligations of the Borrower to the Agent or any Bank under or in connection
with the Loan Documents, including all Loans, all interest accrued thereon, all
fees due under this Agreement and all other amounts payable by the Borrower to
the Agent or any Bank thereunder or in connection therewith, whether now or
hereafter existing or arising, and whether due or to become due, absolute or
contingent, liquidated or unliquidated, determined or undetermined.
"OECD" means the Organization for Economic Cooperation and
Development.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Pension Plan" means any employee pension benefit plan covered
by Title IV of ERISA (other than a Multiemployer Plan) that is maintained for
employees of the Borrower or any ERISA Affiliate or with regard to which the
Borrower or an ERISA Affiliate is a contributing sponsor within the meaning of
Sections 4001(a)(13) or 4069 of ERISA.
"Permitted Acquisition" means any Acquisition of a Person by
the Borrower or any Subsidiary for which (i) the sole consideration paid by the
Borrower or any Subsidiary, as the case may be, consists of capital stock, or
(ii) the total cash consideration paid by the Borrower or any Subsidiary, as
the case may be, does not exceed, in the aggregate with all other Acquisitions
and all investments under Section 9.04(e)(vi), $500,000,000 during the period
from the Closing Date through the Revolving Expiry Date.
11.
<PAGE> 20
"Permitted Investments" means any investments selected by the
Borrower in accordance with its Corporate Cash Investment Policy as adopted by
the Borrower on February 13, 1995 (as the same may be amended from time to time
with the approval of the Agent); provided that any investments not meeting the
standards set forth in such Corporate Cash Investment Policy shall nevertheless
be deemed to be "Permitted Investments" if they do not exceed at any time, in
the aggregate, 10% of all Permitted Investments at such time.
"Permitted Liens" means:
(i) Liens which may at any time be granted in favor of the
Agent on behalf of the Banks or the Banks to secure obligations under the Loan
Documents;
(ii) Liens in existence as of the date of this Agreement
listed on Schedule 3, and any substitutions or renewals thereof, provided that
(A) any substitute or renewal Lien is limited to the property encumbered by the
existing Lien, and (B) the principal amount of the obligations secured thereby
is not increased;
(iii) Liens for current taxes, assessments or other
governmental charges which are not delinquent or remain payable without any
penalty or which are being contested in good faith via appropriate proceedings,
with appropriate reserves established therefor in accordance with GAAP;
(iv) Liens in connection with workers' compensation,
unemployment insurance or other social security obligations;
(v) mechanics', workers', materialmen's, landlords',
carriers' or other like Liens arising in the ordinary and normal course of
business with respect to obligations which are not past due or which are being
contested in good faith via appropriate proceedings, with appropriate reserves
established therefor in accordance with GAAP;
(vi) purchase money security interests (including by way of
installment sales and title retention agreements) in personal or real property
hereafter acquired when the security interest is granted contemporaneously with
such acquisition (or within nine months thereafter), Liens created to secure
the cost of construction or improvement of property and Liens created to secure
Indebtedness incurred to finance such purchase price or cost (including Liens
of the Borrower in favor of the United States or any State, or any department,
agency, instrumentality or political subdivision thereof, securing any real
property or other assets in connection with the financing of industrial revenue
bond facilities or of any equipment or other property designed primarily for
the purpose of air or water pollution control); provided that (A) any such Lien
shall attach only to the property so purchased, constructed or improved,
together with
12.
<PAGE> 21
attachments and accessions thereto, and rents, proceeds, products,
substitutions, replacements and profits thereof and attachments and accessories
thereto, and (B) the amount of Indebtedness secured by any such Lien shall not
exceed the purchase or construction price of such property plus transaction
costs and financing charges relating to the acquisition or construction
thereof;
(vii) Liens arising from attachments or similar proceedings,
pending litigation, judgments or taxes or assessments in any such event whose
validity or amount is being contested in good faith by appropriate proceedings
and for which adequate reserves have been established and are maintained in
accordance with GAAP;
(viii) Liens arising in the ordinary course of business or by
operation of law, not securing Indebtedness, but securing such obligations as
(A) judgments or awards, which (x) are covered by applicable insurance or (y)
have been outstanding less than 30 consecutive days, (B) interests of landlords
or lessors under leases of real or personal property entered into in the
ordinary course of business arising by contract or operation of law, (C) Liens
in favor of customs and revenue authorities which secure payment of customs in
connection with the importation of goods, (D) Liens which constitute rights of
set-off of a customary nature or bankers' liens on amounts on deposit, whether
arising by contract or by operation of law, in connection with arrangements
entered into with depository institutions in the ordinary course of business,
(E) such minor defects, irregularities, encumbrances, easements, rights of way,
and clouds on title as normally exist with respect to similar properties which
do not, individually or in the aggregate, materially impair the property
affected thereby or the use thereof and (F) subleases, licenses, and
sublicenses granted to third parties, the granting of which does not result in
a Material Adverse Effect;
(ix) Liens securing reimbursement obligations of the Borrower
under documentary letters of credit; provided that such Liens shall attach only
to documents relating to such letters of credit, goods covered thereby and
products and proceeds thereof;
(x) Liens on insurance policies or the proceeds of insurance
policies incurred solely to secure the financing of premiums owing with respect
thereto;
(xi) Liens existing on property (including the proceeds and
accessions thereto) acquired by the Borrower (including Liens on assets of any
corporation at the time it becomes a Subsidiary), but excluding any Liens
created in contemplation of any such acquisition; and
(xii) Liens encumbering customary initial deposits and margin
deposits, and other Liens that are within the general
13.
<PAGE> 22
parameters customary in the industry and incurred in the ordinary course of
business in connection with Rate Contracts or portfolio investments maintained
with financial intermediaries.
"Person" means an individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated organization or
any other entity of whatever nature or any Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA) which the Borrower sponsors or maintains, or to which the
Borrower makes, is making, or is obligated to make contributions, and includes
any Pension Plan.
"Premises" means any and all real property, including all
buildings and improvements now or hereafter located thereon and all
appurtenances thereto, now or hereafter owned, leased, occupied or used by the
Borrower and its Subsidiaries.
"Pro Rata Share" means, as to any Bank at any time, the
percentage equivalent (expressed as a decimal, rounded to the ninth decimal
place) at such time of such Bank's Commitments divided by the combined
Commitments of all Banks (or, if all Commitments have been terminated, the
aggregate principal amount of such Bank's Loans divided by the aggregate
principal amount of the Loans then held by all Banks). The initial Pro Rata
Share of each Bank is set forth opposite such Bank's name in Schedule 1 under
the heading "Pro Rata Share."
"Rate Contracts" means interest rate swaps, caps, floors and
collars, currency swaps, or other similar financial products designed to
provide protection against fluctuations in interest, currency or exchange
rates.
"Regulation D" means Regulation D of the FRB.
"Regulatory Change" has the meaning set forth in Section 5.03.
"Related Person" has the meaning set forth in Section 11.06.
"Reportable Event" means any of the events set forth in
Section 4043(b) of ERISA or the regulations promulgated thereunder, other than
any such event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC.
"Required Notice Date" has the meaning set forth in Section
2.07.
"Responsible Officer" means, with respect to any Person, the
chief executive officer, the president, the chief financial officer or the
treasurer of such Person, or any other
14.
<PAGE> 23
senior officer of such Person having substantially the same authority and
responsibility; or, with respect to compliance with financial covenants, the
chief financial officer or the treasurer of any such Person, or any other
senior officer of such Person involved principally in the financial
administration or controllership function of such Person and having
substantially the same authority and responsibility.
"Revolving Expiry Date" means the third anniversary of the
Closing Date.
"SEC" means the Securities and Exchange Commission, or any
successor thereto.
"Senior Debt" means all Indebtedness, other than Subordinated
Debt, of the Borrower and its Subsidiaries on a consolidated basis.
"Significant Subsidiary" means, at any time, any Subsidiary
having at such time total assets, as of the last day of the preceding Fiscal
Quarter, having a net book value in excess of $10,000,000 (exclusive of
intercompany assets and liabilities), based upon the Borrower's most recent
annual or quarterly financial statements delivered to the Agent under Section
9.01(a).
"Solvent" means, with respect to any Person, that as of the
date of determination, (i) the then fair saleable value of the property of such
Person is (A) greater than the total amount of liabilities (including
reasonably anticipated liabilities with respect to contingent obligations) of
such Person and (B) greater than the amount that will be required to pay the
probable liabilities on such Person's then existing debts as they become
absolute and matured considering all financing alternatives and potential asset
sales reasonably available to such Person, and (ii) such Person has not
incurred and does not intend to incur, or does not believe that it will incur,
debts beyond its ability to pay such debts as they become due.
"Subordinated Debt" means (i) the Subordinated Notes and (ii)
any other Indebtedness of the Borrower or any Subsidiary under which principal
payments will become due and payable no earlier than the first anniversary of
the Revolving Expiry Date and which is subordinated on terms and conditions
reasonably acceptable to the Majority Banks; provided, that any Subordinated
Debt having subordination provisions no more favorable to the holder than those
contained in the Subordinated Notes shall be deemed to be reasonably acceptable
to the Majority Banks for the purposes hereof.
"Subordinated Notes" means the Borrower's 5-1/2% Convertible
Subordinated Notes Due 2001 and the indenture relating thereto.
15.
<PAGE> 24
"Subsidiary" means any corporation, association, partnership,
joint venture or other business entity of which more than 50% of the voting
stock or other equity interest is owned directly or indirectly by any Person or
one or more of the other Subsidiaries of such Person or a combination thereof.
"Swap Termination Value" means, in respect of any one or more
Rate Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Rate Contracts, (i) for any date on or after
the date such Rate Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (ii) for any
date prior to the date referenced in clause (a) the amount(s) determined as the
mark-to-market value(s) for such Rate Contracts, as determined based upon one
or more mid- market or other readily available quotations provided by any
recognized dealer in such Rate Contracts (which may include any Bank).
"Taxes" has the meaning set forth in Section 6.03.
"Total Capital" means the sum of Equity Capital, Senior Debt
and Subordinated Debt.
"Unfunded Pension Liability" means the excess of a Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the current value
of that Plan's assets, determined in accordance with the assumptions used for
funding the Plan pursuant to Section 412 of the Code for the applicable plan
year.
"United States" and "U.S." each means the United States of
America.
SECTION 1.02 Accounting Principles.
(a) Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement. Except as otherwise expressly provided in this
Agreement, all accounting terms not otherwise defined herein shall have the
meanings assigned to them in conformity with GAAP. Financial statements,
determinations relating to covenants, and other information required to be
delivered or determined by the Borrower pursuant to this Agreement shall be
prepared or determined in conformity with GAAP as in effect at the time of such
preparation or determination; provided, that in the event that a change to GAAP
taking effect after the date hereof would otherwise affect the calculation of
any covenant set forth in Section 9.02, such covenant shall be calculated in
accordance with GAAP as in effect immediately prior to such change until an
appropriate adjustment can be determined.
(b) "Fiscal Year" and "Fiscal Quarter". References
herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of
the Borrower.
16.
<PAGE> 25
SECTION 1.03 Interpretation. In the Loan Documents, except
to the extent the context otherwise requires:
(i) Any reference to an Article, a Section, a Schedule or an
Exhibit is a reference to an article or section thereof, or a schedule or an
exhibit thereto, respectively, and to a subsection or a clause is, unless
otherwise stated, a reference to a subsection or a clause of the Section or
subsection in which the reference appears.
(ii) The words "hereof," "herein," "hereto," "hereunder" and
the like mean and refer to this Agreement or any other Loan Document as a whole
and not merely to the specific Article, Section, subsection, paragraph or
clause in which the respective word appears.
(iii) The meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation."
(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of the Loan Documents.
(vi) References to statutes or regulations are to be
construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation referred to.
(vii) Any table of contents, captions and headings are for
convenience of reference only and shall not affect the construction of this
Agreement or any other Loan Document.
(viii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including"; the
words "to" and "until" each mean "to but excluding"; and the word "through"
means "to and including."
(ix) The use of a word of any gender shall include each of
the masculine, feminine and neuter genders.
(x) This Agreement and the other Loan Documents are the
result of negotiations among the Agent, the Borrower and the other parties,
have been reviewed by counsel to the Agent, the Borrower and such other
parties, and are the products of all parties. Accordingly, they shall not be
construed against the Banks or the Agent merely because of the Agent's or
Banks' involvement in their preparation.
17.
<PAGE> 26
ARTICLE II
THE LOANS
SECTION 2.01 The Loans. Each Bank severally agrees, on the
terms and conditions hereinafter set forth, to make revolving loans (each a
"Loan" and, collectively, the "Loans") to the Borrower from time to time on any
Business Day during the period from the Closing Date until the Revolving Expiry
Date, in an aggregate principal amount up to but not exceeding at any time
outstanding such Bank's Commitment. Within the limits of each Bank's
Commitment, during such period the Borrower may borrow, repay the Loans in
whole or in part, and reborrow, all in accordance with the terms and conditions
hereof.
SECTION 2.02 Borrowing Procedure.
(a) Notice to the Agent. Each Borrowing shall be made
upon written or telephonic notice (in the latter case to be confirmed promptly
in writing) from the Borrower to the Agent, which notice shall be received by
the Agent not later than 10:00 A.M. (California time) on the Required Notice
Date. Each such notice shall be in substantially the form of Exhibit B (a
"Notice of Borrowing"), shall be irrevocable and binding on the Borrower except
as provided in Sections 5.01 and 5.04, and shall specify: (A) the proposed
date of the Borrowing, which shall be a Business Day; (B) whether the Borrowing
consists of Base Rate Loans or Eurodollar Rate Loans; (C) the aggregate amount
of the Borrowing, which shall be in a Minimum Amount; (D) if the Borrowing
consists of any Eurodollar Rate Loans, the duration of the initial Interest
Period with respect thereto; (E) that no Default exists hereunder; and (F)
payment instructions with respect to the funds to be made available to the
Borrower as a result of such Borrowing.
(b) Notice to the Banks. The Agent shall give each Bank
prompt notice by telephone (confirmed promptly in writing) or by facsimile of
each Borrowing, specifying the information contained in the Borrower's Notice
and such Bank's Pro Rata Share of the Borrowing. On the date of each
Borrowing, each Bank shall make available such Bank's Pro Rata Share of such
Borrowing, in same day or immediately available funds, to the Agent for the
Agent's Account, not later than 12:00 Noon (California time. Upon fulfillment
of the applicable conditions set forth in Article VII and after receipt by the
Agent of any such funds, and unless other payment instructions are provided by
the Borrower, the Agent shall make such funds available to the Borrower by
crediting the Borrower's Account with same day or immediately available funds
on such Borrowing date.
SECTION 2.03 Non-Receipt of Funds. Unless the Agent shall
have received notice from a Bank prior to the date of any Borrowing that such
Bank shall not make available to the Agent such Bank's Pro Rata Share of such
Borrowing, the Agent may assume that such Bank has made such portion available
to the
18.
<PAGE> 27
Agent on the date of such Borrowing in accordance with Section 2.02(b) 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 such Bank shall not
have so made such Pro Rata 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 the Federal Funds Rate. If such Bank shall repay to
the Agent such corresponding amount, such amount so repaid shall constitute
such Bank's Loan as part of such Borrowing for purposes of this Agreement.
SECTION 2.04 Lending Offices. The Loans made by each Bank
may be made from and maintained at such offices of such Bank (each a "Lending
Office") as such Bank may from time to time designate (whether or not such
office is specified on Schedule 2. A Bank shall not elect a Lending Office
that, at the time of making such election, increases the amounts which would
have been payable by the Borrower to such Bank under this Agreement in the
absence of such election. With respect to Eurodollar Rate Loans made from and
maintained at any Bank's non- U.S. offices, the obligation of the Borrower to
repay such Eurodollar Rate Loans shall nevertheless be to such Bank and shall,
for all purposes of this Agreement (including for purposes of the definition of
the term "Majority Banks") be deemed made or maintained by it, for the account
of any such office.
SECTION 2.05 Evidence of Indebtedness. The Loans made by
each Bank shall be evidenced by one or more loan accounts maintained by such
Bank in accordance with its usual practices. The loan accounts maintained by
the Agent and each such Bank shall be rebuttable presumptive evidence of the
amount of the Loans made by such Bank to the Borrower and the interest and
payments thereon; provided, however, that in case of a discrepancy between the
entries in the Agent's books and any Bank's books, such Bank's books shall
constitute rebuttable presumptive evidence of the accuracy of the information
so recorded. Any failure so to record or any error in doing so shall not,
however, limit or otherwise affect the obligation of the Borrower hereunder to
pay any amount owing with respect to the Loans. At the request of any Bank,
the Borrower shall execute and deliver for the account of such Bank a
promissory note in substantially the form of Exhibit A, dated the Closing Date,
setting forth such Bank's Commitment as the maximum principal amount thereof,
as additional evidence of the Indebtedness of the Borrower to such Bank
resulting from the Loans made by such Bank (each a "Note" and, collectively,
the "Notes").
SECTION 2.06 Minimum Amounts. Any Borrowing, conversion,
continuation, Commitment reduction or prepayment of Loans hereunder shall be in
an aggregate amount determined as
19.
<PAGE> 28
follows (each such specified amount a "Minimum Amount"): (i) any Borrowing or
partial prepayment of Base Rate Loans shall be in the amount of $10,000,000 or
a greater amount which is an integral multiple of $5,000,000; (ii) any
Borrowing, continuation or partial prepayment of, or conversion into,
Eurodollar Rate Loans shall be in the amount of $15,000,000 or a greater amount
which is an integral multiple of $5,000,000; and (iii) any partial Commitment
reduction under Section 4.01(a) shall be in the amount of $15,000,000 or a
greater amount which is an integral multiple of $5,000,000.
SECTION 2.07 Required Notice. Any Notice hereunder shall be
given not later than the date determined as follows (each such specified date a
"Required Notice Date"): (i) any Notice with respect to a Borrowing of, or
conversion into, Base Rate Loans shall be given at least one Business Day prior
to the date of the proposed borrowing or conversion; (ii) any Notice with
respect to any Borrowing or continuation of, or conversion into, Eurodollar
Rate Loans shall be given at least four Eurodollar Business Days prior to the
date of the proposed Borrowing, conversion or continuation; and (iii) any
Notice with respect to any prepayment under Section 4.03(a) or Commitment
reduction under Section 4.01(a) shall, except as otherwise provided in Section
4.03(b), be given at least five Business Days prior to the proposed prepayment
date.
ARTICLE III
INTEREST AND FEES; CONVERSION OR CONTINUATION
SECTION 3.01 Interest.
(a) Interest Rate. The Borrower shall pay interest on
the unpaid principal amount of each Loan from the date of such Loan until the
maturity thereof, at the following rates:
(i) during such periods as such Loan is a Base Rate Loan, at
a rate per annum equal at all times to the Base Rate plus the Applicable
Margin; and
(ii) during such periods as such Loan is a Eurodollar Rate
Loan, at a rate per annum equal at all times during each Interest Period for
such Eurodollar Rate Loan to the Eurodollar Rate for such Interest Period plus
the Applicable Margin.
(b) Interest Periods. The initial and each subsequent
Interest Period for the Eurodollar Rate Loans shall be a period of one, two,
three or six months, or such other period as requested by the Borrower and
acceptable to the Banks. The determination of Interest Periods shall be
subject to the following provisions:
(A) in the case of immediately successive Interest
Periods, each successive Interest Period shall commence on the day on which the
next preceding Interest Period expires;
20.
<PAGE> 29
(B) if any Interest Period would otherwise end on a day
which is not a Business Day, that Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to carry
such Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Business Day;
(C) no Interest Period shall extend beyond the Revolving
Expiry Date;
(D) any Interest Period that begins on the last Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the ending calendar month of such Interest Period) shall
end on the last Business Day of the ending calendar month of such Interest
Period; and
(E) there shall be no more than three Interest Periods in
effect at any one time.
(c) Interest Payment Dates. Subject to Section 3.02,
interest on the Loans shall be payable in arrears at the following times:
(i) interest on each Base Rate Loan shall be payable
quarterly on the last Business Day in each calendar quarter, on the date of any
prepayment or conversion of any such Base Rate Loan, and at maturity; and
(ii) interest on each Eurodollar Rate Loan shall be payable
on the last day of each Interest Period for such Eurodollar Rate Loan, provided
that (A) in the case of any such Interest Period which is greater than three
months, interest on such Eurodollar Rate Loan shall be payable on each date
that is three months, or an integral multiple thereof, after the beginning of
such Interest Period, and on the last day of such Interest Period, and (B) if
any prepayment, conversion, or continuation is effected other than on the last
day of such Interest Period, accrued interest on such Eurodollar Rate Loan
shall be due on such prepayment, conversion or continuation date as to the
principal amount of such Eurodollar Rate Loan prepaid, converted or continued.
(d) Notice to the Borrower and the Banks. Each
determination by the Agent hereunder of a rate of interest and of any change
therein, including any changes in (i) the Applicable Margin, (ii) the Base Rate
during any periods in which Base Rate Loans shall be outstanding, and (iii) the
Eurodollar Reserve Percentage (if any) during any periods in which Eurodollar
Rate Loans shall be outstanding, in the absence of manifest error shall be
conclusive and binding on the parties hereto and shall be promptly notified by
the Agent to the Borrower and the Banks. Such notice shall set forth in
reasonable detail the basis for any such determination or change. The failure
of the Agent to give any such notice specified in this subsection shall not
21.
<PAGE> 30
affect the Borrower's obligation to pay any interest or fees hereunder.
SECTION 3.02 Default Rate of Interest. In the event that any
amount of principal of or interest on any Loan, or any other amount payable
hereunder or under the Loan Documents, is not paid in full when due (whether at
stated maturity, by acceleration or otherwise), the Borrower shall pay interest
on such unpaid principal, interest or other amount, from the date such amount
becomes due until the date such amount is paid in full, payable on demand, at a
rate per annum equal at all times to the Base Rate plus 2% per annum.
Additionally, and without limiting the foregoing, during the existence of any
Event of Default and upon the request of the Majority Banks, the Borrower shall
pay interest on the unpaid principal amount of all Loans, at a rate per annum
which is determined by adding 2% per annum to the Applicable Margin then in
effect for such Loans; provided, however, that, on and after the expiration of
any Interest Period applicable to any Eurodollar Rate Loan outstanding on the
date of occurrence of such Event of Default, the Borrower shall pay interest on
the principal amount of such Loan, during the continuation of such Event of
Default, at a rate per annum equal at all times to the Base Rate plus 2% per
annum.
SECTION 3.03 Fees.
(a) Commitment Fee. The Borrower agrees to pay to the
Agent for the account of each Bank a commitment fee on the average daily unused
portion of such Bank's Commitment as in effect from time to time from Closing
Date until the Revolving Expiry Date at a rate per annum equal to the
Applicable Fee Amount, payable quarterly in arrears on the last Business Day of
each calendar quarter, commencing on the first such date after the Closing
Date, and on the earlier of the date such Commitment is terminated hereunder or
the Revolving Expiry Date.
(b) Agency and Arrangement Fees. The Borrower agrees to
pay to the Agent and to the Arranger for their own accounts such agency and
arrangement fees in the amounts and at the times specified in the Fee Letter.
(c) Fees Nonrefundable. All fees payable under this
Section 3.03 shall be nonrefundable.
SECTION 3.04 Computations. All computations of interest
based upon the Base Rate (when it is determined by reference to ABN AMRO's
Prime Commercial Lending Rate) shall be made on the basis of a year of 365 or
366 days, as the case may be, for the actual number of days occurring in the
period for which such interest is payable. All other computations of any
interest and of any commitment fee shall be made on the basis of a year of 360
days for the actual number of days occurring in the period for which such
interest or commitment fee is payable, which results in more interest being
paid than if computed on the
22.
<PAGE> 31
basis of a 365-day year. Notwithstanding the foregoing, if any Loan is repaid
on the same day on which it is made, such day shall be included in computing
interest on such Loan.
SECTION 3.05 Conversion or Continuation.
(a) Election. The Borrower may elect (i) to convert all
or any part of (A) outstanding Base Rate Loans into Eurodollar Rate Loans, or
(B) outstanding Eurodollar Rate Loans into Base Rate Loans; or (ii) to continue
all or any part of a Loan with one type of interest rate as such; provided,
however, that so long as the aggregate amount of Eurodollar Rate Loans in
respect of any Borrowing shall have been reduced, by payment, prepayment, or
conversion of part thereof to be less than $15,000,000, such Eurodollar Rate
Loans shall automatically convert into Base Rate Loans, and on and after such
date the right of the Borrower to continue such Loans as, and convert such
Loans into, Eurodollar Rate Loans, as the case may be, shall terminate. The
continued or converted Base Rate and Eurodollar Rate Loans shall be allocated
to the Banks ratably in accordance with their Pro Rata Shares. Any conversion
or continuation of Eurodollar Rate Loans shall be made on the last day of the
current Interest Period for such Eurodollar Rate Loans. No outstanding Loan
may be converted into or continued as a Eurodollar Rate Loan if any Default has
occurred and is continuing.
(b) Automatic Conversion. On the last day of any
Interest Period for any Eurodollar Rate Loans, such Eurodollar Rate Loans
shall, if not repaid, automatically convert into Base Rate Loans unless the
Borrower shall have made a timely election to continue such Eurodollar Rate
Loans as such for an additional Interest Period or to convert such Eurodollar
Rate Loans, in each case as provided in subsection (a).
(c) Notice to the Agent. The conversion or continuation
of any Loans contemplated by subsection (a) shall be made upon written or
telephonic notice (in the latter case to be confirmed promptly in writing) from
the Borrower to the Agent, which notice shall be received by the Agent not
later than 10:00 A.M. (California time) on the Required Notice Date. Each such
notice (a "Notice of Conversion or Continuation") shall, except as provided in
Sections 5.01 and 5.04, be irrevocable and binding on the Borrower, shall refer
to this Agreement and shall specify: (i) the proposed date of the conversion or
continuation, which shall be a Business Day; (ii) the outstanding Loans (or
parts thereof) to be converted into or continued as Base Rate or Eurodollar
Rate Loans; (iii) the aggregate amount of the Loans which are the subject of
such continuation or conversion, which shall be in a Minimum Amount; (iv) if
the conversion or continuation consists of any Eurodollar Rate Loans, the
duration of the Interest Period with respect thereto; and (v) that no Default
exists hereunder.
23.
<PAGE> 32
(d) Notice to the Banks. The Agent shall give each Bank
prompt notice by telephone (confirmed promptly in writing) or by facsimile of
(i) the proposed conversion or continuation of any Loans, specifying the
information contained in the Borrower's Notice of Conversion or Continuation
and such Bank's Pro Rata Share thereof or (ii), if timely notice was not
received from the Borrower, the details of any automatic conversion under
subsection (b).
SECTION 3.06 Replacement of Reference Banks. If the Loan of
any Eurodollar Reference Bank is prepaid in full or its Commitment shall
terminate (otherwise than on termination of all the Commitments), or if a
Eurodollar Reference Bank transfers its Loans in full to an unaffiliated
institution or otherwise shall cease to be a Bank hereunder, the Agent shall,
in consultation with the Borrower and with the approval of the Majority Banks,
appoint another similarly situated Bank to replace such Bank as a Eurodollar
Reference Bank.
SECTION 3.07 Highest Lawful Rate. Anything herein to the
contrary notwithstanding, if during any period for which interest is computed
hereunder, the applicable interest rate, together with all fees, charges and
other payments which are treated as interest under applicable law, as provided
for herein or in any other Loan Document, would exceed the maximum rate of
interest which may be charged, contracted for, reserved, received or collected
by any Bank in connection with this Agreement under applicable law (the
"Maximum Rate"), the Borrower shall not be obligated to pay, and such Bank
shall not be entitled to charge, collect, receive, reserve or take, interest in
excess of the Maximum Rate, and during any such period the interest payable
hereunder shall be limited to the Maximum Rate.
ARTICLE IV
REDUCTION OF COMMITMENTS;
REPAYMENT; PREPAYMENT
SECTION 4.01 Reduction or Termination of the Commitments.
(a) Optional Reduction or Termination. The Borrower may,
upon prior notice to the Agent as provided herein, terminate in whole or reduce
ratably in part, as of the date specified by the Borrower in such notice, any
then unused portion of the respective Commitments, provided that each partial
reduction shall be in a Minimum Amount.
(b) Mandatory Termination. The Commitments shall
terminate in full on the Revolving Expiry Date.
(c) Notice. The Agent shall give each Bank prompt notice
of any termination or reduction of the Commitments under this Section 4.01.
24.
<PAGE> 33
(d) Adjustment of Commitment Fee; No Reinstatement. From
the effective date of any reduction or termination prior to the Revolving
Expiry Date, the commitment fee payable under Section 3.03(a) shall be computed
on the basis of the Commitments as so reduced or terminated. Once reduced or
terminated, the Commitments may not be increased or otherwise reinstated.
SECTION 4.02 Repayment of the Loans. The Borrower shall
repay to the Banks in full on the Revolving Expiry Date the aggregate principal
amount of the Loans outstanding on such date.
SECTION 4.03 Prepayments.
(a) Optional Prepayments. The Borrower may, upon prior
notice to the Agent not later than the Required Notice Date, prepay the
outstanding amount of the Loans in whole or ratably in part, without premium or
penalty. Partial prepayments shall be in Minimum Amounts.
(b) Notice; Application. The notice given of any
prepayment (a "Notice of Prepayment") shall specify the date and amount of the
prepayment and whether the prepayment is of Base Rate or Eurodollar Rate Loans
or a combination thereof, and if of a combination thereof the amount of the
prepayment allocable to each. Upon receipt of the Notice of Prepayment the
Agent shall promptly notify each Bank thereof. If the Notice of Prepayment is
given, the Borrower shall make such prepayment and the prepayment amount
specified in such Notice shall be due and payable on the date specified
therein, with accrued interest to such date on the amount prepaid.
ARTICLE V
YIELD PROTECTION AND ILLEGALITY
SECTION 5.01 Inability to Determine Rates. If the Agent
shall determine that adequate and reasonable means do not exist to ascertain
the Eurodollar Rate, or the Majority Banks shall determine that the Eurodollar
Rate does not accurately reflect the cost to the Banks of making or maintaining
Eurodollar Rate Loans, then the Agent shall give telephonic notice (promptly
confirmed in writing) to the Borrower and each Bank of such determination.
Such notice shall specify the basis for such determination and shall, in the
absence of manifest error, be conclusive and binding for all purposes.
Thereafter, the obligation of the Banks to make or maintain Eurodollar Rate
Loans hereunder shall be suspended until the Agent (upon the instructions of
the Majority Banks) revokes such notice. Upon receipt of such notice, the
Borrower may revoke any Notice then submitted by it. If the Borrower does not
revoke such Notice, the Banks shall make, convert or continue Loans, as
proposed by the Borrower, in the amount specified in the Notice submitted by
the Borrower, but such Loans shall be made, converted or continued as Base Rate
Loans instead of Eurodollar Rate Loans.
25.
<PAGE> 34
SECTION 5.02 Funding Losses. In addition to such amounts as
are required to be paid by the Borrower pursuant to Section 5.03, the Borrower
shall compensate each Bank, promptly within 30 days following receipt of such
Bank's written request made to the Borrower (with a copy to the Agent), for all
losses, costs and expenses (including any loss or expense incurred by such Bank
in obtaining, liquidating or re-employing deposits or other funds to fund or
maintain its Eurodollar Rate Loans), if any, which such Bank sustains: (i) if
the Borrower repays, converts or prepays any Eurodollar Rate Loan on a date
other than the last day of an Interest Period for such Eurodollar Rate Loan
(whether as a result of an optional prepayment, mandatory prepayment, a payment
as a result of acceleration or otherwise); (ii) if the Borrower fails to borrow
a Eurodollar Rate Loan after giving its Notice (other than as a result of the
operation of Section 5.01 or 5.04); (iii) if the Borrower fails to convert into
or continue a Eurodollar Rate Loan after giving its Notice (other than as a
result of the operation of Section 5.01 or 5.04); or (iv) if the Borrower fails
to prepay a Eurodollar Rate Loan after giving its Notice. Any such request for
compensation shall set forth the basis for requesting such compensation and
shall, in the absence of manifest error, be conclusive and binding for all
purposes.
SECTION 5.03 Regulatory Changes.
(a) Increased Costs. If after the date hereof, the
adoption of, or any change in, any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof
by any Governmental Authority charged with the interpretation or administration
thereof (a "Regulatory Change"), or compliance by any Bank (or its Lending
Office) with any request, guideline or directive (whether or not having the
force of law) of any Governmental Authority shall impose, modify or deem
applicable any reserve, special deposit or similar requirement (including any
such requirement imposed by the FRB, but excluding with respect to any
Eurodollar Rate Loan any such requirement included in the calculation of the
Eurodollar Rate) against assets of, deposits with or for the account of, or
credit extended by, any Bank's Lending Office or shall impose on any Bank (or
its Lending Office) or on the United States market for certificates of deposit
or the interbank eurodollar market any other condition affecting its Eurodollar
Rate Loans or its obligation to make Eurodollar Rate Loans, and the result of
any of the foregoing is to increase the cost to such Bank (or its Lending
Office) of making or maintaining any Eurodollar Rate Loan, or to reduce the
amount of any sum received or receivable by such Bank (or its Lending Office)
under this Agreement with respect thereto, by an amount deemed by such Bank to
be material, then from time to time, within 30 days after demand by such Bank
(with a copy to the Agent), the Borrower shall pay to such Bank such additional
amounts as shall compensate such Bank for such increased cost or reduction.
26.
<PAGE> 35
(b) Capital Requirements. If any Bank shall have
determined that any Regulatory Change regarding capital adequacy, or compliance
by such Bank (or any corporation controlling such Bank) with any request,
guideline or directive regarding capital adequacy (whether or not having the
force of law) of any Governmental Authority, has or shall have the effect of
reducing the rate of return on such Bank's or such corporation's capital as a
consequence of such Bank's obligations hereunder to a level below that which
such Bank or such corporation would have achieved but for such adoption, change
or compliance (taking into consideration such Bank's or such corporation's
policies with respect to capital adequacy), by an amount deemed by such Bank to
be material, then from time to time, within 30 days after demand by such Bank
(with a copy to the Agent), the Borrower shall pay to such Bank such additional
amounts as shall compensate such Bank for such reduction.
(c) Requests. Any such request for compensation by a
Bank under this Section 5.03 shall set forth the basis of calculation thereof
and shall, in the absence of manifest error, be conclusive and binding for all
purposes. In determining the amount of such compensation, such Bank may use
any reasonable averaging and attribution methods.
SECTION 5.04 Illegality. If any Bank shall determine that it
has become unlawful, as a result of any Regulatory Change, for such Bank to
make, convert into or maintain Eurodollar Rate Loans as contemplated by this
Agreement, such Bank shall promptly give notice of such determination to the
Borrower (through the Agent), and (i) the obligation of such Bank to make or
convert into Eurodollar Rate Loans, as the case may be, shall be suspended
until such Bank gives notice that the circumstances causing such suspension no
longer exist; and (ii) each of such Bank's outstanding Eurodollar Rate Loans,
as the case may be, shall, if requested by such Bank, be converted into a Base
Rate Loan not later than upon expiration of the Interest Period related to such
Eurodollar Rate Loan, or, if earlier, on such date as may be required by the
applicable Regulatory Change, as shall be specified in such request. Any such
determination shall, in the absence of manifest error, be conclusive and
binding for all purposes.
SECTION 5.05 Funding Assumptions. Solely for purposes of
calculating amounts payable by the Borrower to the Banks under this Article V,
each Eurodollar Rate Loan made by a Bank (and any related reserve, special
deposit or similar requirement) shall be conclusively deemed to have been
funded at the Interbank Rate used in determining the Eurodollar Rate for such
Eurodollar Rate Loan by a matching deposit or other borrowing in the interbank
eurodollar market for a comparable amount and for a comparable period, whether
or not such Eurodollar Rate Loan is in fact so funded.
27.
<PAGE> 36
SECTION 5.06 Obligation to Mitigate. Each Bank agrees that
as promptly as practicable after it becomes aware of the occurrence of an event
that would entitle it to give notice pursuant to Section 5.03(a) or 5.04, and
in any event if so requested by the Borrower, each Bank shall use reasonable
efforts to make, fund or maintain its affected Eurodollar Rate Loans through
another Lending Office if as a result thereof the increased costs would be
avoided or materially reduced or the illegality would thereby cease to exist
and if, in the reasonable opinion of such Bank, the making, funding or
maintaining of such Eurodollar Rate Loans through such other Lending Office
would not in any material respect be disadvantageous to such Bank or contrary
to such Bank's normal banking practices.
SECTION 5.07 Substitution of Banks. Upon the receipt by the
Borrower from any Bank (an "Affected Bank") of a request for compensation under
Sections 5.03, a notice under Section 5.05 or a request for payment under
Section 6.03, the Borrower may (i) request one more of the other Banks to
acquire and assume all or part of such Affected Bank's Loans and Commitments;
or (ii) designate an Eligible Assignee satisfactory to the Borrower to acquire
and assume all or part of such Affected Bank's Loans and Commitment (a
"Replacement Bank"). Any such designation of a Replacement Bank under clause
(ii) shall be subject to the prior written consent of the Agent (which consent
shall not be unreasonably withheld). In connection with any such assumption
(A) the Replacement Bank shall pay to the Affected Bank in immediately
available funds on the date of the assignment the principal amount of the Loans
made by the Affected Bank hereunder which are being acquired by the Replacement
Bank, and (B) the Borrower shall pay to the affected Bank in immediately
available funds on the date of the assignment the interest accrued to the date
of the assignment on the Loans which are being acquired by the Replacement Bank
and all other amounts then accrued for the Affected Bank's account or owed to
it hereunder with respect to such Loans, including any amounts owing under
Section 5.02.
ARTICLE VI
PAYMENTS
SECTION 6.01 Pro Rata Treatment. Except as otherwise
provided in this Agreement, each Borrowing hereunder, each Commitment
reduction, each payment (including each prepayment) by the Borrower on account
of the principal of and interest on the Loans and on account of any commitment
fee, and each conversion or continuation of Loans, shall be made ratably in
accordance with the respective Pro Rata Shares of the Banks.
SECTION 6.02 Payments.
(a) Payments. The Borrower shall make each payment under
the Loan Documents, unconditionally in full without set-off, counterclaim or
other defense, not later than 10:00 A.M. (California time) on the day when due
to the Agent in Dollars and
28.
<PAGE> 37
in same day or immediately available funds, to the Agent's Account. The Agent
shall promptly thereafter distribute like funds relating to the payment of
principal or interest, commitment fee or any other amounts payable to the
Banks, ratably (except as a result of the operation of Article V) to the Banks
in accordance with their Pro Rata Shares.
(b) Authorization to Agent. To effectuate any payment of
principal and interest by the Borrower hereunder, the Agent shall, and the
Borrower hereby authorizes the Agent to, charge any deposit account of the
Borrower with the Agent for the amount of such payment on the due date thereof.
If the collected credit balance of such account on such date shall be
insufficient to cover the full payment due, the Borrower shall immediately upon
demand remit to the Agent the full amount of such deficiency. The Agent may
(but shall not be obligated to), and the Borrower hereby authorizes the Agent
to, charge any such account of the Borrower for the amount of any other payment
which is not made by the time specified in subsection (a). The Agent shall
promptly notify the Borrower after charging any such account.
(c) Application. (i) Unless the Agent shall receive a
timely election by the Borrower with respect to the application of any
principal payments, each payment of principal by the Borrower shall be applied
(A) first, to the Base Rate Loans then outstanding, and (B) second, to the
Eurodollar Rate Loans then outstanding (in such manner as the Agent shall
determine in its sole discretion). (ii) Each payment by or on behalf of the
Borrower hereunder shall, unless a specific determination is made by the Agent
and the Majority Banks with respect thereto, be applied in the following order:
(A) first, to any fees, costs, expenses and other amounts due the Agent; (B)
second, to any fees, costs, expenses and other amounts (other than principal
and interest) due the Banks; (C) third, to accrued and unpaid interest due the
Banks; and (D) fourth, to principal due the Banks.
(d) Extension. Whenever any payment hereunder shall be
stated to be due, or whenever any Interest Payment Date or any other date
specified hereunder would otherwise occur, on a day other than a Business Day,
then, except as otherwise provided herein, such payment shall be made, and such
Interest Payment Date or other date shall occur, on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of the payment of interest or commitment fee hereunder.
SECTION 6.03 Taxes.
(a) No Reduction of Payments. The Borrower shall pay all
amounts of principal, interest, fees and other amounts due under the Loan
Documents free and clear of, and without reduction for or on account of, any
present and future taxes, levies, imposts, duties, fees, assessments, charges,
deductions or
29.
<PAGE> 38
withholdings and all liabilities with respect thereto excluding, in the case of
each Bank and the Agent, income and franchise taxes imposed on it by the
jurisdiction under the laws of which such Bank or the Agent is organized or in
which its principal executive offices may be located or any political
subdivision or taxing authority thereof or therein, and by the jurisdiction of
such Bank's Lending Office and any political subdivision or taxing authority
thereof or therein (all such nonexcluded taxes, levies, imposts, duties, fees,
assessments, charges, deductions, withholdings and liabilities being
hereinafter referred to as "Taxes"). If any Taxes shall be required by law to
be deducted or withheld from any payment, the Borrower shall increase the
amount paid so that the respective Bank or the Agent receives when due (and is
entitled to retain), after deduction or withholding for or on account of such
Taxes (including deductions or withholdings applicable to additional sums
payable under this Section 6.03), the full amount of the payment provided for
in the Loan Documents.
(b) Deduction or Withholding; Tax Receipts. If the
Borrower makes any payment hereunder in respect of which it is required by law
to make any deduction or withholding, it shall pay the full amount to be
deducted or withheld to the relevant taxation or other authority within the
time allowed for such payment under applicable law and promptly thereafter
shall furnish to the Agent (for itself or for redelivery to the Bank to or for
the account of which such payment was made) an original or certified copy of a
receipt evidencing payment thereof, together with such other information and
documents as the Agent or any Bank (through the Agent) may reasonably request.
(c) Indemnity. If any Bank or the Agent is required by
law to make any payment on account of Taxes, or any liability in respect of any
Tax is imposed, levied or assessed against any Bank or the Agent, the Borrower
shall indemnify the Agent and the Banks, within 30 days following demand and
except as provided in subsection (f) below, for and against such payment or
liability, together with any incremental taxes, interest or penalties, and all
costs and expenses, payable or incurred in connection therewith, including
Taxes imposed on amounts payable under this Section 6.03, whether or not such
payment or liability was correctly or legally asserted. A certificate of the
Agent or any Bank as to the amount of any such payment shall, in the absence of
manifest error, be conclusive and binding for all purposes.
(d) Forms 1001 and 4224. Each Bank that is incorporated
under the laws of any jurisdiction outside the United States agrees to deliver
to the Agent and the Borrower on or prior to the Closing Date, and in a timely
fashion thereafter, Form 1001, Form 4224 or such other documents and forms of
the United States Internal Revenue Service, duly executed and completed by such
Bank, as are required under United States law to establish such Bank's status
for United States withholding tax purposes.
30.
<PAGE> 39
(e) Mitigation. Each Bank agrees that as promptly as
practicable after it becomes aware of the occurrence of an event that would
cause the Borrower to make any payment in respect of Taxes to such Bank or a
payment in indemnification with respect to any Taxes, and in any event if so
requested by the Borrower following such occurrence, each Bank shall use
reasonable efforts to make, fund or maintain its affected Loan (or relevant
part thereof) through another Lending Office if as a result thereof the
additional amounts so payable by the Borrower would be avoided or materially
reduced and if, in the reasonable opinion of such Bank, the making, funding or
maintaining of such Loan (or relevant part thereof) through such other Lending
Office would not in any material respect be disadvantageous to such Bank or
contrary to such Bank's normal banking practices.
(f) Exceptions to Payment of Additional Amounts. The
Borrower will not be required to pay any additional amounts in respect of Taxes
consisting of U.S. Federal income tax pursuant to this Section 6.03 to any Bank
for the account of any Lending Office of such Bank:
(i) if the obligation to pay such additional
amounts would not have arisen but for a failure by such Bank to comply with its
obligations under subsection (d) in respect of such Lending Office;
(ii) if such Bank shall have delivered to the
Agent a Form 4224 in respect of such Lending Office pursuant to subsection (d),
and such Bank shall not at any time be entitled to exemption from deduction or
withholding of U.S. Federal income tax in respect of payments by Borrower for
the account of such Lending Office for any reason other than a change in U.S.
law or regulations or any applicable tax treaty or in the official
interpretation of such law, treaty or regulations by any Governmental Authority
charged with the interpretation or administration thereof (whether or not
having the force of law) after the date of delivery of such Form 4224; or
(iii) if the Bank shall have delivered to the Agent a
Form 1001 in respect of such Lending Office pursuant to subsection (d), and
such Bank shall not at any time be entitled to exemption from deduction or
withholding of U.S. Federal income tax in respect of payments by Borrower
hereunder for the account of such Lending Office for any reason other than a
change in U.S. law or regulations or any applicable tax treaty or in the
official interpretation of any such law, treaty or regulations by any
Governmental Authority charged with the interpretation or administration
thereof (whether or not having the force of law) after the date of delivery of
such Form 1001.
SECTION 6.04 Non-Receipt of Funds. Unless the Agent shall
have received notice from the Borrower prior to the date on which any payment
is due to any of the Banks hereunder that the Borrower shall not make such
payment in full, the Agent may
31.
<PAGE> 40
assume that the 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 the Borrower shall not have so made such
payment in full to the Agent, each Bank shall repay to the Agent forthwith on
demand such amount distributed to such Bank together with interest thereon, for
each day from 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 6.05 Sharing of Payments. If any Bank shall obtain
any payment (whether voluntary, involuntary, through the exercise of any right
of set-off, or otherwise) on account of the Loans made by it (other than
pursuant to a provision hereof providing for non-pro rata treatment) in excess
of its Pro Rata Share of payments on account of the Loans obtained by all the
Banks, such Bank shall forthwith advise the Agent of the receipt of such
payment, and within five Business Days of such receipt purchase from the other
Banks (through the Agent), without recourse, such participations in the Loans
made by them as shall be necessary to cause such purchasing Bank to share the
excess payment ratably with each of them in accordance with the respective Pro
Rata Shares of the Banks; provided, however, that if all or any portion of such
excess payment is thereafter recovered by or on behalf of the Borrower from
such purchasing Bank, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest. The Borrower
agrees that any Bank so purchasing a participation from another Bank pursuant
to this Section 6.05 may exercise all its rights of payment (including the
right of set-off) with respect to such participation as fully as if such Bank
were the direct creditor of the Borrower in the amount of such participation.
No documentation other than notices and the like referred to in this Section
6.05 shall be required to implement the terms of this Section 6.05. The Agent
shall keep records (which shall be conclusive and binding in the absence of
manifest error) of participations purchased pursuant to this Section 6.05 and
shall in each case notify the Banks following any such purchases.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01 Conditions Precedent to the Initial Loans. The
obligation of each Bank to make its initial Loan shall be subject to the
satisfaction of each of the following conditions precedent on or before the
Closing Date:
(a) Fees and Expenses. The Borrower shall have paid (i)
all fees then due in accordance with Section 3.03 and (ii) all invoiced costs
and expenses then due in accordance with Section 12.04(a).
32.
<PAGE> 41
(b) Loan Documents. The Agent shall have received a copy
of this Agreement duly executed by the parties hereto, and any Notes for the
Banks requesting such Notes duly executed by the Borrower.
(c) Additional Closing Documents and Actions. The Agent
shall have received the following, in form and substance satisfactory to it and
each of the Banks:
(i) evidence that all (A) authorizations or approvals of any
Governmental Authority and (B) approvals or consents of any other Person,
required in connection with the execution, delivery and performance of the Loan
Documents shall have been obtained; and
(ii) a certificate of a Responsible Officer of the Borrower,
dated the Closing Date, stating that (A) the representations and warranties
contained in Section 8.01 and in the other Loan Documents are true and correct
on and as of the date of such certificate as though made on and as of such date
and (B) on and as of the Closing Date, no Default shall have occurred and be
continuing or shall result from the initial Borrowing.
(d) Corporate Documents. The Agent shall have received
the following, in form and substance satisfactory to it:
(i) certified copies of the certificate of incorporation of
the Borrower, together with certificates as to good standing and tax status,
from the Secretary of State or other Governmental Authority, as applicable, of
the Borrower's state of incorporation and certificates from the Secretary of
State or other Governmental Authority, as applicable, of California as to the
Borrower's status as a foreign corporation and tax status, each dated as of a
recent date prior to the Closing Date; and
(ii) a certificate of the Secretary or Assistant Secretary of
the Borrower, dated the Closing Date, certifying (A) copies of the bylaws of
the Borrower and the resolutions of the Board of Directors of the Borrower
authorizing the execution, delivery and performance of the Loan Documents and
(B) the incumbency, authority and signatures of each officer of the Borrower
authorized to execute and deliver the Loan Documents and act with respect
thereto, upon which certificate the Agent and the Banks may conclusively rely
until the Agent shall have received a further certificate of the Secretary or
an Assistant Secretary of the Borrower cancelling or amending such prior
certificate.
(e) Legal Opinions. The Agent shall have received (i) an
opinion of the General Counsel of the Borrower, dated the Closing Date, in
substantially the form of Exhibit D; and (ii) an opinion of Brobeck, Phleger &
Harrison LLP in form and substance satisfactory to the Agent.
33.
<PAGE> 42
(f) Compliance Certificate. The Agent shall have
received a completed Compliance Certificate, dated the Closing Date, for the
immediately preceding Fiscal Quarter.
SECTION 7.02 Conditions Precedent to All Loans. The
obligation of each Bank to make a Loan on the occasion of each Borrowing
(including the initial Borrowing) shall be subject to the satisfaction of each
of the following conditions precedent:
(a) Notice. The Borrower shall have given the Notice of
Borrowing as provided in Section 2.02(a).
(b) Material Adverse Effect. On and as of the date of
such Borrowing, there shall have occurred no Material Adverse Effect since
December 31, 1995.
(c) Representations and Warranties; No Default. On the
date of such Borrowing, both before and after giving effect thereto and to the
application of proceeds therefrom: (i) the representations and warranties
contained in Section 8.01 and in the other Loan Documents shall be true,
correct and complete on and as of the date of such Borrowing as though made on
and as of such date; and (ii) no Default shall have occurred and be continuing
or shall result from such Borrowing. For purposes of this Section 7.02(c),
clause (i) shall be deemed instead to refer to the last day of the most recent
quarter and year for which financial statements have then been delivered in
respect of the representation and warranty made in Section 8.01(q) and shall
not be deemed to refer to any other representations and warranties which relate
solely to an earlier date (provided that such other representations and
warranties shall be true, correct and complete as of such earlier date); and
clause (i) shall take into account any amendments to the Schedules and other
disclosures made in writing by the Borrower to the Agent and the Banks after
the Closing Date and approved by the Agent and the Majority Banks. The giving
of any Notice of Borrowing and the acceptance by the Borrower of the proceeds
of each Borrowing following the Closing Date shall each be deemed a
certification to the Agent and the Banks that on and as of the date of such
Borrowing such statements are true.
(d) Additional Documents. The Agent shall have received,
in form and substance satisfactory to it, such additional approvals, opinions,
documents and other information as the Agent or any Bank (through the Agent)
may reasonably request.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
SECTION 8.01 Representations and Warranties. The Borrower
represents and warrants to each Bank and the Agent that:
(a) Organization and Powers. Each of the Borrower and
its Significant Subsidiaries is a corporation or partnership duly
34.
<PAGE> 43
organized or formed, as the case may be, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation, is
qualified to do business and is in good standing in each jurisdiction in which
the failure so to qualify or be in good standing would result in a Material
Adverse Effect and has all requisite power and authority to own its assets and
carry on its business and, with respect to the Borrower, to execute, deliver
and perform its obligations under the Loan Documents.
(b) Authorization; No Conflict. The execution, delivery
and performance by the Borrower of the Loan Documents have been duly authorized
by all necessary corporate action of the Borrower and do not and will not (i)
contravene the terms of the certificate or articles, as the case may be, of
incorporation and the bylaws of the Borrower or result in a breach of or
constitute a default under any material indenture or loan or credit agreement
or any other material agreement, lease or instrument to which the Borrower is a
party or by which it or its properties may be bound or affected; or (ii)
violate any provision of any law, rule, regulation, order, writ, judgment,
injunction, decree or the like binding on or affecting the Borrower.
(c) Binding Obligation. The Loan Documents constitute,
or when delivered under this Agreement will constitute, legal, valid and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms, except to the extent the enforceability
thereof would be subject to bankruptcy, insolvency, receivership or similar
laws providing relief from creditors, or principles of equity generally.
(d) Governmental Consents. No authorization, consent,
approval, license, exemption of, or filing or registration with, any
Governmental Authority, or approval or consent of any other Person, is required
for the due execution, delivery or performance by the Borrower of any of the
Loan Documents.
(e) No Defaults. Neither the Borrower nor any of its
Subsidiaries is in default under any material contract, lease, agreement,
judgment, decree or order to which it is a party or by which it or its
properties may be bound which, individually or together with all such defaults,
could reasonably be expected to have a Material Adverse Effect. The
Obligations of the Borrower are "Senior Debt" for purposes of the Subordinated
Notes.
(f) Title to Properties. The Borrower and each
Significant Subsidiary has good record and marketable title in fee simple to,
or valid leasehold interests in, all real property necessary or used in the
ordinary conduct of their respective businesses, except for such defects in
title as could not, individually or in the aggregate, have a Material Adverse
Effect.
35.
<PAGE> 44
The property of the Borrower and its Subsidiaries is subject to no Liens, other
than Liens permitted under Section 9.04(a).
(g) Litigation. Except as set forth in Schedule 5, there
are no actions, suits or proceedings pending or, to the best of the Borrower's
knowledge, threatened against or affecting the Borrower or any of its
Subsidiaries or the properties of the Borrower or any of its Subsidiaries
before any Governmental Authority or arbitrator which if determined adversely
to the Borrower or any such Subsidiary would be reasonably likely to result in
a Material Adverse Effect.
(h) Compliance with Consents and Licenses. Every consent
required by the Borrower or any Subsidiary (including those required under or
pursuant to any Environmental Law) in connection with the conduct of its
business and the ownership, use, exploitation or occupation of its property and
assets has been obtained and is in full force and effect and there has not been
any default in the observance of the conditions and restrictions (if any)
imposed in, or in connection with, any of the same, except where the failure to
obtain any of the foregoing would not reasonably be expected to have a Material
Adverse Effect.
(i) Compliance with Environmental Laws. Except as set
forth in Schedule 6, to the best of the Borrower's knowledge after due
investigation, (i) the properties of the Borrower and its Subsidiaries do not
contain and have not previously contained (at, under, or about any such
property) any Hazardous Substances or other contamination (A) in amounts or
concentrations that constitute or constituted a violation of, or could give
rise to liability under, any Environmental Laws, in either case where such
violation or liability could reasonably be expected to result in a Material
Adverse Effect, (B) which could interfere with the continued operation of such
property, or (C) which could materially impair the fair market value thereof;
and (ii) there has been no transportation or disposal of Hazardous Substances
from, nor any release or threatened release of Hazardous Substances at or from,
any property of the Borrower or any of its Subsidiaries in violation of or in
any manner could give rise to liability under any Environmental Laws, where
such violation or liability, individually or in the aggregate, could reasonably
be expected to result in a Material Adverse Effect.
(j) Governmental Regulation. Neither the Borrower nor
any of its Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Investment Company Act
of 1940, the Interstate Commerce Act, any state public utilities code or any
other federal or state statute or regulation limiting its ability to incur
Indebtedness.
(k) ERISA. Except as specifically disclosed to the Banks
in writing prior to the Closing Date: (i) each Plan is in compliance in all
material respects with the applicable
36.
<PAGE> 45
provisions of ERISA, the Code and other federal or state law; (ii) there are no
pending, or to the best knowledge of the Borrower, threatened, claims, actions
or lawsuits, or action by any governmental authority, with respect to any Plan
which has resulted or could reasonably be expected to result in a Material
Adverse Effect; (iii) there has been no prohibited transaction or other
violation of the fiduciary responsibility rule with respect to any Plan which
could reasonably result in a Material Adverse Effect; (iv) no ERISA Event has
occurred or is reasonably expected to occur with respect to any Pension Plan;
(v) no Pension Plan has any Unfunded Pension Liability; (vi) the Borrower has
not incurred, nor does it reasonably expect to incur, any liability under Title
IV of ERISA with respect to any Pension Plan (other than premiums due and not
delinquent under Section 4007 of ERISA); (vii) no trade or business (whether or
not incorporated under common control with the Borrower within the meaning of
Section 414(b), (c), (m) or (o) of the Code) maintains or contributes to any
Pension Plan or other Plan subject to Section 412 of the Code; and (viii)
neither the Borrower nor any entity under common control with the Borrower in
the preceding sentence has ever contributed to any Multiemployer Plan.
(l) Significant Subsidiaries. The name and ownership of
each Significant Subsidiary of the Borrower on the date of this Agreement is as
set forth in Schedule 4. All of the outstanding capital stock of, or other
interest in, each such Significant Subsidiary has been validly issued, and is
fully paid and nonassessable.
(m) Margin Regulations. The Borrower is not engaged in
the business of extending credit for the purpose of purchasing or carrying
"margin stock" (within the meaning of Regulations G or U of the FRB). No part
of the proceeds of the Loans will be used to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock, except in compliance with said Regulations G and U.
(n) Taxes. The Borrower and its Subsidiaries have filed
all Federal and other material tax returns and reports required to be filed,
and have paid all Federal and other material taxes, assessments, fees and other
governmental charges levied or imposed upon them or their properties, income or
assets otherwise due and payable, except those which are being contested in
good faith by appropriate proceedings and for which adequate reserves have been
provided in accordance with GAAP. There is no proposed tax assessment against
the Borrower or any Subsidiary that would, if made, have a Material Adverse
Effect.
(o) Patents and Other Rights. Each of the Borrower and
its Significant Subsidiaries possesses all permits, franchises, licenses,
patents, trademarks, trade names, service marks, copyrights and all rights with
respect thereto, free from burdensome restrictions, that are necessary for the
ownership,
37.
<PAGE> 46
maintenance and operation of its business, except where the failure to obtain
any of the foregoing would not reasonably be expected to have a Material
Adverse Effect.
(p) Insurance. The properties of the Borrower and its
Subsidiaries are insured against losses and damages of the kinds and in amounts
which are deemed prudent by the Borrower in its reasonable business judgment
and within the general parameters customary among similarly situated businesses
in the industry, and such insurance is maintained with financially sound and
reputable insurance companies or pursuant to a plan or plans or self-insurance
to such extent as is usual for companies of similar size engaged in the same or
similar businesses and owning similar properties.
(q) Financial Statements. (i) The audited consolidated
balance sheet of the Borrower and its Subsidiaries as at December 31, 1995, and
the related consolidated statements of income, shareholders' equity and cash
flows for the Fiscal Year then ended, and the unaudited consolidated balance
sheet of the Borrower and its Subsidiaries as at September 30, 1996, and the
related consolidated statements of income, shareholders' equity and cash flows,
for the quarter then ended and the nine-month period then ended, are complete
and correct and fairly present the financial condition of the Borrower and its
Subsidiaries as at such dates and the results of operations of the Borrower and
its Subsidiaries for the periods covered by such statements, in each case in
accordance with GAAP consistently applied, subject, in the case of the
September 30, 1996 financial statements, to normal year-end adjustments and the
absence of notes. (ii) Since December 31, 1995, there has been no Material
Adverse Effect.
(r) Liabilities. Neither the Borrower nor any of its
Subsidiaries has any material liabilities, fixed or contingent, that are not
reflected in the financial statements referred to in subsection (q), in the
notes thereto or otherwise disclosed in writing to the Banks, other than
liabilities arising in the ordinary course of business since September 30,
1996.
(s) Labor Disputes, Etc. There are no strikes, lockouts
or other labor disputes against the Borrower or any of its Subsidiaries, or, to
the best of the Borrower's knowledge, threatened against or affecting the
Borrower or any of its Subsidiaries, which may result in a Material Adverse
Effect.
(t) Solvency. The Borrower and its Subsidiaries on a
consolidated basis are Solvent.
(u) Disclosure. None of the representations or
warranties made by the Borrower in the Loan Documents as of the date of such
representations and warranties, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of the
Borrower or any of its Subsidiaries to the Agent and the Banks in connection
with
38.
<PAGE> 47
the Loan Documents, contains any untrue statement of a material fact or omits
any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading in any material respect as of the time when made or
delivered.
ARTICLE IX
COVENANTS
SECTION 9.01 Reporting Covenants. So long as any of the
Obligations shall remain unpaid or any Bank shall have any Commitment, the
Borrower agrees that:
(a) Financial Statements and Other Reports. The Borrower
will furnish to the Agent in sufficient copies for distribution to the Banks:
(i) as soon as available and in any event within 55 days
after the end of each of the first three Fiscal Quarters of each Fiscal Year, a
consolidated balance sheet of the Borrower and its Subsidiaries as of the end
of such Quarter, and the related consolidated statements of income,
shareholders' equity and cash flows of the Borrower and its Subsidiaries for
such Quarter and the portion of the Fiscal Year through the end of such
Quarter, prepared in accordance with GAAP consistently applied, all in
reasonable detail and setting forth in comparative form the figures for the
corresponding period in the preceding Fiscal Year;
(ii) as soon as available and in any event within 100 days
after the end of each Fiscal Year, a consolidated balance sheet of the Borrower
and its Subsidiaries as of the end of such Fiscal Year, and the related
consolidated statements of income, shareholders' equity and cash flows of the
Borrower and its Subsidiaries for such Fiscal Year, prepared in accordance with
GAAP consistently applied, all in reasonable detail and setting forth in
comparative form the figures for the previous Fiscal Year, and accompanied by a
report thereon of Price Waterhouse LLP or another firm of independent certified
public accountants of recognized national standing, which report shall be
unqualified as to scope of audit or the status of the Borrower and its
Subsidiaries as a going concern;
(iii) together with the financial statements required
pursuant to clauses (i) and (ii), a Compliance Certificate of a Responsible
Officer as of the end of the applicable accounting period, which shall contain
a certification of a Responsible Officer of the Borrower stating that such
financial statements fairly present the financial condition of the Borrower and
its Subsidiaries as at such date and the results of operations of the Borrower
and its Subsidiaries for the period ended on such date and have been prepared
in accordance with GAAP consistently applied, subject to changes resulting from
normal, year-end audit adjustments and except for the absence of notes; and
39.
<PAGE> 48
(iv) promptly after the giving, sending or filing thereof,
copies of all reports, if any, which the Borrower or any of its Subsidiaries
sends to the holders of its respective capital stock or other securities and of
all reports or filings, if any, by the Borrower or any of its Subsidiaries with
the SEC or any national securities exchange.
(b) Additional Information. The Borrower will furnish to
the Agent:
(i) promptly after the Borrower has knowledge or becomes
aware thereof, notice of the occurrence or existence of any Default;
(ii) prompt written notice of any action, event or occurrence
that could reasonably be expected to result in a Material Adverse Effect due to
environmental liability under Environmental Laws;
(iii) prompt written notice of all actions, suits and
proceedings before any Governmental Authority or arbitrator pending, or to the
best of the Borrower's knowledge, threatened against or affecting the Borrower
or any of its Subsidiaries which (A) if adversely determined would involve an
aggregate liability of $10,000,000 or more in excess of amounts covered by
third-party insurance, or (B) otherwise may have a Material Adverse Effect;
(iv) promptly after the Borrower has knowledge or becomes
aware thereof, (A) notice of the occurrence of any ERISA Event, together with a
copy of any notice of such ERISA Event, to the PBGC, and (B) the details
concerning any action taken or proposed to be taken by the IRS, PBGC,
Department of Labor or other Person with respect thereto;
(v) promptly upon the commencement or increase of
contributions to, the adoption of, or an amendment to, a Plan by the Borrower
or an ERISA Affiliate, if such commencement or increase of contributions,
adoption, or amendment could reasonably be expected to result in a net increase
in unfunded liability to Borrower or an ERISA Affiliate in excess of
$10,000,000, a calculation of the net increase in unfunded liability;
(vi) promptly after filing or receipt thereof by the
Borrower or any ERISA Affiliate, copies of the following:
(A) any notice received from the PBGC of intent
to terminate or have a trustee appointed to administer any Pension
Plan;
(B) any notice received from the sponsor of a
Multiemployer Plan concerning the imposition, delinquent payment, or
amount of withdrawal liability;
40.
<PAGE> 49
(C) any demand by the PBGC under Subtitle D of
Title IV of ERISA; and
(D) any notice received from the IRS regarding
the disqualification of a Plan intended to qualify under Section
401(a) of the Internal Revenue Code;
(vii) within 45 days of the date thereof, or, if earlier, on
the date of delivery of any financial statements pursuant to subsection (a),
notice of any change in accounting policies or financial reporting practices by
the Borrower or any of its Significant Subsidiaries that is expected to affect
(or has affected) materially under U.S. GAAP the consolidated financial
condition of the Borrower and its Subsidiaries;
(viii) promptly after the occurrence thereof, notice of any
labor controversy resulting in or threatening to result in any strike, work
stoppage, boycott, shutdown or other material labor disruption against or
involving the Borrower or any of its Subsidiaries which could result in a
Material Adverse Effect;
(ix) upon the request from time to time of the Agent or any
Bank (through the Agent), the Swap Termination Values, together with a
description of the method by which such values were determined, relating to any
then-outstanding Rate Contracts to which the Borrower or any of its
Subsidiaries is party;
(x) prompt written notice of any change in the Borrower's
Fiscal Year;
(xi) prompt written notice of any Person or Subsidiary not
identified on Schedule 4 that becomes a Significant Subsidiary after the date
of this Agreement;
(xii) prompt written notice of any other condition or event
which has resulted, or that could reasonably be expected to result, in a
Material Adverse Effect; and
(xiii) such other information respecting the operations,
properties, business or condition (financial or otherwise) of the Borrower or
its Significant Subsidiaries as any Bank (through the Agent) may from time to
time reasonably request.
Each notice pursuant to this subsection (b) shall be accompanied by a written
statement by a Responsible Officer of the Borrower setting forth details of the
occurrence referred to therein, and stating what action the Borrower proposes
to take with respect thereto.
SECTION 9.02 Financial Covenants. So long as any of the
Obligations shall remain unpaid or any Bank shall have any Commitment, the
Borrower agrees that:
41.
<PAGE> 50
(a) Senior Debt to Total Capital. The Borrower will
maintain a ratio of Senior Debt to Total Capital of not more than 0.35 to 1.0
as of the end of each Fiscal Quarter.
(b) Quick Ratio. The Borrower will maintain a ratio of
Consolidated Quick Assets to Consolidated Current Liabilities of not less than
1.35 to 1.0 as of the end of each Fiscal Quarter.
(c) Minimum Consolidated Tangible Net Worth. The
Borrower will maintain Consolidated Tangible Net Worth (exclusive of the
cumulative translation adjustment account as reported in the consolidated
balance sheet of the Borrower and its Subsidiaries as of such date) as of the
end of each Fiscal Quarter of not less than (i) $997,000,000 plus (ii) 100% of
the net proceeds received by the Borrower or any Subsidiary from the sale or
issuance of equity securities (including equity securities issued upon the
conversion of Subordinated Debt) to any Person other than the Borrower or any
Subsidiary after September 30, 1995, plus (iii) 80% of positive Consolidated
Net Income, if any, for each Fiscal Quarter elapsed after September 30, 1995,
minus (iv) 80% of total goodwill generated by the Borrower's Permitted
Acquisitions from September 30, 1996, if any, and minus (v) 100% of
restructuring and acquisition charges related to the Borrower's Permitted
Acquisitions from September 30, 1996 (provided that any such restructuring or
acquisition charges are expensed in the same fiscal quarter during which the
applicable Permitted Acquisition is completed).
(d) Debt Service Coverage Ratio. The Borrower will
maintain a ratio of (i) the sum of Consolidated EBITDA plus Consolidated Rental
Expense to (ii) the sum of Consolidated CMLTD, plus Consolidated Interest
Expense, plus Capitalized Interest, plus Consolidated Rental Expense of not
less than 2.0 to 1.0 for any period of four consecutive Fiscal Quarters,
calculated as of the end of such period.
(e) Subordinated Debt. The Borrower will not permit
Subordinated Debt of the Borrower and its consolidated Subsidiaries to exceed
(i) $500,000,000 at any time during the 1996 Fiscal Year or (ii) $750,000,000
at any time thereafter; and the Borrower will not, and will not permit any of
its Subsidiaries to, make any voluntary or optional payment or repayment on,
redemption, exchange or acquisition for value of, or any sinking fund or
similar payment with respect to, any Subordinated Debt if a Default shall then
exist or would occur as a result thereof.
SECTION 9.03 Additional Affirmative Covenants. So long as
any of the Obligations shall remain unpaid or any Bank shall have any
Commitment, the Borrower agrees that:
(a) Preservation of Corporate Existence, Etc. The
Borrower shall, and shall cause each Subsidiary to:
42.
<PAGE> 51
(i) preserve and maintain in full force and effect
its corporate existence and good standing under the laws of its state or
jurisdiction of incorporation, except (A) in connection with transactions
permitted by Section 9.04 and (B) in the case of any Subsidiary to the extent
that the failure to obtain or maintain the foregoing would not reasonably be
expected to have a Material Adverse Effect;
(ii) preserve and maintain in full force and effect
all governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its business, except
to the extent that the failure to obtain or maintain the foregoing would not
reasonably be expected to have a Material Adverse Effect;
(iii) use reasonable efforts, in the ordinary course
of business, to preserve its business organization and goodwill, except in the
case of any Subsidiary to the extent that the failure to obtain or maintain the
foregoing would not reasonably be expected to have a Material Adverse Effect;
and
(a) preserve or renew all of its registered patents,
trademarks, trade names and service marks, the non-preservation of which could
reasonably be expected to have a Material Adverse Effect.
(b) Payment of Taxes, Etc. The Borrower will, and
will cause each of its Subsidiaries to, pay and discharge all taxes, fees,
assessments and governmental charges or levies imposed upon it or upon its
properties or assets prior to the date on which penalties attach thereto, and
all lawful claims for labor, materials and supplies which, if unpaid, might
become a Lien upon any properties or assets of the Borrower or any Subsidiary,
except to the extent such taxes, fees, assessments or governmental charges or
levies, or such claims, are being contested in good faith by appropriate
proceedings and are adequately reserved against in accordance with GAAP.
(c) Licenses. The Borrower will, and will cause each
of its Subsidiaries to, obtain and maintain all licenses, authorizations,
consents, filings, exemptions, registrations and other governmental approvals
necessary in connection with the execution, delivery and performance of the Loan
Documents, the consummation of the transactions therein contemplated or the
operation and conduct of its business and ownership of its properties, except to
the extent that the failure to obtain or maintain the foregoing would not
reasonably be expected to have a Material Adverse Effect.
(d) Maintenance of Property. Except as otherwise
permitted under Section 9.04(c) or Section 9.04(d), the Borrower shall, and
shall cause each Subsidiary to, maintain and preserve all its property which is
used or useful in its business in good working order and condition, ordinary
wear and tear excepted.
43.
<PAGE> 52
(e) Insurance. The Borrower shall maintain, and shall
cause each Subsidiary to maintain, with financially sound and reputable
independent insurers, insurance with respect to its properties and business
against losses and damages of the kinds and in amounts which are deemed prudent
by the Borrower in its reasonable business judgment and within the general
parameters customary among similarly situated businesses in the industry.
(f) Payment of Indebtedness. The Borrower shall, and
shall cause each Subsidiary to, pay and discharge as the same shall become due
and payable, all Indebtedness as and when due and payable or within any grace
periods applicable thereto, but subject to any subordination provisions
contained in any instrument or agreement evidencing such Indebtedness.
(g) Compliance with Laws. The Borrower shall comply, and
shall cause each Subsidiary to comply, in all material respects with the
requirements of all Environmental Laws and all applicable laws, rules,
regulations and orders of any Governmental Authority having jurisdiction over
it or its business.
(h) Compliance with ERISA. The Borrower shall, and shall
cause each of its ERISA Affiliates to: (i) maintain each Plan in compliance in
all material respects with the applicable provisions of ERISA, the Code and
other federal or state law; (ii) cause each Plan which is qualified under
Section 401(a) of the Code to maintain such qualification; and (iii) make all
required contributions to any Plan subject to Section 412 of the Code.
(i) Inspection of Property and Books and Records. The
Borrower shall maintain and shall cause each Subsidiary to maintain proper
books of record and account, in which full, true and correct entries in
conformity with GAAP consistently applied shall be made of all financial
transactions and matters involving the assets and business of the Borrower and
such Subsidiary. The Borrower shall permit, and shall cause each Subsidiary to
permit, representatives and independent contractors of the Agent or any Bank to
visit and inspect any of their respective properties, to examine their
respective corporate, financial and operating records, and make copies thereof
or abstracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective directors, officers, and independent public
accountants, all at the expense of the Borrower and at such reasonable times
during normal business hours and as often as may be reasonably desired, upon
reasonable advance notice to the Borrower; provided, however, that (i) unless
an Event of Default shall have occurred and be continuing, (A) the Borrower
shall be responsible under this subsection (i) for the costs and expenses of
the Agent only, (B) all inspections, visits, examinations and other actions
permitted or authorized hereunder shall be coordinated only through the
Borrower, and (C) physical inspections of the Borrower's or any Subsidiary's
facilities in
44.
<PAGE> 53
Japan shall be made on two weeks' prior notice and shall occur no more
frequently than semiannually in the case of inspections by the Agent and no
more frequently than annually otherwise, and (ii) when an Event of Default
exists the Agent or any Bank may make any visit, inspection or examination or
take any other action authorized hereunder at the expense of the Borrower at
any time during normal business hours, without advance notice and without being
subject to any of the other restrictions described in clause (i).
(j) Use of Proceeds. The Borrower will use the proceeds
of the Loans solely for general corporate purposes, including for working
capital, capital expenditures, Permitted Investments and Permitted
Acquisitions. If the Borrower uses the proceeds of the Loans to purchase or
carry "margin stock" (within the meaning of Regulations G or U of the FRB) or
extend credit to others for the purpose of purchasing or carrying margin stock,
the Borrower will do so only in compliance with said Regulations G and U and
only if not more than 20% of the value of the assets of the Borrower and its
Subsidiaries on a consolidated basis consists of margin stock.
(k) Further Assurances and Additional Acts. The Borrower
will execute, acknowledge, deliver, file, notarize and register at its own
expense all such further agreements, instruments, certificates, documents and
assurances and perform such acts as the Agent or the Majority Banks shall deem
necessary or appropriate to effectuate the purposes of the Loan Documents, and
promptly provide the Agent with evidence of the foregoing satisfactory in form
and substance to the Agent or the Majority Banks.
SECTION 9.04 Negative Covenants. So long as any of the
Obligations shall remain unpaid or any Bank shall have any Commitment, the
Borrower agrees that:
(a) Liens. The Borrower will not, and will not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien
upon or with respect to any of its properties, revenues or assets, whether now
owned or hereafter acquired, other than (i) Permitted Liens and (ii) other
Liens that, in the aggregate at any time, secure obligations in an amount not
in excess of 10% of Consolidated Total Assets determined as of the end of the
next preceding Fiscal Quarter (or Fiscal Year, as the case may be).
(b) Change in Nature of Business. The Borrower will not,
and will not permit any of its Subsidiaries to, engage in any material line of
business other than the electronics business and other businesses incidental or
reasonably related thereto.
(c) Restrictions on Fundamental Changes. The Borrower
will not, and will not permit any of its Subsidiaries to, merge with or
consolidate into, or acquire all or substantially all of
45.
<PAGE> 54
the assets of, any Person, or sell, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or
substantially all of its assets, except that:
(i) any of the Borrower's Subsidiaries may merge with,
consolidate into or transfer all or substantially all of its assets to another
of the Borrower's Subsidiaries or to the Borrower and in connection therewith
such Subsidiary may be liquidated or dissolved, provided that (A) if the
transaction involves the Borrower, the Borrower shall be the surviving Person,
and (B) if any transaction shall be between a non-wholly owned Subsidiary and a
wholly owned Subsidiary, the wholly owned Subsidiary shall be the continuing or
surviving Person, and provided further that no Material Adverse Effect or
Default shall result therefrom;
(ii) the Borrower or any of its Subsidiaries may sell or
dispose of assets in accordance with the provisions of subsection (d);
(iii) the Borrower or any of its Subsidiaries may make any
investment permitted by subsection (e); and
(iv) the Borrower may merge with or consolidate into any
other Person pursuant to an Acquisition permitted by subsection (e), provided
that (A) the Borrower is the surviving Person, (B) no such merger or
consolidation shall be made while there exists a Default or if a Default or
Material Adverse Effect would occur as a result thereof, and (C) the Borrower
shall have complied with the notice and other requirements of subsection (e)
with respect to any Acquisition.
(d) Sales of Assets. The Borrower will not, and will not
permit any of its Subsidiaries to, convey, sell, lease, transfer, or otherwise
dispose of, or part with control of (whether in one transaction or a series of
transactions) any assets (including any shares of stock in any Subsidiary or
other Person), except:
(i) sales or other dispositions of inventory in the
ordinary course of business;
(ii) sales or other dispositions of assets in the ordinary
course of business which have become worn out or obsolete or which are promptly
being replaced;
(iii) sales of accounts receivable to financial
institutions not affiliated with the Borrower; provided that (A) the discount
rate shall not at any time exceed 10%, (B) the amount of all accounts
receivable permitted to be sold in any Fiscal Quarter shall not exceed 30% of
the consolidated accounts receivable of the Borrower and its Subsidiaries,
determined as of the end of the next preceding Fiscal Quarter (or Fiscal Year,
as
46.
<PAGE> 55
the case may be), and (C) the sole consideration received for such sales shall
be cash;
(iv) sales or other dispositions of assets outside the
ordinary course of business which do not constitute Substantial Assets; and
(v) sales or other dispositions of Permitted Investments.
For purposes of clause (iv), a sale, lease, transfer or other disposition of
assets shall be deemed to be of "Substantial Assets" if such assets, when added
to all other assets conveyed, sold, leased, transferred or otherwise disposed
of in any period of four consecutive Fiscal Quarters (other than assets sold in
the ordinary course of business or pursuant to clause (iii)), shall exceed 10%
of Consolidated Total Assets as determined as of the end of the Fiscal Quarter
of the Borrower immediately preceding the date of determination.
(e) Loans and Investments. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into any Acquisition or
otherwise extend any credit to, guarantee the obligations of or make any
additional investments in or acquire any interest in, any Person, other than in
connection with:
(i) extensions of credit in the nature of accounts receivable
or notes receivable arising from the sales of goods or services in the ordinary
course of business;
(ii) Permitted Investments;
(iii) additional purchases of or investments in the stock of,
or guarantees of the obligations of, Subsidiaries;
(iv) Permitted Acquisitions;
(v) employee loans and guarantees in accordance with the
Borrower's usual and customary practices with respect thereto; or
(vi) additional investments not exceeding, in the aggregate
with all such investments and all Acquisitions, $500,000,000 during the period
from the Closing Date through the Revolving Expiry Date;
provided that in the case of an Acquisition or an investment referred to in
clause (vi) above, (A) no such Acquisition or investment shall be made while
there exists a Default or if a Default or Material Adverse Effect would occur
as a result thereof, and (B) the acquired or other Person in which any such
Acquisition or investment is made shall be in the electronics business or other
business incidental or reasonably related thereto.
47.
<PAGE> 56
(f) Distributions. The Borrower will not declare or pay
any dividends in respect of its capital stock, or purchase, redeem, retire or
otherwise acquire for value any of its capital stock now or hereafter
outstanding, return any capital to its shareholders as such, or make any
distribution of assets to its shareholders as such, or permit any of its
Subsidiaries to purchase, redeem, retire, or otherwise acquire for value any
stock of the Borrower, except that the Borrower may:
(i) declare and deliver dividends and distributions
payable only in common stock of the Borrower;
(ii) purchase shares of its capital stock from time to
time in connection with the issuance of shares under the Borrower's employee
stock option plans;
(iii) purchase, redeem, retire, or otherwise acquire shares
of its capital stock with the proceeds received from a substantially concurrent
issue of new shares of its capital stock; and
(iv) in addition to the dividends, purchases, redemptions,
retirements and other acquisitions permitted by the foregoing paragraphs (i)
through (iii), declare and deliver dividends and distributions, and purchase,
redeem, retire, or otherwise acquire shares of its capital stock, in an
aggregate amount not exceeding $100,000,000 in any period of four consecutive
Fiscal Quarters.
(g) Transactions with Related Parties. The Borrower will
not, and will not permit any of its Subsidiaries to, enter into any
transaction, including the purchase, sale or exchange of property or the
rendering of any services, with any Affiliate, any officer or director thereof
or any Person which beneficially owns or holds 20% or more of the equity
securities, or 20% or more of the equity interest, thereof (a "Related Party"),
or enter into, assume or suffer to exist, or permit any Subsidiary to enter
into, assume or suffer to exist, any employment or consulting contract with any
Related Party, except (i) a transaction or contract which is in the ordinary
course of the Borrower's or such Subsidiary's business, including a transaction
in the ordinary course of business between or among the Borrower and one or
more of its Subsidiaries, and (ii) any other transaction which is upon fair and
reasonable terms not less favorable to the Borrower or such Subsidiary than it
would obtain in a comparable arm's length transaction with a Person not a
Related Party. For purposes of this subsection (g), the sale, transfer or
disposition of more than 30% of its assets (in any transaction or a series of
related transactions) by the Borrower or any Subsidiary shall be deemed to be
outside the ordinary course of business.
(h) Accounting Changes. The Borrower will not, and will
not suffer or permit any of its Subsidiaries to, make any
48.
<PAGE> 57
significant change in accounting treatment or reporting practices, except as
required or permitted by GAAP (or, in the case of any Subsidiary domiciled in a
jurisdiction other than the United States, in accordance with generally
accepted accounting principles and practices in such jurisdiction).
ARTICLE X
EVENTS OF DEFAULT
SECTION 10.01 Events of Default. Any of the following events
which shall occur shall constitute an "Event of Default":
(a) Payments. The Borrower shall fail to pay (i) when
due any amount of principal of any Loan or Note, or (ii) within five Business
Days after the same becomes due, any interest, fee or other amount payable
hereunder or under any of the Loan Documents.
(b) Representations and Warranties. Any representation
or warranty by the Borrower made herein or which is contained in any
certificate, document or financial or other statement by the Borrower or any
Responsible Officer of the Borrower, furnished at any time under or in
connection with this Agreement or any other Loan Document, is incorrect in any
material respect, on or as of the date made.
(c) Failure by Borrower to Perform Certain Covenants.
The Borrower shall fail to perform or observe any term, covenant or agreement
contained in Section 9.02 or Section 9.04.
(d) Failure by Borrower to Perform Other Covenants. The
Borrower shall fail to perform or observe any other term, covenant or agreement
contained in this Agreement or any other Loan Document on its part to be
performed or observed and any such failure shall remain unremedied for a period
of 30 days after the earlier of (i) the date upon which a Responsible Officer
of the Borrower knew or reasonably should have known of such failure or (ii)
the date upon which written notice thereof is given to the Borrower by the
Agent or any Bank.
(e) Insolvency; Voluntary Proceedings. The Borrower or
any Subsidiary (i) ceases or fails to be Solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject
to applicable grace periods, if any, whether at stated maturity or otherwise;
(ii) voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
formal corporate action to effectuate or authorize any of the foregoing.
(f) Involuntary Proceedings. (i) Any involuntary
Insolvency Proceeding is commenced or filed against the Borrower or any
Subsidiary, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a sub-
49.
<PAGE> 58
stantial part of the Borrower's or any Subsidiary's properties, and any such
proceeding or petition shall not be dismissed, or such writ, judgment, warrant
of attachment, execution or similar process shall not be released, vacated or
fully bonded within 60 days after commencement, filing or levy; (ii) the
Borrower or any Subsidiary admits the material allegations of a petition
against it in any Insolvency Proceeding, or an order for relief (or similar
order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the
Borrower or any Subsidiary acquiesces in the appointment of a receiver,
trustee, custodian, conservator, liquidator, mortgagee in possession (or agent
therefor), or other similar Person for itself or a substantial portion of its
property or business.
(g) Default Under Other Indebtedness. The Borrower or
any of its Subsidiaries shall fail (i) to make any payment of any principal of,
or interest or premium on, any Indebtedness (other than in respect of the
Loans) in an aggregate principal amount outstanding of at least $10,000,000 (or
its equivalent in any other currency) when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness as of the date of such failure, or
(ii) to perform or observe any term, covenant or condition on its part to be
performed or observed under any agreement or instrument relating to any such
Indebtedness, when required to be performed or observed, and such failure shall
continue after the applicable grace period, if any, specified in such agreement
or instrument, if the effect of such failure to perform or observe is to
accelerate, or to permit the acceleration of, the maturity of such Indebtedness
without any further action by the holder thereof; or any such Indebtedness
shall be declared to be due and payable, or required to be prepaid (other than
by a contractually required prepayment), prior to the stated maturity thereof;
or any facility or commitment available to the Borrower or any Subsidiary
relating to Indebtedness in an aggregate amount at any one time of not less
than $10,000,000 (or its equivalent in any other currency) is withdrawn,
suspended or cancelled by reason of any default (however described) of the
Borrower or such Subsidiary.
(h) Judgments. (i) A final nonappealable judgment or
order for the payment of money against the Borrower or any of its Subsidiaries
shall remain unpaid 90 days following the due date for such payment and that is
reasonably expected to result in a Material Adverse Effect; or (ii) any
non-monetary judgment or order shall be rendered against the Borrower or any
such Subsidiary which has or would reasonably be expected to have a Material
Adverse Effect.
(i) Process Issued. A warrant of attachment, execution,
distraint, or similar process against any substantial part of the assets of the
Borrower or any of its Subsidiaries is issued which remains undismissed or
undischarged for a period of
50.
<PAGE> 59
30 days, if as a result thereof there is reasonably expected to occur a
Material Adverse Effect.
(j) Seizure. All or a material part of the undertaking,
assets, rights or revenues of the Borrower or any of its Subsidiaries are
seized, nationalized, expropriated or compulsorily acquired by or under the
authority of any Governmental Authority.
(k) ERISA. (i) An ERISA Event shall occur with respect
to a Pension Plan which has resulted or could reasonably be expected to result
in liability of the Borrower under Title IV of ERISA to the Pension Plan or
PBGC in an aggregate amount in excess of $10,000,000; (ii) the commencement or
increase of contributions to, or the adoption of or the amendment of a Pension
Plan by the Borrower which has resulted or could reasonably be expected to
result in an increase in Unfunded Pension Liability among all Pension Plans in
an aggregate amount in excess of $10,000,000; or (iii) any of the
representations and warranties contained in Section 8.01(j) shall cease to be
true and correct which, individually or in combination, has resulted or could
reasonably be expected to result in a Material Adverse Effect.
(l) Dissolution, Etc. The Borrower or any of its
Subsidiaries shall (i) liquidate, wind up or dissolve (or suffer any
liquidation, wind-up or dissolution), except to the extent expressly permitted
by Section 9.04, (ii) suspend its operations other than in the ordinary course
of business, or (iii) take any corporate action to authorize any of the actions
or events set forth above in this subsection (i).
(m) Material Adverse Effect. A Material Adverse Effect
shall occur.
(n) Change in Ownership or Control. (i) Any Person, or
two or more Persons acting in concert, shall acquire beneficial ownership,
directly or indirectly, or shall enter into a contract or arrangement (A) for
the acquisition of the securities of the Borrower (or other securities
convertible into such securities) representing 30% or more of the combined
voting power of all securities of the Borrower entitled to vote in the election
of directors, or (B) which upon consummation will result in its or their
acquisition of, or control over, securities of the Borrower (or other
securities convertible into such securities) representing 30% or more of the
combined voting power of all securities of the Borrower entitled to vote in the
election or directors; or (ii) during any period of up to 12 consecutive months
commencing after the Closing Date, individuals who at the beginning of such
period were directors of the Borrower shall cease for any reason to constitute
a majority of the Board of Directors of the Borrower, unless the Persons
replacing such individuals were nominated by the Board of Directors of the
Borrower.
51.
<PAGE> 60
SECTION 10.02 Effect of Event of Default. If any Event of
Default shall occur and be continuing, the Agent shall, at the request of, or
may, with the consent of, the Majority Banks, (i) by notice to the Borrower,
(A) declare the Commitments of the Banks to be terminated, whereupon the same
shall forthwith terminate, and (B) declare the entire unpaid principal amount
of the Loans and the Notes, all interest accrued and unpaid thereon and all
other Obligations to be forthwith due and payable, whereupon the Loans and the
Notes, all such accrued interest and all such other Obligations shall become
and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower, provided that if an event described in Section 10.01(e) or (f) shall
occur, the result which would otherwise occur only upon giving of notice by the
Agent to the Borrower as specified in this clause (i) shall occur
automatically, without the giving of any such notice; and (ii) whether or not
the actions referred to in clause (i) have been taken, proceed to enforce all
other rights and remedies available to the Agent and the Banks under the Loan
Documents and applicable law.
ARTICLE XI
THE AGENT
SECTION 11.01 Authorization and Action. Each Bank hereby
appoints ABN AMRO as Agent and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers and perform such duties under
this Agreement and the other Loan Documents as are delegated to the Agent by
the terms hereof or thereof, together with such powers as are reasonably
incidental thereto. The duties and obligations of the Agent are strictly
limited to those expressly provided for herein, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or otherwise exist against the Agent. As to any matters
not expressly provided for by the Loan Documents (including enforcement or
collection of the Loan Documents), the Agent shall not be required to exercise
any discretion or take any action, but shall be required to act or to refrain
from acting (and shall be fully protected in so acting or refraining from
acting) upon the instructions of the Majority Banks, and such instructions
shall be binding upon all Banks; provided, however, that except for action
expressly required of the Agent hereunder, the Agent shall in all cases be
fully justified in failing or refusing to act under any Loan Document unless it
shall be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by reason of taking or continuing
to take any such action, and that the Agent shall not in any event be required
to take any action which exposes the Agent to liability or which is contrary to
any Loan Document or applicable law. Nothing in any Loan Document shall, or
shall be construed to, constitute the Agent a trustee or fiduciary for any
Bank. In performing its functions and duties hereunder, the Agent shall act
solely as the agent of the Banks and does not assume and
52.
<PAGE> 61
shall not be deemed to have assumed any obligation towards or relationship of
agency or trust with or for the Borrower. Without limiting the generality of
the foregoing, the use of the term "agent" in this Agreement and the other Loan
Documents with reference to the Agent is not intended to connote any fiduciary
or other implied (or express) obligations arising under agency doctrine of any
applicable law. Instead, such term is used merely as a matter of market
custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties.
SECTION 11.02 Limitation on Liability of Agent; Notices;
Closing.
(a) Limitation on Liability of Agent. Neither the Agent
nor any Affiliate thereof nor any of their respective directors, officers,
employees or agents shall be liable for any action taken or omitted to be taken
by it or them under or in connection with any Loan Document, except for its or
their own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, the Agent (i) may treat a Bank as the holder of
its Loans for all purposes hereof unless and until such Bank and its assignee
shall have delivered to the Agent and the Borrower an Assignment and Acceptance
Agreement substantially in the form of Exhibit E (an "Assignment and
Acceptance"), and the Agent receives written notice of the assignment in
substantially the form of Schedule 1 to the Assignment and Acceptance and the
other condition to assignment set forth in Section 12.09 shall have been
satisfied, (ii) may consult with legal counsel (including counsel to the
Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith
by it in accordance with the advice of such counsel, accountants or experts,
and (iii) shall incur no liability to any Bank under or in respect of any Loan
Document by acting upon any notice, consent, certificate, telegram, facsimile,
telex or teletype message, statement or other instrument or writing believed by
it to be genuine and signed or sent by the proper party or parties or by acting
upon any representation or warranty made or deemed to be made hereunder or
under any other Loan Document. Further, the Agent (A) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for the
accuracy or completeness of any information, exhibit or report furnished under
any Loan Document, for any statements, warranties or representations (whether
written or oral) made or deemed made in or in connection with any Loan
Documents, (B) shall have no duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or any other Loan Document on the part of the Borrower or any other
Person or to inspect the property, books or records of the Borrower or any
other Person, and (C) shall not be responsible to any Bank for the due
execution, legality, validity, enforceability, genuineness, suf-
53.
<PAGE> 62
ficiency, value or collectibility of this Agreement or any other Loan Document.
(b) Notices. Promptly upon receipt thereof, the Agent
shall forward to each Bank originals or copies, as specified in this Agreement
or any other Loan Document, of all agreements, instruments, opinions, financial
statements, notices and other documents delivered by the Borrower or any other
Person to the Agent pursuant to any Loan Document for distribution to the
Banks. Except for any of the foregoing expressly required to be furnished to
the Banks by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
(c) Closing. For purposes of determining compliance with
the conditions specified in Section 7.01, each Bank that has executed this
Agreement shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter either sent (or made available)
by the Agent to such Bank for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to such Bank, unless an officer of the Agent responsible for the
transactions contemplated by the Loan Documents shall have received notice from
such Bank prior to the Closing Date specifying its objection thereto and either
such objection shall not have been withdrawn by notice to the Agent to that
effect on or prior to the Closing Date or, if any Borrowing on the Closing Date
has been requested, the Bank shall not have made available to the Agent on or
prior to the Closing Date the Bank's Pro Rata Share of any Borrowing.
SECTION 11.03 Agent and Affiliates. With respect to its
Commitment, the Loans made by it, the Notes issued to it and all other
Obligations owing to it as a Bank, the Agent shall have the same rights and
powers under the Loan Documents as any other Bank and may exercise the same as
though it were not the Agent; and the term "Bank" or "Banks" shall, unless
otherwise expressly indicated, include the Agent in its individual capacity.
The Agent and its Affiliates may accept deposits from, lend money to, act as
trustee under indentures of and generally engage in any kind of business with
the Borrower and any Affiliate thereof, all as if the Agent were not the Agent
hereunder and without any duty to account therefor to the Banks.
SECTION 11.04 Notice of Defaults. The Agent shall not be
deemed to have knowledge or notice of the occurrence of a Default hereunder
(other than nonpayment of principal of or interest on the Loans or of any fees
or any of its costs and expenses) unless the Agent has actual knowledge thereof
or has received notice in writing from a Bank or the Borrower referring
54.
<PAGE> 63
to this Agreement, describing such event or condition and expressly stating
that such notice is a "notice of default." Should the Agent receive such
notice of the occurrence of a Default, the Agent shall promptly give notice
thereof to the Banks. The Agent thereupon shall take such action with respect
to such Default as shall be reasonably directed by the Majority Banks; provided
that, unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default as it shall deem advisable in the
best interests of the Banks.
SECTION 11.05 Non-Reliance on Agent. Each Bank has itself
been, and will continue to be, based on such documents and information as it
has deemed appropriate, solely responsible for making its own independent
appraisal of and investigations into the financial condition, creditworthiness,
condition, affairs, status and nature of the Borrower or any of its
Subsidiaries. Accordingly, each Bank confirms to the Agent that it has not
relied, and will not hereafter rely, on the Agent (i) to check or inquire on
such Bank's behalf into the adequacy, accuracy or completeness of any
information provided by the Borrower or any other Person under or in connection
with the Loan Documents or the transactions herein contemplated (whether or not
such information has been or is hereafter distributed to such Bank by the
Agent), or (ii) to assess or keep under review on such Bank's behalf the
financial condition, creditworthiness, condition, affairs, status or nature of
the Borrower or any Subsidiary.
SECTION 11.06 Indemnification. The Banks agree to indemnify
the Agent, and any Affiliate, and any directors, officers, employees, agents,
counsel and other advisors (collectively, the "Related Persons") of the Agent
(to the extent not reimbursed by the Borrower), ratably in accordance with the
respective Pro Rata Shares of the Banks, against and hold each of them harmless
from any and all liabilities, obligations, losses, claims, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever, including the reasonable fees and disbursements of counsel
to the Agent (including allocated costs of internal counsel), which may be
imposed on, incurred by, or asserted against the Agent, or any Related Person
to be indemnified, in any way relating to or arising out of the Loan Documents,
the use or intended use of the proceeds of the Loans or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent, its
Affiliates or other Related Person to be indemnified in connection with any of
the foregoing; provided that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements to the extent they are found by a final
decision of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the Agent, its Affiliates or any other
Related Person to be indemnified. Without limitation of the foregoing, each
Bank agrees to reimburse the Agent and its
55.
<PAGE> 64
Affiliates promptly upon demand for such Bank's Pro Rata Share of any costs and
expenses or other charges incurred by the Agent or its Affiliates and payable
by the Borrower pursuant to Section 12.04(a) or any other Loan Document to the
extent that the Agent or any Affiliate is not reimbursed for such expenses or
charges by the Borrower.
SECTION 11.07 Delegation of Duties. The Agent may, in its
discretion, employ from time to time one or more agents or attorneys-in-fact
(including any of the Agent's Affiliates) to perform any of the Agent's duties
under the Loan Documents. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
SECTION 11.08 Successor Agent. Subject to the appointment
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving written notice thereof to the Banks and the Borrower and may
be removed at any time with or without cause by the Majority Banks. Upon any
such resignation or removal, the Majority Banks shall have the right to appoint
a successor Agent, and the Banks shall use their best efforts so to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Majority Banks, and shall have accepted such appointment, within 30 days after
the retiring Agent's giving of notice of resignation or the Majority Banks'
removal of the retiring Agent, the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which in each case shall be a commercial bank having
a combined capital and surplus of at least $100,000,000 and (i) organized under
the laws of the United States or of any state thereof, or any Affiliate of such
bank, or (ii) organized under the laws of any other country which is a member
of the OECD, or a political subdivision of any such country, provided that such
bank is acting through a branch or agency located in the United States and
licensed under the laws of the United States or of any state thereof. Upon the
effectiveness of the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges, duties and obligations of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under the Loan Documents. After any retiring Agent's resignation
or removal hereunder as Agent, the provisions of this Article XI shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under the Loan Documents.
SECTION 11.09 Arranger. Except to the extent expressly
provided herein, the Arranger (in its capacity as such) shall not have any
right, power, obligation, liability, responsibility or duty under this
Agreement. Without limiting the foregoing, the Arranger shall not have or be
deemed to have any fiduciary relationship with any Bank. Each Bank
acknowledges that it has not relied, and will not rely, on the Arranger in
56.
<PAGE> 65
deciding to enter into this Agreement or in taking or not taking action
hereunder.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01 Amendments and Waivers. Except as otherwise
provided herein or in any other Loan Document, (i) no amendment to any
provision of this Agreement or any of the other Loan Documents shall in any
event be effective unless the same shall be in writing and signed by the
Borrower (or other party thereto), the Agent and the Majority Banks (or the
Agent with the written consent of the Majority Banks); and (ii) no waiver of
any provision of this Agreement or any other Loan Document, or consent to any
departure by the Borrower or other party therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Agent and the
Majority Banks (or the Agent with the consent of the Majority Banks). Any such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given; provided, however, that,
notwithstanding the foregoing provisions of this Section 12.01, any term or
provision of any such other Loan Document may be amended without the agreement
or consent of, or prior notice to, the Borrower or other party thereto, to the
extent such Loan Document provides for notices without the agreement or consent
of the Borrower or such other party, and any term or provision of Article XI
(other than the provisions of Section 11.08 pertaining to Borrower consent) may
be amended without the agreement or consent of, or prior notice to, the
Borrower; and provided further, however, that, unless in writing and signed by
all of the Banks (or by the Agent with the written consent of all the Banks),
no amendment, waiver or consent shall do any of the following:
(A) increase the amount, or extend the stated expiration or
termination date, of the Commitments of the Banks or change the aggregate
amount by which or to which the Commitments are required to be reduced as
provided in Section 4.01(b);
(B) reduce the principal of, or interest on, the Loans or any
fee or other amount payable to the Banks hereunder;
(C) postpone any date fixed for any payment in respect of
principal of, or interest on, the Loans or any fee or other amount payable to
the Banks hereunder (including the date of any mandatory prepayment hereunder);
(D) change the definition of "Majority Banks" or any
definition or provision of this Agreement requiring the approval of Majority
Banks or some other specified amount of Banks;
(E) consent to the assignment or transfer by the Borrower of
any of its rights and obligations under the Loan Documents;
57.
<PAGE> 66
(F) waive any of the conditions specified in Article VII;
(G) amend, modify or waive the provisions of Section 6.01,
6.05 or 12.07; or
(H) amend, modify or waive the provisions of this Section
12.01; and
provided, further, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Banks required hereinabove
to take such action, affect the rights, obligations or duties of the Agent
under any Loan Document.
SECTION 12.02 Notices.
(a) Notices. All notices and other communications
provided for hereunder and under the other Loan Documents shall, unless
otherwise stated herein, be in writing (including by facsimile transmission)
and mailed, sent or delivered to the respective parties hereto at or to their
respective addresses or facsimile numbers set forth in Schedule 2 or at or to
such other address or facsimile number as shall be designated by any party in a
written notice to the other parties hereto. All such notices and
communications shall be effective (i) if delivered by hand, when delivered;
(ii) if sent by mail, upon receipt; and (iii) if sent by facsimile transmission
when received.
(b) Facsimile and Telephonic Notice. The Agent and the
Banks shall be entitled to rely on the authority of any Person purporting to be
a Person authorized by the Borrower to give any notice hereunder and the Agent
and the Banks shall not have any liability to the Borrower or other Person on
account of any action taken or not taken by the Agent and the Banks in reliance
upon any telephonic or facsimile notice hereunder. The obligation of the
Borrower to repay the Loans and the other Obligations shall not be affected in
any way or to any extent by any failure by the Agent and the Banks to receive
written confirmation of any telephonic or facsimile notice or the receipt by
the Agent and the Banks of a confirmation which is at variance with the terms
understood by the Agent and the Banks to be contained in the telephonic or
facsimile notice.
SECTION 12.03 No Waiver; Cumulative Remedies. No failure on
the part of the Agent or any Bank to exercise, and no delay in exercising, any
right, remedy, power or privilege under any Loan Document shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights and
remedies under the Loan Documents are cumulative and not exclusive of any
rights, remedies, powers and privileges that may otherwise be available to the
Agent or any Bank.
58.
<PAGE> 67
SECTION 12.04 Costs and Expenses; Indemnification.
(a) Costs and Expenses. The Borrower agrees to pay
within 30 days following demand, whether or not the transactions contemplated
hereby shall be consummated:
(i) the reasonable out-of-pocket costs and expenses of the
Agent and any of its Affiliates, and the reasonable fees and disbursements of
counsel to the Agent (including allocated costs of internal counsel), in
connection with the negotiation, preparation, execution, delivery and
administration of the Loan Documents, and any amendments, modifications or
waivers of the terms thereof; and
(ii) all costs and expenses of the Agent, its Affiliates and
the Banks, and fees and disbursements of counsel (including allocated costs of
internal counsel), in connection with (A) any Default, (B) the enforcement or
attempted enforcement of, and preservation of any rights or interests under,
the Loan Documents, and (C) any out-of-court workout or other refinancing or
restructuring or any bankruptcy case, including any losses, costs and expenses
sustained by the Agent and any Bank as a result of any failure by the Borrower
to perform or observe its obligations contained in the Loan Documents.
(b) Indemnification. Whether or not the transactions
contemplated by this Agreement are consummated, the Borrower hereby agrees,
within 30 days following demand, to indemnify and hold the Agent, the Arranger,
each Bank and any Related Persons of the Agent, the Arranger and each Bank
(each, an "Indemnified Person") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, charges, expenses and disbursements (including fees and expenses
of external legal counsel and the allocated cost of internal legal services and
disbursements of internal counsel) of any kind or nature whatsoever which may
at any time (including at any time following repayment of the Loans and the
termination, resignation or replacement of the Agent or replacement of any
Bank) be imposed on, incurred by or asserted against any such Person in any way
relating to or arising out of this Agreement or any Loan Document or any other
document contemplated by or referred to herein or therein, or the transactions
contemplated hereby or thereby, or any action taken or omitted by any such
Person under or in connection with any of the foregoing, including with respect
to any investigation, litigation or proceeding (including any Insolvency
Proceeding or appellate proceeding) related to or arising out of this Agreement
or the Loans or the use of the proceeds thereof, whether or not any Indemnified
Person is a party thereto (all the foregoing, collectively, the "Indemnified
Liabilities"); provided that the Borrower shall have no obligation hereunder to
any Indemnified Person with respect to Indemnified Liabilities to the extent
resulting from the gross negligence or willful misconduct of such
59.
<PAGE> 68
Indemnified Person. The agreements in this Section shall survive the payment
of the Obligations.
(c) Defense. At the election of any Indemnified Person,
the Borrower shall defend such Indemnified Person using legal counsel
satisfactory to such Indemnified Person in such Person's sole discretion, at
the sole cost and expense of the Borrower.
(d) Other Charges. Except as otherwise provided in
Section 6.03(f), the Borrower agrees, within 30 days following demand, to
indemnify the Agent and each of the Banks against and hold each of them
harmless from any and all present and future stamp, transfer, documentary and
other such taxes, levies, fees, assessments and other charges made by any
jurisdiction by reason of the execution, delivery, performance and enforcement
of the Loan Documents.
SECTION 12.05 Right of Set-Off. Upon the occurrence and
during the continuance of any Event of Default, or if any Loans have been
accelerated, each Bank hereby is authorized at any time and from time to time,
without notice to the Borrower (any such notice being expressly waived by the
Borrower), to set off and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held and other indebtedness at any
time owing by such Bank to or for the credit or the account of the Borrower
against any and all of the Obligations of the Borrower now or hereafter
existing under this Agreement and the other Loan Documents, irrespective of
whether or not such Bank shall have made any demand under this Agreement or any
such other Loan Document and although such Obligations may be unmatured. Each
Bank agrees promptly to notify the Borrower (through the Agent) after any such
set-off and application made by such Bank; provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Bank under this Section 12.05 are in addition to other rights
and remedies (including other rights of set-off) which such Bank may have.
SECTION 12.06 Survival. All covenants, agreements,
representations and warranties made in any Loan Documents shall, except to the
extent otherwise provided therein, survive the execution and delivery of this
Agreement, the making of the Loans and the execution and delivery of the Notes,
and shall continue in full force and effect so long as the Banks have any
Commitments, any Loans remain outstanding or any other Obligations remain
unpaid or any obligation to perform any other act under any Loan Document
remains unsatisfied. Without limiting the generality of the foregoing, the
obligations of the Borrower under Sections 5.02, 5.03, 6.03 and 12.04, and of
the Banks under Sections 6.03 and 11.06, and all similar obligations under the
other Loan Documents (including all obligations to pay costs and expenses and
all indemnity obligations), shall survive
60.
<PAGE> 69
the repayment of the Loans and the termination of the Commitments.
SECTION 12.07 Obligations Several. The obligations of the
Banks under the Loan Documents are several. The failure of any Bank or the
Agent to carry out its obligations thereunder shall not relieve any other Bank
or the Agent of any obligation thereunder, nor shall any Bank or the Agent be
responsible for the obligations of, or any action taken or omitted by, any
other Person hereunder or thereunder. Nothing contained in any Loan Document
shall be deemed to cause any Bank or the Agent to be considered a partner of or
joint venturer with any other Bank or Banks, the Agent or the Borrower.
SECTION 12.08 Benefits of Agreement. The Loan Documents are
entered into for the sole protection and benefit of the parties hereto and
their successors and assigns, and no other Person other than Affiliates of the
Agent and the Related Persons referred to in Sections 11.06, 12.04 and 12.14
shall be a direct or indirect beneficiary of, or shall have any direct or
indirect cause of action or claim in connection with, any Loan Document.
SECTION 12.09 Binding Effect; Assignment.
(a) Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and the Agent and
when the Agent shall have been notified by each Bank that such Bank has
executed it and thereafter shall be binding upon, inure to the benefit of and
be enforceable by the Borrower, the Agent and each Bank and their respective
successors and assigns.
(b) Assignment. The Borrower shall not have the right to
assign its rights and obligations hereunder or under the other Loan Documents
or any interest herein or therein without the prior written consent of the
Banks. Each Bank may sell, assign, transfer or grant participations in all or
any portion of such Bank's rights and obligations hereunder and under the other
Loan Documents to any Bank or Eligible Assignee on the basis set forth below in
this subsection (b).
(i) Any Bank may, with the written consent of the Borrower
and the Agent (which in each case shall not be unreasonably withheld), at any
time assign and delegate to one or more Eligible Assignees all, or any ratable
part of all, of the Loans, the Commitments and the other rights and obligations
of such Bank hereunder; provided, however, that (i) no written consent of the
Borrower shall be required during the existence of a Default; (ii) no written
consent of the Borrower or the Agent shall be required in connection with any
assignment and delegation by a Bank to an Eligible Assignee that is another
Bank or an Affiliate of such Bank; and (iii) except in connection with an
assignment of all of a Bank's rights and obligations with respect to its
Commitment and Loans, any such assignment to an
61.
<PAGE> 70
Eligible Assignee that is not a Bank hereunder shall be equal to or greater
than $10,000,000.
(ii) In the event of any such assignment, unless and until
(A) an Assignment and Acceptance and notice of assignment shall have been
delivered pursuant to clause (i) of Section 11.02(a), (B) the Agent shall have
received payment of an administrative transfer charge in the amount of $3,500
from the assigning Bank (unless the assignee shall otherwise agree to pay such
charge), and (C) the Agent and the Borrower shall have received all tax forms
and documents required under Section 6.03(d), such assignee shall not be
entitled to exercise the rights of a Bank under this Agreement and the other
Loan Documents with respect to such assignment and the Agent shall not be
obligated to make payment of any amount to which such assignee may become
entitled thereunder other than to the assigning Bank. Subject to satisfaction
of the foregoing conditions in connection with any assignment, upon the
effectiveness of such assignment the assignee shall be deemed a "Bank" for all
purposes of this Agreement and the other Loan Documents with respect to the
rights and obligations assigned to it, and the assigning Bank shall, to the
extent that rights and obligations hereunder and under the other Loan Documents
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and be released from its obligations under the Loan Documents;
provided, however, that the assigning Bank shall not relinquish its rights
under Article V or under Sections 6.03 and 12.04 to the extent such rights
relate to the time prior to the effective date of the Assignment and
Acceptance.
(iii) In connection with any partial assignment, upon the
request of the assigning Bank or the assignee, (A) the Borrower shall execute
and deliver substitute Notes to the assigning Bank or the assignee, dated the
effective date of such assignment, setting forth the respective Commitments of
such assigning Bank and assignee as the maximum principal amount thereof and
containing other appropriate insertions, and the assigning Bank shall thereupon
return the Notes previously held by it; and (B) Schedules 1 and 2 shall be
deemed amended to reflect the adjustment of the Commitments and Pro Rata Shares
of the Banks resulting therefrom and the Lending Office, if any, and address
for notices of the assignee.
(iv) In the event of any grant of a participation, the
granting Bank shall remain a "Bank" for purposes of this Agreement, the
Borrower, the other Banks and the Agent shall continue to deal solely and
directly with such Bank in connection with this Agreement and the other Loan
Documents, and no Bank shall transfer or grant any participating interest under
which the participant shall have rights to approve any amendment to, or any
consent or waiver with respect to, this Agreement or any other Loan Document,
except to the extent such amendment, consent or waiver would require unanimous
consent as described in the first proviso to Section 12.01. In the case of any
such
62.
<PAGE> 71
participation, the participant shall not have any of the rights of a Bank under
this Agreement or the other Loan Documents, except that the participant shall
(A) be deemed to have a right of setoff under Section 12.05 in respect of its
participation to the same extent as if it were a "Bank" hereunder, provided
that such participant shall also be considered a "Bank" for purposes of Section
6.05; and (B) such participant shall also be entitled to the benefits of
Sections 5.02, 5.03, 6.03 and 12.04, provided that any amounts payable under
Sections 5.03 or 6.03 to any participant shall not exceed the amounts which
would have been payable by the Borrower thereunder to the Bank granting such
participation.
(v) The Borrower agrees that in connection with any such
grant or assignment, such Bank may deliver to the prospective participant or
assignee financial statements and other relevant information relating to the
Borrower and its Subsidiaries.
(vi) Each Bank shall obtain from any such prospective
participant or assignee a confidentiality agreement in which such participant
or assignee agrees to an obligation of confidentiality substantially similar to
the terms of Section 12.10.
(vii) Notwithstanding any other provision in this Agreement,
any Bank may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement and any Note held by
it in favor of any Federal Reserve Bank in accordance with Regulation A of the
FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve
Bank may enforce such pledge or security interest in any manner permitted under
applicable law.
SECTION 12.10 Confidentiality. Each Bank and the Agent shall
hold all non-public information relating to the Borrower and its Subsidiaries
obtained by it under this Agreement in accordance with its customary procedures
for handling confidential information of this nature, except for: (i)
disclosure to its Affiliates or to its counsel or to any agent or advisor
acting on its behalf in connection with the negotiation, execution or
performance of the Loan Documents; (ii) disclosure as reasonably required in
connection with a transfer to a prospective assignee or participant of all or
part of its Loans or any participation therein, as provided in Section
12.09(b); (iii) disclosure as may be required or requested by any Governmental
Authority or representative thereof or pursuant to legal process; (iv)
disclosure to any Person and in any proceeding necessary in such Bank's or the
Agent's judgment to protect its interests in connection with any claim or
dispute involving such Bank or the Agent; and (v) any other disclosure with the
prior written consent of the Borrower. Prior to any disclosure by any Bank or
the Agent of such non-public information permitted under clause (iii) (other
than in connection with an examination of the financial condition of such Bank,
63.
<PAGE> 72
the Agent or any of their Affiliates by any Governmental Authority), it shall,
if permitted by applicable laws or judicial order, notify the Borrower of such
pending disclosure. In no event shall any Bank or the Agent be obligated or
required to return any materials furnished by the Borrower or its Subsidiaries.
Notwithstanding the foregoing, such obligation of confidentiality shall not
apply if the information or substantially similar information (A) is rightfully
received by any Bank or the Agent from a Person other than the Borrower or any
of its Affiliates without such Bank or the Agent being under an obligation to
such Person not to disclose such information, or (B) is or becomes part of the
public domain.
SECTION 12.11 Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CALIFORNIA.
SECTION 12.12 Waiver of Jury Trial. THE BORROWER, THE BANKS
AND THE AGENT HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER, THE BANKS AND THE
AGENT HEREBY AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT IN ANY WAY LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM, OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS. A COPY OF THIS SECTION 12.12 MAY BE FILED WITH ANY COURT AS WRITTEN
EVIDENCE OF THE WAIVER OF THE RIGHT TO TRIAL BY JURY AND CONSENT TO TRIAL BY
COURT.
SECTION 12.13 Limitation on Liability. No claim shall be
made by the Borrower or its Affiliates against the Agent, the Banks or any of
their Related Persons for any special, indirect, exemplary, consequential or
punitive damages in respect of any breach or wrongful conduct (whether or not
the claim therefor is based on contract, tort or duty imposed by law), in
connection with, arising out of or in any way related to the transactions
contemplated by the Loan Documents or any act or omission or event occurring in
connection therewith; and the Borrower hereby waives, releases and agrees not
to sue upon any such claim for any such damages, whether or not accrued and
whether or not known or suspected to exist in its favor.
SECTION 12.14 Entire Agreement. The Loan Documents reflect
the entire agreement among the Borrower, the Banks and
64.
<PAGE> 73
the Agent with respect to the matters set forth herein and therein and
supersede any prior agreements, commitments, drafts, communications,
discussions and understandings, oral or written, with respect thereto.
SECTION 12.15 Severability. Whenever possible, each
provision of the Loan Documents shall be interpreted in such manner as to be
effective and valid under all applicable laws and regulations. If, however,
any provision of any of the Loan Documents shall be prohibited by or invalid
under any such law or regulation in any jurisdiction, it shall, as to such
jurisdiction, be deemed modified to conform to the minimum requirements of such
law or regulation, or, if for any reason it is not deemed so modified, it shall
be ineffective and invalid only to the extent of such prohibition or invalidity
without affecting the remaining provisions of such Loan Document, or the
validity or effectiveness of such provision in any other jurisdiction.
SECTION 12.16 Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same
agreement.
[SIGNATURE PAGES FOLLOW]
65.
<PAGE> 74
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
THE BORROWER
LSI LOGIC CORPORATION
By _____________________________
Title:
THE AGENT
ABN AMRO BANK N.V., as Agent
By: ABN AMRO NORTH AMERICA, INC.
its agent
By _____________________________
Title:
By _____________________________
Title:
THE BANKS
ABN AMRO BANK N.V., as a Bank
By: ABN AMRO NORTH AMERICA, INC.
its agent
By _____________________________
Title:
By _____________________________
Title:
[SIGNATURES CONTINUED NEXT PAGE]
66.
<PAGE> 75
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By _____________________________
Title:
BARCLAYS BANK PLC
By _____________________________
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By _____________________________
Title:
THE BANK OF NOVA SCOTIA
By _____________________________
Title:
BANQUE NATIONALE DE PARIS
By _____________________________
Title:
By _____________________________
Title:
THE DAI-ICHI KANGYO BANK, LIMITED
By _____________________________
Title:
[SIGNATURES CONTINUED NEXT PAGE]
67.
<PAGE> 76
FLEET NATIONAL BANK
By _____________________________
Title:
KEY BANK OF WASHINGTON
By _____________________________
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD.
By _____________________________
Title:
MELLON BANK
By _____________________________
Title:
THE MITSUBISHI TRUST & BANKING
CORPORATION
By _____________________________
Title: Yasushi Satomi
Chief Manager
THE NIPPON CREDIT BANK, LTD.
By _____________________________
Title:
SANWA BANK CALIFORNIA
By _____________________________
Title:
[SIGNATURES CONTINUED NEXT PAGE]
68.
<PAGE> 77
THE SUMITOMO BANK, LTD.
SAN FRANCISCO BRANCH
By _____________________________
Title:
UNION BANK OF CALIFORNIA, N.A.
By _____________________________
Title:
69.
<PAGE> 78
ANNEX I
PRICING GRID
<TABLE>
<CAPTION>
(Basis points per annum)
----------------------------------------
EBITDA/Total Debt Eurodollar Rate
Level Ratio Commitment Fee Loan Spread
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Level 1 Greater than or equal 22.5 65
to 1.0 to 1.0
Level 2 Less than 1.0 to 1.0 25.0 75
</TABLE>
The EBITDA/Total Debt Ratio used to compute the Applicable Fee
Amount for commitment fee and the Applicable Margin for Loans shall be the
EBITDA/Total Debt Ratio set forth in the Compliance Certificate most recently
delivered by the Borrower to the Agent pursuant to Section 9.01(a) of the
Credit Agreement; changes in the Applicable Fee Amount and the Applicable
Margin resulting from a change in the EBITDA/ Total Debt Ratio shall become
effective one Business Day after delivery by the Borrower to the Agent of a new
Compliance Certificate pursuant to Section 9.01(a). If the Borrower shall fail
to deliver a Compliance Certificate within the number of days after the end of
any Fiscal Quarter or Fiscal Year as required pursuant to Section 9.01(a)
(without giving effect to any grace period), the Applicable Fee Amount and the
Applicable Margin from the first day after the date on which such Compliance
Certificate was required to be delivered to the Agent through the day the
Borrower delivers to the Agent a Compliance Certificate shall conclusively
equal the highest Applicable Fee Amount and Applicable Margin set forth above.
1.
<PAGE> 79
SCHEDULE 1
to the Credit Agreement
COMMITMENTS
AND PRO RATA SHARES
<TABLE>
<CAPTION>
Bank Commitment Pro Rata Share
---- ---------- --------------
<S> <C> <C>
ABN AMRO Bank N.V. $25,000,000 8.333333333%
Morgan Guaranty Trust Company $25,000,000 8.333333333%
of New York
Barclays Bank PLC $22,500,000 7.500000000%
The Industrial Bank of $22,500,000 7.500000000%
Japan, Limited
The Bank of Nova Scotia $20,000,000 6.666666667%
Banque Nationale de Paris $20,000,000 6.666666667%
The Dai-Ichi Kangyo $15,000,000 5.000000000%
Bank, Ltd.
Fleet National Bank $20,000,000 6.666666667%
Key Bank of Washington $20,000,000 6.666666667%
The Long-Term Credit $15,000,000 5.000000000%
Bank of Japan, Ltd.
Mellon Bank $20,000,000 6.666666667%
The Mitsubishi Trust & $15,000,000 5.000000000%
Banking Corporation
The Nippon Credit Bank, Ltd. $15,000,000 5.000000000%
Sanwa Bank California $15,000,000 5.000000000%
The Sumitomo Bank, Ltd. $15,000,000 5.000000000%
Union Bank of California, N.A. $15,000,000 5.000000000%
----------- ------------
TOTAL $300,000,000 100%
</TABLE>
1.
<PAGE> 80
SCHEDULE 2
to the Credit Agreement
ADDRESSES FOR NOTICES; LENDING OFFICES
BORROWER
LSI Logic Corporation
1551 McCarthy Boulevard
Milpitas, CA 95035
Attention: Mark R. Kent, Treasurer
Mail Stop D106
Telephone: (408) 433-7189
Facsimile: (408) 433-6896
BORROWER'S ACCOUNT
Bank of America
ABA No. 121-000-358
Account No.: 12335-01388
Reference: LSI Logic Corporation
Tax ID: 94-2712976
AGENT
ABN AMRO Bank N.V.,
as Agent
Notices of Borrowing, Notices of
Conversion or Continuation and Payments:
ABN AMRO Bank N.V.
335 Madison Avenue, 14th Floor
Syndications Dept.
New York, NY 10017
Attention: Linda Boardman
Vice President
Telephone: (212) 370-8509
Facsimile: (212) 682-0364
All other notices:
ABN AMRO Bank N.V.
335 Madison Avenue, 14th Floor
Syndications Dept.
New York, NY 10017
Attention: Linda Boardman
Vice President
Telephone: (212) 370-8509
Facsimile: (212) 682-0364
1.
<PAGE> 81
AGENT'S ACCOUNT:
ABN AMRO Bank, New York
ABA No. 026009580
Credit: ABN AMRO Bank, San Francisco
Account No.: 651001054541
Reference: LSI Logic
Attention: Gloria Lee
BANKS
ABN AMRO Bank N.V.,
as a Bank
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
ABN AMRO Bank N.V.
101 California Street, Suite 4550
San Francisco, CA 94111-5812
Attention: Gloria C. Lee
Operations Officer
Telephone: (415) 984-3720
Facsimile: (415) 362-3524
All other notices:
ABN AMRO Bank N.V.
San Francisco International Branch
101 California Street, Suite 4550
San Francisco, CA 94111-5812
Attention: Thomas Wagner
Vice President and Director
Telephone: (415) 984-3700
Facsimile: (415) 362-3524
Morgan Guaranty Trust Company of New York
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
JP Morgan Services, Inc.
500 Stanton Christiana Road
Newark, DE 19713-2107
Attention: Patrick Rylee-Ribas
Telephone: (302) 634-1963
Facsimile: (302) 634-1872/1091
2.
<PAGE> 82
All other notices:
Morgan Guaranty Trust Company of New York
60 Wall Street
New york, NY 10260-0060
Attention: Jeffrey Hwang
Telephone: (212) 648-6503
Facsimile: (212) 648-5014
Barclays Bank PLC
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
Barclays Bank PLC
222 Broadway
New York, NY 10038
Attention: Anand Chan-Sui
Telephone: (212) 412-3702
Facsimile: (212) 412-5306
All other notices:
Barclays Bank PLC
388 Market Street, 17th Floor
San Francisco, CA 94111
Attention: James C. Tan
Associate Director
Telephone: (415) 765-4718
Facsimile: (415) 765-4760
The Industrial Bank of Japan, Limited
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
The Industrial Bank of Japan, Limited
San Francisco Agency
555 California Street, Suite 3110
San Francisco, CA 94104
Attention: Jeanette O'Donnell
Officer
Telephone: (415) 693-1831
Facsimile: (415) 982-1917
3.
<PAGE> 83
All other notices:
The Industrial Bank of Japan, Limited
San Francisco Agency
555 California Street, Suite 3110
San Francisco, CA 94104
Attention: Jeanette O'Donnell
Officer
Telephone: (415) 693-1831
Facsimile: (415) 982-1917
The Bank of Nova Scotia
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
The Bank of Nova Scotia
580 California Street, 21st Floor
San Francisco, CA 94104
Attention: Chris Johnson
Telephone: (415) 986-1100
Facsimile: (415) 397-0791
The Bank of Nova Scotia
600 Peachtree Street, N.E.
Suite 2700
Atlanta, GA 30308
Attention: Eudia Smith
Telephone: (404) 877-1500
Facsimile: (404) 888-8998
All other notices:
The Bank of Nova Scotia
580 California Street, 21st Floor
San Francisco, CA 94104
Attention: Chris Johnson
Telephone: (415) 986-1100
Facsimile: (415) 397-0791
The Bank of Nova Scotia
600 Peachtree Street, N.E.
Suite 2700
Atlanta, GA 30308
Attention: Eudia Smith
Telephone: (404) 877-1500
Facsimile: (404) 888-8998
4.
<PAGE> 84
Banque Nationale de Paris
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
Banque Nationale de Paris, San Francisco Branch
180 Montgomery Street
San Francisco, CA 94104
Attention: Donald A. Hart
Vice President and Treasurer
Telephone: (415) 956-2511
Facsimile: (415) 989-9041
All other notices:
Banque Nationale de Paris
180 Montgomery Street, 3rd Floor
San Francisco, CA 94104
Attention: Rafael Lumanlan
Vice President
Telephone: (415) 956-0707
Facsimile: (415) 296-8954
The Dai-Ichi Kangyo Bank, Limited
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
The Dai-Ichi Kangyo Bank, Limited
San Francisco Agency
101 California Street, Suite 4000
San Francisco, CA 94111
Attention: Karen Leung
Loan Administration Officer
Telephone: (415) 393-1813
Facsimile: (415) 788-7868
All other notices:
The Dai-Ichi Kangyo Bank, Limited
San Francisco Agency
101 California Street, Suite 4000
San Francisco, CA 94111
Attention: Mark Dirsa
Senior Relationship Manager
Telephone: (415) 393-1813
Facsimile: (415) 788-7868
5.
<PAGE> 85
Fleet National Bank
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
Fleet National Bank
MA/OF/0305
One Federal Street
Boston, MA 02211
Attention: Pauline Kowalczyk
Loan Administration
Telephone: (617) 346-0622
Facsimile: (617) 346-0590
All other notices:
Fleet National Bank
MA/OF/0305
One Federal Street
Boston, MA 02211
Attention: Frank Benesh
Vice President
Telephone: (617) 346-0617
Facsimile: (617) 346-0568
Key Bank of Washington
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
Key Bank of Washington
1002 15th St. S.W.
Auburn, WA 98001
Attention: Specialty Team
Telephone: (800) 297-5518
Facsimile: (800) 297-5495
All other notices:
Key Bank of Washington
700 Fifth Avenue
48th Floor
Seattle, WA 98104
Attention: Kevin McBride
Telephone: (206) 684-6079
Facsimile: (206) 684-6035
6.
<PAGE> 86
The Long-Term Credit Bank of Japan, Ltd.
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
The Long-Term Credit Bank of Japan, Ltd.
350 S. Grand Avenue, Suite 3000
Los Angeles, CA 90071
Attention: Cindy Ly
Telephone: (213) 689-6247
Facsimile: (213) 622-6908
All other notices:
The Long-Term Credit Bank of Japan, Ltd.
350 S. Grand Avenue, Suite 3000
Los Angeles, CA 90071
Attention: Cindy Ly
Telephone: (213) 689-6247
Facsimile: (213) 622-6908
Mellon Bank
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
Mellon Bank
Loan Administration
Three Mellon Bank Center, Room 2304
Pittsburgh, PA 15259
Attention: Damon Carr
Telephone: (412) 234-1872
Facsimile: (412) 236-2027/2028
All other notices:
Mellon Bank
435 Tasso Street, Suite 100
Palo Alto, CA 94301
Attention: Sean C. Gannon
Telephone: (415) 326-3005
Facsimile: (415) 326-2382
7.
<PAGE> 87
The Mitsubishi Trust and Banking Corporation
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
The Mitsubishi Trust and Banking Corporation,
Los Angeles Agency
801 S. Figueroa Street, 5th Floor
Los Angeles, CA 90017
Attention: Yvonne Yoon
Michael Lundgren
Telephone: (213) 896-4737
Facsimile: (213) 629-2571
All other notices:
The Mitsubishi Trust and Banking Corporation
Los Angeles Agency
801 S. Figueroa Street, 5th Floor
Los Angeles, CA 90017
Attention: Yvonne Yoon
Michael Lundgren
Telephone: (213) 896-4737
Facsimile: (213) 629-2571
The Nippon Credit Bank, Ltd.
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
The Nippon Credit Bank, Ltd. - Los Angeles Agency
550 South Hope Street, Suite 2500
Los Angeles, CA 90071
Attention: Teresa Pasamba
Associate
Telephone: (213) 243-5723
Facsimile: (213) 243-5579
All other notices:
The Nippon Credit Bank, Ltd. - Los Angeles Agency
550 South Hope Street, Suite 2500
Los Angeles, CA 90071
Attention: Helen Y. Rhee
Vice President - U.S. Corporate Finance
Telephone: (213) 243-5723
Facsimile: (213) 892-0111
8.
<PAGE> 88
Sanwa Bank California
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
Sanwa Bank California
220 Almaden Boulevard
San Jose, CA 95113
Attention: Jill Mathur
Vice President
Telephone: (408) 297-6500
Facsimile: (408) 292-4092
All other notices:
Sanwa Bank California
220 Almaden Boulevard
San Jose, CA 95113
Attention: Jill Mathur
Vice President
Telephone: (408) 297-6500
Facsimile: (408) 292-4092
The Sumitomo Bank, Limited
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
The Sumitomo Bank, Limited
San Francisco Branch
555 California Street, Suite 3350
San Francisco, CA 94104
Attention: Pauline Tsang
Corporate Banking Officer
Telephone: (415) 616-3003
Facsimile: (415) 397-1475
All other notices:
The Sumitomo Bank, Limited
San Francisco Branch
555 California Street, Suite 3350
San Francisco, CA 94104
Attention: Herman White/Pauline Tsang
Vice President/Corporate Banking Officer
Telephone: (415) 616-3009/3003
Facsimile: (415) 398-3580
9.
<PAGE> 89
Union Bank of California, N.A.
Lending Office(s)
(Notices of Borrowing, Notices of
Conversion or Continuation, and Payments):
Union Bank of California, N.A.
1980 Saturn Street
Monterey Park, CA 91754
Attention: Maria Flores
Telephone: (213) 720-2679
Facsimile: (213) 724-6198
All other notices:
Union Bank of California, N.A.
350 California Street (H-1130)
San Francisco, CA 94104
Attention: Wade Schlueter
Telephone: (415) 705-7022
Facsimile: (415) 705-7046
10.
<PAGE> 90
EXHIBIT A
to the Credit Agreement
FORM OF REVOLVING NOTE
PROMISSORY NOTE
San Francisco, California
$______________ ____________, 199__
FOR VALUE RECEIVED, the undersigned, LSI LOGIC CORPORATION, a
Delaware corporation (the "Borrower"), HEREBY UNCONDITIONALLY PROMISES TO PAY
to the order of [Bank] (the "Bank") on the Revolving Expiry Date the principal
sum of __________________ DOLLARS ($__________) or, if less, the aggregate
outstanding principal amount of the Loans made by the Bank to the Borrower
pursuant to the Credit Agreement referred to below.
The Borrower further promises to pay interest on the Loans
outstanding hereunder from time to time at the interest rates, and payable on
the dates, set forth in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America and in same day or immediately available funds to ABN
AMRO Bank N.V. as Agent under the Credit Agreement (the "Agent"), to the
Agent's Account.
The Bank shall record the date and amount of each Loan made,
each conversion to a different interest rate, each relevant Interest Period,
the amount of principal and interest due and payable from time to time
hereunder, each payment thereof and the resulting unpaid principal balance
hereof, in the Bank's internal records, and any such recordation shall be
rebuttable presumptive evidence of the accuracy of the information so recorded;
provided, however, that the Bank's failure so to record shall not limit or
otherwise affect the obligations of the Borrower hereunder and under the Credit
Agreement to repay the principal of and interest on the Loans.
This promissory note is one of the Notes referred to in, and
is subject to and entitled to the benefits of, the Credit Agreement dated as of
December 20, 1996 (as amended, modified, renewed or extended from time to time,
the "Credit Agreement") among the Borrower, certain financial institutions
named therein as Banks (including the Bank) and the Agent. Capitalized terms
used herein shall have the respective meanings assigned to them in the Credit
Agreement.
A-1.
<PAGE> 91
The Credit Agreement provides, among other things, for
acceleration (which in certain cases shall be automatic) of the maturity hereof
upon the occurrence of certain stated events, in each case without presentment,
demand, protest or further notice of any kind, all of which are hereby
expressly waived.
This promissory note is subject to prepayment in whole or in
part as provided in the Credit Agreement.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
LSI LOGIC CORPORATION
By ___________________________
Name:
Title:
A-2.
<PAGE> 92
EXHIBIT B
to the Credit Agreement
FORM OF NOTICE OF BORROWING
Date: ____________, 199__
To: ABN AMRO Bank N.V., as Agent
335 Madison Avenue, 14th Floor
Syndications Dept.
New York, NY 10017
Re: LSI Logic Corporation
Ladies and Gentlemen:
The undersigned, LSI Logic Corporation, a Delaware corporation (the
"Borrower"), refers to the Credit Agreement dated as of December 20, 1996 (as
amended, modified, renewed or extended from time to time, the "Credit
Agreement"), among the Borrower, the several financial institutions party to
the Credit Agreement (the "Banks") and ABN AMRO Bank N.V., as Agent for the
Banks, the terms defined therein being used herein as therein defined, and
hereby gives you notice irrevocably, pursuant to Section 2.02 of the Credit
Agreement, of the Borrowing specified herein:
(a) The Business Day of the proposed Borrowing is __________,
199_.
(b) The aggregate amount of the proposed Borrowing is
$___________.
(c) The Borrowing is to be comprised of [Base Rate] [Eurodollar
Rate] Loans.
(d) The duration of the Interest Period for the Eurodollar Rate
Loans included in the Borrowing shall be [_________] months.
(e) The payment instructions with respect to the funds to be made
available to the Borrower are as follows: ______________.
The Borrower hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the proposed Borrowing,
before and after giving effect thereto and to the application of the proceeds
therefrom:
(a) the representations and warranties of the Borrower
contained in Section 8.01 of the Credit Agreement and in the
B-1.
<PAGE> 93
other Loan Documents are true and correct as though made on and as of
each such date (except to the extent such representations and
warranties relate solely to an earlier date, in which case they are
true and correct as of such date, except that Section 8.01 of the
Credit Agreement shall be deemed instead to refer to the last day of
the most recent fiscal year and quarter for which financial statements
have then been delivered and except as set forth in amendments to
Schedules and other disclosures made in writing to the Agent and the
Banks and approved by them); and
(b) no Default exists or would result from such proposed
Borrowing.
LSI LOGIC CORPORATION
By: _________________________
Name:
Title:
B-2.
<PAGE> 94
EXHIBIT C
to the Credit Agreement
FORM OF COMPLIANCE CERTIFICATE
ABN AMRO Bank N.V., as Agent
335 Madison Avenue, 14th Floor
Syndications Dept.
New York, NY 10017
Re: LSI Logic Corporation
Ladies and Gentlemen:
This Compliance Certificate is made and delivered pursuant to
the Credit Agreement dated as of December 20, 1996 (as amended, modified,
renewed or extended from time to time, the "Credit Agreement") among LSI Logic
Corporation, a Delaware corporation (the "Borrower"), certain financial
institutions named therein as Banks and ABN AMRO Bank N.V., as Agent, and
reference is made thereto for full particulars of the matters described
therein. All capitalized terms used in this Compliance Certificate and not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement. This Compliance Certificate relates to the accounting period ending
__________, 199__.
I am the _______________________ of the Borrower. I have
reviewed the terms of the Credit Agreement and I have made, or caused to be
made under my supervision, a detailed review of the transactions and conditions
of the Borrower and its Subsidiaries during such accounting period. I hereby
certify that the information set forth on Schedule 1 hereto (and on any
additional schedules hereto setting forth further supporting detail) is true,
accurate and complete as of the end of such accounting period.
I hereby further certify that (i) as of the date hereof, no
Default has occurred and is continuing, and (ii) on and as of the date hereof,
there has occurred no Material Adverse Effect since December 31, 1995, except,
in each case, as may be set forth in a separate attachment hereto describing in
detail the nature of each condition or event constituting an exception to the
foregoing statements, the period during which it has existed and the action
which the Borrower is taking or proposes to take with respect to each such
condition or event.
IN WITNESS WHEREOF, the undersigned officer has signed this
Compliance Certificate this ____ day of ______________, 199__.
___________________________________
Name:
Title:
C-1.
<PAGE> 95
EXHIBIT D
to the Credit Agreement
FORM OF LEGAL OPINION OF GENERAL COUNSEL OF BORROWER
December __, 1996
To each of the Banks party to the Credit
Agreement referred to below, and to
ABN AMRO Bank N.V., as Agent
Ladies and Gentlemen:
I am General Counsel of LSI Logic Corporation, a Delaware
corporation (the "Borrower"), and I am giving my opinion in connection with the
execution and delivery of the Credit Agreement, dated as of December 20, 1996
(the "Credit Agreement"), among the Borrower, the several financial
institutions party to the Credit Agreement (the "Banks") and ABN AMRO Bank
N.V., as Agent for the Banks.
This opinion is provided to the Agent and the Banks as
required pursuant to Section 7.01(e) of the Credit Agreement. Capitalized
terms not otherwise defined herein have the respective meanings set forth in
the Credit Agreement.
In connection with this opinion letter, I have examined
executed copies of the Credit Agreement and any Notes for the Banks requesting
such Notes; certificates of public officials from the States of California and
Delaware; the certificate of incorporation and by-laws of the Borrower, as
amended to date; records of proceedings of the Board of Directors of the
Borrower by which resolutions were adopted relating to matters covered by this
opinion; and such certificates of officers of the Borrower as to certain
factual matters as I have deemed necessary or appropriate.
In addition, I have made such other investigations as I have
deemed necessary to enable me to express the opinions hereinafter set forth.
In the course of this examination I have assumed the genuineness of all
signatures of persons signing the Loan Documents on behalf of parties thereto
other than the Borrower, the authenticity of all documents submitted to me as
originals and the conformity to authentic original documents of all documents
submitted to me as certified, conformed or photostatic copies.
Based upon the foregoing, and further subject to the
assumptions, qualifications and exceptions set forth below, I hereby advise you
that in my opinion:
(f) The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State
D-1.
<PAGE> 96
of Delaware with the corporate power and authority to own and operate (or
lease, as the case may be) its properties and to carry on its business as it is
now conducted. The Borrower is qualified as a foreign corporation and in good
standing in the State of California.
(g) The Borrower has the corporate power and authority to
enter into and perform the Loan Documents, and has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents.
(h) No authorization, consent, approval, license,
exemption of, or filing or registration with, any Governmental Authority, or
approval or consent of any other Person, is required for the due execution,
delivery or performance by, or enforcement against, the Borrower of the Loan
Documents.
(i) The Loan Documents have been duly executed and
delivered by the Borrower and constitute the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms.
(j) The execution, delivery and performance by the
Borrower of the Loan Documents will not (i) violate or be in conflict with any
provision of the certificate of incorporation, or by-laws of the Borrower, (ii)
violate or be in conflict with any law or regulation having applicability to
the Borrower, (iii) violate or contravene any judgment, decree, injunction,
writ or order of any court, or any arbitrator or other Governmental Authority,
having jurisdiction over the Borrower or the Borrower's properties or by which
the Borrower may be bound, or (iv) violate or conflict with, or constitute a
default under or result in the termination of, or accelerate the performance
required by, any indenture, any loan or credit agreement, or any other
agreement for borrowed money or any other material agreement, lease or
instrument to which the Borrower is a party or by which it or the Borrower's
properties may be bound or affected except as contemplated under the Loan
Documents.
(k) Except as otherwise disclosed on Schedule 5 to the
Credit Agreement, no litigation or other proceedings are pending or threatened
against the Borrower or its properties before any court, arbitrator or
governmental agency or authority with respect to the Loan Documents or which,
if determined adversely to the Borrower, would be likely to have a Material
Adverse Effect.
(l) The extension of credit under the Credit Agreement
does not violate the provisions of Regulations G or U of the Board of Governors
of the Federal Reserve System.
(m) The Borrower is not an "investment company," or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
D-2.
<PAGE> 97
The opinion set forth in paragraph 4 above is subject to the
qualification that the enforceability of the Loan Documents may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally and by general equity
principles.
I express no opinion herein concerning any law other than the
law of the State of California, the General Corporation Law of the State of
Delaware and the federal law of the United States.
This letter has been furnished to you at the request of the
Borrower pursuant to Section 7.01(e) of the Credit Agreement for your use in
connection with the Credit Agreement, and may not be relied upon by you or any
other person for any other purpose without my consent; provided the Agent and
each Bank may deliver a copy to its legal counsel in connection with the Credit
Agreement, to any prospective assignee or participant of any Bank and to any
successor Agent, and such legal counsel, any such assignee or participant and
any successor Agent shall be entitled to rely hereon.
Very truly yours,
D-3.
<PAGE> 98
EXHIBIT E
to the Credit Agreement
FORM OF ASSIGNMENT AND ACCEPTANCE
THIS ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Agreement")
dated as of _____________________________, 199__, is made between
__________________________________________ (the "Assignor") and
____________________________(the "Assignee").
PRELIMINARY STATEMENTS
1. The Assignor is party to that certain Credit Agreement
dated as of December 20, 1996 (as amended, restated, modified, supplemented or
renewed from time to time, the "Credit Agreement"), among LSI Logic Corporation
(the "Borrower"), certain financial institutions as lenders (including the
Assignor, the "Banks") and ABN AMRO Bank, N.V., as agent for the Banks (in such
capacity, the "Agent"). All capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement.
2. As provided under the Credit Agreement, the Assignor has
committed to making Loans to the Borrower in an aggregate amount not to exceed
$_____________ (the "Commitment");
3. [The Assignor has made Loans in the aggregate principal
amount of $__________ to the Borrower consisting of $___________ principal
amount of Loans.] [No Loans are outstanding under the Credit Agreement.]
4. The Assignor wishes to assign to the Assignee [part of
the] [all] rights and obligations of the Assignor under the Credit Agreement in
respect of its Commitment, [together with a corresponding portion of each of
its outstanding Loans], in an amount equal to ___% of the Assignor's Commitment
and Loans, on the terms and subject to the conditions set forth herein, and the
Assignee wishes to accept assignment of such rights and to assume such
obligations from the Assignor on such terms and subject to such conditions.
Accordingly, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
1. Assignment and Acceptance.
(a) Subject to the terms and conditions of this Agreement,
(i) the Assignor hereby sells, transfers and assigns to the Assignee, and (ii)
the Assignee hereby purchases, assumes and undertakes from the Assignor,
without recourse and without representation or warranty (except as provided in
this Agreement) ___% (the "Assignee's Percentage Share") of (A) the Commitment
[and the Loans] of the Assignor and (B) all related rights,
E-1.
<PAGE> 99
benefits, obligations, liabilities and indemnities of the Assignor under and in
connection with the Credit Agreement and the Loan Documents.
(b) With effect on and after the Effective Date (as defined
in Section 5 hereof), the Assignee shall be a party to the Credit Agreement and
succeed to all of the rights and be obligated to perform all of the obligations
of a Bank under the Credit Agreement, including the requirements concerning
confidentiality, if any, and the payment of indemnification, with a Commitment
in the amount set forth in subsection (c) below. The Assignee agrees that it
shall perform in accordance with their terms all of the obligations which by
the terms of the Credit Agreement are required to be performed by it as a Bank.
It is the intent of the parties hereto that the Commitment of the Assignor
shall, as of the Effective Date, be reduced by an amount equal to the portion
thereof assigned to the Assignee hereunder, and the Assignor shall relinquish
its rights and be released from its obligations under the Credit Agreement to
the extent such obligations have been assumed by the Assignee; provided,
however, that the Assignor shall not relinquish its rights under Article V or
under Sections 6.03 and 12.04 of the Credit Agreement to the extent such rights
relate to the time prior to the Effective Date.
(c) After giving effect to the assignment and assumption set
forth herein, on the Effective Date: (i) the Assignee's Commitment shall be
$__________; and (ii) the Assignee's aggregate outstanding Loans shall be
$_______________.
(d) After giving effect to the assignment and assumption set
forth herein, on the Effective Date: (i) the Assignor's Commitment shall be
$__________; and (ii) the Assignor's aggregate outstanding Loans shall be
$_______________.
2. Payments.
(a) As consideration for the sale, assignment and
transfer contemplated in Section 1 hereof, the Assignee shall pay to the
Assignor on the Effective Date in immediately available funds an amount equal
to $__________, representing the Assignee's Percentage Share of the principal
amount of all Loans previously made by the Assignor to the Borrower under the
Credit Agreement and outstanding on the Effective Date.
(b) The [Assignor] [Assignee] further agrees to pay to
the Agent a processing fee in the amount specified in Section 12.09 of the
Credit Agreement.
3. Reallocation of Payments. Any interest, fees and
other payments accrued to the Effective Date with respect to the Commitment
[and Loans] of the Assignor shall be for the account of the Assignor. Any
interest, fees and other payments accrued on and after the Effective Date with
respect to the portion of
E-2.
<PAGE> 100
such Commitment [and Loans] assigned to the Assignee shall be for the account
of the Assignee. Each of the Assignor and the Assignee agrees that it will
hold in trust for the other party any interest, fees and other amounts which it
may receive to which the other party is entitled pursuant to the preceding
sentence and pay to the other party any such amounts which it may receive
promptly upon receipt.
4. Independent Credit Decision. The Assignee (a)
acknowledges that it has received a copy of the Credit Agreement and the
Schedules and Exhibits thereto, together with copies of the most recent
financial statements referred to in Section 9.01 of the Credit Agreement, and
such other documents and information as it has deemed appropriate to make its
own credit and legal analysis and decision to enter into this Agreement; and
(b) agrees that it will, independently and without reliance upon the Assignor,
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 and legal
decisions in taking or not taking action under the Credit Agreement and the
other Loan Documents.
5. Effective Date; Notices.
(a) As between the Assignor and the Assignee, the
effective date for this Agreement shall be ______________ (the "Effective
Date"); provided that the following conditions precedent have been satisfied on
or before the Effective Date:
(i) this Agreement shall have been executed and delivered by
the Assignor and the Assignee;
(ii) any consent of the Borrower and the Agent required under
Section 12.09 of the Credit Agreement for the effectiveness of the assignment
hereunder by the Assignor to the Assignee shall have been duly obtained and
shall be in full force and effect as of the Effective Date;
(iii) the Assignee shall have paid to the Assignor all
amounts due to the Assignor under this Agreement;
(iv) the processing fee referred to in Section 2(b) hereof
and in Section 12.09 of the Credit Agreement shall have been paid to the Agent;
and
(v) the Assignor and Assignee shall have complied with the
other requirements of Section 12.09 of the Credit Agreement (to the extent
applicable).
(b) Promptly following the execution of this Agreement, the
Assignor shall deliver to the Borrower and the Agent for acknowledgment by the
Agent, a Notice of Assignment substantially in the form attached hereto as
Schedule 1.
E-3.
<PAGE> 101
6. Agent. The Assignee hereby appoints and authorizes
the Assignor to take such action as agent on its behalf and to exercise such
powers under the Credit Agreement and the other Loan Documents as are delegated
to the Agent by the Banks pursuant to the terms of the Credit Agreement and
such other Loan Documents. [The Assignee shall assume no duties or obligations
held by the Assignor in its capacity as Agent under the Credit Agreement and
the other Loan Documents. [INCLUDE ONLY IF ASSIGNOR IS AGENT]]
7. Withholding Tax. The Assignee (a) represents and
warrants to the Assignor, the Agent and the Borrower that under applicable law
and treaties no tax will be required to be withheld by the Assignor with
respect to any payments to be made to the Assignee hereunder, and (b) agrees to
furnish (if it is organized under the laws of any jurisdiction other than the
United States or any State thereof) to the Agent and the Borrower prior to the
time that the Agent or Borrower is required to make any payment of interest or
fees under the Credit Agreement, duplicate executed originals of Form 1001,
Form 4224 or such other documents and forms of the United States Internal
Revenue Service, duly executed and completed by the Assignee, as are required
under United States law to establish the Assignee's status for United States
withholding tax purposes.
8. Representations and Warranties.
(a) The Assignor represents and warrants that (i) it is the
legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any Lien or other adverse claim; (ii)
it is duly organized and existing and it has the full power and authority to
take, and has taken, all action necessary to execute and deliver this Agreement
and any other documents required or permitted to be executed or delivered by it
in connection with this Agreement and to fulfill its obligations hereunder;
(iii) no notices to, or consents, authorizations or approvals of, any Person
are required (other than those referred to in Section 5(a)(ii) hereof and any
already given or obtained) for its due execution, delivery and performance of
this Agreement, and apart from any agreements or undertakings or filings
required by the Credit Agreement, no further action by, or notice to, or filing
with, any Person is required of it for such execution, delivery or performance;
and (iv) this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignor,
enforceable against the Assignor in accordance with the terms hereof, subject,
as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and
other laws of general application relating to or affecting creditors' rights
and to general equitable principles.
(b) The Assignor makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the
E-4.
<PAGE> 102
Credit Agreement or any other Loan Document or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other Loan Document. The Assignor makes no representation or
warranty in connection with, and assumes no responsibility with respect to, the
solvency, financial condition or statements of the Borrower or any other
Person, or the performance or observance by the Borrower or any other Person,
of any of its respective obligations under the Credit Agreement or any other
Loan Document.
(c) The Assignee represents and warrants that (i) it is duly
organized and existing and it has full power and authority to take, and has
taken, all action necessary to execute and deliver this Agreement and any other
documents required or permitted to be executed or delivered by it in connection
with this Agreement, and to fulfill its obligations hereunder; (ii) no notices
to, or consents, authorizations or approvals of, any Person are required (other
than those referred to in Section 5(a)(ii) hereof and any already given or
obtained) for its due execution, delivery and performance of this Agreement;
and apart from any agreements or undertakings or filings required by the Credit
Agreement, no further action by, or notice to, or filing with, any Person is
required of it for such execution, delivery or performance; (iii) this
Agreement has been duly executed and delivered by it and constitutes the legal,
valid and binding obligation of the Assignee, enforceable against the Assignee
in accordance with the terms hereof, subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization and other laws of general application
relating to or affecting creditors' rights and to general equitable principles;
and (iv) it is an Eligible Assignee.
9. Further Assurances. The Assignor and the Assignee
each hereby agrees to execute and deliver such other instruments, and take such
other action, as either party may reasonably request in connection with the
transactions contemplated by this Agreement, including the delivery of any
notices or other documents or instruments to the Borrower or the Agent, which
may be required in connection with the assignment and assumption contemplated
hereby.
10. Miscellaneous.
(a) Any amendment or waiver of any provision of this
Agreement shall be in writing and signed by the parties hereto.
(b) No failure on the part of the Assignor or Assignee to
exercise, and no delay in exercising, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, remedy, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights and remedies under this Agreement are cumulative and
E-5.
<PAGE> 103
not exclusive of any rights, remedies, powers and privileges that may otherwise
be available to the parties.
(c) All payments made hereunder shall be made without any
set-off or counterclaim.
(d) The Assignor and the Assignee shall each pay its own
costs and expenses incurred in connection with the negotiation, preparation,
execution and performance of this Agreement.
(e) This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
(f) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA.
[Other provisions to be added as may be negotiated between the Assignor and the
Assignee, provided that such provisions are not inconsistent with the Credit
Agreement.]
IN WITNESS WHEREOF, the Assignor and the Assignee have caused
this Agreement to be executed and delivered by their duly authorized officers
or agents as of the date first above written.
THE ASSIGNOR
[_________________________]
By ________________________
Title:
THE ASSIGNEE
[_________________________]
By ________________________
Title:
E-6.
<PAGE> 104
SCHEDULE 1
to the Assignment and Acceptance Agreement
NOTICE OF ASSIGNMENT AND ACCEPTANCE
Date: ___________________
To: ABN AMRO Bank N.V., as Agent
_____________________________
_____________________________
_____________________________
LSI LOGIC CORPORATION
_____________________________
_____________________________
_____________________________
Re: LSI Logic Corporation
___________________________________________
Ladies and Gentlemen:
We refer to the Credit Agreement dated as of December 20, 1996
(as amended, restated, modified, supplemented or renewed from time to time, the
"Credit Agreement") among LSI Logic Corporation (the "Borrower"), certain
financial institutions named as Banks therein and ABN AMRO Bank N.V., as Agent
for the Banks (in such capacity, the "Agent"). Terms defined in the Credit
Agreement are used herein as therein defined.
1. We hereby give you notice of[, and request the
consent of [the Borrower and] the Agent to,] the assignment by
________________________ (the "Assignor") to ____________________ (the
"Assignee") of ____% of the right, title and interest of the Assignor in and to
the Credit Agreement (including, without limitation, ____% of the right, title
and interest of the Assignor in and to the Commitment of the Assignor [and all
outstanding Loans made by the Assignor]) pursuant to that certain Assignment
and Acceptance Agreement, dated as of ___________ (the "Assignment and
Acceptance") between Assignor and Assignee, a copy of which Assignment and
Acceptance is attached hereto. Before giving effect to such assignment the
Assignor's Commitment is $___________. [The Assignor has made Loans in the
aggregate principal amount of $__________ to the Borrower.] [No Loans are
outstanding under the Credit Agreement.]
2. The Assignee agrees that, upon receiving the consent
of the Borrower and the Agent to such assignment (if applicable) and from and
after the Effective Date (as such term is defined in Section 5 of the
Assignment and Acceptance), the Assignee shall be bound by the terms of the
Credit Agreement,
E-7.
<PAGE> 105
with respect to the interest in the Credit Agreement assigned to it as
specified above, as fully and to the same extent as if the Assignee were the
Bank originally holding such interest in the Credit Agreement.
3. The following administrative details apply to the
Assignee:
(a) Lending Office(s):
Assignee name: _________________________________
Address: _________________________________
_________________________________
_________________________________
_________________________________
Attention: _________________________________
Telephone: _(____)__________________________
Facsimile: _(____)__________________________
Assignee name: _________________________________
Address: _________________________________
_________________________________
_________________________________
_________________________________
Attention: _________________________________
Telephone: _(____)__________________________
Facsimile: _(____)__________________________
(b) Address for Notices
Assignee name: _________________________________
Address: _________________________________
_________________________________
_________________________________
_________________________________
Attention: _________________________________
Telephone: _(____)__________________________
Facsimile: _(____)__________________________
(c) Payment Instructions:
Account No.: _________________________________
ABA No.: _________________________________
At: _________________________________
_________________________________
_________________________________
_________________________________
Reference: _________________________________
Attention: _________________________________
E-8.
<PAGE> 106
4. You are entitled to rely upon the representations,
warranties and covenants of each of the Assignor and Assignee contained in the
Assignment and Acceptance.
5. This Notice of Assignment and Acceptance may be executed
by the Assignor and the Assignee in separate counterparts, each of which when
so executed and delivered shall be deemed to be an original and all of which
taken together shall constitute one and the same notice and agreement.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused
this Notice of Assignment and Acceptance to be executed by their respective
duly authorized officers or agents as of the date first above written.
Very truly yours,
Adjusted Commitment: [ASSIGNOR]
$_________________________ By_______________________________
Title:
Adjusted Pro Rata Share:
_______%
Commitment: [ASSIGNEE]
$_________________________ By_______________________________
Title:
Pro Rata Share:
_______%
[CONSENTED TO this ___ day of
[LSI LOGIC CORPORATION]
By ____________________________________
Title: ________________________________
ACKNOWLEDGED [AND CONSENTED
TO] this ____ day of ________:
E-9.
<PAGE> 107
ABN AMRO BANK N.V.,
as Agent
By _____________________________________
Title: __________________________________
E-10.
<PAGE> 1
EXHIBIT 11.1
LSI LOGIC CORPORATION
CALCULATION OF EARNINGS PER SHARE
Years ended December 31, 1996, 1995 and 1994
(In thousands, except per shares amounts)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Primary Earnings Per Share
Net Income $147,184 $238,120 $108,743
======== ======== ========
Average common and common equivalent shares:
Average common shares outstanding 128,899 123,960 106,336
Dilutive options 2,347 4,062 3,570
-------- -------- --------
131,246 128,022 109,906
======== ======== ========
Earnings per common and
common equivalent share $1.12 $1.86 $0.99
======== ======== ========
Fully Diluted Earnings Per Share
Net Income $147,184 $238,120 $108,743
Interest expense on convertible subordinated
debt, net of tax effect 6,166 6,166 7,022
-------- -------- --------
Adjusted net income $153,350 $244,286 $115,765
======== ======== ========
Average common and common equivalent shares
on a fully diluted basis:
Average common shares outstanding 128,899 123,960 111,930
Convertible subordinated debt 11,735 11,735 9,350
Dilutive options 2,374 4,073 4,148
-------- -------- --------
143,008 139,768 125,428
======== ======== ========
Fully diluted earnings per common and
common equivalent share $1.07 $1.75 $0.92
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 13.1
TECHNOLOGY HIGHLIGHTS
LSI LOGIC CORPORATION, THE SYSTEM ON A CHIP
COMPANY(TM), IS A LEADING DESIGNER AND
MANUFACTURER OF CUSTOM HIGH-PERFORMANCE
SEMICONDUCTORS. LSI'S ADVANCED PROCESS
TECHNOLOGY, ASIC EXPERTISE AND COREWARE(R) DESIGN
PROGRAM ENABLE CUSTOMERS TO BUILD COMPLETE SYSTEMS
ON A SINGLE CHIP. AS A PERCENTAGE OF 1996
REVENUES, CONSUMER PRODUCTS REPRESENTED 32%,
COMMUNICATIONS 28%, COMPUTER 34%, AND OTHER 6%.
<TABLE>
<S> <C> <C> <C> <C>
1996 3/96 8/96 10/96 11/96
- ---- ---- ---- ----- -----
ABOUT THE COVER INTEGRA(TM) ATMizer(TM) II DVD DECODING GIGABLAZE
ARCHITECTURE ENGINE G10(TM)
FLIP CHIP BGA PACKAGE A flexible ATM A cost-effective SERIALINK CORE
Reduces all the segmentation single chip de- The industry's
The cover design includes main functions and reassembly coding engine first 1.25 billion
a representation of LSI required to cre- engine which for a variety of bit-per-second
Logic's Ball Grid Array ate a satellite TV solves traffic DVD applications CMOS serial
package, which uses balls set-top decoder management including stand- transceiver opens
of solder to connect the box to three issues. It is alone players, data transmission
package to the customer's chips. This highly ideal for DVD on a PC, bottlenecks by
circuit board. Housed integrated solu- Network Interface and satellite keeping pace with
inside the package is a tion enables Cards (NIC), set-top boxes. today's fastest
silicon chip with small movie-quality Ethernet switches. microprocessors.
solder bumps covering the video and CD- frame relay GSM Ideal for perform-
surface of the chip. The quality audio switches, high- PROCESSOR ing high-speed
chip is flipped over to for hundreds end servers, A single-chip data transfer for
connect the solder bumps of channels. bridges, routers GSM baseband computer cluster-
to the package. This Shown above and protocol processor which ing, RAID arrays,
unique design increases is the L64008 converters. will allow custo- and networking
the speed at which chip transport chip. mers to develop switches and
signals can be transmitted GSM mobile routers.
and increases the maximum phones with en-
number of chip signals to hanced features
over 1000. and significantly
extended standby
and talk times
at dramatically
reduced manu-
facturing costs.
</TABLE>
FINANCIAL HIGHLIGHTS
REVENUES NET INCOME STOCKHOLDERS' EQUITY
($ millions) ($ millions) ($ millions)
- ------------ ------------ --------------------
94 ........ $ 902 94 ........ $109 94 ........ $ 545
95 ........ $1,268 95 ........ $238 95 ........ $ 1,216
96 ........ $1,239 96 ........ $147 96 ........ $ 1,316
<PAGE> 2
TO OUR SHAREHOLDERS
The global semiconductor industry experienced a moderate downturn in
1996, even as many electronics companies that consume chips continued to grow.
The slowdown stemmed from excess semiconductor manufacturing capacity coupled
with a prolonged reduction in chip inventories by customers. In other words,
industry conditions were supply driven, not demand induced.
Against this backdrop, LSI Logic turned in a respectable financial
performance in 1996, following three consecutive years of record results.
Revenues in the worldwide semiconductor industry declined by about 10%
in 1996. LSI's 1996 revenues dipped 2% to $1.24 billion from a record $1.27
billion in 1995. The Company's fast-growing Communications and Consumer
Products Groups each accounted for about 30% of total revenues compared with
22% each in 1995, and the Computer Products Group represented 34% of revenues
in 1996 compared with 49% in 1995.
The Company's gross profit margins held above 40% in each quarter of
1996, and net income as a percentage of annual revenues was 12% - a respectable
return in a no-growth environment. Net income of $147 million or $107 a share
declined 38% from record net income of $238 million or $1.75 a share in 1995.
Cash reserves totaled $717 million, an increase of 5% from $686 million
in 1995. Inventories declined sequentially in each quarter of the year, ending
1996 at $90 million, down 35% from $140 million at the end of 1995.
The seeds of the 1996 business environment were planted a few years ago
when a shortage of semiconductors prompted customers to stockpile chip
inventories. When semiconductor companies responded by adding factory capacity,
many customers abruptly halted their chip buying spree, beginning in the second
half of 1995 and continuing through most of 1996, in order to reduce their
abnormally high chip inventories.
We were not unaffected. LSI possesses the most advanced high-volume
manufacturing capacity for application-specific integrated circuits (ASICs), but
we had too much of it in 1996. As a result, we closed an aging manufacturing
facility in California and delayed by six months the launch of a highvolume
factory under construction in Gresham, Oregon. That facility is now scheduled to
begin production of eight-inch wafers at the beginning of 1998.
PUTTING THE YEAR IN PERSPECTIVE It is important to place the events of
1996 in their proper perspective for both the industry and LSI Logic.
Most observers believe 1996 was merely a pause in the industry's
long-term growth pattern. Industry revenues about doubled between 1992-1996, and
are expected to roughly double again over the next five years, according to
several market research firms. That anticipated growth is expected to be fueled
by consumers in the industrialized world and in highly populated emerging
markets with a hearty appetite for a range of products, including wireless
phones,
<PAGE> 3
HIGH-VOLUME
LSI LOGIC TARGETS HIGH-VOLUME CONSUMER
APPLICATIONS WITH DIGITAL TECHNOLOGY AND
SYSTEM-ON-A-CHIP SOLUTIONS. LSI, A LEADING
SUPPLIER OF CHIPS FOR SATELLITE TELEVISION SET-TOP
BOXES AND VIDEO GAMES, UNVEILED IN 1996 A
SINGLE-CHIP DECODER FOR THE EMERGING DVD MARKET
AND RECEIVED MULTIPLE DESIGN WINS FOR DIGITAL
STILL CAMERAS.
COST-EFFECTIVE
<PAGE> 4
CONSUMER/32%
satellite television set-top boxes, video games, digital cameras, networking
products, personal computers, Internet products, and DVD products.
Likewise, LSI Logic has about doubled in size from 1992. The Company's
portfolio of advanced technologies and products provides us with the opportunity
to outpace the industry growth rate over time.
SETTING THE STAGE FOR GROWTH To achieve meaningful revenue growth in
the future requires substantial investment today in emerging technologies and
new products. Although 1996 was a challenging year, we did not hesitate to
invest in our future. We increased spending on research and development
activities by $60 million to a record $184 million in 1996 compared with 1995
levels. Total R&D spending in 1996 was 15% of revenues compared with 10% in
1995.
As a highly focused ASIC company, our spending in 1996 was targeted
towards technologies and methodologies required to design and manufacture chips
for next-generation electronics products in our targeted vertical markets:
consumer, communications and computers.
We had notable successes in each market area in 1996: Exploiting a new
wave of digital consumer products, LSI's Consumer Products Group introduced a
number of new products, including the Integra(TM) three-chip set solution for
satellite set-top boxes, and won several key customer designs.
Adding to its leadership position in set-top boxes, LSI also received
multiple design wins in 1996 with customers making digital still cameras, a
potentially high-volume market expected to hit the consumer mainstream beginning
in 1997. Additionally, the group announced an advanced, single-chip decoder for
the emerging DVD market.
The Communications Products Group announced its entry into the digital
wireless segment with plans for a single-chip cellular phone for the GSM (Global
System for Mobile) market. To fuel its future product plans in this market, LSI
established two wireless communications R&D labs, one in Israel and the other in
California. Also, in recognition of its heavy penetration of the networking
industry,
LSI was named in 1996 as one of the top five semiconductor suppliers to
the worldwide networking industry. Already a well-established leader in the
telecommunications market, the group shipped the second generation of its widely
adopted ATMizer(TM) architecture for switching equipment and announced plans to
enter the cable modem market with its Cablestream(TM) QAM receiver chip.
Long known as a key supplier to the engineering workstation segment,
LSI's Computer Products Group delivered the Scenario" product platform to enable
high-quality MPEG-2 images on personal computers. In addition, the group
announced products to handle gigabit-per-second transmission of data in high-end
disk drives and won several key designs
<PAGE> 5
INTEGRATION
LSI LOGIC PROVIDES COMMUNICATIONS
CUSTOMERS WITH A BLEND OF
HIGH-PERFORMANCE, HIGH-INTEGRATION AND
LOW-POWER SOLUTIONS FOR THE NETWORKING,
DGITAL CELLULAR AND TRANSMISSION
MARKETS. DURING 1996, LSI ANNOUNCED A
SINGLE-CHIP GSM ARCHITECTURE FOR
CELLULAR PHONES AND THE INDUSTRY'S FIRST
CMOS-BASED GIGABIT ETHERNET SOLUTION FOR
NETWORKING SWITCHES AND ROUTERS.
STANDARDS
<PAGE> 6
COMMUNICATIONS/28%
from customers in the storage market segment. The storage business segment
represents a significant opportunity for LSI Logic.
THE SYSTEM ON A CHIP COMPANY(TM) LSI Logic is the undisputed leader in
the industry's fast-growing ASIC market. In 1996, for the fourth consecutive
year, market research firm Dataquest ranked LSI Logic as the world's largest
merchant ASIC company producing metal-oxide semiconductors (MOS).
LSI has leveraged its ASIC expertise and trendsetting CoreWare(R) design
methodology to also lead a new semiconductor segment called "System on a Chip,"
which roughly translates into the ability to integrate the multiple functions of
an electronic system, including the required software, onto a single
system-level chip. Ultimately, all systems are gravitating towards becoming
single-chip systems. To be a major factor in this market requires that LSI be a
pacesetter in a number of key areas, including process and packaging technology,
circuit design and software tools, and intellectual property knowhow. We also
must deliver these advanced product solutions to customers via a highly trained
field engineering workforce. In short, our continued success requires that we
execute in parallel on the technology, manufacturing, engineering, sales and
marketing fronts. During 1996, we made substantial headway in all these areas.
PROCESS TECHNOLOGY During 1996, LSI Logic began volume production of
its tenth generation G10(TM), 0.25-micron process technology, capable of
integrating up to five million gates or 49 million transistors on a single chip.
We also focused our research efforts on the next-generation G11(TM), 0.18-micron
process technology. The G11 technology was formally introduced to customers in
early 1997.
Process technology is the foundation of the ASIC business because the
smaller transistor dimensions associated with newer processes allow more and
more of the functions of an electronic system to be integrated onto a single
high-performance, cost-effective chip.
INTEGRATING CORES FOR TARGETED MARKETS The Company added several
industry standard cores in 1996 to its expanding CoreWare library of electronic
functions, including those aimed at the GSM wireless market, Internet and
Intranet applications, satellite set-top boxes, networking, high-end storage
devices, DVD products, and personal computers.
The Company also introduced its TinyRISC(TM) MIPS embedded
microprocessor core, which is expected to be used in a wide range of
applications. Designed by a global team of LSI engineers in Denmark and the
United States, the cost-effective TinyRISC core derives its name from its
extraordinarily small size (1.7 square millimeters of silicon).
Another core called GigaBlaze(TM) is expected to attain widespread use
in high-speed gigabit Ethernet networking applications and FibreChannel storage
applications in the high-end disk drive and computer
<PAGE> 7
TIME-TO-MARKET
LSI LOGIC DELIVERS ULTRA-FAST PERFORMANCE TO THE
COMPUTER INDUSTRY BY DEVELOPING LEADING-EDGE
PRODUCTS FOR CUSTOMERS IN THE WORKSTATION, SERVER,
STORAGE AND PC MARKETS. ANNOUNCEMENTS IN 1996
INCLUDED FIBRECHANNEL TECHNOLOGY AND THE
INDUSTRY'S FIRST CMOS-BASED GIGABIT-PER-SECOND
SOLUTION FOR HIGH-SPEED STORAGE APPLICATIONS,
CHIP-TO-CHIP INTERCONNECT AND SYSTEM-TO-SYSTEM
MULTIPROCESSING.
HIGH-PERFORMANCE
<PAGE> 8
COMPUTERS/34%
markets. By way of illustrating its high performance and ability to unclog data
transmission bottlenecks, the GigaBlaze core can transfer 1.25 billion bits of
data per second, the equivalent of seventy-five 350-page novels per second.
HIGH-VOLUME MANUFACTURING During 1996, the Company installed
highly specialized chemical mechanical polishing (CMP) equipment in its Japanese
factories. CMP increases manufacturing yields and allows for unprecedented
levels of chip customization. Being among the first in the industry to deploy
this equipment has offered what we believe is a competitive advantage.
With chip densities quadrupling every three or four years, the packages
that house ASICs become an increasingly important factor. In 1996, the Company
introduced its state-of-the-art Flip Chip package, which essentially replaces
the wires that connect a chip to a package with solder bumps connected to pads
on the chip's external surface. This unique package increases the speed at which
chip signals can be transmitted, and it simplifies the manufacturing process.
SERVING CUSTOMERS Everyone at LSI Logic serves customers, but we made
organizational changes in 1996 to emphasize the point. We created Worldwide
Customer Marketing and Customer Engineering groups to harness the power of our
own resources around the world for the benefit of our increasingly global
customer base. One of those global resources is comprised of more than 1,200
engineers - or about one third of our total workforce to work directly with
customers. This is both a competitive advantage for us and a barrier to entry
for other companies.
LOOKING FORWARD I started this letter by saying that a lengthy chip
inventory correction by customers put a damper on our 1996 financial results. By
the end of 1996, though, there were encouraging signs that the inventory
correction had run its course, or very nearly so. While it is difficult to
forecast short-term trends, it is decidedly easier to look longer-term. Given
the anti-inflationary nature of the electronics business and the rapid
development of new products, it is hard to imagine a scenario in which demand
for chip-laden electronics products will slacken for extended periods of time.
Electronics has now become an essential thread in the global economic fabric,
and I am confident that LSI Logic will play an important role in this vital
industry for many years to come.
Thank you for your continued support.
/s/ Wilfred J. Corrigan
Wilfred J. Corrigan
Chairman and Chief Executive Officer
<PAGE> 9
1996 Financial Data
Contents
9 Management's discussion
and analysis of financial
condition and results of
operations
16 Consolidated financial
statements
20 Notes to consolidated
financial statements
37 Report of independent
accountants
38 Eleven year consolidated
summary
40 Interim financial
information
41 Corporate information
42 Corporate directory
43 Stock information
NET INCOME PER
REVENUES NET INCOME SHARE FULLY DILUTED
1994 $ 902 1994 $109 1994 $0.92
1995 $1,268 1995 $238 1995 $1.75
1996 $1,239 1996 $147 1996 $1.07
SG&A EXPENSES OPERATING
GROSS PROFIT MARGIN R&D FUNDING PROFIT MARGIN
1994 42.3% 1994 13.9% 1994 17.5%
11.0%
1995 47.5% 1995 12.6% 1995 25.1%
9.8%
1996 43.9% 1996 14.9% 1996 15.5%
13.5%
REVENUES PER STOCKHOLDERS'
EMPLOYEE TOTAL ASSETS EQUITY
1994 $257 1994 $1,270 1994 $ 545
1995 $333 1995 $1,850 1995 $1,216
1996 $311 1996 $1,953 1996 $1.316
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW Revenues for LSI Logic decreased 2% to $1.24 billion in 1996 from
$1.27 billion in 1995. Income from operations was $192 million in
1996 compared to $319 million in 1995. Net income was $147 million
in 1996 compared to $238 million in 1995. Fully diluted earnings
per share decreased to $1.07 per share in 1996 from $1.75 per share
in 1995.
The reduction in operating income during 1996 resulted
primarily from lower factory utilization combined with increased
investment in our product portfolio, process and package
technology. In the latter part of 1995, the Company put in place
manufacturing capacity necessary to meet the strong demand
experienced at that time. As demand softened during 1996, that
capacity resulted in lower factory utilization which reduced gross
margin. However, the Company is well-positioned to take advantage
of an upturn in the market.
While management believes that the discussion and analysis in
this report is adequate for a fair presentation of the information,
it is recommended that this discussion and analysis be read in
conjunction with the remainder of the Company's Annual Report on
Form 10-K for the year ended December 31,1996. The Company operates
on a 52/53 week fiscal year which ends on the Sunday 8 closest to
December 31. Fiscal years 1996, 1995 and 1994 were 52 week years.
Statements in this discussion and analysis contain forward
looking information and involve known and unknown risks and
uncertainties (see additional discussion contained in "Risk
Factors," set forth in Part 1 of the Company's report on Form 10-K)
which may cause the Company's actual results in future periods to
be materially different from any future performance suggested
herein.
RESULTS OF OPERATIONS
REVENUES The Company operates in one industry segment in which it designs,
develops, manufactures and markets application-specific integrated
circuits (ASICs) and related products and services. Design and
services revenues include engineering design services, licensing of
LSI Logic's advanced design tools software and technology transfer
and support services. LSI Logic's customers have used these
services in the design of increasingly advanced integrated circuits
characterized by increased functionality and performance. The
proportion of revenues from ASIC design and related services
compared to component product sales varies among customers
depending upon their specific requirements. The following table
describes revenues from component products and design and services
as a percentage of total revenues:
1996 1995 1994
----------------------------
Component products 94% 94% 89%
Design and services 6% 6% 11%
----------------------------
100% 100% 100%
============================
<PAGE> 11
Total revenues declined to $1.24 billion in 1996 from $1.27
billion in 1995. The decrease in revenues for 1996 was primarily
attributable to a slowdown in new orders for the Company's
component products utilized in computer applications and was
partially offset by increased demand for its products utilized in
consumer and communication applications. The Company's average
selling prices for component products did not fluctuate
significantly during 1996 compared to 1995. Design and services
revenues during 1996 were consistent with 1995. During 1996, one
customer represented 14% of the Company's consolidated revenues.
Total revenues grew to $1.27 billion in 1995 from $902 million
in 1994. Total component revenues grew to $1.19 billion in 1995
from $803 million in 1994. The increase in total revenues and
component revenues during 1995 was primarily attributable to
increased customer demand for products utilizing the Company's
advanced technologies and higher average selling prices. Increased
manufacturing capacity at the Company's Japanese and U.S.
manufacturing facilities enabled it to meet higher customer demand.
Design and services revenue decreased to $67 million in 1995 from
$99 million in 1994. The decrease was primarily attributable to a
decline in nonrecurring engineering (NRE) revenue as the Company
focused its resources on large-volume production opportunities and
more complex CoreWare designs, which resulted in the Company
undertaking fewer engineering projects for customers in 1995. One
customer represented 12% of the Company's consolidated revenues
during 1995.
<PAGE> 12
OPERATING COSTS AND EXPENSES Key elements of the consolidated
statements of operations, expressed as a percentage of revenues, were as
follows:
- -------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Gross margin 44% 47% 42%
Research and development expense 15% 10% 11%
Selling, general and administrative
expense 13% 13% 14%
Income from operations 16% 25% 17%
--- --- ---
GROSS MARGIN The gross margin percentage for 1996 declined to 44% of
revenues, compared with 47% in 1995. The decline was primarily
attributable to lower factory utilization during 1996 which was
compounded by the Company's increase in its production capability
throughout 1995, primarily from the expansion of its Japanese wafer
manufacturing facility. The impact of lower factory utilization on gross
margin was offset in part by improvements in manufacturing yields and
favorable pricing negotiations with assembly and test subcontractors.
Additionally, the gross margin was favorably impacted in the fourth
quarter of 1996 by the effects of the Company's decision to close its
Milpitas, California, manufacturing facility during 1996. The gross
margin percentage improved in 1995 to 47% of revenues from 42% in 1994
primarily as a result of greater factory utilization and improved plant
efficiencies at the Company's Japanese wafer manufacturing facility.
Changes in the product mix and increasing usage of low-cost assembly and
test subcontractors also contributed favorably to gross margin in 1995.
The Company's operating environment combined with the resources
required to operate in the semiconductor industry requires managing a
variety of factors such as product mix, factory capacity and
utilization, manufacturing yields, availability of certain raw
materials, terms negotiated with
<PAGE> 13
third-party subcontractors and foreign currency fluctuations. Each of these
factors can cause substantial fluctuations in operating results.
Changes in the relative strength of the yen may have a greater impact on the
Company's gross margin than other foreign exchange fluctuations due to the
Company's large wafer fabrication operations in Japan. Although the yen weakened
(the average yen exchange rate for 1996 decreased 16% from 1995), the effect on
gross margin and net income was not material as the Company's yen denominated
sales offset a substantial portion of its yen denominated costs during those
periods. The Company hedged a portion of its remaining yen exposure (see Note 4
of Notes to Consolidated Financial Statements). However, there can be no
assurance that future changes in the relative strength of the yen or mix of
foreign denominated revenues and costs will not have a material effect on gross
margin or operating results.
RESEARCH AND DEVELOPMENT Total research and development (R&D) expenses
increased by $60 million or 49% to $184 million in 1996 compared to $124 million
in 1995. As a percentage of revenues, R&D expenses increased to 15% in 1996 from
10% in 1995. The increase is primarily attributed to increased staffing levels
as the Company continues to invest in the development of more advanced products
and the related manufacturing, packaging and design processes. The increase in
R&D expense also reflects a decrease in the utilization of the Company's R&D
facility for the production of products sold to customers. R&D expenses
increased $25 million in 1995 compared to 1994; however, as a percentage of
revenues they declined to approximately 10% from 11% in 1994. The increase in
R&D expenses during 1995 was primarily attributable to increased staffing
levels. The decline in R&D expenses as a percentage of revenues during 1995 was
due to partial utilization of the Company's R&D facility to increase production
of its 0.5-micron products as well as overall increases in total revenues. The
Company continues to be committed to technological leadership in the
high-performance semiconductor market and anticipates maintaining its investment
in R&D at a rate of approximately 15o17% of revenues in 1997. This investment is
expected to be primarily for development of new advanced products, development
of advanced manufacturing processes and enhancement of the Company's design
automation software capability.
SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative
(SG&A) expenses increased $7 million and $34 million in 1996 and 1995,
respectively. The increase during 1996 is primarily attributable to information
technology costs related to upgrading the Company's business systems and
infrastructure. The increase during 1995 was primarily a result of increased
staffing levels. SG&A expenses as a percentage of revenue remained relatively
consistent at 13% in 1996 and 1995 and decreased during 1995 from 14% in 1994.
The decline in SG&A expenses as a percentage of revenue in 1995 primarily
reflects the trend of more rapidly increasing revenues during 1995. The Company
expects that SG&A expenses will continue to increase in absolute dollars,
although such expenses may fluctuate as a percentage of revenues in future
periods.
INTEREST EXPENSE Interest expense decreased to $14 million in 1996
compared to $16 million and $18 million in 1995 and 1994, respectively. The
decrease is primarily due to the capitalization of interest relating to the
construction of manufacturing facilities during 1996 and a decrease in interest
rates related to yen denominated borrowings, offset in part by an increase in
borrowings during these periods.
<PAGE> 14
INTEREST AND OTHER INCOME Interest and other income decreased $6 million in
1996 compared with 1995. The decrease is primarily attributable to foreign
currency exchange losses totaling _$7 million during 1996, the majority of which
related to U.S. dollars held by the Company's European sales affiliate. Interest
and other income increased $16 million in 1995 from 1994 due primarily to higher
interest income as a result of higher cash and investment balances from two
public stock offerings during 1995.
PROVISION FOR INCOME TAXES In 1996, 1995 and 1994, the Company's effective
tax rate was 28%. The tax rate was lower than the U.S. statutory rate primarily
due to earnings of the Company's foreign subsidiaries taxed at lower rates and
the utilization of prior loss carryovers and other tax credits.
MINORITY INTEREST The changes in minority interest between 1996, 1995 and 1994
were primarily attributable to the repurchase of minority held shares of LSI
Logic Japan Semiconductor, Inc. (JSI), formerly known as Nihon Semiconductor,
Inc., LSI Logic Corporation of Canada, Inc., LSI Logic K.K. and LSI Logic
Europe, Ltd. (formerly known as LSI Logic Europe, plc) in 1996, 1995 and 1994
(see Notes 2 and 11 of Notes to Consolidated Financial Statements) and the
composition of earnings and losses among certain of the Company's international
affiliates for each of the respective years.
RESTRUCTURING The Company implemented a restructuring plan in the third quarter
of 1992 revising its global manufacturing strategy, streamlining operations,
discontinuing certain commodity products and focusing its product strategy on
high-end technology solutions. Specifically, it involved the shut-down of the
Braunschweig, Germany, test and assembly facility, the planned phase-out of the
Milpitas, California, wafer fabrication facility, the consolidation of certain
U.S. manufacturing operations, the downsizing of the chipset operation of its
former subsidiary, Headland Technology Inc., and severance costs for
approximately 500 employees worldwide. The $102 million restructuring charge
included: the write-down and write-off of manufacturing facilities, equipment
and improvements; the estimated operating costs attributable to the phase-out,
closure and consolidation of these manufacturing facilities; the write-down of
commodity chipset product inventories; the severance of manufacturing and other
personnel; the consolidation of certain U.S. and foreign sales offices, design
centers and administrative organizations; and certain legal matters and other
costs.
By the end of 1995, the Company had completed the phase-out of the German test
and assembly operation and written off the facility, discontinued the chipset
business, completed a partial phase-down of its Milpitas wafer manufacturing
facility and certain U.S. assembly and test operations and completed
consolidation of certain U.S. sales offices and design centers. These actions
included termination of approximately 400 employees.
<PAGE> 15
The following table sets forth the Company's 1992 restructuring expense,
remaining reserves at December 31, 1995 and 1996 (which are accounted for as
components of fixed assets and current liabilities) and charges taken from the
date the restructuring commenced through December 31, 1995 and during 1996:
<TABLE>
<CAPTION>
1992
RESTRUCTURING BALANCE BALANCE
(In thousands) EXPENSE UTILIZED* ADJUSTED 12/31/95 UTILIZED* ADJUSTED 12/31/96
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Write-down of
manufacturing facility (a) $ 14,700 $(28,700) $ 14,000 $ -- $ -- $ -- $ --
Other fixed asset related
charges (b) 35,500 (21,600) (12,000) 1,900 (17,100) 15,200 --
Other provisions for phase-
down and consolidation of
manufacturing facilities (b) 13,500 (9,900) (800) 2,800 (3,600) 800 --
Payments to employees for
severance (c) 8,000 (5,700) (2,300) -- (1,500) 1,500 --
Write-down of inventories (a) 10,900 (8,800) (2,100) -- -- -- --
Relocation, lease terminations
and other (b) 19,200 (3,400) (3,200) 19,000 (1,500) (17,500) --
-----------------------------------------------------------------------------------------
Total $101,800 $(78,100) $ -- $23,700 $(23,700) $ -- $ --
=========================================================================================
</TABLE>
- ----------
* Net of cumulative currency translation adjustments.
(a) Amounts utilized represent non-cash charges.
(b) Amounts utilized represent both cash and non-cash charges. Cumulative
cash charges totaled $17 million.
(c) Amounts utilized represent cash payments related to the severance of
approximately 550 employees.
During 1996, $23.7 million was charged against the restructuring reserves. These
charges were primarily for the shut-down of the Milpitas wafer fabrication
facility, which had been delayed due to the facility's manufacturing capacity
having been required for longer than anticipated at the time the restructuring
charge was taken. These charges included a $15 million charge resulting from the
write-down of the Milpitas wafer fabrication equipment (see Note 5 of Notes to
Consolidated Financial Statements), severance payments to approximately 150
employees ($1.5 million) and lease and other charges in connection with the
Milpitas wafer manufacturing equipment ($5.3 million). Other restructuring
charges were attributable to ongoing maintenance costs of the Company's vacant
German facility ($1.8 million) and a decrease in reserves due to translation
adjustments as a result of the weakening Deutsche mark ($0.1 million). As a
result of a favorable appellate court decision in September 1996 in connection
with the Texas Instruments litigation (see Note 11 of Notes to Consolidated
Financial Statements), $15 million of restructuring reserves became available
for the write-down of the Milpitas wafer manufacturing equipment (see Note 5 of
Notes to Consolidated Financial Statements).
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company believes that its future operating results will continue to be
subject to quarterly variations based upon a wide variety of factors, including
the cyclical nature of both the semi-
<PAGE> 16
conductor industry and the markets addressed by the Company's products, the
availability and extent of utilization of manufacturing capacity, price erosion,
competitive factors, the timing of new product introductions, changes in product
mix, fluctuations in manufacturing yields, product obsolescence and the ability
to develop and implement new technologies. The Company's operating results could
also be impacted by fluctuations in customer requirements, currency exchange
rate fluctuations and other economic conditions affecting customer demand and
the cost of operations in one or more of the global markets in which the Company
does business. As a participant in the semiconductor industry, the Company
operates in a technologically advanced, rapidly changing and highly competitive
environment. The Company predominantly sells custom products to customers
operating in a similar environment. Accordingly, changes in the conditions of
any of the Company's customers may have a greater impact on the Company than if
the Company offered standard products that could be sold to many purchasers.
While the Company cannot predict what effect these various factors may have on
its financial results, the aggregate effect of these and other factors could
result in significant volatility in the Company's future performance. To the
extent the Company's performance may not meet expectations published by external
sources, public reaction could result in a sudden and significantly adverse
impact on the market price of the Company's securities, particularly on a
short-term basis.
The Company has international subsidiaries which operate and sell the Company's
products in various global markets. The Company purchases a substantial portion
of its raw materials and equipment from foreign suppliers and incurs labor and
other operating costs, particularly at its Japanese manufacturing facilities, in
foreign currencies. As a result, the Company is exposed to international factors
such as changes in foreign currency exchange rates or weak economic conditions
of the respective countries in which the Company operates. The Company utilizes
forward exchange, currency swap and purchased option contracts to manage its
exposure associated with currency fluctuations on intercompany transactions and
certain foreign currency denominated commitments. At December 31, 1996, the
Company had currency swap and purchased option contracts outstanding (see Note 4
of Notes to Consolidated Financial Statements). These contracts hedge
intercompany loans, a portion of the Company's yen denominated commitments and
net asset and liability positions denominated in non-functional currencies at
certain of the Company's affiliates for the first quarter of 1997. There can be
no assurance that the Company's efforts to hedge these risks will be successful
or that these factors will not have an adverse effect on the Company's future
operating results.
The Company's corporate headquarters and manufacturing facilities are located
near major earthquake faults. As a result, in the event of a major earthquake,
the Company could suffer damages which could materially and adversely affect the
operating results and financial condition of the Company.
FINANCIAL CONDITION AND LIQUIDITY
Cash, cash equivalents and short-term investments rose to $717 million at
December 31, 1996 from $686 million at December 31, 1995. The increase of $31
million is primarily attributable to cash flows from operations of $352 million,
proceeds from borrowings of $143 million and proceeds received from employee
stock transactions of $20 million, partially offset by capital additions of
approximately $362 million, $54 million in repayments of debt obligations and
$47 million used to repurchase the Company's stock. The Company terminated its
stock repurchase program in February 1997.
<PAGE> 17
During 1996, the Company generated $352 million of cash and cash
equivalents from its operating activities, compared to $294 million during 1995.
The increase in cash and cash equivalents provided from operations as compared
to 1995 was primarily attributable to decreases in inventories and accounts
receivable, partially offset by decreases in net income before depreciation and
amortization and accounts payable. Decreased sales and manufacturing activities
in response to reduced customer demand contributed to decreases in accounts
payable, accounts receivable and inventories.
Cash and cash equivalents used in investing activities totaled $433
million during 1996. The primary investing activities included purchases of
property and equipment and increased investments in debt and equity securities.
The Company believes that maintaining technological leadership in the highly
competitive worldwide semiconductor industry requires substantial ongoing
investment in advanced manufacturing capacity. Net capital additions during 1996
of $362 million were primarily for construction costs related to the Company's
new wafer fabrication facility in Oregon (see below) and advanced processing
equipment at JSI, net of retirements and $12 million of equipment refinanced
through operating leases by the Company's Japanese manufacturing subsidiary (see
Note 11 of Notes to Consolidated Financial Statements). In August 1995, the
Company began construction on its new 8-inch wafer manufacturing facility in
Gresham, Oregon. The Company expects to spend approximately $500 to $600 million
during 1997 and the first half of 1998 to bring this facility to operational
status. When fully ramped, the Gresham facility will have capacity to run
approximately 4,000 8-inch wafers per week.
Cash and cash equivalents provided from financing activities totaled $62
million. The increase during 1996 is attributable to the net increase in
borrowings of $89 million and proceeds received from employee stock transactions
of $20 million, partially offset by $47 million used to repurchase shares of the
Company's stock (see Note 8 of Notes to Consolidated Financial Statements). In
December 1996, the Company entered into a $300 million revolving line of credit
with several banks (see Note 7 of Notes to Consolidated Financial Statements).
As of December 31, 1996, there were no borrowings outstanding under this credit
agreement. Additionally, the Company's manufacturing subsidiary, JSI, has a 25
billion yen credit line arrangement with adjustable interest rates. As of
December 31, 1996, JSI had 18.25 billion yen ($159 million) outstanding under
the facility (see Note 7 of Notes to Consolidated Financial Statements). Each of
the Company's significant foreign affiliates has lines of credit available for
local currency borrowings. These other foreign bank lines of credit were not
material as of December 31, 1996.
On February 21, 1997, the Company called for redemption of all of its
$144 million, 51/2% Convertible Subordinated Notes (Notes). The Notes are
redeemable by the Company at the principal amount plus a 2% premium. Each Note
is convertible by the holder to common stock at a conversion price of $12.25 per
share. If all Notes are converted to common stock, approximately 12 million
additional shares of common stock will be issued. The Company believes that
existing liquid resources and funds generated from operations combined with its
ability to borrow funds will be adequate to meet its operating and capital
requirements and obligations through the foreseeable future. The Company
believes that its level of financial resources is an important competitive
factor in its industry. Accordingly, the Company may, from time to time, seek
additional equity or debt financing. However, there can be no assurance that
such additional financing will be available when needed or, if available, will
be on favorable terms. Any future equity financing will decrease existing
stockholders' percentage equity ownership and may, depending on the price at
which the equity is sold, result in dilution.
<PAGE> 18
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
--------------------------
DECEMBER 31st
- ----------------------------------------------------------------------------------
1996 1995
--------------------------
<S> <C> <C> <C>
(In ASSETS
thousands,
except Cash and cash equivalents $ 147,059 $ 172,780
per share
amount) Short-term investments 570,223 512,765
Accounts receivable, less allowance for
doubtful accounts of $3,116 and $3,486 184,977 230,980
Inventories 90,410 139,857
Prepaid expenses and other current assets 58,385 80,348
---------- ----------
Total current assets 1,051,054 1,136,730
---------- ----------
Property and equipment, net 811,659 638,282
Other assets 90,001 74,575
---------- ----------
Total assets $1,952,714 $1,849,587
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 104,109 $ 165,725
Accrued salaries, wages and benefits 26,000 34,825
Accrued restructuring costs -- 22,700
Other accrued liabilities 67,921 42,315
Income taxes payable 77,696 73,649
Current portion of long-term obligations 69,612 56,569
---------- ----------
Total current liabilities 345,338 395,783
---------- ----------
Long-term obligations 281,136 222,388
---------- ----------
Deferred income taxes 4,907 8,514
---------- ----------
Minority interest in subsidiaries 5,114 6,656
---------- ----------
Commitments and contingencies -- --
---------- ----------
Stockholders' equity:
Preferred shares; 2,000 shares authorized -- --
Common stock; $.01 par value; 250,000 shares
authorized; 129,006 and 129,303 shares
outstanding 1,290 1,293
Additional paid-in capital 837,151 853,538
Retained earnings 452,374 305,190
Cumulative translation adjustment 25,404 56,225
---------- ----------
Total stockholders' equity 1,316,219 1,216,246
---------- ----------
Total liabilities and
stockholders' equity $1,952,714 $1,849,587
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 19
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31st
- --------------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------------
<S> <C> <C> <C> <C>
(in Revenues $1,238,694 $1,267,657 $901,830
thousands, ----------------------------------------
except
per share
amounts) Costs and expenses:
Cost of revenues 695,002 665,673 520,150
Research and development 184,452 123,892 98,978
Selling, general and administrative 166,823 159,393 124,936
---------------------------------------
Total costs and expenses 1,046,277 948,958 744,064
---------------------------------------
Income from operations 192,417 318,699 157,766
Interest expense (13,610) (16,349) (18,455)
Interest income and other 26,308 32,593 16,858
---------------------------------------
Income before income taxes and
minority interest 205,115 334,943 156,169
Provision for income taxes 57,432 93,781 43,679
---------------------------------------
Income before minority interest 147,683 241,162 112,490
Minority interest in net income
of subsidiaries 499 3,042 3,747
----------------------------------------
Net income $ 147,184 $ 238,120 $108,743
========================================
Net income per share:
Primary $ 1.12 $ 1.86 $ 0.99
========================================
Fully dilutive $ 1.07 $ 1.75 $ 0.92
========================================
Common shares and common share
equivalents used in computing
per share amounts:
Primary 131,246 128,022 109,906
========================================
Fully dilutive 143,008 139,768 125,428
========================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 20
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Retained Cumulative
---------------- Paid-In Earnings Translation
Shares Amount Capital (Deficit) Adjustment Total
(In thousands) ------- ------ ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994 99,455 $ 995 $273,435 $(41,673) $ 59,677 $ 292,434
Issuance to employees under
stock option and purchase
plans 5,118 51 17,152 -- -- 17,203
Tax benefit of employee
stock transactions -- -- 13,674 -- -- 13,674
Issuance upon conversion of
6 1/4% debentures 9,714 97 97,007 -- -- 97,104
Aggregate adjustment from
translation of financial
statements into U.S. dollars -- -- -- -- 15,748 15,748
Net Income -- -- -- 108,743 -- 108,743
------- ------ -------- -------- -------- ----------
Balances at December 31, 1994 114,287 1,143 401,268 67,070 75,425 544,906
Issuance of common stock under
public offerings 12,075 121 404,745 -- -- 404,866
Issuance to employees under
stock option and purchase
plans 2,941 29 18,625 -- -- 18,654
Tax benefit of employee
stock transactions -- -- 28,900 -- -- 28,900
Aggregate adjustment from
translation of financial
statements into U.S. dollars -- -- -- -- (19,200) (19,200)
Net Income -- -- -- 238,120 -- 238,120
------- ------ -------- -------- -------- ----------
Balances at December 31, 1995 129,303 1,293 853,538 305,190 56,225 1,216,246
Purchase of common stock
under stock repurchase
program (2,077) (21) (46,817) -- -- 46,838)
Issuance to employees under
stock option and
purchase plans 1,780 18 19,680 -- -- 19,698
Tax benefit of employee
stock transactions -- -- 10,750 -- -- 10,750
Aggregate adjustment from
translation of financial
statements into U.S. dollars -- -- -- -- (30,821) (30,821)
Net Income -- -- -- 147,184 -- 147,184
------- ------ -------- -------- -------- ----------
Balances at December 31, 1996 129,006 $1,290 $837,151 $452,374 $ 25,404 $1,316,219
======= ====== ======== ======== ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 21
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31ST
----------------------------------------
1996 1995 1994
----------------------------------------
(In thousands)
<S> <S> <C> <C>
Operating activities:
Net income $ 147,184 $ 238,120 $ 108,743
Adjustments:
Depreciation and amortization 147,465 135,197 103,648
Minority interest in net income
of subsidiaries 499 3,042 3,747
Changes in:
Accounts receivable 42,268 (81,343) (21,998)
Inventories 46,675 (31,164) (34,051)
Prepaid expenses and
other Assets 8,494 (45,226) (5,494)
Accounts payable (55,255) 3,054 93,578
Accrued and other liabilities 18,472 81,190 18,367
Accrued restructuring costs (3,873) (8,376) (11,702)
---------------------------------------
Net cash provided by operating
activities 351,929 294,494 254,838
---------------------------------------
Investing activities:
Purchase of debt and equity
securities available-for-sale (1,117,885) (613,703) (292,584)
Maturities and sales of debt and equity
securities available-for-sale 1,055,183 302,060 167,152
Purchase of restricted equity securities (6,252) (13,966) ---
Purchases of property and equipment,
net of retirements (361,776) (232,723) (166,421)
Acquisition of stock from minority
interest holders (2,757) (171,843) (14,173)
---------------------------------------
Net cash used in investing activities (433,487) (730,175) (306,026)
---------------------------------------
Financing activities:
Issuance of Convertible
Subordinated Notes -- -- 143,750
Proceeds from borrowings 142,832 83,294 5,061
Repayment of debt obligations (54,185) (110,126) (23,883)
Repurchase of Convertible
Subordinated Debentures -- -- (1,112)
Purchase of common stock under
repurchase program (46,838) -- --
Issuance of common stock, net 19,698 423,520 17,203
---------------------------------------
Net cash provided by financing activities 61,507 396,688 141,019
---------------------------------------
Effect of exchange rate changes on cash
and cash equivalents (5,670) (12,730) 13,353
---------------------------------------
Increase (decrease) in cash and
cash equivalents (25,721) (51,723) 103,184
Cash and cash equivalents at beginning
of period 172,780 224,503 121,319
---------------------------------------
Cash and cash equivalents at end of period $ 147,059 $ 172,780 $ 224,503
=======================================
Schedule of non-cash transactions:
Conversion of subordinated debentures
to common stock $ -- $ -- $ 97,104
=======================================
Tax benefit of employee stock
transactions $ 10,750 $ 28,900 $ 13,674
=======================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS LSI Logic Corporation (the Company) designs, develops
and manufactures high-performance application-specific integrated
circuits (ASICs) which it markets primarily to original equipment
manufacturers in the electronic data processing, consumer electronics,
telecommunications and certain office automation industries worldwide.
BASIS OF PRESENTATION The consolidated financial statements include the
accounts of the Company and all of its subsidiaries. Intercompany
transactions and balances have been eliminated in consolidation. Assets
and liabilities of certain foreign operations are translated to U.S.
dollars at current rates of exchange, and revenues and expenses are
translated using weighted average rates. Accounts denominated in foreign
currencies have been remeasured into functional currencies before
translation into U.S. dollars. Foreign currency transaction gains and
losses are included as a component of interest income and other. Gains
and losses from foreign currency translation are included as a separate
component of stockholders' equity.
Minority interest in subsidiaries represents the minority
stockholders' proportionate share of the net assets and results of
operations of the Company's majority-owned subsidiaries. Sales of common
stock of the Company's subsidiaries and repurchases of such shares may
result in changes in the Company's proportionate share of the
subsidiaries' net assets. The Company reflects such changes as an
element of additional paid-in-capital.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
The Company's fiscal year ends on the Sunday closest to December
31. For presentation purposes, the consolidated financial statements and
notes refer to December 31 as year end. Fiscal years 1996, 1995 and 1994
were 52 week years.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS All highly liquid investments
purchased with an original maturity of 90 days or less are considered to
be cash equivalents and are classified as held-to-maturity. Marketable
short-term investments are accounted for as available-for-sale.
Management determines the appropriate classification of debt and equity
securities at the time of purchase and reassesses the classification at
each reporting date. Investments in debt and equity securities
classified as held-to-maturity are reported at amortized cost and
securities available-for-sale are reported at fair value with unrealized
gains and losses, net of related tax, if any, reported as a separate
component of stockholders' equity. Unrealized gains and losses at
December 31, 1996 and 1995 were not material. Realized gains and losses
are based on the book value of specific securities at the time of sale.
Such gains and losses included in net income were immaterial during
1996, 1995 and 1994.
<PAGE> 23
CONCENTRATION OF CREDIT RISK OF FINANCIAL INSTRUMENTS Financial instruments
which potentially subject the Company to credit risk consist of cash
equivalents, short-term investments and accounts receivable. Cash
equivalents and short-term investments are maintained with high-quality
institutions, the composition and maturities of which are regularly
monitored by management. A majority of the Company's trade receivables
are derived from sales to large multinational computer, communication
and consumer electronics manufacturers, with the remainder distributed
across other industries. Amounts due from the Company's largest customer
accounted for 16% of trade receivables at December 31, 1996 and 1995.
During 1996 and 1995, the Company sold approximately $41 million and $28
million (discounted at short-term yen borrowing rates, averaging 0.5%
and 1.1%), respectively, of its Japanese sales affiliate's accounts
receivable through financing programs with certain Japanese banks.
Related transaction costs were not material. Concentrations of credit
risk with respect to all other trade receivables are considered to be
limited due to the quantity of customers comprising the Company's
customer base, and their dispersion across industries and geographies.
The Company performs ongoing credit evaluations of its customers'
financial condition and requires collateral as considered necessary.
Write-offs of uncollectible amounts have not been material.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS The estimated fair value
amounts have been determined by the Company, using available market
information and valuation methodologies considered to be appropriate.
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. The use of different
market assumptions and/or estimation methodologies could have a material
effect on the estimated fair value amounts.
The estimated fair value of the Company's long-term debt was
$511 million and $500 million at December 31, 1996 and 1995,
respectively. The estimated fair value of all other financial
instruments at December 31, 1996 and 1995 was not materially different
from the values presented in the consolidated balance sheets.
INVENTORIES Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis for raw materials and is
computed on a currently adjusted standard basis (which approximates
first-in, first-out) for work-in-process and finished goods.
PROPERTY AND EQUIPMENT Property and equipment is recorded at cost and includes
interest on funds borrowed to finance construction. Depreciation and
amortization are calculated based on the straight-line method.
Depreciation of equipment and buildings, in general, is computed using
the assets' estimated useful lives as presented below:
---------------------------------------------------------
Buildings and improvements 20-40 years
Equipment 2-5 years
Furniture and fixtures 5 years
Software 2-5 years
-----------
Amortization of leasehold improvements is computed using the
shorter of the remaining term of the Company's facility leases or the
estimated useful lives of the improvements. Depreciation for income tax
purposes is computed using accelerated methods.
<PAGE> 24
PREPRODUCTION ENGINEERING COSTS Incremental costs incurred in connection
with developing major production capabilities at new manufacturing
plants, including facility carrying costs and costs to qualify
production processes, are capitalized and amortized over the expected
useful lives of the manufacturing processes utilized in the plants,
generally four years. Amortization commences when the manufacturing
plant is capable of volume production, which is generally characterized
by meeting certain reliability, defect density and service cycle time
criteria defined by management.
SOFTWARE The Company capitalizes substantially all external costs related
to the purchase and implementation of software projects used for
business operations and engineering design activities. Capitalized
software costs primarily include purchased software and consulting fees.
Capitalized software projects are amortized over the estimated useful
life of the project, typically a two to five year period. The Company
had $34 million and $28 million of capitalized software costs, net of
amortization, included in other assets at December 31, 1996 and 1995.
Software amortization totaling $16 million, $9 million and $5 million
was included in the Company's results of operations during 1996, 1995
and 1994, respectively.
OTHER ASSETS Goodwill of approximately $29 million and $27 million, and
related accumulated amortization of $9 million and $5 million, are
included in other assets at December 31, 1996 and 1995, respectively,
and was generated from the purchase of common stock from minority
stockholders (see Note 2). The acquisitions were accounted for as
purchases, and the excess of the purchase price over the fair value of
assets acquired was allocated to goodwill which is being amortized over
seven years. Goodwill is evaluated for impairment based on estimated
cash flows of the acquired entity.
At December 31, 1996 and 1995, the Company had $20 million and
$14 million, respectively, invested in restricted shares of Chartered
Semiconductor Manufacturing Pte. Ltd. (CSM). Transfer of the shares is
restricted for five years or until the listing of CSM stock upon a
recognized stock exchange, whichever occurs sooner. The Company has
recorded the investment as a long-term asset at cost and believes that
its fair value approximates its carrying value at December 31, 1996 and
1995.
REVENUE RECOGNITION Revenue from component products is recognized upon
shipment. Revenue from the licensing of the Company's design and
manufacturing technology is recognized when the significant contractual
obligations have been fulfilled. Royalty revenue is recognized upon the
sale of products subject to royalties. The Company uses the
percentage-of-completion method for recognizing revenues on fixed-fee
design arrangements.
One customer accounted for 14% and 12% of consolidated revenues
in 1996 and 1995, respectively. Two customers accounted for 14% and 11%
of consolidated revenues in 1994.
STOCK-BASED COMPENSATION The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. The Company's policy is to
grant options with an exercise price equal to the quoted market price of
the Company's stock on the grant date. Accordingly, no compensation cost
has been recognized in the Company's statements of operations. The
Company provides additional pro forma disclosures as required under
Statement of Financial Accounting Standard No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation." See Note 8.
<PAGE> 25
INCOME PER SHARE Primary income per common share and common share
equivalent is computed using the weighted average number of common shares
outstanding during the respective periods, including dilutive stock options.
Fully diluted income per common share and common share equivalent is computed by
adjusting net income and primary shares outstanding for the potential effect of
the conversion of the weighted average subordinated notes outstanding during the
year. Fully dilutive earnings per share computations are based on the most
advantageous conversion or exercise rights to the security holder that become
effective within 10 years following the period reported upon.
NOTE 2: PURCHASES OF MINORITY INTEREST
During 1996 and 1995, the Company acquired 117,000 and 1.6 million
common shares of its Japanese sales affiliate from its minority interest
shareholders for approximately $0.7 million and $10 million, respectively.
During December 1996, the Company acquired the remaining minority shares
outstanding of its European sales affiliate, LSI Logic Europe, Ltd. (formerly
LSI Logic Europe, plc) for $2 million. These acquisitions were accounted for as
purchases and the excess of the purchase price over the fair value of the assets
acquired ($2 million during each of 1996 and 1995) was allocated to goodwill and
is being amortized over seven years. As of December 31, 1996, the Company owned
approximately 92% of the Japanese affiliate and 100% of the European affiliate.
During January 1995, the Company acquired all minority owned shares (a
45% interest) of its Japanese manufacturing subsidiary, LSI Logic Japan
Semiconductor, Inc. (JSI), formerly known as Nihon Semiconductor, Inc., from
Kawasaki Steel Corporation (KSC) for a total of $175 million to be paid to KSC
over eight years. The Company defeased this obligation through payment of $126
million to an unrelated party and pursuant thereto was legally released from the
obligation by KSC. The acquisition was accounted for as a purchase. The excess
of the total acquisition cost over the recorded value of assets acquired ($33
million) was allocated to property and equipment based on fair value and is
being amortized over the estimated useful life of those assets of approximately
nine years.
During the third quarter of 1995, the Company's formerly publicly traded
Canadian subsidiary, LSI Logic Corporation of Canada, Inc., became wholly owned
by the Company. Certain former shareholders have exercised dissent and appraisal
rights and have rejected the offer made by the Canadian subsidiary of payment of
fair value for the shares such shareholders previously owned (see Note 11). The
total of payments made to all other former shareholders to date is _$43 million
Canadian dollars or approximately U.S. $32 million of which U.S. $16 million was
allocated to goodwill and is being amortized over seven years. An accrued
liability has been made in connection with the amount yet to be paid in respect
of the dissenters' shares and any excess thereof will be an increase to
goodwill.
<PAGE> 26
NOTE 3: CASH AND INVESTMENTS
Cash and cash equivalents and short-term investments included the
following debt and equity securities:
<TABLE>
<CAPTION>
--------------------------
DECEMBER 31st
- -------------------------------------------------------------------------------
(In thousands) 1996 1995
--------------------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS
Commercial paper $ 61,123 $ 22,980
Overnight deposits 40,513 59,296
Time deposits 13,483 25,030
Other 10,941 9,237
--------------------------
Total held-to-maturity 126,060 116,543
Cash 20,999 56,237
--------------------------
Total cash and cash equivalents $147,059 $172,780
==========================
SHORT-TERM INVESTMENTS
Corporate debt securities $273,912 $335,612
U.S. government and agency securities 91,716 43,881
Auction rate preferred 82,170 82,615
Bank notes 51,689 35,960
Time deposits 36,182 -
Commercial paper 34,554 -
Other - 14,697
--------------------------
Total available-for-sale $570,223 $512,765
==========================
</TABLE>
Cash and cash equivalents and short-term investments held at December
31, 1996 and 1995 approximate fair market value. The Company generally holds
available-for-sale investments for one year or less. As of December 31, 1996,
contractual maturities of available-for-sale securities were $515 million and
$55 million maturing within one year and between one to two years, respectively.
NOTE 4: FINANCIAL INSTRUMENTS
The Company has foreign subsidiaries which operate and sell the
Company's products in various global markets. As a result, the Company is
exposed to changes in interest rates and foreign currency exchange rates. The
Company utilizes various hedge instruments, primarily forward exchange, currency
swap, interest rate swap and purchased option contracts. The purpose of these
instruments is to manage exposure associated with firm intercompany and
third-party transactions and net asset and liability positions denominated in
non-functional currencies. The Company does not enter into speculative contracts
to profit on exchange rate fluctuations.
As of December 31, 1996, currency swap contracts, expiring January 1997,
were held to hedge firm obligations to the Company's Japanese manufacturing
subsidiary. As of December 31, 1995, forward exchange and currency swap
contracts, expiring January 1996 through September 1996, were held to hedge
intercompany loans, firm obligations to the Company's Japanese manufacturing
subsidiary and third-party borrowings.
The following table summarizes by major currency the forward exchange
and currency swap contracts outstanding. The "buy" amounts represent U.S.
dollar equivalent of commitments to
<PAGE> 27
purchase foreign currencies, and the "sell" amounts represent the U.S.
dollar equivalent of commitments to sell foreign currencies. Foreign currency
amounts are translated at rates current at the reporting date.
<TABLE>
<CAPTION>
--------------------
December 31st
- ------------------------------------------------------------
(In thousands) 1996 1995
--------------------
<S> <C> <C>
BUY/(SELL)
Japanese yen $ 7,337 $ 18,474
Pound sterling -- 5,614
German mark -- (5,990)
Singapore dollar -- 6,089
U.S. dollar (7,398) (25,492)
--------------------
$ (61) $ (1,305)
====================
</TABLE>
These forward exchange and currency swap contracts are considered
identifiable hedges and realized and unrealized gains and losses are deferred
until settlement of the underlying commitments. They are recorded as part of the
underlying purchase or sale transaction, or as other gains or losses when a
hedged transaction is no longer expected to occur. At December 31, 1996, the
Company had a purchased currency option expiring in March 1997 with a nominal
value of $20 million to hedge a net dollar balance sheet exposure at its
European affiliate. Deferred foreign exchange gains and losses were not material
at December 31, 1996 and 1995. Foreign currency transaction losses for 1996
included in interest income and other were $7 million; foreign currency
transaction gains and losses were not material in 1995 or 1994.
NOTE 5: BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
-------------------------
December 31st
- -------------------------------------------------------------------------
(In thousands) 1996 1995
-------------------------
<S> <C> <C>
INVENTORIES
Raw materials $ 19,540 $ 44,758
Work-in-process 53,785 47,193
Finished goods 17,085 47,906
-------------------------
$ 90,410 $ 139,857
=========================
PROPERTY AND EQUIPMENT
Land $ 42,861 $ 27,698
Buildings and improvements 166,862 152,671
Equipment 856,469 807,596
Leasehold improvements 54,573 60,514
Preproduction engineering 27,222 27,832
Furniture and fixtures 32,512 28,150
Construction in progress 168,878 44,063
-------------------------
1,349,377 1,148,524
Accumulated depreciation and amortization (537,718) (510,242)
-------------------------
$ 811,659 $ 638,282
=========================
</TABLE>
<PAGE> 28
Accumulated amortization for preproduction engineering was $20 million
and $14 million at December 31, 1996 and 1995, respectively. Capitalized
interest included within property and equipment totaled $12 million and $10
million at December 31, 1996 and 1995, respectively. Accumulated amortization of
capitalized interest was $5 million and $4 million at December 31, 1996 and
1995, respectively.
During 1996, the Company completed the shut-down of its Milpitas wafer
manufacturing facility and determined that the majority of the equipment for
that facility was no longer needed for current or future capacity requirements.
Accordingly, the equipment was made available for sale and was written down by
$15 million to its estimated net realizable value. The Company utilized $15
million of its restructuring reserves, which became available as a result of a
favorable court decision (see Notes 6 and 11), and, therefore, the write-down
did not necessitate a charge to the income statement. At December 31, 1996,
assets held for sale totaling $15.6 million are included in other current and
noncurrent assets and include manufacturing equipment and two buildings. In
December 1995, the Company sold land in Milpitas which had a carrying value of
$16 million for $21 million. The gain on the sale of $5 million is included in
other income.
NOTE 6: RESTRUCTURING THE COMPANY
The Company implemented a restructuring plan in the third quarter of
1992 revising its global manufacturing strategy, streamlining operations,
discontinuing certain commodity products and focusing its product strategy on
high-end technology solutions. Specifically, it involved the shut-down of the
Braunschweig, Germany, test and assembly facility, the planned phase-out of the
Milpitas, California, wafer fabrication facility, the consolidation of certain
U.S. manufacturing operations, the downsizing of the chipset operation of its
former subsidiary, Headland Technology Inc., and severance costs for
approximately 500 employees worldwide. The $102 million restructuring charge
included: the write-down and write-off of manufacturing facilities, equipment
and improvements; the estimated operating costs attributable to the phase-out,
closure and consolidation of these manufacturing facilities; the write-down of
commodity chipset product inventories; the severance of manufacturing and other
personnel; the consolidation of certain U.S. and foreign sales offices, design
centers and administrative organizations; and certain legal matters and other
costs.
By the end of 1995, the Company had completed the phase-out of the
German test and assembly operation and written off the facility, discontinued
the chipset business, completed a partial phase-down of its Milpitas wafer
manufacturing facility and certain U.S. assembly and test operations, and
completed consolidation of certain U.S. sales offices and design centers. These
actions included termination of approximately 400 employees.
<PAGE> 29
The following table sets forth the Company's 1992 restructuring expense,
remaining reserves at December 31, 1995 and 1996 (which are accounted for as
components of fixed assets and current liabilities) and charges taken from the
date the restructuring commenced through December 31, 1995 and during 1996:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1992
Restructuring Balance Balance
(in thousands) Expense Utilized Adjusted 12/31/95 Utilized Adjusted 12/31/96
- -------------- ------------- -------- -------- -------- -------- -------- --------
Write-down of manufacturing
facility (a) $ 14,700 $(28,700) $14,000 $ -- $ -- $ -- $ --
Other fixed asset related
charges (b) 35,500 (21,600) (12,000) 1,900 (17,100) 15,200 --
Other provisions for phase-
down and consolidation of
manufacturing facilities (b) 13,500 (9,900) (800) 2,800 (3,600) 800 --
Payments to employees for
severance (c) 8,000 (5,700) (2,300) -- (1,500) 1,500 --
Write-down of inventories (a) 10,900 (8,800) (2,100) -- -- -- --
Relocation, lease terminations
and other (b) 19,200 (3,400) 3,200 19,000 (1,500) (17,500) --
-------- -------- ------- ------- -------- -------- -------
Total $101,800 $(78,100) $ -- $23,700 $(23,700) $ -- $ --
======== ======== ======= ======= ======== ======== =======
</TABLE>
* Net of cumulative currency translation adjustments.
(a) Amounts utilized represent non-cash charges.
(b) Amounts utilized represent both cash and non-cash charges. Cumulative cash
charges totaled $17 million.
(c) Amounts utilized represent cash payments related to the severance of
approximately 550 employees.
During 1996, $23.7 million was charged against the restructuring
reserves. These charges were primarily for the shut-down of the Milpitas wafer
fabrication facility, which had been delayed due to the facility's manufacturing
capacity having been required for longer than anticipated at the time the
restructuring charge was taken. These charges included a $15 million charge
resulting from the write-down of the Milpitas wafer fabrication equipment (see
Note 5), severance payments to approximately 150 employees ($1.5 million) and
lease and other charges in connection with the Milpitas wafer manufacturing
equipment ($5.3 million). Other restructuring charges were attributable to
ongoing maintenance costs of the Company's vacant German facility ($1.8 million)
and a decrease in reserves due to translation adjustments as a result of the
weakening Deutsche mark ($0.1 million). As a result of a favorable appellate
court decision in September 1996 in connection with the Texas Instruments
litigation (see Note 11), $15 million of restructuring reserves became available
for the write-down of the Milpitas wafer manufacturing equipment (see Note 5).
<PAGE> 30
NOTE 7: DEBT
<TABLE>
<CAPTION>
December 31st
- -----------------------------------------------------------------------------------------------
(In thousands) 1996 1995
----------------------------
<S> <C> <C>
SENIOR
Notes payable to banks $ 183,531 $111,207
Capital lease obligations 605 1,155
SUBORDINATED
5-1/2% Convertible Subordinated Notes, due 2001 143,750 143,750
----------------------------
327,886 256,112
Current portion of long-term debt, capital lease obligations and
short-term borrowings (69,612) (56,569)
----------------------------
Long-term debt and capital lease obligations $ 258,274 $199,543
============================
</TABLE>
As of December 31, 1996 and 1995, the Company had $144 million of 5-1/2%
Convertible Subordinated Notes (Notes) outstanding. The Notes are due in 2001
and are subordinated to all existing and future senior debt. The Notes are
convertible at any time after 60 days following issuance into shares of the
Company's common stock at a conversion price of $12.25 per share and are
redeemable at the option of the Company, in whole or in part, at any time on or
after March 18, 1997 (see Note 12). Each holder of these Notes has the right to
cause the Company to repurchase all of such holder's Notes at 100% of their
principal amount plus accrued interest upon the occurrence of certain events and
in certain circumstances. Interest is payable semiannually.
In December 1996, the Company entered into a credit arrangement with
several banks for a $300 million revolving line of credit expiring in December
1999. The agreement allows for borrowings at an adjustable rate. Interest
payments are due quarterly. The agreement calls for financial covenants relating
to senior debt ratio, quick ratio, debt service ratio, subordinated debt and
tangible net worth. At December 31, 1996, the Company did not have any
borrowings outstanding under this credit agreement.
The Company's Japanese manufacturing subsidiary, JSI, has a 25 billion
yen credit line arrangement with adjustable interest rates. Borrowings under the
credit line are for a term of five years with principal payments due
semiannually beginning in July 1997. The Company must comply with certain
financial covenants relating to profitability, tangible net worth, working
capital, senior and total debt leverage and subordinated indebtedness. At
December 31, 1996, the Company was in compliance with these covenants. As of
December 31, 1996, JSI had 18.25 billion yen ($159 million) outstanding under
the facility. Additionally, the Company has entered into several five year
interest rate swap agreements to convert the adjustable interest rate per the
credit arrangement to fixed rates (ranging from 2.65% to 3.24%). JSI also had
borrowings outstanding of approximately 2.75 billion yen ($24 million) at
December 31, 1996. JSI has notified the lenders of its intent to repay the 2.75
billion yen during 1997 and, therefore, these borrowings are classified as short
term at December 31, 1996.
Aggregate principal payments required on outstanding debt obligations
are as follows: 1997 - $70 million; 1998 - $39 million; 1999 - $38 million;
2000 - $37 million; 2001 - $0; 2002 and thereafter - $144 million.
The Company paid $17 million, $18 million and $20 million in interest
during 1996, 1995 and 1994, respectively.
<PAGE> 31
NOTE 8: COMMON STOCK
The following summarizes all shares of common stock reserved for issuance as of
December 31, 1996:
- --------------------------------------------------------------------------------
(In thousands) NUMBER OF SHARES
----------------
ISSUABLE UPON
Conversion of subordinated long-term debt 11,735
Exercise of stock options, including options
available for grant 13,308
Purchase under Employee Stock Purchase Plan 1,489
------
26,532
======
In February 1996, the Company's Board of Directors approved an action
which authorizes management to acquire up to four million shares of its own
stock in the open market at current market prices. During the first nine months
of 1996, the Company repurchased and retired approximately two million shares of
its common stock from the open market for approximately $47 million. The
transactions were recorded as reductions to common stock and additional paid-in
capital. The Company terminated its stock repurchase program in February 1997.
During February 1995, the Company completed an offering of 6,325,000
shares of common stock, netting proceeds of approximately $158 million. On May
12, 1995, the Company's Board of Directors approved a two-for-one stock split in
the form of a 100% stock dividend for stockholders of record on May 23, 1995.
The payment date was June 21, 1995. During July 1995, the Company completed an
offering of 5,750,000 shares of common stock, netting proceeds of approximately
$247 million.
STOCK OPTION PLANS
The Company's 1982 Incentive Stock Option Plan (1982 Option Plan) is
administered by the Board of Directors. Terms of the 1982 Option Plan required
that the exercise price of options be no less than the fair value at the date of
grant and required that options be granted only to employees or consultants of
the Company. Generally, options granted vest in annual increments of 25% per
year commencing one year from the date of grant and have a term of ten years.
During 1992, the 1982 Option Plan expired by its terms. Accordingly, no further
options may be granted thereunder. Certain options previously granted under the
1982 Option Plan remained outstanding at December 31, 1996.
The 1991 Equity Incentive Plan enables the Company to sell or award to
its officers, employees or consultants stock options, stock appreciation rights,
stock purchase rights or stock bonuses. Stock options may be granted under the
1991 Equity Incentive Plan with an exercise price no less than the fair value of
the stock on the date of grant. The term of each option is determined by the
Board of Directors and is generally ten years. Options generally vest in annual
increments of 25% per year commencing one year from the date of grant. A total
of 15 million shares have been reserved for issuance under this plan.
<PAGE> 32
In May 1995, the stockholders approved the 1995 Director Option Plan
(Director Plan), which replaced the 1986 Directors' Stock Option Plan, and
reserved 500,000 shares for issuance thereunder. Terms of the Director Plan
provide for an initial option grant to new directors and subsequent automatic
option grants each year thereafter. The option grants generally have a ten year
term and vest in equal increments over four years. The exercise price of options
granted is the fair market value of the stock on the date of grant.
At December 31, 1996, shares available for grant under all stock option
plans were 2,496,000.
The following table summarizes the Company's stock option activity and
related weighted average exercise price within each category for each of the
years ended December 31, 1996, 1995 and 1994 (share information in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------
SHARES PRICE SHARES PRICE SHARES PRICE
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1 9,065 $ 20.26 7,354 $ 7.28 5,978 $ 4.41
Options cancelled (4,402) (34.46) (397) (13.59) (870) (5.91)
Options granted 7,263 27.71 4,354 33.64 2,120 14.22
Options exercised (1,114) (7.73) (2,246) (4.90) (2,874) (3.84)
--------------------------------------------------------------
Options outstanding at December 31 10,812 $ 20.77 9,065 $ 20.26 7,354 $ 7.28
==============================================================
Options exercisable at December 31 2,840 $ 11.29 2,001 $ 12.51 2,436 $ 4.01
==============================================================
</TABLE>
On August 16, 1996 the Company canceled options to purchase 2,853,000
shares of common stock with exercise prices ranging from $32.125 to $58.125,
previously granted to employees, excluding certain executive officers, and
reissued all such options at an exercise price of $22.375, the fair market value
of the stock on August 16, 1996. The reissued options have a ten year term and
vest in equal increments over four years from the date of reissuance.
Significant option groups outstanding at December 31, 1996, and related
weighted average exercise price and contractual life information are as follows
(share information in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
OPTIONS WITH EXERCISE PRICES OUTSTANDING EXERCISABLE REMAINING
----------------------------------------------
RANGING FROM: SHARES PRICE SHARES PRICE LIFE (YEARS)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.75 to $10.00 2,235 $ 5.14 1,762 $ 4.69 5.5
$10.01 to $20.00 738 12.49 315 12.59 7.5
$20.01 to $30.00 5,679 23.51 719 24.45 9.0
$30.01 to $40.00 2,032 30.95 12 35.00 10.0
Greater than $40.00 128 57.89 32 57.89 9.0
----------------------------------------------
</TABLE>
All options were granted at an exercise price equal to the market value
of the Company's common stock at the date of grant. The weighted average
estimated grant date fair value, as defined by SFAS 123, for options granted
during 1996 and 1995 was $16.86 and $17.66 per option, respectively.
Additionally, the incremental estimated fair value, as defined by SFAS 123, for
options canceled and reissued during August 1996 was $5.32 per option. The
estimated grant date fair value disclosed by the Company is calculated using the
Black-Scholes model. The Black-Scholes model, as well as other currently
accepted option valuation models, was developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require highly subjective assumptions, including future stock price volatility
and expected time until exercise, which greatly affect the calculated grant date
fair value.
<PAGE> 33
- --------------------------------------------------------------------------------
The following weighted average assumptions are included in the estimated
grant date fair value calculations for the Company's stock option awards:
- --------------------------------------------------------------------------------
1996 1995
--------------
Expected life (years) 5.25 5.25
Risk-free interest rate 6.10% 6.60%
Volatility 55% 51%
Dividend yield 0% 0%
--------------
STOCK PURCHASE PLAN
Since 1983, the Company has offered an Employee Stock Purchase Plan
(Employee Plan) under which rights are granted to purchase shares of common
stock at 85% of the lesser of the fair market value of such shares at the
beginning of a 24-month offering period or the end of each six-month segment
within such offering period. Sales under the Employee Plan in 1996, 1995 and
1994 were 666,000, 695,000 and 2,242,000 shares of common stock at an average
price of $17.33, $12.95 and $3.05 per share, respectively. Shares available for
future purchase under the Employee Plan were 1,489,000 at December 31, 1996.
Compensation cost (included in pro forma net income and net income per
share amounts) for the grant date fair value, as defined by SFAS 123, of the
purchase rights granted under the Employee Plan was calculated using the
Black-Scholes model. The following weighted average assumptions are included in
the estimated grant date fair value calculations for rights to purchase stock
under the Company's Employee Plan:
- --------------------------------------------------------------------------------
1996 1995
--------------
Expected life (years) 1.25 1.25
Risk-free interest rate 5.70% 6.20%
Volatility 54% 32%
Dividend yield 0% 0%
--------------
The weighted average estimated grant date fair value, as defined by SFAS
123, of rights to purchase stock under the Employee Plan granted in 1996 and
1995 were $10.84 and $12.59 per share, respectively.
STOCK PURCHASE RIGHTS
In November 1988, the Company implemented a plan to protect
stockholders' rights in the event of a proposed takeover of the Company. Under
the plan, each share of the Company's outstanding common stock carries one
Preferred Share Purchase Right (Right). Each Right entitles the holder, under
certain circumstances, to purchase one-thousandth of a share of Preferred Stock
of the Company or its acquiror at a discounted price. The Rights are redeemable
by the Company and expire in 1998.
<PAGE> 34
PRO FORMA NET INCOME AND NET INCOME PER SHARE
Had the Company recorded compensation costs based on the estimated grant
date fair value, as defined by SFAS 123, for awards granted under its stock
option plans and stock purchase plan, the Company's net income and earnings per
share would have been reduced to the pro forma amounts below for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Pro forma net income (in thousands) $ 128,069 $ 233,031
Pro forma net income per share
Primary $ 0.99 $ 1.83
Fully diluted $ 0.94 $ 1.71
-----------------------
</TABLE>
The pro forma effect on net income and net income per share for 1996 and
1995 is not representative of the pro forma effect on net income in future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to 1995.
NOTE 9: INCOME TAXES
The provision for taxes consisted of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
---------------------------------------
<S> <C> <C> <C>
CURRENT
Federal $ 29,111 $ 35,181 $ 39,079
State 6,969 12,893 4,991
Foreign 19,398 43,836 14,639
---------------------------------------
Total 55,478 91,910 58,709
---------------------------------------
DEFERRED LIABILITY (BENEFIT)
Federal (2,437) 6,663 (10,085)
State (6,635) 1,460 -
Foreign 11,026 (6,252) (4,945)
---------------------------------------
Total 1,954 1,871 (15,030)
---------------------------------------
Total $ 57,432 $ 93,781 $ 43,679
=======================================
</TABLE>
The domestic and foreign components of income before income taxes and
minority interest were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Domestic $ 82,882 $ 129,085 $ 135,943
Foreign 122,233 205,858 20,226
----------------------------------------
Income before income taxes and
minority interest $ 205,115 $ 334,943 $ 156,169
========================================
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries for which
no U.S. income taxes have been provided aggregate to approximately $271 million
at December 31, 1996. Undistributed earnings of the Company's foreign
subsidiaries, which reflect full provision for foreign income taxes, are
indefinitely reinvested in foreign operations or will be remitted substantially
free of additional tax. Accordingly, no material provision has been made for
taxes that might be payable upon remittance of such earnings, nor is it
practicable to determine the amount of this liability.
As of December 31, 1996, management believes that realization of
deferred tax assets is more likely than not due to carryback capacity. As of
December 31, 1995, management believed that with
<PAGE> 35
the exception of certain foreign net operating loss carryforwards, for which a
valuation allowance had been provided, realization of deferred tax assets was
assured to the extent of taxable income for the carryback period. Significant
components of the Company's deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION> December 31st
----------------
(In thousands) 1996 1995
------ -------
<S> <C>
DEFERRED TAX ASSETS
Net operating loss carryforwards $ 2,473 $ 5,136
Tax credit carryovers 2,380 ---
Nondeductible reserves and other 55,359 40,834
------- -------
Total deferred tax assets 60,212 45,970
Valuation allowance --- (3,400)
------- -------
Net deferred tax assets 60,212 42,570
Deferred tax liabilities -- depreciation
and amortization (46,246) (26,652)
------- -------
Total net deferred tax assets $13,966 $15,918
======= =======
</TABLE>
Differences between the Company's effective tax rate and the federal statutory
rate were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
-------- ---- -------- ---- -------- ----
<S> <C>
Federal statutory rate $ 71,790 35 % $117,230 35 % $ 54,661 35 %
State taxes, net of
federal benefit 6,517 3 % 12,190 4 % 9,370 6 %
Difference between U.S.
and foreign tax rates (12,358) (6) (32,772) (10)% 7,219 5 %
Nondeductible expenses 4,693 2 % 17,529 5 % 5,310 3 %
Foreign losses with
no benefit --- -- --- -- 931 --
Foreign tax credits (11,260) (5)% --- -- --- --
Research and development
tax credit (4,243) (2)% --- -- 1,743) (1)%
Change in valuation
allowance (3,400) (2)% (15,964) (5)% (42,805) (27)%
Other 5,693 3 % (4,432) (1)% 10,736 7 %
-------- ---- -------- ---- -------- ----
Effective tax rate $ 57,432 28 % $ 93,781 28 % $ 43,679 28 %
======== == ======== == ======== ==
</TABLE>
The Company paid $53 million, $31 million and $23 million for income taxes in
1996, 1995 and 1994, respectively.
The IRS is currently auditing the Company's federal income tax returns for
fiscal years 1991 and 1992. The Company has received a notice of proposed tax
deficiency for such years and expects to file a tax protest letter with the IRS
in response to the notice. Management believes the ultimate outcome of the IRS
audit will not have a material adverse impact on the Company's financial
position or results of operations.
NOTE 10: SEGMENT REPORTING AND FOREIGN OPERATIONS
The Company operates in one industry segment in which it designs, develops,
manufactures and markets application-specific integrated circuits and related
products and services.
Revenues from affiliates, which are eliminated in consolidation, consist of
sales between geographic areas. Such sales are primarily recorded at amounts
which are in excess of cost and consistent with rules and regulations of
governing tax authorities. General corporate expenses include certain
administrative expenses. Corporate assets include cash, short-term investments
held for the U.S. affiliate and prepaid income taxes.
<PAGE> 36
During 1995, the Company significantly expanded its manufacturing
operations in the Pacific Rim. Pacific Rim revenues are primarily derived from
transactions with the Company and its other subsidiaries which are eliminated in
consolidation. The Company's other operations outside the United States include
manufacturing facilities, design centers and sales offices in Japan, Europe and
Canada.
The following is a summary of operations by entities located within
the indicated geographic areas for 1996, 1995 and 1994. United States revenues
include export sales.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
REVENUES
United States $ 1,201,674 $ 1,005,351 $ 781,223
Pacific Rim 996,429 720,372 9,028
Japan 537,504 532,421 270,445
Europe 225,071 204,385 141,773
Canada 54,345 60,589 35,107
Revenues from affiliates (1,776,329) (1,255,461) (335,746)
------------------------------------------
Consolidated $ 1,238,694 $ 1,267,657 $ 901,830
==========================================
REVENUES FROM AFFILIATES
United States $ (539,845) $ (313,507) $ (163,134)
Pacific Rim (946,787) (659,180) (437)
Japan (273,188) (282,774) (170,764)
Europe (12,661) -- --
Canada (3,848) -- (1,411)
------------------------------------------
Consolidated $(1,776,329) $(1,255,461) $ (335,746)
==========================================
OPERATING INCOME (LOSS)
United States $ 65,612 $ 116,917 $ 138,713
Pacific Rim 84,773 150,378 685
Japan 29,762 23,652 3,945
Europe 9,365 22,501 11,119
Canada 7,373 6,822 4,999
General corporate expenses (4,468) (1,571) (1,695)
------------------------------------------
Consolidated $ 192,417 $ 318,699 $ 157,766
==========================================
IDENTIFIABLE ASSETS
United States $ 521,326 $ 418,776 $ 284,067
Pacific Rim 234,994 90,253 7,567
Japan 529,383 523,847 479,449
Europe 52,484 59,208 35,704
Canada 15,434 44,811 9,128
General corporate 599,093 712,692 454,459
------------------------------------------
Consolidated $ 1,952,714 $ 1,849,587 $1,270,374
==========================================
</TABLE>
<PAGE> 37
NOTE 11: COMMITMENTS AND CONTINGENCIES
The Company leases the majority of its facilities and certain equipment
under non-cancelable operating leases which expire in 1997 through 2022. The
facilities lease agreements typically provide for base rental rates which are
increased at various times during the terms of the leases and for renewal
options at the fair market rental value.
In June 1995, the Company, through its Japanese subsidiary, entered into
a master lease agreement and a master purchase agreement with a group of leasing
companies (Lessor) for up to 15 billion yen. Each Lease Supplement pursuant to
the transaction will have a lease term of one year with four consecutive annual
renewal options. The Company may at the end of any lease term return or purchase
at a stated amount all the equipment. Upon return of the equipment, the Company
must pay the Lessor a terminal adjustment amount. The Lessor also has entered
into a remarketing agreement with a third party to remarket and sell any
equipment returned pursuant to which the third party is obligated to reimburse
the Company a guaranteed residual value. The lease line was fully utilized as of
December 31, 1996. There were no significant gains or losses from these leasing
transactions. Minimum rental payments under these operating leases, including
option periods, are $24 million for each of the years 1997 through 1999, $16
million for 2000 and $.2 million for 2001. The terminal adjustment which the
Company would be required to pay upon cancellation of all leases and return of
the equipment would be as follows: 1997 - $81 million; 1998 - $62 million; 1999
- - $43 million; 2000 - $23 million; or 2001 - $2 million.
Future minimum payments under other lease agreements are as follows:
1997 - $33 million; 1998 - $27 million; 1999 - $24 million; 2000 - $18 million;
2001 - $15 million; 2002 and thereafter - $62 million. Total rental expense,
including month-to-month rentals, was $62 million, $44 million and $35 million
in 1996, 1995 and 1994, respectively.
The Company is one of three defendants in a patent infringement suit
brought by Texas Instruments (TI) in the Federal District Court in Dallas,
Texas. In May 1995, this suit resulted in a jury verdict against the Company
holding the patents valid and finding willful infringement. Damages against the
Company were set by the jury at approximately $15 million. The Company filed
certain post-trial motions with the trial court, which included a motion to set
aside the jury verdict and for an order that the Company had not infringed the
patents. In addition, TI filed certain post-trial motions, which included a
motion that the jury award of damages be trebled. In July 1995, the district
court judge ruled in the Company's favor, holding that the Company had not
infringed the patents, and set aside the jury verdict, including the award of
damages. TI appealed the trial court's order to the United States Court of
Appeals for the Federal Circuit (CAFC). In July 1996, the CAFC issued its
decision affirming the U.S. District Court's holding in favor of the Company.
In August 1996, TI filed a petition for reconsideration of the CAFC's decision
and requested that the matter be heard en banc by the CAFC. In September 1996,
TI's petition was denied. In December 1996, TI petitioned the U.S. Supreme
Court for a writ of certiorari, thereby seeking further appeal of the case. The
Company believes that the probability of a significant loss is remote and,
therefore, reallocated $15 million of its reserves during September 1996 (see
Notes 5 and 6). No assurance can be given, however, that this matter will be
resolved without the payment of damages and other costs.
<PAGE> 38
During the third quarter of 1995, pursuant to a series of transactions,
the Company acquired all the remaining shares (45%) of its Canadian subsidiary,
LSI Logic Corporation of Canada, Inc., which it did not already own. Certain
former shareholders, representing approximately 800,000 shares or 3% of the
previously outstanding shares, have exercised dissent and appraisal rights.
Pursuant to the relevant provisions of the Canada Business Corporations Act,
R.S.C. 1985, c. C-44, as amended, a proceeding to determine the fair value of
the shares was initiated. No hearing date has yet been assigned. The offer of
CD $4.00 (U.S. $3.00) per share that was made by the board of directors of the
Canadian subsidiary for the dissenters' shares is the same per share price that
was accepted by shareholders holding the other 42% of the shares not already
owned by the Company immediately prior to the commencement of the above
mentioned transactions. While no assurances can be given regarding the ultimate
determination of the Canadian court, the Company believes that the final outcome
of this matter will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Certain additional claims and litigation against the Company have also
arisen in the normal course of business. The Company believes that it is
unlikely that the outcome of these claims and lawsuits will have a materially
adverse effect on the Company's consolidated financial position or results of
operations.
NOTE 12: SUBSEQUENT EVENT
On February 21, 1997, the Company called for redemption of all of its
$144 million, 5 1/2% Convertible Subordinated Notes (Notes). The Notes are
redeemable by the Company at the principal amount plus a 2% premium. Each Note
is convertible by the holder to common stock at a conversion price of $12.25 per
share. If all Notes are converted to common stock, approximately 12 million
additional shares of common stock will be issued.
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF LSI LOGIC CORPORATION
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity, and cash
flows present fairly, in all material respects, the financial position of LSI
Logic Corporation and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
January 16, 1997
except for Note 12,
for which the date
is February 21, 1997
<PAGE> 40
ELEVEN YEAR CONSOLIDATED SUMMARY
<TABLE>
<CAPTION>
------------------------------------------
Year ended December 31st
- ------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Revenues $1,238,694 $1,267,657 $ 901,830
Costs and expenses:
Cost of revenues 695,002 665,673 520,150
Research and development 184,452 123,892 98,978
Selling, general and administrative 166,823 159,393 124,936
Restructuring of operations and other
non-recurring charges -- -- --
------------------------------------------
Total costs and expenses 1,046,277 948,958 744,064
------------------------------------------
Income (loss) from operations 192,417 318,699 157,766
Interest expense (13,610) (16,349) (18,455)
Interest income and other 26,308 32,593 16,858
------------------------------------------
Income (loss) before income taxes, minority
interest and extraordinary credit 205,115 334,943 156,169
Provision for income taxes 57,432 93,781 43,679
------------------------------------------
Income (loss) before minority interest
and extraordinary credit 147,683 241,162 112,490
Minority interest in net income (loss)
of subsidiaries 499 3,042 3,747
------------------------------------------
Income (loss) before extraordinary credit 147,184 238,120 108,743
Extraordinary credits resulting from gain on
retirement of debt -- -- --
------------------------------------------
Net income (loss) $ 147,184 $ 238,120 $ 108,743
Primary income (loss) per share:
Income (loss) before extraordinary credit $ 1.12 $ 1.86 $ 0.99
Extraordinary credit -- -- --
------------------------------------------
Net income (loss) $ 1.12 $ 1.86 $ 0.99
==========================================
Fully diluted income per share $ 1.07 $ 1.75 $ 0.92
==========================================
Year-end status:
Total assets $1,952,714 $1,849,587 $1,270,374
Long-term debt $ 258,274 $ 199,543 $ 262,730
Stockholders' equity $1,316,219 $1,216,246 $ 544,906
------------------------------------------
</TABLE>
The Company's fiscal year ends on the Sunday closest to December 31.
For presentation purposes, the Consolidated inancial Statements refer to
December 31 as year end.
<PAGE> 41
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987 1986
- -------- --------- -------- -------- -------- -------- -------- --------
<S> <S> <S> <S> <S> <S> <S> <C>
$718,812 $ 617,468 $697,838 $655,491 $546,870 $378,908 $262,131 $194,335
- -------- --------- -------- -------- -------- -------- -------- --------
438,523 408,318 457,692 443,759 381,544 226,625 168,403 129,150
78,995 78,825 80,802 60,196 52,457 36,964 28,919 21,558
117,452 129,254 136,811 117,318 99,885 80,145 55,726 40,200
--- 101,785 5,626 44,000 43,000 9,046 --- ---
- -------- --------- -------- -------- -------- -------- -------- --------
634,970 718,182 680,931 665,273 576,886 352,780 253,048 190,908
- -------- --------- -------- -------- -------- -------- -------- --------
83,842 (100,714) 16,907 (9,782) (30,016) 26,128 9,083 3,427
(9,621) (11,567) (19,371) (21,256 (17,341) (11,347) (9,903) (6,883)
6,500 12,413 14,722 12,517 12,494 16,421 18,114 11,991
- -------- --------- -------- -------- -------- -------- -------- --------
80,721 (99,868) 12,258 (18,521) (34,863) 31,202 17,294 8,535
24,221 8,521 6,129 11,685 1,476 18,322 7,031 3,103
- -------- --------- -------- -------- -------- -------- -------- --------
56,500 (108,389) 6,129 (30,206) (36,339) 12,880 10,263 5,432
2,750 1,819 (2,212) 1,065) (5,085) (5,623) (483) 564
- -------- --------- -------- -------- -------- -------- -------- --------
53,750 (110,208) 8,341 (31,271) (31,254) 18,503 10,746 4,868
--- --- --- 955 --- 859 594 ---
- -------- --------- -------- -------- -------- -------- -------- --------
$ 53,750 $(110,208) $ 8,341 $(30,316) $(31,254) $ 19,362 $ 11,340 $ 4,868
======== ========= ======== ======== ======== ======== ======== ========
$ 0.54 $ (1.24) $ 0.10 $ (0.37) $ (0.38) $ 0.22 $ 0.13 $ 0.06
--- --- --- 0.01 --- 0.01 0.01 ---
- -------- --------- -------- -------- -------- -------- -------- --------
$ 0.54 $ (1.24) $ 0.10 $ (0.36) $ (0.38) $ 0.23 $ 0.14 $ 0.06
======== ========= ======== ======== ======== ======== ======== ========
$ 0.53
========
$859,010 $ 747,438 $748,456 $771,682 $755,109 $783,751 $699,398 $451,404
$220,005 $ 191,527 $166,107 $189,795 $204,443 $191,857 $187,909 $106,908
$292,434 $ 197,728 $293,075 $267,729 $286,660 $327,277 $309,243 $252,002
- -------- --------- -------- -------- -------- -------- -------- --------
</TABLE>
<PAGE> 42
INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------
QUARTER
- ----------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
--------------------------------------------------------
<S> <C> <C> <C> <C>
(In YEAR ENDED DECEMBER 31, 1996
thousands, Revenues $311,352 $325,359 $300,195 $301,788
except Gross profit 134,503 148,905 125,121 135,163
per share Net income 42,284 46,496 27,743 30,661
amounts) Primary net income per share $ .32 $ .35 $ .21 $ .23
Fully diluted net income per share $ .31 $ .34 $ .21 $ .23
YEAR ENDED DECEMBER 31, 1995
Revenues $280,158 $307,066 $330,832 $349,601
Gross profit 126,759 144,761 160,031 170,433
Net Income 45,260 55,745 65,542 71,573
Primary net income per share $ .37 $ .44 $ .50 $ .54
Fully diluted net income per share $ .35 $ .42 $ .47 $ .51
</TABLE>
The Company's yscal year ends on the Sunday closest to December 31. For
presentation purposes, the Consolidated Financial Statements refer to December
31 as year end.
<PAGE> 43
CORPORATE INFORMATION
HEADQUARTERS ADDRESS
LSI Logic Corporation
1551 McCarthy Blvd
Milpitas CA 95035
REGISTRAR & TRANSFER AGENT
Bank of Boston
c/o Boston EquiServe, LP
Investor Relations Department
Mail Stop 45.02.09
PO Box 644
Boston MA 02102.0644
1.800.730.6001
www.equiserve.com
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
150 Almaden Blvd
San Jose CA 95113
LEGAL COUNSEL
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto CA 94304
FINANCIAL LITERATURE
Publications of interest to current and potential investors, including copies
of the Company's current 10-K filed with the Securities and Exchange Commission,
are available upon request by calling 1.800.574.4286. Outside the U.S. and
Canada, phone 408.433.7700. Ask for Department JDF. Or call 32.11.300351 within
Europe for multilingual operators.
Financial information is also available over the World Wide Web at
http://www.lsilogic.com and by fax at 1.800.457.4286.
STOCKHOLDER INQUIRIES
To notify LSI Logic of address changes, lost certificates or transfers of stock,
stockholders of record should contact the Company's Registrar and Transfer
Agent, Bank of Boston.
Stockholders of record who receive more than one copy of this annual
report can contact the Bank of Boston to arrange to have their accounts
consolidated. Stockholders who own LSI Logic stock through a brokerage can
contact their broker to request consolidation of their accounts.
INQUIRIES CONCERNING
THE COMPANY
Questions regarding LSI Logic's operations, historical performance or recent
results may be directed to:
LSI Logic Corporation
Investor Relations Department
1551 McCarthy Blvd
Milpitas CA 95035
408.954.4710
LSI Logic logo design, CoreWare and SeriaLink are registered trademarks; and
ATMizer, CoreWare logo design, Cablestream, G10 and G10 logo design, G11,
GigaBlaze, Integra, Scenario, The System on a Chip Company and TinyRISC are
trademarks of LSI Logic Corporation. All other brand and product names may be
trademarks of their respective companies.
(C)1997, LSI Logic Corporation
Printed in U.S.A.
<PAGE> 44
CORPORATE DIRECTORY
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
BOARD OF DIRECTORS EXECUTIVE OFFICERS
Wilfred J. Corrigan Wilfred J. Corrigan David E. Sanders
Chairman Chairman Vice President
Chief Executive Officer Chief Executive Officer General Counsel & Secretary
R. Douglas Norby Moshe N. Gavrielov Lewis C. Wallbridge
Executive Vice President Executive Vice President Vice President
Chief Financial Officer LSI Logic Products Human Resources
T. Z. Chu Cyril F. Hannon
President Executive Vice President
Hoefer Pharmacia Biotech Inc. Worldwide Operations
Dr. Malcolm R. Currie W. Richard Marz
Chairman Emeritus Executive Vice President
Hughes Aircraft Company Geographic Markets
James H. Keyes R. Douglas Norby
Chairman Executive Vice President
Chief Executive Officer Chief Financial Officer
Johnson Controls, Inc.
VICE PRESIDENTS
Maniam B. Alagarstnam Bruce L. Entin Pierre Nadeau
Package Department Worldwide Customer Marketing General Manager
Geographic Markets LSI Logic Europe Ltd.
Elias J. Antoun
President Donald J. Esses Willsie H. Nelson
LSI Logic K. K. U.S. Manufacturing Logistics
Ronald K. Bell Amnon Fisher Richard D. Schinella
General Manager General Manager Wafer Process R&D and
Computer & Advanced Consumer Products Santa Clara Operations
Architecture
Jeffrey L. Hilbert Chiaki Terada
Jean-Louis Bories Worldwide Customer Engineering Industrial Engineering
ASIC Technology Geographic Markets
Frank Tornaghi
John P. Daane James W. Hively North America Sales
General Manager ASIC Product Development
Communication Products Shubha S. Tuljapurkar
Charles E. Laughlin Business and Personal Systems
John J. D'Errico General Manager
General Manager LSI Logic Japan Semiconductor, Inc. Edward K. Wan
Pan Aria North America Engineering
Theodore Leno
Simon P. Dolan Assembly and Test Operations Joseph M. Zelayeta
Strategic Marketing Senior Vice President
Byron Look Research & Development
Corporate Development General Manager
U.S. Wafer Fab Operations
R. Gregory Miller
Corporate Controller
</TABLE>
<PAGE> 45
STOCK INFORMATION
Symbol: LSI
Where traded: NYSE
Actual shares outstanding at 12/31/96: 129,006,000
Average daily volume for 1996: 2,436,690
<TABLE>
<CAPTION>
STOCK PRICE RANGE
-------------------------------
1995 1996
---- ----
<S> <C> <C>
First Quarter $22.50 o 38.88 $18.25 o 29.19
Second Quarter $24.50 o 39.63 $25.50 o 42.63
Third Quarter $17.00 o 27.00 $39.13 o 62.50
Fourth Quarter $21.38 o 33.88 $30.00 o 59.25
-------------- --------------
Year $17.00 o 39.63 $18.25 o 62.50
============== ==============
</TABLE>
STOCK PRICE MOVEMENT
Bar graph showing stock price range and ending price for each calendar
month during fiscal year 1995 and 1996. Values depicted are as follows:
1995 RANGE ENDING PRICE
---- ----- ------------
JAN 22 3/8 - 18 1/4 21 5/16
FEB 27 15/16 - 21 27 1/4
MAR 29 3/16 - 25 15/16 26 1/4
APR 33 9/16 - 25 1/2 33 5/16
MAY 38 5/8 - 31 1/2 33 3/4
JUN 42 5/8 - 33 39 1/8
JUL 49 7/8 - 39 1/8 46 3/4
AUG 53 - 40 1/4 49 1/4
SEP 62 1/2 - 48 1/4 58
OCT 59 1/2 - 43 1/4 46 7/8
NOV 48 - 38 3/4 41 7/8
DEC 48 - 30 32 3/4
1996
----
JAN 34 3/8 - 22 1/2 28 1/4
FEB 38 7/8 - 26 27 5/8
MAR 29 3/4 - 24 7/8 26 7/8
APR 37 7/8 - 26 5/8 36
MAY 39 5/8 - 28 3/4 31 1/8
JUN 31 1/4 - 24 1/2 26
JUL 27 - 17 19 1/2
AUG 24 1/2 - 18 3/4 21 7/8
SEP 25 3/4 - 20 1/8 23 1/4
OCT 28 1/4 - 21 3/8 26 1/2
NOV 33 7/8 - 26 1/2 30 1/8
DEC 33 1/4 - 26 5/8 26 3/4
TRADING VOLUME
Point Graph showing total trading volume of shares in each calendar
month during fiscal 1995 and 1996. Values depicted are as follows:
1995 SHARES TRADED 1996 SHARES TRADED
---- ------------- ---- -------------
JAN 27,758,400 JAN 68,889,504
FEB 23,461,000 FEB 66,151,600
MAR 23,797,600 MAR 49,794,400
APR 19,428,800 APR 43,953,300
MAY 27,639,600 MAY 61,387,000
JUN 23,221,100 JUN 41,964,400
JUL 25,048,500 JUL 66,940,200
AUG 23,804,700 AUG 36,380,700
SEP 25,160,500 SEP 46,553,900
OCT 41,672,400 OCT 56,529,900
NOV 39,745,600 NOV 46,718,600
DEC 71,075,104 DEC 33,655,800
<PAGE> 46
LSI LOGIC EUROPE, LTD.
Grenville Place
The Ring
Bracknell
Berkshire RG12 1BP
United Kingdom
Tel: 44.1344.426544
Fax: 44.1344.481039
LSI LOGIC K.K.
4-1-8 Konan
Minato-ku
Tokyo 108
Japan
Tel: 81.3.5463.7811
Fax: 81.3.5463.7825
LSI LOGIC CORPORATION
OF CANADA, INC.
401 The West Mall
Suite 1110
Etobicoke Ontario M9C 3J5
Canada
Tel: 416.620.7400
Fax: 416.620.5005
LSI LOGIC JAPAN
SEMICONDUCTOR, INC.
10 Kitahara Tsukuba-shi
Ibaraki-ken 300-32
Japan
Tel: 81.298.64.7229
Fax: 81.298.64.3362
LSI LOGIC HONG KONG,
LIMITED
7/F Southeast Industrial Building
611-619 Castle Peak Road
Tsuen Wan
Hong Kong
Tel: 852.2405.8600
Fax: 852.2412.7820
[LSI LOGIC LOGO]
LSI LOGIC CORPORATION
1551 McCarthy Blvd
Milpitas CA 95035
United States
Tel: 408.433.8000
Fax: 408.954.3773
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY INCORPORATION
------------------ ---------------
<S> <C>
LSI Logic Europe plc United Kingdom
LSI Logic Corporation of Canada, Inc. Canada
LSI Logic K.K. Japan
LSI Logic Hong Kong Limited Hong Kong
LSI Logic Netherlands B.V. Netherlands
LSI Logic Japan Semiconductor, Inc.* Japan
LSI Logic Corporation of Korea Korea
LSI Logic Export Sales Corporation U.S. Virgin Islands
LSI Logic Asia, Inc. Delaware
LSI Logic International Services, Inc. California
</TABLE>
* Formerly known as Nihon Semiconductor, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 147,059
<SECURITIES> 570,223
<RECEIVABLES> 188,093
<ALLOWANCES> 3,116
<INVENTORY> 90,410
<CURRENT-ASSETS> 1,051,054
<PP&E> 1,349,377
<DEPRECIATION> 537,718
<TOTAL-ASSETS> 1,952,714
<CURRENT-LIABILITIES> 345,338
<BONDS> 143,750
0
0
<COMMON> 1,290
<OTHER-SE> 1,314,929
<TOTAL-LIABILITY-AND-EQUITY> 1,952,714
<SALES> 1,238,694
<TOTAL-REVENUES> 1,238,694
<CGS> 695,002
<TOTAL-COSTS> 695,002
<OTHER-EXPENSES> 351,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,610
<INCOME-PRETAX> 205,115
<INCOME-TAX> 57,432
<INCOME-CONTINUING> 147,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,184
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.07
</TABLE>
