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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-12933
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LAM RESEARCH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-2634797
(STATE OF OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
4650 CUSHING PARKWAY, 94538
FREMONT, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 659-0200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
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 requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the average of the closing price of the Common Stock on
September 1, 1998, as reported by the Nasdaq National Market, was approximately
$229,650,000. Common Stock held by each officer and director and by each person
who owns 5% or more of the outstanding Common Stock have been excluded from this
computation 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 September 1, 1998, the Registrant had outstanding 38,124,277 shares
of Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Parts of Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on November 5, 1998 are incorporated by reference into
Parts III of this Form 10-K Report. (The Compensation Committee Report and the
stock performance graph of the Registrant's Proxy Statement are expressly not
incorporated by reference herein.)
PART I
The index to Exhibits is located on pages 56 to 58.
ITEM 1. BUSINESS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
With the exception of historical facts, the statements contained in this
discussion are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and are subject to the Safe Harbor
provisions created by that statute. Such forward-looking statements include, but
are not limited to, statements that relate to the Company's future revenue,
product development, demand, acceptance and market share, competitiveness,
royalty income, gross margins, levels of research and development ("R&D") and
operating expenses, management's plans and objectives for current and future
operations of the Company, the effects of the Company's acquisition of OnTrak
Systems, Inc. ("OnTrak"), the effects of the Company's ongoing reorganization
and consolidation of operations and facilities, the ability of the Company to
complete contemplated reorganizations or consolidations on time or within
anticipated costs, and the sufficiency of financial resources to support future
operations and capital expenditures. Such statements are based on current
expectations and are subject to risks, uncertainties, and changes in condition,
significance, value and effect, including those discussed below and under the
heading Risk Factors within the section of this report entitled "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other documents the Company files from time to time with the
Securities and Exchange Commission, specifically the Company's last filed
Registration Statement on Form S-3, Quarterly Reports on Form 10-Q and the
Company's current reports on Form 8-K. Such risks, uncertainties and changes in
condition, significance, value and effect could cause actual results to differ
materially from those expressed herein and in ways not readily foreseeable.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof and of information currently
and reasonably known. The Company undertakes no obligation to release the
results of any revisions to these forward-looking statements which may be made
to reflect events or circumstances which occur after the date hereof or to
reflect the occurrence or effect of anticipated or unanticipated events.
THE COMPANY
Lam Research Corporation ("Lam" or the "Company") designs, manufactures,
markets and services semiconductor processing equipment used in the fabrication
of integrated circuits. Lam is recognized by its customers worldwide as a
leading supplier of semiconductor production equipment in the etch market. The
Company's products are used to selectively etch away portions of various films
("etch") to create an integrated circuit. Etch processes, which are repeated
numerous times during the fabrication cycle, are required to manufacture every
type of semiconductor device produced today. With the acquisition of OnTrak,
completed in August 1997, Lam has added both Chemical Mechanical Planarization
("CMP") and CMP cleaning product lines. CMP is the planarization technology of
choice for manufacturing sub-0.35 micron integrated circuits with multiple metal
layers.
Lam sells a broad range of plasma dry etch products to address specific
applications, including the Advanced Capability Rainbow(TM) ("Rainbow") and
Transformer Coupled Plasma(TM) ("TCP(TM)") product lines. Lam's TCP etchers
utilize a high density plasma process to etch device features down to 0.18
micron and below. All current generation TCP and Rainbow modules are available
on Lam's Alliance(TM) ("Alliance")
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multi-chamber cluster platform. Through OnTrak, the Company markets both the
Double-Sided Scrubbing ("DSS") DSS-200(R) and Synergy(TM) product lines of
cleaners, which are used to remove residual slurries and other contaminants from
wafer surfaces, both after CMP polishing and before and after essential
semiconductor process steps. Lam's Teres(TM) CMP polishing system leverages
OnTrak's CMP cleaning expertise to provide the Company's first fully integrated
polishing and cleaning solutions.
On August 5, 1997, Lam acquired OnTrak, a leading manufacturer of CMP
cleaning equipment. As part of the transaction, James W. Bagley, Chairman and
Chief Executive Officer of OnTrak, became Chief Executive Officer of Lam. In
September 1998, Mr. Bagley was promoted to Chairman of the Board of Lam.
RESTRUCTURING
During fiscal 1998, the Company announced restructurings of its operations
to focus more on its core etch and CMP product groups, and to exit its Flat
Panel Display ("FPD") and Chemical Vapor Deposition ("CVD") operations. As a
result of the restructurings, the Company reduced its global workforce during
fiscal 1998 by approximately 28% and downsized and consolidated its
manufacturing operations. The Company recorded a total restructuring charge of
$148.9 million related to severance and benefits, facilities and fixed assets,
excess and obsolete inventory and other exit costs.
Prior to the restructurings, Lam offered the DSM(TM) 9800 low pressure CVD
system, a fully automated batch thermal CVD system for pre-metal dielectric
applications, and the DSM(TM) 9900 high density plasma ("HDP") CVD system, for
advanced inter-metal dielectric applications. Lam entered the FPD market in
calendar 1996 with the introduction of the Continuum(TM) etch system based on
TCP technology.
PRODUCTS
Semiconductor wafers are subjected to a complex series of process steps
that result in the simultaneous creation of many individual integrated circuits.
The six basic steps of semiconductor wafer fabrication include deposition, CMP
and cleaning, photolithography, etching, assembly and testing. Lam's products
are used in the etch and CMP processes of semiconductor device manufacturing.
All of the Company's etch products are available as stand-alone systems or in
conjunction with the Alliance multi-chamber cluster platform. Lam incorporates
its Envision(TM) interactive control system software into each of its systems
for advanced production management.
Etch Products
The etch process defines line-widths and other micro features on integrated
circuits. Plasma etching was developed to meet the demand for device geometries
with line-widths smaller than three microns. Plasma etching uses ionized gases
that react with exposed portions of the wafer to produce finely delineated
features and patterns of the integrated circuit. Today, manufacturers of
advanced integrated circuits require etch systems that can produce line-widths
as small as or smaller than 0.25 micron (approximately 1/300 the thickness of a
human hair), and in the future are expected to require systems capable of
producing devices with feature sizes smaller than 0.1 micron. In addition,
advanced manufacturing facilities are producing integrated circuits on silicon
wafers of 200 mm (8 inches) in diameter, and a transition in wafer diameters is
expected to increase standard diameters to 300 mm (12 inches). To accommodate
these decreasing line-widths and anticipated increasing wafer diameters,
manufacturers will increasingly require more precise control over the etching
process. Lam's family of etch systems incorporates plasma technologies designed
to meet both current and future device requirements.
Rainbow. The first Rainbow etch single chamber system was introduced in
1987. The Rainbow series of products addresses processes that utilize wafer
sizes up to 200 mm and feature line-width sizes as small as 0.18 micron in some
cases. The Rainbow product line, also available on the Alliance platform,
includes the Rainbow 4400, 4500, 4600 and 4700 series for etching polysilicon,
oxide, aluminum and tungsten films, respectively. These systems are designed to
accommodate evolving customer needs through hardware and process enhancements.
The 4520XLE(TM) offers an extended process window and capabilities for sub-0.25
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micron geometries. The 4520XLE is well suited for next generation etch regimes
associated with copper damascene processes.
The Rainbow product line incorporates a number of unique features that
offer semiconductor manufacturers improved etch capability, reliability and
performance. These features include a patented wafer handling system, a
proprietary source for generating stable plasma, and an overall product design
for which Lam has received industry awards for quality and reliability. These
and other Rainbow product features enable the semiconductor manufacturer to
reduce wafer particle contamination to a level that exceeds current industry
standards, and to improve etch selectivity and uniformity while maintaining
profile control and process flexibility.
TCP: Lam's TCP product line of high-density, low-pressure etch systems,
which was introduced in late 1992, incorporates the Company's patented
Transformer Coupled Plasma source technology for etching 0.25 micron and smaller
geometries. The Company currently offers the TCP 9600SEII and TCP 9600PTX for
metal etch applications, the TCP 9400SEII and TCP 9400PTX for polysilicon,
polycide and shallow trench isolation etch applications and the TCP 9100 and TCP
9100PTX for oxide etch applications. These systems are currently used to produce
a broad range of advanced logic and memory devices, and the Company believes
these products offer technological capability to enable manufacturers to produce
the next generation of advanced devices. The TCP-series etch systems operate at
lower pressures for improved pattern transfer control and higher plasma density
for higher etch rates with independent power control to the lower electrode,
which improves etch results across a wider process window. Lam's TCP systems are
designed to offer customers a reliable, lower cost of ownership solution for
their advanced processing needs. The TCP systems are available as a stand-alone,
single wafer configuration or in conjunction with the Alliance multi-chamber
cluster platform.
Chemical Mechanical Planarization Products
CMP Cleaning
DSS-200: The DSS-200 cleaning systems offered through Lam's OnTrak
subsidiary have a number of features that distinguish them from alternative
cleaning methods. A double-sided design permits simultaneous scrubbing of both
sides of the wafer, while limiting wafer handling contact which can contaminate
the backside of the wafer. For selected applications, its brush cleaning systems
provide significant advantages over traditional batch wet bench cleaning
systems, including improved cleaning efficiency, reduced chemical usage, a
smaller footprint, lower operating costs, and greater process flexibility. In
addition, the single wafer design minimizes the risks inherent in processing
wafers in batches.
Synergy: The Synergy products combine the best of OnTrak's DSS technology
with chemical cleaning. Synergy leverages OnTrak's proprietary Chemical
Mechanical Cleaning ("CMC"(TM)) technology to perform mechanical cleaning and
chemical cleaning simultaneously in a single-step process. This combination
offers maximum cleaning performance while maintaining high throughput. The
applications for the Synergy family include oxide, shallow trench solution,
tungsten, and copper cleaning. In response to the worldwide demand for a
dry-wafer-in, dry-wafer-out CMP solution, OnTrak provides the Synergy Integra
which incorporates advanced cleaning technology with a pre-designed platform
that enables the integration of polisher and cleaner. The Synergy Integra
provides a unique solution to the challenge of CMP process integration.
Integrated system packages, the result of partnerships between OnTrak and key
polishing vendors, provide a viable alternative to conventional stand-alone CMP
processing.
CMP Polisher
Teres: Lam developed the Teres CMP integrated polishing and cleaning system
based on a technological approach different from that of conventional polishers
which utilize a rotating table and rotating polishing heads. Lam has developed a
proprietary linear polishing method and has designed its polishing system to be
installed in a Class 1 cleanroom environment to planarize patterned films on
wafers, and to polish wafers at
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higher rates and achieve the uniformity and planarity that is necessary to
manufacture advanced semiconductor devices.
Deposition Products
During fiscal 1998, the Company restructured its operations to focus more
on its core etch and CMP product groups and to exit its CVD and FPD operations.
CVD involves the deposition of thin films on a silicon wafer by exposing the
wafer to various reactant gases containing the materials to be deposited.
Insulating films are deposited to form dielectric layers on integrated circuits.
DSM 9800: The DSM 9800 utilized a patented integrated process design for
flowing gases over the wafer, forming films that are highly uniform and planar
at a lower thermal budget.
DSM 9900: Lam introduced its first DSM 9900 HDP CVD system in November
1995. The DSM 9900 was used in conjunction with Lam's Alliance platform.
Flat Panel Display Products
The Company entered the FPD market in calendar 1996 with the introduction
of its Continuum etch system, based upon the TCP technology also used in
semiconductor fabrication. During fiscal 1998, the Company restructured its
operations, deciding to exit its CVD and FPD operations.
"Lam", "Lam Research", "Transformer Coupled Plasma", "TCP", "Teres", "DSM",
"Rainbow", "Advanced Capability Rainbow", "Continuum", "Alliance" and "Envision"
are trademarks of Lam Research Corporation. "AutoEtch" is a registered
trademarks of Lam Research Corporation.
"OnTrak" and "Synergy" are trademarks and "DSS-200" is a registered
trademark of OnTrak Systems, Inc., a wholly-owned subsidiary of Lam.
RESEARCH AND DEVELOPMENT
The market for semiconductor capital equipment is characterized by rapid
technological change. The Company believes that continued and timely development
of new products and enhancements to existing products are necessary for it to
maintain its competitive position. Accordingly, the Company devotes a
significant portion of its personnel and financial resources to R&D programs and
seeks to maintain close relationships with its customers to be responsive to
their product needs.
The Company's net R&D expenses during fiscal 1998, 1997 and 1996, were
approximately $206.5 million, $192.3 million, and $186.9 million, respectively,
and represented 19.6%, 17.9% and 14.1% of total revenue, respectively. Such R&D
expenses were net of third party funding from industry consortiums and
customers, representing approximately $1.2 million and $3.4 million, during
fiscal 1997 and 1996, respectively. Such expenditures were used for the
development of new products and film applications, and the continued enhancement
of existing products. Current projects include the development of advanced etch
and CMP products. As of fiscal 1998, the R&D projects funded, in whole or in
part, by the United States Display Consortium ("USDC") were in large part
complete.
In June 1994, the Company received a multi-year contract from the USDC for
the development of a FPD etch system, based on the Company's Transformer Coupled
Plasma technology. The Continuum etch system was designed for use in the
manufacture of large scale FPDs for several new technologies, including active
matrix liquid crystal displays and field emission displays. Included in the $1.2
million and $3.4 million of third party funded R&D for fiscal 1997, and 1996,
was $1.2 million and $3.2 million, respectively, from the USDC.
The Company expects to continue to make substantial investments in R&D. The
Company also must manage product transitions successfully, as introductions of
new products could adversely affect sales of existing products. There can be no
assurance that future technologies, processes or product developments will not
render the Company's product offerings obsolete or that the Company will be able
to develop and introduce new products or enhancements to its existing products
and processes in a timely manner which
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satisfy customer needs or achieve market acceptance. The failure to do so could
adversely affect the Company's business. Furthermore, if the Company is not
successful in the development of advanced process equipment for manufacturers
with whom it has formed strategic alliances, its ability to sell its products to
those manufacturers would be adversely affected. In addition, in connection with
the development of the Company's new products, the Company invests in material
levels of pre-production inventory, and the failure to complete development and
commercialization of these new products in a timely manner could result in
inventory obsolescence, which could adversely affect the Company's financial
results.
MARKETING, SALES AND SERVICE
The Company's marketing and sales efforts are focused on building long-term
relationships with its customers. These efforts are supported by a team of
product marketing managers, sales personnel, equipment engineers and process
engineers that works closely with individual customers to find solutions to
their process needs. After-sales support is an essential element of the
Company's marketing and sales program. The Company maintains an ongoing support
relationship with its customers and has an extensive network of field service
personnel in place throughout the United States, Europe, Japan and Asia Pacific.
In addition, the Company maintains an in-house group of highly skilled
application engineers to respond to customer process needs worldwide, when a
higher level of technical expertise is required. The Company believes that its
extensive support programs and close working relationships with its customers
improves its competitiveness.
The Company has more than 40 sales and support centers located throughout
the United States, Europe, Japan and Asia Pacific, through which direct sales
personnel and independent sales representatives sell and service the Company's
products. The Company offers its customers a comprehensive warranty package on
all released products.
In Japan, the Company has licensing arrangements with Sumitomo Metal
Industries, Ltd. ("Sumitomo") and Tokyo Electron Limited ("TEL"). Sumitomo
manufactures, sells and distributes certain of the Company's Rainbow products to
specific customers in Japan under an exclusive license agreement with Lam. TEL
has a non-exclusive license to sell products incorporating certain features of
Lam's proprietary etch technology. In June 1991, the Company opened the Lam
Technology Center near Tokyo, Japan, to establish a presence in Japan and to
assist Sumitomo in serving Japanese customers. In May 1993, Lam completed its
advanced development and demonstration laboratory in Sagamihara, Japan, which
allows customers to evaluate the Company's recently introduced advanced
technology products.
Export sales accounted for approximately 39%, 42% and 41% of net sales in
fiscal 1998, 1997 and 1996, respectively. Export sales consist of sales from the
Company's U.S. operating subsidiary to nonaffiliated customers in non U.S.
countries. Prior to fiscal 1998, the Company expanded its international
operations, including expansion of its Japan operations, the opening of a
manufacturing facility in Korea in July 1995, and the relocation and expansion
of the Taiwan facility to a technology development center. In fiscal 1998, the
Company commenced a worldwide downsizing of its operations, including
manufacturing facilities in Asia. A significant portion of the Company's sales
and operations will be subject to certain risks, including tariffs and other
barriers, difficulties in staffing and managing foreign subsidiary and branch
operations, difficulties in managing distributors, potentially adverse tax
consequences and the possibility of difficulty in accounts receivable
collection. There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business, financial position, results
of operations and cash flows. Reference is made to Note C of the Company's
Consolidated Financial Statements included in Item 8 herein, for further
information concerning export sales, which information is incorporated herein by
this reference.
CUSTOMERS
The Company's customers include most of the world's leading semiconductor
manufacturers. Revenue from Intel Corporation accounted for 12% of total revenue
for fiscal 1998. In fiscal 1997 and 1996, no individual customer accounted for
more than 10% of Lam's total revenue.
The Company's business depends upon the capital expenditures of
semiconductor manufacturers, which in turn depend on the current and anticipated
market demand for integrated circuits and products utilizing
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integrated circuits. The semiconductor industry has been experiencing a slowdown
resulting from depressed DRAM pricing and manufacturing over-capacity. This has
caused semiconductor manufacturers to reduce their capital equipment
investments, and in certain cases customers have either rescheduled or canceled
capital equipment purchases. Also, during fiscal 1998, the Asian regions were
faced with difficulties in their financial markets, which has also had an
adverse impact on the ability of Asian customers to purchase capital equipment.
No assurance can be given that the Company's revenue and operating results will
not be further adversely affected if downturns in the semiconductor industry and
difficulties in the Asian regions' financial markets continue.
BACKLOG
The Company schedules production of its systems based upon order backlog
and customer commitments. Included in backlog for the Company are orders for
which written authorizations have been accepted and shipment dates have been
assigned. As of June 30, 1998 and 1997, the Company's order backlog was
approximately $130.4 million and $272.1 million, respectively. During fiscal
1998, the semiconductor market experienced a slowdown as a result of depressed
DRAM pricing, over capacity and the financial crisis in Asia. This slowdown has
caused certain semiconductor manufacturers to delay their capital equipment
purchase decisions and in certain cases to reschedule or cancel capital
equipment purchases. All orders of the Company's products are subject to
cancellation by the customer, in some cases with limited penalty. Because some
orders are received for systems to be shipped in the same quarter and because of
possible customer changes in delivery schedules and cancellations of orders, the
Company's backlog at any particular date is not necessarily indicative of actual
sales for any succeeding period.
MANUFACTURING
The Company maintains facilities in Fremont and San Jose, California, for
the manufacture of its etch and CMP products. In fiscal 1998, the Company
discontinued its manufacturing activities in Wilmington, Massachusetts and in
CheonAn, Korea.
The Company's manufacturing operations consist of assembling and testing
components and subassemblies that are then integrated into finished systems.
Once manufacturing has completed final testing of all electronic and
electromechanical subassemblies that make up one of the Company's products, the
completed system is process tested. Stringent cleanliness controls are present
throughout the manufacturing process and testing areas of these facilities to
reduce particle contamination. Much of the assembly and testing of the Company's
products is conducted in cleanroom environments where personnel are properly
attired to reduce particulate contamination. Prior to shipping a completed
system, the customer's engineers may perform acceptance tests at Lam's facility,
using the customer's own wafers. After passing the acceptance test, the system
is vacuum-bagged in a cleanroom environment and prepared for shipment.
The Company is subject to a variety of governmental regulations related to
the discharge or disposal of toxic, volatile or otherwise hazardous chemicals
used in the manufacturing process. The Company believes that it is in general
compliance with these regulations and that it has obtained (or will obtain or is
otherwise addressing) all necessary environmental permits to conduct its
business. These permits generally relate to the disposal of hazardous wastes.
Nevertheless, the failure to comply with present or future regulations could
result in fines being imposed on the Company, suspension of production,
cessation of operations or reduction in product acceptance. Such regulations
could require the Company to alter current operations or to acquire significant
equipment or to incur substantial other expenses to comply with environmental
regulations. Any failure by the Company to control the use, sale or transport
of, or adequately restrict the discharge or disposal of, hazardous substances
could subject the Company to future liabilities.
EMPLOYEES
As of September 1, 1998, the Company had approximately 3,300 full-time
employees. None of the Company's employees are represented by a union and the
Company has never experienced a work stoppage. Management considers its employee
relations to be good.
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Each employee of the Company has signed agreements to maintain the
confidentiality of the Company's proprietary information, and most key employees
have stock or stock option arrangements with the Company that provide for the
vesting of their interests over several years.
COMPETITION
The semiconductor manufacturing equipment industry is highly competitive.
The Company faces substantial competition throughout the world. Management
believes that to remain competitive it will require significant financial
resources to offer a broad range of products, to maintain customer service and
support centers worldwide and to invest in product and process R&D. Certain of
the Company's existing and potential competitors have substantially greater
financial resources and more extensive engineering, manufacturing, marketing and
customer service and support organizations. Lam expects its competitors to
continue to improve the design and performance of their current products and
processes and to introduce new products and processes with enhanced price and
performance characteristics. If the Company's competitors enter into strategic
relationships with leading semiconductor manufacturers covering etch or CMP
products similar to those sold by the Company, its ability to sell its products
to those manufacturers could be adversely affected. No assurance can be given
that the Company will continue to compete successfully in the United States or
worldwide.
The Company faces significant competitive factors in the etch equipment
market, including etch quality, repeatability, process capability and
flexibility, and overall cost of ownership, which may be effected by factors
such as reliability, software automation, throughput, customer support, and
system price. Although Lam believes that it competes favorably with respect to
each of these factors, the Company's ability to compete successfully in this
market will depend upon its ability to introduce product enhancements and new
products on a timely basis. There can be no assurance that the Company will
continue to compete successfully in the future. In the etch equipment market,
the Company's primary competitors are Applied Materials, Inc., TEL and Hitachi
Ltd.
The Teres CMP polishing system developed by the Company faces significant
competition from multiple current and future competitors. Companies currently
offering polishing systems include Applied Materials, Inc., Cybeq Systems, Ebara
Corp., Integrated Process Equipment Corp. ("IPEC"), SpeedFam Corp., Strasbaugh
and Sumitomo. IPEC currently has the largest installed base of CMP polishers and
also offers an integrated CMP polishing and cleaning system.
In CMP slurry removal and cleaning applications, Lam's principal competitor
is DaiNippon Screen Manufacturing Co. Ltd. ("DaiNippon Screen"). The Company
expects that it will face increased competition from IPEC, which currently
offers a slurry removal system, and SpeedFam, as well as others as the CMP
market continues to develop. In general cleaning applications, Lam competes
against DaiNippon Screen and others.
FISCAL 1998 EVENTS
OnTrak Merger
On August 5, 1997, the stockholders of the Company approved the issuance of
Lam Common Stock under the Agreement and Plan of Merger with OnTrak ("the
Merger"). Each share of OnTrak common stock ("OnTrak Common Stock"), par value
$0.0001 per share, was exchanged for 0.83 of a share of Lam common stock ("Lam
Common Stock"), and each option and right to acquire one share of OnTrak Common
Stock was exchanged for options and rights to purchase 0.83 of a share of Lam
Common Stock. The transaction was accounted for as a pooling of interests and
was structured to qualify as a tax-free reorganization. Costs associated with
the Merger were $17.7 million. Such expenses included investment advisory fees,
legal and accounting fees, financial printing, and other Merger-related costs.
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Approval of Lam Research Corporation Stock Incentive Plan
On August 5, 1997, the stockholders of the Company approved the 1997 Stock
Incentive Plan, which provided for a grant of stock options, restricted stock,
deferred stock and performance share awards to participating officers,
directors, employees, consultants and advisors of the Company and its
subsidiaries. Initially, 3,000,000 shares were reserved for issuance under the
Plan. The number of shares available for issuance under the Plan may
automatically be increased each quarter subject to certain provisions and
restrictions contained in the Plan, but shall in no event exceed 5,000,000
shares.
Convertible Subordinated Notes
During August 1997, Lam completed an offering of $310.0 million of
Convertible Subordinated Notes ("the Notes"). Interest on the five percent Notes
is payable on September 1 and March 1 of each year commencing March 1, 1998. The
Notes are convertible into shares of Lam Common Stock at any time prior to the
close of business on the maturity date of September 1, 2002, unless previously
redeemed, at a conversion price of $87.77 per share, subject to adjustment. The
Notes are redeemable, in whole or in part, at the option of the Company, upon at
least 20 days notice, at redemption prices starting at 102.0% of the principal
amount and at diminishing prices thereafter, plus accrued interest, except that
the Notes may not be redeemed prior to September 6, 2000, unless the closing
price of Lam Common Stock is at least 130% of the conversion price for at least
20 trading days within a period of 30 consecutive trading days ending within
five trading days prior to the notice of redemption. The Notes are unsecured and
subordinated in right of payment in full to all existing and future senior
indebtedness of the Company. Expenses associated with the offering of
approximately $9.0 million were deferred in other assets and are being amortized
over the term of the Notes.
PATENTS AND LICENSES
The Company has a policy of seeking patents on inventions governing new
products and processes developed as part of its ongoing research, engineering
and manufacturing activities. Lam holds United States patents and corresponding
foreign patents covering various aspects of its products. The Company believes
that the duration of its patents generally exceeds the life cycles of the
technologies disclosed and claimed therein. Lam believes that although the
patents it holds and may obtain will be of value, they will not alone determine
the Company's success, which depends principally upon its engineering,
marketing, service and manufacturing skills. However, in the absence of patent
protection, the Company may be vulnerable to competitors who attempt to imitate
its products, manufacturing techniques and processes. In addition, other
companies and inventors may receive patents that contain claims applicable or
similar to the Company's products and processes. The sale of products covered by
such patents could require licenses that may not be available on acceptable
terms, or at all.
From time to time, Lam has received notices from third parties alleging
infringement of such parties' patent or other intellectual property rights by
the Company's products. In such cases, it is the policy of the Company to defend
the claims or negotiate licenses on commercially reasonable terms, where
considered appropriate. However, no assurance can be given that Lam will be able
in the future to negotiate necessary licenses on commercially reasonable terms,
or at all, or that any litigation resulting from such claims would not have a
material adverse effect on the Company's business and financial results.
In October 1993, Varian Associates, Inc. ("Varian") brought suit against
Lam in the United States District Court for the Northern District of California,
seeking monetary damages and injunctive relief based on the Company's alleged
infringement of certain patents held by Varian. The Company has asserted
defenses of invalidity and unenforceability of the patents that are the subject
of the lawsuit, as well as non-infringement of such patents by the Company's
products. No trial date is currently scheduled. While litigation is subject to
inherent uncertainties and no assurance can be given that Lam will prevail in
such litigation or will obtain a license under such patents on commercially
reasonable terms, or at all, if such patents are held valid and infringed by the
Company's products, the Company believes that the Varian lawsuit will not have a
material adverse effect on the Company's operating results or the Company's
financial position. See "Item 3. Legal Proceedings," which is incorporated
herein by reference.
9
<PAGE> 10
In December 1986, the Company entered into a non-exclusive license
agreement with TEL, licensing the Company's AutoEtch(R) technology and chamber
design. This license expired in December 1991 and, in January 1992 the Company
entered into a new five year license agreement with TEL on substantially similar
terms. The second license agreement was originally set to expire in December
1996 but was renegotiated and extended to a reduced royalty rate of 1% from 5%.
Fiscal 1998 was the first full fiscal year with royalty income from TEL computed
at the reduced rate.
The Company has two license agreements with Sumitomo. Under one agreement,
Lam granted Sumitomo an exclusive license for the manufacture and sale of
certain Rainbow etch systems in the Japanese market. Under the other agreement,
Sumitomo granted the Company an exclusive license for the manufacture and sale
of Sumitomo's ECR systems in North America and Europe.
EXECUTIVE OFFICERS OF THE COMPANY
As of September 1, 1998, the executive officers of the Company, who are
elected by and serve at the discretion of the Board of Directors, were as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
James W. Bagley............. 59 Chairman and Chief Executive Officer
Stephen G. Newberry......... 45 President and Chief Operating Officer
Mercedes Johnson............ 44 Vice President, Finance and Chief Financial Officer
Hsui-Sheng (Way) Tu......... 41 President, Asia Pacific Operations
Vice President, North America and Europe
David E. Bayly.............. 47 Sales and Field Operations
Gregor A. Campbell.......... 38 Vice President and General Manager, Etch
Products Organization
Craig Garber................ 40 Vice President, Corporate Finance and Treasurer
Richard H. Lovgren.......... 44 Vice President, General Counsel and Secretary
</TABLE>
James W. Bagley became Chief Executive Officer and a Director of Lam upon
consummation of the Merger. Effective September 1, 1998, Mr. Bagley was
appointed Chairman of the Board of Lam. Mr. Bagley currently is a director of
KLA-Tencor Corporation, Teradyne, Inc., Kulicke & Soffe Industries, Inc., Micron
Technology, Inc., and SEMI/SEMATECH. From June 1996 to August 1997, Mr. Bagley
served as Chairman of the Board and Chief Executive Officer of OnTrak. Prior to
joining OnTrak, Mr. Bagley was employed by Applied Materials, Inc. for 15 years
in various senior management positions, most recently as Chief Operating Officer
and Vice Chairman of the Board. Mr. Bagley held various management positions at
Texas Instruments, Inc. before he joined Applied Materials, Inc.
Stephen G. Newberry joined the Company in August 1997 as Executive Vice
President and Chief Operating Officer. In July 1998, Mr. Newberry was promoted
to President of Lam. Previously, he was employed by Applied Materials, Inc. for
17 years, most recently as Group Vice President of Global Operations and
Planning. From 1990 to 1992, Mr. Newberry served as Vice President of Applied
Materials Japan and was responsible for Customer Service, Engineering and
Manufacturing. Upon his return to the United States, Mr. Newberry served in a
variety of executive management positions at Applied Materials, Inc.
Mercedes Johnson joined the Company in April 1997. She was formerly Vice
President and Worldwide Operations Controller of Applied Materials, Inc., where
she also served as Senior Director and Worldwide Business Operations Controller,
Director and Senior Controller for CVD and Etch Technologies Group, Manager of
International Treasury and Division Controller of Etch Products Division. Prior
to joining Applied Materials, Inc., Ms. Johnson held senior finance and
controller positions at Nanometrics, Inc., NCR Corporation and Hewlett-Packard
Company.
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<PAGE> 11
Hsui-Sheng (Way) Tu joined the Company in 1983 and has held various
positions with the Company. In August 1997, Mr. Tu was appointed President, Asia
Pacific Operations. In 1996, Mr. Tu was named President of Lam which position he
held until August 1997. In 1994, Mr. Tu was named Vice President of the Oxide
Etch Business Unit. In 1992, he was named Vice President of Asian Operations.
Before joining the Company, Mr. Tu was Process Engineering Supervisor for
Fairchild Semiconductor.
David E. Bayly joined the Company in February 1998 as Vice President, North
America and Europe Sales and Field Operations. He was formerly Vice President of
Sales at Tencor Instruments, Inc. Mr. Bayly has also previously held executive
positions at Novellus Systems, Inc. Mr. Bayly's career started at Hewlett
Packard Company and he has been in the semiconductor equipment business since
1982.
Gregor A. Campbell joined the Company in November 1997 as Vice President
and General Manager, Etch Products Organization. Prior to joining the Company,
Dr. Campbell was a Director and Chief Executive Officer of Trikon Technologies,
Inc.
Craig Garber joined the Company in September 1997 as Vice President,
Corporate Finance and Treasurer. Before joining the Company, and since 1984, Mr.
Garber held various finance positions at Applied Materials, Inc. His most recent
position at Applied Materials, Inc. was Assistant Treasurer and Senior Director
of Treasury Operations.
Richard H. Lovgren joined the Company in 1995 as Vice President, General
Counsel and Corporate Secretary. Before joining the Company, and since 1979, Mr.
Lovgren held various legal positions at Advanced Micro Devices, Inc. His most
recent position at Advanced Micro Devices, Inc. was Director and Deputy General
Counsel.
ITEM 2. PROPERTIES
The Company's executive offices and principal manufacturing and R&D
facilities are located in Fremont and San Jose, California, and are under leases
expiring from 2001 to 2020. As a result of the restructurings of operations, the
Company has excess capacity and has initiated a consolidation of its operations
and is attempting to sublease its idle facilities in Fremont, and San Jose,
California.
In addition, the Company leases office space for its service and sales
personnel throughout the United States, Europe, Japan and Asia Pacific. The
Company has subleased, or is negotiating subleases, with respect to certain of
those facilities as part of its restructurings and consolidation.
The Company's fiscal 1998 rental payments for the facilities occupied as of
June 30, 1998 aggregated approximately $44.7 million and are subject to periodic
increases. The Company believes that its existing facilities are well maintained
and in good operating condition.
ITEM 3. LEGAL PROCEEDINGS
In October 1993, Varian brought suit against the Company in the United
States District Court, for the Northern District of California, seeking monetary
damages and injunctive relief based on the Company's alleged infringement of
certain patents held by Varian. The Company has asserted defenses of invalidity
and unenforceability of the patents that are the subject of the lawsuit, as well
as non-infringement of such patents by the Company's products. No trial date is
currently scheduled. While litigation is subject to inherent uncertainties and
no assurance can be given that Lam will prevail in such litigation or will
obtain a license under such patents on commercially reasonable terms, or at all,
if such patents are held valid and infringed by the Company's products, the
Company believes that the Varian lawsuit will not have a material adverse effect
on the Company's operating results or the Company's financial position.
From time to time, Lam has received notices from third parties alleging
infringement of such parties' patent or other intellectual property rights by
the Company's products. In such cases, it is the policy of the Company to defend
the claims or negotiate licenses on commercially reasonable terms, where
considered appropriate. However, no assurance can be given that Lam will be able
in the future to negotiate necessary
11
<PAGE> 12
licenses on commercially reasonable terms, or at all, or that any litigation
resulting from such claims would not have a material adverse effect on the
Company's business and financial results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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 "Item
6. Selected Financial Data" below.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Total revenue......................... $1,052,586 $1,073,197 $1,332,713 $836,581 $505,192
Gross profit.......................... 374,142 349,793 643,198 406,874 234,385
Total restructuring charges........... 148,858 9,021 -- -- --
Merger costs.......................... 17,685 -- -- -- --
Purchased technology for research and
development........................ 12,100 -- -- -- --
Operating income (loss)............... (180,924) (60,776) 218,855 119,945 62,603
Net income (loss)..................... (144,599) (30,676) 145,878 90,279 39,269
Net income (loss) per share
Basic.............................. $ (3.80) $ (0.83) $ 4.32 $ 3.07 $ 1.46
Diluted............................ $ (3.80) $ (0.83) $ 3.95 $ 2.65 $ 1.31
BALANCE SHEET:
Working capital....................... $ 603,580 $ 462,171 $ 516,162 $343,410 $173,913
Total assets.......................... 1,150,772 1,035,049 1,031,497 698,416 386,772
Long-term obligations, less current
portion............................ 334,174 46,592 54,099 97,399 79,648
Mandatory redeemable preferred
stock.............................. -- -- -- 6,522 --
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY 1998
---------------------------------------------------------
1ST 2ND 3RD 4TH
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total revenue............................ $ 289,926 $ 292,056 $ 240,018 $ 230,586
Gross profit............................. 112,986 113,096 67,989 80,071
Total restructuring charges.............. -- -- 84,896 63,962
Merger costs............................. 17,685 -- -- --
Purchased technology for research and
development............................ -- -- 12,100 --
Operating income (loss).................. (12,080) 5,167 (105,847) (68,164)
Net income (loss)........................ (12,172) 3,525 (70,064) (65,888)
Net income (loss) per share
Basic.................................. $ (0.32) $ 0.09 $ (1.84) $ (1.72)
Diluted................................ $ (0.32) $ 0.09 $ (1.84) $ (1.72)
Price range per share.................... $36.25-67.44 $25.13-49.75 $21.38-32.25 $18.56-32.38
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
QUARTERLY 1997
----------------------------------------------------------
1ST 2ND 3RD 4TH
------------ ------------ ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total revenue........................... $ 299,246 $ 258,064 $ 233,266 $ 282,621
Gross profit............................ 123,700 96,879 20,525 108,689
Restructuring charge.................... 9,021 -- -- --
Operating income (loss)................. 16,985 4,402 (79,990) (2,173)
Net income (loss)....................... 11,748 3,277 (44,225) (1,476)
Net income (loss) per share
Basic................................. $ 0.32 $ 0.09 $ (1.20) $ (0.04)
Diluted............................... $ 0.31 $ 0.09 $ (1.20) $ (0.04)
Price range per share................... $20.00-28.88 $24.00-38.25 $27.13-43.25 $23.38-$38.63
</TABLE>
- ---------------
Stock and Dividend Information:
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol LRCX. The price range per share is the highest and lowest bid prices, as
reported by the National Association of Security Dealers, Inc., on any trading
day during the respective quarter.
As of June 30, 1998, the Company had 895 stockholders of record.
No cash dividends have been declared or are anticipated to be paid by the
Company, as all available funds are intended to be employed in the development
of the business. Additionally, certain of the Company's bank agreements restrict
the payment of dividends.
See notes to consolidated financial statement.
13
<PAGE> 14
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
With the exception of historical facts, the statements contained in this
discussion are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Exchange Act, and are subject
to the Safe Harbor provisions created by that statute. Such forward-looking
statements include, but are not limited to, statements that relate to the
Company's future revenue, product development, demand, acceptance and market
share, competitiveness, royalty income, gross margins, levels of R&D and
operating expenses, management's plans and objectives for current and future
operations of the Company, the effects of the Company's Merger with OnTrak, the
effects of the Company's on-going reorganization and consolidation of operations
and facilities, the ability of the Company to complete contemplated
reorganizations or consolidations on time or within anticipated costs, and the
sufficiency of financial resources to support future operations and capital
expenditures. Such statements are based on current expectations and are subject
to risks, uncertainties, and changes in condition, significance, value and
effect, including those discussed below under the heading Risk Factors, and
other documents the Company files from time to time with the Securities and
Exchange Commission, specifically the Company's last filed Registration
Statement Form S-3, Quarterly Reports on Form 10-Q and the Company's current
reports on Form 8-K. Such risks, uncertainties and changes in condition,
significance, value and effect could cause actual results to differ materially
from those expressed herein and in ways not readily foreseeable. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof and of information currently and reasonably
known. The Company undertakes no obligation to release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances which occur after the date hereof or to reflect the
occurrence or effect of anticipated or unanticipated events. This discussion
should be read in conjunction with the Consolidated Financial Statements and
Notes presented thereto on pages 30 to 52 of this Form 10-K for a full
understanding of the Company's financial position and results of operations.
RESULTS OF OPERATIONS
Merger
On August 5, 1997, the stockholders of Lam approved the issuance of Lam
Common Stock under the Agreement and Plan of Merger (the "Merger Agreement")
between Lam and OnTrak. Each share of OnTrak Common Stock, par value $0.0001 per
share, was exchanged for 0.83 of a share of Lam Common Stock, par value $0.001
per share, and each option and right to acquire one share of OnTrak Common Stock
was exchanged for options and rights to purchase 0.83 of a share of Lam Common
Stock. The transaction was accounted for as a pooling of interests and
structured to qualify as a tax-free reorganization. All historical financial
data of the Company included herein reflects the consolidation of the historical
financial information of both Lam and OnTrak.
Fiscal 1998 vs. 1997
Total revenue for the fiscal year ended June 30, 1998 was 2% lower compared
to the prior fiscal year. Lam continues to experience a shift in its product
sales from single-chamber to multi-chamber cluster products. Increased sales of
Lam's Alliance cluster system, which utilizes from one to four TCP or Rainbow
etch chambers each, were more than offset by a decrease in sales of stand-alone
TCP etch systems and CVD systems. Sales of Lam's CMP cleaning and Rainbow etch
systems increased slightly during fiscal 1998 compared to the prior fiscal year.
Total international revenue was 55% of Lam's total revenue for fiscal 1998,
compared to 57% of Lam's total revenue for fiscal 1997. Regionally, Lam's
revenue from its North America and Europe regions increased to 45% and 18%,
respectively, of total revenue in fiscal 1998 from 43% and 16%, respectively, in
fiscal 1997. The Japan and Asia Pacific regions' revenue decreased to 7% and
30%, respectively, of total revenue in fiscal 1998 from 9% and 32%,
respectively, in fiscal 1997. The Asian regions are currently experiencing
difficulties surrounding their financial markets and economies, which the
Company believes is likely to continue through at least the first half of fiscal
1999, and possibly beyond.
14
<PAGE> 15
The semiconductor industry is currently experiencing a worldwide slowdown
in equipment demand which was and continues to be in large part brought on by
depressed DRAM pricing, overcapacity and the financial crisis in Asia.
Additionally, the Company's future revenue will be adversely impacted by the
Company's decision to exit its CVD and FPD operations. The Company anticipates
that it will continue to experience a decline in revenues during fiscal 1999,
particularly during the first half of the fiscal year where revenues are
anticipated to be significantly lower than revenue for the second half of fiscal
1998.
Royalty income decreased 84% during fiscal 1998 compared with fiscal 1997.
The reduction in royalty income is due in large part to the operation of an
extended royalty agreement with TEL, whereby the applicable royalty rate was
reduced from 5% to 1%, effective January 1, 1997 and to the slowdown in the
semiconductor industry. Fiscal 1998 was the first full year with royalty income
calculated at the reduced royalty rate of 1%. Fiscal 1999 royalty income is
anticipated to be lower than fiscal 1998 royalty income.
Lam's gross margin percentage increased to 35.5% for fiscal 1998, compared
to 32.6% for fiscal 1997. Gross margin percentages for both fiscal years 1998
and 1997 were impacted by certain charges and adjustments described below.
During fiscal 1998, and as a result of the Company's restructuring actions (see
Note Q to the Consolidated Financial Statement), Lam wrote-off $31.9 million for
inventory related to the CVD and FPD product lines. During fiscal 1997, and in
response to the faster than anticipated customer transition from single-chamber
to multi-chamber cluster systems and costs associated with continuing revisions
to the design and features of such multi-chamber products, Lam established
additional reserves of approximately $42.0 million relating to excess and
obsolete inventory and related commitments. In addition, during fiscal 1997, Lam
reevaluated its warranty and installation reserves and established additional
reserves of approximately $15.0 million. The fiscal 1998 gross margin percentage
improved slightly from fiscal 1997, as a result of improved margins on the
multi-chamber cluster systems partially offset by the effect of an unfavorable
product mix and a decrease in royalty income.
R&D expenses for the fiscal year ended June 30, 1998 were 19.6% of total
revenue, compared to 17.9% of total revenue for the prior fiscal year. Lam
believes that in order to remain competitive it must continue to invest
substantially in R&D. During fiscal 1998, Lam increased its investment in R&D
related to the development of the Teres CMP polishing system. Lam continues to
invest in advanced etch applications and to make enhancements to its Alliance
and TCP products, including developing the technology necessary to incorporate
300 mm and copper wafer processing capabilities into its products. As discussed
in Note Q to the Consolidated Financial Statement, Lam announced and initiated
implementation of plans to discontinue activities in its R&D efforts relating to
FPD and CVD product lines. Lam will realize the full benefit of its
restructurings in the form of lower R&D expenses in future quarters.
Selling, general and administrative ("SG&A") expenses as a percentage of
revenue for fiscal 1998 were virtually flat, compared to fiscal 1997. Lam
continues to monitor closely expenditures and capital additions relative to
revenue levels. As a result of the restructurings, the Company expects that its
fiscal 1999 SG&A expenses will be lower than fiscal 1998 SG&A expenses and that
it will begin to realize the benefits of its restructurings during the first
half of fiscal 1999.
During the quarters ended March 31, 1998 and June 30, 1998, Lam
restructured its operations to reduce its global workforce and to focus on its
core etch and CMP product groups as well as to exit its FPD and CVD operations.
As a result, Lam recorded a total charge of $148.9 million to cover the effects
of the reduction in global workforce, the exit of FPD and CVD operations and the
consolidation of facilities and manufacturing operations.
Included in the total restructuring charge was $40.3 million, $64.4
million, $31.9 million and $12.3 million, respectively, relating to severance
and benefits, facilities and fixed assets, excess and obsolete inventory and
other exit costs. The excess and obsolete inventory write-off for the affected
product lines was classified as a component of cost of goods sold, negatively
impacting the Company's gross margin percentage. At June 30, 1998, a total of
$48.4 million remains on the Company's balance sheet, of which $30.5 million,
$15.5 million and $2.4 million, respectively, relates to severance and benefit
costs, facilities and fixed assets, write-offs and other exit costs. Through
June 30, 1998, the Company has made cash payments of $11.3 million relating to
severance, benefits and rent for excess facilities and it has written off $47.3
million, $31.9 million
15
<PAGE> 16
and $9.9 million relating to facilities and fixed assets, excess and obsolete
inventory, and other exit costs. At June 30, 1998, the Company has approximately
$46.0 million of remaining future cash payments relating primarily to severance
and benefits and rent for excess facilities. The Company anticipates that it
will substantially complete its restructuring by the end of fiscal 1999.
During the first quarter of fiscal 1997, Lam restructured its operations by
consolidating its previous business unit structures into a more centralized
functional organization. As a result, during the first quarter of fiscal 1997,
Lam recorded a restructuring charge of $9.0 million for costs related primarily
to severance compensation and consolidation of facilities. As of June 30, 1998,
$1.3 million of such amounts remains in accrued liabilities, relating primarily
to severance compensation.
During the first quarter of fiscal 1998, Lam recorded costs of $17.7
million relating to the merger with OnTrak. Such expenses were related to
investment advisory fees, legal and accounting fees, financial printing costs
and other merger-related expenditures.
During the third quarter of fiscal 1998, Lam purchased a non-exclusive
license for Trikon's MORI(TM) source technology. Lam recorded a charge of $12.1
million for the license and for the purchase of an R&D system from Trikon. The
technology was acquired for R&D projects and its future uses are unknown at this
time. Pursuant to the license, $5.0 million in additional fees will become
payable due in fiscal 1999 (separate from royalties owed on shipments of MORI
source based systems determined by rates prescribed in the license).
Other income increased to $1.8 million during fiscal 1998 from a loss of
$0.1 million during fiscal 1997. During August 1997, the Company completed an
offering of $310.0 million of Convertible Subordinated Notes ("the Notes"),
which bear interest at five percent and are due to mature on September 1, 2002.
While interest expense has increased due to issuance of the Notes, interest
income has increased significantly during fiscal 1998, as Lam's rate of return
on the invested cash proceeds of the debenture offering has exceeded the
interest rate it pays on the Notes. However, during fiscal 1998, Lam recognized
higher foreign currency exchange losses, primarily due to exchange rate
fluctuations in Korea, which offset in part the increase in interest income.
The Company recorded a tax benefit of 19.3% of its pre-tax loss compared to
49.6% for the prior fiscal year. The decrease is primarily due to the Company
not currently benefiting from certain expenses associated with the Company's
restructurings which resulted in net operating loss carryovers and tax credit
carryforwards for tax purposes. Realization of the Company's net deferred tax
assets (approximately $104 million as of June 30, 1998) is dependent on future
taxable income. While the Company believes it is more likely than not that such
assets will be realized, other factors, including those mentioned in the
discussion of Risk Factors below, may impact the ultimate realization of such
assets.
The Company has established a team to address issues raised by the
introduction of the Single European Currency ("Euro") for initial implementation
as of January 1, 1999, and through the transition period to January 1, 2002. The
Company expects to be able to meet related legal requirements by January 1,
1999, and through the transition period. Lam does not expect the cost of any
system modifications to be material and does not currently expect that
introduction and use of the Euro will materially affect its foreign exchange and
hedging activities or will result in any material increase in transaction costs.
The Company will continue to evaluate the impact over time of the introduction
of the Euro; however, based on currently available information management does
not believe that the introduction of the Euro will have a material adverse
impact on the Company's financial condition or the overall trends in results of
operations.
The Company relies heavily on the Company's existing application software
and operating systems. The Year 2000 compliance issue (in which systems do not
properly recognize date sensitive information when the year changes to 2000)
creates risks for the Company: if internal data management, accounting and/or
manufacturing or operational software and systems do not adequately or
accurately process or manage day or date information beyond the year 1999, there
could be an adverse impact on the Company's operations. To address the issue,
the Company has assembled a task force to review and assess internal software,
data management, accounting and manufacturing and operational systems to ensure
that they do not malfunction
16
<PAGE> 17
as a result of the Year 2000 date transition. The review and corrective measures
are proceeding in parallel. This review and corrective measures are intended to
encompass all significant categories of systems used by the Company, including
data management, accounting, manufacturing, sales, human resources and
operational software and systems. The Company is also working with its
significant suppliers of products and systems to assure that the products and
systems supplied to the Company, and the products the Company supplies to its
customers, are Year 2000 compliant. With respect to compliance of the products
the Company supplies to its customers, the Company intends to adhere to Year
2000 test case scenarios established by SEMATECH, an industry group comprised of
U.S. semiconductor manufacturers. The Company's compliance efforts are
substantially complete, and the Company currently expects that its review,
corrective measures and contingency planning (where necessary) will be complete
by the end of fiscal 1999, with the goal of resolving all material internal
programs and systems prior to the Year 2000 date transition.
In connection with its review and corrective measures, both to ensure that
its internal products and systems, and the operating systems accompanying the
products sold to its customers, are Year 2000 compliant, the Company expects
both to replace some software and systems and to upgrade others where
appropriate. As a contingency with respect to products the Company currently
offers to its customers, the Company may replace all non-compliant operating
systems with systems demonstrated to be Year 2000 compliant. With respect to
products and systems supplied to the Company for use internally, the Company may
upgrade all non-compliant products and systems and, where necessary or where no
reasonable upgrade is available, replace such non-compliant products and systems
with products and systems demonstrated to be Year 2000 compliant.
The Company is in the process of identifying for its customers the
corrective measures necessary to ensure that its installed products are Year
2000 compliant, including compliance of third-party products (such as software)
incorporated into the Company's installed products. In this regard, the Company
is incurring, and will continue to incur throughout fiscal 1999, various costs
to provide customer support regarding Year 2000 issues, and certain of such
costs are expected to be borne not by the Company but, instead, to be passed on
to the customers. The full cost of these activities, including corrective
measures, is not fully known. However, the Company believes that the potential
future financial impact of assuring such Year 2000 compliance is not expected to
be material. The Company's failure to ensure, at all or in a timely or
reasonable manner, that its products are Year 2000 compliant may cause
disruption in the customer's ability to derive expected productivity from those
products or to integrate the products fully and functionally into certain
automated manufacturing environments. With respect to products and systems the
Company purchases for use internally, failure to ensure Year 2000 compliance may
cause disruption in the Company's automated accounting, financial planning, data
management and manufacturing operations which could have a material effect on
the Company's short-term ability to manage its day-to-day operations in an
efficient, cost-effective and reliable manner.
The Company believes that its Year 2000 compliance project will be
completed on a timely basis, and in advance of the Year 2000 date transition and
will not have a material adverse effect on the Company's financial condition or
overall trends in the results of operations. However, there can be no assurance
that unexpected delays or problems, including the failure to ensure Year 2000
compliance by systems or products supplied to the Company by a third party, will
not have an adverse effect on the Company, its financial performance, or the
competitiveness or customer acceptance of its products. Further, the Company's
current understanding of expected costs is subject to change as the project
progresses and does not include potential costs related to actual customer
claims, or the cost of internal software and hardware replaced in the normal
course of business whose installation otherwise may be accelerated to provide
solutions to Year 2000 compliance issues.
Fiscal 1997 vs 1996
Lam's revenue for fiscal year 1997 totaled $1,073.2 million, a 19% decrease
from fiscal 1996 total revenue of $1,332.7 million. Overall, revenue was lower
in fiscal 1997 than fiscal 1996, due to the reduced demand for Lam's equipment
in large part based on its customers' reduced production capacity requirements
in response to a slowdown in the semiconductor market. Also, during fiscal 1997,
Lam's product mix began to shift, with a
17
<PAGE> 18
higher percentage of revenues contributed by the multi-chamber Alliance and CVD
products and a lower percentage of revenues derived from the more mature
single-chamber Rainbow and TCP etch systems. Revenue from sales of Lam's
cleaning products increased 25% in fiscal 1997, compared with fiscal 1996.
Regionally, revenue reflected a higher percentage attributable to domestic
sales, with revenue from foreign regions decreasing to 57% of total revenue in
fiscal 1997 from 63% in fiscal 1996. The Japan region experienced the largest
decline in revenue, a 50% decrease from the prior year representing
approximately 30% of the total decline in revenue for the Company. Total spares
and service revenue dollars remained virtually flat in fiscal 1997 compared to
fiscal 1996. Service revenue represented less than 4% of total revenue in fiscal
1997 and 1996.
Royalty income for fiscal 1997 decreased 44% to $12.7 million from $22.8
million in fiscal 1996. The reduction in royalty income was due primarily to the
lower royalty rate effective January 1, 1997 under the extended royalty
agreement with TEL. The agreement, originally set to expire on December 31,
1996, was extended and renegotiated to provide for a reduced royalty rate during
the extended period of 1% (from the original 5% rate).
Lam's gross margin percentage for fiscal 1997 was 32.6% compared to 48.3%
for fiscal 1996. As noted above, during fiscal 1997 Lam's product mix shifted
from the higher-margin Rainbow products to the newer lower-margin Alliance
cluster etch and CVD products. Furthermore, as a result of the
faster-than-expected customer transition from single-chamber to multi-chamber
tools and continuing revisions to the design and features of such multi-chamber
products, Lam established additional reserves during the third quarter of fiscal
1997 of approximately $42.0 million for excess and obsolete manufacturing and
spare parts inventories and related commitments. Lam also re-evaluated its
warranty and installation reserves and determined that additional provisions of
approximately $15.0 million were required to account, in large part, for greater
installation and warranty support costs associated with the Alliance cluster and
CVD tools.
R&D expenses increased to $192.3 million in fiscal 1997 from $186.9 million
in fiscal 1996. As a percentage of total revenue, R&D expenses increased to
17.9% in fiscal 1997 compared with 14.1% in fiscal 1996. Contributing to the
increase in R&D expenses during fiscal 1997 was Lam's continued investment in
development of its CMP polishing system. During the first quarter of fiscal
1997, Lam implemented a restructuring of operations which eliminated the
previously existing business unit structure. As a result of the restructuring,
R&D activities were centralized and certain duplicate R&D functions were
eliminated. During fiscal 1997, the Company wrote-off approximately $3.0 million
of R&D-related fixed assets.
SG&A expenses decreased $28.2 million in fiscal 1997 from $237.4 million in
fiscal 1996. During fiscal 1996, Lam added employees in all administrative areas
to accommodate the increase in sales volume. During fiscal 1997, in response to
the slowdown in the semiconductor market and the decrease in sales volume, Lam
implemented a restructuring of operations which resulted in a reduction in
workforce and initiated programs which reduced expenses and capital spending.
Partially offsetting the overall reduction in SG&A expenses were $6.6 million of
bad debt expense for at-risk receivables relating to a customer in Thailand and
an adjustment of approximately $3.0 million for the write-off of certain
obsolete customer evaluation systems.
During fiscal 1997, Lam restructured its operations by consolidating its
previous business unit structure into a more centralized functional
organization. As a result of the restructuring, and in response to market
conditions, Lam reduced its workforce by approximately 11% and recorded a charge
of $9.0 million related primarily to severance compensation and consolidation of
facilities. At June 30, 1997, $1.7 million remained in accrued liabilities
relating primarily to executive severance and continuing lease payments on
remaining idle facilities.
Interest expense for Lam decreased by 35% in fiscal 1997 over fiscal 1996,
due primarily to the retirement of the 6% subordinated convertible debentures in
the fourth quarter of fiscal 1996.
Lam recorded a tax benefit of 49.6% of its pre-tax loss, related primarily
to the benefit from its carryback operating loss and R&D tax credits for fiscal
1997.
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Liquidity and Capital Resources
As of June 30, 1998, the Company had $448.5 million in cash, cash
equivalents, short-term investments and restricted cash, compared with $195.7
million at June 30, 1997. The Company has a total of $100.0 million available
under a syndicated bank line of credit, which is due to expire in April 2001.
The syndicated bank line of credit originally bore interest at 0.45% to 0.75%
over London Interbank Offered Rate ("LIBOR"). Borrowings are subject to the
Company's compliance with financial and other covenants set forth in the credit
documents. The Company received waivers, effective June 30, 1998, of compliance
with certain financial covenants and has since amended the syndicated bank line
of credit with respect to certain applicable covenant requirements and amended
the line of credit borrowing rates to 0.55% to 0.95% over LIBOR.
The Company generated $51.2 million of cash from operations in fiscal 1998
primarily as a result of changes in working capital accounts. Accounts
receivable generated $51.8 million of cash as a result of improved asset
management and lower revenues. Accrued liabilities increased $36.9 million due
to cash-related restructuring reserves which was offset by decreases in warranty
and installation reserves and taxes payable. In addition, decreases in prepaid
expenses and other assets generated $11.9 million in cash, while a decrease in
accounts payable consumed $49.5 million of cash. Accounts payable decreased
primarily due to a lower level of purchases reflecting anticipated lower
business volumes.
Net cash used for investing activities during fiscal 1998 was $438.6
million. Net purchases of available-for-sale securities was $328.8 million,
resulting primarily from the investment of the cash received from the issuance
of the Notes (see Note J to the Consolidated Financial Statement). As a
requirement under the amended and restated Synthetic Lease Agreement (see Note J
to the Consolidated Financial Statement), Lam was required to transfer $51.4
million from cash and cash equivalents and short-term investments to restricted
cash, which is classified as a long-term asset. Net capital expenditures for
fiscal 1998 were $50.2 million. Cash totaling $12.1 million was also used to
purchase technology for R&D (see Note T to the Consolidated Financial
Statement).
Net cash flows provided by financing activities were $260.0 million.
Contributing to the cash from financing activities was $301.0 million from the
issuance of the Notes. Offsetting the cash contributions was a repayment of a
line of credit of $35.0 million, and repayments of debt and capital lease
obligations of $26.6 million.
Lam's commitments consist primarily of debt obligations and operating and
capital lease commitments for its facilities and equipment. Based upon current
forecasts, Lam's cash, cash equivalents, short-term investments and available
lines of credit at June 30, 1998 are expected to be sufficient to support
anticipated levels of operations and capital expenditures through at least June
30, 1999.
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RISK FACTORS
Fluctuations in Quarterly Revenues and Operating Results
The Company's quarterly revenues have fluctuated in the past and may
fluctuate in the future. The Company's revenues are dependent on many factors,
including, but not limited to, the economic conditions in the semiconductor
industry generally, and equipment industry specifically, customer capacity
requirements, the size and timing of the receipt of orders from customers,
customer cancellations or delays of shipments, the Company's ability to develop,
introduce and market new, enhanced and competitive products, at all and on a
timely basis, the introduction of new products by its competitors, challenges to
the Company's products and technology, changes in average selling prices and
product mix, and exchange rate fluctuations, among others. The Company's expense
levels will be based, in part, on expectations of future revenues. If revenue
levels in a particular quarter do not meet expectations, operating results could
be adversely affected.
The Company derives its revenue primarily from the sale of a relatively
small number of high-priced systems. The Company's systems can range in price
from approximately $150,000 to $2.5 million per unit. The sale of fewer systems
than anticipated in any quarter may have a substantial negative impact on the
Company's operating results for the quarter. The Company's results of operations
for a particular quarter could be adversely affected if anticipated orders are
not received in time to enable shipment during such quarter, if anticipated
shipments are delayed or canceled by one or more customers, or if shipments are
delayed due to procurement shortages or manufacturing difficulties. Further, as
a result of the continuing consolidation of manufacturing operations and
capacity at the Company's Fremont, California facility, natural, physical or
other events affecting the facility, including labor disruptions, could
adversely impact the Company's operations and revenue.
Volatility in the Semiconductor Equipment Industry
The business of the Company depends on the capital equipment expenditures
of semiconductor manufacturers, which in turn depend on the current and
anticipated market demand for integrated circuits and products utilizing
integrated circuits. The semiconductor industry has been cyclical in nature and
has historically experienced periodic downturns. The semiconductor industry has
been experiencing a slowdown of product demand and extreme volatility in product
pricing. This slowdown and volatility has caused the semiconductor industry to
reduce significantly or delay purchases of semiconductor manufacturing equipment
and construction of new fabrication facilities. This slowdown and volatility is
expected to continue in fiscal 1999. As previously announced, these conditions
have adversely affected and will continue to affect materially the Company's
aggregate bookings, revenues and operating results, and the Company's bookings,
revenue and operating results are likely to continue to be adversely affected by
a continuing downturn in the semiconductor industry. Even during periods of
reduced revenues, in order to remain competitive the Company will be required to
continue to invest in R&D and to maintain extensive ongoing worldwide customer
service and support capability, which could adversely affect its financial
results.
Dependence on New Products and Processes; Rapid Technological Change
Rapid technological changes in semiconductor manufacturing processes
subject the semiconductor equipment industry to increased pressure to maintain
technological parity with deep submicron process technology. The Company
believes that its future success will depend in part upon its ability to
develop, manufacture and successfully introduce new products and product lines
with improved capabilities and to continue to enhance existing products. Due to
the risks inherent in transitioning to new products, the Company will be
required to forecast accurately demand for new products while managing the
transition from older products. If new products have reliability or quality
problems, reduced orders, higher manufacturing costs, delays in acceptance of
and payment for new products and additional service and warranty expenses may
result. In the past, the Company has experienced some delays as well as
reliability and quality problems in connection with product introductions,
resulting in some of these consequences. There can be no assurance that the
Company will successfully develop and manufacture new products, or that new
products introduced
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by it will be accepted in the marketplace. If Lam does not successfully
introduce new products, the Company's results from operations will be materially
adversely affected.
The Company expects to continue to make significant investments in R&D and
to explore joint development relationships with other members of the industry.
The Company must manage product transitions or joint development relationships
successfully, as introduction of new products could adversely affect sales of
existing products. There can be no assurance that future technologies, processes
or product developments will not render the Company's current product offerings
obsolete or that the Company will be able to develop and introduce new products
or enhancements to existing products which satisfy customer needs in a timely
manner or achieve market acceptance. The failure to do so could adversely affect
the Company's business. Furthermore, if the Company is not successful in the
marketing and selling of advanced processes or equipment to customers with whom
it has formed strategic alliances, selling of its products to those customers
could be adversely affected. In addition, in connection with the development of
the Company's new products, the Company will invest in high levels of
preproduction inventory, and the failure to complete development and
commercialization of these new products in a timely manner could result in
inventory obsolescence, which could have an adverse effect on its financial
results.
Introduction of New Product
Lam currently anticipates shipping its Teres CMP system in fiscal 1999,
which is expected to face significant competition from multiple current and
future competitors. Among the companies currently offering polishing systems are
Applied Materials, Inc., Cybeq Systems, Ebara Corporation, IPEC, SpeedFam Corp.,
Strasbaugh and Sumitomo. Lam believes that other companies are developing
polishing systems and are planning to introduce new products to this market
before or during the same time frame as the Company's anticipated introduction
of its Teres CMP polishing system.
Product Concentration; Lack of Product Revenue Diversification
A substantial percentage of the Company's revenues to date have been
derived from a limited number of products, and such products are expected to
continue to account for a substantial percentage of the Company's revenues in
the near term. Continued market acceptance of its primary products is therefore
critical to the future success of the Company. Any decline in demand for or
failure to achieve continued market acceptance of such products or any new
version of these products, if any, as a result of competition, technological
change, failure of the Company to release new versions of these products on
time, or otherwise, could have a material adverse effect on the business,
operating results, financial condition and cash flows of the Company.
Dependence Upon Key Suppliers and Key Distributors
Certain of the components and subassemblies included in the products of the
Company are obtained from a single supplier or a limited group of suppliers. The
Company's key suppliers include Bullen Ultrasonics, Inc., which supplies
electrodes, Edwards High Vacuum Inc., Lam's supplier of chillers, and Advanced
Energy Industries, Lam's RF generator supplier. The Company purchases in excess
of $500,000 of supplies on a monthly basis from these suppliers. Each of these
suppliers has a one year blanket purchase contract under which Lam may issue
purchase orders. These contracts may be renewed annually. Each of these
suppliers has sold products to Lam during at least the last four years, and
there is no reason to expect that they will not continue to renew these
contracts in the future. Management believes that alternative sources could be
obtained and qualified to supply these products. Nevertheless, a prolonged
inability to obtain certain components could have an adverse effect on the
Company's operating results and could result in damage to customer
relationships.
Highly Competitive Industry
The semiconductor equipment manufacturing industry is highly competitive.
The Company expects to continue to face substantial competition throughout the
world. A substantial investment is required by semiconductor manufacturers to
install and integrate capital equipment into a semiconductor production line.
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The Company believes that as a result, once a semiconductor manufacturer has
selected a particular supplier's capital equipment, the manufacturer generally
relies upon that equipment for the specific production line application and
frequently will attempt to consolidate its other capital equipment requirements
with the same supplier. Accordingly, Lam would expect to experience difficulty
in selling to a given customer if that customer had initially selected or
selects a competitor's capital equipment. The Company believes that to remain
competitive, significant financial resources are required in order to offer a
broad range of products, to maintain customer service and support centers
worldwide, and to invest in product and process R&D.
The semiconductor equipment industry is becoming increasingly dominated by
large manufacturers who have the resources to support customers on a worldwide
basis, and certain of Lam's competitors have substantially greater financial
resources and more extensive engineering, manufacturing, marketing and customer
service and support. In addition, there are smaller, emerging semiconductor
equipment companies that provide innovative technology that may have performance
advantages over systems offered by the Company.
Competitors are expected to continue to improve the design and performance
of their current products and processes and to introduce new products and
processes with improved price and performance characteristics. If competitors
enter into strategic relationships with leading semiconductor manufacturers
covering products similar to those sold or being developed by the Company, its
ability to sell products to those manufacturers could be adversely affected. No
assurance can be given that Lam will continue to compete successfully in the
United States or worldwide.
Present or future competitors may be able to develop products comparable or
superior to those offered by the Company or adapt more quickly to new
technologies or evolving customer requirements. In particular, while Lam
currently is developing additional product enhancements that it believes
addresses customer requirements, there can be no assurance that the development
or introduction of these additional product enhancements will be successfully
completed, at all or on a timely basis, or that these product enhancements will
achieve market acceptance or be competitive. Accordingly, there can be no
assurance that the Company will be able to continue to compete effectively in
its markets, that competition will not intensify or that future competition will
not have a material adverse effect on the business, operating results, financial
condition and cash flows of the Company.
International Sales
International sales accounted for 55%, 57% and 63%, respectively, of net
revenues in the fiscal years 1998, 1997 and 1996. Historically, sales to the
Asia regions have accounted for a substantial portion of international sales.
Recent banking and currency problems in the Asia regions have had and will
continue to have a significant adverse impact on the Company's revenue and
operations, including specifically revenues and operations for fiscal 1999.
Sales of products currently are denominated in United States dollars. In
Korea, devaluation of the won and difficulties by customers in obtaining credit
have curtailed semiconductor equipment investment and have recently led to
cancellation or delay of orders by the Company's customers, and are likely to
continue to do so in fiscal 1999.
In Japan, the Company's sales are denominated in Japanese yen. A further
weakening of the value of the Japanese yen as compared to the U.S. dollar could
further negatively impact operating margins. Currently, the Company enters into
foreign currency forward contracts to minimize the impact of exchange rate
fluctuations on yen-denominated assets and liabilities, will continue to enter
into such hedging transactions in the future.
In Europe, sales following January 1, 1999 will be subject to certain
provisions governing the transition of commercial transactions to the Euro. Lam
expects to be able to meet related legal requirements by January 1, 1999, and
through the transition period. The Company does not currently expect that
introduction and use of the Euro will materially affect its foreign exchange and
hedging activities or will result in any material increase in transaction costs.
Lam will continue to evaluate the impact over time of the introduction of the
Euro. Based
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on currently available information management does not believe that the
introduction of the Euro will have a material adverse impact on Lam's financial
condition or the overall trends in results of operations.
The impact of these and other factors on the Company's revenues and
operating results in any future period is difficult to forecast. There can be no
assurance that these and other factors relating to international sales and
operations by the Company will not materially adversely affect future business
and financial results, or in ways not readily foreseeable.
Environmental Regulations
The Company is subject to a variety of governmental regulations related to
the discharge or disposal of toxic, volatile, or otherwise hazardous chemicals
used in the manufacturing process. Lam believes that it is in general compliance
with these regulations and that it has obtained (or will obtain or is otherwise
addressing) all necessary environmental permits to conduct its business, which
permits generally relate to the disposal of hazardous wastes. Nevertheless, the
failure to comply with present or future regulations could result in fines being
imposed on the Company, suspension of production, cessation of operations or
reduction in product acceptance. Such regulations could require the Company to
alter current operations or acquire significant equipment or incur substantial
other expenses to comply with environmental regulations. Any failure to control
the use, sale or transport, or adequately restrict the discharge or disposal,
hazardous substances could subject the Company to future liabilities.
Dependence on Key Personnel and Difficulty of Identifying and Hiring Certain
Personnel
The performance of the Company is substantially dependent on the
performance of its executive officers and key employees. The loss of the
services of any of the executive officers or other key employees could have a
material adverse effect on the Company's business, operating results, financial
condition, cash flows, market perceptions and price of Lam Common Stock.
The future success of the Company also depends on its continuing ability to
identify, hire, train and retain other highly qualified technical and managerial
personnel. Competition for such personnel is intense, and Lam has experienced
difficulty in identifying and hiring qualified engineering personnel. There can
be no assurance that it will be able to attract, assimilate or retain highly
qualified technical and managerial personnel in the future. The inability to
attract and retain the necessary technical and managerial personnel could have a
material adverse effect on the Company's business, operating results, financial
condition and cash flows, market perceptions and price of Lam Common Stock.
Management Transition
In recent years, the Company has experienced consolidation of its
operations and transitions in management that has placed significant demands on
its respective administrative, operational and financial resources, the demands
of which are expected to intensify. James W. Bagley, the Chairman and Chief
Executive Officer of OnTrak, became the Chief Executive Officer of Lam on August
6, 1997 and was promoted to Chairman of the Board of Lam in September 1998. In
addition, Lam hired a new Chief Financial Officer, Mercedes Johnson, in April
1997 and a new Chief Operating Officer, Stephen G. Newberry in August 1997 (who
was promoted to President in July 1998). There can be no assurance that such
consolidation and/or management transitions can be accomplished in an efficient
manner, and without undue business disruption.
Management of Potential Growth; Integration of Potential Acquisitions/
Potential Disposition of Product Line Technologies
To manage future growth, if any, management of the Company will face
significant challenges in improving financial and business controls, management
processes, information systems and procedures on a timely basis, and expanding,
training and managing its work force. There can be no assurance that the Company
will be able to perform such actions successfully. In the future, Lam may make
additional
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acquisitions of complementary companies, products or technologies, or reduce or
dispose of certain product lines or technologies which no longer complement its
long-term strategy, such as the exit of FPD and CVD operations. Managing an
acquired business or disposing of product technologies entails numerous
operational and financial risks, including difficulties in assimilating acquired
operations and new personnel or separating existing business or product groups,
diversion of management's attention to other business concerns, amortization of
acquired intangible assets and potential loss of key employees or customers of
acquired or disposed operations. The Company's success will depend, to a
significant extent, on the ability of its executive officers and other members
of senior management to identify and respond to these challenges effectively.
There can be no assurance that the Company will be able to achieve and manage
effectively any such growth, integration of potential acquisitions or
disposition of product lines or technologies, or that its management, personnel
or systems will be adequate to support operations. Any such inabilities or
inadequacies would have a material adverse effect on the Company's business,
operating results, financial condition and cash flows.
An important element of Lam's management strategy is to review acquisition
prospects that would complement existing products, augment its market coverage
and distribution ability, or enhance its technological capabilities. While Lam
has no current agreements or negotiations under way with respect to any new
acquisitions, it may acquire additional businesses, products or technologies in
the future. Acquisitions by the Company could result in changes similar to those
that have been and continue to be incurred in connection with the Merger,
potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities and amortization expense related to goodwill and other
intangible assets, any of which could materially adversely affect the Company's
business, financial condition and results of operations and/or the price of its
Common Stock.
Potential Volatility of Common Stock Price
The market price for Lam Common Stock has been volatile and it could
continue to be subject to significant fluctuations in response to market or
industry conditions generally, or specific variations in quarterly operating
results, shortfalls in revenues or earnings from levels expected by securities
analysts and other factors such as announcements of restructurings,
technological innovations, reductions in force, departure of key employees,
consolidations of operations or introduction of new products by the Company or
by the Company's competitors, government regulations, developments in patent or
other proprietary rights, disruptions with key customers or the occurrence of
political, economic or environmental events globally or in key sales regions. In
addition, the stock market has in recent years experienced significant price
fluctuations. These fluctuations often have been unrelated to the operating
performance of the specific companies whose stocks are traded. Recent
fluctuations affecting Lam Common Stock have been tied in part to the Asian and
Russian financial crisis and the price of semiconductors. Broad market
fluctuations, as well as economic conditions generally in the semiconductor
industry, may adversely affect the market price of Lam Common Stock.
Potential Anti-takeover Effects of Rights Plan and Bylaws
On January 23, 1997, the Company adopted a Rights Plan (the "Rights Plan")
in which rights were distributed as a dividend at the rate of one right for each
share of common stock, par value $0.001 per share, of the Company held by
stockholders of record as of the close of business on January 31, 1997 and
thereafter. In connection with the adoption of the Rights Plan, the Board of
Directors also adopted a number of amendments to the Company's Bylaws, including
amendments requiring advance notice of stockholder nominations of directors and
stockholder proposals.
The Rights Plan may have certain anti-takeover effects. The Rights Plan
will cause substantial dilution to a person or group that attempts to acquire
the Company in certain circumstances. Accordingly, the existence of the Rights
Plan and the issuance of the related rights may deter certain acquirers from
making takeover proposals or tender offers. The Rights Plan, however, is not
intended to prevent a takeover, but rather is designed to enhance the ability of
the Board of Directors to negotiate with a potential acquirer on behalf of all
of the stockholders.
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In addition, the Company's Certificate of Incorporation authorizes issuance
of 5,000,000 shares of undesignated preferred stock. The Board of Directors of
the Company, without further stockholder approval, may issue this preferred
stock with such terms as the Board of Directors may determine, which could have
the effect of delaying or preventing a change in control of the Company. The
issuance of preferred stock could also adversely affect the voting power of the
holders of Common Stock, including causing the loss of voting control. The
Company's Bylaws and indemnity agreements with certain officers, directors, and
key employees provide that the Company will indemnify officers and directors
against losses that they may incur in legal proceedings resulting from their
service to the Company. Moreover, Section 203 of the Delaware General
Corporation Law restricts certain business combinations with "interested
stockholders" as defined by that statute.
Intellectual Property Matters
From time to time, Lam has received notices from third parties alleging
infringement of such parties' patent or other intellectual property rights by
the Company's products. In such cases, it is the policy of the Company to defend
the claims or negotiate licenses on commercially reasonable terms, where
considered appropriate. However, no assurance can be given that Lam will be able
in the future to negotiate necessary licenses on commercially reasonable terms,
or at all, or that any litigation resulting from such claims would not have a
material adverse effect on the Company's business and financial results.
In October 1993, Varian brought suit against Lam in the United States
District Court for the Northern District of California, seeking monetary damages
and injunctive relief based on the Company's alleged infringement of certain
patents held by Varian. The Company has asserted defenses of invalidity and
unenforceability of the patents that are the subject of the lawsuit, as well as
non-infringement of such patents by the Company's products. No trial date is
currently scheduled. While litigation is subject to inherent uncertainties and
no assurance can be given that Lam will prevail in such litigation or will
obtain a license under such patents on commercially reasonable terms, or at all,
if such patents are held valid and infringed by the Company's products, the
Company believes that the Varian lawsuit will not have a material adverse effect
on the Company's operating results or the Company's financial position.
The Company's success depends in part on its proprietary technology. While
Lam attempts to protect its proprietary technology through patents, copyrights
and trade secret protection, it believes that its success will depend on more
technological expertise, continuing the development of new systems, market
penetration and growth of its installed base and the ability to provide
comprehensive support and service to customers. There can be no assurance that
the Company will be able to protect its technology or that competitors will not
be able to develop similar or more competitive technology independently. Lam
currently holds a number of United States and foreign patents and patent
applications pending. There can be no assurance that any patents issued to the
Company will not be challenged, invalidated or circumvented, that pending
applications will be issued or that the rights granted or anticipated thereunder
will provide competitive advantages.
Year 2000 Compliance
The Company relies heavily on the Company's existing application software
and operating systems. The Year 2000 compliance issue (in which systems do not
properly recognize date sensitive information when the year changes to 2000)
creates risks for the Company: if internal data management, accounting and/or
manufacturing or operational software and systems do not adequately or
accurately process or manage day or date information beyond the year 1999, there
could be an adverse impact on the Company's operations. To address the issue,
the Company has assembled a task force to review and assess internal software,
data management, accounting and manufacturing and operational systems to ensure
that they do not malfunction as a result of the Year 2000 date transition. The
review and corrective measures are proceeding in parallel. This review and
corrective measures are intended to encompass all significant categories of
systems used by the Company, including data management, accounting,
manufacturing, sales, human resources and operational software and systems. The
Company is also working with its significant suppliers of products and systems
to assure that the products and systems supplied to the Company, and the
products the Company supplies to its customers, are Year 2000 compliant. With
respect to compliance of the products the Company supplies to its customers, the
Company intends to adhere to Year 2000 test case scenarios established by
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SEMATECH, an industry group comprised of U.S. semiconductor manufacturers. The
Company's compliance efforts are substantially complete, and the Company
currently expects that its review, corrective measures and contingency planning
(where necessary) will be complete by the end of fiscal 1999, with the goal of
resolving all material internal programs and systems prior to the Year 2000 date
transition.
In connection with its review and corrective measures, both to ensure that
its internal products and systems, and the operating systems accompanying the
products sold to its customers, are Year 2000 compliant, the Company expects
both to replace some software and systems and to upgrade others where
appropriate. As a contingency with respect to products the Company currently
offers to its customers, the Company may replace all non-compliant operating
systems with systems demonstrated to be Year 2000 compliant. With respect to
products and systems supplied to the Company for use internally, the Company may
upgrade all non-compliant products and systems and, where necessary or where no
reasonable upgrade is available, replace such non-compliant products and systems
with products and systems demonstrated to be Year 2000 compliant.
The Company is in the process of identifying for its customers the
corrective measures necessary to ensure that its installed products are Year
2000 compliant, including compliance of third-party products (such as software)
incorporated into the Company's installed products. In this regard, the Company
is incurring, and will continue to incur throughout fiscal 1999, various costs
to provide customer support regarding Year 2000 issues, and certain of such
costs are expected to be borne not by the Company but, instead, to be passed on
to the customers. The full cost of these activities, including corrective
measures, is not fully known. However, the Company believes that the potential
future financial impact of assuring such Year 2000 compliance is not expected to
be material. The Company's failure to ensure, at all or in a timely or
reasonable manner, that its products are Year 2000 compliant may cause
disruption in the customer's ability to derive expected productivity from those
products or to integrate the products fully and functionally into certain
automated manufacturing environments. With respect to products and systems the
Company purchases for use internally, failure to ensure Year 2000 compliance may
cause disruption in the Company's automated accounting, financial planning, data
management and manufacturing operations which could have a material effect on
the Company's short-term ability to manage its day-to-day operations in an
efficient, cost-effective and reliable manner.
The Company believes that its Year 2000 compliance project will be
completed on a timely basis, and in advance of the Year 2000 date transition and
will not have a material adverse effect on the Company's financial condition or
overall trends in the results of operations. However, there can be no assurance
that unexpected delays or problems, including the failure to ensure Year 2000
compliance by systems or products supplied to the Company by a third party, will
not have an adverse effect on the Company, its financial performance, or the
competitiveness or customer acceptance of its products. Further, the Company's
current understanding of expected costs is subject to change as the project
progresses and does not include potential costs related to actual customer
claims, or the cost of internal software and hardware replaced in the normal
course of business whose installation otherwise may be accelerated to provide
solutions to Year 2000 compliance issues.
Restructurings and Consolidation of Operations
The Company substantially restructured and consolidated its operations
during the quarters ended March 31, 1998 and June 30, 1998. Implementation of
these restructurings and consolidations involves several risks, including that
of simplifying and modifying its product line offerings which will increase its
dependence on fewer products and potentially reduce overall sales.
Although the Company believes that the actions it is taking in connection
with the restructurings and consolidations, including the reduction in
workforce, the consolidation of manufacturing operations and exit of FPD and CVD
operations, should help more closely align Lam with its business outlook, there
can be no assurance that such actions will enable the Company to achieve its
objectives of reducing costs or can be accomplished at specific or optimum
values or on time or as intended. In addition, there can be no assurance that
the size of the restructuring charge will not exceed current estimates. The
Company's future consolidated
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operating results and financial condition could be adversely affected should it
encounter difficulty in effectively managing the restructurings and
consolidations.
Reduction of CVD Operations
In connection with the decision to exit CVD operations, Lam is conducting
discussions with certain customers to provide appropriate continuing product
support with respect to the CVD installed base. There can be no assurance that
the Company will be successful in negotiating business resolutions concerning
continuing product support, at all or on commercially reasonable terms. Future
operating results and financial conditions could be adversely affected should it
encounter difficulty in obtaining reasonable resolutions of these concerns.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio and long-term debt obligations.
The Company maintains a strict investment policy which ensures the safety and
preservation of its invested funds by limiting default risk, market risk, and
reinvestment risk. The table below presents notional amounts and related
weighted-average interest rates by year of maturity for the Company's investment
portfolio and long-term debt obligations.
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
-------- ------- ------ ----- -------- ---------- -------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash equivalents
Fixed rate................. $ 7,400 -- -- -- -- -- $ 7,400 $ 7,400
Average rate............... 5.57% -- -- -- -- -- 5.57% --
Short-term investments
Fixed rate................. $214,170 $84,678 -- -- -- -- $298,848 $298,848
Average rate............... 5.93% 6.06% -- -- -- -- 5.97% --
Auction rate preferreds
Variable rate.............. $ 84,799 -- -- -- -- -- $ 84,799 $ 84,799
Average rate............... 5.80% -- -- -- -- -- 5.80% --
Restricted cash
Fixed rate................. $ 51,357 -- -- -- -- -- $ 51,357 $ 51,357
Average rate............... 5.69% -- -- -- -- -- 5.69% --
-------- ------- ------ ----- -------- ----- -------- --------
Total Investment
Securities................. $357,726 $84,678 -- -- -- -- $442,404 $442,404
-------- ------- ------ ----- -------- ----- -------- --------
Average rate............... 5.86% 6.06% -- -- -- -- 5.90% --
-------- ------- ------ ----- -------- ----- -------- --------
Long-Term Debt
Fixed rate................. $ 5,833 $ 6,613 $4,737 $598 $310,601 $ 169 $328,551 $271,780
Average rate............... 3.39% 3.25% 3.02% 3.08% 5.00% 3.30% 4.92% --
</TABLE>
The Company mitigates default risk by attempting to invest in high credit
quality securities and by constantly positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer or guarantor. The portfolio includes only marketable securities with
active secondary or resale markets to ensure portfolio liquidity and maintains a
prudent amount of diversification.
The Company has no cash flow exposure due to rate changes for its $310.0
million Convertible Subordinated Notes, Japanese yen-denominated bank loans or
on its capital lease obligations. The Company has cash flow exposure on the
interest expense related to its $100.0 million line of credit due to the rates
which vary with LIBOR. At June 30, 1998 the Company had no borrowings against
its line of credit.
The Company conducts business on a global basis in several major
international currencies. As such, it is exposed to adverse or beneficial
movements in foreign currency exchange rates. The Company enters into foreign
currency forward contracts to minimize the impact of exchange rate fluctuations
on the value of yen-denominated assets and liabilities. The realized gains and
losses on these contracts are deferred and offset against realized and
unrealized gains and losses from the settlement of the related yen-denominated
receivables. At June 30, 1998, the notional amount of outstanding foreign
currency exchange contracts were
27
<PAGE> 28
$36.0 million. The unrealized gain on the contracts at June 30, 1998 was $0.5
million. An adverse change in the yen of approximately 15% would result in an
unrealized loss of $4.8 million.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements required by this Item are set forth
on the pages indicated at Item 14(a). The unaudited quarterly results of
operations for the Company's two most recent fiscal years are incorporated by
reference to pages 12 to 13 of this report under Item 6 "Selected Financial
Data".
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information required by Part III is omitted from this Report in
that the Registrant will file a definitive proxy statement with the Securities
and Exchange Commission (the "Commission") within 120 days after the end of its
fiscal year pursuant to Regulation 14A, as promulgated by the Commission, for
its Annual Meeting of Stockholders to be held November 5, 1998 (the "Proxy
Statement"), and certain information included therein is incorporated herein by
reference. (The Compensation Committee Report and the stock performance graph of
the Registrant's Proxy Statement are expressly not incorporated by reference
herein.) For information regarding executive officers of the Company, see Part I
of this Form 10-K under the caption "Executive Officers of the Company," which
information is incorporated herein by this reference.
The information concerning the Company's directors required by this Item is
incorporated by reference to "Election of Directors" in the Company's Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Executive Compensation and Other
Information."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Election of Directors" and
"Security Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Certain Relationships and Related
Transactions."
28
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Consolidated Balance Sheets -- June 30, 1998 and
1997............................................... 30
Consolidated Statements of Operations -- Years Ended
June 30, 1998, 1997 and 1996....................... 31
Consolidated Statements of Cash Flows -- Years Ended
June 30, 1998, 1997 and 1996....................... 32
Consolidated Statements of Stockholders'
Equity -- Years Ended June 30, 1998, 1997 and
1996............................................... 33
Notes to Consolidated Financial Statements.......... 34
Report of Independent Auditors...................... 51
Report of Independent Accountants................... 52
</TABLE>
2. INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II Valuation and Qualifying Accounts....... 55
</TABLE>
Schedules other than those listed above have been omitted since they are
either not applicable, not required or the information is included
elsewhere herein.
3. See (c) of this Item 14, which is incorporated herein by reference.
(b) Reports on Form 8-K
During the quarter ended June 30, 1998, the Company did not file any Forms
8-K. However the following were filed subsequent to the end of the fiscal
year.
The Company filed a Form 8-K on July 10, 1998 making an Item 5 disclosure
to disclose the Company's announcement of a restructuring.
The Company filed a Form 8-K on August 14, 1998 making an Item 5 disclosure
to disclose its year end press release.
The Company filed a Form 8-K on September 16, 1998 making an Item 5
disclosure to disclose that the Company had announced a stock repurchase.
(c) The list of Exhibits is set forth on page 56 of this Form 10-K and are
incorporated herein by this reference.
29
<PAGE> 30
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 13,509 $ 140,872
Short-term investments...................................... 383,647 54,821
Accounts receivable, less of allowance for doubtful accounts
of $5,103 in 1998 and $2,377 in 1997...................... 176,029 232,073
Inventories................................................. 220,610 261,738
Prepaid expenses and other assets........................... 25,809 37,707
Deferred income taxes....................................... 77,485 75,935
---------- ----------
Total current assets.............................. 897,089 803,146
Equipment and leasehold improvements, net................... 144,252 196,992
Restricted cash............................................. 51,357 --
Deferred income taxes....................................... 26,397 1,550
Other assets................................................ 31,677 33,361
---------- ----------
$1,150,772 $1,035,049
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable...................................... $ 67,703 $ 117,163
Accrued expenses and other liabilities...................... 208,442 167,685
Current portion of long-term debt and capital lease
obligations............................................... 17,364 21,127
Line of credit borrowings................................... -- 35,000
---------- ----------
Total current liabilities......................... 293,509 340,975
Long-term debt and capital lease obligations, less current
portion................................................... 334,174 46,592
Commitments and contingencies
Preferred stock; 5,000 shares authorized, none
outstanding............................................... -- --
Common stock at par value of $0.001 per share
Authorized -- 90,000 shares; issued and
outstanding -- 38,267 shares at June 30, 1998 and 37,334
shares at June 30, 1997................................... 38 37
Additional paid-in capital.................................. 381,306 361,101
Retained earnings........................................... 141,745 286,344
---------- ----------
Total stockholders' equity........................ 523,089 647,482
---------- ----------
$1,150,772 $1,035,049
========== ==========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 31
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.............................................. $1,050,527 $1,060,535 $1,309,899
Royalty income......................................... 2,059 12,662 22,814
---------- ---------- ----------
Total revenue................................ 1,052,586 1,073,197 1,332,713
Costs and expenses:
Cost of goods sold -- on net sales................... 646,511 723,404 689,515
Cost of goods sold -- restructuring charges.......... 31,933 -- --
---------- ---------- ----------
Gross profit................................. 374,142 349,793 643,198
Research and development............................. 206,456 192,254 186,899
Selling, general and administrative.................. 201,900 209,294 237,444
Restructuring charges................................ 116,925 9,021 --
Merger costs......................................... 17,685 -- --
Purchased technology for research and development.... 12,100 -- --
---------- ---------- ----------
555,066 410,569 424,343
---------- ---------- ----------
Operating income (loss)...................... (180,924) (60,776) 218,855
---------- ---------- ----------
Other (income) expense:
Interest income...................................... (22,670) (5,775) (7,048)
Interest expense..................................... 18,602 5,222 8,051
Other, net........................................... 2,269 636 1,453
---------- ---------- ----------
(1,799) 83 2,456
---------- ---------- ----------
Income (loss) before income taxes............ (179,125) (60,859) 216,399
Income tax expense (benefit)........................... (34,526) (30,183) 70,521
---------- ---------- ----------
Net income (loss)............................ $ (144,599) $ (30,676) $ 145,878
========== ========== ==========
Net income (loss) per share
Basic............................................. $ (3.80) $ (0.83) $ 4.32
========== ========== ==========
Diluted........................................... $ (3.80) $ (0.83) $ 3.95
========== ========== ==========
Number of shares used in per share calculations
Basic............................................. 38,057 36,919 33,753
========== ========== ==========
Diluted........................................... 38,057 36,919 37,719
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 32
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ (144,599) $ (30,676) $ 145,878
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 62,265 55,694 35,320
Deferred income taxes............................. (25,686) (25,032) (22,547)
Restructuring..................................... 91,543 -- --
Purchased technology for research and
development..................................... 12,100 -- --
Changes in certain working capital accounts:
Accounts receivable, net of allowance........... 51,795 33,547 (64,723)
Inventories..................................... 4,467 59,707 (153,309)
Prepaid expenses and other assets............... 11,898 (19,767) (3,548)
Trade accounts payable.......................... (49,460) 1,156 30,889
Accrued expenses and other liabilities.......... 36,922 6,349 59,881
----------- --------- ---------
Total adjustments............................ 195,844 111,654 (118,037)
----------- --------- ---------
Net cash provided by operating activities.... 51,245 80,978 27,841
CASH FLOWS FROM INVESTING ACTIVITIES:
Net capital expenditures............................. (50,207) (47,332) (72,647)
Purchase of available-for-sale securities............ (8,248,736) (602,474) (423,255)
Sale of available-for-sale securities................ 7,919,910 627,630 425,636
Purchase of investments for restricted cash.......... (51,357) -- --
Purchase of technology for research and
development....................................... (12,100) -- --
Proceeds from the sale of securities................. -- -- 12,038
Other................................................ 3,857 (11,002) (6,726)
----------- --------- ---------
Net cash used in investing activities........ (438,633) (33,178) (64,954)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under line of credit........ -- 95,000 40,000
Repayment of borrowings under line of credit......... (35,000) (85,000) (15,000)
Net proceeds from issuance of long-term debt......... 301,430 2,956 23,043
Principal payments on long-term debt and
capital lease obligations......................... (26,611) (21,848) (15,451)
Proceeds from redemption of mandatorily
redeemable preferred stock........................ -- -- (3,450)
Net proceeds from Initial Public Offering of
OnTrak Systems, Inc............................... -- -- 41,404
Proceeds from issuance of common stock, net of
repurchases....................................... 20,206 14,868 8,221
----------- --------- ---------
Net cash provided by financing activities.... 260,025 5,976 78,767
----------- --------- ---------
Net increase (decrease) in cash and cash equivalents... (127,363) 53,776 41,654
Cash and cash equivalents at beginning of year......... 140,872 87,096 45,442
----------- --------- ---------
Cash and cash equivalents at end of year............... $ 13,509 $ 140,872 $ 87,096
=========== ========= =========
Cash payments for interest............................. $ 13,507 $ 5,310 $ 8,738
=========== ========= =========
Cash payments for income taxes......................... $ 18,351 $ 32,377 $ 77,385
=========== ========= =========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 33
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL
STOCK STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995.............. 29,483 $29 $224,927 $ 171,142 $ 396,098
Sale of Common Stock, net of
repurchases......................... 664 1 8,220 -- 8,221
Income tax benefit from stock option
transactions........................ -- -- 2,940 -- 2,940
Conversion of Preferred Stock......... 1,486 1 3,071 -- 3,072
Conversion of subordinated
debentures.......................... 2,640 3 64,260 -- 64,263
Net proceeds from Initial Public
Offering of OnTrak Systems, Inc..... 2,233 2 41,402 -- 41,404
Net income............................ -- -- -- 145,878 145,878
------ --- -------- --------- ---------
Balance at June 30, 1996.............. 36,506 36 344,820 317,020 661,876
Sale of Common Stock, net of
repurchases......................... 828 1 14,549 -- 14,550
Income tax benefit from stock option
transactions........................ -- -- 1,732 -- 1,732
Net loss.............................. -- -- -- (30,676) (30,676)
------ --- -------- --------- ---------
Balance at June 30, 1997.............. 37,334 37 361,101 286,344 647,482
Sale of Common Stock, net of
repurchases......................... 933 1 20,205 -- 20,206
Net loss.............................. -- -- -- (144,599) (144,599)
------ --- -------- --------- ---------
Balance at June 30, 1998.............. 38,267 $38 $381,306 $ 141,745 $ 523,089
====== === ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE A: MERGER WITH ONTRAK
On August 5, 1997, the stockholders of each Lam and OnTrak approved the
Merger and the issuance of Lam Common Stock under the Agreement and Plan of
Merger with OnTrak. The transaction has been accounted for as a pooling of
interests and was structured to qualify as a tax-free reorganization. Costs
associated with the Merger were approximately $17.7 million. Such expenses
include investment advisory fees, legal and accounting fees, financial printing
costs and other Merger-related costs.
The following table shows revenues and net income of the separate companies
through the periods preceding the Merger:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Total revenue:
Lam............................................... $1,002,404 $1,276,884
OnTrak............................................ 70,793 55,829
---------- ----------
Combined.................................. $1,073,197 $1,332,713
========== ==========
Net income (loss):
Lam............................................... $ (33,634) $ 141,091
OnTrak............................................ 2,958 4,787
---------- ----------
Combined.................................. $ (30,676) $ 145,878
========== ==========
</TABLE>
NOTE B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All inter-company
accounts and transactions have been eliminated in consolidation.
Cash Equivalents: All highly liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market. The Company evaluates the need to record
adjustments for impairment of inventory on a quarterly basis. Inventory in
excess of the Company's estimated usage requirements is written down to its
estimated net realizable value. Inherent in the estimates of net realizable
value are management estimates related to the Company's future manufacturing
schedules, customer demand, possible alternative uses and ultimate realization
of potentially excess inventory.
Equipment and Leasehold Improvements: Equipment and leasehold improvements
are stated at cost. Equipment is depreciated by the straight-line method over
the estimated useful lives of the assets, generally three to seven years.
Leasehold improvements are amortized by the straight-line method over the
shorter of the life of the related asset or the term of the underlying lease.
Amortization of equipment under capital leases is included with depreciation.
Revenue Recognition: Sales of the Company's products are generally recorded
upon shipment. Estimated costs to be incurred by the Company related to product
installation and warranty fulfillment are accrued at the date of shipment.
Foreign Currency: The Company has foreign sales, service and manufacturing
operations. With respect to all foreign subsidiaries, excluding Japan, the
functional currency is the U.S. dollar and transaction and translation gains and
losses are included in net income (loss). The functional currency of the
Company's
34
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
Japanese subsidiary is the Japanese yen. Translation gains and losses related to
the Japan subsidiary are included as a component of stockholders' equity, but
have not been material through June 30, 1998.
Foreign Exchange Forward Contracts: The Company may enter into foreign
currency forward exchange contracts to manage exposure related to certain
foreign currency commitments and balance sheet positions. The Company does not
enter into derivative financial instruments for trading purposes. Foreign
currency forward exchange contracts designated as effective hedges of firm
commitments are treated as hedges for accounting purposes. Gains and losses
related to qualified accounting hedges of firm commitments are deferred and are
recognized in income when the hedged transaction occurs.
Income (Loss) Per Share: In February 1997, the Financial Accounting
Standards Board ("FASB") released Statement of Financial Accounting Standards
No. 128 "Earnings Per Share" ("FAS 128"), which was adopted during the quarter
ended December 31, 1997. FAS 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options and convertible securities. Diluted earnings per share is
very similar to the previously reported fully diluted earnings per share. For
fiscal 1998 and 1997, net loss per share was computed using only the weighted
average number of shares of Lam Common Stock outstanding during the period. For
fiscal 1996, basic net income per share was based on the weighted average number
of shares of Lam Common Stock outstanding during the period. For the same period
diluted net income per share further included the effect of stock options
outstanding which were dilutive and assumed the conversion of the Company's 6%
convertible subordinated debentures as if they were converted at the beginning
of that period. The 6% convertible subordinated debentures were called by the
Company during the quarter ended June 30, 1996. All net income (loss) amounts
for prior periods have been presented and, where necessary, restated to conform
to FAS 128 requirements. See Note K.
Employee Stock Plans: The Company accounts for its stock option plans and
its employee stock purchase plans in accordance with the provisions of the
Accounting Principles Board's Opinion No. 25 "Accounting For Stock Issued to
Employees" ("APB 25"). In October 1995, the FASB released Statement of Financial
Accounting Standard No. 123, "Accounting For Stock-Based Compensation" ("FAS
123"), which provides an alternative to APB 25. As allowed under FAS 123, the
Company continues to account for its employee stock plans in accordance with the
provisions of APB 25. See Note L.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that could affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Capital Structure: In February 1997, the FASB released Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure" ("FAS 129"). FAS 129 consolidates the existing guidance regarding
disclosure relating to a company's capital structure and is effective for fiscal
years beginning after December 15, 1997.
Comprehensive Income: In June 1997, the FASB released Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130"). FAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997.
Segment Information: In June 1997, the FASB released Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("FAS 131"). FAS 131 will change the way companies report
selected segment information in annual and interim financial reports to
stockholders. FAS 131 is effective for fiscal years beginning after December 15,
1997.
Derivative Instruments and Hedging: In June 1998, the FASB released
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities"
35
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
("FAS 133"). FAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for derivatives used for hedging activities. It requires
that all derivatives be recognized either as an asset or liability, and measures
them at fair value. FAS 133 is effective for all fiscal quarters for fiscal
years beginning after June 15, 1999. The Company believes that the application
of the FAS 133 will not have a material impact on the Company's consolidated
financial statements.
NOTE C: COMPANY AND INDUSTRY INFORMATION
Lam Research Corporation is a leading supplier of technically complex thin
film processing equipment used in the primary stages of semiconductor
manufacturing. The Company's product offerings include single wafer plasma etch
systems with a wide range of applications, and CMP systems. The Company sells
its products primarily to large companies involved in the production of
semiconductors in the United States, Europe, Japan and Asia Pacific. Credit
evaluations are performed on all customers, and the Company usually does not
require collateral on sales.
The semiconductor industry has historically been cyclical and has
experienced periodic downturns, which have had a material adverse effect on the
semiconductor industry's demand for semiconductor processing equipment,
including equipment manufactured and marketed by the Company. Certain of the
components and subassemblies included in the Company's products are obtained
from a single supplier or a limited group of suppliers. The Company believes
that alternative sources could be obtained and qualified to supply these
products. Nevertheless, a prolonged inability to obtain certain components could
have a severe near-term effect on the Company's operating results and could
result in damage to customer relationships.
The Company entered into agreements totaling 6 billion yen and 9 billion
yen, respectively, in fiscal 1998 and 1997 to sell specific Japanese
yen-denominated receivables, subject to recourse provisions. At June 30, 1998
and 1997, $16,514,000 and $59,986,000 of these receivables, respectively, had
been sold to the bank, of which $11,581,000 and $39,924,000 at June 30, 1998 and
1997, respectively, remained uncollected by the bank and subject to recourse
provisions.
During fiscal 1998, a single customer accounted for 12% of total sales.
During 1997 and 1996, no individual customer accounted for greater than 10% of
total sales.
36
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
The Company operates in four geographic regions, the United States, Europe,
Japan and Asia Pacific. The following is a summary of local operations by
geographic region at June 30:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
United States........................ $ 889,604 $ 903,222 $1,101,400
Europe............................... 58,891 42,942 40,365
Japan................................ 56,155 69,427 138,713
Asia Pacific......................... 47,936 57,606 52,235
---------- ---------- ----------
Total........................ $1,052,586 $1,073,197 $1,332,713
========== ========== ==========
Operating income (loss):
United States........................ $ (177,882) $ (58,078) $ 132,620
Europe............................... 3,112 (8,730) 9,696
Japan................................ (2,849) 2,342 56,903
Asia Pacific......................... (3,305) 3,690 19,636
---------- ---------- ----------
Total........................ $ (180,924) $ (60,776) $ 218,855
========== ========== ==========
Identifiable assets:
United States........................ $1,021,618 $ 872,657 $ 891,974
Europe............................... 14,704 31,538 28,688
Japan................................ 74,261 71,847 65,344
Asia Pacific......................... 40,189 59,007 45,491
---------- ---------- ----------
Total........................ $1,150,772 $1,035,049 $1,031,497
========== ========== ==========
</TABLE>
Sales between geographic areas are accounted for at prices that provide a
profit, and are in accordance with the rules and regulations of the respective
governing authorities. Total export revenue consisting of sales from the
Company's U.S. operating subsidiaries to non-affiliated customers by geographic
region for the three years ended June 30, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Asia Pacific........................... $ 266,058 $ 293,488 $ 336,769
Europe................................. 134,970 131,342 182,688
Japan.................................. 12,940 23,019 28,255
---------- ---------- ----------
$ 413,968 $ 447,849 $ 547,712
========== ========== ==========
</TABLE>
37
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE D: FINANCIAL INSTRUMENTS
Investments at June 30 are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
ESTIMATED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-Sale:
Institutional Money Market Funds.............. $ 7,400 $ 7,400 $ 28,329 $ 28,329
Municipal Bonds and Notes..................... -- -- 89,546 89,546
U.S. Treasury Bonds and Notes................. -- -- 5,539 5,539
-------- -------- -------- --------
Amounts included in cash and cash equivalents... 7,400 7,400 123,414 123,414
Bank and Corporate Notes...................... 142,184 142,184 -- --
Auction Rate Preferreds....................... 84,799 84,799 -- --
Yankee and Euro Certificates of Deposit....... 72,433 72,433 -- --
Municipal Bonds and Notes..................... 42,085 42,085 16,301 16,301
Agency Notes.................................. 29,024 29,024 -- --
Commercial Paper.............................. 13,122 13,122 -- --
Floating Rate Municipal Bonds................. -- -- 19,549 19,549
U.S. Treasury Bonds and Notes................. -- -- 18,971 18,971
-------- -------- -------- --------
Amounts included in short-term investments...... 383,647 383,647 54,821 54,821
Institutional Money Market Funds.............. 51,357 51,357 -- --
-------- -------- -------- --------
Amounts included in restricted cash............. 51,357 51,357 -- --
-------- -------- -------- --------
Total Available-for-Sale.............. $442,404 $442,404 $178,235 $178,235
======== ======== ======== ========
</TABLE>
The difference between cost and fair value of available-for-sale securities
was not significant at June 30, 1998 and 1997.
The amortized cost and estimated fair value of investments in debt
securities at June 30, by contractual maturities, are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
ESTIMATED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in less than one year....................... $169,858 $169,858 $155,864 $155,864
Due after one year through five years........... 187,747 187,747 22,371 22,371
-------- -------- -------- --------
Total investments in debt
securities.......................... $357,605 $357,605 $178,235 $178,235
======== ======== ======== ========
</TABLE>
The carrying and fair values of the Company's financial instruments at June
30 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 13,509 $ 13,509 $140,872 $140,872
Restricted cash................................. $ 51,357 $ 51,357 $ -- $ --
Convertible subordinated debentures............. $310,000 $253,239 $ -- $ --
Foreign currency forward contracts.............. $ -- $ 510 $ -- $ (953)
Other long-term debt............................ $ 41,538 $ 40,872 $ 67,719 $ 67,745
</TABLE>
38
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
The fair values of the Company's investments in debt securities and
restricted cash are based on quoted market prices at June 30, 1998 and 1997. The
fair value of the Company's auction rate preferreds is based upon par value. The
fair value of the Company's foreign currency forward contracts is estimated
based upon the yen exchange rate at June 30, 1998 and 1997. The fair value of
the Company's convertible subordinated debentures and the Company's other
long-term debt is estimated based on the current rates offered to the Company
for similar debt instruments of the same remaining maturities.
NOTE E: DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into foreign currency forward contracts to minimize the
impact of exchange rate fluctuations on the value of yen-denominated assets and
liabilities. A substantial portion of the forward contracts entered into have a
maturity of 90 days or less. The unrealized gains and losses on these contracts
are deferred and offset against unrealized gains and losses from the settlement
of the related yen-denominated assets and liabilities. The realized gains on
yen-forward contracts during fiscal 1998 were offset by losses on underlying
receivables.
At June 30, 1998 and 1997, the notional amount of outstanding foreign
currency forward contracts were $35,967,000 and $30,651,000, respectively. Of
the total outstanding contracts at June 30, 1998 and 1997, $26,858,000 and
$13,828,000, respectively, were to hedge yen-denominated inter-company
receivables, and $8,599,000 and $17,776,000, respectively, were to hedge firm
commitments from customers in Japan. The unrealized gain on these forward
contracts at June 30, 1998 was $510,000. The unrealized loss on these contracts
at June 30, 1997 was $953,000.
NOTE F: INVENTORIES
Inventories consist of the following at June 30:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.......................................... $147,794 $136,698
Work-in-process........................................ 52,374 93,057
Finished goods......................................... 20,442 31,983
-------- --------
$220,610 $261,738
======== ========
</TABLE>
NOTE G: PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following at June 30:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Prepaid expenses......................................... $10,065 $13,092
Net realizable value of collateral....................... -- 5,320
Interest receivable...................................... 5,462 --
Taxes receivable......................................... 4,236 5,400
Other.................................................... 6,046 13,895
------- -------
$25,809 $37,707
======= =======
</TABLE>
During fiscal 1997, the Company recorded bad debt expense of $6,550,000
relating to the at-risk receivables from a Thailand customer. The estimated net
realizable value of the collateral which the Company holds related to these
receivables was included in prepaid expenses and other assets at June 30, 1997.
39
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE H: EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at June 30:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Equipment............................................ $ 139,358 $ 158,475
Furniture and fixtures............................... 60,353 58,642
Leasehold improvements............................... 95,075 100,222
--------- ---------
294,786 317,339
Less allowance for depreciation and amortization..... (150,534) (120,347)
--------- ---------
$ 144,252 $ 196,992
========= =========
</TABLE>
NOTE I: ACCRUED EXPENSES AND OTHER LIABILITIES
The significant components of accrued expenses and other liabilities
consist of the following at June 30:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Warranty and installation reserves..................... $ 62,826 $ 75,321
Restructuring.......................................... 48,443 1,258
Accrued compensation................................... 36,085 30,987
Income and other taxes payable......................... 14,114 21,381
Other.................................................. 46,974 38,738
-------- --------
$208,442 $167,685
======== ========
</TABLE>
NOTE J: LINE OF CREDIT, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations at June 30 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
5% Convertible subordinated notes, due September
2002................................................. $310,000 $ --
Capitalized lease obligations, with varying interest
rates
from 9.5% to 4.6%.................................... 22,987 35,666
Japanese yen-denominated bank loans with fixed interest
rates from 3.01% to 4.9%, principal payable in
quarterly and semi-annual installments from July 1997
to April 2003........................................ 16,881 28,562
Other.................................................. 1,670 3,491
-------- --------
351,538 67,719
Less current portion................................... (17,364) (21,127)
-------- --------
$334,174 $ 46,592
======== ========
</TABLE>
During August 1997, Lam completed an offering of $310.0 million of
Convertible Subordinated Notes ("the Notes"), which mature on September 1, 2002.
Interest on the five percent Notes is payable on September 1 and March 1 of each
year commencing March 1, 1998. The Notes are convertible into shares of Lam
Common Stock at any time prior to the close of business on the maturity date,
unless previously redeemed, at a conversion price of $87.77 per share, subject
to adjustment. The Notes are redeemable, in whole or in part, at the option of
the Company, upon at least 20 days notice, at redemption prices starting at
102.0% and at diminishing prices thereafter, plus accrued interest, except that
the Notes may not be redeemed prior to September 6, 2000, unless the closing
price of the Common Stock is at least 130% of the conversion price for at least
20 trading days within a period of 30 consecutive trading days ending within
five trading days
40
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
prior to the notice of redemption. The Notes are unsecured and subordinated in
right of payment in full to all existing and future Senior indebtedness of the
Company. Expenses associated with the offering of approximately $9.0 million
were deferred in other assets and are being ratably amortized over the term of
the Notes.
During the third quarter of fiscal 1998, the Company renegotiated its
Synthetic Lease Agreement (the "Synthetic Lease Agreement"), relating to certain
buildings at its Fremont campus, to obtain more favorable terms and to reduce
the amount of the obligation. As part of the collateral restrictions of the
Synthetic Lease Agreement, the Company is required to maintain $51,357,000 of
cash in restricted specified interest-bearing accounts through March 2003
(unless the Synthetic Lease Agreement is otherwise terminated or the amount of
maintained cash is reduced, as the underlying obligation is paid down).
At June 30, 1998, the Company had a total of $100.0 million available under
a syndicated bank line of credit. The line of credit was renegotiated in April
1998 and is due to expire in April 2001. Borrowings under the syndicated bank
line of credit bear interest at 0.45% to 0.75% over LIBOR, and are subject to
Lam's compliance with financial and other covenants. The credit agreement
includes terms requiring satisfaction of certain financial ratios, interest
coverage, maximum leverage, senior indebtedness, tangible net worth, minimum
profitability, and also restricts the Company from paying dividends. At June 30,
1998, the Company received waivers for its financial covenants under the credit
facility, and has since amended the applicable covenant requirements of its line
of credit and amended the line of credit borrowing rates to 0.55% to 0.95% over
LIBOR.
At June 30, 1998, the Company received waivers for its financial covenants
under one of its Japanese yen-denominated bank loans. The Company is negotiating
a replacement facility for the approximately $12.0 million yen-denominated loan.
The Company anticipates that the terms of the new facility will be equal to or
better than the terms of its present Japanese yen-denominated bank loan and that
it shall be compliance with any financial covenants thereof.
At June 30, 1998, future maturities of long-term debt and minimum payments
for capital lease obligations are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASE LONG-TERM
YEAR ENDING JUNE 30, OBLIGATIONS DEBT TOTAL
-------------------- ------------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1999..................................... $12,885 $ 5,833 $ 18,718
2000..................................... 9,351 6,613 15,964
2001..................................... 2,304 4,737 7,041
2002..................................... 472 598 1,070
2003..................................... -- 310,601 310,601
Thereafter............................... -- 169 169
Less amounts representing interest....... (2,025) -- (2,025)
------- -------- --------
$22,987 $328,551 $351,538
======= ======== ========
</TABLE>
Long-term debt and capital lease obligations are collateralized by
equipment included in equipment and leasehold improvements, with a cost and
accumulated depreciation and amortization of $13,872,000 and $(9,674,000),
respectively, at June 30, 1998, and $56,671,000 and $(22,698,000), respectively,
at June 30, 1997.
41
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE K: NET INCOME (LOSS) PER SHARE
The Company's basic and diluted net loss per share for the years ended June
30, as calculated according to FAS 128 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Numerator for basic net income (loss) per
share........................................ $(144,599) $(30,676) $145,878
Effect of dilutive securities:
Interest expense on convertible subordinated
debentures, net of tax....................... -- -- 3,264
--------- -------- --------
Numerator for diluted net income (loss) per
share........................................... $(144,599) $(30,676) $149,142
========= ======== ========
Denominator:
Basic net income (loss) per share -- average
shares outstanding........................... 38,057 36,919 33,753
Effect of dilutive securities:
Employee stock options.......................... -- -- 1,744
Convertible subordinated debentures............. -- -- 2,222
--------- -------- --------
Total potential dilutive common
shares................................ -- -- 3,966
--------- -------- --------
Denominator for diluted net income (loss) per
share -- average shares outstanding and assumed
conversions..................................... 38,057 36,919 37,719
========= ======== ========
Basic net income (loss) per share................. $ (3.80) $ (0.83) $ 4.32
========= ======== ========
Diluted net income (loss) per share............... $ (3.80) $ (0.83) $ 3.95
========= ======== ========
</TABLE>
Options and convertible securities, respectively, were outstanding during
1998 and 1997, but were excluded from the computation of diluted net loss per
common share because the effect in years with a net loss would be antidilutive.
Options to purchase approximately 220,000 shares of common stock were
outstanding during 1996, but were not included in the computation of diluted net
income per common share because the options' exercise price was greater than the
average market price of the common shares and, therefore, the effect would be
antidilutive.
NOTE L: INCENTIVE STOCK OPTION PLANS AND STOCK PURCHASE PLAN
The Company has adopted incentive stock option plans that provide for the
granting to qualified employees of incentive stock options to purchase shares of
Common Stock. In addition, the plans permit the granting of nonstatutory stock
options to paid consultants and employees, and provides for the automatic grant
of nonstatutory stock options to outside directors. The option price is
determined by the Board of Directors, but in no event will it be less than the
fair market value of the Company's Common Stock on the date of grant (no less
than 85% of the fair market value at the date of grant in the case of
nonstatutory options). Options granted under the plans vest over a period
determined by the Board of Directors. Under the automatic grant program, each
outside director receives an option immediately exercisable for 6,000 shares of
Common Stock during January of each year during which the outside director
serves, with the exercise price equal to the fair market value on the date of
grant.
OnTrak had adopted incentive and nonstatutory stock option plans ("the
Employee Plans"). Incentive stock option and nonstatutory stock option grants
under the Employee Plans must be at prices of at least 100% of the fair market
value of the stock on the date of grant. The options generally vest at the rate
of 25% per year. Upon completion of the Merger, each OnTrak option was exchanged
for 0.83 of an option to purchase Lam Common Stock.
42
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
OnTrak also adopted a director stock option plan ("the Director Plan") and
reserved 103,750 shares of Common Stock for issuance thereunder. The Director
Plan provided for the grant of nonstatutory stock options to non-employee
directors of OnTrak pursuant to an automatic, nondiscretionary grant mechanism.
Upon completion of the Merger, each OnTrak option was exchanged for 0.83 of an
option to purchase Lam Common Stock.
During fiscal year 1996, OnTrak issued an option to purchase 664,000 shares
of common stock to OnTrak's Chief Executive Officer at an exercise price of
$20.78 per share. In November 1996, following the approval of the 1996 Equity
Incentive Plan by OnTrak's stockholders, this option was canceled and reissued
with identical terms.
A summary of incentive stock option plan transactions follows:
<TABLE>
<CAPTION>
WEIGHTED
AUTHORIZED OUTSTANDING OPTION PRICE AVERAGE
---------- ----------- --------------- --------
<S> <C> <C> <C> <C>
June 30, 1995........................... 1,201,399 3,175,861 $ 0.18 - $63.88 $18.10
Additional amount authorized............ 1,000,000 -- --
Granted................................. (2,396,838) 2,396,838 16.87 - 68.00 39.71
Exercised............................... (457,842) 0.18 - 45.13 7.39
Canceled................................ 1,323,292 (1,323,292) 2.04 - 68.00 46.81
Expired................................. (8,174) -- --
---------- ---------- --------------- ------
June 30, 1996........................... 1,119,679 3,791,565 $ 0.28 - 62.88 $23.71
Additional amount authorized............ 1,660,000 -- --
Granted................................. (1,860,555) 1,860,555 16.57 - 40.31 23.57
Exercised............................... -- (351,387) 0.28 - 35.75 16.53
Canceled................................ 365,662 (365,662) 2.26 - 44.88 26.72
Expired................................. (1,319) -- --
---------- ---------- --------------- ------
June 30, 1997........................... 1,283,467 4,935,071 $ 0.28 - 62.88 $23.82
Additional amount authorized............ 3,000,000 -- --
Granted................................. (3,380,678) 3,380,678 19.13 - 56.53 38.32
Exercised............................... -- (588,264) 0.54 - 42.63 20.19
Canceled................................ 1,071,268 (1,071,268) 3.01 - 56.53 38.16
Expired................................. (1,141,009) -- --
---------- ---------- --------------- ------
June 30, 1998........................... 833,048 6,656,217 $ 0.28 - $62.88 $29.31
========== ========== =============== ======
</TABLE>
At June 30, 1998, 7,489,265 shares of Common Stock were reserved for future
issuance under the stock option plans and options to purchase 2,828,140 shares
were exercisable at a range of $0.28-$62.88.
43
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
Outstanding and excercisable options presented by price range at June 30,
1998 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------------------- --------------------------
NUMBER OF WEIGHTED NUMBER OF WEIGHTED
OPTIONS AVERAGE WEIGHTED OPTIONS AVERAGE
RANGE OF OUTSTANDING AT REMAINING LIFE AVERAGE EXERCISABLE AT EXERCISE
EXERCISE PRICES JUNE 30, 1998 (YEARS) EXERCISE PRICE JUNE 30, 1998 PRICE
--------------- -------------- -------------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 0.28 - $12.29 620,913 3.28 $ 5.90 552,766 $ 5.59
13.54 - 20.63 573,086 7.04 19.67 198,155 19.33
20.78 - 20.78 694,385 5.27 20.78 679,013 20.78
21.63 - 27.69 980,936 7.95 24.91 249,042 26.30
27.94 - 29.50 786,298 7.03 29.05 539,290 29.27
29.82 - 29.88 1,016,512 9.74 29.87 32,975 29.87
30.50 - 33.63 676,579 7.42 33.12 404,502 33.12
33.81 - 55.42 995,313 8.62 48.54 172,256 39.22
55.44 - 62.88 312,195 9.12 55.48 141 62.88
--------------- --------- ---- ------ --------- ------
$ 0.28 - $62.88 6,656,217 7.42 $29.31 2,828,140 $22.81
=============== ========= ==== ====== ========= ======
</TABLE>
During fiscal 1998, the stockholders of the Company approved the 1997 Stock
Incentive Plan, which provides for the grant of stock options, restricted stock,
deferred stock and performance share awards to participating officers,
directors, employees, consultants and advisors of the Company and its
subsidiaries. Initially, 3,000,000 shares were reserved for issuance. The number
of shares to be issued will automatically be increased each calendar quarter
subject to certain provisions and restrictions, but will in no event exceed
5,000,000 shares.
During fiscal 1996, the Company adopted a Performance-Based Restricted
Stock Plan designed to reward executives based upon the achievement of certain
predetermined goals. The grant is based on the fair market value of the
Company's Common Stock at the end of the quarter, provided the predetermined
goals are met. The Company authorized 150,000 shares to be reserved for issuance
under the Performance-Based Stock Plan. At June 30, 1998, 127,394 shares remain
available under this plan.
Common Stock is sold to employees under the 1984 Employee Stock Purchase
Plan ("ESPP"). During fiscal 1998, the Company authorized an additional 350,000
shares to be reserved for issuance under the 1984 ESPP. Another 166,000 shares
were reserved upon the completion of the Merger with OnTrak. The purchase price
per share is the lower of 85% of the fair market value of the Common Stock on
the first or last day of a six-month offering period. A total of 1,763,024
shares of the Company's Common Stock were issued under the Plans through June
30, 1998, at prices ranging from $2.65 to $43.03 per share. At June 30, 1998,
440,230 shares remain available for purchase.
As permitted by FAS 123, the Company has elected to follow APB 25, and
related Interpretations, in accounting for stock-based awards to employees.
Under APB 25, the Company generally recorded nominal compensation expense with
respect to such awards which are generally granted at market value on the date
of grant.
Pro forma information regarding net income (loss) and net income (loss) per
share is required by FAS 123 for awards granted after June 30, 1995, as if the
Company had accounted for its stock-based awards to employees under the fair
value method of FAS 123. The fair value of the Company's stock-based awards to
employees was estimated using a Black-Scholes option pricing model. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, the Black-Scholes model requires the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's stock-based awards to employees have characteristics significantly
different from those of traded options, and because changes in the
44
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
subjective input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of the Company's stock-based awards to
employees. The fair value of the Company's stock-based awards to employees was
estimated assuming no expected dividends and the following weighted-average
assumptions:
<TABLE>
<CAPTION>
OPTIONS ESPP
------------------ ------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected life (years)......................... 3.9 3.3 3.5 0.5 0.5 0.5
Expected stock price volatility............... 64% 60% 54% 64% 58% 58%
Risk-free interest rate....................... 5.7% 6.1% 5.5% 5.7% 5.3% 5.4%
</TABLE>
The weighted average fair value of options granted during 1998, 1997 and
1996 was $20.59, $10.55 and $13.45 per share, respectively. The weighted average
fair value of shares granted under the ESPP during fiscal 1998, 1997 and 1996
was $12.85, $7.62 and $9.71 per share, respectively.
For pro forma purposes, the estimated fair value of the Company's
stock-based awards to employees is amortized over the option's vesting period
(for options) and the respective six-month purchase period (for stock purchases
under the ESPP). The Company's pro forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss) -- as reported.................. $(144,599) $(30,676) $145,878
Net income (loss) -- pro forma.................... $(169,974) $(41,194) $134,737
Basic net income (loss) per share -- as
reported........................................ $ (3.80) $ (0.83) $ 4.32
Basic net income (loss) per share -- pro forma.... $ (4.47) $ (1.12) $ 4.01
Diluted net income (loss) per share -- as
reported........................................ $ (3.80) $ (0.83) $ 3.95
Diluted net income (loss) per share -- pro
forma........................................... $ (4.47) $ (1.12) $ 3.57
</TABLE>
FAS 123 is applicable only to awards granted subsequent to June 30, 1995.
As a result, its pro forma effect will not be fully reflected until fiscal 1999.
NOTE M: PROFIT SHARING PLAN AND BENEFIT PLAN
During fiscal 1995, the Company revised the profit sharing plan for its
employees in North America. Distributions to employees by the Company are made
quarterly based upon a percentage of base salary provided that a threshold level
of the Company's financial and performance goals are met. Upon achievement of
the threshold, the profit sharing is awarded based upon performance against
certain corporate financial and operating goals. Prior to the Merger, OnTrak
maintained a profit sharing plan whereby an aggregate amount of 5% of OnTrak's
operating profits, as defined, were paid semi-annually. Subsequent to the
Merger, the Company has one profit sharing plan. During fiscal 1998, the Company
did not incur any profit sharing plan expense. Profit sharing plan expense for
fiscal 1997 and 1996 was $176,000 and $14,783,000, respectively.
The Company maintains a 401(k) retirement savings plan for its full-time
employees in North America. Each participant in the plan may elect to contribute
2% to 15% of his or her annual salary to the plan, subject to statutory
limitations. Prior to October 1, 1995, each participant could elect to
contribute 2% to 20% of his or her annual salary to the plan, subject to
statutory limitations. Beginning January 1, 1994, the Company began to match
employee contributions to the plan at the rate of 50% of the first 6% of salary
contributed. Prior to the Merger, OnTrak maintained an employee savings and
retirement plan qualified under Section 401(k) of the Internal Revenue Code. The
OnTrak plan allowed participants to contribute up to 14% of the total
compensation that would otherwise be paid to them by OnTrak, not to exceed the
maximum allowed by the applicable Internal Revenue Service guidelines. OnTrak
matched 100% of the salary deferral contributions made by each participating
employee, up to a maximum of 6% of total employee compensation. OnTrak's
contributions were 25%, 50% and 100% vested after an employee's second, third
and fourth years of service,
45
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
respectively. The Company match expense for fiscal 1998, 1997 and 1996 was
$4,964,000, $5,205,000 and $4,213,000, respectively.
NOTE N: LICENSING/ROYALTY AGREEMENTS
The Company receives royalty income from TEL under a licensing agreement
signed in fiscal 1987, and extended in fiscal 1992 and 1996. For the years ended
June 30, 1998, 1997 and 1996, the Company earned $1,336,000 $11,689,000 and
$20,713,000, respectively, of royalty income from TEL. The current royalty
agreement, which was due to expire December 31, 1996, was renegotiated at a
reduced royalty rate (5% to 1%), which went into effect January 1, 1997.
The Company also receives royalty income from Sumitomo. Royalty income
earned from Sumitomo for fiscal 1998, 1997 and 1996 amounted to $723,000,
$973,000 and $2,101,000, respectively.
NOTE O: COMMITMENTS
The Company leases its administrative, R&D, and manufacturing facilities,
regional sales/service offices and certain equipment under noncancelable
operating leases, which expire at various dates through 2020. Certain of the
Company's labs and other equipment are also supplied under operating leases. All
of the Company's facility leases for buildings located at its Fremont,
California headquarters and certain operating leases provide the Company an
option to extend the leases for additional periods. Certain of the Company's
other facility leases provide for periodic rent increases based on the general
rate of inflation.
Future minimum lease payments for the years ended June 30 and in the
aggregate under operating leases consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1999................................................... $ 38,589
2000................................................... 29,512
2001................................................... 20,000
2002................................................... 58,447
2003................................................... 8,765
Thereafter............................................. 35,684
--------
$190,997
========
</TABLE>
During fiscal 1998, Company renegotiated its Synthetic Lease Agreement,
relating to certain buildings at its Fremont campus, to obtain more favorable
terms and to reduce the amount of the obligation. As part of the collateral
restrictions of the Synthetic Lease Agreement, the Company is required to
provide $44,402,000 as guaranteed residual at the end of the lease term.
Total rental expense for all leases amounted to approximately $44,737,000,
$46,728,000 and $36,079,000, for the years ended June 30, 1998, 1997 and 1996,
respectively.
The Company has subleased some of its buildings and is exploring subleasing
others, and currently expects to receive income of approximately $1,977,000,
$1,986,000, $1,983,000, $1,632,000 and $470,000 for the fiscal years 1999, 2000,
2001, 2002 and 2003, respectively, which will offset the above noted minimum
lease payments.
For the fiscal years ended June 30, 1998 and 1997, the Company received
income totaling $1,752,000 and $405,000, respectively, on its subleased
facilities.
46
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE P: INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current.............................................. $(18,153) $(20,064) $ 65,107
Deferred............................................. (21,187) (15,521) (19,280)
-------- -------- --------
(39,340) (35,585) 45,827
State:
Current.............................................. 362 2,474 7,192
Deferred............................................. (6,049) (9,511) (1,717)
-------- -------- --------
(5,687) (7,037) 5,475
Foreign:
Current.............................................. 8,951 12,439 20,769
Deferred............................................. 1,550 -- (1,550)
-------- -------- --------
10,501 12,439 19,219
-------- -------- --------
$(34,526) $(30,183) $ 70,521
======== ======== ========
</TABLE>
Actual current tax liabilities are lower than reflected above for fiscal
years 1997 and 1996 by $1,732,000 and $2,940,000, respectively, for the stock
option deduction benefits recorded as a credit to stockholders' equity.
Under FAS No. 109, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's net deferred tax assets as of June 30,
are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounting reserves and accruals deductible in different
periods................................................ $ 63,937 $43,871
Inventory valuation differences........................... 37,240 24,635
Tax benefit carryforwards................................. 39,268 15,189
Net undistributed profits of foreign subsidiaries......... 9,239 3,805
Other..................................................... -- 466
-------- -------
Gross deferred tax assets................................... 149,684 87,966
Deferred tax liabilities:
Temporary differences for capital assets.................. (8,594) (8,534)
Other..................................................... (2,157) (1,236)
-------- -------
Gross deferred tax liabilities.............................. (10,751) (9,770)
-------- -------
Valuation allowance for deferred tax assets................. (35,051) --
-------- -------
Net deferred tax assets..................................... $103,882 $78,196
======== =======
</TABLE>
Approximately $5.9 million of the valuation allowance for deferred taxes is
attributable to stock option deductions, the benefit of which will be credited
to equity when realized.
Realization of the Company's net deferred tax assets is dependent on future
taxable income. The Company believes that it is more likely than not such assets
will be realized; however, ultimate realization could be negatively impacted by
market conditions and other variables not known or anticipated at this time.
47
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
At June 30, 1998, the Company has federal and state tax credit
carryforwards of approximately $36.0 million, of which approximately $21.0
million will expire in varying amounts between 2000 and 2013. The remaining
balance of $15.0 million of tax carryforwards may be carried forward
indefinitely. A valuation allowance has been provided for a portion of the
deferred tax assets related to the carryforwards.
A reconciliation of income tax expense provided at the federal statutory
rate (35% in 1998, 1997 and 1996) to income tax expense follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense (benefit) computed at federal
statutory rate.................................... $(62,694) $(21,345) $75,665
Tax credits......................................... (5,459) (5,316) (203)
State income taxes, net of federal tax benefits
(provision)....................................... (3,697) (4,422) 3,777
Losses not benefited................................ 35,051 -- --
Other............................................... 2,273 900 (8,718)
-------- -------- -------
$(34,526) $(30,183) $70,521
======== ======== =======
</TABLE>
Income before income taxes from foreign operations for fiscal years 1998,
1997 and 1996 was $11,462,000, $31,621,000 and $42,216,000, respectively. In
addition, the Company received royalty and other income from foreign sources of
$2,059,000, $12,662,000 and $22,814,000, in fiscal years 1998, 1997 and 1996,
respectively, which is subject to foreign tax withholding.
NOTE Q: RESTRUCTURINGS
During the quarters ended March 31, 1998 and June 30, 1998, the Company
announced plans to restructure its operations to focus more on its core etch and
CMP product groups, and to exit its FPD and CVD operations. As a result of the
restructurings, the Company reduced its global workforce by approximately 28%
and downsized and consolidated its manufacturing operations and facilities. The
Company recorded a total restructuring charge of $148,858,000 for severance
compensation and benefits, the write-off of facilities, fixed assets and excess
and obsolete inventory and other exit costs. Of the total restructuring charge,
$31,933,000 relates to additional excess and obsolete inventory write-offs for
the affected product lines and has therefore been classified as a component of
cost of goods sold. At June 30, 1998, $48,443,000 of the charge remains accrued
on the balance sheet and the Company has made $11,284,000 of cash payments,
relating primarily to severance, benefits and rent. At June 30, 1998, the
Company has approximately $46,000,000 of future cash payments relating to the
restructurings. The Company anticipates that there will be further charges
against the restructuring reserves established in fiscal 1998 during fiscal
1999, as the Company completes its restructuring program.
Restructuring activity:
<TABLE>
<CAPTION>
EXCESS AND
SEVERANCE AND FACILITIES AND OBSOLETE OTHER EXIT
BENEFITS FIXED ASSETS INVENTORY COSTS TOTAL
------------- -------------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Restructuring provision..... $40,317 $64,339 $31,933 $12,269 $148,858
Spending and charges........ 9,766 48,859 31,933 9,857 100,415
------- ------- ------- ------- --------
Balance at June 30, 1998.... $30,551 $15,480 $ - $ 2,412 $ 48,443
======= ======= ======= ======= ========
</TABLE>
During the first quarter of fiscal 1997, the Company restructured its
operations by consolidating its previous business unit structure into a more
centralized functional organization. As a result of the restructuring, and in
response to industry and market conditions, the Company reduced its work force
by approximately 11%. The Company recorded a restructuring charge of $9.0
million for costs related primarily to
48
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
severance compensation and consolidation of facilities. At June 30, 1998, $1.3
million remains in accrued liabilities, relating primarily to executive
severance and remaining lease payments on unused facilities. As of June 30,
1998, the Company has made $6.7 million of cash payments relating to the 1997
restructuring.
NOTE R: RIGHTS PLAN
On January 23, 1997, the Company adopted a Rights Plan. Pursuant to the
Rights Plan, rights were distributed as a dividend at the rate of one right for
each share of Lam Common Stock, par value $0.001 per share ("Right"), of the
Company held by stockholders of record as of the close of business on January
31, 1997. The Rights will expire on January 31, 2007, unless redeemed or
exchanged. Under the Rights Plan, each Right initially will entitle the
registered holder to buy one unit of a share of preferred stock for $250.00. The
Rights will become exercisable only if a person or group (other than
stockholders currently owning 15% of Lam's Common Stock) acquires beneficial
ownership of 15 percent or more of Lam's Common Stock, or commences a tender or
exchange offer upon consummation of which such person or group would
beneficially own 15% or more of Lam's Common Stock.
NOTE S: RELATED PARTY TRANSACTIONS
Subsequent to June 30, 1998, the Company withdrew from a limited
partnership ("the Partnership") and received a payment of $2.8 million for its
portion of uninvested capital and retained by assignment an indirect interest in
the Partnership investments as of the date of the Company's withdrawal. During
fiscal 1997, the Company invested $4.0 million for a 32% interest in the
Partnership. The Partnership was organized for the purpose of investing in
emerging technology companies to seek income and gains to the Partnership. Three
of the Company's directors are members of the limited liability company that is
the general partner of the Partnership. The Company has accounted for its
investment in the partnership under the equity method. Accordingly, the Company
adjusted the recorded value of its investment for its share (32%) of the
Partnership's net income or loss. The Company's portion of the Partnership's net
income was not material for the fiscal years ended June 30, 1998 or 1997.
NOTE T: PURCHASED TECHNOLOGY FOR R&D
During 1998, the Company purchased a non-exclusive, worldwide license from
Trikon Technologies, Inc. ("Trikon") for its MORI source technology. The Company
recorded a charge for the purchase of technology for R&D of $12.1 million for
the license and for the purchase of a Trikon system to be utilized for R&D. The
technology was acquired for R&D projects and its future uses are unknown at this
time. An additional $5.0 million for the license will be due in fiscal 1999.
Royalty payments not to exceed $1.0 million and $4.0 million, respectively, will
be due in fiscal years 1999 and thereafter.
NOTE U: LITIGATION
In October 1993, Varian brought suit against the Company in the United
States District Court for the Northern District of California, seeking monetary
damages and injunctive relief based on the Company's alleged infringement of
certain patents held by Varian. The Company has asserted defenses of invalidity
and unenforceability of the patents that are the subject of the lawsuit, as well
as non-infringement of such patents by the Company's products. No trial date is
currently scheduled. While litigation is subject to inherent uncertainties and
no assurance can be given that Lam will prevail in such litigation or will
obtain a license under such patents on commercially reasonable terms, or at all,
if such patents are held valid and infringed by the Company's products, the
Company believes that the Varian lawsuit will not have a material adverse effect
on the Company's operating results or the Company's financial position.
In addition, the Company is from time to time notified by various parties
that it may be in violation of certain patents. In such cases, it is the
Company's intention to seek negotiated licenses where it is considered
49
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
appropriate. The outcome of these matters will not, in management's opinion,
have a material impact on the Company's consolidated financial position,
operating results or cash flow statements.
NOTE V: SUBSEQUENT EVENT
On September 14, 1998, the Company announced that its Board of Directors
had authorized the repurchase, at management's discretion, of up to 368,000
shares of Lam Common Stock from the public market or in private purchases. The
shares will be used to offset dilution caused by issuance in the near-term of
shares under the ESPP. Subsequently, on September 15, 1998, the Company
repurchased 368,000 shares of Lam Common Stock at prices between $10 5/16 and
$10 13/16.
50
<PAGE> 51
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Lam Research Corporation
Fremont, California
We have audited the accompanying consolidated balance sheets of Lam
Research Corporation as of June 30, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1998. Our audits also included the
financial statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. We did not audit the financial statements of
OnTrak Systems, Inc. which reflect total assets constituting 6.7% for 1997 and
6.0% for 1996 of the related consolidated financial statement totals, and which
reflect net income of approximately 7.2% of the related consolidated financial
statement totals for the two year period ended June 30, 1997. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for OnTrak Systems, Inc., is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Lam Research Corporation at June 30, 1998
and 1997, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended June 30, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
San Jose, California
July 23, 1998
Except for the Note "Subsequent Event"
as to which this date is September 14, 1998
51
<PAGE> 52
REPORT OF INDEPENDENT ACCOUNTANTS FOR ONTRAK SYSTEMS, INC.
To the Board of Directors and Stockholders
of OnTrak Systems, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of OnTrak Systems, Inc.
and its subsidiaries (not presented separately herein) at June 30, 1997 and
1996, and the results of their operations and their cash flows for each of the
two years in the period ended June 30, 1997, 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.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
July 24, 1997 except for Note 2
which is as of August 5, 1997
52
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
LAM RESEARCH CORPORATION
By: /s/ JAMES W. BAGLEY
------------------------------------
James W. Bagley,
Chairman of the Board
Dated: September 24, 1998
53
<PAGE> 54
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James W. Bagley and Mercedes Johnson, 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 of 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 thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JAMES W. BAGLEY Chairman, Chief Executive September 24, 1998
- ----------------------------------------------------- Officer
James W. Bagley
/s/ MERCEDES JOHNSON Vice President, Finance and September 24, 1998
- ----------------------------------------------------- Chief Financial Officer
Mercedes Johnson (Principal Financial Officer
and Principal Accounting
Officer)
/s/ DAVID G. ARSCOTT Director September 24, 1998
- -----------------------------------------------------
David G. Arscott
/s/ RICHARD J. ELKUS, JR. Director September 24, 1998
- -----------------------------------------------------
Richard J. Elkus, Jr.
/s/ ROGER D. EMERICK Director September 24, 1998
- -----------------------------------------------------
Roger D. Emerick
/s/ JACK R. HARRIS Director September 24, 1998
- -----------------------------------------------------
Jack R. Harris
/s/ GRANT M. INMAN Director September 24, 1998
- -----------------------------------------------------
Grant M. Inman
/s/ OSAMU KANO Director September 24, 1998
- -----------------------------------------------------
Osamu Kano
</TABLE>
54
<PAGE> 55
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
LAM RESEARCH CORPORATION
<TABLE>
<CAPTION>
ADDITIONS
----------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER ACCOUNTS DEDUCTIONS BALANCE AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
----------- ------------ ---------- -------------- ---------- --------------
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1998
Deducted from asset accounts:
Other allowance(1)................ $8,080,000 $841,000(5) $7,239,000
Allowance for doubtful accounts... $2,377,000 $2,900,000 $174,000(3) $5,103,000
YEAR ENDED JUNE 30, 1997
Deducted from asset accounts:
Other allowance(1)................ $ 0 $6,550,000(2) $1,530,000(4) $ 0 $8,080,000
Allowance for doubtful accounts... $2,063,000 $ 738,000 $ 0 $424,000(3) $2,377,000
YEAR ENDED JUNE 30, 1996
Deducted from asset accounts:
Allowance for doubtful accounts... $1,245,000 $ 844,000 $ 0 $ 26,000(3) $2,063,000
</TABLE>
- ---------------
(1) Included in the Balance Sheet under the caption "Other assets." Represents
allowance relating to the write-off of certain at-risk receivables.
(2) Represents write-off of bad debt relating to certain at-risk receivables.
(3) Represents specific customer accounts written off.
(4) Represents related installation and warranty.
(5) Represents recovery of bad debt expense.
55
<PAGE> 56
LAM RESEARCH CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
<S> <C>
3.1(7) Certificate of Incorporation of the Registrant, as amended.
3.2(13) Amended and Restated By Laws of the Registrant, dated March
24, 1997
4.1(1) Amended 1981 Incentive Stock Option Plan and Forms of Stock
Option Agreements.
4.2(1) Amended 1984 Incentive Stock Option Plan and Forms of Stock
Option Agreements.
4.3(20) Amended 1984 Employee Stock Purchase Plan and Form of
Subscription Agreement.
4.4(8) Amended 1991 Stock Option Plan and Forms of Stock Option
Agreements.
4.5(10) 1996 Performance-Based Restricted Stock Plan.
4.7(7) Rights Agreement, dated as of January 23, 1997, between the
Registrant and ChaseMellon Shareholder Service, L.L.C.,
which includes Exhibit B thereto the Form of Right
Certificate.
4.8(16) Stock Incentive Plan.
10.3(2) Form of Indemnification Agreement.
10.7(3) Roger D. Emerick Promissory Note and Deed of Trust.
10.12(4) ECR Technology License Agreement and Rainbow Technology
License Agreement by and between Registrant and Sumitomo
Metal Industries, Ltd.
10.16(5) License Agreement effective January 1, 1992 between the
Registrant and Tokyo Electron Limited.
10.19(6) Deferred Compensation Agreement with Roger D. Emerick.
10.27(7) Receivables Purchase Agreement between Lam Research
Corporation and ABN AMRO Bank N.V., Tokyo Branch.
10.28(7) Guaranty of Supplemental Receivables Purchase Agreement
between Lam Research Corporation and ABN AMRO Bank N.V.,
Tokyo Branch dated June 28, 1995.
10.29(8) Credit Agreement Between Lam Research Corporation and ABN
AMRO Bank N. V., as agent for a syndicate of banks, dated
December 20, 1995.
10.30(9) Lease Agreement Between Lam Research Corporation and the
Industrial Bank of Japan, Limited dated March 27, 1996.
10.31(10) Term Loan Agreement between The Sakura Bank and Lam Research
Co., Ltd. dated June 26, 1996.
10.32(10) The Continuing Guaranty between The Sakura Bank Ltd. and Lam
Research Corporation dated June 26, 1996.
10.33(11) Employment contract for Roger D. Emerick, effective July 1,
1996.
10.34(12) Agreement between Registrant and Henk J. Evenhuis, dated
January 21, 1997.
10.35(14) Agreement and Plan of Merger by and among Lam Research
Corporation, Omega Acquisition Corporation and OnTrak
Systems, Inc. dated as of March 24, 1997.
10.37(15) Second Amendment to Credit Agreement between Lam Research
Corporation and ABN AMRO Bank N.V., San Francisco
International Branch dated March 30, 1997.
10.38(15) Consent and Waiver Agreement between Lam Research
Corporation and IBJTC Leasing Corporation-BSC, The
Industrial Bank of Japan, Limited, Wells Fargo Bank, N.A.,
The Bank of Nova Scotia and the Nippon Credit Bank, LTD.
dated March 28, 1997.
</TABLE>
56
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
<S> <C>
10.39(15) Waiver Agreement between Lam Research Co., Ltd. and The
Sakura Bank dated March 30, 1997.
10.40(15) Amendment to Continuing Guaranty between Lam Research
Corporation and The Sakura Bank dated March 30, 1997.
10.41(16) Employment Agreement for James W. Bagley, dated July 1,
1997.
10.42(16) Employment agreement for Stephen G. Newberry, dated August
5, 1997.
10.43(16) Addendum to Roger D. Emerick Employment contract, dated June
26, 1997.
10.44(17) Consent and Waiver Agreement among Lam Research Corporation,
IBJTC Leasing Corporation -- BSC and Participants dated
October 7, 1997.
10.45(17) Third Amendment to Credit Agreement among Lam Research
Corporation, ABN AMRO Bank, as agent, and a syndicate of
lenders, dated October 7, 1997.
10.46(19) Receivables Purchase Agreement between Lam Research Co.,
LTD. and ABN AMRO Bank N.V., Tokyo Branch, dated December
26, 1997.
10.47(19) Third Amendment to Term Loan between Lam Research Co., Ltd.,
and The Sakura Bank, dated December 19, 1997.
10.48(19) Second Amendment to Continuing Guaranty between Lam Research
Corporation and The Sakura Bank, dated December 19, 1997.
10.49(19) Guaranty to the Receivables Purchase Agreement between Lam
Research Co., LTD. and ABN AMRO Bank N.V., Tokyo Branch,
dated December 26, 1997.
10.50(21) License Agreement between Lam Research Corporation and
Trikon Technologies, Inc., dated March 18, 1998.
10.51(21) Loan Agreement between Lam Research Corporation and The
Industrial Bank of Japan, Limited, dated March 30, 1998.
10.52 Credit Agreement between Lam Research Corporation and
Deutsche Bank AG, New York Branch and ABN AMRO Bank N.V.,
San Francisco Branch, dated April 13, 1998.
10.53 First Amendment to Credit Agreement between Lam Research
Corporation and ABN AMRO Bank N.V., San Francisco Branch,
dated August 10, 1998.
10.54(18) Indenture by and between the Company and LaSalle National
Bank dated as of August 15, 1997.
10.55(18) Registration Rights Agreement by and between the Company and
Deutsche Morgan Grenfeld Inc., ABN AMRO Rothschild, and
Lombard Odier International Underwriters Limited, dated as
of August 15, 1997.
10.56 Amended and Restated Roger D. Emerick Promissory Note and
Deed of Trust dated April 8, 1998.
10.57 Waiver Agreement between Lam Research Co., Ltd. and Sukura
Bank Limited, dated July 20, 1998.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP, Independent Auditors.
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
<S> <C>
23.1 Consent of PricewaterhouseCoopers LLP Independent
Accountants.
24 Power of Attorney (see page 17).
27 Financial Data Schedule.
27.1 Restated Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated by reference to Post Effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-8 (No. 33-32160) filed with
the Securities and Exchange Commission on May 10, 1990.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended April 3, 1988.
(3) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1988.
(4) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1989.
(5) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1991.
(6) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993.
(7) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995.
(8) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1995.
(9) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996.
(10) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996.
(11) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996
(12) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1996.
(13) Incorporated by reference to Registrant's Report on Form 8-K dated February
4, 1997.
(14) Incorporated by reference to Registrant's Report on Form 8-K dated March
31, 1997.
(15) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997.
(16) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997.
(17) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997.
(18) Incorporated by reference to Registrant's Report on Form S-3 dated October
31, 1997.
(19) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1997.
(20) Incorporated by reference to Registrant's Report on Form S-8 dated January
30, 1998.
(21) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998.
58
<PAGE> 1
EXHIBIT 10.52
EXECUTION VERSION
================================================================================
CREDIT AGREEMENT
among
LAM RESEARCH CORPORATION
and
THE LENDERS NAMED HEREIN
and
ABN AMRO BANK N.V., San Francisco International Branch,
as Agent for the Lenders
and
DEUTSCHE BANK AG New York Branch,
as documentation agent for the Lenders
April 13, 1998
================================================================================
<PAGE> 2
CREDIT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION I. INTERPRETATION........................................................... 1
1.01. Definitions.............................................................. 1
1.02. GAAP..................................................................... 13
1.03. Headings................................................................. 14
1.04. Plural Terms............................................................. 14
1.05. Time..................................................................... 14
1.06. Governing Law............................................................ 14
1.07. Construction............................................................. 14
1.08. Entire Agreement......................................................... 14
1.09. Calculation of Interest and Fees......................................... 14
1.10. Other Interpretive Provisions............................................ 14
SECTION II. CREDIT FACILITY.......................................................... 15
2.01. Loan Facility............................................................ 15
2.02. Letter of Credit Facility................................................ 18
2.03. Amount Limitations, Commitment Reductions, Etc........................... 23
2.04. Fees..................................................................... 24
2.05. Prepayments.............................................................. 25
2.06. Other Payment Terms...................................................... 26
2.07. Notes and Interest Account............................................... 27
2.08. Loan Funding............................................................. 27
2.09. Pro Rata Treatment....................................................... 28
2.10. Change of Circumstances.................................................. 29
2.11. Taxes on Payments........................................................ 32
2.12. Funding Loss Indemnification............................................. 33
2.13. Replacement of Lenders................................................... 34
SECTION III. CONDITIONS PRECEDENT..................................................... 34
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3.01. Initial Conditions Precedent............................................. 34
3.02. Conditions Precedent to Each Credit Event................................ 34
3.03. Covenant to Deliver...................................................... 35
SECTION IV. REPRESENTATIONS AND WARRANTIES........................................... 35
4.01. Borrower's Representations and Warranties................................ 35
4.02. Reaffirmation............................................................ 39
SECTION V. COVENANTS................................................................ 40
5.01. Affirmative Covenants.................................................... 40
5.02. Negative Covenants....................................................... 43
SECTION VI. DEFAULT.................................................................. 50
6.01. Events of Default........................................................ 50
6.02. Remedies................................................................. 53
SECTION VII. THE AGENT AND RELATIONS AMONG LENDERS.................................... 53
7.01. Appointment, Powers and Immunities....................................... 53
7.02. Reliance by Agent........................................................ 54
7.03. Defaults................................................................. 54
7.04. Indemnification.......................................................... 54
7.05. Non-Reliance............................................................. 54
7.06. Resignation of Agent..................................................... 55
7.07. Authorization............................................................ 55
7.08. Agent in its Individual Capacity......................................... 55
SECTION VIII. MISCELLANEOUS............................................................ 55
8.01. Notices.................................................................. 55
8.02. Expenses................................................................. 57
8.03. Indemnification.......................................................... 57
8.04. Waivers; Amendments...................................................... 58
8.05. Successors and Assigns................................................... 58
8.06. Setoff................................................................... 62
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
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8.07. No Third Party Rights.................................................... 62
8.08. Partial Invalidity....................................................... 62
8.09. Jury Trial............................................................... 62
8.10. Counterparts............................................................. 63
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<TABLE>
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SCHEDULES
I Lenders (Preamble)
1 1.01(a) Pricing Grid
3.01 Initial Conditions Precedent
4.01(q) Subsidiaries
5.02(a) Existing Indebtedness
5.02(b) Existing Liens
EXHIBITS
A Notice of Borrowing (2.01(b))
B Notice of Conversion (2.01(d))
C Notice of Interest Period Selection (2.01(e))
D Note (2.07(a))
E Assignment Agreement (8.05(c))
</TABLE>
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of April 13, 1998, is entered into by and
among:
(1) LAM RESEARCH CORPORATION, a Delaware corporation ("Borrower");
(2) Each of the financial institutions from time to time listed in
Schedule I hereto, as amended from time to time (such financial
institutions to be referred to herein collectively as the "Lenders");
(3) DEUTSCHE BANK AG New York Branch, as documentation agent; and
(4) ABN AMRO BANK N.V., San Francisco International Branch, as agent
for the Lenders (in such capacity, "Agent").
RECITALS
A. Borrower has requested the Lenders to provide certain credit facilities
to Borrower.
B. The Lenders are willing to provide such credit facilities upon the
terms and subject to the conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
SECTION I. INTERPRETATION.
1.01. Definitions. Unless otherwise indicated in this Agreement or any
other Credit Document, each term set forth below, when used in this Agreement or
any other Credit Document, shall have the respective meaning given to that term
below or in the provision of this Agreement or other document, instrument or
agreement referenced below.
"ABN" shall mean ABN AMRO Bank N.V., San Francisco International Branch.
"Affiliate" shall mean, with respect to any Person, (a) each Person that,
directly or indirectly, owns or controls, whether beneficially or as a trustee,
guardian or other fiduciary, ten percent (10%) or more of any class of Equity
Securities of such Person, (b) each Person that controls, is controlled by or is
under common control with such Person or any Affiliate of such
<PAGE> 6
Person or (c) each of such Person's officers, directors, joint venturers and
partners; provided, however, that in no case shall Agent or any Lender be deemed
to be an Affiliate of Borrower or any of its Subsidiaries for purposes of this
Agreement. For the purpose of this definition, "control" of a Person shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.
"Agent" shall have the meaning given to that term in clause (4) of the
introductory paragraph hereof.
"Agent's Fee Letter" shall mean the letter agreement dated as of March 23,
1998 between Borrower and Agent.
"Agreement" shall mean this Credit Agreement.
"Applicable Lending Office" shall mean, with respect to any Lender, (a)
initially, its office designated as such in Schedule I (or, in the case of any
Lender which becomes a Lender by an assignment pursuant to Subparagraph 8.05(c),
its office designated as such in the applicable Assignment Agreement) and (b)
subsequently, such other office or offices as such Lender may designate to Agent
as the office at which such Lender's Loans will thereafter be maintained and for
the account of which all payments of principal of, and interest on, such
Lender's Loans will thereafter be made.
"Applicable Margin" shall mean, with respect to any Loan at any time, the
per annum margin which is determined pursuant to the Pricing Grid and added to
the Base Rate or LIBO Rate, as the case may be, for such Loan; provided,
however, that each Applicable Margin determined pursuant to the Pricing Grid
shall be increased by two percent (2.00%) on the date an Event of Default occurs
and shall continue at such increased rate during the continuance of such Event
of Default.
"Assignee Lender" shall have the meaning given to that term in
Subparagraph 8.05(c).
"Assignment" shall have the meaning given to that term in Subparagraph
8.05(c).
"Assignment Agreement" shall have the meaning given to that term in
Subparagraph 8.05(c).
"Assignment Effective Date" shall have, with respect to each Assignment
Agreement, the meaning set forth therein.
"Assignor Lender" shall have the meaning given to that term in
Subparagraph 8.05(c).
"Base Rate" shall mean, on any day, the greater of (a) the Reference Rate
in effect on such date and (b) the Federal Funds Rate for such day plus one-half
percent (0.50%).
"Base Rate Loan" shall mean, at any time, a Loan which then bears interest
as provided in clause (i) of Subparagraph 2.01(c).
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"Borrower" shall have the meaning given to that term in clause (1) of the
introductory paragraph hereof.
"Borrowing" shall mean a borrowing by Borrower consisting of the Loans
made by each of the Lenders on the same date and of the same Type pursuant to a
single Notice of Borrowing.
"Business Day" shall mean any day on which (a) commercial banks are not
authorized or required to close in San Francisco, California or New York, New
York and (b) if such Business Day is related to a Loan which bears or is to bear
interest based on a LIBO Rate, dealings in Dollar deposits are carried out in
the London interbank market.
"Capital Adequacy Requirement" shall have the meaning given to that term
in Subparagraph 2.10(d).
"Capital Asset" shall mean, with respect to any Person, any tangible fixed
or capital asset owned or leased (in the case of a Capital Lease) by such
Person, or any expense incurred by such Person that is required by GAAP to be
reported as a non-current asset on such Person's balance sheet.
"Capital Expenditures" shall mean, with respect to any Person and any
period, all amounts expended and indebtedness incurred or assumed by such Person
during such period for the acquisition of Capital Assets (including all amounts
expended and indebtedness incurred or assumed in connection with Capital
Leases).
"Capital Leases" shall mean any and all lease obligations that, in
accordance with GAAP, are required to be capitalized on the books of a lessee.
"Change of Law" shall have the meaning given to that term in Subparagraph
2.10(b).
"Closing Date" shall mean April 13, 1998.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Commitment" shall mean, with respect to any Lender at any time, such
Lender's Proportionate Share at such time of the Total Commitment at such time.
"Commitment Fee Percentage" shall mean, with respect to the Unused
Commitment at any time, the per annum rate which is determined pursuant to the
Pricing Grid and used to calculate the Commitment Fees.
"Commitment Fees" shall have the meaning given to that term in
Subparagraph 2.04(b).
"Compliance Certificate" shall have the meaning given to that term in
Subparagraph 5.01(a).
"Contingent Obligation" shall mean, with respect to any Person, without
duplication, (a) any Guaranty Obligation of that Person; and (b) any direct or
indirect obligation or liability,
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contingent or otherwise, of that Person (i) in respect of any letters of credit,
acceptances, bank guaranties, surety bonds or similar instrument issued for the
account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings, (ii) as a partner or joint venturer in any
partnership or joint venture, or (iii) incurred pursuant to any interest rate
swap, currency swap, forward, cap, floor or other similar contract that is not
entered into in connection with a bona fide hedging operation that provides
offsetting benefits to such Person. The amount of any Contingent Obligation
shall (subject, in the case of Guaranty Obligations, to the last sentence of the
definition of "Guaranty Obligation") be deemed equal to the maximum reasonably
anticipated liability in respect thereof.
"Contractual Obligation" of any Person shall mean, any indenture, note,
lease, loan agreement, security, deed of trust, mortgage, security agreement,
guaranty, instrument, contract, agreement or other form of contractual
obligation or undertaking to which such Person is a party or by which such
Person or any of its property is bound.
"Credit Documents" shall mean and include this Agreement, the LC
Applications, the Notes and the Agent's Fee Letter; all other documents,
instruments and agreements delivered to Agent or any Lender pursuant to
Paragraph 3.01; and all other documents, instruments and agreements delivered by
Borrower or any of its Subsidiaries to Agent or any Lender in connection with
this Agreement on or after the date of this Agreement.
"Credit Event" shall mean the making of any Loan; the conversion of any
Base Rate Loan into a LIBOR Loan; the selection of a new Interest Period for any
LIBOR Loan; the issuance of any Letter of Credit or any amendment of any Letter
of Credit which increases its stated amount or extends it expiration date.
"Debt Service Coverage Ratio" shall mean, with respect to any Person for
any fiscal quarter, the ratio, determined on a consolidated basis in accordance
with GAAP where applicable, of;
(a) The EBITDAR of such Person and its Subsidiaries for such
quarter;
to
(b) The sum of (i) all Interest Expenses of such Person and its
Subsidiaries for such quarter, (ii) all rental expenses for such Person
and its Subsidiaries for such quarter, and (iii) one-fourth of all
principal payments on Indebtedness for borrowed money of such Person and
its Subsidiaries scheduled for payment during the four quarters
immediately succeeding the quarter for which EBITDAR is calculated
pursuant to clause (a).
"Debt Rating" shall mean, with respect to Borrower as of any date of
determination, the ratings from S&P and Moody's applicable on such date to
Borrower's senior unsecured long-term debt.
"Default" shall mean any event or circumstance not yet constituting an
Event of Default
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which with the giving of any notice or the lapse of any period of time or both,
would become an Event of Default.
"Defaulting Lender" shall mean a Lender which has failed to fund its
portion of any Borrowing which it is required to fund under this Agreement and
has continued in such failure for three (3) Business Days after written notice
from Agent.
"Dollars" and "$" shall mean the lawful currency of the United States of
America and, in relation to any payment under this Agreement, same day or
immediately available funds.
"Drawing Payment" shall have the meaning given to that term in
Subparagraph 2.02(c).
"EBITDAR" shall mean, with respect to any Person for any period, the sum
of the following, determined on a consolidated basis in accordance with GAAP
where applicable:
(a) The net income or net loss of such Person and its Subsidiaries
(including interest income) for such period before provision for income
taxes;
plus
(b) The sum of (i) all Interest Expenses of such Person and its
Subsidiaries accruing during such period and (ii) all depreciation,
amortization and rental expenses of such Person and its Subsidiaries
accruing during such period (in each case, to the extent deducted in
calculating net income or loss in clause (a) above).
"Employee Benefit Plan" shall mean any employee benefit plan within the
meaning of section 3(3) of ERISA maintained or contributed to by Borrower or any
ERISA Affiliate, other than a Multiemployer Plan.
"Environmental Laws" shall mean all Requirements of Law relating to the
protection of human health and the environment, including, without limitation,
all Requirements of Law, pertaining to reporting, licensing, permitting,
transportation, storage, disposal, investigation, and remediation of emissions,
discharges, releases, or threatened releases of Hazardous Materials, chemical
substances, pollutants, contaminants, or hazardous or toxic substances,
materials or wastes, whether solid, liquid, or gaseous in nature, into the air,
surface water, groundwater, or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
chemical substances, pollutants, contaminants, or hazardous or toxic substances,
materials, or wastes, whether solid, liquid, or gaseous in nature.
"Equity Securities" of any Person shall mean (a) all common stock,
preferred stock, participations, shares, partnership interests or other equity
interests in and of such Person (regardless of how designated and whether or not
voting or non-voting) and (b) all warrants, options and other rights to acquire
any of the foregoing, other than convertible debt securities which have not been
converted into common stock, preferred stock, participations, shares,
partnership interests or other equity interests in any such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same
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<PAGE> 10
may from time to time be amended or supplemented, including any rules or
regulations issued in connection therewith.
"ERISA Affiliate" shall mean any Person which is treated as a single
employer with Borrower under Section 414 of the Code.
"Event of Default" shall have the meaning given to that term in Paragraph
6.01.
"Federal Funds Rate" shall mean, for any day, the Federal funds effective
rate as set forth in the weekly statistical release designated as H.15(519)
published by the Federal Reserve Bank of New York for such day, or in any
successor publication (or, if such rate is not so published for any day, the
average rate quoted to Agent on and for such day by three (3) Federal funds
brokers of recognized standing selected by Agent).
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System.
"Financial Performance Letter of Credit" shall have the meaning given to
that term in Subparagraph 2.02(a).
"Financial Statements" shall mean, with respect to any accounting period
for any Person, statements of income, shareholders' equity and cash flows of
such Person for such period, and a balance sheet of such Person as of the end of
such period, setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year if such period is less than a
full fiscal year or, if such period is a full fiscal year, corresponding figures
from the preceding annual audit, all prepared in reasonable detail and in
accordance with GAAP.
"Funded Debt" of any Person shall mean, without duplication, all
Indebtedness of such Person, as described in Subparagraphs (a)-(d) of the
definition of Indebtedness.
"GAAP" shall mean generally accepted accounting principles and practices
as in effect in the United States of America from time to time, consistently
applied.
"Governmental Authority" shall mean any domestic or foreign national,
state or local government, any political subdivision thereof, any department,
agency, authority or bureau of any of the foregoing, or any other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including, without limitation, the
Federal Deposit Insurance Corporation, the Federal Reserve Board, the
Comptroller of the Currency, any central bank or any comparable authority.
"Governmental Charges" shall mean, with respect to any Person, all levies,
assessments, fees, claims or other charges imposed by any Governmental Authority
upon such Person or any of its property or otherwise payable by such Person.
"Governmental Rule" shall mean any law, rule, regulation, ordinance,
order, code interpretation, judgment, decree, directive, guidelines, policy or
similar form of decision of any
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Governmental Authority.
"Guaranty Obligation" shall mean, with respect to any Person, any direct
or indirect liability of that Person with respect to any Indebtedness, lease,
dividend, or other obligation (the "primary obligations") of another Person (the
"primary obligor"), including any obligation of that Person, whether or not
contingent, (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 (i) for the payment or discharge of any such
primary obligation, or (ii) 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. The amount of any Guaranty Obligation shall be deemed
equal to the stated or determinable amount of the primary obligation in respect
of which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect thereof.
"Hazardous Materials" shall mean all materials, substances and wastes
which are classified or regulated as "hazardous," "toxic" or similar
descriptions under any Environmental Law or which are hazardous, toxic, harmful
or dangerous to human health.
"Indebtedness" of any Person shall mean, without duplication:
(a) All obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments and all other obligations of such
Person for borrowed money;
(b) 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 and obligations under
synthetic leases), other than trade payables incurred by such Person in
the ordinary course of its business on ordinary terms;
(c) All obligations of such Person under conditional sale or other
title retention agreements with respect to property acquired by such
Person (to the extent of the value of such property if the rights and
remedies of the seller or lender under such agreement in the event of
default are limited solely to repossession or sale of such property);
(d) All obligations of such Person as lessee under or with respect
to Capital Leases;
(e) All obligations of such Person with respect to accounts
receivable and related rights and property sold, assigned or transferred
by such Person with recourse to such Person;
(f) All Contingent Obligations of such Person; and
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(g) All Indebtedness of other Persons of the types described in
clauses (a) - (f) above to the extent secured by (or for which any holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien in any property (including accounts and contract
rights) of such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness.
"Interest Account" shall have the meaning given to that term in
Subparagraph 2.07(b).
"Interest Expenses" shall mean, with respect to any Person for any period,
the sum, determined on a consolidated basis in accordance with GAAP, of all
interest accruing on the Indebtedness of such Person during such period
(including interest attributable to Capital Leases).
"Interest Period" shall mean, with respect to any LIBOR Loan, the time
periods selected by Borrower pursuant to Subparagraph 2.01(b) or Subparagraph
2.01(d) which commences on the first day of such Loan or the effective date of
any conversion and ends on the last day of such time period, and thereafter,
each subsequent time period selected by Borrower pursuant to Subparagraph
2.01(e) which commences on the last day of the immediately preceding time period
and ends on the last day of that time period.
"Investment" of any Person shall mean any loan or advance of funds by such
Person to any other Person (other than advances to employees of such Person in
the ordinary course of business), any purchase or other acquisition of any
Equity Securities or Indebtedness of any other Person, any capital contribution
by such Person to or any other investment by such Person in any other Person
(including any Guaranty Obligations of such Person and any indebtedness of such
Person of the type described in clause (g) of the definition of "Indebtedness"
on behalf of any other Person); provided, however, that Investments shall not
include (a) accounts receivable or other indebtedness owed by customers of such
Person which are current assets and arose from sales of inventory in the
ordinary course of such Person's business, (b) prepaid expenses of such Person
incurred and prepaid in the ordinary course of business, and (c) Capital
Expenditures of such Person incurred in the ordinary course of business.
"Issuing Bank" shall have the meaning given to that term in Subparagraph
2.02(a).
"LC Application" shall have the meaning given to that term in Subparagraph
2.02(b).
"LC Commitment" shall have the meaning given to that term in Subparagraph
2.02(a).
"LC Fee Rate" shall mean, with respect to Letters of Credit, the per annum
rate which is determined pursuant to the Pricing Grid and used to calculate the
LC Usage Fees.
"LC Issuance Fees" shall have the meaning given to that term in
Subparagraph 2.04(c).
"LC Usage Fees" shall have the meaning given to that term in Subparagraph
2.04(c).
"Lenders" shall have the meaning given to that term in clause (2) of the
introductory
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paragraph hereof. Unless otherwise indicated, the term "Lenders" shall include
ABN acting in its capacity as Issuing Bank; for purposes of clarification only,
to the extent ABN may have any rights or obligations in addition to those of the
Lenders due to its status as Issuing Bank, its status as such will be
specifically referenced.
"Letter of Credit" shall have the meaning given to that term in
Subparagraph 2.02(a).
"LIBO Rate" shall mean, with respect to any Interest Period for the LIBOR
Loans in any Borrowing consisting of LIBOR Loans, a rate per annum equal to the
quotient of (a) the offered rate per annum (rounded upward if necessary to the
nearest 1/16 of one percent) appearing on the Telerate page 3750 (or any
successor publication) on the second Business Day prior to the first day of such
Interest Period at or about 11:00 A.M. (London time) (for delivery on the first
day of such Interest Period) for a term comparable to such Interest Period,
divided by (b) one minus the Reserve Requirement for such Loans or Portion in
effect from time to time. If for any reason rates are not available as provided
in clause (a) of the preceding sentence, the rate to be used in clause (a) shall
be, at the Agent's reasonable discretion, (i) the rate per annum at which Dollar
deposits are offered to Agent in the London interbank eurodollar currency market
or (ii) the rate at which Dollar deposits are offered to Agent in, or by Agent
to major banks in, any offshore interbank eurodollar market selected by Agent,
in each case on the second Business Day prior to the commencement of such
Interest Period at or about 10:00 A.M. (New York time) (for delivery on the
first day of such Interest Period) for a term comparable to such Interest Period
and in an amount approximately equal to the amount of the Loan to be made or
funded by Agent as part of such Borrowing.
"LIBOR Loan" shall mean, at any time, a Loan which then bears interest as
provided in clause (ii) of Subparagraph 2.01(c).
"Lien" shall mean, with respect to any property, any security interest,
mortgage, deed of trust, pledge, lien, charge or other encumbrance in, of, or on
such property or the income therefrom, including, without limitation, the
interest of a vendor or lessor under a conditional sale agreement, Capital Lease
or other title retention agreement, or any agreement to provide any of the
foregoing, and the filing of any financing statement or similar instrument under
the Uniform Commercial Code or comparable law of any jurisdiction.
"Loan" shall have the meaning given to that term in Subparagraph 2.01(a).
"Margin Stock" shall have the meaning given to that term in Regulation U
issued by the Federal Reserve Board, as amended from time to time, and any
successor regulation thereto.
"Material Adverse Effect" shall mean a material adverse effect on (a) the
business, assets, operations or financial condition of Borrower and its
Subsidiaries; (b) the ability of Borrower to pay or perform the Obligations in
accordance with the terms of this Agreement and the other Credit Documents; or
(c) the rights and remedies of Agent or any Lender under this Agreement, the
other Credit Documents or any related document, instrument or agreement.
"Material Subsidiary" shall mean, with respect to any Subsidiary of the
Borrower, any
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Subsidiary whose (a) total assets exceed ten percent (10%) of the consolidated
total assets of Borrower and its Subsidiaries at any time or (b) gross revenues
exceed five percent (5%) of the consolidated gross revenues of Borrower and its
Subsidiaries at any time.
"maturity" shall mean, with respect to any Loan, interest, Reimbursement
Obligation, fee or other amount payable by Borrower under this Agreement or the
other Credit Documents, the date such Loan, Reimbursement Obligation, interest,
fee or other amount becomes due, whether upon the stated maturity or due date,
upon acceleration or otherwise.
"Maturity Date" shall mean April 13, 2001.
"Moody's" shall mean Moody's Investors Service, Inc. and any successor
thereto that is a nationally recognized rating agency.
"Multiemployer Plan" shall mean any multiemployer plan within the meaning
of section 3(37) of ERISA maintained or contributed to by Borrower or any ERISA
Affiliate.
"Net Proceeds" shall mean, with respect to any sale or issuance of any
Equity Security by any Person, the aggregate consideration received by such
Person from such sale or issuance less the sum of the actual amount of the
reasonable fees and commissions payable to Persons other than such Person or any
Affiliate of such Person, the reasonable legal expenses and the other reasonable
costs and expenses directly related to such sale or issuance that are to be paid
by such Person.
"Non-Financial Performance Letter of Credit" shall have the meaning given
to that term in Subparagraph 2.02(a).
"Note" shall have the meaning given to that term in Subparagraph 2.07(a).
"Notice of Borrowing" shall have the meaning given to that term in
Subparagraph 2.01(b).
"Notice of Conversion" shall have the meaning given to that term in
Subparagraph 2.01(d).
"Notice of Interest Period Selection" shall have the meaning given to that
term in Subparagraph 2.01(e).
"Obligations" shall mean and include, with respect to Borrower, all loans,
advances, debts, liabilities, and obligations, howsoever arising, owed by
Borrower to Agent or any Lender of every kind and description (whether or not
evidenced by any note or instrument and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising pursuant to the terms of this Agreement or any of
the other Credit Documents, including without limitation all interest, fees,
charges, expenses, attorneys' fees and accountants' fees chargeable to Borrower
or payable by Borrower hereunder or thereunder.
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"Participant" shall have the meaning given to that term in Subparagraph
8.05(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Permitted Indebtedness" shall have the meaning given to that term in
Subparagraph 5.02(a).
"Permitted Liens" shall have the meaning given to that term in
Subparagraph 5.02(b).
"Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, an
unincorporated association, a limited liability company, a joint venture, a
trust or other entity or a Governmental Authority.
"Pricing Grid" shall mean Schedule 1.01(a).
"Prior Credit Agreement" shall mean that certain Credit Agreement, dated
as of December 20, 1995 (as amended), among Borrower, the financial institutions
party thereto, and ABN, as agent for such financial institutions.
"Proportionate Share" shall mean, with respect to each Lender, the
percentage set forth under the caption "Proportionate Share" opposite such
Lender's name on Schedule I, or, if changed, such percentage as may be set forth
for such Lender in the Register.
"Quick Ratio" shall mean, with respect to any Person at any time, the
ratio, determined on a consolidated basis in accordance with GAAP, of:
(a) The remainder at such time of (i) the sum of all cash, cash
equivalents (less than ninety (90) days in term), short-term marketable
securities (less than one (1) year in term) and accounts receivable of
such Person and its Subsidiaries (less all reserves therefor) minus (ii)
the sum of (A) the aggregate amount of such cash, cash equivalents,
short-term marketable securities and accounts receivable which are subject
to any Lien or are otherwise encumbered or restricted (to the extent such
amounts do not secure a corresponding current liability amount included in
the calculation of subpart (b) below), and (B) with respect to any
accounts receivable sold, assigned or transferred, to the extent included
under subpart (a)(i) above, the aggregate amount of any accounts
receivable representing the discounted portion of such accounts receivable
so sold, assigned or transferred;
to
(b) The sum at such time of (i) the current liabilities of such
Person and its Subsidiaries, (ii) the aggregate principal amounts
outstanding under any revolving credit facility (including, without
limitation, in the case of Borrower, the aggregate principal amount of all
Loans then outstanding), and (iii) in the event such Person or any of its
Subsidiaries exercises a purchase option under a synthetic lease or a
purchase payment otherwise becomes due under a synthetic lease, the
portion of any synthetic lease
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<PAGE> 16
payment that would be utilized to purchase the underlying property within
one year of the date of such exercise or acceleration.
"Reference Rate" shall mean the per annum rate publicly announced by Agent
from time to time at its Chicago office. The Reference Rate is determined by
Agent from time to time as a means of pricing credit extensions to some
customers and is neither directly tied to any external rate of interest or index
nor necessarily the lowest rate of interest charged by Agent at any given time
for any particular class of customers or credit extensions. Any change in the
Base Rate resulting from a change in the Reference Rate shall become effective
on the Business Day on which each change in the Reference Rate occurs.
"Reimbursement Obligation" shall have the meaning given to that term in
Subparagraph 2.02(c).
"Reimbursement Payment" shall have the meaning given to that term in
Subparagraph 2.02(c).
"Register" shall have the meaning given to that term in Subparagraph
8.05(d).
"Reportable Event" shall have the meaning given to that term in ERISA and
applicable regulations thereunder.
"Required Lenders" shall mean (a) at any time Loans and/or Reimbursement
Obligations are outstanding, Lenders holding sixty-six and two-thirds percent
(66-2/3%) or more of the aggregate principal amount of such Loans and/or
Reimbursement Obligations and (b) at any time no Loans and/or Reimbursement
Obligations are outstanding, Lenders whose Proportionate Shares equal or exceed
sixty-six and two-thirds percent (66-2/3%).
"Requirement of Law" applicable to any Person shall mean (a) the Articles
or Certificate of Incorporation and By-laws, Partnership Agreement or other
organizational or governing documents of such Person, (b) any Governmental Rule
applicable to such Person, (c) any license, permit, approval or other
authorization granted by any Governmental Authority to or for the benefit of
such Person or (d) any judgment, decision or determination of any Governmental
Authority or arbitrator, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"Reserve Requirement" shall mean, with respect to any day in an Interest
Period for a LIBOR Loan, the aggregate of the reserve requirement rates
(expressed as a decimal) in effect on such day for eurocurrency funding
(currently referred to as "Eurocurrency liabilities" in Regulation D of the
Federal Reserve Board) maintained by a member bank of the Federal Reserve
System. As used herein, the term "reserve requirement" shall include, without
limitation, any basic, supplemental or emergency reserve requirements imposed on
Lender by any Governmental Authority.
"S&P" shall mean Standard & Poor's Rating Services, a division of
McGraw-Hill Companies, Inc., and any successor thereto that is a nationally
recognized rating agency.
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<PAGE> 17
"Senior Funded Debt" of any Person shall mean any Funded Debt which is not
Subordinated Debt.
"Senior Indebtedness" of any Person shall mean, without duplication:
(a) all Senior Funded Debt of such Person;
(b) all Contingent Obligations of such Person;
(c) all obligations of such Person with respect to any synthetic
leases (excluding the portion of such obligations which are irrevocably
secured by cash or cash equivalents); and
(d) all obligations of such Person with respect to any sale,
transfer or assignment of accounts receivable and related rights and
property by such Person with recourse to such Person.
"Senior Indebtedness Ratio" shall mean, with respect to any Person at any
time, the ratio, determined on a consolidated basis in accordance with GAAP, of:
(a) The total Senior Indebtedness of such Person and its
Subsidiaries at such time;
to
(b) The sum at such time of (i) the total Senior Indebtedness and
Subordinated Debt of such Person and its Subsidiaries at such time plus
(ii) the total Tangible Net Worth of such Person and its Subsidiaries at
such time.
"Subordinated Debt" shall mean, collectively, (i) Borrower's $310,000,000
Five Percent (5%) Convertible Subordinated Notes due 2002, and (ii) and any
other subordinated debt permitted by Subparagraph 5.02(a)(xi).
"Subsidiary" of any Person shall mean (a) any corporation of which more
than 50% of the issued and outstanding Equity Securities having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or by one or
more of such Person's other Subsidiaries, (b) any partnership, joint venture, or
other association of which more than 50% of the equity interest having the power
to vote, direct or control the management of such partnership, joint venture or
other association is at the time owned and controlled by such Person, by such
Person and one or more of the other Subsidiaries or by one or more of such
Person's other Subsidiaries or (c) any other Person included in the Financial
Statements of such Person on a consolidated basis.
"Tangible Net Worth" shall mean, with respect to any Person at any time,
the remainder
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<PAGE> 18
at such time, determined on a consolidated basis in accordance with GAAP, of (a)
the total assets of such Person and its Subsidiaries minus (b) the sum (without
limitation and without duplication of deductions) of (i) the total liabilities
of such Person and its Subsidiaries, (ii) all reserves established by such
Person and its Subsidiaries for anticipated losses and expenses (to the extent
not deducted in calculating total assets in clause (a) above), and (iii) all
intangible assets of such Person and its Subsidiaries (to the extent included in
calculating total assets in clause (a) above), including, without limitation,
goodwill (including any amounts, however designated on the balance sheet,
representing the cost of acquisition of businesses and investments in excess of
underlying tangible assets), trademarks, trademark rights, trade name rights,
copyrights, patents, patent rights, licenses, unamortized debt discount,
marketing expenses, organizational expenses, non-compete agreements and deferred
research and development.
"Taxes" shall have the meaning given to such term in Subparagraph 2.11(a).
"Total Commitment" shall have the meaning given to that term in
Subparagraph 2.03(a).
"Type" shall mean, with respect to any Loan or Borrowing at any time, the
classification of such Loan or Borrowing by the type of interest rate it then
bears, whether an interest rate based on the Base Rate or the LIBO Rate.
"UCP" shall have the meaning given to that term in Subparagraph 2.02(a).
"Unused Commitment" shall mean, at any time, the remainder of (a) the
Total Commitment at such time minus (b) the sum of (i) the aggregate principal
amount of all Loans then outstanding, (ii) the aggregate amount available for
drawing under all Letters of Credit then outstanding, and (iii) the aggregate
amount of all Reimbursement Obligations then outstanding.
1.02. GAAP. Unless otherwise indicated in this Agreement or any other
Credit Document, all accounting terms used in this Agreement or any other Credit
Document shall be construed, and all accounting and financial computations
hereunder or thereunder shall be computed, in accordance with GAAP. If GAAP
changes during the term of this Agreement such that any covenants contained
herein would then be calculated in a different manner or with different
components, Borrower, the Lenders and Agent agree to negotiate in good faith to
amend this Agreement in such respects as are necessary to conform those
covenants as criteria for evaluating Borrower's financial condition to
substantially the same criteria as were effective prior to such change in GAAP;
provided, however, that, until Borrower, the Lenders and Agent so amend this
Agreement, all such covenants shall be calculated in accordance with GAAP as in
effect immediately prior to such change.
1.03. Headings. Headings in this Agreement and each of the other Credit
Documents are for convenience of reference only and are not part of the
substance hereof or thereof.
1.04. Plural Terms. All terms defined in this Agreement or any other
Credit Document in the singular form shall have comparable meanings when used in
the plural form and vice versa.
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1.05. Time. All references in this Agreement and each of the other Credit
Documents to a time of day shall mean San Francisco, California time, unless
otherwise indicated.
1.06. Governing Law. This Agreement and each of the other Credit Documents
(unless otherwise provided in such other Credit Documents) shall be governed by
and construed in accordance with the laws of the State of California without
reference to conflicts of law rules.
1.07. Construction. This Agreement is the result of negotiations among,
and has been reviewed by, Borrower, each Lender, Agent and their respective
counsel. Accordingly, this Agreement shall be deemed to be the product of all
parties hereto, and no ambiguity shall be construed in favor of or against
Borrower, any Lender or Agent.
1.08. Entire Agreement. This Agreement and each of the other Credit
Documents, taken together, constitute and contain the entire agreement of
Borrower, the Lenders and Agent and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications among the
parties, whether written or oral, respecting the subject matter hereof
(including, without limitation, the Prior Credit Agreement and the commitment
letter dated as of March 23, 1998 between Borrower and Agent).
1.09. Calculation of Interest and Fees. All calculations of interest and
fees under this Agreement and the other Credit Documents for any period (a)
shall include the first day of such period and exclude the last day of such
period and (b) shall be calculated on the basis of a year of 360 days for actual
days elapsed, except that during any period any Loan bears interest based upon
the Reference Rate, such interest shall be calculated on the basis of a year of
365 or 366 days, as appropriate, for actual days elapsed.
1.10. Other Interpretive Provisions. References in this Agreement to
"Recitals," "Sections," "Paragraphs," "Subparagraphs," "Exhibits" and
"Schedules" are to recitals, sections, paragraphs, subparagraphs, exhibits and
schedules herein and hereto unless otherwise indicated. References in this
Agreement and each of the other Credit Documents to any document, instrument or
agreement (a) shall include all exhibits, schedules and other attachments
thereto, (b) shall include all documents, instruments or agreements issued or
executed in replacement thereof, and (c) shall mean such document, instrument or
agreement, or replacement or predecessor thereto, as amended, modified and
supplemented from time to time and in effect at any given time. References in
this Agreement and each of the other Credit Documents to any statute or other
law (i) shall include any successor statute or law, (ii) shall include all rules
and regulations promulgated under such statute or law (or any successor statute
or law), and (iii) shall mean such statute or law (or successor statute or law)
and such rules and regulations, as amended, modified, codified or reenacted from
time to time and in effect at any given time. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement or any other
Credit Document shall refer to this Agreement or such other Credit Document, as
the case may be, as a whole and not to any particular provision of this
Agreement or such other Credit Document, as the case may be. The words "include"
and "including" and words of similar import when used in this Agreement or any
other Credit Document shall not be construed to be limiting or exclusive. This
Agreement and the other Credit Documents may use
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<PAGE> 20
several different limitations, tests or measurements to regulate the same or
similar matters. All such limitations, tests and measurements are cumulative and
shall each be performed in accordance with their terms. In the event of any
inconsistency between the terms of this Agreement and the terms of any other
Credit Document, the terms of this Agreement shall govern.
SECTION II. CREDIT FACILITY.
2.01. Loan Facility.
(a) Availability. Subject to the terms and conditions of this
Agreement (including the amount limitations set forth in Paragraph 2.03),
each Lender severally agrees to advance to Borrower from time to time
during the period beginning on the Closing Date and ending on the Maturity
Date such loans as Borrower may request under this Paragraph 2.01
(individually, a "Loan"). All Loans shall be made on a pro rata basis by
the Lenders in accordance with their respective Proportionate Shares, with
each Borrowing to be comprised of a Loan by each Lender equal to such
Lender's Proportionate Share of such Borrowing. Except as otherwise
provided herein, Borrower may borrow, repay and reborrow Loans until the
Maturity Date.
(b) Notice of Borrowing. Borrower shall request each Borrowing by
delivering to Agent an irrevocable written notice in the form of Exhibit
A, appropriately completed (a "Notice of Borrowing"), which specifies,
among other things:
(i) The principal amount of the requested Borrowing, which
shall be in the amount of (A) $1,000,000 or an integral multiple of
$100,000 in excess thereof in the case of a Borrowing consisting of
Base Rate Loans; or (B) $1,000,000 or an integral multiple of
$500,000 in excess thereof in the case of a Borrowing consisting of
LIBOR Loans;
(ii) Whether the requested Borrowing is to consist of Base
Rate Loans or LIBOR Loans;
(iii) If the requested Borrowing is to consist of LIBOR Loans,
the initial Interest Periods selected by Borrower for such Loans in
accordance with Subparagraph 2.01(e); and
(iv) The date of the requested Borrowing, which shall be a
Business Day;
Provided, however, that all Borrowings made during the period commencing
on the Closing Date and ending three (3) Business Days thereafter shall
consist solely of Base Rate Loans. Borrower shall give each Notice of
Borrowing to Agent at least three (3) Business Days before the date of the
requested Borrowing in the case of a Borrowing consisting of LIBOR Loans
and at least one (1) Business Day before the date of the requested
Borrowing in the case of a Borrowing consisting of Base Rate Loans. Each
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Notice of Borrowing shall be delivered by first-class mail or facsimile to
Agent at the office or facsimile number and during the hours specified in
Paragraph 8.01; provided, however, that Borrower shall promptly deliver to
Agent the original of any Notice of Borrowing initially delivered by
facsimile. Agent shall promptly (but in any event no later than 5:00 p.m.,
San Francisco time, on the Business Day Agent is deemed to receive such
notice under Paragraph 8.01) notify each Lender of the contents of each
Notice of Borrowing and of the amount and Type of (and, if applicable, the
Interest Period for) each Loan to be made by such Lender as part of the
requested Borrowing.
(c) Interest Rates. Borrower shall pay interest on the unpaid
principal amount of each Loan from the date of such Loan until the
maturity thereof, at one of the following rates per annum:
(i) During such periods as such Loan is a Base Rate Loan, at a
rate per annum equal to the Base Rate plus the Applicable Margin
therefor, such rate to change from time to time as the Applicable
Margin or Base Rate shall change;
(ii) During such periods as such Loan is a LIBOR Loan, at a
rate per annum equal at all times during each Interest Period for
such LIBOR Loan to the LIBO Rate for such Interest Period plus the
Applicable Margin therefor, such rate to change from time to time
during such Interest Period as the Applicable Margin shall change.
All Loans in each Borrowing shall, at any given time prior to maturity, bear
interest at one, and only one, of the above rates. The Applicable Margins for
Loans shall be determined as provided in the Pricing Grid and may change as
provided in the Pricing Grid. The number of Borrowings consisting of LIBOR Loans
shall not exceed twenty (20) at any time.
(d) Conversion of Loans. Borrower may convert any Borrowing from one
Type of Borrowing to another Type; provided, however, that any conversion
of a Borrowing consisting of LIBOR Loans into a Borrowing consisting of
Base Rate Loans shall be made on, and only on, the last day of an Interest
Period for such LIBOR Loans. Borrower shall request such a conversion by
an irrevocable written notice to Agent in the form of Exhibit B,
appropriately completed (a "Notice of Conversion"), which specifies, among
other things:
(i) The Borrowing which is to be converted;
(ii) The Type of Borrowing into which such Borrowing is to be
converted;
(iii) If such Borrowing is to be converted into a Borrowing
consisting of LIBOR Loans, the initial Interest Period selected by
Borrower for such Loans in accordance with Subparagraph 2.01(e); and
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(iv) The date of the requested conversion, which shall be a
Business Day.
Borrower shall give each Notice of Conversion to Agent at least three (3)
Business Days before the date of the requested conversion in the case of a
conversion into a Borrowing consisting of LIBOR Loans and at least one (1)
Business Day before the date of the requested conversion in the case of a
conversion into a Borrowing consisting of Base Rate Loans. Each Notice of
Conversion shall be delivered by first-class mail or facsimile to Agent at the
office or to the facsimile number and during the hours specified in Paragraph
8.01; provided, however, that Borrower shall promptly deliver to Agent the
original of any Notice of Conversion initially delivered by facsimile. Agent
shall promptly (but in any event no later than 5:00 p.m., San Francisco time, on
the Business Day Agent receives such notice under Paragraph 8.01) notify each
Lender of the contents of each Notice of Conversion.
(e) LIBOR Loan Interest Periods.
(i) The initial and each subsequent Interest Period selected
by Borrower for a LIBOR Loan shall be one (1), two (2), three (3) or
six (6) months; provided, however, that (A) any Interest Period
which would otherwise end on a day which is not a Business Day shall
be extended to the next succeeding Business Day unless such next
Business Day falls in another calendar month, in which case such
Interest Period shall end on the immediately preceding Business Day;
(B) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month; and
(C) no such Interest Period shall end after the Maturity Date.
(ii) Borrower shall notify Agent by an irrevocable written
notice in the form of Exhibit C, appropriately completed (a "Notice
of Interest Period Selection"), at least three (3) Business Days
prior to the last day of each Interest Period for LIBOR Loans of the
Interest Period selected by Borrower for the next succeeding
Interest Period for such Loans. Each Notice of Interest Period
Selection shall be given by first-class mail or facsimile to the
office or the facsimile number and during the hours specified in
Paragraph 8.01; provided, however, that Borrower shall promptly
deliver to Agent the original of any Notice of Interest Period
Selection initially delivered by facsimile. If Borrower fails to
notify Agent of the next Interest Period for LIBOR Loans in
accordance with this Subparagraph 2.01(e), such Loans shall
automatically convert to Base Rate Loans on the last day of the
current Interest Period therefor. Agent shall promptly (but in any
event no later than 5:00 p.m., San Francisco time, on the Business
Day Agent receives such notice under Paragraph 8.01) notify each
Lender of the contents of each Notice of Interest Period Selection.
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(f) Scheduled Loan Payments. Borrower shall repay the principal
amount of the Loans on the Maturity Date. Borrower shall pay accrued
interest on the unpaid principal amount of each Loan in arrears (A) in the
case of a Base Rate Loan, on the last day in each March, June, September
and December (commencing June 30, 1998), (B) in the case of a LIBOR Loan,
on the last day of each Interest Period therefor (and, if any such
Interest Period is longer than three (3) months, every three (3) months);
and (C) in the case of all Loans, upon prepayment (to the extent thereof)
and at maturity.
(g) Purpose. Borrower shall use the proceeds of the Loans for
Borrower's general corporate needs.
2.02. Letter of Credit Facility.
(a) Letter of Credit Availability. Subject to the terms and
conditions of this Agreement (including the amount limitations set forth
in Paragraph 2.03), ABN (in its capacity as the issuer of letters of
credit under this Paragraph 2.02, "Issuing Bank") agrees to issue on
behalf of Borrower from time to time during the period beginning on the
Closing Date and ending on the Maturity Date such standby letters of
credit as Borrower may request under this Paragraph 2.02 (individually, a
"Letter of Credit"); provided, however, as follows:
(i) The aggregate amount available for drawing under all
Letters of Credit at any time outstanding plus the aggregate amount
of all Reimbursement Obligations at any time outstanding shall not
exceed Fifty Million Dollars ($50,000,000) (such amount, the "LC
Commitment") and each Letter of Credit shall be in a face amount of
not less than Five Hundred Thousand Dollars ($500,000).
(ii) Each Letter of Credit shall be an irrevocable standby
Letter of Credit issued to secure (a) trade payables in the ordinary
course of Borrower's business (provided such trade payables are not
overdue on the date of issuance of such Letter of Credit) or other
financial obligations of Borrower (other than (1) trade payables
which are overdue or (2) any other financial obligations of Borrower
under which a default or any event which with the giving of notice
or lapse of time or both would constitute a default exists)
(individually, a "Financial Performance Letter of Credit"), or (b)
non-financial obligations of Borrower to perform in the ordinary
course of Borrower's business (individually, a "Non-Financial
Performance Letter of Credit"). Whether a Letter of Credit is a
Financial Performance Letter of Credit or a Non-Financial
Performance Letter of Credit shall be determined by Issuing Bank in
its reasonable discretion in accordance with its usual custom and
procedures taking into account applicable federal and state bank
regulations and opinions.
(iii) Each Letter of Credit shall expire on or prior to the
Maturity Date.
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(iv) Except as otherwise provided herein, each Letter of
Credit shall be governed by the Uniform Customs and Practices for
Documentary Credits as most recently published by the International
Chamber of Commerce (the "UCP") prior to the date of issuance of
such Letter of Credit and the terms of the UCP are hereby
incorporated by reference with respect to each Letter of Credit.
(v) Each Letter of Credit shall be in a form reasonably
acceptable to Issuing Bank.
Except as otherwise provided herein, Borrower may request Letters of Credit,
cause or allow Letters of Credit to expire and request additional Letters of
Credit until the Maturity Date.
(b) LC Application. Borrower shall request each Letter of Credit by
delivering to Agent and Issuing Bank an irrevocable written application in
a form reasonably acceptable to Issuing Bank, appropriately completed (an
"LC Application"), which specifies, among other things:
(i) The stated amount of the requested Letter of Credit which
shall be in a face amount of not less than Five Hundred Thousand
Dollars ($500,000) for each requested Letter of Credit and shall
only be issued in United States Dollars;
(ii) The name and address of the beneficiary of the requested
Letter of Credit;
(iii) The expiration date of the requested Letter of Credit;
(iv) The documentary conditions for drawing under the
requested Letter of Credit;
(v) The date of issuance for the requested Letter of Credit,
which shall be a Business Day; and
(vi) The aggregate amount available for drawing under all
Letters of Credit then outstanding.
Borrower shall give each LC Application to Issuing Bank at least three (3)
Business Days before the proposed date of issuance of the requested Letter of
Credit. Each LC Application shall be delivered by first-class mail or facsimile
to Agent and Issuing Bank at their respective offices or facsimile numbers and
during the hours specified in Paragraph 8.01; provided, however, that Borrower
shall promptly deliver to Issuing Bank the original of any LC Application
initially delivered by facsimile. Agent shall promptly notify each Lender of the
contents of each LC Application. In the event of any conflict between the terms
of this Agreement and the terms of any LC Application, the terms of this
Agreement shall control.
(c) Disbursement and Reimbursement.
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(i) Disbursement. Issuing Bank will notify Borrower by
facsimile forthwith upon receipt of the presentment of any demand
for payment under any Letter of Credit, together with notice of the
amount of such payment and the date such payment shall be made.
Subject to the terms and provisions of such Letter of Credit,
Issuing Bank shall make such payment (a "Drawing Payment") to the
appropriate beneficiary.
(ii) Time of Reimbursement. Not later than 11:00 a.m. on the
day following each Drawing Payment made by Issuing Bank, Borrower
shall make or cause to be made to Issuing Bank a payment in the
amount of such Drawing Payment (a "Reimbursement Payment"), together
with any accrued interest thereon as provided below; provided,
however, that (1) Borrower shall make such Reimbursement Payment to,
or cause such Reimbursement Payment to be made to, Agent for the
benefit of the Lenders if, prior to the time such Reimbursement
Payment is made, Issuing Bank has notified Borrower that it has
requested the Lenders pursuant to clause (ii) of Subparagraph
2.02(d) to pay to Issuing Bank their respective Proportionate Shares
of the Drawing Payment made by Issuing Bank and (2) Borrower shall
pay interest on the amount of any Reimbursement Payment not paid on
the same day that the applicable Drawing Payment is made at a per
annum rate equal to (y) for the first day, the rate then applicable
to Loans which are Base Rate Loans and (z) for the second day and
any subsequent day, the rate then applicable to Loans which are Base
Rate Loans plus two percent per annum. If any such Reimbursement
Payment is made to Agent, Agent shall promptly pay to each Lender
which has paid its Proportionate Share of the Drawing Payment, such
Lender's Proportionate Share of the Reimbursement Payment, together
with any accrued interest thereon as provided above, and shall
promptly pay to Issuing Bank the balance of such Reimbursement
Payment, together with any accrued interest thereon as provided
above.
(iii) Reimbursement Obligation Absolute. The obligation of
Borrower to reimburse Issuing Bank or the Lenders, as the case may
be, for Drawing Payments (such obligation, together with the
obligation to pay interest thereon, to be referred to herein
collectively as a "Reimbursement Obligation") shall be absolute,
unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under and without regard
to any circumstances, including, without limitation (A) any lack of
validity or enforceability of any of the Credit Documents, (B) the
existence of any claim, setoff, defense or other right which
Borrower may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any Persons for whom any such
beneficiary or transferee may be acting), Issuing Bank, Agent, any
other Lender or any other Person, whether in connection with this
Agreement, the transactions contemplated herein or in the other
Credit Documents, or in any unrelated transaction, (C) any breach of
contract or dispute between Borrower, any beneficiary or any
transferee of any Letter of Credit (or any Persons for whom any such
beneficiary or transferee may be acting), Issuing Bank, any Agent,
any
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Lender or any other Person, (D) any demand, statement or other
document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect, (E) payment by
Issuing Bank under any Letter of Credit against presentation of a
demand for payment which does not comply with the terms of such
Letter of Credit, (F) any non-application or misapplication by any
beneficiary or any transferee of any Letter of Credit (or any
Persons for whom any such beneficiary or transferee may be acting)
of the proceeds of any drawing under such Letter of Credit or (G)
any delay, extension of time, renewal, compromise or other
indulgence or modification granted or agreed to by Issuing Bank,
Agent or any Lender, with or without notice to or approval by
Borrower, with respect to Borrower's indebtedness under this
Agreement; provided, however, that this Subparagraph 2.02(c) shall
not abrogate any right which Borrower may have to seek to enjoin any
drawing under any Letter of Credit or to recover damages from
Issuing Bank pursuant to Subparagraph 2.02(e).
(d) Lender Participations; Loan Funding.
(i) Participation Agreement. Each Lender severally,
unconditionally and irrevocably agrees with Issuing Bank to
participate in the extension of credit arising from the issuance of
each Letter of Credit in an amount equal to such Lender's
Proportionate Share of the stated amount of such Letter of Credit
from time to time, and the issuance of each Letter of Credit shall
be deemed a confirmation by Issuing Bank of such participation in
such amount; provided, however, that at the time of such issuance
the amount limitations set forth in Paragraphs 2.02(a)(i) and 2.03
are not exceeded.
(ii) Participation Funding. Issuing Bank may request the
Lenders to fund their participations in Letters of Credit by paying
to Issuing Bank all or any portion of any Drawing Payment made or to
be made by Issuing Bank under any Letter of Credit. Issuing Bank
shall make such a request by delivering to Agent (with a copy to
Borrower), at any time after the drawing for which such payment is
requested has been made upon Issuing Bank, a written request for
such payment which specifies the amount of such Drawing Payment and
the date on which such Drawing Payment is to be made or was made;
provided, however, that Issuing Bank shall not request the Lenders
to make any payment under this Subparagraph 2.02(d) in connection
with any portion of a Drawing Payment for which Issuing Bank has
been reimbursed from a Reimbursement Payment by Borrower unless such
Reimbursement Payment has been thereafter recovered by Borrower.
Agent shall promptly notify each Lender of the contents of each such
request and of such Lender's Proportionate Share of the applicable
portion of such Drawing Payment. Promptly following receipt of such
notice from Agent, each Lender shall pay to Agent, for the benefit
of Issuing Bank, such Lender's Proportionate Share of the applicable
portion of such Drawing Payment.
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(iii) Funding Through Loans. At any time any Reimbursement
Obligations are outstanding, Agent may or, upon the written request
of Issuing Bank (if Borrower is not then the subject of a bankruptcy
proceeding), shall (subject to the terms and conditions of this
Subparagraph 2.02(d)), initiate a Borrowing in an amount not
exceeding the aggregate amount of such outstanding Reimbursement
Obligations and use the proceeds of such Borrowing to repay all or a
portion of such Reimbursement Obligations. Agent shall initiate such
a Borrowing by delivering to each Lender (with a copy to Borrower) a
written notice which specifies the aggregate amount of outstanding
Reimbursement Obligations, the amount of the Borrowing (which
initially shall consist of Base Rate Loans), the date of such
Borrowing and the amount of the Loan to be made by such Lender as
part of such Borrowing. Each Lender shall make available to Agent
funds in the amount of its Loan as provided in Subparagraph 2.08(a).
After receipt of such funds, Agent shall promptly disburse such
funds to Issuing Bank and the Lenders, as appropriate, in payment of
the outstanding Reimbursement Obligations.
(iv) Obligations Absolute. Each Lender's obligations to fund
its participations under this Subparagraph 2.02(d) shall be
absolute, unconditional and irrevocable and shall not be affected by
(A) the occurrence or existence of any Default or Event of Default,
(B) any failure to satisfy any condition set forth in Section III,
(C) any event or condition which might have a Material Adverse
Effect, (D) the failure of any other Lender to make any payment
under this Subparagraph 2.02(d), (E) any right of offset, abatement,
withholding or reduction which such Lender may have against Issuing
Bank, Agent, any Lender or Borrower, (F) any event, circumstance or
condition set forth in Subparagraph 2.02(c) or Subparagraph 2.02(e),
or (G) any other event, circumstance or condition whatsoever,
whether or not similar to any of the foregoing; provided, however,
that nothing in this Paragraph 2.02 shall prejudice any right which
any Lender may have against Issuing Bank for any action by Issuing
Bank which constitutes gross negligence or willful misconduct.
(e) Liability of Issuing Bank, Etc. Borrower agrees that none of
Issuing Bank, Agent or any Lender (nor any of their respective directors,
officers or employees) shall be liable or responsible for (i) the use
which may be made of any Letter of Credit or for any acts or omissions of
any beneficiary or transferee thereof in connection therewith; (ii) any
reference which may be made to this Agreement or to any Letter of Credit
in any agreements, instruments or other documents relating to obligations
secured by such Letter of Credit; (iii) the validity, sufficiency or
genuineness of documents, or of any endorsement(s) thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged or any statement therein prove to be
untrue or inaccurate in any respect whatsoever; (iv) payment by Issuing
Bank against presentation of documents which do not comply with the terms
of any Letter of Credit, including failure of any documents to bear any
reference or adequate reference to any Letter of Credit; or (v) any other
circumstances whatsoever in making or failing to make
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payment under any Letter of Credit, except only that Issuing Bank shall be
liable to Borrower for acts or events described in clauses (i) through (v)
above, to the extent, but only to the extent, of any damages suffered by
Borrower (excluding consequential damages) which Borrower proves were
caused by (A) Issuing Bank's willful misconduct or gross negligence in
determining whether a drawing made under any Letter of Credit complies
with the terms and conditions therefor stated in such Letter of Credit or
(B) Issuing Bank's willful misconduct or gross negligence in failing to
pay under any Letter of Credit after a drawing by the beneficiary thereof
strictly complying with the terms and conditions of such Letter of Credit.
Without limiting the foregoing, Issuing Bank may accept a drawing that
appears on its face to be in order, without responsibility for further
investigation. The determination of whether a drawing has been made under
any Letter of Credit prior to its expiration or whether a drawing made
under any Letter of Credit is in proper and sufficient form shall be made
by Issuing Bank in its sole discretion, which determination shall be
conclusive and binding upon Borrower to the extent permitted by law.
Borrower hereby waives any right to object to any payment made under any
Letter of Credit with regard to a drawing that is in the form provided in
such Letter of Credit but which varies with respect to punctuation,
capitalization, spelling or similar matters of form.
(f) Reports of Issuing Bank. Issuing Bank shall on a monthly basis
provide to Agent or any Lender such information regarding the Letters of
Credit as Agent or such Lender may reasonably request, including the
Letters of Credit outstanding, the stated amounts of outstanding Letters
of Credit, the expiration dates of outstanding Letters of Credit, the
names of the beneficiaries of outstanding Letters of Credit, the amounts
of unpaid Reimbursement Obligations and the amounts and times of Drawing
Payments and Reimbursement Payments.
(g) Purpose. Borrower shall use Letters of Credit solely as provided
in clause (ii) of Subparagraph 2.02(a).
(h) Cash Collateral Pledge. Upon the request of Agent, if, as of the
Maturity Date, any Letters of Credit for any reason remain outstanding,
then Borrower shall immediately deliver to Agent funds in an amount equal
to the aggregate amount available for drawing under all such Letters of
Credit and Agent shall hold such funds in an interest bearing account as
collateral for such Obligations, and Borrower hereby grants to Agent, for
the benefit of the Lenders, a security interest in such funds and in such
account. The obligations of Borrower under this Subparagraph 2.02(h) shall
survive the termination of this Agreement.
2.03. Amount Limitations, Commitment Reductions, Etc.
(a) Total Commitments. The sum at any time of (i) the aggregate
principal amount of all Loans outstanding at any time, (ii) the aggregate
amount available for drawing under all Letters of Credit then outstanding
and (iii) the aggregate amount of all Reimbursement Obligations then
outstanding shall not exceed One Hundred Million
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Dollars ($100,000,000) (the "Total Commitment") or if such amount is
reduced pursuant to Subparagraph 2.03(b), the amount to which so reduced
and in effect at such time. The sum at any time of (x) the aggregate
principal amount of all Loans outstanding at any time made by each Lender,
(y) each Lender's Proportionate Share of the aggregate amount available
for drawing under all Letters of Credit then outstanding, and (z) each
Lender's Proportionate Share of the aggregate amount of all Reimbursement
Obligations then outstanding shall not exceed each such Lender's
Commitment at such time.
(b) Reduction or Cancellation of Commitments. Borrower may, upon
three (3) Business Days written notice to Agent, permanently reduce the
Total Commitment by the amount of Five Million Dollars ($5,000,000) or an
integral multiple of Five Hundred Thousand Dollars ($500,000) in excess
thereof or cancel the Total Commitment in its entirety; provided, however,
that:
(i) Borrower may not reduce the Total Commitment prior to the
Maturity Date, if, after giving effect to such reduction, the
aggregate principal amount of all Loans, the aggregate amount
available for drawing under all Letters of Credit and the aggregate
amount of all Reimbursement Obligations then outstanding would
exceed the Total Commitment; and
(ii) Borrower may not cancel the Total Commitment prior to the
Maturity Date, if, after giving effect to such cancellation, any
Loan, Reimbursement Obligation or Letter of Credit would then remain
outstanding.
(c) Effect of Commitment Reductions. From the effective date of any
reduction of the Total Commitment, the Commitment Fees payable pursuant to
Subparagraph 2.04(b) shall be computed on the basis of the Total
Commitment as so reduced. Once reduced or cancelled, the Total Commitment
may not be increased or reinstated without the prior written consent of
all Lenders. Any reduction of the Total Commitment pursuant to
Subparagraph 2.03(b) shall be applied ratably to reduce each Lender's
Commitment in accordance with clause (i) of Subparagraph 2.09(a).
2.04. Fees.
(a) Agent's Fee. Borrower shall pay to Agent, for its own account,
fees in the amounts and at the times set forth in the Agent's Fee Letter.
(b) Commitment Fees. Borrower shall pay to Agent, for the ratable
benefit of the Lenders as provided in clause (v) of Subparagraph 2.09(a),
nonrefundable commitment fees (the "Commitment Fees") equal to the
Commitment Fee Percentage on the daily average Unused Commitment for the
period beginning on the date of this Agreement and ending on the Maturity
Date. The Commitment Fee Percentage shall be determined as provided in the
Pricing Grid and may change as provided in the Pricing Grid. Borrower
shall pay the Commitment Fees quarterly in arrears on the last day in each
March, June, September and December (commencing June 30, 1998) and on the
Maturity Date (or if
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the Total Commitment is cancelled on a date prior to the Maturity Date, on
such prior date).
(c) Letter of Credit Fees.
(i) Letter of Credit Usage Fees. Borrower shall pay to Agent,
for the ratable benefit of the Lenders as provided in clause (v) of
Subparagraph 2.09(a), nonrefundable Letter of Credit fees for the
Letters of Credit (the "LC Usage Fees") equal to the LC Fee Rate on
the daily average undrawn amount of each Letter of Credit for the
period beginning on the date such Letter of Credit is issued and
ending on the date such Letter of Credit expires. The LC Fee Rate
shall be determined as provided in the Pricing Grid in accordance
with whether such Letter of Credit is a Financial Performance Letter
of Credit or a Non-Financial Performance Letter of Credit, and may
change as provided in the Pricing Grid. Borrower shall pay the LC
Usage Fees quarterly in arrears on the last day in each March, June,
September and December (commencing June 30, 1998) and on the
Maturity Date.
(ii) Letter of Credit Issuance Fees. Borrower shall pay to
Agent, for the sole benefit of Issuing Bank, nonrefundable issuance
fees for the Letters of Credit (the "LC Issuance Fees") equal to
seventy-five one-thousandths of one percent (0.075%) per annum on
the daily average undrawn amount of each Letter of Credit for the
period beginning on the date such Letter of Credit is issued and
ending on the date such Letter of Credit expires. Borrower shall pay
the LC Issuance Fees for each Letter of Credit quarterly in arrears
on the last day in each March, June, September and December
(commencing June 30, 1998) and on the Maturity Date.
(iii) Other Letter of Credit Fees. In addition to the LC Usage
Fees and the LC Issuance Fees, Borrower shall pay to Agent, for the
benefit of Issuing Bank, other standard fees of Issuing Bank for
drawings under, transfers of and amendments to any Letter of Credit
and other administrative actions performed by Issuing Bank in
connection with any Letter of Credit, payable at such times and in
such amounts as are consistent with Issuing Bank's standard fee
policy at the time of such amendment or other action.
2.05. Prepayments.
(a) Terms of all Prepayments. Upon the prepayment of any Loan
(whether such prepayment is an optional prepayment under Subparagraph
2.05(b), a mandatory prepayment required by Subparagraph 2.05(c) or a
mandatory prepayment required by any other provision of this Agreement or
the other Credit Documents, including, without limitation, a prepayment
upon acceleration), Borrower shall pay to the Lender which made such Loan
(i) all accrued interest to the date of such prepayment on the amount
prepaid and (ii) if such prepayment is the prepayment of a LIBOR Loan on a
day other
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than the last day of an Interest Period for such LIBOR Loan, all amounts
payable to such Lender pursuant to Paragraph 2.12.
(b) Optional Prepayments. At its option, Borrower may, upon five (5)
Business Days notice to Agent, prepay the Loans in any Borrowing in part,
in an aggregate principal amount of $1,000,000 or more, or in whole.
(c) Cash Collateralization of Letters of Credit; Mandatory
Prepayment of Loans. If, at any time, the aggregate amount available for
drawing under all Letters of Credit then outstanding plus the aggregate
amount of all Reimbursement Obligations then outstanding exceeds the LC
Commitment, upon notice from Agent, Borrower shall deliver to Agent funds
in an amount equal to the excess of the maximum amount then available to
be drawn under all Letters of Credit plus the aggregate amount of all
Reimbursement Obligations then outstanding over the LC Commitment and
Agent shall hold such funds in an interest bearing account as collateral
for such Obligations, and Borrower hereby grants to Agent for the benefit
of the Lenders, a security interest in such funds and in such account. If,
at any time after giving effect to any cash collateralization made
pursuant to the preceding sentence, the aggregate principal amount of all
Loans then outstanding, the aggregate amount available for drawing under
all Letters of Credit then outstanding and the aggregate amount of all
Reimbursement Obligations then outstanding exceeds the Total Commitment at
such time, Borrower shall immediately prepay Loans in an aggregate
principal amount equal to such excess. At such time as the aggregate
amount available for drawing under all Letters of Credit then outstanding
plus the aggregate amount of all Reimbursement Obligations then
outstanding no longer exceeds the LC Commitment, any excess funds
deposited pursuant to this Subparagraph 2.05(c) shall be released to
Borrower.
2.06. Other Payment Terms.
(a) Place and Manner. Borrower shall make all payments due to each
Lender hereunder by payments to Agent, for the account of such Lender and
such Lender's Applicable Lending Office, at Agent's office, located at the
address specified in Paragraph 8.01, in lawful money of the United States
and in same day or immediately available funds not later than 11:00 a.m.
on the date due. Agent shall promptly disburse to each Lender each such
payment received by Agent for such Lender.
(b) Date. Whenever any payment due hereunder shall fall due on a day
other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall be included in
the computation of interest or fees, as the case may be.
(c) Late Payments. If any amounts required to be paid by Borrower
under this Agreement or the other Credit Documents (including, without
limitation, principal or interest payable on any Loan, any Reimbursement
Payments or interest thereon, any fees or other amounts) remain unpaid
after such amounts are due, Borrower shall pay interest on the aggregate,
outstanding balance of such amounts from the date due until those
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amounts are paid in full at a per annum rate equal to the Base Rate plus
two percent (2.00%), such rate to change from time to time as the Base
Rate shall change.
(d) Application of Payments. All payments hereunder shall be applied
first to unpaid fees, costs and expenses then due and payable under this
Agreement or the other Credit Documents, second to accrued interest then
due and payable under this Agreement or the other Credit Documents, third
to any unpaid Reimbursement Obligations, and finally to reduce the
principal amount of outstanding Loans.
(e) Failure to Pay Agent. Unless Agent shall have received notice
from Borrower at least one (1) Business Day prior to the date on which any
payment is due to the Lenders hereunder that Borrower will not make such
payment in full, Agent may assume that Borrower has made such payment in
full to Agent on such date and Agent may, in reliance upon such
assumption, cause to be distributed to the appropriate Lenders on such due
date an amount equal to the amount then due such Lenders. If and to the
extent Borrower shall not have so made such payment in full to Agent, each
such Lender shall repay to Agent forthwith on demand such amount
distributed to such Lender together with interest thereon, for each day
from the date such amount is distributed to such Lender until the date
such Lender repays such amount to Agent, at (i) the Federal Funds Rate for
the first three (3) days and (ii) the per annum rate applicable to Base
Rate Loans thereafter. A certificate of Agent submitted to any Lender with
respect to any amounts owing by such Lender under this Subparagraph
2.06(e) shall be conclusive absent manifest error.
2.07. Notes and Interest Account.
(a) Notes. The obligation of Borrower to repay the Loans made by
each Lender and to pay interest thereon at the rates provided herein shall
be evidenced by a promissory note in the form of Exhibit D (individually,
a "Note") which note shall be (i) payable to the order of such Lender,
(ii) in the amount of such Lender's Commitment, (iii) dated the Closing
Date and (iv) otherwise appropriately completed. Borrower authorizes each
Lender to record on the schedule annexed to such Lender's Note the date
and amount of each Loan made by such Lender and of each payment or
prepayment of principal thereon made by Borrower, and agrees that all such
notations shall constitute prima facie evidence of the matters noted;
provided, however, that any failure by a Lender to make any such notation
shall not affect the Obligations. Borrower further authorizes each Lender
to attach to and make a part of such Lender's Note continuations of the
schedule attached thereto as necessary. If, because any Lender designates
separate Applicable Lending Offices for Base Rate Loans or LIBOR Loans,
such Lender requests that separate promissory notes be executed to
evidence separately such Loans, then each such note shall be in the form
of Exhibit D, mutatis mutandis to reflect such division, and shall be (w)
payable to the order of such Lender, (x) in the amount of such Lender's
Commitment, (y) dated the Closing Date and (z) otherwise appropriately
completed. Such notes shall, collectively, constitute a Note.
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(b) Interest Account. Borrower authorizes Agent to record in an
account or accounts maintained by Agent on its books (the "Interest
Account") (i) the interest rates applicable to all Loans and the effective
dates of all changes thereto, (ii) the Interest Period for each LIBOR
Loan, (iii) the date and amount of each principal and interest payment on
each Loan and (iv) such other information as Agent may determine is
necessary for the computation of interest payable by Borrower hereunder.
2.08. Loan Funding.
(a) Lender Funding and Disbursement to Borrower. Each Lender shall,
before 11:00 a.m. on the date of each Borrowing, make available to Agent
at its office specified in Paragraph 8.01, in same day or immediately
available funds, such Lender's Proportionate Share of such Borrowing.
After Agent's receipt of such funds and upon fulfillment of the applicable
conditions set forth in Section III, Agent will promptly disburse such
funds in same day or immediately available funds to Borrower. Unless
otherwise directed by Borrower, Agent shall disburse the proceeds of each
Borrowing to Borrower by disbursement to the account or accounts specified
in the applicable Notice of Borrowing.
(b) Lender Failure to Fund. Unless Agent shall have received notice
from a Lender prior to the date of any Borrowing that such Lender will not
make available to Agent such Lender's Proportionate Share of such
Borrowing, Agent may assume that such Lender has made such portion
available to Agent on the date of such Borrowing in accordance with
Subparagraph 2.08(a), and Agent may, in reliance upon such assumption,
make available to Borrower (or otherwise disburse) on such date a
corresponding amount. If any Lender does not make the amount of its
Proportionate Share of any Borrowing available to Agent on or prior to the
date of such Borrowing, such Lender shall pay to Agent, on demand,
interest which shall accrue on such amount until made available to Agent
at rates equal to (i) the daily Federal Funds Rate during the period from
the date of such Borrowing through the third Business Day thereafter and
(ii) the rate applicable to Base Rate Loans thereafter. A certificate of
Agent submitted to any Lender with respect to any amounts owing under this
Subparagraph 2.08(b) shall be conclusive absent manifest error. If any
Lender's Proportionate Share of any Borrowing is not in fact made
available to Agent by such Lender within three (3) Business Days after the
date of such Borrowing, Borrower shall pay to Agent, on demand, an amount
equal to such Proportionate Share together with interest thereon, for each
day from the date such amount was made available to Borrower until the
date such amount is repaid to Agent, at the interest rate applicable at
the time to the Loans comprising such Borrowing.
(c) Lenders' Obligations Several. The failure of any Lender to make
the Loan to be made by it as part of any Borrowing shall not relieve any
other Lender of its obligation hereunder to make its Loan on the date of
such Borrowing, but no Lender shall be responsible for the failure of any
other Lender to make the Loan to be made by such other Lender on the date
of any Borrowing.
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2.09. Pro Rata Treatment.
(a) Borrowings, Commitment Reductions, Etc. Except as otherwise
provided herein:
(i) Each Borrowing, each reduction of the Total Commitment,
and each participation in each Letter of Credit shall be made or
shared among the Lenders pro rata according to their respective
Proportionate Shares;
(ii) Each payment of principal of Loans in any Borrowing shall
be shared among the Lenders which made or funded the Loans in such
Borrowing pro rata according to the respective unpaid principal
amounts of such Loans so made or funded by such Lenders;
(iii) Each payment of interest on Loans in any Borrowing shall
be shared among the Lenders which made or funded the Loans in such
Borrowing pro rata according to (A) the respective unpaid principal
amounts of such Loans so made or funded by such Lenders and (B) the
dates on which such Lenders so made or funded such Loans;
(iv) Each Reimbursement Payment and interest payable by
Borrower thereon shall be shared among the Lenders (including
Issuing Bank) which made or funded the applicable Drawing Payment so
made or funded by such Lenders;
(v) Each payment of Commitment Fees and LC Usage Fees shall be
shared among the Lenders (including, with respect to LC Usage Fees,
Issuing Bank in its capacity as a Lender) pro rata according to (A)
their respective Proportionate Shares and (B) in the case of each
Lender which becomes a Lender hereunder after the date hereof, the
date upon which such Lender so became a Lender;
(vi) Each payment of interest (other than interest on Loans)
shall be shared among the Lenders and Agent owed the amount upon
which such interest accrues pro rata according to (A) the respective
amounts so owed such Lenders and Agent and (B) the dates on which
such amounts became owing to such Lenders and Agent; and
(vii) All other payments under this Agreement and the other
Credit Documents shall be for the benefit of the Person or Persons
specified.
(b) Sharing of Payments, Etc. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of
setoff, or otherwise) on account of Loans or Reimbursement Obligations
owed to it in excess of its ratable share of payments on account of such
Loans or Reimbursement Obligations obtained by all Lenders entitled to
such payments, such Lender shall forthwith purchase from the other Lenders
such participations in the Loans or Reimbursement Obligations as shall be
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necessary to cause such purchasing Lender to share the excess payment
ratably with each of them; provided, however, that if all or any portion
of such excess payment is thereafter recovered from such purchasing
Lender, such purchase shall be rescinded and each other Lender shall repay
to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such other Lender's ratable share
(according to the proportion of (i) the amount of such other Lender's
required repayment to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Subparagraph 2.09(b) may, to the fullest extent permitted
by law, exercise all its rights of payment (including the right of setoff)
with respect to such participation as fully as if such Lender were the
direct creditor of Borrower in the amount of such participation.
2.10. Change of Circumstances.
(a) Inability to Determine Rates. If, on or before the first day of
any Interest Period for any LIBOR Loan, (i) any Lender shall advise Agent
that the LIBO Rate for such Interest Period cannot be adequately and
reasonably determined due to the unavailability of funds in or other
circumstances affecting the London interbank market or (ii) any Lender
shall advise Agent that the rates of interest for such Loans do not
adequately and fairly reflect the cost to such Lender of making or
maintaining such LIBOR Loans, Agent shall immediately give notice of such
condition to Borrower and the other Lenders. After the giving of any such
notice and until Agent shall otherwise notify Borrower that the
circumstances giving rise to such condition no longer exist, Borrower's
right to request the making of or conversion to, and the Lenders'
obligations to make or convert to LIBOR Loans shall be suspended. Any
LIBOR Loans outstanding at the commencement of any such suspension shall
be converted at the end of the then current Interest Period for such LIBOR
Loans into Base Rate Loans unless such suspension has then ended.
(b) Illegality. If, after the date of this Agreement, the adoption
of any Governmental Rule, any change in any Governmental Rule or the
application or requirements thereof (whether such change occurs in
accordance with the terms of such Governmental Rule as enacted, as a
result of amendment or otherwise), any change in the interpretation or
administration of any Governmental Rule by any Governmental Authority, or
compliance by any Lender with any request or directive (whether or not
having the force of law) of any Governmental Authority (a "Change of Law")
shall make it unlawful or impossible for any Lender to make or maintain
any LIBOR Loan, such Lender shall immediately notify Agent and Borrower of
such Change of Law. Upon receipt of such notice, (i) Borrower's right to
request the making of or conversion to, and such Lender's obligation to
make or convert to, any Loans of the Type affected by such Change of Law
shall be terminated, and (ii) Borrower shall, at the request of such
Lender, either (A) pursuant to Subparagraph 2.01(d) convert any such then
outstanding LIBOR Loans into Base Rate Loans at the end of the current
Interest Period for such LIBOR Loans, or (B) immediately repay or convert
any such LIBOR Loans if such Lender shall
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notify Borrower that the such Lender may not lawfully continue to fund and
maintain such LIBOR Loans. Any conversion or prepayment of LIBOR Loans
made pursuant to the preceding sentence prior to the last day of an
Interest Period for such LIBOR Loans shall be deemed a prepayment thereof
for purposes of Paragraph 2.12. After any Lender notifies Agent and
Borrower of such a Change of Law and until such Lender notifies Agent and
Borrower that it is no longer unlawful or impossible for such Lender to
make or maintain a LIBOR Loan, all Loans of such Lender shall be Base Rate
Loans.
(c) Increased Costs. If, after the date of this Agreement, any
Change of Law:
(i) Shall subject any Lender to any tax, duty or other charge
with respect to any LIBOR Loan or Letter of Credit or shall change
the basis of taxation of payments by Borrower to any Lender on such
a LIBOR Loan or Letter of Credit or in respect to such a LIBOR Loan
or Letter of Credit under this Agreement (except for changes in the
rate of taxation on the overall net income of any Lender imposed by
its jurisdiction of incorporation or the jurisdiction in which its
principal executive office is located); or
(ii) Shall impose, modify or hold applicable any reserve
(excluding any Reserve Requirement or other reserve to the extent
included in the calculation of the LIBO Rate for any Loans), special
deposit or similar requirement against assets held by, deposits or
other liabilities in or for the account of, advances or loans by, or
any other acquisition of funds by any Lender for any LIBOR Loan or
Letter of Credit; or
(iii) Shall impose on any Lender any other condition related
to any LIBOR Loan, Letter of Credit or such Lender's Commitment;
And the effect of any of the foregoing is to increase the cost to such Lender of
making, renewing, or maintaining any such LIBOR Loan or Letter of Credit or its
Commitment or to reduce any amount receivable by such Lender hereunder; then
Borrower shall from time to time, within five (5) days after demand by such
Lender, pay to such Lender additional amounts sufficient to reimburse such
Lender for such increased costs or to compensate such Lender for such reduced
amounts. A certificate as to the amount of such increased costs or reduced
amounts, submitted by such Lender to Borrower shall, in the absence of manifest
error, be conclusive and binding on Borrower for all purposes. The obligations
of Borrower under this Subparagraph 2.10(c) shall survive the payment and
performance of the Obligations and the termination of this Agreement; provided,
however, that any Lender must submit a demand for payment pursuant to this
provision within six (6) months after such Lender has first conclusively
determined that such reimbursement or compensation is due such Lender under this
and similar agreements.
(d) Capital Requirements. If, after the date of this Agreement, any
Lender determines that (i) any Change of Law affects the amount of capital
required or expected to be maintained by such Lender or any Person
controlling such Lender (a "Capital Adequacy Requirement") and (ii) the
amount of capital maintained by such Lender or such Person which is
attributable to or based upon the Loans, the Letters of Credit, the
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Commitments or this Agreement must be increased as a result of such
Capital Adequacy Requirement (taking into account such Lender's or such
Person's policies with respect to capital adequacy), Borrower shall pay to
such Lender or such Person, within five (5) days after demand of such
Lender, such amounts as such Lender or such Person shall determine are
necessary to compensate such Lender or such Person for the increased costs
to such Lender or such Person of such increased capital. A certificate of
any Lender setting forth in reasonable detail the computation of any such
increased costs, delivered by such Lender to Borrower shall, in the
absence of manifest error, be conclusive and binding on Borrower for all
purposes. The obligations of Borrower under this Subparagraph 2.10(d)
shall survive the payment and performance of the Obligations and the
termination of this Agreement; provided, however, that any Lender must
submit a demand for payment pursuant to this provision within six (6)
months after such Lender has first conclusively determined that such
reimbursement or compensation is due such Lender under this and similar
agreements.
(e) Mitigation. Any Lender which becomes aware of (i) any Change of
Law which will make it unlawful or impossible for such Lender to make or
maintain any LIBOR Loan or (ii) any Change of Law or other event or
condition which will obligate Borrower to pay any amount pursuant to
Subparagraph 2.10(c) or Subparagraph 2.10(d) shall notify Borrower and
Agent thereof as promptly as practical. If any Lender has given notice of
any such Change of Law or other event or condition and thereafter becomes
aware that such Change of Law or other event or condition has ceased to
exist, such Lender shall notify Borrower and Agent thereof as promptly as
practical. Each Lender affected by any Change of Law which makes it
unlawful or impossible for such Lender to make or maintain any LIBOR Loan
or to which Borrower is obligated to pay any amount pursuant to
Subparagraph 2.10(c) or Subparagraph 2.10(d) shall use reasonable
commercial efforts (including changing the jurisdiction of its Applicable
Lending Office) to avoid the effect of such Change of Law or to avoid or
materially reduce any amounts which Borrower is obligated to pay pursuant
to Subparagraph 2.10(c) or Subparagraph 2.10(d) if, in the reasonable
opinion of such Lender, such efforts would not be disadvantageous to such
Lender or contrary to such Lender's normal banking practices.
2.11. Taxes on Payments.
(a) Payments Free of Taxes. All payments made by Borrower under this
Agreement and the other Credit Documents shall be made free and clear of,
and without deduction or withholding for or on account of, any present or
future income, stamp or other taxes, levies, imposts, duties, charges,
fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any Governmental Authority (except net
income taxes and franchise taxes in lieu of net income taxes imposed on
Agent or any Lender by its jurisdiction of incorporation or the
jurisdiction in which its Applicable Lending Office is located) (all such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions and
withholdings being hereinafter called "Taxes"). If any Taxes are required
to be withheld from any amounts payable to Agent or any Lender
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hereunder or under the other Credit Documents, the amounts so payable to
Agent or such Lender shall be increased to the extent necessary to yield
to Agent or such Lender (after payment of all Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts specified
in this Agreement and the other Credit Documents. Whenever any Taxes are
payable by Borrower, as promptly as possible thereafter, Borrower shall
send to Agent for its own account or for the account of such Lender, as
the case may be, a certified copy of an original official receipt received
by Borrower showing payment thereof. If Borrower fails to pay any Taxes
when due to the appropriate taxing authority or fails to remit to Agent
the required receipts or other required documentary evidence, Borrower
shall indemnify Agent and the Lenders for any incremental taxes, interest
or penalties that may become payable by Agent or any Lender as a result of
any such failure. The obligations of Borrower under this Subparagraph
2.11(a) shall survive the payment and performance of the Obligations and
the termination of this Agreement; provided, however, that any Lender must
submit a demand for payment pursuant to this provision within six (6)
months after such Lender has first conclusively determined that such
reimbursement or compensation is due such Lender under this and similar
agreements.
(b) Withholding Exemption Certificates. On or prior to the date of
the initial Borrowing or, if such date does not occur within thirty (30)
days after the date of this Agreement, by the end of such 30-day period,
each Lender which is not incorporated under the laws of the United States
of America or a state thereof shall deliver to Borrower and Agent two duly
completed copies of United States Internal Revenue Service Form 1001 or
4224 (or successor applicable form), as the case may be, certifying in
each case that such Lender is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal
income taxes. Each Lender which delivers to Borrower and Agent a Form 1001
or 4224 pursuant to the immediately preceding sentence further undertakes
to deliver to Borrower and Agent two further copies of Form 1001 or 4224
(or successor applicable forms), or other manner of certification or
procedure, as the case may be, on or before the date that any such form
expires or becomes obsolete or after the occurrence of any event requiring
a change in the most recent form previously delivered by it to Borrower
and Agent, and such extensions or renewals thereof as may reasonably be
requested by Borrower or Agent, certifying in the case of a Form 1001 or
4224 that the Lender is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income
taxes, unless in any such cases an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on
which any such delivery would otherwise be required which renders all such
forms inapplicable or which would prevent a Lender from duly completing
and delivering any such form with respect to it and such Lender advises
Borrower and Agent that it is not capable of receiving payments without
any deduction or withholding of United States federal income tax.
(c) Mitigation. If Agent or any Lender claims any additional amounts
to be payable to it pursuant to this Paragraph 2.11, such Person shall use
reasonable commercial efforts to file any certificate or document
requested in writing by Borrower (including without limitation copies of
Internal Revenue Service Form 1001 (or successor
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forms) reflecting a reduced rate of withholding) or to change the
jurisdiction of its Applicable Lending Office if the making of such a
filing or such change in the jurisdiction of its Applicable Lending Office
would avoid the need for or materially reduce the amount of any such
additional amounts which may thereafter accrue and if, in the reasonable
opinion of such Person, in the case of a change in the jurisdiction of its
Applicable Lending Office, such change would not be disadvantageous to
such Person or contrary to such Person's normal banking practices.
(d) Tax Returns. Nothing contained in this Paragraph 2.11 shall
require Agent or any Lender to make available any of its tax returns (or
any other information relating to its taxes which it deems to be
confidential).
2.12. Funding Loss Indemnification. If Borrower shall (a) repay, prepay or
convert any LIBOR Loan on any day other than the last day of an Interest Period
therefor (whether a scheduled payment, an optional prepayment or conversion, a
mandatory prepayment or conversion, a payment upon acceleration or otherwise),
(b) fail to borrow any LIBOR Loan for which a Notice of Borrowing has been
delivered to Agent (whether as a result of the failure to satisfy any applicable
conditions or otherwise) or (c) fail to convert any Loans into LIBOR Loans in
accordance with a Notice of Conversion delivered to Agent (whether as a result
of the failure to satisfy any applicable conditions or otherwise), Borrower
shall, upon demand by any Lender, reimburse such Lender for and hold such Lender
harmless from all costs and losses incurred by such Lender as a result of such
repayment, prepayment, conversion or failure. Borrower understands that such
costs and losses may include, without limitation, losses incurred by a Lender as
a result of funding and other contracts entered into by such Lender to fund a
LIBOR Loan. Each Lender demanding payment under this Paragraph 2.12 shall
deliver to Borrower, with a copy to Agent, a certificate setting forth the
amount of costs and losses for which demand is made, which certificate shall set
forth in reasonable detail the calculation of the amount demanded. Such a
certificate so delivered to Borrower shall constitute prima facie evidence of
such costs and losses. The obligations of Borrower under this Paragraph 2.12
shall survive the payment and performance of the Obligations and the termination
of this Agreement; provided, however, that any Lender must submit a demand for
payment pursuant to this provision within six (6) months after such Lender has
first conclusively determined that such reimbursement or compensation is due
such Lender under this and similar agreements.
2.13. Replacement of Lenders. If any Lender shall (a) become a Defaulting
Lender more than two (2) times in a period of twelve (12) consecutive months,
(b) continue as a Defaulting Lender for more than five (5) Business Days at any
time, (c) suspend its obligation to make or maintain LIBOR Loans pursuant to
Subparagraph 2.10(a) or 2.10(b) for a reason which is not applicable to any
other Lender or (d) demand any payment under Subparagraph 2.10(c), 2.10(d) or
2.11(a) for a reason which is not applicable to any other Lender, then Agent may
(or upon the written request of Borrower, shall) replace such Lender (the
"affected Lender"), or cause such affected Lender to be replaced, with another
lender (the "replacement Lender") satisfying the requirements of an Assignee
Lender under Subparagraph 8.05(c), by having the affected Lender sell and assign
all of its rights and obligations under this Agreement and the other Credit
Documents to the replacement Lender pursuant to Subparagraph 8.05(c); provided,
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however, that if Borrower seeks to exercise such right, it must do so within
sixty (60) days after it first knows or should have known of the occurrence of
the event or events giving rise to such right, and neither Agent nor any Lender
shall have any obligation to identify or locate a replacement Lender for
Borrower. Upon receipt by any affected Lender of a written notice from Agent
stating that Agent is exercising the replacement right set forth in this
Paragraph 2.13, such affected Lender shall sell and assign all of its rights and
obligations under this Agreement and the other Credit Documents to the
replacement Lender pursuant to an Assignment Agreement and Subparagraph 8.05(c)
for a purchase price equal to the sum of the principal amount of the affected
Lender's Loans so sold and assigned, all accrued and unpaid interest thereon,
and its ratable share of all fees to which it is entitled at such time. Agent
shall endeavor to effect any assignment from an affected Lender to a replacement
Lender as promptly as possible and shall keep Borrower regularly informed of the
timing of any such assignment.
SECTION III. CONDITIONS PRECEDENT.
3.01. Initial Conditions Precedent. The obligations of the Lenders to make
the Loans comprising the initial Borrowing and of Issuing Bank to issue the
initial Letter of Credit are subject to receipt by Agent, on or prior to the
Closing Date, of each item listed in Schedule 3.01, each in form and substance
satisfactory to Agent, and with sufficient copies for, Agent and each Lender.
3.02. Conditions Precedent to Each Credit Event. The occurrence of each
Credit Event (including the initial Borrowing and the initial Letter of Credit)
is subject to the further conditions that:
(a) Borrower shall have delivered to Agent (and Issuing Bank, in the
case of an LC Application) the Notice of Borrowing, Notice of Conversion,
Notice of Interest Period Selection or LC Application, as the case may be,
for such Credit Event in accordance with this Agreement; and
(b) On the date such Credit Event is to occur and after giving
effect to such Credit Event, the following shall be true and correct:
(i) The representations and warranties of Borrower and its
Subsidiaries set forth in Paragraph 4.01 and in the other Credit
Documents are true and correct in all material respects as if made
on such date (except for representations and warranties expressly
made as of a specified date, which shall be true as of such date);
(ii) No Default or Event of Default has occurred and is
continuing or will result from such Credit Event; and
(iii) All of the Credit Documents are in full force and
effect.
The submission by Borrower to Agent of each Notice of Borrowing, each
Notice of Conversion (other than a notice for a conversion to a Base Rate
Loan), each Notice of
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Interest Period Selection and each LC Application shall be deemed to be a
representation and warranty by Borrower that each of the statements set
forth above in this Subparagraph 3.02(b) is true and correct as of the
date of such notice.
3.03. Covenant to Deliver. Borrower agrees (not as a condition but as a
covenant) to deliver to Agent each item required to be delivered to Agent as a
condition to the occurrence of any Credit Event if such Credit Event occurs.
Borrower expressly agrees that the occurrence of any such Credit Event prior to
the receipt by Agent of any such item shall not constitute a waiver by Agent or
any Lender of Borrower's obligation to deliver such item.
SECTION IV. REPRESENTATIONS AND WARRANTIES.
4.01. Borrower's Representations and Warranties. In order to induce Agent
and the Lenders to enter into this Agreement, Borrower hereby represents and
warranties to Agent and the Lenders as follows:
(a) Due Incorporation, Qualification, Etc. Each of Borrower and
Borrower's Subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation; (ii) has the power and authority to own, lease and operate
its properties and carry on its business as now conducted; and (iii) is
duly qualified, licensed to do business and in good standing as a foreign
corporation in each jurisdiction where the failure to be so qualified or
licensed is reasonably likely to have a Material Adverse Effect.
(b) Authority. The execution, delivery and performance by Borrower
of each Credit Document executed, or to be executed, by Borrower and the
consummation of the transactions contemplated thereby (i) are within the
power of Borrower and (ii) have been duly authorized by all necessary
actions on the part of Borrower.
(c) Enforceability. Each Credit Document executed, or to be
executed, by Borrower has been, or will be, duly executed and delivered by
Borrower and constitutes, or will constitute, a legal, valid and binding
obligation of Borrower, enforceable against Borrower in accordance with
its terms, except as limited by bankruptcy, insolvency or other laws of
general application relating to or affecting the enforcement of creditors'
rights generally and general principles of equity.
(d) Non-Contravention. The execution and delivery by Borrower of the
Credit Documents executed by Borrower and the performance and consummation
of the transactions contemplated thereby do not (i) violate any
Requirement of Law applicable to Borrower; (ii) violate any provision of,
or result in the breach or the acceleration of, or entitle any other
Person to accelerate (whether after the giving of notice or lapse of time
or both), any Contractual Obligation of Borrower; or (iii) result in the
creation or imposition of any Lien (or the obligation to create or impose
any Lien) upon any property, asset or revenue of Borrower (except such
Liens as may be created in favor of Agent pursuant to this Agreement or
the other Credit Documents).
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(e) Approvals. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority or
other Person (including, without limitation, the shareholders of any
Person) is required in connection with the execution and delivery of the
Credit Documents executed by Borrower and the performance and consummation
of the transactions contemplated thereby, except such as have been made or
obtained and are in full force and effect.
(f) No Violation or Default. Neither Borrower nor any of its
Subsidiaries is in violation of or in default with respect to (i) any
Requirement of Law applicable to such Person; (ii) any Contractual
Obligation of such Person (nor is there any waiver in effect which, if not
in effect, would result in such a violation or default), where, in each
case, such violation or default is reasonably likely to have a Material
Adverse Effect. Without limiting the generality of the foregoing, neither
Borrower nor any of its Subsidiaries (A) has violated any Environmental
Laws, (B) has any liability under any Environmental Laws or (C) has
received notice or other communication of an investigation or is under
investigation by any Governmental Authority having authority to enforce
Environmental Laws, where such violation, liability or investigation is
reasonably likely to have a Material Adverse Effect. No Event of Default
or Default has occurred and is continuing.
(g) Litigation. No actions (including, without limitation,
derivative actions), suits, proceedings or investigations are pending or,
to the knowledge of Borrower, threatened against Borrower or any of its
Subsidiaries at law or in equity in any court or before any other
Governmental Authority which (i) is reasonably likely (alone or in the
aggregate) to have a Material Adverse Effect or (ii) seeks to enjoin,
either directly or indirectly, the execution, delivery or performance by
Borrower of the Credit Documents or the transactions contemplated thereby.
(h) Title; Possession Under Leases. Borrower and its Subsidiaries
(i) own and have good and marketable title (without regard to minor
defects of title) to the real property owned by Borrower and its
Subsidiaries, as reflected in the most recent Financial Statements
delivered to Agent (except those assets and properties disposed of since
the date of such Financial Statements in compliance with this Agreement),
(ii) have valid leasehold interests in all real property leased by
Borrower and its Subsidiaries, (iii) own and have good title (without
regard to minor defects of title) to all their other respective properties
and assets which are material to the business of Borrower and its
Subsidiaries, as reflected in the most recent Financial Statements
delivered to Agent (except those assets and properties disposed of since
the date of such Financial Statements in compliance with this Agreement)
and (iv) own and have good title (without regard to minor defects of
title) to all respective properties and assets acquired by Borrower and
its Subsidiaries since such date which are material to the business of
Borrower and its Subsidiaries (except those assets and properties disposed
of in compliance with this Agreement). Such assets and properties are
subject to no Lien, except for Permitted Liens. Each of Borrower and its
Subsidiaries enjoys peaceful and undisturbed possession under all leases,
except for any failure to enjoy such possession
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which (alone or in the aggregate with any other such failures) is not
reasonably likely to have a Material Adverse Effect.
(i) Financial Statements. The Financial Statements of Borrower and
its Subsidiaries which have been delivered to Agent, (i) are in accordance
with the books and records of Borrower and its Subsidiaries, which have
been maintained in accordance with good business practice; (ii) have been
prepared in conformity with GAAP; and (iii) fairly present the financial
conditions and results of operations of Borrower and its Subsidiaries as
of the date thereof and for the period covered thereby. Neither Borrower
nor any of its Subsidiaries has any contingent obligations, liability for
taxes or other outstanding obligations which are material in the
aggregate, except as disclosed in the audited Financial Statements of
Borrower and its Subsidiaries for the fiscal year ending June 30, 1997,
and the unaudited Financial Statements of Borrower and its Subsidiaries
for the fiscal quarter ending December 31, 1997, furnished by Borrower to
Agent prior to the date hereof, or in the Financial Statements delivered
to Agent and Lenders pursuant to Subparagraph 5.01(a)(i) or (ii).
(j) Equity Securities. As of the Closing Date, the authorized Equity
Securities of Borrower consist of ninety million (90,000,000) shares of
common stock. All outstanding Equity Securities of Borrower are duly
authorized, validly issued, fully paid and non-assessable. All Equity
Securities of Borrower have been offered and sold in compliance with all
federal and state securities laws and all other Requirements of Law.
(k) No Agreements to Sell Assets, Etc. Neither Borrower nor any of
its Subsidiaries has any legal obligation, absolute or contingent, to any
Person to sell the assets of Borrower or any of its Subsidiaries (other
than sales in the ordinary course of business), or to effect any merger,
consolidation or other reorganization of Borrower or any of its
Subsidiaries or to enter into any agreement with respect thereto, except
to the extent otherwise permitted pursuant to Subparagraph 5.02(c) and
5.02(d).
(l) Employee Benefit Plans.
(i) Based on the latest valuation of each Employee Benefit
Plan that either Borrower or any ERISA Affiliate maintains or
contributes to, or has any obligation under (which occurred within
twelve months of the date of this representation), the aggregate
benefit liabilities of such plan within the meaning of Section 4001
of ERISA did not exceed the aggregate value of the assets of such
plan. Neither Borrower nor any ERISA Affiliate has any liability
with respect to any post-retirement benefit under any Employee
Benefit Plan which is a welfare plan (as defined in section 3(1) of
ERISA), other than liability for health plan continuation coverage
described in Part 6 of Title I(B) of ERISA, which liability for
health plan contribution coverage is not reasonably likely to have a
Material Adverse Effect.
(ii) Each Employee Benefit Plan complies, in both form and
operation, in all material respects, with its terms, ERISA and the
Code, and no condition
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exists or event has occurred with respect to any such plan which
would result in the incurrence by either Borrower or any ERISA
Affiliate of any material liability, fine or penalty. Each Employee
Benefit Plan, related trust agreement, arrangement and commitment of
Borrower or any ERISA Affiliate is legally valid and binding and in
full force and effect. No Employee Benefit Plan is being audited or
investigated by any government agency or is subject to any pending
or threatened claim or suit. Neither Borrower nor any ERISA
Affiliate nor any fiduciary of any Employee Benefit Plan has engaged
in a prohibited transaction under section 406 of ERISA or section
4975 of the Code.
(iii) Neither Borrower nor any ERISA Affiliate contributes to
or has any material contingent obligations to any Multiemployer
Plan. Neither Borrower nor any ERISA Affiliate has incurred any
material liability (including secondary liability) to any
Multiemployer Plan as a result of a complete or partial withdrawal
from such Multiemployer Plan under Section 4201 of ERISA or as a
result of a sale of assets described in Section 4204 of ERISA.
Neither Borrower nor any ERISA Affiliate has been notified that any
Multiemployer Plan is in reorganization or insolvent under and
within the meaning of Section 4241 or Section 4245 of ERISA or that
any Multiemployer Plan intends to terminate or has been terminated
under Section 4041A of ERISA.
(m) Other Regulations. Borrower is not subject to regulation under
the Investment Company Act of 1940, the Public Utility Holding Company Act
of 1935, the Federal Power Act, the Interstate Commerce Act, any state
public utilities code or to any other Governmental Rule limiting its
ability to incur indebtedness.
(n) Patent and Other Rights. Borrower and its Subsidiaries own or
license under validly existing agreements, and have the full right to
license without the consent of any other Person (or can demonstrate to the
satisfaction of the Required Lenders the ability to obtain or maintain),
all patents, licenses, trademarks, trade names, trade secrets, service
marks, copyrights and all rights with respect thereto, which are material
to the conduct of their businesses as now conducted.
(o) Governmental Charges and Other Indebtedness. Borrower and its
Subsidiaries have filed or caused to be filed all tax returns which are
required to be filed by them. Borrower and its Subsidiaries have paid, or
made provision for the payment of, all taxes and other Governmental
Charges which have or may have become due pursuant to said returns or
otherwise and all other indebtedness, except such Governmental Charges or
indebtedness, if any, which are being contested in good faith and as to
which adequate reserves (determined in accordance with GAAP) have been
provided or which are not reasonably likely to have a Material Adverse
Effect if unpaid.
(p) Margin Stock. Borrower owns no Margin Stock which, in the
aggregate, would constitute a substantial part of the assets of Borrower,
and no proceeds of any Loan and no Letter of Credit will be used to
purchase or carry, directly or indirectly, any
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Margin Stock or to extend credit, directly or indirectly, to any Person
for the purpose of purchasing or carrying any Margin Stock.
(q) Subsidiaries, etc. Set forth in Schedule 4.01(q) (as
supplemented by Borrower from time to time in a written notice to Agent
and the Lenders) is a complete list of all of Borrower's Subsidiaries, the
jurisdiction of incorporation of each, and the percentage of shares of
such Subsidiary owned directly or indirectly by Borrower (which in the
event there is more than one class of Equity Securities and/or Borrower,
directly or indirectly, owns less than 100% of any Equity Securities of
such Subsidiary, such information shall list the classes of Equity
Securities and/or the number and percentage of Equity Securities owned
directly or indirectly by Borrower). Except for such Subsidiaries,
Borrower has no Subsidiaries, is not a partner in any partnership or a
joint venturer in any joint venture.
(r) Catastrophic Events. Neither Borrower nor any of its
Subsidiaries and none of their properties is or has been affected by any
fire, explosion, accident, strike, lockout or other labor dispute,
drought, storm, hail, earthquake, embargo, act of God or other casualty
that is reasonably likely to have a Material Adverse Effect. There are no
disputes presently subject to grievance procedure, arbitration or
litigation under any of the collective bargaining agreements, employment
contracts or employee welfare or incentive plans to which Borrower or any
of its Subsidiaries is a party, and there are no strikes, lockouts, work
stoppages or slowdowns, or, to the best knowledge of Borrower,
jurisdictional disputes or organizing activities occurring or threatened
which alone or in the aggregate are reasonably likely to have a Material
Adverse Effect.
(s) Burdensome Contractual Obligations, Etc. Neither Borrower nor
any of its Subsidiaries and none of their properties is subject to any
Contractual Obligation or Requirement of Law which is reasonably likely to
have a Material Adverse Effect.
(t) No Material Adverse Effect. No event has occurred and no
condition exists which is reasonably likely to have a Material Adverse
Effect.
(u) Accuracy of Information Furnished. None of the Credit Documents
and none of the other certificates, statements or information furnished to
Agent or any Lender by or on behalf of Borrower or any of its Subsidiaries
in connection with the Credit Documents or the transactions contemplated
thereby contains or will contain any untrue statement of a material fact
or omits or will omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
4.02. Reaffirmation. Borrower shall be deemed to have reaffirmed, for the
benefit of the Lenders and Agent, each representation and warranty contained in
Paragraph 4.01 on and as of the date of each Credit Event (except for
representations and warranties expressly made as of a specified date, which
shall be true as of such date).
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SECTION V. COVENANTS.
5.01. Affirmative Covenants. Until the termination of this Agreement and
the satisfaction in full by Borrower of all Obligations, Borrower will comply,
and will cause compliance, with the following affirmative covenants, unless
Required Lenders shall otherwise consent in writing:
(a) Financial Statements, Reports, etc. Borrower shall furnish to
Agent for each Lender the following, each in such form and such detail as
Agent shall reasonably request (copies of which Agent shall promptly
deliver to each Lender):
(i) As soon as available and in no event later than fifty (50)
days after the last day of each fiscal quarter of Borrower, a copy
of the Financial Statements of Borrower and its Subsidiaries
(prepared on a consolidated basis) for such quarter and for the
fiscal year to date, certified by the chief executive officer,
president, chief financial officer or treasurer of Borrower to
present fairly the financial condition, results of operations and
other information reflected therein and to have been prepared in
accordance with GAAP (subject to normal year-end audit adjustments);
(ii) As soon as available and in no event later than one
hundred (100) days after the close of each fiscal year of Borrower,
(A) copies of the audited Financial Statements of Borrower and its
Subsidiaries (prepared on a consolidated basis) for such year,
prepared by independent certified public accountants of recognized
national standing acceptable to Agent, and (B) copies of the
unqualified opinions (or qualified opinions reasonably acceptable to
Agent) and management letters delivered by such accountants in
connection with all such Financial Statements;
(iii) Contemporaneously with the quarterly and year-end
Financial Statements required by the foregoing clauses (i) and (ii),
a compliance certificate (the "Compliance Certificate") of the chief
executive officer, president, chief financial officer or treasurer
of Borrower which (A) states that no Event of Default and no Default
has occurred and is continuing, or, if any such Event of Default or
Default has occurred and is continuing, a statement as to the nature
thereof and what action Borrower proposes to take with respect
thereto, and (B) sets forth, for the quarter or year covered by such
Financial Statements or as of the last day of such quarter or year
(as the case may be), the calculation of the financial ratios and
tests provided in Subparagraph 5.02(l) and, if applicable, the
calculation of the Applicable Margins, Commitment Fee percentages
and LC Usage Fee percentages for such quarter determined in
accordance with the Pricing Grid;
(iv) As soon as possible and in no event later than ten (10)
Business Days after the date of promulgation thereof by S&P and/or
Moody's, notice of any change in Borrower's Debt Rating;
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<PAGE> 47
(v) As soon as possible and in no event later than five (5)
Business Days after any officer of Borrower knows of the occurrence
or existence of (A) any Reportable Event under any Employee Benefit
Plan or Multiemployer Plan; (B) any actual litigation or threatened
litigation which has a reasonable likelihood of leading to actual
litigation, suits, claims or disputes against Borrower or any of its
Subsidiaries involving potential monetary damages payable by
Borrower or its Subsidiaries of $10,000,000 or more alone and/or
$20,000,000 or more in the aggregate; (C) any other event or
condition which is reasonably likely to have a Material Adverse
Effect; or (D) any Default or Event of Default; the statement of the
president or chief financial officer of Borrower setting forth
details of such event, condition, Default or Event of Default and
the action which Borrower proposes to take with respect thereto;
(vi) As soon as available and in no event later than five (5)
Business Days after they are sent, made available or filed, copies
of (A) all registration statements and reports filed by Borrower or
any of its Subsidiaries with any securities exchange or the
Securities and Exchange Commission (including, without limitation,
all 10-Q, 10-K and 8-K reports); (B) all reports, proxy statements
and financial statements sent or made available by Borrower or any
of its Subsidiaries to its security holders; and (C) all press
releases and other similar public statements concerning any material
developments in the business of Borrower or any of its Subsidiaries
made available by Borrower or any of its Subsidiaries to the public
generally;
(vii) Contemporaneously with any Investment by Borrower
consisting of any purchase or other acquisition of any Equity
Securities or Indebtedness of any other Person or any capital
contribution to or any other investment in any other Person having a
value in excess of $60,000,000, a pro forma Compliance Certificate
certified by the chief executive officer, president, chief financial
officer or treasurer of Borrower which sets forth the calculation of
the financial ratios and tests provided in Subparagraph 5.02(l)
after giving effect to any such Investment; and
(viii) Such other instruments, agreements, certificates,
opinions, statements, documents and information relating to the
operations or condition (financial or otherwise) of Borrower or its
Subsidiaries, and compliance by Borrower with the terms of this
Agreement and the other Credit Documents as Agent may from time to
time reasonably request.
(b) Books and Records. Borrower and its Subsidiaries shall at all
times keep proper books of record and account in which full, true and
correct entries will be made of their transactions in accordance with
GAAP, or if, with respect to any Subsidiary for which United States
accounting principles are inapplicable, generally accepted accounting
principles in the jurisdiction in which such Subsidiary is organized.
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<PAGE> 48
(c) Inspections. Borrower and its Subsidiaries shall permit any
Person designated by Agent or any Lender, upon reasonable notice and
during normal business hours, to visit and inspect any of the properties
and offices of Borrower and its Subsidiaries, to examine the books and
records of Borrower and its Subsidiaries and make copies thereof and to
discuss the affairs, finances and accounts of Borrower and its
Subsidiaries with, and to be advised as to the same by, their officers,
auditors and accountants, all at such times and intervals as Agent or any
Lender may reasonably request; provided, however, so long as no Default or
Event of Default has occurred and is continuing, such inspection and
examination by any Lender (other than Agent) shall be at the expense of
such Lender.
(d) Insurance. Borrower and its Subsidiaries shall:
(i) Carry and maintain insurance of the types and in the
amounts customarily carried from time to time during the term of
this Agreement by others engaged in substantially the same business
as such Person and operating in the same geographic area as such
Person, including, but not limited to, fire, public liability,
property damage and worker's compensation; and
(ii) Deliver to Agent from time to time, as Agent may request,
schedules setting forth all insurance then in effect.
(e) Governmental Charges and Other Indebtedness. Borrower and its
Subsidiaries shall promptly pay and discharge when due (i) all taxes and
other Governmental Charges prior to the date upon which penalties accrue
thereon, (ii) all indebtedness which, if unpaid, could become a Lien upon
the property of Borrower or its Subsidiaries and (iii) all other
Indebtedness which, if unpaid, is reasonably likely to have a Material
Adverse Effect, except such Indebtedness as may in good faith be contested
or disputed, or for which arrangements for deferred payment have been
made, provided that in each such case appropriate reserves are maintained
to the reasonable satisfaction of Agent.
(f) Use of Proceeds. Borrower shall use the proceeds of the Loans
only for the purposes set forth in Subparagraph 2.01(g) and any Letters of
Credit only for the purposes set forth in Subparagraph 2.02(g). Borrower
shall not use any part of the proceeds of any Loan or any Letter of
Credit, directly or indirectly, for the purpose of purchasing or carrying
any Margin Stock or for the purpose of purchasing or carrying or trading
in any securities under such circumstances as to involve Borrower, any
Lender or Agent in a violation of Regulations G, T, U or X issued by the
Federal Reserve Board.
(g) General Business Operations. Except as permitted in Subparagraph
5.02(d), each of Borrower and its Subsidiaries shall (i) preserve and
maintain its corporate existence and all of its rights, privileges and
franchises reasonably necessary to the conduct of its business; provided,
however, that from time to time, Borrower may, in the ordinary course of
business, dissolve any Subsidiary which is not a Material Subsidiary, so
long as both immediately before and after giving effect to such
dissolution, no Default or Event of Default shall have occurred and be
continuing, (ii) conduct its business activities in compliance with all
Requirements of Law and Contractual Obligations
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<PAGE> 49
applicable to such Person, the violation of which is reasonably likely to
have a Material Adverse Effect, and (iii) keep all property useful and
necessary in its business in good working order and condition, ordinary
wear and tear excepted. Borrower shall maintain its chief executive office
and principal place of business in the United States.
(h) Pari Passu Ranking. Borrower shall take, or cause to be taken,
all actions necessary to ensure that the Obligations of Borrower are and
continue to rank at least pari passu in right of payment with all other
unsecured Senior Indebtedness of Borrower.
5.02. Negative Covenants. Until the termination of this Agreement and the
satisfaction in full by Borrower of all Obligations, Borrower will comply, and
will cause compliance, with the following negative covenants, unless Required
Lenders shall otherwise consent in writing:
(a) Indebtedness. Neither Borrower nor any of its Subsidiaries shall
create, incur, assume or permit to exist any Indebtedness except for the
following ("Permitted Indebtedness"):
(i) The Obligations of Borrower under the Credit Documents;
(ii) Indebtedness of Borrower and its Subsidiaries listed in
Schedule 5.02(a) and existing on the date of this Agreement;
(iii) Indebtedness of Borrower and its Subsidiaries arising
from the endorsement of instruments for collection in the ordinary
course of Borrower's or a Subsidiary's business;
(iv) Indebtedness of Borrower and its Subsidiaries for trade
accounts payable, provided that (A) such accounts arise in the
ordinary course of business and (B) no material part of any such
account is more than ninety (90) days past due (unless subject to a
bona fide dispute and for which adequate reserves have been
established);
(v) Indebtedness of Borrower and its Subsidiaries under
interest rate protection, currency swap and foreign exchange
arrangements, provided that all such arrangements are entered into
in connection with bona fide hedging operations and not for
speculation;
(vi) Indebtedness of Borrower and its Subsidiaries under
purchase money loans (including any synthetic leases) and Capital
Leases incurred by Borrower or any of its Subsidiaries to finance
the acquisition by such Person of real property, fixtures or
equipment provided that in each case, (A) such Indebtedness is
incurred by such Person at the time of, or not later than ninety
(90) days after, the acquisition by such Person of the property so
financed and (B) such Indebtedness does not exceed the purchase
price of the property so financed;
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<PAGE> 50
(vii) Indebtedness of Borrower and its Subsidiaries under
initial or successive refinancings of any Indebtedness permitted by
clause (ii) above, provided that (A) the principal amount of any
such refinancing does not exceed the principal amount of the
Indebtedness being refinanced and (B) the material terms and
provisions of any such refinancing (including maturity, redemption,
prepayment, default and subordination provisions) are no less
favorable to the Lenders than the Indebtedness being refinanced;
(viii) Indebtedness of Borrower and its Subsidiaries with
respect to surety, appeal, indemnity, performance or other similar
bonds in the ordinary course of business;
(ix) Guaranty Obligations of Borrower in respect of Permitted
Indebtedness of its Subsidiaries;
(x) Indebtedness of Borrower to any of its Subsidiaries,
Indebtedness of any of Borrower's Subsidiaries to Borrower or
Indebtedness of any of Borrower's Subsidiaries to any of Borrower's
other Subsidiaries, provided that any Indebtedness of Borrower to
any of its Subsidiaries and any Indebtedness of any of Borrower's
Subsidiaries to Borrower shall be subject to Subparagraph 5.02;
(xi) unsecured Indebtedness of Borrower which is subordinated
to the Obligations, provided that the payment terms, interest rate
and subordination provisions of such Indebtedness are reasonably
acceptable to Required Lenders;
(xii) Indebtedness of Borrower and its Subsidiaries with
respect to the sale, transfer or assignment of accounts receivable
of Borrower and its Subsidiaries and certain rights and property
related to the collection of or constituting proceeds of such
accounts receivable, provided that such sale, assignment or transfer
is (A) in the ordinary course of business, (B) for cash, (C) with
recourse to Borrower or such Subsidiary in an amount not to exceed
the aggregate face amount of the accounts receivable sold and
certain additional interest charges with respect to such
Indebtedness, (D) otherwise permitted under Subparagraph
5.02(c)(vii), and (E) both immediately before and after giving
effect to such Indebtedness, no Default or Event of Default shall
have occurred and be continuing; and
(xiii) Other unsecured Senior Indebtedness of Borrower and its
Subsidiaries in addition to that otherwise permitted above, provided
that both immediately before incurring and after giving effect to
such unsecured Senior Indebtedness, Borrower shall be in compliance
with the financial covenants set forth in Subparagraph 5.02(l) and
no other Default or Event of Default shall have occurred and be
continuing.
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<PAGE> 51
(b) Liens. Neither Borrower nor any of its Subsidiaries shall
create, incur, assume or permit to exist any Lien on or with respect to
any of its assets or property of any character, whether now owned or
hereafter acquired, except for the following ("Permitted Liens"):
(i) Liens in favor of Agent or any Lender securing the
Obligations;
(ii) Liens listed in Schedule 5.02(b) and existing on the date
of this Agreement;
(iii) Liens for taxes or other Governmental Charges not at the
time delinquent or thereafter payable without penalty or being
contested in good faith, provided that adequate reserves for the
payment thereof have been established in accordance with GAAP;
(iv) Liens of carriers, warehousemen, mechanics, materialmen,
vendors, and landlords and other similar Liens imposed by law
incurred in the ordinary course of business for sums not overdue or
being contested in good faith, provided that adequate reserves for
the payment thereof have been established in accordance with GAAP;
(v) Deposits under workers' compensation, unemployment
insurance and social security laws or to secure the performance of
bids, tenders, contracts (other than for the repayment of borrowed
money) or leases, or to secure statutory obligations of surety or
appeal bonds or to secure indemnity, performance or other similar
bonds in the ordinary course of business;
(vi) Zoning restrictions, easements, rights-of-way, title
irregularities and other similar encumbrances, which alone or in the
aggregate are not substantial in amount and do not materially
detract from the value of the property subject thereto or interfere
with the ordinary conduct of the business of Borrower or any of its
Subsidiaries;
(vii) Banker's Liens and similar Liens (including set-off
rights) in respect of bank deposits;
(viii) Liens on property or assets of any corporation which
becomes a Subsidiary of Borrower after the date of this Agreement,
provided that (A) such Liens exist at the time the stock of such
corporation is acquired by Borrower and (B) such Liens were not
created in contemplation of such acquisition by Borrower;
(ix) Judgement Liens, provided that such Liens do not have a
value in excess of $5,000,000 or such Liens are released, stayed,
vacated or otherwise dismissed within sixty (60) days after issue or
levy and, if so stayed, such stay is not thereafter removed;
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(x) Rights of vendors or lessors under conditional sale
agreements, Capital Leases or other title retention agreements
(including synthetic leases), provided that, in each case, (A) such
rights secure or otherwise relate to Permitted Indebtedness, (B)
such rights do not extend to any property other than property
acquired with the proceeds of such Permitted Indebtedness (other
than cash pledged to secure obligations under synthetic leases in an
amount not to exceed, together with any amounts pledged under clause
(xiii), $53,000,000 in the aggregate during the term of this
Agreement, provided that both immediately before and after giving
effect to any such cash collateralization, Borrower shall be in
compliance with the financial covenants set forth in Subparagraph
5.02(l) and no other Default or Event of Default shall have occurred
and be continuing) and (C) such rights do not secure any
Indebtedness other than such Permitted Indebtedness;
(xi) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties and in
connection with the importation of goods in the ordinary course of
Borrower's and its Subsidiaries' businesses;
(xii) Liens securing Indebtedness which constitutes Permitted
Indebtedness under clause (vi) of Subparagraph 5.02(a) provided
that, in each case, such Lien (A) covers only those assets, the
acquisition of which was financed by such Permitted Indebtedness,
and (B) secures only such Permitted Indebtedness;
(xiii) Liens securing Indebtedness which constitutes Permitted
Indebtedness under clause (xii) of Subparagraph 5.02(a) provided
that, in each case, such Lien (A) secures only such Permitted
Indebtedness, and (B) such Liens do not extend to any assets or
property other than the assets or property sold (other than cash
pledged under certain circumstances to secure such Permitted
Indebtedness in an aggregate amount not to exceed, together with any
amounts pledged under clause (x), $53,000,000 in the aggregate
during the term of this Agreement, provided that both immediately
before and after giving effect to any such cash collateralization,
Borrower shall be in compliance with the financial covenants set
forth in Subparagraph 5.02(1) and no other Default or Event of
Default shall have occurred and be continuing);
(xiv) Liens on the property or assets of any Subsidiary of
Borrower in favor of Borrower or any other Subsidiary of Borrower;
(xv) Liens incurred in connection with the extension, renewal
or refinancing of the Indebtedness secured by the Liens described in
clause (ii) or (xii) above, provided that any extension, renewal or
replacement Lien (A) is limited to the property covered by the
existing Lien and (B) secures Indebtedness
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which is no greater in amount and has material terms no less
favorable to the Lenders than the Indebtedness secured by the
existing Lien; and
(xvi) Liens on insurance proceeds in favor of insurance
companies with respect to the financing of insurance premiums.
(c) Asset Dispositions. Neither Borrower nor any of its Subsidiaries
shall sell, lease, transfer or otherwise dispose of any of its assets or
property, whether now owned or hereafter acquired, except for the
following:
(i) Sales of inventory by Borrower and its Subsidiaries in the
ordinary course of their businesses;
(ii) Sales of surplus, damaged, worn or obsolete equipment or
inventory for not less than fair market value;
(iii) Sales or other dispositions of Investments permitted by
clause (i) of Subparagraph 5.02(e) for not less than fair market
value;
(iv) Sales or assignments of defaulted receivables to a
collection agency in the ordinary course of business;
(v) Licenses by Borrower or its Subsidiaries of its patents,
copyrights, trademarks, trade names and service marks in the
ordinary course of its business;
(vi) Sales or other dispositions of assets and property by
Borrower to any of Borrower's Subsidiaries or by any of Borrower's
Subsidiaries to Borrower or any of its other Subsidiaries, provided
that the terms of any such sales or other dispositions by or to
Borrower are terms which are no less favorable to Borrower then
would prevail in the market for similar transactions between
unaffiliated parties dealing at arm's length;
(vii) Sales, for cash, in the ordinary course of business of
(A) accounts receivable of Borrower's foreign Subsidiaries and
certain rights and property of Borrower's foreign Subsidiaries
related to the collection of or constituting proceeds of such
accounts receivable, and (B) accounts receivable of Borrower and
certain rights and property of Borrower related to the collection of
or constituting proceeds of such accounts receivable in an aggregate
amount not to exceed at any time twenty percent (20%) of Borrower's
aggregate accounts receivable, as measured at the end of each fiscal
quarter of Borrower, and in each case with respect to the foregoing
(A) and (B), with or without recourse, at a discount rate not to
exceed twenty percent (20%); and
(viii) Other sales, leases, transfers and disposals of assets
and property (other than sales, leases, transfers and disposals of
accounts receivable and related rights and property which shall be
permitted only as expressly set forth in clause
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(vii) above), provided that the aggregate value of all such assets
and property (based upon the greater of the fair market or book
value of such assets and property) so sold, leased, transferred or
otherwise disposed of in any fiscal year on a rolling aggregate
basis does not exceed ten percent (10%) of Borrower's Tangible Net
Worth as measured at the end of each fiscal quarter of Borrower.
(d) Mergers, Acquisitions, Etc. Neither Borrower nor any of its
Subsidiaries shall consolidate with or merge into any other Person or
permit any other Person to merge into it, acquire or establish any
Subsidiary or acquire all or substantially all of the assets of any other
Person, except for the following:
(i) any wholly-owned Subsidiary of Borrower may merge into
Borrower or any other wholly-owned Subsidiary of Borrower; and
(ii) Borrower or any wholly-owned Subsidiary of Borrower may
(A) acquire all or substantially all of the assets of any Person,
(B) any Person may merge into Borrower or any other wholly-owned
Subsidiary of Borrower, and (C) Borrower or any wholly-owned
Subsidiary of Borrower may establish or acquire Subsidiaries,
provided that:
(1) in the event of any merger by any Person into
Borrower or any wholly-owned Subsidiary of Borrower, Borrower
or such wholly-owned Subsidiary is the surviving entity; and
(2) both immediately prior to and after giving effect to
such merger, acquisition or establishment of a Subsidiary (y)
the aggregate cost of any such merger, acquisition or
establishment of a Subsidiary shall not exceed the amounts
permitted under Subparagraph 5.02(e)(ii) and (z) no Default or
Event of Default shall have occurred and be continuing.
(e) Investments. Neither Borrower nor any of its Subsidiaries shall
make any Investment except for Investments in the following:
(i) Investments in accordance with the terms of Borrower's
Cash Investment Guidelines as in effect on the Closing Date; and
(ii) Other Investments, provided that the aggregate amount of
such other Investments plus the aggregate cost of assets acquired,
mergers consummated and Subsidiaries established or acquired by
Borrower and its Subsidiaries pursuant to Subparagraph 5.02(d) does
not exceed in any fiscal year $150,000,000 for any amounts paid in
cash.
(f) Dividends, Redemptions, Etc. Neither Borrower nor any of its
Subsidiaries shall pay any dividends or make any distributions on its
Equity Securities; return any capital to any holder of its Equity
Securities as such; make any distribution of assets, Equity Securities,
obligations or securities to any holder of its Equity Securities as such;
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<PAGE> 55
or set apart any sum for any such purpose. Notwithstanding the foregoing,
Borrower may purchase, redeem, retire, defease or otherwise acquire for
value any of its Equity Securities so long as both immediately before and
after such purchase, redemption or acquisition, no Default or Event of
Default shall have occurred and be continuing and Borrower is in
compliance with each of the financial covenants set forth in Subparagraph
5.02(l).
(g) Change in Business. Neither Borrower nor any of its Subsidiaries
shall engage, either directly or indirectly through Affiliates, in any
business substantially different from its present business; provided,
however, that Subsidiaries which are not Material Subsidiaries may operate
as holding companies or special tax purpose entities as may be necessary
for the overall operation of the business of Borrower and its
Subsidiaries, so long as the terms of this Agreement and the other Credit
Documents would not otherwise be violated.
(h) Indebtedness Payments, Etc. Neither Borrower nor any of its
Subsidiaries shall amend, modify or otherwise change any of the
subordination or other provisions of any document, instrument or agreement
evidencing Subordinated Debt in a manner which adversely affects the
material rights of the Agent and Lenders. Neither the Borrower nor any
Subsidiary shall purchase, redeem or prepay any Subordinated Debt, now or
hereafter outstanding, except for any de minimis redemption required in
connection with the conversion of any class of Subordinated Debt into
equity.
(i) ERISA. Neither Borrower nor any ERISA Affiliate shall (i) adopt
or institute any Employee Benefit Plan that is an employee pension benefit
plan within the meaning of Section 3(2) of ERISA, (ii) take any action
which will result in the partial or complete withdrawal, within the
meanings of sections 4203 and 4205 of ERISA, from a Multiemployer Plan,
(iii) engage or permit any Person to engage in any transaction prohibited
by section 406 of ERISA or section 4975 of the Code involving any Employee
Benefit Plan or Multiemployer Plan which would subject either Borrower or
any ERISA Affiliate to any tax, penalty or other liability including a
liability to indemnify, (iv) incur or allow to exist any accumulated
funding deficiency (within the meaning of section 412 of the Code or
section 302 of ERISA), (v) fail to make full payment when due of all
amounts due as contributions to any Employee Benefit Plan or Multiemployer
Plan, (vi) fail to comply with the requirements of section 4980B of the
Code or Part 6 of Title I(B) of ERISA, or (vii) adopt any amendment to any
Employee Benefit Plan which would require the posting of security pursuant
to section 401(a)(29) of the Code, where singly or cumulatively, the above
would have a Material Adverse Effect.
(j) Transactions With Affiliates. Neither Borrower nor any of its
Subsidiaries shall enter into any Contractual Obligation with any
Affiliate or engage in any other transaction with any Affiliate except
upon terms at least as favorable to Borrower or such Subsidiary as an
arms-length transaction with unaffiliated Persons.
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<PAGE> 56
(k) Accounting Changes. Neither Borrower nor any of its Subsidiaries
shall change (i) its fiscal year (currently July 1 through June 30) or
(ii) its accounting practices except as required by GAAP.
(l) Financial Covenants.
(i) Borrower shall not permit its Quick Ratio during any
period set forth below to be less than the ratio set forth opposite
such period below:
<TABLE>
<S> <C>
March 30, 1998 - December 27, 1998 1.50 to 1.00;
December 28, 1998 - June 30, 1999 1.35 to 1.00;
Thereafter 1.25 to 1.00.
</TABLE>
(ii) Borrower shall not permit its Debt Service Coverage Ratio
during any period set forth below to be less than the ratio set
forth opposite such period below:
<TABLE>
<S> <C>
December 28, 1998 - March 28, 1999 1.25 to 1.00;
March 29, 1999 - June 30, 1999 1.50 to 1.00;
July 1, 1999 - October 3, 1999 1.75 to 1.00;
October 4, 1999 - January 2, 2000 2.00 to 1.00;
January 3, 2000 - April 2, 2000 2.75 to 1.00;
Thereafter 3.00 to 1.00.
</TABLE>
(iii) Borrower shall not permit its Senior Indebtedness Ratio
during any period to be greater than 0.25 to 1.00.
(iv) Borrower shall not permit its Tangible Net Worth on any
date of determination (such date to be referred to herein as a
"determination date") which occurs after March 29, 1998 (such date
to be referred to herein as the "base date") to be less than the sum
on such determination date of the following:
(A) Ninety percent (90%) of Borrower's and its
Subsidiaries Tangible Net Worth as of March 29, 1998, as set
forth in the Financial Statements of Borrower and its
Subsidiaries for the fiscal quarter ending on March 29,
1998;
(B) Seventy-five percent (75%) of the sum of Borrower's
consolidated quarterly net income (ignoring any quarterly
losses) for each quarter ending after the base date through
and including the quarter ending immediately prior to the
determination date;
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<PAGE> 57
(C) One hundred percent (100%) of the Net Proceeds of
all Equity Securities issued by Borrower and its Subsidiaries
during the period commencing on the base date and ending on
the determination date; and
(D) One hundred percent (100%) of the aggregate decrease
in the total liabilities of Borrower and its Subsidiaries
resulting from conversions of convertible Subordinated
Indebtedness or other liabilities of Borrower and its
Subsidiaries into Equity Securities of Borrower and its
Subsidiaries during the period commencing on the base date and
ending on the determination date.
(v) Borrower shall not incur a cumulative net loss (exclusive
of net income) greater than $35,000,000, determined in accordance
with GAAP, for the period commencing on March 30, 1998 and ending on
December 31, 1998.
SECTION VI. DEFAULT.
6.01. Events of Default. The occurrence or existence of any one or more of
the following shall constitute an "Event of Default" hereunder:
(a) Borrower (i) shall fail to pay when due any principal or
interest on the Loans or any Reimbursement Payment or interest thereon or
(ii) shall fail to pay when due any other payment required under the terms
of this Agreement or any of the other Credit Documents and such failure
shall continue for five (5) Business Days after such other payment was
due; or
(b) Borrower or any of its Subsidiaries shall fail to observe or
perform any covenant, obligation, condition or agreement set forth in
Subparagraph 5.01(d) or Paragraph 5.02; or
(c) Borrower or any of its Subsidiaries shall fail to observe or
perform any other covenant, obligation, condition or agreement contained
in this Agreement or the other Credit Documents and such failure shall
continue for fifteen (15) days or, provided that Borrower or such
Subsidiary is making good faith efforts to cure such failure and such
failure can be cured within thirty (30) days, such failure shall continue
for thirty (30) days; or
(d) Any representation, warranty, certificate, information or other
statement (financial or otherwise) made or furnished by or on behalf of
Borrower or any of its Subsidiaries to Agent or any Lender in or in
connection with this Agreement or any of the other Credit Documents, or as
an inducement to Agent or any Lender to enter into this Agreement, shall
be false, incorrect, incomplete or misleading in any material respect when
made or furnished; or
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(e) Borrower or any of its Subsidiaries (i) shall fail to make any
payment when due under the terms of any bond, debenture, note or other
evidence of Indebtedness in an amount of $10,000,000 or more to be paid by
such Person (excluding this Agreement and the other Credit Documents but
including any other evidence of Indebtedness of Borrower or any of its
Subsidiaries to Agent or any Lender) and such failure shall continue
beyond any period of grace provided with respect thereto, or shall default
in the observance or performance of any other agreement, term or condition
contained in any such bond, debenture, note or other evidence of
Indebtedness, and the effect of such failure or default is to cause, or
permit the holder or holders thereof to cause such Indebtedness to become
due prior to its stated date of maturity, (ii) shall fail to pay on its
stated date of maturity Indebtedness in an amount of $10,000,000 or more
under any such bond, debenture, note or other evidence of Indebtedness and
such failure shall continue beyond any period of grace provided with
respect thereto, or (iii) there occurs any termination, liquidation,
unwind or similar event under any agreement or instrument relating to the
purchase of receivables of Borrower or its Subsidiaries and as a result
Borrower or such Subsidiary is required to repurchase sold receivables in
an amount of $10,000,000 or more; or
(f) Borrower or any of its Subsidiaries shall (i) apply for or
consent to the appointment of a receiver, trustee, liquidator or custodian
of itself or of all or a substantial part of its property, (ii) be unable,
or admit in writing its inability, to pay its debts generally as they
mature, (iii) make a general assignment for the benefit of its or any of
its creditors, (iv) be dissolved or liquidated in full or in part, (v)
become insolvent (as such term may be defined or interpreted under any
applicable statute), (vi) commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of
or taking possession of its property by any official in an involuntary
case or other proceeding commenced against it, or (vi) take any action for
the purpose of effecting any of the foregoing; or
(g) Proceedings for the appointment of a receiver, trustee,
liquidator or custodian of Borrower or any of its Subsidiaries or of all
or a substantial part of the property thereof, or an involuntary case or
other proceedings seeking liquidation, reorganization or other relief with
respect to Borrower or any of its Subsidiaries or the debts thereof under
any bankruptcy, insolvency or other similar law now or hereafter in effect
shall be commenced and an order for relief entered or such proceeding
shall not be dismissed or discharged within sixty (60) days of
commencement; or
(h) (i) A final judgment or order for the payment of money in excess
of $10,000,000 (exclusive of amounts covered by insurance issued by an
insurer not an Affiliate of Borrower and otherwise satisfying the
requirements set forth in Subparagraph 5.01(d)) shall be rendered against
Borrower or any of its Subsidiaries and the same shall remain undischarged
for a period of sixty (60) days during which execution shall not be
effectively stayed or (ii) any judgment, writ, assessment, warrant of
attachment, tax lien
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or execution or similar process shall be issued or levied against a
substantial part of the property of Borrower or any of its Subsidiaries
and such judgment, writ, or similar process shall not be released, stayed,
vacated or otherwise dismissed within sixty (60) days after issue or levy;
or
(i) Any Credit Document or any material term thereof shall cease to
be, or be asserted by Borrower or any of its Subsidiaries not to be, a
legal, valid and binding obligation of Borrower or any of its Subsidiaries
enforceable in accordance with its terms; or
(j) Any Reportable Event which constitutes grounds for the
termination of any Employee Benefit Plan by the PBGC or for the
appointment of a trustee by the PBGC to administer any Employee Benefit
Plan shall occur, or any Employee Benefit Plan shall be terminated within
the meaning of Title IV of ERISA or a trustee shall be appointed by the
PBGC to administer any Employee Benefit Plan; or
(k) A Change of Control shall occur. A "Change of Control" shall
mean (i) the acquisition of beneficial ownership by any "person" or
"group" (as defined in Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended) of a direct or indirect interest in more
than thirty-three percent (33%) of the voting power of the then
outstanding capital stock of the Borrower; or (ii) a merger or
consolidation of the Borrower with any other Person or the merger of any
other Person into the Borrower or any other transaction, as a result of
which the stockholders of the Borrower immediately prior to such
transaction own, in the aggregate, less than a majority of the voting
power of the outstanding capital stock of the surviving or resulting
entity; or (iii) the first day on which a majority of the members of the
Board of Directors of the Borrower are not Continuing Directors. A
"Continuing Director" shall mean any director of the Board of Directors of
the Borrower who is either (A) a member of such Board of Directors on the
Closing Date or (B) nominated or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members of
such Board of Directors at the time of such nomination or elections; or
(l) Any event(s) or condition(s) which is(are) reasonably likely to
have a Material Adverse Effect shall occur or exist.
6.02. Remedies. Upon the occurrence or existence of any Event of Default
(other than an Event of Default referred to in Subparagraph 6.01(f) or 6.01(g))
and at any time thereafter during the continuance of such Event of Default,
Agent may, with the consent of the Required Lenders, or shall, upon instructions
from the Required Lenders, by written notice to Borrower, (a) terminate the
Commitments and the obligations of the Lenders to make Loans and to participate
in Letters of Credit and of Issuing Bank to issue Letters of Credit, (b) declare
all outstanding Obligations payable by Borrower to be immediately due and
payable without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived, anything contained herein or in the
Notes to the contrary notwithstanding, and/or (c) direct Borrower to deliver to
Agent funds in an amount equal to the aggregate stated amount of
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all Letters of Credit. Borrower immediately shall deliver to Agent all funds
directed by Agent pursuant to clause (c) above, and Agent shall hold such funds
in an interest bearing account as collateral for the Obligations. Borrower
hereby grants to Agent, for the benefit of Agent and the Lenders, a security
interest in such funds and such account. Upon the occurrence or existence of any
Event of Default described in Subparagraph 6.01(f) or 6.01(g), immediately and
without notice, (1) the Commitments, the obligations of the Lenders to make
Loans and to participate in Letters of Credit, and of the Issuing Bank to issue
Letters of Credit shall automatically terminate and (2) all outstanding
Obligations payable by Borrower hereunder and an amount equal to the aggregate
stated amount of all outstanding Letters of Credit shall automatically become
immediately due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, anything contained
herein, in the Notes or in the Letters of Credit to the contrary
notwithstanding. In addition to the foregoing remedies, upon the occurrence or
existence of any Event of Default, Agent may, with the consent of the Required
Lenders, or shall, upon the instructions of the Required Lenders, exercise any
right, power or remedy permitted to it by law, either by suit in equity or by
action at law, or both. Immediately after taking any action under this Paragraph
6.02, Agent shall notify each Lender of such action.
SECTION VII. THE AGENT AND RELATIONS AMONG LENDERS.
7.01. Appointment, Powers and Immunities. Each Lender hereby appoints and
authorizes Agent to act as its agent hereunder and under the other Credit
Documents with such powers as are expressly delegated to Agent by the terms of
this Agreement and the other Credit Documents, together with such other powers
as are reasonably incidental thereto. Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement or in any
other Credit Document, be a trustee for any Lender or have any fiduciary duty to
any Lender. Notwithstanding anything to the contrary contained herein Agent
shall not be required to take any action which is contrary to this Agreement or
any other Credit Document or applicable law. Neither Agent nor any Lender shall
be responsible to any other Lender for any recitals, statements, representations
or warranties made by Borrower or any of its Subsidiaries contained in this
Agreement or in any other Credit Document, for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Credit Document or for any failure by Borrower or any of its
Subsidiaries to perform their respective obligations hereunder or thereunder.
Agent may employ agents and attorneys-in-fact and shall not be responsible to
any Lender for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Neither Agent nor any of
its directors, officers, employees, agents or advisors shall be responsible to
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Credit Document or in connection herewith or therewith,
except for its or their own gross negligence or willful misconduct. Except as
otherwise provided under this Agreement, Agent shall take such action with
respect to the Credit Documents as shall be directed by the Required Lenders.
7.02. Reliance by Agent. Agent shall be entitled to rely upon any
certificate, notice or other document (including any cable, telegram, facsimile
or telex) believed by it in good faith to be genuine and correct and to have
been signed or sent by or on behalf of the proper Person or Persons, and upon
advice and statements of legal counsel, independent accountants and other
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experts selected by Agent with reasonable care. As to any other matters not
expressly provided for by this Agreement, Agent shall not be required to take
any action or exercise any discretion, but shall be required to act or to
refrain from acting upon instructions of the Required Lenders and shall in all
cases be fully protected by the Lenders in acting, or in refraining from acting,
hereunder or under any other Credit Document in accordance with the instructions
of the Required Lenders, and such instructions of the Required Lenders and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders.
7.03. Defaults. Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default or Event of Default unless Agent has received a
notice from a Lender or Borrower, referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "Notice of
Default". If Agent receives such a notice of the occurrence of a Default or
Event of Default, Agent shall give prompt notice thereof to the Lenders. Agent
shall take such action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Lenders; provided, however, that until
Agent shall have received such directions, Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interest of
the Lenders.
7.04. Indemnification. Without limiting the Obligations of Borrower
hereunder, each Lender agrees to indemnify Agent, ratably in accordance with
their Proportionate Shares, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may at any time be imposed on, incurred
by or asserted against Agent in any way relating to or arising out of this
Agreement or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or the enforcement of any of the
terms hereof or thereof or of any such other documents; provided, however, that
no Lender shall be liable for any of the foregoing to the extent they arise from
Agent's gross negligence or willful misconduct. Agent shall be fully justified
in refusing to take or to continue to take any action hereunder unless it shall
first be indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The obligations of each Lender under this
Paragraph 7.04 shall survive the payment and performance of the Obligations, the
termination of this Agreement and any Lender ceasing to be a party to this
Agreement.
7.05. Non-Reliance. Each Lender represents that it has, independently and
without reliance on Agent, or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of the
financial condition and affairs of Borrower and the Subsidiaries and its own
decision to enter into this Agreement and agrees that it will, independently and
without reliance upon Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
appraisals and decisions in taking or not taking action under this Agreement.
Neither Agent nor any Lender shall be required to keep any other Lender informed
as to the performance or observance by Borrower or any of its Subsidiaries of
the obligations under this Agreement or any other document referred to or
provided for herein or to make inquiry of, or to inspect the
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properties or books of Borrower or any of its Subsidiaries. Except for notices,
reports and other documents and information expressly required to be furnished
to the Lenders by Agent hereunder, neither Agent nor any Lender shall have any
duty or responsibility to provide any Lender with any credit or other
information concerning Borrower or any of its Subsidiaries which may come into
the possession of Agent or such Lender or any of its or their Affiliates.
7.06. Resignation of Agent. Subject to the appointment and acceptance of a
successor Agent as provided below, Agent may resign at any time by giving notice
thereof to the Lenders. Upon any such resignation, the Required Lenders shall
have the right to appoint a successor Agent, which Agent shall be reasonably
acceptable to Borrower. If no successor Agent shall have been appointed by the
Required Lenders and shall have accepted such appointment within thirty (30)
days after the retiring Agent's giving of notice of resignation, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which
shall be a bank having a combined capital, surplus and retained earnings of not
less than U.S. $500,000,000 and which shall be reasonably acceptable to
Borrower; provided, however, that Borrower shall have no right to approve a
successor Agent which is a Lender if an Event of Default has occurred and is
continuing. Upon 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 and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Section VII shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Agent.
7.07. Authorization. Agent is hereby authorized by the Lenders to execute,
deliver and perform, each of the Credit Documents to which Agent is or is
intended to be a party and each Lender agrees to be bound by all of the
agreements of Agent contained in the Credit Documents.
7.08. Agent in its Individual Capacity. Agent and its Affiliates may make
loans to, accept deposits from and generally engage in any kind of business with
Borrower and its Subsidiaries and Affiliates as though Agent were not Agent
hereunder. With respect to Loans, if any, made by Agent in its capacity as a
Lender and Letters of Credit, if any, issued by Agent in its capacity as Issuing
Bank, Agent shall have the same rights and powers under this Agreement and the
other Credit Documents as any other Lender and as Issuing Bank and may exercise
the same as though it were not Agent, and the terms "Lender", "Lenders" and
"Issuing Bank" shall include Agent in its capacity as a Lender and as Issuing
Bank, respectively.
7.09. Documentation Agent. No Lender identified herein as a "documentation
agent" shall have any right, power, obligation, liability, responsibility or
duty under this Agreement or any other Credit Document other than those
applicable to all Lenders as such. Without limiting the foregoing, no Lender so
identified as a "documentation agent" shall have or be deemed to have any
fiduciary relationship with any Lender. Each Lender acknowledges that it has not
relied, and will not rely, on any Lender identified as "documentation agent" in
deciding to enter into this Agreement or in taking or not taking action
hereunder. Without limiting the generality of the foregoing, it is understood
and agreed that the "documentation agent" is not responsible
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for the validity, effectiveness, enforceability or sufficiency of this Agreement
or any other Credit Document.
SECTION VIII. MISCELLANEOUS.
8.01. Notices. Except as otherwise provided herein, all notices, requests,
demands, consents, instructions or other communications to or upon Borrower, any
Lender, Issuing Bank or Agent under this Agreement or the other Credit Documents
shall be in writing and faxed, mailed or delivered, if to Borrower, Agent or
Issuing Bank, at its respective facsimile number or address set forth below or,
if to any Lender, at the address or facsimile number specified beneath the
heading "Address for Notices" under the name of such Lender in Schedule I (or to
such other facsimile number or address for any party as indicated in any notice
given by that party to the other parties). All such notices and communications
shall be effective (a) when sent by Federal Express or other overnight service
of recognized standing, on the Business Day following the deposit with such
service; (b) when mailed, first class postage prepaid and addressed as aforesaid
through the United States Postal Service, upon receipt; (c) when delivered by
hand, upon delivery; and (d) when faxed, upon confirmation of receipt; provided,
however, that any notice delivered to Agent or Issuing Bank under Section II
shall not be effective until received by Agent or Issuing Bank.
Agent: ABN AMRO Bank N.V.
101 California Street, Suite 4550
San Francisco, CA 94111-5812
Attn: Robin S. Yim
Telephone: (415) 984-3710
Fax No: (415) 362-3524
with a copy to: ABN AMRO Bank N.V.
1325 Avenue of the Americas
New York, NY 10019
Attn: Linda Boardman
Telephone: (212) 314-1724
Fax No: (212) 314-1712
Issuing Bank: ABN AMRO Bank N.V.
101 California Street, Suite 4550
San Francisco, CA 94111-5812
Attn: Robin S. Yim
Telephone: (415) 984-3710
Fax No: (415) 362-3524
with a copy to: ABN AMRO Bank N.V.
1325 Avenue of the Americas
New York, NY 10019
Attn: Linda Boardman
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Telephone: (212) 314-1724
Fax No: (212) 314-1712
Borrower: Lam Research Corporation
4300 Cushing Parkway
Fremont, CA 94538-6517
Attn: Brian Sereda
Telephone: (510) 572-4888
Fax No: (510) 572-1586
Each Notice of Borrowing, Notice of Conversion, Notice of Interest Period
Selection and LC Application shall be given by Borrower to Agent, and in the
case of an LC Application, to Issuing Bank, as the case may be, to the office of
such Person located at the addresses referred to above during such Person's
normal business hours; provided, however, that any such notice received by any
such Person after 10:00 a.m. on any Business Day shall be deemed received by
such Person on the next Business Day. In any case where this Agreement
authorizes notices, requests, demands or other communications by Borrower to
Agent, Issuing Bank or any Lender to be made by telephone or facsimile, Agent,
Issuing Bank or any Lender may conclusively presume that anyone purporting to be
a person designated in any incumbency certificate or other similar document
received by Agent, Issuing Bank or a Lender is such a person.
8.02. Expenses. Borrower shall pay on demand, whether or not any Loan is
made or Letter of Credit is issued hereunder, (a) all reasonable fees and
expenses, including reasonable attorneys' fees and expenses, incurred by Agent
in connection with the preparation, negotiation, execution and delivery of, and
the exercise of its duties under, this Agreement and the other Credit Documents,
and the preparation, negotiation, execution and delivery of amendments and
waivers hereunder and thereunder and (b) all reasonable fees and expenses,
including reasonable attorneys' fees and expenses, incurred by Agent and the
Lenders in the enforcement or attempted enforcement of any of the Obligations or
in preserving any of Agent's or the Lenders' rights and remedies (including,
without limitation, all such fees and expenses incurred in connection with any
"workout" or restructuring affecting the Credit Documents or the Obligations or
any bankruptcy or similar proceeding involving Borrower or any of its
Subsidiaries). As used in this Agreement and the other Credit Documents, the
term "reasonable attorneys' fees and expenses" shall include, without
limitation, allocable costs and expenses of Agent's and Lenders' in-house legal
counsel and staff. The obligations of Borrower under this Paragraph 8.02 shall
survive the payment and performance of the Obligations and the termination of
this Agreement.
8.03. Indemnification. To the fullest extent permitted by law, Borrower
agrees to protect, indemnify, defend and hold harmless Agent, the Lenders and
their Affiliates and their respective directors, officers, employees, agents and
advisors ("Indemnitees") from and against any and all liabilities, losses,
damages or expenses of any kind or nature and from any suits, claims or demands
(including in respect of or for reasonable attorney's fees and other expenses)
arising on account of or in connection with any matter or thing or action or
failure to act by Indemnitees, or any of them, arising out of or relating to the
Credit Documents or any transaction contemplated thereby, including without
limitation any use by Borrower of any proceeds of the
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Loans or any Letter of Credit, except to the extent such liability arises from
the willful misconduct or gross negligence of such Indemnitee. Upon receiving
knowledge of any suit, claim or demand asserted by a third party that Agent or
any Lender believes is covered by this indemnity, Agent or such Lender shall
give Borrower notice of the matter and an opportunity to defend it, at
Borrower's sole cost and expense, with legal counsel reasonably satisfactory to
Agent or such Lender, as the case may be. Agent or such Lender may also require
Borrower to defend the matter. Any failure or delay of Agent or any Lender to
notify Borrower of any such suit, claim or demand shall not relieve Borrower of
its obligations under this Paragraph 8.03 but shall reduce such obligations to
the extent of any increase in those obligations caused solely by any such
failure or delay which is unreasonable. The obligations of Borrower under this
Paragraph 8.03 shall survive the payment and performance of the Obligations and
the termination of this Agreement.
8.04. Waivers; Amendments. Any term, covenant, agreement or condition of
this Agreement or any other Credit Document may be amended or waived if such
amendment or waiver is in writing and is signed by Borrower and the Required
Lenders; provided, however that:
(a) Any amendment, waiver or consent which (i) increases the Total
Commitment or the LC Commitment, (ii) extends the Maturity Date, (iii)
reduces the principal of or interest on any Loan or Reimbursement
Obligation or any fees or other amounts payable for the account of the
Lenders hereunder, (iv) postpones any date fixed for any payment of the
principal of or interest on any Loans or Reimbursement Obligations or any
fees or other amounts payable for the account of the Lenders hereunder or
thereunder, (v) amends this Paragraph 8.04, or (vi) amends the definition
of Required Lenders, must be in writing and signed or approved in writing
by all Lenders;
(b) Any amendment, waiver or consent which increases the LC
Commitment or otherwise affects the rights or obligations of the Issuing
Bank must be signed by the Issuing Bank;
(c) Any amendment, waiver or consent which increases or decreases
the Proportionate Share of any Lender must be in writing and signed by
such Lender; and
(d) Any amendment, waiver or consent which affects the rights or
obligations of Agent must be in writing and signed by Agent.
No failure or delay by Agent or any Lender in exercising any right hereunder
shall operate as a waiver thereof or of any other right nor shall any single or
partial exercise of any such right preclude any other further exercise thereof
or of any other right. Unless otherwise specified in such waiver or consent, a
waiver or consent given hereunder shall be effective only in the specific
instance and for the specific purpose for which given.
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8.05. Successors and Assigns.
(a) Binding Effect. This Agreement and the other Credit Documents
shall be binding upon and inure to the benefit of Borrower, the Lenders,
Agent, all future holders of the Notes and their respective successors and
permitted assigns, except that Borrower may not assign or transfer any of
its rights or obligations under any Credit Document without the prior
written consent of Agent and each Lender. All references in this Agreement
to any Person shall be deemed to include all successors and assigns of
such Person.
(b) Participations. Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable law, at any
time sell to one or more banks or other financial institutions
("Participants") participating interests in any Loan owing to such Lender,
any Note held by such Lender, any Commitment of such Lender or any other
interest of such Lender under this Agreement and the other Credit
Documents; provided, however, that unless such sale is to an Affiliate of
such Lender, (i) no Lender may sell a participating interest in its Loans
or Commitment in a principal amount of less than Five Million Dollars
($5,000,000), and (ii) each Lender shall retain an interest in its Loans
or Commitment which is not participated in a minimum principal amount of
Five Million Dollars ($5,000,000). In the event of any such sale by a
Lender of participating interests to a Participant, such Lender's
obligations under this Agreement to the other parties to this Agreement
shall remain unchanged, such Lender shall remain solely responsible for
the performance thereof, such Lender shall remain the holder of any such
Note for all purposes under this Agreement and Borrower and Agent shall
continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement; provided,
however, that any agreement pursuant to which any Lender sells a
participating interest to a Participant may require the selling Lender to
obtain the consent of such Participant in order for such Lender to agree
in writing to any amendment of a type specified in clause (i), (ii), (iii)
or (iv) of Subparagraph 8.04(a). Borrower agrees that if amounts
outstanding under this Agreement and the other Credit Documents are due
and unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant
shall, to the fullest extent permitted by law, be deemed to have the right
of setoff in respect of its participating interest in amounts owing under
this Agreement and any other Credit Documents to the same extent as if the
amount of its participating interest were owing directly to it as a Lender
under this Agreement or any other Credit Documents; provided, however,
that (i) no Participant shall exercise any rights under this sentence
without the consent of Agent, (ii) no Participant shall have any rights
under this sentence which are greater than those of the selling Lender and
(iii) such rights of setoff shall be subject to the obligation of such
Participant to share with the Lenders, and the Lenders agree to share with
such Participant, as provided in Subparagraph 2.09(b). Borrower also
agrees that any Lender which has transferred all or part of its interests
in the Commitments and the Loans to one or more Participants shall,
notwithstanding any such transfer, be entitled to the full benefits
accorded such Lender
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under Paragraph 2.10, Paragraph 2.11, and Paragraph 2.12, as if such
Lender had not made such transfer.
(c) Assignments. Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable law, at any
time, sell and assign to any Lender, any Affiliate of a Lender or any
other bank or financial institution (individually, an "Assignee Lender")
all or a portion of its rights and obligations under this Agreement and
the other Credit Documents (such a sale and assignment to be referred to
herein as an "Assignment") pursuant to an assignment agreement in the form
of Exhibit E (an "Assignment Agreement"), executed by each Assignee Lender
and such assignor Lender (an "Assignor Lender") and delivered to Agent for
its acceptance and recording in the Register; provided, however, that
(i) Without the written consent of Borrower, Issuing Bank and
Agent (which consent of Borrower, Issuing Bank and Agent shall not
be unreasonably withheld), no Lender may make any Assignment to any
Assignee Lender which is not, immediately prior to such Assignment,
a Lender hereunder or an Affiliate thereof; or
(ii) Without the written consent of Borrower and Agent (which
consent of Borrower and Agent shall not be unreasonably withheld),
no Lender may make any Assignment to any Assignee Lender if, after
giving effect to such Assignment, the Commitment of such Lender or
such Assignee Lender would be less than Ten Million Dollars
($10,000,000) (except that a Lender may make an Assignment which
reduces its Commitment to zero without the written consent of
Borrower and Agent if such assignment would otherwise be permitted
under this Subparagraph 8.05(c)); or
(iii) Without the written consent of Borrower, Issuing Bank
and Agent (which consent of Borrower, Issuing Bank and Agent shall
not be unreasonably withheld), no Lender may make any Assignment
which does not assign and delegate an equal pro rata interest in
such Lender's Loans, Commitments and all other rights, duties and
obligations of such Lender under this Agreement and the other Credit
Documents.
Upon such execution, delivery, acceptance and recording of each Assignment
Agreement, from and after the Assignment Effective Date determined
pursuant to such Assignment Agreement, (A) each Assignee Lender thereunder
shall be a Lender hereunder with a Proportionate Share as set forth on
Attachment 1 to such Assignment Agreement and shall have the rights,
duties and obligations of such a Lender under this Agreement and the other
Credit Documents, and (B) the Assignor Lender thereunder shall be a Lender
with a Proportionate Share as set forth on Attachment 1 to such Assignment
Agreement, or, if the Proportionate Share of the Assignor Lender has been
reduced to 0%, the Assignor Lender shall cease to be a Lender; provided,
however, that any such Assignor Lender which ceases to be a Lender shall
continue to be entitled to the benefits of any
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provision of this Agreement which by its terms survives the termination of
this Agreement. Each Assignment Agreement shall be deemed to amend
Schedule I to the extent, and only to the extent, necessary to reflect the
addition of each Assignee Lender, the deletion of each Assignor Lender
which reduces its Proportionate Share to 0% and the resulting adjustment
of Proportionate Shares arising from the purchase by each Assignee Lender
of all or a portion of the rights and obligations of an Assignor Lender
under this Agreement and the other Credit Documents. On or prior to the
Assignment Effective Date determined pursuant to each Assignment
Agreement, Borrower, at its own expense, shall execute and deliver to
Agent, in exchange for the surrendered Note of the Assignor Lender
thereunder, a new Note to the order of each Assignee Lender thereunder
(with each new Note to be in an amount equal to the Commitment assumed by
such Assignee Lender) and, if the Assignor Lender is continuing as a
Lender hereunder, a new Note to the order of the Assignor Lender (with the
new Note to be in an amount equal to the Commitment retained by it). Each
such new Note shall be dated the Closing Date and shall otherwise be in
the form of the Note replaced thereby. The Notes surrendered by the
Assignor Lender shall be returned by Agent to Borrower marked "replaced".
Each Assignee Lender which was not previously a Lender hereunder and which
is not incorporated under the laws of the United States of America or a
state thereof shall, within three (3) Business Days of becoming a Lender,
deliver to Borrower and Agent two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 (or successor applicable form),
as the case may be, certifying in each case that such Lender is entitled
to receive payments under this Agreement without deduction or withholding
of any United States federal income taxes.
(d) Register. Agent shall maintain at its address referred to in
Paragraph 8.01 a copy of each Assignment Agreement delivered to it and a
register (the "Register") for the recordation of the names and addresses
of the Lenders and the Proportionate Shares of each Lender from time to
time. The entries in the Register shall be conclusive in the absence of
manifest error, and Borrower, Agent and the Lenders may treat each Person
whose name is recorded in the Register as the owner of the Loans recorded
therein for all purposes of this Agreement. The Register shall be
available for inspection by Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(e) Registration. Upon its receipt of an Assignment Agreement
executed by an Assignor Lender and an Assignee Lender (and, to the extent
required by Subparagraph 8.05(c), by Borrower, Agent and Issuing Bank)
together with payment to Agent by Assignor Lender of a registration and
processing fee of $2,500, Agent shall (i) promptly accept such Assignment
Agreement and (ii) on the Effective Date determined pursuant thereto
record the information contained therein in the Register and give notice
of such acceptance and recordation to the Lenders and Borrower. Agent may,
from time to time at its election, prepare and deliver to the Lenders and
Borrower a revised Schedule I reflecting the names, addresses and
respective Proportionate Shares of all Lenders then parties hereto.
I-64
<PAGE> 69
(f) Confidentiality. Agent and each Lender agree to take and to
cause its Affiliates to take normal and reasonable precautions and
exercise due care to maintain the confidentiality of all information
identified as "confidential" or "secret" by Borrower and provided to it by
the Borrower or any Subsidiary, or by Agent on the Borrower's or such
Subsidiary's behalf, under this Agreement or any other Loan Document, and
neither it nor any of its Affiliates shall use any such information other
than in connection with or in enforcement of this Agreement and the other
Loan Documents or in connection with other business now or hereafter
existing or contemplated with Borrower or any Subsidiary, except to the
extent such information (i) was or becomes generally available to the
public other than as a result of disclosure by Agent or such Lender, or
(ii) was or becomes available on a non-confidential basis from a source
other than Borrower, provided that such source is not bound by a
confidentiality agreement with the Borrower known to Agent or such Lender;
provided, however, that Agent or any Lender may disclose such information
(A) at the request or pursuant to any requirement of any Governmental
Authority to which Agent or such Lender is subject or in connection with
an examination of Agent or such Lender by any such authority; (B) pursuant
to subpoena or other court process; (C) when required to do so in
accordance with the provisions of any applicable Requirement of Law; (D)
to the extent reasonably required in connection with any litigation or
proceeding to which Agent, any Lender or their respective Affiliates may
be party; (E) to the extent reasonably required in connection with the
exercise of any remedy hereunder or under any other Loan Document; (F) to
Agent or such Lender's independent auditors and other professional
advisors; (G) to any Participant or Assignee, actual or potential,
provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Lenders hereunder; (H) as
to Agent, any Lender or and of their respective Affiliates, as expressly
permitted under the terms of any other document or agreement regarding
confidentiality to which Borrower or any Subsidiary is party or is deemed
party with Agent, such Lender or such Affiliate; and (I) to its
Affiliates.
(g) Notwithstanding any other provision of this Agreement, any
Lender 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 the
other Credit Documents in favor of any Federal Reserve Bank in accordance
with (i) Regulation A of the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its principal
functions or (ii) 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.
8.06. Setoff. In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, with the prior consent of
Agent but without prior notice to or consent of Borrower, any such notice and
consent being expressly waived by Borrower to the extent permitted by applicable
law, upon the occurrence and during the continuance of an Event of Default, to
set-off and apply against the Obligations, whether matured or unmatured, any
amount owing from such Lender to Borrower, at or at any time after, the
occurrence of such Event of Default. The aforesaid right of set-off may be
exercised by such Lender against
I-65
<PAGE> 70
Borrower or against any trustee in bankruptcy, debtor in possession, assignee
for the benefit of creditors, receiver or execution, judgment or attachment
creditor of Borrower or against anyone else claiming through or against Borrower
or such trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, receiver, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off shall not have been
exercised by such Lender prior to the occurrence of a Default or an Event of
Default. Each Lender agrees promptly to notify Borrower after any such set-off
and application made by such Lender, provided that the failure to give such
notice shall not affect the validity of such set-off and application.
8.07. No Third Party Rights. Nothing expressed in or to be implied from
this Agreement is intended to give, or shall be construed to give, any Person,
other than the parties hereto and their permitted successors and assigns
hereunder, any benefit or legal or equitable right, remedy or claim under or by
virtue of this Agreement or under or by virtue of any provision herein.
8.08. Partial Invalidity. If at any time any provision of this Agreement
is or becomes illegal, invalid or unenforceable in any respect under the law or
any jurisdiction, neither the legality, validity or enforceability of the
remaining provisions of this Agreement nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.
8.09. Choice of Venue, Waiver of Jury Trial. EACH OF BORROWER, THE LENDERS
AND AGENT AGREE AND INTEND THAT THE PROPER AND EXCLUSIVE FORUM FOR ANY
LITIGATION OF ANY DISPUTES OR CONTROVERSIES ARISING OUT OF OR RELATED TO THE
LOAN DOCUMENTS SHALL BE THE SUPERIOR COURTS OF THE STATE OF CALIFORNIA OR OF THE
UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA. EACH OF BORROWER, THE
LENDERS AND AGENT, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN
ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY CREDIT
DOCUMENT.
8.10.
I-66
<PAGE> 71
Counterparts. This Agreement may be executed in any number of identical
counterparts, any set of which signed by all the parties hereto shall be deemed
to constitute a complete, executed original for all purposes.
[The first signature page follows.]
I-67
<PAGE> 72
IN WITNESS WHEREOF, Borrower, the Lenders and Agent have caused this
Agreement to be executed as of the day and year first above written.
BORROWER: LAM RESEARCH CORPORATION
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
AGENT: ABN AMRO BANK N.V.,
San Francisco International Branch,
as Agent
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
I-68
<PAGE> 73
DOCUMENTATION AGENT: DEUTSCHE BANK AG NEW YORK BRANCH,
as documentation agent
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
LENDERS: ABN AMRO BANK N.V.,
San Francisco International Branch,
as a Lender and as Issuing Bank
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as a Lender
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
I-69
<PAGE> 74
THE INDUSTRIAL BANK OF JAPAN, LIMITED, as
a Lender
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
BANKBOSTON, N.A.
as a Lender
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
UNION BANK OF CALIFORNIA, N.A.,
as a Lender
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
I-70
<PAGE> 75
DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN
ISLANDS BRANCHES
as a Lender
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
I-71
<PAGE> 76
SCHEDULE I
LENDERS
<TABLE>
<CAPTION>
Lenders Proportional Share
------- ------------------
<S> <C>
ABN AMRO BANK N.V. 17.50000000%
Applicable Lending Office:
ABN AMRO Bank N.V.
San Francisco International Branch
101 California Street, Suite 4550
San Francisco, CA 94111-5812
Attn: Robin S. Yim
Telephone: (415) 984-3712
Facsimile: (415) 362-3524
Addresses for Notices:
ABN AMRO Bank N.V.
San Francisco International Branch
101 California Street, Suite 4550
San Francisco, CA 94111-5812
Attn: Robin S. Yim
Telephone: (415) 984-3712
Facsimile: (415) 362-3524
ABN AMRO Bank N.V.
1325 Avenue of the Americas
New York, NY 10019
Attn: Linda Boardman
Telephone: (212) 314-1724
Facsimile: (212) 314-1712
Wiring Instructions:
(VIA CHIPS)
ABN AMRO Bank N.V., New York Branch
1325 Avenue of the Americas
New York, NY 10019
ABA #: 958
For further credit to:
</TABLE>
I-1
<PAGE> 77
<TABLE>
<CAPTION>
Lenders Proportional Share
------- ------------------
<S> <C>
ABN AMRO San Francisco
Account #: 650-001-0789-41
Reference: Lam Research
(VIA FED)
Federal Reserve Bank of New York
For Account:
ABN AMRO Bank N.V., New York Branch
Fed. Routing #: 026009580
1325 Avenue of the Americas
New York, NY 10019
For further credit to:
ABN AMRO San Francisco
Account #: 650-001-0789-41
Reference: Lam Research
</TABLE>
I-2
<PAGE> 78
<TABLE>
<CAPTION>
Lenders Proportional Share
------- ------------------
<S> <C>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION 16.25000000%
Applicable Lending Office:
Bank of America National Trust
and Savings Association
1850 Gateway Boulevard, 3RD Floor
Concord, CA 94520
Attn: John Sanchez
Telephone: (925) 675-7331
Facsimile: (925) 603-7256
Addresses for Notices:
Periodic Reports:
Bank of America National Trust
and Savings Association
Credit Products - High Tech-SF #3697
555 California Street, 41st Floor
San Francisco, CA 94104
Attn: Brian Chin
Telephone: (415) 622-4567
Facsimile: (415) 622-4057
Operational Matters:
Bank of America National Trust
and Savings Association
1850 Gateway Boulevard, 4th Floor
Concord, CA 94520
Attn: John Sanchez
Telephone: (925) 675-7331
Facsimile: (925) 603-7256
Wiring Instructions:
Bank of America National Trust
and Savings Association
San Francisco, CA
ABA #: 121000358
Account #: 12331-83980
</TABLE>
I-3
<PAGE> 79
<TABLE>
<CAPTION>
Lenders Proportional Share
------- ------------------
<S> <C>
BANKBOSTON, N.A. 16.25000000%
BankBoston, N.A.
435 Tasso Street
Palo Alto, CA 94301
Attn: Lee Merkle-Raymond
Telephone: (650) 853-0370
Facsimile: (650) 853-1425
Addresses for Notices:
Periodic Reports:
BankBoston, N.A.
435 Tasso Street
Palo Alto, CA 94301
Attn: Lee Merkle-Raymond
Telephone: (650) 853-0370
Facsimile: (650) 853-1425
Operational Matters:
BankBoston, N.A.
100 Federal Street
Boston, MA 02110
Attn: Anthony Dunn
Telephone: (617) 434-9625
Facsimile: (617) 434-9820
Wiring Instructions:
BankBoston, N.A.
Boston, MA
ABA #: 011-000-390
Account #: 543-99647
Attn: Comml Loan SVC Adm 50 High
Tech
Reference: Lam Research Corp.
</TABLE>
I-4
<PAGE> 80
<TABLE>
<CAPTION>
Lenders Proportional Share
------- ------------------
<S> <C>
UNION BANK OF CALIFORNIA, N.A. 16.25000000%
Applicable Lending Office:
Union Bank of California, N.A.
350 California Street, 6th Floor
San Francisco, CA 94104
Attn: Glenn Leyrer
Telephone: (415) 705-7578
Facsimile: (415) 705-5093
Addresses for Notices:
Periodic Reports:
Union Bank of California, N.A.
350 California Street, 6th Floor
San Francisco, CA 94104
Attn: Glenn Leyrer
Telephone: (415) 705-7578
Facsimile: (415) 705-5093
Operational Matters: (For
Domestic/Eurodollar Lending)
Union Bank of California, N.A.
1980 Saturn Street
Monterey Park, CA 91755
Attn: Maria Flores
Telephone: (213) 720-2679
Facsimile: (213) 724-6198
Bank up Contact:
Maria Suncin
Telephone: (213) 720-7050
Facsimile: (213) 720-2252
</TABLE>
I-5
<PAGE> 81
<TABLE>
<S> <C>
Wiring Instructions:
Union Bank of California - L.A.
1980 Saturn Street
Monterey Park, CA 91755
ABA #: 120-000-496
Account #: 070-196431
Account Name: Wire Transfer
Clearing
Attn: 192 - Note Center CLO
Reference: LAM RESEARCH
</TABLE>
I-6
<PAGE> 82
<TABLE>
<CAPTION>
Lenders Proportional Share
------- ------------------
<S> <C>
DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN 17.50000000%
ISLANDS BRANCHES
Applicable Lending Office:
Deutsche Bank AG
31 West 52nd Street
New York, NY 10019
Attn: Nancy Zorn
Telephone: (212) 469-4112
Facsimile: (212) 469-4139
Backup Operations: Lynn Sweeny
Telephone: (212) 469-4098
Facsimile: (212) 469-4139
Addresses for Notices:
Deutsche Bank AG
800 Oak Grove Suite 210
Menlo Park, CA 94025
Attn: Olaf Janke
Telephone: (650) 614-1145
Facsimile: (650) 614-1101
Wiring Instructions:
Deutsche Bank AG New York Branch
ABA #: 026003780
Reference: Lam Research
Attention: Nancy Zorn
</TABLE>
I-7
<PAGE> 83
<TABLE>
<CAPTION>
Lenders Proportional Share
------- ------------------
<S> <C>
THE INDUSTRIAL BANK OF JAPAN, LIMITED 16.25000000%
Applicable Lending Office:
The Industrial Bank of Japan,
Limited
San Francisco Agency
555 California Street, Suite 3110
San Francisco, CA 94104
Attn: Greg Stewart
Telephone: (415) 693-1824
Facsimile: (415) 982-1917
Addresses for Notices:
The Industrial Bank of Japan,
Limited
San Francisco Agency
555 California Street, Suite 3110
San Francisco, CA 94104
Attn: Debbie Rajkumar
Telephone: (415) 693-1830
Facsimile: (415) 982-1917
Telex: 49608738
Answerback: IBJSFO
Wiring Instructions:
Bank of America NT & SA
International Deposit Services 6561
1850 Gateway Boulevard
Concord, CA 94520
ABA #: 121-000-358
Account: The Industrial Bank of
Japan
Account #: 62906-14014
"For Credit to IBJ SFA, A/C
2601-22011
</TABLE>
I-8
<PAGE> 84
SCHEDULE 1.01(a)
PRICING GRID
<TABLE>
<CAPTION>
LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4
------- ------- ------- -------
<S> <C> <C> <C> <C>
APPLICABLE MARGINS:
Base Rate Loans 0.00% 0.00% 0.00% 0.00%
LIBOR Loans 0.45% 0.55% 0.65% 0.75%
COMMITMENT FEE
PERCENTAGE: 0.20% 0.225% 0.225% 0.25%
LC USAGE FEE PERCENTAGE:
Non-Financial Performance
Letters of Credit 0.225%* 0.275%* 0.325%* 0.375%*
Financial Performance
Letters of Credit 0.45%* 0.55%* 0.65%* 0.75%*
</TABLE>
* Does not include LC Issuance Fees payable to Issuing Bank
EXPLANATION
1. The Applicable Margin for each Borrowing and Loan, the Commitment Fee
Percentage, and the LC Usage Fee Percentage will be determined as provided
below and will vary depending upon whether Level 1 pricing, Level 2
pricing, Level 3 pricing or Level 4 pricing is applicable.
2. From the Closing Date until the date that either Paragraph 3 or Paragraph
4 below is applicable, Level 2 pricing shall apply.
3. At all times that Paragraph 4 does not apply, commencing on the fifteenth
day following the date Borrower is first required to deliver the Financial
Statements and information under Subparagraphs 5.01(a)(i), (iii) and (iv)
of the Credit Agreement, pricing will vary depending upon Borrower's
Senior Indebtedness Ratio as set forth in such Financial Statements and
information and/or Borrower's Debt Rating:
(a) If Borrower's Debt Ratings are at least BBB- from S&P and Baa3
from Moody's, Level 1 pricing will apply; provided, however, that
if the Debt Ratings established by S&P and Moody's fall within
different rating levels and one of the Borrower's Debt Ratings is
at least BBB- from S&P or Baa3 from Moody's but the lower of the
two Debt Ratings is only one level below BBB- from S&P and Baa3 from
1.01(a)-1
<PAGE> 85
Moody's, Level 1 pricing will still apply; provided, further, that
if the Debt Ratings established by S&P and Moody's fall within
different rating levels and one of the Borrower's Debt Ratings is at
least BBB- from S&P or Baa3 from Moody's but the lower of the two
Debt Ratings is more than one level below the higher of such Debt
Ratings, the Applicable Margin for each Borrowing and Loan, the
Commitment Fee Percentage, and the LC Usage Fee Percentage will be
determined as provided in paragraphs (b), (c) and (d) below.
(b) If the Senior Indebtedness Ratio is less than 0.175, Level 2 pricing
will apply.
(c) If the Senior Indebtedness Ratio is equal to or greater than 0.175
but less than or equal to 0.25, Level 3 pricing will apply.
(d) If the Senior Indebtedness Ratio is greater than 0.25, Level 4
pricing will apply.
4. On and after the fifteenth day following the Borrower's failure to deliver
to Agent the Financial Statements and information required under
Subparagraphs 5.01(a)(i) and (iii) of the Credit Agreement within the time
periods set forth therein, and until the fifteenth day following receipt
by Agent of such Financial Statements and information (at which time
Paragraph 3 above will apply), Level 4 pricing will apply.
5. Examples:
(a) If Borrower's Debt Ratings are BBB- from S&P and Baa3 from Moody's,
Level 1 pricing will apply.
(b) If Borrower's Debt Ratings are BBB- from S&P and Ba2 from Moody's,
Level 2, Level 3 or Level 4 will apply depending on Borrower's
Senior Indebtedness Ratio for the applicable fiscal quarter.
(c) The Senior Indebtedness Ratio for the fiscal quarter ending
September 30, 1998 is 0.14. Assuming the Financial Statements and
information are delivered within the time periods required under the
Credit Agreement, commencing December 6, 1998, Level 2
pricing will apply.
(d) The Senior Indebtedness Ratio for the fiscal quarter ending
December 31, 1998 is 0.18. Assuming the Financial Statements and
information are delivered within the time periods set forth in the
Credit Agreement, commencing March 6, 1999, Level 3 pricing will
apply.
1.01(a)-2
<PAGE> 86
SCHEDULE 3.01
INITIAL CONDITIONS PRECEDENT
A. Principal Credit Documents.
(1) The Credit Agreement, duly executed by Borrower, each Lender and
each Agent; and
(2) A Note payable to each Lender, each duly executed by Borrower.
B. Borrower Corporate Documents.
(1) The Certificate or Articles of Incorporation of Borrower,
certified as of a recent date prior to the Closing Date by the Secretary
of State (or comparable official) of its jurisdiction of incorporation;
(2) A Certificate of Good Standing including tax good standing (or
comparable certificate) for Borrower, certified as of a recent date prior
to the Closing Date by the Secretary of State (or comparable official) of
its jurisdiction of incorporation;
(3) A certificate of the Secretary or an Assistant Secretary of
Borrower, dated the Closing Date, certifying (a) that attached thereto is
a true and correct copy of the Bylaws of Borrower as in effect on the
Closing Date; (b) that attached thereto are true and correct copies of
resolutions duly adopted by the Board of Directors of Borrower and
continuing in effect, which authorize the execution, delivery and
performance by Borrower of this Agreement and the other Credit Documents
executed or to be executed by Borrower and the consummation of the
transactions contemplated hereby and thereby; and (c) that there are no
proceedings for the dissolution or liquidation of Borrower;
(4) A certificate of the Secretary or an Assistant Secretary of
Borrower, dated the Closing Date, certifying the incumbency, signatures
and authority of the officers of Borrower authorized to execute, deliver
and perform this Agreement, the other Credit Documents and all other
documents, instruments or agreements related thereto executed or to be
executed by Borrower; and
(5) Certificates of Good Standing (including tax good standing for
California) (or comparable certificates) for Borrower, certified as of a
recent date prior to the Closing Date by the Secretaries of State (or
comparable official) of California and Massachusetts; provided, however,
that the Massachusetts Good Standing Certificate need only be delivered on
the earlier to occur of (i) the date of the initial Borrowing under this
Agreement or (ii) thirty (30) days after the Closing Date.
3.01-1
<PAGE> 87
C. Financial Statements, Financial Condition, etc.
(1) A copy of the audited consolidated Financial Statements of
Borrower for the fiscal year ended June 30, 1997 prepared by Ernst & Young
and a copy of the unqualified opinion delivered by such accountants in
connection with such Financial Statements;
(2) A copy of the 10-Q report filed by Borrower with the Securities
and Exchange Commission for the quarter ended December 31, 1997;
(3) A copy of the 10-K report filed by Borrower with the Securities
and Exchange Commission for the fiscal year ended June 30, 1997;
(4) A certificate of the chief executive officer, president, chief
financial officer or treasurer of Borrower, dated the Closing Date,
certifying that attached thereto is a true and correct copy of the Cash
Investment Guidelines of Borrower as in effect on the Closing Date; and
(5) Such other financial, business and other information regarding
Borrower, or any of its Subsidiaries as Agent may reasonably request,
including information as to possible contingent liabilities, tax matters,
environmental matters and obligations for employee benefits and
compensation.
D. Opinions. Favorable written opinions from each of the following counsel for
Borrower, each dated the Closing Date, addressed to Agent and the Lenders,
covering such legal matters as Agent may reasonably request and otherwise in
form and substance satisfactory to Agent:
(1) Steve Debenham, in-house counsel for Borrower and its
Subsidiaries; and
(2) Jackson, Tufts, Cole & Black, outside counsel for Borrower and
its Subsidiaries.
E. Other Items.
(1) Evidence satisfactory to the Agent that (a) if applicable, the
proceeds of the initial Loans to be made on the Closing Date will be used
to satisfy all outstanding indebtedness of Borrower under the Prior Credit
Agreement and (b) that the Prior Credit Agreement is terminated;
(2) A certificate of the chief executive officer, president, chief
financial officer or treasurer of Borrower, addressed to Agent and dated
the Closing Date, certifying that:
(a) The representations and warranties set forth in Paragraph
4.01 and in the other Credit Documents are true and correct in all
material respects as of such date (except for such representations
and warranties made as of a specified date, which shall be true as
of such date); and
3.01-2
<PAGE> 88
(b) No Event of Default or Default has occurred and is
continuing as of such date;
(3) All fees and expenses payable to Agent and the Lenders on or
prior to the Closing Date (including all fees payable to Agent pursuant to
the Agent's Fee Letter);
(4) All fees and expenses of Agent's counsel through the Closing
Date;
(5) Such Uniform Commercial Code termination statements
(appropriately completed and executed) for filing in such jurisdictions as
Agent may request to terminate any financing statement evidencing Liens of
other Persons, except for any such prior Liens which are expressly
permitted by the Credit Agreement to be prior; provided, however, that
evidence of such filed Uniform Commercial Code termination statements need
only be delivered on the earlier to occur of (i) the date of the initial
Borrowing under this Agreement or (ii) thirty (30) days after the Closing
Date; and
(6) Such other evidence as Agent or any Lender may reasonably
request to establish the accuracy and completeness of the representations
and warranties and the compliance with the terms and conditions contained
in this Agreement and the other Credit Documents.
3.01-3
<PAGE> 89
SCHEDULE 4.01(q)
SUBSIDIARIES
[To be provided by Borrower]
4.01(q)-1
<PAGE> 90
SCHEDULE 5.02(a)
PERMITTED INDEBTEDNESS
[To be provided by Borrower]
5.02(a)-1
<PAGE> 91
SCHEDULE 5.02(e)
PERMITTED LIENS
[To be provided by Borrower]
5.02(e)-1
<PAGE> 92
EXHIBIT A
NOTICE OF BORROWING
[Date]
ABN AMRO Bank N.V.,
as Agent
101 California Street, Suite 4550
San Francisco, CA 94111-5812
Attn: Robert N. Hartinger
1. Reference is made to that certain Credit Agreement, dated as of April
13, 1998 (the "Credit Agreement"), among Lam Research Corporation ("Borrower"),
the financial institutions listed in Schedule I to the Credit Agreement (the
"Lenders") and ABN AMRO Bank N.V., as agent for the Lenders (in such capacity,
"Agent"). Unless otherwise indicated, all terms defined in the Credit Agreement
have the same respective meanings when used herein.
2. Pursuant to Subparagraph 2.01(b) of the Credit Agreement, Borrower
hereby irrevocably requests a Borrowing upon the following terms:
(a) The principal amount of the requested Borrowing is to be
$__________;
(b) The requested Borrowing is to consist of ["Base Rate" or
"LIBOR"] Loans;
(c) If the requested Borrowing is to consist of LIBOR Loans, the
initial Interest Period for such Loans will be __________ months; and
(d) The date of the requested Borrowing is to be __________,
____.
3. Borrower hereby certifies to Agent and the Lenders that, on the date of
this Notice of Borrowing and after giving effect to the requested Borrowing:
(a) The representations and warranties of Borrower set forth in
Paragraph 4.01 of the Credit Agreement and in the other Credit Documents
are true and correct in all material respects as if made on such date
(except for representations and warranties expressly made as of a
specified date, which shall be true as of such date);
(b) No Default or Event of Default has occurred and is continuing;
and
(c) All of the Credit Documents are in full force and effect.
4. Please disburse the proceeds of the requested Borrowing to ____________
________________________________________________________________________________
________________________________________________________________________________
A-1
<PAGE> 93
IN WITNESS WHEREOF, Borrower has executed this Notice of Borrowing on the
date set forth above.
LAM RESEARCH CORPORATION
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
A-2
<PAGE> 94
EXHIBIT B
NOTICE OF CONVERSION
[Date]
ABN AMRO Bank N.V.,
as Agent
101 California Street, Suite 4550
San Francisco, CA 94111-5812
Attn: Robert N. Hartinger
1. Reference is made to that certain Credit Agreement, dated as of April
13, 1998 (the "Credit Agreement"), among Lam Research Corporation ("Borrower"),
the financial institutions listed in Schedule I to the Credit Agreement (the
"Lenders") and ABN AMRO Bank N.V., as agent for the Lenders (in such capacity,
"Agent"). Unless otherwise indicated, all terms defined in the Credit Agreement
have the same respective meanings when used herein.
2. Pursuant to Subparagraph 2.01(d) of the Credit Agreement, Borrower
hereby irrevocably requests to convert a Borrowing as follows:
(a) The Borrowing to be converted consists of ["Base Rate" or
"LIBOR"] Loans in the aggregate principal amount of $__________ which were
initially advanced to Borrower on __________, ____;
(b) The Loans in the Borrowing are to be converted into ["Base Rate"
or "LIBOR"] Loans;
(c) If such Loans are to be converted into LIBOR Loans, the initial
Interest Period for such Loans commencing upon conversion will be
__________ months; and
(d) The date of the requested conversion is to be __________,
____.
3. Borrower hereby certifies to Agent and the Lenders that, on the date of
this Notice of Conversion, and after giving effect to the requested conversion:
(a) The representations and warranties of Borrower set forth in
Paragraph 4.01 of the Credit Agreement and in the other Credit Documents
are true and correct in all material respects as if made on such date
(except for representations and warranties expressly made as of a
specified date, which shall be true as of such date);
(b) No Default or Event of Default has occurred and is continuing;
and
(c) All of the Credit Documents are in full force and effect.
B-1
<PAGE> 95
IN WITNESS WHEREOF, Borrower has executed this Notice of Conversion on the
date set forth above.
LAM RESEARCH CORPORATION
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
B-2
<PAGE> 96
EXHIBIT C
NOTICE OF INTEREST PERIOD SELECTION
[Date]
ABN AMRO Bank N.V.
as Agent
101 California Street, Suite 4550
San Francisco, CA 94111-5812
Attn: Robert N. Hartinger
1. Reference is made to that certain Credit Agreement, dated as of April
13, 1998 (the "Credit Agreement"), among Lam Research Corporation ("Borrower"),
the financial institutions listed in Schedule I to the Credit Agreement (the
"Lenders") and ABN AMRO Bank N.V., as agent for the Lenders (in such capacity,
"Agent"). Unless otherwise indicated, all terms defined in the Credit Agreement
have the same respective meanings when used herein.
2. Pursuant to Subparagraph 2.01(e) of the Credit Agreement, Borrower
hereby irrevocably selects a new Interest Period for a Borrowing as follows:
(a) The Borrowing for which a new Interest Period is to be selected
consists of ["Base Rate" or "LIBOR"] Loans in the aggregate principal
amount of $__________ which were initially advanced to Borrower on
__________, ____;
(b) The last day of the current Interest Period for such Loans is
___________, ____; and
(c) The next Interest Period for such Loans commencing upon the last
day of the current Interest Period is to be _________ months.
3. Borrower hereby certifies to the Agents and the Lenders that, on the
date of this Notice of Interest Period Selection, and after giving effect to the
requested selection:
(a) The representations and warranties of Borrower set forth in
Paragraph 4.01 of the Credit Agreement and in the other Credit Documents
are true and correct in all material respects as if made on such date
(except for representations and warranties expressly made as of a
specified date, which shall be true as of such date);
(b) No Default or Event of Default has occurred and is continuing;
and
(c) All of the Credit Documents are in full force and effect.
C-1
<PAGE> 97
IN WITNESS WHEREOF, Borrower has executed this Notice of Interest Period
Selection on the date set forth above.
LAM RESEARCH CORPORATION
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
C-2
<PAGE> 98
EXHIBIT D
NOTE
$______________ ____________________, __________
________________, ____
FOR VALUE RECEIVED, LAM RESEARCH CORPORATION, a Delaware corporation
("Borrower"), hereby promises to pay to the order of ____________________, a
____________________ ("Lender"), the principal sum of ______________________
DOLLARS ($__________) or such lesser amount as shall equal the aggregate
outstanding principal balance of the Loans made by Lender to Borrower pursuant
to the Credit Agreement referred to below (as amended from time to time, the
"Credit Agreement"), on or before the Maturity Date specified in the Credit
Agreement; and to pay interest on said sum, or such lesser amount, at the rates
and on the dates provided in the Credit Agreement.
Borrower shall make all payments hereunder, for the account of Lender's
Applicable Lending Office, to Agent as indicated in the Credit Agreement, in
lawful money of the United States and in same day or immediately available
funds.
Borrower hereby authorizes Lender to record on the schedule(s) annexed to
this note the date and amount of each Loan and of each payment or prepayment of
principal made by Borrower and agrees that all such notations shall constitute
prima facie evidence of the matters noted; provided, however, that the failure
of Lender to make any such notation shall not affect Borrower's obligations
hereunder.
This note is one of the Notes referred to in the Credit Agreement, dated
as of April 13, 1998, among Borrower, Lender and the other financial
institutions from time to time parties thereto (collectively, the "Lenders") and
ABN AMRO Bank N.V., as agent for the Lenders. This note is subject to the terms
of the Credit Agreement, including the rights of prepayment and the rights of
acceleration of maturity set forth therein. Terms used herein have the meanings
assigned to those terms in the Credit Agreement, unless otherwise defined
herein.
The transfer, sale or assignment of any rights under or interest in this
note is subject to certain restrictions contained in the Credit Agreement,
including Paragraph 8.05 thereof.
D-1
<PAGE> 99
Borrower shall pay all reasonable fees and expenses, including reasonable
attorneys' fees, incurred by Lender in the enforcement or attempt to enforce any
of Borrower's obligations hereunder not performed when due. Borrower hereby
waives notice of presentment, demand, protest or notice of any other kind. This
note shall be governed by and construed in accordance with the laws of the State
of California.
LAM RESEARCH CORPORATION
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
D-2
<PAGE> 100
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Amount of Unpaid
Type Amount Interest Principal Paid Principal Notation
Date of Loan of Loan Period or Prepaid Balance Made By
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
D-3
<PAGE> 101
EXHIBIT E
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT, dated as of the date set forth at the top of
Attachment 1 hereto, by and among:
(1) The bank designated under item A of Attachment I hereto as the
Assignor Lender ("Assignor Lender"); and
(2) Each bank designated under item B of Attachment I hereto as an
Assignee Lender (individually, an "Assignee Lender").
RECITALS
A. Assignor Lender is one of the banks which is a party to the Credit
Agreement dated as of April 13, 1998, by and among Lam Research Corporation
("Borrower,") Assignor Lender and the other financial institutions parties
thereto (collectively, the "Lenders") and ABN AMRO Bank N.V., as agent for the
banks (in such capacity, "Agent"). (Such credit agreement, as amended,
supplemented or otherwise modified in accordance with its terms from time to
time to be referred to herein as the "Credit Agreement").
B. Assignor Lender wishes to sell, and Assignee Lender wishes to purchase,
a portion of Assignor Lender's rights under the Credit Agreement pursuant to
Subparagraph 8.05(c) of the Credit Agreement.
AGREEMENT
Now, therefore, the parties hereto hereby agree as follows:
1. Definitions. Except as otherwise defined in this Assignment Agreement,
all capitalized terms used herein and defined in the Credit Agreement have the
respective meanings given to those terms in the Credit Agreement.
2. Sale and Assignment. Subject to the terms and conditions of this
Assignment Agreement, Assignor Lender hereby agrees to sell, assign and delegate
to each Assignee Lender and each Assignee Lender hereby agrees to purchase,
accept and assume an undivided interest in and share of Assignor Lender's
rights, obligations and duties under the Credit Agreement and the other Credit
Documents equal to the Proportionate Share set forth under the caption
"Proportionate Share" opposite such Assignee Lender's name on Attachment I
hereto.
3. Assignment Effective Upon Notice. Upon (a) receipt by Agent of five (5)
counterparts of this Assignment Agreement (to each of which is attached a fully
completed Attachment I), each of which has been executed by Assignor Lender and
each Assignee Lender (and, to the extent required by Subparagraph 8.05(c), by
Borrower and Agent) and (b) payment
E-1
<PAGE> 102
to Agent of the registration and processing fee specified in Subparagraph
8.05(e) by Assignor Lender, Agent will transmit to Borrower, Assignor Lender and
each Assignee Lender an Assignment Effective Notice substantially in the form of
Attachment II hereto (an "Assignment Effective Notice"). Such Assignment
Effective Notice shall set forth the date on which the assignment effected by
this Assignment Agreement shall become effective (the "Assignment Effective
Date"), which date shall be the fifth Business Day following the date of such
Assignment Effective Notice.
4. Assignment Effective Date. At or before 12:00 noon (local time of
Assignor Lender) on the Assignment Effective Date, each Assignee Lender shall
pay to Assignor Lender, in immediately available or same day funds, an amount
equal to the purchase price, as agreed between Assignor Lender and such Assignee
Lender (the "Purchase Price"), for the Proportionate Share purchased by such
Assignee Lender hereunder. Effective upon receipt by Assignor Lender of the
Purchase Price payable by each Assignee Lender, the sale, assignment and
delegation to such Assignee Lender of such Proportionate Share as described in
Paragraph 2 hereof shall become effective.
5. Payments After the Assignment Effective Date. Assignor Lender and each
Assignee Lender hereby agree that Agent shall, and hereby authorize and direct
Agent to, allocate amounts payable under the Credit Agreement and the other
Credit Documents as follows:
(a) All principal payments on outstanding Loans that would otherwise
be payable from and after the Assignment Effective Date to or for the
account of Assignor Lender pursuant to the Credit Agreement and the other
Credit Documents shall, instead, be payable to or for the account of
Assignor Lender and the applicable Assignee Lender, as the case may be, in
accordance with the respective Proportionate Share of each as reflected in
Attachment I to this Assignment Agreement.
(b) All interest, fees and other amounts accrued (including amounts
accrued prior to the Assignment Effective Date) or payable pursuant to the
Credit Agreement and the other Credit Documents with respect to each
Proportionate Share assigned to an Assignee Lender pursuant to this
Assignment Agreement, shall from and after the Assignment Effective Date
be payable to such Assignee Lender.
Assignor Lender and each Assignee Lender have made separate arrangements for (i)
the payment by Assignor Lender to such Assignee Lender of any principal,
interest, fees or other amounts previously received or otherwise payable to
Assignor Lender hereunder if Assignor Lender and such Assignee Lender have
otherwise agreed that such Assignee Lender is entitled to receive any such
amounts and (ii) the payment by such Assignee Lender to Assignor Lender of any
principal, interest, fees or other amounts payable to such Assignee Lender
hereunder if Assignor Lender and such Assignee Lender have otherwise agreed that
Assignor Lender is entitled to receive any such amounts.
6. Delivery of Notes. On or prior to the Assignment Effective Date,
Assignor Lender will deliver to Agent the Notes payable to Assignor Lender. On
or prior to the
E-2
<PAGE> 103
Assignment Effective Date, Borrower will deliver to Agent Notes for each
Assignee Lender and Assignor Lender, in each case in principal amounts
reflecting, in accordance with the Credit Agreement, their respective
Commitments (as adjusted pursuant to this Assignment Agreement). As provided in
Subparagraph 8.05(c) of the Credit Agreement, each such new Note shall be dated
the Closing Date. Promptly after the Assignment Effective Date, Agent will send
to each of Assignor Lender and the Assignee Lenders its new Notes and will send
to Borrower the superseded Notes of Assignor Lender, marked "Replaced."
7. Delivery of Copies of Credit Documents. Concurrently with the execution
and delivery hereof, Assignor Lender will provide to each Assignee Lender (if it
is not already a Lender party to the Credit Agreement) conformed copies of all
documents delivered to Assignor Lender on or prior to the Closing Date in
satisfaction of the conditions precedent set forth in the Credit Agreement.
8. Further Assurances. Each of the parties to this Assignment Agreement
agrees that at any time and from time to time upon the written request of any
other party, it will execute and deliver such further documents and do such
further acts and things as such other party may reasonably request in order to
effect the purposes of this Assignment Agreement.
9. Further Representations, Warranties and Covenants. Assignor Lender and
each Assignee Lender further represent and warrant to and covenant with each
other, Agent and the Lenders as follows:
(a) Other than the representation and warranty that it is the legal
and beneficial owner of the interest being assigned hereby free and clear
of any adverse claim, Assignor Lender makes no representation or warranty
and assumes no responsibility with respect to any statements, warranties
or representations made in or in connection with the Credit Agreement or
the other Credit Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement
or the other Credit Documents furnished.
(b) Assignor Lender makes no representation or warranty and assumes
no responsibility with respect to the financial condition of Borrower or
any of its obligations under the Credit Agreement or any other Credit
Documents.
(c) Each Assignee Lender confirms that it has received a copy of the
Credit Agreement and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into
this Assignment Agreement.
(d) Each Assignee Lender will, independently and without reliance
upon Agent, Assignor Lender or any other Lender and based upon such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under the Credit Agreement and the other Credit Documents.
E-3
<PAGE> 104
(e) Each Assignee Lender appoints and authorizes Agent to take such
action as Agent on its behalf and to exercise such powers under the Credit
Agreement and the other Credit Documents as are delegated to Agent by the
terms thereof, together with such powers as are reasonably incidental
thereto, all in accordance with Section VII of the Credit Agreement.
(f) Each Assignee Lender agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement and the other Credit Documents are required to be performed by
it as a Lender.
(g) Attachment I hereto sets forth the revised Proportionate Shares
of Assignor Lender and each Assignee Lender as well as administrative
information with respect to each Assignee Lender.
10. Effect of this Assignment Agreement. On and after the Assignment
Effective Date, (a) each Assignee Lender shall be a Lender with a Proportionate
Share as set forth on Attachment I hereto and shall have the rights, duties and
obligations of such a Lender under the Credit Agreement and the other Credit
Documents and (b) Assignor Lender shall be a Lender with a Proportionate Share
as set forth on Attachment I hereto, or, if the Proportionate Share of Assignor
Lender has been reduced to 0%, Assignor Lender shall cease to be a Lender.
11. Miscellaneous. This Assignment Agreement shall be governed by, and
construed in accordance with, the laws of the State of California. Paragraph
headings in this Assignment Agreement are for convenience of reference only and
are not part of the substance hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed by their respective duly authorized officers as of the
date set forth in Attachment I hereto.
------------------------------,
as Assignor Lender
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
------------------------------,
as Assignor Lender
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
E-4
<PAGE> 105
------------------------------,
as Assignor Lender
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
------------------------------,
as Assignor Lender
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
CONSENTED TO AND ACKNOWLEDGED BY:
- --------------------------------------
By:
----------------------------------
Name:
---------------------------
Title:
---------------------------
E-5
<PAGE> 106
,
- --------------------------------------
as Agent
By:
----------------------------------
Name:
---------------------------
Title:
---------------------------
ACCEPTED FOR RECORDATION IN REGISTER:
- --------------------------------------
as Agent
By:
----------------------------------
Name:
---------------------------
Title:
---------------------------
E-6
<PAGE> 107
ATTACHMENT I
TO ASSIGNMENT AGREEMENT
NAMES, ADDRESSES AND PROPORTIONATE SHARES
OF ASSIGNOR LENDER AND ASSIGNEE LENDERS AFTER ASSIGNMENT
______________, ____
<TABLE>
<CAPTION>
A. ASSIGNOR LENDER Proportionate Share*
--------------- --------------------
<S> <C> <C>
%
--------------------------------- ----
Applicable Lending Office:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Address for notices:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Telephone No:
------------------
Telecopier No:
------------------
Wiring Instructions:
---------------------------------
---------------------------------
B. ASSIGNEE LENDERS
%
--------------------------------- ----
Applicable Lending Office:
---------------------------------
</TABLE>
- --------
* To be expressed by a percentage rounded to the seventh digit to the right of
the decimal point.
E(I)-1
<PAGE> 108
<TABLE>
<S> <C> <C>
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Address for notices:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Telephone No:
------------------
Telecopier No:
------------------
Wiring Instructions:
---------------------------------
---------------------------------
%
--------------------------------- ----
Applicable Lending Office:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Address for notices:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Telephone No:
------------------
Telecopier No:
------------------
Wiring Instructions:
---------------------------------
---------------------------------
</TABLE>
E(I)-2
<PAGE> 109
ATTACHMENT II
TO ASSIGNMENT AGREEMENT
FORM OF
ASSIGNMENT EFFECTIVE NOTICE
The undersigned, as agent for the banks under the Credit Agreement,
dated as of April 13, 1998 among Lam Research Corporation ("Borrower"), the
financial institutions parties thereto (the "Lenders") and ABN AMRO Bank N.V.,
as agent for the Lenders (in such capacity, "Agent"), acknowledges receipt of
five executed counterparts of a completed Assignment Agreement, a copy of which
is attached hereto. [Note: Attach copy of Assignment Agreement.] Terms defined
in such Assignment Agreement are used herein as therein defined.
1. Pursuant to such Assignment Agreement, you are advised that the
Assignment Effective Date will be __________ [Insert fifth business day
following date of Assignment Effective Notice].
2. Pursuant to such Assignment Agreement, Assignor Lender is required to
deliver to Agent on or before the Assignment Effective Date the Notes payable to
Assignor Lender.
3. Pursuant to such Assignment Agreement, Borrower is required to deliver
to Agent on or before the Assignment Effective Date the following Notes, each
dated _________________ [Insert appropriate date]:
[Describe each new Note for Assignor Lender and each Assignee
Lender as to principal amount.]
4. Pursuant to such Assignment Agreement, each Assignee Lender is required
to pay its Purchase Price to Assignor Lender at or before 12:00 Noon on the
Assignment Effective Date in immediately available funds.
Very truly yours,
ABN AMRO BANK N.V.,
San Francisco International Branch,
as Agent
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
E(II)-1
<PAGE> 1
EXHIBIT 10.53
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
August 10, 1998, is entered into by and among:
(1) LAM RESEARCH CORPORATION, a Delaware corporation ("Borrower");
(2) Each of the financial institutions listed in Schedule I to the
Credit Agreement referred to in Recital A below (collectively, the
"Lenders"); and
(3) ABN AMRO BANK, N.V., San Francisco International Branch, as agent
for the Lenders (in such capacity, "Agent").
RECITALS
A. Borrower, the Lenders and Agent are parties to a Credit Agreement dated
as of April 13, 1998 (the "Credit Agreement").
B. Borrower has requested the Lenders and Agent to amend the Credit
Agreement in certain respects.
C. The Lenders and Agent are willing so to amend the Credit Agreement upon
the terms and subject to the conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, the Lenders and Agent hereby agree as follows:
1. DEFINITIONS, INTERPRETATION. All capitalized terms defined above and
elsewhere in this Amendment shall be used herein as so defined. Unless otherwise
defined herein, all other capitalized terms used herein shall have the
respective meanings given to those terms in the Credit Agreement, as amended by
this Amendment. The rules of construction set forth in Section I of the Credit
Agreement shall, to the extent not inconsistent with the terms of this
Amendment, apply to this Amendment and are hereby incorporated by reference.
2. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of the
conditions set forth in Paragraph 4 below, the Credit Agreement is hereby
amended as follows:
(a) Paragraph 1.01 is amended by changing the definition of
"Applicable Margin" set forth therein to read in its entirety as follows:
<PAGE> 2
"Applicable Margin" shall mean, with respect to any Loan at any
time, the per annum margin which is determined pursuant to the Pricing
Grid and added to the Base Rate or LIBO Rate, as the case may be, for
such Loan; provided, however, that (a) each Applicable Margin to be
added to the LIBO Rate determined pursuant to the Pricing Grid shall
be increased by (i) one-tenth of one percent (.10%) at such times
during which Borrower's Unused Commitment exceeds $50,000,000 but is
less than or equal to $75,000,000, (ii) one-fourth of one percent
(.25%) at such times during which Borrower's Unused Commitment exceeds
$25,000,000 but is equal to or less than $50,000,000, and (iii)
one-half of one percent (.50%) at such times during which Borrower's
Unused Commitment is $25,000,000 or less; and (b) each Applicable
Margin determined pursuant to the Pricing Grid shall be increased by
two percent (2.00%) on the date an Event of Default occurs and shall
continue at such increased rate during the continuance of such Event
of Default.
(b) Paragraph 1.01 is amended by adding thereto a new definition of
the term "First Amendment Effective Date" immediately after the definition
of the term "Financial Statements" to read in its entirety as follows:
"First Amendment Effective Date" shall mean August 10, 1998.
(c) Paragraph 1.01 is further amended by deleting the definitions of
the terms "Debt Rating", "Moody's" and "S&P" set forth therein in their
entirety.
(d) Subparagraph 5.01(a) is hereby amended by deleting clause (iv)
thereof in its entirety and replacing it with the term "RESERVED".
(e) Subparagraph 5.02(l) is amended to read in its entirety as
follows:
(l) Financial Covenants.
(i) Borrower shall not permit its Quick Ratio during any
period set forth below to be less than the ratio set forth
opposite such period below:
March 28, 1998 - June 30, 1999 1.50 to 1.00;
Thereafter 1.35 to 1.00.
(ii) Borrower shall not permit its Debt Service Coverage
Ratio during any period set forth below to be less than the ratio
set forth opposite such period below:
July 1, 1999 - September 26, 1999 1.25 to 1.00;
September 27, 1999 - December 26, 1999 1.50 to 1.00;
2
<PAGE> 3
December 27, 1999 - March 26, 2000 1.75 to 1.00;
March 27, 2000 - June 30, 2000 2.00 to 1.00;
July 1, 2000 - September 24, 2000 2.75 to 1.00;
Thereafter 3.00 to 1.00.
(iii) Borrower shall not permit its Senior Indebtedness
Ratio during any period to be greater than 0.25 to 1.00.
(iv) Borrower shall not permit its Tangible Net Worth on any
date of determination (such date to be referred to herein as a
"determination date") which occurs after March 29, 1998 (such
date to be referred to herein as the "base date") to be less than
the sum on such determination date of the following:
(A) $450,000,000;
plus
(B) Seventy-five percent (75%) of the sum of Borrower's
consolidated quarterly net income (ignoring any quarterly
losses) for each quarter ending after the base date through
and including the quarter ending immediately prior to the
determination date;
plus
(C) One hundred percent (100%) of the Net Proceeds of
all Equity Securities issued by Borrower and its
Subsidiaries during the period commencing on the base date
and ending on the determination date;
plus
(D) One hundred percent (100%) of the aggregate
decrease in the total liabilities of Borrower and its
Subsidiaries resulting from conversions of convertible
Subordinated Indebtedness or other liabilities of Borrower
and its Subsidiaries into Equity Securities of Borrower and
its Subsidiaries during the period commencing on the base
date and ending on the determination date.
(v) Borrower shall not incur a cumulative net loss
(exclusive of net income) greater than $45,000,000, determined in
accordance with
3
<PAGE> 4
GAAP, for the four quarter period commencing on July 1, 1998 and
ending on June 30, 1999.
(f) Schedule 1.01(a) is hereby amended to read in its entirety as set
forth on Attachment 1 hereto.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Agent and the Lenders that, after giving effect to the amendments
set forth in Paragraph 2 above, the following will be true and correct on the
Effective Date (as defined below):
(a) The representations and warranties of Borrower and its
Subsidiaries set forth in Paragraph 4.01 of the Credit Agreement and in the
other Credit Documents are true and correct in all material respects;
(b) No Default or Event of Default has occurred and is continuing; and
(c) All of the Credit Documents are in full force and effect.
(Without limiting the scope of the term "Credit Documents," Borrower expressly
acknowledges in making the representations and warranties set forth in this
Paragraph 3 that, on and after the date hereof, such term includes this
Amendment.)
4. EFFECTIVE DATE. The amendments effected by Paragraph 2 above shall
become effective on August 10, 1998 (the "Effective Date"), subject to receipt
by Agent and the Lenders of the following, each in form and substance
satisfactory to Agent, the Lenders and their respective counsel:
(a) This Amendment duly executed by Borrower, each Lender and Agent;
(b) A Certificate of the Secretary of Borrower, dated the Effective
Date, certifying that (i) the Certificate of Incorporation and Bylaws of
Borrower, in the form delivered to Agent on the Closing Date, are in full
force and effect and have not been amended, supplemented, revoked or
repealed since such date and (ii) resolutions have been duly adopted by the
Board of Directors of Borrower and are continuing in effect, which
authorize the execution, delivery and performance by Borrower of this
Amendment and the consummation of the transactions contemplated hereby;
(c) A favorable written opinion of counsel to Borrower, addressed to
Agent and dated the Effective Date, as to the matters set forth in
Attachment 2 hereto;
(d) A nonrefundable amendment fee equal to one-tenth of one percent
(0.10%) of the Total Commitment to be shared among the Lenders that execute
this Amendment on or before August 10, 1998 pro rata in accordance with
such Lenders' respective Proportionate Share; and
4
<PAGE> 5
(e) Such other evidence as Agent or any Lender may reasonably request
to establish the accuracy and completeness of the representations and
warranties and the compliance with the terms and conditions contained in
this Amendment and the other Credit Documents.
5. EFFECT OF THIS AMENDMENT. On and after the Effective Date, each
reference in the Credit Agreement and the other Credit Documents to the Credit
Agreement shall mean the Credit Agreement as amended hereby. Except as
specifically amended above, (a) the Credit Agreement and the other Credit
Documents shall remain in full force and effect and are hereby ratified and
confirmed and (b) the execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power, or remedy of the Lenders or Agent, nor constitute a waiver of any
provision of the Credit Agreement or any other Credit Document.
6. MISCELLANEOUS.
(a) Counterparts. This Amendment may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto
shall be deemed to constitute a complete, executed original for all
purposes.
(b) Headings. Headings in this Amendment are for convenience of
reference only and are not part of the substance hereof.
5
<PAGE> 6
IN WITNESS WHEREOF, Borrower, Agent and the Lenders have caused this
Amendment to be executed as of the day and year first above written.
BORROWER: LAM RESEARCH CORPORATION
By:
-----------------------------------------------
Name:
Title:
AGENT: ABN AMRO BANK, N.V., SAN FRANCISCO
INTERNATIONAL BRANCH, AS AGENT
By:
-----------------------------------------------
Name:
Title:
By:
-----------------------------------------------
Name:
Title:
LENDERS: ABN AMRO BANK, N.V., SAN FRANCISCO
INTERNATIONAL BRANCH, AS A LENDER
By:
-----------------------------------------------
Name:
Title:
By:
-----------------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, AS A LENDER
By:
-----------------------------------------------
Name:
Title:
6
<PAGE> 7
DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLANDS
BRANCHES, AS A LENDER
By:
-----------------------------------------------
Name:
Title:
By:
-----------------------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, AS A LENDER
By:
-----------------------------------------------
Name:
Title:
BANKBOSTON, N.A., AS A LENDER
By:
-----------------------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A., AS A LENDER
By:
-----------------------------------------------
Name:
Title:
7
<PAGE> 8
ATTACHMENT 1
SCHEDULE 1.01(a)
PRICING GRID
<TABLE>
<CAPTION>
LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4 LEVEL 5
------- ------- ------- ------- -------
APPLICABLE MARGINS:
<S> <C> <C> <C> <C> <C>
Base Rate Loans 0.00% 0.00% 0.00% 0.00% 0.00%
LIBOR Loans 0.55% 0.75% 0.85% 0.90% 0.95%
COMMITMENT FEE
PERCENTAGE: 0.225% 0.250% 0.275% 0.30% 0.30%
LC USAGE FEE
PERCENTAGE:
Non-Financial Performance
Letters of Credit 0.275%* 0.375%* 0.425%* 0.45%* 0.475%*
Financial Performance Letters
of Credit 0.55%* 0.75%* 0.85%* 0.90%* 0.95%*
</TABLE>
* Does not include LC Issuance Fees payable to Issuing Bank
EXPLANATION
1. The Applicable Margin for each Borrowing and Loan, the Commitment Fee
Percentage, and the LC Usage Fee Percentage will be determined as provided
below and will vary depending upon whether Level 1 pricing, Level 2
pricing, Level 3 pricing, Level 4 pricing or Level 5 pricing is applicable.
2. From the Closing Date until the First Amendment Effective Date, Level 1
pricing shall apply.
3. On and after the First Amendment Effective Date until the date that either
Paragraph 4 or Paragraph 5 below is applicable, Level 4 Pricing will apply.
4. Commencing on December 27, 1999 and thereafter on the fifteenth day
following the date Borrower is required to deliver the quarterly Financial
Statements and information under Subparagraphs 5.01(a)(i) of the Credit
Agreement, pricing will vary depending upon Borrower's profitability and
Senior Indebtedness Ratio (as applicable) as set forth in such Financial
Statements and information for the immediately preceding fiscal quarter as
follows:
<PAGE> 9
(a) If Borrower does not have net profits of greater than $1, determined
in accordance with GAAP, during both the fiscal quarter ending on
September 26, 1999 and the fiscal quarter ending on December 26, 1999,
Level 4 pricing will still apply.
(b) If Borrower has net profits of greater than $1, determined in
accordance with GAAP, during both the fiscal quarter ending on
September 26, 1999 and the fiscal quarter ending on December 26, 1999
and Borrower's Senior Indebtedness Ratio is less than 0.10, Level 2
pricing will apply.
(c) If Borrower has net profits of greater than $1, determined in
accordance with GAAP, during both the fiscal quarter ending on
September 26, 1999 and the fiscal quarter ending on December 26, 1999
and Borrower's Senior Indebtedness Ratio is greater than or equal to
0.10 but less than 0.15, Level 3 pricing will apply.
(d) If Borrower has net profits of greater than $1, determined in
accordance with GAAP, during both the fiscal quarter ending on
September 26, 1999 and the fiscal quarter ending on December 26, 1999
and Borrower's Senior Indebtedness Ratio is greater than or equal to
0.15, Level 5 pricing will apply.
5. On and after the fifteenth day following the Borrower's failure to deliver
to Agent the Financial Statements and information required under
Subparagraphs 5.01(a)(i) and (iii) of the Credit Agreement within the time
periods set forth therein commencing with the fifteenth day following the
date Borrower is required to deliver such Financial Statements and
information for the fiscal quarter ending on December 26, 1999, and until
the fifteenth day following receipt by Agent of such Financial Statements
and information (at which time Paragraph 4 above will apply), Level 5
pricing will apply.
6. Examples:
(a) The Senior Indebtedness Ratio for the fiscal quarter ending March 26,
2000 is 0.09. Assuming Borrower had net profits of greater than $1,
determined in accordance with GAAP, during both the fiscal quarter
ending on September 26, 1999 and the fiscal quarter ending on December
26, 1999 and the Financial Statements and information are delivered
within the time periods required under the Credit Agreement,
commencing May 30, 2000, Level 2 pricing will apply.
(b) The Senior Indebtedness Ratio for the fiscal quarter ending June 30,
2000 is 0.14. Assuming Borrower had net profits of greater than $1,
determined in accordance with GAAP, during both the fiscal quarter
ending on September 26, 1999 and the fiscal quarter ending on December
26, 1999 and the Financial Statements and information are delivered
within the time periods set forth in the Credit Agreement, commencing
September 3, 2000, Level 3 pricing will apply.
1-2
<PAGE> 10
ATTACHMENT 2
MATTERS TO BE COVERED BY OPINION OF COUNSEL
(1) The execution, delivery and performance by Borrower of the Amendment
and the consummation of the transactions contemplated thereby (a) are within the
power of Borrower and (b) have been duly authorized by all necessary actions on
the part of Borrower.
(2) The Amendment has been duly executed and delivered by Borrower and
constitutes a legal, valid and binding obligation of Borrower, enforceable
against Borrower in accordance with its terms, except as limited by bankruptcy,
insolvency or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and general principles of equity.
2-1
<PAGE> 1
Exhibit 10.56
AMENDED AND RESTATED PROMISSORY NOTE
SECURED BY DEED OF TRUST
$600,000.00 _____________________, California
As of April 8, 1998
WHEREAS Roger D. Emerick and Rebecca S. Emerick (jointly and severally,
"Borrower"), and LAM RESEARCH CORPORATION, a Delaware corporation (the
"Company"), entered into a Promissory Note on, about or as of April 6, 1996, by
which the Company loaned to Borrower the sum of Six Hundred Thousand Dollars
($600,00.00), pursuant to the terms and obligations set forth therein (the
"Original Note");
WHEREAS the re-payment terms of the Original Note were previously extended
by the Company to provide for repayment of the unpaid principal and accrued
interest on April 8, 1998;
WHEREAS the Borrower has requested and the Company has agreed to extend the
re-payment terms of the Original Note, as provided herein;
NOW THEREFOR, for good and valuable consideration, the undersigned Borrower
and Company AGREE AS FOLLOWS:
Borrower promises to pay to the Company, at its office at 4650 Cushing
Parkway, Fremont, California 94538, or as otherwise provided by the Company, the
principal sum of Six Hundred Thousand Dollars ($600,000.00) (the "Principal"),
with interest on the unpaid principal amount accrued and owing from April 6,
1996 through and including the payment date calculated at the rate of Five and
Five One-Hundredths percent (5.05%) per annum. All accrued and unpaid interest
and all unpaid Principal shall hereby be extended and due and payable on the
third anniversary of this Note (the "Maturity Date"), or upon a Maturity Event
(hereinafter defined), whichever comes first.
Borrower may prepay all or any portion of the Principal sum of this Note at
any time prior to the Maturity Date with no premium or penalty, and interest
shall thereupon cease on the portion of the principal amount prepaid. All
amounts payable hereunder shall be payable in lawful money of the United States
of America.
The holder of this Note may, at its option, accelerate the maturity of all
sums due or to become due hereunder upon the occurrence of any of the following
(each, a "Maturity Event"), in which event the entire balance of this Note
(being the then unpaid Principal and all accrued and unpaid interest thereon)
shall immediately become due and payable, without demand or notice:
<PAGE> 2
1. Termination of the employment or service of Roger D. Emerick as a
Member of the Board of Directors of the Company, whether voluntary or
involuntary, and whether with cause or without cause; or
2. The filing of a petition of bankruptcy, either voluntary or
involuntary, by or against Borrower; or
3. Institution of any proceeding by or against Borrower under bankruptcy
or insolvency laws relating to the relief of debtors; or
4. If at any time the holder considers the security for the loan
underlying this Notice to be unsatisfactory or insufficient, and Borrower does
not, on demand by the holder, furnish such further collateral or make such
payment on account as may be satisfactory to the holder; or
5. If at any time, in the sole opinion of the holder, the financial
responsibility of Borrower becomes impaired or unsatisfactory to the holder; or
6. If Borrower shall sell, convey or alienate the Property (defined
below), or any part thereof, or any interest therein, or shall be divested of
his title or any interest therein in any manner or way, whether voluntarily or
involuntarily, without the written consent of the holder of this Note being
first had and obtained; or
7. If at any time Borrower fails to make any payment or to perform any
other obligation which is secured by a deed or trust or other lien on the
Property and such failure is deemed a default pursuant to the terms of such deed
of trust or other lien (or applicable law with respect to such other lien).
In the event (i) Borrower defaults in the payment of Principal when due
pursuant to the terms hereof, or in Borrower's performance of any obligation
contained in the Deed of Trust (hereinafter defined) encumbering the Property
and securing this Note (including any amendment, modification or extension
thereof), (ii) any representation or warranty of Borrower contained in this Note
or any other agreement or instrument executed in connection with this loan
described therein proves to have been false or misleading in any material
respect, (iii) Borrower defaults in Borrower's obligation to pay any
indebtedness evidenced by any promissory note executed by Borrower and payable
to the Company or there occurs any other default under any deed of trust,
mortgage or other document securing repayment of such indebtedness, or (iv)
Borrower defaults in Borrower's performance of any obligation to pay any
indebtedness secured by a deed of trust, mortgage or other lien encumbering the
Property or in Borrower's performance of any obligation contained in any such
deed of trust, mortgage or other lien, then unless otherwise prohibited by law
the Company shall have the option, without demand or notice, to declare the
entire Principal balance of this Note to be immediately due and payable.
This Note is secured by and subject to the terms of a first-priority deed
of trust (the "Deed of Trust") executed, and reaffirmed hereby as valid and of
full force and effect, by Roger D. Emerick and Rebecca S. Emerick, in favor of
the Company, encumbering certain real property
-2-
<PAGE> 3
commonly known as 711-741 and 739-751 San Mateo Avenue, located in the City of
Burlingame, County of San Mateo, State of California (the "Property"), dated
April 8, 1996, recorded in the Official Records of San Mateo County on July 5,
1996 as Instrument Number 96-081010, as more particularly described and set
forth therein.
This Note evidences the same indebtedness evidenced by the Original Note in
favor of the Company. This Note is given to amend, restate and replace the
Original Note, and all obligations, debts or liabilities thereunder, in their
entirety. Nothing herein or in any other documents shall be deemed to constitute
payment of the Original Note, whether Principal or interest, and whether in
whole or in part, or a novation thereof.
Borrower agrees to pay the actual expenses incurred by the holder in
connection with any attempt by the holder to collect any amount due or to
exercise any rights the holder may have under this Note, or under or pursuant to
the Deed of Trust. Borrower agrees that, if any legal action is necessary to
enforce or collect this Note, or any other obligations of Borrower pursuant to
this Note, the prevailing party shall be entitled to reasonable attorneys' fees
in addition to any other relief to which the party may be entitled.
If any payment under this Note is not paid when due, then the parties agree
that (a) the Company's damages shall be difficult to estimate, (b) as liquidated
damages on account of Borrower's default, the unpaid Principal (to the extent
permitted by law) shall bear interest at the rate of ten percent (10%) per annum
or at the highest rate allowed by law, if lower, from said due date until paid,
and (c) the parties agree that such liquidated damages are a reasonable estimate
of the damages the Company will incur as a consequence of Borrower's default.
The parties also agree that such liquidated damages are in addition to any other
remedy provided hereunder, and nothing shall abridge, bar or waive the Company's
right and remedy to foreclose on or otherwise exercise its right or interest in
the Property in complete or partial satisfaction of any of Borrower's
obligations hereunder.
This Note may be amended or modified, and the provisions hereof may be
waived, only by the written agreement of Borrower and the Company. No delay or
failure by the Company in exercising any right, power or remedy hereunder shall
operate as a waiver of such right, power or remedy, and a waiver of any right,
power or remedy on any one occasion shall not operate as a bar to or waiver of
any such right, power or remedy on any other occasion. Without limiting the
foregoing, the delay or failure by the Company for any period of time to enforce
collection of any amounts due hereunder shall not be deemed to be a waiver of
any rights of the
-3-
<PAGE> 4
Company under contract or under law. The rights of the Company under this Note
are in addition to any other rights and remedies which the Company may have.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the State of California.
BORROWER
Dated: July 15, 1998 /s/ Roger D. Emerick
-----------------------------------------------
Roger D. Emerick
Dated: July 15, 1998 /s/ Rebecca S. Emerick
-----------------------------------------------
Rebecca S. Emerick
LAM RESEARCH CORPORATION
Dated: July 15, 1998 /s/ Mercedes Johnson
-----------------------------------------------
Mercedes Johnson
Its: Vice President and Chief Financial Officer
Dated: July 15, 1998 /s/ Craig Garber
-----------------------------------------------
Craig Garber
Its: Vice President and Treasurer
-4-
<PAGE> 1
Exhibit 10.57
WAIVER
THIS WAIVER (this "Waiver") is made as of July 20,1998 by and between Lam
Research Co., Ltd., a Japanese corporation (the "Borrower"), Lam Research
Corporation, a Delaware corporation (the "Guarantor"), and The Sakura Bank,
Limited, a Japanese banking corporation (the "Lender").
WHEREAS, the Guarantor and the Lender are parties to that certain
Continuing Guaranty dated as of June 26, 1996, as amended (the "Guaranty");
WHEREAS, the Borrower and the Lender are parties to that certain Term Loan
Agreement dated as of June 26,1996, as amended (the "Loan Agreement"; terms
defined in the Loan Agreement are used herein as therein defined);
WHEREAS, the Guarantor recently advised the Lender that the Guarantor may
not be in compliance with certain financial covenants contained in the Guaranty
for the period ending June 30, 1998 or during the period from June 30,1998;
WHEREAS, the Lender is willing to waive the Guarantor's obligation to
comply with such financial covenants on the terms and conditions set forth
below;
NOW, THEREFORE, the Lender hereby agrees as follows:
1. Waiver. The Lender waives (i) the Guarantor's obligation to comply
with, or cause compliance with, the financial covenant set forth in Section
3.1.2(b) for the period ending June 30, 1998 and (ii) the Guarantor's obligation
to comply with, or cause compliance with, the financial covenant set forth in
Section 3.1.2(d) of the Guaranty during the period from and including June 30,
1998 to but excluding September 30, 1998; provided that, on September 30, 1998,
the waivers set forth herein shall be deemed automatically rescinded, and the
Lender may then exercise its rights and remedies under Article 7 of the Loan
Agreement based on any non-compliance with such covenants for the period ending
June30, 1998 (in the case of Section 3.1.2(b)) or during the period from June
30, 1998 to September 30, 1998 (in the case of Section 3.1.2(d)),
notwithstanding the Guarantor's compliance with such covenants for any
subsequent period or at any subsequent time, unless, on or prior to September
30, 1998, the outstanding principal of the Loan is prepaid in full, together
with all accrued interest thereon, any Interest Rate Funding Costs payable as a
result of such prepayment, and all other amounts then accrued or owing under the
Loan Agreement.
2. Governing Law. This Waiver shall in all respects be governed by and
construed in accordance with the laws of the State of California applicable to
agreements made and to be performed entirely within such State, including all
matters of construction, validity and performance.
IN WITNESS WHEREOF, the parties hereto have cause this Waiver to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
<PAGE> 2
The Sakura Bank, Limited
By: [signed]
Name: YASUMASA KIKUCHI
Title: Senior Vice President
Agreed to and accepted:
Lam Research Corporation
By: [signed]
Name: Craig Garber
Title: Treasurer and Vice President, Corporate Finance
Lam Research Co., Ltd. ___________
229-1105
By: [signed]
Name: Yoichi Sunakane
Title: President
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
SUBSIDIARY STATE OR OTHER
---------- JURISDICTION OF OPERATION
-------------------------
<S> <C>
LAM RESEARCH GMBH GERMANY
LAM RESEARCH CO., LTD. JAPAN (KANAGAWA)
LAM RESEARCH CO., LTD. JAPAN (SAITAMA)
LAM RESEARCH (SHANGHAI) CO., LTD CHINA
LAM RESEARCH LTD. UNITED KINGDOM
LAM RESEARCH SARL FRANCE
LAM RESEARCH SINGAPORE PTE LTD SINGAPORE
LRC INTERNATIONAL FSC CORPORATION BARBADOS
LAM RESEARCH KOREA LIMITED KOREA
LAM RESEARCH S.R.L. ITALY
LAM RESEARCH (ISRAEL) LTD. ISRAEL
LAM RESEARCH CO., LTD. TAIWAN
LAM RESEARCH BV NETHERLANDS
MONKOWSKI-RHINE, INCORPORATED CALIFORNIA
LAM RESEARCH CO., LTD THAILAND
ONTRAK SYSTEMS, INC. DELAWARE
</TABLE>
52
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 333-39167 and Form S-4 No. 333-30545) and related Prospectus and
Registration Statements (Form S-8 Nos. 333-45265, 333-01011, 333-18115 and
333-32981) pertaining to the amended and restated 1997 Incentive Stock Plan,
1996 Performance-Based Restricted Stock Plan, and 1984 Employee Stock Purchase
Plan of Lam Research Corporation of our report dated July 23, 1998, except for
the note "Subsequent Event" as to which this date is September 14, 1998, with
respect to the consolidated financial statements and schedule of Lam Research
Corporation included in the Annual Report (Form 10-K) for the year ended June
30, 1998.
San Jose, California
September 22, 1998
53
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-39167), Form S-8 (Nos. 333-45265, 333-01011,
333-18115 and 333-32981) Form S-4 (No. 333-30545) of Lam Research Corporation of
our report dated July 24, 1997, except for Note 2, which is dated as of August
5, 1997 relating to the consolidated financial statements of OnTrak Systems,
Inc., appearing on page 52 of this Form 10-K.
PricewaterhouseCoopers LLP
San Jose, California
September 22, 1998
54
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS, THE CONSOLIDATED BALANCE SHEET AND THE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 13,509
<SECURITIES> 383,647
<RECEIVABLES> 181,132
<ALLOWANCES> 5,103
<INVENTORY> 220,610
<CURRENT-ASSETS> 897,089
<PP&E> 294,786
<DEPRECIATION> 150,534
<TOTAL-ASSETS> 1,150,772
<CURRENT-LIABILITIES> 293,509
<BONDS> 310,000
0
0
<COMMON> 38
<OTHER-SE> 523,051
<TOTAL-LIABILITY-AND-EQUITY> 1,150,772
<SALES> 1,050,527
<TOTAL-REVENUES> 1,052,586
<CGS> 678,444
<TOTAL-COSTS> 1,233,510
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,602
<INCOME-PRETAX> (179,125)
<INCOME-TAX> (34,526)
<INCOME-CONTINUING> (144,599)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (144,599)
<EPS-PRIMARY> (3.80)
<EPS-DILUTED> (3.80)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED STATEMENTS OF OPERATIONS, THE CONSOLIDATED BALANCE SHEET AND THE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 87,096
<SECURITIES> 79,977
<RECEIVABLES> 267,748
<ALLOWANCES> 2,063
<INVENTORY> 329,258
<CURRENT-ASSETS> 831,684
<PP&E> 264,007
<DEPRECIATION> 85,875
<TOTAL-ASSETS> 1,031,497
<CURRENT-LIABILITIES> 315,522
<BONDS> 0
0
0
<COMMON> 36
<OTHER-SE> 661,840
<TOTAL-LIABILITY-AND-EQUITY> 1,031,497
<SALES> 1,039,899
<TOTAL-REVENUES> 1,332,713
<CGS> 689,515
<TOTAL-COSTS> 1,113,858
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,051
<INCOME-PRETAX> 216,399
<INCOME-TAX> 70,521
<INCOME-CONTINUING> 145,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145,878
<EPS-PRIMARY> 4.32
<EPS-DILUTED> 3.95
</TABLE>
