SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission file number 0-12025
CIRCON CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
95-3079904
(I.R.S. Employer
Identification No.)
6500 Hollister Avenue
Santa Barbara, California 93117
(Address of Principal Executive Offices)
(805)685-5100
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock ($.01 par value)
(Title of class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months; 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 statements incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant was approximately $131,791,931 at March 13, 1996, when the
closing sale price of such stock, as reported in the NASDAQ National Market
System, was $12.375.
The number of shares outstanding of the Registrant's Common Stock, $.01
par value, as of March 13, 1996, was 12,571,833 shares.
DOCUMENTS INCORPORATED BY REFERENCE
1. Proxy Statement dated May 31, 1996 for Part III.
PART I
ITEM 1. BUSINESS
On August 28, 1995 Circon Corporation completed a merger with Cabot
Medical Corporation, creating the largest publicly-traded minimally invasive
surgery company in the fields of urology and gynecology.
Circon designs, manufactures and markets medical endoscope and
electrosurgery systems for diagnosis and minimally invasive surgery. The
Company's systems are used for a growing number of medical specialties,
including urology, arthroscopy, laparoscopy, gynecology, thoracoscopy and
plastic surgery. Circon also designs, assembles and markets miniature color
video systems used with endoscope systems.
Cabot designs, manufactures and markets medical devices, ureteral stents,
urological diagnostic equipment, related products and systems principally for
use in general surgery and gynecological diagnosis and surgery.
Minimally Invasive Surgery
Minimally invasive surgery refers to surgical procedures which can be
accomplished without a major incision or other traumatization to the patient,
in some cases without general anesthesia. Endoscopy is one of the most
important minimally invasive surgical techniques. In addition to decreasing
patient trauma and frequently avoiding general anesthesia, endoscopy can
substantially reduce or eliminate postoperative hospitalization. The resulting
cost savings and patient benefits have caused government reimbursement
programs, as well as private insurance and prepaid health plans, to encourage
the use of endoscopic procedures over traditional open surgery.
Specialized endoscopes for various diagnostic and surgical procedures
include laparoscopes (used for abdominal cavity surgery below the diaphragm),
thoracoscopes (used for chest surgery above the diaphragm), ureteroscopes (used
for urinary tract surgery), cystoscopes (used for surgery in the uro-genital
tract) and arthroscopes (used for knee and other joint surgery). Endoscopic
procedures are often televised using miniature video camera systems connected
to the endoscope. The procedures are performed in hospitals, ambulatory
surgical centers and physicians' offices.
Medical Advantages
The practice of endoscopy has expanded in recent years because it provides
several medical advantages over traditional open surgery. Endoscopy:
o results in less trauma to muscle and surrounding tissue, and minimal
blood loss;
o requires only a sedative or local anesthesia in some cases, rather than
general anesthesia;
o reduces postoperative patient discomfort, immobilization,
hospitalization, recovery time and therapy;
o lowers the risk of infection; and
o minimizes scarring.
Cost Advantages
The medical advantages of endoscopy can produce important cost savings,
particularly because endoscopy can reduce or eliminate postoperative
hospitalization and, in procedures such as arthroscopy, rehabilitative therapy
costs. For example, the removal of the gall bladder by conventional open
surgery can require a period of approximately one week of postoperative
hospitalization followed by four to six weeks for full recuperation. By
comparison, laparoscopic cholecystectomy (removal of the gall bladder through
a puncture in the navel using an endoscope) can reduce to one night or
completely eliminate postoperative hospitalization. As a result, the overall
cost of this procedure may be substantially reduced. For these reasons,
government reimbursement programs, as well as private insurers and prepaid
health plans, have generally encouraged the use of the endoscopy over
traditional open surgery.
Medical Applications
The use of Circon's endoscope systems and accessories is increasing in a
growing number of medical specialties including urology, gynecology,
laparoscopy, thoracoscopy, plastic surgery, athroscopy, gastroenterology and
cardiology. In urology, the Company's endoscope and video systems are used
principally for diagnosis and surgery, while ureteral stents are used for post-
operative care in the urethra, prostate, bladder, ureter and kidney. In
gynecology, the Company's colposcope, cryosurgical and electrosurgical systems
are used to diagnose and treat problems on the cervix and uterus; tubal ligation
system for long-term contraception; curettage systems are used to perform D&C
procedures; and the Company's USA Resectoscope System is used to treat fibroid
tumors and other uterine conditions, and for procedures that provide an
alternative to hysterectomies. In laparoscopy, Circon's endoscope and video
systems are being used to remove the gall bladder as well as to perform other
procedures in the abdominal cavity; the Company's irrigation/aspiration systems
are used to introduce sterile fluid to clean a surgical site and then remove
the fluid, surgical debris, smoke, etc.; and the specialty disposables are used
for rapid cauterization, cutting of tissue in a cost effective manner. In
thoracoscopy, Circon's video hydro thoracoscope and Kaiser thoracoscopy
instrument are inserted through small incisions between the ribs and are used to
perform biopsies and other thoracic surgeries. In plastic surgery, Circon's
endoscope and video systems are being used in new plastic surgery techniques
resulting in reduced trauma to the patient and allowing for faster recovery.
In arthroscopy, Circon's video systems are used to televise surgery on the
knee and other joints. In gastroenterology, the Company's endoscopic
electrosurgery probes are used to cauterize ulcers and to perform biopsies
and other diagnostic procedures and the Company has disposable specialty
products for enteral feeding. In cardiology, Circon's mechanical endoscope
subsystems are used with ultrasound equipment to make high images of the heart
from inside the body.
Product Overview
The Company manufactures a core product group which comprises the optical-
video chain:
o Rigid and Flexible Medical Endoscope Systems
o Medical Video Systems
o Electrosurgery Systems
In addition, the Company manufactures cost-effective diagnostic products
and disposable products for specific applications:
o Ureteral Stents
o Urinary Diagnostic Products
o Gynecological Diagnostic Products
o Cryosurgery Products
o Tubal Ligation Products
o Vacuum Curettage Products
The Optical-Video Chain
The optical-video chain combines a medical endoscope system with a medical
video system and consists of an endoscope, a miniature color video camera,
adapter optics, a high intensity light source, a fiber optic light cable, one
or more video monitors and a video cassette recorder. This complete system
allows the surgeon to perform the procedure viewing a magnified image of the
subject organ or tissue on a video monitor, rather than directly through the
endoscope eyepiece. Some procedures, such as arthroscopy or laparoscopic
cholecystectomy, are performed almost exclusively using the video system. This
technique, which has been made practical by the miniaturization of the color
video camera so that it can be easily attached to an endoscope, provides the
following benefits:
o reduces surgeon fatigue by alleviating eye and back strain from
prolonged viewing through the eyepiece of the endoscope;
o increases operating room coordination, staff efficiency and motivation
by allowing the entire operating room team to view the medical
procedure and follow its progress;
o allows more than one physician to participate in the procedure;
o facilitates the teaching of medical students and practicing surgeons
by permitting live viewing and playback;
o provides documentation of surgery; and
o increases patient education by allowing patients to view prior
operations in order to understand the nature of proposed surgery.
Circon offers customers the complete set of components which constitute
the optical-video chain. In addition, the Company now provides the full range
of products and accessories that a particular doctor, such as a urologist or
gynecologist, might require to treat a patient, from the initial diagnosis
through surgery. The Company believes that many customers prefer to purchase
a complete system from a single source to simplify the purchasing decision
and to allow the customer to look to a single company for servicing
responsibility. Selling a complete system enables Circon to control overall
quality at each link in the system and not be dependent for performance on
components outside its control. Additional advantages of a broad product line
include greater efficiency in distribution and more flexibility in competitive
pricing.
Medical Endoscope Systems
The Company manufactures a broad line of rigid and flexible endoscope
systems and accessories. Rigid endoscopes transmit the optical image through
a linear series of high resolution lenses encased in a stainless steel tube.
Flexible endoscopes transmit the optical image through a coherent bundle of
several thousand parallel optical fibers in a pliable tube. Both rigid and
flexible endoscopes use fiber optics to illuminate the subject organ.
Rigid endoscopes provide higher image quality than flexible endoscopes
and, because they are less expensive to manufacture, most rigid endoscopes sell
for significantly lower prices than flexible endoscopes. In addition, rigid
endoscopes are more durable and more easily manipulated by the physician than
flexible endoscopes. Flexible endoscopes have the advantage of greater patient
comfort and can access certain areas of the body inaccessible by rigid
endoscopes.
The critical features that doctors require in an endoscope are high image
quality (resolution, contrast, depth of focus, field of view and color
fidelity), sufficient light intensity, evenly distributed illumination and ease
of use. Doctors also require responsive service by the manufacturer. Circon
believes that its products and service meet the highest standards in the
industry.
Medical Video Systems
Circon designs, assembles and markets miniature color video systems for
medical applications in endoscopy. The camera, a high intensity light source
and optics, which are produced by Circon, typically account for 50% to 95% of
the complete video system's retail price. Circon purchases and modifies video
monitors, printers and video cassette recorders for resale as part of these
color video systems. Color video systems range in price from approximately
$10,000 to $30,000.
The most important features of video cameras for medical applications are
minimum size and weight, simplicity of operation, reliability, light
sensitivity, image quality and immersibility. Circon believes that its cameras
meet or exceed the quality of competitive cameras in each of these
specifications. All of Circon's cameras use CCD sensors and are waterproof,
which permits them to be immersed in disinfecting solution together with other
surgical instruments. Circon manufactures camera models in both the NTSC (used
in the United States and Japan) and PAL (used in much of Europe) electronic
formats so that they are compatible with standard video accessories worldwide.
In late 1992, Circon introduced the MicroDigital I medical video camera, the
first single chip CCD sensor camera with all digital signal processing of video
images. In late 1993, Circon introduced the easy to use MicroDigital II
camera. This camera provides the unmatched digital video images in a simple to
operate format. In early 1994, Circon began shipping the second generation
Digital RGB Video Camera, the MicroDigital IV and in mid 1994, the
MicroDigital III, a three chip camera, was introduced. In 1995, the
MicroDigital -Office Camera was introduced for office-based diagnostic
procedures. The MicroDigital family of cameras' enhanced color and resolution
greatly assists surgeons in properly diagnosing and performing surgery by
optimizing their view of all anatomical structures and procedural
instrumentation making it the ideal camera for minimally invasive surgical
applications.
Electrosurgery Systems
Circon manufactures probes, electrodes and generators for use in
procedures that utilize electrosurgery. Circon's monopolar electrosurgery
equipment is used primarily in urological and gynecological procedures.
Monopolar equipment passes electrical current from the electrode through the
body to an external grounding pad and is very efficient for resection (cutting)
and ablation (deep tissue cauterization).
Circon also manufactures bipolar equipment used to control bleeding in the
gastrointestinal tract. Unlike monopolar equipment, the Company's BICAP system
passes electrical current only through a localized area around the probe tip.
The isolation of the electrical current to the area of bleeding reduces
collateral tissue damage. Circon manufactures BICAP probes for treatment of
gastric ulcers and bleeding, esophageal tumors and hemorrhoids as well as other
bi-polar instruments for cutting and coagulating tissue in urological,
gynecological and pulmonary procedures.
Primary Markets
Urology. Circon believes that its products, marketed under the CIRCON
ACMI name, have the largest share of the urology endoscope market in the
United States and that more of its products are in current use in that market
than those of any competitor. The Company believes that having the largest
installed base is an important advantage when introducing new technology and
products. The Company's urology products are used for diagnosis and surgery
throughout the urinary tract including the urethra, prostate, bladder, ureter
and kidney.
The demand for ways of correcting medical problems associated with the
urinary tract and the prostate has increased as the average age of the U.S.
population has increased. In addition, the Company believes that the
introduction of vaporizing electrodes, lasers and other new endoscopic
urological instruments with features not found in older products coupled with
the growing familiarity of urologists and the general public with these
innovative endoscopic techniques are factors contributing to the growth of the
urology market.
Circon's USA Series Resectoscope System, is a rigid cystoscope system
incorporating features and materials designed specifically for transurethral
resection procedures used to treat enlarged prostate glands and to remove
bladder tumors and strictures in the urinary system. The distinct features of
the Circon USA system include a teflon-coated sheath design that reduces
trauma to the patient's urethra and snap-in/snap-out locking components
which simplify the assembly and disassembly of the system in the clinical
setting. The ergonomic design of the USA Series Resectoscope also reduces
physician fatigue during the approximately hour-long procedure. All components
are solid stainless steel for improved durability rather than traditional
chrome-plated brass. Circon's continuous flow laser cystoscope system expands
the USA Series product line and allows lasers to be utilized along with the
other USA Series products. Circon's USA Elite System of resectoscopes and
accessories include the new M3 Telescope. This system combines the outstanding
features of the USA System and the longest resectoscope currently available
with the superior M3 optics. The price of a basic USA Elite Resectoscope
System, including accessories, is approximately $8,000.
Most recently, Circon revolutionized the treatment of BPH with the
introduction of the VaporTrode Vaporization Electrodes and the Rotating
Continuous Flow Resectoscope. The VaporTrode electrodes provide an outcome
similar to TURP but with less bleeding, fewer complications and a shorter
hospital stay.
Circon also manufactures and markets the ACN flexible cystoscope. Its
primary advantages over the rigid cystoscope are patient comfort and 180 degree
deflection capability, which allows the physician to examine the entire bladder
using a single scope. Such examinations of the bladder require a minimum of
three lenses when a rigid cystoscope is used. Greater patient comfort usually
leads to better patient compliance for follow-up visits. The flexible
cystoscope is priced at approximately $7,200, while the price of a rigid
cystoscope is about $3,400 per lens.
Circon's AUR-8 flexible ureteroscope is part of a family of
instruments which allow the urologist access to the entire urinary system.
It was one of the first endoscopes providing access to the kidney via
the body orifice with reduced trauma to the patient because of its relatively
small diameter. The AUR-7 flexible ureteroscope slated for delivery in mid-1996
has a smaller outside diameter than the AUR-8, lessening the need for dilation
and thereby further reducing patient trauma and shortening operative time while
providing a large working channel to achieve diagnostic and therapeutic
procedures. This product substantially reduces the need to perform kidney
surgery through an incision in the patient's back. The price of this product
is approximately $12,000.
The Micro-6 semi-rigid ureteroscope allows the surgeon to operate on the
lower one-third of the ureter, which is where most kidney stone problems occur.
The MR Series instruments allow the urologist to access the ureter without
prior dilation, thus reducing operative time and patient trauma. Circon added
the MR-9 semi-rigid ureteroscope with 5.4 and 2.1 French working channels for
operating convenience, and the MR-PC, the smallest 2 channel pediatric
cystoscope available. These products utilize flexible fiber optic imaging
inside a long thin tube which resembles a large-diameter hypodermic needle.
Circon's MR Series ureteroscopes have a dual channel feature. This allows the
physician to utilize the endoscope as both a source of irrigation and as a
means of access for surgical tools. The MR Series is essentially a rigid
endoscope and is therefore easier to use than the more sophisticated flexible
ureteroscopes. The Company sells these products for approximately $7,000.
Some of the most significant developments in urology in recent years have
been in endourology, which has developed as an alternative to traditional open
surgery for removal of kidney and ureter stones. Ureteroscopes and ESWL
(extracorporeal shockwave lithotripsy) equipment are utilized, either
separately or in conjunction with each other, to break up stones in the kidney
and ureter. However, ESWL equipment is significantly more expensive than the
Company's ureteroscopes and intra-corporeal electro-hydraulic lithotripstor
and is not effective in certain circumstances, particularly when the stone is
in the ureter rather than the kidney. Ureteroscopes, when used in conjunction
with ESWL treatments, expedite the removal of stones from the kidney and
ureter. The ureteroscope is used to further reduce the size of the stone
fragments following the ESWL treatment and then to remove those stone fragments
that are too large to pass comfortably through the urinary tract. Alternately,
the ureteroscope may be used to perform the entire stone removal task if ESWL
is not affordable or otherwise available.
The merger with Cabot provides an array of complementary disposable
ureteral stents, urological diagnostic equipment and related products for use
in urological procedures.
Surgitek Ureteral stents are used in urological surgical procedures to
maintain dilation of the ureters and thereby aid fluid drainage from the
kidneys. While usually inserted through cystoscopes, they may also be inserted
intra-operatively. Indwelling ureteral stents are useful in helping to reduce
complications and morbidity following urological surgical procedures. Ureteral
stents are frequently used to aid drainage following an endoscopic or
lithotripsy procedure and may also be used to help provide internal support of
an anastomosis and prevent leakage of urine after surgery. The ureteral stent
products are sold primarily to hospitals.
The ureteral stent product line includes 16 types of disposable stents
which are sold under the brand names Double J , Single J , Uro-Pass ,
Multi-Flo , Tractfinder , Magnetip , Uro-Guide , Magnetriever , Silitek ,
Surgitray , Lubri-Flex , Nephro-Stent , and Multi-Flex .
Specialty guidewires are used in conjunction with the stent product line
to ease access to the ureter and position a ureteral stent. The Lumina
guidewire products feature radiopaque markings which allow for visualization
and measurement of the ureter prior to stent placement, while Fastrac wires
have a proprietary hydrophilic coating for easy and smooth introduction in
difficult anatomy.
Cabot's Surlock Stone Retriever line consists of over 42 configurations
of disposable helical and flatwire stone baskets and pronged graspers to remove
renal, ureteral and bladder stones. These products are introduced through a
cystoscope or urethroscope and may be used in conjunction with electric shock
wave lithotripsy treatment (ESWL). The Surlock line features a unique
ergonomic locking handle design to aid in the retrieval of stones once they are
captured.
Cabot's urological diagnostic products include urodynamic monitors and
related ancillary equipment and disposables used for functional testing of the
bladder, urethra and sphincter. By measuring urine flow and concentration and
muscle activity, urodynamic monitors provide data to aid the diagnosis of a
variety of urological disorders. Endoscope attachments allow measurement to
occur virtually anywhere within the urine collection system through the use of a
procedure that may be performed in a physician's office. Cabot's products
offer a wide variety of diagnostic testing functions, including carbon dioxide,
water cystometry and uroflowmetry. Cabot's Ultra monitor contains software for
measuring, processing, recording and storing all test data required for a
complete urodynamic evaluation, including data on flows and pressure. Cabot's
Stand-Alone CMG unit provides the capability of the dual-channel cystometry
necessary to diagnose incontinence and prescribe collagen treatments. Cabot's
urological diagnostic products are sold under the Endotek brand name primarily
to physicians' offices and hospitals.
Gynecology. Circon currently develops, manufactures and markets medical
devices and systems for use in gynecological procedures. The products include
tubal ligation systems, endoscopy systems, cryosurgical and electrosurgical
systems, colposcopic equipment, curettage systems, hemorrhoid treatments
systems and uterine resectoscope systems as well as disposable products used
in conjunction with these systems.
Colposcopes are optical diagnostic instruments used in gynecology to
examine the cervix at high magnification to detect abnormal tissues which could
lead to cervical cancer or other lesions. A range of instruments are offered
which provide various magnification levels and documentation capabilities (35mm
photography, Polaroid photography, videocolposcopy, etc.).
The cryosurgical system is marketed principally to gynecology offices and
clinics. The primary application is to precisely destroy defined areas of
benign or pre-malignant lesions of the cervix. However, other medical
specialties also use cryosurgery for dermatology, proctology, ophthalmic and
other procedures.
A cryosurgical system consists of a gas cylinder (usually nitrous oxide
or carbon dioxide), a gun assembly, and special tips configured for the
intended application. During cryosurgery, the tip is cooled by rapidly
expanding gas to temperatures low enough to freeze abnormal tissues and destroy
the lesion. Cryosurgery offers the advantage of less pain, faster healing, less
scarring and faster and more cost-efficient treatment over conventional surgery
procedures.
The LLETZ (large loop excision of the transformation zone) system is a
quick, simple, economical electrosurgical treatment for cervical intraepithelial
neoplasia which proceeds cervical cancer. The LLETZ electrosurgical procedure
offers several advantages over other procedures including preservation of
tissue for histopathological examination.
The patented tubal ligation system, consisting of an applicator and the
Falope-Ring Band, is used by the surgeon in conjunction with an endoscope
system to locate the fallopian tubes and attach the bands for permanent female
contraception. The Falope-Ring Band is a small silastic ring which, once
properly attached to the fallopian tubes, occludes the tubes, preventing
migration of the ovum to the uterus, thereby blocking fertilization and
pregnancy.
The Ultroid hemorrhoidal treatment system provides a painless nonsurgical
approach to effective hemorrhoid treatment. The system consists of a generator,
monopolar probe, grounding pad and anoscope. This low-voltage device works
biochemically at the feeding vasculature of the hemorrhoid's base. It works
without cauterization or burning thereby causing no visible scarring or
ulceration.
The Company's curettage system consists of a precision vacuum pump and
associated controls along with disposable plastic tubing and cannula. It is
used by gynecologists in hospitals and clinics to perform dilation and
curettage and dilation and evacuation procedures.
Hysteroscopes and Other Office Products
Circon markets uterine resectoscopes to gynecologists for endometrial
ablation and resection procedures. Endometrial ablation, the cauterization of
the lining of the uterus, is a relatively new procedure offering an alternative
to a substantial number of hysterectomy patients. Approximately 600,000
hysterectomies are performed annually in the United States. Endometrial
ablations could be performed in approximately 30% of these cases on an
outpatient basis, which generally takes less than one hour to perform and
requires only a few days recovery time rather than several weeks as with a
hysterectomy. Circon products used in endometrial ablation include a
specialized electrosurgical working element, a uterine resectoscope, a color
video camera with a high intensity light source. Circon's uterine video
resectoscope system sells for approximately $30,000. Circon manufactures and
markets other specially designed endoscopes called hysterscopes, in particular
Micro-H hysterscopes, and accessories used in diagnostic and other
gynecological procedures for both the hospital and the office environment.
General Surgery/Laparoscopy. Circon offers a complete line of medical
instrumentation specifically designed to allow the general surgeon to remove
the gall bladder endoscopically using a procedure called video laparoscopic
cholecystectomy. The surgeon performs the procedure through four small
punctures in the abdomen through which specially-designed surgical
instruments are inserted. This technique eliminates the need for a six to eight
inch incision in the abdominal muscle which is required in traditional open
surgery. While a conventional cholecystectomy generally requires a week of
hospitalization and four to six weeks for full recovery, the laparoscopic
procedure generally requires only one night of hospitalization and about a week
for full recovery.
Gall bladder removal is one of a growing number of traditional open
surgical procedures which lend themselves to minimally invasive techniques.
Other procedures include appendectomies, bowel resection, hernia repair and
vagotomies. The laparoscopic instrumentation currently used for these
procedures is the same as or similar to that used for gall bladder removal.
Equipment offered by Circon for use in laparoscopic procedures include
laparoscopes, video systems, insufflators for inflating the abdominal cavity
during surgery, electrosurgery systems and an array of specialized disposable
and reusable surgical instruments such as grasping forceps and dissecting
scissors. A complete video laparoscopic instrumentation system for an operating
room sells for approximately $40,000.
During a laparoscopic surgical procedure, it is often necessary to
withdraw a conventional laparoscope frequently in order to clean the lens.
Circon's HydroLaparoscope addresses this problem of keeping the lens clean.
It has a push-button lens cleaning design that provides clearer visualization
of the operative site. Circon introduced the HydroLaparoscope at the October
1991 meeting of the American College of Surgeons.
The Company also manufactures surgical hand instruments and disposable
products which, when used in conjunction with the laparoscopy system, cut and
manipulate tissue, coagulate blood vessels and remove tissue during a
procedure. Circon's Snap-In Snap-Out line of reposable laparoscopic instruments
has multiple use disposable tips and reusable handles. These instruments are
easily disassembled for cleaning and sterilizing, and the tips and handles can
be interchanged to suit surgeon preference. Since the tips can be replaced
instead of repaired when needed, the cost per use is lower.
Cabot's irrigation/aspiration systems consist of a series of pneumatically
powered pumps which are coupled to a complete family of Corson or Surgiflex
disposable suction/irrigation probes. These systems allow the surgeon to
aspirate fluid, smoke, hard and soft tissue and irrigate with a variable,
uninterrupted flow for rapid cleaning and removal of surgical debris, improving
visualization of the surgical site during laparoscopic procedures.
The Company also markets a line of cost-effective specialty disposable
products. The patented Seitzinger Tripolar Cutting Forceps
eliminates the need for the more expensive stapling/cutting devices and
provides for improved safety, efficiency and cost effectiveness in more
advanced laparoscopic procedures. Other products include the Pleatman Sac
Tissue Removal System for easy containment and removal of tissue in endoscopic
procedures and the Soft-Wand Atraumatic Balloon Retractor for improved
safety and control during endoscopic retraction.
Emerging Markets
Thoracoscopy. Circon sees an increasing opportunity for
using minimally invasive surgical techniques to perform surgery in the thoracic
cavity. Circon's video hydro thoracoscope system with a push button lens
cleaning design and line of sight irrigation capability are particularly
advantageous in thoracic surgery due to the vascular structures typically
involved. This unique and innovative product now provides consistent fog-free
viewing by means of a proprietary distal lens warming feature. Circon recently
began distributing a unique line of specialized manual instruments for
thoracoscopy to compliment the existing video thoracoscopy system.
Plastic Surgery. In September 1994, Circon entered into a strategic
alliance to provide endoscope and video systems as well as direct sales for
Wells Endoscopy, a leader in plastic surgery instrumentation. Plastic surgery
techniques are being developed utilizing endoscopic video systems which reduce
trauma to the patient and allow for faster recovery.
Other Markets
Arthroscopy. Arthroscopy is joint surgery utilizing an endoscope called
an arthroscope. This technique revolutionized knee surgery. Small scissors and
other instruments are used to perform the arthroscopy through tiny incisions
while the surgeon views the inside of the joint on the video monitor.
Arthroscopy is usually performed in about one hour on an outpatient basis.
Circon's complete optical-video system sells for approximately $16,000. Circon
has been providing video camera systems for arthroscopy since 1974. Most of
Circon's cameras sold for arthroscopic applications are used in arthroscope
systems of other manufacturers.
Gastroenterology. Circon's products for gastroenterology (GI) include
video systems and bipolar and monopolar electrosurgery generators and probes.
The Company's monopolar electrosurgery equipment is used with gastroscopes to
take biopsies and remove polyps in the gastrointestinal tract. Circon's BICAP
bipolar electrosurgery devices are used to control bleeding in both the upper
and lower gastrointestinal tract, to cauterize ulcers and to treat hemorrhoids
and esophageal tumors. The Company's BICAP hemostatic probe is designed to be
used through a gastroscope. A complete BICAP electrosurgery system sells for
approximately $10,000.
The Company also markets a full line of disposable products for enteral
feeding of the GI patient. The Surgitek One-Step button is a proprietary
product which allows for the placement of a low-profile button device at
initial gastrostomy, thereby avoiding the cost and inconvenience of a second
procedure. The Surgitek Button and Surgi-PEG devices provide a choice of
treatment and tube options for pediatric and geriatric patients.
Cardiology. Circon provides flexible mechanical endoscopy probes for use
with ultrasonic transesophageal echocardiography equipment ("TEE") sold by
other companies. In TEE procedures, the endoscopy probe containing an
ultrasonic generator is inserted through the mouth into the esophagus, where
it is used to generate images of the heart. This technology has gained rapid
acceptance in the medical community because it provides better images of the
heart function than conventional techniques. No market share data are available
for TEE endoscopy probes.
Non-Medical Markets
Circon manufactures and distributes borescopes, video systems, specialty
glass and other products for non-medical applications. Sales for these
applications were about 2% of total sales in 1993, and about 1% of total
sales in 1994 and 1995.
Sales and Marketing
Circon sells its endoscopy/urological products, video systems and primary
care products to hospitals, surgi-centers, clinics and physicians' offices
throughout the United States. These products are sold by a direct sales
organization with 187 employee representatives, including 152 direct sales
personnel, 19 region managers, 4 area managers, 4 national contract managers,
4 video specialists and 4 nurses.
The domestic sales and marketing activities are supervised and supported
by an in-house sales and marketing group, including telemarketing, of
approximately 65 individuals.
In international markets, Circon employs approximately 25 individuals and
sells through 70 local dealers. The international organization includes 4
direct sales representatives in Canada, and Circon's German subsidiary, Circon
GmbH, which has another 14 employees including sales, service and support
personnel. International sales are denominated in U.S. dollars except sales
made by Circon GmbH which are denominated in German Marks. Circon bears the
risk of currency exchange loss from German dealers although no material losses
have occurred in the past.
The Company's key decision maker for most purchases is either the
physician utilizing the equipment or the materials manager. The Company tends
to reach these individuals through a combination of direct selling, national
and regional group contracts, training seminars, telemarketing, advertising,
direct mail and trade shows. Circon participated in approximately 350
exhibitions, workshops and conventions worldwide during 1995 in which the
Company demonstrated endoscopes, urological stents, video camera products and
primary care urodynamic products.
Since 1988, Circon has been providing flexible mechanical endoscopy probes
to OEM customers which are suppliers of components to manufacturers of
transesophageal echocardiography equipment. Such sales are made directly by the
Company rather than through the sales force.
Circon sells its industrial products through independent sales
representatives supported by a sales manager. Miniature hardware and MicroTools
are sold through the mail directly to end users and through catalog dealers.
During the late third quarter of 1995, Circon merged its Circon ACMI and
Circon Cabot sales forces and held a two-week training program to cross train
all domestic and international direct selling representatives on the total
operating room product offering of Circon Corporation. The Company has been
promoting the merger by direct advertising, direct mailing at trade shows and
journal advertising announcing the benefits of dealing with the newly merged
Circon sales force.
The Company maintains a specialized sales force for Endotek Urodynamic
products which utilizes approximately 30 independent representatives and sales
organizations who direct substantial proportions of their time to selling the
primary care, cryosurgery and electrosurgery products.
The Company has established and maintained long-term relationships with
faculty members of leading medical schools as well as with leading surgeons and
endoscopists throughout the world. The Company's management, direct develop-
ment and marketing personnel periodically meet with these faculty members,
corporate advisors and practitioners at hospitals, clinics, company facilities,
teaching seminars and trade shows. Intensive concentrations occur with regard
to new or planned products within the specialist's particular area of interest.
These relationships have provided information concerning practitioners' needs
as well as valuable marketing contacts and goodwill. In addition, working with
leading practitioners of medical skills in new product development is a source
of product innovation. The majority of the Company's sales are to repeat
customers.
Circon typically ships hardware products within 30 days of receipt of a
firm purchase order and disposable products within 48 hours of order.
Accordingly, the Company does not believe that backlog is a reliable indicator
of future sales for any fiscal period.
Research and Development
The medical endoscope and video system businesses have been characterized
by continuing engineering innovations. Circon believes that its ability to
apply technical innovations quickly to products designed for specific medical
applications has been and will continue to be important to its success.
Expenditures for research and development were $12,794,000, $12,676,000
and $11,393,000 in 1993, 1994 and 1995 respectively.
During 1994 and 1995, Circon concentrated its efforts on expansion of the
endoscope product line for gynecology, office hysteroscopy and a new Rotating
Continuous Flow resectoscope system for use with the new VaporTrode electrode
for urology.
Endovideo product development in 1995 resulted in improved digital
processing, further enhancing video camera performance and increased
reliability. The Endovideo product line was further enhanced with a state-of
the-art Xenon light source.
During the past two years the Company has continued to develop cost-
effective procedure-based disposables such as the Tripolar Cutting Forceps,
electrosurgical suction/irrigation pencil and the Niagara Thermal Retention
System for warming of surgical irrigation fluids.
Manufacturing and Service
Circon manufactures entire endoscope systems, using proprietary
technologies and exacting quality assurance. Lens assemblies are manufactured
from blocks of optical glass, some of which the Company manufactures from raw
silica. Glass fibers are drawn using advanced "3G" or "glass on glass"
processes. The Company has developed, refined and automated the technology
required for grinding and polishing large quantities of lenses and prisms
having dimensions and radius of curvatures less than one millimeter. These
lenses and prisms are used in the manufacturing of high performance small
diameter flexible endoscopes. A key component in lens manufacturing is the
application of appropriate coatings to the surfaces of each lens, using state-
of-the-art vapor deposition equipment.
In addition, the Company manufactures endoscopic video systems, electro-
surgical generators and electrodes required for electrosurgical procedures.
Most components used in the manufacturing of video and electrosurgical devices
are bought from outside suppliers to Circon specifications. Some components,
including certain sensors and cables, are currently purchased from a single
source. The loss of any single source of supply would have no more than a
temporary effect on the Company's operations.
The Company's manufacturing organization follows good manufacturing
practices within the FDA's regulated guidelines. At the same time, quality
assurance consistently strives for worldclass standards per ISO 9000
regulations.
Service and Repairs
The Company provides a two-year warranty on endovideo systems sold in the
United States. Most endovideo system repairs are performed by the Company in
Santa Barbara, California within 24 hours of receipt. For repairs requiring
more than 24 hours, loaner systems are provided to the customer.
European repairs are handled through Circon's GmbH repair facility located
in Tauffkerchen near Munchen, Germany. All endoscope repairs are performed in
Stamford, Connecticut and Norwalk, Ohio. For rigid out-of-warranty endoscopes,
the Company offers a repair exchange instrument typically in less than 48 hours
for a fee well below the cost of a new instrument.
<PAGE>
Patents and Trademarks
While the Company holds numerous patents covering certain aspects of its
endoscope, video, electrosurgical, tubal ligation system, silicone stent and
accessing technology, it does not believe that its business is materially
dependent on its patents or licenses. The Company believes that its engineering,
customer support, product quality, trademarks, proprietary knowledge and
experience are far more significant factors in the medical instrumentation
market.
The Company has several trademarks, including "Circon", "ACMI", "BICAP",
"Berkley", "Surgitek" and "Cryomedics."
Government Regulation and Reimbursement Programs
The medical devices manufactured and marketed by the Company are subject
to regulation by the FDA as well as state and foreign regulatory agencies.
Depending on the classification of medical device, different levels of
regulation apply, ranging from extensive premarket testing and approval
procedures for Class III devices, such as implantable devices, to substantially
lower levels of regulation for Class II devices, such as endoscopes, and Class
I devices, such as video cameras. Currently, most of the Company's products are
Class I or II. Some of the Company's new products require premarket notifica-
tion to the FDA under an expedited procedure known as 510(K) that is available
only for products which are substantially equivalent to a device which was on
the market prior to May 28, 1976. If the FDA rejects the Company's claim that
there was such a substantially equivalent product, FDA premarket approval
involves a procedure requiring extensive clinical testing, additional cost and
substantial delay in the introduction of the product to market.
FDA and state regulations also require adherence to certain "good
manufacturing practices" ("GMP") which mandate detailed quality assurance and
record-keeping procedures, and the Company is subject to unscheduled periodic
regulatory inspections. The Company believes that it is in substantial
compliance with GMP regulations.
The system for Medicare reimbursement of hospital expenses is based on the
diagnosis of the patient. Under this Diagnostic Related Groups ("DRG") system,
a hospital is paid a fixed amount for admitting a patient with a specific
diagnosis according to a schedule of fees, regardless of the hospital's actual
costs of treating the patient. Whether or not the DRG reimbursement is
sufficient to cover the hospital's costs in a particular case, the ceiling on
reimbursement may provide an incentive to reduce such costs. To the extent that
the DRG program, and similar programs of private insurers, provide such an
incentive, the Company believes that they promote the use of minimally invasive
diagnostic and surgical procedures such as endoscopy which reduce postoperative
hospitalization costs. The Company is unable to predict whether future changes
to reimbursement or other healthcare reform efforts will materially affect
sales of the Company's products.
Competition
The Circon-Cabot merger creates the premier minimally invasive surgery
company in the fields of urology and gynecology. Circon is the leader in
urology and gynecology hardware products such as endoscopes and video systems.
Cabot, on the otherhand, adds leadership in disposable products such as
urological stents, laparoscopic suction-irrigation devices, and a wide variety
of gynecology products.
Circon believes that its products have the largest share of the urology
endoscope market in the United States. Major competitors in endoscopic markets
include a Japanese company (Olympus Optical Co. Ltd.) and two German companies
(Karl Storz GmbH and Richard Wolf GmbH). These companies, as well as Stryker
Corporation and Dyonics (an affiliate of Smith & Nephew plc), are the principal
competitors in the miniature medical color video camera market.
The urology market is relatively mature and dominated by a small number
of competitors. The principal competitive factors are product quality and
reliability, product features, innovation and service. The Company believes
that it competes favorably with respect to each of these factors.
The color video camera market is somewhat more fragmented than the urology
market, although some camera producers sell products only for specific medical
specialties. The principal competitive factors are image quality, minimum size
and weight, simplicity of operation, reliability, light sensitivity and
immersibility. The Company believes that it competes favorably with respect to
each of these factors.
The gynecology market is a rapidly growing area in which Circon has
substantial presence. With the addition of Cabot's line of specialty office and
disposable products to Circon's hysteroscopy products, the Company is well
positioned with respect to its competition and provides a complete array of
products.
The emerging endoscope markets are highly fragmented and market shares are
indeterminate. The principal competitive factors are product features, price
and service. The Company believes that it competes favorably with respect to
each of these factors.
An additional competitive factor is breadth of product line. Circon now
offers a complete range of diagnostic, therapeutic and post-operative products
for the urology, laparoscopy and gynecology markets. Companies with broad
product lines have certain selling advantages. The Company believes that many
customers prefer to purchase a complete video-endoscope system from a single
source to simplify the purchasing decision and to look to a single company for
servicing responsibility. Selling a complete system enables the Company to
control quality at each link in the optical-video chain and not be dependent
for system performance on components outside its control. Additional advantages
of a broader product line are greater efficiency in distribution and more
flexibility in responding to competitors' price cuts offered on a single
component of the system.
The markets in which the Company's products compete are characterized by
continuing technical innovation and competition. In order to continue to be
competitive, the Company is engaged in continuing efforts to improve its
products and to develop additional products. There is no assurance that
competition will not further intensify, either from existing competitors or
from new entrants into the markets, or that some future medical breakthrough
or technological development will not confer a competitive advantage on another
company.
Some surgical procedures which utilize the Company's products could
potentially be replaced or reduced in importance by alternative medical pro-
cedures or new drugs. The Company's Resectoscope Systems are used to perform
transurethral resection of the prostate ("TURP") to treat benign prostatic
hyperplasia ("BPH"), a condition in older men where the enlarged prostate gland
restricts urination. One alternative procedure using a balloon dilator to
compress the prostate has been on the market approximately five years and has
reportedly shown some efficacy, at least in delaying the need for TURP. Longer-
term effects of this balloon dilator procedure are still uncertain. Other
alternative procedures and certain drugs now undergoing testing and evaluation
may alleviate BPH or its symptoms or delay the need for TURP. Since 1992, Merck
& Co., Inc. has been marketing a product that, according to clinical
testing reported by the pharmaceutical company, causes the prostate gland to
stop growing in most cases, to shrink in some cases, and to restore urine flow
to near-normal rates in some cases. Abbott Laboratories, Inc. and Pfizer, Inc.
also have drugs which are FDA approved for treatment of hypertension and for
treatment of BPH. High percentages of patients using these drugs are reported
to be showing some levels of symptomatic improvement. Alternative procedures
under evaluation include implantation of a stent (metal coil) in the prostate
to provide mechanical relief from pressure on the urethra, and hyperthermia to
shrink the prostate using microwave probes inserted rectally or urethrally.
Another procedure under evaluation uses a laser probe inserted in the urethra
to treat the prostate. Circon is the exclusive urology distributor of the
UltraLine Lateral Beam ND:YAG Laser Fiber for use in the urogenital tract.
Circon also began marketing as new type of electrode, the VaporTrode for
performing the TURP.
Circon is unable at this time to assess the efficacy, safety, cost
effectiveness, physician acceptance and potential regulatory approval of these
new drugs and alternative medical procedures. To the extent that any of them
significantly reduces the need for TURPs, sales of the Company's resectoscope
products, which constitute a substantial portion of Circon's current business,
could be adversely affected. However, through product acquisitions and
strategic alliances, Circon may be able to gain access to new technologies when
they become applicable to the urology market. The Company does not believe that
these medical alternatives will substantially reduce the need for TURPs in the
medium to long term. The Company does not believe that its
urology products used for diagnosis would be adversely affected.
Employees
As of December 31, 1995, the Company had 1,236 full-time employees, of
whom 667 were engaged in manufacturing, 148 in research and development, 313
in sales and marketing and 108 in administration. Approximately 358 employees
are covered by collective bargaining agreements. The Company's collective
bargaining agreements covering union workers expire in March 1998 and January
1999. The Company has not experienced any strikes or other work stoppages in
recent years.
<PAGE>
Executive Officers of the Registrant
FIRST YEAR
ELECTED
NAME POSITION WITH COMPANY AGE OFFICE
- - ---------------- --------------------- ----- --------
Richard A. Auhll President and Chief 54 1969
Executive Officer
Winton L. Berci Vice President, 40 1989
Marketing and Sales
Frank D. D'Amelio Vice President, Chief 37 1989
Manufacturing Officer
Daniel J. Meaney, Jr. Secretary and General 59 1988
Counsel
R. Bruce Thompson Executive Vice President 52 1982
Chief Financial Officer
David P. Zielinski Vice President, General 53 1994
Manager ACMI Division
Richard Auhll has been the Chairman of the Board of Directors, President
and Chief Executive Officer of the Company since 1969. Mr. Auhll has a Bachelor
of Science degree in Engineering from the University of Michigan, a Master of
Science degree in Engineering from Stanford University, and a Master of
Business Administration degree from Harvard University. Prior to 1969, Mr.
Auhll held positions with United Technologies Corporation and was a management
consultant. He is past Chairman of the Board of Directors of Seton School for
Developmentally Disabled Children. Mr. Auhll is a member of the Board of
Trustees of the University of California at Santa Barbara Foundation.
Winton Berci joined the Company as Vice President, Marketing and Sales in
1989. Prior to joining Circon, he worked for fourteen years with Karl Storz
Endoscopy America, Inc., a major Circon competitor. He held various positions
with Karl Storz including Director of Marketing for six years. Mr. Berci has
a Bachelor of Science degree in Mechanical Engineering from California State
University.
<PAGE>
Frank D'Amelio was appointed Vice President, Chief Manufacturing Officer
in 1994, prior to which he was Vice President, General Manager of the Video
Division since 1993, and Vice President, CIRCON ACMI Engineering and Quality
Control, beginning in 1989. Prior to 1989, Mr. D'Amelio held various positions
with the Company including Director of Quality Assurance. He joined ACMI in
1982. Mr. D'Amelio has a Bachelor's Degree in Electrical Engineering from the
University of Hartford.
Daniel Meaney has been Secretary and General Counsel since 1988. Prior to
joining the Company, Mr. Meaney engaged in the practice of law for 24 years,
including private practice as outside patent counsel for Circon. Mr. Meaney
resumed his private practice in September, 1995 when he retired as Vice
President of Circon. He continues to provide outside patent counsel for Circon.
Prior to his position with Circon, Mr. Meaney served as Secretary and General
Counsel for Applied Magnetics Corporation. Mr. Meaney has a Bachelor of
Electrical Engineering degree from the Institute of Technology, University of
Minnesota, and a Juris Doctorate from William Mitchell College of Law, St.
Paul, Minnesota.
Bruce Thompson has been Executive Vice President and Chief Financial
Officer since 1985, and Vice President since 1982. He joined the Company in
1977 as Controller. Prior to 1977, Mr. Thompson held positions with Heyer-
Schulte Corporation, a subsidiary of American Hospital Supply Corporation and
Cutter Laboratories, Inc. Mr. Thompson has a Bachelor of Arts degree in
Economics from Stanford University, and a Master of Business Administration
degree from the University of California at Los Angeles.
David Zielinski was appointed Vice President, General Manager of Circon
ACMI in 1994, prior to which he was Vice President of Manufacturing for Circon
ACMI. Prior to 1986, Mr. Zielinski held various positions with the Company
including Director of Manufacturing for ACMI. He joined ACMI in 1982. Prior to
joining ACMI, Mr. Zielinski held various positions with General Electric. Mr.
Zielinski has a Bachelor of Science degree in Electrical Engineering from
University of Evansville and a Master of Arts degree in Business Administration
from Union College.
ITEM 2. PROPERTIES
Circon currently owns or leases a total of 487,000 square feet of office
and manufacturing space in six locations.
The Company is headquartered in Santa Barbara, California. There, the
Company owns a 76,000 square foot facility used for administration and
manufacturing. The Company currently leases 5,000 square feet of the building
to tenants.
The Company owns 29 acres of land and 52,000 square feet of manufacturing
space in Norwalk, Ohio. The Company also leases and occupies 14,000 square feet
of manufacturing space in Norwalk.
The Company leases and occupies 98,000 square feet of office and
manufacturing space in a 150,000 square foot building in Stamford, Connecticut
through March, 2004. The Company has a ten year lease with an option to extend
for an additional five years covering the entire 150,000 square foot facility.
In 1995, the Company negotiated to sublease 52,000 square feet of this
facility.
The Company owns two buildings situated on 23 acres in Racine, Wisconsin,
which is approximately 25 miles from Milwaukee: (1) a 73,000 square foot
building used as a manufacturing and warehousing facility; and (2) a 36,000
square foot building used as an engineering and administrative facility.
The Company owns a 41,000 square foot facility in Langhorne, Pennsylvania,
used as an administrative, manufacturing, engineering and warehousing facility.
The Building is located within a developed industrial park approximately 30
miles northeast of central Philadelphia.
The Company owns an additional 41,000 square foot facility in Langhorne
previously used as a manufacturing facility. This property has been leased and
the manufacturing operation has been relocated to the Langhorne and Racine
facilities. In 1995, the Company sold a 2.67 acre vacant lot adjacent to the
leased facility in Langhorne.
The Company leases and occupies approximately 4,000 square feet of office
and repair space in Munich, Germany through November, 1996.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings involving the Company pending at
this time.
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
Circon's Common Stock is traded in the over-the-counter market and is
quoted through the National Association of Securities Dealers Automated
Quotation System under the NASDAQ symbol "CCON." The following table shows
the actual closing prices of the Company's Common Stock quoted on the NASDAQ
National Market System.
High Low
1994: ------- ------
First Quarter . . . . . . . . . . . . . . . . . 14-1/4 11-1/2
Second Quarter . . . . . . . . . . . . . . . . . 13-3/8 9
Third Quarter. . . . . . . . . . . . . . . . . . 13-1/4 8-1/2
Fourth Quarter . . . . . . . . . . . . . . . . . 13-3/8 10-3/4
1995:
First Quarter. . . . . . . . . . . . . . . . . . 19-1/2 11-3/4
Second Quarter . . . . . . . . . . . . . . . . . 23-1/4 16
Third Quarter. . . . . . . . . . . . . . . . . . 21 17
Fourth Quarter . . . . . . . . . . . . . . . . 23-1/2 18
As of December 31, 1995, the Company had approximately 1,237 share-
holders of record. No dividends have been paid by Circon and it is not
anticipated that any will be paid in the foreseeable future.
ITEM 6.
SUMMARY FINANCIAL INFORMATION
(in thousands, except per share data)
Circon Corporation and Subsidiaries
<TABLE>
<S> <C> <C> <C> <C> <C>
December 31,
---------------------------------------------------
1991 1992 1993(A) 1994 1995 (A)
Income Statement Data: ----- ------ ------ ------ ------
Net Sales 109,587 138,481 156,861 157,041 160,447
Gross Profi 57,786 73,294 80,972 88,569 83,640
Operating Income (Loss) 10,566 8,238 (1,454) 13,753 3,820
Net Income (Loss) 6,240 4,386 (6,212) 6,509 (5,393)
Net Income (Loss) per Share 0.57 0.35 (0.50) 0.51 ( 0.41)
Fully Diluted Net Income (Loss)
per Share 0.56 0.35 (0.50) 0.51 (0.41)
Weighted Average
Shares Outstanding 11,041 12,525 12,418 12,738 13,237
Fully Diluted Weighted
Average Shares
Outstanding 11,127 12,525 12,418 12,739 13,332
December 31,
----------------------------------------
1991 1992 1993 1994 1995
Balance Sheet Data: ------ ------ ----- ------ -----
Working Capital 66,352 77,34 6 70,857 70,811 55,365
Total Assets 109,169 183,648 177,301 184,129 181,399
Total Debt 13,892 74,209 74,184 73,483 72,292
Total Shareholders' Equity 82,225 89,941 81,768 86,965 87,172
No cash dividends have been paid during the periods presented.
(A) See Note 4
</TABLE>
ITEM 7. Management's Discussion and Analysis of Operations and Financial
Condition
Results of Operations
Overview
In 1993 and 1994 Circon's and Cabot's businesses were adversely impacted
by the hesitation in hospital purchases caused by the proposed Clinton
healthcare reforms. The reform proposals were defeated in late 1994 and
Circon rebounded with improving sales growth. Subsequently there has been an
increased focus on cost effectiveness as the market returned to normality.
The favorable trend continued for Circon through the first six months of
1995 with sales growing 13% and operating income increasing 76% over the
1994 period.
Cabot struggled throughout the first six months of 1995. Domestic sales
suffered as they began integrating their urology and endoscopy sales forces.
Profitability declined as they shifted production and closed a facility.
However, by the third quarter 1995, Cabot's sales began to rebound and
profitability improved.
On August 28, 1995 Circon Corporation acquired Cabot Medical
Corporation. In this discussion "Combined" presents Circon and Cabot for the
full current year and all prior periods as if they had always been merged which
is required under the pooling of interests accounting rules. However, to
clarify operating trends, the two companies will be discussed separately and
indicated by the terms "Circon" and "Cabot."
The merger with Cabot now positions the Combined Circon to take advantage
of the changes within the healthcare market. Circon and Cabot have been
selling different products to the same doctors doing the same procedures.
The company has now gained the critical mass and broader product line-up needed
to better serve the larger hospitals and buying groups. Combined Circon gains
market share in urology, and increased stature in gynecology and general
surgery due to Cabot's strength in these markets. The doubling of the U.S.
sales force substantially reduces travel time and increases productive selling
time for each sales representative which enables them to better service their
customers. The elimination of duplicative marketing programs, administrative
functions and manufacturing overhead should result in higher profit margins
in the medium term.
Comparison of the Year Ended December 31, 1995
to the Year Ended December 31, 1994
Sales
Combined sales for 1995 totalled $160.4 million, up 2% over 1994.
The 23% increase in Combined international sales was offset by a 1% decrease
in combined U.S. sales. Management targeted improving sales growth in
international markets as a major 1995 objective. A new Circon distribution
agreement in Japan, coupled with excellent worldwide reception given the
Company's new urology and gynecology products, resulted in excellent
international sales growth throughout 1995.
Circon's total sales were up over 14% during the first nine months in 1
995 due in part to the excellent reception of Circon's new VaporTrode
Vaporizing Electrode and Continuous Flow Rotating Resectoscope system.
Pricing pressures on Cabot's disposable products coupled with the
disruption caused by Cabot's integration of its endoscopy and urology sales
forces during the first part of 1995, caused Cabot's sales decline of 4% during
the first nine months.
In the fourth quarter Combined international sales were up 10%, however,
the Combined U.S. sales force sales were down 10% as a result of the
reorganization of the entire U.S. sales force due to the merger of Circon and
Cabot. During the fourth quarter every U.S. sales representative had to
penetrate a new geographical-customer base and simultaneously learn
entirely new products representing about 50% of their total sales.
Gross Profit
The 1995 Combined gross profit percentage was 54.8% of sales
compared to 56.4% for 1994. The second half of 1995 gross profit percentage
improved to 55.5% from 53.9% in the first half.
Circon's gross profit was up 18% during the first nine months in 1995 and
totalled 54.3% of sales due to increased sales of VaporTrode and related
products which carry higher profit margins.
Cabot's gross profit was down 14% during the first nine months of 1995
and totalled 54.9% of sales due to lower prices on Cabot disposable products
as well as shifts in sales mix.
In the fourth quarter, the Combined gross profit improved to 55.4% of
sales up from 54.9% for the comparable 1994 period.
There was a special charge in the third quarter of 1995 of $4.2 million in
cost of sales to write off inventories of duplicative products and excess
manufacturing equipment as a result of the merger.
Operating Expenses
Combined selling and administrative expenses increased $2.1 million to
$64.2 million for the full year 1995, but were down $0.7 million in the
respective fourth quarters.
The 14% increase in Circon sales caused higher commission expense
and promotional expenses associated with the introduction of the
VaporTrode Vaporizing Electrode and the Continuous Flow Rotating
Resectoscope resulted in higher sales and marketing expenses during the first
nine months of 1995.
Cabot's sales and marketing expenses increased due to additional
expenses related to integrating and training their endoscopy and urology sales
forces during the first part of 1995.
Post merger Combined selling and administrative expenses declined $0.5
million in the fourth quarter as some of the duplicative expenses between the
two companies were eliminated.
Combined 1995 research and development expenses dropped $1.3 million
to $11.4 million, yet were 7.1% of combined sales. The majority of the R&D
expense decrease was due to the elimination of redundant positions when Cabot's
R&D functions were consolidated into the Langhorne, Pennsylvania, facility in
early 1995.
Fourth quarter 1995 Combined operating expenses were $18.7 million,
down $0.7 million or 3% from the fourth quarter 1994.
A special business integration charge of $4.2 million associated with
merging the two companies was part of operating expenses in the third quarter.
These merger expenses related to reorganizing, cross training and
providing the requisite demonstration equipment for the U.S. sales force.
Combined operating expenses for 1995, excluding the business integration
expense, increased $783,000 or 1% over the comparable 1994 period, but
were 47% of sales compared to 48% of sales for the 1994 period.
Interest and Other Income (Expense)
Interest income totalled $1.3 million in 1995 compared to $0.9 million in
1994. The increase resulted from higher rates of return on investments.
Interest expense totalled $5.9 million in 1995 compared to $6.0 million in
1994. Other expense increased in 1995 primarily due to higher franchise taxes.
The special charges of $4.9 million reflect fees and other one time
expenses specifically associated with the Cabot merger and are classified as
nonrecurring transaction costs.
Income
Circon's income before taxes increased substantially during the first half
of 1995; up 42% in the first quarter and up 107% in the second quarter, as a
result of sales growth and margin improvements.
As noted above, most of Circon's gains were offset by Cabot's transitional
problems during the first half 1995.
Excluding these one-time charges, Combined 1995 income before taxes
totalled $7.4 million, down $1.1 million from 1994, due to lower gross profit
and slightly higher operating expenses discussed above. The $6.0 million
Combined net loss before provision for income taxes in 1995 resulted from the
special business integration and non-recurring transaction costs associated
with the Cabot merger of $13.4 million.
Combined net income from operations was $4.4 million, excluding special
charges of $13.4 million pretax and $9.8 million after taxes. A 1995 net
loss of $5.4 million was the result of the factors discussed above partially
offset by an income tax benefit of $574,000.
Comparison of the Year Ended December 31, 1994
to the Year Ended December 31, 1993
Sales increases by Circon's U.S. sales force and industrial and
government sectors were partially offset by a decrease in international sales.
Cabot's sales were down 2% on a shift in sales mix as a result of a
de-emphasis on capital equipment which typically has higher sales prices per
unit and greater emphasis on specialty disposable and reuseable instrument
products which have lower unit sales prices. Cabot's international sales
were also down due to recessionary pressures in European and Latin American
markets. Combined sales of $157.0 million for 1994 were level compared to
1993 sales of $156.9 million.
Gross Profit
Combined gross profit increased 9.4% to $88.6 million in 1994 compared
to $81.0 million for 1993. Combined gross profit percentage increased to 56.4%
of sales compared to 55.8% in 1993. Circon's gross profit totalled $46.3
million, up 6% from 1993. Cabot's gross profit percentage was up
substantially due to the shift in sales mix toward more profitable specialty
disposables and reusable instrument products and away from less profitable
capital equipment. A $6.5 million restructuring charge was included in the
combined 1993 results.
Operating Expense
Combined selling and administrative expenses totalled $62.1 million
for 1994, down $2.7 million or 4% from the prior year. Extensive efforts to
reduce sales, marketing and administrative expenses were undertaken by both
Circon and Cabot in 1994. Cabot's sales and marketing expenses decreased
$1.6 million due to lower sales commission expenses as a result of lower
absolute sales coupled with the change in commission rates associated with
the shift in the mix of products sold. Cabot's administrative expenses were
lower as a result of a human resource rationalization program and reduced
public reporting expenses.
Combined research and development expenses were carefully controlled
during 1994, and were down slightly from the 1993 level. R&D expenses
remained at 8.1% of sales, unchanged from the prior period.
In 1993, Cabot had a special charge of $4.6 million relating to
organizational downsizing, facilities rationalization and write-off of
demonstration inventory related to products no longer being marketed.
Combined operating expenses totalled $74.8 million in 1994, down $2.7
million or 3.5% from 1993 excluding the special charge discussed above.
Operating Income
Combined operating income totalled $13.8 million in 1994, up substantially
over 1993. The gross profit improvement and operating expense reductions,
discussed above, were the major factors. Circon's 1994 operating income jumped
129% over 1993.
Interest and Other Income (Expense)
Interest income totalled $0.9 million for 1994, up slightly over 1993
due to higher interest income from Cabot.
Interest expense totalled $6.0 million for 1994, a $0.2 million increase
over 1993 primarily the result of higher realized and unrealized losses on
securities in 1994.
Other income (expense) switched from net income in 1993 to net
expense in 1994. Higher franchise taxes were the causal factor.
Total interest and other expenses increased from $4.9 million in 1993 to
$5.3 million in 1994.
Income Before Taxes
Income before provision for income taxes of $8.5 million in 1994
represents a $3.5 million or 70% improvement over 1993, excluding the
$11.4 million special charge in 1993. The high gross profit margins coupled
with lower operating costs were the principal cause of the improvement.
Income Taxes
The 1994 provision for income taxes of $1.9 million reflects a higher
effective tax rate for Circon due to the inability to obtain tax benefits from f
oreign losses, less tax exempt income, the absence of a one-time adjustment
for SFAS109 utilized in 1993, compared to the 1993 provision which reflects
Cabot's losses without tax benefit.
Net Income
Net income of $6.5 million in 1994 represented a significant
improvement from the $6.2 million loss reported for 1993. The elimination of
the $11.4 in special charges in 1993, coupled with the operating improvements
discussed above, were primary factors in the improvement.
Liquidity and Capital Resources
The Company's financial position remains strong with working capital of
$55.4 million. $14.9 million of the working capital (cash) has been allocated
for refinancing Cabot's convertible notes (see below). Circon's current ratio
is 2.6:1. Cash, temporary cash investments and marketable securities are
$24.1 million.
On December 31, 1995, Circon had $75.0 million of an unused, secured
revolving credit line with a syndicate of banks. Interest on this credit line
is indexed to either LIBOR or the banks' base rate at Circon's option. Circon
also has a letter of credit totalling $5.3 million underlying $7.0 million of
tax exempt Cabot industrial development authority bonds. The letter of credit
has a renewable five year term and carries an annual fee of 1% of the
outstanding bond principal facility.
Circon repurchased at par 99.94% of the $67.0 million of Cabot's 7.5%
convertible notes pursuant to a vote of bondholders taken on November 20,
1995. Approximately $50.5 million of Circon's $75.0 million credit facility was
used to repurchase the Cabot notes in January 1996.
Combined non-cash charges for depreciation and amortization aggregated
$35.5 million over the three year period 1993 through 1995, and $31.0 million
was used to purchase plant and equipment (net of retirements). (See
Consolidated Statement of Cash Flow and related notes hereto.)
The Company believes that cash flow from operations, existing cash,
marketable securities and cash available from bank credit arrangements are
adequate to fund the Company's existing operations for the foreseeable future.
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
Report of Independent Public Accountants
Consolidated Financial Statements:
Balance Sheets - December 31, 1994 and 1995
Statements of Operations for the years ended December 31, 1993, 1994,
and 1995
Statements of Shareholders' Equity for the years ended December 31, 1993,
1994, and 1995
Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995
Notes to Consolidated Financial Statements
(All other schedules are omitted because they are not applicable, not required
or the information required to be set forth therein is included in the
financial statements or in the notes thereto.)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Circon Corporation:
We have audited the consolidated balance sheets of Circon Corporation
(a Delaware corporation) and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on theses financial statements based on our audits. We did not audit the
financial statements of Cabot Medical Corporation prior to 1995, a company
acquired during 1995 in a transaction accounted for as a pooling of interests,
as discussed in Note 3. The Cabot Medical Corporation statements for 1994
and 1993 are included in the consolidated financial statements of Circon
Corporation and reflect total assets of 50% in 1994 and revenues of 43% and
44% for 1994 and 1993, respectively, of the related consolidated totals, after
those statements reflect adjustments for the pooling of interests as set
forth in Note 3. The financial statements of Cabot Medical Corporation for
1994 and 1993 prior to those adjustments were audited by other auditors whose
reports have been furnished to us and our opinion, insofar as it relates to
the amounts included for Cabot Medical Corporation, prior to those adjustments,
is based solely upon the reports 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 consolidated financial
statements are free of material misstatements. 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 reports of other auditors, provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Circon Corporation and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles.
As explained in Note 3, in connection with the Cabot Medical Corporation
acquisition, Circon Corporation has given retroactive effect to the change
in accounting for demonstration equipment and as explained in Note 10,
effective January 1, 1993, the Company changed its method of accounting
for income taxes.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 6, 1996
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cabot Medical Corporation:
We have audited the accompanying consolidated balance sheet of Cabot Medical
Corporation and subsidiaries as of October 29, 1994 and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
ended October 29, 1994 and October 31, 1993 (not separately presented herein).
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
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 provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above (not
separately presented herein) present fairly, in all material respects, the
financial position of Cabot Medical Corporation and subsidiaries as of
October 29, 1994, and the results of their operations and their cash flows
for the years ended October 29, 1994 and October 31, 1993, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Princeton, New Jersey
December 2, 1994
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
ASSETS
(In thousands, except for share amounts)
December 31, December 31,
1994 1995
------------ -----------
CURRENT ASSETS:
Cash and temporary cash investments $ 2,475 $ 17,586
Marketable securities 21,301 6,496
Accounts receivable, net of allowance of
$1,476 in 1994, and $1,807 in 1995 27,017 26,539
Inventories 29,353 31,645
Prepaid expenses and other assets 3,141 2,627
Deferred income taxes 5,946 5,932
------------ ----------
Total current assets 89,233 90,825
PROPERTY, PLANT, AND EQUIPMENT, NET 52,201 53,750
DEFERRED INCOME TAXES 786 -
OTHER ASSETS 41,909 36,824
----------- ----------
Total assets $ 184,129 $ 181,399
=========== ==========
The accompanying notes are an integral part of
these consolidated balance sheets.
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands, except for share amounts)
December 31, December 31,
1994 1995
------------ -----------
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 701 $ 15,857
Accounts payable 5,019 7,728
Accrued liabilities 12,229 10,796
Customer deposits 473 1,079
----------- -----------
Total current liabilities 18,422 35,460
NONCURRENT LIABILITIES:
Long-term obligations 72,782 56,435
Deferred income taxes 5,633 2,251
Capital lease obligations and other 327 81
---------- -----------
Total noncurrent liabilities 78,742 58,767
COMMITMENTS AND CONTINGENCIES (Note15)
SHAREHOLDERS' EQUITY:
Preferred stock: $ .01 par value
1,000,000 shares authorized, none
outstanding
Common stock: $ .01 par value
50,000,000 shares authorized;
12,181,391 and 12,564,079 issued
and outstanding in 1994 and
1995, respectively 122 126
Additional paid-in capital 89,749 94,928
Notes receivable from officers (272) -
Unrealized losses on Marketable Securities (314) -
Minimum pension liability - (143)
Cumulative translation adjustment (338) (513)
Accumulated Deficit (1,982) (7,226)
--------- --------
Total shareholders' equity 86,965 87,172
Total liabilities and shareholders'
equity $ 184,129 $ 181,399
========= ========
The accompanying notes are an integral part of
these consolidated balance sheets.
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
(In thousands, except per share amounts)
1993 1994 1995
------- ------- -------
NET SALES $ 156,861 $ 157,041 $ 160,447
Cost of sales 69,368 68,472 72,595
Special Charges (Note 4) 6,521 - 4,212
-------- ------- -------
GROSS PROFIT 80,972 88,569 83,640
OPERATING EXPENSES:
Research and development 12,794 12,676 11,393
Selling, general and
administrative 64,765 62,140 64,206
Special Charges (Note 4) 4,867 - 4,221
--------- ------- ------
Total operating expenses 82,426 74,816 79,820
--------- ------- -------
INCOME (LOSS) FROM OPERATIONS (1,454) 13,753 3,820
Special Charges (Note 4) - - (4,936)
Interest income 754 884 1,346
Interest expense (5,821) (5,970) (5,946)
Other income (expense), net 132 (212) (251)
-------- -------- --------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (6,389) 8,455 (5,967)
Provision (benefit) for income
taxes 27 1,946 (574)
--------- -------- -------
Income (loss) before cumulative
effect of accounting change (6,416) 6,509 (5,393)
Cumulative effect of
accounting change 204 - - -
-------- ------- -------
NET INCOME (LOSS) $ (6,212) $ 6,509 $ (5,393)
EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share
before cumulative effect of
accounting change $ (.52) $ .51 $ (.41)
Cumulative effect of
accounting change .02 - -
------- ------- ------
Earnings (Loss) Per Share $ (.50) $ .51 $ (.41)
======= ======== =======
Weighted Average Number of
Shares of Common Stock and
Equivalents Outstanding 12,418 12,738 13,237
======== ======= =======
The accompanying notes are an integral part of
these consolidated statements.
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(In thousands, except share amounts)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Notes Unrealized Retained
Additional Receivable Losses on Minimum Cumulative Earnings Total
Shares Common Paid-in From Marketable Pension Translation (Accumulated Treasury Shareholders'
Issued Stock Capital Officers Securities Liability Adjustment Deficit) Stock Equity
----------- ------ --------- ---------- ---------- --------- ---------- ------------ -------- ------------
Balance December
31, 1992 10,960,055 $ 110 $ 69,256 $ - $ - $ - $ 80 $ 19,575 $ (430) $ 88,591
Tax benefit from
exercise of stock
options - - 275 - - - - - - 275
Stock options
exercised 63,946 1 208 - - - - - - 209
Stock dividends 733,645 7 12,888 - - - - (12,895) - -
Cumulative translation
adjustment - - - - - - (273) - - (273)
Net Loss - - - - - - - (6,212) - (6,212)
Purchase of 31,125
shares of Treasury
Stock - - - - - - - - (820) (820)
---------- ------ -------- ------- ------ ----- ------- -------- ------- -------
Balance December
31, 1993 11,757,646 118 82,627 - - - (193) 468 (1,250) 81,770
Tax benefit from
exercise of
stock options - - 692 - - - - - - 692
Stock options
exercised 310,363 3 1,220 (272) - - - - - 951
Stock dividends 392,678 4 8,955 - - - - (8,959) - -
Unrealized loss on
marketable
securities - - - - (314) - - - - (314)
Cumulative translation
adjustment - - - - - - (145) - - (145)
Net Income - - - - - - - 6,509 - 6,509
Purchase of 111,428
shares of Treasury
Stock - - - - - - - - (1,843) (1,843)
Retirement of
Treasury Stock (279,296) (3) (3,745) - - - - - 3,093 (655)
---------- ---- -------- ------- -------- ------- ------- ------ ------- ------
Balance December
31, 1994 12,181,391 122 89,749 (272) (314) - (338) (1,982) - 86,965
Tax benefit from
exercise of stock
options - - 1,169 - - - - - - 1,169
Stock options
exercised 384,624 4,010 - - - - - - 4,014
Retirement of
non-vested
shares (1,598) - - - - - - - - -
Other (338) - - 272 - - - - - 272
Unrealized losses on
marketable
securities - - - - 314 - - - - 314
Minimum pension
liability - - - - - (143) - - - (143)
Cumulative translation
adjustment - - - - - - (175) - - (175)
Net loss - - - - - - - (5,393) - (5,393)
Cabot income - November
and December 1994 - - - - - - - 149 - 149
---------- ----- ------- ------ ------ ----- ----- ------- ------- --------
Balance December
31, 1995 12,564,079 $ 126 $ 94,928 $ - $ - $ (143) $ (513) $ (7,226) $ - $ 87,172
========== ====== ====== ====== ====== ===== ==== ===== ====== ========
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES 1993 1994 1995
-------- ------ ------
Net income (loss) $ (6,212) $ 6,509 $ (5,393)
Adjustments to reconcile net
income (loss) to cash provided by
operating activities:
Depreciation and amortization 11,400 11,492 8,295
Deferred income taxes (1,318) (2,710) (2,582)
Cumulative effect of accounting
change / other (204) - 149
Loss on disposals 1,464 115 2,042
Change in assets and liabilities:
Accounts receivable 3,252 (3,572) 478
Inventories 7,311 (363) (2,292)
Prepaid expenses and other assets (271) 670 514
Other assets (59) (520) 3,468
Accounts payable (951) (179) 2,709
Accrued liabilities 568 1,379 (1,576)
Customer deposits (45) 81 606
Other noncurrent liabilities 389 (234) -
-------- -------- --------
Net cash provided by operating activities 15,324 12,668 6,418
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
(In Thousands)
CASH FLOWS FROM INVESTING ACTIVITIES 1993 1994 1995
------- ------- -------
Disposals of marketable securities, net 1,638 195 15,119
Purchases of property, plant
and equipment (12,794) (12,409) (9,519)
Purchase of Lican Medical Products (1,027) - -
Purchase of intangible (239) (160) -
Cumulative translation adjustment (273) (148) (172)
-------- --------- --------
Net cash provided by (used in)
investing activities (12,695) (12,522) 5,428
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 209 953 4,011
Purchase of treasury stock (820) (2,497) -
Repayments of capital lease obligations (297) (321) (395)
Repayments of long-term obligations (420) (445) (1,042)
Tax benefit from exercise of stock options 275 692 1,169
Other - - (478)
-------- ------- ---------
Net cash provided by (used in)
financing activities (1,053) (1,618) 3,265
Net increase (decrease) in cash
and temporary cash investments 1,576 (1,472) 15,111
Cash and temporary cash investments,
beginning of period 2,371 3,947 2,475
-------- --------- -------
Cash and temporary cash investments,
end of period $ 3,947 $ 2,475 $ 17,586
========= ========= =======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 5,350 $ 5,354 $ 5,398
======== ========= ========
Cash paid for income taxes
(net of refunds received) $ 1,144 $ (274) $ 2,097
======== ========= ========
The accompanying notes are an integral part of
these consolidated statements.
CIRCON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(In thousands except share and per share information)
(1) Background
On August 28, 1995, Circon Corporation ("Circon") merged with
Cabot Medical Corporation ("Cabot"), collectively referred to as "the
Company", in a transaction accounted for as a pooling of interests
(see Note 3). Circon's consolidated financial statements have been restated
for all periods prior to the merger to include the financial position, results
of operations and cash flows of Cabot.
The Company markets medical devices for diagnosis and minimally
invasive surgery and general surgery. The Company's products are used in
a number of medical specialities including urology, gynecology, arthroscopy,
laparoscopy, thorascopy and plastic surgery. The Company's products
compete in markets characterized by continuing technological innovation,
increasing competition and pressures on cost. Political, economic and
regulatory influences are subjecting the Company's industry in the United
States to rapid, continuing and fundamental change.
The Company sells products worldwide from its facilities in the
United States, Canada and Germany. Net sales by geographic areas are as
follows:
1993 1994 1995
-------- -------- ---------
Domestic sales $134,168 $135,771 $134,262
International sales 22,693 21,270 26,185
--------- -------- ---------
$156,861 $157,041 $160,447
======== ======== =========
(2) Summary of Significant Accounting Policies
Basis of Presentation
The Company prepares its consolidated financial statements in
accordance with generally accepted accounting principles, which require that
management make estimates and assumptions that affect the reported amounts.
Actual results could differ from these estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Circon
and its domestic and foreign subsidiaries. All significant intercompany
transaction and accounts have been eliminated in consolidation.
Sales Recognition
The Company recognizes revenue from product sales upon shipment
of goods.
Inventories
Inventories include costs of materials, labor and manufacturing
overhead. Inventories are priced at the lower of cost (first-in, first-out) or
market.
Property, Plant, and Equipment and Other Assets
Depreciation of property, plant, and equipment and amortization of
other assets are provided for using the straight-line method over the
following estimated useful lives:
Buildings 31-33 years
Manufacturing equipment 3-10 years
Demonstration equipment 1-3 years
Office and other equipment 4-10 years
Leasehold improvements and
leasehold interest Lower of estimated useful life or
remaining term of lease
Goodwill 20-40 years
Patents and Licenses 3-17 years
Trademarks 10-23 years
Fee Registration 21 years
Other 5-17 years
The Company capitalizes expenditures that materially increase asset
lives and charges ordinary maintenance and repairs to operations as incurred.
When properties are disposed of, the costs and accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in the
consolidated statements of operations.
Long lived assets and intangibles held and used by the Company are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable.
Demonstration equipment, which is eventually refurbished and sold,
is depreciated on a straight-line basis, after considering estimated residual
value.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries are translated into
U.S. dollars at current exchange rates. The related translation adjustments
are recorded in a separate component of shareholders' equity. Revenues
and expenses are translated at the average exchange rates in effect during
the period.
Research and Development
Expenditures for research and development are charged to
operations as incurred.
Temporary Cash Investments
The Company's cash investments include investments in bank money
market funds and other short-term, highly liquid investments with maturities
of three months or less.
Earnings Per Share
Earnings per common share and common equivalent share have been
computed by dividing net income by the weighted average number of shares
of common stock and common stock equivalents outstanding during the year.
The number of common shares was increased in 1994 for the dilutive effect
of shares issuable upon the exercise of warrants and stock options.
Recently Issued Accounting Pronouncements
The Company does not believe any recently issued accounting
standards will have a material impact on its financial condition or results of
operations. The Company plans to continue to apply the recognition and
measurement provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and adopt the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("FAS 123"), beginning in
1996. Accordingly, the issuance of FAS 123 will not impact the Company's
consolidated financial statements.
(3) Cabot Business Combination
On August 28, 1995, Circon issued 4,339,302 shares of its common
stock for all the outstanding shares of Cabot Medical Corporation.
In connection with the merger, $13,369 (pre-tax) of merger costs
and non-recurring combination expenses were incurred and have been
charged to expense in the year ended December 31, 1995 (See Note 4).
The Company is continuing to review its strategies for the combined
operations. Further changes are possible which may result in future
charges.
Cabot had an October 31 fiscal year-end, and accordingly, the
Company's statements of income and notes to consolidated financial
statements for the years ended December 31, 1994 and 1993 include
the operations of Cabot for the fiscal years ended October 31, 1994 and
1993. In order to conform Cabot's year-end, the two month period from
November 1, 1994 to December 31,1994 is not presented separately and
has been included as an adjustment to retained earnings. Cabot's results
of operations for this two month period include net sales of $10,516 and
net income of $149.
Separate net sales and net income of the merged entities are
presented in the following table.
(Unaudited)
Year Ended Year Ended Six Months Ended
December 31, 1993 December 31, 1994 June 30, 1995
----------------- ----------------- ----------------
Net Sales
- - ----------
Circon $ 87,301 $ 88,944 $48,410
Cabot 69,560 68,097 31,344
--------- --------- ---------
$156,861 $157,041 $79,754
========= ========= ========
Net Income (Loss)
- - -----------------
Circon $ 2,258 $ 3,811 $ 2,946
Cabot (9,590) 3,093 (1,465)
Adjustments (580)(1) (395)(1) (515)(1)
1,700 (2) - -
---------- -------- --------
$ (6,212) $ 6,509 $ 966
========== ======== ========
(1) Retroactively conforms Circon's accounting for demonstration equipment to
Cabot's accounting policy.
(2) Elimination of Cabot's income tax valuation allowance for timing
differences.
(4) Special Charges
1995
In connection with the merger of Circon and Cabot, $13,369 (pre-tax)
of merger costs and non-recurring combination expenses were incurred and
charged to expense in the third quarter of 1995. These costs include $8,433
associated with the elimination of duplicative, excess, and obsolete
inventories and related production equipment, and reorganizing and cross
training the sales force, and $4,936 of fees and other expenses specifically
associated with the merger process.
1993
During 1993, in response to anticipated changes in the health care
industry caused by proposed health care reform legislation, both Circon and
Cabot recorded special charges. This included $6,521 charged to cost of
sales for write-down of inventory related to product restructuring, and
$4,867 charged to operating expense, consisting of 1) $2,034 write-off of
salesman's demonstration equipment and 2) $2,833 for organization
streamlining and facility rationalization program including severance,
relocation, disposal costs and other related charges.
<PAGE>
(5) Marketable Securities
The Company classifies their investments as held-to-maturity and
available-for-sale and does not hold any trading securities. Held-to-maturity
securities are recorded at cost. Adjustments to market value for
available-for-sale maturities are recorded as a separate component in the
shareholders' equity section of the consolidated balance sheet at
December 31, 1994. In 1995, the Company recorded an income statement
charge of $272, included in other expense, to recognize market value losses
since the securities will be liquidated in early 1996 in connection with the
redemption of the Cabot convertible debentures.
The following summarizes the Company's marketable securities at
December 31, 1994 and 1995:
1994 1995
Held-to-maturity: ------ ------
Municipal obligations $15,035 $ -
U.S. government securities 2,247 -
Other 896 -
Available-for-sale:
Municipal obligations - 3,359
Preferred stock in utility
companies 3,123 3,112
Other - 25
------- -------
$21,301 $ 6,496
====== =======
(6) Inventories
Inventories include costs of materials, labor and manufacturing
overhead and are priced at the lower of cost (first-in, first-out) or market.
Inventories at December 31, 1994 and 1995 consist of the following:
1994 1995
-------- --------
Raw materials $ 8,809 $11,017
Work in process 9,719 12,243
Finished goods 10,825 8,385
-------- ---------
$29,353 $31,645
======== =========
(7) Property, plant, and equipment
Property, plant and equipment consists of the following at
December 31, 1994 and 1995:
1994 1995
-------- -------
Land $ 3,604 $ 3,380
Building 13,462 23,590
Manufacturing equipment 16,825 19,699
Office and other equipment 10,125 10,734
Platinum used in manufacturing
equipment 1,465 1,450
Demonstration equipment 18,205 23,989
Headquarters construction in progress 8,504 -
Other construction in progress 3,298 2,706
Leasehold improvements 1,197 1,179
-------- ---------
76,685 86,727
Less - Accumulated depreciation
and amortization (24,484) (32,977)
-------- ---------
$52,201 $53,750
========= =========
(8) Other assets
Other assets consist of the following at December 31, 1994 and 1995:
1994 1995
-------- -------
Goodwill $15,542 $15,542
Patents and Licenses 8,766 8,766
Trademarks 20,536 20,536
Fee Registration 2,030 2,030
Other 5,061 2,343
Less - Accumulated
amortization (10,026) (12,393)
----------- ----------
$ 41,909 $ 36,824
========== ==========
(9) Accrued Liabilities
Accrued liabilities consist of the following at December 31, 1994
and 1995:
1994 1995
-------- ---------
Payroll and payroll related $ 6,011 $ 5,482
Interest 887 1,705
Taxes - other than income 1,518 956
Inventory purchases 256 590
Warranty 562 464
Royalty 294 342
Product liability 289 321
Other 2,412 936
--------- ---------
$12,229 $10,796
========== ==========
(10) Income Taxes
The components of the provision for income taxes applicable to
income for the three years ended December 31, 1993, 1994 and 1995 are
as follows:
1993 1994 1995
Federal ------ ------- ------
Current $ 336 $1,565 $1,400
Deferred (208) (51) (1,877)
------ ------- -------
128 1,514 (477)
State ------ ------ -------
Current 183 263 497
Deferred (296) 126 (617)
------- ------- -------
(113) 389 (120)
Foreign ------- ------- -------
Current 12 43 23
------- -------- -------
Provision (benefit) for
income taxes $ 27 $1,946 $ (574)
======= ======== ======
The income before provision for income taxes and cumulative effect
of accounting change includes foreign pretax losses of $61, $437 and $634
in 1993, 1994 and 1995, respectively.
For income tax purposes, the Company deducts the difference between
market value and exercise price arising from the exercise of non-qualified
stock options and disqualifying dispositions of stock acquired under the
Company's qualified plans. Any reductions in income taxes payable resulting
from these differences are credited to additional paid in capital. A benefit
of $275, $692, and $1,169 was credited to additional paid in capital during
1993, 1994 and 1995, respectively.
A reconciliation of the provision for income taxes to the Federal
statutory rate is as follows:
1993 1994 1995
------ ------ -----
Federal statutory rate (34%) 34% (34%)
State tax, net of federal income
tax benefit 2% 3% (1%)
Addition (reduction) in valuation allowance 34% (11%) 12%
Non-deductible goodwill
and amortization 1% 1% (1%)
Tax exempt income (4%) (4%) (4%)
Research and development credit (1%) (1%) -
Loss of foreign subsidiaries for
which no benefit is currently
available - 2% 3%
Non-deductible merger costs - - 18%
Other 2% (1%) (3%)
------ ------- -----
- 23% (10%)
The components of the net deferred tax asset are as follows:
1994 1995
-------- -------
Inventory reserves $ 3,212 $4,229
Accrued vacation 351 574
Net operating loss carryforwards 896 2,719
Income tax credit carryforwards 1,736 1,569
Depreciation (4,455) (4,317)
Other reserves 1,552 1,446
Other (59) 180
--------- --------
Net before valuation allowance 3,233 6,400
Valuation allowance (2,134) (2,719)
--------- ---------
Net deferred tax asset $ 1,099 $3,681
======== =========
At December 31, 1994 and 1995, the Company recorded a deferred
tax asset of $1,736 and $1,569, respectively, consisting of research and
development credits not previously utilized and alternative minimum tax credit
carryforwards. The Company has recorded a valuation allowance, which at
December 31, 1995 and 1994, includes Cabot pre-pooling losses subject to
separate income tax return limitations and, in addition, at December 31,
1994, included a portion of research and development and alternate
minimum tax credit carryforward. Based on projected earnings and the
Company's current tax planning strategies, the Company believes it is more
probable than not that the remaining research and development and
alternative minimum tax credit carryforwards will be realized.
In January 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income
Taxes." The adjustment to the January 1, 1993 consolidated balance
sheet to adopt FAS 109 resulted in a $204 reduction of net deferred
income taxes. This amount is reflected in 1993 net income as the
cumulative effect of a change in accounting principle. It primarily
represents the impact of adjusting deferred taxes to reflect the current rate
at January 1, 1993 of 34% as opposed to the higher tax rates that were in
effect when the deferred taxes originated.
(11) Long-Term Obligations
Long-term obligations as of December 31, 1994 and December 31,
1995 consist of the following:
1994 1995
--------- -------
7.5% convertible subordinated notes $67,000 $67,000
Industrial development authority bonds
due December 2, 2006 6,135 5,180
Other 348 112
--------- --------
73,483 72,292
--------- --------
Less-current maturities (701) (15,857)
--------- --------
$72,782 $56,435
========== ========
The Company has a letter of credit facility in the amount of
approximately $5,327 as of December 31, 1995 underlying $7,000 of tax
exempt Industrial Development Authority Bonds (the "Bonds") issued in
December 1991 with a 15 year maturity requiring monthly interest payments
and annual principal payments. The letter of credit has a renewable 5 year
term and carries an annual fee of 1% of the outstanding bond principal
amount. The bonds are subject to weekly repricing at an interest rate
based on the remarketing agents' professional judgment and prevailing
market conditions at the time. The Bonds and the letter of credit facility
are collateralized by the Company's two Langhorne, Pennsylvania
operating facilities. These facilities had a net carrying value of $5,181 as
of December 31, 1995.
The Company has a $75 million revolving credit facility
(the "Credit Facility") which provides for direct borrowings and a maximum
of $5 million in letters of credit. The Company has the option to borrow
money based upon (i) the higher of the prime rate or an adjusted federal funds
rate or (ii) an adjusted eurodollar rate. The unused portion of the Credit
Facility has a commitment fee which ranges from .1875% to .375%. The
Credit Facility, which expires August 1, 2001, contains certain restrictive
financial covenants and is secured by substantially all of the assets of the
Company.
The Company repurchased at par, 99.94% of the 7.5% convertible
notes pursuant to a vote of bondholders taken on November 20, 1995.
Approximately $50.5 million of the Credit Facility and approximately $16.5
million of available cash was used to repurchase the notes in 1996.
Accordingly, $50.5 million remains classified as a long-term obligation.
Future principal maturities of the Industrial Development Bonds
and the Credit Facility are as follows:
1996 $ 745
1997 370
1998 390
1999 405
2000 430
Thereafter 53,340
-------
$55,680
=======
(12) Retirement Plans
The Company has a defined benefit retirement plan (the "Plan")
covering certain hourly union employees at one of the Company's
manufacturing facilities. The components of pension expense are as
follows:
1993 1994 1995
Service cost - benefits ------- ------- -----
earned during the year $ 33 $ 38 $ 46
Interest cost on projected
benefit obligation 50 55 73
Actual return on plan assets (15) (12) (38)
Deferred loss on net assets (18) (36) (29)
Amortization of
prior service cost 9 9 14
Amortization of net loss (gain)
from earlier periods 5 (3) 3
--------- -------- -------
Net pension expense $ 64 $ 51 $ 69
========= ========= =======
Annual contributions to the Plan are at least equal to the minimum
required by law. The benefit obligations and funded status of the Plan
are as follows:
1994 1995
Actuarial present value of ------- ------
accumulated benefit obligation,
including vested benefits of
$792 in 1994 and $1,064 in 1995 $ (824) $ (1,161)
====== =======
Projected benefit obligation for
service rendered to date (824) (1,161)
Plan assets at market value,
primarily fixed income securities 577 818
------ -----
Projected benefit obligation in
excess of plan assets (247) (343)
Unrecognized net loss 63 340
Unrecognized prior service cost 142 128
Adjustment required to recognize
minimum liability (208) (472)
Unrecognized net obligation at
January 1, 1989 being amortized
over 15 years 3 3
------ ---------
Pension liability $ (247) $ (344)
===== ========
The discount rate assumed in determining the actuarial present value
of benefit obligations was 8.50% and 7.25% for 1994 and 1995, respectively.
The expected long term rate of return on assets was 8% and 10% for 1994
and 1995, respectively. There were no plan amendments during 1994 or 1995.
Certain other hourly manufacturing employees are covered by a
union-sponsored collectively-bargained, multi-employer pension plan.
Contributions to this plan are based on collectively-bargained agreements and
were approximately $60, $74 and $196 in 1993, 1994 and 1995, respectively.
The Company maintains a 401(k) savings plan for all employees except
those excluded by collective bargaining agreements. The Company matches
50% of the first 3% of employee contributions. The amounts charged to
income for the Company match was $241, $247, and $257 in 1993, 1994
and 1995, respectively. Beginning January 1, 1996, Cabot employees became
eligible to participate in the 401(k) savings plan.
(13) Stock Option Plans
The Company currently has one employee stock option plan under which
options covering 2,000,000 shares of common stock may be granted to officers
and employees, for a price not less than the fair market value on the date of
grant. The Company had two employee stock option plans which expired in
1989 and 1993 under which options to purchase 6,000 and 131,697 shares of
common stock were granted and are still outstanding. The exercise dates for
the options granted are determined by a committee of the Board of Directors
at the time the options are granted. The maximum option term is ten years.
If the optionee ceases to be an employee for any reason, any options granted
which have not been exercised will be canceled.
The Company also has a Directors Stock Option Plan, under which options
for up to 200,000 shares of common stock may be granted to directors who
are not officers of the Company, for a price not less than 85% of the fair
market value of the common stock on the date of grant. The Company had a
Directors Stock Option Plan which expired in 1994 under which options to
purchase 120,000 shares of common stock were granted and are still
outstanding. The exercise dates for the options granted are determined by a
committee of inside directors at the time the options are granted. The
maximum option term is ten years. If the optionee ceases to be a director for
any reason, any options granted which have not been exercised will be canceled.
The following table summarizes the activity in the Company's stock option
plans during the three years ended December 31, 1993, 1994 and 1995:
Option
Options Prices
--------- --------------------
Balance, December 31, 1992 1,184,746 $ 2.89 - $19.125
Granted 242,259 10.25 - 18.75
Exercised 63,946 2.89 - 15.09
Adjustment For Stock Dividends 153,200 2.89 - 16.60
Terminated 48,215 3.875 - 19.125
---------- ---------------------
Balance, December 31, 1993 1,468,044 2.89 - 19.125
Granted 960,772 8.50 - 13.20
Exercised 310,363 2.89 - 15.09
Adjustment for Stock Dividends 93,351 2.89 - 16.60
Terminated 338,099 2.89 - 18.75
----------- --------------------
Balance, December 31, 1994 1,873,705 2.89 - 19.125
Granted 330,625 11.75 - 17.00
Exercised 384,624 2.89 - 18.75
Terminated 150,057 2.89 - 19.125
---------- -------------------
Balance, December 31, 1995 1,669,649(A) $ 2.89 - $19.125
============ ===================
A) Includes 838,921 of options granted by Cabot prior the merger with Circon.
In 1993 and 1994, Cabot declared stock dividends which adjusted
the number of stock options outstanding.
At December 31, 1995, options to purchase 836,825 shares were
exercisable and options to purchase 1,626,969 shares were authorized but not
granted.
(14) Warrants
In 1990, the Company's president was issued warrants to purchase
100,000 shares of common stock at $4.61 per share. The warrants expire on
January 1, 2000 or earlier under certain circumstances.
The Company has a warrant plan for consultants. A total of 25,000
shares of common stock has been reserved under this plan and warrants to
purchase 3,000 shares have been granted at an exercise price of $18.75 per
share. In 1992, 1,000 warrants were exercised at $18.75 per share.
The Company issued warrants to purchase 126,767 common shares
at an exercise price of $28.40 per share expiring on July 29, 1999.
(15) Commitments and Contingencies
Leases
The Company leases two facilities, one in Connecticut and one in
Germany, under operating leases which expire in 2003 and 1996, respectively.
These leases provide for additional rental payments to cover property taxes,
insurance and maintenance. In addition, the Company leases office equipment
and vehicles. Rental expense for the years ended December 31, 1993, 1994
and 1995 was $1,601, $2,027 and $1,543, respectively.
The minimum lease payments at December 31, 1995 are as follows:
1996 $1,695
1997 1,569
1998 1,501
1999 1,544
2000 1,590
2001 and thereafter 5,062
--------
$12,961
=======
Contingencies
In the course of conducting its business, the Company has various
claims asserted against it. Management believes the outcome of these claims
will not have a material adverse effect on the Company's financial position
or results of operations.
(16) Quarterly Financial Information (Unaudited)
The following is a summary of unaudited selected quarterly financial
data for the years ended December 31, 1994 and 1995:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Quarter Ended
----------------------------------------------------------
1995 March 31 June 30 September 30(A) December 31
- - -------------------- ---------- -------- ------------- ------------
Net sales $ 37,921 $41,833 $42,113 $38,580
Gross profit 20,523 22,478 19,266 21,373
Operating income 2,251 2,261 (3,378) 2,686
Net income 621 345 (7,374) 1,015
Net income per share $ 0.05 $ 0.03 $ (0.56) $ 0.08
1994
- - --------------------
Net sales $37,549 $39,116 $38,831 $41,545
Gross profit 21,398 22,566 21,800 22,805
Operating income 3,531 3,763 3,058 3,401
Net income 1,737 1,917 1,188 1,667
Net income per share:
Primary $ 0.14 $ 0.15 $ 0.10 $ 0.12
Fully diluted 0.14 0.15 0.10 0.12
(A) Includes special charges - see Note 4
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT
The Company's Board of Directors is divided into three classes. The term
of one of the three classes expires each year. The term of the Class I
Directors expires in 1997 and each third year thereafter, the term of the
Class II Director expires in 1998 and each third year thereafter, and the
term of the Class III Directors expires in 1996 and each third year
thereafter. If any Director who was elected while serving as an officer
ceases to be an officer during the Directors' term, such Director's term
will expire at the next subsequent annual meeting of Share Two Class III
Directors will be elected at the 1996 Annual Meeting. Board of Directors
have nominated John F. Blokker and Harold R. Frank who are currently serving
as Class III Directors. Unless otherwise specified, proxies will be voted for
the election of these nominees. The Board's nominees if elected, but in the
event that the nominees are not available to serve, the holders will vote for
the election of such other persons as the Board may direct.
The following persons are currently serving on the Board of Directors of
the Company:
<TABLE>
<S> <C> <C> <C> <C>
Director
Name Principal Occupation Class Age Since
- - ---------------- -------------------- ----- ---- ------
Richard A. Auhll Chairman of the Board, President, and I 54 1969
Chief Executive Officer of the Company
John F. Blokker Chairman of the Board and Chief III 66 1991
Executive Officer, Luxcom, Inc.
Harold R. Frank Chairman of the Board, Applied III 71 1984
Magnetics Corporation
Paul W. Hartloff, Jr. Partner, law firm of Schramm & Raddue I 62 1991
Rudolf R. Schulte Chairman of the Board, Pudenz-Schulte II 64 1977
Medical Research Corporation
Mr. Auhll has been the Chairman of the Board of Directors, President
and Chief Executive officer of the Company since 1969. Mr. Auhll has a
Bachelor of Science degree in Engineering from the University of Michigan, a
Master of Science degree in Engineering from Stanford University, and a
Master of Business Administration degree from Harvard University. Prior to
1969, Mr. Auhll held positions with United Technologies Corporation and was a
management consultant. He is past Chairman of the Board of Directors of
Seton School for Developmentally Disabled Children. Mr. Auhll is a member
of the Board of Trustees of the University of California at Santa Barbara
Foundation.
Mr. Blokker is Chairman of the Board and Chief Executive officer of
Luxcom, Inc. He was a general partner of Hambrecht & Quist Venture
Partners, an investment banking firm, from February 1985 to February 1988.
Prior to 1985, he served for twenty-seven years in various executive and
management positions including Vice President, General Manager with
Hewlett-Packard Company, a manufacturer of computers and electronic
test and measurement instruments. He is a member of the Boards of Directors
of Mid-Peninsula Bank of Palo Alto and Whittier Trust Company.
Mr. Frank founded Applied Magnetics Corporation, a magnetic head
manufacturer, and has served as Chairman of its Board of Directors since its
inception. Mr. Frank also currently serves on the Boards of Directors of Trust
Company of the West La Cumbre Savings Bank, and as Chairman of the Board
of Key Technology, Inc. Mr. Frank has also served as Chairman of the
American Electronics Association.
Mr. Hartloff is a senior partner of the law firm of Schramm & Raddue.
He has been a partner in that firm since 1964. He serves as a member of the
Board of Directors and Secretary of Selvac Corporation. Mr. Hartloff served
as Secretary of Circon Corporation from 1977 until 1988.
Mr. Schulte was a founder of Heyer-Schulte Corporation and served
as President and chairman of its Board of Directors from 1963 until it was
acquired by American Hospital Supply Corporation in 1974. Mr. Schulte has
been an independent investor since 1974 and since 1978 has served as Chairman
of the Board of Directors of Pudenz-Schulte Medical Research Corporation,
a manufacturer of medical products.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information about the Company's executive officers is included in Part I,
Item 1, herein.
Pursuant to Item 405 of Regulation S-K, the Company makes the following
disclosure of delinquent filers: Erik Sluyter, Vice-President of Circon, sold
5,200 shares of Circon common stock on February 7, 1995. Form 4
for Mr. Sluyter was filed on January 8, 1996. David Zielinski, Vice-President of
Circon, sold 700 shares of Circon common stock on February 14,
1995. Form 4 for Mr. Zielinski was filed on December 16, 1995. Richard Auhll,
President and CEO of Circon held 1,357 shares of Cabot Medical Corporation
common stock at the time of the Circon/Cabot merger. On August 29, 1995 the
Cabot shares were converted at a ratio of .415 per share to 563 shares of
Circon common stock, reportable as newly acquired holdings. Form 4 for
Mr. Auhll was filed on November 3, 1995.
ITEM 11. EXECUTIVE COMPENSATION - RENUMERATION
OF OFFICERS
Compensation Tables
Summary Compensation Table. The following table sets forth three years of
compensation history for the Chief Executive Officer and each of the other four
most highly compensated executive officers of the Company as of the last
completed fiscal year:
Option Grants in Last Fiscal Year. None of the executive officers named in
the Summary Compensation Table received a grant of stock options during the year
ended December 31, 1995. The Company has never granted stock appreciation rights
(SARs).
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Values.
The following table sets forth, for each of the executive officers named in the
Summary Compensation Table above, each exercise of stock options during the year
ended December 31, 1995 and the year-end value of unexercised options:
ITEM 11. EXECUTIVE COMPENSATION - RENUMERATION OF OFFICERS ********
********
Compensation Tables COMP94
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Compensation Long-Term Compensation
Awards Payouts
Other Securities
Annual Restricted Underlying LTIP All Other
Name and Compen- Stock Options Payouts Compen- 401K Ins
Principal Position Year Salary ($) Bonus ($) sation ($) ($) (#) ($) sation ($) Match Premium
- - ----------------- ------ ---------- ---------- ----------- ---------- ---------- ------- ---------- ------ -------
R. Auhll 1995 $298,000 n/a (2 - - - - $10,408 (3) 4,620 5,788
President and Chairman 1994 $237,930 $107,475 - - - - $10,210 4,422 5,788
of the Board 1993 $231,000 $24,000 - - 40,000 - $8,839 4,497 4,342
R.B. Thompson 1995 $166,000 n/a (2 - - - - $4,192 (4) 3,176 1,016
Executive Vice President 1994 $140,080 $52,202 - - 20,000 - $3,977 2,510 1,467
Chief Financial Officer 1993 $136,000 $12,000 - - - - $3,729 2,694 1,035
F. D'Amelio 1995 $169,000 n/a (2 - - - - $3,672 (5) 3,162 510
Vice President 1994 $143,000 $48,310 - - - - $3,303 2,793 510
Chief Manufacturing 1993 $125,000 $9,000 - - 4,879 - $2,398 1,953 445
Officer
W. Berci 1995 $154,000 n/a (2 - - - - $3,283 (6) 2,769 514
Vice President 1994 $132,000 $36,073 - - 20,000 - $2,567 2,115 452
Marketing and Sales 1993 $128,000 $15,000 - - - - $2,560 2,277 283
D. Zielinski 1995 $141,916 n/a (2 - - - - $4,279 (7) 1,819 2,460
Vice President 1994 $136,000 $51,790 - - 23,750 - $3,559 2,238 1,321
ACMI Division 1993 $120,500 $20,038 - - - - $3,328 2,362 966
General Manager
(1) Includes amounts earned in fiscal year, whether or not deferred.
(2) Bonus amounts not calculable for 1995.
(3) Reflects $4,620 Company match of employee contributions to 401(k) plan and $5,788 premium on life insurance paid by the Company.
(4) Reflects $3,176 Company match of employee contributions to 401(k) plan and $1,016 premium on life insurance paid by the Company.
(5) Reflects $3,162 Company match of employee contributions to 401(k) plan and $510 premium on life insurance paid by the Company.
(6) Reflects $2,769 Company match of employee contributions to 401(k) plan and $514 premium on life insurance paid by the Company.
(7) Reflects $1,819 Company match of employee contributions to 401(k) plan and $2,460 premium on life insurance paid by the Company.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION - RENUMERATION OF OFFICERS
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Value
Option Grants in Last Fiscal Year. None of the executive officers named
in the Summary Compensation Table received a grant of stock options during
the year ended December 31, 1995. The Company has never granted stock
appreciation rights (SARs).
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Values.
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table above, each exercise of stock options during
the year ended December 31, 1995, and the year-end value of unexercised
options:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Underlying Unexercised Option In-the-Money Options
Shares at Fiscal Year End 1995 at Fiscal Year End 1995
Acquired on Value
Name Exercise(#) Realized($) (Exercisable Unexercisable Exercisable(2) Unexercisable(2)
- - --------- ------------ ------------ ------------ ------------- -------------- ---------------
R. Auhll n/a n/a 20,000 (3) 20,000 $200,000(3) $200,000
R.B. Thompson n/a n/a 2,857 17,143 $31,427 $188,573
F. D'Amelio n/a n/a 20,257 27,372 $309,433 $308,857
W. Berci 16,000 $256,125 14,057 17,143 $213,427 $188,573
D. Zielinski n/a n/a 3,393 20,357 $37,323 $223,927
(1) Excess of market price over exercise price, on the date of exercise.
(2) Excess of $20.25 (market price at year end) over exercise price.
(3) Mr. Auhll also holds warrants to purchase 100,000 shares which were fully exercisable at year
end. The value of these warrants, computed as in note (2), was $1,564,000. The warrants
were issued in connection with Mr. Auhll's guarantee of certain indebtedness of the Company
and not in connection with his performance of services to the Company.
</TABLE>
ITEM 12. BENEFICIAL OWNERSHIP OF CIRCON COMMON STOCK
The following table sets forth certain information as of March 13, 1996,
except as otherwise indicated, regarding the beneficial ownership of Common
Stock of Circon by (I) each person who is known to Circon to be the beneficial
owner of 5% or more of Circon's Common Stock, (ii) each director of Circon,
(iii) certain executive officers of Circon and (iv) all directors and executive
officers as a group. To the Company's knowledge, the beneficial owners named
in the table have sole voting and investment power with respect to the shares.
Shares
Beneficially Percent of
Name Owned Class(1)
Richard A. Auhll . . . . . . . . . . . . . . . . . 1,538,142(2) 12.0%
6500 Hollister Avenue
Santa Barbara, CA 93117
Weiss, Peck & Greer. . . . . . . . . . . . . . . . 717,700(3) 5.6%
One New York Plaza
New York, NY 10004-1950
Rudolf R. Schulte. . . . . . . . . . . . . . . . . 407,841(4) 3.2%
R. Bruce Thompson. . . . . . . . . . . . . . . . . 36,203(5) *
Harold R. Frank. . . . . . . . . . . . . . . . . . 34,419 *
Paul W. Hartloff, Jr.. . . . . . . . . . . . . . . 22,837(6) *
John F. Blokker. . . . . . . . . . . . . . . . . . 21,837(7) *
Frank D. D'Amelio. . . . . . . . . . . . . . . . . 20,257(8) *
Winton L. Berci. . . . . . . . . . . . . . . . . . 14,557(9) *
Daniel J. Meaney . . . . . . . . . . . . . . . . . 13,357 *
David P. Zielinski . . . . . . . . . . . . . . . . 8,893(10) *
All directors and executive officers as a group
(10 persons) . . . . . . . . . . . . . . . . . . . 2,118,343(11) 16.6%
__________________________
*Less than 1%.
(1) Percent of the outstanding shares of Common Stock, treating as
outstanding all shares issuable upon exercise of options held by the
particular beneficial owners that are included in the first column
(2) Includes 120,000 shares subject to warrants and options exercisable
currently or within 60 days.
(3) Information is given as of December 31, 1995, and is based on a
Schedule 13G filed by this shareholder.
(4) Includes 1,429 shares subject to options exercisable currently or within
60 days.
(5) Includes 2,857 shares subject to options exercisable currently or within
60 days.
(6) Includes 21,837 shares subject to options exercisable currently or within
60 days.
(7) Includes 21,837 shares subject to options exercisable currently or within
60 days.
(8) Includes 20,257 shares subject to options exercisable currently or within
60 days.
(9) Includes 14,057 shares subject to options exercisable currently or within
60 days.
(10) Includes 3,393 shares subject to options exercisable currently or within
60 days.
(11) Includes 205,667 shares subject to options exercisable currently or within
60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
a. Financial Statements and Schedules Filed
1. Financial Statements - see Item 8 of this Report.
2. Supplemental Schedules - see Item 8 of this Report.
b. The Company filed no Reports on Form 8-K in the fourth quarter of 1995
with the Securities and Exchange Commission.
c. Exhibit Index
3.1. Certificate of Incorporation of the Registrant, (Incorporated
by reference to Registrant's 1988 Form 10-K.)
3.1A. Certificates of Amendment of Certificate of Incorporation of
Circon Corporation were included as Exhibit 3.1A in Registrant's 1992
Form 10K and are incorporated herein.
3.2A. Amendment to Section 3.3 of Article III of Registrant's Bylaws.
This Amendment and a complete copy of the Bylaws of the Registrant, as
amended, was included as Exhibit 3.2A in the Registrant's 1993 Form 10K
and are incorporated herein.
10.12. Circon Corporation Business Loan Agreement covering a
$75,000,000 Revolving Line of Credit between Registrant and a Bank dated
November 22, 1995.
10.13. Agreement for Purchase and Sale and Escrow Instructions dated
December 9, 1993 between the Company and CWO/TCEP II Joint Venture #II,
a Texas Joint Venture. This Agreement was included as Exhibit 10.13 in
Registrant's 1993 Form 10K and is incorporated herein.
21. Subsidiaries of the Registrant.
23. Consent of Independent Public Accountants. *
* Not applicable or contained elsewhere herein.
Supplemental Information
No Annual Report or Proxy Materials have been sent to Shareholders with
respect to 1995. Copies will be furnished to the Commission when sent to
Shareholders, but shall not be deemed to be "filed."
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, Registrant has caused
this Annual Report to be signed on its behalf by the
undersigned, thereupon duly authorized.
DATED: March 29, 1996
CIRCON CORPORATION
(Registrant)
By Richard A. Auhll
Richard A. Auhll
President, Chief Executive Officer
Chairman of the Board
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons, which include the Chief Executive Officer, the Chief
Financial Officer, the Chief Accounting Officer and a majority
of the Board of Directors, on behalf of the Registrant and in
the capacities and on the dates indicated:
Signatures Title Date
President, Chief Executive
Officer and Chairman of the
Board (Principal Executive
___________________________ Officer) ________________
Richard A. Auhll
Executive Vice President and
Chief Financial Officer
(Principal Financial and
___________________________ Accounting Officer) ________________
R. Bruce Thompson
___________________________ Director ________________
Harold R. Frank
___________________________ Director ________________
Rudolf R. Schulte
___________________________ Director ________________
Paul W. Hartloff, Jr.
___________________________ Director ________________
John Blokker
_____________________________________________________________
Exhibit 10.12 Circon Corporation Business Loan Agreement
REDUCING REVOLVING LOAN AGREEMENT
Dated as of November 22, 1995
among
CIRCON CORPORATION
THE BANKS HEREIN NAMED
and
FIRST INTERSTATE BANK OF CALIFORNIA,
as Agent
<PAGE>
TABLE OF CONTENTS
Page
Article 1 DEFINITIONS AND ACCOUNTING TERMS . . . . . . . 1
1.1 Defined Terms. . . . . . . . . . . . . . . . . 1
1.2 Use of Defined Terms . . . . . . . . . . . . . 31
1.3 Accounting Terms . . . . . . . . . . . . . . . 31
1.4 Rounding . . . . . . . . . . . . . . . . . . . 32
1.5 Exhibits and Schedules . . . . . . . . . . . . 32
1.6 References to "Borrowers" and to "Borrowers and their
Subsidiaries". . . . . . . . . . . . . . . . 32
1.7 Miscellaneous Terms. . . . . . . . . . . . . . 32
Article 2 LOANS. . . . . . . . . . . . . . . . . . . . . 33
2.1 Loans-General. . . . . . . . . . . . . . . . . 33
2.2 Alternate Base Rate Loans. . . . . . . . . . . 34
2.3 Eurodollar Rate Loans. . . . . . . . . . . . . 35
2.4 Letters of Credit. . . . . . . . . . . . . . . 35
2.5 Voluntary Reduction of Commitment. . . . . . . 39
2.6 Automatic Reduction of Commitment. . . . . . . 40
2.7 Optional Termination of Commitment . . . . . . 40
2.8 Agent's Right to Assume Funds Available for Advances 40
2.9 Collateral and Guaranty. . . . . . . . . . . . 40
Article 3 PAYMENTS AND FEES. . . . . . . . . . . . . . . 42
3.1 Principal and Interest . . . . . . . . . . . . 42
3.2 Agent's Fees . . . . . . . . . . . . . . . . . 44
3.3 Commitment Fees. . . . . . . . . . . . . . . . 44
3.4 Letter of Credit Fees. . . . . . . . . . . . . 44
3.5 Increased Commitment Costs . . . . . . . . . . 44
3.6 Eurodollar Costs and Related Matters . . . . . 45
3.7 Late Payments. . . . . . . . . . . . . . . . . 49
3.8 Computation of Interest and Fees . . . . . . . 49
3.9 Non-Banking Days . . . . . . . . . . . . . . . 50
3.10 Manner and Treatment of Payments . . . . . . . 50
3.11 Funding Sources. . . . . . . . . . . . . . . . 51
3.12 Failure to Charge Not Subsequent Waiver. . . . 51
3.13 Agent's Right to Assume Payments Will be Made by
Borrowers. . . . . . . . . . . . . . . . . . 52
3.14 Automatic Debit. . . . . . . . . . . . . . . . 52
3.15 Fee Determination Detail . . . . . . . . . . . 52
3.16 Survivability. . . . . . . . . . . . . . . . . 52
Article 4 REPRESENTATIONS AND WARRANTIES . . . . . . . . 53
4.1 Existence and Qualification; Power; Compliance With
Laws . . . . . . . . . . . . . . . . . . . . 53
4.2 Authority; Compliance With Other Agreements and
Instruments and Government Regulations . . . 53
4.3 No Governmental Approvals Required . . . . . . 54
4.4 Subsidiaries . . . . . . . . . . . . . . . . . 54
4.5 Financial Statements . . . . . . . . . . . . . 55
4.6 No Other Liabilities; No Material Adverse Changes 56
4.7 Title to and Location of Property. . . . . . . 56
4.8 Intangible Assets. . . . . . . . . . . . . . . 56
4.9 Public Utility Holding Company Act . . . . . . 56
4.10 Litigation . . . . . . . . . . . . . . . . . . 57
4.11 Binding Obligations. . . . . . . . . . . . . . 57
4.12 No Default . . . . . . . . . . . . . . . . . . 57
4.13 ERISA. . . . . . . . . . . . . . . . . . . . . 57
4.14 Regulations G, T, U and X; Investment Company Act 58
4.15 Disclosure . . . . . . . . . . . . . . . . . . 58
4.16 Tax Liability. . . . . . . . . . . . . . . . . 58
4.17 Projections. . . . . . . . . . . . . . . . . . 58
4.18 Hazardous Materials. . . . . . . . . . . . . . 58
4.19 Security Interests . . . . . . . . . . . . . . 59
4.20 The Merger . . . . . . . . . . . . . . . . . . 60
4.21 Demonstration Inventory. . . . . . . . . . . . 60
4.22 Cabot Convertible Notes. . . . . . . . . . . . 60
4.23 Additional Representations and Warranties. . . 60
Article 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS). . . . . . . . . . . 61
5.1 Payment of Taxes and Other Potential Liens . . 61
5.2 Preservation of Existence. . . . . . . . . . . 61
5.3 Maintenance of Properties. . . . . . . . . . . 61
5.4 Maintenance of Insurance . . . . . . . . . . . 62
5.5 Compliance With Laws . . . . . . . . . . . . . 62
5.6 Inspection Rights. . . . . . . . . . . . . . . 62
5.7 Audit Rights . . . . . . . . . . . . . . . . . 62
5.8 Keeping of Records and Books of Account. . . . 63
5.9 Compliance With Agreements . . . . . . . . . . 63
5.10 Use of Proceeds. . . . . . . . . . . . . . . . 63
5.11 New Active Domestic Subsidiaries . . . . . . . 63
5.12 New Patents and Trademarks . . . . . . . . . . 63
5.13 Hazardous Materials Laws . . . . . . . . . . . 64
5.14 Foreign Intellectual Property. . . . . . . . . 64
5.15 Intercompany Notes . . . . . . . . . . . . . . 64
Article 6 NEGATIVE COVENANTS . . . . . . . . . . . . . . 65
6.1 Prepayment of Indebtedness . . . . . . . . . . 65
6.2 Disposition of Property. . . . . . . . . . . . 65
6.3 Mergers. . . . . . . . . . . . . . . . . . . . 65
6.4 Hostile Acquisitions . . . . . . . . . . . . . 65
6.5 Distributions. . . . . . . . . . . . . . . . . 65
6.6 ERISA. . . . . . . . . . . . . . . . . . . . . 65
6.7 Change in Nature of Business . . . . . . . . . 66
6.8 Liens and Negative Pledges . . . . . . . . . . 66
6.9 Indebtedness and Guaranty Obligations. . . . . 67
6.10 Transactions with Affiliates . . . . . . . . . 67
6.11 Tangible Net Worth . . . . . . . . . . . . . . 68
6.12 Fixed Charge Coverage Ratio. . . . . . . . . . 68
6.13 Quick Ratio. . . . . . . . . . . . . . . . . . 68
6.14 Investments. . . . . . . . . . . . . . . . . . 68
6.15 Acquisitions . . . . . . . . . . . . . . . . . 69
6.16 Subsidiary Indebtedness. . . . . . . . . . . . 69
6.17 Change in Location of Chief Executive Offices and
Assets . . . . . . . . . . . . . . . . . . . 70
Article 7 INFORMATION AND REPORTING REQUIREMENTS . . . . 71
7.1 Financial and Business Information . . . . . . 71
7.2 Compliance Certificates. . . . . . . . . . . . 74
Article 8 CONDITIONS . . . . . . . . . . . . . . . . . . 75
8.1 Initial Advances, Etc. . . . . . . . . . . . . 75
8.2 Availability of Reserve Amount . . . . . . . . 78
8.3 Any Increasing Advance, Etc. . . . . . . . . . 78
8.4 Any Advance. . . . . . . . . . . . . . . . . . 79
Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT 80
9.1 Events of Default. . . . . . . . . . . . . . . 80
9.2 Remedies Upon Event of Default . . . . . . . . 82
Article 10 THE AGENT. . . . . . . . . . . . . . . . . . . 85
10.1 Appointment and Authorization. . . . . . . . . 85
10.2 Agent and Affiliates . . . . . . . . . . . . . 85
10.3 Proportionate Interest in any Collateral . . . 85
10.4 Banks' Credit Decisions. . . . . . . . . . . . 86
10.5 Action by Agent. . . . . . . . . . . . . . . . 86
10.6 Liability of Agent . . . . . . . . . . . . . . 87
10.7 Indemnification. . . . . . . . . . . . . . . . 88
10.8 Successor Agent. . . . . . . . . . . . . . . . 89
10.9 No Obligations of Borrowers. . . . . . . . . . 89
Article 11 MISCELLANEOUS. . . . . . . . . . . . . . . . . 91
11.1 Cumulative Remedies; No Waiver . . . . . . . . 91
11.2 Amendments; Consents . . . . . . . . . . . . . 91
11.3 Costs, Expenses and Taxes. . . . . . . . . . . 92
11.4 Nature of Banks' Obligations . . . . . . . . . 93
11.5 Survival of Representations and Warranties . . 93
11.6 Notices. . . . . . . . . . . . . . . . . . . . 94
11.7 Execution of Loan Documents. . . . . . . . . . 94
11.8 Binding Effect; Assignment . . . . . . . . . . 94
11.9 Right of Setoff. . . . . . . . . . . . . . . . 97
11.10 Sharing of Setoffs . . . . . . . . . . . . . . 97
11.11 Indemnity by Borrowers . . . . . . . . . . . . 98
11.12 Nonliability of the Banks. . . . . . . . . . . 99
11.13 No Third Parties Benefited . . . . . . . . . .100
11.14 Confidentiality. . . . . . . . . . . . . . . .100
11.15 Further Assurances . . . . . . . . . . . . . .101
11.16 Integration. . . . . . . . . . . . . . . . . .101
11.17 Governing Law. . . . . . . . . . . . . . . . .102
11.18 Severability of Provisions . . . . . . . . . .102
11.19 Headings . . . . . . . . . . . . . . . . . . .102
11.20 Time of the Essence. . . . . . . . . . . . . .102
11.21 Foreign Banks and Participants . . . . . . . .102
11.22 Hazardous Material Indemnity . . . . . . . . .103
11.23 Joint and Several. . . . . . . . . . . . . . .104
11.24 Further Additional Borrowers . . . . . . . . .104
11.25 Release of Liens . . . . . . . . . . . . . . .104
11.26 Waiver Of Jury Trial . . . . . . . . . . . . .105
11.27 Purported Oral Amendments. . . . . . . . . . .105
<PAGE>
Exhibits
A - Commitment Assignment and Acceptance
B - Compliance Certificate
C - Foreign Intellectual Property Blanket Assignment
D - Joinder Agreement
E - Note
F - Opinions of Counsel
G - Patent Collateral Assignment (Issued)
H - Patent Collateral Assignment (Pending Applications)
I - Pledge Agreement
J - Pricing Certificate
K - Request for Letter of Credit
L - Request for Loan
M - Security Agreement
N - Subsidiary Guaranty
O - Trademark Collateral Assignment
P - Joint Borrower Provisions
Schedules
1.1 Bank Commitments
4.4 Subsidiaries
4.7 Description of Real Property
4.8 Patents and Trademarks
4.10 Material Litigation
4.18 Environmental Matters
6.8 Existing Liens, Negative Pledges and Rights of Others
6.9 Existing Indebtedness
6.14 Existing Investments
6.17 Location of Chief Executive Offices and Assets
REDUCING REVOLVING LOAN AGREEMENT
Dated as of November 22, 1995
This REDUCING REVOLVING LOAN AGREEMENT ("Agreement") is entered
into by and among CIRCON CORPORATION, a Delaware corporation (the
"Company"), each Active Domestic Subsidiary of the Company which may
hereafter become a party to this Agreement as a borrower pursuant to
Section 11.24 (collectively, with the Company, "Borrowers"), each bank
whose name is set forth on the signature pages of this Agreement and each
lender which may hereafter become a party to this Agreement pursuant to
Section 11.8 (collectively, the "Banks" and individually, a "Bank"), and
First Interstate Bank of California, as Agent.
In consideration of the mutual covenants and agreements herein
contained, the parties hereto covenant and agree as follows:
Article 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Accounts Receivable" means accounts receivable in the
ordinary course of business consisting of (a) trade accounts
receivable arising from the sale of goods and services and
(b) royalties receivable arising from licensing of patents,
trademarks and other Intangible Assets, excluding in each case
accounts receivable from Affiliates of Borrowers, net of any reserve
for doubtful accounts required under Generally Accepted Accounting
Principles.
"Acquisition" means any transaction, or any series of related
transactions, by which the Company and/or any of its Subsidiaries
directly or indirectly (a) acquires any ongoing business or all or
substantially all of the assets of any firm, partnership, joint
venture, limited liability company, corporation or division thereof,
whether through purchase of assets, merger or otherwise, (b) acquires
(in one transaction or as the most recent transaction in a series of
transactions) control of at least a majority in ordinary voting power
of the securities of a corporation which have ordinary voting power
for the election of directors or (c) acquires control of a 50% or
more ownership interest in any partnership, limited liability company
or joint venture.
"Active Domestic Subsidiary" means, as of any date of
determination, any Domestic Subsidiary of any Borrower other than any
Inactive Domestic Subsidiary.
"Adjusted Current Liabilities" means, as of any date of
determination, the Current Liabilities of the Company and its
Subsidiaries on that date (other than under the Notes) plus the
Current Liabilities Adjustment Amount on that date, in each case as
determined in accordance with Generally Accepted Accounting
Principles.
"Advance" means any advance made or to be made by any Bank to
Borrowers as provided in Article 2, and includes each Alternate Base
Rate Advance and Eurodollar Rate Advance.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or
is controlled by, such Person. As used in this definition, "control"
(and the correlative terms, "controlled by" and "under common control
with") shall mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership
interests, by contract or otherwise); provided that, in any event,
any Person that owns, directly or indirectly, 10% or more of the
securities having ordinary voting power for the election of directors
or other governing body of a corporation that has more than
100 record holders of such securities, or 10% or more of the
ownership interests of any limited liability company that has more
than 100 record holders of such interests, or 10% or more of the
partnership or other ownership interests of any other Person that has
more than 100 record holders of such interests, will be deemed to
control such corporation, partnership or other Person.
"Agent" means First Interstate Bank of California, when acting
in its capacity as the Agent under any of the Loan Documents, or any
successor Agent.
"Agent's Office" means the Agent's address as set forth on the
signature pages of this Agreement, or such other address as the Agent
hereafter may designate by written notice to Borrowers and the Banks.
"Aggregate Effective Amount" means, as of any date of
determination and with respect to all Letters of Credit then
outstanding, the sum of (a) the aggregate effective face amounts of
all such Letters of Credit not then paid by the Issuing Bank plus
(b) the aggregate amounts paid by the Issuing Bank under such Letters
of Credit not then reimbursed to the Issuing Bank by Borrowers
pursuant to Section 2.4(d) and not the subject of Advances made
pursuant to Section 2.4(e).
"Agreement" means this Reducing Revolving Loan Agreement,
either as originally executed or as it may from time to time be
supplemented, modified, amended, restated or extended.
"Alternate Base Rate" means, as of any date of determination,
the rate per annum (rounded upwards, if necessary, to the next
1/100 of 1%) equal to the higher of (a) the Prime Rate in effect on
such date and (b) the Federal Funds Rate in effect on such date plus
of 1%.
"Alternate Base Rate Advance" means an Advance made hereunder
that bears interest determined in relation to the Alternate Base
Rate.
"Alternate Base Rate Loan" means a Loan made hereunder that
bears interest determined in relation to the Alternate Base Rate.
"Applicable Commitment Fee Rate" means, for each Pricing
Period, the rate set forth below (expressed in basis points per
annum) opposite the Applicable Pricing Level for that Pricing Period:
Applicable Commitment
Pricing Level Fee Rate
I 18.75
II 25.00
III 37.50
"Applicable Eurodollar Rate Margin" means, for each Pricing
Period, the interest rate margin set forth below (expressed in basis
points per annum) opposite the Applicable Pricing Level for that
Pricing Period:
Applicable
Pricing Level Margin
I 75.00
II 95.00
III 125.00
"Applicable Pricing Level" means (a), for the initial Pricing
Period, Pricing Level II, and (b), for each subsequent Pricing
Period, the Pricing Level set forth below opposite the Funded Debt
Ratio achieved by the Borrowers as of the last day of the Fiscal
Quarter most recently ended prior to the commencement of that Pricing
Period:
Pricing Level Funded Debt Ratio
I Less than or equal to 1.50 to
1.00
II Greater than 1.50 to 1.00 but
less than or equal to 2.50 to
1.00
III Greater than 2.50 to 1.00;
provided that if Borrowers fail to deliver a Pricing Certificate with
respect to any Pricing Period prior to the commencement of such
Pricing Period, then until (but only until) such Pricing Certificate
is delivered the Applicable Pricing Level for that Pricing Period
shall be Pricing Level III.
"Average Quarterly Funded Debt" means, as of the last day of
each Fiscal Quarter, the average principal amount of all Funded Debt
outstanding on each day of such Fiscal Quarter.
"Banking Day" means any Monday, Tuesday, Wednesday, Thursday or
Friday, other than a day on which banks are authorized or required to
be closed in California or New York.
"Borrowers" means, collectively, the Company and any Active
Domestic Subsidiary that hereafter executes a Joinder Agreement
pursuant to Section 11.24.
"Cabot" means Cabot Medical Corporation, a New Jersey
corporation, and, as a result of the Merger, a wholly-owned
Subsidiary of the Company.
"Cabot Convertible Notes" means the 7.50% Convertible
Subordinated Notes due March 1, 1999 issued by Cabot pursuant to an
Indenture dated as of March 20, 1992 in the aggregate original
principal amount of $67,000,000.
"Capital Expenditure" means any expenditure that is considered
a capital expenditure under Generally Accepted Accounting Principles,
including any amount which is required to be treated as an asset
subject to a Capital Lease Obligation.
"Capital Lease Obligations" means all monetary obligations of a
Person as lessee under any leasing or similar arrangement which, in
accordance with Generally Accepted Accounting Principles, are
required to be capitalized on the books of such Person.
"Cash" means, when used in connection with any Person, all
monetary and non-monetary items owned by that Person that are treated
as cash in accordance with Generally Accepted Accounting Principles,
consistently applied.
"Cash Equivalents" means, when used in connection with any
Person, that Person's Investments in:
(a) Government Securities due within one year after the date
of the making of the Investment;
(b) readily marketable direct obligations of any State of the
United States of America or any political subdivision of any such
State or any public agency or instrumentality thereof given on the
date of such Investment a credit rating of at least Aa by Moody's
Investors Service, Inc. or AA by Standard & Poor's Rating Group (a
division of McGraw-Hill, Inc.), in each case due within one year from
the making of the Investment;
(c) readily marketable direct obligations of any political
subdivision of any State of the United States of America or any
public agency or instrumentality thereof, or any corporation doing
business and incorporated under the Laws of any State of the United
States of America, fully backed by a letter of credit issued by a
commercial bank with a credit rating on the date of the Investment of
at least Aa by Moody's Investors Service, Inc. or AA by Standard &
Poor's Rating Group (a division of McGraw-Hill, Inc.), in each case
subject to repricing not less frequently than every seven days and to
an obligation of the part of the issuing bank to repurchase the same
at these repricing points;
(d) certificates of deposit issued by, bank deposits in,
eurodollar deposits through, bankers' acceptances of, and repurchase
agreements covering Government Securities executed by, any Bank or
any bank incorporated under the Laws of the United States of America,
any State thereof or the District of Columbia and having on the date
of such Investment combined capital, surplus and undivided profits of
at least $250,000,000, or total assets of at least $5,000,000,000, in
each case due within one year after the date of the making of the
Investment;
(e) certificates of deposit issued by, bank deposits in,
eurodollar deposits through, bankers' acceptances of, and repurchase
agreements covering Government Securities executed by, any branch or
office located in the United States of America of a bank incorporated
under the Laws of any jurisdiction outside the United States of
America having on the date of such Investment combined capital,
surplus and undivided profits of at least $500,000,000, or total
assets of at least $15,000,000,000, in each case due within one year
after the date of the making of the Investment;
(f) repurchase agreements covering Government Securities
executed by a broker or dealer registered under Section 15(b) of the
Securities Exchange Act of 1934, as amended, having on the date of
the Investment capital of at least $50,000,000, due within 30 days
after the date of the making of the Investment; provided that the
maker of the Investment receives written confirmation of the transfer
to it of record ownership of the Government Securities on the books
of a "primary dealer" in such Government Securities on the books of
such registered broker or dealer, as soon as reasonably practicable
after the making of the Investment;
(g) readily marketable commercial paper of corporations doing
business in and incorporated under the Laws of the United States of
America or any State thereof or of any corporation that is the
holding company for a bank described in clause (d) or (e) above given
on the date of such Investment a credit rating of at least P-1 by
Moody's Investors Service, Inc. or A-1 by Standard & Poor's Rating
Group (a division of McGraw-Hill, Inc.), in each case due within
90 days after the date of the making of the Investment;
(h) "money market preferred stock" issued by a corporation
incorporated under the Laws of the United States of America or any
State thereof given on the date of such Investment a credit rating of
at least Aa by Moody's Investors Service, Inc. or AA by Standard &
Poor's Rating Group (a division of McGraw-Hill, Inc.), in each case
having an investment period not exceeding 50 days; provided that
(i) the amount of all such Investments issued by the same issuer does
not exceed $5,000,000 and (ii) the aggregate amount of all such
Investments does not exceed $15,000,000;
(i) a readily redeemable "money market mutual fund" sponsored
by a bank described in clause (d) or (e) hereof, or a registered
broker or dealer described in clause (f) hereof, that has and
maintains an investment policy limiting its investments primarily to
instruments of the types described in clauses (a) through (h) hereof
and given on the date of such Investment a credit rating of at least
Aa by Moody's Investors Service, Inc. and AA by Standard & Poor's
Rating Group (a division of McGraw-Hill, Inc.); and
(j) corporate notes or bonds having an original term to
maturity of not more than one year issued by a corporation
incorporated under the Laws of the United States of America, or a
participation interest therein; provided that (i) commercial paper
issued by such corporation is given on the date of such Investment a
credit rating of at least Aa by Moody's Investors Service, Inc. and
AA by Standard & Poor's Rating Group (a division of McGraw-Hill,
Inc.), (ii) the amount of all such Investments issued by the same
issuer does not exceed $5,000,000 and (iii) the aggregate amount of
all such Investments does not exceed $15,000,000.
"Certificate" means a certificate signed by a Senior Officer or
Responsible Official (as applicable) of the Person providing the
certificate, signed on behalf of such Person.
"Change in Control" means any transaction or series of related
transactions (a) in which any Unrelated Person or two or more
Unrelated Persons acting in concert acquire beneficial ownership
(within the meaning of Rule 13d-3(a)(1) under the Securities Exchange
Act of 1934, as amended), directly or indirectly, of 50% or more of
the outstanding capital stock of the Company entitled to vote for the
election of directors ("Voting Stock"), (b) in which any such
Unrelated Person or Unrelated Persons acting in concert acquire
beneficial ownership of 20% or more of the Voting Stock subsequent to
the Closing Date and (i) at the first election for the board of
directors of the Company subsequent to such acquisition, individuals
who prior to such election were directors of the Company and
individuals approved by such directors cease for any reason (other
than death or incapacity) to constitute 50% or more of the board of
directors of the Company or (ii) if the terms of all directors of the
Company do not expire at the date of such first election, then at the
second election for the board of directors of the Company subsequent
to such acquisition, individuals who prior to such first election
were directors of the Company and individuals approved by such
directors cease for any reason (other than death or incapacity) to
constitute 50% or more of the board of directors of the Company or
(c) constituting a "change in control" or other similar occurrence
under documentation evidencing or governing any Indebtedness of
Borrowers of $5,000,000 or more which results in an obligation of
Borrowers to prepay, purchase, offer to purchase, redeem or defease
such Indebtedness. For purposes of the foregoing, the term
"Unrelated Person" means any Person other than (a) a Subsidiary of
the Company, (b) an employee stock ownership plan or other employee
benefit plan covering the employees of the Company and its
Subsidiaries and (c) Richard A. Auhll, R. Bruce Thompson and any
other officer or director of the Company on the date of this
Agreement, or any Person with which any of them is an affiliate or
associate within the meaning of such terms under the Securities
Exchange Act of 1934, as amended.
"Circon Sub Corp." means Circon Sub Corp., a New Jersey
corporation and a wholly-owned Subsidiary of the Company.
"Closing Date" means the time and Banking Day on which the
conditions set forth in Section 8.1 are satisfied or waived. The
Agent shall notify Borrowers and the Banks of the date that is the
Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended or
replaced and as in effect from time to time.
"Collateral" means all of the collateral covered by the
Collateral Documents.
"Collateral Documents" means, collectively, the Security
Agreement, the Pledge Agreement, the Patent Collateral Assignment,
the Trademark Collateral Assignment, the Foreign Intellectual
Property Blanket Assignment and any other security agreement, pledge
agreement, deed of trust, mortgage or other collateral security
agreement hereafter executed and delivered by Borrowers or their
respective Active Domestic Subsidiaries to secure the Obligations.
"Commitment Assignment and Acceptance" means a commitment
assignment and acceptance substantially in the form of Exhibit A.
"Commitment" means subject to Sections 2.5, 2.6 and 2.7,
$75,000,000. The respective Pro Rata Shares of the Banks with
respect to the Commitment are set forth in Schedule 1.1.
"Company" means Circon Corporation, a Delaware corporation, and
its successors and permitted assigns.
"Compliance Certificate" means a compliance certificate in the
form of Exhibit B, properly completed and signed by a Senior Officer
of the Company, on behalf of the Company.
"Contractual Obligation" means, as to any Person, any provision
of any outstanding security issued by that Person or of any material
agreement, instrument or undertaking to which that Person is a party
or by which it or any of its Property is bound.
"Current Liabilities" means, as of any date of determination,
the consolidated current liabilities of the Company and its
Subsidiaries on that date, determined in accordance with Generally
Accepted Accounting Principles.
"Current Liabilities Adjustment Amount" means, as of any date
of determination, the aggregate principal Indebtedness outstanding
under the Notes as of that date, less $30,000,000. If the result of
the foregoing calculation is less than zero, the Current Liabilities
Adjustment Amount shall be zero.
"Debtor Relief Laws" means the Bankruptcy Code of the
United States of America, as amended from time to time, and all other
applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, or similar
debtor relief Laws from time to time in effect affecting the rights
of creditors generally.
"Default" means any event that, with the giving of any
applicable notice or passage of time specified in Section 9.1, or
both, would be an Event of Default.
"Default Rate" means the interest rate prescribed in
Section 3.7.
"Demonstration Inventory" means, as of any date of
determination, finished goods inventory of Borrowers and their
Subsidiaries in the possession of one or more sales force employees
of Borrowers and their Subsidiaries, which finished goods inventory
is used by such employees for the purpose of demonstrating,
advertising and selling the products of Borrowers and their
Subsidiaries in the ordinary course of business.
"Designated Deposit Account" means a deposit account to be
maintained by Borrowers with First Interstate Bank of California, as
from time to time designated by Borrowers by written notification to
the Agent.
"Designated Eurodollar Market" means, with respect to any
Eurodollar Rate Loan, (a) the London Eurodollar Market, (b) if prime
banks in the London Eurodollar Market are at the relevant time not
accepting deposits of Dollars or if the Agent determines in good
faith that the London Eurodollar Market does not represent at the
relevant time the effective pricing to the Banks for deposits of
Dollars in the London Eurodollar Market, the Cayman Islands
Eurodollar Market or (c) if prime banks in the Cayman Islands
Eurodollar Market are at the relevant time not accepting deposits of
Dollars or if the Agent determines in good faith that the
Cayman Islands Eurodollar Market does not represent at the relevant
time the effective pricing to the Banks for deposits of Dollars in
the Cayman Islands Eurodollar Market, such other Eurodollar Market as
may from time to time be selected by the Agent with the approval of
Borrowers and the Requisite Banks.
"Disposition" means the sale, transfer, lease or other
disposition ("Transfer") of any asset of the Company or any of its
Subsidiaries other than (a) a Transfer of Cash, Cash Equivalents,
inventory or other assets in the ordinary course of business of the
Company or any of its Subsidiaries on terms the Company or such
Subsidiary reasonably believes are fair market terms, (b) a Transfer
of equipment where substantially similar equipment in replacement
thereof has theretofore been acquired, or thereafter within 90 days
is acquired, by the Company or any of its Subsidiaries, or where the
Company or the Subsidiary determine in good faith that the failure to
replace such equipment will not be detrimental to the business of the
Company or its Subsidiaries, (c) a Transfer of Property that is no
longer required for the conduct of the Company's or a Subsidiary's
business, provided any such Transfer is on fair market terms and
conditions, (d) a Transfer to Borrowers or to any of its
Subsidiaries, (e) a Transfer of capital stock of any Subsidiary to
any other Subsidiary or to any Borrower if made subject to the Lien
(if any) in favor of the Agent on such capital stock and (f) a
Transfer which constitutes a permitted Investment pursuant to
Section 6.14 or constitutes the liquidation of any such permitted
Investment.
"Disqualified Stock" means any capital stock, warrants, options
or other rights to acquire capital stock (but excluding any debt
security which is convertible, or exchangeable, for capital stock),
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the option
of the holder thereof, in whole or in part, on or prior to the
Maturity Date.
"Distribution" means, with respect to any shares of capital
stock or any warrant or option to purchase an equity security or
other equity security issued by a Person, (i) the retirement, redemp-
tion, purchase, or other acquisition for Cash or for Property by such
Person of any such security, (ii) the declaration or (without
duplication) payment by such Person of any dividend in Cash or in
Property on or with respect to any such security, (iii) any
Investment by such Person in the holder of 5% or more of any such
security if a purpose of such Investment is to avoid characterization
of the transaction as a Distribution and (iv) any other payment in
Cash or Property by such Person constituting a distribution under
applicable Laws with respect to such security.
"Dollars" or "$" means United States dollars.
"Domestic Subsidiaries" means all Subsidiaries of Borrowers
that are not Foreign Subsidiaries.
"EBITDA" means, with respect to any fiscal period, the sum of
(a) Net Income for that period, plus (b) any extraordinary loss
reflected in such Net Income, minus (c) any extraordinary gain
reflected in such Net Income, plus (d) Interest Expense for that
period, plus (e) the aggregate amount of federal and state taxes on
or measured by income for that period (whether or not payable during
that period), plus (f) depreciation, amortization and all other
non-Cash expenses for that period, in each case as determine
accordance with Generally Accepted Accounting Principles and, in the
case of items (d), (e) and (f), only to the extent deducted in the
determination of Net Income for that period; provided that if the
Company or any Subsidiary has made an Acquisition during that fiscal
period, EBITDA shall be calculated as if the Acquisition had been
made on the first day of such fiscal period, taking into account the
results of operations of the Person that was the subject of the
Acquisition.
"Eligible Assignee" means (a) another Bank, (b) with respect to
any Bank, any Affiliate of that Bank, (c) any commercial bank having
a combined capital and surplus of $100,000,000 or more, (d) any
(i) savings bank, savings and loan association or similar financial
institution or (ii) insurance company engaged in the business of
writing insurance which, in either case (A) has a net worth of
$200,000,000 or more, (B) is engaged in the business of lending money
and extending credit under credit facilities substantially similar to
those extended under this Agreement and (C) is operationally and
procedurally able to meet the obligations of a Bank hereunder to the
same degree as a commercial bank and (e) any other financial
institution (including a mutual fund or other fund) having total
assets of $250,000,000 or more which meets the requirements set forth
in subclauses (B) and (C) of clause (d) above; provided that each
Eligible Assignee must either (I) be organized under the Laws of the
United States of America, any State thereof or the District of
Columbia or (II) be organized under the Laws of the Cayman Islands or
any country which is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of such a
country, and (a) act hereunder through a branch, agency or funding
office located in the United States of America, (b) be exempt from
withholding of tax on interest and deliver the documents related
thereto pursuant to Section 11.21.
"ERISA" means the Employee Retirement Income Security Act of
1974, and any regulations issued pursuant thereto, as amended or
replaced and as in effect from time to time.
"Eurodollar Banking Day" means any Banking Day on which
dealings in Dollar deposits are conducted by and among banks in the
Designated Eurodollar Market.
"Eurodollar Base Rate" means, with respect to any Eurodollar
Rate Loan, the interest rate per annum (rounded upward, if necessary,
to the next 1/16 of 1%) at which deposits in Dollars are offered by
the Eurodollar Reference Bank to prime banks in the Designated Euro-
dollar Market at or about 11:00 a.m. local time in the Designated
Eurodollar Market, three (3) Eurodollar Banking Days before the first
day of the applicable Eurodollar Period in an aggregate amount
approximately equal to the amount of the Advance made by the
Eurodollar Reference Bank with respect to such Eurodollar Rate Loan
and for a period of time comparable to the number of days in the
applicable Eurodollar Period. The determination of the Eurodollar
Base Rate by the Agent shall be conclusive in the absence of manifest
error.
"Eurodollar Lending Office" means, as to each Bank, its office
or branch so designated by written notice to Borrowers and the Agent
as its Eurodollar Lending Office. If no Eurodollar Lending Office is
designated by a Bank, its Eurodollar Lending Office shall be its
office at its address for purposes of notices hereunder.
"Eurodollar Market" means a regular established market located
outside the United States of America by and among banks for the
solicitation, offer and acceptance of Dollar deposits in such banks.
"Eurodollar Obligations" means eurocurrency liabilities, as
defined in Regulation D.
"Eurodollar Period" means, as to each Eurodollar Rate Loan, the
period commencing on the date specified by Borrowers pursuant to
Section 2.1(c) and ending 1, 2, 3 or 6 months (or, with the written
consent of all of the Banks, any other period) thereafter, as
specified by Borrowers in the applicable Request for Loan; provided
that:
(a) The first day of any Eurodollar Period shall be a
Eurodollar Banking Day;
(b) Any Eurodollar Period that would otherwise end on a
day that is not a Eurodollar Banking Day shall be extended to
the next succeeding Eurodollar Banking Day unless such
Eurodollar Banking Day falls in another calendar month, in
which case such Eurodollar Period shall end on the next
preceding Eurodollar Banking Day;
(c) Borrowers may not specify a Eurodollar Period that
extends beyond the next Reduction Date unless the aggregate
principal amount of the Eurodollar Loans having a Eurodollar
Period ending after such Reduction Date does not exceed the
Commitment (after giving effect to any reduction thereto
scheduled to be made on such Reduction Date pursuant to
Section 2.6); and
(d) No Eurodollar Period shall extend beyond the
Maturity Date.
"Eurodollar Rate" means, with respect to any Eurodollar Rate
Loan, an interest rate per annum (rounded upward, if necessary, to
the nearest 1/16 of one percent) determined pursuant to the following
formula:
Eurodollar Eurodollar Base Rate
Rate = 1.00 - Eurodollar Reserve
Percentage
"Eurodollar Rate Advance" means an Advance made hereunder that
bears interest determined in relation to the Eurodollar Rate.
"Eurodollar Rate Loan" means a Loan made hereunder that bears
interest determined in relation to the Eurodollar Rate.
"Eurodollar Reference Bank" means First Interstate Bank of
California.
"Eurodollar Reserve Percentage" means, with respect to any
Eurodollar Rate Loan, the maximum reserve percentage (expressed as a
decimal, rounded upward, if necessary, to the nearest 1/100th of 1%)
in effect on the date the Eurodollar Base Rate for that Eurodollar
Rate Loan is determined (whether or not applicable to any Bank) under
regulations issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to
eurocurrency funding (currently referred to as "eurocurrency liabili-
ties") having a term comparable to the Eurodollar Period for such
Eurodollar Rate Loan. The determination by the Agent of any
applicable Eurodollar Reserve Percentage shall be conclusive in the
absence of manifest error.
"Event of Default" shall have the meaning provided in
Section 9.1.
"Excluded Taxes" shall have the meaning provided in
Section 3.10(d).
"Federal Funds Rate" means, as of any date of determination,
the rate set forth in the weekly statistical release designated as
H.15(519), or any successor publication, published by the Federal
Reserve Board (including any such successor, "H.15(519)") for such
date opposite the caption "Federal Funds (Effective)". If for any
relevant date such rate is not yet published in H.15(519), the rate
for such date will be the rate set forth in the daily statistical
release designated as the Composite 3:30 p.m. Quotations for
U.S. Government Securities, or any successor publication, published
by the Federal Reserve Bank of New York (including any such
successor, the "Composite 3:30 p.m. Quotation") for such date under
the caption "Federal Funds Effective Rate". If on any relevant date
the appropriate rate for such date is not yet published in either
H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such
date will be the arithmetic mean of the rates for the last
transaction in overnight Federal funds arranged prior to 9:00 a.m.
(New York City time) on that date by each of three leading brokers of
Federal funds transactions in New York City selected by the Agent.
For purposes of this Agreement, any change in the Alternate Base Rate
due to a change in the Federal Funds Rate shall be effective as of
the opening of business on the effective date of such change.
"Fiscal Quarter" means the fiscal quarter of Borrowers
consisting of a three-month fiscal period ending on each March 31,
June 30, September 30 and December 31.
"Fiscal Year" means the fiscal year of Borrowers consisting of
a twelve-month period ending on each December 31.
"Fixed Charges" means, as of the last day of any Fiscal
Quarter, the sum of (a) Net Interest Expense for the four (4) Fiscal
Quarters then ending, plus (b) Rental Expense for the four (4) Fiscal
Quarters then ending, plus (c) the current portion of long-term debt
of the Company and its Subsidiaries as of such date, determined in
accordance with Generally Accepted Accounting Principles.
"Fixed Charge Coverage Ratio" means, as of the last day of each
Fiscal Quarter, the ratio of Operating Cash Flow for the fiscal
period consisting of that Fiscal Quarter and the three immediately
preceding Fiscal Quarters to Fixed Charges as of such date; provided
that if the Company or any Subsidiary has made an Acquisition during
that fiscal period, such ratio shall be calculated as if the
Acquisition had been made on the first day of such fiscal period,
taking into account the results of operations of the Person that was
the subject of the Acquisition for purposes of calculating Operating
Cash Flow and Fixed Charges.
"Foreign Intellectual Property Blanket Assignment" means the
intellectual property assignment covering all patents, patent
applications, trademarks and trade names of the Company and its
Active Domestic Subsidiaries (other than those covered by the Patent
Collateral Assignment and Trademark Collateral Assignment) executed
by the Company and its Active Domestic Subsidiaries in the form of
Exhibit C, either as originally executed or as it may from time to
time be supplemented, modified, amended, extended or supplanted.
"Foreign Subsidiaries" means all Subsidiaries of the Company
organized under the Laws of a country other than the United States of
America. For purposes of the Loan Documents, a Subsidiary organized
under the Laws of a territory (but not a State) of the United States
of America (including Puerto Rico, Guam and the U.S. Virgin Islands)
shall be a Foreign Subsidiary.
"Funded Debt" means, as of any date of determination without
duplication, the sum of (a) all principal Indebtedness of the Company
and its Subsidiaries for borrowed money (including debt securities
issued and outstanding) on that date, plus (b) the aggregate amount
of all Capital Lease Obligations of the Company and its Subsidiaries
on that date.
"Funded Debt Ratio" means, as of the last day of each Fiscal
Quarter, the ratio of (a) Average Quarterly Funded Debt for that
Fiscal Quarter to (b) EBITDA for the fiscal period consisting of that
Fiscal Quarter and the three immediately preceding Fiscal Quarters,
as such ratio is set forth in the most recent Pricing Certificate
delivered by the Borrowers pursuant to Section 7.1(c); provided that
if such Pricing Certificate is subsequently determined to be in
error, then any resulting change in the Applicable Pricing Level
shall be made retroactively to the beginning of the relevant Pricing
Period.
"Generally Accepted Accounting Principles" means, as of any
date of determination, accounting principles (a) set forth as
generally accepted in then currently effective Opinions of the
Accounting Principles Board of the American Institute of Certified
Public Accountants, (b) set forth as generally accepted in then
currently effective Statements of the Financial Accounting Standards
Board or (c) that are then approved by such other entity as may be
approved by a significant segment of the accounting profession in the
United States of America. The term "consistently applied," as used
in connection therewith, means that the accounting principles applied
are consistent in all material respects with those applied at prior
dates or for prior periods.
"Government Securities" means readily marketable (a) direct
full faith and credit obligations of the United States of America or
obligations guaranteed by the full faith and credit of the
United States of America and (b) obligations of an agency or
instrumentality of, or corporation owned, controlled or sponsored by,
the United States of America that are generally considered in the
securities industry to be implicit obligations of the United States
of America.
"Governmental Agency" means (a) any international, foreign,
federal, state, county or municipal government, or political
subdivision thereof, (b) any governmental agency, authority, board,
bureau, commission, department, instrumentality or public body, or
(c) any court or administrative tribunal of competent jurisdiction.
"Guaranty Obligation" means, as to any Person, any
(a) guarantee by that Person of Indebtedness of, or other obligation
performable by, any other Person or (b) assurance given by that
Person to an obligee of any other Person with respect to the
performance of an obligation by, or the financial condition of, such
other Person, whether direct, indirect or contingent, including any
purchase or repurchase agreement covering such obligation or any
collateral security therefor, any agreement to provide funds (by
means of loans, capital contributions or otherwise) to such other
Person, any agreement to support the solvency or level of any balance
sheet item of such other Person or any "keep-well" or other
arrangement of whatever nature given for the purpose of assuring or
holding harmless such obligee against loss with respect to any
obligation of such other Person; provided, however, that the term
Guaranty Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount
of any Guaranty Obligation shall be deemed to be an amount equal to
the stated or determinable amount of the related primary obligation
(unless the Guaranty Obligation is limited by its terms to a lesser
amount, in which case to the extent of such amount) or, if not stated
or determinable, the maximum reasonably anticipated liability in
respect thereof as determined by the Person in good faith.
"Hazardous Materials" means oil or petrochemical products,
poly-chlorinated biphenyl, asbestos, urea formaldehyde, flammable
explosives, radioactive materials, hazardous wastes, toxic substances
or related materials, including any substances considered "hazardous
substances," "hazardous wastes," "hazardous materials," "infectious
wastes", "pollutant substances", "solid waste" or "toxic substances"
under any Hazardous Materials Laws.
"Hazardous Materials Laws" means all Laws pertaining to the
treatment, transportation or disposal of Hazardous Materials on or
about any Real Property owned or leased by the Company or any
Subsidiary of the Company or any of their respective Affiliates, or
any portion thereof, including without limitation the following: the
Federal Water Pollution Control Act (33 U.S.C. 1251, et seq.), the
Federal Resource Conservation and Recovery Act of 1976 (42 U.S.C.
6901, et seq.), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. 9601,
et seq.) and the Superfund Amendments and Reauthorization Act of
1986, the Hazardous Materials Transportation Act, as amended
(44 U.S.C. 1801, et seq.), the Toxic Substances Control Act,
15 U.S.C. 2601 et seq., the California Health and Safety Code
(Section 25100, et seq.), the California Water Code and the
California Administrative Code, in each case as such Laws are amended
from time to time.
"Inactive Domestic Subsidiary" means, as of any date of
determination, any Domestic Subsidiary of any Borrower that is not on
that date actively engaged in a trade or business and on that date
does not have total assets in excess of $10,000, determined in
accordance with Generally Accepted Accounting Principles.
"Indebtedness" means, as to any Person (without duplication),
(a) indebtedness of such Person for borrowed money or for the
deferred purchase price of Property (excluding trade and other
accounts payable in the ordinary course of business in accordance
with customary trade terms), including any Guaranty Obligation for
any such indebtedness, (b) indebtedness of such Person of the nature
described in clause (a) that is non-recourse to the credit of such
Person but is secured by assets of such Person, to the extent of the
value of such assets, (or the amount of such indebtedness, if less),
(c) Capital Lease Obligations of such Person, (d) indebtedness of
such Person arising under bankers' acceptance facilities or under
facilities for the discount of accounts receivable of such Person,
(e) any direct or contingent monetary obligations of such Person
under letters of credit issued for the account of such Person and (f)
any net monetary obligations of such Person under a Swap Agreement.
"Initial Reduction Date" means August 1, 1996.
"Intangible Assets" means assets that are considered intangible
assets under Generally Accepted Accounting Principles, including
customer lists, goodwill, computer software, copyrights, trade names,
trademarks and patents.
"Intercompany Notes" means the intercompany promissory notes
required pursuant to Section 5.15.
"Interest Differential" means, with respect to any prepayment
of a Eurodollar Rate Loan on a day other than the last day of the
applicable Eurodollar Period and with respect to any failure to
borrow a Eurodollar Rate Loan on the date or in the amount specified
in any Request for Loan, (a) the per annum interest rate payable (or,
with respect to a failure to borrow, the interest rate which would
have been payable) pursuant to Section 3.1(c) with respect to the
Eurodollar Rate Loan minus (b) the Eurodollar Rate on, or as near as
practicable to the date of the prepayment or failure to borrow for a
Eurodollar Rate Loan with a Eurodollar Period commencing on such date
and ending on the last day of the Eurodollar Period of the Eurodollar
Rate Loan so prepaid or which would have been borrowed on such date.
"Interest Expense" means, with respect to any fiscal period,
the sum of (a) all interest, fees, charges and related expenses paid
or payable (without duplication) for that fiscal period to a lender
in connection with borrowed money or the deferred purchase price of
assets that are considered "interest expense" under Generally
Accepted Accounting Principles, plus (b) the portion of rent paid or
payable (without duplication) for that fiscal period under Capital
Lease Obligations that should be treated as interest in accordance
with Financial Accounting Standards Board Statement No. 13.
"Investment" means, when used in connection with any Person,
any investment by or of that Person, whether by means of purchase or
other acquisition of stock or other securities of any other Person or
by means of a loan, advance creating a debt, capital contribution,
guaranty or other debt or equity participation or interest in any
other Person, including any partnership and joint venture interests
of such Person. The amount of any Investment shall be the amount
actually invested without adjustment for subsequent increases or
decreases in the value of such Investment.
"Issuing Bank" means First Interstate Bank of California
including such other Persons that may act as agent for and on behalf
of First Interstate Bank of California.
"Joinder Agreement" means the joinder agreement with respect to
this Agreement, the Security Agreement, the Pledge Agreement, the
Patent Collateral Assignment and the Trademark Collateral Assignment,
to be executed and delivered pursuant to Section 11.24 by any
additional Borrower in the form of Exhibit D, either as originally
executed or as it may from time to time be supplemented, modified,
amended, extended or supplanted.
"Laws" means, collectively, all international, foreign,
federal, state and local statutes, treaties, rules, regulations,
ordinances, codes and administrative or judicial precedents.
"Letters of Credit" means any of the standby letters of credit
issued by the Issuing Bank under the Commitment pursuant to
Section 2.4, either as originally issued or as the same may be
supplemented, modified, amended, renewed, extended or supplanted.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment for security, security interest,
encumbrance, lien or charge of any kind, whether voluntarily incurred
or arising by operation of Law or otherwise, affecting any Property,
including any conditional sale or other title retention agreement,
any lease in the nature of a security interest, and/or the filing of
any financing statement (other than a precautionary financing
statement with respect to a lease that is not in the nature of a
security interest) under the Uniform Commercial Code or comparable
Law of any jurisdiction with respect to any Property.
"Loan" means the aggregate of the Advances made at the same
time and of the same type by the Banks pursuant to a single Request
for Loan under Article 2.
"Loan Documents" means, collectively, this Agreement, the
Notes, the Subsidiary Guaranty, the Collateral Documents, any Request
for Loan, any Request for Letter of Credit (and any corresponding
application and/or reimbursement agreement with respect to any Letter
of Credit), any Compliance Certificate, any Pricing Certificate and
any other agreements of any type or nature hereafter executed and
delivered by the Company or any of its Subsidiaries or Affiliates to
the Agent or to any Bank in any way relating to or in furtherance of
this Agreement, in each case either as originally executed or as the
same may from time to time be supplemented, modified, amended,
restated, extended or supplanted.
"Margin Stock" means "margin stock" as such term is defined in
Regulation G or U.
"Material Adverse Effect" means any set of circumstances or
events which (a) has or could reasonably be expected to have any
material adverse effect whatsoever upon the validity or enforce-
ability of any Loan Document, (b) is or could reasonably be expected
to be material and adverse to the condition (financial or otherwise),
business operations or prospects of Borrowers and their Subsidiaries,
taken as a whole, or (c) materially impairs or could reasonably be
expected to materially impair the ability of Borrowers and their
Subsidiaries, taken as a whole, to perform the Obligations.
"Maturity Date" means August 1, 2001.
"Merger" means the merger of Cabot into Circon Sub Corp., with
Cabot as the surviving corporation, pursuant to the Merger Agreement.
"Merger Agreement" means the Amended and Restated Agreement and
Plan of Reorganization dated as of July 10, 1995 by and among Cabot,
Circon Sub Corp. and the Company.
"Multiemployer Plan" means any employee benefit plan of the
type described in Section 4001(a)(3) of ERISA.
"Negative Pledge" means a Contractual Obligation that contains
a covenant binding on the Company or any of its Subsidiaries that
prohibits Liens on any of its or their Property, other than (a) any
such covenant contained in a Contractual Obligation granting a Lien
permitted under Section 6.9 which affects only the Property that is
the subject of such permitted Lien and (b) any such covenant that
does not apply to Liens securing the Obligations.
"Net Income" means, with respect to any fiscal period, the
consolidated net income of the Company and its Subsidiaries for that
period, determined in accordance with Generally Accepted Accounting
Principles, consistently applied; provided, however, that any
earnings of, and dividends payable to, the Company or any Subsidiary
in currencies which, during such fiscal period, are blocked against
conversion into United States Dollars, shall be excluded from the
determination of consolidated net income until such time, if any, as
such blockage is terminated.
"Net Interest Expense" means, with respect to any fiscal
period, Interest Expense for that fiscal period less the aggregate
amount of interest income earned by the Company and its Subsidiaries
for that fiscal period, unless such interest income exceeds Interest
Expense for that fiscal period, in which case Net Interest Expense
shall be zero.
"Note" means the promissory note made by Borrowers to a Bank
evidencing the Advances under that Bank's Pro Rata Share of the
Commitment, substantially in the form of Exhibit E, either as
originally executed or as the same may from time to time be
supplemented, modified, amended, renewed, extended or supplanted.
"Obligations" means all present and future obligations of every
kind or nature of Borrowers or any Party at any time and from time to
time owed to the Agent or the Banks or any one or more of them, under
any one or more of the Loan Documents, whether due or to become due,
matured or unmatured, liquidated or unliquidated, or contingent or
noncontingent, including obligations of performance as well as
obligations of payment, and including interest that accrues after the
commencement of any proceeding under any Debtor Relief Law by or
against Borrowers or any Subsidiary or Affiliate of Borrowers.
"Operating Cash Flow" means, with respect to any fiscal period,
the sum of (a) Net Income for that fiscal period plus (b) all
depreciation, amortization and other non-Cash expenses deducted from
revenues to arrive at Net Income for that fiscal period plus (c) Net
Interest Expense for the fiscal period plus (d) Rental Expense for
that fiscal period.
"Opinions of Counsel" means the favorable written legal
opinions of (a) Daniel J. Meaney, Jr., general counsel to the Company
and its Subsidiaries, and (b) Wilson Sonsini Goodrich & Rosati,
special acquisition counsel to the Company and its Subsidiaries,
collectively substantially in the form of Exhibit F (and which legal
opinions may specifically exclude any matters relating to products
liability litigation affecting, directly or indirectly, Borrowers and
their Subsidiaries), together with copies of all factual certificates
and legal opinions upon which such counsel has relied.
"Party" means any Person other than the Agent and the Banks,
which now or hereafter is a party to any of the Loan Documents.
"Patent Collateral Assignment (Issued)" means a patent
collateral assignment covering issued patents to be executed and
delivered by the Company and its Active Domestic Subsidiaries in the
form of Exhibit G, either as originally executed or as it may from
time to time be supplemented, modified, amended, extended or
supplanted.
"Patent Collateral Assignment (Pending Applications)" means a
patent collateral assignment covering pending applications for
patents to be executed and delivered by the Company and its Active
Domestic Subsidiaries in the form of Exhibit H, either as originally
executed or as it may from time to time be supplemented, modified,
amended, extended or supplanted.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereof established under ERISA.
"Pension Plan" means any "employee pension benefit plan" (as
such term is defined in Section 3(2) of ERISA), other than a
Multiemployer Plan, which is subject to Title IV of ERISA and is
maintained by Borrowers or any of its Subsidiaries or to which
Borrowers or any of its Subsidiaries contributes or has an obligation
to contribute.
"Permitted Encumbrances" means:
(a) Inchoate Liens incident to construction on or main-
tenance of Real Property; or Liens incident to construction on
or maintenance of Real Property now or hereafter filed of
record for which adequate reserves have been set aside (or
deposits made pursuant to applicable Law) and which are being
contested in good faith by appropriate proceedings and have not
proceeded to judgment, provided that, by reason of nonpayment
of the obligations secured by such Liens, no such Real Property
is subject to a material risk of loss or forfeiture;
(b) Liens for taxes and assessments on Real Property
which are not yet delinquent; or Liens for taxes and
assessments on Real Property for which adequate reserves have
been set aside and are being contested in good faith by
appropriate proceedings and have not proceeded to judgment,
provided that, by reason of nonpayment of the obligations
secured by such Liens, no such Real Property is subject to a
material risk of loss or forfeiture;
(c) minor defects and irregularities in title to any
Real Property which in the aggregate do not materially impair
the fair market value or use of the Real Property for the
purposes for which it is or may reasonably be expected to be
held;
(d) easements, exceptions, reservations, or other
agreements for the purpose of pipelines, conduits, cables, wire
communication lines, power lines and substations, streets,
trails, walkways, drainage, irrigation, water, and sewerage
purposes, dikes, canals, ditches, the removal of oil, gas,
coal, or other minerals, and other like purposes affecting Real
Property, facilities, or equipment which in the aggregate do
not materially burden or impair the fair market value or use of
such Real Property for the purposes for which it is or may
reasonably be expected to be held;
(e) easements, exceptions, reservations, or other
agreements for the purpose of facilitating the joint or common
use of Property affecting Real Property which in the aggregate
do not materially burden or impair the fair market value or use
of such Property for the purposes for which it is or may
reasonably be expected to be held;
(f) rights reserved to or vested in any Governmental
Agency to control or regulate, or obligations or duties to any
Governmental Agency with respect to, the use of any Real
Property;
(g) rights reserved to or vested in any Governmental
Agency to control or regulate, or obligations or duties to any
Governmental Agency with respect to, any right, power,
franchise, grant, license, or permit;
(h) present or future zoning laws and ordinances or
other laws and ordinances restricting the occupancy, use, or
enjoyment of Real Property;
(i) statutory Liens, other than those described in
clauses (a) or (b) above, arising in the ordinary course of
business with respect to obligations which are not delinquent
or are being contested in good faith, provided that, if
delinquent, adequate reserves have been set aside with respect
thereto and, by reason of nonpayment, no Property is subject to
a material risk of loss or forfeiture;
(j) covenants, conditions, and restrictions affecting
the use of Real Property which in the aggregate do not
materially impair the fair market value or use of the Real
Property for the purposes for which it is or may reasonably be
expected to be held;
(k) rights of tenants under leases and rental agree-
ments covering Real Property entered into in the ordinary
course of business of the Person owning such Real Property;
(l) Liens consisting of pledges or deposits to secure
obligations under workers' compensation laws or similar
legislation, including Liens of judgments thereunder which are
not currently dischargeable;
(m) Liens consisting of pledges or deposits of Property
to secure performance in connection with operating leases made
in the ordinary course of business to which Borrowers or a
Subsidiary of Borrowers is a party as lessee, provided the
aggregate value of all such pledges and deposits in connection
with any such lease does not at any time exceed 20% of the
annual fixed rentals payable under such lease;
(n) Liens consisting of deposits of Property to secure
bids made with respect to, or performance of, contracts (other
than contracts creating or evidencing an extension of credit to
the depositor) in the ordinary course of business;
(o) Liens consisting of any right of offset, or
statutory bankers' lien, on bank deposit accounts maintained in
the ordinary course of business so long as such bank deposit
accounts are not established or maintained for the purpose of
providing such right of offset or bankers' lien;
(p) Liens consisting of deposits of Property to secure
statutory obligations of Borrowers or a Subsidiary of Borrowers
in the ordinary course of its business;
(q) Liens consisting of deposits of Property to secure
(or in lieu of) surety, performance, appeal or customs bonds in
proceedings to which Borrowers or a Subsidiary of Borrowers is
a party in the ordinary course of its business;
(r) Liens created by or resulting from any litigation
or legal proceeding involving Borrowers or a Subsidiary of
Borrowers in the ordinary course of its business which is
currently being contested in good faith by appropriate
proceedings, provided that adequate reserves have been set
aside to the extent required by Generally Accepted Accounting
Principles and no material Property is subject to a material
risk of loss or forfeiture; and
(s) other non-consensual Liens incurred in the ordinary
course of business but not in connection with an extension of
credit, which do not in the aggregate, when taken together with
all other such Liens, materially impair the value or use of the
Property of the Borrowers and the Subsidiaries of Borrowers,
taken as a whole.
"Permitted Right of Others" means a Right of Others consisting
of (a) an interest (other than a legal or equitable co-ownership
interest and an option or right to acquire a legal or equitable
co-ownership interest) that does not materially impair the value or
use of Property for the purposes for which it is or may reasonably be
expected to be held, (b) an option or right to acquire a Lien that
would be a Permitted Encumbrance, (c) the subordination of a lease or
sublease in favor of a financing entity, (d) a license, or similar
right, of or to Intangible Assets granted in the ordinary course of
business, and (e) any interest, option or right of any Borrower or
any Subsidiary of any Borrower.
"Person" means any individual or entity, including a trustee,
corporation, general partnership, limited partnership, limited
liability company, joint stock company, trust, estate, unincorporated
organization, business association, firm, joint venture, Governmental
Agency, or other entity.
"Pledge Agreement" means the pledge agreement to be executed
and delivered by the Company and its Active Domestic Subsidiaries, in
the form of Exhibit I, either as originally executed or as it may
from time to time be supplemented, modified, amended, extended or
supplanted.
"Pledged Collateral" means (a) the certificates evidencing
(i) all of the shares of capital stock held by the Company or any of
its Active Domestic Subsidiaries in all Domestic Subsidiaries of the
Company and (ii) 65% of the shares of capital stock held by the
Company or any of its Active Domestic Subsidiaries in all Foreign
Subsidiaries and (b) any and all Intercompany Notes other than
Intercompany Notes payable solely to a Foreign Subsidiary.
"Pricing Certificate" means a certificate in the form of
Exhibit J, properly completed and signed by a Senior Officer of
Borrowers on behalf of Borrowers.
"Pricing Period" means (a) the period commencing on the Closing
Date and ending on November 30, 1995, (b) the period commencing on
each December 1 and ending on the next following February 28 or 29,
as applicable, (c) the period commencing on each March 1 and ending
on the next following May 31, (d) the period commencing on each
June 1 and ending on the next following August 30 and (e) the period
commencing on each September 1 and ending on the next following
November 30.
"Prior Credit Facilities" means, collectively, the credit
facilities evidenced by or otherwise the subject of (a) that certain
Business Loan Agreement dated as of June 30, 1993, as amended,
between Bank of America National Trust and Savings Association and
the Company and (b) that certain Amended and Restated Loan Agreement
dated as of August 16, 1994, as amended, among Cabot, Surgitek, Inc.
and Cabot Technology Corp., as borrowers, and Meridian Bank.
"Prime Rate" means the rate that First Interstate Bank of
California announces from time to time as its prime lending rate, as
in effect from time to time. The Prime Rate is a reference rate and
does not necessarily represent the lowest or best rate actually
charged to any customer. First Interstate Bank of California or any
other Bank may make commercial loans or other loans at rates of
interest at, above or below the Prime Rate.
"Projections" means the financial projections dated
September 27, 1995 distributed by or on behalf of Borrowers to the
Banks.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Pro Rata Share" means, with respect to each Bank, the
percentage of the Commitment set forth opposite the name of that Bank
on Schedule 1.1.
"Quarterly Payment Date" means each September 30, December 31,
March 31 and June 30.
"Quick Ratio" means, as of any date of determination, the ratio
of (a) the aggregate of the Cash, Cash Equivalents and Accounts
Receivable of the Company and its Subsidiaries on that date to
(b) the Adjusted Current Liabilities of the Company and its
Subsidiaries on that date, in each case as determined in accordance
with Generally Accepted Accounting Principles.
"Real Property" means, as of any date of determination, all
real Property then or theretofore owned, leased or occupied by the
Company or any of its Subsidiaries.
"Reduction Amount" means, with respect to each Reduction Date,
$3,000,000.
"Reduction Date" means the Initial Reduction Date and each
February 1 and August 1 thereafter.
"Regulation D" means Regulation D, as at any time amended, of
the Board of Governors of the Federal Reserve System, or any other
regulation in substance substituted therefor.
"Regulations G, T, U and X" means Regulations G, T, U and X, as
at any time amended, of the Board of Governors of the Federal Reserve
System, or any other regulations in substance substituted therefor.
"Rental Expense" means, with respect to any fiscal period, all
amounts paid or payable (without duplication) for that fiscal period
as rent under leases or rental agreements for the use of Property
(other than Capital Lease Obligations).
"Request for Letter of Credit" means a written request for a
Letter of Credit substantially in the form of Exhibit K, accompanied
by the customary form of letter of credit application used by the
Issuing Bank, in each case signed by a Senior Officer of Borrowers,
on behalf of Borrowers, and properly completed to provide all
information required to be included therein.
"Request for Loan" means a written request for a Loan
substantially in the form of Exhibit L, signed by a Senior Officer of
Borrowers, on behalf of Borrowers, and properly completed to provide
all information required to be included therein.
"Requirement of Law" means, as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any Law, or judgment, award,
decree, writ or determination of a Governmental Agency, 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.
"Requisite Banks" means, as of any date of determination,
(a) for purposes of amending, modifying or waiving the provisions of
Sections 5.10, 5.11, 5.12, 5.14, 6.3, 6.5, 6.9, 6.11, 6.12, 6.13,
6.15, 6.16, 8.3 and 8.4, Banks having in the aggregate 66 2/3% or
more of the Commitment then in effect and, in any event, not less
than two (2) Banks, and (b) for all other purposes, Banks having in
the aggregate 66 2/3% or more of the Commitment then in effect.
"Reserve Amount" means, as of any date of determination, the
greater of (a) $50,500,000 and (b) the aggregate principal
Indebtedness then outstanding under the Cabot Convertible Notes less
$20,000,000.
"Responsible Official" means (a) when used with reference to a
Person other than an individual, any (i) corporate officer of such
Person, (ii) manager of any such Person that is a limited liability
company, (iii) general partner of such Person, (iv) corporate officer
of a corporate general partner of such Person, (v) corporate officer
of a corporate general partner of a partnership that is a general
partner of such Person, or (vi) any other responsible official
thereof duly acting on behalf thereof, and (b) when used with
reference to a Person who is an individual, such Person. Any
document or certificate hereunder that is signed or executed by a
Responsible Official of another Person shall be conclusively presumed
to have been authorized by all necessary corporate, partnership
and/or other action on the part of such other Person.
"Right of Others" means, as to any Property in which a Person
has an interest, any legal or equitable right, title or other inter-
est (other than a Lien) held by any other Person in that Property,
and any option or right held by any other Person to acquire any such
right, title or other interest in that Property, including any option
or right to acquire a Lien; provided, however, that (a) any covenant
restricting the use or disposition of Property of such Person con-
tained in any Contractual Obligation of such Person and (b) any
provision contained in a contract creating a right of payment or
performance in favor of a Person that conditions, limits, restricts,
diminishes, transfers or terminates such right, shall not be deemed
to constitute a Right of Others.
"Security Agreement" means the security agreement to be
executed and delivered by the Company and its Active Domestic
Subsidiaries, in the form of Exhibit M, either as originally executed
or as it may from time to time be supplemented, modified, amended,
extended or supplanted.
"Senior Officer" means the (a) chief executive officer,
(b) president, (c) executive vice president, (d) senior vice
president, (e) chief financial officer, (f) treasurer or
(g) assistant treasurer of each of Borrowers.
"Show Inventory" means, as of any date of determination,
finished goods inventory of Borrowers and their Subsidiaries
specifically designated and used in connection with trade shows,
sales conventions and similar events for the purpose of advertising
and selling products of Borrowers and their Subsidiaries.
"Special Eurodollar Circumstance" means the application or
adoption after the Closing Date of any Law or interpretation, or any
change therein or thereof, or any change in the interpretation or
administration thereof by any Governmental Agency, central bank or
comparable authority charged with the interpretation or administra-
tion thereof, or compliance by any Bank or its Eurodollar Lending
Office with any request or directive (whether or not having the force
of Law) of any such Governmental Agency, central bank or comparable
authority, or the existence or occurrence of circumstances affecting
the Designated Eurodollar Market generally that are beyond the
reasonable control of the Banks.
"Stockholders' Equity" means, as of any date of determination
and with respect to any Person, the consolidated stockholders' equity
of the Person as of that date determined in accordance with Generally
Accepted Accounting Principles; provided that there shall be excluded
from Stockholders' Equity any amount attributable to Disqualified
Stock.
"Subsidiary" means, as of any date of determination and with
respect to any Person, any corporation, partnership or limited
liability company (whether or not, in any such case, characterized as
such or as a "joint venture"), whether now existing or hereafter
organized or acquired: (a) in the case of a corporation, of which a
majority of the securities having ordinary voting power for the
election of directors or other governing body (other than securities
having such power only by reason of the happening of a contingency)
are at the time beneficially owned by such Person and/or one or more
Subsidiaries of such Person, or (b) in the case of a partnership or
limited liability company, of which a majority of the partnership or
other ownership interests are at the time beneficially owned by such
Person and/or one or more of its Subsidiaries.
"Subsidiary Guaranty" means the continuing guaranty of the
Obligations to be executed and delivered by the Active Domestic
Subsidiaries of the Company that are not Borrowers, in the form of
Exhibit N, either as originally executed or as it may from time to
time be supplemented, modified, amended, extended or supplemented.
"Swap Agreement" means a written agreement between Borrowers
and one or more financial institutions providing for "swap", "cap",
"collar" or other interest rate protection with respect to any
Indebtedness.
"Tangible Net Worth" means, as of any date of determination,
the Stockholders' Equity of the Company and its Subsidiaries on that
date minus (a) the aggregate Intangible Assets of the Company and its
Subsidiaries on that date, (b) any accounts receivable or loan owing
to the Company or any of its Subsidiaries by an officer, director,
employee, agent, partner or Affiliate of the Company and (c) any
other asset of the Company or any of its Subsidiaries which the
Requisite Banks determine should be excluded for this purpose.
"to the best knowledge of" means, when modifying a
representation, warranty or other statement of any Person, that the
fact or situation described therein is known by the Person (or, in
the case of a Person other than a natural Person, known by a
Responsible Official of that Person) making the representation,
warranty or other statement, or with the exercise of reasonable due
diligence under the circumstances (in accordance with the standard of
what a reasonable Person in similar circumstances would have done)
should have been known by the Person (or, in the case of a Person
other than a natural Person, should have been known by a Responsible
Official of that Person). For purposes of the foregoing definition
only, "Responsible Official" when used with respect to any Borrower
shall mean and refer solely to Senior Officers of such Borrower.
"Trademark Collateral Assignment" means a trademark collateral
assignment to be executed and delivered by the Company and its Active
Domestic Subsidiaries in the form of Exhibit O, either as originally
executed or as it may from time to time be supplemented, modified,
amended, extended or supplanted.
"type", when used with respect to any Loan or Advance, means
the designation of whether such Loan or Advance is an Alternate Base
Rate Loan or Advance, or a Eurodollar Rate Loan or Advance.
1.2 Use of Defined Terms. Any defined term used in the plural
shall refer to all members of the relevant class, and any defined term used
in the singular shall refer to any one or more of the members of the
relevant class.
1.3 Accounting Terms. All accounting terms not specifically
defined in this Agreement shall be construed in conformity with, and all
financial data required to be submitted by this Agreement shall be prepared
in conformity with, Generally Accepted Accounting Principles applied on a
consistent basis, except as otherwise specifically prescribed herein. In
the event that Generally Accepted Accounting Principles change during the
term of this Agreement such that the covenants contained in Sections 6.11
through 6.13 would then be calculated in a different manner or with dif-
ferent components, (a) Borrowers and the Banks agree to amend this
Agreement in such respects as are necessary to conform those covenants as
criteria for evaluating Borrowers' financial condition to substantially the
same criteria as were effective prior to such change in Generally Accepted
Accounting Principles and (b) Borrowers shall be deemed to be in compliance
with the covenants contained in the aforesaid Sections during the 90-day
period following any such change in Generally Accepted Accounting
Principles if and to the extent that Borrowers would have been in
compliance therewith under Generally Accepted Accounting Principles as in
effect immediately prior to such change.
1.4 Rounding. Any financial ratios required to be maintained
by Borrowers pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one
place more than the number of places by which such ratio is expressed in
this Agreement and rounding the result up or down to the nearest number
(with a round-up if there is no nearest number) to the number of places by
which such ratio is expressed in this Agreement.
1.5 Exhibits and Schedules. All Exhibits and Schedules to
this Agreement, either as originally existing or as the same may from time
to time be supplemented, modified or amended, are incorporated herein by
this reference. A matter disclosed on any Schedule shall be deemed
disclosed on all Schedules.
1.6 References to "Borrowers" and to "Borrowers and their
Subsidiaries". Any reference herein to "Borrowers" shall refer solely to
the Company during such times, if any, as the Company shall be the only
Borrower hereunder. Similarly, any reference herein to "the Company and
its Subsidiaries" shall refer solely to the Company during such times, if
any, as the Company shall have no Subsidiaries and any reference herein to
"Borrowers and their Subsidiaries" shall refer solely to Borrowers during
such times, if any, as Borrowers shall have no Subsidiaries.
1.7 Miscellaneous Terms. The term "or" is disjunctive; the
term "and" is conjunctive. The term "shall" is mandatory; the term "may"
is permissive. Masculine terms also apply to females; feminine terms also
apply to males. The term "including" is by way of example and not
limitation.
<PAGE>
Article 2
LOANS
2.1 Loans-General.
(a) Subject to the terms and conditions set forth in
this Agreement, at any time and from time to time from the Closing
Date, to, but excluding, the Maturity Date, each Bank shall, pro rata
according to that Bank's Pro Rata Share of the then applicable
Commitment, make Advances to Borrowers under the Commitment in such
amounts as Borrowers may request that do not result in the sum of
(i) the aggregate principal Indebtedness outstanding under the Notes
plus (ii) the Aggregate Effective Amount of all outstanding Letters
of Credit exceeding (A) so long as the conditions precedent set
forth in Section 8.2 have not been satisfied, the then applicable
Commitment less the Reserve Amount and (B) upon and after
satisfaction of the conditions precedent set forth in Section 8.2,
the then applicable Commitment. Subject to the limitations set forth
herein, Borrowers may borrow, repay and reborrow under the Commitment
without premium or penalty.
(b) Subject to the next sentence, each Loan shall be
made pursuant to a Request for Loan which shall specify the requested
(i) date of such Loan, (ii) type of Loan, (iii) amount of such Loan,
(iv) whether the proceeds of such Loan will be used, directly or
indirectly, to repay the Indebtedness evidenced by the Cabot
Convertible Notes or any portion thereof, and, if so, the percentage
of funds provided under this Agreement, after giving effect to such
Loan, toward repayment of the Cabot Convertible Notes (which
percentage shall not in any event exceed 75%), and (v) in the case of
a Eurodollar Rate Loan, the Eurodollar Period for such Loan. Unless
the Agent has notified, in its sole and absolute discretion,
Borrowers to the contrary, a Loan may be requested by telephone by a
Senior Officer of Borrowers, in which case Borrowers shall confirm
such request by promptly delivering a Request for Loan in person or
by telecopier conforming to the preceding sentence to the Agent.
Agent shall incur no liability whatsoever hereunder in acting
reasonably upon any telephonic request for Loan purportedly made by a
Senior Officer of Borrowers, which hereby agree to indemnify the
Agent from any loss, cost, expense or liability as a result of so
acting.
(c) Promptly following receipt of a Request for Loan,
the Agent shall notify each Bank by telephone or telecopier (and if
by telephone, promptly confirmed by telecopier) of the date and type
of the Loan, the applicable Eurodollar Period, and that Bank's Pro
Rata Share of the Loan. Not later than 11:00 a.m., Los Angeles time,
on the date specified for any Loan (which must be a Banking Day),
each Bank shall make its Pro Rata Share of the Loan in immediately
available funds available to the Agent at the Agent's Office. Upon
satisfaction or waiver of the applicable conditions set forth in
Article 8, all Advances shall be credited on that date in immediately
available funds to the Designated Deposit Account.
(d) Unless the Requisite Banks otherwise consent,
(i) each Alternate Base Rate Loan shall be not less than $500,000 and
(ii) each Eurodollar Rate Loan shall be not less than $2,000,000 and
shall be an integral multiple of $500,000.
(e) The Advances made by each Bank shall be evidenced
by that Bank's Note.
(f) A Request for Loan shall be irrevocable upon the
Agent's first notification thereof.
(g) If no Request for Loan (or telephonic request for
Loan referred to in the second sentence of Section 2.1(b), if
applicable) has been made within the requisite notice periods set
forth in Section 2.2 or 2.3 in connection with a Loan which, if made
and giving effect to the application of the proceeds thereof, would
not increase the outstanding principal Indebtedness evidenced by the
Notes, then, unless Borrowers shall have earlier repaid such Loan,
Borrowers shall be deemed to have requested, as of the date upon
which the related then outstanding Loan is due pursuant to Sec-
tion 3.1(e)(i), an Alternate Base Rate Loan in an amount equal to the
amount necessary to cause the outstanding principal Indebtedness evi-
denced by the Notes to remain the same and, subject to Section 8.4,
the Banks shall make the Advances necessary to make such Loan
notwithstanding Sections 2.2 and 2.3.
(h) If a Loan is to be made on the same date that
another Loan is due and payable, Borrowers or the Banks, as the case
may be, shall make available to the Agent the net amount of funds
giving effect to both such Loans and the effect for purposes of this
Agreement shall be the same as if separate transfers of funds had
been made with respect to each such Loan.
2.2 Alternate Base Rate Loans. Each request by Borrowers for
an Alternate Base Rate Loan shall be made pursuant to a Request for Loan
(or telephonic or other request for loan referred to in the second sentence
of Section 2.1(b), if applicable) received by the Agent, at the Agent's
Office, not later than 11:00 a.m. Los Angeles time, at least
one (1) Banking Day before the requested Alternate Base Rate Loan. All
Loans shall constitute Alternate Base Rate Loans unless properly designated
as a Eurodollar Rate Loan pursuant to Section 2.3.
2.3 Eurodollar Rate Loans.
(a) Each request by Borrowers for a Eurodollar Rate
Loan shall be made pursuant to a Request for Loan (or telephonic or
other request for Loan referred to in the second sentence of
Section 2.1(b), if applicable) received by the Agent, at the Agent's
Office, not later than 11:00 a.m., Los Angeles time, at least three
(3) Eurodollar Banking Days before the first day of the applicable
Eurodollar Period.
(b) On the date which is two (2) Eurodollar Banking
Days before the first day of the applicable Eurodollar Period, the
Agent shall confirm its determination of the applicable Eurodollar
Rate (which determination shall be conclusive in the absence of
manifest error) and promptly shall give notice of the same to
Borrowers and the Banks by telephone or telecopier (and if by
telephone, promptly confirmed by telecopier).
(c) Unless the Agent and the Requisite Banks otherwise
consent, no more than six (6) Eurodollar Rate Loans shall be out-
standing at any one time.
(d) No Eurodollar Rate Loan may be requested during the
existence of a Default or Event of Default.
(e) Nothing contained herein shall require any Bank to
fund any Eurodollar Rate Advance in the Designated Eurodollar Market.
2.4 Letters of Credit.
(a) Subject to the terms and conditions hereof, at any
time and from time to time from the Closing Date through the Maturity
Date, the Issuing Bank shall issue such Letters of Credit under the
Commitment as Borrowers may request by a Request for Letter of
Credit; provided that (i) giving effect to all such Letters of
Credit, the sum of (A) the aggregate principal Indebtedness
outstanding under the Notes plus (B) the Aggregate Effective Amount
of all outstanding Letters of Credit do not exceed (1) so long as the
conditions precedent set forth in Section 8.2 have not been
satisfied, the then applicable Commitment less the Reserve Amount and
(2) upon and after satisfaction of the conditions precedent set forth
in Section 8.2, the then applicable Commitment, and (ii) the
Aggregate Effective Amount under all outstanding Letters of Credit
shall not exceed $5,000,000. Each Letter of Credit shall be in a
form reasonably acceptable to the Issuing Bank. Unless the Issuing
Bank otherwise consents, the term of any Letter of Credit shall not
exceed 365 days. Unless all the Banks otherwise consent in a writing
delivered to the Agent, the term of any Letter of Credit shall not
extend beyond the Maturity Date. A Request for Letter of Credit
shall be irrevocable absent the consent of the Issuing Bank, which
consent shall not be unreasonably withheld or delayed.
(b) Each Request for Letter of Credit shall be submitted
to the Issuing Bank, with a copy to the Agent, at least three (3)
Banking Days prior to the date upon which the related Letter of
Credit is proposed to be issued. The Agent shall promptly notify the
Issuing Bank whether such Request for Letter of Credit, and the
issuance of a Letter of Credit pursuant thereto, conforms to the
requirements of this Agreement. Upon issuance of a Letter of Credit,
the Issuing Bank shall promptly notify the Agent, and the Agent shall
promptly notify the Banks, of the amount and terms thereof.
(c) Upon the issuance of a Letter of Credit, each Bank
shall be deemed to have purchased a pro rata participation in such
Letter of Credit from the Issuing Bank in proportion to that Bank's
Pro Rata Share of the Commitment. Without limiting the scope and
nature of each Bank's participation in any Letter of Credit, to the
extent that the Issuing Bank has not been reimbursed by Borrowers for
any payment required to be made by the Issuing Bank under any Letter
of Credit, each Bank shall, pro rata according to its Pro Rata Share
of the Commitment, reimburse the Issuing Bank through the Agent
promptly upon demand for the amount of such payment. The obligation
of each Bank to so reimburse the Issuing Bank shall be absolute and
unconditional and shall not be affected by the occurrence of an Event
of Default or any other occurrence or event. Any such reimbursement
shall not relieve or otherwise impair the obligation of Borrowers to
reimburse the Issuing Bank for the amount of any payment made by the
Issuing Bank under any Letter of Credit together with interest as
hereinafter provided.
(d) Borrowers agree to pay to the Issuing Bank through
the Agent an amount equal to any payment made by the Issuing Bank
with respect to each Letter of Credit within one (1) Banking Day
after demand made by the Issuing Bank therefor, together with
interest on such amount from the date of any payment made by the
Issuing Bank at the rate applicable to Alternate Base Rate Loans for
the period commencing on the date of any such payment and continuing
through the first Banking Day following such demand and thereafter at
the Default Rate. The principal amount of any such payment shall be
used to reimburse the Issuing Bank for the payment made by it under
the Letter of Credit. Each Bank that has reimbursed the Issuing Bank
pursuant to Section 2.4(c) for its Pro Rata Share of any payment made
by the Issuing Bank under a Letter of Credit shall thereupon acquire
a pro rata participation, to the extent of such reimbursement, in the
claim of the Issuing Bank against Borrowers under this Section 2.4(d)
and shall share, in accordance with that pro-rata participation, in
any payment made by Borrowers with respect to such claim. Upon
receipt of any such reimbursement from Borrowers, the Issuing Bank
shall pay to the Agent, for the ratable benefit of those Banks that
had reimbursed the Issuing Bank pursuant to Section 2.4(c) for their
respective Pro Rata Shares of any payment made by the Issuing Bank
under a Letter of Credit to which such reimbursement applies, the
amount of such reimbursement.
(e) If Borrowers fail to make the payment required by
Section 2.4(d) within the time period therein set forth, in lieu of
the reimbursement to the Issuing Bank under Section 2.4(c) the
Issuing Bank may (but is not required to), without notice to or the
consent of Borrowers, instruct the Agent to cause Advances to be made
by the Banks under the Commitment in an aggregate amount equal to the
amount paid by the Issuing Bank with respect to that Letter of Credit
and, for this purpose, the conditions precedent set forth in
Article 8 shall not apply. The proceeds of such Advances shall be
paid to the Issuing Bank to reimburse it for the payment made by it
under the Letter of Credit. Such Advances shall be payable upon
demand and shall bear interest at the Default Rate.
(f) The issuance of any supplement, modification,
amendment, renewal, or extension to or of any Letter of Credit shall
be treated in all respects the same as the issuance of a new Letter
of Credit.
(g) The obligation of Borrowers to pay to the Issuing
Bank the amount of any payment made by the Issuing Bank under any
Letter of Credit shall be absolute, unconditional, and irrevocable,
subject only to performance by the Issuing Bank of its obligations to
Borrowers under Section 5109 of the Uniform Commercial Code. Without
limiting the foregoing, Borrowers' obligations shall not be affected
by any of the following circumstances:
(i) any lack of validity or enforceability of the Letter
of Credit, this Agreement, or any other agreement or instrument
relating thereto;
(ii) any amendment or waiver of or any consent to
departure from the Letter of Credit, this Agreement, or any
other agreement or instrument relating thereto, with the
written consent of Borrowers executed by a Senior Officer;
(iii) the existence of any claim, setoff, defense, or other
rights which Borrowers may have at any time against the Issuing
Bank, the Agent or any Bank, any beneficiary of the Letter of
Credit (or any persons or entities for whom any such
beneficiary may be acting) or any other Person, whether in con-
nection with the Letter of Credit, this Agreement, or any other
agreement or instrument relating thereto, or any unrelated
transactions;
(iv) any demand, statement, or any other document
presented under the 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
whatsoever so long as any such document reasonably appeared to
comply with the terms of the Letter of Credit;
(v) payment by the Issuing Bank in good faith under the
Letter of Credit against presentation of a draft or any
accompanying document which does not strictly comply with the
terms of the Letter of Credit;
(vi) the existence, character, quality, quantity,
condition, packing, value or delivery of any Property purported
to be represented by documents presented in connection with any
Letter of Credit or for any difference between any such
Property and the character, quality, quantity, condition, or
value of such Property as described in such documents;
(vii) the time, place, manner, order or contents of
shipments or deliveries of Property as described in documents
presented in connection with any Letter of Credit or the
existence, nature and extent of any insurance relative thereto;
(viii) the solvency or financial responsibility of any party
issuing any documents in connection with a Letter of Credit;
(ix) any failure or delay in notice of shipments or
arrival of any Property;
(x) any error in the transmission of any message
relating to a Letter of Credit not caused by the Issuing Bank,
or any delay or interruption in any such message;
(xi) any error, neglect or default of any correspondent of
the Issuing Bank in connection with a Letter of Credit;
(xii) any consequence arising from acts of God, war,
insurrection, civil unrest, disturbances, labor disputes,
emergency conditions or other causes beyond the control of the
Issuing Bank; and
(xiii) so long as the Issuing Bank in good faith determines
that the contract or document appears to comply with the terms
of the Letter of Credit, the form, accuracy, genuineness or
legal effect of any contract or document referred to in any
document submitted to the Issuing Bank in connection with a
Letter of Credit.
(h) The Issuing Bank shall be entitled to the protection
accorded to the Agent pursuant to Section 10.6, mutatis mutandis.
(i) The Uniform Code of Practice for Documentary
Credits, as published in its most current version by the
International Chamber of Commerce, shall be deemed a part of this
Section and shall apply to all Letters of Credit to the extent not
inconsistent with applicable Law.
2.5 Voluntary Reduction of Commitment. Borrowers shall have
the right, at any time and from time to time, without penalty or charge,
upon at least two (2) Banking Days' prior written notice by a Senior
Officer of Borrowers to the Agent, voluntarily to reduce, permanently and
irrevocably, in aggregate principal amounts in an integral multiple of
$2,000,000 but not less than $2,000,000, or to terminate, all or a portion
of the then undisbursed portion of the Commitment, provided that any such
reduction or termination shall be accompanied by payment of all accrued and
unpaid commitment fees with respect to the portion of the Commitment being
reduced or terminated. The Agent shall promptly notify the Banks of any
reduction or termination of the Commitment under this Section. Any
voluntary reduction of the Commitment under this Section shall be applied
to reduce the Reduction Amount for the final Reduction Date (to the extent
of such reduction) and thereafter to preceding Reduction Dates in the
inverse order of their occurrence.
2.6 Automatic Reduction of Commitment. Subject to the last
sentence of Section 2.5, on each Reduction Date, the Commitment shall
automatically be reduced by the applicable Reduction Amount. The
Commitment, without notice or any further act, shall automatically
terminate on the Maturity Date.
2.7 Optional Termination of Commitment. Following the
occurrence of a Change in Control, the Requisite Banks may in their sole
and absolute discretion elect, during the sixty (60) day period immediately
subsequent to the later of (a) such occurrence or (b) the earlier of
(i) receipt of Borrowers' written notice to the Agent of such occurrence or
(ii) if no such notice has been received by the Agent, the date upon which
the Agent has actual knowledge thereof, to terminate the Commitment, in
which case the Commitment shall be terminated effective on the date which
is thirty (30) days subsequent to written notice from the Agent to
Borrowers thereof.
2.8 Agent's Right to Assume Funds Available for Advances.
Unless the Agent shall have been notified by any Bank no later than the
Banking Day prior to the funding by the Agent of any Loan that such Bank
does not intend to make available to the Agent such Bank's portion of the
total amount of such Loan, the Agent may assume that such Bank has made
such amount available to the Agent on the date of the Loan and the Agent
may, in reliance upon such assumption, make available to Borrowers a
corresponding amount. If the Agent has made funds available to Borrowers
based on such assumption and such corresponding amount is not in fact made
available to the Agent by such Bank, the Agent shall be entitled to recover
such corresponding amount on demand from such Bank. If such Bank does not
pay such corresponding amount forthwith upon the Agent's demand therefor,
the Agent promptly shall notify Borrowers and Borrowers shall pay such
corresponding amount to the Agent. The Agent also shall be entitled to
recover from such Bank interest on such corresponding amount in respect of
each day from the date such corresponding amount was made available by the
Agent to Borrowers to the date such corresponding amount is recovered by
the Agent, at a rate per annum equal to the daily Federal Funds Rate.
Nothing herein shall be deemed to relieve any Bank from its obligation to
fulfill its share of the Commitment or to prejudice any rights which the
Agent or Borrowers may have against any Bank as a result of any default by
such Bank hereunder.
2.9 Collateral and Guaranty. The Obligations shall be secured
by the Collateral pursuant to the Collateral Documents and be guaranteed
pursuant to the Subsidiary Guaranty.<PAGE>
Article 3
PAYMENTS AND FEES
3.1 Principal and Interest.
(a) Interest shall be payable on the outstanding daily
unpaid principal amount of each Advance from the date thereof until
payment in full is made and shall accrue and be payable at the rates
set forth or provided for herein before and after default, before and
after maturity, before and after judgment, and before and after the
commencement of any proceeding under any Debtor Relief Law, with
interest on overdue interest at the Default Rate to the fullest
extent permitted by applicable Laws.
(b) Interest accrued on each Alternate Base Rate Loan
shall be due and payable on each Quarterly Payment Date and on the
date of any prepayment of the Notes pursuant to Section 3.1(f).
Except as otherwise provided in Section 3.7, the unpaid principal
amount of any Alternate Base Rate Loan shall bear interest at a
fluctuating rate per annum equal to the Alternate Base Rate. Each
change in the interest rate under this Section 3.1(b) due to a change
in the Alternate Base Rate shall take effect simultaneously with the
corresponding change in the Alternate Base Rate.
(c) Interest accrued on each Eurodollar Rate Loan which
is for a term of three months or less shall be due and payable on the
last day of the related Eurodollar Period. Interest accrued on each
other Eurodollar Rate Loan shall be due and payable on the date which
is three months after the date such Eurodollar Rate Loan was made
(and, in the event that all of the Banks have approved a Eurodollar
Period of longer than six months, every three months thereafter
through the last day of the Eurodollar Period) and on the last day of
the related Eurodollar Period. Except as otherwise provided in
Sections 3.1(d) and 3.8, the unpaid principal amount of any
Eurodollar Rate Loan shall bear interest at a rate per annum equal to
the Eurodollar Rate for that Eurodollar Rate Loan plus the Applicable
Eurodollar Rate Margin.
(d) During the existence of a Default or Event of
Default, the Requisite Banks may determine that any or all then
outstanding Eurodollar Rate Loans shall be converted to Alternate
Base Rate Loans. Such conversion shall be effective upon notice to
Borrowers from the Requisite Banks (or from the Agent on behalf of
the Requisite Banks) and shall continue so long as such Default or
Event of Default continues to exist.
(e) If not sooner paid, the principal Indebtedness
evidenced by the Notes shall be payable as follows:
(i) the principal amount of each Eurodollar Rate Loan shall be
payable (subject to Section 2.1(g)) on the last day of the
Eurodollar Period for such Loan;
(ii) the amount, if any, by which the sum of
(A) the principal outstanding Indebtedness evidenced by the
Notes plus (B) the Aggregate Effective Amount of all
outstanding Letters of Credit, at any time exceeds (1) so long
as the conditions precedent set forth in Section 8.2 have not
been satisfied, the then applicable Commitment less the Reserve
Amount and (2) upon and after satisfaction of the conditions
precedent set forth in Section 8.2, the then applicable
Commitment, shall be payable immediately; and
(iii) the principal outstanding Indebtedness evidenced by
the Notes (together with all other non-contingent payment
Obligations) shall in any event be
payable on the Maturity Date.
(f) The Notes may, at any time and from time to time,
voluntarily be paid or prepaid in whole or in part without premium or
penalty, except that with respect to any voluntary prepayment under
this Section (i) any partial prepayment shall be not less than
$500,000, (ii) the Agent shall have received written notice of any
prepayment by 9:00 a.m. Los Angeles time three (3) B to the date of
prepayment of a Eurodollar Rate Loan, which notice shall identify
the date and amount of the prepayment and the Loan(s)
being prepaid (no advance notice shall be required with respect to
the prepayment of any Alternate Base Rate Loan), (iii) each pre-
payment of principal on any Eurodollar Rate Loan shall be accompanied
by payment of interest accrued to the date of payment on the amount
of principal paid, (iv) any payment or prepayment of all or any part
of any Eurodollar Rate Loan on a day other than the last day of the
applicable Eurodollar Period shall be subject to Section 3.6(d), and
(v) upon any partial repayment of a Eurodollar Rate Loan that reduces
it below $2,000,000, the remaining portion thereof shall
automatically convert to an Alternate Base Rate Loan.
3.2 Agent's Fees. Borrowers shall pay to the Agent the fees
in such amounts and at such times as heretofore agreed upon by letter
agreement between Borrowers and the Agent. Such fees are for the services
of the Agent and are fully earned on the date paid. The fees paid to the
Agent are solely for its own account and are nonrefundable.
3.3 Commitment Fees. From and including the Closing Date, and
for so long as any portion of the Commitment remains in effect, Borrowers
shall pay to the Agent, for the ratable accounts of the Banks pro rata
according to their Pro Rata Share of the Commitment, a commitment fee equal
to the Applicable Commitment Fee Rate per annum times the average daily
amount by which the Commitment exceeds the sum of (a) the aggregate
principal Indebtedness evidenced by the Notes plus (b) the Aggregate
Effective Amount of all Letters of Credit outstanding. The commitment fee
shall be payable quarterly in arrears on each Quarterly Payment Date and on
the Maturity Date.
3.4 Letter of Credit Fees. Concurrently with the issuance of
each Letter of Credit, Borrowers shall pay a letter of credit issuance fee
to the Issuing Bank, for the sole account of the Issuing Bank, in an amount
equal to of 1% (25 basis points) per annum of the face amount of such
Letter of Credit for the term of such Letter of Credit. Borrowers shall
also concurrently pay to the Agent, for the ratable account of the Banks in
accordance with their Pro Rata Share of the Commitment, a standby letter of
credit fee in an amount equal to 1% (100 basis points) per annum times the
face amount of such Letter of Credit for the term of such Letter of Credit.
In addition to the foregoing, in connection with a Letter of Credit and
activity relating thereto, Borrowers shall also pay amendment, transfer,
issuance, negotiation and such other fees as the Issuing Bank normally
charges (not to include origination fees), in the amounts set forth from
time to time as the Issuing Bank's published scheduled fees for such
services, which fees shall be solely for the account of the Issuing Bank.
Each of the fees payable with respect to Letters of Credit under this
Section is earned when due and is nonrefundable.
3.5 Increased Commitment Costs. If any Bank shall determine
in good faith that the introduction after the Closing Date of any
applicable law, rule, regulation or guideline regarding capital adequacy,
or any change therein or any change in the interpretation or administration
thereof by any central bank or other Governmental Agency charged with the
interpretation or administration thereof, or compliance by such Bank (or
its Eurodollar Lending Office) or any corporation controlling the Bank,
with any request, guideline or directive regarding capital adequacy
(whether or not having the force of law) of any such central bank or other
authority, affects or would affect the amount of capital required or
expected to be maintained by such Bank or any corporation controlling such
Bank and (taking into consideration such Bank's or such corporation's
policies with respect to capital adequacy and such Bank's desired return on
capital) determines in good faith that the amount of such capital is
increased, or the rate of return on capital is reduced, as a consequence of
its obligations under this Agreement, then, within ten (10) Banking Days
after demand of such Bank, Borrowers shall pay to such Bank, from time to
time as specified in good faith by such Bank, additional amounts sufficient
to compensate such Bank in light of such circumstances, to the extent
reasonably allocable to such obligations under this Agreement.
3.6 Eurodollar Costs and Related Matters.
(a) If, after the date hereof, the existence or
occurrence of any Special Eurodollar Circumstance:
(1) shall subject any Bank or its Eurodollar Lending
Office to any tax, duty or other charge or cost with respect to
any Eurodollar Rate Advance, any of its Notes evidencing
Eurodollar Rate Loans or its obligation to make Eurodollar Rate
Advances, or shall change the basis of taxation of payments to
any Bank attributable to the principal of or interest on any
Eurodollar Rate Advance or any other amounts due under this
Agreement in respect of any Eurodollar Rate Advance, any of its
Notes evidencing Eurodollar Rate Loans or its obligation to
make Eurodollar Rate Advances, excluding (i) taxes imposed on
or measured in whole or in part by its overall net income,
gross income or gross receipts or capital and franchise taxes
imposed on it, by (A) any jurisdiction (or political
subdivision thereof) in which it is organized or maintains its
principal office or Eurodollar Lending Office or (B) any
jurisdiction (or political subdivision thereof) in which it is
"doing business" (unless it would not be doing business in such
jurisdiction (or political subdivision thereof) absent the
transactions contemplated hereby), (ii) any withholding taxes
or other taxes based on gross income imposed by the United
States of America (other than withholding taxes and taxes based
on gross income resulting from or attributable to any change in
any law, rule or regulation or any change in the interpretation
or administration of any law, rule or regulation by any
Governmental Agency) or (iii) any withholding taxes or other
taxes based on gross income imposed by the United States of
America for any period with respect to which it has failed to
provide Borrowers with the appropriate form or forms required
by Section 11.21, to the extent such forms are then required by
applicable Laws;
(2) shall impose, modify or deem applicable any reserve
not applicable or deemed applicable on the date hereof
(including, without limitation, any reserve imposed by the
Board of Governors of the Federal Reserve System, but excluding
the Eurodollar Reserve Percentage taken into account in
calculating the Eurodollar Rate), special deposit, capital or
similar requirements against assets of, deposits with or for
the account of, or credit extended by, any Bank or its
Eurodollar Lending Office; or
(3) shall impose on any Bank or its Eurodollar Lending
Office or the Designated Eurodollar Market any other condition
affecting any Eurodollar Rate Advance, any of its Notes
evidencing Eurodollar Rate Loans, its obligation to make
Eurodollar Rate Advances or this Agreement, or shall otherwise
affect any of the same;
and the result of any of the foregoing, as determined in good faith
by such Bank, increases the cost to such Bank or its Eurodollar
Lending Office of making or maintaining any Eurodollar Rate Advance
or in respect of any Eurodollar Rate Advance, any of its Notes
evidencing Eurodollar Rate Loans or its obligation to make Eurodollar
Rate Advances or reduces the amount of any sum received or receivable
by such Bank or its Eurodollar Lending Office with respect to any
Eurodollar Rate Advance, any of its Notes evidencing Eurodollar Rate
Loans or its obligation to make Eurodollar Rate Advances (assuming
such Bank's Eurodollar Lending Office had funded 100% of its Euro-
dollar Rate Advance in the Designated Eurodollar Market), then,
within five (5) Banking Days after demand by such Bank (with a copy
to the Agent), Borrowers shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such increased
cost or reduction (determined as though such Bank's Eurodollar
Lending Office had funded 100% of its Eurodollar Rate Advance in the
Designated Eurodollar Market). Borrowers hereby indemnify each Bank
against, and agree to hold each Bank harmless from and reimburse such
Bank within ten (10) Banking Days after demand for (without duplica-
tion) all costs, expenses, claims, penalties, liabilities, losses,
reasonable legal fees and damages incurred or sustained by each Bank
in connection with this Agreement, or any of the rights, obligations
or transactions provided for or contemplated herein, as a direct
result of the existence or occurrence of any Special Eurodollar
Circumstance. A statement of any Bank claiming compensation under
this subsection and setting forth in reasonable detail the additional
amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. Each Bank agrees to endeavor promptly
to notify Borrowers of any event of which it has actual knowledge,
occurring after the Closing Date, which will entitle such Bank to
compensation pursuant to this Section, and agrees to designate a dif-
ferent Eurodollar Lending Office if such designation will avoid the
need for or reduce the amount of such compensation and will not, in
the good faith judgment of such Bank, otherwise be materially
disadvantageous to such Bank. If any Bank claims compensation under
this Section, Borrowers may at any time, upon at least three (3)
Eurodollar Banking Days' prior notice to the Agent and such Bank and
upon payment in full of the amounts provided for in this Section
through the date of such payment plus any prepayment fee required by
Section 3.6(d), pay in full the affected Eurodollar Rate Advances of
such Bank or convert such Eurodollar Rate Advances to Alternate Base
Rate Advances.
(b) If, after the date hereof, the existence or
occurrence of any Special Eurodollar Circumstance shall, in the good
faith opinion of any Bank, make it unlawful or impossible for such
Bank or its Eurodollar Lending Office to make, maintain or fund its
portion of any Eurodollar Rate Loan, or materially restrict the
authority of such Bank to purchase or sell, or to take deposits of,
Dollars in the Designated Eurodollar Market, or to determine or
charge interest rates based upon the Eurodollar Rate, and such Bank
shall so notify the Agent, then such Bank's obligation to make
Eurodollar Rate Advances shall be suspended for the duration of such
illegality or impossibility and the Agent forthwith shall give notice
thereof to the other Banks and Borrowers. Upon receipt of such
notice, the outstanding principal amount of such Bank's Eurodollar
Rate Advances, together with accrued interest thereon, automatically
shall be converted to Alternate Base Rate Advances with Eurodollar
Periods corresponding to the Eurodollar Loans of which such
Eurodollar Rate Advances were a part on either (1) the last day of
the Eurodollar Period(s) applicable to such Eurodollar Rate Advances
if such Bank may lawfully continue to maintain and fund such
Eurodollar Rate Advances to such day(s) or (2) immediately if such
Bank may not lawfully continue to fund and maintain such Eurodollar
Rate Advances to such day(s), provided that in such event the
conversion shall not be subject to payment of a prepayment fee under
Section 3.6(d). Each Bank agrees to endeavor promptly to notify
Borrowers of any event of which it has actual knowledge, occurring
after the Closing Date, which will cause that Bank to notify the
Agent under this Section 3.6(b), and agrees to designate a different
Eurodollar Lending Office if such designation will avoid the need for
such notice and will not, in the good faith judgment of such Bank,
otherwise be materially disadvantageous to such Bank. In the event
that any Bank is unable, for the reasons set forth above, to make,
maintain or fund its portion of any Eurodollar Rate Loan, such Bank
shall fund such amount as an Alternate Base Rate Advance for the same
period of time, and such amount shall be treated in all respects as
an Alternate Base Rate Advance. Any Bank whose obligation to make
Eurodollar Rate Advances has been suspended under this Section 3.6(b)
shall promptly notify the Agent and Borrowers of the cessation of the
Special Eurodollar Circumstance which gave rise to such suspension.
(c) If, with respect to any proposed Eurodollar Rate
Loan:
(1) the Agent reasonably determines that, by reason of
circumstances affecting the Designated Eurodollar Market
generally that are beyond the reasonable control of the Banks,
deposits in Dollars (in the applicable amounts) are not being
offered to any Bank in the Designated Eurodollar Market for the
applicable Eurodollar Period; or
(2) the Requisite Banks advise the Agent that the
Eurodollar Rate as determined by the Agent (i) does not
represent the effective pricing to such Banks for deposits in
Dollars in the Designated Eurodollar Market in the relevant
amount for the applicable Eurodollar Period, or (ii) will not
adequately and fairly reflect the cost to such Banks of making
the applicable Eurodollar Rate Advances;
then the Agent forthwith shall give notice thereof to Borrowers and
the Banks, whereupon until the Agent notifies Borrowers that the
circumstances giving rise to such suspension no longer exist, the
obligation of the Banks to make any future Eurodollar Rate Advances
shall be suspended. If at the time of such notice there is then
pending a Request for Loan that specifies a Eurodollar Rate Loan,
such Request for Loan shall be deemed to specify an Alternate Base
Rate Loan.
(d) Upon payment or prepayment of any Eurodollar Rate
Advance (other than as the result of a conversion required under
Section 3.6(b)), on a day other than the last day in the applicable
Eurodollar Period (whether voluntarily, involuntarily, by reason of
acceleration, or otherwise), or upon the failure of Borrowers (for a
reason other than the failure of a Bank to make an Advance) to borrow
on the date or in the amount specified for a Eurodollar Rate Loan in
any Request for Loan, Borrowers shall pay to the appropriate Bank
within ten (10) Banking Days after demand a prepayment fee or failure
to borrow fee, as the case may be (determined as though 100% of the
Eurodollar Rate Advance had been funded in the Designated Eurodollar
Market) equal to the sum of:
(1) the principal amount of the Eurodollar Rate Advance
prepaid or not borrowed, as the case may be, times [the number
of days between the date of prepayment or failure to borrow, as
applicable, and the last day in the applicable Eurodollar
Period], divided by 360, times the applicable Interest
Differential (provided that the product of the foregoing
formula must be a positive number); plus
(2) all out-of-pocket expenses incurred by the Bank
reasonably attributable to such payment, prepayment or failure
to borrow.
Each Bank's determination of the amount of any prepayment fee payable
under this Section 3.6(d) shall be conclusive in the absence of
manifest error.
3.7 Late Payments. If any installment of principal or
interest or any fee or cost or other amount payable under any Loan Document
to the Agent or any Bank is not paid when due, it shall thereafter bear
interest at a fluctuating interest rate per annum at all times equal to the
sum of the Alternate Base Rate plus 2%, to the fullest extent permitted by
applicable Laws. Accrued and unpaid interest on past due amounts
(including, without limitation, interest on past due interest) shall be
compounded monthly, on the last day of each calendar month, to the fullest
extent permitted by applicable Laws.
3.8 Computation of Interest and Fees. Computation of interest
on Alternate Base Rate Loans shall be calculated on the basis of a year of
365 or 366 days, as the case may be, and the actual number of days elapsed;
computation of interest on Eurodollar Rate Loans and all fees under this
Agreement shall be calculated on the basis of a year of 360 days and the
actual number of days elapsed. Borrowers acknowledge that such latter
calculation method will result in a higher yield to the Banks than a method
based on a year of 365 or 366 days. Interest shall accrue on each Loan for
the day on which the Loan is made; interest shall not accrue on a Loan, or
any portion thereof, for the day on which the Loan or such portion is paid.
Any Loan that is repaid on the same day on which it is made shall bear
interest for one day. Notwithstanding anything in this Agreement to the
contrary, interest in excess of the maximum amount permitted by applicable
Laws shall not accrue or be payable hereunder or under the Notes, and any
amount paid as interest hereunder or under the Notes which would otherwise
be in excess of such maximum permitted amount shall instead be treated as a
payment of principal.
3.9 Non-Banking Days. If any payment to be made by Borrowers
or any other Party under any Loan Document shall come due on a day other
than a Banking Day, payment shall instead be considered due on the next
succeeding Banking Day and the extension of time shall be reflected in
computing interest and fees.
3.10 Manner and Treatment of Payments.
(a) Each payment hereunder (except payments pursuant to
Sections 3.5, 3.6, 11.3, 11.11 and 11.22) or on the Notes or under
any other Loan Document shall be made to the Agent, at the Agent's
Office, for the account of each of the Banks or the Agent, as the
case may be, in immediately available funds not later than
11:00 a.m., Los Angeles time, on the day of payment (which must be a
Banking Day). All payments received after 11:00 a.m., Los Angeles
time, on any Banking Day, shall be deemed received on the next
succeeding Banking Day. The amount of all payments received by the
Agent for the account of each Bank shall be immediately paid by the
Agent to the applicable Bank in immediately available funds and, if
such payment was received by the Agent by 11:00 a.m., Los Angeles
time, on a Banking Day and not so made available to the account of a
Bank on that Banking Day, the Agent shall reimburse that Bank for the
cost to such Bank of funding the amount of such payment at the
Federal Funds Rate. All payments shall be made in lawful money of
the United States of America.
(b) Each payment or prepayment on account of any Loan
shall be applied pro rata according to the outstanding Advances made
by each Bank comprising such Loan.
(c) Each Bank shall use its best efforts to keep a
record of Advances made by it and payments received by it with
respect to each of its Notes and, subject to Section 10.6(g), such
record shall, as against Borrowers, be presumptive evidence of the
amounts owing. Notwithstanding the foregoing sentence, no Bank shall
be liable to any Party for any failure to keep such a record.
(d) Each payment of any amount payable by Borrowers or
any other Party under this Agreement or any other Loan Document shall
be made free and clear of, and without reduction by reason of, any
taxes, assessments or other charges imposed by any Governmental
Agency, central bank or comparable authority, excluding (i) taxes
imposed on or measured in whole or in part by its overall net income,
gross income or gross receipts or capital and franchise taxes imposed
on it, by (A) any jurisdiction (or political subdivision thereof) in
which it is organized or maintains its principal office or Eurodollar
Lending Office or (B) any jurisdiction (or political subdivision
thereof) in which it is "doing business" (unless it would not be
doing business in such jurisdiction (or political subdivision
thereof) absent the transactions contemplated hereby), (ii) any
withholding taxes or other taxes based on gross income imposed by the
United States of America (other than withholding taxes and taxes
based on gross income resulting from or attributable to any change in
any law, rule or regulation or any change in the interpretation or
administration of any law, rule or regulation by any Governmental
Agency) or (iii) any withholding taxes or other taxes based on gross
income imposed by the United States of America for any period with
respect to which it has failed to provide Borrowers with the
appropriate form or forms required by Section 11.21, to the extent
such forms are then required by applicable Laws (all such excluded
taxes, assessments or other charges being hereinafter referred to as
"Excluded Taxes"). To the extent that Borrowers are obligated by
applicable Laws to make any deduction or withholding on account of
taxes, assessments and other charges from any amount payable to any
Bank under this Agreement, Borrowers shall (i) make such deduction or
withholding and pay the same to the relevant Governmental Agency and
(ii) pay such additional amount to that Bank as is necessary to
result in that Bank's receiving a net after-tax amount equal to the
amount to which that Bank would have been entitled under this
Agreement absent such deduction or withholding. If and when receipt
of such payment results in an excess payment or credit to that Bank
on account of such taxes, assessments and other charges, that Bank
shall promptly refund such excess to Borrowers.
3.11 Funding Sources. Nothing in this Agreement shall be
deemed to obligate any Bank to obtain the funds for any Loan or Advance in
any particular place or manner or to constitute a representation by any
Bank that it has obtained or will obtain the funds for any Loan or Advance
in any particular place or manner.
3.12 Failure to Charge Not Subsequent Waiver. Any decision by
the Agent or any Bank not to require payment of any interest (including
interest arising under Section 3.7), fee, cost or other amount payable
under any Loan Document, or to calculate any amount payable by a particular
method, on any occasion shall in no way limit or be deemed a waiver of the
Agent's or such Bank's right to require full payment of any interest
(including interest arising under Section 3.7), fee, cost or other amount
payable under any Loan Document, or to calculate an amount payable by
another method that is not inconsistent with this Agreement, on any other
or subsequent occasion.
3.13 Agent's Right to Assume Payments Will be Made by
Borrowers. Unless the Agent shall have been notified by Borrowers prior to
the date on which any payment to be made by Borrowers hereunder is due that
Borrowers do not intend to remit such payment, the Agent may, in its
discretion, assume that Borrowers have remitted such payment when so due
and the Agent may, in its discretion and in reliance upon such assumption,
make available to each Bank on such payment date an amount equal to such
Bank's share of such assumed payment. If Borrowers have not in fact
remitted such payment to the Agent, each Bank shall forthwith on demand
repay to the Agent the amount of such assumed payment made available to
such Bank, together with interest thereon in respect of each day from and
including the date such amount was made available by the Agent to such Bank
to the date such amount is repaid to the Agent at the Federal Funds Rate.
3.14 Automatic Debit. Borrowers hereby authorize the Agent to
automatically debit the Designated Deposit Account for the amount of all
payments (principal, interest, fees and otherwise) due to the Agent or the
Banks pursuant to this Agreement on the date such payments are due. Either
Borrowers or the Agent may terminate this automatic debit arrangement upon
five (5) Banking Days notice to the other.
3.15 Fee Determination Detail. The Agent, and any Bank, shall
provide reasonable detail to Borrowers regarding the manner in which the
amount of any payment to the Agent and the Banks, or that Bank, under
Article 3 has been determined, concurrently with demand for such payment.
3.16 Survivability. All of Borrowers' obligations under
Sections 3.5, 3.6 and 3.10(d) shall survive for one (1) year following the
date on which the Commitment is terminated and all Loans hereunder are
fully paid.
<PAGE>
Article 4
REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant to the Banks that:
4.1 Existence and Qualification; Power; Compliance With Laws.
The Company is a corporation duly formed, validly existing and in good
standing under the Laws of Delaware. Each other Borrower is a corporation
duly formed, validly existing and in good standing under the Laws of the
jurisdiction of its organization. Each of Borrowers is duly qualified or
registered to transact business and is in good standing in each other
jurisdiction in which the conduct of its business or the ownership or
leasing of its Properties makes such qualification or registration
necessary, except where the failure so to qualify or register and to be in
good standing would not constitute a Material Adverse Effect. Each of
Borrowers has all requisite corporate power and authority to conduct its
business, to own and lease its Properties and to execute and deliver each
Loan Document to which it is a Party and to perform its Obligations. The
chief executive office of Borrowers is located in Santa Barbara,
California. All outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid and non-assessable, and no
holder thereof has any enforceable right of rescission under any applicable
state or federal securities Laws. Each of Borrowers is in compliance with
all Laws and other legal requirements applicable to its business, has
obtained all authorizations, consents, approvals, orders, licenses and
permits from, and has accomplished all filings, registrations and
qualifications with, or obtained exemptions from any of the foregoing from,
any Governmental Agency that are necessary for the transaction of its
business, except where the failure to so comply, file, register, qualify
or obtain exemptions does not constitute a Material Adverse Effect.
4.2 Authority; Compliance With Other Agreements and
Instruments and Government Regulations. The execution, delivery and
performance by each of Borrowers and each Active Domestic Subsidiary of
Borrowers of the Loan Documents to which it is a Party have been duly
authorized by all necessary corporate action, and do not and will not:
(a) Require any consent or approval not heretofore
obtained of any partner, director, stockholder, security holder or
creditor of such Party;
(b) Violate or conflict with any provision of such
Party's charter, certificates or articles of incorporation or bylaws,
as applicable;
(c) Result in or require the creation or imposition of
any Lien or Right of Others upon or with respect to any Property now
owned or leased or hereafter acquired by such Party;
(d) Violate any Requirement of Law applicable to such
Party, subject to obtaining the authorizations from, or filings with,
the Governmental Agencies described in Schedule 4.3;
(e) Result in a breach of or constitute a default
under, or cause or permit the acceleration of any obligation owed
under, any indenture or loan or credit agreement or any other
Contractual Obligation to which such Party is a party or by which
such Party or any of its Property is bound or affected;
and none of Borrowers or any Subsidiary is in violation of, or default
under, any Requirement of Law or Contractual Obligation, or any indenture,
loan or credit agreement described in Section 4.2(e), in any respect that
constitutes a Material Adverse Effect.
4.3 No Governmental Approvals Required. No authorization,
consent, approval, order, license or permit from, or filing, registration
or qualification with, any Governmental Agency is or will be required to
authorize or permit under applicable Laws the execution, delivery and
performance by each of Borrowers and its Active Domestic Subsidiaries of
the Loan Documents to which it is a Party.
4.4 Subsidiaries.
(a) Schedule 4.4 hereto correctly sets forth the names,
form of legal entity, number of shares of capital stock issued and
outstanding, number of shares (or units of equity interests, as the
case may be) owned by Borrowers or a Subsidiary of Borrowers (speci-
fying such owner) and jurisdictions of organization of all Subsid-
iaries of the Company and specifies which thereof, as of the Closing
Date, are Domestic Subsidiaries (and whether Active or Inactive) and
Foreign Subsidiaries. Except as described in Schedule 4.4 or
Schedule 6.14, Borrowers do not own any capital stock, equity
interest or debt security which is convertible, or exchangeable, for
capital stock or equity interests in any Person. Unless otherwise
indicated in Schedule 4.4, all of the outstanding shares of capital
stock, or all of the units of equity interest, as the case may be, of
each Subsidiary are owned of record and beneficially by the Company,
there are no outstanding options, warrants or other rights to
purchase capital stock of any such Subsidiary, and all such shares or
equity interests so owned are duly authorized, validly issued, fully
paid and non-assessable, and were issued in compliance with all
applicable state and federal securities and other Laws, and are free
and clear of all Liens and Rights of Others, except for Permitted
Encumbrances and Permitted Rights of Others.
(b) Each Subsidiary is a corporation or limited
liability company duly formed, validly existing and in good standing
under the Laws of its jurisdiction of organization, is duly qualified
to do business as a foreign organization and is in good standing as
such in each jurisdiction in which the conduct of its business or the
ownership or leasing of its Properties makes such qualification nec-
essary (except where the failure to be so duly qualified and in good
standing does not constitute a Material Adverse Effect), and has all
requisite power and authority to conduct its business and to own and
lease its Properties.
(c) Each Subsidiary is in compliance with all Laws and
other requirements applicable to its business and has obtained all
authorizations, consents, approvals, orders, licenses, and permits
from, and each such Subsidiary has accomplished all filings,
registrations, and qualifications with, or obtained exemptions from
any of the foregoing from, any Governmental Agency that are necessary
for the transaction of its business, except where the failure to be
in such compliance, obtain such authorizations, consents, approvals,
orders, licenses, and permits, accomplish such filings, registra-
tions, and qualifications, or obtain such exemptions, does not con-
stitute a Material Adverse Effect.
4.5 Financial Statements. The Company has furnished to the
Banks (a) the audited unqualified consolidated financial statements of the
Company and its Subsidiaries for the Fiscal Year ended December 31, 1994
and (b) the unaudited balance sheet and statement of operations of the
Company and its Subsidiaries for the Fiscal Quarter ended June 30, 1995.
The financial statements described in clause (a) fairly present in all
material respects the financial condition, results of operations and
changes in financial position, and the balance sheet and statement of
operations described in clause (b) fairly present in all material respects
the financial condition and results of operations, of the Company and its
Subsidiaries as of such dates and for such periods in conformity with
Generally Accepted Accounting Principles, consistently applied.
4.6 No Other Liabilities; No Material Adverse Changes. The
Company and its Subsidiaries do not have any material liability or material
contingent liability not reflected or disclosed in the balance sheet
described in Section 4.5(b), other than liabilities and contingent liabili-
ties arising in the ordinary course of business since the date of such
financial statements and liabilities and contingent liabilities otherwise
disclosed in writing to the Agent and the Banks. As of the Closing Date,
no circumstance or event has occurred that constitutes a Material Adverse
Effect since June 30, 1995, or, as of any date subsequent to the Closing
Date, since the Closing Date.
4.7 Title to and Location of Property. The Company and its
Subsidiaries have valid title to the Property reflected in the balance
sheet described in Section 4.5(b), other than items of Property which are
immaterial and Property subsequently sold or disposed of in the ordinary
course of business, free and clear of all Liens and Rights of Others, other
than Liens or Rights of Others permitted by Section 6.8. None of Borrowers
nor any of their Subsidiaries owns any Property located in any jurisdiction
other than the jurisdictions set forth in Schedule 6.17, except for
Demonstration Inventory and Show Inventory which may from time to time be
located in other jurisdictions as permitted by the terms of Section 6.17.
Schedule 4.7 correctly sets forth a summary description of all Real
Property owned by Borrowers and their Subsidiaries.
4.8 Intangible Assets. The Company and its Subsidiaries own,
or possess the right to use to the extent necessary in their respective
businesses, all material trademarks, trade names, copyrights, patents,
patent rights, computer software, licenses and other Intangible Assets that
are used in the conduct of their businesses as now operated, and no such
Intangible Asset, to the best knowledge of Borrowers, conflicts with the
valid trademark, trade name, copyright, patent, patent right or Intangible
Asset of any other Person to the extent that such conflict constitutes a
Material Adverse Effect. Schedule 4.8 sets forth all patents, patent
applications, trademarks, trade names and trade styles used by Borrowers or
any of their Domestic Subsidiaries at any time within the five (5) year
period ending on the Closing Date.
4.9 Public Utility Holding Company Act. Neither the Company
nor any of its Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company"
or of a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
4.10 Litigation. Except for (a) any matter fully covered as
to subject matter and amount (subject to applicable deductibles and
retentions) by insurance for which the insurance carrier has not asserted
lack of subject matter coverage or reserved its right to do so, (b) any
matter, or series of related matters, involving a claim against the Company
or any of its Subsidiaries of less than $1,000,000, (c) matters of an
administrative nature not involving a claim or charge against the Company
or any of its Subsidiaries and (d) matters set forth in Schedule 4.10,
there are no actions, suits, proceedings or investigations pending as to
which the Company or any of its Subsidiaries have been served or have
received notice or, to the best knowledge of Borrowers, threatened against
or affecting Borrowers or any of their Subsidiaries or any Property of any
of them before any Governmental Agency.
4.11 Binding Obligations. Each of the Loan Documents to which
any of Borrowers or their Active Domestic Subsidiaries is a Party will,
when executed and delivered by such Party, constitute the legal, valid and
binding obligation of such Party, enforceable against such Party in accor-
dance with its terms, except as enforcement may be limited by Debtor Relief
Laws or equitable principles relating to the granting of specific perfor-
mance and other equitable remedies as a matter of judicial discretion.
4.12 No Default. No event has occurred and is continuing that
is a Default or Event of Default.
4.13 ERISA.
(a) With respect to each Pension Plan:
(i) such Pension Plan complies in all material
respects with ERISA and any other applicable Laws to the extent
that noncompliance could reasonably be expected to have a
Material Adverse Effect;
(ii) such Pension Plan has not incurred any
"accumulated funding deficiency" (as defined in Section 302 of
ERISA) that could reasonably be expected to have a Material
Adverse Effect;
(iii) no "reportable event" (as defined in
Section 4043 of ERISA) has occurred that could reasonably be
expected to have a Material Adverse Effect; and
(iv) none of Borrowers nor any of their Subsid-
iaries has engaged in any non-exempt "prohibited transaction"
(as defined in Section 4975 of the Code) that could reasonably
be expected to have a Material Adverse Effect.
(b) None of Borrowers nor any of their Subsidiaries has
incurred or expects to incur any withdrawal liability to any
Multiemployer Plan that could reasonably be expected to have a
Material Adverse Effect.
4.14 Regulations G, T, U and X; Investment Company Act. No
part of the proceeds of any Loan hereunder will be used to purchase or
carry, or to extend credit to others for the purpose of purchasing or
carrying, any Margin Stock in violation of Regulations G, T, U and X.
Neither any of Borrowers nor any of their Subsidiaries is or is required to
be registered as an "investment company" under the Investment Company Act
of 1940.
4.15 Disclosure. No written statement made by a Senior
Officer of the Company to the Agent or any Bank in connection with this
Agreement, or in connection with any Loan, as of the date thereof contained
any untrue statement of a material fact or omitted a material fact
necessary to make the statement made not misleading in light of all the
circumstances existing at the date the statement was made.
4.16 Tax Liability. The Company and its Subsidiaries have
filed all tax returns which are required to be filed, and have paid, or
made provision for the payment of, all taxes with respect to the periods,
Property or transactions covered by said returns, or pursuant to any
assessment received by it or by them, except (a) such taxes, if any, as are
being contested in good faith by appropriate proceedings and as to which
adequate reserves have been established and maintained (to the extent
required by Generally Accepted Accounting Principles) and (b) immaterial
taxes and filings so long as no material item or portion of Property of the
Company or any of its Subsidiaries is in jeopardy of being seized, levied
upon or forfeited.
4.17 Projections. As of the Closing Date, to the best knowl-
edge of Borrowers, the assumptions set forth in the Projections are
reasonable and consistent with each other and with all facts known to
Borrowers, and the Projections are reasonably based on such assumptions.
Nothing in this Section 4.17 shall be construed as a representation or
covenant that the Projections in fact will be achieved.
4.18 Hazardous Materials. Except as described in
Schedule 4.18, (a) none of the Company nor any of its Subsidiaries at any
time has disposed of, discharged, released or threatened the release of any
Hazardous Materials on, from or under the Real Property in violation of any
Hazardous Materials Law that would individually or in the aggregate
constitute a Material Adverse Effect, (b) to the best knowledge of
Borrowers, no condition exists that violates any Hazardous Material Law
affecting any Real Property except for such violations that would not
individually or in the aggregate have a Material Adverse Effect, (c) no
Real Property or any portion thereof is or has been utilized by the Company
or any of its Subsidiaries as a site for the manufacture of any Hazardous
Materials and (d) to the extent that any Hazardous Materials are used,
generated or stored by the Company or any of its Subsidiaries on any Real
Property, or transported to or from such Real Property by Borrowers or any
of its Subsidiaries, such use, generation, storage and transportation are
in compliance in all material respects with all Hazardous Materials Laws.
4.19 Security Interests. Upon the execution and delivery of
the Security Agreement, the Security Agreement will create a valid first
priority security interest in the Collateral described therein securing the
Obligations (subject only to Permitted Encumbrances, Permitted Rights of
Others and matters disclosed in Schedule 6.8 or permitted under
Section 6.8(d) and to such qualifications and exceptions as are contained
in the Uniform Commercial Code with respect to the priority of security
interests perfected by means other than the filing of a financing statement
or with respect to the creation of security interests in the Property to
which Division 9 of the Uniform Commercial Code does not apply) and all
action necessary to perfect the security interests so created, other than
filing of the UCC-1 financing statements delivered to the Agent pursuant to
Section 8.1 with the appropriate Governmental Agency have been taken and
completed. Upon the execution and delivery of the Pledge Agreement, the
Pledge Agreement will create a valid first priority security interest in
the Pledged Collateral and, upon delivery of the Pledged Collateral to the
Agent, all action necessary to perfect the security interest so created has
been taken and completed. Upon the execution and delivery of the Patent
Collateral Assignment (Issued) and the Patent Collateral Assignment
(Pending Applications), such assignments will create valid first priority
security interests in the Collateral described therein (subject only to
Permitted Encumbrances and Permitted Rights of Others) and, upon the
recordation thereof in the United States Patent and Trademark Office, all
action necessary to perfect the security interests so created have been
taken and completed. Upon the execution and delivery of the Trademark
Collateral Assignment, the Trademark Collateral Assignment will create a
valid first priority security interest in the Collateral described therein
(subject only to Permitted Encumbrances and Permitted Rights of Others)
and, upon the recordation thereof in the United States Patent and Trademark
Office, all action necessary to perfect the security interest so created
has been taken and completed.
4.20 The Merger. The Merger has been effected in compliance
with all applicable Laws and otherwise in accordance with the Merger
Agreement. The effective date of the Merger was August 28, 1995. No
provision of the Merger Agreement was amended or waived in connection with
the Merger except as otherwise specifically and separately disclosed in
writing to the Agent and the Banks. All assets owned by Cabot prior to the
Merger remain owned by Cabot after the Merger, subject to all liabilities
of Cabot incurred prior to the Merger. All consents and approvals of any
Governmental Agency and any other Person necessary to effect the Merger
have been obtained. No material adverse change in the condition (financial
or otherwise), business operations or prospects of Cabot has occurred since
December 31, 1994 or is reasonably expected to occur.
4.21 Demonstration Inventory. No inventory (including
Demonstration Inventory) of any Borrower or any Subsidiary of any Borrower
is the subject of a cash-on-delivery sale, consignment or guaranteed sale.
All Demonstration Inventory is and shall remain at all times until sold to
a user-purchaser thereof owned by Borrowers and their Subsidiaries, and the
employees of Borrowers and their Subsidiaries in possession of any
Demonstration Inventory have no interest or claim with respect thereto.
Each such Person at any time having possession of any Demonstration
Inventory is an employee of a Borrower or a Subsidiary of a Borrower and
not an independent contractor or sales agent.
4.22 Cabot Convertible Notes. Borrowers and their
Subsidiaries (and, in particular, Cabot) are permitted to make prepayments
from time to time of the Indebtedness outstanding under the Cabot
Convertible Notes without incurring any penalty or increased rate of
interest as a result thereof.
4.23 Additional Representations and Warranties. All
representations and warranties made by the Company, Cabot and any other
Subsidiary of Company in the Merger Agreement and in any document,
certificate or statement delivered pursuant to the terms thereof, are
incorporated herein by this reference.<PAGE>
Article 5
AFFIRMATIVE COVENANTS
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)
So long as any Advance remains unpaid, or any other Obligation
remains unpaid or unperformed, or any portion of the Commitment remains in
force, Borrowers shall, and shall cause each of their Subsidiaries to,
unless the Agent (with the written approval of the Requisite Banks)
otherwise consents:
5.1 Payment of Taxes and Other Potential Liens. Pay and
discharge promptly all taxes, assessments and governmental charges or
levies imposed upon any of them, upon their respective Property or any part
thereof and upon their respective income or profits or any part thereof,
except that Borrowers and their Subsidiaries shall not be required to pay
or cause to be paid (a) any tax, assessment, charge or levy that is not yet
past due, or is being contested in good faith by appropriate proceedings so
long as the relevant entity has established and maintains adequate reserves
for the payment of the same (to the extent required by Generally Accepted
Accounting Principles) or (b) any immaterial tax, assessment or
governmental charge or levy so long as no material item or portion of
Property of Borrowers or any of their Subsidiaries is in jeopardy of being
seized, levied upon or forfeited.
5.2 Preservation of Existence. Preserve and maintain their
respective existences in the jurisdiction of their formation and all
material authorizations, rights, franchises, privileges, consents,
approvals, orders, licenses, permits, or registrations from any
Governmental Agency that are necessary for the transaction of their
respective business, except where the failure to so preserve and maintain
the existence of any Subsidiary and such authorizations would not
constitute a Material Adverse Effect and except that a merger permitted by
Section 6.3 shall not constitute a violation of this covenant; and qualify
and remain qualified to transact business in each jurisdiction in which
such qualification is necessary in view of their respective business or the
ownership or leasing of their respective Properties except where the
failure to so qualify or remain qualified would not constitute a Material
Adverse Effect.
5.3 Maintenance of Properties. Maintain, preserve and protect
all of their respective depreciable Properties in good order and condition,
subject to wear and tear in the ordinary course of business, and not permit
any waste of their respective Properties, except that the failure to
maintain, preserve and protect a particular item of depreciable Property
that is not of significant value, either intrinsically or to the operations
of Borrowers and their Subsidiaries, taken as a whole, shall not constitute
a violation of this covenant.
5.4 Maintenance of Insurance. Maintain liability, casualty
and other insurance (subject to customary deductibles and retentions) with
responsible insurance companies in such amounts and against such risks as
is carried by responsible companies engaged in similar businesses and
owning similar assets in the general areas in which Borrowers and their
Subsidiaries operate.
5.5 Compliance With Laws. Comply, within the time period, if
any, given for such compliance by the relevant Governmental Agency or
Agencies with enforcement authority, with all Requirements of Law
noncompliance with which constitutes a Material Adverse Effect, except that
Borrowers and their Subsidiaries need not comply with a Requirement of Law
then being contested by any of them in good faith by appropriate
proceedings.
5.6 Inspection Rights. Upon reasonable notice, at any time
during regular business hours and as often as requested (but not so as to
materially interfere with the business of Borrowers or any of their
Subsidiaries), permit the Agent or any Bank, or any authorized employee,
agent or representative thereof, to examine, audit and make copies and
abstracts from the records and books of account of, and to visit and
inspect the Properties of, Borrowers and their Subsidiaries and to discuss
the affairs, finances and accounts of Borrowers and their Subsidiaries with
any of their officers, key employees or accountants and, upon request,
furnish promptly to the Agent or any Bank true copies of all financial
information made available to the board of directors or audit committee of
the board of directors of Borrowers. Notwithstanding the foregoing, no
Borrower or Subsidiary shall be required to disclose, permit the
inspection, examination, discussion, copying or making extracts of any
document, information or other matter that (i) constitutes non-financial
trade secrets or non-financial proprietary information, unless otherwise
reasonably required in connection with assuring the continued perfection
and priority of any Lien of the Agent and/or the Banks on any Collateral,
or (ii) in respect of which disclosure to the Agent or any Bank, as the
case may be, or any designated representative thereof, is then prohibited
by any Law or by an agreement binding upon any Borrower or Subsidiary that
was not entered into by such Borrower or Subsidiary for the purpose (in
whole or in part) of concealing information from the Agent or the Banks.
5.7 Audit Rights. Upon reasonable notice, at any time during
regular business hours (but not so as to materially interfere with the
business of Borrowers or their Subsidiaries) permit the Agent to audit the
Collateral, including examination of documents underlying or supporting the
Collateral, and reimburse the Agent promptly for its reasonable expenses in
conducting such audit.
5.8 Keeping of Records and Books of Account. Keep adequate
records and books of account reflecting all financial transactions in
conformity with Generally Accepted Accounting Principles, consistently
applied, and in material conformity with all applicable requirements of any
Governmental Agency having regulatory jurisdiction over Borrowers or any of
their Subsidiaries.
5.9 Compliance With Agreements. Promptly and fully comply
with all Contractual Obligations under all material agreements, indentures,
leases and/or instruments to which any one or more of them is a party,
whether such material agreements, indentures, leases or instruments are
with a Bank or another Person, except for any such Contractual Obligations
(a) the performance of which would cause a Default or (b) then being
contested by any of them in good faith by appropriate proceedings or if the
failure to comply with such agreements, indentures, leases or instruments
does not constitute a Material Adverse Effect.
5.10 Use of Proceeds. Use the proceeds of the Loans, at
Borrowers' election, (i) for the retirement of all outstanding obligations
under the Prior Credit Facility on the Closing Date, (b) to finance up to
seventy-five percent (75%) of the amount required to pay in full and
terminate the Indebtedness evidenced by the Cabot Convertible Notes,
(c) for working capital and general corporate purposes of Borrowers and
their Subsidiaries, and (d) for any purpose not expressly prohibited by
this Agreement.
5.11 New Active Domestic Subsidiaries. Cause each Person
which hereafter becomes an Active Domestic Subsidiary of the Company (and
provided such Person does not become a Borrower hereunder pursuant to
Section 11.24) to execute and deliver to the Agent an instrument of joinder
of the Subsidiary Guaranty and each of the Security Agreement, Patent
Collateral Assignment (Issued), Patent Collateral Assignment (Pending
Applications), Trademark Collateral Assignment and Foreign Intellectual
Property Blanket Assignment.
5.12 New Patents and Trademarks. Upon the acquisition of any
patent, trademark or trade name, or the making of an application therefor,
promptly notify the Agent thereof and execute and deliver from time to time
such amendments to the Patent Collateral Assignment (Issued), Patent
Collateral Assignment (Pending Applications), Trademark Collateral
Assignment and Foreign Intellectual Property Blanket Assignment as may be
reasonably requested by the Agent to add such patents, trademarks, trade
names, and applications therefor to the Collateral therein described.
5.13 Hazardous Materials Laws. Keep and maintain all Real
Property of Borrowers and their Subsidiaries and each portion thereof in
compliance in all material respects with all applicable Hazardous Materials
Laws and promptly notify the Agent in writing of (a) any and all material
enforcement, cleanup, removal or other governmental or regulatory actions
instituted, completed or threatened in writing by a Governmental Agency
against any Borrower or Subsidiary or Affiliate of any Borrower pursuant to
any applicable Hazardous Materials Laws, (b) any and all material claims
made or threatened in writing by any Person against any Borrower or
Subsidiary or Affiliate of any Borrower relating to damage, contribution,
cost recovery, compensation, loss or injury resulting from any Hazardous
Materials and (c) discovery by any Senior Officer of the Company of any
material occurrence or condition on any real Property adjoining or in the
vicinity of such Real Property that could reasonably be expected to cause
such Real Property or any part thereof to be subject to any restrictions on
the ownership, occupancy, transferability or use of such Real Property
under any applicable Hazardous Materials Laws.
5.14 Foreign Intellectual Property. Upon request by the
Agent, execute and deliver to the Agent collateral assignments with respect
to the patents, patent applications, trademarks and trade names covered by
the Foreign Intellectual Property Blanket Assignment, or such portion
thereof as may be requested by the Agent, in a form or forms suitable for
filing or recordation with the appropriate Governmental Agency in the
jurisdiction where such patents, patent applications, trademarks or trade
names are registered and cooperate with the Agent in connection with such
filing or recordation, all at the expense of Borrowers.
5.15 Intercompany Notes. Execute a promissory note (in a form
reasonably acceptable to the Agent and to include, if requested by the
Agent, a waiver of offset and similar rights by the payee thereof)
evidencing any Indebtedness of any of Borrowers or any Subsidiary of
Borrowers to any other Borrower or Subsidiary which is in an amount of
$250,000 or more, and cause each payee of such promissory note to deliver
the same to the Agent, with an endorsement in blank, as Pledged Collateral
(unless such payee is a Foreign Subsidiary, in which case no such delivery
shall be required).<PAGE>
Article 6
NEGATIVE COVENANTS
So long as any Advance remains unpaid, or any other Obligation
remains unpaid or unperformed, or any portion of the Commitment remains in
force, Borrowers shall not, and shall not permit any of their Subsidiaries
to, unless the Agent (with the written approval of the Requisite Banks or,
if required by Section 11.2, of all of the Banks) otherwise consents:
6.1 Prepayment of Indebtedness. Other than prepayments of the
Indebtedness evidenced by the Cabot Convertible Notes as permitted by the
terms of this Agreement, pay any principal or interest on any Indebtedness
of Borrowers or any of their Subsidiaries prior to the date when due, or
make any payment or deposit with any Person that has the effect of
providing for the satisfaction of any Indebtedness of Borrowers or any of
their Subsidiaries prior to the date when due.
6.2 Disposition of Property. Make any Disposition of its
Property, whether now owned or hereafter acquired, except sales, transfers
and dispositions of Property during any twelve (12) month period having an
aggregate fair market value not greater than $1,000,000.
6.3 Mergers. Merge or consolidate with or into any Person,
except mergers and consolidations of a Subsidiary of the Company into the
Company or another of its Subsidiaries, provided that Borrowers and each of
such Subsidiaries have executed such amendments to the Loan Documents as
the Agent may reasonably determine are appropriate as a result of such
merger.
6.4 Hostile Acquisitions. Directly or indirectly use the
proceeds of any Loan in connection with the acquisition of part or all of a
voting interest of five percent (5%) or more in any corporation or other
business entity if such acquisition is opposed by the board of directors or
management of such corporation or business entity.
6.5 Distributions. Make any Distribution, whether from
capital, income or otherwise, and whether in Cash or other Property, except
(a) Distributions by any Subsidiary of the Company to the Company or any
other Subsidiary, (b) dividends payable solely in capital stock or rights
to purchase capital stock and (c) Distributions which, after giving effect
thereto, would not cause or result in a Default or Event of Default.
6.6 ERISA. (a) At any time, permit any Pension Plan to:
(i) engage in any non-exempt "prohibited transaction" (as defined in
Section 4975 of the Code); (ii) fail to comply in all material respects
with ERISA or any other applicable Laws; (iii) incur any material
"accumulated funding deficiency" (as defined in Section 302 of ERISA); or
(iv) terminate in any manner, which, with respect to each event listed
above, could reasonably be expected to result in a Material Adverse Effect,
or (b) withdraw, completely or partially, from any Multiemployer Plan if to
do so could reasonably be expected to result in a Material Adverse Effect.
6.7 Change in Nature of Business. Make any material change in
the nature of the business of Borrowers and their Subsidiaries, taken as a
whole.
6.8 Liens and Negative Pledges. Create, incur, assume or
suffer to exist any Lien, Negative Pledge of any nature upon or with
respect to any of their respective Properties, or engage in any sale and
leaseback transaction with respect to any of their respective Properties,
whether now owned or hereafter acquired, except:
(a) Permitted Encumbrances;
(b) Liens and Negative Pledges under the Loan
Documents;
(c) Liens and Negative Pledges existing on the Closing
Date and disclosed in Schedule 6.8 and any renewals/extensions or
amendments thereof; provided that the obligations secured or
benefited thereby are not increased;
(d) Liens securing Indebtedness permitted by
Section 6.9(d) on the Property which is the subject of the Capital
Lease Obligation or was purchased with the proceeds of the purchase
money debt;
(e) Liens on Property acquired by Borrowers or any of
their Subsidiaries that were in existence at the time of the
acquisition of such Property and were not created in contemplation of
such acquisition and any renewals/extensions or amendments thereof,
provided that the obligations secured or benefitted thereby are not
increased;
(f) Liens arising as a result of or in connection with
judgments and awards to the extent such judgments and awards do not
cause the occurrence of an Event of Default under Section 9.1(i);
(g) Liens on bank deposit accounts contractually given
as security for reimbursement obligations regarding letters of credit
or bankers' acceptances to the extent the Indebtedness or Guaranty
Obligation represented by any such reimbursement obligation is
permitted by the terms of Section 6.9; and
(h) Liens on the Property of any Borrower or any
Subsidiary of any Borrower in favor of any other Borrower or
Subsidiary, as the case may be.
6.9 Indebtedness and Guaranty Obligations. Create, incur or
assume any Indebtedness or Guaranty Obligation except:
(a) Indebtedness and Guaranty Obligations existing on
the Closing Date and disclosed in Schedule 6.9, and renewals,
extensions or amendments that do not increase the amount thereof;
(b) Indebtedness and Guaranty Obligations under the
Loan Documents;
(c) Indebtedness owed and Guaranty Obligations made on
an intercompany basis among the Company and its Subsidiaries;
(d) Indebtedness consisting of Capital Lease
Obligations or purchase money debt that does not exceed $2,000,000 in
the aggregate at any time;
(e) Guaranty Obligations in support of the obligations
of an Active Domestic Subsidiary;
(f) Guaranty Obligations with respect to the
Indebtedness of employees of any Borrower or any Subsidiary of any
Borrower, provided such Indebtedness (and corresponding Guaranty
Obligation) does not exceed $250,000 in the aggregate at any time for
any such employee or $750,000 in the aggregate at any time for all
such employees of Borrowers and their Subsidiaries;
(g) Indebtedness not referred to in clauses (a)
through (f) above, in an aggregate amount not to exceed $500,000
outstanding at any time, provided that no such Indebtedness shall be
secured by any Lien on the Property of any Borrower or any Subsidiary
of any Borrower.
6.10 Transactions with Affiliates. Enter into any transaction
of any kind with any Affiliate of the Company other than (a) salary, bonus,
employee stock option and other compensation arrangements with directors or
officers in the ordinary course of business, (b) transactions that are
fully disclosed to the board of directors of the Company and expressly
authorized by a resolution of the board of directors of the Company which
is approved by a majority of the directors not having an interest in the
transaction, including transactions described in clause (a) above that are
not in the ordinary course of business, (c) transactions between or among
the Company and its Subsidiaries, and (d) transactions, when considered
together with any related transaction or series of transactions of which
such transaction is a part, on overall terms at least as favorable to the
Company or its Subsidiaries as would be the case in an arm's-length
transaction between unrelated parties of equal bargaining power.
6.11 Tangible Net Worth. Permit Tangible Net Worth, as of the
last day of any Fiscal Quarter ending after the Closing Date, to be less
than the sum of (a) $42,000,000 plus (b) an amount equal to 75% of Net
Income earned in each Fiscal Quarter ending after December 31, 1994 (with
no deduction for a net loss in any such Fiscal Quarter) plus (c) an amount
equal to 100% of the aggregate increases in Stockholders' Equity of the
Company and its Subsidiaries after the Closing Date by reason of the
issuance and sale of capital stock of the Company (including upon any
conversion of debt securities of the Company into such capital stock).
6.12 Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio, as of the last day of any Fiscal Quarter ending after the
Closing Date, to be less than 1.50 to 1.00.
6.13 Quick Ratio. Permit the Quick Ratio, as of the last day
of each Fiscal Quarter set forth or described below, to be less than the
amount set forth opposite that Fiscal Quarter:
Fiscal Quarter
Ending Ratio
June 30, 1995 0.65 to 1.00
through
June 30, 1996
September 30, 1996 0.74 to 1.00
and thereafter
6.14 Investments. Make or suffer to exist any Investment,
other than:
(a) Investments in existence on the Closing Date and
disclosed on Schedule 6.14;
(b) Investments consisting of Cash and Cash
Equivalents;
(c) Investments consisting of loans or advances to
officers, directors and employees of the Company and any of its
Subsidiaries for travel, entertainment, relocation and analogous
ordinary business purposes;
(d) Investments consisting of loans to employees of
Borrowers and their Subsidiaries for the purchase of capital stock of
the Company or a Subsidiary of the Company that do not exceed
$250,000 in the aggregate outstanding at any time;
(e) Investments in an Active Domestic Subsidiary;
(f) Investments in a Foreign Subsidiary made in the
ordinary course of business that do not exceed $7,500,000 in the
aggregate outstanding at any time;
(g) Investments received in connection with the
settlement of a bona fide dispute with another Person;
(h) Investments representing all or a portion of the
sales price of Property sold or services provided to another Person;
(i) Investments consisting of or evidencing the
extension of credit to customers or suppliers of Borrowers and
Subsidiaries in the ordinary course of business and any Investments
received in satisfaction or partial satisfaction thereof, which, in
the aggregate, do not exceed $250,000 at any time; and
(j) Investments not described above (to include
Investments made outside the ordinary course of business) that do not
exceed $500,000 in the aggregate outstanding at any time.
6.15 Acquisitions. Make any Acquisition or enter into any
agreement to make any Acquisition unless approved in advance by the
Requisite Banks in writing, except that Borrowers and their Subsidiaries
may make Acquisitions and may enter into agreements to make such
Acquisitions so long as (a) no Default or Event of Default has occurred and
is continuing and so long as no Default or Event of Default would occur as
a result thereof; (b) such Acquisitions reasonably relate to Persons or
Properties in the same line of business as Borrowers' existing operations,
and (c) the aggregate purchase price of all such Acquisitions does not
exceed $10,000,000 in any twelve-month period.
6.16 Subsidiary Indebtedness. Permit (whether or not
otherwise permitted under Section 6.9) any Subsidiary to create, incur,
assume or suffer to exist any Indebtedness or Guaranty Obligation, except
(a) Indebtedness and Guaranty Obligations in existence on the Closing Date
and renewals/extensions or amendments that do not increase the amounts
thereof, (b) the Subsidiary Guaranty, (c) Indebtedness owed to and Guaranty
Obligations made in favor of the Company or another Subsidiary, (d) Capital
Lease Obligations and purchase money obligations of a Subsidiary in respect
of Property used by that Subsidiary, provided that the Indebtedness
represented by such Capital Lease Obligations and purchase money obliga-
tions, when combined with Capital Lease Obligations and purchase money
obligations of Borrowers and all other Subsidiaries does not exceed the
limitations set forth in Section 6.9(d), and (e) other Indebtedness
incurred in the ordinary course of business not in excess, with respect to
any Subsidiary, of $100,000, provided that all such Subsidiary Indebtedness
combined with the Indebtedness of all Borrowers and other Subsidiaries
permitted under Section 6.9(g), shall not exceed $500,000.
6.17 Change in Location of Chief Executive Offices and Assets.
Relocate the chief executive office of any Borrower or Subsidiary of any
Borrower without first giving the Agent thirty (30) days prior written
notice of any proposed relocation. Borrowers shall not, nor shall they
permit any of their respective Subsidiaries to, move any of their
respective equipment or inventory to a jurisdiction other than any one of
the jurisdictions identified in Schedule 6.17 without first giving the
Agent ten (10) calendar days prior written notice of any such proposed
relocation. Notwithstanding the foregoing, Borrowers and Subsidiaries may
from time to time have (a) Show Inventory located outside the jurisdictions
identified in Schedule 6.17, provided that the aggregate book value of such
Show Inventory does not exceed $500,000 at any time and (b) Demonstration
Inventory located outside the jurisdictions identified in Schedule 6.17,
provided that the aggregate book value of the Demonstration Inventory
located in jurisdictions other than those specified in Schedule 6.17 shall
not exceed twenty percent (20%) of the aggregate book value of all
Demonstration Inventory at any time.
<PAGE>
Article 7
INFORMATION AND REPORTING REQUIREMENTS
7.1 Financial and Business Information. So long as any
Advance remains unpaid, or any other Obligation remains unpaid or
unperformed, or any portion of the Commitment remains in force, Borrowers
shall, unless the Agent (with the written approval of the Requisite Banks)
otherwise consents, at Borrowers' sole expense, deliver to the Agent for
distribution to the Banks the following:
(a) As soon as reasonably practicable, and in any event
within 45 days after the end of each Fiscal Quarter (other than the
fourth Fiscal Quarter in any Fiscal Year), (i) the consolidated
balance sheet of the Company and its Subsidiaries as at the end of
such Fiscal Quarter and the consolidated statements of operations and
cash flow for such Fiscal Quarter, and the portion of the Fiscal Year
ended with such Fiscal Quarter and (ii) the consolidating (in
substantial accordance with past consolidating practices of the
Company) balance sheets and statements of operations and cash flow as
at and for the portion of the Fiscal Year ended with such Fiscal
Quarter, all in reasonable detail. Such financial statements shall
be certified by a Senior Officer on behalf of the Company as fairly
presenting the financial condition, results of operations and cash
flows of the Company and its Subsidiaries in accordance with
Generally Accepted Accounting Principles (other than footnote
disclosures), consistently applied, as at such date and for such
periods, subject only to normal year-end accruals and audit
adjustments;
(b) As soon as reasonably practicable, and in any event
within 45 days after the end of each Fiscal Quarter, a Pricing
Certificate setting forth a preliminary calculation of the Funded
Debt Ratio as of the last day of such Fiscal Quarter, and providing
reasonable detail as to the calculation thereof, which calculations
shall be based on the preliminary unaudited financial statements of
the Company and its Subsidiaries for such Fiscal Quarter, and as soon
as reasonably practicable thereafter, in the event of any material
variance in the actual calculation of the Funded Debt Ratio from such
preliminary calculation, a revised Pricing Certificate setting forth
the actual calculation thereof;
(c) As soon as reasonably practicable, and in any event
within 120 days after the end of each Fiscal Year, (i) the con-
solidated balance sheet of the Company and its Subsidiaries as at the
end of such Fiscal Year and the consolidated statements of
operations, stockholders' equity and cash flows, in each case of the
Company and its Subsidiaries for such Fiscal Year and
(ii) consolidating (in accordance with past consolidating practices
of the Company) balance sheets and statements of operations, in each
case as at the end of and for the Fiscal Year, all in reasonable
detail. Such financial statements shall be prepared in accordance
with Generally Accepted Accounting Principles, consistently applied,
and such consolidated balance sheet and consolidated statements shall
be accompanied by a report of independent public accountants of
recognized standing selected by the Company and reasonably
satisfactory to the Agent, which report shall be prepared in
accordance with generally accepted auditing standards as at such
date, and shall not be subject to any qualifications or exceptions as
to the scope of the audit nor to any other qualification or exception
determined by the Requisite Banks in their good faith business
judgment to be adverse to the interests of the Banks. Such account-
ants' report shall be accompanied by a certificate stating that, in
making the examination pursuant to generally accepted auditing
standards necessary for the certification of such financial
statements and such report, such accountants have obtained no
knowledge of any Default or, if, in the opinion of such accountants,
any such Default shall exist, stating the nature and status of such
Default, and stating that such accountants have reviewed the
Company's financial calculations as at the end of such Fiscal Year
(which shall accompany such certificate) under Sections 6.11 through
6.13, have read such Sections (including the definitions of all
defined terms used therein) and that nothing has come to the
attention of such accountants in the course of such examination that
would cause them to believe that the same were not calculated by the
Company in the manner prescribed by this Agreement;
(d) As soon as reasonably practicable, and in any event
within 30 days after the commencement of each Fiscal Year, a budget
and projection by Fiscal Quarter for that Fiscal Year and by Fiscal
Year for the next two succeeding Fiscal Years, including for the
first such Fiscal Year, projected consolidated balance sheets,
statements of operations and statements of cash flow and, for the
second and third such Fiscal Years, projected consolidated condensed
balance sheets and statements of operations and cash flows, of the
Company and its Subsidiaries, all in reasonable detail;
(e) Promptly after request by the Agent or any Bank,
copies of any detailed audit reports, management letters or recom-
mendations submitted to the board of directors (or the audit
committee of the board of directors) of the Company by independent
accountants in connection with the accounts or books of the Company
or any of its Subsidiaries, or any audit of any of them;
(f) Promptly after the same are available, and in any
event within 15 days after filing with the Securities and Exchange
Commission, copies of each annual report, proxy or financial
statement or other report or communication sent to the stockholders
of the Company,and copies of all annual, regular, periodic and
special reports and registration statements which the Company may
file or be required to file with the Securities and Exchange
Commission under Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, and not otherwise required to be delivered to
the Banks pursuant to other provisions of this Section 7.1;
(g) Promptly after request by the Agent or any Bank,
copies of any other report or other document that was filed by the
Company or any of its Subsidiaries with any Governmental Agency;
(h) Promptly upon a Senior Officer obtaining actual
knowledge, and in any event within ten (10) Banking Days after
obtaining actual knowledge, of the occurrence of any (i) "reportable
event" (as such term is defined in Section 4043 of ERISA) or
(ii) "prohibited transaction" (as such term is defined in Section 406
of ERISA or Section 4975 of the Code) in connection with any Pension
Plan or any trust created thereunder, telephonic notice specifying
the nature thereof, and, no more than five (5) Banking Days after
such telephonic notice, written notice again specifying the nature
thereof and specifying what action the Company or any of its
Subsidiaries is taking or proposes to take with respect thereto, and,
when known, any action taken by the Internal Revenue Service with
respect thereto;
(i) As soon as reasonably practicable, and in any event
within two (2) Banking Days after a Senior Officer becomes aware of
the existence of any condition or event which constitutes a Default,
telephonic notice specifying the nature and period of existence
thereof, and, no more than two (2) Banking Days after such telephonic
notice, written notice again specifying the nature and period of
existence thereof and specifying what action the Company or any of
its Subsidiaries are taking or propose to take with respect thereto;
(j) Promptly upon a Senior Officer obtaining actual
knowledge, and in any event within five (5) Banking Days after
obtaining actual knowledge, that (i) any Person has commenced a legal
proceeding with respect to a claim against the Company or any of its
Subsidiaries that is $1,000,000 or more in excess of the amount
thereof that is fully covered by insurance, (ii) any creditor under a
written credit agreement with respect to Indebtedness of $1,000,000
or more or any lessor under a written material lease has asserted a
default thereunder on the part of the Company or any of its Subsid-
iaries, (iii) any Person has commenced a legal proceeding with
respect to a claim against the Company or any of its Subsidiaries
under a contract that is not a credit agreement or material lease in
excess of $1,000,000 or which otherwise may reasonably be expected to
result in a Material Adverse Effect and (iv) any labor union has
notified the Company of its intent to strike the Company or any of
its Subsidiaries on a date certain and such strike would involve more
than 100 employees of the Company and its Subsidiaries, a written
notice describing the pertinent facts relating thereto and what
actions the Company or its Subsidiaries are taking or propose to take
with respect thereto; and
(k) Subject to the last sentence of Section 5.6, such
other data and information as from time to time may be reasonably
requested by the Agent, any Bank (through the Agent) or the Requisite
Banks.
7.2 Compliance Certificates. So long as any Advance remains
unpaid, or any other Obligation remains unpaid or unperformed, or any
portion of the Commitment remains outstanding, Borrowers shall, at
Borrowers' sole expense, deliver to the Agent for distribution by it to the
Banks concurrently with the financial statements required pursuant to
Sections 7.1(a) and 7.1(c), a Compliance Certificate signed by a Senior
Officer on behalf of Borrowers.
<PAGE>
Article 8
CONDITIONS
8.1 Initial Advances, Etc.. Except as otherwise agreed in
writing by Borrowers and the Agent (with the consent of the Banks), the
obligation of each Bank to make the initial Advance to be made by it, or
the obligation of the Issuing Bank to issue the initial Letter of Credit
(as applicable), is subject to the following conditions precedent, each of
which shall be satisfied prior to the making of the initial Advances or the
issuance of the initial Letter of Credit (as applicable) (unless all of the
Banks, in their sole and absolute discretion, shall agree otherwise):
(a) The Agent shall have received all of the following,
each of which shall be originals unless otherwise specified, each
properly executed by a Responsible Official of each party thereto,
each dated as of the Closing Date and each in form and substance
reasonably satisfactory to the Agent and its legal counsel (unless
otherwise specified or, in the case of the date of any of the
following, unless the Agent otherwise agrees or directs):
(1) at least one (1) executed counterpart of this
Agreement, together with arrangements satisfactory to the Agent
for additional executed counterparts, sufficient in number for
distribution to the Banks and Borrowers;
(2) the Notes executed by Borrowers in favor of each
Bank, each in a principal amount equal to that Bank's Pro Rata
Share of the Commitment;
(3) the Subsidiary Guaranty executed by each Active
Domestic Subsidiary of the Company that is not a Borrower;
(4) the Security Agreement executed by Borrowers and
their Active Domestic Subsidiaries;
(5) such financing statements on Form UCC-1 executed by
Borrowers and each Active Domestic Subsidiary with respect to
the Security Agreement as the Agent may request;
(6) the Pledge Agreement executed by the Company and
its Active Domestic Subsidiaries, together with the Pledged
Collateral accompanied by appropriate stock powers and note
endorsements endorsed in blank;
(7) the Patent Collateral Assignment (Issued) and the
Patent Collateral Assignment (Pending Applications) executed by
Borrowers and their Active Domestic Subsidiaries;
(8) the Trademark Collateral Assignment executed by
Borrowers and their Active Domestic Subsidiaries;
(9) the Foreign Intellectual Property Blanket
Assignment executed by Borrowers and their Active Domestic
Subsidiaries;
(10) with respect to Borrowers and each Active Domestic
Subsidiary, such documentation as the Agent may reasonably
require to establish the due organization, valid existence and
good standing of Borrowers and each such Subsidiary, its
qualification to engage in business in each material juris-
diction in which it is engaged in business or required to be so
qualified, its authority to execute, deliver and perform any
Loan Documents to which it is a Party, the identity, authority
and capacity of each Responsible Official thereof authorized to
act on its behalf, including certified copies of articles of
incorporation and amendments thereto, bylaws and amendments
thereto, certificates of good standing and/or qualification to
engage in business, tax clearance certificates, certificates of
corporate resolutions, incumbency certificates, Certificates of
Responsible Officials, and the like;
(11) the Opinions of Counsel;
(12) written evidence that the Prior Credit Facilities
have been or will be concurrently terminated and that all Liens
securing such facilities, if any, have been or will be
concurrently released;
(13) copies of the Merger Agreement and all related
documents, together with an Officer's Certificate signed by a
Senior Officer on behalf of Borrowers to the effect that the
same are true copies and are in full force and effect;
(14) "Phase I" or similar environmental reports with
respect to the Real Property owned by the Company or its
Subsidiaries identified on Schedule 4.7, prepared by qualified
independent environmental experts that are reasonably
acceptable to the Agent in all respects, together with a
Certificate of a Senior Officer on behalf of the Company
certifying that any recommendations by such expert therein
contained have been implemented or are in the process of
implementation and that no significant adverse event involving
Hazardous Materials has occurred with respect to such Real
Property since the date of such reports;
(15) an Officer's Certificate signed by a Senior Officer
on behalf of Borrowers affirming, to the best of Borrower's
knowledge, that the representation set forth in Section 4.17 is
true;
(16) a Certificate signed by a Senior Officer on behalf
of the Company certifying that the conditions specified in
Sections 8.1(f), (g) and (h) have been satisfied.
(17) evidence satisfactory to the Requisite Banks (A)
that all final approvals of all Governmental Agencies necessary
for the Merger have been received and (B) that the Merger has
been consummated in accordance with all applicable Laws;
(18) one or more Requests for Loan; and
(19) such other assurances, certificates, documents,
consents or opinions as the Agent reasonably may require.
(b) The fees required to be paid on or before the
Closing Date pursuant to Section 3.2 shall have been paid.
(c) Agent shall be reasonably satisfied that all
Pension Plans, medical benefit plans and retiree plans of Borrowers
and their Subsidiaries are current and fully funded in accordance
with prudent actuarial assumptions or adequate reserves with respect
thereto have been established.
(d) There shall not be pending or threatened any
litigation relating to the Merger or the transactions contemplated by
this Agreement which the Requisite Banks deem to be material.
(e) The reasonable costs and expenses of the Agent in
connection with the underwriting and due diligence process relating
to this transaction and the preparation of the Loan Documents payable
pursuant to Section 11.3, and invoiced to Borrowers prior to the
Closing Date, shall have been paid.
(f) The representations and warranties of Borrowers
contained in Article 4 shall be true and correct.
(g) Borrowers and any other Parties shall be in
compliance with all the terms and provisions of the Loan Documents,
and giving effect to the initial Advance no Default or Event of
Default shall have occurred and be continuing and no event shall have
occurred since June 30, 1995 which constitutes a Material Adverse
Effect.
(h) Except as disclosed in a published report or other
writing, no material adverse change in the condition (financial or
otherwise), business operations or prospects or Cabot shall have
occurred since the date of the Merger or reasonably be expected to
occur.
8.2 Availability of Reserve Amount. The obligation of each
Bank to make any Advance and the obligation of the Issuing Bank to issue
any Letter of Credit which would cause the sum of (i) the principal
Indebtedness outstanding under the Notes plus (ii) the Aggregate Effective
Amount of all outstanding Letters of Credit to be in excess of the then
applicable Commitment less the Reserve Amount is subject to the conditions
precedent (and only the conditions precedent) that (unless all of the
Banks, in their sole and absolute discretion, shall agree otherwise)
(a) the conditions precedent set forth in Section 8.1 shall have been
satisfied and (b) the Cabot Convertible Notes shall have been, or will
concurrently be, redeemed and paid in full.
8.3 Any Increasing Advance, Etc. The obligation of each Bank
to make any Advance which would increase the principal amount outstanding
under the Notes, and the obligation of the Issuing Bank to issue a Letter
of Credit, is subject to the following conditions precedent:
(a) except (i) for representations and warranties which
expressly relate to a particular date or are no longer true and
correct as a result of a change which is permitted by this Agreement
or the other Loan Documents or (ii) as disclosed by Borrowers and
approved in writing by the Requisite Banks, the representations and
warranties contained in Article 4 (other than Sections 4.4(a), 4.6
(first sentence), 4.10, 4.17 and 4.19) shall be true and correct on
and as of the date of the Advance as though made on that date;
(b) other than matters described in Schedule 4.10 or
not required as of the Closing Date to be therein described, there
shall not be then pending or, to the best knowledge of Borrowers and
their Subsidiaries, threatened any action, suit, proceeding or
investigation against or affecting Borrowers or any of their Sub-
sidiaries or any Property of any of them before any Governmental
Agency that constitutes a Material Adverse Effect;
(c) the Agent shall have timely received a Request for
Loan in compliance with Article 2 (or telephonic or other request for
Loan referred to in the second sentence of Section 2.1(b), if
applicable) or the Issuing Bank shall have received a Request for
Letter Credit, as the case may be, in compliance with Article 2; and
(d) the Agent shall have received, in form and sub-
stance reasonably satisfactory to the Agent, such other assurances,
certificates, documents or consents related to the foregoing as the
Agent or Requisite Banks reasonably may require.
8.4 Any Advance. The obligation of each Bank to make any
Advance (other than an Alternate Base Rate Advance with respect to an
Alternate Base Rate Loan which, if made, would not increase the outstanding
principal Indebtedness evidenced by the Notes), and of the Issuing Bank to
issue any Letter of Credit, is subject to the conditions precedent that
(a) the representations and warranties contained in Sections 4.1, 4.2, 4.3,
4.4(b), 4.11, 4.12 (but only with respect to Events of Default) and 4.14
shall be true and correct in all material respects on the date of such
Advance as though made on that date except as disclosed by Borrowers and
approved in writing by the Requisite Banks, and (b) except as provided for
in Section 2.1(g), the Agent shall have timely received a Request for Loan
in compliance with Article 2 (or telephonic or other request for Loan
referred to in the second sentence of Section 2.1(b), if applicable).
Article 9
EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT
9.1 Events of Default. The existence or occurrence of any one
or more of the following events, whatever the reason therefor and under any
circumstances whatsoever, shall constitute an Event of Default:
(a) Borrowers fail to pay any principal on any
Obligation, or any portion thereof, on the date when due; or
(b) Borrowers fail to pay any interest on any of the
Notes, or any fees under Sections 3.3 or 3.4, or any portion thereof,
within five (5) Banking Days after the date when due; or fail to pay
any other fee or amount payable to the Banks under any Loan Document,
or any portion thereof, within five (5) Banking Days after demand
therefor; or
(c) Borrowers fail to comply with any of the covenants
contained in Article 6; or
(d) Borrowers fail to comply with (i) Section 7.1(i) in
any respect that is materially adverse to the interests of the Banks,
or (ii) Section 7.1(j) in any respect that is materially adverse to
the interests of the Banks and which, as a consequence of such
failure, results in the Banks being unable to reasonably protect
their interests;
(e) Borrowers, any of the Active Domestic Subsidiaries
of Borrowers or any other Party fails to perform or observe any other
covenant or agreement (not specified in clause (a), (b), (c) or (d)
above) contained in any Loan Document on its part to be performed or
observed within twenty (20) Banking Days after the giving of notice
by the Agent on behalf of the Requisite Banks of such Default; or
(f) Any representation or warranty of Borrowers or any
of the Active Domestic Subsidiaries of Borrowers made in any Loan
Document, or in any certificate or other writing delivered by
Borrowers or such Active Domestic Subsidiary pursuant to any Loan
Document, proves to have been incorrect when made or reaffirmed in
any respect that is materially adverse to the interests of the Banks;
or
(g) Borrowers or any Active Domestic Subsidiary of
Borrowers (i) fails to pay the principal, or any principal install-
ment, of any present or future Indebtedness of $1,000,000 or more, or
any guaranty of present or future Indebtedness of $1,000,000 or more,
on its part to be paid, when due (or within any stated grace period),
whether at the stated maturity, upon acceleration, by reason of
required prepayment or otherwise or (ii) fails to perform or observe
any other term, covenant or agreement on its part to be performed or
observed, or suffers any event to occur, in connection with any
individual item of present or future Indebtedness of $1,000,000 or
more, or of any guaranty of present or future Indebtedness of
$1,000,000 or more, if as a result of such failure or sufferance any
holder or holders thereof (or an agent or trustee on its or their
behalf) has the right to declare such Indebtedness due before the
date on which it otherwise would become due; or
(h) Any Loan Document, at any time after its execution
and delivery and for any reason other than the agreement or action
(or omission to act) of the Agent or any Bank or satisfaction in full
of all the Obligations ceases to be in full force and effect or is
declared by a court of competent jurisdiction to be null and void,
invalid or unenforceable in any respect which, in any such event in
the reasonable opinion of the Requisite Banks, is materially adverse
to the interests of the Banks; or any Party thereto denies in writing
that it has any or further liability or obligation under any Loan
Document, or purports to revoke, terminate or rescind same; or
(i) A final judgment against any of Borrowers or any of
their Subsidiaries is entered for the payment of money in excess of
$1,000,000 and, absent procurement of a stay of execution, such
judgment remains unsatisfied for thirty (30) calendar days after the
date of entry of judgment, or in any event later than five (5) days
prior to the date of any proposed sale thereunder; or any writ or
warrant of attachment or execution or similar process is issued or
levied against all or any material part of the Property of any such
Person and is not released, vacated or fully bonded within
thirty (30) calendar days after its issue or levy; or
(j) (i) Borrowers or any Active Domestic Subsidiary of
Borrowers institute or consent to the institution of any proceeding
under a Debtor Relief Law relating to it or to all or any material
part of its Property, or is unable or admits in writing its inability
to pay its debts as they mature, or makes an assignment for the
benefit of creditors; or applies for or consents to the appointment
of any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer for it or for all or any material
part of its Property; or (ii) any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer is
appointed without the application or consent of that Person and the
appointment continues undischarged or unstayed for sixty (60)
calendar days; or any proceeding under a Debtor Relief Law relating
to any such Person or to all or any material part of its Property is
instituted without the consent of that Person and continues
undismissed or unstayed for sixty (60) calendar days; or
(k) The occurrence of an Event of Default (as such term
is or may hereafter be specifically defined in any other Loan
Document) under any other Loan Document; or
(l) Any Pension Plan maintained by Borrowers or any of
their Subsidiaries is determined to have a material "accumulated
funding deficiency" as that term is defined in Section 302 of ERISA
and the result is a Material Adverse Effect.
9.2 Remedies Upon Event of Default. Without limiting any
other rights or remedies of the Agent or the Banks provided for elsewhere
in this Agreement, or the other Loan Documents, or by applicable Law, or in
equity, or otherwise:
(a) Upon the occurrence, and during the continuance, of
any Event of Default other than an Event of Default described in
Section 9.1(j):
(1) the Commitment to make Advances and all other
obligations of the Agent or the Banks and all rights of
Borrowers and any other Parties under the Loan Documents shall
be suspended without notice to or demand upon Borrowers, which
are expressly waived by Borrowers, except that all of the Banks
or the Requisite Banks (as the case may be, in accordance with
Section 11.2) may waive an Event of Default or, without
waiving, determine, upon terms and conditions satisfactory to
the Banks or Requisite Banks, as the case may be, to reinstate
the Commitment and make further Advances, which waiver or
determination shall apply equally to, and shall be binding
upon, all the Banks;
(2) the Issuing Bank may, with the approval of the
Agent on behalf of the Requisite Banks, demand immediate
payment by Borrowers of an amount equal to the Aggregate
Effective Amount of all outstanding Letters of Credit to be
held by the Issuing Bank in an interest-bearing cash collateral
account as collateral hereunder; and
(3) the Requisite Banks may request the Agent to, and
the Agent thereupon shall, terminate the Commitment and/or
declare all or any part of the unpaid principal of all Notes,
all interest accrued and unpaid thereon and all other
Obligations payable under the Loan Documents to be forthwith
due and payable, whereupon the same shall become and be
forthwith due and payable, without protest, presentment, notice
of dishonor, demand or further notice of any kind, all of which
are expressly waived by Borrowers.
(b) Upon the occurrence of any Event of Default
described in Section 9.1(j):
(1) the Commitment to make Advances and all other
obligations of the Agent or the Banks and all rights of
Borrowers and any other Parties under the Loan Documents shall
terminate without notice to or demand upon Borrowers, which are
expressly waived by Borrowers, except that all the Banks may
waive the Event of Default or, without waiving, determine, upon
terms and conditions satisfactory to all the Banks, to
reinstate the Commitment and make further Advances, which
determination shall apply equally to, and shall be binding
upon, all the Banks;
(2) an amount equal to the Aggregate Effective Amount
of all outstanding Letters of Credit shall be immediately due
and payable to the Issuing Bank without notice to or demand
upon Borrowers, which are expressly waived by Borrowers, to be
held by the Issuing Bank in an interest-bearing cash collateral
account as collateral hereunder; and
(3) the unpaid principal of all Notes, all interest
accrued and unpaid thereon and all other amounts payable under
the Loan Documents shall be forthwith due and payable, without
protest, presentment, notice of dishonor, demand or further
notice of any kind, all of which are expressly waived by
Borrowers.
(c) Upon the occurrence and during the continuance of
any Event of Default, the Banks and the Agent, or any of them,
without notice to (except as expressly provided for in any Loan
Document) or demand upon Borrowers, which are expressly waived by
Borrowers (except as to notices expressly provided for in any Loan
Document), may proceed (but only with the consent of the Requisite
Banks) to protect, exercise and enforce their rights and remedies
under the Loan Documents against Borrowers and any other Party and
such other rights and remedies as are provided by Law or equity.
(d) The order and manner in which the Banks' rights and
remedies are to be exercised shall be determined by the Requisite
Banks in their sole discretion, and all payments received by the
Agent and the Banks, or any of them, shall be applied first to the
costs and expenses (including reasonable attorneys' fees and
disbursements and the reasonably allocated costs of attorneys
employed by the Agent) of the Agent and of the Banks, and thereafter
paid pro rata to the Banks in the same proportions that the aggregate
Obligations owed to each Bank under the Loan Documents bear to the
aggregate Obligations owed under the Loan Documents to all the Banks,
without priority or preference among the Banks. Regardless of how
each Bank may treat payments for the purpose of its own accounting,
for the purpose of computing Borrowers' Obligations hereunder and
under the Notes, payments shall be applied first, to the costs and
expenses of the Agent and the Banks, as set forth above, second, to
the payment of accrued and unpaid interest due under any Loan
Documents to and including the date of such application (ratably, and
without duplication, according to the accrued and unpaid interest due
under each of the Loan Documents), and third, to the payment of all
other amounts (including principal and fees) then owing to the Agent
or the Banks under the Loan Documents. No application of payments
will cure any Event of Default, or prevent acceleration, or continued
acceleration, of amounts payable under the Loan Documents, or prevent
the exercise, or continued exercise, of rights or remedies of the
Banks hereunder or thereunder or at Law or in equity.
<PAGE>
Article 10
THE AGENT
10.1 Appointment and Authorization. Subject to Section 10.8,
each Bank hereby irrevocably appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Agent by the terms thereof or are
reasonably incidental, as determined by the Agent, thereto. This appoint-
ment and authorization is intended solely for the purpose of facilitating
the servicing of the Loans and does not constitute appointment of the Agent
as trustee for any Bank or as representative of any Bank for any other
purpose and, except as specifically set forth in the Loan Documents to the
contrary, the Agent shall take such action and exercise such powers only in
an administrative and ministerial capacity.
10.2 Agent and Affiliates. First Interstate Bank of
California (and each successor Agent) has the same rights and powers under
the Loan Documents as any other Bank and may exercise the same as though it
were not the Agent, and the term "Bank" or "Banks" includes First
Interstate Bank of California in its individual capacity. First Interstate
Bank of California (and each successor Agent) and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of banking,
trust or other business with Borrowers, any Subsidiary thereof, or any
Affiliate of Borrowers or any Subsidiary thereof, as if it were not the
Agent and without any duty to account therefor to the Banks. First
Interstate Bank of California (and each successor Agent) need not account
to any other Bank for any monies received by it for reimbursement of its
costs and expenses as Agent hereunder, or for any monies received by it in
its capacity as a Bank hereunder. The Agent shall not be deemed to hold a
fiduciary relationship with any Bank and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into
this Agreement or otherwise exist against the Agent.
10.3 Proportionate Interest in any Collateral. The Agent, on
behalf of all the Banks, shall hold in accordance with the Loan Documents
all items of any collateral or interests therein received or held by the
Agent. Subject to the Agent's and the Banks' rights to reimbursement for
their costs and expenses hereunder (including reasonable attorneys' fees
and disbursements and other professional services and the reasonably
allocated costs of attorneys employed by the Agent or a Bank) and subject
to the application of payments in accordance with Section 9.2(d), each Bank
shall have an interest in the Banks' interest in the Collateral or inter-
ests therein in the same proportions that the aggregate Obligations owed
such Bank under the Loan Documents bear to the aggregate Obligations owed
under the Loan Documents to all the Banks, without priority or preference
among the Banks.
10.4 Banks' Credit Decisions. Each Bank agrees that it has,
independently and without reliance upon the Agent, any other Bank or the
directors, officers, agents, employees or attorneys of the Agent or of any
other Bank, and instead in reliance upon information supplied to it by or
on behalf of Borrowers and upon such other information as it has deemed
appropriate, made its own independent credit analysis and decision to enter
into this Agreement. Each Bank also agrees that it shall, independently
and without reliance upon the Agent, any other Bank or the directors,
officers, agents, employees or attorneys of the Agent or of any other Bank,
continue to make its own independent credit analyses and decisions in
acting or not acting under the Loan Documents.
10.5 Action by Agent.
(a) The Agent may assume that no Default has occurred
and is continuing, unless the Agent (or the Bank that is then the
Agent) has received notice from Borrowers stating the nature of the
Default or has received notice from a Bank stating the nature of the
Default and that such Bank considers the Default to have occurred and
to be continuing.
(b) The Agent has only those obligations under the Loan
Documents as are expressly set forth therein.
(c) Except for any obligation expressly set forth in
the Loan Documents and as long as the Agent may assume that no Event
of Default has occurred and is continuing, the Agent may, but shall
not be required to, exercise its discretion to act or not act, except
that the Agent shall be required to act or not act upon the
instructions of the Requisite Banks (or of all the Banks, to the
extent required by Section 11.2) and those instructions shall be
binding upon the Agent and all the Banks, provided that the Agent
shall not be required to act or not act if to do so would be contrary
to any Loan Document or to applicable Law or would result, in the
reasonable judgment of the Agent, in substantial risk of liability to
the Agent.
(d) If the Agent has received a notice specified in
clause (a), the Agent shall immediately give notice thereof to the
Banks and shall act or not act upon the instructions of the Requisite
Banks (or of all the Banks, to the extent required by Section 11.2),
provided that the Agent shall not be required to act or not act if to
do so would be contrary to any Loan Document or to applicable Law or
would result, in the reasonable judgment of the Agent, in substantial
risk of liability to the Agent, and except that if the Requisite
Banks (or all the Banks, if required under Section 11.2) fail, for
five (5) Banking Days after the receipt of notice from the Agent, to
instruct the Agent, then the Agent, in its sole discretion, may act
or not act as it deems advisable for the protection of the interests
of the Banks.
(e) The Agent shall have no liability to any Bank for
acting, or not acting, as instructed by the Requisite Banks (or all
the Banks, if required under Section 11.2), notwithstanding any other
provision hereof.
10.6 Liability of Agent. Neither the Agent nor any of its
directors, officers, agents, employees or attorneys shall be liable for any
action taken or not taken by them under or in connection with the Loan
Documents, except for their own gross negligence or willful misconduct.
Without limitation on the foregoing, the Agent and its directors, officers,
agents, employees and attorneys:
(a) May treat the payee of any Note as the holder
thereof until the Agent receives notice of the assignment or transfer
thereof, in form satisfactory to the Agent, signed by the payee, and
may treat each Bank as the owner of that Bank's interest in the
Obligations for all purposes of this Agreement until the Agent
receives notice of the assignment or transfer thereof, in form
satisfactory to the Agent, signed by that Bank.
(b) May consult with legal counsel (including in-house
legal counsel), accountants (including in-house accountants) and
other professionals or experts selected by it, or with legal counsel,
accountants or other professionals or experts for Borrowers and/or
their Subsidiaries or the Banks, and shall not be liable for any
action taken or not taken by it in good faith in accordance with any
advice of such legal counsel, accountants or other professionals or
experts.
(c) Shall not be responsible to any Bank for any
statement, warranty or representation made in any of the Loan
Documents or in any notice, certificate, report, request or other
statement (written or oral) given or made in connection with any of
the Loan Documents.
(d) Except to the extent expressly set forth in the
Loan Documents, shall have no duty to ask or inquire as to the
performance or observance by Borrowers or its Subsidiaries of any of
the terms, conditions or covenants of any of the Loan Documents or to
inspect any Collateral or the Property, books or records of Borrowers
or their Subsidiaries.
(e) Will not be responsible to any Bank for the due
execution, legality, validity, enforceability, genuineness,
effectiveness, sufficiency or value of any Loan Document, any other
instrument or writing furnished pursuant thereto or in connection
therewith, or any Collateral.
(f) Will not incur any liability by acting or not
acting in reliance upon any Loan Document, notice, consent,
certificate, statement, request or other instrument or writing
reasonably believed by it to be genuine and signed or sent by the
proper party or parties.
(g) Will not incur any liability for any arithmetical
error in computing any amount paid or payable by the Borrowers or any
Subsidiary or Affiliate thereof or paid or payable to or received or
receivable from any Bank under any Loan Document, including, without
limitation, principal, interest, commitment fees, Advances and other
amounts; provided that, promptly upon discovery of such an error in
computation, the Agent, the Banks and (to the extent applicable)
Borrowers and/or their Subsidiaries or Affiliates shall make such
adjustments as are necessary to correct such error and to restore the
parties to the position that they would have occupied had the error
not occurred.
10.7 Indemnification. Each Bank shall, ratably in accordance
with its Pro Rata Share of the Commitment, indemnify and hold the Agent and
its directors, officers, agents, employees and attorneys harmless against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever (including, without limitation, attorneys' fees and dis-
bursements and allocated costs of attorneys employed by the Agent) that may
be imposed on, incurred by or asserted against it or them in any way
relating to or arising out of the Loan Documents (other than losses
incurred by reason of the failure of Borrowers to pay the Indebtedness
represented by the Notes) or any action taken or not taken by it as Agent
thereunder, except such as result from its own gross negligence or willful
misconduct. Without limitation on the foregoing, each Bank shall reimburse
the Agent upon demand for that Bank's Pro Rata Share of any out-of-pocket
cost or expense incurred by the Agent in connection with the negotiation,
preparation, execution, delivery, amendment, waiver, restructuring,
reorganization (including a bankruptcy reorganization), enforcement or
attempted enforcement of the Loan Documents, to the extent that Borrowers
or any other Party is required by Section 11.3 to pay that cost or expense
but fails to do so upon demand. Nothing in this Section 10.7 shall entitle
the Agent to recover any amount from the Banks if and to the extent that
such amount has theretofore been recovered from Borrowers or any of their
Subsidiaries.
10.8 Successor Agent. The Agent may, and at the request of
the Requisite Banks shall, resign as Agent upon thirty (30) days' notice to
the Banks and Borrowers. If the Agent shall resign as Agent under this
Agreement, the Requisite Banks shall appoint from among the Banks a
successor Agent for the Banks, which successor administrative co-agent
shall be approved by Borrowers (and such approval shall not be unreasonably
withheld or delayed). If no successor administrative co-agent is appointed
prior to the effective date of the resignation of the Agent, the Agent may
appoint, after consulting with the Banks and the Borrowers, a successor
administrative co-agent from among the Banks. Upon the acceptance of its
appointment as successor administrative co-agent hereunder, such successor
administrative co-agent shall succeed to all the rights, powers and duties
of the retiring Agent and the term "Agent" shall mean such successor
administrative co-agent and the retiring Agent's appointment, powers and
duties as Agent shall be terminated. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article 10, and
Sections 11.3, 11.11 and 11.22, shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If (a) the Agent has not been paid its fees under Section 3.2
or has not been reimbursed for any expense reimbursable to it under
Section 11.3, in either case for a period of at least one (1) year and
(b) no successor administrative co-agent has accepted appointment as Agent
by the date which is thirty (30) days following a retiring Agent's notice
of resignation, the retiring Agent's resignation shall nevertheless
thereupon become effective and the Requisite Banks (subject to the
provisions specified in Section 11.2 requiring consent of all the Banks)
shall perform all of the duties of the Agent hereunder until such time, if
any, as the Requisite Banks appoint a successor administrative co-agent as
provided for above.
10.9 No Obligations of Borrowers. Nothing contained in this
Article 10 shall be deemed to impose upon Borrowers any obligation in
respect of the due and punctual performance by the Agent of its obligations
to the Banks under any provision of this Agreement, and Borrowers shall
have no liability to the Agent or any of the Banks in respect of any
failure by the Agent or any Bank to perform any of its obligations to the
Agent or the Banks under this Agreement. Without limiting the generality
of the foregoing, where any provision of this Agreement relating to the
payment of any amounts due and owing or the delivery of documents under the
Loan Documents provides that such payments shall be made or documents
delivered by Borrowers to the Agent for the account of the Banks,
Borrowers' obligations to the Banks in respect of such payments and
documents shall be deemed to be satisfied upon the making of such payments
or delivery of such documents to the Agent in the manner provided by this
Agreement.
<PAGE>
Article 11
MISCELLANEOUS
11.1 Cumulative Remedies; No Waiver. The rights, powers,
privileges and remedies of the Agent and the Banks provided herein or in
any Note or other Loan Document are cumulative and not exclusive of any
right, power, privilege or remedy provided by Law or equity. No failure or
delay on the part of the Agent or any Bank in exercising any right, power,
privilege or remedy may be, or may be deemed to be, a waiver thereof; nor
may any single or partial exercise of any right, power, privilege or remedy
preclude any other or further exercise of the same or any other right,
power, privilege or remedy. The terms and conditions of Article 8 hereof
are inserted for the sole benefit of the Agent and the Banks; the same may
be waived in whole or in part, with or without terms or conditions, in
respect of any Loan without prejudicing the Agent's or the Banks' rights to
assert them in whole or in part in respect of any other Loan.
11.2 Amendments; Consents. No amendment, modification,
supplement, extension, termination or waiver of any provision of this
Agreement or any other Loan Document, no approval or consent thereunder,
and no consent to any departure by the Borrowers or any other Party
therefrom, may in any event be effective unless in writing signed by the
Requisite Banks (and, in the case of any amendment, modification or
supplement of or to any Loan Document to which any Borrower is a Party,
signed by Borrowers and, in the case of any amendment, modification or
supplement to Article 10, signed by the Agent), and then only in the
specific instance and for the specific purpose given; and, without the
approval in writing of all the Banks, no amendment, modification,
supplement, termination, waiver or consent may be effective:
(a) To amend or modify the principal of, or the amount
of principal, principal prepayments or the rate of interest payable
on, any Note, or the amount of the Commitment or the Pro Rata Share
of any Bank (except as otherwise provided in Section 11.8) or the
amount of any commitment fee payable to any Bank, or any other fee or
amount payable to any Bank under the Loan Documents or to waive an
Event of Default consisting of the failure of Borrowers to pay when
due principal, interest or any commitment fee;
(b) To postpone any date fixed for any payment of
principal of, prepayment of principal of or any installment of
interest on, any Note or any installment of any commitment fee, or to
extend the term of the Commitment, or to release the Subsidiary
Guaranty;
(c) to release any material portion of the Collateral
(except as otherwise expressly provided in any Loan Document);
(d) To amend the provisions of the definition of
"Requisite Banks", Articles 8 or 9 or this Section 11.2 or to amend
or waive Section 6.4; or
(e) To amend any provision of this Agreement that
expressly requires the consent or approval of all the Banks.
Any amendment, modification, supplement, termination, waiver or consent
pursuant to this Section 11.2 shall apply equally to, and shall be binding
upon, all the Banks and the Agent.
11.3 Costs, Expenses and Taxes. Borrowers shall pay within
five (5) Banking Days after demand, accompanied by an invoice therefor, the
reasonable costs and expenses of the Agent in connection with the
negotiation, preparation, syndication, execution and delivery of the Loan
Documents and any amendment thereto or waiver thereof. Borrowers shall
also pay on demand, accompanied by an invoice therefor, the reasonable
costs and expenses of the Agent and the Banks in connection with the
refinancing, restructuring, reorganization (including a bankruptcy
reorganization) and enforcement or attempted enforcement of the Loan
Documents, and any matter related thereto. The foregoing costs and
expenses shall include filing fees, recording fees, title insurance fees,
appraisal fees, search fees, and other out-of-pocket expenses and the
reasonable fees and out-of-pocket expenses of any legal counsel (including
reasonably allocated costs of legal counsel employed by the Agent or any
Bank), independent public accountants and other outside experts retained by
the Agent or any Bank, whether or not such costs and expenses are incurred
or suffered by the Agent or any Bank in connection with or during the
course of any bankruptcy or insolvency proceedings of any of Borrowers or
any Subsidiary thereof. Such costs and expenses shall also include, in the
case of any amendment or waiver of any Loan Document requested by
Borrowers, the administrative costs of the Agent reasonably attributable
thereto. Notwithstanding the foregoing, Borrowers and their Subsidiaries
shall not be required to pay any fees or costs associated with any
commercial finance examinations conducted as part of the Agent's or any
Bank's standard portfolio review in excess of the aggregate amount of
$5,000 in any calendar year; provided, however, the foregoing limitation
shall not apply if an Event of Default shall have occurred at any time
during such calendar year and, in connection therewith, the Agent or such
Bank shall have conducted additional commercial finance examinations as a
result thereof. Borrowers shall pay any and all documentary and other
taxes, excluding Excluded Taxes, and all costs, expenses, fees and charges
payable or determined to be payable in connection with the filing or
recording of this Agreement, any other Loan Document or any other
instrument or writing to be delivered hereunder or thereunder, or in
connection with any transaction pursuant hereto or thereto, and shall
reimburse, hold harmless and indemnify the Agent and the Banks from and
against any and all loss, liability or legal or other expense with respect
to or resulting from any delay in paying or failure to pay any such tax,
cost, expense, fee or charge or that any of them may suffer or incur by
reason of the failure of any Party to perform any of its Obligations. Any
amount payable to the Agent or any Bank under this Section 11.3 shall bear
interest from the second Banking Day following the date of demand for
payment at the Default Rate, except that any such amount payable under the
first sentence of this Section 11.3 shall bear such interest from the sixth
(6th) Banking Day following the date of demand for payment.
11.4 Nature of Banks' Obligations. The obligations of the
Banks hereunder are several and not joint or joint and several. Nothing
contained in this Agreement or any other Loan Document and no action taken
by the Agent or the Banks or any of them pursuant hereto or thereto may, or
may be deemed to, make the Banks a partnership, an association, a joint
venture or other entity, either among themselves or with the Borrowers or
any Affiliate of any of Borrowers. Each Bank's obligation to make any
Advance pursuant hereto is several and not joint or joint and several, and
in the case of the initial Advance only is conditioned upon the performance
by all other Banks of their obligations to make initial Advances. A
default by any Bank will not increase the Pro Rata Share of the Commitment
attributable to any other Bank. Any Bank not in default may, if it
desires, assume in such proportion as the nondefaulting Banks agree the
obligations of any Bank in default, but is not obligated to do so. The
Agent agrees that it will use its best efforts either to induce the other
Banks to assume the obligations of a Bank in default or to obtain another
Bank, reasonably satisfactory to Borrowers, to replace such a Bank in
default.
11.5 Survival of Representations and Warranties. All
representations and warranties contained herein or in any other Loan
Document, or in any certificate or other writing delivered by or on behalf
of any one or more of the Parties to any Loan Document, will survive the
making of the Loans hereunder and the execution and delivery of the Notes,
and have been or will be relied upon by the Agent and each Bank, to the
extent reasonable, notwithstanding any investigation made by the Agent or
any Bank or on their behalf.
11.6 Notices. Except as otherwise expressly provided in the
Loan Documents, all notices, requests, demands, directions and other
communications provided for hereunder or under any other Loan Document must
be in writing and must be mailed, telegraphed, telecopied, dispatched by
commercial courier or delivered to the appropriate party at the address set
forth on the signature pages of this Agreement or other applicable Loan
Document or, as to any party to any Loan Document, at any other address as
may be designated by it in a written notice sent to all other parties to
such Loan Document in accordance with this Section 11.6. Except as
otherwise expressly provided in any Loan Document, if any notice, request,
demand, direction or other communication required or permitted by any Loan
Document is given by mail it will be effective on the earlier of receipt or
the third calendar day after deposit in the United States mail with first
class or airmail postage prepaid; if given by telegraph or cable, when
delivered to the telegraph company with charges prepaid; if given by
telecopier, when sent; if dispatched by commercial courier, on the
scheduled delivery date; or if given by personal delivery, when delivered.
11.7 Execution of Loan Documents. Unless the Agent otherwise
specifies with respect to any Loan Document, (a) this Agreement and any
other Loan Document may be executed in any number of counterparts and any
party hereto or thereto may execute any counterpart, each of which when
executed and delivered will be deemed to be an original and all of which
counterparts of this Agreement or any other Loan Document, as the case may
be, when taken together will be deemed to be but one and the same
instrument and (b) execution of any such counterpart may be evidenced by a
telecopier transmission of the signature of such party. The execution of
this Agreement or any other Loan Document by any party hereto or thereto
will not become effective until counterparts hereof or thereof, as the case
may be, have been executed by all the parties hereto or thereto.
11.8 Binding Effect; Assignment.
(a) Subject to the provisions of this Section 11.8, this
Agreement and the other Loan Documents to which Borrowers are a Party
will be binding upon and inure to the benefit of Borrowers, the
Agent, each of the Banks, and their respective successors and
assigns, except that, other than as permitted in Section 6.3,
Borrowers may not assign their rights hereunder or thereunder or any
interest herein or therein without the prior written consent of all
the Banks. Each Bank represents that it is not acquiring its Note
with a view to the distribution thereof within the meaning of the
Securities Act of 1933, as amended (subject to any requirement that
disposition of such Note must be within the control of such Bank).
Any Bank may at any time pledge its Note or any other instrument
evidencing its rights as a Bank under this Agreement to a Federal
Reserve Bank, but no such pledge shall release that Bank from its
obligations hereunder or grant to such Federal Reserve Bank the
rights of a Bank hereunder absent foreclosure of such pledge.
(b) From time to time following the Closing Date, each Bank
may assign to one or more Eligible Assignees all or any portion of
its Pro Rata Share of the Commitment; provided that (i) such Eligible
Assignee, if not then a Bank or an Affiliate of the assigning Bank,
shall be approved by each of the Agent and Borrowers (neither of
which approvals shall be unreasonably withheld or delayed), (ii) such
assignment shall be evidenced by a Commitment Assignment and
Acceptance, a copy of which shall be furnished to the Agent as
hereinbelow provided, (iii) except in the case of an assignment to an
Affiliate of the assigning Bank, to another Bank or of the entire
remaining Commitment of the assigning Bank, the assignment shall not
assign a Pro Rata Share of the Commitment equivalent to less than
$10,000,000, (iv) such assignment shall not subject any Borrower
(solely as a consequence of the assignment) to any additional costs,
expenses, liabilities, taxes, assessments or other charges under
Sections 3.5, 3.6 or 3.10(d) and (v) the effective date of any such
assignment shall be as specified in the Commitment Assignment and
Acceptance, but not earlier than the date which is three (3) Banking
Days after the date the Agent has received the Commitment Assignment
and Acceptance. Upon the effective date of such Commitment Assign-
ment and Acceptance, the Eligible Assignee named therein shall be a
Bank for all purposes of this Agreement, with the Pro Rata Share of
the Commitment therein set forth and, to the extent of such Pro Rata
Share, the assigning Bank shall be released from its further
obligations under this Agreement. Borrowers agree that they shall
execute and deliver (against delivery by the assigning Bank to
Borrowers of such Bank's Note) to such assignee Bank, a Note
evidencing that assignee Bank's Pro Rata Share of the Commitment, and
to the assigning Bank, a Note evidencing the remaining balance Pro
Rata Share retained by the assigning Bank.
(c) By executing and delivering a Commitment Assignment and
Acceptance, the Eligible Assignee thereunder acknowledges and agrees
that: (i) other than the representation and warranty that it is the
legal and beneficial owner of the Pro Rata Share of the Commitment
being assigned thereby free and clear of any adverse claim, the
assigning Bank has made no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or the
execution, legality, validity, enforceability, genuineness or
sufficiency of this Agreement or any other Loan Document; (ii) the
assigning Bank has made no representation or warranty and assumes no
responsibility with respect to the financial condition of Borrowers
or the performance by Borrowers of the Obligations; (iii) it has
received a copy of this Agreement, together with copies of the most
recent financial statements delivered pursuant to Section 7.1 and
such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into such
Commitment Assignment and Acceptance; (iv) it will, independently and
without reliance upon the Agent or any Bank and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) it appoints and authorizes the Agent
to take such action and to exercise such powers under this Agreement
as are delegated to the Agent by this Agreement; and (vi) it will
perform in accordance with their terms all of the obligations which
by the terms of this Agreement are required to be performed by it as
a Bank.
(d) The Agent shall maintain at the Agent's Office a
copy of each Commitment Assignment and Acceptance delivered to it.
After receipt of a completed Commitment Assignment and Acceptance
executed by any Bank and an Eligible Assignee, and (with respect to
any Commitment Assignment and Acceptance delivered to the Agent after
the date that is sixty (60) days after the Closing Date) receipt of
an assignment fee of $2,500 from such Eligible Assignee, the Agent
shall, promptly following the effective date thereof, provide to
Borrowers and the Banks a revised Schedule 1.1 giving effect thereto.
(e) Each Bank may from time to time grant
participations to one or more banks or other financial institutions
(including another Bank) in a portion of its Pro Rata Share of the
Commitment; provided, however, that (i) such Bank's obligations under
this Agreement shall remain unchanged, (ii) such Bank shall remain
solely responsible to the other parties hereto for the performance of
such obligations, (iii) the participating banks or other financial
institutions shall not be a Bank hereunder for any purpose except, if
the participation agreement so provides, for the purposes of
Sections 3.5, 3.6, 11.11 and 11.22 but only to the extent that the
cost of such benefits to Borrowers does not exceed the cost which
Borrowers would have incurred in respect of such Bank absent the
participation, (iv) Borrowers, the Agent and the other Banks shall
continue to deal solely and directly with such Bank in connection
with such Bank's rights and obligations under this Agreement, (v) the
participation interest shall be expressed as a percentage of the
granting Bank's Pro Rata Share of the Commitment as it then exists
and shall not restrict an increase in the Commitment, or in the
granting Bank's Pro Rata Share of the Commitment, so long as the
amount of the participation interest is not affected thereby and
(vi) the consent of the holder of such participation interest shall
not be required for amendments or waivers of provisions of the Loan
Documents other than those which (A) extend the Maturity Date or any
other date upon which any payment of money is due to the Banks,
(B) reduce the rate of interest on the Notes, any fee or any other
monetary amount payable to the Banks, (C) reduce the amount of any
installment of principal due under the Notes, (D) change the
definition of "Requisite Banks" or (E) release any material portion
of the Collateral.
11.9 Right of Setoff. If an Event of Default has occurred and
is continuing, the Agent or any Bank (but only with the consent of the
Requisite Banks) may exercise its rights under Article 9 of the Uniform
Commercial Code and other applicable Laws and, to the extent permitted by
applicable Laws, apply any funds in any deposit account maintained with it
by Borrowers and/or any Property of Borrowers in its possession against the
Obligations.
11.10 Sharing of Setoffs. Each Bank severally agrees that if
it, through the exercise of any right of setoff, banker's lien or
counterclaim against Borrowers, or otherwise, receives payment of the
Obligations held by it that is ratably more than any other Bank, through
any means, receives in payment of the Obligations held by that Bank, then,
subject to applicable Laws: (a) the Bank exercising the right of setoff,
banker's lien or counterclaim or otherwise receiving such payment shall
purchase, and shall be deemed to have simultaneously purchased, from the
other Bank a participation in the Obligations held by the other Bank and
shall pay to the other Bank a purchase price in an amount so that the share
of the Obligations held by each Bank after the exercise of the right of
setoff, banker's lien or counterclaim or receipt of payment shall be in the
same proportion that existed prior to the exercise of the right of setoff,
banker's lien or counterclaim or receipt of payment; and (b) such other
adjustments and purchases of participations shall be made from time to time
as shall be equitable to ensure that all of the Banks share any payment
obtained in respect of the Obligations ratably in accordance with each
Bank's share of the Obligations immediately prior to, and without taking
into account, the payment; provided that, if all or any portion of a
disproportionate payment obtained as a result of the exercise of the right
of setoff, banker's lien, counterclaim or otherwise is thereafter recovered
from the purchasing Bank by Borrowers or any Person claiming through or
succeeding to the rights of Borrowers, the purchase of a participation
shall be rescinded and the purchase price thereof shall be restored to the
extent of the recovery, but without interest. Each Bank that purchases a
participation in the Obligations pursuant to this Section 11.10 shall from
and after the purchase have the right to give all notices, requests,
demands, directions and other communications under this Agreement with
respect to the portion of the Obligations purchased to the same extent as
though the purchasing Bank were the original owner of the Obligations
purchased. Borrowers expressly consent to the foregoing arrangements and
agree that any Bank holding a participation in an Obligation so purchased
may exercise any and all rights of setoff, banker's lien or counterclaim
with respect to the participation as fully as if the Bank were the original
owner of the Obligation purchased.
11.11 Indemnity by Borrowers. Borrowers agree to indemnify,
save and hold harmless the Agent and each Bank and their directors,
officers, agents, attorneys and employees (collectively the "Indemnitees")
from and against: (a) any and all claims, demands, actions or causes of
action (except a claim, demand, action, or cause of action for any amount
excluded from the definition of "Taxes" in Section 3.10(d)) if the claim,
demand, action or cause of action arises out of or relates to any act or
omission (or alleged act or omission) of Borrowers, their Affiliates or any
of their officers, directors or stockholders relating to the Commitment,
the use or contemplated use of proceeds of any Loan, or the relationship of
Borrowers and the Banks under this Agreement; (b) any administrative or
investigative proceeding by any Governmental Agency arising out of or
related to a claim, demand, action or cause of action described in
clause (a) above; and (c) any and all liabilities, losses, costs or
expenses (including reasonable attorneys' fees and the reasonably allocated
costs of attorneys employed by any Indemnitee and disbursements of such
attorneys and other professional services) that any Indemnitee suffers or
incurs as a result of the assertion of any foregoing claim, demand, action
or cause of action; provided that no Indemnitee shall be entitled to
indemnification for any of the foregoing caused by its own gross negligence
or willful misconduct or breach of any of its obligations under this
Agreement and the other Loan Documents or for any of the foregoing asserted
against it by another Indemnitee. If any claim, demand, action or cause of
action is asserted against any Indemnitee, such Indemnitee shall promptly
notify Borrowers, but the failure to so promptly notify Borrowers shall not
affect Borrowers' obligations under this Section unless such failure
materially prejudices Borrowers' right to participate in the contest of
such claim, demand, action or cause of action, as hereinafter provided.
Such Indemnitee may (and shall, if requested by Borrowers in writing)
contest the validity, applicability and amount of such claim, demand,
action or cause of action and shall permit Borrowers to participate in such
contest. Any Indemnitee that proposes to settle or compromise any claim or
proceeding for which Borrowers may be liable for payment of indemnity
hereunder shall give Borrowers written notice of the terms of such proposed
settlement or compromise reasonably in advance of settling or compromising
such claim or proceeding and shall obtain Borrowers' prior consent (which
shall not be unreasonably withheld or delayed). In connection with any
claim, demand, action or cause of action covered by this Section 11.11
against more than one Indemnitee, all such Indemnitees shall be represented
by the same legal counsel (which may be a law firm engaged by the
Indemnitees or attorneys employed by an Indemnitee or a combination of the
foregoing) selected by the Indemnitees and reasonably acceptable to
Borrowers; provided, that if such legal counsel determines in good faith
that representing all such Indemnitees would or could result in a conflict
of interest under Laws or ethical principles applicable to such legal coun-
sel or that a defense or counterclaim is available to an Indemnitee that is
not available to all such Indemnitees, then to the extent reasonably
necessary to avoid such a conflict of interest or to permit unqualified
assertion of such a defense or counterclaim, each Indemnitee shall be
entitled to separate representation by legal counsel selected by that
Indemnitee and reasonably acceptable to Borrowers, with all such legal
counsel using reasonable efforts to avoid unnecessary duplication of effort
by counsel for all Indemnitees; and further provided that the Agent (as an
Indemnitee) shall at all times be entitled to representation by separate
legal counsel (which may be a law firm or attorneys employed by the Agent
or a combination of the foregoing). Any obligation or liability of
Borrowers to any Indemnitee under this Section 11.11 shall survive the
expiration or termination of this Agreement and the repayment of all Loans
and the payment and performance of all other Obligations owed to the Banks.
11.12 Nonliability of the Banks. Borrowers acknowledge and
agree that:
(a) Any inspections of any Property of Borrowers made
by or through the Agent or the Banks are for purposes of
administration of the Loan only and Borrowers are not entitled to
rely upon the same (whether or not such inspections are at the
expense of Borrowers);
(b) By accepting or approving anything required to be
observed, performed, fulfilled or given to the Agent or the Banks
pursuant to the Loan Documents, neither the Agent nor the Banks shall
be deemed to have warranted or represented the sufficiency, legality,
effectiveness or legal effect of the same, or of any term, provision
or condition thereof, and such acceptance or approval thereof shall
not constitute a warranty or representation to anyone with respect
thereto by the Agent or the Banks;
(c) The relationship between Borrowers and the Agent
and the Banks is, and shall at all times remain, solely that of
borrowers and lenders; neither the Agent nor the Banks shall under
any circumstance be construed to be partners or joint venturers of
Borrowers or their Affiliates; neither the Agent nor the Banks shall
under any circumstance be deemed to be in a relationship of confi-
dence or trust or a fiduciary relationship with Borrowers or their
Affiliates, or to owe any fiduciary duty to Borrowers or their
Affiliates; neither the Agent nor the Banks undertake or assume any
responsibility or duty to Borrowers or their Affiliates to select,
review, inspect, supervise, pass judgment upon or inform Borrowers or
their Affiliates of any matter in connection with their Property or
the operations of Borrowers or their Affiliates; Borrowers and their
Affiliates shall rely entirely upon their own judgment with respect
to such matters; and any review, inspection, supervision, exercise of
judgment or supply of information undertaken or assumed by the Agent
or the Banks in connection with such matters is solely for the
protection of the Agent and the Banks and neither Borrowers nor any
other Person is entitled to rely thereon; and
(d) The Agent and the Banks shall not be responsible or
liable to any Person for any loss, damage, liability or claim of any
kind relating to injury or death to Persons or damage to Property
caused by the actions, inaction or negligence of Borrowers and/or its
Affiliates and Borrowers hereby indemnify and hold the Agent and the
Banks harmless from any such loss, damage, liability or claim.
11.13 No Third Parties Benefited. This Agreement is made for
the purpose of defining and setting forth certain obligations, rights and
duties of Borrowers, the Agent and the Banks in connection with the Loans,
and is made for the sole benefit of Borrowers, the Agent and the Banks, and
the Agent's and the Banks' successors and assigns. Except as provided in
Sections 11.8 and 11.11, no other Person shall have any rights of any
nature hereunder or by reason hereof.
11.14 Confidentiality. Each Bank agrees to hold any
confidential information that it may receive from Borrowers pursuant to
this Agreement in confidence, except for disclosure: (a) to other Banks;
(b) to legal counsel and accountants for Borrowers or any Bank; (c) to
other professional advisors to Borrowers or any Bank, provided that the
recipient has been informed in advance of the confidential nature of such
information; (d) to regulatory officials having jurisdiction over that
Bank; (e) as required by Law or legal process or in connection with any
legal proceeding or litigation involving that Bank and any of Borrowers;
and (f) to another financial institution in connection with a disposition
or proposed disposition to that financial institution of all or part of
that Bank's interests hereunder or a participation interest in its Note,
provided that the recipient has been informed in advance of the
confidential nature of such information. For purposes of the foregoing,
"confidential information" shall mean any information respecting the
Company or its Subsidiaries reasonably considered by Borrowers to be
confidential, other than (i) information previously filed with any
Governmental Agency and available to the public, (ii) information
previously published in any public medium from a source other than,
directly or indirectly, that Bank, and (iii) information previously
disclosed by Borrowers to any Person not associated with Borrowers without
a confidentiality agreement or obligation substantially similar to this
Section 11.14. Nothing in this Section shall be construed to create or
give rise to any fiduciary duty on the part of the Agent or the Banks to
Borrowers.
11.15 Further Assurances. Borrowers and their Subsidiaries
shall, at their expense and without expense to the Banks or the Agent, do,
execute and deliver such further acts and documents as any Bank or the
Agent from time to time reasonably requires for the assuring and confirming
unto the Banks or the Agent of the rights hereby created or intended now or
hereafter so to be, or for carrying out the intention or facilitating the
performance of the terms of any Loan Document.
11.16 Integration. This Agreement, together with the other
Loan Documents, comprises the complete and integrated agreement of the
parties on the subject matter hereof and supersedes all prior agreements,
written or oral, on the subject matter hereof. In the event of any
conflict between the provisions of this Agreement and those of any other
Loan Document, the provisions of this Agreement shall control and govern;
provided that the inclusion of supplemental rights or remedies in favor of
the Agent or the Banks in any other Loan Document shall not be deemed a
conflict with this Agreement. Each Loan Document was drafted with the
joint participation of the respective parties thereto and shall be con-
strued neither against nor in favor of any party, but rather in accordance
with the fair meaning thereof.
11.17 Governing Law. Except to the extent otherwise provided
therein, each Loan Document shall be governed by, and construed and
enforced in accordance with, the local Laws of California.
11.18 Severability of Provisions. Any provision in any Loan
Document that is held to be inoperative, unenforceable or invalid as to any
party or in any jurisdiction shall, as to that party or jurisdiction, be
inoperative, unenforceable or invalid without affecting the remaining
provisions or the operation, enforceability or validity of that provision
as to any other party or in any other jurisdiction, and to this end the
provisions of all Loan Documents are declared to be severable.
11.19 Headings. Article and Section headings in this
Agreement and the other Loan Documents are included for convenience of
reference only and are not part of this Agreement or the other Loan
Documents for any other purpose.
11.20 Time of the Essence. Time is of the essence of the Loan
Documents.
11.21 Foreign Banks and Participants. Each Bank, and each
holder of a participation interest herein, that is incorporated or
otherwise organized under the Laws of a jurisdiction other than the United
States of America or any State thereof or the District of Columbia shall
deliver to Borrowers (with a copy to the Agent), within twenty (20) days
after the Closing Date (or after accepting an assignment or receiving a
participation interest herein pursuant to Section 11.8, if applicable) two
duly completed copies, signed by a Responsible Official, of either
Form 1001 (relating to such Person and entitling it to a complete exemption
from withholding on all payments to be made to such Person by Borrowers
pursuant to this Agreement) or Form 4224 (relating to all payments to be
made to such Person by the Borrowers pursuant to this Agreement) of the
United States Internal Revenue Service or such other evidence (including,
if reasonably necessary, Form W-9) satisfactory to Borrowers and the Agent
that no withholding under the federal income tax laws is required with
respect to such Person. Thereafter and from time to time, each such Person
shall (a) promptly submit to Borrowers (with a copy to the Agent), such
additional duly completed and signed copies of one of such forms (or such
successor forms as shall be adopted from time to time by the relevant
United States taxing authorities) as may then be available under then
current United States laws and regulations to avoid, or such evidence as is
satisfactory to Borrowers and the Agent of any available exemption from,
United States withholding taxes in respect of all payments to be made to
such Person by Borrowers pursuant to this Agreement and (b) take such steps
as shall not be materially disadvantageous to it, in the reasonable judg-
ment of such Bank, and as may be reasonably necessary (including the
re-designation of its Eurodollar Lending Office, if any) to avoid any
requirement of applicable Laws that Borrowers make any deduction or
withholding for taxes from amounts payable to such Person. Unless and
until Borrowers and the Agent have received such forms and other documents
described in this Section 11.21 reasonably satisfactory to them
establishing that each Bank is entitled to receive payments under this
Agreement without deduction or withholding of any United States Federal
income taxes, Borrowers or the Agent (if not withheld by Borrowers) shall
withhold taxes from such payment at the applicable statutory rate, without
any obligation to "gross-up" or increase amounts payable hereunder or under
any of the other Loan Documents.
11.22 Hazardous Material Indemnity. Each of Borrowers hereby
agrees to indemnify, hold harmless and defend (by counsel reasonably
satisfactory to the Agent) the Agent and each of the Banks and their
respective directors, officers, employees, agents, successors and assigns
from and against any and all claims, losses, damages, liabilities, fines,
penalties, charges, administrative and judicial proceedings and orders,
judgments, remedial action requirements, enforcement actions of any kind,
and all costs and expenses incurred in connection therewith (including but
not limited to reasonable attorneys' fees and the reasonably allocated
costs of attorneys employed by the Agent or any Bank, and expenses to the
extent that the defense of any such action has not been assumed by
Borrowers), arising directly or indirectly out of (i) the presence on, in,
under or about any Real Property of any Hazardous Materials, or any
releases or discharges of any Hazardous Materials on, under or from any
Real Property and (ii) any activity carried on or undertaken on or off any
Real Property by Borrowers or any of its predecessors in title, whether
prior to or during the term of this Agreement, and whether by Borrowers or
any predecessor in title or any employees, agents, contractors or subcon-
tractors of Borrowers or any predecessor in title, or any third persons at
any time occupying or present on any Real Property, in connection with the
handling, treatment, removal, storage, decontamination, clean-up, transport
or disposal of any Hazardous Materials at any time located or present on,
in, under or about any Real Property. The foregoing indemnity shall
further apply to any residual contamination on, in, under or about any Real
Property, or affecting any natural resources, and to any contamination of
any Property or natural resources arising in connection with the
generation, use, handling, storage, transport or disposal of any such
Hazardous Materials, and irrespective of whether any of such activities
were or will be undertaken in accordance with applicable Laws, but the
foregoing indemnity shall not apply to Hazardous Materials in, on, under or
about any Real Property or any other Property, the presence of which is
caused by the Agent or the Banks or any of their respective employees,
agents, contractors or subcontractors. Borrowers hereby acknowledge and
agree that, notwithstanding any other provision of this Agreement or any of
the other Loan Documents to the contrary, the obligations of Borrowers
under this Section (and under Sections 4.18 and 5.13) shall be unlimited
corporate obligations of Borrowers and shall not be secured by any deed of
trust on any Real Property.
11.23 Joint and Several. Each of Borrowers shall be obligated
for all of the Obligations on a joint and several basis, notwithstanding
which of Borrowers may have directly received the proceeds of any
particular Loan or the benefit of a particular Letter of Credit. Each of
Borrowers acknowledges and agrees that, for purposes of the Loan Documents,
Borrowers constitute a single integrated financial enterprise and that each
receives a benefit from the availability of credit under this Agreement to
all of Borrowers. Each of Borrowers waive all defenses arising under the
Laws of suretyship, to the extent such Laws are applicable, in connection
with its joint and several obligations under this Agreement. Without
limiting the foregoing, each of Borrowers agrees to the Joint Borrower
Provisions set forth in Exhibit P, incorporated by this reference.
11.24 Further Additional Borrowers. The Company from time to
time may request that one or more of the Company's wholly-owned Active
Domestic Subsidiaries become a "Borrower" under this Agreement and,
therefore, become jointly and severally liable for all Obligations of
Borrowers under the Loan Documents. Any such request shall be subject to
the prior written approval of the Requisite Lenders (which approval may be
withheld by the Banks for any reason whatsoever). In the event the
Requisite Lenders approve the addition of any such Active Domestic
Subsidiary as a Borrower, the Company shall cause such Active Domestic
Subsidiary to execute and deliver to the Agent a Joinder Agreement and such
Collateral Documents, agreements, financing statements and documents as the
Agent or the Requisite Banks may reasonably request and the Company shall
deliver the capital stock of such Active Domestic Subsidiary (to the extent
not previously delivered) to the Agent as additional Pledged Collateral
under the Pledge Agreement.
11.25 Release of Liens. Notwithstanding the Liens granted to
the Agent and the Banks pursuant to the Collateral Documents or otherwise
from time to time, the Agent (on behalf of itself and the Banks) agrees,
without demand of Borrower, to promptly release, terminate and reconvey all
such Liens (and thereby convert the Obligations from being secured
Obligations to unsecured Obligations) if, and only if, each of the
following conditions shall be satisfied in full.
(a) Borrower shall have maintained a Fixed Charge
Coverage Ratio equal to or greater than 2.00 to 1.00 as of the last
day of each Fiscal Quarter during any Fiscal Year commencing with the
Fiscal Year ending December 31, 1996 (as reflected and supported by
the audited financial statements of the Company and its Subsidiaries
for such Fiscal Year);
(b) No Default or Event of Default shall have occurred
and be continuing as of the expected Lien release date; and
(c) Borrowers and their Subsidiaries shall, at their
expense and without expense to the Banks or the Agent, execute and
deliver such further documents and do such further acts as any Bank
or the Agent may reasonably require in connection with such release,
termination or reconveyance of such Liens as well as for the purpose
of assuring and confirming unto the Banks and the Agent that a
Negative Pledge on all Properties of Borrowers and their Subsidiaries
(subject to the exclusions provided in Section 6.8) shall remain in
effect notwithstanding the release, termination and reconveyance of
the Liens evidenced by the Collateral Documents.
11.26 Waiver Of Jury Trial. EACH PARTY TO THIS AGREEMENT
EXPRESSLY WAIVES ITS RESPECTIVE RIGHT TO A TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED
OR INCIDENTAL TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY
OTHER PARTY OR PARTIES, WHETHER NOW EXISTING OR HEREAFTER ARISING AND
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH
PARTY AGREES THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING,
THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY
ARE WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE
VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS. ANY PARTY HERETO MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL
BY JURY.
11.27 Purported Oral Amendments. BORROWERS EXPRESSLY
ACKNOWLEDGE THAT THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE
AMENDED OR MODIFIED, OR THE PROVISIONS HEREOF OR THEREOF WAIVED OR
SUPPLEMENTED, BY AN INSTRUMENT IN WRITING THAT COMPLIES WITH SECTION 11.2.
BORROWERS AGREE THAT THEY WILL NOT RELY ON ANY COURSE OF DEALING, COURSE OF
PERFORMANCE, OR ORAL OR WRITTEN STATEMENTS BY ANY REPRESENTATIVE OF THE
AGENT OR ANY BANK THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT AN
AMENDMENT, MODIFICATION, WAIVER OR SUPPLEMENT TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
CIRCON CORPORATION,
a Delaware corporation
By: ________________________________
R. Bruce Thompson
Executive Vice President
and Chief Financial Officer
By: ________________________________
Daniel J. Meaney, Jr.
Vice President and Secretary
Address for the foregoing:
Circon Corporation
6500 Hollister Avenue
Santa Barbara, California 93117
Attn: Mr. R. Bruce Thompson
Telecopier: (805) 968-7385
Telephone: (805) 967-0404
FIRST INTERSTATE BANK OF CALIFORNIA,
as Agent
By: __________________________________
Charles W. Reed
Senior Vice President
Address:
First Interstate Bank of California
707 Wilshire Boulevard, W16-20
Los Angeles, California 90017
Attn: Mr. Charles W. Reed
Telecopier: (213) 614-2569
Telephone: (213) 614-2648
FIRST INTERSTATE BANK OF CALIFORNIA,
as a Bank
By: _________________________________
Anna K. Mercer
Vice President
By: _________________________________
Charles W. Reed
Senior Vice President
Address:
First Interstate Bank of California
Santa Barbara Commercial Banking Center
901 State Street
Santa Barbara, California 93101
Attn: Ms. Anna K. Mercer
Telecopier: (805) 564-4668
Telephone: (805) 564-4616
THE BANK OF NEW YORK,
as a Bank
By: _________________________________
Its:______________________________
Address:
The Bank of New York
123 Main Street
White Plains, New York 10601
Attn: Edward Moriarty
Telecopier: (914) 421-8065
Telephone: (914) 421-8050
with a copy to:
The Bank of New York
BNY Business Center
301 Tresser Boulevard, 8th Floor
3 Stamford Plaza
Stamford, Connecticut 06901
Attn: Ms. Janet Wolff
Telecopier: (203) 967-8006
Telephone: (203) 359-4059
SHEPPARD, MULLIN, RICHTER & HAMPTON
Cabot Medical Corporation, a New Jersey Corporation
2150 Cabot Boulevard West
Langhorne, PA 19047
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<LEGEND>
The user should be aware that this document is NOT complete, and should refer
to the 10K for a complete set of financial information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-95
<PERIOD-END> DEC-31-95
<CASH> 17,586,000
<SECURITIES> 6,496,000
<RECEIVABLES> 26,539,000
<ALLOWANCES> 1,807,000
<INVENTORY> 31,645,000
<CURRENT-ASSETS> 90,825,000
<PP&E> 86,727,000
<DEPRECIATION> (32,977,000)
<TOTAL-ASSETS> 181,399,000
<CURRENT-LIABILITIES> 35,460,000
<BONDS> 0
<COMMON> 126,000
0
<OTHER-SE> 656,000
<TOTAL-LIABILITIES-AND-EQUITY> 181,399,000
<SALES> 160,477,000
<TOTAL-REVENUE> 160,477,000
<CGS> 76,807,000
<TOTAL-COSTS> 79,820,000
<OTHER-EXPENSES> 5,187,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,946,000
<INCOME-PRETAX> (5,967,000)
<INCOME-TAX> (574,000)
<INCOME-CONTINUING> (5,393,000)
<DISCONTUNUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,393,000)
<EPS-PRIMARY> (.41)
<EPS-DULUTED> (.41)
