<PAGE>
________________________________________________________________________________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 1, 1995
--------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO ______________________
COMMISSION FILE NO. 0-13941
AST RESEARCH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3525565
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
16215 ALTON PARKWAY
IRVINE, CALIFORNIA 92718
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 727-4141
_________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ____
-----
There were 32,385,750 shares of the registrant's Common Stock, par value
$.01 per share, outstanding on April 28, 1995.
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
AST RESEARCH, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
at April 1, 1995 (Unaudited)
and July 2, 1994 3
Consolidated Statements of Operations
(Unaudited) for the three months and nine months ended
April 1, 1995 and April 2, 1994 4
Consolidated Statements of Cash Flows
(Unaudited) for the nine months ended
April 1, 1995 and April 2, 1994 5-6
Notes to Consolidated Financial
Statements (Unaudited) 7-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11-19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 21
</TABLE>
2
<PAGE>
AST RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
April 1, July 2,
1995 1994
(In thousands, except share amounts) (Unaudited)
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 67,464 $ 153,118
Accounts receivable, net of allowance for
doubtful accounts of $17,908 at April 1, 1995
and $17,564 at July 2, 1994 465,022 326,057
Inventories 354,702 333,729
Deferred income taxes 49,388 43,266
Other current assets 73 9,797
- --------------------------------------------------------------------------------------
Total current assets 936,649 865,967
Property and equipment 169,877 159,530
Accumulated depreciation and amortization (66,751) (56,089)
- --------------------------------------------------------------------------------------
Net property and equipment 103,126 103,441
Goodwill, net of accumulated amortization of $9,406
at April 1, 1995 and $4,387 at July 2, 1994 56,662 61,912
Other assets 10,331 6,992
- --------------------------------------------------------------------------------------
$1,106,768 $1,038,312
======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 100,000 $ 50,000
Accounts payable 287,304 209,579
Accrued salaries, wages and employee benefits 20,999 21,465
Other accrued liabilities 137,307 112,096
Income taxes payable 21,243 37,955
Current portion of long-term debt 2,472 398
- --------------------------------------------------------------------------------------
Total current liabilities 569,325 431,493
Long-term debt 216,282 215,294
Deferred income taxes and other non-current liabilities 6,241 7,571
Commitments and contingencies
Shareholders' equity:
Common stock, par value $.01; 200,000,000 shares
authorized, 32,376,500 shares issued and
outstanding at April 1, 1995 and 32,333,750
shares at July 2, 1994 324 323
Additional capital 141,826 141,424
Retained earnings 172,770 242,207
- --------------------------------------------------------------------------------------
Total shareholders' equity 314,920 383,954
- --------------------------------------------------------------------------------------
$1,106,768 $1,038,312
======================================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
--------------------- --------------------------
April 1, April 2, April 1, April 2,
(In thousands, except per share amounts) 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $670,176 $591,349 $1,805,781 $1,782,769
Cost of sales 583,234 490,243 1,615,222 1,481,197
- ------------------------------------------------------------------------------------------------
Gross profit 86,942 101,106 190,559 301,572
Selling and marketing expenses 58,934 50,031 169,347 145,124
General and administrative expenses 22,913 19,968 67,665 57,256
Engineering and development expenses 9,016 9,579 27,566 30,226
- ------------------------------------------------------------------------------------------------
Total operating expenses 90,863 79,578 264,578 232,606
- ------------------------------------------------------------------------------------------------
Operating income (loss) (3,921) 21,528 (74,019) 68,966
Interest income 471 625 1,478 1,252
Interest expense (4,669) (2,881) (11,561) (7,067)
Other income (expense), net (923) 750 (2,694) (3,485)
- ------------------------------------------------------------------------------------------------
Income (loss) before income taxes (9,042) 20,022 (86,796) 59,666
Provision (benefit) for income taxes (1,808) 6,808 (17,359) 20,287
- ------------------------------------------------------------------------------------------------
Net income (loss) $ (7,234) $ 13,214 $ (69,437) $ 39,379
================================================================================================
Net income (loss) per share:
Primary $ (.22) $ .40 $ (2.15) $ 1.21
Fully diluted $ (.22) $ .38 $ (2.15) $ 1.18
================================================================================================
Shares used in computing net
income (loss) per share:
Primary 32,376 33,080 32,364 32,512
Fully diluted 32,376 37,179 32,364 34,238
================================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Nine Months Ended
---------------------------
April 1, April 2,
(In thousands) 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 1,693,897 $ 1,666,651
Cash paid to suppliers and employees (1,793,097) (1,697,421)
Interest received 1,564 1,358
Interest paid (6,699) (2,668)
Income tax refunds received 3,320 1,192
Income taxes paid (10,233) (13,305)
Other cash received 1,697 888
- ---------------------------------------------------------------------------------------------
Net cash used in operating activities (109,551) (43,305)
Cash flows from investing activities:
Payment related to Tandy/GRiD acquisition - (15,000)
Purchases of capital equipment (20,446) (20,902)
Proceeds from disposition of capital equipment 2,812 1,169
Purchases of other assets, net (2,556) (758)
- ---------------------------------------------------------------------------------------------
Net cash used in investing activities (20,190) (35,491)
Cash flows from financing activities:
Short-term borrowings, net 50,000 (9,203)
Repayment of long-term debt (409) (136)
Proceeds from issuance of long-term debt, net - 107,974
Proceeds from issuance of common stock 403 8,991
- ---------------------------------------------------------------------------------------------
Net cash provided by financing activities 49,994 107,626
Effect of exchange rate changes on cash and cash equivalents (5,907) 1,450
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (85,654) 30,280
Cash and cash equivalents at beginning of period 153,118 121,600
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 67,464 $ 151,880
=============================================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH USED IN OPERATING ACTIVITIES:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Nine Months Ended
----------------------
April 1, April 2,
(In thousands) 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ (69,437) $ 39,379
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 21,560 17,818
Provision (benefit) for deferred income taxes (7,451) 104
Gain on sale of capital equipment (653) -
Change in operating assets and liabilities, net
of effects of acquisition:
Accounts receivable (127,892) (108,440)
Inventories (20,973) 5,643
Other current assets 1,963 8,349
Accounts payable and accrued expenses 106,471 32,831
Income taxes payable (16,712) (1,741)
Other current liabilities 4,876 (40,578)
Exchange loss (gain) (1,303) 3,330
- --------------------------------------------------------------------------------------------------
Net cash used in operating activities $(109,551) $ (43,305)
==================================================================================================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company purchased certain assets relating to Tandy/GRiD
France's personal computer operations effective September 1, 1993.
In conjunction with the acquisition, liabilities were assumed as
follows:
Fair value of assets acquired - $ 10,171
Note payable - (6,720)
- --------------------------------------------------------------------------------------------------
Liabilities assumed - $ 3,451
==================================================================================================
Tax benefit of employee stock options - $ 1,823
==================================================================================================
</TABLE>
See accompanying notes.
6
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 1, 1995
Basis of Presentation
The accompanying consolidated financial statements have been prepared by the
Company without audit (except for the balance sheet information as of July 2,
1994) in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) considered necessary for a fair presentation have
been included.
The accompanying consolidated financial statements do not include certain
footnotes and financial presentations normally required under generally accepted
accounting principles and, therefore, should be read in conjunction with the
audited financial statements included in the Company's 1994 Annual Report on
Form 10-K. The results of operations for the three and nine month periods ended
April 1, 1995 are not necessarily indicative of the results to be expected for
the full year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended July 2, 1994.
Income Taxes
The Company provides for income taxes in interim periods based on the
estimated effective income tax rate for the complete fiscal year. For the nine-
month period ended April 1, 1995, the estimated tax benefit rate is less than
the U.S. statutory rate due to estimates of the proportion of the Company's
fiscal 1995 consolidated income/loss that will be realized in foreign tax
jurisdictions with various tax rates and the Company's inability to benefit
certain of its deferred tax assets including loss carryforwards. Differences
between the estimated effective tax rate and the Company's actual effective tax
rate could result from changes in the Company's ability to benefit its deferred
tax assets and from changes in the mix of income/loss in the various tax
jurisdictions within which the Company operates. Such differences are
recognized when known.
The provision (benefit) for income taxes is computed on the pretax income
(loss) of the consolidated entities located within each taxing country based on
the current tax law. Deferred taxes result from the future tax consequences
associated with temporary differences between the amount of assets and
liabilities recorded for tax and financial accounting purposes. A valuation
allowance for deferred tax assets is recorded to the extent the Company cannot
determine, in accordance with the provisions of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes," that the ultimate
realization of net deferred tax assets is more likely than not.
Acquisitions and Restructuring
In the fourth quarter of fiscal 1993, the Company acquired certain assets and
assumed certain liabilities relating to Tandy Corporation's ("Tandy") personal
computer manufacturing operations and the GRiD North American and European sales
divisions. On September 1, 1993, the Company also purchased certain assets and
assumed certain liabilities of Tandy/GRiD France. The total purchase price
(including Tandy/GRiD France) was $111.7 million and included a cash payment of
$15 million and a three-year promissory note in the principal amount of $96.7
million. Restructuring charges of $125 million were recorded in the fourth
quarter of fiscal 1993 in connection with the Company's acquisition of Tandy's
personal computer manufacturing and engineering operations and GRiD's North
American and European sales and marketing operations.
During fiscal 1994, the Company completed most of its previously identified
restructuring activities and incurred asset write-downs of $50 million and cash
expenditures of $47 million related directly to its fiscal 1994 restructuring
activities. The Company recorded a $12.5 million credit in the fourth quarter
of fiscal 1994 after concluding that most of its restructuring activities had
been completed or were adequately provided for within the remaining
restructuring accrual. At July 2, 1994, $15.2 million of the restructuring
accrual remained on the Company's consolidated balance sheet. In October 1994,
the Company announced plans to consolidate its
7
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 1, 1995
worldwide mobile computing manufacturing in Taiwan and the concurrent closure of
its Fountain Valley, California manufacturing facility February 1, 1995. During
the first nine months of fiscal 1995, the Company incurred cash expenditures of
approximately $3.1 million related primarily to the closure of its Fountain
Valley, California manufacturing facility. At April 1, 1995, approximately $12.1
million of restructuring accruals remained, consisting primarily of amounts
provided for the net present value of minimum lease payments for facilities that
have been closed and the write-down to net realizable value of certain equipment
and leasehold improvements being disposed of. The Company expects to complete
the restructuring-related asset disposition process during the fourth quarter of
fiscal 1995.
The Company believes that its restructuring activities were necessary in order
to reorganize its worldwide operations after the June 1993 acquisition of
Tandy's personal computer operations. However, no assurance can be given that
these restructuring actions will be successful or that similar actions will not
be required in the future.
Goodwill
Goodwill, representing the excess of the purchase price over the fair value of
the net assets of the acquired entities, is being amortized on a straight-line
basis over the period of expected benefit of ten years. During the third
quarter of fiscal 1995, the Company elected the early adoption of Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In
accordance with SFAS No. 121, long-lived assets and certain identifiable
intangibles held and used by the Company will be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The recoverability test will be performed at a
consolidated level based on undiscounted net cash flows since the assets being
tested do not have identifiable cash flows that are largely independent of other
asset groupings. Prior to the adoption of SFAS No. 121, the carrying value of
goodwill was reviewed periodically based on the undiscounted cash flows of the
entity acquired over the remaining amortization period. Based upon the
Company's analysis under SFAS No. 121, the Company believes that no impairment
of the carrying value of its long-lived assets inclusive of goodwill existed at
April 1, 1995.
Contingencies
On March 3 and March 14, 1994, complaints were filed by two shareholders
against the Company and certain of its officers and directors requesting
certification of a class action, asserting claims under state and federal
securities laws based on allegations that the Company made inadequate and false
disclosures and seeking unspecified compensatory damages and related fees and
costs. The complaints were filed in the United States District Court for the
Central District of California. On September 12, 1994, a complaint was filed by
a shareholder against the Company and certain of its officers and directors
requesting certification of a class action, asserting claims under state and
federal securities laws based on allegations that the Company made inadequate
and false disclosures and seeking unspecified compensatory damages and related
fees and costs. The September 12, 1994 complaint was filed in the United States
District Court for the Central District of California under the case name Steven
A. Kornfeld v. James L. Forquer, et al. On October 6, 1994, a complaint was
filed by a shareholder in the United States District Court for the Central
District of California. The October 6, 1994 complaint names the Company and
certain of its officers and directors as defendants, asserts claims under the
state and federal securities laws based on allegations that the Company made
inadequate and false disclosures, and seeks unspecified compensatory damages and
related fees and costs. The cases with complaints filed on March 3, 1994, March
14, 1994 and October 6, 1994 have been consolidated under the case name In re
AST Research Securities Litigation. The AST Research Securities Litigation and
Kornfeld cases are being treated as related cases by the court. Management has
reviewed the allegations and the complaints and believes such allegations are
without merit. Management intends to vigorously defend these litigations.
Management does not believe that the outcome of these matters will have a
material adverse impact on the Company's consolidated financial position or
results of operations; however, the Company is unable to estimate the amount of
any loss that may be realized in the event of an unfavorable outcome.
8
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 1, 1995
The Internal Revenue Service ("IRS") is currently examining the Company's
1989, 1990 and 1991 federal income tax returns. In addition, the IRS has
completed its examination of the Company's 1987 and 1988 federal income tax
returns and has proposed adjustments to the Company's federal tax liabilities
for such years of approximately $8.3 million, excluding interest. The majority
of such proposed adjustments relate to the allocation of income between the
Company and its foreign subsidiaries. Management believes that the Company's
position has substantial merit and intends to vigorously contest these proposed
adjustments. Management further believes that any liability that may result
upon the final resolution of the proposed adjustments for 1987 and 1988 or the
current examinations of 1989, 1990 and 1991 will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
The Company has been named as a defendant or co-defendant, generally with
other personal computer manufacturers, including such companies as IBM, AT&T,
Unisys, Digital Equipment Corporation, NEC, Olivetti, NCR, Panasonic, or
Matsushita, in thirteen similar lawsuits, each of which alleges as a factual
basis the occurrence of carpal tunnel syndrome or repetitive stress injuries.
The suits naming the Company are just a few of the many lawsuits of this type
which have been filed, often naming IBM and other computer companies. The
claims against the Company total in excess of $100 million in compensatory and
punitive damages and additional unspecified amounts. The Company has denied or
is in the process of denying the claims and intends to vigorously defend the
suits. The Company is unable at this time to predict the ultimate outcome of
these suits. Ultimate resolution of the litigation against the Company may
depend on progress in resolving this type of litigation overall. Before
consideration of any potential insurance recoveries, the Company believes that
the claims in the suits filed against it will not have a material impact on the
Company's consolidated financial position or results of operations; however, the
Company is unable to estimate the amount of any loss that may be realized in the
event of an unfavorable outcome. The Company has maintained various liability
insurance policies during the period covering the claims filed above. While
such policies may limit coverage under certain circumstances, the Company
believes that it is adequately insured against potential losses that may result
from these claims. Should the Company not be successful in defending against
such lawsuits or not be entitled to claim compensation under its liability
insurance policies, the Company's profitability and financial condition may be
adversely affected.
The Company was named, along with twelve other personal computer companies,
as a defendant in a lawsuit filed on March 27, 1995 in the Superior Court for
the County of Merced, California. The case name is People v. Acer et al., and
alleges that the Company has engaged in deceptive advertising and unlawful
business practices with relation to computer monitor screen measurements.
Management does not believe that the outcome of this dispute will have a
material adverse impact on the Company's consolidated financial position or
results of operations; however, the Company is unable to estimate the amount of
any loss that may be realized in the event of an unfavorable outcome.
The Company is also subject to other legal proceedings and claims which arise
in the normal course of business. While the outcome of these proceedings and
claims cannot be predicted with certainty, management does not believe the
outcome of any of these matters will have a material adverse effect on the
Company's consolidated financial position or results of operations.
Per Share Information
Primary earnings (loss) per common share for fiscal 1995 and 1994 have been
computed based upon the weighted average number of common and common equivalent
shares outstanding. Common equivalent shares result from the assumed exercise of
outstanding stock options that have a dilutive effect when applying the treasury
stock method. In fiscal 1994, the fully diluted per share calculation assumes,
in addition to the above, (i) that the Company's Liquid Yield Option(TM) Notes
were converted from the date of issuance with earnings being increased for
interest expense, net of taxes, that would not have been incurred had conversion
taken place, and (ii) the potential additional dilutive effect of stock options.
In fiscal 1995, fully diluted earnings (loss) per share were antidilutive.
9
<PAGE>
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 1, 1995
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consisted of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------
April 1, July 2,
(In thousands) 1995 1994
- ---------------------------------------------
<S> <C> <C>
Purchased parts $113,014 $ 99,959
Work in process 51,036 53,765
Finished goods 190,652 180,005
- ---------------------------------------------
$354,702 $333,729
=============================================
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
APRIL 1, 1995
RESULTS OF OPERATIONS
The following table shows the results of operations for the periods indicated
as a percentage of net sales.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage of Net Sales
Three Months Ended Nine Months Ended
----------------------- ------------------------
April 1, April 2, April 1, April 2,
1995 1994 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.0 82.9 89.4 83.1
- --------------------------------------------------------------------------------------------
Gross profit 13.0 17.1 10.6 16.9
- --------------------------------------------------------------------------------------------
Selling and marketing expenses 8.8 8.5 9.4 8.1
General and administrative expenses 3.4 3.4 3.8 3.2
Engineering and development expenses 1.4 1.6 1.5 1.7
- --------------------------------------------------------------------------------------------
Operating income (loss) (0.6) 3.6 (4.1) 3.9
Other expense, net (0.7) (0.2) (0.7) (0.6)
- --------------------------------------------------------------------------------------------
Income (loss) before income taxes (1.3) 3.4 (4.8) 3.3
Provision (benefit) for income taxes (0.2) 1.2 (1.0) 1.1
- --------------------------------------------------------------------------------------------
Net income (loss) (1.1%) 2.2% (3.8%) 2.2%
============================================================================================
</TABLE>
Sales
Net sales for the nine-month period ended April 1, 1995 increased 1% to $1.806
billion from $1.783 billion in the nine-month period ended April 2, 1994. This
slight improvement in revenues was due to higher Pentium(TM) processor-based
desktop systems sales partially offset by lower 386 and 486 desktop systems
sales and decreased shipments of the Company's notebook system products. The
Company has experienced product development and production delays throughout
fiscal 1995 which have contributed to lower 486 desktop and notebook systems
sales. In addition, continued industrywide competitive pricing pressures have
prompted aggressive pricing and promotional activities which have further
reduced total revenues. The Company anticipates that additional pricing actions
will be necessary as it attempts to maintain its competitive price and
performance product profile; however, there can be no assurance that future
pricing actions will be effective in stimulating sales growth. The Company
shipped 1,107,000 computer systems in the first nine months of fiscal 1995, an
increase of 2% from the 1,084,000 units shipped in the same prior year period.
Revenues from desktop system products increased 13% to $1.252 billion for the
nine-month period ended April 1, 1995 from $1.109 billion in the comparable
prior year period. Increased sales of the Pentium processor-based desktop
systems, Advantage!(R) 486DX and the Bravo(TM) 486DX were partially offset by
declines in revenues from the Advantage! and Bravo 486SX, Premmia(TM) 486DX and
Tandy(R) branded desktop systems sales. Decreased sales of the Company's 486-
based desktop systems reflected the shift in demand toward the Pentium desktop
systems, which accounted for 24% of total desktop systems sales for the nine-
month period ended April 1, 1995 versus 3% in the comparable fiscal 1994 period.
Included within total desktop revenues were sales of the Company's 386 systems,
which declined to $7 million in the nine-month period ended April 1, 1995,
compared to $50 million in the first nine months of fiscal 1994.
The Company's notebook computer product revenues declined 18% to $346 million
in the nine-month period ended April 1, 1995 from $422 million in the comparable
prior year period. This decrease reflects a 23% reduction in unit shipments to
164,000 for the nine-month period ended April 1, 1995 from 213,000 in the same
prior year period. Increased Ascentia(TM) 486SLE notebook systems sales were
offset by declines in revenues from the Bravo and Advantage! 486SX lines of
notebook computers and the PowerExec(TM) notebook product line.
11
<PAGE>
Additionally, a decline in revenues from sales to the Company's original
equipment manufacturer ("OEM") customers has contributed to the overall decrease
in fiscal 1995 notebook revenues.
North American revenues (including Canada) decreased by 13% to $1.012 billion
during the first nine months of fiscal 1995 from the comparable prior year
period. Revenue from the consumer retail channel decreased 3% from the
comparable prior year period and accounted for 37% of total North American
revenues. Revenues related to Tandy branded systems sales in the U.S. are
primarily responsible for year-over-year decreased sales in the consumer retail
channel. Sales to the independent reseller/dealer channel for the nine-month
period ended April 1, 1995 decreased 5% over the same prior year period and
accounted for 49% of total North American revenues versus 44% in the comparable
fiscal 1994 period. Revenue from the OEM channel declined significantly during
the first nine months of fiscal 1995 due to the completion of two large OEM
contracts in the fourth quarter of fiscal 1994. Within the overall decrease in
North American revenues, sales to the national distributor channel grew
slightly, increasing 2% over the same prior year period. The national
distributor channel and the OEM channel accounted for 13% and 1%, respectively,
of total North American revenues during the nine-month period ended April 1,
1995.
Nine month fiscal 1995 international revenues rose 28% to $794 million from
$619 million in the comparable prior year period and accounted for 44% of total
fiscal 1995 revenues compared to 35% of total fiscal 1994 revenues. The
European region provided 69% of total international revenues for the nine-month
period ended April 1, 1995 and increased 39% over the same period last year.
The United Kingdom and Sweden continued to be major contributors to total
European revenues with significant fiscal 1995 revenue growth also occurring in
Norway and Switzerland. Increased demand for the Company's Advantage and Bravo
486DX desktop systems, Pentium desktops and the Ascentia 486SLE notebook systems
contributed to the European revenue growth. In January 1994, the Company
established a centralized European manufacturing, distribution and service
operation in Limerick, Ireland. During the second quarter of fiscal 1995, the
Ireland facility supplied nearly all of the desktop product requirements for the
European region. Increased revenues and improved profitability in Europe for
fiscal 1995 have resulted from localized manufacturing, centralized distribution
and service and an expanded consumer retail market.
Pacific Rim revenues totaled $200 million in the nine-month period ended April
1, 1995, up 10% from the prior year total of $182 million. Although Pacific Rim
revenues rose during the nine-month period ended April 1, 1995, revenues to the
People's Republic of China ("PRC") declined 26% compared to the same prior year
period. This decline was attributable to significantly increased competition
and to lower first and third quarter sales to one of the Company's major
customers within this region. The Company anticipates that these competitive
pressures will continue and may adversely impact the Company's net sales and
profitability. A significant portion of the Company's Pacific Rim revenues are
derived from sales to the Hong Kong government and to Hong Kong based dealers
who ultimately market the Company's products within the PRC. Although the PRC
has historically provided the Company with significant revenues and
profitability, future sales of the Company's products into the PRC are highly
dependent upon continuing favorable trade relations between the United States
and the PRC and the general economic and political stability of the region.
Economic factors such as competitive pricing, short-term fluctuations in foreign
currency exchange rates and changes in the PRC tax structure could also have a
corresponding impact on future sales and operating results. Revenues from the
Company's Australian subsidiary increased 73% in the first nine months of fiscal
1995 over the same prior year period.
In the Company's Rest of World region, revenues increased 8% to $45 million in
the nine-month period ended April 1, 1995 compared to the same prior year
period. This increase is primarily due to a 27% revenue growth rate in Latin
America. However, economic risks such as the December devaluation of the
Mexican peso, as well as risks in other less developed countries, could have a
corresponding impact on future sales and operating results in these regions.
Revenues for the quarter ended April 1, 1995 increased 13% to $670 million
from $591 million in the quarter ended April 2, 1994 due primarily to higher
Pentium processor-based desktop systems sales. Third quarter fiscal 1995
international revenues of $333 million were 43% higher than the comparable prior
year quarter, while North American revenues decreased 6% to $337 million.
European revenues represented 73% of total international revenues for the third
quarter of fiscal 1995 and increased 52% over the same prior year quarter.
During the third
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quarter of fiscal 1995, the Company began shipments of the Premmia MX P/75 and
Ascentia 910N. The Company also shipped new models of the Advantage! multimedia
personal computers.
Gross Profit
Gross profit margins decreased to 10.6% in the nine-month period ended April
1, 1995 from 16.9% in the nine-month period ended April 2, 1994. This decline in
margins resulted primarily from product development and production delays,
manufacturing related costs associated with product transitions and continued
intense industrywide competitive pricing pressures. The Company believes that
the industry will continue to be characterized by rapid technological advances
and short product life-cycles resulting in continued risk of product
obsolescence.
Gross profit margins have improved slightly each quarter throughout fiscal
1995 due to improvements in the Company's manufacturing processes, component
costs, currency fluctuations and a rising proportion of sales of the Company's
higher margin products, particularly the Pentium processor-based desktop
systems. However, due to continuing industry pricing pressures and the
potential significant impact of shifts within the Company's channel and product
mix, the Company is unable to provide any assurance as to whether this trend
will continue. During the first nine months of fiscal 1995, the Company and the
majority of its competitors continued to introduce new, lower-priced, higher-
performance personal computers resulting in continued pricing pressures on both
new and older technology products. Future pricing actions by the Company and
its competitors may continue to adversely impact the Company's gross margins or
profitability, which could also result in decreased liquidity and adversely
affect the Company's financial position.
The results of the Company's international operations are subject to currency
fluctuations. As the value of the U.S. dollar weakens relative to other
currencies, revenues from sales in those currencies convert to more U.S.
dollars. This effect on revenue has a corresponding impact on gross profit, as
the Company's production costs are incurred primarily in U.S. dollars. During
the nine-month period ended April 1, 1995 compared to the nine-month period
ended April 2, 1994, the U.S. dollar declined against nearly all European
currencies. This year-to-year currency fluctuation resulted in approximately a
two percentage point gross margin increase in fiscal year-to-date 1995 results
compared to the same prior year period. Currency fluctuations also resulted in
increased third quarter fiscal 1995 gross margins by approximately two and a
half percentage points when compared to results of currency fluctuations in the
prior year third quarter.
Operating Expenses
Total operating expenses increased 13.7% to $264.6 million for the nine-month
period ended April 1, 1995 from $232.6 million for the nine-month period ended
April 2, 1994. As a percentage of sales, operating expenses increased to 14.7%
from 13.0% in the comparable prior year period. The increase in operating
expenses in the aggregate and as a percentage of sales was primarily due to
continued worldwide expansion and an increased level of international sales
compared to the same prior year period.
Selling and marketing expenses increased 16.7% to $169.3 million for the nine
months ended April 1, 1995 from $145.1 million in the prior year period.
Selling and marketing expenses increased due to higher payroll costs consistent
with increases in worldwide sales and marketing staff. Enhanced product
marketing and dealer promotional activities resulted in higher expenses for
other promotions, co-op advertising and sales literature related to new product
introductions. Additionally, the Company's continued focus on increasing brand
name awareness led to an increase in media advertising expenses. As a
percentage of sales, selling and marketing expenses increased to 9.4% for the
nine-month period ended April 1, 1995 from 8.1% in the comparable prior year
period.
General and administrative expenses increased by 18.2% to $67.7 million for
the nine-month period ended April 1, 1995 from $57.3 million in the same fiscal
1994 period. Worldwide expansion, including operations in China, Ireland, Korea
and the Netherlands, resulted in increased payroll and administrative costs.
The Company also incurred higher legal fees due to increased litigation activity
and additional patent/trademark expenses primarily resulting from an expanded
patent/trademark portfolio. Depreciation and amortization expense rose due to a
larger fixed asset base and increased goodwill amortization resulting from the
acquisition of Tandy
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Corporation's personal computer manufacturing operations. As a percentage of
sales, general and administrative expenses increased to 3.8% in the first nine
months of fiscal 1995 from 3.2% in the comparable prior year period.
Engineering and development costs declined by 8.8% to $27.6 million for the
nine-month period ended April 1, 1995 from $30.2 million in the comparable
fiscal 1994 period. Lower payroll and employee benefit costs were partially
offset by higher expenses for equipment rental and increased engineering
material expenses. Products introduced in the first nine months of fiscal 1995
included additions to the Advantage! product line, the Bravo MS and Premmia MX
desktops, the Bravo MS-T minitower and the Bravo MS-L low-profile desktop, the
Manhattan V, P and G series of Pentium-based servers, the Ascentia 800N and 810N
value notebooks and the Ascentia 910N professional notebook. As a percentage of
sales, engineering and development expenses declined to 1.5% for the nine-month
period ended April 1, 1995 from 1.7% in the comparable prior year period.
Total operating expenses for the quarter ended April 1, 1995 increased 14.2%
to $90.9 million from $79.6 million in the same fiscal 1994 quarter. As a
percentage of sales, operating expenses increased to 13.6% from 13.5% in the
prior year quarter. The overall increase in spending is primarily due to
increased payroll costs related to worldwide expansion and expanded sales and
marketing activities consistent with increased sales levels.
Other Income and Expense
For the nine-month period ended April 1, 1995, the Company had net interest
expense of $10.1 million compared to $5.8 million in the corresponding fiscal
1994 period. Interest expense increased as a result of the note payable to
Tandy, the Company's December 1993 issuance of Liquid Yield Option(TM) Notes and
increased utilization of the Company's bank revolving credit facilities.
In the first nine months of fiscal 1995, the Company recognized net other
expenses of $2.7 million compared to $3.5 million for the same fiscal 1994
period. These amounts relate primarily to foreign currency transaction and
remeasurement gains and losses and the costs associated with the Company's
foreign currency hedging activities. The Company adheres to a hedging strategy
which is designed to minimize the effect of remeasuring local currency balance
sheets of its foreign subsidiaries on the Company's consolidated financial
position and results of operations.
Provision (Benefit) for Income Taxes
The Company recorded an effective tax benefit of 20% for the nine-month period
ended April 1, 1995. This compares to an effective income tax provision of 34%
for the same prior year period. The decrease in the fiscal 1995 effective tax
rate is attributable to changes in the proportion of income earned or losses
sustained within various taxing jurisdictions and the tax rates in the location
in which those earnings or losses were generated, as well as the Company's
inability to benefit certain deferred tax assets that include loss
carryforwards. The realization of deferred tax assets is in large part
dependent on future taxable income. To the extent that the Company does not
ultimately realize future taxable income, the Company's effective tax rate may
be negatively impacted.
LIQUIDITY AND CAPITAL RESOURCES
Working capital of $367.3 million at April 1, 1995 included cash and cash
equivalents of $67.5 million which compares to working capital of $434.5 million
and cash and cash equivalents of $153.1 million at July 2, 1994. The Company
had short-term borrowings of $100.0 million and $50.0 million at April 1, 1995
and July 2, 1994, respectively. During the first nine months of fiscal 1995,
the Company used $109.6 million of cash to fund its operating loss for the
period, its increased levels of accounts receivable consistent with increased
international sales levels and higher inventory levels.
Net cash used in investing activities decreased during fiscal 1995 compared
with fiscal 1994, primarily due to a one-time cash payment of $15 million
related to the Tandy/GRiD acquisition recorded during the first quarter of
fiscal 1994, partially offset by increased purchases of other assets in fiscal
1995. Capital expenditures totaled $20.4 million in the first nine months of
fiscal 1995 compared to $20.9 million in the prior year period and consisted
primarily of additions to plant and engineering equipment in Asia and Ireland
partially offset by reductions of plant and engineering equipment in the U.S.
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The Company regularly reviews its cash funding requirements on a consolidated
basis and attempts to meet those requirements through a combination of cash on
hand, cash provided by operations, available borrowings under its revolving
credit facilities, and possible future public or private debt and/or equity
offerings. The Company utilizes a centralized corporate approach for its cash
management activities and attempts to maximize the use of its consolidated cash
resources so as to minimize additional debt requirements while complying with
any legal or other restrictions upon the free flow of funds from one segment,
division or subsidiary to another. The Company invests its excess cash in
short-term money market instruments. The Company has a $225 million revolving
credit facility secured with a pledge of all of the Company's domestic U.S.
assets with a final maturity date of September 30, 1996. This revolving credit
facility allows the Company to borrow, subject to certain leverage and borrowing
base restrictions, at rates based upon the bank's reference rate, or a spread
over the LIBOR rate, the domestic certificate of deposit rate, or at a rate bid
by a bank, as selected by the Company. At April 1, 1995, there was $100 million
outstanding as drawings under this credit facility and $67.7 million outstanding
in the form of a letter of credit issued to Tandy Corporation in support of the
acquisition note payable. Under the terms of the leverage and borrowing base
restrictions of the credit agreement, the Company had the ability at April 1,
1995, to utilize a total of $193.6 million under the agreement. The amount
available under the borrowing base restriction is dependent upon the Company's
level of U.S. based accounts receivable and, therefore, subject to fluctuation.
If the Company's level of U.S. based sales were to significantly decrease, its
ability to utilize the credit facility would be reduced and its liquidity would
be adversely affected. The Company also has various letter of credit facilities
available for use by the Company and its subsidiaries.
On February 9, 1995, the Company and four of its foreign subsidiaries entered
into a $50 million committed revolving credit agreement provided by one bank.
This credit facility is guaranteed by the Company and is available for
borrowings by certain foreign subsidiaries of the Company. Drawings by foreign
subsidiaries of the Company can be made available to the Company or any of its
subsidiaries for use in its worldwide operations, subject to any legal or other
restrictions upon the free flow of funds from one segment, division or
subsidiary to another. Under the original terms of the agreement, only $25
million of the $50 million amount was available under the new facility. On
April 5, 1995, the Company and its four foreign subsidiaries amended the
agreement to increase the availability to $50 million under the facility. This
new credit facility may only be utilized after the borrowing availability under
the $225 million revolving credit agreement is fully utilized. The financial
covenants of the new $50 million credit agreement are similar to those of the
$225 million credit agreement. This new facility has an expiration date of
August 9, 1995. As of April 1, 1995, there were no amounts outstanding under
this facility.
The Company expects that it will continue to finance its working capital and
capital expenditure requirements primarily through short-term borrowings. The
Company's ability to fund its activities from operations is directly dependent
upon its rate of growth, ability to effectively manage its inventory, the terms
under which suppliers extend credit to the Company, the terms under which the
Company extends credit to its customers and its ability to collect under such
terms, the manner in which it finances any capital expansion, and the Company's
ability to access external sources of financing.
On February 27, 1995, the Company entered into a Stock Purchase Agreement
("Purchase Agreement") with Samsung Electronics Co., Ltd. ("Samsung"), providing
for an ownership interest in the Company of up to 40.25%. Under the terms of
the Purchase Agreement, Samsung will purchase from AST 6.44 million newly issued
shares of Common Stock, representing approximately 19.9% of the currently
outstanding shares of Common Stock, at $19.50 per share, and will commence a
cash tender offer to purchase from the Company's stockholders 5.82 million
shares of Common Stock, representing approximately 18% of the currently
outstanding shares of Common Stock, at $22 per share. Concurrently with the
acceptance of the shares for purchase under the tender offer, Samsung will
purchase from AST 5.63 million additional newly issued shares of Common Stock at
$22 per share so that its aggregate ownership in AST, after completion of all of
the purchases, would be approximately 40.25%. The closing of each of the
purchases, other than the 19.9% investment, is subject to approval by the
stockholders of AST, among other conditions. Samsung may elect to close the
purchase of the 19.9% interest at any time, subject to regulatory approval and
certain other conditions.
Assuming that the proposed investments by Samsung are completed, the estimated
net proceeds to be received by the Company from the transactions will be
approximately $240 million. The proceeds will be used for working capital,
including the financing of expected increases in accounts receivable, retirement
of bank debt, capital expenditure requirements and other general corporate
purposes. The Company's $50 million credit
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agreement dated February 9, 1995 requires the Company to utilize proceeds from
an equity offering to repay any amounts then outstanding under this facility.
While the Company has no other commitments for the use of the funds, the Company
may choose to utilize proceeds from the Samsung investment to repay some or all
of the then current outstanding borrowings under its $225 million credit
agreement, which does not require any repayments of principal until its
September 30, 1996 termination date.
While the Company has been able to maintain access to external financing
sources, no assurance can be given that such access will continue or that the
Company will be successful in obtaining new or replacement sources of financing
or successfully complete the Purchase Agreement with Samsung regarding its
equity investment in the Company. If the Company is unable to maintain access
to its existing financing sources or is unable to secure new sources, the
Company's ongoing operations would be adversely impacted. In addition,
continued financial losses by the Company would likely make it more difficult
for the Company to access external financing sources, which would also adversely
impact the Company's ongoing operations.
In connection with the Tandy acquisition, the Company issued a $96.7 million
promissory note to Tandy Corporation which is due on July 11, 1996. The
interest rate has been adjusted to 4.94% per annum, effective July 11, 1994, and
will be adjusted once more on July 11, 1995 to the lower of either 5% or the
"lowest three month rate" within the meaning of Section 1274(d)(2) of the
Internal Revenue Code of 1986 as of July 11, 1995. Interest is paid once a year
on July 11th and there are no sinking fund requirements. The note also requires
the Company to maintain a standby letter of credit payable to Tandy in the
amount of 70% of the face value of the note or $67.7 million. Upon maturity of
the note, up to 50% of the initial principal amount of the promissory note may
be converted, at the option of the Company, into common stock of the Company
based upon its then fair market value, as defined in the promissory note. Under
the terms of the Purchase Agreement, Samsung has agreed to provide a letter of
credit to support the promissory note due to Tandy Corporation replacing the
Company's letter of credit and to provide funds to satisfy $75 million of the
note obligation. The Company, however, will be obligated to reimburse Samsung
for any letter of credit fees incurred.
On December 14, 1993, the Company issued $315 million par value of Liquid
Yield Option Notes ("LYONs") due December 14, 2013. The LYONs are zero coupon
convertible subordinated notes which were sold at a significant discount from
par value with a yield to maturity of 5.25% and a total value at maturity of
$315 million. There are no periodic payments of interest on the LYONs. Each
$1,000 principal amount at maturity of LYONs is convertible into 12.993 shares
of the Company's common stock at any time. Upon conversion of a LYON, the
Company may elect to deliver shares of common stock at the conversion rate or
cash equal to the market value of the shares of common stock into which the
LYONs are convertible. Total proceeds received from the sale of the LYONs were
approximately $111.7 million, which have been utilized for working capital,
including the financing of increases in accounts receivable and inventories,
repayment of bank borrowings under the Company's revolving credit facilities,
new product development, and other general corporate purposes. The holder of a
LYON may require the Company to purchase all or a portion of its LYONs on
December 14, 1998, December 14, 2003 and December 14, 2008 (the "Purchase
Dates"), and such payments may reduce the liquidity of the Company. However,
the Company may, subject to certain exceptions, elect to pay the purchase price
on any of the three Purchase Dates in cash or shares of common stock or any
combination thereof. The Company has made no decision as to whether it will
meet future purchase obligations in cash, common stock, or any combination
thereof. Such decision will be based on market conditions at the time a
decision is required, as well as management's view of the liquidity of the
Company at such time. The total accreted value of the LYONs at April 1, 1995 is
$117.7 million. The Purchase Agreement and investment by Samsung will not have
any impact on the terms of the LYON securities.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
Future operating results may be impacted by a number of factors, including
worldwide economic and political conditions, industry specific factors, the
availability and cost of components, the Company's ability to timely develop and
produce commercially viable products at competitive prices, the Company's
ability to manage expense levels, the Company's ability to maintain access to
external financing sources and its financial liquidity, the continued financial
strength of the Company's dealers and distributors, the Company's ability to
accurately anticipate customer demand.
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The Company's future success is highly dependent upon its ability to produce
and market products that incorporate new technology, are priced competitively
and achieve significant market acceptance. There can be no assurance that the
Company's products will be commercially successful or technically advanced due
to the rapid improvements in computer technology and resulting product
obsolescence. There is also no assurance that the Company will be able to
deliver commercial quantities of new products in a timely manner. The success
of new product introductions is dependent on a number of factors, including
market acceptance, the Company's ability to manage risks associated with product
transitions, the effective management of inventory levels in line with
anticipated product demand and the timely manufacturing of products in
appropriate quantities to meet anticipated demand. The Company regularly
introduces new products designed to replace existing products. While the
Company closely monitors new product introductions and product obsolescence,
there can be no assurance that such transitions will occur without adversely
affecting the Company's net sales, cash flow and profitability as resulted in
the first three quarters of fiscal 1995. In addition, if the Company is unable
to accurately anticipate the customer demand shift from 486-based systems to
systems utilizing Pentium processors, the product life cycles of the Company's
486-based systems could be shortened, which may require additional inventory
valuation reserves and may have a material adverse effect on the Company's net
sales, cash flow and profitability.
Increases in demand for personal computers have created industrywide
shortages, which at times have resulted in premium prices being paid for key
components, such as dynamic random access memory chips ("DRAMs"), high quality
liquid crystal display panels and monitors. These shortages have occasionally
resulted in the Company's inability to procure these components in sufficient
quantities to meet demand for its products. In addition, a number of the
Company's products include certain components, such as active-matrix displays,
CD-ROMs, application specific integrated circuits, and microprocessors, that are
currently purchased from single sources due to availability, price, quality or
other considerations. The Company purchases components pursuant to purchase
orders placed in the ordinary course of business and has no guaranteed supply
arrangements with single source suppliers. Reliance on suppliers generally
involves several risks, including the possibility of defective parts, a shortage
of components, an increase in component costs and disruptions in delivery of
components. Should delays, defects or shortages occur or component costs
significantly increase, the Company's net sales and profitability could be
adversely affected.
If the transactions contemplated by the Purchase Agreement are consummated,
the Company and Samsung will enter into strategic agreements covering a broad
range of commercial relationships including, among others, component supply
agreements for certain critical components manufactured by Samsung and used by
the Company in the manufacture of personal computers and a joint procurement
agreement providing a mechanism for Samsung and the Company to coordinate their
purchases from third parties in order to obtain more favorable pricing.
However, as Samsung is a supplier of critical components in a highly competitive
marketplace, other suppliers may be less likely to extend attractive terms to or
to do business with the Company. The Company has received notice from LG
Semicon Co., Ltd., one of its suppliers of DRAM, that, it will no longer supply
such components to the Company, effective April 1995. For the twelve months
ended March 31, 1995, LG Semicon Co., Ltd. and its related companies supplied
approximately 15% of the Company's DRAM requirements. In the event that the
Company is unable to obtain such components from Samsung, it will be required to
find alternative sources of supply. If it is unable to locate sufficient
supply, or if the terms are less favorable than those previously obtained by the
Company, the Company's results of operations could be adversely affected. In
addition, because Samsung has other business involvements typical of large,
multi-national companies and is not based in the U.S., it is possible that some
additional suppliers, customers, employees and others will not react favorably
to the proposed arrangements.
The Company participates in a highly competitive volatile industry that is
characterized by dynamic customer demand patterns, rapid introduction of new
products, rapid technological advances, and rapid obsolescence resulting in an
extremely competitive pricing environment with downward pressure on gross
margins. The Company anticipates that the personal computer industry will
continue to experience intense price competition and dramatic price reductions
during fiscal 1995. There can be no assurance that future pricing actions by
the Company and its competitors will not adversely impact the Company's net
sales and profitability.
The Company's ability to compete is largely dependent upon its financial
strength and its ability to adequately fund its operations. Many of the
Company's competitors are significantly larger and have significantly greater
financial resources than the Company. The Company's sources of financing
include cash on hand, cash provided by operations, available borrowings under
its committed revolving credit facilities and possible future public or
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private debt and/or equity offerings. The Company's future success is highly
dependent upon its continued access to sources of financing which it believes
are necessary for the continued growth of the Company. While the Company is
evaluating various financing alternatives, there can be no assurance that it
will be able to obtain any additional sources of financing. In the event the
Company is unable to maintain access to its existing financing sources or is
unable to obtain new or replacement sources and does not successfully complete
the Purchase Agreement with Samsung regarding its proposed equity investment in
the Company, there would be a material adverse effect on the Company's business
operations.
Consistent with industry practice, the Company provides certain of its larger
distributors, consumer retailers and dealers with stock balancing and price
protection rights that permit these distributors, retailers and dealers to
return slow-moving products to the Company for credit or to receive price
adjustments if the Company lowers the price of selected products within certain
time periods. While stock balancing and price protection rights have not had a
material adverse impact on the Company's results of operations or liquidity to
date, there can be no assurance that the Company will not experience rates of
return or price protection adjustments that could have a material adverse impact
on the Company's net sales and profitability in the future.
The Company believes that, with the acquisition of additional manufacturing
facilities from Tandy Corporation and the acquisition of manufacturing
facilities both in the PRC and Ireland, production capacity should be sufficient
to support anticipated increases in unit volumes for the foreseeable future.
The Company also expects that gross inventory levels will increase to support
higher production volumes. However, if the Company is unable to obtain certain
key components, or to effectively forecast customer demand or manage its
inventory, these higher inventory levels may result in increased obsolescence
and adversely impact the Company's gross margins and results of operations.
General economic conditions have an impact on the Company's business and
financial results. From time to time, the markets in which the Company sells
its products experience weak economic conditions that may negatively affect
sales of the Company's products. Although the Company does not consider its
business to be highly seasonal, it has experienced seasonally higher sales in
the second quarter of the fiscal year due to holiday demand for some of its
products in the consumer retail channel. The continued expansion of the
consumer retail business is likely to result in the increased seasonality of the
Company's business and its financial results being more dependent on retail
business fluctuations.
The Company's overall operating income varies within each geographic region.
Historically, the Company's Americas and Pacific Rim regions have made the
primary contributions to the Company's profitability. Therefore, should the
Company continue to experience significant revenue and/or profitability declines
in either region, this could significantly impact the Company's overall net
sales and profitability. Europe had historically shown an operating loss
primarily due to a lack of centralized manufacturing, distribution and service
operations. During fiscal 1994, the Company realigned and centralized its
European distribution and service operations in conjunction with establishing a
new manufacturing facility in Limerick, Ireland. As a result, the Company has
seen improved profitability throughout the European region in fiscal 1995.
However, if the Company is unable to achieve further manufacturing efficiencies
or offset future pricing actions with further cost reductions, Europe's
profitability could be adversely affected.
The Company's international operations are affected by foreign currency
fluctuations. The financial statements of the Company's foreign subsidiaries
are remeasured into the United States dollar functional currency for
consolidated reporting purposes. Gains and losses resulting from this
remeasurement process are recognized currently in the consolidated results of
operations. The Company attempts to minimize the impact of these remeasurement
gains and losses by adhering to a hedging strategy utilizing forward exchange
contracts and, to a lesser extent, foreign currency borrowings. The Company's
exposure to currency fluctuations will continue to increase as a result of the
expansion of its international operations. Significant fluctuations in currency
values could have an adverse effect on the Company's net sales, gross margins
and profitability.
The Company's international operations may also be affected by changes in
United States trade relationships, increased competition and the economic
stability of the locations in which sales occur. The Company operates in
foreign locations, such as the PRC, where future sales may be dependent upon
continuing favorable trade relations. Additionally, foreign locations such as
the PRC may experience changes in their general economic stability due to such
factors as increased inflation and political turmoil. Any significant change in
United States
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trade relations or the economic stability of foreign locations in which the
Company sells its products could have an adverse effect on the Company's net
sales and profitability.
The personal computer industry presents risks for claims of infringement of
patents, trademarks and copyrights. From time to time, the Company is notified
that certain of its products may infringe upon the intellectual property rights
of others. The Company generally evaluates all such notices on a case-by-case
basis to determine whether licenses are necessary or desirable. If such claims
are made, there can be no assurance that licenses will be available on
commercially reasonable terms or that retroactive royalty payments on sales of
the Company's computer products will not be required. In addition, substantial
costs may be incurred in disputing such claims. The Company believes that the
actions it takes to avoid or minimize the impact to the Company of such claims
are prudent; however, there can be no assurance that such claims will not occur
or, if successful, would not have a material adverse effect on the Company's
business operations and profitability. Assuming the closing of the Samsung
investment, the Strategic Alliance Agreement dated February 27, 1995 provides
for negotiation and entering into of a cross license agreement between the
Company and Samsung to provide licenses to each other for certain of their
respective intellectual property rights, to, among other things, foster rapid
product development and lower-cost production.
The Company's primary means of distribution remains third-party computer
resellers and consumer retailers. While the Company continuously monitors and
manages the credit it extends to its customers to limit its credit risk, the
Company's business could be adversely affected in the event that the financial
condition of its customers weakens. In the event of the financial failure of a
major customer, the Company would experience disruptions in its distribution as
well as the loss of the unsecured portion of any outstanding accounts
receivable.
The Company's corporate headquarters facility, at which the majority of its
research and development activities are conducted, is located near major
earthquake faults which have experienced earthquakes in the past. While the
Company does carry insurance at levels management believes to be prudent, in the
event of a major earthquake or other disaster affecting one or more of the
Company's facilities, it is likely that insurance proceeds would not cover all
of the costs incurred and, therefore, the operations and operating results of
the Company could be adversely affected.
Because of these and other factors affecting the Company's operating results,
past financial performance should not be considered a reliable indicator of
future performance, and investors should not use historical trends to anticipate
results or trends in future periods. In addition, the Company's participation
in the highly dynamic personal computer industry often results in significant
volatility in the Company's common stock price.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 3 and March 14, 1994, complaints were filed by two shareholders
against the Company and certain of its officers and directors requesting
certification of a class action, asserting claims under state and federal
securities laws based on allegations that the Company made inadequate and false
disclosures and seeking unspecified compensatory damages and related fees and
costs. The complaints were filed in the United States District Court for the
Central District of California. On September 12, 1994, a complaint was filed by
a shareholder against the Company and certain of its officers and directors
requesting certification of a class action, asserting claims under state and
federal securities laws based on allegations that the Company made inadequate
and false disclosures and seeking unspecified compensatory damages and related
fees and costs. The September 12, 1994 complaint was filed in the United States
District Court for the Central District of California under the case name Steven
A. Kornfeld v. James L. Forquer, et al. On October 6, 1994, a complaint was
filed by a shareholder in the United States District Court for the Central
District of California. The October 6, 1994 complaint names the Company and
certain of its officers and directors as defendants, asserts claims under the
state and federal securities laws based on allegations that the Company made
inadequate and false disclosures, and seeks unspecified compensatory damages and
related fees and costs. The cases with complaints filed on March 3, 1994, March
14, 1994 and October 6, 1994 have been consolidated under the case name In re
AST Research Securities Litigation. The AST Research Securities Litigation and
Kornfeld cases are being treated as related cases by the court. Management has
reviewed the allegations and the complaints and believes such allegations are
without merit. Management intends to vigorously defend these litigations.
Management does not believe that the outcome of these matters will have a
material adverse impact on the Company's consolidated financial position or
results of operations; however, the Company is unable to estimate the amount of
any loss that may be realized in the event of an unfavorable outcome.
The Company was named, along with twelve other personal computer companies,
as a defendant in a lawsuit filed on March 27, 1995 in the Superior Court for
the County of Merced, California. The case name is People v. Acer et al., and
alleges that the Company has engaged in deceptive advertising and unlawful
business practices with relation to computer monitor screen measurements.
Management does not believe that the outcome of this dispute will have a
material adverse impact on the Company's consolidated financial position or
results of operations; however, the Company is unable to estimate the amount of
any loss that may be realized in the event of an unfavorable outcome.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.132 Credit Agreement dated February 9, 1995, among AST Research,
Inc., AST Canada, Inc., AST Europe Limited, AST Research France
S.A.R.L., AST Sweden AB and Bank of America NT & SA.
10.133 Settlement Agreement and Release dated January 1, 1995, between
AST Research, Inc. and Texas Instruments Incorporated.
(Confidential treatment is requested with respect to portions of
this exhibit.)
11. Computation of Net Income (Loss) Per Share.
(b) Reports on Form 8-K
On March 3, 1995, the Company filed a report on Form 8-K reporting under
Item 5 thereof regarding the agreement with Samsung Electronics Co.,
Ltd., concerning the investment by Samsung Electronics Co., Ltd.
providing for an ownership interest of up to 40.25 percent in the
Company, as well as other strategic relationships, including component
supply and joint procurement, effective February 27, 1995.
AST and Advantage! are registered trademarks of AST Research, Inc. Ascentia,
Bravo, Premmia, PowerExec and Manhattan are trademarks of AST Research, Inc.
Pentium is a trademark of Intel Corporation. Tandy is a registered trademark of
Tandy Corporation. Liquid Yield Option and LYON are trademarks of Merrill Lynch
& Co. All other product or service names mentioned herein may be trademarks or
registered trademarks of their respective owners.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AST Research, Inc.
----------------------------------
(Registrant)
Date: May 12, 1995 /s/ Bruce C. Edwards
------------ ----------------------------------
Bruce C. Edwards
Executive Vice President
and Chief Financial Officer
21
<PAGE>
EXHIBIT 10.132
CREDIT AGREEMENT
DATED AS OF FEBRUARY 9, 1995
AMONG
AST RESEARCH, INC.,
AST CANADA, INC.,
AST EUROPE LIMITED,
AST RESEARCH FRANCE S.A.R.L.,
AST SWEDEN AB
AND
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS 1
1.1 Defined Terms 1
1.2 Other Definitional Provisions 18
ARTICLE 2 THE CREDIT FACILITY 18
2.1 Revolving Facility 18
2.2 Loan Account 19
2.3 Procedure for Advances 19
2.4 Interest 20
2.5 Voluntary Termination or Reduction of
Commitments 20
2.6 Optional Prepayments 20
2.7 Mandatory Prepayment of Advances;
Mandatory Reduction of Credit Limit 21
2.8 Fees 21
2.9 Computation of Fees and Interest 21
2.10 Payments by the Borrowers 22
ARTICLE 3 TAXES, YIELD PROTECTION AND ILLEGALITY 22
3.1 Taxes 22
3.2 Illegality 24
3.3 Increased Costs and Reduction of Return 24
3.4 Funding Losses 25
3.5 Inability To Determine Rates 26
3.6 Invoices of the Bank 26
ARTICLE 4 CONDITIONS PRECEDENT 26
4.1 Conditions of Closing 26
(a) Credit Agreement 26
(b) Resolutions; Incumbency 26
(c) Certificates of Incorporation;
By-laws and Good Standing 27
(d) Legal Opinions 27
(e) Payment of Fees 27
(f) Officer's Certificates 28
(g) Other Documents 28
4.2 Conditions to Availability of Second
Tranche 28
4.3 Conditions to All Advances 29
(a) Notice of Borrowing. 29
(b) Continuation of Representations
and Warranties 29
(c) No Existing Default 29
(d) Available Credit 29
(e) Credit Limit Compliance 30
(f) Other Documents 30
ARTICLE 5 REPRESENTATIONS AND WARRANTIES 30
5.1 Corporate Existence and Power 30
5.2 Corporate Authorization;
No Contravention 30
5.3 Governmental Authorization 31
5.4 Binding Effect 31
5.5 Litigation 31
5.6 No Default 32
5.7 ERISA Compliance 32
5.8 Use of Proceeds; Margin Stock 33
5.9 Ownership of Collateral 34
5.10 Taxes 34
5.11 Financial Condition; No Material
Adverse Change 34
5.12 Environmental Matters 35
5.13 Regulated Entities 35
5.14 No Burdensome Restrictions 36
5.15 Solvency 36
5.16 Labor Relations 36
5.17 Copyrights, Patents, Trademarks and
Licenses, Etc. 36
5.18 Subsidiaries 37
5.19 Broker's Transaction Fees 37
5.20 Insurance 37
5.21 Full Disclosure 37
5.22 Common Enterprise 37
ARTICLE 6 AFFIRMATIVE COVENANTS 38
6.1 Financial Statements 38
6.2 Certificates; Other Information 39
6.3 Notices 39
6.4 Preservation of Corporate Existence,
Etc 41
6.5 Maintenance of Property 41
6.6 Insurance 41
6.7 Payment of Obligations 42
6.8 Compliance With Laws 42
6.9 Inspection of Property and Books and
Records 42
6.10 Use of Proceeds 43
6.11 Solvency 43
ARTICLE 7 NEGATIVE COVENANTS 43
7.1 Other Indebtedness 43
7.2 Limitation on Liens 43
7.3 Acquisitions 45
7.4 Disposition of Assets 45
7.5 Consolidations and Mergers 46
7.6 Loans and Investments 47
7.7 Transactions With Affiliates 49
7.8 Compliance With ERISA 49
7.9 Restricted Payments 49
7.10 Modified Quick Ratio 50
7.11 Tangible Net Worth 50
7.12 Profitability 50
7.13 Loss in Specific Quarter 50
7.14 Leverage Ratio(s) 51
7.15 Sale and Leaseback Agreement 51
7.16 Change in Business 51
7.17 Accounting Changes 52
7.18 Certain Other Debt 52
ARTICLE 8 EVENTS OF DEFAULT 52
8.1 Event of Default 52
(a) Non-Payment 52
(b) Representation or Warranty 53
(c) Specific Defaults 53
(d) Other Specified Defaults 53
(e) Other Defaults 53
(f) Cross-Default 53
(g) Cross-Acceleration 54
(h) Bankruptcy or Insolvency 54
(i) Involuntary Proceedings 54
(j) ERISA 54
(k) Monetary Judgments 55
(l) Non-Monetary Judgments 55
(m) Change in Control 56
(n) Collateral 56
8.2 Remedies 56
8.3 Rights Not Exclusive 57
8.4 Certain Financial Covenant Defaults 57
ARTICLE 9 MISCELLANEOUS 57
9.1 Guaranty 57
9.2 Obligations Joint and Several;
Subordination 60
9.3 Amendments and Waivers 63
9.4 Notices 63
9.5 No Waiver; Cumulative Remedies 63
9.6 Costs and Expenses 63
9.7 Indemnity 64
9.8 Successors and Assigns 64
9.9 Set-off 65
9.10 Counterparts 65
9.11 Severability 65
9.12 Governing Law and Jurisdiction 65
9.13 Waiver of Jury Trial 66
9.14 Entire Agreement 66
Exhibits and Schedules
Exhibit A - Form of Notice of Borrowing
Exhibit B - Form of Compliance Certificate
Schedule 5.5 - Litigation
Schedule 5.7 - ERISA
Schedule 5.11 - Events Resulting in Material Adverse Effect
Schedule 5.12 - Environmental Matters
Schedule 5.18 - Subsidiaries
Schedule 7.7 - Affiliate Transactions
Schedule 7.16 - Related Businesses
Schedule 8.1 - Post-Closing Conditions
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is entered into as of February 9, 1995, among AST
RESEARCH, INC., a Delaware corporation (the "Company"), AST CANADA, INC., AST
EUROPE LIMITED, AST RESEARCH FRANCE S.A.R.L., AST SWEDEN AB (collectively the
"Borrowers"; individually, a "Borrower") and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION (the "Bank").
RECITALS
WHEREAS, the Bank has agreed to make available to the Borrowers certain
credit facilities upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. In addition to the terms defined elsewhere in this
Agreement, the following terms have the following meanings:
"Acquiree" means any Person, control of which is to be acquired in, or who
is the target of, or will or having a division or business that will be acquired
in, an Acquisition.
"Acquisition" means any transaction or series of related transactions for
the purpose of or resulting in (a) the acquisition, directly or indirectly, of
all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition, directly or indirectly, of in excess
of 50% of the capital stock, partnership interests or equity of any Person or
otherwise causing any Person to become an Affiliate of the Company, or (c) a
merger or consolidation or any other combination with another Person (other than
a Person that is a Subsidiary of the Company).
"Acquisition Credit" means any Advance or portion thereof for the purpose,
primarily or incidental, of undertaking an Acquisition.
"Adjusted Leverage Ratio" has the meaning specified in subsection 7.14(b).
"Advance" means an extension of credit by the Bank to any Borrower pursuant
to Article 2 of this Agreement.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, by contract or otherwise. Without
limitation, any director, executive officer or beneficial owner of 10% or more
of the equity of a Person shall, for the purposes of this Agreement, be deemed
to control the other Person.
"Agreement" means this Credit Agreement, including all Schedules and
Exhibits hereto, as amended, supplemented or modified from time to time.
"Applicable Margin" means, for any day, the applicable margin (on a per
annum basis) set forth below opposite the Utilization Amount for such date:
Utilization Amount Applicable Margin
$0 - $10,000,000 2.50%
$10,000,001 - $25,000,000 3.00%
$25,000,001 - $40,000,000 3.50%
$40,000,001 - $50,000,000 4.00%
provided, however, that the Applicable Margin shall be increased (i) by 0.50%
per annum with respect to any Advance outstanding during the period commencing
on the 121st day after the Closing Date and ending on the 150th day after the
Closing Date, and (ii) by 1.00% per annum with respect to any Advance
outstanding during the period commencing on the 151st day after the Closing Date
and ending on the last day of the Availability Period.
"Asset Securitization" means the sale, discounting, lease, pledge,
conveyance or other disposition of Accounts (as defined in that certain Security
Agreement dated as of December 23, 1994 between the Company and the Bank, as
Administrative Agent), whether now owned or hereafter acquired, including sales
or other dispositions expressly permitted under Sections 7.2 and 7.4.
"Availability Period" means the period commencing on the date of this
Agreement and ending on the date six months following the date of this Agreement
(or such earlier date, if any, on which the Bank's commitment to make advances
hereunder terminates).
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in San Francisco, Toronto or London are authorized or
required by law to close and, if the applicable Business Day relates to any
Offshore Rate Advance, means such a day on which dealings are carried on in the
applicable offshore dollar interbank market.
"Capital Lease Obligations" means all monetary obligations of the Company
or any of its Subsidiaries under any leasing or similar arrangement which, in
accordance with GAAP, is classified as a capital lease.
"CERCLA" has the meaning specified in the definition of "Environmental
Laws."
"Chinese Joint Venture" means the AST Computers China Limited equity joint
venture entered into between AST Research (Far East) Limited, a Wholly-Owned
Subsidiary, and the Tianjin Economic-Technological Development Area Business
Development Company, pursuant to the Joint Venture Agreement dated September 9,
1993, substantially on the terms set forth in the agreement attached to the
Officer's Certificate delivered in connection with the closing under the 1993
Credit Agreement.
"Closing Date" means February 9, 1995, or such later date on which all of
the conditions precedent set forth in Section 4.1 shall have been satisfied or
waived, in the Bank's sole discretion.
"Code" means the Internal Revenue Code of 1986, as amended, and any
regulation promulgated thereunder.
"Collateral" means all Accounts, Books, Chattel Paper, Documents, General
Intangibles, Instruments and Inventory and all products and Proceeds of the
foregoing. For purposes of this definition, each of the foregoing capitalized
terms shall be defined as in that certain Security Agreement dated as of
December 23, 1994 between the Company and the Bank, as Administrative Agent, in
each case whether now owned or hereafter acquired by the Company or the
Borrowers in or upon which a Lien now or hereafter exists in favor of the Bank,
whether under this Agreement or under any other documents executed by the
Company or the Borrowers and delivered to the Bank in connection herewith.
"Collateral Documents" means, collectively, all security agreements, pledge
agreements, assignments and other similar agreements between the Company or the
Borrowers and the Bank now or hereafter entered into in connection herewith, and
all financing statements (or comparable documents now or hereafter filed in
accordance with the Uniform Commercial Code or comparable law) by or against the
Company or the Borrowers as debtor for the benefit of the Bank as secured party,
and (ii) any amendments, supplements, modifications, renewals, replacements,
consolidations, substitutions and extensions of any of the foregoing.
"Compliance Certificate" means a certificate, executed by a Responsible
Officer, in the form of Exhibit B hereto.
"Consolidated Current Liabilities" means, as of any date of determination,
all amounts which would, in accordance with GAAP, be included under current
liabilities on a consolidated balance sheet of the Company and its Subsidiaries,
but in any event including the aggregate amount of (i) all Advances outstanding
from time to time plus (ii) all Loans outstanding from time to time under the
1993 Credit Agreement.
"Consolidated Material Adverse Effect" means a material adverse effect upon
any of (a) the operations, business, properties, condition (financial or
otherwise) of the Company and its Consolidated Subsidiaries taken as a whole;
(b) the ability of the Company to perform its obligations under any Loan
Document without default; or (c) the legality, validity, binding effect or
enforceability of any Loan Document.
"Consolidated Subsidiaries" means, at any time, those Subsidiaries of the
Company that in accordance with GAAP would be consolidated with the Company for
financial reporting purposes.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation (the "primary obligation") of
another Person (the "primary obligor"), including any obligation of that Person,
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, or (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
set forth above of the ability of the primary obligor to make payment of such
primary obligation, or (d) otherwise to assure or hold harmless the holder of
any such primary obligation against loss in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation outstanding at any point in time
in respect of which such Contingent Obligation is made or, if not stated or if
indeterminable, the maximum anticipated liability in respect thereof as
reasonably determined by the Company substantially in accordance with past
practice.
"Contractual Obligations" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound.
"Controlled Group" means the Company and all Persons (whether or not
incorporated) under common control or treated as a single employer with the
Company pursuant to Section 414(b), (c), (m) or (o) of the Code.
"Credit Limit" means Fifty Million Dollars ($50,000,000) or such lesser
amount as may be determined pursuant to subsection 2.5 hereof; provided,
however, that $25,000,000 of such amount shall be available to the Borrowers on
the Closing Date and the remaining $25,000,000 shall first become available to
the Borrowers on such date on which all of the conditions precedent set forth in
Section 4.2 hereof shall have been satisfied or waived, in the Bank's sole
discretion.
"Default" means any event which, with the giving of notice, the lapse of
time, or both, would constitute an Event of Default.
"documents" includes any and all instruments, documents, agreements,
certificates and other writings, however evidenced.
"dollars" and "$" each mean lawful money of the United States.
"Environmental Claim" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief, resulting from
or based upon (a) the presence, placement, discharge, emission or release
(including intentional and unintentional, negligent and non-negligent, sudden or
non-sudden, accidental or non-accidental placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in or from property,
whether or not owned by the Company, or (b) any other circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means (i) with respect to the Company, all federal,
state or local laws, statutes, common law duties, rules, regulations, ordinances
and codes, together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and land use
matters, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution
Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency
Planning and Community Right-to-Know Act, the California Hazardous Waste Control
Law, the California Solid Waste Management, Resource, Recovery and Recycling
Act, the California Water Code and the California Health and Safety Code, and
(ii) with respect to any Borrower, all laws, rules, and regulations in such
Borrower's jurisdiction relating to environmental, health, safety and land use
matters.
"Environmental Permits" has the meaning specified in subsection 5.12(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any regulation promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
under common control with the Company within the meaning of Section 414(b),
414(c) or 414(m) of the Code.
"ERISA Event" means (a) a Reportable Event with respect to a Qualified Plan
or a Multiemployer Plan; (b) a withdrawal by the Company or any ERISA Affiliate
from a Qualified Plan subject to Section 4063 of ERISA during a plan year in
which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA);
(c) a complete or partial withdrawal by the Company or any ERISA Affiliate from
a Multiemployer Plan; (d) the filing of a notice of intent to terminate, the
treatment of a plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate, a Qualified
Plan or Multiemployer Plan subject to Title IV of ERISA; (e) a failure to make
required contributions to a Qualified Plan or Multiemployer Plan; (f) an event
or condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Qualified Plan or Multiemployer Plan; (g) the imposition of any
liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate;
(h) an application for a funding waiver or an extension of any amortization
period pursuant to Section 412 of the Code with respect to any Plan; (i) any
member of the Controlled Group engages in or otherwise becomes liable for a non-
exempt prohibited transaction; or (j) a violation of the applicable requirements
of Section 404 or 405 of ERISA or the exclusive benefit rule under Section
401(a) of the Code by any fiduciary or disqualified person with respect to any
Plan for which the Company or any member of the Controlled Group may be directly
or indirectly liable.
"Event of Default" means any of the events specified in Section 8.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Federal Funds Rate" means, for any day, 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 day opposite the caption "Federal Funds (Effective)." If
on any relevant day such rate is not yet published in H.15(519), the rate for
such day 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. Quotations") for such
day under the caption "Federal Funds Effective Rate." If on any relevant day
the appropriate rate for such day is not yet published in either H.15(519) or
the Composite 3:30 p.m. Quotations, the rate for such day 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 day by each of three leading
brokers of Federal funds transactions in New York City, selected by the Bank.
"Federal Reserve Board" means the Board of Governors of the Federal Reserve
System, or any successor thereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the accounting profession), or to the
extent not inconsistent with the above, in such other statements by such other
entity as may be in general use by significant segments of the U.S. accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any governmental or quasi-governmental agency, authority, board, bureau,
commission, department, instrumentality or public body owned or controlled,
through stock or capital ownership or otherwise, by any of the foregoing.
"Guarantor" means, for purposes of Section 9.1 hereof, the Company.
"Hazardous Materials" means all those substances which are regulated by, or
which may form the basis of liability under, any Environmental Law, including
all substances identified under any Environmental Law as a pollutant,
contaminant, waste, solid waste, hazardous waste, hazardous constituent, special
waste, hazardous substance, hazardous material, or toxic substance, or petroleum
or petroleum derived substance or waste.
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
ordinary course trade payables); (c) all reimbursement obligations with respect
to surety bonds, letters of credit, bankers' acceptances and similar instruments
(in each case, whether or not matured); (d) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses;
(e) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to property acquired by the Person (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property; provided, however, in such case the
indebtedness shall be limited to the fair market value of such property);
(f) all Capital Lease Obligations; (g) all indebtedness referred to in
paragraphs (a) through (f) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including accounts and contracts rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness; and (h) all direct or indirect guaranties in
respect of and obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in paragraphs
(a) through (f) above. The amount of any Indebtedness of the kind set forth in
paragraph (h) above shall be deemed to be an amount equal to the stated or
determinable amount of Indebtedness outstanding at any point in time in respect
of which such guarantee is made or, if not stated or if indeterminable, the
amount reasonably determined by the Company in accordance with past practice.
"Indemnified Liabilities" has the meaning specified in Section 9.7.
"Indemnified Person" has the meaning specified in Section 9.7.
"Indenture" means the indenture governing the Notes dated as of December 1,
1993 between the Company and First Trust National Association, as trustee.
"Insolvency Proceeding" means (a) any case, action or proceeding before any
court or other Governmental Authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors or other, similar arrangement;
in each of cases (a) and (b) above, under U.S. Federal, state or foreign law.
"Interest Payment Date" means, with respect to any Offshore Rate Advance,
the last day of each Interest Period applicable thereto; provided, however, that
if any Interest Period exceeds 90 days or three months, respectively, interest
shall also be paid on the date which falls 90 days or three months after the
beginning of such Interest Period.
"Interest Period" means, with respect to any Offshore Rate Advance, the
period commencing on the Business Day the Advance is disbursed and ending on the
date one, two, three or six months thereafter (provided that such period may
include other periods requested by the Company and agreed to by the Bank), as
selected by the Company in its Notice of Borrowing; provided that:
(i) if any Interest Period would otherwise end on a day which is not a
Business Day, that Interest Period shall be extended to the next succeeding
Business Day unless the result of such extension would be to carry such Interest
Period into another calendar month, in which event such Interest Period shall
end on the immediately preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest Period unless
otherwise agreed to by the Bank; and
(iii) no Interest Period for any Offshore Rate Advance shall extend beyond
the last day of the Availability Period.
"Investments" has the meaning specified in Section 7.6.
"Judgment Lien" means any Lien securing any judgment or order of any court
or other similar Governmental Authority.
"Letter of Credit" means the standby letter of credit for the benefit of
Tandy Corporation, in the maximum amount of $75,000,000, which is currently
outstanding in the face amount of $67,704,000, substantially on the terms set
forth in the letter of credit attached to the Officer's Certificate delivered in
connection with the closing under the 1993 Credit Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge or deposit arrangement, encumbrance, lien (statutory or
other) or preference, priority or other security interest or preferential
arrangement of any kind or nature whatsoever (including those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a Capital Lease Obligation, any
financing lease having substantially the same economic effect as any of the
foregoing, or the filing by or on behalf of the Company or any Borrower of any
financing statement naming the owner of the asset to which such lien relates as
debtor, under the UCC or any comparable law (other than a precautionary
financing statement with respect to a lease that is not in the nature of a
security interest)), and any contingent or other agreement to provide any of the
foregoing.
"Liquid Assets" means, determined in accordance with GAAP, short-term
investments and marketable securities not classified as long-term investments.
"Loan Documents" means this Agreement and all other documents delivered to
the Bank in connection herewith or therewith, including, without limitation, the
Collateral Documents.
"Margin Stock" means (a) any equity security registered or having unlisted
trading privileges on a national securities exchange; (b) any OTC Margin Stock;
(c) any OTC security designated as qualified for trading in the National Market
System of the National Association of Securities Dealers Automatic Quotation
System under a designation plan approved by the Securities and Exchange
Commission; (d) any debt security convertible into a margin stock or carrying a
warrant or right to subscribe to or purchase a margin stock; (e) any warrant or
right to subscribe to or purchase a margin stock; or (f) any security issued by
an investment company registered under section 8 of the Investment Company Act
of 1940, other than: (i) a company licensed under the Small Business Investment
Company Act of 1958, as amended; or (ii) a company which has at least 95% of its
assets continuously invested in exempted securities (as defined in 15 U.S.C.
78c(a)(12)); or (iii) a company which issues face-amount certificates as defined
in 15 U.S.C. 80a-2(a)(15), but only with respect of such securities; provided,
however, that if the definition of "margin stock" should change for purposes of
the Federal Reserve Board's Regulation U after the Closing Date, the definition
of "Margin Stock" herein shall be revised to correspond to such changed
definition.
"Marketable Investments" means:
(a) securities issued or guaranteed or insured by the United States of
America or any agency thereof or securities issued or guaranteed by any state or
municipality thereof;
(b) certificates of deposit, time deposits, Eurodollar time deposits, call
accounts, time deposits (or participations therein) or bankers' acceptances
issued by any bank having Primary Capital of not less than $100,000,000 whose
long-term debt is rated at least "A" by Standard & Poor's Corporation and "A-2"
by Moody's Investors Service, Inc. at the time of investment;
(c) commercial paper and negotiable instruments of an issuer rated at
least "A-1" by Standard & Poor's Corporation or "P-l" by Moody's Investors
Service, Inc.;
(d) loan participations in loans to corporations whose senior long-term
debt is rated at least "A" by Standard & Poor's Corporation or "A-2" by Moody's
Investors Service, Inc., or whose commercial paper and negotiable instruments
are rated at least "A-1" by Standard & Poor's Corporation or "P-1" by Moody's
Investors Service, Inc.;
(e) market auction preferred stocks issued by corporations or mutual funds
rated at least "A" by Standard & Poor's Corporation or "A-1" by Moody's
Investors Service, Inc.; and
(f) money market funds which (i) consist of obligations issued by the
United States of America or corporations and (ii) are rated at least "A-1" by
Standard & Poor's Corporation or "P-1" by Moody's Investors Service, Inc., or,
in the alternative, are rated "A" by Standard & Poor's Corporation or an
equivalent thereof by Moody's Investors Service, Inc.
"Material Adverse Effect" means a material adverse effect upon any of
(a) the operations, business, properties, condition (financial or otherwise) of
the Company, the Company and its Subsidiaries taken as a whole, or any Borrower,
as the case may be; (b) the ability of the Company or any Borrower, as the case
may be, to perform its obligations under any Loan Document without default; or
(c) the legality, validity, binding effect or enforceability of any Loan
Document or, subject to Permitted Liens, the perfection or the priority of any
Lien granted under any of the Collateral Documents.
"Material Subsidiary" means any Subsidiary of the Company that satisfies
either of the following criteria, based upon the Company's most recent annual or
quarterly consolidated and consolidating financial statements delivered to the
Bank pursuant to Section 6.1: (a) the total assets of such Subsidiary exceeds
one percent of the consolidated assets of the Company and its Consolidated
Subsidiaries; or (b) the total revenues of such Subsidiary exceeds one percent
of the consolidated revenues of the Company and its Consolidated Subsidiaries.
"Multiemployer Plan" means a "multiemployer plan" (within the meaning of
Section 4001(a)(3) of ERISA) and to which any member of the Controlled Group
makes, is making or is obligated to make contributions or has made, or been
obligated to make, contributions.
"Net Proceeds" means, with respect to a sale of equity securities, the
gross proceeds thereof reduced by all reasonable out-of-pocket costs and
expenses paid or incurred by the Company directly in connection therewith,
including underwriter's commissions or discounts, registration and filing fees,
legal and accounting fees, and printing costs, all as determined in accordance
with GAAP.
"Net Securitization Proceeds" means, as to any Asset Securitization by a
Borrower, proceeds in cash, checks or other cash equivalent financial
instruments as and when received by such Borrower, net of: (a) the direct costs
relating to such Asset Securitization, excluding amounts payable to any
Affiliate of such Borrower, (b) sale, use, value-added or other transaction
taxes paid or payable by such Person as a direct result thereof, and (c) amounts
required to be applied to repay principal, interest and prepayment premiums and
penalties on Indebtedness secured by a Lien on the asset which is the subject of
such Asset Securitization.
"Notes" means up to $500,000,000, in aggregate principal amount at
maturity, of Liquid Yield OptionO Notes due 2013 (Zero Coupon-Subordinated),
substantially on the terms set forth in the Indenture or the prospectus attached
to the Officer's Certificate delivered in connection with the closing under the
1993 Credit Agreement.
"Notice of Borrowing" means a notice given by the Company to the Bank
pursuant to Section 2.3, in substantially the form of Exhibit A.
"Notice of Lien" means any "notice of lien" or similar document intended to
be filed or recorded with any court, registry, recorder's office, central filing
office or Governmental Authority for the purpose of evidencing, creating,
perfecting or preserving the priority of a Lien securing obligations owing to a
Governmental Authority.
"Obligations" means all Advances and other Indebtedness, advances, debts,
liabilities, obligations, covenants and duties owing by the Company and the
Borrowers to the Bank or any other Person required to be indemnified under any
Loan Document, of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, arising under this
Agreement, under any other Loan Document, whether or not for the payment of
money, whether arising by reason of an extension of credit, loan, guaranty,
indemnification or in any other manner, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising and however acquired.
"Offshore Rate" means, for any interest period, the rate of interest per
annum (rounded upward to the next 1/16th of 1%) determined by the Bank as
follows:
Offshore Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
where
"Eurodollar Reserve Percentage" means for any day for any Interest
Period the maximum reserve percentage (expressed as a decimal, rounded
upward to the next 1/100th of 1%) in effect on such day, 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 liabilities"); and
"LIBOR" means the rate of interest per annum determined by the Bank to
be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the
rates of interest per annum notified to the Bank as the rate of interest at
which dollar deposits in the approximate amount of the Advance to be made
or continued as, or converted into, an Offshore Rate Advance by the Bank
and having a maturity equal to such Interest Period would be offered to
major banks in the London interbank market at their request at
approximately 11:00 a.m. (London time) two Business Days prior to the
commencement of such Interest Period.
The Offshore Rate shall be adjusted automatically as to all Offshore
Rate Advances then outstanding as of the effective date of any change in
the Eurodollar Reserve Percentage.
"Offshore Rate Advance" means any Advance bearing interest at the Offshore
Rate.
"OTC Margin Stock" means any equity security not traded on a national
securities exchange that the Federal Reserve Board has determined has the degree
of national investor interest, the depth and breadth of market, the availability
of information respecting the security and its issuer, and the character and
permanence of the issuer to warrant being treated like an equity security traded
on a national securities exchange. An OTC stock is not considered to be an "OTC
margin stock" unless it appears on the Federal Reserve Board's periodically
published list of OTC margin stocks.
"Other Taxes" has the meaning specified in subsection 3.1(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" has the meaning specified in Section 7.2.
"Permitted Waiver" means, in respect of any default or event of default
under any instrument or agreement evidencing any Indebtedness or Contingent
Obligation, a written waiver (including by amendment), duly executed and
delivered by the applicable creditor, permanently waiving such default or event
of default and in connection with which such creditor receives no additional
material consideration in the form of changes to pricing, fees, maturity,
collateral or major terms and covenants (whether in the form of an amendment to
such instrument or agreement or otherwise), or receives any other monetary
consideration other than reimbursement of incurred out-of-pocket expenses,
payment of customary administration or documentation fees, or reasonable waiver
or amendment fees.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture or
Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA)
which the Company or any member of the Controlled Group sponsors or maintains or
to which the Company or member of the Controlled Group makes, is making, or is
obligated to make, contributions, and includes any Multiemployer Plan or
Qualified Plan.
"Purpose Credit" means any Advance for the purpose, whether immediate,
incidental or ultimate, of buying or carrying Margin Stock.
"Qualified Plan" means a pension plan (as defined in Section 3(2) of ERISA)
intended to be tax-qualified under Section 401(a) of the Code and which any
member of the Controlled Group sponsors, maintains, or to which it makes, is
making or is obligated to make contributions, or in the case of a multiple
employer plan (as described in Section 4064(a) of ERISA) has made contributions
at any time during the immediately preceding period covering at least five (5)
plan years, but excluding any Multiemployer Plan.
"Receivables" means, on a consolidated basis, all accounts receivable of
the Company and its Consolidated Subsidiaries, determined in accordance with
GAAP.
"Reference Rate" means the higher of (a) the rate of interest publicly
announced from time to time by the Bank in San Francisco, California, as its
"reference rate" (a rate set by the Bank based upon various factors including
its costs and desired return, general economic conditions and other factors, and
is used as a reference point for pricing some loans, which may be priced at,
above or below such announced rate); and (b) one-half percent per annum above
the latest Federal Funds Rate. Any change in the reference rate announced by
the Bank shall take effect at the opening of business on the day specified in
the public announcement of such change.
"Reference Rate Advance" means an Advance that bears interest based on the
Reference Rate plus the Applicable Margin.
"Reportable Event" means, as to any Plan, (a) any of the events set forth
in Section 4043(b) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been waived in
regulations of the PBGC, (b) a withdrawal from a Plan described in Section 4063
of ERISA, or (c) a cessation of operations described in Section 4062(e) of
ERISA.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or binding determination of an arbitrator or
of a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property is
subject.
"Responsible Officer" means (i) with respect to the Company, any of the
Chief Executive Officer, the President, the Chief Financial Officer, the Vice
President-Legal and Treasury Operations or the Treasurer of the Company, and
(ii) with respect to any Borrower, any director of such Borrower.
"Solvent" means, as to any Person at any time, that (a) the fair value of
the property of such Person is greater than the amount of such Person's liabili
ties (including disputed, contingent and unliquidated liabilities) as such value
is established and liabilities evaluated for purposes of Section 101(31) of the
United States Bankruptcy Code (12 U.S.C. Section 101 et seq.); (b) the present
fair saleable value of the property of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its debts
as they become absolute and matured; (c) taking into account all of such Per
son's then-available sources of liquidity, including borrowings, such Person is
able to realize upon its property and pay its debts and other liabilities
(including disputed, contingent and unliquidated liabilities) as they mature in
the normal course of business; and (d) such Person does not intend to, and does
not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature.
"Specified Obligation" means, at any time, any Indebtedness or Contingent
Obligation of the Company, any Borrower or any Subsidiary thereof having an
aggregate principal amount (including unused commitments and outstanding
amounts) at such time of more than $10,000,000.
"Specified Obligation Default" means (a) any failure by the Company, and
Borrower or any Subsidiary thereof to make any payment in respect of any
Specified Obligation when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise); or (b) any failure by the
Company, any Borrower or any Subsidiary thereof to perform or observe any other
condition or covenant or any other event shall occur or condition exist under
any agreement or instrument relating to any such Specified Obligation, if the
effect of such event or condition is to cause, or permit, immediately or after
the expiration of any specified grace period, to be caused, such Specified
Obligation to become payable prior to its stated maturity.
"Subordinated Indebtedness" means all indebtedness of the Company to any
creditor (including indebtedness of the Company to the Bank other than under
this Agreement) which is subordinated to the Company's indebtedness to the Banks
under the 1993 Credit Agreement pursuant to a subordination agreement stating,
in the reasonable judgment of the Bank, terms of subordination usual and
customary in the marketplace for such subordinated debt at the time of issuance
and otherwise in all respects in form and substance satisfactory to the Bank.
The Notes issued by the Company are Subordinated Indebtedness.
"Subsidiary" of a Person means any corporation, association, partnership,
joint venture or other business entity of which more than 50% of the voting
stock or other equity interests is owned or controlled directly or indirectly by
the Person, or one or more of the Subsidiaries of the Person, or a combination
thereof.
"Tandy Note" means the Promissory Note, dated July 12, 1993, as amended, in
the stated principal amount of U.S. $96,720,000 issued by the Company to Tandy
Corporation, substantially on the terms set forth in the note attached to the
Officer's Certificate delivered in connection with the closing under the 1993
Credit Agreement.
"Tangible Net Worth" means, at any time of determination, in respect of the
Company and its Subsidiaries, determined on a consolidated basis, total assets
(exclusive of goodwill, licensing agreements, patents, trademarks, trade names,
organization expense, treasury stock, unamortized debt discount and premium,
deferred charges and other like intangibles) less total liabilities (including
accrued and deferred income taxes and Subordinated Indebtedness), at such time.
"Taxes" has the meaning specified in subsection 3.1(a).
"Total Liabilities" means, in respect of the Company and its Subsidiaries,
determined on a consolidated basis, without duplication, all liabilities
(excluding Subordinated Indebtedness) as determined in accordance with GAAP
("GAAP Liabilities"), plus all Contingent Obligations in respect of primary
obligors other than Consolidated Subsidiaries, and all other Indebtedness,
excluding, however, Indebtedness consisting of contingent liabilities that are
not GAAP Liabilities and that are incurred in the ordinary course of the Com
pany's or its Subsidiaries' business in connection with (i) shipside bonds,
surety bonds, banker's acceptances, trade letters of credit and other, similar
trade finance-related instruments (including the Letter of Credit),
(ii) guaranties and letters of credit in support of facility operating leases
and ordinary operating expenses, or (iii) the performance of statutory
obligations under workers' compensation, unemployment insurance and other social
security legislation or the performance of bids, trade contracts, guarantees in
favor of foreign (non-U.S.) Governmental Authorities, casualty insurance
coverage and other like obligations arising from customary and ordinary course
operations of the Company or its Subsidiaries.
"UCC" means the Uniform Commercial Code as in effect in any jurisdiction.
"Unfunded Pension Liabilities" means the excess of a Qualified Plan's or
Multiemployer Plan's benefit liabilities under Section 4001(a)(16) of ERISA,
over the current value of that Qualified Plan's or Multiemployer Plan's assets.
"United States" and "U.S." each mean the United States of America.
"Utilization Amount" means the daily amount as determined with respect to
the credit facilities set forth in Article 2 on each day by adding the aggregate
principal amount of all Advances outstanding on such day.
"Voluntary Lien" means any security agreement, pledge, assignment,
hypothecation, charge or deposit arrangement, grant of mortgage, grant of deed
of trust and any and all other Liens intentionally or voluntarily entered into
or incurred by the Company or any of its Subsidiaries.
"Wholly-Owned Subsidiary" means a Subsidiary of the Company (or of any
Subsidiary of the Company) of which 100% of the voting stock is owned
beneficially and of record, directly or indirectly, by the Company (or one or
more Wholly-Owned Subsidiaries of the Company, or a combination thereof),
provided that directors' qualifying shares and shares issued to comply with
local ownership legal requirements, not exceeding in the aggregate 5% of the vot
ing stock of such Subsidiary, may for purposes of this definition be owned by
Persons other than the Company or a Subsidiary of the Company.
"Withdrawal Liabilities" means, as of any determination date, the aggregate
amount of the liabilities, if any, pursuant to Section 4201 of ERISA if the
Controlled Group made a complete withdrawal from all Multiemployer Plans and any
increase in contributions pursuant to Section 4243 of ERISA.
"1993 Credit Agreement" means that certain Credit Agreement dated as of
September 30, 1993 and amended thereafter by and among the Company, BofA, as
Administrative Agent, Co-Agent and Issuing Bank, National Westminster Bank Plc,
CIBC Inc. and Shawmut Bank, N.A., as Co-Agents, and the several financial
institutions party thereto.
1.2 Other Definitional Provisions. (a) Unless otherwise specified herein or
therein, all terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant
hereto. The meaning of defined terms shall be equally applicable to the
singular and plural forms of the defined terms.
(b) All accounting terms not expressly defined herein shall be construed,
except as expressly provided herein, and all financial computations required
under this Agreement shall be made, except as expressly provided herein, in
accordance with GAAP consistently applied.
(c) The words "hereof," "herein," "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement, and Section, Schedule and Exhibit
references are to this Agreement unless otherwise specified. The term
"including" is not limiting and means "including without limitation."
(d) In the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including"; the words "to" and
"until" each mean "to but excluding," and the word "through" means "to and
including."
(e) References to agreements and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document.
(f) References to statutes or regulations are to be construed as including
all statutory and regulatory provisions consolidating, amending or replacing the
statute or regulation.
(g) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the construction of this Agreement.
ARTICLE 2
THE CREDIT FACILITY
2.1 Revolving Facility. (a) From time to time during the Availability
Period, subject to the terms and conditions hereof, the Bank, on a revolving
basis, will make Advances to the Borrowers. Subject to the terms and conditions
hereof, the Borrowers may borrow under this Section 2.1, prepay pursuant to
Section 2.6 and reborrow pursuant to this Section 2.1.
(b) Advances hereunder shall be made in Dollars and may be obtained by the
Borrowers only at branches of the Bank located outside the United States, which
branches shall be agreed to by the Bank and the Borrower at the time of the
request for an Advance.
(c) The aggregate of all outstanding Advances to all Borrowers may not
exceed, at any one time, the Credit Limit then in effect.
2.2 Loan Account. The Bank shall maintain on its books in accordance with
its usual practice, loan accounts with respect to all amounts payable hereunder,
setting forth each Advance, the applicable interest rate and the amounts of
principal, interest and other sums paid and payable from time to time hereunder
with respect thereto; provided, however, that the failure, error or omission by
the Bank to maintain accounts or ledgers or to record any information therein
shall not diminish or otherwise affect the Obligations of any Borrower
hereunder. In the case of any dispute, action or proceeding relating to any
amount payable hereunder, the entries in each such account shall constitute
prima facie evidence of the accuracy of the information so recorded.
2.3 Procedure for Advances. (a) Each Advance shall be made upon the
written notice (or notice via telephone, confirmed immediately by facsimile,
provided that such notice is confirmed by an original written notice sent by
mail or courier) from the Company on behalf of the applicable Borrower in the
form of a Notice of Borrowing (which notice must be received by the Bank prior
to 10:00 a.m. San Francisco time) one Business Day prior to the requested
borrowing date, specifying:
(A) the amount of the Advance, which shall be in an aggregate minimum
principal amount of one million dollars ($1,000,000) or any multiple of one
million dollars ($1,000,000) in excess thereof;
(B) the requested borrowing date, which shall be a Business Day; and
(C) the duration of the Interest Period applicable to such Loans included in
such notice. If the Notice of Borrowing shall fail to specify such duration,
the Interest Period shall be one month;
provided, however, that with respect to any Borrowing to be made on the Closing
Date, the Notice of Borrowing shall be delivered to the Bank not later than 9:00
a.m. (San Francisco time) one Business Day before the Closing Date.
(b) Subsection 2.3(a) notwithstanding, if the Company shall not have given on
behalf of a Borrower, by the time required herein, a notice of an Advance to be
made on the last day of any Interest Period for an outstanding Advance, then,
unless the Bank shall have received notice that a Borrower elects not to request
an Advance on such day (such notice to have been received at least one Business
Day prior to such day) the Bank shall be deemed to have received a Notice of
Borrowing requesting an Offshore Rate Advance to be made on such day in an
amount equal to the amount of such outstanding Advance (reduced to the extent
necessary to reflect any reductions of the Credit Limit on or prior to such day)
for an Interest Period of one month.
(c) After giving effect to any Advance, unless consented to by the Bank in
its sole discretion, there shall be no more than ten different Interest Periods
in effect in respect of all Advances.
2.4 Interest. (a) Subject to the terms and conditions hereof, Advances
under the Revolving Facility shall bear interest at a rate per annum equal to
the Offshore Rate plus the Applicable Margin. Any change in the interest rate
on an Advance resulting from a change in the Applicable Margin shall become
effective as of the opening of business on the day on which such change in the
Applicable Margin becomes effective.
(b) Interest on each Advance shall be payable in arrears on each Interest
Payment Date. Interest shall also be payable with respect to any prepayment of
Loans pursuant to Section 2.6 for the portion of the Loans so prepaid and upon
payment (including prepayment) in full thereof and, after the occurrence and
during the continuance of any Event of Default, interest shall be due on demand.
(c) If any amount of principal of or interest on any Advance payable
hereunder or under any of the other Loan Documents is not paid in full when due
(whether at stated maturity, by acceleration, demand or otherwise), the Borrower
shall pay interest ("additional interest") on such unpaid principal or other
amount, from the date such amount becomes due until the date such amount is paid
in full, payable on demand, at a rate per annum equal to the Reference Rate plus
six percent.
2.5 Voluntary Termination or Reduction of Commitments. The Borrowers may,
upon not less than three Business Days' prior notice to the Bank, permanently
terminate the Bank's commitment to make Advance hereunder or reduce the Credit
Limit by an aggregate minimum amount of $5,000,000 and in whole multiples of
$5,000,000 in excess thereof; provided that once reduced in accordance with this
Section 2.5, the Credit Limit may not subsequently be increased.
2.6 Optional Prepayments. Subject to Section 3.4, the Borrowers may, at
any time or from time to time, upon notice to the Bank by 10:00 a.m. (San
Francisco time) at least one Business Day prior, ratably prepay such Advances in
whole or in part, in multiples of $1,000,000. Such notice shall specify the
date and amount of such prepayment. Such notice shall not thereafter be
revocable by the Borrowers. If such notice is given, the Borrowers shall make
such prepayment and the payment amount specified in such notice shall be due and
payable on the date specified therein, together with accrued interest to each
such date on the amount prepaid and the amounts required pursuant to
Section 3.4.
2.7 Mandatory Prepayment of Advances; Mandatory Reduction of Credit Limit.
(a) Asset Securitization. If any Borrower shall at any time or from time
to time make or agree to make an Asset Securitization, then (i) the Company, on
behalf of such Borrower, shall promptly notify the Bank of such proposed Asset
Securitization (including the amount of the estimated Net Securitization
Proceeds to be received by the Borrower in respect thereof) and (ii) promptly
upon (and in no event later than three Business Days after) receipt by the
Borrower of the Net Securitization Proceeds of such Asset Securitization, the
Borrower shall prepay Advances in an aggregate amount equal to the amount of
such Net Securitization Proceeds.
(b) Equity Issuance. If the Company shall issue new common or preferred
equity (other than issuances to employees and directors of the Company under the
Company's benefit plans), the Company shall promptly notify the Bank of the
estimated Net Proceeds of such issuance to be received by the Company in respect
thereof. Promptly upon (and in no event later than three Business Days after)
receipt by the Company of the Net Proceeds of such issuance, the Company shall
prepay, on behalf of the Borrowers, Advances in an aggregate amount equal to the
amount of such Net Proceeds, in the inverse order of their stated maturity.
(c) General. The Borrowers shall pay, together with each prepayment under
this Section 2.7, accrued interest on the amount prepaid and any amounts
required pursuant to Section 3.4.
(d) Reduction of Credit Limit. Upon the making of any mandatory
prepayment under this Section 2.7, the Credit Limit shall automatically be
reduced by an amount equal to the aggregate principal amount of Advances repaid,
effective as of the earlier of the date that such prepayment is made or the date
by which such prepayment is due and payable hereunder.
2.8 Fees. The Company shall pay to the Bank such fees and additional
compensation as are set forth in the letter agreement between the Company and
the Bank dated February 1, 1995.
2.9 Computation of Fees and Interest. (a) All computations of interest
payable in respect of an Advance bearing interest based on the Reference Rate
and the fees under this Agreement shall be made on the basis of a year of 365 or
366 days, as the case may be, and actual days elapsed. All other computations
of interest under this Agreement shall be made on the basis of a 360-day year
and actual days elapsed, which results in more interest being paid than if
computed on the basis of a 365- or 366-day year. Interest shall accrue during
each period during which interest is computed from the first day thereof to the
last day thereof.
(b) Each determination of an interest rate by the Bank pursuant to any
provision of this Agreement shall be conclusive and binding on the Borrowers in
the absence of manifest error. The Bank will, at the request of any Borrower,
deliver to such Borrower a statement showing the quotations used by the Bank in
determining any interest rate.
2.10 Payments by the Borrowers. (a) The Borrowers shall repay the
principal amounts of all Advances on the last day of the Availability Period, on
which date all accrued and unpaid interest shall be due and payable.
(b) All payments (including prepayments) to be made by the Borrowers on
account of principal, interest, fees and other amounts owing hereunder shall be
made in dollars without set-off or counterclaim and shall be made to the Bank at
the lending office of the Bank from which the Advance was received, in dollars
and in immediately available funds no later than 10:00 a.m. (local time). Any
payment which is received by the Bank later than such time shall be deemed to
have been received on the immediately succeeding Business Day.
(c) Whenever any payment hereunder shall be stated to be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of interest, subject to the provisions set forth in the definition
of "Interest Period" herein.
ARTICLE 3
TAXES, YIELD PROTECTION AND ILLEGALITY
3.1 Taxes. (a) Subject to subsection 3.1(f), any and all payments by the
Borrowers to the Bank under this Agreement shall be made free and clear of, and
without deduction or withholding for, any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of the Bank, such taxes (including
income taxes or franchise taxes including any interest or penalties thereon) as
are imposed on or measured by the Bank's net income by any jurisdiction (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes").
(b) In addition, the Borrowers shall pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Documents (hereinafter referred to as "Other Taxes").
(c) Subject to subsection 3.1(f), the Borrowers shall indemnify and hold
harmless the Bank for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 3.1) paid by the Bank and any liability
(including penalties, interest, additions to tax and expenses) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted. Payment under this indemnification shall be made within 30
days from the date the Bank makes written demand therefor.
(d) If the Borrowers shall be required by law to deduct or withhold any Taxes
or Other Taxes from or in respect of any sum payable hereunder to the Bank,
then, subject to subsection 3.1(f):
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 3.1) and giving effect to the tax benefits to the Bank of
such deduction or withholding (to the extent such benefits are reasonably
determinable without undue effort by the Bank), the Bank receives an amount
equal to the sum it would have received had no such deductions been made;
(ii) the Borrowers shall make such deductions; and
(iii) the Borrowers shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law.
(e) Within 30 days after the date of any payment by any Borrower of Taxes or
Other Taxes, such Borrower shall furnish to the Bank the original or a certified
copy of a receipt evidencing payment thereof, or other evidence of payment
satisfactory to the Bank.
(f) If any Borrower is required to pay additional amounts to the Bank
pursuant to subsection 3.1(d), the Bank shall use its reasonable best efforts
(consistent with legal and regulatory restrictions) to change the jurisdiction
of its lending office so as to eliminate any such additional payment by the
Company which may thereafter accrue if such change in the judgment of the Bank
is not otherwise disadvantageous to the Bank.
(g) The agreements and obligations of the Company contained in this
Section 3.1 shall survive the payment in full of all other Obligations.
3.2 Illegality. (a) If the Bank shall determine that the introduction of
any Requirement of Law or any change in or in the interpretation or
administration thereof has made it unlawful, or that any central bank or other
Governmental Authority has asserted that it is unlawful, for the Bank or its
lending office to make Advances, then, on notice thereof by the Bank to the
Borrowers, the obligation of the Bank to make Advances shall be suspended until
the Bank shall have notified the Borrowers that the circumstances giving rise to
such determination no longer exists.
(b) If the Bank shall determine that it is unlawful to maintain any Advance,
all Advances of the Bank then outstanding shall be converted, either on the last
day of the Interest Period thereof if the Bank may lawfully continue to maintain
such Advances to such day, or immediately, if the Bank may not lawfully continue
to maintain such Advances, into Reference Rate Advances and the Borrowers shall
pay any amounts required to be paid in connection therewith pursuant to
Section 3.4.
3.3 Increased Costs and Reduction of Return. (a) If the Bank shall
determine that, due to either (i) the introduction of or any change (other than
any change by way of imposition of or increase in reserve requirements included
in the Eurodollar Reserve Percentage) in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other Governmental Authority (whether or not having the force of law),
there shall be any increase in the cost to such Bank of agreeing to make or
making, funding or maintaining any Advances, the Borrowers shall be liable for,
and shall from time to time, upon demand therefor by the Bank, pay to the Bank
additional amounts as are sufficient to compensate the Bank for such increased
costs.
(b) If the Bank shall have determined that the introduction 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 Authority charged with the interpretation or
administration thereof, or compliance by the Bank (or its 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 the Bank or any corporation controlling
the Bank and (taking into consideration the Bank's or such corporation's
policies with respect to capital adequacy and the Bank's or corporation's
previously established target return on capital) determines that the amount of
such capital is increased as a consequence of its credits or obligations under
this Agreement, then, upon written demand of the Bank, the Borrowers shall
immediately pay to the Bank, from time to time as specified by the Bank,
additional amounts sufficient to compensate the Bank for such increase. The
Bank shall notify the Borrowers in writing of its intention to demand
compensation under this Section 3.3.
(c) The agreements and obligations of the Borrowers contained in this
Section 3.3 shall survive the payment in full of all other Obligations and
termination of the Bank's commitment to make Advances hereunder.
3.4 Funding Losses. The Borrowers agree to reimburse the Bank and to hold
the Bank harmless from any loss or expense which the Bank may sustain or incur
as follows:
(a) upon the failure of any Borrower to borrow (including for purposes of
continuing or converting) any Advance after the Company has given a Notice of
Borrowing on behalf of such Borrower with respect thereto for any reason
(including the occurrence of a Default or an Event of Default), such Borrower
shall, on demand by the Bank, pay such amount (if any) by which (i) the interest
which would have been payable on the amount the Borrower failed to borrow had
such amount been borrowed and outstanding for the Interest Period specified in
the request for such Borrowing exceeds (ii) the interest which would have been
recoverable by the Bank by placing such unborrowed amount on deposit in the
LIBOR markets for the Interest Period specified in the request for Borrowing;
(b) upon the failure of the any Borrower to make any prepayment of an Advance
after the Company has given notice in accordance with Section 2.6 for any
reason, such Borrower agrees to reimburse the Bank on demand for any loss, cost
or expense which the Bank may sustain or incur, including any loss, cost or
expense arising from the liquidation or reemployment of funds obtained by it to
maintain its Advances hereunder or from fees payable to terminate the deposits
from which such funds were obtained;
(c) upon the conversion, payment or prepayment of an Offshore Rate Advance on
a day which is not the last day of the Interest Period with respect thereto for
any reason (including conversions pursuant to subsection 3.2(b)), the Borrowers
shall, on demand pay the Bank the amount (if any) by which (i) the additional
interest which would have been payable on the amount so received had it not been
received until the last day of such Offshore Rate Advance Interest Period
exceeds (ii) the interest which would have been recoverable by such Bank by
placing the amount so received on deposit in the LIBOR markets for a period
starting on the date on which it was so received and ending on the last day of
such Offshore Rate Advance Interest Period.
This covenant shall survive the payment in full of all other Obligations
hereunder.
3.5 Inability To Determine Rates. If the Bank shall have determined that for
any reason adequate and reasonable means do not exist for ascertaining LIBOR for
any requested Interest Period with respect to an Offshore Rate Advance or that
conditions in the applicable funds market have changed such that LIBOR for any
requested Interest Period with respect to a proposed Offshore Rate Advance does
not adequately and fairly reflect the cost to the Bank of funding such Advance,
the Bank will forthwith give notice of such determination to the Company.
Thereafter, the obligation of the Bank to make or maintain Offshore Rate
Advances hereunder shall be suspended until the Bank revokes such notice in
writing. Upon receipt of such notice, the Company may revoke any Notice of
Borrowing then submitted by it. If the Company does not revoke such notice, the
Bank shall make the Advances, as proposed by the Company, in the amount
specified in the applicable notice submitted by the Company, but such Loans
shall be made, converted or continued as Reference Rate Advances instead of
Offshore Rate Advances.
3.6 Invoices of the Bank. In the event any amount shall be due from the
Borrowers to the Bank under this Article 3, the Bank shall provide to the
Borrowers a written invoice of all such amounts as may be due together with a
reasonably detailed calculation and explanation thereof, and the amount due
thereunder shall be paid by the Borrowers within thirty (30) days of the date of
such invoice; provided, however, that the Borrowers shall have no liability for
any amount attributable to a period more than two (2) months prior to the
invoice date in respect thereof.
ARTICLE 4
CONDITIONS PRECEDENT
4.1 Conditions of Closing. The obligation of the Bank to enter into this
Agreement is subject to the condition that it shall have received, on or before
the Closing Date, all of the following, in form and substance satisfactory to it
and its counsel:
(a) Credit Agreement. This Agreement executed by the Company and the
Borrowers;
(b) Resolutions; Incumbency.
(i) Copies of the resolutions of the board of directors or functional
equivalent of the Company and each Borrower approving and authorizing the
execution, delivery and performance by the Company and the Borrowers of this
Agreement, the other Loan Documents to be delivered hereunder and authorizing
the borrowing of Advances, certified as of the Closing Date by the Secretary,
Assistant Secretary or functionally equivalent officer of the Company and each
Borrower;
(ii) A certificate of the Secretary, Assistant Secretary or functionally
equivalent officer of the Company and each Borrower certifying the names and
true signatures of the officers of the Company and the Borrowers authorized to
execute and deliver, as applicable, this Agreement, and all other Loan Documents
to be delivered hereunder;
(c) Certificates of Incorporation; By-laws and Good Standing. Each of the
following documents:
(i) the certificate of incorporation of the Company as in effect on the
Closing Date, certified by the Secretary of State of the state of incorporation
of the Company as of a recent date and by the Secretary or Assistant Secretary
of the Company as of the Closing Date and the bylaws of the Company as in effect
on the Closing Date, certified by the Secretary or Assistant Secretary of the
Company as of the Closing Date; and
(ii) a good standing certificate for the Company from the Secretary of State
of its state of incorporation and each state where the Company is qualified to
do business as a foreign corporation as of a recent date, together with a
bring-down certificate by telex or telecopy from the state of incorporation,
dated the Closing Date (the Bank hereby agrees to accept, in partial
satisfaction of this paragraph (ii), the certificates regarding the Company's
qualification as a foreign corporation delivered in connection with the closing
under the Third Amendment to Credit Agreement dated as of December 23, 1994);
(iii) a good standing certificate for each Borrower from the appropriate
Governmental Authority of its jurisdiction of incorporation and each
jurisdiction where such Borrower is qualified to do business as a foreign
corporation as of a recent date, together with a bring-down certificate by telex
or telecopy from such jurisdictions, to the extent practicable, dated the
Closing Date;
(d) Legal Opinions. An opinion of (i) Stradling, Yocca, Carlson & Rauth,
counsel to the Company and addressed to the Bank, and (ii) counsel to each
Borrower, in each case satisfactory in form and substance to the Bank in its
sole discretion;
(e) Payment of Fees. The Company shall have paid all costs, accrued and
unpaid fees and expenses (including, without limitation, legal fees and
expenses) to the extent then due and payable on the Closing Date, including any
arising under Sections 2.8 and 9.6.
(f) Officer's Certificates. Certificates signed by a Responsible Officer of
the Company and each Borrower, dated as of the Closing Date, stating that:
(i) the representations and warranties contained in Article 5 are true and
correct in all material respects on and as of such date, as though made on and
as of such date;
(ii) no Default or Event of Default exists or would result from the execution
of this Agreement; and
(iii) except as specifically set forth on Schedule 5.11 hereto, there has
occurred since February 1, 1994 no event or circumstance that has resulted or
will result (assuming for this purpose that no unanticipated mitigating circum
stances will arise) in a Material Adverse Effect;
(g) Other Documents. Such other approvals, opinions, documents or
certificates as the Bank may reasonably request on or prior to the Closing Date.
4.2 Conditions to Availability of Second Tranche. In addition to other
conditions set forth elsewhere herein, the obligation of the Bank to make any
Advances hereunder in excess of $25,000,000 is subject to the satisfaction or
waiver, in the Bank's reasonable discretion, of either of the following
conditions precedent on or prior to the date of any such Advance:
(a) The Bank has received:
(i) the consent of Majority Banks (as defined in the 1993 Credit
Agreement) to the granting by (A) the Company of a second priority security
interest in Collateral owned by it and (B) the Borrowers of a first priority
security interest in Collateral owned by them;
(ii) duly executed by the Company and the Borrowers, in appropriate form
for recording where applicable, all such agreements, financing statements or
other documents necessary to perfect the security interests described in
clause (i) above, in form and substance satisfactory to the Bank;
(iii) written advice relating to such Lien and judgment searches as the
Bank shall have requested, and such termination statements or other documents as
may be necessary to confirm that the Collateral owned by the Company is subject
to no Liens in favor of any Persons (other than Permitted Liens) and the
Collateral owned by the Borrowers is subject to no other Liens in favor of any
Persons (other than Permitted Liens);
(iv) funds sufficient to pay any filing or recording tax or fee necessary in
connection with any and all financing statements, and proof of payment of all
documentary stamp or intangible taxes and recording fees payable (whether due on
the date hereof or in the future) including sums due in connection with any
future advances;
(v) evidence that all other actions necessary or, in the opinion of the
Bank, desirable to perfect and protect the Liens created by the Collateral
Documents, and to enhance the Bank's ability to preserve and protect its
interests in and access to the Collateral, have been taken; and
(vi) opinions of counsel to the Company, addressed to the Bank, regarding
such matters as the Bank may request with respect to the validity and
enforceability of the foregoing security interests, in form and substance
satisfactory to the Bank.
(b) The Bank and the Company have executed a definitive agreement, on
terms acceptable to the Bank, which shall permit the Bank at any time to
purchase such of the outstanding Accounts of such of the Company's Subsidiaries
as the Bank may determine in its sole discretion.
4.3 Conditions to All Advances. In addition to other conditions set forth
elsewhere herein, the obligation of the Bank to make any Advances hereunder is
subject to the satisfaction or waiver of the following conditions precedent on
or prior to the date of such Advance:
(a) Notice of Borrowing. The Bank shall have received a Notice of Borrowing;
(b) Continuation of Representations and Warranties. The representations and
warranties made by the Company and the Borrowers contained in Article 5 hereof
and in the Collateral Documents shall be true and correct on and as of the date
of the Advance with the same effect as if made on and as of such date (except to
the extent such representations and warranties specifically relate to an earlier
date, in which case they shall be true, accurate and complete in all material
respects as of such earlier date);
(c) No Existing Default. No Default or Event of Default shall exist or
shall result from such Advance;
(d) Available Credit. The unborrowed amount available to the Company
under the terms of the 1993 Credit Agreement does not exceed $1,000,000,
provided, however, that this condition shall be deemed satisfied in the event
that such unborrowed amount exceeds $1,000,000 solely as a result of the
$5,000,000 minimum borrowing requirement contained in the 1993 Credit Agreement;
(e) Credit Limit Compliance. After giving effect to the proposed Advance,
the aggregate amount of all credit (including letters of credit) extended under
the 1993 Credit Agreement and hereunder shall not exceed $205,000,000; and
(f) Other Documents. The Bank shall have received such approvals, opinions,
documents or certificates as it may reasonably request on or prior to the date
of such Advance.
Each Notice of Borrowing delivered by any Borrower hereunder shall constitute a
representation and warranty by such Borrower and the Company hereunder as of the
date of each such Borrowing that the conditions in this Section 4.3 have been
satisfied.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
The Company and each Borrower represent and warrant to the Bank that:
5.1 Corporate Existence and Power. The Company and each Borrower:
(a) is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
and to execute, deliver and perform its obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation, licensed and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
except where the failure to so qualify would not have a Material Adverse Effect;
and
(d) is in compliance in all material respects with all Requirements of Law of
any Governmental Authority having jurisdiction over it and its business
(including, if applicable, the Federal Fair Labor Standards Act), except such as
may be contested in good faith, as to which a bona fide dispute may exist or
which could not reasonably be expected to have a Consolidated Material Adverse
Effect.
5.2 Corporate Authorization; No Contravention. The execution and delivery
of, and receipt of Advances and payment thereof and thereon and of other fees
and expenses as provided for in, this Agreement and any other Loan Document to
which the Company or any Borrower is a party have been duly authorized by all
necessary corporate action and do not and will not:
(a) contravene the terms of the Company's certificate of incorporation,
bylaws or other organizational document or the equivalent documents of any
Borrower;
(b) conflict with or result in any breach or contravention of, or the
creation of any Lien under, any indenture, agreement, lease, instrument,
Contractual Obligation, injunction, order, decree or undertaking to which the
Company or any Borrower is a party; or
(c) violate any Requirement of Law.
5.3 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery, performance or enforcement against the Company or any
Borrower of this Agreement or any other Loan Document or any other instrument or
agreement required hereunder to be made by the Company or any Borrower.
5.4 Binding Effect. This Agreement and each other Loan Document to which the
Company or any Borrower is a party constitute the legal, valid and binding
obligations of such Person, enforceable against such Person in accordance with
their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.
5.5 Litigation. (a) Except as specifically set forth in Schedule 5.5
hereto, there are no actions, suits, proceedings, claims or disputes pending, or
to the best knowledge of any Responsible Officer, general counsel or any person
holding a similar position within the Company or any Borrower, threatened or
contemplated at law, in equity, in arbitration or before any Governmental
Authority, against the Company or any Borrower or any of their respective
properties which: (i) purport to affect or pertain to this Agreement, or any
Loan Document, or any of the transactions contemplated hereby or thereby; or
(ii) if determined adversely to the Company or such Borrower, could reasonably
be expected to have a Material Adverse Effect.
(b) No injunction, writ, temporary restraining order or any order of any
nature has been issued by any court or other Governmental Authority purporting
to enjoin or restrain the execution, delivery and performance of this Agreement
or any other Loan Document, or directing that the transactions provided for
herein or therein not be consummated as herein or therein provided.
5.6 No Default. No Default or Event of Default exists or would result from
the incurring of obligations by the Company or any Borrower under this Agreement
or any other Loan Document. As of the Closing Date and as of the date of any
disbursement hereunder (other than a disbursement solely for the purpose of
renewal of any previously disbursed amount), no Specified Obligation Default
exists. Neither the Company nor any Borrower is in default under or with
respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, would have a Consolidated Material Adverse
Effect.
5.7 ERISA Compliance.
(a) Schedule 5.7 lists all Plans and separately identifies Plans intended to
be Qualified Plans and Multiemployer Plans.
(b) Each Plan is in compliance in all material respects with the applicable
provisions of ERISA, the Code and other federal or state law, including all
requirements under the Code or ERISA for filing reports (which are true and
correct in all material respects as of the date filed), and benefits have been
paid in accordance with the provisions of the Plan except where failure to
comply would not have a Material Adverse Effect.
(c) With respect to each Plan intended to qualify under the Code, the Company
or a member of its Controlled Group has applied to the Internal Revenue Service
for an advance determination letter to the effects that such Plan and related
trust are so qualified and, to the best knowledge of the Company, no
circumstances exist that would adversely affect the issuance of such letter or
such qualification (other than changes required to be made pursuant to the Tax
Reform Act of 1986 and subsequent laws and regulations, which will be made
within the applicable remedial amendment period under section 401(b) of the
Code).
(d) Except as set forth on Schedule 5.7, no Plan subject to Title IV of ERISA
has any Unfunded Pension Liability.
(e) Except as set forth in Schedule 5.7, no member of the Controlled Group
has ever represented, promised or contracted (whether in oral or written form)
to any current or former employee (either individually or to employees as a
group) that such current or former employee(s) would be provided, at any cost to
any member of the Controlled Group, with life insurance or employee welfare plan
benefits (within the meaning of Section 3(1) of ERISA) following retirement or
termination of employment. To the extent that any member of the Controlled
Group has made any such representation, promise or contract, such member has
expressly reserved the right to amend or terminate such life insurance or
employee welfare plan benefits with respect to claims not yet incurred.
(f) Members of the Controlled Group have complied in all material respects
with the notice and continuation coverage requirements of Section 4980B of the
Code.
(g) Except as set forth in Schedule 5.7, no ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan.
(h) There are no pending or, to the best knowledge of the Company, threatened
claims, actions or lawsuits, other than routine claims for benefits in the usual
and ordinary course and claims that are not reasonably likely to have a Material
Adverse Effect, asserted or instituted against (i) any Plan maintained or spon
sored by the Company or its assets, (ii) any member of the Controlled Group with
respect to any Qualified Plan, or (iii) any fiduciary with respect to any Plan
for which the Company may be directly or indirectly liable, through
indemnification obligations or otherwise.
(i) Except as set forth in Schedule 5.7, neither the Company nor any ERISA
Affiliate has incurred nor reasonably expects to incur (i) any liability (and no
event has occurred which, with the giving of notice under Section 4219 of ERISA,
would result in such liability) under Section 4201 or 4243 of ERISA with respect
to a Multiemployer Plan or (ii) any liability under Title IV of ERISA (other
than premiums due and not delinquent under Section 4007 of ERISA) with respect
to a Plan.
(j) Except as set forth in Schedule 5.7, neither the Company nor any ERISA
Affiliate has transferred any Unfunded Pension Liability outside of the
Controlled Group or otherwise engaged in a transaction that could be subject to
Section 4069 or 4212(c) of ERISA.
(k) No member of the Controlled Group has engaged, directly or indirectly, in
a non-exempt prohibited transaction (as defined in Section 4975 of the Code or
Section 406 of ERISA) in connection with any Plan which has a reasonable
likelihood of having a Material Adverse Effect.
5.8 Use of Proceeds; Margin Stock. (a) The proceeds of the Loans are
intended to be, are being, and shall be, used solely for the Borrowers' general
corporate or working capital purposes. No portion of any Borrowing is intended
to be, is, or shall be, a Purpose Credit or an Acquisition Credit.
(b) The proceeds of the Loans are not intended to be, are not being, and
will not be, used by the Borrowers for any acquisition or transaction which
violates Regulation U of the Board of Governors of the Federal Reserve System
(12 C.F.R. 221), Section 13 or 14 of the Exchange Act or any other Requirement
of Law.
5.9 Ownership of Collateral. The Company and the Borrowers are the sole and
complete owners of the Collateral (or, in the case of after-acquired Collateral,
at the time the Company or the Borrowers shall acquire rights in such
Collateral, will be the sole and complete owners thereof), except for Permitted
Liens.
5.10 Taxes. The Company and each of its Subsidiaries and each Borrower have
filed all federal and other material tax returns and reports required to be
filed under applicable Requirements of Law and have paid all federal and other
material taxes, assessments, fees and other governmental charges levied or
imposed upon them or their properties, income or assets otherwise due and
payable except those which are being contested in good faith by appropriate
proceedings and for which adequate reserves have been provided in accordance
with GAAP and no Notice of Lien has been filed or recorded. There is no
proposed tax assessment against the Company or any Borrower which would, if the
assessment were made, have a Material Adverse Effect.
5.11 Financial Condition; No Material Adverse Change.
(a) The unaudited consolidated financial statements of financial condition of
the Company and its Subsidiaries dated December 31, 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the fiscal period ended on that date:
(i) were prepared in accordance with GAAP consistently applied throughout the
period covered thereby, except as otherwise expressly noted therein;
(ii) are complete, accurate and fairly present the financial condition of the
Company and its Subsidiaries as of the date thereof and results of operations
for the period covered thereby, subject to normal year-end audit adjustments;
and
(iii) show all material indebtedness and other material liabilities,
direct or contingent, of the Company and its consolidated Subsidiaries as of the
date thereof (including material liabilities for taxes and material commitments)
all as required by GAAP for year-end reporting in accordance with the Company's
past practices.
(b) Except as specifically set forth on Schedule 5.11 hereto, since February
1, 1994, there has occurred no event or circumstance that has resulted or will
result (assuming for this purpose that no unanticipated mitigating circumstances
will arise) in a material adverse change with respect to any of (i) the
operations, business, properties or condition (financial or otherwise) of the
Company and its Consolidated Subsidiaries taken as a whole; (ii) the ability of
the Company to perform its obligations under the Loan Documents without default;
or (iii) the legality, validity, binding effect or enforceability of any Loan
Document.
5.12 Environmental Matters. Except as specifically identified in Schedule
5.12:
(a) the operations of the Company, each of its Subsidiaries and each Borrower
comply in all respects with all Environmental Laws except such non-compliance
which would not result in liability in excess, in the aggregate, of 5% of the
Company's Tangible Net Worth;
(b) the Company, each of its Subsidiaries and each Borrower have obtained all
licenses, permits, authorizations and registrations required under any
Environmental Law ("Environmental Permits") necessary for their operations, and
all such Environmental Permits are in good standing, and the Company and each of
its Subsidiaries are in compliance with all terms and conditions of such Environ
mental Permits, except such Environmental Permits of which the failure to obtain
could not reasonably be expected to have a Consolidated Material Adverse Effect;
and
(c) as of the Closing Date, neither the Company, nor any of its Subsidiaries
nor any Borrower or any of their present properties or operations is in
violation of any outstanding written order from or agreement with any Govern
mental Authority or other Person which expressly mentions the Company, any
Subsidiary or Borrower, nor subject to any judicial or docketed administrative
proceeding, respecting any Environmental Law, Environmental Claim or Hazardous
Material. After the Closing Date, other than violations or proceedings which
could not reasonably be expected to have a Consolidated Material Adverse Effect,
neither the Company, nor any of its Subsidiaries nor any Borrower or any of
their present properties or operations is in violation of any outstanding
written order from or agreement with any Governmental Authority or other Person
which expressly mentions the Company, any Subsidiary or Borrower, nor subject to
any judicial or docketed administrative proceeding, respecting any Environmental
Law, Environmental Claim or Hazardous Material.
5.13 Regulated Entities. None of the Company, any Person controlling the
Company, any Subsidiaries of the Company, or any Borrower (a) is an "Investment
Company" within the meaning of the Investment Company Act of 1940; (b) is
limited in its ability to incur Indebtedness under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any
state public utilities code, any other federal or state statute or regulation,
or (c) is subject to any Requirement of Law restricting or prohibiting any
Borrower's ability to incur Indebtedness (except for limitations imposed by
Requirements of Law applicable to each Borrower on the ability of such Borrower
to be liable for the obligations of other Borrowers.
5.14 No Burdensome Restrictions. Neither the Company nor any of its
Subsidiaries nor any Borrower is a party to or bound by any Contractual
Obligation or subject to any charter or corporate restriction or any Requirement
of Law which would probably be expected to have a Consolidated Material Adverse
Effect.
5.15 Solvency. The Company and each Borrower are Solvent.
5.16 Labor Relations. As of the Closing Date, there are no strikes, lockouts
or other labor disputes against the Company or any of its Subsidiaries or any
Borrower, or to the best of the Company's knowledge, threatened against or
affecting the Company or any of its Subsidiaries or any Borrower, and no
significant unfair labor practice complaint is pending against the Company or
any of its Subsidiaries or any Borrower or, to the best knowledge of the
Company, threatened against any of them before any Governmental Authority.
After the Closing Date, other than those which would not reasonably be expected
to have a Consolidated Material Adverse Effect, there are no strikes, lockouts
or other labor disputes against the Company or any of its Subsidiaries or any
Borrower, or, to the best of the Company's knowledge, threatened against or
affecting the Company, or any of its Subsidiaries or any Borrower, and no
significant unfair labor practice complaint is pending against the Company, or
any of its Subsidiaries or any Borrower, or, to the best knowledge of the
Company, threatened against any of them before any Governmental Authority.
5.17 Copyrights, Patents, Trademarks and Licenses, Etc. The Company, its
Subsidiaries and the Borrowers own or are licensed or otherwise have the right
to use all of the patents, trademarks, service marks, trade names, copyrights,
franchises, authorizations and other rights the absence of which could not
reasonably be expected to have a Material Adverse Effect on the operation of
their respective businesses. As of the Closing Date, except where such
infringement would not have a Consolidated Material Adverse Effect, to the best
knowledge of the Company, no slogan or other advertising device, product,
process, method, substance, part or other material now employed, or now
contemplated to be employed by the Company or any of its Subsidiaries or any
Borrower infringes upon any rights owned by any other Person. Except as set
forth on Schedule 5.5, as of the Closing Date, no claim or litigation regarding
any of the foregoing is pending or threatened, and no patent, invention, device,
application, principle or any statute, law, rule, regulation, standard or code
is pending or, to the knowledge of the Company, proposed, which, in either case,
would be likely to result in a Consolidated Material Adverse Effect.
5.18 Subsidiaries. As of the Closing Date, the Company has no Subsidiaries
other than those listed on Schedule 5.18(a) hereto, and have no equity
investments in any other corporation or entity that would constitute an
Affiliate (other than Subsidiaries listed on Schedule 5.18(a)) except as listed
on Schedule 5.18(b) hereto. Each Borrower is a Wholly-Owned Subsidiary of the
Company. No Borrower has any Subsidiaries.
5.19 Broker's Transaction Fees. Neither the Company nor any of its
Subsidiaries nor any Borrower has any obligation to any Person in respect of any
finder's, broker's or investment banker's fee in connection with the
transactions contemplated hereby.
5.20 Insurance. As of the Closing Date, except as provided in the last
sentence of this Section, the Company, its Subsidiaries, the Borrowers and their
respective properties are insured with financially sound and reputable insurance
companies, against loss or damage of the kinds customarily insured against by
Persons engaged in the same or similar business, of such types and in such
amounts as is customarily carried under similar circumstances by such other
Persons, including workers' compensation insurance, public liability and
property and casualty insurance. As of the Closing Date, the Company is not
self-insured with respect to any insurance other than medical insurance for its
employees and California state disability insurance.
5.21 Full Disclosure. None of the representations or warranties made by the
Company, any of its Subsidiaries or the Borrowers in the Loan Documents as of
the date of such representations and warranties, and none of the statements
contained in each Exhibit, Schedule, report, statement or certificate furnished
by or on behalf of the Company, any of its Subsidiaries or the Borrowers in
connection with the Loan Documents, contains any untrue statement of a material
fact or omits any material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
are made, not misleading.
5.22 Common Enterprise. It is in the Company's best interests and in
pursuance of its legitimate business purposes to induce the Bank to extend
credit to the Borrowers pursuant to this Agreement. The Company's business
constitutes a common enterprise with the business of the Borrowers, the
availability of the Bank's commitment hereunder benefits each Borrower and the
Company, and the making of Advances hereunder will be for and inure to the
benefit of the Borrowers and the Company, individually and as a group.
ARTICLE 6
AFFIRMATIVE COVENANTS
The Company and the Borrowers, as the case may be, covenant and agree that,
so long as the Bank shall have any commitment hereunder, or any Advance or other
amount hereunder shall remain unpaid, unless the Bank waives compliance in
writing:
6.1 Financial Statements. The Company shall deliver to the Bank:
(a) as soon as available, but not later than 90 days after the end of each
fiscal year of the Company, a copy of the audited consolidated balance sheet of
the Company as at the end of such year and the related consolidated statements
of income, shareholders' equity and cash flows for such fiscal year, setting
forth in each case in comparative form the figures for the previous year, and
accompanied by the opinion of Ernst & Young or another nationally recognized,
independent public accounting firm or such other accounting firm as shall be
selected by the Company and approved by the Bank, which report shall state that
such consolidated financial statements present fairly the consolidated financial
position for the periods indicated in conformity with GAAP consistently applied;
(b) as soon as available, but not later than 90 days after the end of each
fiscal year of the Company, an unaudited consolidating balance sheet of the
Company and its Subsidiaries as at the end of such fiscal year and the related
consolidating statement of income for such fiscal year, all in reasonable detail
certified by an appropriate Responsible Officer as having been used together
with the financial statements referred to in paragraph (a) of this Section 6.1;
(c) as soon as available, but not later than 50 days after the end of each of
the first three fiscal quarters of each fiscal year, a copy of the unaudited
consolidated balance sheet of the Company and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of income,
shareholders' equity and cash flows for the period commencing on the first day
and ending on the last day of such quarter, and certified by an appropriate
Responsible Officer as being complete and correct and fairly presenting, in
accordance with GAAP, the financial position and the results of operations of
the Company and the Subsidiaries; provided, however, that such financial
statements need not include footnotes and certain other financial presentations
customarily presented only for audited year-end statements under GAAP;
(d) as soon as available, but not later than 50 days after the end of each of
the first three fiscal quarters of each fiscal year the unaudited consolidating
balance sheets of the Company and its Subsidiaries, and the related
consolidating statements of income for such quarter, all certified by an
appropriate Responsible Officer of the Company as having been used together with
the financial statements referred to in paragraph (c) of this Section 6.1; and
(e) as soon as available, but not later than 30 days after the end of each
month, an unaudited consolidating balance sheet of the Company and its
Consolidated Subsidiaries for such month and the related unaudited consolidating
statement of income for such month.
6.2 Certificates; Other Information. (a) The Company shall furnish to the
Bank, before or concurrently with the delivery of the financial statements
referred to in subsections 6.1(a) and (c) above, an executed Compliance
Certificate;
(b) The Company shall furnish to the Bank, promptly after the same are sent,
copies of all financial statements and reports which the Company sends to the
Securities and Exchange Commission or any successor or similar Governmental
Authority; and
(c) The Company and each Borrower shall furnish to the Bank promptly such
additional financial and other information as the Bank may from time to time
reasonably request.
6.3 Notices. The Company and each Borrower shall promptly notify the Bank:
(a) of the occurrence of any Default or Event of Default; and of the
occurrence or existence of any event or circumstance that, to the knowledge of
any Responsible Officer, will become a Default or Event of Default;
(b) of any (i) default under any Contractual Obligation of the Company or
any Borrower which could be reasonably likely to result in a Material Adverse
Effect; or (ii) dispute, litigation, investigation, proceeding, order or
suspension which may exist at any time between the Company or any Borrower and
any Governmental Authority and which relates to or affects the ability of the
Company or the Borrowers to do business substantially in accordance with past
practice, or which if adversely determined would have a Material Adverse Effect;
(c) of the commencement of, or any adverse determination in, any litigation
or proceeding affecting the Company or any Borrower (i) in which the amount of
damages claimed is $10,000,000 (or its equivalent in another currency or curren
cies) or more, (ii) in which injunctive or similar relief is sought and which,
if adversely determined, could have a Material Adverse Effect, or (iii) in which
the relief sought is an injunction or other stay of the performance of this
Agreement or any Loan Document or the operations of the Company or any Borrower;
(d) upon, but in no event later than ten days after a Responsible Officer or
the general counsel, or any person holding a similar position, within the
Company or any Borrower, becoming aware of (i) any and all enforcement, cleanup,
removal or other governmental or regulatory actions instituted, completed or
threatened against the Company or any Borrower or any of their properties
pursuant to any applicable Environmental Laws, (ii) all other Environmental
Claims, and (iii) any environmental or similar condition on any real property
adjoining or in the vicinity of the property of the Company or any Borrower that
could reasonably be anticipated to cause such property or any part thereof to be
subject to any restrictions on the ownership, occupancy, transferability or use
of such property under any Environmental Laws; which, in any such case (i), (ii)
or (iii) above, could have a Consolidated Material Adverse Effect;
(e) of any other litigation or proceeding affecting the Company or any
Borrower which the Company would be required to report to the Securities and
Exchange Commission pursuant to the Exchange Act, and in any event within ten
days after reporting the same to the Securities and Exchange Commission;
(f) of any of the following events affecting the Company or any member of its
Controlled Group (but in no event more than twenty days after such event),
together with a copy of any notice with respect to such event that may be
required to be filed with any Governmental Authority, any notice delivered by a
Governmental Authority to the Company or any member or its Controlled Group with
respect to such event and a statement of a Responsible Officer describing such
event and any action the Company proposes to take with respect thereto:
(i) an ERISA Event;
(ii) the adoption of or commencement of contributions to any Plan
that is subject to Title IV of ERISA or Section 412 of the Code by any
member of the Controlled Group; or
(iii) the adoption of any amendment to a Plan that is subject to Title
IV of ERISA or Section 412 of the Code, if such amendment results in a
material increase in benefits or Unfunded Pension Liabilities;
(g) following any significant or material change in accounting policies or
financial reporting practices; and
(h) upon becoming aware thereof, of any labor controversy resulting in or
threatening to result in any strike, work stoppage, boycott, shutdown or other
material labor disruption against or involving the Company or any Borrower that
could be reasonably likely to result in a Consolidated Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a written
statement by a Responsible Officer of the Company or the Borrower, as the case
may be, setting forth details of the occurrence referred to therein and stating
what action the Company proposes to take with respect thereto.
6.4 Preservation of Corporate Existence, Etc. The Company, each of its
Subsidiaries and each Borrower shall:
(a) preserve and maintain in full force and effect its corporate existence
and good standing under the laws of its jurisdiction of incorporation;
(b) preserve and maintain in full force and effect all rights, privileges,
qualifications, permits, licenses and franchises necessary or desirable in the
normal conduct of its business except in connection with (i) dispositions of
assets permitted by Section 7.4, (ii) transactions permitted by Section 7.5, and
(iii) dissolution or abandonment of any Subsidiary in compliance with either
Section 7.4 or 7.5, and the failure to maintain such rights, privileges,
qualifications, permits, licenses and franchises would not have a Material
Adverse Effect; provided, however, nothing set forth herein shall limit the
application of Section 7.4 or 7.5;
(c) preserve or renew all of its registered trademarks, trade names and
service marks, the non-preservation of which could have a Consolidated Material
Adverse Effect; and
(d) use its reasonable efforts, in the ordinary course, to preserve its
business and the goodwill of its business.
6.5 Maintenance of Property. The Company, each of its Subsidiaries and each
Borrower shall maintain and preserve all of its property which is used or useful
in its business in good working order and condition, ordinary wear and tear
excepted and make all necessary repairs thereto and renewals and replacements
thereof except where the failure to do so would not have a Material Adverse
Effect.
6.6 Insurance. The Company, each of its Subsidiaries and each Borrower shall
maintain, with financially sound and reputable insurers not Affiliates of the
Company, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons, including workers'
compensation insurance, public liability and property and casualty insurance;
provided, however, the Company, its Subsidiaries or the Borrowers may, with the
prior consent of the Bank (which consent may be withheld in its reasonable
credit judgment in light of prevailing credit standards), substitute for or
augment any of the foregoing policies with self-insurance; provided, further,
that such self-insurance is adequate in view of the risks and financial condi
tion of the Company, its Subsidiaries and the Borrowers at such time and is in
accordance with customary industry standards; and provided, further, that, for
the purposes of this Section 6.6, the self-insurance programs of the Company for
employee medical insurance and California state disability insurance in effect
as of the Closing Date are approved.
6.7 Payment of Obligations. The Company, each of its Subsidiaries and each
Borrower shall pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including:
(a) all material tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being contested
in good faith by appropriate proceedings and adequate reserves in accordance
with GAAP are being maintained by the Company, such Borrower or such Subsidiary;
(b) all lawful claims which, if unpaid, might by law become a Lien upon its
property, other than Permitted Liens; and
(c) all Indebtedness as and when due and payable but subject to any
subordination provisions contained in any instrument or agreement evidencing
such Indebtedness, except (i) where the amount or validity thereof is being
contested in good faith by appropriate proceedings or as to which a bona fide
dispute may exist and provision has been made in conformity with GAAP with
respect thereto, or (ii) to the extent the failure to pay is due to a good faith
error or omission and will not in any event have a Consolidated Material Adverse
Effect.
6.8 Compliance With Laws. The Company, each of its Subsidiaries and each
Borrower shall comply in all material respects with all Requirements of Law of
any Governmental Authority having jurisdiction over it or its business
(including, as applicable, the federal Fair Labor Standards Act and all
Environmental Laws), except such as may be contested in good faith or as to
which a bona fide dispute may exist or where failure to comply would not with
reasonable likelihood have a Material Adverse Effect.
6.9 Inspection of Property and Books and Records. The Company, each of its
Subsidiaries and each Borrower shall maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied, to the extent applicable, shall be made of all financial
transactions and matters involving their assets and business. The Company, each
of its Subsidiaries and each Borrower will permit representatives of the Bank,
at the expense of the Bank, to visit and inspect any of their respective
properties, to examine their respective corporate, financial and operating
records and make copies thereof or abstracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective directors,
officers, employees and independent public accountants, at such reasonable times
during normal business hours and as often as may be reasonably desired, upon
advance notice to the Company, the Borrower or the Subsidiary; provided,
however, when an Event of Default exists the Bank may visit and inspect such
properties and records and discuss such issues, all at the expense of the
Company and at any time during normal business hours.
6.10 Use of Proceeds. The Borrowers shall use the proceeds of the Advances
solely as set forth in and permitted by Section 5.8 and not in contravention of
any Requirement of Law.
6.11 Solvency. The Company and each Borrower shall continue to be Solvent.
ARTICLE 7
NEGATIVE COVENANTS
The Company and each Borrower hereby covenant and agree that, so long as
the Bank shall have any commitment hereunder, or any Advance or other amount
payable hereunder shall remain unpaid, unless the Bank waives compliance in
writing:
7.1 Other Indebtedness. The Borrowers shall not create, incur, assume, or
permit to exist any Indebtedness, whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several, or become liable as a
surety, guarantor, accommodation endorser, or otherwise for or upon the
obligation of any other person, firm, or corporation; provided, however, that
this Section 7.1 shall not prohibit:
(a) the acquisition of goods, supplies, or merchandise on normal trade
credit;
(b) the execution of bonds or undertakings in the ordinary course of its
business as presently conducted;
(c) the endorsement of negotiable instruments received in the ordinary
course of its business as presently conducted;
(d) the Indebtedness disclosed in the Company's consolidating financial
statements for the fiscal quarter ended December 31, 1994.
7.2 Limitation on Liens. Neither the Company nor any of its Subsidiaries nor
any Borrower shall, directly or indirectly, make, create, incur, assume or
suffer to exist any Lien upon or with respect to any part of its property or
assets, whether now owned or hereafter acquired, or agree to do so, other than
the following ("Permitted Liens"):
(a) any Lien existing on the property of the Company or the Borrowers on the
Closing Date securing Indebtedness outstanding on such date; and any Liens on
the property of Foreign Subsidiaries existing on the Closing Date which are not
Voluntary Liens or Judgment Liens and which secure Indebtedness outstanding on
such date, provided that such Liens in the aggregate would not have a
Consolidated Material Adverse Effect;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental charges which
are not yet delinquent or remain payable without penalty, or to the extent that
non-payment thereof is permitted by Section 6.7, provided that (i) no Notice of
Lien has been filed or recorded in the United States and (ii) no Notice of Lien
has been filed or recorded in any other jurisdiction except such Notices of Lien
which would not have a Consolidated Material Adverse Effect;
(d) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of business
which are not delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings;
(e) Liens (other than any Lien imposed by ERISA) on the property of the
Company or any Borrower incurred, or pledges or deposits required in connection
with worker's compensation, unemployment insurance, other social security
legislation and Liens consisting of deposits placed with insurance companies for
health insurance created in the ordinary course of business;
(f) Liens on the property of the Company or any Borrower securing (i) the
performance of bids, trade contracts (other than for borrowed money), leases,
subleases, statutory obligations and regulatory or (with respect to the
Borrowers only), other governmentally imposed obligations, and (ii) obligations
on surety, appeal, performance or similar bonds, and (iii) other obligations of
a like nature incurred in the ordinary course of business provided all such
Liens in the aggregate would not have a Consolidated Material Adverse Effect;
(g) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from the
value of the property subject thereto or interfere with the ordinary conduct of
the businesses of the Company and the Borrowers;
(h) purchase money security interests on any real or personal property
acquired or held by the Company or any Borrower in the ordinary course of
business, securing Indebtedness incurred or assumed for the purpose of financing
all or any part of the cost of acquiring such property or Capital Lease
Obligations; provided that any such Lien attaches to such property concurrently
with or within 30 days after the acquisition or refinancing thereof;
(i) Liens on property existing prior to the acquisition of such property by
the Company or the Borrowers and not created in anticipation of such
acquisition;
(j) Extensions and renewals of any Lien described in subsection 7.2(a), (b),
(h), (i) or (k);
(k) Liens which constitute rights of set-off of a customary nature or
bankers' Liens with respect to amounts on deposit, whether arising by operation
of law or by contract, in connection with working capital facilities,
operational services, lines of credit, term loans, or other credit facilities
and similar arrangements entered into with banks in the ordinary course of
business; and
(l) Other Liens incidental to the conduct of the business of the Company
or any Borrower or the ownership of their property which are incurred in the
ordinary course of business (and are not security for borrowed money); provided
that such Liens do not exceed $5,000,000 in the aggregate.
7.3 Acquisitions. The Borrowers shall not acquire or purchase control of
all or substantially all of the assets or business of any other Person unless
such acquisition has been approved by the board of directors of such Person.
7.4 Disposition of Assets. The Company and the Borrowers shall not, nor
shall the Company permit any Subsidiaries to, directly or indirectly, sell,
assign, lease, convey, transfer or otherwise dispose of (whether in one or a
series of transactions) any of its material assets, business or property
(including accounts and notes receivable (with or without recourse) and
equipment sale-leaseback transactions), or enter into any agreement to do any of
the foregoing, except:
(a) dispositions of inventory, or used, worn-out or surplus equipment, all in
the ordinary course of business and other dispositions of property not necessary
to the normal operations of the Company and its Subsidiaries taken as a whole as
contemplated by this Agreement;
(b) notwithstanding Section 7.6, the sale of equipment to the extent that
such equipment is exchanged for credit against the purchase price of similar
replacement equipment or the proceeds of such sale are promptly applied to the
purchase price of such replacement equipment;
(c) dispositions in connection with Investments permitted under Section 7.6,
provided that full, fair and reasonable consideration is received in return for
any assets disposed of to acquire such Investments;
(d) dispositions of any Investments, provided that fair and reasonable
consideration is received in connection therewith as reasonably determined by
the Company;
(e) abandonments or dispositions for less than reasonably equivalent value,
by any Borrower resulting from any seizure, forfeiture or taking, or any
threatened or imminent seizure, forfeiture or taking, of licenses, franchises or
properties of such Borrower, so long as (i) all such abandonments and other
dispositions will not, in the aggregate, have a Material Adverse Effect, and
(ii) the aggregate amount of all such abandonments and other dispositions since
the Closing Date, based on market value at the time of any such abandonment or
other disposition, shall not exceed $10,000,000;
(f) the sale or discounting of accounts receivable: (i) by any Subsidiary,
without restriction; and (ii) by the Company, (A) up to a cumulative aggregate
of $2,500,000 face amount of accounts receivable per year for which the account
debtor is a resident of the United States and is in arrears on other obligations
owed to the Company or its Subsidiaries or in the reasonable judgment of the
Company such debtor will default on its obligations, or (B) which are at least
90 days past due, all in the ordinary course of business in connection with the
compromise or collection thereof, provided, however, that the aggregate amount
of any recourse to the Company for all such sales or discounting during a fiscal
year of the Company under either clause (A) or (B) above shall not exceed
$1,000,000 for such fiscal year, and provided further that the Company shall pay
all reasonable costs and expenses, including attorneys' fees and expenses
(including the allocated cost of internal counsel), incurred by the Bank in
connection with the release of any Lien created by the Collateral Documents with
respect to any such sold or discounted accounts receivable of the Company or
Subsidiary and shall deliver to the Bank a certificate of a Responsible Officer
certifying that any such release is in compliance with this subsection 7.4(f),
and provided further that the proceeds of any such sale or discounting by any
Subsidiary shall be applied in full toward a mandatory repayment of Advances
under Section 2.7 hereof; and
(g) sale of trade-related instruments arising in foreign countries, in the
ordinary course of business, with or without recourse to the Company or any
Borrower to banks or other financial service institutions, for fair value,
provided that (i) the amount of any fees, discounts and other consideration
received by such banks or other financial service institutions is normal and
customary, and (ii) such sales are customary business practices in the country
where such activity takes place.
7.5 Consolidations and Mergers. Except as provided in Section 7.4, the
Company and the Borrowers shall not, and the Company shall not permit any
Subsidiaries to, merge, consolidate with or into, or convey, transfer, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its assets (whether now owned or hereafter acquired)
or enter into any joint venture or partnership with, any Person, except that:
(a) any Subsidiary of the Company other than the Borrowers may merge, con
solidate or combine with or into, or transfer assets to the Company (provided
that the Company shall be the continuing or surviving corporation) or with any
one or more Subsidiaries of the Company (provided that if any transaction shall
be between a Subsidiary and a Material Subsidiary that is a Wholly-Owned
Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or surviving
corporation);
(b) any Subsidiary of the Company other than the Borrowers may sell, lease,
transfer or otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Company or another Wholly-Owned Subsidiary of
the Company if, immediately after giving effect thereto, no Default or Event of
Default would exist; and
(c) the Company or any of its Subsidiaries (excluding the Borrowers) may
enter into any partnership or joint venture; provided, however, that the
aggregate amount invested or committed to be invested (including amounts in
excess of such investment for which the Company or its Subsidiaries may be
liable from time to time) in all such partnerships or joint ventures in any one
fiscal year, not including the Chinese Joint Venture, does not exceed ten
percent (10%) of the Company's Tangible Net Worth.
7.6 Loans and Investments. The Company and the Borrowers shall not, directly
or indirectly, purchase or acquire, and the Company shall not permit any of its
Subsidiaries to purchase or acquire, or make any commitment therefor, any
capital stock, equity interest, assets, obligations or other securities of or
any interest in, any Person (including by merger), or make any advance, loan,
extension of credit or capital contribution to or any other investment in, any
Person including any Affiliate of the Company ("Investments"), except for:
(a) Investments in Marketable Investments;
(b) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the ordinary
course of business and ordinary course rescheduling of such amounts in
connection with the collection thereof;
(c) extensions of credit or capital contributions by the Company to any of
its Wholly-Owned Subsidiaries or by any of its Wholly-Owned Subsidiaries to
another.
(d) loans to officers or employees of the Company, any Subsidiary thereof or
any Borrower to the extent permitted by applicable law, charter and by-law
provisions and the aggregate amount of which does not exceed $5,000,000 at any
time for the Company and its Subsidiaries and are not for the purpose of an
Acquisition;
(e) additional loans or capital contributions to Subsidiaries which are not
Wholly-Owned Subsidiaries for the aggregate amount of which extended from the
Effective Date of the Third Amendment to Credit Agreement does not exceed
$15,000,000; provided, however, that this paragraph shall not be deemed to
prohibit intercompany account settlements made in the ordinary course of
business;
(f) Investments by the Company in connection with Acquisitions in the
capital stock, assets, obligations or other securities of or interest in other
Persons, provided, in each case, (i) the amount of consideration payable
(including by assumption of liabilities) by the Company, when added to similar
amounts for all transactions entered into after the Effective Date of the Third
Amendment to Credit Agreement by the Company or any of its Subsidiaries, does
not exceed $10,000,000; and (ii) (x) if any Acquiree is subject to Section 12 of
the Exchange Act or subject to the requirements of Section 15(d) of such Act,
the prior, effective written consent of the board of directors or equivalent
governing body of the Acquiree is obtained and delivered to the Bank , or (y) if
the Acquiree does not meet the qualifications set forth in clause (x) of this
subclause (ii), the prior effective written consent of the board of directors or
equivalent governing body and the percent of any and all classes of stock or
other equity of such Acquiree the consent of which, notwithstanding any
provisions in the charter or by-laws of the Acquiree to the contrary, is
required by applicable statute to consummate the Acquisition, is obtained and
delivered to the Bank;
(g) purchases or redemptions of debt obligations of the Company or its
Subsidiaries by such Persons solely from the proceeds of the Company's issuance
of Subordinated Debt or the Net Proceeds of the sale of the capital stock of the
Company, so long as no Default or Event of Default exists and is continuing or
would occur as a result thereof;
(h) Investments for transactions permitted under subsection 7.5(c) hereof;
(i) other Investments not described above and that are not prohibited
elsewhere in this Agreement, to the extent such Investments do not exceed
$10,000,000 outstanding at any one time and are not used for the purpose of an
Acquisition.
Notwithstanding any provision in this Section 7.6 to the contrary, none of the
following shall constitute "Investments" for purposes of this Section 7.6:
(i) Any distributions paid or made in respect of the stock of the Company or
any Subsidiary of the Company (whether in cash, property or stock of the Company
or any such Subsidiary), or
(ii) Any payments (whether in cash, property or stock of the Company or any
Subsidiary) to redeem, purchase or otherwise acquire any stock of the Company or
any Subsidiary of the Company;
provided, in each case, (A) that any such distribution or payment is otherwise
permitted under the terms of this Agreement, and (B) if any such distribution or
payment is changed from the form in which it was received, it must comply with
the provisions of this Section 7.6. For purposes of the preceding sentence, the
term "stock" shall include warrants, options and other rights to purchase stock.
7.7 Transactions With Affiliates. Except as set forth on Schedule 7.7, the
Company and the Borrowers shall not, and the Company shall not permit any of its
Subsidiaries to, enter into any transaction with any Affiliate of the Company,
any such Subsidiary or the Borrowers except as contemplated by this Agreement or
in the ordinary course of business and pursuant to the reasonable requirements
of the business of the Company, such Borrower or such Subsidiary and upon fair
and reasonable terms no less favorable to the Company, such Borrower or such
Subsidiary than such party would obtain in a comparable arm's-length transaction
with a Person not an Affiliate of the Company, such Borrower or such Subsidiary.
7.8 Compliance With ERISA. Except with the specific written consent of the
Bank, which consent shall not be unreasonably withheld, the Company shall not
directly or indirectly and shall not permit any ERISA Affiliate directly or
indirectly (i) to terminate any Plan subject to Title IV of ERISA so as to
result in any material (in the opinion of the Bank) liability to the Company or
any ERISA Affiliate, (ii) to permit to exist any ERISA Event or any other event
or condition which presents the risk of a material (in the opinion of the Bank)
liability of the Company or any ERISA Affiliate, or (iii) to make a complete or
partial withdrawal (within the meaning of ERISA section 4201) from any Multi
employer Plan so as to result in any material (in the opinion of the Bank)
liability to the Company or any ERISA Affiliate, (iv) to enter into any new Plan
or modify any existing Plan so as to increase its obligations thereunder (except
in the ordinary course of business consistent with past practice) which could
result in any material (in the opinion of the Bank) liability to any member of
the Controlled Group, or (v) permit the present value of all nonforfeitable
benefits (within the meaning of ERISA section 4001(a)(8)) under each Plan (using
the actuarial assumptions utilized by the PBGC upon termination of a Plan)
materially (in the opinion of the Bank) to exceed the fair market value of Plan
assets allocable to such benefits, all determined as of the most recent
valuation date for each such Plan.
7.9 Restricted Payments. The Company and the Borrowers shall not declare or
make any dividend payment or other distribution of assets, properties, cash,
rights, obligations or securities on account of any shares of any class of their
capital stock or purchase, redeem or otherwise acquire for value (or permit any
Borrower to do so) any shares of its capital stock or any warrants, rights or
options to acquire such shares, now or hereafter outstanding; except (a) that
the Company and the Borrowers may declare and make dividend payments or other
distributions payable solely in common stock, (b) the Company and the Borrowers
may purchase, redeem or otherwise acquire shares of their common stock or
warrants or options to acquire any such shares from employees terminating
employment with the Company, pursuant to the Company's customary policies and
procedures relating to such matters, up to a maximum aggregate amount of
$2,000,000 in any fiscal year of the Company, and (c) a Borrower may declare and
make dividend payments or other distributions to the Company in the ordinary
course of business consistent with past practice.
7.10 Modified Quick Ratio. The Company shall not, as of the last day of any
fiscal quarter, suffer or permit its ratio (determined according to GAAP on a
consolidated basis in respect of the Company and its Subsidiaries) of (a) the
sum of cash, Liquid Assets, and Receivables, net of any allowance for doubtful
accounts and sales returns, to (b) Consolidated Current Liabilities, to be less
than 0.80 to 1.00.
7.11 Tangible Net Worth. The Company shall not suffer or permit its Tangible
Net Worth as of the last day of any fiscal quarter to be less than the amount
equal to (a) the sum of (i) $275,000,000, plus (ii) 75% of cumulative net income
for the Company and its Subsidiaries determined on a consolidated basis
beginning with the fiscal quarter ended December 31, 1994, determined quarterly
and not reduced by any quarterly loss (except as specifically hereinafter
provided), plus (iii) 75% of the Net Proceeds of any sale of capital stock of
the Company by and for the account of the Company beginning with the fiscal
quarter ended December 31, 1994, plus (iv) 75% of the amount by which the
Tangible Net Worth of the Company is increased, in accordance with GAAP, due to
conversion of debt to common stock beginning with the fiscal quarter ended
December 31, 1994, less (b) for the fiscal quarter ended December 31, 1994 only,
any quarterly loss for such fiscal quarter up to a maximum amount of
$30,000,000, and for the fiscal quarter ended April 1, 1995 only, any quarterly
loss up to a maximum amount of $15,000,000.
7.12 Profitability. The Company, on a consolidated basis, shall not incur or
suffer or permit to be incurred, as of the last day of any fiscal quarter,
commencing with the fiscal quarter ended July 1, 1995, a net loss for such
fiscal quarter.
7.13 Loss in Specific Quarter. The Company, on a consolidated basis, shall
not incur or suffer or permit to be incurred, as of the last day of the fiscal
quarter ended April 1, 1995, a net loss for such fiscal quarter in excess of
$15,000,000.
7.14 Leverage Ratio(s). (a) The Company shall not suffer or permit its ratio
of Total Liabilities to Tangible Net Worth at any time to be greater than the
amount set forth opposite the applicable period below:
Period Ratio
December 31, 1994 through September 29, 1995 2.70:1.00
September 30, 1995 through March 29, 1996 2.50:1.00
March 30, 1996 and thereafter 2:15:1.00
(b) The Company shall not suffer or permit its ratio of Total Liabilities,
plus Subordinated Indebtedness, to Tangible Net Worth (the "Adjusted Leverage
Ratio") at any time to be greater than the amount set forth opposite the
applicable period below:
Period Ratio
December 31, 1994 through September 29, 1995 3.15:1.00
September 30, 1995 through March 29, 1996 2.90:1.00
March 30, 1996 and thereafter 2.60:1.00
7.15 Sale and Leaseback Agreement. The Company and the Borrowers shall not,
and the Company shall not suffer or permit any of its Subsidiaries to, enter
into any sale and leaseback agreement covering any of its fixed or capital
assets. The Company covenants and agrees that the real property located at the
northeast corner of Alton Parkway and Laguna Canyon Road in Irvine, California,
together with all improvements erected thereon, and all personal property now or
hereafter located on such property shall remain owned by the Company or by any
other entity in which the Company maintains at least a 70% ownership interest
and which is a Subsidiary of the Company. This Section 7.15 shall not be deemed
to prohibit the sale and leaseback of such property so long as the lessee is the
Company or any other entity in which the Company maintains at least a 70%
ownership interest and which is a Subsidiary of the Company or the sale and
leaseback of the real property located at 11/F Floor, Vanta Industrial Centre,
Kwai Chung, N.T., Hong Kong, together with all improvements erected thereon.
7.16 Change in Business. The Company and the Borrowers shall not, and the
Company shall not suffer or permit any of its Subsidiaries to, engage in any
material line of business which accounts for a substantial portion of the
business or assets of the Company or the Borrowers as a whole which is
substantially different from those lines of business carried on by them on the
date hereof; provided, however, the specific activities listed on Schedule 7.16
hereto will not be deemed to be substantially different; provided, further, no
inference as to the character of any other activities may be drawn from Schedule
7.16. The Company and the Borrowers shall not cease to be primarily engaged in
the manufacture or assembly of personal computers, and shall not voluntarily
cease to operate its business as a manufacturer or assembler of personal
computers for a significant period of time.
7.17 Accounting Changes. The Company and the Borrowers shall not make any
significant or material change in accounting treatment and reporting practices,
except as required by GAAP (or, in the case of any Borrower, generally accepted
accounting principles in such Borrower's domicile) or change the fiscal year of
the Company or any Borrower (except for changes in a fiscal year of not more
than one month which are not made in an effort to manipulate or evade any
covenant or provision hereof). The Company shall not suffer or permit any of
its Subsidiaries to make any significant or material change in accounting
treatment and reporting practices, except as allowed by GAAP and which will not
cause a significant or material change in the consolidating financial statements
of such Subsidiary or a significant or material change in the consolidated
financial statements of the Company.
7.18 Certain Other Debt. The Company and the Borrowers shall not prepay,
redeem, defease (whether actually or in substance) or purchase in any manner (or
deposit or set aside funds or securities for the purpose of the foregoing), or
make any payment (other than for scheduled payments of principal and interest
due on the date of payment thereof, if such payment is permitted to be made
pursuant to the terms thereof) in respect of, or establish any sinking fund,
reserve or like set aside of funds or other property for the redemption,
retirement or repayment of, any Subordinated Indebtedness or the Tandy Note, or
transfer any property in payment of or as security for the payment of, or
violate the subordination terms of, any Subordinated Indebtedness or the Tandy
Note, or amend, modify or change in any manner the terms of any Subordinated
Indebtedness or the Tandy Note or any instrument, indenture or other document
evidencing, governing or affecting the terms thereof, if any such amendment,
modification or change has or would have an adverse effect on the Bank's rights
or remedies under any of the Loan Documents, or cause or permit any of the
Company's subsidiaries to do any of the foregoing; except that the Company and
the Borrowers may prepay, redeem, defease or purchase the Notes, pursuant to the
Indenture, to the extent that the payment therefore is made solely in the
Company's common stock as permitted under subsection 7.6(g).
ARTICLE 8
EVENTS OF DEFAULT
8.1 Event of Default. Any of the following events shall constitute an "Event
of Default":
(a) Non-Payment. Any Borrower fails to pay when due any amount of principal
of any Advance, or any interest, fees or any other amount payable hereunder or
pursuant to any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty by the
Company or any Borrower in any Loan Document or which is contained in any
certificate, document or financial or other statement furnished at any time
under this Agreement, or in or under any Loan Document, shall prove to have been
incorrect in any material respect on or as of the date made or deemed made; or
(c) Specific Defaults. The Company or any Borrower fails to perform or
observe any term, covenant or agreement contained in Section 6.3, 6.9, 6.11,
7.1, 7.2 (with respect to Voluntary Liens only), 7.3, 7.4, 7.5, 7.6, 7.7, 7.9,
7.10, 7.11, 7.12, 7.13, 7.14, 7.15, 7.17 or 7.18; or
(d) Other Specified Defaults. The Company or any Borrower fails to perform
or observe any term, covenant or agreement contained in the following Sections
and such failure continues for the amount of time specified: Sections 6.1 or
6.2 for 10 days; and Section 7.2 (only with respect to any Liens other than
Voluntary Liens), Section 7.8 and Section 7.16 for 15 days; or
(e) Other Defaults. The Company or any Borrower fails to perform or observe
any other term or covenant contained in this Agreement or any Loan Document, and
such default shall continue unremedied for a period of 15 days after the earlier
of (i) the date upon which a Responsible Officer or the general counsel, or any
person holding a similar position in, the Company or such Borrower knew or
should have known of such failure or (ii) the date upon which written notice
thereof was given to the Company or such Borrower by the Bank; or
(f) Cross-Default. The Company, any of its Subsidiaries or any Borrower
(i) fails to make any payment in respect of any Indebtedness or Contingent
Obligation, having an aggregate principal amount (including unused commitments
and outstanding amounts) of more than $10,000,000 (including, without
limitation, Indebtedness of the Company under the 1993 Credit Agreement), when
due (whether by scheduled maturity, required prepayment, acceleration, demand,
or otherwise) and, in the case of payments other than in respect of principal,
such failure continues without any Permitted Waiver for the duration of any
grace period specified in the applicable document as of the time such failure
occurs; or (ii) fails to perform or observe any other condition or covenant or
any other event shall occur or condition exist under any agreement or instrument
relating to any such Indebtedness or Contingent Obligation, and such failure
continues without any Permitted Waiver for the duration of any grace period
specified in the applicable document as of the time such failure occurs, if the
effect of such event or condition is to cause, or to permit the holder or
holders of such Indebtedness or beneficiary or beneficiaries of such
Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, such Indebtedness to be declared to be
due and payable prior to its stated maturity or such Contingent Obligation to
become payable (immediately or after expiration of any grace period); or
(g) Cross-Acceleration. The Company or any Borrower fails to perform or
observe any payment obligation under any agreement or instrument of Indebtedness
in favor of the Bank and such failure continues for a period of five Business
Days after a written notice is delivered by the Bank under this subsection
8.1(g), and in connection therewith: (i) the Bank has caused such agreement or
instrument to be declared due and payable prior to its stated maturity; or
(ii) if such agreement or instrument is an obligation specified in subclause (h)
of the definition of "Indebtedness," the Bank shall have issued a notice of
default due to non-payment of such obligation; or (iii) if such agreement or
instrument is an obligation specified in subclause (c) of the definition of
"Indebtedness," the Bank shall have issued a demand for cash collateralization
in the case where such obligation has been drawn or the Company shall not have
reimbursed the Bank in accordance with the terms of such obligation in the case
where such obligation has been drawn; or
(h) Bankruptcy or Insolvency. (i) The Company or any Borrower becomes
insolvent or generally fails to pay, or admits in writing its inability to pay,
its debts as they become due, subject to applicable grace periods, if any,
whether at stated maturity or otherwise; or (ii) the Company, or any of its
Subsidiaries or any Borrower (A) commences any Insolvency Proceeding or files
any petition or answer in any Insolvency Proceeding; (B) acquiesces in the
appointment of a receiver, trustee, custodian or liquidator for itself or a
substantial portion of its property, assets or business or effects a plan or
other arrangement with its creditors; (C) admits the material allegations of a
petition filed against it in any Insolvency Proceeding; or (D) takes any
corporate action to effectuate any of the foregoing; or
(i) Involuntary Proceedings. Any involuntary Insolvency Proceeding is
commenced or filed against the Company or any Borrower or any writ, judgment,
warrant of attachment, execution or similar process, is issued or levied against
a substantial part of the assets of the Company or any Borrower and any such
proceedings or petition shall not be dismissed, or such writ, judgment, warrant
of attachment, execution or similar process shall not be released, vacated or
fully bonded within 60 days after commencement, filing or levy; or
(j) ERISA. (i) The Company or an ERISA Affiliate shall fail to pay when due,
after the expiration of any applicable grace period, any installment payment
with respect to its withdrawal liability under a Multiemployer Plan; (ii) the
Company or any member of the Controlled Group shall fail to satisfy its con
tribution requirements under Section 412(c)(11) of the Code, whether or not it
has sought a waiver under Section 412(d) of the Code; (iii) in the case of an
ERISA Event involving the withdrawal from a Plan of a "substantial employer" (as
defined in Section 4001(a)(2) or Section 4062(e) of ERISA), the withdrawing
employer's proportionate share of that Plan's Unfunded Pension Liabilities is
more than 5% of the Company's Tangible Net Worth; (iv) in the case of an ERISA
Event involving the complete or partial withdrawal from a Multiemployer Plan,
the withdrawing employer has incurred a withdrawal liability in an aggregate
amount exceeding 5% of the Company's Tangible Net Worth; (v) in the case of an
ERISA Event not described in clause (iii) or (iv), the Unfunded Pension
Liabilities of the relevant Plan or Plans exceed 5% of the Company's Tangible
Net Worth; (vi) a Plan that is intended to be qualified under Section 401(a) of
the Code shall be determined by the Internal Revenue Service to have lost its
qualification, and the loss can reasonably be expected to impose on the Company
or an ERISA Affiliate liability (for additional taxes, to Plan participants, or
otherwise) in the aggregate amount of 5% of the Company's Tangible Net Worth; or
more; (vii) the commencement or increase of contributions to, the adoption of,
or the amendment of a Plan by, the Company or an ERISA Affiliate shall result in
a net increase in Unfunded Pension Liabilities in excess of 5% of the Company's
Tangible Net Worth; (viii) any member of the Controlled Group engages in or
otherwise becomes liable for a non-exempt prohibited transaction with respect to
which the Internal Revenue Service assesses a tax under Section 4975 of the Code
in excess of 5% of the Company's Tangible Net Worth; (ix) any member of the
Controlled Group is assessed a tax under Section 4980B of the Code in excess of
5% of the Company's Tangible Net Worth; or (x) the occurrence of any combination
of events listed in clauses (iii) through (ix) that involves a liability, net
increase in aggregate Unfunded Pension Liabilities or any combination thereof to
any member or members of the Controlled Group in excess of 5% of the Company's
Tangible Net Worth; or
(k) Monetary Judgments. One or more final judgments, orders or decrees shall
be entered against the Company, any of its Subsidiaries or any Borrower
involving in the aggregate a liability (to the extent not covered by insurance
issued by a financially sound and reputable insurer not an Affiliate of the
Company) in excess of 5% of Tangible Net Worth (as such Tangible Net Worth is
properly stated on the then-most-recent consolidated financial statements
delivered by the Company under subsection 6.1(a) or (c)) and the same shall
remain unvacated and unstayed pending appeal for a period of 45 consecutive days
after the entry thereof; or
(l) Non-Monetary Judgments. Any non-monetary judgment, order or decree shall
be rendered against the Company, any of its Subsidiaries or any Borrower which
does or would, if not overturned, have a Material Adverse Effect, and there
shall be any period of 30 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect;
(m) Change in Control. (i) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) on or after the Closing Date, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then-outstanding voting securities, or
(ii) the existing directors for any reason cease to constitute a majority of the
Company's board of directors. "Existing directors" means (x) individuals consti
tuting the Company's board of directors on the Closing Date, and (y) any
subsequent director whose election by the board of directors or nomination for
election by the Company's shareholders was approved by a vote of at least two-
thirds of the directors then in office, which directors either were directors on
the Closing Date or whose election or nomination for election was previously so
approved, or (iii) any Borrower ceases to be a Wholly-Owned Subsidiary of the
Company;
(n) Collateral.
(i) Any provision of any Collateral Document shall for any reason cease to be
valid and binding on or enforceable against the Company or a Borrower or the
Company or a Borrower shall so state in writing or bring an action to limit its
obligations or liabilities thereunder; or
(ii) Any Collateral Document shall for any reason (other than pursuant to the
terms thereof) cease to create a valid security interest in the Collateral
purported to be covered thereby or such security interest shall for any reason
cease to be a perfected and first priority security interest subject only to
Permitted Liens;
(o) Guarantor Defaults. The Company fails in any material respect to
perform or observe any term, covenant or agreement in Section 9.1 hereof; or
such Section is for any reason partially (including with respect to future
advances) or wholly revoked or invalidated, or otherwise ceases to be in full
force and effect, or the Company or any other Person contests in any manner the
validity or enforceability thereof or denies that it has any further liability
or obligation thereunder; or
(p) Failure to Satisfy Conditions. Any conditions precedent set forth in
Section 4.1 hereof that are waived by the Bank (as set forth on Schedule 8.1
hereto) solely for the purpose of closing for a period not to exceed 45 days
after the Closing Date shall fail to be satisfied, in the Bank's sole
discretion, by the end of such 45-day period.
8.2 Remedies. If any Event of Default occurs, the Bank may (a) declare its
commitment hereunder to be terminated, whereupon such commitment shall forthwith
be terminated; (b) declare the unpaid principal amount of all outstanding
Advances, all interest accrued and unpaid thereon and all other amounts payable
hereunder to be immediately due and payable, without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
the Company; and (d) exercise all rights and remedies available to it under the
Loan Documents or applicable law; provided, however, that upon the occurrence of
any event specified in clause (h) or (i) of Section 8.1 (and in the case of
clause (i), upon the expiration of the 60-day period mentioned therein), the
obligation of the Bank to make Advances shall automatically terminate, and the
unpaid principal amount of all outstanding Advances and all interest and other
amounts as aforesaid shall automatically become due and payable without further
act or notice by the Bank, which are hereby expressly waived by the Company.
8.3 Rights Not Exclusive. The rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement.
8.4 Certain Financial Covenant Defaults. In the event that, after taking
into account any extraordinary charge to earnings taken or to be taken as of the
end of any fiscal period of the Company (a "Charge"), and if solely by virtue of
such Charge, there would exist an Event of Default due to the breach of any of
Sections 7.10, 7.11, 7.12, 7.13 or 7.14 as of such fiscal period end date, such
Event of Default shall be deemed to arise upon the earlier of (a) the date after
such fiscal period end date on which the Company announces publicly it will
take, is taking or has taken such Charge (including an announcement in the form
of a statement in a report filed with the SEC) or, if such announcement is made
prior to such fiscal period end date, the date that is such fiscal period end
date, and (b) the date the Company delivers to the Bank its audited annual or
unaudited quarterly financial statements in respect of such fiscal period
reflecting such Charge as taken.
ARTICLE 9
MISCELLANEOUS
9.1 Guaranty. (a)(i) The Guarantor hereby unconditionally guarantees the
punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all of the Obligations of the Borrowers now or hereafter existing
under the Loan Documents, including, without limitation, any extensions,
modifications, substitutions, amendments and renewals thereof, whether for
principal, interest, fees, expenses, indemnification or otherwise (all of such
obligations hereby guaranteed by the Guarantor herein collectively called the
"Guaranteed Obligations").
(ii) The Guarantor agrees to pay, in addition, any and all expenses
(including, without limitation, reasonable counsel fees and expenses, including
the allocated cost of internal counsel) incurred by the Bank in enforcing any
rights under this Section 9.1 with respect to the Guarantor.
(iii) Without limiting the generality of the foregoing, this Section 9.1
guarantees, to the extent provided herein, the payment of all amounts that
constitute part of the Guaranteed Obligations and would be owed by any Borrower
to the Bank under any Loan Document but for the fact that they are unenforceable
or not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving such Borrower.
(iv) The obligations of the Guarantor under this Section 9.1 are
independent of the Guaranteed Obligations, and a separate action or actions may
be brought and prosecuted against the Guarantor to enforce this Guaranty,
irrespective of whether any action is brought against any Borrower or whether
any Borrower is joined in any such action or actions.
(b) Guaranty Absolute. The Guarantor guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms of the Credit
Agreement and the other Loan Documents, regardless of any Governmental
Requirements now or hereafter in effect in any jurisdiction affecting any of
such terms or the rights of the Bank with respect thereto. The liability of the
Guarantor under this Guaranty shall be absolute and unconditional, irrespective
of the following:
(i) any lack of validity or enforceability of, or any release or discharge
of any Borrower from liability under, the Agreement or any other Loan Document;
(ii) any change in the time, manner or place of payment of, or in any other
term of, any or all of the Guaranteed Obligations; or any other amendment or
waiver of, or any consent to departure from, the Credit Agreement or any other
Loan Document, including, without limitation, any increase in the Guaranteed
Obligations resulting from the extension of additional credit to the Borrowers;
(iii) any taking, subordination, compromise, exchange, release,
nonperfection or liquidation of any collateral, or any release, amendment or
waiver of, or consent to departure from, any other guaranty, for any or all of
the Guaranteed Obligations;
(iv) any manner of application of collateral, or proceeds thereof, to any
or all of the Guaranteed Obligations; or any manner of sale or other disposition
of any collateral or any other assets of any Borrower;
(v) any change, restructuring or termination of the corporate structure or
existence of any Borrower; or any corresponding restructure of the Guaranteed
Obligations, or any other restructure or refinancing of the Guaranteed
Obligations or any portion thereof;
(vi) any exercise or nonexercise by the Bank of any right or privilege
under this Guaranty or any of the other Loan Documents;
(vii) any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to the Guarantor, any
Borrower, or any action taken with respect to this Guaranty by any trustee,
receiver or court in any such proceeding, whether or not the Guarantor has had
notice or knowledge of any of the foregoing;
(viii) any assignment or other transfer, in whole or in part, of this
Guaranty or any of the other Loan Documents;
(ix) any acceptance of partial performance of the Guaranteed Obligations;
or
(x) any other circumstance (including, without limitation, any statute of
limitations) that might otherwise constitute a defense available to, or a
discharge of, any Borrower.
This Guaranty shall continue to be effective or be reinstated, as the case
may be, if at any time any payment of any of the Guaranteed Obligations is
rescinded or must otherwise be returned by the Bank upon the insolvency,
bankruptcy or reorganization of any Borrower, or otherwise, all as though such
payment had not been made.
(c) Waivers. The Guarantor irrevocably waives the following, to the extent
permitted by applicable law:
(i) promptness, diligence, notice of acceptance and any other notice with
respect to any of the Guaranteed Obligations or this Guaranty;
(ii) any requirement that the Bank protect, secure, perfect or insure any
Lien or any property subject thereto or exhaust any right or take any action
against any Borrower, any other Person or any collateral;
(iii) any defense based upon an election of remedies by the Bank that in
any manner impairs, reduces, releases or otherwise adversely affects the
Guarantor's subrogation, contribution or reimbursement rights or other rights to
proceed against any Borrower, any other Person or any collateral, including,
without limitation, any election to proceed by judicial or nonjudicial
foreclosure of any Lien, whether or not every aspect of any foreclosure sale is
commercially reasonable;
(iv) any duty on the part of Bank to disclose to Guarantor any matter, fact
or thing relating to the business, operation or condition (including, without
limitation, the financial condition) of any Borrower or its assets now known or
hereafter known by the Bank; and
(v) without limiting the generality of the foregoing or any other
provision hereof, any rights and benefits that might otherwise be available to
the Guarantor under California Civil Code Section 2809, 2810, 2815, 2819, 2839,
2845, 2848, 2849, 2850, 2899 or 3433.
(d) Subrogation and Contribution. (i) The Guarantor hereby acknowledges and
agrees that, if and to the extent that the sum of (A) the amount of any payments
made by the Guarantor pursuant to this Guaranty and (B) the value of any
realization by the Bank upon the assets of the Guarantor exceeds the amount of
the aggregate benefits, direct and indirect, realized by the Guarantor from the
proceeds of Advances made by the Bank to the Borrowers from time to time, such
Guarantor shall have a right of contribution to such extent.
(ii) The Guarantor agrees that (A) it will not seek to exercise any right
of subrogation or contribution that it may have, pursuant to applicable law,
subparagraph (d)(i) of this Guaranty or otherwise, against any of the Borrowers
until all of the Guaranteed Obligations have been paid in full and the Bank's
commitment to make Advances hereunder have expired or terminated, and (B) if by
law any such right of subrogation or contribution may not be postponed, then
such right shall be subordinate to the rights of the Bank under the Loan
Documents.
(iii) If any amount is paid to the Guarantor in violation of subparagraph
(d)(ii) hereof, such amount shall be deemed to have been paid to the Guarantor
for the benefit of, and held in trust for the benefit of, the Bank and shall be
forthwith paid to the Bank to be credited and applied upon the Guaranteed
Obligations, whether matured or unmatured, in accordance with the terms of the
other Loan Documents.
(e) Continuing Guaranty. This Guaranty is a continuing guaranty and shall
(i) remain in full force and effect until the later of (A) the payment in full
of the Guaranteed Obligations and all other amounts payable under this Guaranty
and (B) the expiration or termination of the Bank's commitment to make Advances
under this Agreement, (ii) be binding upon the Guarantor and its successors and
assigns and (iii) inure to the benefit of and be enforceable by the Bank and its
successors, transferees and assigns.
9.2 Obligations Joint and Several; Subordination.
(a) Notwithstanding any other provision of this Agreement, the Borrowers
are and shall be jointly and severally liable for all Obligations (including,
without limitation, those with respect to all Advances), and in each instance
where the term "Borrower" is used, it is expressly understood that the act,
omission or interest of any Borrower, and any act taken with respect to any
Borrower shall be deemed, for purposes of the Loan Documents, to be the act,
omission or interest of each Borrower or act taken with respect to each
Borrower. The joint and several liability of each Borrower hereunder shall not
in any way be affected, impaired or reduced as a result of which particular
Borrower receives or uses the proceeds of Advances or the purposes for which
such proceeds are used.
(b) Each Borrower hereby expressly waives any right to compel the Bank to sue
or enforce payment of any and all Obligations of any other Borrower hereunder.
Each Borrower hereby expressly waives presentment, protest, notice, demand or
action on delinquency in respect of the Obligations, and, to the extent
applicable, any and all benefits under California Civil Code Section 2809, 2810,
2815, 2819, 2839, 2845, 2848, 2849, 2850 or 3433 and any and all other similar
benefits which might otherwise be available under applicable law.
(c) No invalidity, irregularity or unenforceability, by reason of any
bankruptcy or similar law, any law or order of any Governmental Authority
purporting to reduce, amend or otherwise affect any liability of any Borrower,
shall affect, impair or be a defense to the Obligations of any other Borrower
hereunder unless such invalidity, irregularity or unenforceability is also
applicable to such other Borrower.
(d) Without in any manner limiting the generality of the foregoing, each
Borrower agrees that the Bank may, from time to time, consent to any action or
non-action of any Borrower which, in the absence of such consent, violates or
may violate this Agreement, with or without consideration, on such terms and
conditions as may be acceptable to the Bank, without in any manner affecting or
impairing the liability of any other Borrower hereunder. Each Borrower waives
any defense arising by reason of any inability to pay or any defense based on
bankruptcy or insolvency or other similar limitations on creditors' remedies.
Each Borrower authorizes the Bank, without notice or demand and without
affecting such Borrower's liability hereunder or under any of the other Loan
Documents, from time to time to (i) release or substitute any other Borrower, in
whole or in part or the Guarantor of the Obligations or any part thereof;
(ii) settle or compromise any or all of the Obligations with any other Borrower
or the Guarantor of the Obligations; and (iii) subordinate any or all of the
Obligations to any other obligations of or claim against any other Borrower,
whether owing to or existing in favor of the Bank or any other party. The
Obligations of each Borrower shall continue to be effective or be reinstated (as
the case may be) if at any time payment by any Borrower of all or any part of
the Obligations is rescinded or must otherwise be returned by the Bank upon the
insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as
though such payment to the Bank had not been made.
(e) Each Borrower hereby acknowledges and agrees that, if and to the extent
that (i) the amounts paid by such Borrower to the Bank in respect of the
Obligations exceeds (ii) the amount of the Advances made to such Borrower plus
interest accrued on such Advances and fees and expenses attributable to such
Advances plus the aggregate benefits, direct and indirect, realized by such
Borrower from the Advances made to the other Borrowers, such Borrower shall have
a right of contribution from each other Borrower to such extent.
(f) Each Borrower agrees that (i) it will not seek to exercise any right of
subrogation or contribution that it may have pursuant to applicable law,
subparagraph (e) above or otherwise against any of the other Borrowers until all
of the Obligations have been paid in full and the Commitments have expired or
been terminated, and (ii) if by law any such right of subrogation or
contribution may not be so postponed, then such right shall be subject and
subordinate to the rights of the Bank under the Loan Documents.
(g) The Bank may, at its election, exercise any right or remedy it may have
against any Borrower without affecting or impairing in any way the liability of
any other Borrower hereunder, except to the extent the Obligations may thereby
be paid. Each Borrower waives any defense arising out of the absence,
impairment or loss of any right of reimbursement or other right or remedy
against any other Borrower, whether resulting from the election by the Bank to
exercise any right or remedy they may have against any other Borrower or
otherwise.
(h) Each Borrower waives the benefit of any statute of limitations affecting
its liability hereunder or the enforcement thereof, to the extent permitted by
law. Any part performance of the Obligations by a Borrower, or any other event
or circumstances, which operate to toll any statute of limitations as to such
Borrower, shall not operate to toll the statute of limitations as to any other
Borrower. Each Borrower understands and acknowledges that the Banks would not
make the Advances in the absence of the covenants and waivers of the Borrowers
contained herein.
(i) Each Borrower acknowledges that repeated and successive demands may be
made and payments or performance made hereunder in response to such demands as
and when, from time to time, any Borrower may default in performance of the
Obligations. Notwithstanding any such payment or performance hereunder, this
Agreement shall remain in full force and effect and shall apply to any and all
subsequent defaults by any Borrower in payment or performance of the
Obligations.
(j) Each Borrower waives any defense arising by reason of any disability or
other defense of any other Borrower or by reason of the cessation from any cause
whatsoever of the liability of any other Borrower. Each Borrower waives any
setoff, defense or counterclaim which any other Borrower may have or claim to
have against the Bank.
(k) All Indebtedness owing from any Borrower to the Company shall be
subordinate in right of payment to the prior payment by the Borrowers in full of
all Advances hereunder.
9.3 Amendments and Waivers. No amendment or waiver of any provision of this
Agreement or any other Loan Document and no consent with respect to any
departure by the Company or any Borrower therefrom shall be effective unless the
same shall be in writing and signed by the Bank, and such waiver shall be
effective only in the specific instance and for the specific purpose for which
given.
9.4 Notices. All notices, requests and other communications provided for
hereunder shall be in writing (including telegraphic, telex, facsimile
transmission or cable communication) and mailed, telegraphed, telexed or
delivered, to the addresses specified on the signature pages hereof. All such
notices and communications shall, when mailed by overnight delivery,
telegraphed, telexed, sent by facsimile transmission or cabled, be effective
when delivered for overnight delivery or to the telegraph company, transmitted
by telecopier, confirmed by telex or facsimile answerback or delivered to the
cable company, respectively, or if delivered, upon delivery, except that notices
pursuant to Article 2 or 3 to the Bank shall not be effective until actually
received by the Bank.
9.5 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Bank, any right, remedy, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege.
9.6 Costs and Expenses. The Company and the Borrowers jointly and severally
agree, whether or not the transactions contemplated hereby shall be consummated,
to pay or reimburse the Bank on demand for all:
(a) reasonable costs and expenses incurred in connection with the
development, preparation, delivery, and execution of, and any amendment,
supplement, waiver or modification to, this Agreement, any Loan Document and any
other documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby, including the
reasonable costs and expenses of counsel to the Bank (and the allocated cost of
internal counsel) with respect thereto, whether incurred prior to the Closing
Date or thereafter, including, without limitation in connection with the
conditions precedent set forth in Section 4.2 hereof;
(b) costs and expenses incurred by the Bank in connection with the
enforcement or preservation of any rights (including in connection with any
"workout" or restructuring regarding the Loans) under this Agreement, any Loan
Document and any such other documents, including fees and out-of-pocket expenses
of counsel (and the allocated cost of internal counsel) to the Bank; and
(c) reasonable appraisal, audit, search and filing fees incurred or sustained
by the Bank in connection with the matters referred to under paragraphs (a) and
(b) above, whether incurred prior to the Closing Date or thereafter, including,
without limitation in connection with the conditions precedent set forth in
Section 4.2 hereof. The Company and the Borrowers shall make each payment or
reimbursement required under this Section 9.6 promptly after receiving an
invoice specifying in reasonable detail all such costs, expenses and fees;
provided, however, that the Bank submitting such invoice may delete or exclude
information that is or may be confidential or the subject of attorney-client,
work product, or other applicable privilege.
9.7 Indemnity. The Company and each Borrower shall pay, indemnify and hold
the Bank and each of its respective officers, directors, employees, counsel,
agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments and suits, and any costs, charges, expenses or disbursements
related thereto (including reasonable fees and expenses of counsel and allocated
costs of internal counsel) of any kind or nature whatsoever arising out of the
execution, delivery, enforcement, performance and administration of this
Agreement and any other Loan Documents or the transactions contemplated herein,
and with respect to any investigation, litigation or proceeding related to this
Agreement or the Loans or the Letters of Credit or the use of the proceeds
thereof (whether or not any Indemnified Person is a party thereto) (all the
foregoing, collectively, the "Indemnified Liabilities"); provided (a) that the
Company and the Borrowers shall have no obligation hereunder to any Indemnified
Person with respect to Indemnified Liabilities arising from the gross negligence
or willful misconduct of such Indemnified Person, and (b) to the extent that the
foregoing indemnity includes reimbursement of costs and expenses described in
Section 9.6, this indemnity shall not increase the Bank's entitlement to such
reimbursement beyond that provided in Section 9.6. The agreements in this
Section shall survive payment of all other Obligations.
9.8 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Company and the Borrowers may not assign
or transfer any of its rights or obligations under this Agreement without the
prior written consent of the Bank. The Bank may, with the written consent of
the Company and the Borrowers, which consent shall not be unreasonably withheld,
may at any time assign and delegate to any Person all or any part of the
Advances or any other rights or obligations hereunder.
9.9 Set-off. In addition to any rights and remedies of the Bank provided by
law, if an Event of Default exists, the Bank is authorized at any time and from
time to time, without prior notice to the Company or any Borrower, any such
notice being waived by the Company and the Borrowers to the fullest extent
permitted by law, to set-off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by the Bank to or for the credit or the account of the Company or
the Borrowers against any and all obligations of the Company or the Borrower now
or hereafter existing under this Agreement or any other Loan Document and any
Loan held by such Bank or Affiliate irrespective of whether or not the Bank
shall have made demand under this Agreement or any Loan Document and although
such obligations may be contingent or unmatured. The Bank agrees promptly to
notify the Company and the Borrowers after any such set-off and application made
by such Bank; provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of the Bank
under this Section 9.9 are in addition to the other rights and remedies
(including without limitation, other rights of set-off) which the Bank may have.
9.10 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement in any number of separate counterparts, each of which,
when so executed, shall be deemed an original, and all of said counterparts
taken together shall be deemed to constitute but one and the same instrument. A
set of the copies of this Agreement signed by all the parties shall be lodged
with the Company and the Bank.
9.11 Severability. The illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
9.12 Governing Law and Jurisdiction.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE
NORTHERN DISTRICT OF CALIFORNIA AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH OF THE COMPANY, THE BORROWERS AND THE BANK CONSENTS, FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS. EACH OF THE
COMPANY, THE BORROWERS AND THE BANK IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. THE COMPANY, THE BORROWERS AND THE BANK EACH WAIVE PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY
OTHER MEANS PERMITTED BY CALIFORNIA LAW.
9.13 Waiver of Jury Trial. The Company, the Borrowers and the Bank waive
their respective rights to a trial by jury of any claim or cause of action based
upon or arising out of or related to this Agreement, the other Loan Documents or
the transactions contemplated hereby or thereby in any action, proceeding or
other litigation of any type brought by any of the parties against any other
party or parties, whether with respect to contract claims, tort claims or
otherwise. The Company, the Borrowers and the Bank agree that any such claim or
cause of action shall be tried by a court trial without a jury. Without limit
ing the foregoing, the parties further agree that their respective right to a
trial by jury is waived by operation of this Section as to any action,
counterclaim or other proceeding which seeks, in whole or in part, to challenge
the validity or enforceability of this Agreement or the other Loan Documents or
any provision hereof or thereof. This waiver shall apply to any subsequent
amendments, renewals, supplements or modifications to this Agreement and the
other Loan Documents.
9.14 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire Agreement and understanding among the Company,
the Borrowers and the Bank and supersedes all prior or contemporaneous
agreements and understandings of such persons, verbal or written, relating to
the subject matter hereof and thereof except for the letter referenced in
Section 2.8 and any prior arrangements made with respect to the payment by the
Company of (or any indemnification for) any fees, costs or expenses payable to
or incurred (or to be incurred) by or on behalf of the Bank.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
AST RESEARCH, INC.
By:BRUCE C EDWARDS
Title: Executive Vice President and
Chief Financial Officer
By:DENNIS R. LEIBEL
Title: Vice President, Legal & Treasury
Operations
16215 Alton Parkway
Irvine, CA 92718
Attn: Treasurer
Telephone: (714) 727-7717
Telecopier: (714) 727-8584
AST CANADA, INC.
By:DENNIS R. LEIBEL
Title:Secretary
AST EUROPE LIMITED
By: SAFI QURESHEY
CEO
By:BRUCE C. EDWARDS
Title:Executive Vice President
AST RESEARCH FRANCE S.A.R.L.
By:DENNIS R. LEIBEL
By:BRUCE C. EDWARDS
Title:_____________________________
AST SWEDEN AB
By:SAFI QURESHEY
Director
By:BRUCE C. EDWARDS
Title:Director
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By:________________________________
Title: Vice President
Address for notices:
High Technology #3697
555 California Street, 41st Floor
San Francisco, CA 94104
Attn: Kevin McMahon
Telephone: (415) 622-8088
Telecopier: (415) 622-4585/2514
EXHIBIT A
NOTICE OF BORROWING
To: Bank of America National Trust and
Savings Association (the "Bank")
Date: ________________, 1995
Ladies and Gentlemen:
The undersigned, AST Research, Inc. (the "Company") refers to the Credit
Agreement dated as of February __, 1995 among the Company, AST Canada, Inc., AST
Europe Limited, AST France S.A.R.L., AST Sweden AB (each a "Borrower" and
together the "Borrowers") and the Bank (the "Credit Agreement"), and hereby
gives you notice irrevocably on behalf of the Borrower indicated below, pursuant
to Section 2.3 of the Credit Agreement, of the Borrowing specified herein:
1. The aggregate amount of the proposed Borrowing is
$____________________.
2. The Business Day of the proposed Borrowing is ________________, 1995.
3. The Borrowing is to be comprised of $_________ of Offshore Rate
Advances.
4. The duration of the Interest Period for the Offshore Rate Advances
included in the Borrowing shall be ________ months.
5. The Borrower is _______________.
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the proposed Borrowing, before
and after giving effect thereto and to the application of the proceeds
therefrom:
(a) the representations and warranties of the Company and the Borrowers
contained in Article 5 of the Credit Agreement and in the Collateral Documents
are true and correct as though made on and as of the date hereof (except to the
extent such representations and warranties specifically relate to an earlier
date, in which case they are true, accurate and complete in all material
respects as of such earlier date);
(b) no Default or Event of Default has occurred and is continuing, or
would result from the proposed Borrowing;
(c) the unborrowed amount available to the Company under the terms of the
1993 Credit Agreement does not exceed $1,000,000 (other than solely as a result
of the $5,000,000 minimum borrowing requirement contained in the 1993 Credit
Agreement); and
(d) after giving effect to the proposed Borrowing, the aggregate amount of
all credit (including letters of credit) extended under the 1993 Credit
Agreement and hereunder does not exceed $205,000,000.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the Credit Agreement.
AST RESEARCH, INC.
By: ____________________________
Title: _________________________
EXHIBIT B
COMPLIANCE CERTIFICATE
Pursuant to that certain Credit Agreement dated as of February __, 1995 (as
amended from time to time, the "Credit Agreement," the terms defined therein
being used herein as therein defined) among AST Research, Inc., a Delaware cor
poration (the "Company"), Bank of America National Trust and Savings
Association, and the Borrowers party thereto, the undersigned,
________________________________, certifies that he is the ___________________
of the Company, and that, as such, he is authorized to execute and deliver this
Certificate, and that:
[Use this paragraph if this Certificate is delivered in connection with the
financial statements required by subsection 6.1(a) of the Credit Agreement]
1. Attached as Exhibit 1 hereto are the audited consolidated balance sheet
of the Company as of _________, 199__ and the related consolidated statements of
income, shareholders' equity and cash flows for such fiscal year, setting forth
in each case in comparative form the figures for the previous year.
or
[Use this paragraph if this Certificate is delivered in connection with the
financial statements required by subsection 6.1(c) of the Credit Agreement]
1. Attached as Exhibit 1 hereto are the unaudited consolidated balance
sheet of the Company and its Consolidated Subsidiaries and the related
consolidated statements of income, shareholders' equity and cash flows, all for
the quarter ended __________, 199_. The financial statements attached as
Exhibit 1 are complete and correct and fairly present, in accordance with GAAP,
the financial position and results of operations of the Company and the
Company's Subsidiaries; provided, however, footnotes and other financial
presentations customarily presented only for audited year-end statements under
GAAP are not included.
2. Attached as Exhibit 2 hereto are the unaudited consolidating balance
sheets of the Company and its Subsidiaries as of ____________, 199_ and the
related consolidating statements of income for such period which were used
together with the financial statements attached hereto as Exhibit 1.
3. The Company has reviewed the terms of the Credit Agreement and the
undersigned has made, or has caused to be made under his supervision, a review
of the transactions entered into by the Company and its Subsidiaries during the
accounting period covered by the attached financial statements which could
affect the Company's compliance with such terms.
4. To the best of the undersigned's knowledge, the Company, during such
period, has observed, performed or satisfied all of the covenants and other
agreements contained in the Credit Agreement to be observed, performed or
satisfied by the Company.
5. The examinations described in paragraph 3 above did not disclose, and
the undersigned has obtained no knowledge of any Default or Event of Default.
6. All representations and warranties of the Company set forth in Article 5
of the Credit Agreement and in the Collateral Documents are true and correct on
and as of the date hereof with the same effect as if made on and as of the date
hereof (except to the extent such representations and warranties specifically
relate to an earlier date, in which case they are true, accurate and complete in
all material respects as of such earlier date).
7. The financial analysis and information contained in this certificate are
true and accurate on and as of the date of this certificate.
8. Set forth below are the calculations used to determine compliance with
the covenants of the Credit Agreement. All amounts set forth below refer to the
Company's consolidated financial statements for the period ended ____________,
199_.
A. Modified Quick Ratio (Section 7.10) (Thousands)
(i) Cash and Liquid Assets
of the Company and
Consolidated Subsidiaries $_________
(ii) Receivables $_________
Allowance for doubtful accounts
and sales returns ($________)
TOTAL RECEIVABLES $_________
TOTAL ((i) PLUS (ii)) $_________
(iii) Consolidated Current Liabilities $_________
Modified Quick Ratio is ___ to 1.00 ((i) plus (ii) to (iii)).
The required Modified Quick Ratio is not less than 0.80:1.00.
B. Tangible Net Worth (Section 7.11) (Thousands)
(i) Total Net Worth $__________
Intangibles ($_________)
TOTAL ACTUAL TANGIBLE NET WORTH $__________
(ii) Base Amount $275,000
75% of cumulative consolidated net
income (excluding net loss) earned
for each fiscal quarter beginning
with the fiscal quarter ended
December 31, 1994 $__________
75% of Net Proceeds of sale of capital
stock of the Company by and for
the account of the Company beginning
with the fiscal quarter ended
December 31, 1994 $__________
75% of increase in Tangible Net Worth
due to conversion of debt to common
stock beginning with the fiscal quarter
ended December 31, 1994 $__________
[For the fiscal quarter ended
April 1, 1995 only:
Any quarterly loss for the fiscal
quarter, up to a maximum amount
of $15,000,000 ($_________)]
TOTAL REQUIRED TANGIBLE NET WORTH $__________
Total Actual Tangible Net Worth may not be less than Total Required
Tangible Net Worth set forth above.
C. Profitability (Section 7.12) (Thousands)
Consolidated net loss (if any) ($__________)
Profitability must be positive, commencing with the fiscal quarter ending
July 1, 1995.
D. Loss in Specific Quarter (Section 7.13) (Thousands)
Consolidated net loss (if any) ($__________)
Net loss (if any) for the fiscal quarter ending April 1, 1995 shall not
exceed $15,000,000.
E. Leverage Ratios (Section 7.14) (Thousands)
(i) Total Liabilities $__________
(ii) Total Liabilities plus Subordinated Debt $__________
(iii) Tangible Net Worth (from B(i) above) $__________
Leverage Ratio is ___ to 1.00 ((i) to (iii)).
Adjusted Leverage Ratio is ___ to 1.00 ((ii) to (iii)).
The required Leverage Ratios may not exceed the ratios set forth in Section
7.14 of the Agreement for the applicable periods.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
__________, 1995.
_______________________________
(signature)
Title: ________________________
<PAGE>
EXHIBIT 10.133
CONFIDENTIAL TREATMENT IS REQUESTED WITH RESPECT TO PORTIONS OF THIS
EXHIBIT.
SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement and Release (hereinafter "Settlement Agreement") is
entered into as of January 1, 1995, between AST Research, Inc., a Delaware
Corporation ("AST") and Texas Instruments Incorporated, a Delaware Corporation
("TI").
WHEREAS, AST and TI are parties to the following litigation (hereinafter
"The Litigation"):
1. AST Research, Inc. v. Texas Instruments Incorporated, Central
District of California, Case No. SA CV-94-001-LTL (RWRx); and
2. Texas Instruments Incorporated v. AST Research, Inc., Eastern
District of Texas, Case No. 2-94CV147.
WHEREAS, the parties desire to resolve all outstanding litigation between
them;
NOW THEREFORE, it is hereby agreed as follows:
1. The parties agree to concurrently enter into the License
Agreement attached hereto as Exhibit A in settlement of The Litigation
and further agree, upon AST's payment of the initial fee pursuant
either to Article V, Section 1A(d) or Article V, Section 1B(b) of that
License Agreement, to enter into Agreed Orders of Dismissal in the
form of Exhibits B and C, for the respective cases, dismissing The
Litigation.
2. In consideration of the promises and covenants set forth herein,
the parties acknowledge that this Settlement Agreement is entered into
as a result of a dispute based, in part, upon each party's assertion
that certain of its patents are valid and enforceable and are being
infringed by the other party. Accordingly, the parties acknowledge
that this Settlement Agreement is a final settlement of The Litigation
and that all claims asserted in The Litigation are resolved and
dismissed with prejudice, except that, after December 31, 2000, or the
termination of the License Agreement, whichever is sooner, nothing in
this Settlement Agreement or the Agreed Orders of Dismissal shall act
as a final judgment between the parties or have any res judicata
effect with respect to the validity, enforceability after that date,
or infringement after that date of any of the patents-in-suit.
3. The payments required to be made in the License Agreement shall
be due and payable as stated therein without regard to any subsequent
determination concerning the validity, enforceability, scope or
applicability of any patent of TI or AST. AST, TI, and their
subsidiaries, heirs, successors, and assigns to the License Agreement,
covenant that during the term of the License Agreement they will not
challenge or otherwise attack the validity, enforceability, scope or
applicablility of any TI PATENT or AST PATENT covered by the License
Agreement with respect to any LICENSED PRODUCT, as defined in the
License Agreement, or to assert that the activity licensed thereunder,
to the extent that it is the same or substantially the same as that
practiced or contemplated to be practiced thereunder, does not
infringe. Said covenant prohibits challenge or attack by any manner,
whether by a claim for declaratory relief, a request for re-
examination, or any other judicial or administrative remedy of any
type; provided, however, that in the event TI or AST or their
subsidiaries, heirs, successors or assigns to the License Agreement
(the "Asserting Party") asserts in any court or administrative
proceeding that the other party or their subsidiaries, heirs,
successors, or assigns infringes any TI PATENT, TI-PARTICIPATION
PATENT, AST PATENT, or AST-PARTICIPATION PATENT by making, using,
selling or engaging in any other activity with respect to items that
are not LICENSED PRODUCTS, the other party shall be entitled to raise
any and all defenses to the Asserting Party's assertions that the
other party deems appropriate, including but not limited to defenses
relating to patent invalidity, unenforceability or noninfringement.
4. As consideration for this Agreement, the parties have executed
Mutual Releases as set forth in Article II of the License Agreement.
In addition to such Mutual Releases, AST and TI further releases each
other and their subsidiaries from any and all claims and liability
relating to the facts and allegations alleged, or which could have
been alleged by AST or TI in its claims or counterclaims in The
Litigation, including, without limitation, all facts and allegations
under agreements relating to patents, the Sherman Antitrust Act, the
Clayton Act, any state antitrust statutes, the Robinson-Patman Act or
any theories of unfair competition.
5. Each party will bear its own attorney's fees and costs incurred
in connection with The Litigation.
6. This Settlement Agreement shall be governed by the provisions of
Article VIII, Section 11 of the License Agreement regarding
confidentiality.
7. This Settlement Agreement incorporates by reference the terms of
Exhibits A, B, and C, and is incorporated by reference in the License
Agreement, such that any subsidiary, successor, assign or heir to the
License Agreement is bound by this Settlement Agreement and Exhibits B
and C.
8. In the event that any provision of this Settlement Agreement is
held to conflict with any provision of the License Agreement, the
affected term(s) of this Settlement Agreement is(are) binding.
9. This Settlement Agreement and Release is the compromise of
disputed claims and nothing contained herein is to be construed as an
admission of any factual or legal conclusion, status, or liability on
the part of any party.
10. This License Agreement may be executed in duplicate originals,
both of which shall be considered originals.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Agreement, on the date below indicated.
TEXAS INSTRUMENTS INCORPORATED AST RESEARCH, INC.
BY: Richard J. Agnich BY: Safi Qureshey
TITLE: Sr. Vice President TITLE: Chairman & CEO
DATE: 2-6-95 DATE: 2-7-95
LICENSE AGREEMENT
BETWEEN
TEXAS INSTRUMENTS INCORPORATED
AND
AST RESEARCH, INC.
TABLE OF CONTENTS
ARTICLE I 3
DEFINITIONS
SUBSIDIARY 3
EFFECTIVE DATE 3
AST PATENT(S) 4
AST-PARTICIPATION PATENT(S) 4
TI PATENT(S) 5
TI-PARTICIPATION PATENT(S) 5
SEMICONDUCTIVE MATERIAL(S) 6
JUNCTION MATERIAL 6
SEMICONDUCTIVE ELEMENT(S) 7
SEMICONDUCTIVE APPARATUS 8
PERSONAL COMPUTER(S) 9
PERIPHERAL DEVICE(S) 10
GRAPHICS DISPLAY SYSTEM(S) 10
LICENSED PRODUCT(S) 10
MANUFACTURER'S FACTORY PRICE 10
DEFORMABLE DEVICES 12
DMD SYSTEMS 12
DRAM 12
QUALIFIED 486DX PRODUCTS 13
QUALIFIED 586 PRODUCTS 13
ARTICLE II 14
MUTUAL RELEASES
ARTICLE III 16
GRANT OF LICENSES
ARTICLE IV 22
LICENSES TO SUBSIDIARIES
ARTICLE V 24
ROYALTY TERMS, PAYMENTS AND TAXES
ARTICLE VI 48
ACCOUNTING FOR ROYALTIES
ARTICLE VII 56
TERM AND TERMINATION
ARTICLE VIII 59
MISCELLANEOUS PROVISIONS
LICENSE AGREEMENT
EXHIBIT A
of the
Settlement Agreement and Release dated January 1, 1995
THIS AGREEMENT is by and between TEXAS INSTRUMENTS INCORPORATED ("TI"), a
Delaware corporation having a place of business at 13500 North Central
Expressway, Dallas, Texas 75265, U.S.A., and AST RESEARCH, INC. ("AST"), a
Delaware corporation, having a place of business at 16215 Alton Parkway, Irvine,
California 92718, U.S.A.
WITNESSETH:
WHEREAS, TI owns or controls and has or may have rights during the term of
this Agreement under various patents and utility models in various countries of
the world, as to which AST desires to acquire licenses as hereinafter provided;
WHEREAS, AST owns or controls and has or may have rights during the term of
this Agreement under various patents and utility models in various countries of
the world as to which TI desires to acquire licenses as hereinafter provided;
WHEREAS, TI and AST are engaged in continuing research, development and
engineering in regard to LICENSED PRODUCTS (as hereinafter defined) and
contemplate the possibility of seeking patent protection for inventions
resulting therefrom;
WHEREAS, TI has personal computer patents that continue through the year
2000, and TI's current intent is to continue its personal computer patent
licensing program through the year 2000;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
Section 1. "SUBSIDIARY" means any corporation, company, or other entity
at least fifty percent (50%) of the outstanding shares or stock entitled to vote
for the election of directors (other than any shares of stock whose voting
rights are subject to restriction) of which is owned or controlled by either
party hereto, directly or indirectly, now or hereafter during the term of this
Agreement. Any corporation, company or other entity which would at any time be
a SUBSIDIARY of AST or TI, as the case may be, by reason of the foregoing shall
be considered a SUBSIDIARY for the purposes of this Agreement only so long as
the ownership or control, directly or indirectly, by AST or TI, as the case may
be, meets the conditions hereinabove set forth.
"SUBSIDIARIES" of AST or TI means, respectively, all corporations,
companies or other entities which qualify as a SUBSIDIARY under the foregoing.
Section 2. The "EFFECTIVE DATE" of this Agreement shall be January 1,
1995.
Section 3. "AST PATENT(S)" means (1) all patents and utility models of
any country in the world which convey legally enforceable rights during the term
of this Agreement and (2) all applications for patents and utility models in any
country of the world which convey legally enforceable rights during the term of
this Agreement, in respect of which, as of the EFFECTIVE DATE, or, thereafter
during the term of this Agreement, AST or any of its SUBSIDIARIES own or
control, and under which and to the extent to which are subject to the
conditions under which AST or any of its SUBSIDIARIES may have, as of the
EFFECTIVE DATE, or may thereafter during the term of this Agreement acquire, the
right to grant licenses of the scope granted herein without the payment of
royalties or other consideration to third parties, except for payments to a
SUBSIDIARY of AST or payments to third parties for inventions made by said third
parties while employed by AST or a SUBSIDIARY of AST.
Section 4. "AST-PARTICIPATION PATENT(S)" means (1) all patents and
utility models of any country in the world which convey legally enforceable
rights during the term of this Agreement and (2) all applications for patents
and utility models in any country of the world which convey legally enforceable
rights during the term of this Agreement, covering inventions developed or made
by one or more employees of AST or any SUBSIDIARY (including employees of AST
temporarily dispatched, assigned, or otherwise participating in any project of,
or placed on the payroll of any third party) singly, or jointly with a third
party, and where approval or consent by a party other than a party hereto is
required prior to granting a license or sublicense thereunder.
Section 5. "TI PATENT(S)" means (1) all patents and utility models of
any country in the world which convey legally enforceable rights during the term
of this Agreement and (2) all applications for patents and utility models in any
country of the world which convey legally enforceable rights during the term of
this Agreement, in respect of which, as of the EFFECTIVE DATE, or, thereafter
during the term of this Agreement, TI or any of its SUBSIDIARIES own or control,
and under which and to the extent to which and subject to the conditions under
which TI or any of its SUBSIDIARIES may have, as of the EFFECTIVE DATE, or may
thereafter during the term of this Agreement acquire, the right to grant
licenses of the scope granted herein without the payment of royalties or other
consideration to third parties, except for payments to a SUBSIDIARY of TI or
payments to third parties for inventions made by said third parties while
employed by TI or a SUBSIDIARY of TI.
Section 6. "TI-PARTICIPATION PATENT(S)" means (1) all patents and
utility models of any country in the world which convey legally enforceable
rights during the term of this Agreement and (2) all applications for patents
and utility models in any country of the world which convey legally enforceable
rights during the term of this Agreement, covering inventions developed or made
by one or more employees of TI or any SUBSIDIARY (including employees of TI
temporarily dispatched, assigned or otherwise participating in any project of,
or placed on the payroll of any third party) singly, or jointly with a third
party, and where approval or consent by a party other than a party hereto is
required prior to granting a license or sublicense thereunder.
Section 7. "SEMICONDUCTIVE MATERIAL(S)" means any material primarily
adapted for use in SEMICONDUCTIVE ELEMENTS (as hereinafter defined), having an
electrical charge carrier concentration which increases with increasing
temperature over some temperature range, and having in its normal operating
temperature range a resistivity between 10-4 and 10+11 ohmcentimeters.
Section 8. "JUNCTION MATERIAL" means a mass of material consisting of
one or more SEMICONDUCTIVE MATERIALS which mass of material has therein one or
more junctions of two types of SEMICONDUCTIVE MATERIALS, one type conducting by
negative carriers of electricity and the other type conducting by positive
carriers of electricity; but the term does not mean nor does it include a mass
of material in which the aforesaid junctions are randomly disposed, as in the
case of random junctions incidental to minor variations in purity.
Section 9. "SEMICONDUCTIVE ELEMENT(S)" means a device consisting
primarily of a body of SEMICONDUCTIVE MATERIAL or JUNCTION MATERIAL having a
plurality of electrodes associated therewith, whether or not said body consists
of a single SEMICONDUCTIVE MATERIAL or JUNCTION MATERIAL or of a multiplicity of
such materials, and whether or not said body includes one or more layers or
other regions (constituting substantially less than the whole of said body) of a
material or materials which are of a type other than SEMICONDUCTIVE MATERIAL or
JUNCTION MATERIAL, and if provided as a part thereof, said device includes
passivating means therefor.
Said device has such characteristic that (a) when it is coupled to output
circuitry or electro-magnetic media and energy (including or not, one or more
sources of electric power) is applied to the device either (1) as input signals
through certain of its electrodes, with or without one or more sources of
biasing potential, or (2) as radiant energy or particles incident upon one or
more portions thereof, said device will produce in said output circuitry or
electromagnetic media, potentials or currents or electromagnetic radiations
which are effectively related to said energy; or (b) when it consists of said
body and two electrodes and potential is applied through its electrodes, the
impedance of the body is a function of the polarity of the potential.
Section 10. "SEMICONDUCTIVE APPARATUS" means:
(a) a SEMICONDUCTIVE ELEMENT; or
(b) a SEMICONDUCTIVE ELEMENT and one or more films of conductive,
semiconductive or insulating material formed on a surface or surfaces of
said element, said film or films comprising one or more conductors, active
or passive electrical circuit elements, or any combination thereof; or
(c) a unitary assembly consisting of one or more of (a), one or more of
(b), or any multiple of (a) and (b), having a fixed permanent physical
relationship established therebetween; or
(d) a unitary assembly consisting of (a), (b) or (c), and one or more thin
film devices having a fixed permanent physical relationship established
therebetween.
Such apparatus includes, if provided therewith as a part thereof,
supporting means, terminal members, conductors or equivalent interconnecting
members, housing means, and any environmental controlling means included within
such housing means or unitary therewith, and such apparatus further includes, if
provided therewith as a part thereof, the electrical circuits constituted hereby
and integrally included therein.
Section 11. "PERSONAL COMPUTER(S)" means a system having the following
elements: (1) provision for user input; (2) provision for output; (3) memory for
storing at least program instructions; and (4) at least one SEMICONDUCTIVE
APPARATUS incorporating a CPU wherein said system is primarily intended for
accepting user inputs either directly or indirectly, processing data, and
displaying or outputting information, all under control of program instructions
from memory executed by said CPU. The definition of a PERSONAL COMPUTER shall
not include devices primarily intended for use as an electronic calculator
having a display which is incapable of simultaneously displaying more than six
lines of individually alterable alpha-numeric characters or symbols. "PERSONAL
COMPUTER" shall not mean any mainframe computer such as an IBM 360 or 370. A
PERSONAL COMPUTER may include all input and output devices of the type sold
therewith, including externally coupled peripherals such as a keyboard, mouse,
trackball, video display unit ("VDU"), and further, all associated peripheral
devices such as data storage devices, modems, incorporated functions for LAN,
TV, telephone, stereo, interactive disk, multimedia or other functions or other
peripheral devices incorporated in the same housing as the CPU. Notwithstanding
the above, a printer shall in no event be considered as an input or output
device of the type sold therewith unless the printer is incorporated into the
same housing and is an integral piece of, the PERSONAL COMPUTER. If a computer
comprises a plurality of systems, each of which meets the preceding definition
of a PERSONAL COMPUTER, then each such system shall be considered a separate
PERSONAL COMPUTER for purposes of this Agreement.
Section 12. "PERIPHERAL DEVICE(S)" means a device which is not housed in
a PERSONAL COMPUTER when sold or disposed of by AST or a SUBSIDIARY of AST and
having (1) provision for input and output of data or datum, (2) memory storing
at least program instructions, and (3) at least one Single Chip CPU; said
PERIPHERAL DEVICE primarily intended for coupling to a PERSONAL COMPUTER, or
placement within the housing of a PERSONAL COMPUTER. Examples include, but are
not limited to, keyboards, printers, modems, mass storage systems, and LAN
servers.
Section 13. "GRAPHICS DISPLAY SYSTEM(S)" means a system designed to
include a CPU and one or more memory devices, at least one of the memory devices
having a multibit serial output for coupling to a display of a PERSONAL
COMPUTER. By way of illustration, one such GRAPHICS DISPLAY SYSTEM is described
in U.S. Patent 4,663,735.
Section 14. "LICENSED PRODUCT(S)" means PERSONAL COMPUTERS, PERIPHERAL
DEVICES, and GRAPHICS DISPLAY SYSTEMS.
Section 15. "MANUFACTURER'S FACTORY PRICE" (MFP) means the price billed
or invoiced for a LICENSED PRODUCT (excluding packing and shipping costs and
crediting returns and adjustments) to a non-SUBSIDIARY by AST or a SUBSIDIARY of
AST. For all LICENSED PRODUCTS disposed of by AST or a SUBSIDIARY of AST, other
than by such sale to a non-SUBSIDIARY, MFP shall be the average price billed or
invoiced to a non-SUBSIDIARY by AST or a SUBSIDIARY of AST for the same or a
similar LICENSED PRODUCT during the relevant royalty accounting period.
For the purpose of determining its MFP, any given PERSONAL COMPUTER shall
include the standard features provided for that given model number, including
any PERIPHERAL DEVICE or GRAPHICS DISPLAY SYSTEM incorporated within that model
number. By way of example, if a given PERSONAL COMPUTER model number includes a
hard disk as a standard feature of that model number, then the MFP of that model
number PERSONAL COMPUTER shall be the MFP that includes the hard disk.
For the purposes of this Agreement, LICENSED PRODUCTS billed or invoiced
directly to an end user (as distinguished from a reseller) shall be deemed to
have an MFP which is eighty percent (80%) of the invoice price.
If a LICENSED PRODUCT requires a microprocessor chip to operate, but the
LICENSED PRODUCT does not include the microprocessor chip, then the MFP of such
a LICENSED PRODUCT shall be the MFP that would otherwise be calculated, but
augmented by the addition of the cost of the microprocessor chip.
Section 16. "DEFORMABLE DEVICES" means a SEMICONDUCTIVE APPARATUS
wherein addressable and movable radiation reflecting members comprise a
substantial portion of the device, including, by way of illustration,
electrostatically controllable, deformable or deflectable mirrors.
Section 17. "DMD SYSTEMS" means any instrumentality or aggregate of
instrumentalities which incorporates one or more DEFORMABLE DEVICES as a part
thereof. In the event a separately housed DMD SYSTEM is connected to a PERSONAL
COMPUTER as a peripheral device, the DMD SYSTEM shall not be deemed to include
such PERSONAL COMPUTER or other PERIPHERAL DEVICES which are connected to such
PERSONAL COMPUTER.
Section 18. For the purposes of this Agreement, neither DEFORMABLE
DEVICES nor DMD SYSTEMS shall be deemed to be encompassed by any of the other
product definitions of this Article I nor shall they be deemed to be LICENSED
PRODUCTS.
Section 19. "DRAM" means memory semiconductive apparatus of various
memory capacity wherein data is represented in an individual memory cell by
dynamically stored charge, and including by way of example, VIDEO RAMs (VRAM),
and Field or Frame memories, commonly referred to in the industry as FRAMs.
Section 20. "QUALIFIED 486DX PRODUCT" means a microprocessor chip
product to be made by TI which is hardware, software and firmware compatible
with any version of the 486DX-type microprocessor chip purchased by AST from any
supplier for incorporation into personal computers manufactured by AST with such
version of the chip being purchased by AST in commercially significant
quantities (i.e., not just samples or beta units, but at least 60,000 chips
annually).
Section 21. "QUALIFIED 586 PRODUCT" means a microprocessor chip product
to be made by TI which is hardware, software and firmware compatible with any
version of the Pentium-type microprocessor chip purchased by AST from any
supplier for incorporation into personal computers manufactured by AST with such
version of the chip being purchased by AST in commercially significant
quantities (i.e., not just samples or beta units, but at least 60,000 chips
annually).
ARTICLE II
MUTUAL RELEASES
Section 1. AST hereby releases, acquits and forever discharges TI and
all of TI's SUBSIDIARIES from any and all claims or liability for infringement
or alleged infringement of any AST PATENT under which a license is herein
granted by AST with respect to performance by TI or any of TI's SUBSIDIARIES,
prior to the EFFECTIVE DATE, of acts which if performed on or after the
EFFECTIVE DATE would be acts licensed hereunder.
Section 2. Subject to the payment of the sums prescribed in Article V,
Section 1A(d) or Section 1B(b) hereof, TI hereby releases, acquits and forever
discharges AST and all of AST'S SUBSIDIARIES from any and all claims or
liability for infringement or alleged infringement of any TI PATENT under which
a license is herein granted by TI with respect to performance by AST or any of
AST's SUBSIDIARIES, prior to the EFFECTIVE DATE, of acts which if performed on
or after the EFFECTIVE DATE would be acts licensed hereunder.
Section 3. AST hereby waives any and all claims of liability for
infringement or alleged infringement which AST or any of AST's SUBSIDIARIES may
have against TI or any or all of TI's SUBSIDIARIES based on any AST-
PARTICIPATION PATENT with respect to performance by TI or any of TI's
SUBSIDIARIES, prior to the EFFECTIVE DATE, of acts which if performed on or
after the EFFECTIVE DATE would be acts licensed hereunder, and AST hereby agrees
to release TI and TI's SUBSIDIARIES from any and all such claim or liability to
the extent AST has the legal right to grant such a release.
Section 4. TI hereby waives any and all claims or liability for
infringement or alleged infringement which TI or any of TI's SUBSIDIARIES may
have against AST or any or all of AST'S SUBSIDIARIES based on any TI-
PARTICIPATION PATENT with respect to performance by AST or any of AST's
SUBSIDIARIES, prior to the EFFECTIVE DATE, of acts which if performed on or
after the EFFECTIVE DATE would be acts licensed hereunder, and TI hereby agrees
to release AST and AST's SUBSIDIARIES from any and all such claim or liability
to the extent TI has the legal right to grant such a release.
Section 5. Notwithstanding any provision in this Agreement to the
contrary, the mutual releases in this Article II shall survive the term of this
Agreement or any earlier termination, and are independent of all other
provisions of this Agreement. AST and TI agree that the rights each is
receiving from the other constitutes adequate consideration for the releases
each is giving to the other and the other's SUBSIDIARIES.
ARTICLE III
GRANT OF LICENSES
Section 1. Subject to the payment of the sums prescribed in Article V
hereof, TI grants and agrees to grant to AST and its SUBSIDIARIES, during the
term of this Agreement, non-exclusive licenses under TI PATENTS to make, to use,
to lease, to sell and to otherwise dispose of LICENSED PRODUCTS.
Section 2. TI hereby agrees, to the extent that it has the legal right
(and in the event it does not have such right, to exert reasonable efforts to
obtain such right), to grant to AST and its SUBSIDIARIES non-exclusive licenses
or sublicenses, as the case may be, under TI-PARTICIPATION PATENTS, to make, to
use, to lease, to sell and to otherwise dispose of LICENSED PRODUCTS.
Section 3. AST grants and agrees to grant to TI and its SUBSIDIARIES,
during the term of this Agreement, non-exclusive licenses under AST PATENTS to
make, to use, to lease, to sell and to otherwise dispose of LICENSED PRODUCTS.
Section 4. AST hereby agrees, to the extent that it has the legal right
(and in the event it does not have such right to exert reasonable efforts to
obtain such right), to grant to TI and its SUBSIDIARIES non-exclusive licenses
or sublicenses, as the case may be, under AST-PARTICIPATION PATENTS to make, to
use, to lease, to sell and to otherwise dispose of LICENSED PRODUCTS.
Section 5A. Notwithstanding anything to the contrary contained elsewhere
in this Agreement, no royalties shall be payable hereunder with respect to any
PERIPHERAL DEVICE which is not a AST Trademarked Product (as hereinafter
defined) and such PERIPHERAL DEVICE shall be unlicensed under this Agreement and
TI covenants not to sue or take any legal action against AST or any of its
SUBSIDIARIES, nor treat such use or sale to be a breach of this Agreement, with
respect to any such PERIPHERAL DEVICE which is used or sold prior to the
expiration of this Agreement.
For the purposes of this Agreement, the term "AST Trademarked Product"
shall mean a product which is disposed of by AST bearing a trademark that is
owned or licensed by AST or any corporation that controls, is controlled by, or
is under common control with AST; provided, however, that neither government
required labeling or plating, such as required by the U.S. Federal
Communications Commission, nor trademarks on the packaging or documentation for
such products shall be deemed to make a product a AST Trademarked Product. The
provisions of this Section 5A shall not be applicable to any product made by
AST.
Section 5B. Notwithstanding anything to the contrary contained elsewhere
in this Agreement, no royalties shall be payable hereunder with respect to any
NON-PERIPHERAL (as hereinafter defined) which meets each of the following
conditions and such NON-PERIPHERAL shall be unlicensed under this Agreement and
TI covenants not to sue or take any legal action against AST or any of its
SUBSIDIARIES, nor treat such use or sale to be a breach of this Agreement, with
respect to any such NON-PERIPHERAL which is used or sold prior to the expiration
of this Agreement:
(a) Such NON-PERIPHERAL is not a AST Trademarked Product; and
(b) Such NON-PERIPHERAL is acquired by AST from a third party NON-
SUBSIDIARY (whether such party is the manufacturer, a reseller, or some
other third party) that has a U.S. presence (i.e., is subject to service of
process in the U.S.); provided, however, that a U.S. presence shall be
deemed to exist with respect to any NON-PERIPHERAL that was either acquired
by or disposed of by AST prior to the EFFECTIVE DATE.
For the purposes of this Agreement, the term "NON-PERIPHERAL" shall mean a
LICENSED PRODUCT other than a PERIPHERAL DEVICE. The provisions of this Section
5B shall not be applicable to any product made by AST.
Section 5C (a). Notwithstanding anything to the contrary contained
elsewhere in this Agreement, if AST has elected ROYALTY OPTION I pursuant to
Article V, Section 1B, AST shall have the option to suspend payment of royalties
on any NON-PERIPHERAL that meets each of the following conditions:
(i) SUCH NON-PERIPHERAL is acquired by AST from a third party NON-
SUBSIDIARY (whether such party is the manufacturer, a reseller, or some
other third party) that has no U.S. presence (i.e., is not subject to
service of process in the U.S.); and
(ii) Such NON-PERIPHERAL is not a AST Trademarked Product.
(b) AST may exercise such option by (i) providing TI notice prior to such
suspension and (ii) identifying the third party from which AST has acquired (or
proposes to acquire) such NON-PERIPHERAL and, if known to AST, such third
party's volume of sales, the name and address of the manufacturer of such NON-
PERIPHERAL, and the volume of sales of such manufacturer, and (iii) attending
for informational purposes a meeting with TI and such third party and/or
manufacturer at a reasonable time and place for TI to encourage such third party
and/or manufacturer to enter into license agreements with TI covering such NON-
PERIPHERAL. TI will make a good faith effort to conclude such license agreements
with one of such third parties within one (1) year from the date AST provides
the information specified in Clause (b) (ii) above.
In the event that TI is unable to conclude such an agreement either with
the manufacturer or other third party reseller of such NON-PERIPHERAL to AST
within the one (1) year period, then AST shall commence royalty payments for all
such NON-PERIPHERALS purchased from such unlicensed third party after the
expiration of the one (1) year period. AST shall pay royalties on all such NON-
PERIPHERALS purchased during such one (1) year period, payable within thirty
(30) days after the end of the one (1) year period. In the event that any
license agreement is entered into by TI and such third party, and such third
party pays to TI royalties on any NON-PERIPHERAL for which AST has already paid
royalties to TI, then TI shall repay to AST any such already paid royalties plus
interest at 8% per annum for the period from the third party's payment to the
date of TI's repayment.
The provisions of Article VI, Section 9, shall apply fully in any instance
where LICENSED PRODUCTS are sold to AST by a third party having a license from
TI to do so, or by a reseller who acquired LICENSED PRODUCTS from such third
party, whether or not such license agreement was entered into during said one
(1) year period.
Section 6. No monetary consideration shall be payable by TI to AST for
the grant of licenses and/or sublicenses pursuant to sections 3 and 4 of this
Article III.
Section 7. With respect to the licenses granted in Sections 1, 2, 3, 4
and 5 of this Article III, a license to a party "to make" LICENSED PRODUCTS
shall also include the right for such party to contract all or a portion of the
manufacture or assembly of LICENSED PRODUCTS to third parties.
Section 8. Specifically excluded from the grant of licenses in Sections
1 through 5 of this Article III are licenses to make, to use, to lease, to sell
and to otherwise dispose of SEMICONDUCTIVE APPARATUS and DMD SYSTEMS under any
of the claims of TI PATENTS, TI-PARTICIPATION PATENTS, AST PATENTS and AST-
PARTICIPATION PATENTS licensed hereunder, and TI covenants not to sue or take
legal action against AST or any of its SUBSIDIARIES, nor treat such use or sale
to be a breach of this Agreement, with respect to any such SEMICONDUCTIVE
APPARATUS which are purchased from a third party during the term of this
Agreement and thereafter incorporated into a LICENSED PRODUCT.
ARTICLE IV
LICENSES TO SUBSIDIARIES
Section 1. (a) If AST wishes to acquire an interest in a third party
company after the EFFECTIVE DATE, TI agrees to provide to AST, within thirty
(30) days after request by AST, an indication whether or not products made, sold
or leased by said third party company are covered by any TI PATENTS.
(b) If AST subsequently acquires said third party company after TI
indicates that said third party company products are covered by TI PATENTS,
where the acquired company has engaged in the manufacture or sale of LICENSED
PRODUCTS, royalty for the sale or other disposition of LICENSED PRODUCTS,
including unlicensed sales prior to such acquisition, shall be subject to the
provisions of Article V, Section 1A. The extent that such subsequently acquired
SUBSIDIARY shall be entitled to any Royalty Adjustment under Article 5, Section
1A shall depend upon the extent to which AST has satisfied the FAM for that
royalty period.
(c) If AST subsequently acquires said third party company after TI
indicates that said third party company products are not covered by TI PATENTS,
no royalty will be due for unlicensed sales of said acquired company prior to
such acquisition, but royalties for sale or other disposition of LICENSED
PRODUCTS after such acquisition shall be subject to the provisions of Article V,
Section 1A. The extent that such subsequently acquired SUBSIDIARY shall be
entitled to any Royalty Adjustment under Article V, Section 1A shall be
calculated using all of the TNP for AST and all of its SUBSIDIARIES, including
the subsequently acquired SUBSIDIARIES, to determine the extent to which AST has
satisfied the FAM for that royalty period.
Section 2. In the event that the relationship of a SUBSIDIARY of a
party hereto changes so that a corporation, company, or other entity ceases to
be such a SUBSIDIARY, the license extended to such corporation, company or other
entity under this Agreement shall automatically terminate as of the date such
relationship changes, but the licenses granted either directly or indirectly by
such corporation, company or other entity to the other party hereto under this
Agreement shall continue until expiration or termination of this Agreement.
ARTICLE V
ROYALTY TERMS, PAYMENTS AND TAXES
Section 1. In consideration for the license granted and agreed to be
granted by TI pursuant to Article III hereof, AST hereby agrees to elect in
writing one of the following ROYALTY OPTIONS I or II within sixty (60) days
after the EFFECTIVE DATE and undertakes to thereafter pay TI royalties during
the term of this Agreement under the elected ROYALTY OPTION as set forth below,
and AST shall have the right to change its election between either of ROYALTY
OPTIONS I or II for the portion of the term of this License Agreement subsequent
to January 1, 1998, provided that AST sends written notice of such change of
election to TI within sixty (60) days after January 1, 1998:
Section 1A. ROYALTY OPTION I
(a) PERSONAL COMPUTER(s):
A royalty shall be due for each PERSONAL COMPUTER made, sold, used,
leased, or otherwise disposed of by AST or its representative in either the
United States of America or Japan. Additionally, from and after final
issuance after Opposition of a counterpart patent to U.S. Patent RE 31,864
in the Federal Republic of Germany and so long as such patent is
maintained, a royalty shall be due for each PERSONAL COMPUTER made, sold,
used, leased, or otherwise disposed of by AST or its representative in the
Federal Republic of Germany if the PERSONAL COMPUTER performs a test
routine upon power-up. In calculating royalties to be paid by AST, the
following stated per unit royalty shall apply. For each PERSONAL COMPUTER
made, sold, used, leased, or otherwise disposed of by AST or its
representative in the United States of America before January 1, 1998, the
Standard Royalty shall be XXXXXX, but an Interim Royalty to be used for
purposes of computing royalties due for each semiannual reporting period
pursuant to the provisions of Article VI, Section 4 shall be XXX. For each
PERSONAL COMPUTER made, sold, used, leased, or otherwise disposed of by AST
or its representative in Japan or the Federal Republic of Germany before
January 1, 1998, and not directly or indirectly exported to the United
States of America, the Standard Royalty shall be XXXXXX and the Interim
Royalty shall be XXXXX. For each PERSONAL COMPUTER made, sold, used,
leased, or otherwise disposed of by AST or its representative in the United
States of America on or after January 1, 1998, the Standard Royalty shall
be XXXXXX, but an Interim Royalty to be used for purposes of computing
royalties due for each semiannual reporting period pursuant to the
provisions of Article VI, Section 4 shall be XX. For each PERSONAL
COMPUTER made, sold, used, leased, or otherwise disposed of by AST or its
representative in Japan or the Federal Republic of Germany on or after
January 1, 1998, and not directly or indirectly exported to the United
States of America, the Standard Royalty shall be XXXXXX and the Interim
Royalty shall be XXXXX.
In the alternative and at AST's election, the following calculations
may be used to determine the required royalty for activities on or after
January 1, 1998. For each PERSONAL COMPUTER made, sold, used, leased or
otherwise disposed of by AST or its representative in the United States on
or after January 1, 1998, the Standard Royalty shall be XXXXX of the MFP
and the Interim Royalty shall be XXXXX of the MFP. For each PERSONAL
COMPUTER made, sold, used, leased, or otherwise disposed of by AST or its
representative in Japan on or after January 1, 1998, and not directly or
indirectly exported to the United States of America, the Standard Royalty
shall be XXXXX of the MFP and the Interim Royalty shall be XXXXX of the
MFP. For each PERSONAL COMPUTER made, sold, used, leased, or otherwise
disposed of by AST or its representative in the Federal Republic of Germany
(when applicable) on or after January 1, 1998, and not directly or
indirectly exported to the United States of America or Japan, the Standard
Royalty shall be XXXXX of the MFP and the interim Royalty shall be XXXXX of
the MFP.
(b) PERIPHERAL DEVICE(s):
A royalty shall be due for each PERIPHERAL DEVICE made, sold, used,
leased, or otherwise disposed of by AST or its representative in either the
United States of America or Japan. Additionally, from and after final
issuance after Opposition of a counterpart patent to U.S. Patent RE 31,864
in the Federal Republic of Germany and so long as such patent is
maintained, a royalty shall be due for each PERIPHERAL DEVICE made, sold,
used, leased, or otherwise disposed of by AST or its representative in the
Federal Republic of Germany if the PERIPHERAL DEVICE performs a test
routine upon power-up. The royalty shall be calculated as follows.
For each PERIPHERAL DEVICE made, sold, used, leased, or otherwise
disposed of by AST or its representative in the United States of America
before January 1, 1998, the Standard Royalty shall be XXXX of the MFP and
the Interim Royalty shall be XXXX of the MFP. For each PERIPHERAL DEVICE
made, sold, used, leased, or otherwise disposed of by AST or its
representative in Japan before January 1, 1998, and not directly or
indirectly exported to the United States of America, the Standard Royalty
shall be XXXX of the MFP, and the Interim Royalty shall be XXXX of the MFP.
For each PERIPHERAL DEVICE made, sold, used, leased, or otherwise disposed
of by AST or its representative in the Federal Republic of Germany (when
applicable) before January 1, 1998, and not directly or indirectly exported
to the United States of America or Japan, the Standard Royalty shall be
XXXX of the MFP and the Interim Royalty shall be XXXXX of the MFP.
However, such royalty shall not be due for a peripheral device which is
part of a PERSONAL COMPUTER as defined in Article I, Section 11. In no
event, for activities before January 1, 1998, shall the Standard Royalty of
a PERIPHERAL DEVICE exceed XXXXXX, nor shall the Interim Royalty exceed
XXXXX.
For each PERIPHERAL DEVICE made, sold, used, leased, or otherwise
disposed of by AST or its representative in the United States of America on
or after January 1, 1998, the Standard Royalty shall be XXXXX of the MFP
and the Interim Royalty shall be XXXXX of the MFP. For each PERIPHERAL
DEVICE made, sold, used, leased, or otherwise disposed of by AST or its
representative in Japan on or after January 1, 1998, and not directly or
indirectly exported to the United States of America, the Standard Royalty
shall be XXXXX of the MFP, and the Interim Royalty shall be XXXXX of the
MFP. For each PERIPHERAL DEVICE made, sold, used, leased, or otherwise
disposed of by AST or its representative in the Federal Republic of Germany
(when applicable) on or after January 1, 1998, and not directly or
indirectly exported to the United States of America or Japan, the Standard
Royalty shall be XXXXX of the MFP and the Interim Royalty shall be XXXXX of
the MFP. However, such royalty shall not be due for a peripheral device
which is part of a PERSONAL COMPUTER as defined in Article I, Section 11.
In no event, for activities on or after January 1, 1998, shall the Standard
Royalty of a PERIPHERAL DEVICE exceed XXXXXX, nor shall the Interim Royalty
exceed XXXXX.
(c) GRAPHICS DISPLAY SYSTEM(s):
(i) A royalty shall be due for each GRAPHICS DISPLAY SYSTEM made,
used, leased, sold or otherwise disposed of by AST or its
representative in the United States of America.
(ii) Additionally, TI shall have the right to give AST written notice
of any patent registered in Japan which TI asserts will cover a
GRAPHICS DISPLAY SYSTEM. In such event TI and AST agree to have good
faith discussions concerning whether the claim(s) of such patent(s)
reasonably cover such a system and, if necessary, amend the definition
of GRAPHICS DISPLAY SYSTEM(s) as it applies to Japan to be
commensurate with the scope of said patent(s). If the parties cannot
reach a mutual agreement on the scope of the claim(s) of such patent
within ninety (90) days of such notice, TI shall have the right to
terminate the license under TI PATENTS in Japan to GRAPHIC DISPLAY
SYSTEM(s) and seek legal relief. In the event that the parties agree
that the cited patent covers GRAPHIC DISPLAY SYSTEM(s) (including
amendments of the definition, if any), a royalty shall be due for each
such GRAPHIC DISPLAY SYSTEM made, sold, used, leased, or otherwise
disposed of by AST or its representative in Japan and not directly or
indirectly exported to the United States of America. Such royalty
shall be due dating from the date of publication for opposition of the
patent application on the basis of which said patent was registered
and shall continue through the term of the Agreement, but in no event
shall it predate February 1, 1994. Royalties due for the period prior
to the date of the parties reaching agreement shall be paid to TI
within thirty (30) days of such agreement and shall include interest
at the rate of 8% per annum. The provision of this Paragraph l(c)
(ii) shall survive expiration of the Agreement for those instances
where a patent is published for opposition prior to December 31, 2000,
but the parties do not reach agreement as to the scope of the
registered patent until after December 31, 2000.
(iii) in both (i) and (ii) above, for activities before January 1,
1998 the Standard Royalty shall be XXXXXX and the Interim Royalty
shall be XXXXX, and for activities on or after January 1, 1998 the
Standard Royalty shall be XXXXX and the Interim Royalty shall be
XXXXX. Notwithstanding anything herein to the contrary, a PERSONAL
COMPUTER and a GRAPHICS DISPLAY SYSTEM in one unit shall not give rise
before January 1, 1998 to a Standard Royalty greater than XXXXXX nor
an Interim Royalty greater than XXXXXX, and shall not give rise on or
after January 1, 1998 to a Standard Royalty greater than XXXXXX nor an
Interim Royalty greater than XXXXXX.
(d) In addition to the payments set forth in Section 1A(a)-(c) and (e) of
this Article V, AST agrees to pay TI an initial license fee in the amount
of XXXX XXXXXXX XXXXXXXX XX XXXXXXX XXXXXXXXXXXXXXX at the time this
License Agreement is executed by both TI and AST.
(e) In addition to the payments set forth in Section 1A(a)-(d) of this
Article V, AST agrees to pay TI a second license fee in the amount of XXXX
XXXXXXX XXXXXXXX XX XXXXXXX XXXXXXXXXXXXXXX on or before January 1, 1996,
AST agrees to pay TI a third license fee in the amount of XXXX XXXXXXX
XXXXXXXX XX XXXXXXX XXXXXXXXXXXXXXX on or before January 1, 1997, AST
agrees to pay TI a fourth license fee in the amount of XXXX XXXXXXX
XXXXXXXX XX XXXXXXX XXXXXXXXXXXXXXX on or before January 1, 1998, AST
agrees to pay TI a fifth license fee in the amount of XXXX XXXXXXX XXXXXXXX
XX XXXXXXX XXXXXXXXXXXXXXX on or before January 1, 1999, and AST agrees to
pay a TI sixth license fee in the amount of XXXX XXXXXXX XXXXXXXX XX
XXXXXXX XXXXXXXXXXXXXXX on or before January 1, 2000.
(f) If the payment set forth in Section 1B(b) of this Article V has been
made, then the payment set forth in Section 1A(d) of this Section V shall
not be required. If particular license fees (e.g., second, third, etc.)
have been made as stated in Section 1B(c) of this Article V, then the
corresponding particular license fees in Section 1A(e) of this Article V
shall not be required.
(g) All taxes imposed as a result of the existence of this Agreement or the
performance of the parties hereunder shall be borne and paid by the party
required to do so by applicable law, provided however, that if so required
by applicable law, AST shall withhold from its payment to TI pursuant to
this Agreement, the amount of any national taxes levied on said payment,
and shall promptly effect payment thereof to the appropriate tax
authorities. AST shall take all reasonable steps to minimize such taxes
including securing the minimum rates of withholding tax under any income
tax convention which the United States has with the country imposing such
taxes. Further, AST shall take all reasonable steps to qualify payment of
such taxes for use by TI of the U.S. Foreign Tax Credit including obtaining
and providing TI with official tax receipts of such country which identify
TI as the party subject to such withholding taxes.
(h) The Standard Royalty calculated pursuant to the provisions of Article
V, Section 1A may be adjusted downwards by up to XXXXX XXXXXXX XXXXX in the
case of PERSONAL COMPUTERS made, sold, used, leased, or otherwise disposed
of in the United States of America and by up to XXXXX XXXXXXX XXXXX in the
case of all other LICENSED PRODUCTS for each Fiscal Annual Period
(hereinafter defined as a period extending from January 1 of a year to
December 31 of the same year) commencing on January 1, 1995 and extending
through December 31, 2000, at the voluntary election of AST by applying any
Total Net Purchases (as hereinafter defined) accrued during any such Fiscal
Annual Period, to arrive at an Adjusted Royalty for such period, as
follows:
(i) The Adjusted Royalty for such Fiscal Annual Period is calculated
by multiplying the Standard Royalty (determined under Section 1A of
this Article V) for such period, by the Royalty Adjustment for such
period.
(ii) "Royalty Adjustment" is calculated once for each Fiscal Annual
Period, said calculation being made at the conclusion of the next
succeeding Fiscal Annual Period; and is calculated as follows:
For any Fiscal Annual Period during which the applicable Total
Net Purchases (TNP) are less than XXXXXXXXXXXXXX, the Royalty
Adjustment shall be XXXX.
For any Fiscal Annual Period during which the applicable TNP are
exactly XXXXXXXXXXXXXX, the Royalty Adjustment shall be XXXX.
For any Fiscal Annual Period during which the applicable TNP are
greater than XXXXXXXXXXXXXX, but less than the Fiscal Annual Minimum
("FAM") as subsequently defined, the Royalty Adjustment shall be a
number less than XXXX in all cases, but greater than XXXX in the case
of U.S. PERSONAL COMPUTERS and greater than XXXX in the case of all
other LICENSED PRODUCTS. The Royalty Adjustment shall be reduced
linearly from XXXX to XXXX or XXXX as the case may be as a function of
the extent to which the applicable TNP for the Fiscal Annual Period
exceed XXXXXXXXXXXXXX but are less than the FAM.
For any Fiscal Annual Period during which the applicable TNP
exceed the FAM, the Royalty Adjustment shall be XXXX in the case of
U.S. PERSONAL COMPUTERS, and XXXX for all other LICENSED PRODUCTS.
In the interests of administrative convenience, the parties agree that
royalties payable by AST at the end of each fiscal semiannual reporting period
may be computed using the Interim Royalties set forth in Section 1A of this
Article V. To the extent that the adjusted royalties as determined pursuant to
the provisions of this Article V, Section 1A(h) exceed such royalties previously
paid for any given Fiscal Annual Period, such excess shall be paid to TI by AST
with interest at the rate of eight percent (8%) per annum as part of the royalty
payment made at the conclusion of the Fiscal Annual Period immediately following
said given Fiscal Annual Period. At AST's option, at the end of any royalty
payment period, it may choose to pay royalties in accordance with the Standard
Royalty and TI will refund any excess payment at the time the parties mutually
agree that a refund is due. No interest shall be due on any refund payment made
by TI.
Section 1B. ROYALTY OPTION II
(a) For ease of record keeping and administrative convenience, the parties
agree to the following lump sum royalty payment procedure, which payment
amounts are deemed to be fully equivalent to and in lieu of the royalty
payments set forth in this Article V, Section 1A based upon expected future
business activities of AST:
Annual Standard Annual Minimum
Fiscal Lump Sum Royalty Lump Sum Royalty
Annual Period Payments Payments
01/01/95-12/31/95 X XXXXXXXXXX X XXXXXXXXX
01/01/96-12/31/96 X XXXXXXXXXX X XXXXXXXXXX
01/01/97-12/31/97 X XXXXXXXXXX X XXXXXXXXXX
01/01/98-12/31/98 formula below formula below
01/01/99-12/31/99 formula below formula below
01/01/00-12/31/00 formula below formula below
(i) AST agrees to pay to TI the required Annual Standard Lump Sum
Royalty Payment each Fiscal Annual Period that the TNP paid by AST to
TI are less than XXXXXXXXXX.
(ii) If the TNP for a Fiscal Annual Period equal exactly XXXXXXXXXX,
the Annual Standard Lump Sum Royalty Payment for that annual period
will be reduced by XXX.
(iii) If the TNP for a Fiscal Annual Period exceed XXXXXXXXXX but are
less than the Fiscal Annual Minimum for that annual period as set
forth below, the Annual Standard Lump Sum Royalty Payment for that
annual period shall be reduced linearly from a factor of XX to the
Annual Minimum Royalty Payment for that annual period as a linear
function of the extent to which the TNP exceed XXXXXXXXXX but are less
than the FAM.
(iv) If the TNP for a Fiscal Annual Period equal or exceed the Fiscal
Annual Minimum for that annual period as set forth below, the Annual
Standard Lump Sum Royalty Payment for that annual period shall be
reduced to the respective Annual Minimum Lump Sum Royalty Payment for
that annual period.
(v) As formulated for the calendar years 1998 through 2000, the
Annual Standard Lump Sum Royalty Payment and Annual Minimum Lump Sum
Royalty Payment shall be equal to XXX of those levels stated above for
the calendar year 1997, augmented by the average annual compound
growth rate of AST US personal computer unit sales data obtained from
published IDC figures for the calendar years 1995 through 1997, such
average annual compound growth rate being compounded each year to
compute the Annual Standard Lump Sum Royalty Payment and Annual
Minimum Lump Sum Royalty Payment for the calendar years 1998, 1999 and
2000. For example, if AST's US personal computer unit sales, as
published by IDC, increased from 733,000 units in calendar year 1994
to 975,623 units in calendar year 1997, this would be an average
annual compound growth rate of 10% for the calendar years 1995 through
1997, and would mean that the Annual Standard Lump Sum Royalty Payment
for calendar year 1998 would be 10% more than XXX of the 1997 level
(which would be XXXXXXXXXXX) with the 1999 level being an additional
10% more than the 1998 level (which would be XXXXXXXXXXX) and with the
2000 level being an additional 10% more than the 1999 level (which
would be XXXXXXXXXXX), and would mean that the Annual Minimum Lump Sum
Royalty Payment for calendar year 1998 would be 10% more than XXX of
the 1997 level (which would be XXXXXXXXXX) with the 1999 level being
an additional 10% more than the 1998 level (which would be
XXXXXXXXXXX) and with the 2000 level being an additional 10% more than
the 1999 level (which would be XXXXXXXXXXX). This example is
presented for illustrative purposes, and the growth rate of AST may be
higher or lower than the 10% rate used in the example.
(b) Upon election of ROYALTY OPTION II, in addition to the payments set
forth in Section 1B(a) and (c) of this Article V, AST agrees to pay TI an
initial license fee in the amount of XXXX XXXXXXX XXXXXXXX XX XXXXXXX
XXXXXXXXXXXXXXX at the time this License Agreement is executed by both TI
and AST.
(c) In addition to the payments set forth in Section 1B(a) and (b) of this
Article V, AST agrees to pay TI a second license fee in the amount of XXXX
XXXXXXX XXXXXXXX XX XXXXXXX XXXXXXXXXXXXXXX on or before January 1, 1996,
AST agrees to pay TI a third license fee in the amount of XXXX XXXXXXX
XXXXXXXX XX XXXXXXX XXXXXXXXXXXXXXX on or before January 1, 1997, AST
agrees to pay TI a fourth license fee in the amount of XXXX XXXXXXX
XXXXXXXX XX XXXXXXX XXXXXXXXXXXXXXX on or before January 1, 1998, AST
agrees to pay TI a fifth license fee in the amount of XXXX XXXXXXX XXXXXXXX
XX XXXXXXX XXXXXXXXXXXXXXX on or before January 1, 1999, and AST agrees to
pay TI a sixth license fee in the amount of XXXX XXXXXXX XXXXXXXX XX
XXXXXXX XXXXXXXXXXXXXXX on or before January 1, 2000.
(d) If the payment set forth in Section 1A(d) of this Article V has been
made, then the payment set forth in Section 1B(b) of this Section V shall
not be required. If particular license fees (e.g., second, third, etc.)
have been made as stated in Section 1A(e) of this Article V, then the
corresponding particular license fees in Section 1B(c) of this Article V
shall not be required.
Section 2. "Total Net Purchases" ("TNP") means the total amount paid by
AST or its SUBSIDIARIES subsequent to the EFFECTIVE DATE, to TI or its
SUBSIDIARIES for the purchase of products from TI or its SUBSIDIARIES, less (i)
any such portion of such amount which has been used by AST to adjust the royalty
for a Fiscal Annual Period prior to said given Fiscal Annual Period; (ii) sales,
excise taxes, and any other taxes (other than taxes measured by TI's or its
SUBSIDIARY's income) levied in respect of such sales, where such amounts are
included in the amount paid; (iii) returned sales; (iv) trade or quantity
discounts; (v) transportation and insurance costs where such amounts are
included in the amount paid; and (vi) import duties. Amounts related to items
(ii), (v), and (vi) will be deducted from TNP only when they are separately
shown on the invoice. In the event that AST purchases products for resale or
for incorporation in other products for resale from a third party supplier
having approved the inclusion in such products of one or more subassemblies,
components, or devices purchased by the supplier from TI, then the amounts paid
by said supplier to TI for the purchase of such subassemblies, components, or
devices shall be included in AST's TNP for the annual reporting period in which
AST purchases the products. TNP are expressed in U.S. dollars.
If the TNP for such Fiscal Annual Period, when added to any carryover from
previous year(s) exceeds the FAM for such Fiscal Annual Period, the excess may
be carried over for use in any succeeding Fiscal Annual Period, provided however
that for any given Fiscal Annual Period, any excess carried over from the
previous year(s) may be applied to said given Fiscal Annual Period only to the
extent that they do not exceed fifty percent of the FAM for said given Fiscal
Annual Period.
If the TNP for any given Fiscal Annual Period, when taken together with any
allowable TNP carried over from previous year(s), are less than the FAM for the
given Fiscal Annual Period, then TNP for the next succeeding Fiscal Annual
Period may be added to the TNP for the given Fiscal Annual Period, but only to
the extent that the TNP for the next succeeding Fiscal Annual Period exceed the
FAM for said next succeeding Fiscal Annual Period. Any such excess TNP to be
used for royalty reduction in the previous year shall not be used as a carryover
for any later year.
The purchase of products and services relating to Total Net
Purchases shall be in accordance with the following procedures:
(a) TI agrees that for standard commodity products ordered by AST or any of
its SUBSIDIARIES from TI, TI will offer to AST prices that are no greater
than the "Average Price" for such products, which is computed as follows:
i) the average (hereinafter "First Average") is taken of all prices
paid for such standard commodity products (at the equivalent
volume ordered by AST) which are being sold to direct commercial
customers (excluding internal customers and customers that have
provided substantial advanced funding to TI) at the time TI
accepts AST's order; and
ii) the Average Price is then computed by averaging the prices paid
for such products by any three representative similarly situated
commercial customers receiving prices below said First Average.
Standard commodity semiconductor products include catalog parts,
subassemblies, and end-user products built to seller's specifications,
which are normally sold to the same form, fit, and function by three or
more suppliers and do not allow for application customization.
For example, standard TI commodity products (which extend beyond
semiconductor products) include, but are not limited to:
Printers
Electrically Programmable Read Only Memory (EPROM)
- Non-Custom
General Purpose Logic (GPL)
Linear - Non-Custom
Memory
Dynamic Random Access Memories (DRAMS)
Video Random Access Memories (VRAMS)
Static Random Access Memories (SRAMS)
Programmable Array Logic (PALS)
QUALIFIED 486DX PRODUCT
QUALIFIED 586 PRODUCT
(b) TI agrees that for services, non-commodity, nonstandard, semicustom and
custom products ordered by AST from TI, TI prices will be established in
accordance with TI's customary practice of pricing for three representative
similarly situated customers who are purchasing similar products or
services. In the event there are no similarly situated customers for the
service or product ordered by AST, AST agrees that its recourse is either
to purchase the service or product from TI at the negotiated price or to
obtain the service or product from another supplier.
(c) Verification Rights: TI agrees, if requested by AST and at AST's
expense, to permit access to its books and records by a mutually acceptable
independent accounting firm selected by AST and approved by TI, which
approval shall not be unreasonably withheld, for the sole purpose of
verifying and reporting to AST that TI price obligations under Paragraphs
(a) and (b) above have been satisfied. Information relating to sales
prices, customers, and other confidential business information shall not be
made available to AST by such independent accounting firm. Any such audit
shall be arranged by advanced notice and shall be conducted during normal
business hours. It is expressly understood and agreed by the parties
hereto that all computations shall be made in accordance with
internationally recognized and generally accepted accounting principles as
reflected in the practice of certified independent public accountants of
international reputation. This verification may be instituted no more often
than once each fiscal year, and is to be completed by a mutually agreed
upon date before the end of November.
(d) TI shall not be obligated to supply DRAMs to AST from the date of
execution of this Agreement until January 31, 1995. Thereafter, and until
termination of this Agreement, TI shall not be obligated to supply to AST
DRAMs in excess of 20% of the w/o x86 portion of the Fiscal Annual Minimum.
From February 1, 1995 until termination of this Agreement, if TI cannot
supply AST's order for DRAMS up to 20% of the current w/o x86 portion of
the Fiscal Annual Minimum within ninety (90) days from placement of the
order or other mutually agreed upon delivery date, the current Fiscal
Annual Minimum set forth in Paragraph (f) below shall be reduced by an
amount which is the product of the w/o x86 portion of the Fiscal Annual
Minimum and a percentage equal to the difference between 20% and the
percentage of the w/o x86 portion of the Fiscal Annual Minimum of AST DRAMs
supplied by TI. For example, if during calendar year 1995, TI cannot
supply more than XX XXXXXXX in DRAM to AST, which is less than 20% of the
w/o x86 level (20% of XXX XXXXXXX is XX XXXXXXX), and AST has ordered more
than XX XXXXXXX in DRAM from TI, then the FAM otherwise applicable for
calendar year 1995 will be reduced by XX XXXXXXX {Calculation: XXX XXXXXXX
x [20% - (XXXX)x100%] = XX XXXXXXX}. This example is presented for
illustrative purposes, and the actual supplies of DRAM by TI to AST may be
higher or lower.
(e) The parties shall meet within ninety (90) days after the EFFECTIVE DATE
and semiannually thereafter to provide TI with a non-binding forecast of
AST's anticipated volumes of purchases from TI, by Product, for the year.
This forecast will be updated periodically by AST at reasonable intervals
during the year as changes in demand become known. TI commits to provide
AST with products and services in sufficient quantity for AST to achieve
the maximum credit towards its royalty payment obligations, provided that
TI and AST mutually agree to an annual purchase program which satisfies
this provision and is subject to AST's changing purchase needs and to the
availability of TI products and services.
(f) "Fiscal Annual Minimum" (FAM) is expressed in U.S. dollars, is a
constant for a given Fiscal Annual Period, and has the values shown for the
indicated Fiscal Annual Periods, as given by the table below. The
foregoing notwithstanding, however, FAM shall not, in any given Fiscal
Annual Period, exceed XXXXX XXX XXX XXXX XXXXXXX XXXXXX of AST's total net
sales billed for that Fiscal Annual Period.
Fiscal Annual Minimum
Fiscal
Annual Period w/o x86 w x86
01/01/95-12/31/95 X XXXXXXXXXX X XXXXXXXXXX
01/01/96-12/31/96 X XXXXXXXXXX X XXXXXXXXXX
01/01/97-12/31/97 X XXXXXXXXXX X XXXXXXXXXX
01/01/98-12/31/98 X XXXXXXXXXX X XXXXXXXXXX
01/01/99-12/31/99 X XXXXXXXXXX X XXXXXXXXXX
01/01/00-12/31/00 X XXXXXXXXXX X XXXXXXXXXX
The FAM level shall be equal to the w/o x86 level in calendar year
1995, increased pro-rata to the w x86 level for the period of time during
the year that TI makes QUALIFIED 486DX PRODUCT available in production
quantities (i.e., beyond samples or beta units) to AST. For example, if a
QUALIFIED 486DX PRODUCT is available to AST in production quantities from
TI during six months of 1995, the FAM shall be equal to XXXXXXXXXXX plus
6/12 (50%) of the difference between XXXXXXXXXXX and XXXXXXXXXXX, which
means that the FAM would be XXXXXXXXXXX. This example is presented for
illustrative purposes, and the availability of QUALIFIED 486DX PRODUCT may
be less or greater than the six months used in the example.
The FAM levels shall be equal to the w/o x86 levels in calendar years
1996 through 2000, increased pro-rata each year to the w x86 level for the
period of time during the year that TI makes QUALIFIED 586 PRODUCT
available in production quantities (i.e., beyond samples or beta units) to
AST. For example, if a QUALIFIED 586 PRODUCT is available to AST in
production quantities from TI during ten months of 1996, the FAM shall be
equal to XXXXXXXXXXX plus 10/12 (83.3%) of the difference between
XXXXXXXXXXX and XXXXXXXXXXX, which means that the FAM would be XXXXXXXXXXX.
This example is presented for illustrative purposes, and the availability
of QUALIFIED 586 PRODUCT may be less or greater than the ten months used in
the example.
Any purchases made by AST to qualify for a Royalty Adjustment or
Annual Minimum Lump Sum Royalty Payment are voluntary, as is any election
by AST to apply such Royalty Adjustment to arrive at an Adjusted Royalty.
Furthermore, AST acknowledges that at no time is it under an obligation to
make any such purchases.
(g) TI and AST agree to meet periodically to exchange information (under
non-disclosure agreements) concerning AST's computer design plans involving
x86 microprocessor chips and TI's chip design plans involving x86
microprocessor chips. The purpose of such information exchange shall be to
facilitate AST's purchasing of x86 chips from TI, and TI's tailoring
versions of x86 chips for use by AST.
ARTICLE VI
ACCOUNTING FOR ROYALTIES
Section 1. For purposes of payment and accounting to TI for royalties due
pursuant to Article V hereof, a "use," "lease," "sale" or "other disposition" of
LICENSED PRODUCTS shall be deemed to have been effected in accordance with the
following:
(a) A "sale" of any LICENSED PRODUCT shall be deemed to have been effected
as of the date of shipment of any such LICENSED PRODUCT by AST, any of its
SUBSIDIARIES, or by a third party on an OEM basis (hereinafter "OEM
Manufacturer") for the account of AST or any of AST's SUBSIDIARIES to a
distributor, to a warehouse, to a retail outlet, to a customer or to a
user, or the date of dispatch by any of them of a bill or invoice to such
distributor, warehouse, retail outlet, customer or user, whichever shall
first occur.
(b) A "lease" of any LICENSED PRODUCT shall be deemed to have been effected
as of the date of shipment of any LICENSED PRODUCTS by AST, by any of its
SUBSIDIARIES, or by an OEM Manufacturer for the account of AST or any of
its SUBSIDIARIES to a lessee thereof, or the date of dispatch by any of
them of a bill or invoice to any such lessee, whichever shall first occur.
(c) A "use" or "other disposition" of LICENSED PRODUCTS shall be deemed to
have been effected as of the date upon which such use or other disposition
by AST, by any of its SUBSIDIARIES, or by an OEM Manufacturer, shall first
occur. For administrative convenience, royalties shall not be accountable
for LICENSED PRODUCTS used internally by AST and its SUBSIDIARIES.
Section 2. For purposes of payment and accounting to TI of royalties
due pursuant to Article V, Section 1A hereof, relating to ROYALTY OPTION I for
the administrative convenience of the parties, royalties shall be payable and
accountable as follows, unless such royalties are not payable by AST under
Section 9 of this Article VI:
(a) For those LICENSED PRODUCTS made in the United States, Japan or the
Federal Republic of Germany by AST, any of AST's SUBSIDIARIES, or by an OEM
Manufacturer for the account of AST or by any of AST's SUBSIDIARIES, the
royalties due shall be accountable and payable to TI at the first instance
of shipment by AST, its SUBSIDIARY, or an OEM Manufacturer to a
distributor, warehouse, retail outlet, customer, user or a non-SUBSIDIARY
referred to in Section 8 of this Article VI; and
(b) For those LICENSED PRODUCTS made in countries other than the United
States of America, Japan or the Federal Republic of Germany by AST, by any
of AST's SUBSIDIARIES or by an OEM Manufacturer for the account of AST or
by any of AST's SUBSIDIARIES (hereinafter "Foreign Manufactured Products"),
in respect of which AST or any of AST's SUBSIDIARIES knows or has reason to
know that such LICENSED PRODUCTS are intended for use, lease, sale or other
disposition in the United States of America, Japan or the Federal Republic
of Germany, the royalties due shall be accountable and payable to TI at the
first instance of shipment by AST, such SUBSIDIARY, or such OEM
Manufacturer to a distributor, warehouse, retail outlet, customer, user or
non-SUBSIDIARY referred to in Section 8 of this Article VI. The terms of
this paragraph notwithstanding, AST does not have an affirmative duty to
actively seek information concerning the use intended by non-SUBSIDIARIES
who purchase such Foreign Manufactured Products.
Section 3. It is expressly understood and agreed by the parties hereto
that all computations relating to determination of the amounts of royalties due
and payable pursuant to this Agreement shall be made in accordance with
internationally recognized and generally accepted accounting principles as
reflected in the practice of certified independent public accountants of
international reputation. Upon the reasonable request of TI, and not more than
once in any calendar year, AST and its SUBSIDIARIES sublicensed pursuant to
Article IV hereof shall permit access to their books and records by an
independent accounting firm selected by TI and approved by AST, which approval
shall not be unreasonably withheld, for the sole purpose of verifying and
reporting to TI regarding the calculation of royalties payable hereunder.
Information relating to sales prices, customers and other confidential business
information shall not be made available to TI by such independent accounting
firm. Any such audit shall be arranged by advanced notice and shall be conducted
during normal business hours.
Section 4. All royalties to be paid in respect of the licenses and
sublicenses granted pursuant to ROYALTY OPTION I set forth in Article V, Section
1A of this Agreement, shall be paid in respect of each fiscal semiannual period
commencing respectively with the EFFECTIVE DATE of this Agreement and with each
subsequent January 1 or July 1 as the case may be during the term of this
Agreement. Except for the payments set forth in Article V, Section 1A(d) and
(e) and in Article V, Section 1B(b) and (c), all payments of royalties pursuant
to this Agreement, shall be made within sixty (60) days after December 31 and
June 28 of each fiscal year during the term of this Agreement.
Section 5. Royalty payments due in accordance with ROYALTY OPTION II
set forth in Article V, Section 1B will be due on or before the first, second,
third, fourth, fifth and sixth anniversaries from the EFFECTIVE DATE.
Section 6. Payments under this Agreement shall be made by telegraphic
transfer to TI's bank account at NationsBank of Texas, Account No.: 125 210
4040, Dallas, Texas. In the alternative, payments may be made by check mailed
and payable to:
Texas Instruments Incorporated
P. 0. Box 65311
Dallas, Texas 75265
Attn: Corporate Control, MIS 3991
identified as payment of royalties pursuant to the terms of this Agreement, with
a copy of the cover letter to TI's Manager of Patent Licensing at the address
given in Article IX, Section 8, and transmitted to TI by first class mail by the
required time period.
In the event of a failure of AST to make any required payment on or before
the required date, a supplemental royalty equal to one percent (1%) of the
amount otherwise due shall be paid by AST for each month or portion thereof that
the payment is late by more than ten (10) days, however, TI agrees to conduct
good faith discussions with AST, as to whether to eliminate or reduce such one
percent (1%) supplemental royalty in any case where said failure to pay on time
was unintentional and not due to negligence. All sums payable to TI pursuant to
this Agreement, if expressed in any currency other than United States dollars,
shall be converted at the prevailing rate of exchange between such currency and
United States dollars first quoted in either the Tokyo or the New York Foreign
Exchange Market on the day of remittance of the sum in question.
In the event of a failure of AST to timely make any required payment under
ROYALTY OPTION II of Article V, Section 1B, and TI is required to initiate
litigation to collect such payments, AST agrees to pay TI's reasonable attorneys
fees if TI is the prevailing party in such litigation.
Section 7. On or before the date on which each royalty payment is due
and payable pursuant to this Agreement, AST shall furnish to TI a written
statement in the English language, certified by an authorized representative of
AST, concerning the computation of royalties payable to TI, in respect of the
preceding fiscal period concerned as provided for in this Agreement. Each such
certified statement shall contain information in sufficient detail to permit the
accuracy of each royalty payment due and payable pursuant to this Agreement to
be readily determined. For royalty payments due under ROYALTY OPTION I pursuant
to Article V, Section 1A, the certified statement shall set forth the following:
(a) PERSONAL COMPUTER(S). For each country of applicable royalty, the
total number of units for which royalties are due and payable hereunder,
and for those PERSONAL COMPUTERS for which the royalty due is calculated
using a percentage of the MFP, the average MFP and the number of units to
which such MFP applies;
(b) PERIPHERAL DEVICE(S). For each country of applicable royalty, the total
number of units for which royalties are due and payable hereunder, broken
out by part number or product description, and for those PERIPHERAL DEVICES
for which the royalty due is calculated using the MFP, the average MFP and
the number of units to which such MFP applies;
(c) GRAPHIC DISPLAY SYSTEM(S). The total number of units for which
royalties are due and payable hereunder and the applicable royalty. For
those GRAPHIC DISPLAY SYSTEM(S) for which the royalty due is calculated
based upon incorporation into a PERSONAL COMPUTER, the applicable royalty;
(d) The amount of royalties due and payable by AST pursuant to this
Agreement in respect of the period for which such certified statement is
rendered; and
(e) The details to support the calculation of any Royalty Adjustment.
Further, anything to the contrary in this Section 7 notwithstanding, AST
shall furnish whatever additional information that the independent accounting
firm referred to in Section 3 of Article VI may reasonably prescribe to enable
such independent accounting firm to verify the calculation of royalties due
pursuant to this Agreement. No information about MFP need be disclosed with
respect to any royalty calculation which does not use MFP.
Section 8. The certified statement referred to in Section 7 of this
Article VI shall include the total number of LICENSED PRODUCTS reportable
pursuant to Section 2 of this Article VI, including any LICENSED PRODUCTS AST or
any of its SUBSIDIARIES may make on a private label basis for a NON-SUBSIDIARY,
for sale under such NON-SUBSIDIARY's trademark.
Section 9. In the event AST has purchased LICENSED PRODUCTS from a NON-
SUBSIDIARY, and said NON-SUBSIDIARY (or one or more other NON-SUBSIDIARIES from
which said NON-SUBSIDIARY has directly or indirectly acquired such LICENSED
PRODUCTS) has a license under TI PATENTS to make LICENSED PRODUCTS and has
satisfied any royalty obligation that may exist under such license, if any such
obligation exists, directly to TI for said purchased LICENSED PRODUCTS, then a
separate royalty shall not be required from AST. At the request of AST, TI
shall advise AST as to whether or not a particular company is licensed by TI.
ARTICLE VII
TERM & TERMINATION
Section 1. Except as otherwise provided for in this Article VII, this
Agreement and the licenses granted pursuant hereto shall remain in force from
the EFFECTIVE DATE to December 31, 2000. At any time after December 31, 1999,
either party may request negotiations to consider the possible renewal of this
Agreement and in such event, both parties agree to enter into good faith
negotiations to determine whether a mutually acceptable renewal can be agreed
upon prior to expiration of the Agreement.
Section 2. In the event of a failure by either party to make any
payment in full and in a prompt manner as elsewhere provided in this Agreement,
or in the event of any other material breach of this Agreement by either party
hereto, if such failure or other material breach is not corrected within forty-
five (45) days after written notice complaining thereof is given to the party
who is in breach as aforesaid, this Agreement may be terminated forthwith by
written notice to that effect from the complaining party, provided that such
termination shall not affect any royalty obligation (including without
limitation the supplemental royalty referred to in Section 6 of Article VI)
arising prior to the date the notice of such termination is dispatched.
Section 3. Except as otherwise provided below in Section 4 of this
Article VII, all licenses and sublicenses granted pursuant to this Agreement in
respect of TI PATENTS, TI-PARTICIPATION PATENTS, AST PATENTS, and AST-
PARTICIPATION PATENTS shall cease forthwith as of the date of expiration or
termination of this Agreement.
Section 4. In the event of termination of this Agreement by one party
pursuant to Section 2 of this Article VII, the licenses granted to said one
party and the licenses granted to SUBSIDIARIES of said one party pursuant to
Article IV hereof shall survive such termination of this Agreement until
December 31, 2000.
Section 5. At any time during the term of this Agreement, should any
government or agency order the parties hereto or any of them requiring directly
or indirectly, formally or informally, alteration or modification of any term or
condition of this Agreement or of the performance of the parties hereunder in a
manner which is material and adverse to one party, then, if said one party makes
written request to the other party within sixty (60) days from said order of the
government or government agency, the parties hereto shall enter into good faith
negotiations with the objective of restructuring the relationship between the
parties hereto in a manner such that the adverse effect of said alteration or
modification of this Agreement will be minimized. If the parties hereto cannot
reach an acceptable licensing arrangement within six (6) months from the date of
dispatch of said written request, or within such longer period of time as
mutually agreed upon, either party shall have the right to terminate this
Agreement forthwith in its entirety by giving written notice to that effect to
the other party. In the event this Agreement is terminated pursuant to this
Section 5, all rights and licenses under TI PATENTS, TI-PARTICIPATION PATENTS,
AST PATENTS and AST-PARTICIPATION PATENTS shall cease and terminate. It is
expressly understood and agreed by the parties hereto that in the event of such
termination, neither party will incur any liability to the other party for any
alleged default or breach in the performance of this Agreement arising from the
exercise of the right herein provided to terminate this Agreement.
Section 6. The second, third, fourth, fifth and sixth license fees
shall be payable in accordance with the provisions of Article V, Section 1A(e)
or Section 1B(c), as the case may be, irrespective of termination of this
Agreement for any reason.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 1. Each of the parties hereto represents and warrants that it
has the right to grant the other the licenses granted hereunder, including but
not limited to the right to grant licenses under patents owned by its
SUBSIDIARIES to the extent such licenses are granted herein.
Section 2. It is recognized that TI, AST, or their SUBSIDIARIES may
have contracted or may hereafter contract with a third party who is not a party
to this Agreement, such as a national or other sovereign government,
governmental agency or intergovernmental authority, to do work solely financed
by such third party and to assign to such third party its/their right to grant,
or may now or hereafter be restrained by such third party from granting,
licenses (other than by a parent to its SUBSIDIARIES or by a SUBSIDIARY to its
parent or a SUBSIDIARY of the parent) under patents for inventions arising out
of such work. The inability, for such a reason, of any of the parties to this
Agreement, or any one of their SUBSIDIARIES, to grant the licenses herein agreed
to be granted shall not be considered a breach of this Agreement (but may result
in application of various provisions in Article III hereof).
Section 3. Each of the parties hereto covenants not to sue or take any
legal action for itself or any of its SUBSIDIARIES against the other party or
any of its SUBSIDIARIES with regard to any TI-PARTICIPATION PATENTS or AST-
PARTICIPATION PATENTS, or any of the patents described in Article IX, Section 2.
Section 4. Nothing contained in this Agreement shall be construed as:
(a) a warranty or representation by any of the parties to this Agreement as
to the validity or scope of any patent or utility model; or
(b) a warranty or representation that any manufacture, sale, lease, import,
use or other disposition of LICENSED PRODUCTS hereunder will be free from
infringement of patents or utility models of third parties; or
(c) an agreement to bring or prosecute actions or suits against third
parties for infringement or conferring any right to bring or prosecute
actions or suits against third parties for infringement; or
(d) conferring any right to use in advertising, publicity, or otherwise,
any trademark, trade name or names, or any contraction, abbreviation or
simulation thereof, of either party; or
(e) an obligation to furnish any technical information or knowhow; or
(f) conferring by implication, estoppel or otherwise upon any party
licensed hereto, any license or other right under design patents, or
copyrights, including computer software that may be embodied in a LICENSED
PRODUCT.
Section 5. This Agreement and the licenses granted herein shall inure
to the benefit of the parties hereto, and, insofar as is expressly provided for
herein, to SUBSIDIARIES of the parties hereto. Neither party hereto nor any
SUBSIDIARY shall assign or transfer any of its rights, privileges or obligations
hereunder without the prior written consent of the other party hereto. Nor shall
an assignment or transfer of the Agreement and the licenses granted therein be
effected by operation of law, such as for example, by merger, consolidation,
sale of the business or assets, or by acquisition of a majority of the voting
stock of AST by a third party, without the prior written consent of the other
party.
Section 6. Neither of the parties hereto nor any of their SUBSIDIARIES
shall be required by anything contained in this Agreement to file in any country
an application for patent on any invention, or to secure any patent, or once
having filed an application for patent or obtained a patent, to maintain the
patent application or patent in force.
Section 7. This Agreement is in the English language only, which
language shall be controlling in all respects, and all versions hereof in any
other language shall be for accommodation only and shall not be binding upon the
parties hereto. All communications to be made or given pursuant to this
Agreement shall be in the English language.
Section 8. All notices required or permitted to be given hereunder
shall be in writing and shall be valid and sufficient if dispatched by
registered or certified mail, postage prepaid, addressed as follows:
If to TI: Texas Instruments Incorporated
13500 North Central Expressway
Post Office Box 655474
Mail Station 229
Dallas, Texas 75265
U.S.A.
Attention: Manager, Patent Licensing
If to AST: AST Research, Inc.
16215 Alton Parkway
Irvine, California 92718
U.S.A.
Attention: General Counsel
Either party may change its address by a notice given to the other party in
the manner set forth above. Notices given as herein provided shall be considered
to have been given fourteen (14) days after the mailing thereof.
Section 9. No oral explanation or oral information by either party
hereto shall alter the meaning or interpretation of this Agreement. No
modification, alteration, addition or change in the terms hereof shall be
binding on either party unless reduced to writing and duly executed by the
parties.
Section 10. This Agreement and matters connected with the performance
thereof shall be construed, interpreted, applied and governed in all respects in
accordance with the laws of the State of Texas, United States of America.
Section 11. The parties hereto shall keep the terms of this Agreement
confidential and shall not now or hereafter divulge the terms of this Agreement
or any part thereof to any third party except:
(a) with the prior written consent of the other party; or
(b) to any governmental body having jurisdiction to call therefor; or
(c) as otherwise may be required by law; or
(d) to legal counsel representing either party; or
(e) independent accountants or consultants where there is a business need
to know the terms of this Agreement.
Prior notification of any disclosure pursuant to (b) and (c) above shall be
provided by the disclosing party to the nondisclosing party. Further, all
reasonable efforts to preserve the confidentiality of the terms of this
Agreement shall be expended by the disclosing party, including a protective
order to the extent possible. The above notwithstanding, TI shall have the right
to disclose, pursuant to a written non-disclosure agreement, in confidence to
prospective licensees, who agree to allow the same type of disclosure to AST in
the event such prospective licensee enters into a license with TI, the license
that TI and AST have reached. TI further agrees to show AST, upon AST's written
request from time to time, pursuant to a written non-disclosure agreement, all
license agreements reached with any such licensee. Either party may publicly
disclose that AST has agreed to this royalty bearing patent cross license
through the year 2000, and additional information as agreed to in any joint
TI/AST press release.
Section 12. Should any clause, sentence, or paragraph of this Agreement
judicially be declared to be invalid, unenforceable, or void, such decision
shall not have the effect of invalidating or voiding the remainder of this
Agreement, and the parties hereto hereby agree that the part or parts of this
Agreement so held to be invalid, unenforceable, or void shall be deemed to have
been stricken, and the remainder shall have the same force and effect as if such
part or parts had never been included herein.
Section 13. This Agreement sets forth the entire agreement and
understanding between the parties as to the subject matter of this Agreement and
merges all prior discussions between them, and neither of the parties shall be
bound by any modification of this Agreement, other than as expressly provided in
this Agreement or as duly set forth on or subsequent to the date hereof in
writing and signed by a duly authorized representative of the party to be bound
thereby. This Agreement entirely extinguishes and releases all rights, claims,
duties and obligations of any kind which TI and AST have with respect to each
other under the Settlement Agreement and Release dated January 8, 1993 between
Tandy Corporation, Grid Systems Corporation, A&A International and Texas
Instruments Incorporated.
Section 14. This License Agreement may be executed in duplicate
originals, both of which shall be considered originals.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Agreement, on the date below indicated.
TEXAS INSTRUMENTS INCORPORATED AST RESEARCH, INC.
BY: Richard J. Agnich BY: Safi Qureshey
TITLE: Senior Vice President, TITLE: Chairman & CEO
Secretary and General Counsel
DATE: Feb 6, 1995 DATE: 2-7-95
EXHIBIT B
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA, SOUTHERN DIVISION
AST RESEARCH, INC., Case No. SACV-94-001-LTL
(RWRx)
Plaintiff,
vs. ORDER OF DISMISSAL
TEXAS INSTRUMENTS
INCORPORATED,
Defendant.
AND RELATED COUNTERCLAIMS
Pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure, the
Court, after having reviewed and approved the February __, 1995 Settlement
Agreement between the parties to above-referenced action, hereby dismisses this
action, such dismissal being with prejudice as provided in the February __, 1995
Settlement Agreement between the parties. Each party to bear its own costs.
_____________________________________
United States District Judge
Approved:
Dated: ________________, 1995 ___________________________
John H. Sharer
GIBSON, DUNN & CRUTCHER
333 South Grand Avenue
Los Angeles, California 90071
Telephone (213) 229-7000
Facsimile (213) 229-7520
ATTORNEYS FOR PLAINTIFF
AST RESEARCH, INC.
Dated: ________________, 1995 ___________________________
Thomas R. Malcolm
Richard Grabowski
JONES, DAY, REAVIS & POGUE
2603 Main Street, Suite 900
Irvine, California 92714
Telephone (714) 851-3939
Facsimile (714) 553-7539
ATTORNEYS FOR DEFENDANT
TEXAS INSTRUMENTS INCORPORATED
EXHIBIT C
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION
TEXAS INSTRUMENTS Section
INCORPORATED, Section
Section
Plaintiff, Section
v. Section Civil Action No. 2-94CV147
Section
AST RESEARCH, INC., Section
Section
Defendant. Section
ORDER OF DISMISSAL
Pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure, the
Court, after having reviewed and approved the February __, 1995 Settlement
Agreement between the parties to above-referenced action, hereby dismisses this
action, such dismissal being with prejudice as provided in the February __, 1995
Settlement Agreement between the parties. Each party to bear its own costs.
_____________________________________
United States District Judge
Approved:
Dated: ________________, 1995 ___________________________
Carl Roth
LAW OFFICES OF CARL ROTH, p.c.
P.O. Drawer 876
111 West Austin
Marshall, Texas 75671
Telephone (903) 935-1665
Facsimile (903) 935-1797
ATTORNEYS FOR PLAINTIFF
TEXAS INSTRUMENTS INCORPORATED
Dated: ________________, 1995 ___________________________
Wayne M. Harding
ARNOLD, WHITE & DURKEE
750 Bering Drive, Suite 400
Houston, Texas 77057
Telephone (713) 787-1567
Facsimile (713) 789-2679
ATTORNEYS FOR DEFENDANT
AST RESEARCH, INC.
<PAGE>
EXHIBIT 11
AST RESEARCH, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
------------------- --------------------
April 1, April 2, April 1, April 2,
(In thousands, except per share amounts) 1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary earnings (loss) per share
- ---------------------------------
Shares used in computing primary
earnings (loss) per share:
Weighted average shares of
common stock outstanding 32,376 32,103 32,364 31,784
Effect of stock options treated as
equivalents under the treasury
stock method - 977 - 728
-------- ------ -------- ------
Weighted average common
and common equivalent
shares outstanding 32,376 33,080 32,364 32,512
-------- ------ -------- ------
Net income (loss) $(7,234) $13,214 $(69,437) $39,379
-------- ------- --------- -------
Earnings (loss) per share - primary $ (.22) $ .40 $ (2.15) $ 1.21
======= ======= ======== =======
- ---------------------------------------------------------------------------------------------------
Fully diluted earnings (loss) per share
- ---------------------------------------
Shares used in computing fully diluted
earnings (loss) per share:
Weighted average shares of
common stock outstanding 32,376 32,103 32,364 31,784
Effect of stock options treated as
equivalents under the treasury
stock method - 983 - 805
Shares assumed issued on conversion
of Liquid Yield Option Notes - 4,093 - 1,649
------- ------- -------- -------
Total fully diluted shares outstanding 32,376 37,179 32,364 34,238
------- ------- -------- -------
Net income (loss) - fully diluted earnings per share:
Net income (loss) - primary earnings per share $(7,234) $13,214 $(69,437) $39,379
Adjustment for interest on LYONs,
net of tax - 890 - 1,066
------- ------- -------- -------
Adjusted net income (loss) - fully diluted
earnings per share (7,234) 14,104 (69,437) 40,445
------- ------- -------- -------
Earnings (loss) per share - fully diluted $ (.22) $ .38 $ (2.15) $ 1.18
======= ======= ======== =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying Consolidated Balance Sheets and Consolidated Statements of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-01-1995
<PERIOD-END> APR-01-1995
<CASH> 67,464
<SECURITIES> 0
<RECEIVABLES> 482,930
<ALLOWANCES> 17,908
<INVENTORY> 354,702
<CURRENT-ASSETS> 936,649
<PP&E> 169,877
<DEPRECIATION> 66,751
<TOTAL-ASSETS> 1,106,768
<CURRENT-LIABILITIES> 569,325
<BONDS> 216,282
<COMMON> 324
0
0
<OTHER-SE> 314,596
<TOTAL-LIABILITY-AND-EQUITY> 1,106,768
<SALES> 1,805,781
<TOTAL-REVENUES> 1,805,781
<CGS> 1,615,222
<TOTAL-COSTS> 1,615,222
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,161
<INTEREST-EXPENSE> 11,561
<INCOME-PRETAX> (86,796)
<INCOME-TAX> (17,359)
<INCOME-CONTINUING> (69,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (69,437)
<EPS-PRIMARY> (2.15)
<EPS-DILUTED> (2.15)
</TABLE>
